FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 0-28652
AMERICAN DISPOSAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3858494
(State or other jurisdiction (I.R.S. Employer Identification)
of incorporation or organization)
745 McClintock Drive
Suite 230
Burr Ridge, Illinois 60521
(Address of principal executive offices) (Zip Code)
(630) 655-1105
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Aggregate market value of voting stock held by non-affiliates of
registrant as of March 25, 1998: $641,167,625
Number of shares of Common Stock outstanding as of March 25,
1998: 20,627,544
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement pursuant
to Regulation 14A, which statement will be filed not later than
120 days after the end of the fiscal year covered by this Report,
are incorporated by reference in Part III hereof.
AMERICAN DISPOSAL SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Item No. Page
PART I 3
1. BUSINESS 3
2. PROPERTIES 20
3. LEGAL PROCEEDINGS 20
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 20
PART II 21
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. 21
6. SELECTED CONSOLIDATED FINANCIAL DATA 22
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 23
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 28
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 28
PART III 29
PART IV 30
14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS
ON FORM 8-K 30
SIGNATURES 31
EXHIBIT INDEX 32
PART I
ITEM 1. BUSINESS
General
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
Company began its operations in the Midwest and currently has
operations in the following 12 states: Arkansas, Connecticut,
Illinois, Indiana, Kansas, Kentucky, Massachusetts, Missouri,
Ohio, Oklahoma, Pennsylvania and Rhode Island. The Company owns
nine solid waste landfills and owns, operates or has exclusive
contracts to receive waste from 20 transfer stations. The
Company's operations cover six primary operating regions and its
landfills and transfer stations are supported by 17 collection
divisions, which currently serve over 400,000 residential,
commercial and industrial customers. The Company has adopted an
acquisition-based growth strategy and intends to continue its
expansion, generally in its existing and proximate markets. Since
January 1993, the Company has acquired 70 solid waste businesses,
including eight solid waste landfills and 66 solid waste
collection companies.
The Company's operating program generally involves a
four-step process: (i) acquiring solid waste landfills in markets
that are within approximately 125 miles of significant
metropolitan centers; (ii) securing captive waste streams for its
landfills through the acquisition or development of transfer
stations serving those markets, through acquisitions of
collection companies and by entering into long-term contracts
directly with customers or collection companies; (iii) making
"tuck-in" acquisitions of collection companies to further
penetrate its target markets; and (iv) integrating these
businesses into the Company's operations to achieve operating
efficiencies and economies of scale. As part of its acquisition
program, the Company has, and in the future may, as specific
opportunities arise, evaluate and pursue acquisitions in the
solid waste collection and disposal industry that do not strictly
conform to the Company's four-step operating program.
The Company's operating strategy emphasizes the integration
of its solid waste collection and disposal operations and the
internalization of waste collected. One of the Company's goals
is to maximize the captive waste streams (which includes waste
from the Company's collection operations and third-party haulers
operating under long-term collection contracts) disposed of at
each of its landfills. During the year ended December 31, 1997,
the Company's captive waste constituted an average of
approximately 73% of the solid waste disposed of at Company-owned
landfills. In addition, approximately 81% of the total tonnage
collected by the Company during such period was disposed of at
Company-owned landfills. The Company plans to continue to pursue
its acquisition-based growth strategy to maximize the
internalization of waste collected and expand its presence in its
existing and proximate markets.
Recent Developments
Since the Company's offering of Common Stock consummated in
October 1997 (the "October Offering"), the Company has expanded
and strengthened its market presence in its six operating regions
through the acquisition of 15 solid waste businesses, which
collectively included one landfill, 15 collection companies,
three transfer stations and a contract to operate a fourth
transfer station.
In the New England Region, which the Company entered in
September 1996, the Company continued to expand its presence
through five "tuck-in" acquisitions of collection operations. In
the Illinois Region, the Company acquired selected assets from
John Sexton Contractors, Inc. (the "Sexton Acquisition"). The
Sexton Acquisition added a collection operation, two transfer
stations and one landfill to the Company's operations in the
Illinois Region. In addition, the Company has completed two
collection company acquisitions in the Illinois Region, one as a
"tuck-in" to the Sexton Acquisition and one as a "tuck-in" to the
Company's existing Chicago operations.
In January 1998, the Company completed the acquisition of
the R.C. Miller companies (the "R.C. Miller Acquisition"), which
provide solid waste collection, transfer and recycling services
in Canton, Ohio and surrounding counties. The R.C. Miller
Acquisition further expands the Company's presence in the Ohio
Region and provides a geographical link between the Company's
Ohio and Western Pennsylvania Regions. Subsequent to the R.C.
Miller Acquisition, the Company completed three "tuck-in"
acquisitions in the Ohio Region.
In October 1997, the Company repaid its $60 million term
loan with a portion of the proceeds from the October Offering and
currently has a $140 million revolving credit facility (the
"Credit Facility"). At March 1, 1998, the outstanding debt under
the Credit Facility was $34.4 million, up from $19.7 million at
December 31, 1997, primarily as a result of recent acquisitions.
Unless otherwise noted, all descriptions of the Company's
business in this Annual Report on Form 10-K are as of March 15,
1998.
Forward Looking Statements
Certain information contained in this Annual Report on Form
10-K, including, without limitation, information appearing under
Item 1, "Business," and Item 7, "Management's 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 Item 1, "Business
- - Risk Factors," together with other factors that appear with the
forward-looking statements, or in the Company's other Securities
and Exchange Commission filings, 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 Annual
Report on Form 10-K.
Industry Background
In the United States, landfilling is at present the most
common means of disposing of non-hazardous municipal solid waste
("MSW"), which consists primarily of refuse and garbage from
households and commercial establishments. The Company believes
that in recent years there has been a trend towards consolidation
of landfill ownership and that a similar trend is emerging in the
solid waste collection industry, which historically has been
characterized by numerous small companies. The Company believes
that these trends will continue and are the result of several
factors: (i) environmental regulations, including Subtitle D
Regulations and related state regulations and programs have
significantly increased the amount of capital and the technical
expertise required in order to own and operate a landfill; (ii) a
number of municipalities are electing to privatize the operations
of their municipal landfills as an alternative to funding the
changes to these landfills that are required in order to comply
with the Subtitle D Regulations and related state regulations and
programs; (iii) as a result of heightened sensitivity to
environmental concerns by many communities, it is becoming
increasingly desirable in many markets for collection companies
to provide waste reuse and reduction programs, such as recycling
and composting, in addition to conventional waste collection
services. Due in part to these trends, the Company believes that
significant opportunities exist to expand and further integrate
its operations in each of its existing markets, as well as in new
markets that meet the Company's acquisition criteria.
Strategy
The Company's objective is to build a large, profitable,
fully-integrated solid waste services company with an established
market presence in secondary markets. The Company's strategy for
achieving this objective is to establish a market presence
generally anchored by its landfills; to increase volume in its
markets through "tuck-in" acquisitions of collection companies
and marketing to new customers; to provide a high level of
customer service; to implement selective price increases; and to
continue to implement strict cost controls and reduce corporate
overhead as a percentage of revenues. The Company believes that
this strategy of building an integrated entity should provide it
with competitive cost advantages in its targeted regional
markets. The Company's ability to implement its strategy is
enhanced by the experience of its senior managers and their
knowledge of the solid waste industry. There can be no
assurance, however, that the Company will be successful in the
execution of its strategy.
The Company targets acquisitions in geographic areas
characterized by one or more of the following criteria: (i) the
availability of permitted and underutilized landfill capacity
located outside of, but within 125 miles of, a significant
metropolitan center; (ii) the absence of a dominant competitor in
the area which would preclude the Company from implementing its
business strategy; (iii) anticipated economic and population
growth; and (iv) near- or medium- term scheduled closures of
competing landfills.
The Company has adopted the following four-step operating
program in executing its business strategy:
1. Landfill Acquisitions. Once the Company
identifies an area that qualifies under its target
market criteria, the Company seeks to establish a
market presence, generally by acquiring one or more
landfills in that area that can be accessed
economically from the metropolitan center or from the
regional market area, either through direct hauling or
through strategically located transfer stations. In
evaluating a landfill acquisition, the Company
considers, among others, the following factors: (i)
current disposal costs together with transportation
costs to the targeted landfill relative to
transportation and disposal costs of potential
competitors; (ii) expected landfill life; (iii)
opportunities for landfill expansion; and (iv)
projected short-term ability to secure a minimum of 500
tons per day of disposal volume.
2. Secure Captive Waste Volumes. After the
Company has acquired a landfill, it seeks to build a
market presence and increase the utilization of the
landfill by securing captive waste streams, which
includes developing and acquiring transfer stations,
entering into waste collection contracts and acquiring
waste collection companies. Generally, the Company
pursues the acquisition of collection companies that:
(i) have well-established residential or commercial
collection routes and accounts; (ii) own and operate
transfer stations; or (iii) do not own landfills and
are vulnerable to volatile disposal pricing, which the
Company believes it can minimize through landfill
ownership.
3. "Tuck-in" Acquisitions. The Company acquires
service rights, obligations, machinery and equipment in
"tuck-in" acquisitions of collection companies to: (i)
increase the waste stream directed to its landfills;
(ii) maximize its market presence; and (iii) take
advantage of economies of scale which should increase
earnings and return on capital.
4. Integration and Expansion of Operations.
Immediately upon closing any acquisition, the Company
integrates the acquired company into its operations by:
(i) instituting strict cost control procedures; (ii)
consolidating and rationalizing collection routes and
pricing; (iii) implementing Company operating policies
and procedures (including programs designed to improve
employee productivity and equipment utilization); (iv)
establishing a sales and marketing force; and (v)
converting the acquired company to the Company's
accounting, data processing and management reporting
systems. During the transition period following
acquisitions, the Company retains the management of
certain companies it acquires in order to benefit from
management's local operating knowledge and the goodwill
it has developed. Additionally, on a selective basis,
the Company seeks to expand the capacity of its
landfills to accommodate increasing waste volumes and
improve profitability.
In addition, the Company may, as specific opportunities
arise, evaluate and pursue acquisitions in the solid waste
collection and disposal industry that do not strictly conform to
the Company's four-step operating program.
Acquisition Program
The Company has assembled an experienced acquisition team
comprised of operations, environmental, engineering, legal,
financial and accounting personnel, each engaged in identifying
and evaluating acquisition opportunities in order to execute its
operating program. The Company has established pre-acquisition
review procedures for acquisition candidates, including legal,
financial, engineering, operational and environmental reviews.
The environmental review includes, where appropriate,
investigation of geologic, hydrogeologic and other site
conditions, past and current operations (including types of waste
deposited), design and construction records, permits, regulatory
compliance history, regulatory agency records and available soil
sampling, groundwater and air monitoring results. The Company
uses regional managers to assist in the acquisition process by
identifying suitable candidates and performing pre-acquisition
review and evaluation tasks.
In considering whether to proceed with an acquisition, in
addition to determining whether the candidate meets the Company's
criteria described above, the Company evaluates a number of
factors, including: (i) the acquisition candidate's historical
and projected financial results; (ii) any expected synergies with
one or more of the Company's existing operations; (iii) the
proposed purchase price and the Company's expected resultant
internal rate of return on investment and the expected impact on
the Company's earnings per share; (iv) whether the candidate will
enhance the Company's ability to effect other acquisitions in the
vicinity; (v) the candidate's customer service reputation and
relationships with the local communities; (vi) the composition
and size of the candidate's customer base; (vii) the types of
services provided by the candidate; and (viii) whether the
candidate has definable and controllable liabilities, including
potential environmental liabilities. The Company believes that
significant opportunities exist to acquire new landfills and to
develop its existing markets, and reviews acquisition
opportunities on an ongoing basis.
Completed Acquisitions
The Company has completed 70 acquisitions of solid waste
companies in 12 states since January 1993, which are summarized
in the table below.
Company Business Principal Location Date Acquired
MISSOURI REGION:
Wheatland Landfill Scammon, KS January 1993
Pittsburg
Sanitation Collection Pittsburg, KS January 1993
Ozark
Sanitation Collection Carthage, MO January 1993
Trashmaster Collection Joplin, MO January 1993
A-1 Trash
Service Collection Verona/Aurora, MO April 1993
Tate's
Transfer Transfer Verona/Aurora, MO April 1993
Station
Renfro
Sanitation Collection Branson, MO June 1993
B&B Trash Collection Pittsburg, KS July 1993
B&B Refuse Collection Neosho, MO December 1993
Apex Sanita- Collection Grove, OK and
tion Green Forest, AR December 1993
Epps
Sanitation Collection Branson, MO December 1993
Cummings
Sanitation Collection Nixa, MO May 1994
Light Hauling Collection Branson, MO August 1994
Poole's
Sanitation Collection Bentonville, AR August 1994
Southwest
Waste Collection Springfield, MO July 1996
Nesvold
Sanitation Collection Seneca, MO December 1996
Sparky's Waste
Control Collection Springfield, MO January 1997
Cupp Disposal Collection Joplin, MO June 1997
Sunset Landfill
Disposal/ Collection Coffeyville, KS August 1997
Resource and
Recovery
L. B. Smith Collection Springfield, MO August 1997
Supreme
Sanitation Collection Pittsburg, KS August 1997
Packman Collection Coffeyville, KS January 1998
Freeman Waste
Management Collection Eureka Springs, AR February 1998
ILLINOIS REGION:
Livingston Landfill Pontiac, IL November 1995
Barbara
Companies Landfill, Chicago, IL September 1997
Collection, Morris, IL
MRF and Transfer
Station
Sexton
Companies Landfill, Bloomington, IL
Collection Chicago, IL November 1997
and Transfer
Stations
Harrell &
Daughters Collection Bloomington, IL December 1997
Yellow Recycling
& Disposal Collection Lemont, IL December 1997
SOUTHWESTERN INDIANA REGION:
WMX-Evansville Landfill, Evansville, IN April 1997
Collection
and Transfer
Station
Action Trash &
Disposal Collection Vincennes, IN July 1997
T&G Container Collection and
Transfer
Station Washington, IN July 1997
Mother Earth Collection, Louisville, KY August 1997
Beneficial
Reuse and
Transfer Station
Earth First of
Kentuckiana Collection New Albany, IN January 1998
OHIO REGION:
Wyandot Landfill Upper Sandusky, OH August 1995
Environmental
Transportation
and Management Collection Findlay, OH May 1996
R&R Waste
Disposal Collection Findlay, OH May 1996
Jerry's
Rubbish Collection Findlay, OH June 1996
Seneca
Disposal Collection Tiffin, OH June 1996
Ross Bros.
Waste &
Collection
and
Recycling Transfer
Station Mt. Vernon, OH September 1996
D&L Hauling Collection Findlay, OH October 1996
Rutledge Trucking Collection Delaware, OH November 1996
Morrow Sanitary
Company Collection Mt. Gilead, OH November 1996
Bowers-Phase II Collection
and Transfer
Station Vickery, OH December 1996
Cargo Services Collection Mt. Gilead, OH December 1996
Rumpke Waste
(routes) Collection Fostoria, OH December 1996
Christiansen's Collection Sandusky, OH May 1997
D&R Refuse Collection Kenton, OH July 1997
Geyer Sanitation Collection Galion, OH July 1997
Didions' Garbage
& Refuse Collection Bellevue, OH January 1998
R.C. Miller Collection Canton, OH January 1998
Enterprises and Transfer
Station
McFarland Disposal Collection Ravenna, OH February 1998
Owens Rubbish
Service Collection Akron, OH February 1998
WESTERN PENNSYLVANIA REGION:
Clarion Landfill and
Collection Leeper, PA June 1995
Mauthe Sanitation Collection Strattan- March 1996
ville, PA
Allied Waste Systems Collection Youngstown, OH February 1997
Horodyski Collection Warren, OH April 1997
Township Garbage Collection Warren, OH July 1997
NEW ENGLAND REGION:
T&J Trucking Collection Johnston, RI September 1996
American Disposal
Services/N.E.E.D Collection Johnston, RI September 1996
A-1 Container Collection Rehoboth, MA January 1997
BFI-Derby District Collection Seymour, CT May 1997
and Transfer
Station
Liberty Disposal Collection Providence, RI May 1997
A. Macera Collection Johnston, RI August 1997
Macera Bros Collection Cranston, RI August 1997
and Transfer
Station
R.D. Compactor Collection Providence, RI September 1997
Wasteline
Rubbish Disposal Collection Johnston, RI October 1997
Bonollo Rubbish Collection Wrentham, MA November 1997
One Way Waste
Systems Collection N. Attleboro, December 1997
MA
South County
Companies Collection N. Kingston, RI January 1998
and Transfer
Station
Page Hauling Collection Warwick, RI February 1998
Missouri Region. The Company established a market presence
in the Missouri Region in January 1993 with the acquisition of
its Wheatland landfill. Since purchasing the Wheatland landfill,
the Company has acquired one transfer station and independently
developed three transfer stations. The Company also has
exclusive contracts to accept waste from two other transfer
stations. Additionally, the Company acquired 21 collection
companies, including the three operations purchased
simultaneously with the Wheatland landfill. The collection
operations and transfer stations have been consolidated into
three divisions. The Company has integrated acquired companies
by consolidating and rationalizing routes and pricing, reducing
overhead through consolidating an acquired company's operations,
implementing the Company's cost controls and operating
procedures, converting acquired companies to the Company's
management reporting systems and implementing a sales and
marketing team. Since the acquisition of its Wheatland landfill,
the Company has increased the waste volume at its landfill by
approximately 1,000 tons per day. Since the October Offering,
the Company has acquired two collection companies and developed
one transfer station within the region. Such activity has
expanded the service area of the Company's operations in the
Missouri Region.
Illinois Region. The Company established a market presence
in north-central Illinois in November 1995 with the acquisition
of its Livingston landfill, which is located approximately 90
miles from downtown Chicago. The acquisition of the Livingston
landfill was particularly attractive to the Company's management
because of the expected closing of two competing landfills that
accepted an aggregate of approximately 15,000 tons per day and
the management team's experience with the Chicago market. Since
the acquisition of the Livingston landfill, one of the competing
landfills in the Chicago metropolitan area has closed and the
other is expected to close in 1998. Since the acquisition of the
Livingston landfill, the Company has increased the waste volume
at this landfill by approximately 4,000 tons per day through
intensified sales and marketing efforts. Approximately 71% of
the waste volume at the Livingston landfill is captive waste.
Since the October Offering, the Company has acquired three
collection operations, two transfer stations and a landfill in
the Illinois Region.
Southwestern Indiana Region. In April 1997, the Company
acquired the Blackfoot landfill, two collection companies, an
exclusive transfer station contract and a permit to develop a new
transfer station, all located in the southwestern Indiana Region
(which includes western Kentucky). These acquisitions provided
the Company with the opportunity to enter the southwestern
Indiana Region and to secure a significant market share position
in that region through the acquisition of a single, fully
integrated solid waste management operation. Since the October
Offering, the Company completed the acquisition of one collection
company within the Southwestern Indiana Region.
Ohio Region. The Company established a market presence in
north-central Ohio in August 1995 with the acquisition of its
Wyandot landfill, which is located within approximately 125 miles
of Cleveland, Ohio and within approximately 75 miles of Toledo
and Columbus, Ohio. The Company has acquired 18 collection
companies and has acquired, developed or secured exclusive
contracts with five transfer stations in the Ohio Region. Since
the acquisition of the Wyandot landfill, the Company has
increased the waste volume at this landfill by approximately 300
tons per day, primarily through the acquisition of collection
companies, new operating contracts with two transfer stations and
implementation of a new sales focus. To further expand its
operations, the Company is seeking to increase capacity at the
Wyandot landfill. In January 1998, the Company completed the
R.C. Miller Acquisition, which provides the Company with solid
waste collection, transfer and recycling services in Canton, Ohio
and the surrounding counties. In connection with the R.C. Miller
Acquisition, the Company acquired a construction and demolition
landfill, which the Company is in the process of closing. The
R.C. Miller Acquisition expands the Company's presence in the
Ohio Region and provides a geographical link between the
Company's Ohio and Western Pennsylvania Regions. Furthermore,
since the October Offering, the Company has acquired three
additional collection companies in the region.
Western Pennsylvania Region. The Company entered the
western Pennsylvania Region in June 1995 with the acquisition of
its Clarion landfill and an affiliated collection company. The
Clarion landfill is located within 80 miles of both Pittsburgh
and Erie, Pennsylvania. Since the acquisition of the Clarion
landfill, the Company has increased volumes to this landfill by
approximately 300 tons per day to the maximum daily limit,
primarily through the acquisition of collection companies.
New England Region. The Company began operating in the New
England Region in September 1996 with the acquisition of two
collection companies in Rhode Island. The Company was attracted
to the New England Region because it was largely an
unconsolidated market where no existing operator had a
competitive advantage since the State of Rhode Island owns and
operates the sole landfill in the state. As a result, the
Company has focused its acquisition strategy on collection
companies. Since the October Offering, the Company has acquired
five collection companies and a contract to operate one transfer
station in the region. The Company believes that as a result of
its acquisitions in the region, it currently owns and operates
the largest collection operation in Rhode Island and has
strategically positioned itself to expand its market share in the
New England Region.
Operations
The Company's waste management operations include the
ownership and operation of solid waste landfills, transfer
stations and waste collection services. The Company believes
that all of its landfills and transfer stations comply with or
exceed the requirements mandated by the Subtitle D Regulations
and the applicable state regulations. The Company regularly
monitors incoming waste at its landfills to determine if such
wastes are in compliance with its permits.
Landfills
The Company currently owns nine landfill operations
permitted to receive solid waste. These landfill operations are
located in Illinois, Indiana, Ohio, Pennsylvania, Kansas and
Oklahoma.
Each of the Company's landfill operations is located on land
owned by the Company. The permitted waste streams at each of
these landfills include both MSW and certain special waste (the
type of special waste varying from landfill to landfill). During
the year ended December 31, 1997, the Company's captive waste
(including the Company's collection operations and third party
haulers operating under long-term contracts) constituted an
average of approximately 73% of the solid waste disposed of at
its landfills.
The table and landfill descriptions below provide certain
additional information, as of December 31, 1997 regarding the
nine landfills that the Company owns and operates.
Approximate
Unused Permitted
Approximate Acreage Airspace(2)
Landfills Location Total Permitted(1) (in millions of
cubic yards)
Wheatland Scammon, KS 68 55 0.9
Resource
Recovery Cherryvale, KS 282 37 2.2
Pittsburg
County McAlester, OK 76 30 1.4
Livingston Pontiac, IL 556 255 27.9
Environtech Morris, IL 326 78 5.9
McLean Bloomington, IL 55 33 1.0
Blackfoot Evansville, IN 379 166 17.8
Wyandot(3) Upper Sandusky, OH 344 87 5.7
Clarion Leeper, PA 606 60 3.9
Total 2,692 801 66.7
(1) Permitted acreage, as used in this table and in this Annual
Report on Form 10-K, represents the portion of the total
acreage on which disposal cells and supporting facilities
have been constructed (including any that may have been
filled or capped) or may be constructed based upon an
approval issued by the state generally authorizing the
development or siting of a landfill on the acreage. Prior
to actually constructing and/or operating each new disposal
cell on the permitted acreage, it may be necessary,
depending upon the regulatory requirements of the particular
state, for the Company to obtain additional authorizations
with respect to such cell. The portion of total acreage
that is not currently permitted acreage is not currently
available for waste disposal.
(2) Unused permitted airspace represents in cubic yards the
estimated portion of the permitted acreage that has not yet
been used for waste disposal but may be available for waste
disposal after certain approvals are secured and, in some
instances, new disposal cells are constructed. Prior to
actually constructing and/or operating a new disposal area
or cell on permitted acreage, it may be necessary, depending
upon the regulatory requirements of the particular state or
locality, for the Company to obtain additional
authorizations.
(3) The Company has applied for a permit to increase the
permitted acreage and permitted cubic airspace at the
Wyandot landfill by approximately 98 acres and approximately
19.1 million cubic yards, respectively.
The Company monitors the available permitted in-place
disposal capacity at each of its landfills on an ongoing basis
and evaluates whether to seek to expand this capacity. In making
this evaluation, the Company considers various factors, including
the volume of waste projected to be disposed of at the landfill,
the size of the unpermitted acreage included in the landfill, the
likelihood that the Company will be successful in obtaining the
necessary approvals and permits required for the expansion and
the costs that would be involved in developing the expanded
capacity. The Company also considers on an ongoing basis the
extent to which it is advisable, in light of changing market
conditions and/or regulatory requirements, to seek to expand or
change the permitted waste streams at a particular landfill or to
seek other permit modifications. Set forth below is certain
information concerning certain of the new permits, permit
modifications and approvals that the Company is currently seeking
to enable it to expand its disposal capacity. There can be no
assurance that the Company will succeed in obtaining any of such
permits, permit modifications or approvals, or that additional
permits, permit modifications or approvals will not be required
or that additional requirements will not be imposed by regulatory
agencies.
Wheatland. The Wheatland landfill consists of approximately
68 acres. Approximately 55 of the owned acres are permitted
acres and there are approximately 0.9 million cubic yards of
unused permitted airspace. The Company anticipates that after a
planned expansion, the Wheatland landfill would have
approximately four years of total site life at current average
disposal levels (approximately 2.5 years if such expansion is not
approved by the Cherokee County Board of Commissioners). In
addition, the Company has an option to purchase an undeveloped
parcel in Missouri, which has been granted a permit to develop a
landfill.
Resource Recovery. The Resource Recovery landfill consists
of approximately 282 acres, of which approximately 37 are
permitted. There are approximately 2.2 million cubic yards of
unused permitted airspace. The Resource Recovery landfill has
approximately 14 years of total site life at current average
disposal levels.
Pittsburg County. The Pittsburg County landfill consists of
approximately 76 acres, of which approximately 30 are permitted
acres. There are approximately 1.4 million cubic yards of unused
permitted airspace. The Pittsburg County landfill would have
approximately 40 years of total site life at current average
disposal levels.
Livingston. The Livingston landfill consists of
approximately 556 acres, of which approximately 255 are permitted
acres. There are approximately 27.9 million cubic yards of
unused permitted airspace. Previously, cells developed at the
Livingston landfill have been constructed with double composite
liner systems. In September 1996, the Livingston landfill
received a permit to construct cells using a single liner
composite system. The Livingston landfill has approximately 12.5
years of total site life at current average disposal levels,
which have increased substantially since its acquisition by the
Company.
Environtech. The Environtech landfill consists of
approximately 326 acres of which 78 acres have received local
siting approval and state permitting. There are approximately
5.9 million cubic yards of unused airspace. Environtech has
approximately 24 years of total site life at current average
disposal levels.
McLean. The McLean County landfill is located in
Bloomington, Illinois. The landfill consists of approximately 55
acres, of which approximately 33 acres are approved for waste
disposal. The current waste receipts are minimal due to this
landfill's proximity to the Livingston landfill.
Blackfoot. The Blackfoot landfill in Evansville, Indiana
consists of approximately 379 acres, of which approximately 166
are permitted acres. The site has available capacity of
approximately 17.8 million cubic yards of airspace. This
includes 0.5 million cubic yards of airspace which will be
approved as a minor modification to the existing permit, pursuant
to the applicable state regulations. The Blackfoot landfill has
approximately 55 years of total site life at current average
disposal levels.
Wyandot. The Wyandot landfill consists of approximately 344
acres in three proximate locations, and the Company has an option
to purchase up to approximately 94 adjacent additional acres in
the vicinity. Approximately 87 of the owned acres are permitted,
and there are approximately 5.7 million cubic yards of unused
permitted airspace. Cells developed to date at the Wyandot
landfill have been constructed with double composite liner
systems. The Company has applied for a permit from applicable
regulatory authorities to use a single composite liner in
constructing new cells, which the Company believes should reduce
cell development costs. In addition, the Company has applied for
a permit from the Ohio Environmental Protection Agency to expand
its landfill capacity by using the valley between two of the
hills that are currently permitted for waste disposal, as well as
the option acreage. The Company anticipates that if it exercised
its option, obtained the required permits and constructed the
additional landfill areas, the Wyandot landfill would have
approximately 46 years of total site life at current disposal
levels. Currently, however, the Wyandot landfill has
approximately 10 years of total site life at current average
disposal levels.
Clarion. The Clarion landfill consists of approximately 606
acres, of which approximately 60 are permitted acres. There are
approximately 3.9 million cubic yards of unused permitted
airspace. Cells developed at the Clarion landfill have been, and
due to regulatory requirements will continue to be, constructed
with double liner systems. The Clarion landfill has
approximately 10 years of total site life at current average
disposal levels.
Transfer Stations
The Company has an active program to acquire, develop, own,
operate and contract to receive waste volumes from transfer
stations in markets which are proximate to its operations. The
use of transfer stations reduces the Company's costs associated
with the transportation of its collected waste and also increases
the market area served by the Company's landfills. Presently,
the Company owns, operates or has exclusive contracts to receive
waste from a total of 20 transfer stations, including six in the
Missouri Region, three in the Illinois Region, three in the
southwestern Indiana Region, five in the Ohio Region and three in
the New England Region. Typically, the Company acquires transfer
stations that will service its Company-owned landfills and expand
its geographic service area.
Collection Operations
The Company collects solid waste from over 400,000
residential, commercial and industrial customers through its own
collection operations and through brokerage arrangements with
other haulers. The Company's collection operations are conducted
generally within a 50-mile radius of either its transfer stations
or landfills, which allows the Company to serve a geographic area
within a radius of approximately 125 miles from its landfills.
The Company also contracts with local generators of solid waste
and directs the waste to either its own landfill or to a
third-party landfill or for additional handling at one of its
transfer stations. During the year ended December 31, 1997, the
Company's captive waste constituted an average of approximately
73% of the solid waste disposed of at Company-owned landfills.
In addition, approximately 81% of the total tonnage collected by
the Company was disposed of at Company-owned landfills.
Fees for the Company's commercial and industrial collection
services are determined by such factors as collection frequency,
type of equipment and containers furnished, the type, volume and
weight of the waste collected, the distance to the disposal or
processing facility and the cost of disposal or processing. A
majority of the Company's commercial and industrial waste
collection services are performed under contracts. Substantially
all of the Company's municipal solid waste collection services
are performed under contracts with municipalities. These
contracts grant the Company exclusive rights to service all or a
portion of the residential homes in a specified community or
provide a central repository for residential waste drop-off. The
Company also provides subscription residential collection
services directly to households.
Sales and Marketing
The Company has a coordinated marketing strategy which is
formulated at the corporate level and implemented at the regional
level. In addition to competitive pricing, the Company's
marketing strategy emphasizes quality service particularly with
respect to rapid turnaround time at its landfills. Each manager
implements the Company's marketing strategy, which is overseen by
senior management. Depending upon the size of the region and its
customer mix, each manager may focus on commercial, industrial,
residential or municipal accounts to a varying degree. The
Company maintains periodic contact with all of its accounts to
increase customer retention. Company salespersons call on
prospective customers in a specified geographic territory.
Since the Company acquires its waste collection operations
primarily from entrepreneurs who generally do not have
independent sales forces, the Company often retains these
entrepreneurs during the transition period following the
acquisition of such operations to acquaint the Company's sales
force with the acquired companies' customer base.
The Company has a diverse customer base, with no single
customer accounting for more than 10% of the Company's revenues
during the year ended December 31, 1997. The Company does not
believe that the loss of any single customer would have a
material adverse effect on the Company's results of operations.
Competition
The solid waste collection and disposal business is highly
competitive and requires substantial amounts of capital. The
Company competes with numerous local and regional companies and,
in selected areas, with the large national waste management
companies. The industry is led by several national waste
management companies, such as Waste Management, Inc.,
Browning-Ferris Industries, Inc., USA Waste Services, Inc.,
Republic Industries, Inc. and Allied Waste Industries, Inc., and
includes numerous local and regional companies of varying sizes
and competitive resources such as Casella Waste Systems, Inc.,
Eastern Environmental Services, Inc., Superior Services, Inc. and
Waste Industries, Inc. The large national companies, as well as
a number of the regional companies, are significantly larger and
have greater financial resources than the Company. The Company
also competes with those counties and municipalities that
maintain their own waste collection and disposal operations.
These counties and municipalities may have financial advantages
due to the availability to them of tax revenues and tax exempt
financing. The Company competes primarily by charging
competitive prices and offering quality service. Competitors may
reduce the price of their services in an effort to expand market
share or to win competitively bid municipal contracts.
The solid waste collection and disposal industry is
currently undergoing significant consolidation, and the Company
encounters competition in its efforts to acquire landfills and
collection operations. Accordingly, it may become uneconomical
for the Company to make further acquisitions or the Company may
be unable to locate or acquire suitable acquisition candidates at
price levels and on terms and conditions that the Company
considers appropriate, particularly in markets the Company does
not already serve.
Competition in the disposal industry may also be affected by
the increasing national emphasis on recycling and other waste
reduction programs, which may reduce the volume of waste
deposited in landfills.
Liability Insurance and Bonding
The Company carries a broad range of insurance for the
protection of its assets and operations that it believes is
customary to the waste management industry, including pollution
liability coverage. Specifically, each of the Company's
landfills has pollution liability coverage of $10 million per
occurrence or $10 million in the aggregate subject to a $10,000
deductible. Nevertheless, if the Company were to incur liability
for environmental damage which exceeds coverage limits or is not
covered by insurance, its business, financial condition and
results of operations could be materially adversely affected.
The Company is required to post a performance bond or a bank
letter of credit or to provide other forms of financial assurance
in connection with closure and post-closure obligations with
respect to landfills and its other solid waste management
operations and may be required to provide such financial
assurance in connection with municipal residential collection
contracts. As of December 31, 1997, the Company had outstanding
approximately $38.1 million of performance bonds. If the Company
were unable to obtain surety bonds or letters of credit in
sufficient amounts, or to provide other required forms of
financial assurance, it would be unable to remain in compliance
with the Subtitle D Regulations or comparable state requirements
and, among other things, might be precluded from entering into
certain municipal collection contracts and obtaining or holding
landfill operating permits.
Employees
At March 15, 1998, the Company employed approximately 1,314
employees, 78 of whom were managers or professionals, 1,045 of
whom were hourly paid employees involved in collection, transfer
and disposal operations, and 191 of whom were sales, clerical,
data processing or other administrative employees. Certain of
the Company's employees at its Environtech and Livingston
landfills are represented by the International Brotherhood of
Operating Engineers and one of the Company's employees at its
City transfer station is represented by the International
Brotherhood of Teamsters. The Company has no knowledge of any
other organizational efforts among its employees. The Company
believes that its relations with its employees are good.
Risk Factors
Availability of Additional Acquisition Targets
The Company's ongoing acquisition program is a key element
of its acquisition-based growth strategy for expanding its solid
waste management services. Consequently, the future growth of
the Company depends in large part upon the successful
continuation of this acquisition program. The Company may
encounter substantial competition in its efforts to acquire
landfills, transfer stations and collection companies. There can
be no assurance that the Company will succeed in locating or
acquiring appropriate acquisition candidates at price levels and
on terms and conditions that the Company considers appropriate.
Integration of Acquisitions
The financial position and results of operations of the
Company will depend to a large extent on the Company's ability to
integrate effectively the operations of the companies it has
acquired to date, and expects to acquire in the future, and to
realize expected efficiencies and economies of scale from such
acquisitions. There can be no assurance that the Company's
efforts to integrate these operations will be effective, that
expected efficiencies and economies of scale will be realized or
that the Company will be able to successfully consolidate its
operations. The failure to achieve any of these results could
have a material adverse effect on the Company's business,
financial condition and results of operations.
Ability to Manage Growth
The Company's goal is to increase the scale of its
operations significantly through the acquisition of other solid
waste businesses and through internal growth. Consequently, the
Company may experience periods of rapid growth with significantly
increased staffing level requirements. Such growth could place a
significant strain on the Company's management and on its
operational, financial and other resources. The Company's
ability to maintain and manage its growth effectively will
require it to expand its management information systems
capabilities and improve its operational and financial systems
and controls. Moreover, the Company will need to attract, train,
motivate, retain and manage its senior managers, technical
professionals and other employees. Any failure to expand its
management information system capabilities, to implement and
improve its operational and financial systems and controls or to
recruit appropriate additional personnel in an efficient manner
at a pace consistent with the Company's business growth could
have a material adverse effect on the Company's business,
financial condition and results of operations.
Highly Competitive Industry
The solid waste collection and disposal business is highly
competitive and requires substantial amounts of capital. The
Company competes with numerous solid waste management companies,
many of which are significantly larger and have greater financial
resources than the Company. The Company also competes with those
counties, municipalities and solid waste districts that maintain
their own waste collection and disposal operations. These
counties, municipalities and solid waste districts may have
financial advantages due to the availability to them of user
fees, charges or tax revenues and the greater availability to
them of tax-exempt financing. In addition, competitors may
reduce the price of their services in an effort to expand market
share or to win competitively bid municipal contracts. There can
be no assurance that the Company will be able to compete
successfully.
Funding of Future Capital Requirements; Prior Losses and Working
Capital Deficits
The Company's acquisition-based growth strategy has resulted
in a steady increase in its capital requirements, and such
increase may continue in the future as the Company pursues its
strategy. The Company recorded net losses to common stockholders
of approximately $3.7 million and $370,000 during the fiscal
years ended December 31, 1995 and 1996, respectively. In
addition, the Company has incurred working capital deficits in
the past, and there can be no assurance that its available
working capital will be sufficient in the future as it pursues
its growth strategy. Furthermore, in connection with a completed
acquisition, the Company may be obligated to make contingent cash
payments of up to approximately $37.5 million over the next nine
years if certain business development projects are achieved as a
result of that acquisition. To the extent that internally
generated cash and cash available under the Credit Facility are
not sufficient to provide the cash required for future
operations, capital expenditures, acquisitions, earn-out and
contingent payments, debt repayment obligations and financial
assurance obligations, the Company will require additional equity
or debt financing in order to provide such cash. There can be no
assurance, however, that such financing will be available or, if
available, will be on terms satisfactory to the Company. Where
appropriate, the Company may seek to minimize the use of cash to
finance its acquisitions by using capital stock, assumption of
indebtedness or notes. However, there can be no assurance the
owners of the businesses the Company may wish to acquire will be
willing to accept non-cash consideration in whole or in part.
Use of Leverage
Historically, the Company has incurred significant debt
obligations in connection with financing its acquisitions and
business growth. The Company has a $140 million Credit Facility
with a bank group led by 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, BHF-Bank Aktiengesellschaft, as co-agent,
and Bank of America Illinois, as co-agent. As of December 31,
1997, the Company's consolidated indebtedness was $23.1 million,
its consolidated total assets were $373.0 million and its
stockholders' equity was $297.4 million. At March 1, 1998, the
Company's consolidated indebtedness had increased to
approximately $39.7 million. The Company anticipates incurring
significant indebtedness in the future in order to fund all or a
portion of the purchase price of future acquisitions. The
Company's ability to meet its debt service obligations will
depend upon its future performance, which, in turn, will be
subject to general economic conditions and to financial, business
and other factors affecting the operations of the Company, many
of which are beyond the Company's control. If the Company fails
to generate sufficient cash flow to repay its debt, the Company
may be required to refinance all or a portion of its existing
debt or to obtain additional financing. There can be no
assurance that such refinancing or any additional financing could
be obtained on terms favorable to the Company or at all.
Potential Liabilities Associated with Acquisitions
The businesses acquired by the Company may have liabilities
that the Company did not discover or may have been unable to
discover during its pre-acquisition investigations, including
liabilities arising from environmental contamination or
non-compliance by prior owners with environmental laws or
regulatory requirements, and for which the Company, as a
successor owner or operator, may be responsible. Any indemnities
or warranties, due to their limited scope, amount, or duration,
the financial limitations of the indemnitor or warrantor or other
reasons, may not fully cover such liabilities.
Dependence on Senior Management
The Company is highly dependent on its senior management
team. The loss of the services of any member of senior
management may have a material adverse effect on the Company's
business, financial condition and results of operations. In an
effort to minimize this risk, the Company has entered into
employment contracts with certain members of senior management.
The Company does not maintain "key man" life insurance with
respect to members of senior management except for a $2.0 million
policy maintained on the Company's President and Chief Executive
Officer.
Limitations on Internal Expansion
The Company's operating program depends on its ability to
expand and develop its landfills, transfer stations and
collection operations. The process of obtaining required permits
and approvals to operate or expand solid waste management
facilities, including landfills and transfer stations, has become
increasingly difficult and expensive, often taking several years,
requiring numerous hearings and compliance with zoning,
environmental and other regulatory requirements, and often being
subject to resistance from citizen or other groups. There can be
no assurance that the Company will be successful in obtaining the
permits it requires or that such permits will not contain onerous
terms and conditions. An inability to receive such permits and
approvals could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-
Extensive Environmental and Land Use Laws and Regulations." In
some areas, suitable land may be unavailable for new landfill
sites. There can be no assurance that the Company will be
successful in obtaining new landfill sites or expanding the
permitted capacity of its current landfills once its landfill
capacity has been consumed. In such event, the Company could be
forced to dispose of collected waste at landfills operated by its
competitors, which could have a material adverse effect on the
Company's landfill revenues and collection expenses.
Dependence on Third Party Collection Operations
A portion of the solid waste delivered to the Company's
landfills is delivered by third party collection companies under
informal arrangements or without long-term contracts. If these
third parties discontinued their arrangements with the Company
and if the Company were unable to replace these third party
arrangements, the Company's business, financial condition and
results of operations might be materially adversely affected.
Extensive Environmental and Land Use Laws and Regulations
The Company is subject to extensive and evolving
environmental and land use laws and regulations, which have
become increasingly stringent in recent years as a result of
greater public interest in protecting and cleaning up the
environment. These laws and regulations affect the Company's
business in many ways, including as set forth below.
Extensive Permitting Requirements. In order to develop and
operate a landfill or other solid waste management facility, it
is necessary to obtain and maintain in effect one or more
facility permits and other governmental approvals, including
those related to zoning, environmental and land use. In
addition, the Company may be required to obtain similar permits
and approvals in order to expand its existing landfill and solid
waste management operations. These permits and approvals are
difficult and time consuming to obtain and are frequently subject
to community opposition, opposition by various local elected
officials or citizens and other uncertainties. In addition,
after an operating permit for a landfill or other facility is
obtained, the permit may be subject to modification or revocation
by the issuing agency, and it may be necessary to obtain
periodically a renewal of the permit, which may reopen
opportunities for opposition to the permit. Moreover, from time
to time, regulatory agencies may delay the review or grant of
these required permits or approvals or may modify the procedures
or increase the stringency of the standards applicable to its
review or grant of such permits or approvals. In addition, the
Company may not be able to ensure that its landfill operations
are included and remain in the solid waste management plan of the
state or county in which such operations are conducted. The
Company may also have difficulty obtaining host agreements with
counties or local communities, or existing host communities may
demand modifications of existing host agreements in connection
with planned expansions, either of which could adversely affect
the Company's operations and increase the Company's costs and
reduce its margins. There can be no assurance that the Company
will be successful in obtaining and maintaining in effect the
permits and approvals required for the successful operation and
growth of its business, including permits or approvals required
for planned landfill expansions, and the failure by the Company
to obtain or maintain in effect a permit significant to its
business could materially adversely affect the Company's
business, financial condition and results of operations.
Design, Operation and Closure Requirements. The design,
operation and closure of landfills are subject to extensive
regulations. These regulations include, among others, the
regulations (the "Subtitle D Regulations") establishing minimum
federal requirements adopted by the United States Environmental
Protection Agency (the "EPA") in October 1991 under Subtitle D of
the Resource Conservation and Recovery Act of 1976 ("RCRA"). The
Subtitle D Regulations generally became effective on October 9,
1993 (except for more stringent financial assurance requirements,
which became effective April 9, 1997). The Subtitle D
Regulations require all states to adopt regulations regarding
landfill design, operation and closure requirements that are as
stringent as, or more stringent than, the Subtitle D Regulations.
All states in which the Company's landfills are located have in
place extensive landfill regulations consistent with the Subtitle
D requirements. These federal and state regulations require the
Company to design the landfill in accordance with stringent
technical requirements, monitor groundwater, post financial
assurances, and fulfill landfill closure and post-closure
obligations. These regulations could also require the Company to
undertake investigatory, remedial and monitoring activities, to
curtail operations or to close a landfill temporarily or
permanently. Furthermore, future changes in these regulations
may require the Company to modify, supplement, or replace
equipment or facilities at costs which may be substantial.
Legal and Administrative Proceedings. In the ordinary
course of its business, the Company may become involved in a
variety of legal and administrative proceedings relating to land
use and environmental laws and regulations. These may include
proceedings by federal, state or local agencies seeking to impose
flow control requirements, civil or criminal penalties on the
Company for violations of such laws and regulations, or to impose
liability on the Company under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA") or
comparable state statutes, or to revoke or deny renewal of a
permit; actions brought by citizens' groups, adjacent landowners
or governmental entities opposing the issuance of a permit or
approval to the Company or alleging violations of the permits
pursuant to which the Company operates or laws or regulations to
which the Company is subject; and actions seeking to impose
liability on the Company for any environmental damage at its
landfill sites or that its landfills or other properties may have
caused to adjacent landowners or others, or at sites to which it
transported waste, including groundwater or soil contamination.
The Company could incur substantial legal expenses during the
course of the aforementioned proceedings, and the adverse outcome
of one or more of these proceedings could materially adversely
affect the Company's business, financial condition and results of
operations.
During the ordinary course of its operations, the Company
has from time to time received, and expects that it may in the
future receive, citations or notices from governmental
authorities that its operations are not in compliance with its
permits or certain applicable environmental or land use laws and
regulations. The Company generally seeks to work with the
authorities to resolve the issues raised by such citations or
notices. There can be no assurance, however, that the Company
will always be successful in this regard, and the failure to
resolve a significant issue could result in one or more of the
adverse consequences to the Company described below under
"Potential Liabilities."
Potential Liabilities. There may be various adverse
consequences to the Company in the event that a facility owned or
operated by the Company (or a predecessor owner or operator whose
liabilities the Company may have acquired expressly or under
successor liability theories) causes environmental damage, in the
event that waste transported by the Company (or a predecessor)
causes environmental damage at another site, in the event that
the Company fails (or a predecessor failed) to comply with
applicable environmental and land use laws and regulations or the
terms of a permit or outstanding consent order or in the event
the Company's owned or operated facility or the soil or
groundwater thereunder is or becomes contaminated. These may
include the imposition of substantial monetary penalties on the
Company; the issuance of an order requiring the curtailment or
termination of the operations involved or affected; the
revocation or denial of permits or other approvals necessary for
continued operation or landfill expansion; the imposition of
liability on the Company in respect of any environmental damage
(including groundwater or soil contamination) at its landfill
sites or that its landfills or other facilities or other
Company-owned or operated facilities caused to adjacent
landowners or others or environmental damage at another site
associated with waste transported by the Company; the imposition
of liability on the Company under CERCLA or under comparable
state laws; and criminal liability for the Company or its
officers. Any of the foregoing could materially adversely affect
the Company's business, financial condition and results of
operations.
CERCLA and analogous state laws impose retroactive strict
joint and several liability on various parties that are, or have
been, associated with a site from which there has been, or is
threatened, a release of any hazardous substance (as defined by
CERCLA) into the environment. Liability under RCRA, CERCLA and
analogous state laws may include responsibility for costs of site
investigations, site cleanup, site monitoring, natural resources
damages and property damages. Liabilities under RCRA, CERCLA and
analogous state laws can be very substantial and, if imposed upon
the Company, could materially adversely affect the Company's
business, financial condition and results of operations.
In the ordinary course of its landfill and waste management
operations and in connection with its review of landfill and
other operations to be acquired, the Company has discovered at
one landfill, and may in the future discover at other landfills
or waste management facilities, indications of groundwater
contamination. In such events, the Company would seek or be
required to determine the magnitude and source of the problem
and, if appropriate or required by applicable regulations, to
design and implement measures to remedy, or halt the spread of,
the contamination. There can be no assurance, however, that
contamination discovered at a landfill or at other Company sites
will not result in one or more of the adverse consequences to the
Company described above.
Type, Quantity and Source Limitations. Certain permits and
approvals may limit the types of waste that may be accepted at a
landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain
permits and approvals, as well as certain state and local
regulations, may limit a landfill to accepting waste that
originates from specified geographic areas or seek to restrict
the importation of out-of-state waste or otherwise discriminate
against out-of-state waste. Generally, restrictions on the
importation of out-of-state waste have not withstood judicial
challenge. However, from time to time federal legislation is
proposed which would allow individual states to prohibit the
disposal of out-of-state waste or to limit the amount of
out-of-state waste that could be imported for disposal and would
require states, under certain circumstances, to reduce the
amounts of waste exported to other states. Although such
legislation has not yet been adopted by Congress, if this or
similar legislation is enacted, states in which the Company
operates landfills could act to limit or prohibit the importation
of out-of-state waste. Such state actions could materially
adversely affect landfills within those states that receive a
significant portion of waste originating from out-of-state.
In addition, certain states and localities may for economic
or other reasons restrict the exportation of waste from their
jurisdiction or require that a specified amount of waste be
disposed of at facilities within their jurisdiction. In 1994,
the United States Supreme Court held unconstitutional, and
therefore invalid, a local ordinance that sought to impose flow
controls on taking waste out of the locality. However, certain
state and local jurisdictions continue to seek to enforce such
restrictions and, in certain cases, the Company may elect not to
challenge such restrictions based upon various considerations.
In addition, the aforementioned proposed federal legislation, if
adopted, could allow states and localities to impose certain flow
control restrictions. These restrictions could result in the
volume of waste going to landfills being reduced in certain
areas, which may materially adversely affect the Company's
ability to operate its landfills at their full capacity and/or
affect the prices that can be charged for landfill disposal
services. These restrictions may also result in higher disposal
costs for the Company's collection operations. If the Company
were unable to pass such higher costs through to its customers,
the Company's business, financial condition and results of
operations could be materially adversely affected.
Limits on Insurance Coverage
There can be no assurance that the Company's pollution
liability insurance will provide sufficient coverage in the event
an environmental claim were made against the Company or that the
Company will be able to maintain in place such insurance at
reasonable costs. An uninsured or underinsured claim of
sufficient magnitude could have a material adverse effect on the
Company's business, financial condition and results of
operations.
Incurrence of Charges Related to Capitalized Expenditures
In accordance with generally accepted accounting principles,
the Company capitalizes certain expenditures and advances
relating to acquisitions, pending acquisitions and landfill
development and expansion projects. Indirect acquisition costs,
such as executive salaries, general corporate overhead, public
affairs and other corporate services, are expensed as incurred.
The Company's policy is to charge against earnings any
unamortized capitalized expenditures and advances (net of any
portion thereof that the Company estimates will be recoverable,
through sale or otherwise) relating to any operation that is
permanently shut down, any pending acquisition that is not
consummated, and any landfill development or expansion project
that is not or not expected to be successfully completed.
Therefore, the Company may be required to incur a charge against
earnings in future periods, which charge, depending upon the
magnitude thereof, could materially adversely affect the
Company's business, financial condition and results of
operations.
Use of Alternatives to Landfill Disposal
Alternatives to landfill disposal, such as recycling and
composting, are increasingly being used. In addition,
incineration is an alternative to landfill disposal in certain of
the Company's markets. There also has been an increasing trend
at the state and local levels to mandate recycling and waste
reduction at the source and to prohibit the disposal of certain
type of wastes, such as yard wastes, at landfills. These
developments may result in the volume of waste going to landfills
being reduced in certain areas, which may affect the Company's
ability to operate its landfills at their full capacity or affect
the prices that can be charged for landfill disposal services.
For example, Illinois, Ohio and Pennsylvania, states in which the
Company operates landfills, have adopted bans on the disposal of
yard waste or leaves in landfills located in those states, and
all of the states in which the Company operates landfills have
adopted rules restricting or limiting disposal of tires at
landfills. In addition, each of the states in which the Company
operates landfills has adopted plans or requirements which set
goals for specified percentages of certain solid waste items to
be recycled. These recycling goals are being phased in over the
next few years. These alternatives, if and when adopted and
implemented, may have a material adverse effect on the business,
financial condition and results of operations of the Company.
Ability to Meet Financial Assurance Obligations
The Company is required to post a performance bond or a bank
letter of credit or to provide other forms of financial assurance
in connection with closure and post-closure obligations with
respect to landfills or its other solid waste management
operations and may be required to provide such financial
assurance in connection with municipal residential collection
contracts. If the Company were unable to obtain surety bonds in
sufficient amounts, or to provide other required forms of
financial assurance, it would be unable to remain in compliance
with the Subtitle D Regulations or comparable state requirements
and, among other things, might be precluded from entering into
certain municipal collection contracts and obtaining or holding
landfill operating permits.
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.
Anti-Takeover Provisions
The Board of Directors may issue up to 5,000,000 shares of
Preferred Stock in the future without stockholder approval upon
such terms as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of
Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have
the effect of delaying or preventing a change in control of the
Company without further action by the stockholders. The Company
has no present plans to issue any shares of Preferred Stock. In
addition, the Company is subject to the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law, which
prohibits the Company from engaging in a "business combination"
with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an
interested stockholder, unless the business combination is
approved in a prescribed manner. The application of Section 203
also could have the effect of delaying or preventing a change of
control of the Company.
Absence of Dividends
The Company has never declared or paid dividends on its
Common Stock and does not anticipate paying dividends in the
foreseeable future.
ITEM 2. PROPERTIES
The principal fixed assets used by the Company in connection
with its landfill operations are its landfills which are
described under Item 1. "Business-Operations-Landfills." The
nine landfills currently owned by the Company are situated on
sites owned by the Company.
The principal fixed assets used by the Company in its
collection operations and transfer stations are approximately 232
acres of land used for transfer stations and other facilities
related to collection operations (of which approximately 202
acres are owned and 30 acres are leased).
The Company's corporate headquarters are located in Burr
Ridge, Illinois, where it leases approximately 8,000 square feet
of space.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of its business and as a result of the
extensive governmental regulation of the waste industry, the
Company may periodically become subject to various judicial and
administrative proceedings involving federal, state or local
agencies. In these proceedings, an agency may seek to impose
fines on the Company to revoke, or to deny renewal of, an
operating permit held by the Company. From time to time, the
Company also may be subject to actions brought by citizens'
groups or adjacent landowners in connection with the permitting
and licensing of its landfills or transfer stations, or alleging
environmental damage or violations of the permits and licensees
pursuant to which the Company operates.
In addition, the Company is or may become party to various
claims and suits pending for alleged damages to persons and
property, alleged violation of certain laws and for alleged
liabilities arising out of matters occurring during the normal
operation of the waste management business. In the opinion of
management, the liability, if any, under these claims and suits
would not materially adversely affect the business, financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Common Stock of the Company has been quoted on the
Nasdaq National Market under the symbol ("ADSI") since July 26,
1996, the date of the commencement of the Company's initial
public offering. The following table sets forth, for the periods
indicated, the high and low closing prices of the Common Stock as
reported on the Nasdaq National Market:
High Low
1996
3rd Quarter. . . . . . . . . . . . . . . . . . . $18.25 $ 9.00
4th Quarter. . . . . . . . . . . . . . . . . . . $18.50 $15.50
1997
1st Quarter. . . . . . . . . . . . . . . . . . . $18.00 $16.50
2nd Quarter. . . . . . . . . . . . . . . . . . . $25.06 $16.38
3rd Quarter. . . . . . . . . . . . . . . . . . . $33.75 $21.00
4th Quarter. . . . . . . . . . . . . . . . . . . $37.50 $29.00
On March 25, 1998, there were approximately 1,950 beneficial
owners of the Common Stock.
The Company has never declared or paid any dividends on its
Common Stock, and neither ADS nor CDI has declared or paid any
dividends on its common stock. The Company and its Board of
Directors currently intend to retain any earnings for use in the
operation and expansion of the Company's business and do not
anticipate paying any dividends on the Common Stock for the
foreseeable future. The Credit Facility prohibits the payment of
cash dividends without prior bank approval.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated statement
of operations, balance sheet and other data of the Company for
the periods presented. See the Notes to the Consolidated
Financial Statements included elsewhere herein for information
concerning the basis of presentation. The following selected
consolidated financial data as of December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997
have been derived from the audited consolidated financial
statements of the Company included elsewhere in this Annual
Report on Form 10-K and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected consolidated financial data
as of December 1993, 1994 and 1995 and for the years ended
December 31, 1993 and 1994 are derived from audited consolidated
financial statements that are not included herein.
Years Ended December 31,
1993 1994 1995 1996 1997
(Dollars in thousands, except per share amount)
Statement of Operations Data:
Revenues. . $ 7,730 $18,517 $ 30,004 $56,804 $121,363
Cost of
operations. 5,750 12,647 17,286 30,376 65,947
Selling,
general and
administra-
tive expense 1,646 4,910 5,882 8,328 16,821
Depreciation
and amorti-
zation
expense. . . 1,166 3,226 6,308 12,334 21,975
----- ----- ----- ------ ------
Operating
income. . . . (832) (2,266) 528 5,766 16,620
Interest
expense. . . (417) (1,497) (3,030) (5,745) (6,223)
Interest
income. . . . 35 2 189 260 201
Other income. . - - - 179 274
----- ------ ------ ------ ------
Income (loss)
before
income
taxes and
extra-
ordinary
item. . . . (1,214) (3,761) (2,313) 460 10,872
Income tax
benefit
(expense). . . 391 1,372 (332) (245) 3,531
------ ----- ------ ----- ------
Income (loss)
before extra-
ordinary
item. . . . ..(832) (2,389) (2,645) 215 7,341
Extraordinary
item-gain
(loss) on
early retire-
ment of debt. . 74 - (908) (476) -
---- ------ ------ ----- ------
Net income
(loss). . . . (749) (2,389) (3,553) (261) 7,341
Preferred
stock dividend
requirement. - - (190) (109) -
----- ------ ------ ----- -----
Net income
(loss) appli-
cable to common
stock-
holders. . . $(749) $(2,389) $(3,743) $ (370) $ 7,341
====== ======== ======== ======= ========
Basic earnings
per common
share: (1)
Income
(loss) before
extra-
ordinary
item . . . . $(.67) $ (1.07) $ (.85) (.02) $ .56
Extraordinary
item . . . . .06 - (.27) (.07) -
------ -------- -------- ------- --------
Net income
(loss) . . . $(.61) $ (1.07) $ (1.12) $(.05) $ .56
====== ======== ======== ======= ========
Weighted
average
common
stock
outstand-
ing . . 1,219,042 2,224,205 3,340,512 7,063,928 13,177,346
========= ========= ========== ========== ==========
Diluted
earnings
per
common
share:
Income
(loss)
before
extra-
ordinary
item. . . . $(.67) $ (1.07) $ (.85) $ .01 $ .53
Extraordinary
item . . . . .06 --- (.27) (.06) ---
------ -------- ------- ------ ------
Net income
(loss) . . . (.61) $ (1.07) $ (1.12) $(.05) $ .53
======= ======== ======= ====== ======
Weighted
average
common stock
and common
stock
equivalent
shares
out-
stand-
ing . . 1,219,042 2,224,205 3,340,512 7,465,050 13,822,337
December 31,
1993 1994 1995 1996 1997
(in thousands)
Balance Sheet Data:
Cash and cash
equivalents . . . . . $ 2,134 $ 548 $ 6,383 $ 2,301 $ 2,426
Working capital
(deficit). . . . . . . 788 (2,237) (8,819) 1,219 721
Property and equipment,
net. . . . . . . . . . 15,156 17,062 81,250 93,692 174,340
Total assets. . . . . . 35,512 37,557 114,693 144,986 373,024
Long-term obligations,
net of current portion 16,073 18,487 48,789 65,445 20,788
Redeemable preferred
stock of subsidiary. --- --- 1,908 --- ---
Total stockholders'
equity. . . . . . . 12,531 12,132 33,855 58,097 297,375
(1) The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share, during the fourth
quarter of 1997. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per common share with basic
and diluted earnings per common share. Earnings (loss) per
common share amounts have been restated, where appropriate.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the "Selected Consolidated Financial Data," the Company's
Consolidated Financial Statements and the notes thereto included
elsewhere herein.
General
Revenues. 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 fees 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. The Company's revenue derived from landfill
operations increased substantially with the acquisition of the
Clarion, Wyandot and Livingston landfills in separate closings in
June, August, and November 1995 (collectively, the "CDI
Acquisition"). Since the CDI Acquisition, the Company has
acquired proportionately more collection operations than landfill
operations, resulting in a decreasing overall percentage of
revenues attributable to landfill operations.
Years Ended December 31,
1995 1996 1997
Collection (1) . . . . . 55.3% 47.5% 55.6%
Transfer . . . . . . . . 5.0 2.1 5.8
Landfill (1) . . . . . . 39.0 49.9 37.9
Other. . . . . . . . . . 0.7 0.5 0.7
------ ------ ------
Total Revenues. . . . 100.0% 100.0% 100.0%
====== ====== ======
_______________
(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 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. During the year ended December 31, 1997,
the Company's captive waste (which includes waste from the
Company's collection operations and third-party haulers operating
under long-term collection contracts) constituted an average of
approximately 73% of the solid waste disposed of at its
landfills. In addition, approximately 81% of the total tonnage
collected by the Company was disposed of at Company-owned
landfills.
Expenses. Cost of operations include labor, maintenance and
repairs, equipment and facility rent, utilities and taxes, the
costs of ongoing environmental compliance, safety and insurance,
disposal costs and costs of independent haulers transporting
Company waste to disposal sites. Disposal costs include certain
landfill taxes, host community fees, landfill site maintenance,
fuel and other equipment operating expenses and provision for
post-closure expenses, consisting of cap maintenance, groundwater
monitoring, methane gas control and recovery and leachate
treatment/disposal, anticipated to be incurred in the future.
Selling, general and administrative ("SG&A") expenses
include management, clerical and administrative compensation,
overhead, sales costs, community relations expenses, provisions
for estimated uncollectible accounts receivable and unrealizable
acquisition costs and management fees paid to the Company's
principal stockholder (which terminated upon closing of the
Company's initial public offering in July 1996).
Depreciation and amortization expense includes depreciation
of fixed assets, closure costs and amortization of landfill
airspace, goodwill, other intangibles and loan origination fees.
The amount of landfill amortization expense related to airspace
consumption can vary materially from landfill to landfill
depending upon the purchase price, landfill configuration and
cell development costs.
Certain landfill development costs, such as engineering,
upgrading, construction, interest and permitting costs, are
capitalized and amortized based on airspace consumed. All of the
Company's capitalized expenditures relating to cell development
and landfill expansion work are in connection with cells for
which the Company holds a permit for development. The Company
believes that the costs associated with engineering, owning and
operating landfills will increase in the future as a result of
federal, state and local regulations and a growing community
awareness of the landfill permitting process. Although there can
be no assurance, the Company believes that it will be able to
implement price increases sufficient to offset these increased
expenses. All indirect landfill development costs, such as
executive salaries, general corporate overhead, public affairs
and other corporate services, are expensed as incurred.
The Company capitalizes engineering, legal, accounting and
other direct costs incurred in connection with potential
acquisitions, accounted for using the purchase method for
business combinations. The Company, however, routinely evaluates
such capitalized costs and expenses those costs related to
acquisitions not likely to occur. Indirect acquisition costs,
such as executive salaries, general corporate overhead and other
corporate services, are expensed as incurred.
Accrued closure and post-closure costs represent an estimate
of the current value of the future obligations associated with
closure and post-closure monitoring of non-hazardous solid waste
landfills currently owned by the Company. Site specific closure
and post-closure engineering cost estimates are prepared annually
for landfills owned by the Company. Estimated costs are accrued
based on accepted tonnage as landfill airspace is consumed. The
Company periodically updates its estimates of future closure and
post-closure costs. These changes are accounted for on a
prospective basis. The Company expects its closure and
post-closure costs per ton to decrease as it expands landfill
capacity and as such costs are amortized over greater airspace.
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.
The Company is in the process of conducting a comprehensive
review of its computer systems to identify the systems that could
be affected by the Year 2000 issue and believes that the Year
2000 issue should not pose any significant operational problems
for the Company. The Company does not expect that the
expenditures related to the Year 2000 issue will have a material
effect on its financial position or results of operations in any
year.
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.
Years Ended December 31,
1995 1996 1997
Revenues . . . . . . . . . 100.0% 100.0% 100.0%
Cost of operations . . . . 57.6 53.5 54.3
Selling, general and
administrative expenses 19.6 14.6 13.9
Depreciation and
amortization expense . . 21.0 21.7 18.1
------ ------ ------
Operating income . . . . . 1.8 10.2 13.7
Interest expense, net. . . (9.5) (9.7) (5.0)
Other income . . . . . . . - 0.3 0.2
Income tax expense . . . . (1.1) (0.5) (2.9)
Extraordinary loss, net
of income tax . . . . . (3.0) (0.8) -
----- ----- ----
Net income (loss) . . (11.8)% (0.5)% 6.0%
======= ====== ====
EBITDA margin(1) . . . . . 22.8% 31.9% 31.8%
(1) EBITDA margin represents EBITDA expressed as a percentage
of revenues.
Years Ended December 31, 1997 and 1996
Revenues. Revenues in 1997 increased $64.6 million to
$121.4 million from $56.8 million in 1996. Approximately $55.8
million of the increase is attributable to the effects of
companies acquired during 1996 and 1997. Approximately $8.8
million is attributable to increases in revenues in operations
owned more than twelve months.
Cost of Operations. Cost of operations in 1997 was $65.9
million compared to $30.4 million in 1996. As a percentage of
revenues, cost of operations was 54.3% in 1997 compared to 53.5%
in 1996. The increase in cost of operations as a percentage of
revenues is due to the impact of an increased number of
collection operations versus landfill operations in 1997 compared
to 1996. Collection operations generally have higher operating
costs than landfill operations.
Selling, General, and Administrative Expense. SG&A expenses
increased to $16.8 million in 1997 compared to $8.3 million in
1996. As a percentage of revenues, SG&A expenses decreased to
13.9% in 1997 from 14.6% in 1996. The decreases 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 was $22.0 million in 1997 compared to $12.3
million in 1996. 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 18.1% and 21.7% for 1997 and 1996,
respectively. The decline in depreciation and amortization
expense as a percentage of revenues from 1996 to 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 Expense. Net interest expense was $6.0 million
in 1997 compared to $5.5 million in 1996, which reflects the
additional debt incurred to complete certain 1997 acquisitions.
Income Taxes. The Company recorded an income tax provision
of $3.5 million in 1997 compared to $245,000 in 1996, reflecting
the increased taxable income generated, partially offset by
utilization of net operating loss carryforwards.
Years Ended December 31, 1996 and 1995
Revenues. Revenues in 1996 were $56.8 million compared to
$30.0 million in 1995. Approximately $17.1 million of the
increase was attributable to the impact of the full year
contribution from the CDI Acquisition. In addition, the Company
completed 16 acquisitions in 1996, which accounted for
approximately $6.3 million of the increase in revenues.
Cost of Operations. Cost of operations in 1996 was $30.4
million compared to $17.3 million in 1995, an increase
corresponding primarily to the Company's revenue growth described
above. As a percentage of revenues, cost of operations declined
to 53.5% in 1996 from 57.6% in 1995, due primarily to the
following factors. The Company's proportion of landfill
operations, which generally have lower operating costs than
collection operations, has increased as a result of the full year
contribution of the CDI Acquisition. In addition, operating cost
savings occurred as a result of the consolidation of the acquired
Missouri collection operations and the full year impact of the
new transfer stations opened in the Missouri region.
Selling, General, and Administrative Expenses. SG&A
expenses were $8.3 million in 1996 compared to $5.9 million in
1995. The increase in the SG&A expenses resulted from the full
year impact of the CDI Acquisition as well as increased expenses
from the 16 acquisitions completed in 1996. As a percentage of
revenues, SG&A expenses declined to 14.6% in 1996 from 19.6% in
1995. The decrease in SG&A expense as a percentage of revenues
was due primarily to a significant increase in revenue, while
corporate and other related administrative expenses increased
moderately. In 1996, the Company terminated a management
agreement with an affiliate of its principal shareholder,
pursuant to which a management fee of $466,000 was paid in 1996.
Depreciation and Amortization Expense. Depreciation and
amortization expense for 1996 was $12.3 million compared to $6.3
million in 1995. The increase is due primarily to the CDI
Acquisition which significantly increased landfill airspace
amortization and provision for closure costs, and to a lesser
extent, the capital expenditures and goodwill associated with
acquisitions consummated in 1996. As a percentage of revenues,
depreciation and amortization expense was 21.7% during 1996
versus 21.0% in 1995. The relatively high percentages are
primarily due to the configuration of the Wheatland landfill in
1995 and the high concentration of the Company's assets in
landfills following the CDI Acquisition in 1996. Depreciation
and amortization expense is expected to decline as a percentage
of revenues in future periods as the concentration of the
Company's assets in landfills diminishes due to the full year
impact of the 1996 collection company acquisitions and as the
Company reduces future cell development cost. Net fixed assets
increased to $93.7 million in 1996 from $81.3 million in 1995 and
goodwill, net of accumulated amortization expense, increased to
$31.2 million in 1996 from $15.7 million in 1995.
Net Interest Expense. Net interest expense was $5.5 million
in 1996 compared to $2.8 million in 1995. This
increase is attributable to the full year impact of additional
debt incurred to complete the CDI Acquisition and the 16
acquisitions completed in 1996.
Income Taxes. The Company recorded an income tax provision
of $245,000 and $332,000 for 1996 and 1995, respectively. The
1996 provision reflects the Company having consolidated taxable
income of $460,000. Although the Company recorded a net loss in
1995, the Company recorded an income tax provision because the
Company's subsidiaries were not then consolidated and CDI
reported a profit.
Extraordinary Loss. In 1996, the Company recognized an
extraordinary loss of $476,000, representing the write-off of
unamortized debt issuance costs in connection with the
refinancing of its prior credit facility.
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 for 1997 increased
to $31.1 million compared to $10.3 million for the same period in
1996. The increase was primarily due to acquisition related
activities which resulted in an improvement in net income to $7.3
million in 1997 compared to a net loss of $0.3 million in the
prior year, an increase in depreciation and amortization of $9.6
million over the prior period, an increase in other long term
liabilities of $6.0 million, offset by an increase in accounts
receivable of $8.6 million.
Net cash used in investing activities increased to $177.4
million in 1997 from $37.7 million in the prior year. The
increase was due primarily to payments for acquisitions of $153.0
million completed in 1997 and an increase of $10.3 million in
capital expenditures for 1997 compared to 1996. The Company's
capital expenditure requirements have increased significantly,
reflecting the Company's rapid growth by acquisition and
development of additional revenue producing assets, and will
increase further as the Company continues to pursue its
acquisition-based growth strategy. During 1997, the Company
spent $24.3 million in capital expenditures, of which $10.3
million was for cell development. In fiscal year 1998, the
Company expects to spend approximately $29 million for capital
expenditures on operations owned as of December 31, 1997, of
which approximately $9 million is anticipated to be used for cell
development.
Net cash provided by financing activities totaled $146.4
million for 1997, compared to $23.2 million for 1996 reflecting
borrowings of $141.2 million in 1997 under the Company's then
existing term and revolving credit facilities to fund
acquisitions. Repayments under the Company's Credit Facility
totaled $188.6 million, funded primarily by the net proceeds of
$194.0 million from offerings of Common Stock in May 1997 and in
October 1997.
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 March 1, 1998, the Company had borrowed $34.4
million under the Credit Facility. As of such date, the interest
rates on the various loans under the Credit Facility ranged from
6.63% to 8.50% and the total unused availability under the Credit
Facility was approximately $105.6 million.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III (Items 10 through 13)
is incorporated by reference to the captions "Principal
Stockholders," "Election of Directors," "Management" and "Certain
Transactions" in the Company's definitive Proxy Statement to be
filed pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year covered by this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) See Index to Financial Statements immediately following
Exhibit Index. There are no schedules related to this item to
which references made in applicable regulations of the Securities
and Exchange Commission are required or are applicable, and
therefore all such schedules are omitted.
(b) No reports on Form 8-K have been filed during the last
quarter of the Company's fiscal year ended December 31, 1997.
(c) See Exhibit Index immediately following signature pages.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
American Disposal Services, Inc.
By: /s/ Richard De Young
Richard DeYoung
Date: March 25, 1998 President
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ David C. Stoller
David C. Stoller Chairman and Director
(principal executive
officer) March 25, 1998
/s/ Richard De Young
Richard De Young President and Director March 25, 1998
/s/ Stephen P. Lavey
Stephen P. Lavey Chief Financial Officer
(principal financial
officer) March 25, 1998
/s/ Lawrence R. Conrath, Sr.
Lawrence R. Conrath, Sr. Vice President and
Controller (principal
accounting officer) March 25, 1998
/s/ Merril M. Halpern
Merril M. Halpern Director March 25, 1998
/s/ A. Lawrence Fagan
A. Lawrence Fagan Director March 25, 1998
/s/ Richard T. Henshaw, III
Richard T. Henshaw, III Director March 25, 1998
/s/ G. T. Blankenship
G. T. Blankenship Director March 25, 1998
/s/ Norman Steisel
Norman Steisel Director March 25, 1998
EXHIBIT INDEX
Exhibit No. Description of Exhibits
3.1 Restated Certificate of Incorporation of the
Company (1)
3.2 Amendment to Restated Certificate of Incorporation
dated May 30, 1996 (1)
3.3 Amendment to Restated Certificate of Incorporation
dated October 7, 1997
3.4 By-laws of the Company (1)
10.1 Second Amended and Restated Credit Agreement dated
as of May 22, 1997 among the Company, ING (U.S.)
Capital Corporation, as administrative agent,
Morgan Guaranty Trust Company of New York, as
syndication agent, and the other financial
institutions party thereto (2)
10.2 Registration Rights Agreement dated as of January
1, 1997 among the Company and certain of its
stockholders(1)
10.3 Employment Agreement dated as of January 1, 1998
between the Company and Richard De Young
10.4 Employment Agreement dated as of January 1, 1998
between the Company and John J. McDonnell
10.5 Employment Agreement dated as of January 1, 1998
between the Company and Richard T. Kogler
10.6 Employment Agreement dated as of January 1, 1998
between the Company and Ann L. Straw
10.7 Employment Agreement dated as of January 1, 1998
between the Company and Lawrence R. Conrath, Sr.
10.8 Employment Agreement dated as of January 1, 1998
between the Company and Mary T. Ryan
10.9 Employment Agreement dated as of January 1, 1998
between the Company and Stephen P. Lavey
10.10 American Disposal Services, Inc. 1996 Stock Option
Plan (1)
10.11 Form of Indemnification Agreement between the
Company and its directors (1)
10.12 Form of Indemnification Agreement between the
Company and its executive officers (1)
10.13 Form of Indemnification Agreement between the
Company and its directors and executive officers
(1)
10.14 Form of Tax-Sharing Agreement between the Company
and its executive officers (1)
10.15 Agreement dated as of September 9, 1997 among the
Company and the Stockholders of Illinois Bulk
Handlers, Inc., Shred-All Recycling Systems, Inc.,
Fred B. Barbara Trucking Co., Inc. and
Environtech, Inc.
21.1 Subsidiaries of the Company
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
_________________________
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (333-4889).
(2) Previously filed as an exhibit to the Company's Current
Report on Form 8-K, dated May 15, 1997.
INDEX TO FINANCIAL STATEMENTS
Page
American Disposal Services, Inc. and Subsidiaries:
Consolidated Financial Statements
Report of Independent Auditors . . . . . . . . . . . F-2
Consolidated Balance Sheets at December 31, 1997 and
1996. . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995 . . . . . . F-4
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995 . . F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . F-7
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Disposal Services, Inc.
We have audited the accompanying consolidated balance sheets
of American Disposal Services, Inc. as of December 31, 1997 and
1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of American Disposal Services, Inc. at
December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 24, 1998
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
December 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . $ 2,426 $ 2,301
Restricted cash held in escrow . . . . . 337 -
Trade receivables-net of allowance
of $1,326 and $473. . . . . . . . . . 23,052 9,741
Prepaid expenses . . . . . . . . . . . . 1,348 1,248
Other current assets . . . . . . . . . . 1,347 354
------- ------
Total current assets. . . . . . . . . 28,510 13,664
Property and equipment, net. . . . . . . . 174,340 93,692
Other assets:
Cost over fair value of net assets of
acquired businesses, net of
accumulated amortization of $3,635
and $1,374. . . . . . . . . . . . . . 157,304 31,237
Other intangible assets, net of
accumulated amortization of $631
and $439. . . . . . . . . . . . . . . 2,045 1,610
Debt issuance costs, net of accumulated
amortization of $696 and $204. . . . . 2,922 2,392
Other. . . . . . . . . . . . . . . . . . 7,903 2,411
-------- --------
$373,024 $144,986
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . $ 6,361 $ 3,359
Accrued liabilities:
Consideration held back for certain
acquisitions. . . . . . . . . . . . 4,910 1,369
Wages, salaries, and other
compensation . . . . . . . . . . . 2,665 240
Other accrued liabilities . . . . . . 5,708 2,640
Deferred revenues. . . . . . . . . . . . 5,785 2,245
Current portion of long-term debt and
capital lease obligations. . . . . . . 2,360 2,572
------ ------
Total current liabilities . . . . 27,789 12,425
Long-term debt and capital lease
obligations, net of current portion . . 20,788 65,445
Accrued environmental and landfill
costs . . . . . . . . . . . . . . . . . 12,450 7,603
Deferred income taxes. . . . . . . . . . . 2,577 1,416
Other long-term liabilities. . . . . . . . 12,045 -
Stockholders' equity:
Preferred stock, $0.01 par value;
5,000,000 shares authorized; none
issued and outstanding in 1997 and
1996. . . . . . . . . . . . . . . . . . - -
Common stock, $0.01 par value;
60,000,000 shares authorized; shares
issued and outstanding 1997-19,323,
100 and 1996-8,872,381. . . . . . . . . . 193 89
Warrants outstanding . . . . . . . . . . . . - 107
Additional paid-in capital . . . . . . . . . 298,110 66,170
Accumulated deficit. . . . . . . . . . . . . (928) (8,269)
------- ------
297,375 58,097
------- ------
$373,024 $144,986
======== ========
See accompanying notes.
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except per Share Data)
Years Ended December 31,
1997 1996 1995
Revenues $121,363 $56,804 $30,004
Cost of operations . . . . . . . 65,947 30,376 17,286
Selling, general, and
administrative expenses. . . . 16,821 8,328 5,882
Depreciation and amortization. . 21,975 12,334 6,308
------- ------- ------
Operating income . . . . . . . . 16,620 5,766 528
Interest expense . . . . . . . . . (6,223) (5,745) (3,030)
Interest income. . . . . . . . . . 201 260 189
Other income . . . . . . . . . . . 274 179 -
Income (loss) before income
taxes ------ ------ ------
and extraordinary item . . . . . 10,872 460 (2,313)
Income tax expense . . . . . . . . 3,531 245 332
------ ------ ------
Income (loss) before
extraordinary item. . . . . . . . 7,341 215 (2,645)
Extraordinary item-loss on
early retirement of debt. . . . - (476) (908)
------- ------ -------
Net income (loss). . . . . . . . . 7,341 (261) (3,553)
Preferred stock dividend . . . . . - (109) (190)
------- ------- ------
Net income (loss) applicable
to common stockholders. . . . . $ 7,341 $ (370) $ (3,743)
======= ======= ========
Basic earnings per common share:
Income (loss) before
extraordinary item . . . . . $ 0.56 $ 0.02 $ (0.85)
Extraordinary item. . . . . . . - (0.07) (0.27)
------- ------- ------
Net income (loss) . . . . . . . $ 0.56 $ (0.05) $ (1.12)
======= ======= ========
Diluted earnings per common share:
Income (loss) before
extraordinary item . . . . . $ 0.53 $ 0.01 $ (0.85)
Extraordinary item. . . . . . . - (0.06) (0.27)
------- ------- ------
Net income (loss) . . . . . . . $ 0.53 $ (0.05) $ (1.12)
======= ======= ========
See accompanying notes.
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
Addi- Total
tional Accu- Stock
Warrants Paid-in mulated holder's
Common Stock Outstanding Capital Deficit Equity
Shares Amount
Balance
at Decem-
ber 31,
1994 2,382,345 $ 24 $ 107 $16,157 $(4,156) $12,132
Issuance
of
common
stock,
net of
issuance
costs 3,280,520 33 - 25,433 - 25,466
Divi-
dends on
prefer-
red stock - - - - (190) (190)
Net loss - - - - (3553) (3553)
--------- ----- ------ ------ ------- -------
Balance
at De-
cember
31,
1995 5,662,865 57 107 41,590 (7,899) 33,855
Issuance
of
common
stock,
net of
issuance
costs 3,162,500 32 - 24,573 - 24,605
Exercise
of
common
stock
warrants
and
options 47,016 - - 7 - 7
Dividends
on pre-
ferred
stock - - - - (109) (109)
Net loss - - - - (261) (261)
------- ------ ----- ------ ------- ------
Balance
at
December
31,
1996 8,872,381 89 107 66,170 (8,269) 58,097
Issuance
of
common
stock,
net of
issuance
costs 8,925,000 89 - 193,870 - 193,959
Stock
issued
for
ac-
quisi-
tions 1,416,912 14 - 37,067 - 37,081
Exercise
of
common
stock,
warrants
and
options 108,807 1 (107) 647 - 541
Tax
benefit
from
exercise
of stock
options - - - 356 - 356
Net income - - - - 7,341 7,341
------- ----- ----- ----- ------ ------
Balance
at
December
31,
1997 19,323,100 $ 193 $ - $298,110 $(928) $297,375
========== ===== ====== ======== ======= ========
See accompanying notes
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
1997 1996 1995
Operating activities
Net income (loss) $7,341 $(261) $(3,553)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Extraordinary item, net - 476 908
Depreciation and amortization 21,975 12,334 6,308
Provision for environmental
and landfill costs 597 571 292
Deferred income taxes 600 176 47
Gain on sale of fixed assets (212) (98) -
Changes in operating assets and
liabilities, net of effects
from acquisitions:
Trade receivables (8,630) (2,600) (340)
Prepaid expenses and
other assets (6,187) (1,071) (161)
Accounts payable, accrued
liabilities and accrued
environmental and
landfill costs 7,287 153 1,846
Deferred revenue 2,310 656 254
Other long-term
liabilities 6,045 - -
------- ------ -------
Net cash provided by operating
activities 31,126 10,336 5,601
Investing activities
Capital expenditures (24,320) (14,003) (6,173)
Cost of acquisitions (153,048) (23,660) (62,201)
-------- -------- --------
Net cash used in investing
activities (177,368) (37,663) (68,374)
Financing activities
Net proceeds from issuances
of common stock 193,959 24,605 25,466
Exercise of common stock options 541 7 -
Tax benefit associated with
stock options 356 - -
Proceeds from issuances from
long-term debt 141,177 66,950 32,568
Debt issuance costs (1,022) (2,596) (946)
Repayments of indebtedness (188,644) (51,162) (2,698)
Redemption of preferred stock - (1,950) -
Net proceeds from issuance of
preferred stock - - 1,908
Preferred stock dividend - (109) (190)
Proceeds from (payment of) note
payable to stockholders - (12,500) 12,500
-------- -------- -------
Net cash provided by financing
activities 146,367 23,245 68,608
-------- -------- -------
Net increase (decrease) in cash
and cash equivalents 125 (4,082) 5,835
Cash and cash equivalents, at
beginning of year 2,301 6,383 548
-------- --------- --------
Cash and cash equivalents, at $2,426 $2,301 $6,383
end of year ======== ======== =======
Noncash activities
Issuance of common stock for
certain acquisitions $37,081 $ - $ -
Issuance of notes payable for
certain acquisitions 2,598 - -
Consideration held back or held
in escrow for certain
acquisitions 10,910 1,369 -
Supplemental cash flow information
Cash paid for interest $ 6,814 $6,222 $2,515
Cash (refunds) paid for
income taxes 2,260 (159) 478
See accompanying notes
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. Formation and Basis of Presentation
ADS, Inc. (ADS) was organized January 15, 1991, to acquire,
develop, and operate non-hazardous municipal solid waste
disposal, collection, and transfer operations and provide
non-hazardous solid waste disposal management services to
commercial, industrial, and residential customers. During 1993,
an affiliate of Charterhouse Equity Partners, L.P. (CEP)
purchased a controlling interest in ADS.
County Disposal, Inc. (County) was incorporated by
Charterhouse Equity Partners II, L.P. (CEPII) on April 27, 1995,
for the purpose of acquiring certain net assets of Envirite
Corporation (Envirite). On April 28, 1995 Envirite and County
entered into an Asset Purchase Agreement whereby County agreed to
purchase from Envirite certain landfill facilities and waste
transportation and collection equipment located in Livingston
County, Illinois, and Wyandot County, Ohio; all of the issued and
outstanding capital stock of County Environmental Services, Inc.,
a wholly-owned subsidiary of Envirite, which owned and operated a
landfill facility and waste transportation and collection
equipment located in Clarion County, Pennsylvania; and certain
related assets and assumption of certain liabilities.
Effective January 1, 1996, the stockholders of ADS and
County exchanged their shares for shares of a newly created
holding company by the name of American Disposal Services, Inc.
(the Company). This share exchange (the Exchange) qualifies as a
transfer of companies under common control as affiliates of
Charterhouse Group International, Inc. are the general partners
and in control of CEP and CEPII and, accordingly, the transaction
has been accounted for at historical cost in a manner similar to
pooling of interests accounting. The financial statements have
been prepared as if this Exchange had occurred as of December 31,
1994.
In July 1996, the Company issued 3,162,500 shares of common
stock at $9.00 per share in its initial public offering.
Proceeds from the offering, net of underwriting commissions and
related expenses, were $24.6 million. In April 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
proceeds from each of these offerings were used to finance
acquisitions and pay down a portion of the debt 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.
Immediately following the offering, the Company had 19,129,542
shares of common stock issued and outstanding. The offering
proceeds were used to finance acquisitions and pay down a portion
of the debt facility.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Concentration of Credit Risk
Financial instruments that potentially subject the Company
to concentration of credit risks consist primarily of trade
receivables. Credit risk on trade receivables is minimized as a
result of the large and diverse nature of the Company's customer
base. No single group or customer represents greater than 10% of
total accounts receivable. The Company maintains an allowance
for losses based on the expected collectibility of accounts
receivable. Credit losses have been within managements
expectations.
Fair Value of Financial Instruments
Trade receivables, trade payables, and debt obligations are
carried at cost which approximates fair value.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year's
financial statements to conform with the 1997 presentation.
Cash and Cash Equivalents
Cash and cash equivalents represent cash in banks and liquid
investments with original maturities of three months or less.
Restricted Cash Held in Escrow
Cash held in escrow represents cash held in banks restricted
to fund obligations incurred in acquiring businesses. These
obligations are expected to be funded in 1998.
Property and Equipment
Property and equipment are recorded at cost. Depreciation
of equipment, which includes amortization of equipment
capitalized under lease obligations, is computed using the
straight-line method over the estimated useful lives of the
respective assets assuming no salvage values as follows:
Vehicles and equipment . . . . . . 3 to 12 years
Buildings. . . . . . . . . . . . . 25 to 30 years
Expenditures for major renewals are capitalized, and
expenditures for routine maintenance and repairs are charged
to expense as incurred.
Capitalized landfill costs include expenditures for land and
related airspace, permitting costs, preparation costs, and
capitalized interest. Landfill permitting and preparation costs
represent only direct costs related to these activities,
including legal, engineering, construction of landfill
improvements, cell development costs, and the direct costs of
Company personnel dedicated for these purposes. Preparation
costs for individual secure land disposal cells are recorded in
property and equipment and amortized as the airspace is filled.
Amortization rates are based on accounting estimates by
management determined primarily from the results of engineering
studies of the total estimated preparation cost expected to be
incurred over the life of the related landfill. Landfill costs
capitalized in 1997, 1996 and 1995 include capitalized interest
of approximately $639,000, $481,000, and $0, respectively.
Intangible Assets
The cost over fair value of net assets of acquired
businesses represents long-lived intangible assets including
routes, tradenames and goodwill and is amortized on a
straight-line method over periods not exceeding 40 years. Other
intangible assets, substantially all of which are covenants not
to compete and customer lists, are amortized on the straight-line
method over their estimated lives, typically no more than 8
years. Amortization expense for fiscal years 1997, 1996, and 1995
related to intangible assets was approximately $3.0 million, $1.0
million, and $1.4 million, respectively. In 1995, the Company
determined not to enforce certain covenants not to compete which
arose from 1993 transactions. The net book value of such
covenants of $505,000 was fully written-off and included in 1995
amortization expense.
The Company continually evaluates the value and future
benefits of its intangibles. The Company assesses recoverability
from future operations using income from operations of the
related acquired business as a measure. Under this approach, the
carrying value would be reduced if it becomes probable that the
Company's best estimate for expected future cash flows of the
related business would be less than the carrying amount of the
intangible over the remaining amortization period. For the three
year period ended December 31, 1997, there were no adjustments to
the carrying amounts of intangibles resulting from these
evaluations.
Deferred Acquisition Costs
The Company capitalizes engineering, legal, accounting, and
other direct costs paid to outside parties that are incurred in
connection with potential acquisitions. The Company, however,
routinely evaluates such capitalized costs and charges to expense
those relating to abandoned acquisition candidates. Indirect
acquisition costs, such as executive salaries, general corporate
overhead, and other corporate services are expensed as incurred.
Net deferred acquisition costs, included in other intangible
assets, were approximately $478,000 and $545,000 at December 31,
1997 and 1996, respectively.
Accrued Environmental and Landfill Costs
Accrued environmental and landfill costs represent landfill
accruals which are provided for environmental compliance costs
and closure and post-closure costs. These accruals are based on
accounting estimates by management determined primarily from the
results of engineering studies and reviews and on interpretation
of the technical standards of the Environmental Protection
Agency's Subtitle D regulations, or the approved state
counterpart, and recently promulgated air emissions standards
under the Clean Air Act, as they apply on a state-by-state basis.
The Company typically provides accruals for these costs as
permitted airspace of such facilities is consumed. Closure and
post-closure monitoring and maintenance costs represent the costs
related to cash expenditures yet to be incurred when a landfill
facility ceases to accept waste and closes. Certain of these
accrued environmental and landfill costs, principally capping,
leachate collection and removal, and methane gas control and
recovery, are operating and maintenance costs to be incurred
during the 30-year period after the facility closes, but are
accrued during the operating life of the site in accordance with
the landfill operation requirements of Subtitle D and the EPA's
recently promulgated air emissions standards. An environmental
and landfill cost accrual is provided as a liability assumed for
purchased landfill operations based on permitted airspace
consumed prior to the acquisition date and is included in the
purchase price allocation (see Note 3). The Company has
estimated that, as of December 31, 1997, post-closure expenses,
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 approximate $17.3
million. In addition, the Company has estimated that, as of
December 31, 1997, closure costs expected to occur during the
operating lives of these facilities will approximate $54.4
million. These accruals are reviewed by management periodically
and revised prospectively for any significant changes in future
cost estimates.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse.
Revenue Recognition
Landfill revenues are recorded at the date of actual waste
disposal. Revenues billed prior to the performance of services
are deferred and recorded as income in the period in which the
related services are rendered, generally over a three-month
period.
Advertising Costs
Advertising costs are expensed as incurred. Advertising
costs for fiscal years 1997, 1996 and 1995 were approximately
$438,000, $181,000 and $84,000, respectively.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128), which replaced the calculation
of primary and fully diluted earnings per common share with basic
and diluted earnings per common share. Unlike primary earnings
per common share, basic earnings per common share excludes any
dilutive effects of options, warrants and convertible securities.
All earnings (loss) per common share amounts for all periods have
been presented, and where appropriate, restated to conform to the
SFAS 128 requirements (see Note 12). In restating earnings
(loss) per common share to comply with the SFAS 128 requirements,
the Company applied the recently issued Staff Accounting Bulletin
No. 98 (SAB 98). As a result of applying the provisions of SAB
98, the Company has restated 1995 loss per common share to
exclude the anti-dilutive effect of options and warrants granted
within one year of the Company's initial public offering and with
exercise prices below the initial public offering price of $9.00
per common share.
Employee Stock Options
The Company typically grants stock options for a fixed
number of shares to employees with an exercise price equal to the
fair value of the shares at the date of grant. The Company
accounts for such stock option grants in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock
Options Issued to Employees" (APB 25), and, accordingly,
typically recognizes no compensation expense for these stock
option grants.
Impact of Recently Issued Accounting Standards
In October 1996, the Accounting Standards Executive
Committee of the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities." The SOP is effective
for fiscal years beginning after December 15, 1996, and provides
that environmental remediation liabilities should be accrued when
the criteria of FAS 5, "Accounting for Contingencies," are met.
Included in the SOP are benchmarks to aid in the determination of
when such criteria are met and environmental liabilities should
be recognized. The adoption of SOP 96-1 did not have a material
effect on the Company's consolidated financial position, results
of operation, or cash flows.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
in the financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No.
130 will have no impact on the Company's consolidated financial
position, results of operations, or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim
financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective
for financial statements for fiscal years beginning after
December 15, 1997. The Company has evaluated the disclosure
requirements of SFAS No. 131 and believes that its adoption will
have no material impact on its future disclosure requirements.
3. 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 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. During 1996, the Company acquired sixteen
non-hazardous solid waste businesses, consisting of 16 collection
operations and two transfer stations. As described in Note 1,
the Company acquired three non-hazardous solid waste landfills
and a solid waste collection operation (the Envirite Acquisition)
during 1995.
The Company has not completed its valuation of certain of
its 1997 purchases and the purchase price allocations are subject
to change when additional information concerning asset and
liability valuations is completed.
The purchase prices allocated to the net assets acquired are
as follows (in thousands):
December 31,
1997 1996 1995
Property and equipment $74,472 $8,425 $62,288
Accounts receivable and inventory 4,781 810 3,363
Other assets 1,480 785 1,664
Cost over fair value of net assets
acquired. . . 128,328 15,642 3,060
Total liabilities assumed (5,424) (633) (8,174)
------- -------- -------
Total purchase price $203,637 $25,029 $62,201
======= ======= =======
The Company has entered into certain acquisition agreements
that include consideration that is issuable upon the resolution
of certain contingent incentives available to the former owners
of the acquired businesses. These contingencies are not recorded
as liabilities or shown as outstanding securities unless the
outcome of the contingency is determinable beyond reasonable
doubt. The resolution of these contingencies could result in
additional payments in cash or shares of Company common stock
(see Note 12) through September 10, 2006. The additional cash
payments are not expected to exceed $37,500,000.
The pro forma unaudited results of operations for the years
ended December 31, 1997 and 1996, assuming each acquisition above
and the public offerings (see Note 1) had occurred on January 1,
1996, are as follows (in thousands, except per share data):
Years Ended
December 31,
1997 1996
Revenues $160,869 $142,380
Operating income 24,424 18,269
Income before extraordinary item 15,272 11,319
Net income applicable to common
stockholders 15,272 10,843
Pro forma basic earnings per common
share:
Income before extraordinary item $ 0.80 $ 0.64
Extraordinary item - (0.03)
-------- --------
Net income $ 0.80 $ 0.61
======== ========
Pro forma weighted average common
stock outstanding 19,188,674 17,653,952
========== ==========
Pro forma diluted earnings
per common share:
Income before extraordinary item 0.77 $ 0.63
Extraordinary item - (0.03)
------- ---------
Net income $ 0.77 $ 0.60
======= =========
Pro forma weighted average common
stock and common stock equivalent
shares outstanding 19,833,665 18,021,839
========== ==========
The pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the
acquisitions occurred on January 1, 1996 nor are they necessarily
indicative of future operating results.
4. Property and Equipment
Property and equipment are summarized as follows (in
thousands):
December 31,
1997 1996
Land . . . . . . . . . . . . . . . .$ 18,229 $ 5,417
Landfills. . . . . . . . . . . . . . 120,949 78,547
Buildings. . . . . . . . . . . . . . 16,014 3,285
Vehicles and equipment . . . . . . . 52,903 23,977
------- -------
208,095 111,226
Less: Accumulated depreciation and
amortization. . . . . . . (33,755) (17,534)
------- --------
$ 174,340 $ 93,692
======== ========
5. Obligations
December 31,
1997 1996
Long-term debt:
Acquisition loan, ING Capital
Corporation $ 19,666 $ 41,506
Term loan, ING Capital
Corporation - 24,750
Other borrowings, with interest
rates ranging from 6.0% to 11.0% 3,171 1,101
Capital lease obligations:
Capital lease obligations with interest
and principal due monthly through
1999, at various interest rates ranging
from 9.50% to 9.75%, secured by
equipment 311 660
--------- --------
23,148 68,017
Less: Current portion 2,360 2,572
--------- --------
Long-term obligations, net of
current portion $ 20,788 $ 65,445
========= ========
In May 1997, the Company increased the amount of its
revolving credit and term loan facility (the "Credit Facility")
with ING (U.S.) Capital Corporation from $125 million to $200
million. At that time, the Credit Facility provided the Company
with a term loan of $60 million and a revolving credit facility
of $140 million to be used for acquisitions (of which $20 million
could be used for working capital and letter of credit purposes).
In October 1997, the Company repaid its $60 million term loan
with the proceeds of a public offering, and at December 31, 1997
maintains its $140 million revolving credit facility. The
various loans and lines of credit under the Credit Facility bear
interest at rates per annum equal to, at the Company's
discretion, either: (i) the prime rate, plus an applicable
margin; or (ii) the London Interbank Offered Rate ("LIBOR"), plus
an applicable margin, and mature in 2002. As of December 31,
1997, the interest rates on the acquisition loan under the Credit
Facility ranged from 7.00% to 8.50%. The Credit Facility is
secured by substantially all of the assets of the Company. The
Company's ability to use the acquisition facility is based upon a
number of covenants, including the maintenance of specified debt
to equity and fixed charge coverage ratios. At December 31, 1997
the Company was in compliance with the terms of these covenants.
In connection with refinancings during 1996 and 1995, the Company
recognized an extraordinary loss, net of income tax benefit, of
$476,000 and $908,000, respectively, representing unamortized
deferred debt issuance costs related to refinanced obligations.
At December 31, 1997, maturities of obligations (excluding
capital lease obligations) are as follows (in thousands):
1998 . . . . . . . . . . . . . . . . . . . . . . . . $ 2,160
1999 . . . . . . . . . . . . . . . . . . . . . . . . 601
2000 . . . . . . . . . . . . . . . . . . . . . . . . 180
2001 . . . . . . . . . . . . . . . . . . . . . . . . 191
2002 and thereafter. . . . . . . . . . . . . . . . . 19,705
------
$22,837
=======
6. Income Taxes
Deferred income taxes reflect the net tax effects of
temporary differences between the amount of assets and
liabilities for financial reporting and income tax purposes.
Significant components of the Company's deferred tax assets and
liabilities were as follows (in thousands):
December 31,
1997 1996
Deferred tax assets arising from:
Net operating loss carryforwards $ 3,999 $ 2,938
Closure and post-closure costs . . . 240 421
Amortization of intangibles. . . . . 1,059 881
Other. . . . . . . . . . . . . . . . 561 26
-------- --------
Total deferred tax assets. . . . . . . . 5,859 4,266
Valuation allowance. . . . . . . . . . . (1,776) (2,280)
-------- --------
Net deferred tax assets. . . . . . . . $ 4,083 $ 1,986
======== ========
Deferred tax liabilities arising from:
Property and equipment . . . . . . . . $ 4,414 $ 2,855
Amortization of intangibles and landfill 1,184 472
Other. . . . . . . . . . . . . . . . . . 501 75
-------- --------
Total deferred tax liabilities . . . . $ 6,099 $ 3,402
======== ========
Net deferred tax liability . . . . . . $ 2,016 $ 1,416
======== ========
At December 31, 1997, the Company had net operating loss
(NOL) carryforwards of approximately $10.5 million for federal
income tax purposes that expire in years 2006 to 2011. The
utilization of the NOL carryforwards is limited by future taxable
earnings generated at the subsidiary level. The Company recorded
a valuation allowance to reflect uncertainty as to the
utilization of such NOL carryforwards for financial reporting
purposes. The maximum annual utilization of such NOL
carryforwards are limited under the Internal Revenue Code as a
result of changes in ownership that have occurred.
Significant components of income tax expense were as follows
(in thousands):
Years Ended December 31,
1997 1996 1995
Current:
Federal . . . . . . . . . . . . . .$2,793 $ 99 $ 141
State . . . . . . . . . . . . . . . 138 (30) 144
------ ------ ------
2,931 69 285
Deferred:
Federal . . . . . . . . . . . . . . 553 146 38
State . . . . . . . . . . . . . . . 47 30 9
------ ------ ------
600 176 47
------ ------ -------
Total provision. . . . . . . . . . $3,531 $245 $332
====== ====== =======
A reconciliation from the statutory income tax rate to the
effective income tax rate was as follows:
Years Ended December 31,
1997 1996 1995
Federal statutory income tax rate. . . 35.0% 34.0% (34.0)%
Effect of:
State taxes, net of federal tax effect 1.1 - 3.1
Nondeductible goodwill. . . . . . . . 1.9 15.5 -
Net operating loss with no benefit. . - - 39.6
Utilization of net operating loss
carryforward. . . . . (5.0) - -
Other, net. . . . . . . . . . . . . . (0.5) 3.8 1.6
----- ----- -----
Effective tax rate . . . . . . . . . . 32.5% 53.3% 10.3%
===== ===== =====
7. Related Party Transactions
The Company had entered into a management agreement with a
stockholder for certain services to be rendered to the Company in
exchange for annual management fees. The management agreement
was terminated in connection with the initial public offering
during July 1996. Management fees of approximately $466,000 and
$659,000 were incurred in 1996 and 1995, respectively. At
December 31, 1995, the Company had a $12,500,000 unsecured note
payable outstanding to a stockholder, which was issued on
November 16, 1995 and was due November 16, 1996, bearing an
annual interest rate of prime plus 3%. The Company repaid the
note payable to the stockholder in May 1996. Interest expense
relating to this note payable was approximately $621,000 and
$180,000 in 1996 and 1995, respectively.
8. Commitments and Contingencies
Environmental and Regulatory Requirements
The business and activities of the Company are, and may
become more, extensively regulated by, among others, the federal
Environmental Protection Agency, the Department of
Transportation, the Interstate Commerce Commission, and various
state and local environmental and transportation regulatory
authorities. The Company is subject to various statutes and
regulations which include, but are not limited to, the Resource
Conservation and Recovery Act of 1976, the Federal Water
Pollution Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Clean Air Act, and
numerous state and local laws and regulations. The full impact
of these laws and regulations and the possible adoption of new
statutes and regulations with respect to the Company's facilities
and operations is uncertain and could have material adverse
effects on the Company's business, results of operations, and
financial condition in that the Company: (i) could be required
to incur additional expenses in compliance efforts, (ii) might be
unable to comply, forcing the Company to cease operations, and
(iii) could incur additional liability for past operation(s) of
acquired assets. These regulations may also impose restrictions
on the Company's operations, such as limiting the expansion of
disposal facilities, limiting or banning the disposal of
out-of-state waste or certain other categories of waste, or
mandating the disposal of local refuse.
Although the Company believes it is in substantial
compliance with current regulatory requirements, because of
heightened political and public concern over environmental
issues, companies in the waste disposal industry, including the
Company, may become subject to judicial and administrative
proceedings involving federal, state, or local agencies in the
normal course of business.
The Company has obtained some levels of pollution liability
insurance covering certain claims for sudden or gradual onset
environmental damage at its landfill sites. The Company carries
a comprehensive general liability insurance policy which
management considers adequate to protect its assets and
operations from other risks.
The Company also may be subject to claims for personal
injury or property damage arising out of motor vehicle accidents
involving its trucks. The Company currently carries insurance
with policy limits which management believes to be sufficient to
cover these risks. If the Company were to incur liabilities
outside of or in excess of its insurance limits, its financial
condition could be adversely affected.
In connection with the Company's existing landfills, the
Company has obtained financial assurance bonds for approximately
$26.9 million at December 31, 1997, from a financial institution
to provide financial assurance that closure and postclosure
expenses will be met in the event that the Company is not able to
fulfill its closure and postclosure obligations.
Contingent Payments Related to Acquisitions
The Company has entered into certain acquisition agreements
that include consideration that is issuable upon the resolution
of certain contingent incentives available to the former owners
of the acquired businesses. See Note 3 and Note 12 for further
discussion.
Future Minimum Lease Payments
At December 31, 1997, future minimum lease payments under
noncancelable lease obligations are as follows (in thousands):
Capital Operating
Leases Leases
1998 . . . . . . . . . . . . . . . . . $ 224 $ 2,012
1999 . . . . . . . . . . . . . . . . . 111 1,521
2000 . . . . . . . . . . . . . . . . . - 1,335
2001 . . . . . . . . . . . . . . . . . - 1,295
2002 and thereafter. . . . . . . . . . - 6,262
----- -------
Total minimum payments . . . . . . . . 335 $12,425
=======
Less: Amount representing interest . . 24
-----
Present value of net minimum lease
payments. . . . . . . . . $ 311
======
Rental expense in 1997, 1996, and 1995 was approximately
$1.8 million, $1.3 million and $793,000, respectively.
9. Retirement Plan
Effective January 1, 1996, the Company established a defined
contribution retirement savings plan covering substantially all
employees of the Company. Each participant may elect to defer a
portion of annual compensation subject to certain limitations.
The Company matches up to 50% of the first $1,000 of participant
contributions to the plan. The Company's contributions for the
years ended December 31, 1997 and 1996 were approximately
$129,000 and $94,000, respectively.
10. Redeemable Preferred Stock
On March 28, 1995, the Company issued 1,950 of its Series A
Preferred Stock and 46,550 warrants to purchase shares of common
stock of the Company, for $1,950,000. The holder of the warrants
had the right to purchase one common share for each warrant held
at the exercise price of $.10 per share on or before December 31,
2002. The Company redeemed the outstanding preferred stock in
May 1996, and paid any accrued dividends related to the preferred
stock. The warrants were exercised in 1996.
11. Stockholders' Equity
Stock Options
The Company's Board of Directors adopted the American
Disposal Services, Inc. 1996 Stock Option Plan effective January
1, 1996. The plan permits grants of options up to an aggregate of
1,600,000 shares of common stock to employees and certain
consultants of the Company, on such terms as the Company's
compensation committee (or a stock option subcommittee thereof)
determines. During 1997, the Company's stockholders approved an
increase in the aggregate number of shares available for grant
under the plan from 1,100,000 shares to 1,600,000 shares.
Options granted under the plan as of January 1, 1996 replaced
existing stock options granted by ADS and County in connection
with the Exchange. The stock options vest over three and five
year periods and are exercisable over a ten year period from the
original grant dates. All vesting is subject to acceleration
under specified circumstances.
Options to purchase an aggregate of 63,601 shares were
granted outside the plan to a former employee and were fully
vested as of January 1, 1996. Such shares have an exercise price
of $7.17 per share, increasing at 25% per annum from the date of
original grant of the ADS stock options they replace.
A summary of stock option information follows:
1997 1996 1995
------- ------- -------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at
beginning
of year 934,914 $ 7.47 869,617 $ 7.36 186,444 $ 7.17
Granted 476,735 21.29 68,270 9.00 683,173 7.41
Exercised (49,793) 10.86 (467) 7.17 0 -
Forfeited (9,286) 12.98 (2,506) 7.64 0 -
-------- ------ ------- ------- ------- -------
Outstanding 1,352,570 $12.58 934,914 $ 7.47 869,617 $ 7.36
at end of ========= ====== ======= ====== ======= =======
year
Exercisable at
end of year 620,585 434,553 105,223
Available
future grant 260,771 228,220 293,984
Weighted
average
value of
options
granted
during
the year $10.75 $ 4.33 $ 1.88
Options outstanding and exercisable as of December 31, 1997
by price range:
Outstanding Exercisable
--------------------- ----------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Shares Life in Years Price Shares Price
Range of Exercise
Prices
$ 7.17-$ 9.00 858,205 7.4 $ 7.48 596,653 $ 7.42
$17.25-$17.50 282,431 9.2 $17.36 - -
$21.67-$29.63 211,934 9.2 $26.84 23,932 $22.97
The Company has elected to follow APB 25 and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123), requires use of option valuation models that were not
developed for use in valuing stock options. Under APB 25,
because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Disclosure of pro forma information regarding net income
(loss) and net income (loss) per common share is required by SFAS
123, and has been determined as if the Company had accounted for
its stock options granted in 1997, 1996, and 1995 using SFAS 123.
The options granted in 1997 and 1996 were valued using the
Black-Scholes option pricing model. The options granted in 1995,
as a non-public company, were valued using the minimum value
method. The Black-Scholes option valuation model requires the
input of highly subjective assumptions and, because changes in
the subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the model cannot
necessarily provide a single measure of the fair value of its
stock options. The following assumptions were
utilized in the valuation:
December 31,
1997 1996 1995
Risk-free interest rate: 6.31% 6.65% 5.85%
Expected dividend yield. 0% 0% 0%
Expected stock price volatility 48.9% 44.4% n/a
Expected life of options 5 years 5 years 5 years
Had compensation cost for the Company' stock options granted
in 1997 and 1996 been determined based on the fair value at the
dates of grants, the Company's net income (loss) and net income
(loss) per common share would have been as follows on a pro forma
basis (in thousands, except per share data):
Years Ended December 31,
1997 1996 1995
Net income (loss) applicable to
common stockholders As reported $7,341 $(370) $(3,743)
Pro Forma 5,998 (687) (3,807)
Basic earnings (loss)per
common share As reported 0.56 (0.05) (1.12)
Pro Forma 0.46 (0.10) (1.14)
Diluted earnings (loss) per
common share As reported 0.53 (0.05) (1.12)
Pro Forma 0.43 (0.09) (1.14)
The pro forma effect for 1997, 1996, and 1995 is not
representative of the pro forma effect in future years as the pro
forma disclosures reflect only the fair value of stock options
granted in 1997, 1996, and 1995 and do not reflect the fair value
of outstanding options granted prior to 1995.
Stock Warrants
In connection with obtaining various credit agreements, the
Company issued warrants to purchase 168,905 shares of common
stock with exercise prices ranging from $4.72 to $7.41 per share.
The Company recorded the fair value of the warrants as a
component of equity and recognized debt issuance cost of
$106,666. The warrants expire 10 years from date of issuance.
On November 13, 1997 warrant certificates representing 26,137
shares with an exercise price of $7.17 per share and 45,193
shares with an exercise price of $4.72 per share were exercised
on a cashless basis. On January 9, 1998 warrant certificates
representing 48,787 shares with an exercise price of $7.41 per
share were exercised on a cashless basis.
Preferred Stock
In connection with the Exchange, 5,000,000 shares of new
preferred stock of the Company were authorized with none issued
at December 31, 1997 and 1996.
12. Earnings Per Share
The following table sets forth the computation of earnings
(loss) per common share (in thousands, except per share data):
Years Ended December 31,
1997 1996 1995
Numerator:
Net income (loss) applicable to
common stockholders $ 7,341 $ (370) $ (3,743)
======== ========= =========
Denominator:
Denominator for basic earnings per
common share-weighted-average
shares 13,177,346 7,063,928 3,340,512
Effect of dilutive securities:
Stock options and warrants 644,991 401,122 -
---------- --------- --------
Denominator for diluted earnings
per common share-adjusted
weighted-average shares and
assumed conversions 13,822,337 7,465,050 3,340,512
---------- --------- ---------
Basic earnings per common share $ 0.56 $ ( 0.05) $ (1.12)
Diluted earnings per common share 0.53 (0.05) (1.12)
Options to purchase 171,500, 13,502, and 3,000 shares of
common stock at $27.13, $29.63, and $29.00, respectively, were
outstanding during 1997, but were not included in the computation
of diluted earnings per common share because the options'
exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
Under one of the Company's acquisition agreements, if
certain revenue goals are met by the former owner of the acquired
business, the Company is obligated to deliver up to 115,000
additional shares of common stock to the former owner. No
portion of the 115,000 additional shares are included in the
computation of diluted earnings per common share in 1997 because
none of the revenue goals have been met as of December 31, 1997.
Under another acquisition agreement, if certain contracts are
obtained or waste volume goals are met by the former owner of the
acquired business, the Company is obligated to deliver additional
shares of stock to the former owner. As the amount of shares are
to be determined using a future share price, it is not possible
to estimate the amount of shares that could be delivered by the
Company. The value of additional shares to be issued is not
expected to exceed $12,500,000. No additional shares are
included in the computation of diluted earnings per common share
in 1997 because the contracts have not been obtained and waste
volume goals have not been met as of December 31, 1997.
Subsequent to December 31, 1997, the Company has issued
1,304,444 additional shares of common stock in conjunction with
subsequent acquisitions and the exercise of warrants and stock
options.
13. Subsequent Events
Subsequent to December 31, 1997, the Company has acquired
twelve solid waste companies. On January 5, 1998, the Company
acquired all of the outstanding stock of R.C. Miller Enterprises,
Inc. (R.C. Miller). The Company's acquisition of R.C. Miller
represents the substantial majority of the net assets of
companies acquired subsequent to December 31, 1997.
Selected quarterly financial data for 1997 and 1996 is as
follows (in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1997
Net Sales $18,511 $27,763 $35,373 $39,716 21,363
Gross Profit 8,619 12,575 16,039 18,183 55,416
Net income 446 1,236 2,515 3,144 7,341
Basic earnings per
common share 0.05 0.11 0.18 0.17 0.56
Diluted earnings per
common share 0.05 0.10 0.17 0.17 0.53
1996
Net Sales $11,724 $13,453 $15,122 $16,505 $56,804
Gross Profit 5,616 6,391 7,022 7,399 26,428
Net income (loss)
before
extraordinary
item (479) (199) 227 557 106
Net income (loss)
applicable to
common stockholders (479) (675) 227 557 (370)
Basic earnings (loss)
per common share
before
extraordinary
item (0.08) (0.04) 0.03 0.06 0.02
Diluted earnings
(loss) per common
share before
extraordinary
item (0.08) (0.04) 0.03 0.06 0.01
Basic and diluted
earnings (loss)
per common share (0.08) (0.12) 0.03 0.06 (0.05)
Note:
Earnings per common share have been restated to comply with
SFAS No. 128. The earnings per common share computation for the
year is a separate, annual calculation. Accordingly, the sum of
the quarterly earnings per common share amounts do not
necessarily equal the earnings per common share amounts for the
year.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
American Disposal Services
of Kansas, Inc. Kansas
Tate's Transfer Systems, Inc. Missouri
Pittsburgh County Landfill, Inc. Oklahoma
American Disposal Services of
Missouri, Inc. Oklahoma
County Disposal, Inc. Delaware
ADS of Illinois, Inc. Illinois
County Disposal (Ohio), Inc. Delaware
County Landfill, Inc. Delaware
ADS, Inc. Oklahoma
Ross Bros. Waste & Recycling Co., Inc. Ohio
Bowers - Phase II, Inc. Ohio
Allied Waste Systems, Inc. Ohio
Packman, Inc. Kansas
R.C. Miller Refuse Service, Inc. Ohio
Stark Recycling, Inc. Ohio
Nimishillen Industrial Park, Inc. Ohio
Resource Recovery, Inc. Kansas
Oklahoma Refuse, Inc. Oklahoma
Southwest Waste, Inc. Missouri
Shred-All Recycling, Inc. Illinois
American Disposal Services of
Illinois, Inc. Delaware
Environtech, Inc. Illinois
T&G Container Co., Inc. Indiana
Sunset Disposal, Inc. Kansas
Fred Barbara Trucking Co., Inc. Illinois
Illinois Bulk Handlers, Inc. Illinois
R.C. Miller Enterprises, Inc. Ohio
Tri-State Equipment Sales &
Service, Inc. Ohio
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN DISPOSAL SERVICES, INC.
The undersigned corporation, in order to amend its Restated
Certificate of Incorporation, hereby certifies as follows:
FIRST: The name of the corporation (the "Corporation") is:
AMERICAN DISPOSAL SERVICES, INC.
SECOND: The Corporation hereby amends its Restated
Certificate of Incorporation as follows:
The first paragraph of Article FOURTH is hereby amended in
its entirety to read as follows:
"FOURTH: The total number of shares of capital stock
which the Corporation shall have authority to issue is
sixty-five million (65,000,000) shares, consisting of
sixty million (60,000,000) shares of common stock, par
value one cent ($0.01) per share ("Common Stock"), and
five million (5,000,000) shares of preferred stock, par
value one cent ($0.01) per share ("Preferred Stock")."
THIRD: The amendment to the Corporation's Certificate of
Incorporation was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, AMERICAN DISPOSAL SERVICES, INC. has
caused this certificate to be signed and attested by its duly
authorized officer, this 7th day of October, 1997.
AMERICAN DISPOSAL SERVICES, INC.
By: /s/ Ann L. Straw
Ann L. Straw
Vice President
ATTEST:
/s/ Stephen W. Rubin
Stephen W. Rubin
Assistant Secretary
Stephen W. Rubin
EXHIBIT 10.3
_________________________________________________________________
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
AMERICAN DISPOSAL SERVICES, INC.
a Delaware corporation,
and
RICHARD L. DeYOUNG
an individual
_________________________________________________________________
TABLE OF CONTENTS
PAGE
1. Position and Duties; Location . . . . . . . . . . . . . . 1
2. Term of Employment. . . . . . . . . . . . . . . . . . . . 2
3. Compensation, Benefits and Reimbursement. . . . . . . . . 2
3.1 Base Salary. . . . . . . . . . . . . . . . . . . . . 2
3.2 Increases in Base Salary . . . . . . . . . . . . . . 2
3.3 Bonus. . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Target Bonus . . . . . . . . . . . . . . . . . 3
(b) Determination of Bonus . . . . . . . . . . . . 3
3.4 Additional Benefits. . . . . . . . . . . . . . . . . 3
(a) Officer Benefits. . . . . . . . . . . . . . . . 3
(b) Vacation . . . . . . . . . . . . . . . . . . . 3
(c) Life Insurance. . . . . . . . . . . . . . . . . 4
(d) Automobile. . . . . . . . . . . . . . . . . . . 4
(e) Reimbursement for Expenses. . . . . . . . . . . 4
(f) Withholding . . . . . . . . . . . . . . . . . . 4
4. Termination of the Agreement. . . . . . . . . . . . . . . 4
4.1 Termination by Company Defined . . . . . . . . . . . 4
(a) Termination Without Cause . . . . . . . . . . . 4
(b) Termination For Cause . . . . . . . . . . . . . 5
(c) Termination by Reason of Death or Disability. . 5
4.2 Termination by Officer Defined . . . . . . . . . . . 6
(a) Termination Other Than For Good Reason . . . . 6
(b) Termination For Good Reason . . . . . . . . . . 6
(c) Good Reason Following a Change in Control . . . 6
4.3 Effect of Termination. . . . . . . . . . . . . . . . 8
(a) Termination by Company. . . . . . . . . . . . . 9
(i) Termination Without Cause . . . . . . . . 9
(ii) Termination For Cause . . . . . . . . . . 9
(iii) Termination Due to Death or
Permanent Disability . . . . . . . . . . 9
(b) Termination by Officer . . . . . . . . . . . . . 10
(i) Termination Other Than For Good Reason. . 10
(ii) Termination For Good Reason . . . . . . . 10
4.4 Severance Payment. . . . . . . . . . . . . . . . . . 10
(a) Definition of "Severance Payment" . . . . . . . 10
(b) Payment of Severance Payment . . . . . . . . . 11
(c) Other Severance Benefits. . . . . . . . . . . . 11
(d) Full Settlement of All Obligations. . . . . . . 12
(e) Change in Control . . . . . . . . . . . . . . . 12
4.5 Gross-Up . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Offset . . . . . . . . . . . . . . . . . . . . . . . 14
5. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . . 15
5.1 Payment Obligations. . . . . . . . . . . . . . . . . 15
5.2 Confidentiality. . . . . . . . . . . . . . . . . . . 15
5.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Entire Agreement; Modifications. . . . . . . . . . . 15
5.5 Notices. . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Headings . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Governing Law. . . . . . . . . . . . . . . . . . . . 16
5.8 Arbitration. . . . . . . . . . . . . . . . . . . . . 16
5.9 Severability . . . . . . . . . . . . . . . . . . . . 17
5.10 Survival of Company's Obligations. . . . . . . . . . 17
5.11 Survival of Certain Rights and Obligations . . . . . 17
5.12 Counterparts . . . . . . . . . . . . . . . . . . . . 17
EXECUTIVE EMPLOYMENT AGREEMENT
THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of the first day of January, 1998, (the
"Effective Date"), by and between AMERICAN DISPOSAL SERVICES,
INC., a Delaware corporation (the "Company") and RICHARD L.
DeYOUNG, an individual (the "Officer").
RECITAL
WHEREAS, the Officer has been employed by and currently
serves as the Company's President-Chief Executive Officer;
WHEREAS, the Company recognizes Officer's substantial
contribution to the growth and success of the Company; and
desires to provide for continued employment of Officer in order
to reinforce and encourage his continued attention and dedication
to the Company as a member of the Company's senior management;
WHEREAS, Company desires to continue to employ Officer
as President-Chief Executive Officer, and Officer is willing to
continue to accept such employment by Company, on the terms and
subject to the conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the foregoing
mutual covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Position and Duties; Location.
During the Term (as defined in Paragraph 2 below) of
the Agreement, Officer agrees to be employed by and to serve the
Company as its President-Chief Executive Officer subject to the
control of the Board of Directors (the "Board"), and the Company
agrees to employ and retain Officer in such capacities. During
the Term (as defined in Paragraph 2 below) Officer agrees to
devote substantially all of his working time, energy, efforts and
abilities to the business affairs of the Company and its
subsidiaries. Officer's principal place of business will be
located within 25 miles of Burr Ridge, Illinois. The Company
shall provide Officer with working facilities and support
services as are suitable to his position and appropriate for the
performance of his duties.
2. Term of Employment.
The Term (the "Term") of the Agreement shall be for the
period commencing on the Effective Date and ending on the last
day of the thirty-sixth (36th) month following the Effective Date
(the "Termination Date"), unless terminated earlier pursuant to
the Agreement (the "Early Termination Date"); provided, however,
that commencing on the last day of the twelfth (12th) month
following the Effective Date and each subsequent anniversary
thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six (6) months before such
date, either party shall have given written notice to the other
that it does not wish to extend the Term of the Agreement.
References herein to the Term of the Agreement shall refer to
both the initial Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1 Base Salary. During the Term of the Agreement and
subject to the terms and conditions set forth herein, Company
agrees to pay to Officer an annual "Base Salary" equal to Three
Hundred Thousand Dollars ($300,000), or such higher amount as may
from time-to-time be determined by the Board. Unless otherwise
agreed in writing by Officer and Company, the salary shall be
payable in substantially equal semimonthly installments in
accordance with the standard policies of Company in existence
from time-to-time.
3.2 Increases in Base Salary. Officer's Base Salary
shall be reviewed no less frequently than on each anniversary of
the Effective Date during the Term by the Board (or such
committee as may be appointed by the Board for such purpose).
The Base Salary payable to Officer may be increased on each such
anniversary date (and such other times as the Board or a
committee of the Board may deem appropriate during the Term of
the Agreement) to an amount determined by the Board (or a
committee of the Board). Any increase in Base Salary or other
compensation shall in no way limit or reduce any other
obligations of Company hereunder and, once established at an
increased specified rate, Officer's Base Salary shall not be
reduced unless Officer otherwise agrees in writing.
3.3 Bonus. During the Term of the Agreement, Officer
shall be eligible for the following bonus:
(a) Target Bonus. Officer shall be eligible to
receive as an annual bonus an amount not less than fifty percent
(50%) of his Base Salary for each fiscal year of the Company (or
portion thereof) during the Term of the Agreement as determined
below. Any such bonus shall be payable within seventy-five (75)
days after the end of Company's fiscal year to which such bonus
relates; provided, however, that the payment of such bonus may be
deferred upon mutual agreement by Officer and the Company.
(b) Determination of Bonus. With respect to each
fiscal year during the Term, the actual amount of the bonus
payable pursuant to Subparagraph (a) shall be determined on the
basis of criteria with respect to the performance of Officer
and/or Company established by the Board (or a committee of the
Board) prior to the commencement of the fiscal year and such
other factors and conditions as the Board may deem relevant;
provided, however, that the criteria for the bonus for 1998 shall
be established in the first quarter of 1998.
3.4 Additional Benefits. During the Term of the
Agreement, Officer shall be entitled to the following additional
benefits:
(a) Officer Benefits. Officer shall be entitled
to such benefits as are generally provided by the Company to its
senior executive employees including, without limitation, (i)
Company stock incentive plans, annual incentive compensation
plans, profit sharing/pension plans, deferred compensation plans,
annual physical examinations, dental, vision, sick pay, and
medical plans, personal catastrophe and accidental death
insurance plans, financial planning and automobile arrangements,
retirement plans and supplementary executive retirement plans, if
any, and (ii) personal leave, sick leave and vacation leave to
the extent such leaves are provided to all senior executive
employees. Officer is also entitled to the benefit of any life
and health insurance plans, pension, stock option plans and other
similar plans as the Company may have or may establish from time-
to-time for its senior executive employees.
(b) Vacation. Officer shall be entitled to a
minimum of four (4) weeks of vacation during each year during the
Term of the Agreement and any extensions thereof, prorated for
partial years. Any accrued vacation not taken during any year
may be carried forward to subsequent years; provided, that
Officer may not accrue more than eight (8) weeks of unused
vacation at any time.
(c) Life Insurance. During Term of the
Agreement, Company shall, at its sole cost and expense, procure
and keep in effect term life insurance (a minimum three (3) year
term certain policy) on the life of Officer, payable to such
beneficiaries as Officer may from time-to-time designate, in the
aggregate amount of Two Million Five Hundred Thousand Dollars
($2,500,000); provided, however, in no event shall the premiums
for such insurance policy exceed three times normal and customary
rates for a normal healthy male of similar age. Such policy
shall be owned by Officer or by a member of his immediate family.
The Company shall have no incidents of ownership therein.
(d) Automobile. During the Term of the
Agreement, the Company will also make available to Officer an
automobile of a make and model consistent with past practices and
shall pay all operating expenses associated with such automobile.
(e) Reimbursement for Expenses. During the Term
of the Agreement, Company shall reimburse Officer for all
reasonable out-of-pocket business and/or entertainment expenses
incurred by Officer for the purpose of and in connection with the
performance of his services pursuant to the Agreement. Officer
shall be entitled to such reimbursement upon the presentation by
Officer to the Company of vouchers or other statements itemizing
such expenses in reasonable detail consistent with Company's
policies.
(f) Withholding. Compensation and benefits paid
to Officer under the Agreement shall be subject to applicable
federal, state and local wage deductions and other deductions
required by law.
4. Termination of the Agreement.
4.1 Termination by Company Defined.
(a) Termination Without Cause. Subject to the
provisions set forth in Paragraph 4.3 below, "Termination Without
Cause" shall constitute any termination by Company other than
termination for "Cause" (as defined in Paragraph 4.1(b) below).
(b) Termination For Cause. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the
Termination Date, the Company shall have the right to terminate
the Agreement for "Cause"; provided, however, that Officer shall
not be deemed to have been terminated for Cause without (i)
reasonable written notice to Officer setting forth the reasons
for the Company's intention to terminate for "Cause", (ii) an
opportunity for the Officer, together with his counsel, to be
heard before the Board, and (iii) delivery to the Officer of a
written notice of termination (which date of delivery of such
notice shall be the Early Termination Date), as defined herein,
from the Board finding that in the good faith opinion of the
Board, Officer was guilty of conduct set forth therein, and
specifying the particulars thereof in detail. For purposes of
the Agreement, "Cause" shall mean the following:
A commission of a felony, a crime involving moral
turpitude, embezzlement, misappropriation of property
of the Company or a subsidiary, any other act involving
dishonesty or fraud with respect to the Company or a
subsidiary; a material breach of a directive of the
Board which has not been cured within a specified
reasonable time after written notice of breach; or a
repeated failure after written notice to follow the
reasonable directives of the Board.
(c) Termination by Reason of Death or Disability.
Subject to the provisions set forth in Paragraph 4.3 below, prior
to the Termination Date, Company shall have the right to
terminate the Agreement by reason of Officer's death or Permanent
Disability. For purposes of the Agreement, "Permanent
Disability" shall mean the following:
The Officer is unable to perform his duties hereunder
for 180 days during any 365 consecutive days by reason
of physical or mental disability. The disability will
be deemed to have occurred on the one hundred and
eightieth (180th) day of Officer's absence or lack of
adequate performance.
4.2 Termination by Officer Defined.
(a) Termination Other Than For Good Reason.
Subject to the provisions set forth in Paragraph 4.3 below,
Officer shall have the right to terminate the Agreement for any
reason other than for Good Reason (as defined in Paragraph 4.2(b)
below), at any time prior to the Termination Date, upon written
notice delivered to Company thirty (30) days prior to the
effective date of termination specified in such notice (which
date shall be the applicable Early Termination Date).
(b) Termination For Good Reason. Subject to the
provisions of Paragraph 4.3 below, Officer shall have the right
to terminate the Agreement prior to the Termination Date in the
event of the material breach of the Agreement by Company, if such
breach is not cured by Company within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company, or, following a Change in Control (as
defined in Paragraph 4.4(e) below), under the circumstances set
forth in Paragraph 4.2(c) below. For purposes of the Agreement,
termination of the Agreement by Officer in the event of Company's
material breach of the Agreement in accordance with the
provisions of this Paragraph 4.2(b) shall be defined as
termination by Officer for "Good Reason."
(c) Good Reason Following a Change in Control.
Following a Change in Control (as defined in Paragraph 4.4(e)
below), "Good Reason" shall mean, without Officer's express
written consent, a material breach of the Agreement by Company,
including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company:
(i) the assignment to Officer of any duties
inconsistent with the position in Company that Officer held
immediately prior to the Change in Control, or an adverse
alteration in the nature or status of Officer's
responsibilities from those in effect immediately prior to
such change, or Company employs an officer in a capacity
that is senior to Officer (except that Company shall be
entitled to employ a Chairman of the Board so long as such
Chairman is not the Chief Executive Officer);
(ii) a substantial change in the nature of
the business operations of Company;
(iii) a reduction by Company in Officer's
annual Base salary as in effect on the date hereof or as the
same may be increased from time to time;
(iv) the relocation of Company's principal
executive offices to a location more than 25 miles from Burr
Ridge, Illinois (or, if different, the town in which such
offices are located immediately prior to the Change in
Control), or Company's requiring Officer to be based
anywhere other than Company's principal executive offices
except for required travel on Company's business to an
extent substantially consistent with Officer's business
travel obligations immediately prior to the Change in
Control;
(v) the failure by Company to pay Officer
any portion of his current compensation except pursuant to
an across-the-board compensation deferral similarly
affecting all officers of Company and all officers of any
person whose actions resulted in a Change in Control or any
person affiliated with Company or such person, or to pay
Officer any portion of an installment of deferred
compensation under any deferred compensation program of
Company, within seven (7) days of the date such compensation
is due;
(vi) the failure by Company to continue in
effect any compensation plan in which Officer participates
immediately prior to the Change in Control which is material
to Officer's total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan,
or the failure by Company to continue Officer's
participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of
participation relative to other participants, as existed at
the time of the Change in Control;
(vii) the failure by Company to continue to
provide Officer with benefits substantially similar to those
under any of Company's life insurance, medical, health and
accident, or disability plans in which Officer was
participating at the time of the Change in Control, the
taking of any action by Company which would directly or
indirectly materially reduce any of such benefits or deprive
Officer of any material fringe benefit enjoyed by him at the
time of the Change in Control, or the failure by Company to
provide Officer with the number of paid vacation days to
which he is entitled on the basis of years of service with
Company in accordance with Company's normal vacation policy
in effect at the time of the Change in Control or pursuant
to Officer's existing employment agreement, if any; or
(viii) the failure of Company to obtain a
satisfactory agreement from any successor to assume and
agree to perform the Agreement.
Notwithstanding the above, during the one year period
immediately following the occurrence of a Change in Control,
"Good Reason" shall mean termination of employment by the
Executive for any reason other than death or Permanent
Disability.
Officer's right to terminate Officer's employment for
Good Reason shall not be affected by Officer's incapacity due to
physical or mental illness. Officer's continued employment shall
not constitute consent to, or a waiver of rights with respect to,
any circumstance constituting Good Reason hereunder.
4.3 Effect of Termination. In the event that the
Agreement is terminated by Company or Officer prior to the
Termination Date in accordance with the provisions of this
Paragraph 4, the obligations and covenants of the parties under
this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this
Paragraph 4.3, and such other provisions of the Agreement which
shall survive termination of the Agreement as provided in
Paragraph 6.11 below. Except as otherwise specifically set
forth, all amounts due upon termination shall be payable on the
date such amounts would otherwise have been paid had the
Agreement continued through its Term; provided, however, that
Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall
be payable within thirty (30) days following the Early
Termination Date.
In the event of any such early termination in
accordance with the provisions of this Paragraph 4.3, Officer
shall be entitled to the following:
(a) Termination by Company.
(i) Termination Without Cause. In the event
that Company terminates the Agreement without Cause pursuant
to Paragraph 4.1(a) above, Officer shall be entitled to (i)
Earned Base Salary (as defined below); (ii) earned benefits
and reimbursable expenses; (iii) any earned bonus which
Officer has been awarded pursuant to the terms of the
Agreement or any other plan or arrangement as of the Early
Termination Date, but which has not been received by Officer
as of such date; (iv) any compensation earned but deferred
("Deferred Amounts"); and (v) the Severance Payment (as
defined in Paragraph 4.4 below).
(ii) Termination For Cause. In the event
that Company terminates the Agreement for Cause pursuant to
Paragraph 4.1(b) above, Officer shall be entitled to (i)
Earned Base Salary; (ii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date,
but which has not been received by Officer as of such date;
(iii) earned benefits and reimbursable expenses; and (iv)
any Deferred Amounts. Following delivery to Officer of the
notice described in Paragraph 4.1(b)(i), the Company may
suspend Officer from further duties with full pay and
benefits as provided hereunder as if Officer continued to be
employed until the delivery of the notice of termination
described in Paragraph 4.1(b)(iii). Officer shall not be
entitled to any future annual bonus or Severance Payment.
(iii) Termination Due to Death or Permanent
Disability. In the event that the Company terminates the
Agreement by reason of Officer's death or Permanent
Disability pursuant to Paragraph 4.1(c) above, Officer shall
be entitled to (i) Earned Base Salary (as defined below);
(ii) earned benefits and reimbursable expenses; (iii) any
earned bonus which Officer has been awarded pursuant to the
terms of the Agreement or any other plan or arrangement as
of the Early Termination Date, but which has not been
received by Officer as of such date; (iv) any Deferred
Amounts; and (v) all outstanding options (whether or not
exercisable at the Early Termination Date) shall become
fully and immediately vested and may be exercised for one
year following such termination.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason.
In the event that Officer terminates the Agreement other
than for Good Reason, Officer shall be entitled to (i)
Earned Base Salary; (ii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date,
but which has not been received by Officer as of such date;
(iii) earned benefits and reimbursable expenses; and (iv)
any Deferred Amounts. Officer shall not be entitled to any
future annual bonus or Severance Payment.
(ii) Termination For Good Reason. In the
event that Officer terminates the Agreement for Good Reason,
Officer shall be entitled to (i) Earned Base Salary; (ii)
earned benefits and reimbursable expenses; (iii) any earned
bonus which Officer has been awarded pursuant to the terms
of the Agreement or any other plan or arrangement as of the
Early Termination Date, but which has not been received by
Officer as of such date; (iv) any Deferred Amounts; and (v)
the Severance Payment (as defined in Paragraph 4.4 below).
The term "Earned Base Salary" shall mean all
semimonthly installments of the Base Salary which have become due
and payable to Officer, together with any partial monthly
installment prorated on a daily basis up to and including the
applicable Termination Date.
4.4 Severance Payment.
(a) Definition of "Severance Payment." For
purposes of the Agreement, the term "Severance Payment" shall
mean an amount equal to the sum of (i) the Base Salary otherwise
payable to Officer during the remainder of the Term had such
early termination of the Agreement not occurred ("Severance
Period") and (ii) for each full or partial year remaining in the
Severance Period, the average of the annual bonuses earned by
Officer in the two (2) years immediately preceding the date of
termination (or if there are less than two (2) years immediately
preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the
event that, following a Change in Control (as defined in
Paragraph 4.4(e) below), the Company terminates the Agreement
without Cause pursuant to Paragraph 4.1(a) above or Officer
terminates the Agreement for Good Reason pursuant to Paragraph
4.2(c) above, the term "Severance Payment" shall mean an amount
equal to no less than three (3) times the sum of the Base Salary
then in effect and the Average Bonus (which Average Bonus shall
not be less than 50% of Base Salary).
(b) Payment of Severance Payment. In the event
that Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, that portion of such Severance Payment that
represents Base Salary shall be payable in monthly installments,
and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would
have been paid had Officer continued in Company's employment for
the Severance Period; provided, however, that in the event of a
Termination Following a Change in Control (as defined in
Paragraph 4.4(e) below), the Severance Payment shall be payable
in a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that
Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, he shall also be entitled to:
(i) the full and immediate vesting of any awards
granted to Officer under the Company's stock option and incentive
compensation plans; and
(ii) to the extent elected by Officer within five days
of the Early Termination Date, in lieu of shares of Company
common stock issuable upon exercise of outstanding options (which
options shall be cancelled upon the making of the payment
referred to below), a lump sum payment, in cash, equal to the
product of (a) the excess of (x) in the case of ISOs granted
after the date hereof, the closing price of shares of Company
common stock as reported on the NASDAQ National Market on or
nearest the Early Termination Date (or, if not listed on such
exchange, on the nationally recognized exchange or quotation
system on which trading volume in shares of Company common stock
is highest), or in the case of all other options, the higher of
such closing price or the highest per share price for shares of
common stock of the Company actually paid in connection with any
Change in Control, over (y) the per share exercise price of such
option held by Officer (whether or not then fully exercisable),
and (b) the number of shares of common stock of the Company
covered by each such option as elected by Officer; provided,
however, that if the Company is prevented by the terms of its
debt instruments from making the payment described herein,
Officer shall immediately execute a cashless exercise of all
options for which such Officer elected to receive cash (whether
or not fully exercisable at the Early Termination Date) and shall
dispose of the common stock underlying such options as soon as
practicable and the Company will pay Officer the aggregate
difference between the price of the common stock at the time such
shares are sold and the price determined under (x) above;
provided further, that in the event and to the extent that such
shares cannot be sold for any reason, the Company will repurchase
such shares at the price determined under (x) above; provided,
however, that notwithstanding the foregoing, the following shall
apply with respect to a Termination without Cause pursuant to
Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a
Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent
Officer within five days of the Early Termination Date elects to
receive cash in lieu of shares of Company common stock issuable
upon exercise of outstanding options (which options shall be
cancelled upon the making of the exercises referred to below),
Officer shall immediately complete a cashless exercise of all
options for which Officer elects to receive cash (whether or not
fully exercisable at the Early Termination Date) and shall
attempt to dispose of the common stock underlying such options
within three weeks of such exercise and the Company will pay
Officer the aggregate difference between the price of the common
stock at the time such shares are sold and the price determined
under (x) above; provided further, that in the event and to the
extent such shares cannot be sold within the three week period
for any reason, the Company will repurchase such shares at the
price determined under (x) above; and
(iii) continued participation throughout the Severance
Period in all employee welfare and pension benefit plans,
programs or arrangements. In the event Officer's participation
in any such plan, program or arrangement is barred, Company shall
arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer
hereby acknowledges and agrees that any Severance Payment paid to
Officer hereunder shall be deemed to be in full and complete
settlement of all obligations of Company under the Agreement.
(e) Change in Control. For purposes of the Agreement,
"Termination Following a Change in Control" shall mean a
termination of Officer's employment with Company following a
"Change in Control" by Officer for Good Reason or by Company
other than for Cause. A "Change in Control" shall be deemed to
have occurred if:
(i) Any Person, as such term is used in
section 3(a)(9) of the Securities Exchange Act of 1934 as amended
from time to time (the "Exchange Act"), as modified and used in
sections 13(d) and 14(d) thereof, (other than (A) the Company or
any of its subsidiaries, (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
of its affiliates, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, (D) a
corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, or (E) a person or group as
used in Rule 13d-1(b) under the Exchange Act, that is or becomes
the Beneficial Owner, as such term is defined in Rule 13d-3 under
the Exchange Act, directly or indirectly, of securities of the
Company and is entitled to file on Schedule 13G or any successor
form with respect to such securities) becomes the Beneficial
Owner of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any
reason to constitute a majority of the number of directors then
serving: individuals who, on the date hereof, constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on
the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(iii) There is consummated a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, at least seventy-five percent
(75%) of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(iv) The stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
seventy-five (75%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the
Company immediately prior to such sale.
4.5 Gross-Up. In the event Officer is required
pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (the "Code")
to pay (through withholding or otherwise) an excise tax on
"excess parachute payments" (as defined in Section 280G(b) of the
Code) made by the Company pursuant to the Agreement or otherwise,
Company shall pay Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (a
"Gross-Up Payment") as is necessary to place Officer in the same
after-tax financial position that he would have been in if he had
not incurred any tax liability under Section 4999 of the Code.
The Gross-Up Payment shall be determined pursuant to the
procedures set forth in Annex A hereto.
4.6 Offset. Officer shall not be required to mitigate
the amount of any payment provided for under the Agreement by
seeking other employment or otherwise, nor will any payments
provided to him under the Agreement be subject to offset in
respect of any claims which the Company may have against Officer
other than with respect to loans by Officer from the Company
which are the subject of an executed note between Officer and the
Company, nor shall any payment provided hereunder be reduced by
any compensation earned by Officer as the result of employment by
another employer or by retirement benefits.
5. Miscellaneous.
5. Payment Obligations. Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right
or action which Company may have against Officer or others. In
no event shall the Officer be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to Officer under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not Officer
obtains other employment. Company agrees to pay promptly upon
receipt of proper invoices, to the fullest extent permitted by
law, all legal fees and expenses which Officer may reasonably
incur as a result of any contest by Company, Officer or others of
the validity, interpretation or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest
initiated by Officer about the amount of any payment due pursuant
to this Agreement); provided, however, that in the event that it
is finally determined by arbitration pursuant to Paragraph 5.8
that Officer was terminated for Cause or that, in the case of
termination of this Agreement by Officer, Good Reason did not
exist, then Officer shall be obligated to repay to Company the
full amount of all such legal fees and expenses paid for Officer
by Company in connection with that contest.
5.2 Confidentiality. Officer agrees that all
confidential and proprietary information relating to the business
of Company shall be kept and treated as confidential both during
and after the Term of the Agreement, except as may be permitted
in writing by the Board or as such information is within the
public domain or comes within the public domain without any
breach of the Agreement.
5.3 Waiver. The waiver of the breach of any provision
of the Agreement shall not operate or be construed as a waiver of
any subsequent breach of the same or other provision hereof.
5.4 Entire Agreement; Modifications. Except as
otherwise provided herein and the letter attached hereto as
Exhibit 1, the Agreement (together with the agreements and plans
referred to herein) represents the entire understanding among the
parties with respect to the subject matter hereof, and the
Agreement supersedes any and all prior understandings,
agreements, plans and negotiations, whether written or oral, with
respect to the subject matter hereof, including without
limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses,
reimbursements or other payments to Officer from Company. All
modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is
sought.
5.5 Notices. All notices and other communications
under the Agreement shall be in writing and shall be given by
facsimile or first class mail, certified or registered with
return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours
after transmission of a facsimile to the respective persons named
below:
If to Company: American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, Illinois 60521
If to Officer: Richard L. DeYoung
11434 Plattner Drive
Mokena, Illinois 60448
Any party may change such party's address for notices
by notice duly given pursuant hereto.
5.6 Headings. The paragraph headings herein are
intended for reference only and shall not by themselves determine
the construction or interpretation of the Agreement.
5.7 Governing Law. The Agreement shall be governed by
and construed in accordance with the laws of the State of
Illinois without regard to its principles of conflict of laws.
5.8 Arbitration. Any controversy or claim arising out
of or relating to the Agreement or the breach of the Agreement
that cannot be resolved by Officer on the one hand or the Company
on the other, including any dispute as to the calculation of
Officer's benefits or any payment hereunder, shall be submitted
to arbitration in the City of Chicago, in accordance with
Illinois state law and the procedures of the American Arbitration
Association. The determination of the arbitrator shall be
conclusive and binding on the Company and Officer, and judgment
may be entered on the arbitrator's award in any court having
jurisdiction.
5.9 Severability. Should a court or other body of
competent jurisdiction determine that any provision of the
Agreement is excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, all other provisions of the Agreement shall
be deemed valid and enforceable to the extent possible.
5.10 Survival of Company's Obligations. Company's
obligations hereunder shall not be terminated by reason of any
liquidation, dissolution, bankruptcy, cessation of business, or
similar event relating to Company. The Agreement shall not be
terminated by any merger or consolidation or other reorganization
of Company. In the event any such merger, consolidation or
reorganization shall be accomplished by transfer of stock or by
transfer of assets or otherwise, the provisions of the Agreement
shall be binding upon and inure to the benefit of the surviving
or resulting corporation or person. The Agreement shall be
binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties;
provided, however, that except as herein expressly provided, the
Agreement shall not be assignable either by Company (except to an
affiliate of the Company, in which event Company shall remain
liable if the affiliate fails to meet any obligations to make
payments or provide benefits or otherwise) or by Officer.
5.11 Survival of Certain Rights and Obligations. The
rights and obligations of the parties hereto pursuant to
Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13
hereof shall survive the termination of the Agreement.
5.12 Counterparts. The Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute one and the same Agreement.
5.13 Indemnification. In addition to any rights to
indemnification to which Officer is entitled under the Company's
Articles of Incorporation and By-Laws or under the agreement
between Company and Officer attached hereto as Exhibit 2, Company
shall indemnify Officer at all times during and after the Term of
the Agreement to the maximum extent permitted under applicable
law of the State of Illinois or any successor provision thereof
and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action,
suit, or proceeding, to the maximum extent permitted under such
applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed
the Agreement.
COMPANY:
AMERICAN DISPOSAL SERVICES, INC.,
a Delaware corporation
By: _______________________________
Name
Title
Date: _____________________________
OFFICER:
By: _______________________________
Name
Title
Date: _____________________________
ANNEX A
The Gross-Up Payment shall be equal to the excess of the Total
Payments over the payment provided for by this paragraph. For
purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i)
all payments or benefits received or to be received by Officer in
connection with a Change in Control or the termination of
Officer's employment (whether payable pursuant to the terms of
the Agreement or of any other plan, arrangement or agreement with
Corporation, its successors, any person whose actions result in a
Change in Control or any person affiliated (or which, as a result
of the completion of the transactions causing a Change in
Control, will become affiliated) with Corporation or such person
within the meaning of Section 1504 of the Code (the "Total
Payments")) shall be treated as "parachute payments" (within the
meaning of Section 280G(b)(2) of the Code) unless, in the opinion
of tax counsel selected by Corporation's independent auditors and
reasonably acceptable to Officer, such payments or benefits (in
whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of
the Code) shall be treated as subject to the Excise Tax, unless
in the opinion of such tax counsel such excess parachute payments
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code, or are
not otherwise subject to the Excise Tax, and (ii) the value of
any noncash benefits or any deferred payment or benefit shall be
determined by the Corporation's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of
taxation in the state and locality of the residence of Officer on
the Early Termination Date, net of the maximum reduction in
federal income taxes that could be obtained from deduction of
such state and local taxes.
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
AMERICAN DISPOSAL SERVICES, INC.
Delaware corporation,
and
JOHN J. McDONNELL
an individual
<PAGE>
TABLE OF CONTENTS
PAGE
1. Position and Duties; Location 1
2. Term of Employment 2
3. Compensation, Benefits and Reimbursement 2
3.1 Base Salary 2
3.2 Increases in Base Salary 2
3.3 Bonus 3
(a) Target Bonus 3
(b) Determination of Bonus 3
3.4 Additional Benefits 3
(a) Officer Benefits 3
(b) Vacation 3
(c) Life Insurance 4
(d) Reimbursement for Expenses 4
(e) Automobile 4
(f) Withholding 4
4. Termination of the Agreement 4
4.1 Termination by Company Defined 4
(a) Termination Without Cause 4
(b) Termination For Cause 5
(c) Termination by Reason of Death or Disability 5
4.2 Termination by Officer Defined 6
(a) Termination Other Than For Good Reason 6
(b) Termination For Good Reason 6
(c) Good Reason Following a Change in Control 6
4.3 Effect of Termination 8
(a) Termination by Company 9
(i) Termination Without Cause 9
(ii) Termination For Cause 9
(iii) Termination Due to Death or Permanent
Disability 9
(b) Termination by Officer 10
(i) Termination Other Than For Good Reason 10
(ii) Termination For Good Reason 10
4.4 Severance Payment 10
(a) Definition of "Severance Payment" 10
(b) Payment of Severance Payment 11
(c) Other Severance Benefits 11
(d) Full Settlement of All Obligations 12
(e) Change in Control 12
4.5 Gross-Up 14
4.6 Off set 14
5. Miscellaneous 15
5.1 Payment Obligations 15
5.2 Confidentiality 15
5.3 Waiver 15
5.4 Entire Agreement; Modifications 15
5.5 Notices 16
5.6 Headings 16
5.7 Governing Law 16
5.8 Arbitration 16
5.9 Severability 17
5.10 Survival of Company's Obligations 17
5.11 Survival of Certain Rights and Obligations 17
5.12 Counterparts 17
5.13 Indemnification 18
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of the first day of January, 1 998, (the
"Effective Date"), by and between AMERICAN DISPOSAL SERVICES,
INC., a Delaware corporation (the "Company") and JOHN J.
McDONNELL, an individual (the "Officer").
RECITAL
WHEREAS, the Officer has been employed by and currently
serves as the Company's Vice President-Engineering;
WHEREAS, the Company recognizes Officer's substantial
contribution to the growth and success of the Company; and
desires to provide for continued employment of Officer in order
to reinforce and encourage his continued attention and dedication
to the Company as a member of the Company's senior management;
WHEREAS, Company desires to continue to employ Officer
as Vice President-Engineering, and Officer is willing to continue
to accept such employment by Company, on the terms and subject to
the conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the foregoing
mutual covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1 . Position and Duties; Location.
During the Term (as defined in Paragraph 2 below) of
the Agreement, Officer agrees to be employed by and to serve the
Company as its Vice President Engineering subject to the control
of the Board of Directors (the "Board"), and the Company agrees
to employ and retain Officer in such capacities. During the Term
(as defined in Paragraph 2 below) Officer agrees to devote
substantially all of his working time, energy, efforts and
abilities to the business affairs of the Company and its
subsidiaries. Officer's principal place of business will be
located within 25 miles of Burr Ridge, Illinois. The Company
shall provide Officer with working facilities and support
services as are suitable to his position and appropriate for the
performance of his duties.
2. Term of Employment.
The Term (the "Term") of the Agreement shall be for the
period commencing on the Effective Date and ending on the last
day of the eighteenth (1 8th) month following the Effective Date
(the "Termination Date"), unless terminated earlier pursuant to
the Agreement (the "Early Termination Date"); provided, however,
that commencing on the last day of the twelfth (12th) month
following the Effective Date and each subsequent anniversary
thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six (6) months before such
date, either party shall have given written notice to the other
that it does not wish to extend the Term of the Agreement.
References herein to the Term of the Agreement shall refer to
both the initial Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1 Base Salary. During the Term of the Agreement and
subject to the terms and conditions set forth herein, Company
agrees to pay to Officer an annual "Base Salary" equal to
Thousand Dollars ($ ), or such
higher amount as may from time-to-time be determined by the
Board. Unless otherwise agreed in writing by Officer and
Company, the salary shall be payable in substantially equal
semimonthly installments in accordance with the standard policies
of Company in existence from time-to-time.
3.2 Increases in Base Salary. Officer's Base Salary
shall be reviewed no less frequently than on each anniversary of
the Effective Date during the Term by the Board (or such
committee as may be appointed by the Board for such purpose).
The Base Salary payable to Officer may be increased on each such
anniversary date (and such other times as the Board or a
committee of the Board may deem appropriate during the Term of
the Agreement) to an amount determined by the Board (or a
committee of the Board). Any increase in Base Salary or other
compensation shall in no way limit or reduce any other
obligations of Company hereunder and, once established at an
increased specified rate, Officer's Base Salary shall not be
reduced unless Officer otherwise agrees in writing.
3.3 Bonus. During the Term of the Agreement, Officer
shall be eligible for the following bonus:
(a) Target Bonus. Officer shall be eligible to
receive an annual bonus for each fiscal year of the Company (or
portion thereof) during the Term of the Agreement as determined
below. Any such bonus shall be payable within seventy-five (75)
days after the end of Company's fiscal year to which such bonus
relates; provided, however, that the Chief Executive Officer of
the Company may defer payment of such bonus for a period not to
exceed one year if such officer determines that deferral is in
the best interests of the Company.
(b) Determination of Bonus. With respect to each
fiscal year during the Term, the actual amount of the bonus
payable pursuant to Subparagraph (a) shall be determined on the
basis of criteria with respect to the performance of Officer
and/or Company established by the Board (or a committee of the
Board) in consultation with the Chief Executive Officer of the
Company prior to the commencement of the fiscal year and such
other factors and conditions as the Board may deem relevant;
provided, however, that the criteria for the bonus for 1 998
shall be established in the first quarter of 1 998.
3.4 Additional Benefits. During the Term of the
Agreement, Officer shall be entitled to the following additional
benefits:
(a) Officer Benefits. Officer shall be entitled
to such benefits as are generally provided by the Company to its
senior executive employees including, without limitation, (i)
Company stock incentive plans, annual incentive compensation
plans, profit sharing/pension plans, deferred compensation plans,
annual physical examinations, dental, vision, sick pay, and
medical plans, personal catastrophe and accidental death
insurance plans, financial planning and automobile arrangements,
retirement plans and supplementary executive retirement plans, if
any, and (ii) personal leave, sick leave and vacation leave to
the extent such leaves are provided to all senior executive
employees. Officer is also entitled to the benefit of any life
and health insurance plans, pension, stock option plans and other
similar plans as the Company may have or may establish from time-
to-time for its senior executive employees.
(b) Vacation. Officer shall be entitled to a
minimum of four (4) weeks of vacation during each year during the
Term of the Agreement and any extensions thereof, prorated for
partial years. Any accrued vacation not taken during any year
may be carried forward to subsequent years; provided, that
Officer may not accrue more than eight (8) weeks of unused
vacation at any time.
(c) Life Insurance. During Term of the
Agreement, Company shall, at its sole cost and expense, procure
and keep in effect term life insurance (a minimum two (2) year
term certain policy) on the life of Officer, payable to such
beneficiaries as Officer may from time-to-time designate, in the
aggregate amount of One Million Five Hundred Thousand Dollars
($1,500,000); provided, however, in no event shall the premiums
for such insurance policy exceed three times normal and customary
rates for a normal healthy male of similar age. Such policy
shall be owned by Officer or by a member of his immediate family.
The Company shall have no incidents of ownership therein.
(d) Reimbursement for Expenses. During the Term
of the Agreement, Company shall reimburse Officer for all
reasonable out-of-pocket business and/or entertainment expenses
incurred by Officer for the purpose of and in connection with the
performance of his services pursuant to the Agreement. Officer
shall be entitled to such reimbursement upon the presentation by
Officer to the Company of vouchers or other statements itemizing
such expenses in reasonable detail consistent with Company's
policies.
(e) Automobile. During the Term of the
Agreement, the Company will also make available to Officer an
automobile of a value and model consistent with past practices
and shall pay all operating expenses associated with such
automobile.
(f) Withholding. Compensation and benefits paid
to Officer under the Agreement shall be subject to applicable
federal, state and local wage deductions and other deductions
required by law.
4. Termination of the Agreement.
4.1 Termination by Company Defined.
(a) Termination Without Cause. Subject to the
provisions set forth in Paragraph 4.3 below, "Termination Without
Cause" shall constitute any termination by Company other than
termination for "Cause" (as defined in Paragraph 4.1 (b) below).
(b) Termination For Cause. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the
Termination Date, the Company shall have the right to terminate
the Agreement for "Cause"; provided, however, that Officer shall
not be deemed to have been terminated for Cause without (i)
reasonable written notice to Officer setting forth the reasons
for the Company's intention to terminate for "Cause", (ii) an
opportunity for the Officer, together with his counsel, to be
heard before the Board, and (iii) delivery to the Officer of a
written notice of termination (which date of delivery of such
notice shall be the Early Termination Date), as defined herein,
from the Board finding that in the good faith opinion of the
Board, Officer was guilty of conduct set forth therein, and
specifying the particulars thereof in detail. For purposes of
the Agreement, "Cause" shall mean the following:
A commission of a felony, a crime involving moral
turpitude, embezzlement, misappropriation of property
of the Company or a subsidiary, any other act involving
dishonesty or fraud with respect to the Company or a
subsidiary; a material breach of a directive of the
Board which has not been cured within a specified
reasonable time after written notice of breach; or a
repeated failure after written notice to follow the
reasonable directives of the Board.
(c) Termination by Reason of Death or Disability.
Subject to the provisions set forth in Paragraph 4.3 below, prior
to the Termination Date, Company shall have the right to
terminate the Agreement by reason of Officer's death or Permanent
Disability. For purposes of the Agreement, "Permanent
Disability" shall mean the following:
The Officer is unable to perform his duties hereunder
for 1 80 days during any 365 consecutive days by reason
of physical or mental disability. The disability will
be deemed to have occurred on the one hundred and
eightieth (1 80th) day of Officer's absence or lack of
adequate performance.
4.2 Termination by Officer Defined.
(a) Termination Other Than For Good Reason.
Subject to the provisions set forth in Paragraph 4.3 below,
Officer shall have the right to terminate the Agreement for any
reason other than for Good Reason (as defined in Paragraph 4.2(b)
below), at any time prior to the Termination Date, upon written
notice delivered to Company thirty (30) days prior to the
effective date of termination specified in such notice (which
date shall be the applicable Early Termination Date).
(b) Termination For Good Reason. Subject to the
provisions of Paragraph 4.3 below, Officer shall have the right
to terminate the Agreement prior to the Termination Date in the
event of the material breach of the Agreement by Company, if such
breach is not cured by Company within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company, or, following a Change in Control (as
defined in Paragraph 4.4(e) below), under the circumstances set
forth in Paragraph 4.2(c) below. For purposes of the Agreement,
termination of the Agreement by Officer in the event of Company's
material breach of the Agreement in accordance with the
provisions of this Paragraph 4.2(b) shall be defined as
termination by Officer for "Good Reason."
(c) Good Reason Following a Change in Control.
Following a Change in Control (as defined in Paragraph 4.4(e)
below), "Good Reason" shall mean, without Officer's express
written consent, a material breach of the Agreement by Company,
including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company:
(i) the assignment to Officer of any duties
inconsistent with the position in Company that Officer held
immediately prior to the Change in Control, or an adverse
alteration in the nature or status of Officer's
responsibilities from those in effect immediately prior to
such change;
(ii) a substantial change in the nature of the
business operations of Company;
(iii) a reduction by Company in Officer's
annual base salary as in effect on the date hereof or as the
same may be increased from time to time;
(iv) the relocation of Company's principal execu-
tive offices to a location more than 25 miles from Burr
Ridge, Illinois (or, if different, the town in which such
offices are located immediately prior to the Change in
Control), or Company's requiring Officer to be based
anywhere other than Company's principal executive offices
except for required travel on Company's business to an
extent substantially consistent with Officer's business
travel obligations immediately prior to the Change in
Control;
(v) the failure by Company to pay Officer any
portion of his current compensation except pursuant to an
across-the board compensation deferral similarly affecting
all officers of Company and all officers of any person whose
actions resulted in a Change in Control or any person
affiliated with Company or such person, or to pay Officer
any portion of an installment of deferred compensation under
any deferred compensation program of Company, within seven
(7) days of the date such compensation is due;
(vi) the failure by Company to continue in effect
any compensation plan in which Officer participates
immediately prior to the Change in Control which is material
to Officer's total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan,
or the failure by Company to continue Officer's
participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of
participation relative to other participants, as existed at
the time of the Change in Control;
(vii) the failure by Company to continue to
provide Officer with benefits substantially similar to those
under any of Company's life insurance, medical, health and
accident, or disability plans in which Officer was
participating at the time of the Change in Control, the
taking of any action by Company which would directly or
indirectly materially reduce any of such benefits or deprive
Officer of any material fringe benefit enjoyed by him at the
time of the Change in Control, or the failure by Company to
provide Officer with the number of paid vacation days to
which he is entitled on the basis of years of service with
Company in accordance with Company's normal vacation policy
in effect at the time of the Change in Control or pursuant
to Officer's existing employment agreement, if any; or
(viii) the failure of Company to obtain a
satisfactory agreement from any successor to assume and
agree to perform the Agreement.
Notwithstanding the above, during the one year period
immediately following the occurrence of a Change in Control,
"Good Reason" shall mean termination of employment by the
Executive for any reason other than death or Permanent
Disability.
Officer's right to terminate Officer's employment for
Good Reason shall not be affected by Officer's incapacity due to
physical or mental illness. Officer's continued employment shall
not constitute consent to, or a waiver of rights with respect to,
any circumstance constituting Good Reason hereunder.
4.3 -Effect of Termination. In the event that the
Agreement is terminated by Company or Officer prior to the
Termination Date in accordance with the provisions of this
Paragraph 4, the obligations and covenants of the parties under
this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this
Paragraph 4.3, and such other provisions of the Agreement which
shall survive termination of the Agreement as provided in
Paragraph 6.1 1 below. Except as otherwise specifically set
forth, all amounts due upon termination shall be payable on the
date such amounts would otherwise have been paid had the
Agreement continued through its Term; provided, however, that
Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall
be payable within thirty (30) days following the Early
Termination Date.
In the event of any such early termination in
accordance with the provisions of this Paragraph 4.3, Officer
shall be entitled to the following:
(a) Termination by Company.
(i) Termination Without Cause. In the event
that Company terminates the Agreement without Cause pursuant
to Paragraph 4.1 (a) above, Officer shall be entitled to (i)
Earned Base Salary (as defined below); (ii) earned benefits
and reimbursable expenses; (iii) any earned bonus which
Officer has been awarded pursuant to the terms of the
Agreement or any other plan or arrangement as of the Early
Termination Date, but which has not been received by Officer
as of such date; (iv) any compensation earned but deferred
("Deferred Amounts"); and (v) the Severance Payment (as
defined in Paragraph 4.4 below).
(ii) Termination For Cause. In the event
that Company terminates the Agreement for Cause pursuant to
Paragraph 4.1 (b) above, Officer shall be entitled to (i)
Earned Base Salary; (ii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date,
but which has not been received by Officer as of such date;
(iii) earned benefits and reimbursable expenses; and (iv)
any Deferred Amounts. Following delivery to Officer of the
notice described in Paragraph 4.1 (b)(i), the Company may
suspend Officer from further duties with full pay and
benefits as provided hereunder as if Officer continued to be
employed until the delivery of the notice of termination
described in Paragraph 4.1 (b)(iii). Officer shall not be
entitled to any future annual bonus or Severance Payment.
(iii) Termination Due to Death or
Permanent Disability. In the event that the Company
terminates the Agreement by reason of Officer's death or
Permanent Disability pursuant to Paragraph 4.1 (c) above,
Officer shall be entitled to (i) Earned Base Salary (as
defined below); (ii) earned benefits and reimbursable
expenses; (iii) any earned bonus which Officer has been
awarded pursuant to the terms of the Agreement or any other
plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv)
any Deferred Amounts; and (v) all outstanding options
(whether or not exercisable at the Early Termination Date)
shall become fully and immediately vested and may be
exercised for one year following such termination.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason.
In the event that Officer terminates the Agreement other
than for Good Reason, Officer shall be entitled to (i)
Earned Base Salary; (ii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date,
but which has not been received by Officer as of such date;
(iii) earned benefits and reimbursable expenses; and (iv)
any Deferred Amounts. Officer shall not be entitled to any
future annual bonus or Severance Payment.
(ii) Termination For Good Reason. In the
event that Officer terminates the Agreement for Good Reason,
Officer shall be entitled to (i) Earned Base Salary; (ii)
earned benefits and reimbursable expenses; (iii) any earned
bonus which Officer has been awarded pursuant to the terms
of the Agreement or any other plan or arrangement as of the
Early Termination Date, but which has not been received by
Officer as of such date; (iv) any Deferred Amounts; and (v)
the Severance Payment (as defined in Paragraph 4.4 below).
The term "Earned Base Salary" shall mean all
semimonthly installments of the Base Salary which have become due
and payable to Officer, together with any partial monthly
installment prorated on a daily basis up to and including the
applicable Termination Date.
4.4 Severance Payment.
(a) Definition of "Severance Payment." For
purposes of the Agreement, the term "Severance Payment" shall
mean an amount equal to the sum of (i) the Base Salary otherwise
payable to Officer during the remainder of the Term had such
early termination of the Agreement not occurred ("Severance
Period") and (ii) for each full or partial year remaining in the
Severance Period, the average of the annual bonuses earned by
Officer in the two (2) years immediately preceding the date of
termination (or if there are less than two (2) years immediately
preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the
event that, following a Change in Control (as defined in
Paragraph 4.4(e) below), the Company terminates the Agreement
without Cause pursuant to Paragraph 4.1 (a) above or Officer
terminates the Agreement for Good Reason pursuant to Paragraph
4.2(c) above, the term "Severance Payment" shall mean an amount
equal to no less than three (3) times the sum of the Base Salary
then in effect and the Average Bonus which Average Bonus shall
not be less than 50% of Base Salary).
(b) Payment of Severance Payment. In the event
that Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, that portion of such Severance Payment that
represents Base Salary shall be payable in monthly installments,
and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would
have been paid had Officer continued in Company's employment for
the Severance Period; provided, however, that in the event of a
Termination Following a Change in Control (as defined in
Paragraph 4.4(e) below), the Severance Payment shall be payable
in a lump sum within ten (1 0) days following such termination.
(c) Other Severance Benefits. In the event that
Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, he shall also be entitled to:
(i) the full and immediate vesting of any awards
granted to Officer under the Company's stock option and incentive
compensation plans; and
(ii) to the extent elected by Officer within five days
of the Early Termination Date, in lieu of shares of Company
common stock issuable upon exercise of outstanding options (which
options shall be cancelled upon the making of the payment
referred to below), a lump sum payment, in cash, equal to the
product of (a) the excess of (x) in the case of ISOs granted
after the date hereof, the closing price of shares of Company
common stock as reported on the NASDAQ National Market on or
nearest the Early Termination Date (or, if not listed on such
exchange, on the nationally recognized exchange or quotation
system on which trading volume in shares of Company common stock
is highest), or in the case of all other options, the higher of
such closing price or the highest per share price for shares of
common stock of the Company actually paid in connection with any
Change in Control, over (y) the per share exercise price of such
option held by Officer (whether or not then fully exercisable),
and (b) the number of shares of common stock of the Company
covered by each such option as elected by Officer; provided,
however, that if the Company is prevented by the terms of its
debt instruments from making the payment described herein,
Officer shall immediately execute a cashless exercise of all
options for which such Officer elected to receive cash (whether
or not fully exercisable at the Early Termination Date) and shall
dispose of the common stock underlying such options as soon as
practicable and the Company will pay Officer the aggregate
difference between the price of the common stock at the time such
shares are sold and the price determined under (x) above;
provided further, that in the event and to the extent that such
shares cannot be sold for any reason, the Company will repurchase
such shares at the price determined under (x) above; provided,
however, that notwithstanding the foregoing, the following shall
apply with respect to a Termination without Cause pursuant to
Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a
Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent
Officer within five days of the Early Termination Date elects to
receive cash in lieu of shares of Company common stock issuable
upon exercise of outstanding options (which options shall be
cancelled upon the making of the exercises referred to below),
Officer shall immediately complete a cashless exercise of all
options for which Officer elects to receive cash (whether or not
fully exercisable at the Early Termination Date) and shall
attempt to dispose of the common stock underlying such options
within three weeks of such exercise and the Company will pay
Officer the aggregate difference between the price of the common
stock at the time such shares are sold and the price determined
under (x) above; provided further, that in the event and to the
extent such shares cannot be sold within the three week period
for any reason, the Company will repurchase such shares at the
price determined under (x) above; and
(iii) continued participation throughout the Severance
Period in all employee welfare and pension benefit plans,
programs or arrangements. In the event Officer's participation
in any such plan, program or arrangement is barred, Company shall
arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer
hereby acknowledges and agrees that any Severance Payment paid to
Officer hereunder shall be deemed to be in full and complete
settlement of all obligations of Company under the Agreement.
(e) Change in Control. For purposes of the
Agreement, "Termination Following a Change in Control" shall mean
a termination of Officer's employment with Company following a
"Change in Control" by Officer for Good Reason or by Company
other than for Cause. A "Change in Control" shall be deemed to
have occurred if:
(i) Any Person, as such term is used in
section 3(a)(9) of the Securities Exchange Act of 1 934 as
amended from time to time (the "Exchange Act"), as modified and
used in sections 1 3(d) and 14(d) thereof, (other than (A) the
Company or any of its subsidiaries, (B) a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company or any of its affiliates, (C) an underwriter
temporarily holding securities pursuant to an offering of such
securities, (D) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, or (E) a
person or group as used in Rule 1 3d-1 (b) under the Exchange
Act, that is or becomes the Beneficial Owner, as such term is
defined in Rule 1 3d-3 under the Exchange Act, directly or
indirectly, of securities of the Company and is entitled to file
on Schedule 13-G or any successor form with respect to such
securities) becomes the Beneficial Owner of securities of the
Company (not including in the securities beneficially owned by
such Person any securities acquired directly from the Company or
its affiliates other than in connection with the acquisition by
the Company or its affiliates of a business) representing twenty-
five percent (25%) or more of the combined voting power of the
Company's then outstanding securities; or
(ii) The following individuals cease for any
reason to constitute a majority of the number of directors then
serving: individuals who, on the date hereof, constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on
the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(iii) There is consummated a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, at least seventy-five percent
(75%) of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(iv) The stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
seventy-five (75%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the
Company immediately prior to such sale.
4.5 Gross-UP. In the event Officer is required
pursuant to Section 4999 of the Internal Revenue Code of 1 986,
as amended, and the regulations promulgated thereunder (the
"Code") to pay (through withholding or otherwise) an excise tax
on "excess parachute payments" (as defined in Section 280G(b) of
the Code) made by the Company pursuant to the Agreement or
otherwise, Company shall pay Officer, no later than the tenth
(10th) day following the Early Termination Date, an additional
amount (a "Gross-Up Payment") as is necessary to place Officer in
the same after-tax financial position that he would have been in
if he had not incurred any tax liability under Section 4999 of
the Code. The Gross-Up Payment shall be determined pursuant to
the procedures set forth in Annex A hereto.
4.6 Offset. Officer shall not be required to mitigate
the amount of any payment provided for under the Agreement by
seeking other employment or otherwise, nor will any payments
provided to him under the Agreement be subject to offset in
respect of any claims which the Company may have against Officer
other than with respect to loans by Officer from the Company
which are the subject of an executed note between Officer and the
Company, nor shall any payment provided hereunder be reduced by
any compensation earned by Officer as the result of employment by
another employer or by retirement benefits.
5. Miscellaneous.
5.1 Payment Obligations. Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right
or action which Company may have against Officer or others. In
no event shall the Officer be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to Officer under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not Officer
obtains other employment. Company agrees to pay promptly upon
receipt of proper invoices, to the fullest extent permitted by
law, all legal fees and expenses which Officer may reasonably
incur as a result of any contest by Company, Officer or others of
the validity, interpretation or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest
initiated by Officer about the amount of any payment due pursuant
to this Agreement); provided, however, that in the event that it
is finally determined by arbitration pursuant to Paragraph 5.8
that Officer was terminated for Cause or that, in the case of
termination of this Agreement by Officer, Good Reason did not
exist, then Officer shall be obligated to repay to Company the
full amount of all such legal fees and expenses paid for Officer
by Company in connection with that contest.
5.2 Confidentiality. Officer agrees that all
confidential and proprietary information relating to the business
of Company shall be kept and treated as confidential both during
and after the Term of the Agreement, except as may be permitted
in writing by the Board or as such information is within the
public domain or comes within the public domain without any
breach of the Agreement.
5.3 Waiver. The waiver of the breach of any provision
of the Agreement shall not operate or be construed as a waiver of
any subsequent breach of the same or other provision hereof.
5.4 Entire Agreement: Modifications. Except as
otherwise provided herein and the letter attached hereto as
Exhibit 1, the Agreement (together with the agreements and plans
referred to herein) represents the entire understanding among the
parties with respect to the subject matter hereof, and the
Agreement supersedes any and all prior understandings,
agreements, plans and negotiations, whether written or oral, with
respect to the subject matter hereof, including without
limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses,
reimbursements or other payments to Officer from Company. All
modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is
sought.
5.5 Notices. All notices and other communications
under the Agreement shall be in writing and shall be given by
facsimile or first class mail, certified or registered with
return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours
after transmission of a facsimile to the respective persons named
below:
If to Company: American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, Illinois 60521
If to Officer: John J. McDonnell
2325 Carroll Parkway
Flossmoor, Illinois 60422
Any party may change such party's address for notices
by notice duly given pursuant hereto.
5.6 Headings. The paragraph headings herein are
intended for reference only and shall not by themselves determine
the construction or interpretation of the Agreement.
5.7 Governing Law. The Agreement shall be governed by
and construed in accordance with the laws of the State of
Illinois without regard to its principles of conflict of laws.
5.8 Arbitration. Any controversy or claim arising out
of or relating to the Agreement or the breach of the Agreement
that cannot be resolved by Officer on the one hand or the Company
on the other, including any dispute as to the calculation of
Officer's benefits or any payment hereunder, shall be submitted
to arbitration in the City of Chicago, in accordance with
Illinois state law and the procedures of the American Arbitration
Association. The determination of the arbitrator shall be
conclusive and binding on the Company and Officer, and judgment
may be entered on the arbitrator's award in any court having
jurisdiction.
5.9 Severability-. Should a court or other body of
competent jurisdiction determine that any provision of the
Agreement is excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, all other provisions of the Agreement shall
be deemed valid and enforceable to the extent possible.
5.10 Survival of Company's Obligations. Company's
obligations hereunder shall not be terminated by reason of any
liquidation, dissolution, bankruptcy, cessation of business, or
similar event relating to Company. The Agreement shall not be
terminated by any merger or consolidation or other reorganization
of Company. In the event any such merger, consolidation or
reorganization shall be accomplished by transfer of stock or by
transfer of assets or otherwise, the provisions of the Agreement
shall be binding upon and inure to the benefit of the surviving
or resulting corporation or person. The Agreement shall be
binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties;
provided, however, that except as herein expressly provided, the
Agreement shall not be assignable either by Company (except to an
affiliate of the Company, in which event Company shall remain
liable if the affiliate fails to meet any obligations to make
payments or provide benefits or otherwise) or by Officer.
5.1 Survival of Certain Rights and Obligations. The
rights and obligations of the parties hereto pursuant to
Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.1 0, 5.1 1 and
5.1 3 hereof shall survive the termination of the Agreement.
5.12 Counterparts. The Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute one and the same Agreement.
5.13 lndemnification. In addition to any rights to
indemnification to which Officer is entitled under the Company's
Articles of Incorporation and By-Laws or under the agreement
between Company and Officer attached hereto as Exhibit 2, Company
shall indemnify Officer at all times during and after the Term of
the Agreement to the maximum extent permitted under applicable
law of the State of Illinois or any successor provision thereof
and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action,
suit, or proceeding, to the maximum extent permitted under such
applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed the
Agreement.
Company:
AMERICAN DISPOSAL SERVICES, INC.,
a Delaware corporation
By:
Name
Title
Date:
OFFICER:
Name
Date:
ANNEX A
The Gross-Up Payment shall be equal to the excess of the
Total Payments over the payment provided for by this
paragraph. For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) all payments or benefits
received or to be received by Officer in connection with a
Change in Control or the termination of Officer's employment
(whether payable pursuant to the terms of the Agreement or
of any other plan, arrangement or agreement with
Corporation, its successors, any person whose actions result
in a Change in Control or any person affiliated (or which,
as a result of the completion of the transactions causing a
Change in Control, will become affiliated) with Corporation
or such person within the meaning of Section 1 504 of the
Code (the "Total Payments")) shall be treated as "parachute
payments" (within the meaning of Section 280G(b)(2) of the
Code) unless, in the opinion of tax counsel selected by
Corporation's independent auditors and reasonably acceptable
to Officer, such payments or benefits (in whole or in part)
do not constitute parachute payments, including by reason of
Section 280 G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section
280G(b)(1) of the Code) shall be treated as subject to the
Excise Tax, unless in the opinion of such tax counsel such
excess parachute payments represent reasonable compensation
for services actually rendered within the meaning of Section
280G(b)(4)(B) of the Code, or are not otherwise subject to
the Excise Tax, and (ii) the value of any noncash benefits
or any deferred payment or benefit shall be determined by
the Corporation's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, Officer shall be deemed to pay federal income taxes
at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the
residence of Officer on the Early Termination Date, net of
the maximum reduction in federal income taxes that could be
obtained from deduction of such state and local taxes.
EXHIBIT 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
AMERICAN DISPOSAL SERVICES, INC.
a Delaware corporation,
and
RICHARD T. KOGLER
an individual
TABLE OF CONTENTS
PAGE
1. Position and Duties; Location 1
2. Term of Employment 2
3. Compensation, Benefits and Reimbursement 2
3.1 Base Salary 2
3.2 Increases in Base Salary 2
3.3 Bonus 3
(a) Target Bonus 3
(b) Determination of Bonus 3
3.4 Additional Benefits 3
(a) Officer Benefits 3
(b) Vacation 3
(c) Life Insurance 4
(d) Reimbursement for Expenses 4
(e) Automobile 4
(f) Withholding 4
4. Termination of the Agreement 4
4.1 Termination by Company Defined 4
(a) Termination Without Cause 4
(b) Termination For Cause 5
(c) Termination by Reason of Death or Disability 5
4.2 Termination by Officer Defined 6
(a) Termination Other Than For Good Reason 6
(b) Termination For Good Reason 6
(c) Good Reason Following a Change in Control 6
4.3 Effect of Termination 8
(a) Termination by Company 8
(i) Termination Without Cause 8
(ii) Termination For Cause 9
(iii)Termination Due to Death or Permanent
Disability 9
(b) Termination by Officer 9
(i) Termination Other Than For Good Reason 9
(ii) Termination For Good Reason 10
4.4 Severance Payment 10
(a) Definition of "Severance Payment" 10
(b) Payment of Severance Payment 11
(c) Other Severance Benefits 11
(d) Full Settlement of All Obligations 12
(e) Change in Control 12
4.5 Gross-Up 14
4.6 Offset 14
5. Miscellaneous 14
5.1 Payment Obligations 14
5.2 Confidentiality 15
5.3 Waiver 15
5.4 Entire Agreement; Modifications 15
5.5 Notices 15
5.6 Headings 16
5.7 Governing Law 16
5.8 Arbitration 16
5.9 Severability 16
5.10 Survival of Company's Obligations 17
5.11 Survival of Certain Rights and Obligations 17
5.12 Counterparts 17
5.13 Indemnification 17
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of the first day of January, 1998, (the
"Effective Date"), by and between AMERICAN DISPOSAL SERVICES,
INC., a Delaware corporation (the "Company") and RICHARD T.
KOGLER, an individual (the "Officer").
RECITAL
WHEREAS, the Officer has been employed by and currently
serves as the Company's Vice President, Chief Operating Officer;
WHEREAS, the Company recognizes Officer's substantial
contribution to the growth and success of the Company; and
desires to provide for continued employment of Officer in order
to reinforce and encourage his continued attention and dedication
to the Company as a member of the Company's senior management;
WHEREAS, Company desires to continue to employ Officer
as Vice President, Chief Operating Officer, and Officer is
willing to continue to accept such employment by Company, on the
terms and subject to the conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the foregoing
mutual covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Position and Duties; Location.
During the Term (as defined in Paragraph 2 below) of
the Agreement, Officer agrees to be employed by and to serve the
Company as its Vice President, Chief Operating Officer subject to
the control of the Board of Directors (the "Board"), and the
Company agrees to employ and retain Officer in such capacities.
During the Term (as defined in Paragraph 2 below) Officer agrees
to devote substantially all of his working time, energy, efforts
and abilities to the business affairs of the Company and its
subsidiaries. Officer's principal place of business will be
located within 25 miles of Burr Ridge, Illinois. The Company
shall provide Officer with working facilities and support
services as are suitable to his position and appropriate for the
performance of his duties.
2. Term of Employment.
The Term (the "Term") of the Agreement shall be for the
period commencing on the Effective Date and ending on the last
day of the eighteenth (18th) month following the Effective Date
(the "Termination Date"), unless terminated earlier pursuant to
the Agreement (the "Early Termination Date"); provided, however,
that commencing on the last day of the twelfth (12th) month
following the Effective Date and each subsequent anniversary
thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six (6) months before such
date, either party shall have given written notice to the other
that it does not wish to extend the Term of the Agreement.
References herein to the Term of the Agreement shall refer to
both the initial Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1 Base Salary. During the Term of the Agreement and
subject to the terms and conditions set forth herein, Company
agrees to pay to Officer an annual "Base Salary" equal to
_______________ Thousand Dollars ($____________), or such higher
amount as may from time-to-time be determined by the Board.
Unless otherwise agreed in writing by Officer and Company, the
salary shall be payable in substantially equal semimonthly
installments in accordance with the standard policies of Company
in existence from time-to-time.
3.2 Increases in Base Salary. Officer's Base Salary
shall be reviewed no less frequently than on each anniversary of
the Effective Date during the Term by the Board (or such
committee as may be appointed by the Board for such purpose).
The Base Salary payable to Officer may be increased on each such
anniversary date (and such other times as the Board or a
committee of the Board may deem appropriate during the Term of
the Agreement) to an amount determined by the Board (or a
committee of the Board). Any increase in Base Salary or other
compensation shall in no way limit or reduce any other
obligations of Company hereunder and, once established at an
increased specified rate, Officer's Base Salary shall not be
reduced unless Officer otherwise agrees in writing.
3.3 Bonus. During the Term of the Agreement, Officer
shall be eligible for the following bonus:
(a) Target Bonus. Officer shall be eligible to
receive an annual bonus for each fiscal year of the Company (or
portion thereof) during the Term of the Agreement as determined
below. Any such bonus shall be payable within seventy-five (75)
days after the end of Company's fiscal year to which such bonus
relates; provided, however, that the Chief Executive Officer of
the Company may defer payment of such bonus for a period not to
exceed one year if such officer determines that deferral is in
the best interests of the Company.
(b) Determination of Bonus. With respect to each
fiscal year during the Term, the actual amount of the bonus
payable pursuant to Subparagraph (a) shall be determined on the
basis of criteria with respect to the performance of Officer
and/or Company established by the Board (or a committee of the
Board) in consultation with the Chief Executive Officer of the
Company prior to the commencement of the fiscal year and such
other factors and conditions as the Board may deem relevant;
provided, however, that the criteria for the bonus for 1998 shall
be established in the first quarter of 1998.
3.4 Additional Benefits. During the Term of the
Agreement, Officer shall be entitled to the following additional
benefits:
(a) Officer Benefits. Officer shall be entitled
to such benefits as are generally provided by the Company to its
senior executive employees including, without limitation, (i)
Company stock incentive plans, annual incentive compensation
plans, profit sharing/pension plans, deferred compensation plans,
annual physical examinations, dental, vision, sick pay, and
medical plans, personal catastrophe and accidental death
insurance plans, financial planning and automobile arrangements,
retirement plans and supplementary executive retirement plans, if
any, and (ii) personal leave, sick leave and vacation leave to
the extent such leaves are provided to all senior executive
employees. Officer is also entitled to the benefit of any life
and health insurance plans, pension, stock option plans and other
similar plans as the Company may have or may establish from time-
to-time for its senior executive employees.
(b) Vacation. Officer shall be entitled to a
minimum of four (4) weeks of vacation during each year during the
Term of the Agreement and any extensions thereof, prorated for
partial years. Any accrued vacation not taken during any year
may be carried forward to subsequent years; provided, that
Officer may not accrue more than eight (8) weeks of unused
vacation at any time.
(c) Life Insurance. During Term of the
Agreement, Company shall, at its sole cost and expense, procure
and keep in effect term life insurance (a minimum two (2) year
term certain policy) on the life of Officer, payable to such
beneficiaries as Officer may from time-to-time designate, in the
aggregate amount of One Million Five Hundred Thousand Dollars
($1,500,000); provided, however, in no event shall the premiums
for such insurance policy exceed three times normal and customary
rates for a normal healthy male of similar age. Such policy
shall be owned by Officer or by a member of his immediate family.
The Company shall have no incidents of ownership therein.
(d) Reimbursement for Expenses. During the Term
of the Agreement, Company shall reimburse Officer for all
reasonable out-of-pocket business and/or entertainment expenses
incurred by Officer for the purpose of and in connection with the
performance of his services pursuant to the Agreement. Officer
shall be entitled to such reimbursement upon the presentation by
Officer to the Company of vouchers or other statements itemizing
such expenses in reasonable detail consistent with Company's
policies.
(e) Automobile. During the Term of the
Agreement, the Company will also make available to Officer an
automobile of a make and model consistent with past practices and
shall pay all operating expenses associated with such automobile.
(f) Withholding. Compensation and benefits paid
to Officer under the Agreement shall be subject to applicable
federal, state and local wage deductions and other deductions
required by law.
4. Termination of the Agreement.
4.1 Termination by Company Defined.
(a) Termination Without Cause. Subject to the
provisions set forth in Paragraph 4.3 below, "Termination Without
Cause" shall constitute any termination by Company other than
termination for "Cause" (as defined in Paragraph 4.1(b) below).
(b) Termination For Cause. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the
Termination Date, the Company shall have the right to terminate
the Agreement for "Cause"; provided, however, that Officer shall
not be deemed to have been terminated for Cause without (i)
reasonable written notice to Officer setting forth the reasons
for the Company's intention to terminate for "Cause", (ii) an
opportunity for the Officer, together with his counsel, to be
heard before the Board, and (iii) delivery to the Officer of a
written notice of termination (which date of delivery of such
notice shall be the Early Termination Date), as defined herein,
from the Board finding that in the good faith opinion of the
Board, Officer was guilty of conduct set forth therein, and
specifying the particulars thereof in detail. For purposes of
the Agreement, "Cause" shall mean the following:
A commission of a felony, a crime involving moral
turpitude, embezzlement, misappropriation of property of the
Company or a subsidiary, any other act involving dishonesty or
fraud with respect to the Company or a subsidiary; a material
breach of a directive of the Board which has not been cured
within a specified reasonable time after written notice of
breach; or a repeated failure after written notice to follow the
reasonable directives of the Board.
(c) Termination by Reason of Death or Disability.
Subject to the provisions set forth in Paragraph 4.3 below, prior
to the Termination Date, Company shall have the right to
terminate the Agreement by reason of Officer's death or Permanent
Disability. For purposes of the Agreement, "Permanent
Disability" shall mean the following:
The Officer is unable to perform his duties hereunder
for 180 days during any 365 consecutive days by reason of
physical or mental disability. The disability will be deemed to
have occurred on the one hundred and eightieth (180th) day of
Officer's absence or lack of adequate performance.
4.2 Termination by Officer Defined.
(a) Termination Other Than For Good Reason.
Subject to the provisions set forth in Paragraph 4.3 below,
Officer shall have the right to terminate the Agreement for any
reason other than for Good Reason (as defined in Paragraph 4.2(b)
below), at any time prior to the Termination Date, upon written
notice delivered to Company thirty (30) days prior to the
effective date of termination specified in such notice (which
date shall be the applicable Early Termination Date).
(b) Termination For Good Reason. Subject to the
provisions of Paragraph 4.3 below, Officer shall have the right
to terminate the Agreement prior to the Termination Date in the
event of the material breach of the Agreement by Company, if such
breach is not cured by Company within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company, or, following a Change in Control (as
defined in Paragraph 4.4(e) below), under the circumstances set
forth in Paragraph 4.2(c) below. For purposes of the Agreement,
termination of the Agreement by Officer in the event of Company's
material breach of the Agreement in accordance with the
provisions of this Paragraph 4.2(b) shall be defined as
termination by Officer for "Good Reason."
(c) Good Reason Following a Change in Control.
Following a Change in Control (as defined in Paragraph 4.4(e)
below), "Good Reason" shall mean, without Officer's express
written consent, a material breach of the Agreement by Company,
including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company:
(i) the assignment to Officer of any duties
inconsistent with the position in Company that Officer held
immediately prior to the Change in Control, or an adverse
alteration in the nature or status of Officer's responsibilities
from those in effect immediately prior to such change;
(ii) a substantial change in the nature of
the business operations of Company;
(iii) a reduction by Company in Officer's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(iv) the relocation of Company's principal
executive offices to a location more than 25 miles from Burr
Ridge, Illinois (or, if different, the town in which such offices
are located immediately prior to the Change in Control), or
Company's requiring Officer to be based anywhere other than
Company's principal executive offices except for required travel
on Company's business to an extent substantially consistent with
Officer's business travel obligations immediately prior to the
Change in Control;
(v) the failure by Company to pay Officer
any portion of his current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all
officers of Company and all officers of any person whose actions
resulted in a Change in Control or any person affiliated with
Company or such person, or to pay Officer any portion of an
installment of deferred compensation under any deferred
compensation program of Company, within seven (7) days of the
date such compensation is due;
(vi) the failure by Company to continue in
effect any compensation plan in which Officer participates
immediately prior to the Change in Control which is material to
Officer's total compensation, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by Company to
continue Officer's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of
participation relative to other participants, as existed at the
time of the Change in Control;
(vii) the failure by Company to continue to
provide Officer with benefits substantially similar to those
under any of Company's life insurance, medical, health and
accident, or disability plans in which Officer was participating
at the time of the Change in Control, the taking of any action by
Company which would directly or indirectly materially reduce any
of such benefits or deprive Officer of any material fringe
benefit enjoyed by him at the time of the Change in Control, or
the failure by Company to provide Officer with the number of paid
vacation days to which he is entitled on the basis of years of
service with Company in accordance with Company's normal vacation
policy in effect at the time of the Change in Control or pursuant
to Officer's existing employment agreement, if any; or
(viii) the failure of Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform the Agreement.
Notwithstanding the above, during the one year period
immediately following the occurrence of a Change in Control,
"Good Reason" shall mean termination of employment by the
Executive for any reason other than death or Permanent
Disability.
Officer's right to terminate Officer's employment for
Good Reason shall not be affected by Officer's incapacity due to
physical or mental illness. Officer's continued employment shall
not constitute consent to, or a waiver of rights with respect to,
any circumstance constituting Good Reason hereunder.
4.3 Effect of Termination. In the event that the
Agreement is terminated by Company or Officer prior to the
Termination Date in accordance with the provisions of this
Paragraph 4, the obligations and covenants of the parties under
this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this
Paragraph 4.3, and such other provisions of the Agreement which
shall survive termination of the Agreement as provided in
Paragraph 6.11 below. Except as otherwise specifically set
forth, all amounts due upon termination shall be payable on the
date such amounts would otherwise have been paid had the
Agreement continued through its Term; provided, however, that
Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall
be payable within thirty (30) days following the Early
Termination Date.
In the event of any such early termination in
accordance with the provisions of this Paragraph 4.3, Officer
shall be entitled to the following:
(a) Termination by Company.
(i) Termination Without Cause. In the event
that Company terminates the Agreement without Cause pursuant to
Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned
Base Salary (as defined below); (ii) earned benefits and
reimbursable expenses; (iii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any other
plan or arrangement as of the Early Termination Date, but which
has not been received by Officer as of such date; (iv) any
compensation earned but deferred ("Deferred Amounts"); and (v)
the Severance Payment (as defined in Paragraph 4.4 below).
(ii) Termination For Cause. In the event
that Company terminates the Agreement for Cause pursuant to
Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned
Base Salary; (ii) any earned bonus which Officer has been awarded
pursuant to the terms of the Agreement or any other plan or
arrangement as of the Early Termination Date, but which has not
been received by Officer as of such date; (iii) earned benefits
and reimbursable expenses; and (iv) any Deferred Amounts.
Following delivery to Officer of the notice described in
Paragraph 4.1(b)(i), the Company may suspend Officer from further
duties with full pay and benefits as provided hereunder as if
Officer continued to be employed until the delivery of the notice
of termination described in Paragraph 4.1(b)(iii). Officer shall
not be entitled to any future annual bonus or Severance Payment.
(iii) Termination Due to Death or Permanent
Disability. In the event that the Company terminates the
Agreement by reason of Officer's death or Permanent Disability
pursuant to Paragraph 4.1(c) above, Officer shall be entitled to
(i) Earned Base Salary (as defined below); (ii) earned benefits
and reimbursable expenses; (iii) any earned bonus which Officer
has been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any
Deferred Amounts; and (v) all outstanding options (whether or not
exercisable at the Early Termination Date) shall become fully and
immediately vested and may be exercised for one year following
such termination.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason.
In the event that Officer terminates the Agreement other than for
Good Reason, Officer shall be entitled to (i) Earned Base Salary;
(ii) any earned bonus which Officer has been awarded pursuant to
the terms of the Agreement or any other plan or arrangement as of
the Early Termination Date, but which has not been received by
Officer as of such date; (iii) earned benefits and reimbursable
expenses; and (iv) any Deferred Amounts. Officer shall not be
entitled to any future annual bonus or Severance Payment.
(ii) Termination For Good Reason. In the
event that Officer terminates the Agreement for Good Reason,
Officer shall be entitled to (i) Earned Base Salary; (ii) earned
benefits and reimbursable expenses; (iii) any earned bonus which
Officer has been awarded pursuant to the terms of the Agreement
or any other plan or arrangement as of the Early Termination
Date, but which has not been received by Officer as of such date;
(iv) any Deferred Amounts; and (v) the Severance Payment (as
defined in Paragraph 4.4 below).
The term "Earned Base Salary" shall mean all
semimonthly installments of the Base Salary which have become due
and payable to Officer, together with any partial monthly
installment prorated on a daily basis up to and including the
applicable Termination Date.
4.4 Severance Payment.
(a) Definition of "Severance Payment." For
purposes of the Agreement, the term "Severance Payment" shall
mean an amount equal to the sum of (i) the Base Salary otherwise
payable to Officer during the remainder of the Term had such
early termination of the Agreement not occurred ("Severance
Period") and (ii) for each full or partial year remaining in the
Severance Period, the average of the annual bonuses earned by
Officer in the two (2) years immediately preceding the date of
termination (or if there are less than two (2) years immediately
preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the
event that, following a Change in Control (as defined in
Paragraph 4.4(e) below), the Company terminates the Agreement
without Cause pursuant to Paragraph 4.1(a) above or Officer
terminates the Agreement for Good Reason pursuant to Paragraph
4.2(c) above, the term "Severance Payment" shall mean an amount
equal to no less than three (3) times the sum of the Base Salary
then in effect and the Average Bonus which Average Bonus shall
not be less than 50% of Base Salary).
(b) Payment of Severance Payment. In the event
that Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, that portion of such Severance Payment that
represents Base Salary shall be payable in monthly installments,
and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would
have been paid had Officer continued in Company's employment for
the Severance Period; provided, however, that in the event of a
Termination Following a Change in Control (as defined in
Paragraph 4.4(e) below), the Severance Payment shall be payable
in a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that
Officer is entitled to any Severance Payment pursuant to Para
graph 4.3 above, he shall also be entitled to:
(i) the full and immediate vesting of any awards
granted to Officer under the Company's stock option and incentive
compensation plans; and
(ii) to the extent elected by Officer within five days
of the Early Termination Date, in lieu of shares of Company
common stock issuable upon exercise of outstanding options (which
options shall be canceled upon the making of the payment referred
to below), a lump sum payment, in cash, equal to the product of
(a) the excess of (x) in the case of ISOs granted after the date
hereof, the closing price of shares of Company common stock as
reported on the NASDAQ National Market on or nearest the Early
Termination Date (or, if not listed on such exchange, on the
nationally recognized exchange or quotation system on which
trading volume in shares of Company common stock is highest), or
in the case of all other options, the higher of such closing
price or the highest per share price for shares of common stock
of the Company actually paid in connection with any Change in
Control, over (y) the per share exercise price of such option
held by Officer (whether or not then fully exercisable), and (b)
the number of shares of common stock of the Company covered by
each such option as elected by Officer; provided, however, that
if the Company is prevented by the terms of its debt instruments
from making the payment described herein, Officer shall
immediately execute a cashes exercise of all options for which
such Officer elected to receive cash (whether or not fully
exercisable at the Early Termination Date) and shall dispose of
the common stock underlying such options as soon as practicable
and the Company will pay Officer the aggregate difference between
the price of the common stock at the time such shares are sold
and the price determined under (x) above; provided further, that
in the event and to the extent that such shares cannot be sold
for any reason, the Company will repurchase such shares at the
price determined under (x) above provided, however, that
notwithstanding the foregoing, the following shall apply with
respect to a Termination without Cause pursuant to Paragraph
4.3(a)(i) or a Termination For Good Reason prior to a Change in
Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer
within five days of the Early Termination Date elects to receive
cash in lieu of shares of Company common stock issuable upon
exercise of outstanding options (which options shall be canceled
upon the making of the exercises referred to below), Officer
shall immediately complete a cashes exercise of all options for
which Officer elects to receive cash (whether or not fully
exercisable at the Early Termination Date) and shall attempt to
dispose of the common stock underlying such options within three
weeks of such exercise and the Company will pay Officer the
aggregate difference between the price of the common stock at the
time such shares are sold and the price determined under (x)
above; provided further, that in the event and to the extent such
shares cannot be sold within the three week period for any
reason, the Company will repurchase such shares at the price
determined under (x) above; and
(iii) continued participation throughout the Severance
Period in all employee welfare and pension benefit plans, pro
grams or arrangements. In the event Officer's participation in
any such plan, program or arrangement is barred, Company shall
arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer
hereby acknowledges and agrees that any Severance Payment paid to
Officer hereunder shall be deemed to be in full and complete
settlement of all obligations of Company under the Agreement.
(e) Change in Control. For purposes of the
Agreement, "Termination Following a Change in Control" shall mean
a termination of Officer's employment with Company following a
"Change in Control" by Officer for Good Reason or by Company
other than for Cause. A "Change in Control" shall be deemed to
have occurred if:
(i) Any Person, as such term is used in
section 3(a)(9) of the Securities Exchange Act of 1934 as amended
from time to time (the "Exchange Act"), as modified and used in
sections 13(d) and 14(d) thereof, (other than (A) the Company or
any of its subsidiaries, (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
of its affiliates, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, (D) a
corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their owner
ship of stock of the Company, or (E) a person or group as used in
Rule 13G-1(b) under the Exchange Act, that is or becomes the
Beneficial Owner, as such term is defined in Rule 13G-3 under the
Exchange Act, directly or indirectly, of securities of the
Company and is entitled to file on Schedule 13G or any successor
form with respect to such securities) becomes the Beneficial
Owner of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any
reason to constitute a majority of the number of directors then
serving: individuals who, on the date hereof, constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommend ed by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors
on the date hereof or whose appointment, election or nomination
for election was previously so approved or recommended; or
(iii) There is consummated a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, at least seventy-five percent
(75%) of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of secure ties of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(iv) The stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
seventy-five (75%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the
Company immediately prior to such sale.
4.5 Gross-Up. In the event Officer is required
pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (the "Code")
to pay (through withholding or otherwise) an excise tax on
"excess parachute payments" (as defined in Section 280G(b) of the
Code) made by the Company pursuant to the Agreement or otherwise,
Company shall pay Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (a
"Gross-Up Payment") as is necessary to place Officer in the same
after-tax financial position that he would have been in if he had
not incurred any tax liability under Section 4999 of the Code.
The Gross-Up Payment shall be determined pursuant to the
procedures set forth in Annex A hereto.
4.6 Offset. Officer shall not be required to mitigate
the amount of any payment provided for under the Agreement by
seeking other employment or otherwise, nor will any payments
provided to him under the Agreement be subject to offset in
respect of any claims which the Company may have against Officer
other than with respect to loans by Officer from the Company
which are the subject of an executed note between Officer and the
Company, nor shall any payment provided hereunder be reduced by
any compensation earned by Officer as the result of employment by
another employer or by retirement benefits.
5. Miscellaneous.
5.1 Payment Obligations. Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right
or action which Company may have against Officer or others. In
no event shall the Officer be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to Officer under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not Officer
obtains other employment. Company agrees to pay promptly upon
receipt of proper invoices, to the fullest extent permitted by
law, all legal fees and expenses which Officer may reasonably
incur as a result of any contest by Company, Officer or others of
the validity, interpretation or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest
initiated by Officer about the amount of any payment due pursuant
to this Agreement); provided, however, that in the event that it
is finally determined by arbitration pursuant to Paragraph 5.8
that Officer was terminated for Cause or that, in the case of
termination of this Agreement by Officer, Good Reason did not
exist, then Officer shall be obligated to repay to Company the
full amount of all such legal fees and expenses paid for Officer
by Company in connection with that contest.
5.2 Confidentiality. Officer agrees that all
confidential and proprietary information relating to the business
of Company shall be kept and treated as confidential both during
and after the Term of the Agreement, except as may be permitted
in writing by the Board or as such information is within the
public domain or comes within the public domain without any
breach of the Agreement.
5.3 Waiver. The waiver of the breach of any provision
of the Agreement shall not operate or be construed as a waiver of
any subsequent breach of the same or other provision hereof.
5.4 Entire Agreement; Modifications. Except as
otherwise provided herein and the letter attached hereto as
Exhibit 1, the Agreement (together with the agreements and plans
referred to herein) represents the entire understanding among the
parties with respect to the subject matter hereof, and the
Agreement supersedes any and all prior understandings,
agreements, plans and negotiations, whether written or oral, with
respect to the subject matter hereof, including without
limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses,
reimbursements or other payments to Officer from Company. All
modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is
sought.
5.5 Notices. All notices and other communications
under the Agreement shall be in writing and shall be given by
facsimile or first class mail, certified or registered with
return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours
after transmission of a facsimile to the respective persons named
below:
If to Company: American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, Illinois 60521
If to Officer: Richard T. Kogler
741 Woodlawn Avenue
LaGrange Park, Illinois 60525
Any party may change such party's address for notices
by notice duly given pursuant hereto.
5.6 Headings. The paragraph headings herein are
intended for reference only and shall not by themselves determine
the construction or interpretation of the Agreement.
5.7 Governing Law. The Agreement shall be governed by
and construed in accordance with the laws of the State of
Illinois without regard to its principles of conflict of laws.
5.8 Arbitration. Any controversy or claim arising out
of or relating to the Agreement or the breach of the Agreement
that cannot be resolved by Officer on the one hand or the Company
on the other, including any dispute as to the calculation of
Officer's benefits or any payment hereunder, shall be submitted
to arbitration in the City of Chicago, in accordance with
Illinois state law and the procedures of the American Arbitration
Association. The determination of the arbitrator shall be
conclusive and binding on the Company and Officer, and judgment
may be entered on the arbitrator's award in any court having
jurisdiction.
5.9 Severability. Should a court or other body of
competent jurisdiction determine that any provision of the
Agreement is excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, all other provisions of the Agreement shall
be deemed valid and enforceable to the extent possible.
5.10 Survival of Company's Obligations. Company's
obligations hereunder shall not be terminated by reason of any
liquidation, dissolution, bankruptcy, cessation of business, or
similar event relating to Company. The Agreement shall not be
terminated by any merger or consolidation or other reorganization
of Company. In the event any such merger, consolidation or
reorganization shall be accomplished by transfer of stock or by
transfer of assets or otherwise, the provisions of the Agreement
shall be binding upon and inure to the benefit of the surviving
or resulting corporation or person. The Agreement shall be
binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties;
provided, however, that except as herein expressly provided, the
Agreement shall not be assignable either by Company (except to an
affiliate of the Company, in which event Company shall remain
liable if the affiliate fails to meet any obligations to make
payments or provide benefits or otherwise) or by Officer.
5.11 Survival of Certain Rights and Obligations. The
rights and obligations of the parties hereto pursuant to Para
graphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13
hereof shall survive the termination of the Agreement.
5.12 Counterparts. The Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute one and the same Agreement.
5.13 Indemnification. In addition to any rights to
indemnification to which Officer is entitled under the Company's
Articles of Incorporation and By-Laws or under the agreement
between Company and Officer attached hereto as Exhibit 2, Company
shall indemnify Officer at all times during and after the Term of
the Agreement to the maximum extent permitted under applicable
law of the State of Illinois or any successor provision thereof
and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action,
suit, or proceeding, to the maximum extent permitted under such
applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed the
Agreement.
COMPANY:
AMERICAN DISPOSAL SERVICES, INC.,
a Delaware corporation
By:
Name
Title
Date:
OFFICER:
Name
Date:
ANNEX A
The Gross-Up Payment shall be equal to the excess of the Total
Payments over the payment provided for by this paragraph. For
purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i)
all payments or benefits received or to be received by Officer in
connection with a Change in Control or the termination of
Officer's employment (whether payable pursuant to the terms of
the Agreement or of any other plan, arrangement or agreement with
Corporation, its successors, any person whose actions result in a
Change in Control or any person affiliated (or which, as a result
of the completion of the transactions causing a Change in
Control, will become affiliated) with Corporation or such person
within the meaning of Section 1504 of the Code (the "Total
Payments")) shall be treated as "parachute payments" (within the
meaning of Section 280G(b)(2) of the Code) unless, in the opinion
of tax counsel selected by Corporation's independent auditors and
reasonably acceptable to Officer, such payments or benefits (in
whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of
the Code) shall be treated as subject to the Excise Tax, unless
in the opinion of such tax counsel such excess parachute payments
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code, or are
not otherwise subject to the Excise Tax, and (ii) the value of
any noncash benefits or any deferred payment or benefit shall be
determined by the Corporation's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of
taxation in the state and locality of the residence of Officer on
the Early Termination Date, net of the maximum reduction in
federal income taxes that could be obtained from deduction of
such state and local taxes.
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
AMERICAN DISPOSAL SERVICES, INC.
a Delaware corporation,
and
ANN L. STRAW
an individual
TABLE OF CONTENTS
PAGE
1. Position and Duties; Location 1
2. Term of Employment 2
3. Compensation, Benefits and Reimbursement 2
3.1 Base Salary 2
3.2 Increases in Base Salary 2
3.3 Bonus 3
(a) Target Bonus 3
(b) Determination of Bonus 3
3.4 Additional Benefits 3
(a) Officer Benefits 3
(b) Vacation 3
(c) Life Insurance 4
(d) Reimbursement for Expenses 4
(e) Withholding 4
4. Termination of the Agreement 4
4.1 Termination by Company Defined 4
(a) Termination Without Cause 4
(b) Termination For Cause 4
(c) Termination by Reason of Death or
Disability 5
4.2 Termination by Officer Defined 5
(a) Termination Other Than For Good Reason 5
(b) Termination For Good Reason 6
(c) Good Reason Following a Change in Control 6
4.3 Effect of Termination 8
(a) Termination by Company 8
(i) Termination Without Cause 8
(ii) Termination For Cause 8
(iii) Termination Due to Death or
Permanent Disability 9
(b) Termination by Officer 9
(i) Termination Other Than For Good Reason 9
(ii) Termination For Good Reason 9
4.4 Severance Payment 10
(a) Definition of "Severance Payment" 10
(b) Payment of Severance Payment 10
(c) Other Severance Benefits 11
(d) Full Settlement of All Obligations 12
(e) Change in Control 12
4.5 Gross-Up 14
4.6 Offset 14
5. Miscellaneous. 14
5.1 Payment Obligations 14
5.2 Confidentiality 15
5.3 Waiver 15
5.4 Entire Agreement; Modifications 15
5.5 Notices 15
5.6 Headings 16
5.7 Governing Law 16
5.8 Arbitration 16
5.9 Severability 16
5.10 Survival of Company's Obligations 17
5.11 Survival of Certain Rights and Obligations 17
5.12 Counterparts 17
5.13 Indemnification 17
EXECUTIVE EMPLOYMENT AGREEMENT
THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of the first day of January, 1998, (the
"Effective Date"), by and between AMERICAN DISPOSAL SERVICES,
INC., a Delaware corporation (the "Company") and ANN L. STRAW, an
individual (the "Officer").
RECITAL
WHEREAS, the Officer has been employed by and currently
serves as the Company's Vice-President, Secretary and General
Counsel;
WHEREAS, the Company recognizes Officer's substantial
contribution to the growth and success of the Company; and
desires to provide for continued employment of Officer in order
to reinforce and encourage his continued attention and dedication
to the Company as a member of the Company's senior management;
WHEREAS, Company desires to continue to employ Officer
as Vice-President, Secretary and General Counsel, and Officer is
willing to continue to accept such employment by Company, on the
terms and subject to the conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the foregoing
mutual covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Position and Duties; Location.
During the Term (as defined in Paragraph 2 below) of
the Agreement, Officer agrees to be employed by and to serve the
Company as its Vice-President, Secretary and General Counsel
subject to the control of the Board of Directors (the "Board"),
and the Company agrees to employ and retain Officer in such
capacities. During the Term (as defined in Paragraph 2 below)
Officer agrees to devote substantially all of his working time,
energy, efforts and abilities to the business affairs of the
Company and its subsidiaries. Officer's principal place of
business will be located within 25 miles of Burr Ridge, Illinois.
The Company shall provide Officer with working facilities and
support services as are suitable to his position and appropriate
for the performance of his duties.
2. Term of Employment.
The Term (the "Term") of the Agreement shall be for the
period commencing on the Effective Date and ending on the last
day of the eighteenth (18th) month following the Effective Date
(the "Termination Date"), unless terminated earlier pursuant to
the Agreement (the "Early Termination Date"); provided, however,
that commencing on the last day of the twelfth (12th) month
following the Effective Date and each subsequent anniversary
thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six (6) months before such
date, either party shall have given written notice to the other
that it does not wish to extend the Term of the Agreement.
References herein to the Term of the Agreement shall refer to
both the initial Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1 Base Salary. During the Term of the Agreement and
subject to the terms and conditions set forth herein, Company
agrees to pay to Officer an annual "Base Salary" equal to
_______________ Thousand Dollars ($____________), or such higher
amount as may from time-to-time be determined by the Board.
Unless otherwise agreed in writing by Officer and Company, the
salary shall be payable in substantially equal semimonthly
installments in accordance with the standard policies of Company
in existence from time-to-time.
3.2 Increases in Base Salary. Officer's Base Salary
shall be reviewed no less frequently than on each anniversary of
the Effective Date during the Term by the Board (or such
committee as may be appointed by the Board for such purpose).
The Base Salary payable to Officer may be increased on each such
anniversary date (and such other times as the Board or a
committee of the Board may deem appropriate during the Term of
the Agreement) to an amount determined by the Board (or a
committee of the Board). Any increase in Base Salary or other
compensation shall in no way limit or reduce any other
obligations of Company hereunder and, once established at an
increased specified rate, Officer's Base Salary shall not be
reduced unless Officer otherwise agrees in writing.
3.3 Bonus. During the Term of the Agreement, Officer
shall be eligible for the following bonus:
(a) Target Bonus. Officer shall be eligible to
receive an annual bonus for each fiscal year of the Company (or
portion thereof) during the Term of the Agreement as determined
below. Any such bonus shall be payable within seventy-five (75)
days after the end of Company's fiscal year to which such bonus
relates; provided, however, that the Chief Executive Officer of
the Company may defer payment of such bonus for a period not to
exceed one year if such officer determines that deferral is in
the best interests of the Company.
(b) Determination of Bonus. With respect to each
fiscal year during the Term, the actual amount of the bonus
payable pursuant to Subparagraph (a) shall be determined on the
basis of criteria with respect to the performance of Officer
and/or Company established by the Board (or a committee of the
Board) in consultation with the Chief Executive Officer of the
Company prior to the commencement of the fiscal year and such
other factors and conditions as the Board may deem relevant;
provided, however, that the criteria for the bonus for 1998 shall
be established in the first quarter of 1998.
3.4 Additional Benefits. During the Term of the
Agreement, Officer shall be entitled to the following additional
benefits:
(a) Officer Benefits. Officer shall be entitled
to such benefits as are generally provided by the Company to its
senior executive employees including, without limitation, (i)
Company stock incentive plans, annual incentive compensation
plans, profit sharing/pension plans, deferred compensation plans,
annual physical examinations, dental, vision, sick pay, and
medical plans, personal catastrophe and accidental death
insurance plans, financial planning and automobile arrangements,
retirement plans and supplementary executive retirement plans, if
any, and (ii) personal leave, sick leave and vacation leave to
the extent such leaves are provided to all senior executive
employees. Officer is also entitled to the benefit of any life
and health insurance plans, pension, stock option plans and other
similar plans as the Company may have or may establish from
time-to-time for its senior executive employees.
(b) Vacation. Officer shall be entitled to a
minimum of four (4) weeks of vacation during each year during the
Term of the Agreement and any extensions thereof, prorated for
partial years. Any accrued vacation not taken during any year
may be carried forward to subsequent years; provided, that
Officer may not accrue more than eight (8) weeks of unused
vacation at any time.
(c) Life Insurance. During Term of the
Agreement, Company shall, at its sole cost and expense, procure
and keep in effect term life insurance (a minimum two (2) year
term certain policy) on the life of Officer, payable to such
beneficiaries as Officer may from time-to-time designate, in the
aggregate amount of One Million Five Hundred Thousand Dollars
($1,500,000); provided, however, in no event shall the premiums
for such insurance policy exceed three times normal and customary
rates for a normal healthy male of similar age. Such policy
shall be owned by Officer or by a member of his immediate family.
The Company shall have no incidents of ownership therein.
(d) Reimbursement for Expenses. During the Term
of the Agreement, Company shall reimburse Officer for all
reasonable out-of-pocket business and/or entertainment expenses
incurred by Officer for the purpose of and in connection with the
performance of his services pursuant to the Agreement. Officer
shall be entitled to such reimbursement upon the presentation by
Officer to the Company of vouchers or other statements itemizing
such expenses in reason able detail consistent with Company's
policies.
(e) Withholding. Compensation and benefits paid
to Officer under the Agreement shall be subject to applicable
federal, state and local wage deductions and other deductions
required by law.
4. Termination of the Agreement.
4.1 Termination by Company Defined.
(a) Termination Without Cause. Subject to the
provisions set forth in Paragraph 4.3 below, "Termination Without
Cause" shall constitute any termination by Company other than
termination for "Cause" (as defined in Para graph 4.1(b) below).
(b) Termination For Cause. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the
Termination Date, the Company shall have the right to terminate
the Agreement for "Cause"; provided, however, that Officer shall
not be deemed to have been terminated for Cause without (i)
reasonable written notice to Officer setting forth the reasons
for the Company's intention to terminate for "Cause", (ii) an
opportunity for the Officer, together with his counsel, to be
heard before the Board, and (iii) delivery to the Officer of a
written notice of termination (which date of delivery of such
notice shall be the Early Termination Date), as defined herein,
from the Board finding that in the good faith opinion of the
Board, Officer was guilty of conduct set forth therein, and
specifying the particulars thereof in detail. For purposes of
the Agreement, "Cause" shall mean the following:
A commission of a felony, a crime involving moral
turpitude, embezzlement, misappropriation of property of the
Company or a subsidiary, any other act involving dishonesty or
fraud with respect to the Company or a subsidiary; a material
breach of a directive of the Board which has not been cured
within a specified reasonable time after written notice of
breach; or a repeated failure after written notice to follow the
reasonable directives of the Board.
(c) Termination by Reason of Death or Disability.
Subject to the provisions set forth in Paragraph 4.3 below, prior
to the Termination Date, Company shall have the right to
terminate the Agreement by reason of Officer's death or Permanent
Disability. For purposes of the Agreement, "Permanent
Disability" shall mean the following:
The Officer is unable to perform his duties hereunder
for 180 days during any 365 consecutive days by reason of
physical or mental disability. The disability will be deemed to
have occurred on the one hundred and eightieth (180th) day of
Officer's absence or lack of adequate performance.
4.2 Termination by Officer Defined.
(a) Termination Other Than For Good Reason.
Subject to the provisions set forth in Paragraph 4.3 below,
Officer shall have the right to terminate the Agreement for any
reason other than for Good Reason (as defined in Paragraph 4.2(b)
below), at any time prior to the Termination Date, upon written
notice delivered to Company thirty (30) days prior to the
effective date of termination specified in such notice (which
date shall be the applicable Early Termination Date).
(b) Termination For Good Reason. Subject to the
provisions of Paragraph 4.3 below, Officer shall have the right
to terminate the Agreement prior to the Termination Date in the
event of the material breach of the Agreement by Company, if such
breach is not cured by Company within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company, or, following a Change in Control (as
defined in Paragraph 4.4(e) below), under the circumstances set
forth in Paragraph 4.2(c) below. For purposes of the Agreement,
termination of the Agreement by Officer in the event of Company's
material breach of the Agreement in accordance with the
provisions of this Para graph 4.2(b) shall be defined as
termination by Officer for "Good Reason."
(c) Good Reason Following a Change in Control.
Following a Change in Control (as defined in Paragraph 4.4(e)
below), "Good Reason" shall mean, without Officer's express
written consent, a material breach of the Agreement by Company,
including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company:
(i) the assignment to Officer of any duties
inconsistent with the position in Company that Officer held
immediately prior to the Change in Control, or an adverse
alteration in the nature or status of Officer's responsibilities
from those in effect immediately prior to such change;
(ii) a substantial change in the nature of
the business operations of Company;
(iii) a reduction by Company in Officer's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(iv) the relocation of Company's principal
executive offices to a location more than 25 miles from Burr
Ridge, Illinois (or, if different, the town in which such offices
are located immediately prior to the Change in Control), or
Company's requiring Officer to be based anywhere other than
Company's principal executive offices except for required travel
on Company's business to an extent substantially consistent with
Officer's business travel obligations immediately prior to the
Change in Control;
(v) the failure by Company to pay Officer
any portion of his current compensation except pursuant to an
across-the- board compensation deferral similarly affecting all
officers of Company and all officers of any person whose actions
resulted in a Change in Control or any person affiliated with
Company or such person, or to pay Officer any portion of an
installment of deferred compensation under any deferred
compensation program of Company, within seven (7) days of the
date such compensation is due;
(vi) the failure by Company to continue in
effect any compensation plan in which Officer participates
immediately prior to the Change in Control which is material to
Officer's total compensation, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by Company to
continue Officer's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of
participation relative to other participants, as existed at the
time of the Change in Control;
(vii) the failure by Company to continue to
provide Officer with benefits substantially similar to those
under any of Company's life insurance, medical, health and
accident, or disability plans in which Officer was participating
at the time of the Change in Control, the taking of any action by
Company which would directly or indirectly materially reduce any
of such benefits or deprive Officer of any material fringe
benefit enjoyed by him at the time of the Change in Control, or
the failure by Company to provide Officer with the number of paid
vacation days to which he is entitled on the basis of years of
service with Company in accordance with Company's normal vacation
policy in effect at the time of the Change in Control or pursuant
to Officer's existing employment agreement, if any; or
(viii) the failure of Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform the Agreement.
Notwithstanding the above, during the one year period
immediately following the occurrence of a Change in Control,
"Good Reason" shall mean termination of employment by the
Executive for any reason other than death or Permanent
Disability.
Officer's right to terminate Officer's employment for
Good Reason shall not be affected by Officer's incapacity due to
physical or mental illness. Officer's continued employment shall
not constitute consent to, or a waiver of rights with respect to,
any circumstance constituting Good Reason hereunder.
4.3 Effect of Termination. In the event that the
Agreement is terminated by Company or Officer prior to the
Termination Date in accordance with the provisions of this
Paragraph 4, the obligations and covenants of the parties under
this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this
Paragraph 4.3, and such other provisions of the Agreement which
shall survive termination of the Agreement as provided in
Paragraph 6.11 below. Except as otherwise specifically set
forth, all amounts due upon termination shall be payable on the
date such amounts would otherwise have been paid had the
Agreement continued through its Term; provided, however, that
Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall
be payable within thirty (30) days following the Early
Termination Date.
In the event of any such early termination in
accordance with the provisions of this Paragraph 4.3, Officer
shall be entitled to the following:
(a) Termination by Company.
(i) Termination Without Cause. In the event
that Company terminates the Agreement without Cause pursuant to
Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned
Base Salary (as defined below); (ii) earned benefits and
reimbursable expenses; (iii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any other
plan or arrangement as of the Early Termination Date, but which
has not been received by Officer as of such date; (iv) any
compensation earned but deferred ("Deferred Amounts"); and (v)
the Severance Payment (as defined in Paragraph 4.4 below).
(ii) Termination For Cause. In the event
that Company terminates the Agreement for Cause pursuant to
Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned
Base Salary; (ii) any earned bonus which Officer has been awarded
pursuant to the terms of the Agreement or any other plan or
arrangement as of the Early Termination Date, but which has not
been received by Officer as of such date; (iii) earned benefits
and reimbursable expenses; and (iv) any Deferred Amounts.
Following delivery to Officer of the notice described in
Paragraph 4.1(b)(i), the Company may suspend Officer from further
duties with full pay and benefits as provided hereunder as if
Officer continued to be employed until the delivery of the notice
of termination described in Paragraph 4.1(b)(iii). Officer shall
not be entitled to any future annual bonus or Severance Payment.
(iii) Termination Due to Death or Permanent
Disability. In the event that the Company terminates the
Agreement by reason of Officer's death or Permanent Disability
pursuant to Paragraph 4.1(c) above, Officer shall be entitled to
(i) Earned Base Salary (as defined below); (ii) earned benefits
and reimbursable expenses; (iii) any earned bonus which Officer
has been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any
Deferred Amounts; and (v) all outstanding options (whether or not
exercisable at the Early Termination Date) shall become fully and
immediately vested and may be exercised for one year following
such termination.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason.
In the event that Officer terminates the Agreement other than for
Good Reason, Officer shall be entitled to (i) Earned Base Salary;
(ii) any earned bonus which Officer has been awarded pursuant to
the terms of the Agreement or any other plan or arrangement as of
the Early Termination Date, but which has not been received by
Officer as of such date; (iii) earned benefits and reimbursable
expenses; and (iv) any Deferred Amounts. Officer shall not be
entitled to any future annual bonus or Severance Payment.
(ii) Termination For Good Reason. In the
event that Officer terminates the Agreement for Good Reason,
Officer shall be entitled to (i) Earned Base Salary; (ii) earned
benefits and reimbursable expenses; (iii) any earned bonus which
Officer has been awarded pursuant to the terms of the Agreement
or any other plan or arrangement as of the Early Termination
Date, but which has not been received by Officer as of such date;
(iv) any Deferred Amounts; and (v) the Severance Payment (as
defined in Paragraph 4.4 below).
The term "Earned Base Salary" shall mean all
semimonthly installments of the Base Salary which have become due
and payable to Officer, together with any partial monthly
installment prorated on a daily basis up to and including the
applicable Termination Date.
4.4 Severance Payment.
(a) Definition of "Severance Payment." For
purposes of the Agreement, the term "Severance Payment" shall
mean an amount equal to the sum of (i) the Base Salary otherwise
payable to Officer during the remainder of the Term had such
early termination of the Agreement not occurred ("Severance
Period") and (ii) for each full or partial year remaining in the
Severance Period, the average of the annual bonuses earned by
Officer in the two (2) years immediately preceding the date of
termination (or if there are less than two (2) years immediately
preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the
event that, following a Change in Control (as defined in
Paragraph 4.4(e) below), the Company terminates the Agreement
without Cause pursuant to Paragraph 4.1(a) above or Officer
terminates the Agreement for Good Reason pursuant to Paragraph
4.2(c) above, the term "Severance Payment" shall mean an amount
equal to no less than three (3) times the sum of the Base Salary
then in effect and the Average Bonus which Average Bonus shall
not be less than 50% of Base Salary).
(b) Payment of Severance Payment. In the event
that Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, that portion of such Severance Payment that
represents Base Salary shall be payable in monthly installments,
and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would
have been paid had Officer continued in Company's employment for
the Severance Period; provided, however, that in the event of a
Termination Following a Change in Control (as defined in
Paragraph 4.4(e) below), the Severance Payment shall be payable
in a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that
Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, he shall also be entitled to:
(i) the full and immediate vesting of any awards
granted to Officer under the Company's stock option and incentive
compensation plans; and
(ii) to the extent elected by Officer within five days
of the Early Termination Date, in lieu of shares of Company
common stock issuable upon exercise of outstanding options (which
options shall be cancelled upon the making of the payment
referred to below), a lump sum payment, in cash, equal to the
product of (a) the excess of (x) in the case of ISOs granted
after the date hereof, the closing price of shares of Company
common stock as reported on the NASDAQ National Market on or
nearest the Early Termination Date (or, if not listed on such
exchange, on the nationally recognized exchange or quotation
system on which trading volume in shares of Company common stock
is highest), or in the case of all other options, the higher of
such closing price or the highest per share price for shares of
common stock of the Company actually paid in connection with any
Change in Control, over (y) the per share exercise price of such
option held by Officer (whether or not then fully exercisable),
and (b) the number of shares of common stock of the Company
covered by each such option as elected by Officer; provided,
however, that if the Company is prevented by the terms of its
debt instruments from making the payment described herein,
Officer shall immediately execute a cashless exercise of all
options for which such Officer elected to receive cash (whether
or not fully exercisable at the Early Termination Date) and shall
dispose of the common stock underlying such options as soon as
practicable and the Company will pay Officer the aggregate
difference between the price of the common stock at the time such
shares are sold and the price determined under (x) above;
provided further, that in the event and to the extent that such
shares cannot be sold for any reason, the Company will repurchase
such shares at the price determined under (x) above; provided,
however, that notwithstanding the foregoing, the following shall
apply with respect to a Termination without Cause pursuant to
Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a
Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent
Officer within five days of the Early Termination Date elects to
receive cash in lieu of shares of Company common stock issuable
upon exercise of outstanding options (which options shall be
cancelled upon the making of the exercises referred to below),
Officer shall immediately complete a cashless exercise of all
options for which Officer elects to receive cash (whether or not
fully exercisable at the Early Termination Date) and shall
attempt to dispose of the common stock underlying such options
within three weeks of such exercise and the Company will pay
Officer the aggregate difference between the price of the common
stock at the time such shares are sold and the price determined
under (x) above; provided further, that in the event and to the
extent such shares cannot be sold within the three week period
for any reason, the Company will repurchase such shares at the
price determined under (x) above; and
(iii) continued participation throughout the Severance
Period in all employee welfare and pension benefit plans,
programs or arrangements. In the event Officer's participation
in any such plan, program or arrangement is barred, Company shall
arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer
hereby acknowledges and agrees that any Severance Payment paid to
Officer hereunder shall be deemed to be in full and complete
settlement of all obligations of Company under the Agreement.
(e) Change in Control. For purposes of the
Agreement, "Termination Following a Change in Control" shall mean
a termination of Officer's employment with Company following a
"Change in Control" by Officer for Good Reason or by Company
other than for Cause. A "Change in Control" shall be deemed to
have occurred if:
(i) Any Person, as such term is used in
section 3(a)(9) of the Securities Exchange Act of 1934 as amended
from time to time (the "Exchange Act"), as modified and used in
sections 13(d) and 14(d) thereof, (other than (A) the Company or
any of its subsidiaries, (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
of its affiliates, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, (D) a
corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, or (E) a person or group as
used in Rule 13d-1(b) under the Exchange Act, that is or becomes
the Beneficial Owner, as such term is defined in Rule 13d-3 under
the Ex change Act, directly or indirectly, of securities of the
Company and is entitled to file on Schedule 13G or any successor
form with respect to such securities) becomes the Beneficial
Owner of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any
reason to constitute a majority of the number of directors then
serving: individuals who, on the date hereof, constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on
the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(iii) There is consummated a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, at least seventy-five percent
(75%) of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(iv) The stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
seventy-five (75%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in
substantially the same proportions as their owner ship of the
Company immediately prior to such sale.
4.5 Gross-Up. In the event Officer is required
pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (the "Code")
to pay (through withholding or otherwise) an excise tax on
"excess parachute payments" (as defined in Section 280G(b) of the
Code) made by the Company pursuant to the Agreement or otherwise,
Company shall pay Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (a
"Gross-Up Payment") as is necessary to place Officer in the same
after-tax financial position that he would have been in if he had
not incurred any tax liability under Section 4999 of the Code.
The Gross-Up Payment shall be determined pursuant to the
procedures set forth in Annex A hereto.
4.6 Offset. Officer shall not be required to mitigate
the amount of any payment provided for under the Agreement by
seeking other employment or otherwise, nor will any payments
provided to him under the Agreement be subject to offset in
respect of any claims which the Company may have against Officer
other than with respect to loans by Officer from the Company
which are the subject of an executed note between Officer and the
Company, nor shall any payment provided hereunder be reduced by
any compensation earned by Officer as the result of employment by
another employer or by retirement benefits.
5. Miscellaneous.
5.1 Payment Obligations. Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right
or action which Company may have against Officer or others. In
no event shall the Officer be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to Officer under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not Officer
obtains other employment. Company agrees to pay promptly upon
receipt of proper invoices, to the fullest extent permitted by
law, all legal fees and expenses which Officer may reasonably
incur as a result of any contest by Company, Officer or others of
the validity, interpretation or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest
initiated by Officer about the amount of any payment due pursuant
to this Agreement); provided, however, that in the event that it
is finally determined by arbitration pursuant to Paragraph 5.8
that Officer was terminated for Cause or that, in the case of
termination of this Agreement by Officer, Good Reason did not
exist, then Officer shall be obligated to repay to Company the
full amount of all such legal fees and expenses paid for Officer
by Company in connection with that contest.
5.2 Confidentiality. Officer agrees that all
confidential and proprietary information relating to the business
of Company shall be kept and treated as confidential both during
and after the Term of the Agreement, except as may be permitted
in writing by the Board or as such information is within the
public domain or comes within the public domain without any
breach of the Agreement.
5.3 Waiver. The waiver of the breach of any provision
of the Agreement shall not operate or be construed as a waiver of
any subsequent breach of the same or other provision hereof.
5.4 Entire Agreement; Modifications. Except as
otherwise provided herein and the letter attached hereto as
Exhibit 1, the Agreement (together with the agreements and plans
referred to herein) represents the entire understanding among the
parties with respect to the subject matter hereof, and the
Agreement supersedes any and all prior understandings,
agreements, plans and negotiations, whether written or oral, with
respect to the subject matter hereof, including without
limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses,
reimbursements or other payments to Officer from Company. All
modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is
sought.
5.5 Notices. All notices and other communications
under the Agreement shall be in writing and shall be given by
facsimile or first class mail, certified or registered with
return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours
after transmission of a facsimile to the respective persons named
below:
If to Company: American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, Illinois 60521
If to Officer: Ann L. Straw
547 North Linden Avenue
Oak Park, Illinois 60302
Any party may change such party's address for notices
by notice duly given pursuant hereto.
5.6 Headings. The paragraph headings herein are
intended for reference only and shall not by themselves determine
the construction or interpretation of the Agreement.
5.7 Governing Law. The Agreement shall be governed by
and construed in accordance with the laws of the State of
Illinois without regard to its principles of conflict of laws.
5.8 Arbitration. Any controversy or claim arising out
of or relating to the Agreement or the breach of the Agreement
that cannot be resolved by Officer on the one hand or the Company
on the other, including any dispute as to the calculation of
Officer's benefits or any payment hereunder, shall be submitted
to arbitration in the City of Chicago, in accordance with
Illinois state law and the procedures of the American Arbitration
Association. The determination of the arbitrator shall be
conclusive and binding on the Company and Officer, and judgment
may be entered on the arbitrator's award in any court having
jurisdiction.
5.9 Severability. Should a court or other body of
competent jurisdiction determine that any provision of the
Agreement is excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, all other provisions of the Agreement shall
be deemed valid and enforceable to the extent possible.
5.10 Survival of Company's Obligations. Company's
obligations hereunder shall not be terminated by reason of any
liquidation, dissolution, bankruptcy, cessation of business, or
similar event relating to Company. The Agreement shall not be
terminated by any merger or consolidation or other reorganization
of Company. In the event any such merger, consolidation or
reorganization shall be accomplished by transfer of stock or by
transfer of assets or otherwise, the provisions of the Agreement
shall be binding upon and inure to the benefit of the surviving
or resulting corporation or person. The Agreement shall be
binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties;
provided, however, that except as herein expressly provided, the
Agreement shall not be assignable either by Company (except to an
affiliate of the Company, in which event Company shall remain
liable if the affiliate fails to meet any obligations to make
payments or provide benefits or otherwise) or by Officer.
5.11 Survival of Certain Rights and Obligations. The
rights and obligations of the parties hereto pursuant to
Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13
hereof shall survive the termination of the Agreement.
5.12 Counterparts. The Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute one and the same Agreement.
5.13 Indemnification. In addition to any rights to
indemnification to which Officer is entitled under the Company's
Articles of Incorporation and By- Laws or under the agreement
between Company and Officer attached hereto as Exhibit 2, Company
shall indemnify Officer at all times during and after the Term of
the Agreement to the maximum extent permitted under applicable
law of the State of Illinois or any successor provision thereof
and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action,
suit, or proceeding, to the maximum extent permitted under such
applicable state laws.<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the
Agreement.
COMPANY:
AMERICAN DISPOSAL SERVICES, INC.,
a Delaware corporation
By:
Name
Title
Date:
OFFICER:
Name
Date:
ANNEX A
The Gross-Up Payment shall be equal to the excess of the Total
Payments over the payment provided for by this paragraph. For
purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i)
all payments or benefits received or to be received by Officer in
connection with a Change in Control or the termination of
Officer's employment (whether payable pursuant to the terms of
the Agreement or of any other plan, arrangement or agreement with
Corporation, its successors, any person whose actions result in a
Change in Control or any person affiliated (or which, as a result
of the completion of the transactions causing a Change in
Control, will become affiliated) with Corporation or such person
within the meaning of Section 1504 of the Code (the "Total
Payments")) shall be treated as "parachute payments" (within the
meaning of Section 280G(b)(2) of the Code) unless, in the opinion
of tax counsel selected by Corporation's independent auditors and
reasonably acceptable to Officer, such payments or benefits (in
whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of
the Code) shall be treated as subject to the Excise Tax, unless
in the opinion of such tax counsel such excess parachute payments
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code, or are
not otherwise subject to the Excise Tax, and (ii) the value of
any noncash benefits or any deferred payment or benefit shall be
determined by the Corporation's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of
taxation in the state and locality of the residence of Officer on
the Early Termination Date, net of the maximum reduction in
federal income taxes that could be obtained from deduction of
such state and local taxes.
EXHIBIT 10.7
_________________________________________________________________
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
AMERICAN DISPOSAL SERVICES, INC.
a Delaware corporation,
and
LAWRENCE R. CONRATH
an individual
_________________________________________________________________
TABLE OF CONTENTS
PAGE
----
1. Position and Duties; Location........................... 1
2. Term of Employment...................................... 2
3. Compensation, Benefits and Reimbursement................ 2
3.1 Base Salary........................................ 2
3.2 Increases in Base Salary........................... 2
3.3 Bonus.............................................. 3
(a) Target Bonus.................................. 3
(b) Determination of Bonus........................ 3
3.4 Additional Benefits................................ 3
(a) Officer Benefits.............................. 3
(b) Vacation...................................... 3
(c) Life Insurance................................ 4
(d) Reimbursement for Expenses.................... 4
(e) Withholding................................... 4
4. Termination of the Agreement............................ 4
4.1 Termination by Company Defined..................... 4
(a) Termination Without Cause..................... 4
(b) Termination For Cause......................... 4
(c) Termination by Reason of Death or Disability.. 5
4.2 Termination by Officer Defined..................... 5
(a) Termination Other Than For Good Reason........ 5
(b) Termination For Good Reason................... 6
(c) Good Reason Following a Change in Control..... 6
4.3 Effect of Termination.............................. 8
(a) Termination by Company........................ 8
(i) Termination Without Cause................ 8
(ii) Termination For Cause ................... 8
(iii)Termination Due to Death or Permanent
Disability.............................. 9
(b) Termination by Officer........................ 9
(i) Termination Other Than For Good Reason... 9
(ii) Termination For Good Reason.............. 9
4.4 Severance Payment.................................. 10
(a) Definition of "Severance Payment"............. 10
(b) Payment of Severance Payment.................. 10
(c) Other Severance Benefits...................... 11
(d) Full Settlement of All Obligations............ 12
(e) Change in Control............................. 12
4.5 Gross-Up........................................... 14
4.6 Offset............................................. 14
5. Miscellaneous........................................... 14
5.1 Payment Obligations................................ 14
5.2 Confidentiality.................................... 15
5.3 Waiver............................................. 15
5.4 Entire Agreement; Modifications.................... 15
5.5 Notices............................................ 15
5.6 Headings........................................... 16
5.7 Governing Law...................................... 16
5.8 Arbitration........................................ 16
5.9 Severability....................................... 16
5.10 Survival of Company's Obligations.................. 16
5.11 Survival of Certain Rights and Obligations......... 17
5.12 Counterparts....................................... 17
5.13 Indemnification.................................... 17
EXECUTIVE EMPLOYMENT AGREEMENT
THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of the first day of January, 1998, (the
"Effective Date"), by and between AMERICAN DISPOSAL SERVICES,
INC., a Delaware corporation (the "Company") and LAWRENCE R.
CONRATH, an individual (the "Officer").
RECITAL
--------
WHEREAS, the Officer has been employed by and currently
serves as the Company's Vice President-Controller;
WHEREAS, the Company recognizes Officer's substantial
contribution to the growth and success of the Company; and
desires to provide for continued employment of Officer in order
to reinforce and encourage his continued attention and dedication
to the Company as a member of the Company's senior management;
WHEREAS, Company desires to continue to employ Officer
as Vice President-Controller, and Officer is willing to continue
to accept such employment by Company, on the terms and subject to
the conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the foregoing
mutual covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Position and Duties; Location.
-----------------------------
During the Term (as defined in Paragraph 2 below) of
the Agreement, Officer agrees to be employed by and to serve the
Company as its Vice President- Controller subject to the control
of the Board of Directors (the "Board"), and the Company agrees
to employ and retain Officer in such capacities. During the Term
(as defined in Paragraph 2 below) Officer agrees to devote
substantially all of his working time, energy, efforts and
abilities to the business affairs of the Company and its
subsidiaries. Officer's principal place of business will be
located within 25 miles of Burr Ridge, Illinois. The Company
shall provide Officer with working facilities and support
services as are suitable to his position and appropriate for the
performance of his duties.
2. Term of Employment.
The Term (the "Term") of the Agreement shall be for the
period commencing on the Effective Date and ending on the last
day of the eighteenth (18th) month following the Effective Date
(the "Termination Date"), unless terminated earlier pursuant to
the Agreement (the "Early Termination Date"); provided, however,
that commencing on the last day of the twelfth (12th) month
following the Effective Date and each subsequent anniversary
thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six (6) months before such
date, either party shall have given written notice to the other
that it does not wish to extend the Term of the Agreement.
References herein to the Term of the Agreement shall refer to
both the initial Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1 Base Salary. During the Term of the Agreement and
subject to the terms and conditions set forth herein, Company
agrees to pay to Officer an annual "Base Salary" equal to
_______________ Thousand Dollars ($____________), or such higher
amount as may from time-to-time be determined by the Board.
Unless otherwise agreed in writing by Officer and Company, the
salary shall be payable in substantially equal semimonthly
installments in accordance with the standard policies of Company
in existence from time-to-time.
3.2 Increases in Base Salary. Officer's Base Salary
shall be reviewed no less frequently than on each anniversary of
the Effective Date during the Term by the Board (or such
committee as may be appointed by the Board for such purpose).
The Base Salary payable to Officer may be increased on each such
anniversary date (and such other times as the Board or a
committee of the Board may deem appropriate during the Term of
the Agreement) to an amount determined by the Board (or a
committee of the Board). Any increase in Base Salary or other
compensation shall in no way limit or reduce any other
obligations of Company hereunder and, once established at an
increased specified rate, Officer's Base Salary shall not be
reduced unless Officer otherwise agrees in writing.
3.3 Bonus. During the Term of the Agreement, Officer
shall be eligible for the following bonus:
(a) Target Bonus. Officer shall be eligible to
receive an annual bonus for each fiscal year of the Company (or
portion thereof) during the Term of the Agreement as determined
below. Any such bonus shall be payable within seventy-five (75)
days after the end of Company's fiscal year to which such bonus
relates; provided, however, that the Chief Executive Officer of
the Company may defer payment of such bonus for a period not to
exceed one year if such officer determines that deferral is in
the best interests of the Company.
(b) Determination of Bonus. With respect to each
fiscal year during the Term, the actual amount of the bonus
payable pursuant to Subparagraph (a) shall be determined on the
basis of criteria with respect to the performance of Officer
and/or Company established by the Board (or a committee of the
Board) in consultation with the Chief Executive Officer of the
Company prior to the commencement of the fiscal year and such
other factors and conditions as the Board may deem relevant;
provided, however, that the criteria for the bonus for 1998 shall
be established in the first quarter of 1998.
3.4 Additional Benefits. During the Term of the
Agreement, Officer shall be entitled to the following additional
benefits:
(a) Officer Benefits. Officer shall be entitled
to such benefits as are generally provided by the Company to its
senior executive employees including, without limitation, (i)
Company stock incentive plans, annual incentive compensation
plans, profit sharing/pension plans, deferred compensation plans,
annual physical examinations, dental, vision, sick pay, and
medical plans, personal catastrophe and accidental death
insurance plans, financial planning and automobile arrangements,
retirement plans and supplementary executive retirement plans, if
any, and (ii) personal leave, sick leave and vacation leave to
the extent such leaves are provided to all senior executive
employees. Officer is also entitled to the benefit of any life
and health insurance plans, pension, stock option plans and other
similar plans as the Company may have or may establish from
time-to-time for its senior executive employees.
(b) Vacation. Officer shall be entitled to a
minimum of four (4) weeks of vacation during each year during the
Term of the Agreement and any extensions thereof, prorated for
partial years. Any accrued vacation not taken during any year
may be carried forward to subsequent years; provided, that
Officer may not accrue more than eight (8) weeks of unused
vacation at any time.
(c) Life Insurance. During Term of the
Agreement, Company shall, at its sole cost and expense, procure
and keep in effect term life insurance (a minimum two (2) year
term certain policy) on the life of Officer, payable to such
beneficiaries as Officer may from time-to-time designate, in the
aggregate amount of One Million Five Hundred Thousand Dollars
($1,500,000); provided, however, in no event shall the premiums
for such insurance policy exceed three times normal and customary
rates for a normal healthy male of similar age. Such policy
shall be owned by Officer or by a member of his immediate family.
The Company shall have no incidents of ownership therein.
(d) Reimbursement for Expenses. During the Term
of the Agreement, Company shall reimburse Officer for all
reasonable out-of-pocket business and/or entertainment expenses
incurred by Officer for the purpose of and in connection with the
performance of his services pursuant to the Agreement. Officer
shall be entitled to such reimbursement upon the presentation by
Officer to the Company of vouchers or other statements itemizing
such expenses in reason able detail consistent with Company's
policies.
(e) Withholding. Compensation and benefits paid
to Officer under the Agreement shall be subject to applicable
federal, state and local wage deductions and other deductions
required by law.
4. Termination of the Agreement.
4.1 Termination by Company Defined.
(a) Termination Without Cause. Subject to the
provisions set forth in Paragraph 4.3 below, "Termination Without
Cause" shall constitute any termination by Company other than
termination for "Cause" (as defined in Para graph 4.1(b) below).
(b) Termination For Cause. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the
Termination Date, the Company shall have the right to terminate
the Agreement for "Cause"; provided, however, that Officer shall
not be deemed to have been terminated for Cause without (i)
reasonable written notice to Officer setting forth the reasons
for the Company's intention to terminate for "Cause", (ii) an
opportunity for the Officer, together with his counsel, to be
heard before the Board, and (iii) delivery to the Officer of a
written notice of termination (which date of delivery of such
notice shall be the Early Termination Date), as defined herein,
from the Board finding that in the good faith opinion of the
Board, Officer was guilty of conduct set forth therein, and
specifying the particulars thereof in detail. For purposes of
the Agreement, "Cause" shall mean the following:
A commission of a felony, a crime involving moral
turpitude, embezzlement, misappropriation of property of the
Company or a subsidiary, any other act involving dishonesty or
fraud with respect to the Company or a subsidiary; a material
breach of a directive of the Board which has not been cured
within a specified reasonable time after written notice of
breach; or a repeated failure after written notice to follow the
reasonable directives of the Board.
(c) Termination by Reason of Death or Disability.
Subject to the provisions set forth in Paragraph 4.3 below, prior
to the Termination Date, Company shall have the right to
terminate the Agreement by reason of Officer's death or Permanent
Disability. For purposes of the Agreement, "Permanent
Disability" shall mean the following:
The Officer is unable to perform his duties hereunder
for 180 days during any 365 consecutive days by reason of
physical or mental disability. The disability will be deemed to
have occurred on the one hundred and eightieth (180th) day of
Officer's absence or lack of adequate performance.
4.2 Termination by Officer Defined.
(a) Termination Other Than For Good Reason.
Subject to the provisions set forth in Paragraph 4.3 below,
Officer shall have the right to terminate the Agreement for any
reason other than for Good Reason (as defined in Paragraph 4.2(b)
below), at any time prior to the Termination Date, upon written
notice delivered to Company thirty (30) days prior to the
effective date of termination specified in such notice (which
date shall be the applicable Early Termination Date).
(b) Termination For Good Reason. Subject to the
provisions of Paragraph 4.3 below, Officer shall have the right
to terminate the Agreement prior to the Termination Date in the
event of the material breach of the Agreement by Company, if such
breach is not cured by Company within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company, or, following a Change in Control (as
defined in Paragraph 4.4(e) below), under the circumstances set
forth in Paragraph 4.2(c) below. For purposes of the Agreement,
termination of the Agreement by Officer in the event of Company's
material breach of the Agreement in accordance with the
provisions of this Para graph 4.2(b) shall be defined as
termination by Officer for "Good Reason."
(c) Good Reason Following a Change in Control.
Following a Change in Control (as defined in Paragraph 4.4(e)
below), "Good Reason" shall mean, without Officer's express
written consent, a material breach of the Agreement by Company,
including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company:
(i) the assignment to Officer of any duties
inconsistent with the position in Company that Officer held
immediately prior to the Change in Control, or an adverse
alteration in the nature or status of Officer's responsibilities
from those in effect immediately prior to such change;
(ii) a substantial change in the nature of
the business operations of Company;
(iii) a reduction by Company in Officer's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(iv) the relocation of Company's principal
executive offices to a location more than 25 miles from Burr
Ridge, Illinois (or, if different, the town in which such offices
are located immediately prior to the Change in Control), or
Company's requiring Officer to be based anywhere other than
Company's principal executive offices except for required travel
on Company's business to an extent substantially consistent with
Officer's business travel obligations immediately prior to the
Change in Control;
(v) the failure by Company to pay Officer
any portion of his current compensation except pursuant to an
across-the- board compensation deferral similarly affecting all
officers of Company and all officers of any person whose actions
resulted in a Change in Control or any person affiliated with
Company or such person, or to pay Officer any portion of an
installment of deferred compensation under any deferred
compensation program of Company, within seven (7) days of the
date such compensation is due;
(vi) the failure by Company to continue in
effect any compensation plan in which Officer participates
immediately prior to the Change in Control which is material to
Officer's total compensation, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by Company to
continue Officer's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of
participation relative to other participants, as existed at the
time of the Change in Control;
(vii) the failure by Company to continue to
provide Officer with benefits substantially similar to those
under any of Company's life insurance, medical, health and
accident, or disability plans in which Officer was participating
at the time of the Change in Control, the taking of any action by
Company which would directly or indirectly materially reduce any
of such benefits or deprive Officer of any material fringe
benefit enjoyed by him at the time of the Change in Control, or
the failure by Company to provide Officer with the number of paid
vacation days to which he is entitled on the basis of years of
service with Company in accordance with Company's normal vacation
policy in effect at the time of the Change in Control or pursuant
to Officer's existing employment agreement, if any; or
(viii) the failure of Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform the Agreement.
Notwithstanding the above, during the one year period
immediately following the occurrence of a Change in Control,
"Good Reason" shall mean termination of employment by the
Executive for any reason other than death or Permanent
Disability.
Officer's right to terminate Officer's employment for
Good Reason shall not be affected by Officer's incapacity due to
physical or mental illness. Officer's continued employment shall
not constitute consent to, or a waiver of rights with respect to,
any circumstance constituting Good Reason hereunder.
4.3 Effect of Termination. In the event that the
Agreement is terminated by Company or Officer prior to the
Termination Date in accordance with the provisions of this
Paragraph 4, the obligations and covenants of the parties under
this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this
Paragraph 4.3, and such other provisions of the Agreement which
shall survive termination of the Agreement as provided in
Paragraph 6.11 below. Except as otherwise specifically set
forth, all amounts due upon termination shall be payable on the
date such amounts would otherwise have been paid had the
Agreement continued through its Term; provided, however, that
Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall
be payable within thirty (30) days following the Early
Termination Date.
In the event of any such early termination in
accordance with the provisions of this Paragraph 4.3, Officer
shall be entitled to the following:
(a) Termination by Company.
(i) Termination Without Cause. In the event
that Company terminates the Agreement without Cause pursuant to
Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned
Base Salary (as defined below); (ii) earned benefits and
reimbursable expenses; (iii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any other
plan or arrangement as of the Early Termination Date, but which
has not been received by Officer as of such date; (iv) any
compensation earned but deferred ("Deferred Amounts"); and (v)
the Severance Payment (as defined in Paragraph 4.4 below).
(ii) Termination For Cause. In the event
that Company terminates the Agreement for Cause pursuant to
Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned
Base Salary; (ii) any earned bonus which Officer has been awarded
pursuant to the terms of the Agreement or any other plan or
arrangement as of the Early Termination Date, but which has not
been received by Officer as of such date; (iii) earned benefits
and reimbursable expenses; and (iv) any Deferred Amounts.
Following delivery to Officer of the notice described in
Paragraph 4.1(b)(i), the Company may suspend Officer from further
duties with full pay and benefits as provided hereunder as if
Officer continued to be employed until the delivery of the notice
of termination described in Paragraph 4.1(b)(iii). Officer shall
not be entitled to any future annual bonus or Severance Payment.
(iii) Termination Due to Death or Permanent
Disability. In the event that the Company terminates the
Agreement by reason of Officer's death or Permanent Disability
pursuant to Paragraph 4.1(c) above, Officer shall be entitled to
(i) Earned Base Salary (as defined below); (ii) earned benefits
and reimbursable expenses; (iii) any earned bonus which Officer
has been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any
Deferred Amounts; and (v) all outstanding options (whether or not
exercisable at the Early Termination Date) shall become fully and
immediately vested and may be exercised for one year following
such termination.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason.
In the event that Officer terminates the Agreement other than for
Good Reason, Officer shall be entitled to (i) Earned Base Salary;
(ii) any earned bonus which Officer has been awarded pursuant to
the terms of the Agreement or any other plan or arrangement as of
the Early Termination Date, but which has not been received by
Officer as of such date; (iii) earned benefits and reimbursable
expenses; and (iv) any Deferred Amounts. Officer shall not be
entitled to any future annual bonus or Severance Payment.
(ii) Termination For Good Reason. In the
event that Officer terminates the Agreement for Good Reason,
Officer shall be entitled to (i) Earned Base Salary; (ii) earned
benefits and reimbursable expenses; (iii) any earned bonus which
Officer has been awarded pursuant to the terms of the Agreement
or any other plan or arrangement as of the Early Termination
Date, but which has not been received by Officer as of such date;
(iv) any Deferred Amounts; and (v) the Severance Payment (as
defined in Paragraph 4.4 below).
The term "Earned Base Salary" shall mean all
semimonthly installments of the Base Salary which have become due
and payable to Officer, together with any partial monthly
installment prorated on a daily basis up to and including the
applicable Termination Date.
4.4 Severance Payment.
(a) Definition of "Severance Payment." For
purposes of the Agreement, the term "Severance Payment" shall
mean an amount equal to the sum of (i) the Base Salary otherwise
payable to Officer during the remainder of the Term had such
early termination of the Agreement not occurred ("Severance
Period") and (ii) for each full or partial year remaining in the
Severance Period, the average of the annual bonuses earned by
Officer in the two (2) years immediately preceding the date of
termination (or if there are less than two (2) years immediately
preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the
event that, following a Change in Control (as defined in
Paragraph 4.4(e) below), the Company terminates the Agreement
without Cause pursuant to Paragraph 4.1(a) above or Officer
terminates the Agreement for Good Reason pursuant to Paragraph
4.2(c) above, the term "Severance Payment" shall mean an amount
equal to no less than three (3) times the sum of the Base Salary
then in effect and the Average Bonus which Average Bonus shall
not be less than 50% of Base Salary).
(b) Payment of Severance Payment. In the event
that Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, that portion of such Severance Payment that
represents Base Salary shall be payable in monthly installments,
and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would
have been paid had Officer continued in Company's employment for
the Severance Period; provided, however, that in the event of a
Termination Following a Change in Control (as defined in
Paragraph 4.4(e) below), the Severance Payment shall be payable
in a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that
Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, he shall also be entitled to:
(i) the full and immediate vesting of any awards
granted to Officer under the Company's stock option and incentive
compensation plans; and
(ii) to the extent elected by Officer within five days
of the Early Termination Date, in lieu of shares of Company
common stock issuable upon exercise of outstanding options (which
options shall be canceled upon the making of the payment referred
to below), a lump sum payment, in cash, equal to the product of
(a) the excess of (x) in the case of ISOs granted after the date
hereof, the closing price of shares of Company common stock as
reported on the NASDAQ National Market on or nearest the Early
Termination Date (or, if not listed on such exchange, on the
nationally recognized exchange or quotation system on which
trading volume in shares of Company common stock is highest), or
in the case of all other options, the higher of such closing
price or the highest per share price for shares of common stock
of the Company actually paid in connection with any Change in
Control, over (y) the per share exercise price of such option
held by Officer (whether or not then fully exercisable), and (b)
the number of shares of common stock of the Company covered by
each such option as elected by Officer; provided, however, that
if the Company is prevented by the terms of its debt instruments
from making the payment described herein, Officer shall
immediately execute a cashless exercise of all options for which
such Officer elected to receive cash (whether or not fully
exercisable at the Early Termination Date) and shall dispose of
the common stock underlying such options as soon as practicable
and the Company will pay Officer the aggregate difference between
the price of the common stock at the time such shares are sold
and the price determined under (x) above; provided further, that
in the event and to the extent that such shares cannot be sold
for any reason, the Company will repurchase such shares at the
price determined under (x) above; provided, however, that
notwithstanding the foregoing, the following shall apply with
respect to a Termination without Cause pursuant to Paragraph
4.3(a)(i) or a Termination For Good Reason prior to Change in
Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer
within five days of the Early Termination Date elects to receive
cash in lieu of shares of Company common stock issuable upon
exercise of outstanding options (which options shall be canceled
upon the making of the exercises referred to below), Officer
shall immediately complete a cashless exercise of all options for
which Officer elects to receive cash (whether or not fully
exercisable at the Early Termination Date) and shall attempt to
dispose of the common stock underlying such options within three
weeks of such exercise and the Company will pay Officer the
aggregate difference between the price of the common stock at the
time such shares are sold and the price determined under (x)
above; provided further, that in the event and to the extent such
shares cannot be sold within the three week period for any
reason, the Company will repurchase such shares at the price
determined under (x) above; and
(iii) continued participation throughout the Severance
Period in all employee welfare and pension benefit plans,
programs or arrangements. In the event Officer's participation
in any such plan, program or arrangement is barred, Company shall
arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer
hereby acknowledges and agrees that any Severance Payment paid to
Officer hereunder shall be deemed to be in full and complete
settlement of all obligations of Company under the Agreement.
(e) Change in Control. For purposes of the
Agreement, "Termination Following a Change in Control" shall mean
a termination of Officer's employment with Company following a
"Change in Control" by Officer for Good Reason or by Company
other than for Cause. A "Change in Control" shall be deemed to
have occurred if:
(i) Any Person, as such term is used in
section 3(a)(9) of the Securities Exchange Act of 1934 as amended
from time to time (the "Exchange Act"), as modified and used in
sections 13(d) and 14(d) thereof, (other than (A) the Company or
any of its subsidiaries, (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
of its affiliates, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, (D) a
corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, or (E) a person or group as
used in Rule 13d-1(b) under the Exchange Act, that is or becomes
the Beneficial Owner, as such term is defined in Rule 13d-3 under
the Exchange Act, directly or indirectly, of securities of the
Company and is entitled to file on Schedule 13G or any successor
form with respect to such securities) becomes the Beneficial
Owner of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any
reason to constitute a majority of the number of directors then
serving: individuals who, on the date hereof, constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on
the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(iii) There is consummated a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, at least seventy-five percent
(75%) of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(iv) The stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
seventy-five (75%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the
Company immediately prior to such sale.
4.5 Gross-Up. In the event Officer is required
pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (the "Code")
to pay (through withholding or otherwise) an excise tax on
"excess parachute payments" (as defined in Section 280G(b) of the
Code) made by the Company pursuant to the Agreement or otherwise,
Company shall pay Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (a
"Gross-Up Payment") as is necessary to place Officer in the same
after-tax financial position that he would have been in if he had
not incurred any tax liability under Section 4999 of the Code.
The Gross-Up Payment shall be determined pursuant to the
procedures set forth in Annex A hereto.
4.6 Offset. Officer shall not be required to mitigate
the amount of any payment provided for under the Agreement by
seeking other employment or otherwise, nor will any payments
provided to him under the Agreement be subject to offset in
respect of any claims which the Company may have against Officer
other than with respect to loans by Officer from the Company
which are the subject of an executed note between Officer and the
Company, nor shall any payment provided hereunder be reduced by
any compensation earned by Officer as the result of employment by
another employer or by retirement benefits.
5. Miscellaneous.
5.1 Payment Obligations. Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right
or action which Company may have against Officer or others. In
no event shall the Officer be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to Officer under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not Officer
obtains other employment. Company agrees to pay promptly upon
receipt of proper invoices, to the fullest extent permitted by
law, all legal fees and expenses which Officer may reasonably
incur as a result of any contest by Company, Officer or others of
the validity, interpretation or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest
initiated by Officer about the amount of any payment due pursuant
to this Agreement); provided, however, that in the event that it
is finally determined by arbitration pursuant to Paragraph 5.8
that Officer was terminated for Cause or that, in the case of
termination of this Agreement by Officer, Good Reason did not
exist, then Officer shall be obligated to repay to Company the
full amount of all such legal fees and expenses paid for Officer
by Company in connection with that contest.
5.2 Confidentiality. Officer agrees that all
confidential and proprietary information relating to the business
of Company shall be kept and treated as confidential both during
and after the Term of the Agreement, except as may be permitted
in writing by the Board or as such information is within the
public domain or comes within the public domain without any
breach of the Agreement.
5.3 Waiver. The waiver of the breach of any provision
of the Agreement shall not operate or be construed as a waiver of
any subsequent breach of the same or other provision hereof.
5.4 Entire Agreement; Modifications. Except as
otherwise provided herein and the letter attached hereto as
Exhibit 1, the Agreement (together with the agreements and plans
referred to herein) represents the entire understanding among the
parties with respect to the subject matter hereof, and the
Agreement supersedes any and all prior understandings,
agreements, plans and negotiations, whether written or oral, with
respect to the subject matter hereof, including without
limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses,
reimbursements or other payments to Officer from Company. All
modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is
sought.
5.5 Notices. All notices and other communications
under the Agreement shall be in writing and shall be given by
facsimile or first class mail, certified or registered with
return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours
after transmission of a facsimile to the respective persons named
below:
If to Company: American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, Illinois 60521
If to Officer: Lawrence R. Conrath
13345 Oakwood Drive
Lockport, Illinois 60441
Any party may change such party's address for notices
by notice duly given pursuant hereto.
5.6 Headings. The paragraph headings herein are
intended for reference only and shall not by themselves determine
the construction or interpretation of the Agreement.
5.7 Governing Law. The Agreement shall be governed by
and construed in accordance with the laws of the State of
Illinois without regard to its principles of conflict of laws.
5.8 Arbitration. Any controversy or claim arising out
of or relating to the Agreement or the breach of the Agreement
that cannot be resolved by Officer on the one hand or the Company
on the other, including any dispute as to the calculation of
Officer's benefits or any payment hereunder, shall be submitted
to arbitration in the City of Chicago, in accordance with
Illinois state law and the procedures of the American Arbitration
Association. The determination of the arbitrator shall be
conclusive and binding on the Company and Officer, and judgment
may be entered on the arbitrator's award in any court having
jurisdiction.
5.9 Severability. Should a court or other body of
competent jurisdiction determine that any provision of the
Agreement is excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, all other provisions of the Agreement shall
be deemed valid and enforceable to the extent possible.
5.10 Survival of Company's Obligations. Company's
obligations hereunder shall not be terminated by reason of any
liquidation, dissolution, bankruptcy, cessation of business, or
similar event relating to Company. The Agreement shall not be
terminated by any merger or consolidation or other reorganization
of Company. In the event any such merger, consolidation or
reorganization shall be accomplished by transfer of stock or by
transfer of assets or otherwise, the provisions of the Agreement
shall be binding upon and inure to the benefit of the surviving
or resulting corporation or person. The Agreement shall be
binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties;
provided, however, that except as herein expressly provided, the
Agreement shall not be assignable either by Company (except to an
affiliate of the Company, in which event Company shall remain
liable if the affiliate fails to meet any obligations to make
payments or provide benefits or otherwise) or by Officer.
5.11 Survival of Certain Rights and Obligations. The
rights and obligations of the parties hereto pursuant to
Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13
hereof shall survive the termination of the Agreement.
5.12 Counterparts. The Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute one and the same Agreement.
5.13 Indemnification. In addition to any rights to
indemnification to which Officer is entitled under the Company's
Articles of Incorporation and By-Laws or under the agreement
between Company and Officer attached hereto as Exhibit 2, Company
shall indemnify Officer at all times during and after the Term of
the Agreement to the maximum extent permitted under applicable
law of the State of Illinois or any successor provision thereof
and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action,
suit, or proceeding, to the maximum extent permitted under such
applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed the
Agreement.
COMPANY:
AMERICAN DISPOSAL SERVICES, INC.,
a Delaware corporation
By: ____________________________
Name
Title
Date:
OFFICER:
_________________________________
Name
Date:____________________________
ANNEX A
The Gross-Up Payment shall be equal to the excess of the Total
Payments over the payment provided for by this paragraph. For
purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i)
all payments or benefits received or to be received by Officer in
connection with a Change in Control or the termination of
Officer's employment (whether payable pursuant to the terms of
the Agreement or of any other plan, arrangement or agreement with
Corporation, its successors, any person whose actions result in a
Change in Control or any person affiliated (or which, as a result
of the completion of the transactions causing a Change in
Control, will become affiliated) with Corporation or such person
within the meaning of Section 1504 of the Code (the "Total
Payments")) shall be treated as "parachute payments" (within the
meaning of Section 280G(b)(2) of the Code) unless, in the opinion
of tax counsel selected by Corporation's independent auditors and
reasonably acceptable to Officer, such payments or benefits (in
whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of
the Code) shall be treated as subject to the Excise Tax, unless
in the opinion of such tax counsel such excess parachute payments
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code, or are
not otherwise subject to the Excise Tax, and (ii) the value of
any noncash benefits or any deferred payment or benefit shall be
determined by the Corporation's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of
taxation in the state and locality of the residence of Officer on
the Early Termination Date, net of the maximum reduction in
federal income taxes that could be obtained from deduction of
such state and local taxes.
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
AMERICAN DISPOSAL SERVICES, INC.
a Delaware corporation,
and
MARY T. RYAN
an individual
TABLE OF CONTENTS
PAGE
1. Position and Duties; Location 1
2. Term of Employment 2
3. Compensation, Benefits and Reimbursement
3.1 Base Salary 2
3.2 Increases in Base Salary 2
3.3 Bonus 3
(a) Target Bonus 3
(b) Determination of Bonus 3
3.4 Additional Benefits 3
(a) Officer Benefits 3
(b) Vacation 3
(c) Life Insurance 4
(d) Reimbursement for Expenses 4
(e) Withholding 4
4. Termination of the Agreement 4
4.1 Termination by Company Defined 4
(a) Termination Without Cause 4
(b) Termination For Cause 4
(c) Termination by Reason of
Death or
Disability 5
4.2 Termination by Officer Defined 5
(a) Termination Other Than For Good Reason 5
(b) Termination For Good Reason 6
(c) Good Reason Following a
Change in Control 6
4.3 Effect of Termination 8
(a) Termination by Company 8
(i) Termination Without Cause 8
(ii) Termination For Cause 8
(iii) Termination Due to
Death or Permanent Disability 9
(b) Termination by Officer 9
(i) Termination Other Than
For Good Reason 9
(ii) Termination For Good Reason 9
4.4 Severance Payment 10
(a) Definition of "Severance Payment" 10
(b) Payment of Severance Payment 10
(c) Other Severance Benefits 11
(d) Full Settlement of All Obligations 12
(e) Change in Control 12
4.5 Gross-Up 14
4.6 Offset 14
5. Miscellaneous. 14
5.1 Payment Obligations 14
5.2 Confidentiality 15
5.3 Waiver 15
5.4 Entire Agreement; Modifications 15
5.5 Notices 15
5.6 Headings 16
5.7 Governing Law 16
5.8 Arbitration 16
5.9 Severability 16
5.10 Survival of Company's Obligations 17
5.11 Survival of Certain
Rights and Obligations 17
5.12 Counterparts 17
5.13 Indemnification 17
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of the first day of January, 1998, (the
"Effective Date"), by and between AMERICAN DISPOSAL SERVICES,
INC., a Delaware corporation (the "Company") and MARY T. RYAN, an
individual (the "Officer").
RECITAL
WHEREAS, the Officer has been employed by and currently
serves as the Company's Vice President-Corporate Affairs;
WHEREAS, the Company recognizes Officer's substantial
contribution to the growth and success of the Company; and
desires to provide for continued employment of Officer in order
to reinforce and encourage his continued attention and dedication
to the Company as a member of the Company's senior management;
WHEREAS, Company desires to continue to employ Officer
as Vice President-Corporate Affairs, and Officer is willing to
continue to accept such employment by Company, on the terms and
subject to the conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the foregoing
mutual covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Position and Duties; Location.
During the Term (as defined in Paragraph 2 below) of
the Agreement, Officer agrees to be employed by and to serve the
Company as its Vice President- Corporate Affairs subject to the
control of the Board of Directors (the "Board"), and the Company
agrees to employ and retain Officer in such capacities. During
the Term (as defined in Paragraph 2 below) Officer agrees to
devote substantially all of his working time, energy, efforts and
abilities to the business affairs of the Company and its
subsidiaries. Officer's principal place of business will be
located within 25 miles of Burr Ridge, Illinois. The Company
shall provide Officer with working facilities and support
services as are suitable to his position and appropriate for the
performance of his duties.
2. Term of Employment.
The Term (the "Term") of the Agreement shall be for the
period commencing on the Effective Date and ending on the last
day of the eighteenth (18th) month following the Effective Date
(the "Termination Date"), unless terminated earlier pursuant to
the Agreement (the "Early Termination Date"); provided, however,
that commencing on the last day of the twelfth (12th) month
following the Effective Date and each subsequent anniversary
thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six (6) months before such
date, either party shall have given written notice to the other
that it does not wish to extend the Term of the Agreement.
References herein to the Term of the Agreement shall refer to
both the initial Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1 Base Salary. During the Term of the Agreement and
subject to the terms and conditions set forth herein, Company
agrees to pay to Officer an annual "Base Salary" equal to
_______________ Thousand Dollars ($____________), or such higher
amount as may from time-to-time be determined by the Board.
Unless otherwise agreed in writing by Officer and Company, the
salary shall be payable in substantially equal semimonthly
installments in accordance with the standard policies of Company
in existence from time-to-time.
3.2 Increases in Base Salary. Officer's Base Salary
shall be reviewed no less frequently than on each anniversary of
the Effective Date during the Term by the Board (or such
committee as may be appointed by the Board for such purpose).
The Base Salary payable to Officer may be increased on each such
anniversary date (and such other times as the Board or a
committee of the Board may deem appropriate during the Term of
the Agreement) to an amount determined by the Board (or a
committee of the Board). Any increase in Base Salary or other
compensation shall in no way limit or reduce any other
obligations of Company hereunder and, once established at an
increased specified rate, Officer's Base Salary shall not be
reduced unless Officer otherwise agrees in writing.
3.3 Bonus. During the Term of the Agreement, Officer
shall be eligible for the following bonus:
(a) Target Bonus. Officer shall be eligible to
receive an annual bonus for each fiscal year of the Company (or
portion thereof) during the Term of the Agreement as determined
below. Any such bonus shall be payable within seventy-five (75)
days after the end of Company's fiscal year to which such bonus
relates; provided, however, that the Chief Executive Officer of
the Company may defer payment of such bonus for a period not to
exceed one year if such officer determines that deferral is in
the best interests of the Company.
(b) Determination of Bonus. With respect to each
fiscal year during the Term, the actual amount of the bonus
payable pursuant to Subparagraph (a) shall be determined on the
basis of criteria with respect to the performance of Officer
and/or Company established by the Board (or a committee of the
Board) in consultation with the Chief Executive Officer of the
Company prior to the commencement of the fiscal year and such
other factors and conditions as the Board may deem relevant;
provided, however, that the criteria for the bonus for 1998 shall
be established in the first quarter of 1998.
3.4 Additional Benefits. During the Term of the
Agreement, Officer shall be entitled to the following additional
benefits:
(a) Officer Benefits. Officer shall be entitled
to such benefits as are generally provided by the Company to its
senior executive employees including, without limitation, (i)
Company stock incentive plans, annual incentive compensation
plans, profit sharing/pension plans, deferred compensation plans,
annual physical examinations, dental, vision, sick pay, and
medical plans, personal catastrophe and accidental death
insurance plans, financial planning and automobile arrangements,
retirement plans and supplementary executive retirement plans, if
any, and (ii) personal leave, sick leave and vacation leave to
the extent such leaves are provided to all senior executive
employees. Officer is also entitled to the benefit of any life
and health insurance plans, pension, stock option plans and other
similar plans as the Company may have or may establish from
time-to-time for its senior executive employees.
(b) Vacation. Officer shall be entitled to a
minimum of four (4) weeks of vacation during each year during the
Term of the Agreement and any extensions thereof, prorated for
partial years. Any accrued vacation not taken during any year
may be carried forward to subsequent years; provided, that
Officer may not accrue more than eight (8) weeks of unused
vacation at any time.
(c) Life Insurance. During Term of the
Agreement, Company shall, at its sole cost and expense, procure
and keep in effect term life insurance (a minimum two (2) year
term certain policy) on the life of Officer, payable to such
beneficiaries as Officer may from time-to-time designate, in the
aggregate amount of One Million Five Hundred Thousand Dollars
($1,500,000); provided, however, in no event shall the premiums
for such insurance policy exceed three times normal and customary
rates for a normal healthy male of similar age. Such policy
shall be owned by Officer or by a member of his immediate family.
The Company shall have no incidents of ownership therein.
(d) Reimbursement for Expenses. During the Term
of the Agreement, Company shall reimburse Officer for all
reasonable out-of-pocket business and/or entertainment expenses
incurred by Officer for the purpose of and in connection with the
performance of his services pursuant to the Agreement. Officer
shall be entitled to such reimbursement upon the presentation by
Officer to the Company of vouchers or other statements itemizing
such expenses in reason able detail consistent with Company's
policies.
(e) Withholding. Compensation and benefits paid
to Officer under the Agreement shall be subject to applicable
federal, state and local wage deductions and other deductions
required by law.
4. Termination of the Agreement.
4.1 Termination by Company Defined.
(a) Termination Without Cause. Subject to the
provisions set forth in Paragraph 4.3 below, "Termination Without
Cause" shall constitute any termination by Company other than
termination for "Cause" (as defined in Para graph 4.1(b) below).
(b) Termination For Cause. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the
Termination Date, the Company shall have the right to terminate
the Agreement for "Cause"; provided, however, that Officer shall
not be deemed to have been terminated for Cause without (i)
reasonable written notice to Officer setting forth the reasons
for the Company's intention to terminate for "Cause", (ii) an
opportunity for the Officer, together with his counsel, to be
heard before the Board, and (iii) delivery to the Officer of a
written notice of termination (which date of delivery of such
notice shall be the Early Termination Date), as defined herein,
from the Board finding that in the good faith opinion of the
Board, Officer was guilty of conduct set forth therein, and
specifying the particulars thereof in detail. For purposes of
the Agreement, "Cause" shall mean the following:
A commission of a felony, a crime involving moral
turpitude, embezzlement, misappropriation of property of the
Company or a subsidiary, any other act involving dishonesty or
fraud with respect to the Company or a subsidiary; a material
breach of a directive of the Board which has not been cured
within a specified reasonable time after written notice of
breach; or a repeated failure after written notice to follow the
reasonable directives of the Board.
(c) Termination by Reason of Death or Disability.
Subject to the provisions set forth in Paragraph 4.3 below, prior
to the Termination Date, Company shall have the right to
terminate the Agreement by reason of Officer's death or Permanent
Disability. For purposes of the Agreement, "Permanent
Disability" shall mean the following:
The Officer is unable to perform his duties hereunder
for 180 days during any 365 consecutive days by reason of
physical or mental disability. The disability will be deemed to
have occurred on the one hundred and eightieth (180th) day of
Officer's absence or lack of adequate performance.
4.2 Termination by Officer Defined.
(a) Termination Other Than For Good Reason.
Subject to the provisions set forth in Paragraph 4.3 below,
Officer shall have the right to terminate the Agreement for any
reason other than for Good Reason (as defined in Paragraph 4.2(b)
below), at any time prior to the Termination Date, upon written
notice delivered to Company thirty (30) days prior to the
effective date of termination specified in such notice (which
date shall be the applicable Early Termination Date).
(b) Termination For Good Reason. Subject to the
provisions of Paragraph 4.3 below, Officer shall have the right
to terminate the Agreement prior to the Termination Date in the
event of the material breach of the Agreement by Company, if such
breach is not cured by Company within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company, or, following a Change in Control (as
defined in Paragraph 4.4(e) below), under the circumstances set
forth in Paragraph 4.2(c) below. For purposes of the Agreement,
termination of the Agreement by Officer in the event of Company's
material breach of the Agreement in accordance with the
provisions of this Para graph 4.2(b) shall be defined as
termination by Officer for "Good Reason."
(c) Good Reason Following a Change in Control.
Following a Change in Control (as defined in Paragraph 4.4(e)
below), "Good Reason" shall mean, without Officer's express
written consent, a material breach of the Agreement by Company,
including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company:
(i) the assignment to Officer of any duties
inconsistent with the position in Company that Officer held
immediately prior to the Change in Control, or an adverse
alteration in the nature or status of Officer's responsibilities
from those in effect immediately prior to such change;
(ii) a substantial change in the nature of
the business operations of Company;
(iii) a reduction by Company in Officer's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(iv) the relocation of Company's principal
executive offices to a location more than 25 miles from Burr
Ridge, Illinois (or, if different, the town in which such offices
are located immediately prior to the Change in Control), or
Company's requiring Officer to be based anywhere other than
Company's principal executive offices except for required travel
on Company's business to an extent substantially consistent with
Officer's business travel obligations immediately prior to the
Change in Control;
(v) the failure by Company to pay Officer
any portion of his current compensation except pursuant to an
across-the- board compensation deferral similarly affecting all
officers of Company and all officers of any person whose actions
resulted in a Change in Control or any person affiliated with
Company or such person, or to pay Officer any portion of an
installment of deferred compensation under any deferred
compensation program of Company, within seven (7) days of the
date such compensation is due;
(vi) the failure by Company to continue in
effect any compensation plan in which Officer participates
immediately prior to the Change in Control which is material to
Officer's total compensation, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by Company to
continue Officer's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of
participation relative to other participants, as existed at the
time of the Change in Control;
(vii) the failure by Company to continue to
provide Officer with benefits substantially similar to those
under any of Company's life insurance, medical, health and
accident, or disability plans in which Officer was participating
at the time of the Change in Control, the taking of any action by
Company which would directly or indirectly materially reduce any
of such benefits or deprive Officer of any material fringe
benefit enjoyed by him at the time of the Change in Control, or
the failure by Company to provide Officer with the number of paid
vacation days to which he is entitled on the basis of years of
service with Company in accordance with Company's normal vacation
policy in effect at the time of the Change in Control or pursuant
to Officer's existing employment agreement, if any; or
(viii) the failure of Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform the Agreement.
Notwithstanding the above, during the one year period
immediately following the occurrence of a Change in Control,
"Good Reason" shall mean termination of employment by the
Executive for any reason other than death or Permanent
Disability.
Officer's right to terminate Officer's employment for
Good Reason shall not be affected by Officer's incapacity due to
physical or mental illness. Officer's continued employment shall
not constitute consent to, or a waiver of rights with respect to,
any circumstance constituting Good Reason hereunder.
4.3 Effect of Termination. In the event that the
Agreement is terminated by Company or Officer prior to the
Termination Date in accordance with the provisions of this
Paragraph 4, the obligations and covenants of the parties under
this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this
Paragraph 4.3, and such other provisions of the Agreement which
shall survive termination of the Agreement as provided in
Paragraph 6.11 below. Except as otherwise specifically set
forth, all amounts due upon termination shall be payable on the
date such amounts would otherwise have been paid had the
Agreement continued through its Term; provided, however, that
Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall
be payable within thirty (30) days following the Early
Termination Date.
In the event of any such early termination in
accordance with the provisions of this Paragraph 4.3, Officer
shall be entitled to the following:
(a) Termination by Company.
(i) Termination Without Cause. In the event
that Company terminates the Agreement without Cause pursuant to
Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned
Base Salary (as defined below); (ii) earned benefits and
reimbursable expenses; (iii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any other
plan or arrangement as of the Early Termination Date, but which
has not been received by Officer as of such date; (iv) any
compensation earned but deferred ("Deferred Amounts"); and (v)
the Severance Payment (as defined in Paragraph 4.4 below);
(ii) Termination For Cause. In the event
that Company terminates the Agreement for Cause pursuant to
Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned
Base Salary; (ii) any earned bonus which Officer has been awarded
pursuant to the terms of the Agreement or any other plan or
arrangement as of the Early Termination Date, but which has not
been received by Officer as of such date; (iii) earned benefits
and reimbursable expenses; and (iv) any Deferred Amounts.
Following delivery to Officer of the notice described in
Paragraph 4.1(b)(i), the Company may suspend Officer from further
duties with full pay and benefits as provided hereunder as if
Officer continued to be employed until the delivery of the notice
of termination described in Paragraph 4.1(b)(iii). Officer shall
not be entitled to any future annual bonus or Severance Payment.
(iii) Termination Due to Death or Permanent
Disability. In the event that the Company terminates the
Agreement by reason of Officer's death or Permanent Disability
pursuant to Paragraph 4.1(c) above, Officer shall be entitled to
(i) Earned Base Salary (as defined below); (ii) earned benefits
and reimbursable expenses; (iii) any earned bonus which Officer
has been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any
Deferred Amounts; and (v) all outstanding options (whether or not
exercisable at the Early Termination Date) shall become fully and
immediately vested and may be exercised for one year following
such termination.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason.
In the event that Officer terminates the Agreement other than for
Good Reason, Officer shall be entitled to (i) Earned Base Salary;
(ii) any earned bonus which Officer has been awarded pursuant to
the terms of the Agreement or any other plan or arrangement as of
the Early Termination Date, but which has not been received by
Officer as of such date; (iii) earned benefits and reimbursable
expenses; and (iv) any Deferred Amounts. Officer shall not be
entitled to any future annual bonus or Severance Payment.
(ii) Termination For Good Reason. In the
event that Officer terminates the Agreement for Good Reason,
Officer shall be entitled to (i) Earned Base Salary; (ii) earned
benefits and reimbursable expenses; (iii) any earned bonus which
Officer has been awarded pursuant to the terms of the Agreement
or any other plan or arrangement as of the Early Termination
Date, but which has not been received by Officer as of such date;
(iv) any Deferred Amounts; and (v) the Severance Payment (as
defined in Paragraph 4.4 below).
The term "Earned Base Salary" shall mean all
semimonthly installments of the Base Salary which have become due
and payable to Officer, together with any partial monthly
installment prorated on a daily basis up to and including the
applicable Termination Date.
4.4 Severance Payment.
(a) Definition of "Severance Payment." For
purposes of the Agreement, the term "Severance Payment" shall
mean an amount equal to the sum of (i) the Base Salary otherwise
payable to Officer during the remainder of the Term had such
early termination of the Agreement not occurred ("Severance
Period") and (ii) for each full or partial year remaining in the
Severance Period, the average of the annual bonuses earned by
Officer in the two (2) years immediately preceding the date of
termination (or if there are less than two (2) years immediately
preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the
event that, following a Change in Control (as defined in
Paragraph 4.4(e) below), the Company terminates the Agreement
without Cause pursuant to Paragraph 4.1(a) above or Officer
terminates the Agreement for Good Reason pursuant to Paragraph
4.2(c) above, the term "Severance Payment" shall mean an amount
equal to no less than three (3) times the sum of the Base Salary
then in effect and the Average Bonus which Average Bonus shall
not be less than 50% of Base Salary).
(b) Payment of Severance Payment. In the event
that Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, that portion of such Severance Payment that
represents Base Salary shall be payable in monthly installments,
and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would
have been paid had Officer continued in Company's employment for
the Severance Period; provided, however, that in the event of a
Termination Following a Change in Control (as defined in
Paragraph 4.4(e) below), the Severance Payment shall be payable
in a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that
Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, he shall also be entitled to:
(i) the full and immediate vesting of any awards
granted to Officer under the Company's stock option and incentive
compensation plans; and
(ii) to the extent elected by Officer within five days
of the Early Termination Date, in lieu of shares of Company
common stock issuable upon exercise of outstanding options (which
options shall be cancelled upon the making of the payment
referred to below), a lump sum payment, in cash, equal to the
product of (a) the excess of (x) in the case of ISOs granted
after the date hereof, the closing price of shares of Company
common stock as reported on the NASDAQ National Market on or
nearest the Early Termination Date (or, if not listed on such
exchange, on the nationally recognized exchange or quotation
system on which trading volume in shares of Company common stock
is highest), or in the case of all other options, the higher of
such closing price or the highest per share price for shares of
common stock of the Company actually paid in connection with any
Change in Control, over (y) the per share exercise price of such
option held by Officer (whether or not then fully exercisable),
and (b) the number of shares of common stock of the Company
covered by each such option as elected by Officer; provided,
however, that if the Company is prevented by the terms of its
debt instruments from making the payment described herein,
Officer shall immediately execute a cashless exercise of all
options for which such Officer elected to receive cash (whether
or not fully exercisable at the Early Termination Date) and shall
dispose of the common stock underlying such options as soon as
practicable and the Company will pay Officer the aggregate
difference between the price of the common stock at the time such
shares are sold and the price determined under (x) above;
provided further, that in the event and to the extent that such
shares cannot be sold for any reason, the Company will repurchase
such shares at the price determined under (x) above; provided,
however, that notwithstanding the foregoing, the following shall
apply with respect to a Termination without Cause pursuant to
Paragraph 4.3(a)(i) or a Termination for Good Reason prior to a
Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent
Officer within five days of the Early Termination Date elects to
receive cash in lieu of shares of Company common stock issuable
upon exercise of outstanding options (which options shall be
cancelled upon the making of the exercises referred to below),
Officer shall immediately complete a cashless exercise of all
options for which Officer elects to receive cash (whether or not
fully exercisable at the Early Termination Date) and shall
attempt to dispose of the common stock underlying such options
within three weeks of such exercise and the Company will pay
Officer the aggregate difference between the price of the common
stock at the time such shares are sold and the price determined
under (x) above; provided further, that in the event and to the
extent such shares cannot be sold within the three week period
for any reason, the Company will repurchase such shares at the
price determined under (x) above; and
(iii) continued participation throughout the Severance
Period in all employee welfare and pension benefit plans,
programs or arrangements. In the event Officer's participation
in any such plan, program or arrangement is barred, Company shall
arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer
hereby acknowledges and agrees that any Severance Payment paid to
Officer hereunder shall be deemed to be in full and complete
settlement of all obligations of Company under the Agreement.
(e) Change in Control. For purposes of the
Agreement, "Termination Following a Change in Control" shall mean
a termination of Officer's employment with Company following a
"Change in Control" by Officer for Good Reason or by Company
other than for Cause. A "Change in Control" shall be deemed to
have occurred if:
(i) Any Person, as such term is used in
section 3(a)(9) of the Securities Exchange Act of 1934 as amended
from time to time (the "Exchange Act"), as modified and used in
sections 13(d) and 14(d) thereof, (other than (A) the Company or
any of its subsidiaries, (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
of its affiliates, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, (D) a
corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, or (E) a person or group as
used in Rule 13d-1(b) under the Exchange Act, that is or becomes
the Beneficial Owner, as such term is defined in Rule 13d-3 under
the Ex change Act, directly or indirectly, of securities of the
Company and is entitled to file on Schedule 13G or any successor
form with respect to such securities) becomes the Beneficial
Owner of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any
reason to constitute a majority of the number of directors then
serving: individuals who, on the date hereof, constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on
the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(iii) There is consummated a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
re maining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, at least seventy-five percent
(75%) of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(iv) The stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
seventy-five (75%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in
substantially the same proportions as their owner ship of the
Company immediately prior to such sale.
4.5 Gross-Up. In the event Officer is required
pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (the "Code")
to pay (through withholding or otherwise) an excise tax on
"excess parachute payments" (as defined in Section 280G(b) of the
Code) made by the Company pursuant to the Agreement or otherwise,
Company shall pay Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (a
"Gross-Up Payment") as is necessary to place Officer in the same
after-tax financial position that he would have been in if he had
not incurred any tax liability under Section 4999 of the Code.
The Gross-Up Payment shall be determined pursuant to the
procedures set forth in Annex A hereto.
4.6 Offset. Officer shall not be required to mitigate
the amount of any payment provided for under the Agreement by
seeking other employment or otherwise, nor will any payments
provided to him under the Agreement be subject to offset in
respect of any claims which the Company may have against Officer
other than with respect to loans by Officer from the Company
which are the subject of an executed note between Officer and the
Company, nor shall any payment provided hereunder be reduced by
any compensation earned by Officer as the result of employment by
another employer or by retirement benefits.
5. Miscellaneous.
5.1 Payment Obligations. Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right
or action which Company may have against Officer or others. In
no event shall the Officer be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to Officer under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not Officer
obtains other employment. Company agrees to pay promptly upon
receipt of proper invoices, to the fullest extent permitted by
law, all legal fees and expenses which Officer may reasonably
incur as a result of any contest by Company, Officer or others of
the validity, interpretation or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest
initiated by Officer about the amount of any payment due pursuant
to this Agreement); provided, however, that in the event that it
is finally determined by arbitration pursuant to Paragraph 5.8
that Officer was terminated for Cause or that, in the case of
termination of this Agreement by Officer, Good Reason did not
exist, then Officer shall be obligated to repay to Company the
full amount of all such legal fees and expenses paid for Officer
by Company in connection with that contest.
5.2 Confidentiality. Officer agrees that all
confidential and proprietary information relating to the business
of Company shall be kept and treated as confidential both during
and after the Term of the Agreement, except as may be permitted
in writing by the Board or as such information is within the
public domain or comes within the public domain without any
breach of the Agreement.
5.3 Waiver. The waiver of the breach of any provision
of the Agreement shall not operate or be construed as a waiver of
any subsequent breach of the same or other provision hereof.
5.4 Entire Agreement; Modifications. Except as
otherwise provided herein and the letter attached hereto as
Exhibit 1, the Agreement (together with the agreements and plans
referred to herein) represents the entire understanding among the
parties with respect to the subject matter hereof, and the
Agreement supersedes any and all prior understandings,
agreements, plans and negotiations, whether written or oral, with
respect to the subject matter hereof, including without
limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses,
reimbursements or other payments to Officer from Company. All
modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is
sought.
5.5 Notices. All notices and other communications
under the Agreement shall be in writing and shall be given by
facsimile or first class mail, certified or registered with
return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours
after transmission of a facsimile to the respective persons named
below:
If to Company: American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, Illinois 60521
If to Officer: Mary T. Ryan
9060 Turnberry Drive
Burr Ridge, Illinois 60521
Any party may change such party's address for notices
by notice duly given pursuant hereto.
5.6 Headings. The paragraph headings herein are
intended for reference only and shall not by themselves determine
the construction or interpretation of the Agreement.
5.7 Governing Law. The Agreement shall be governed by
and construed in accordance with the laws of the State of
Illinois without regard to its principles of conflict of laws.
5.8 Arbitration. Any controversy or claim arising out
of or relating to the Agreement or the breach of the Agreement
that cannot be resolved by Officer on the one hand or the Company
on the other, including any dispute as to the calculation of
Officer's benefits or any payment hereunder, shall be submitted
to arbitration in the City of Chicago, in accordance with
Illinois state law and the procedures of the American Arbitration
Association. The determination of the arbitrator shall be
conclusive and binding on the Company and Officer, and judgment
may be entered on the arbitrator's award in any court having
jurisdiction.
5.9 Severability. Should a court or other body of
competent jurisdiction determine that any provision of the
Agreement is excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, all other provisions of the Agreement shall
be deemed valid and enforceable to the extent possible.
5.10 Survival of Company's Obligations. Company's
obligations hereunder shall not be terminated by reason of any
liquidation, dissolution, bankruptcy, cessation of business, or
similar event relating to Company. The Agreement shall not be
terminated by any merger or consolidation or other reorganization
of Company. In the event any such merger, consolidation or
reorganization shall be accomplished by transfer of stock or by
transfer of assets or otherwise, the provisions of the Agreement
shall be binding upon and inure to the benefit of the surviving
or resulting corporation or person. The Agreement shall be
binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties;
provided, however, that except as herein expressly provided, the
Agreement shall not be assignable either by Company (except to an
affiliate of the Company, in which event Company shall remain
liable if the affiliate fails to meet any obligations to make
payments or provide benefits or otherwise) or by Officer.
5.11 Survival of Certain Rights and Obligations. The
rights and obligations of the parties hereto pursuant to
Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13
hereof shall survive the termination of the Agreement.
5.12 Counterparts. The Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute one and the same Agreement.
5.13 Indemnification. In addition to any rights to
indemnification to which Officer is entitled under the Company's
Articles of Incorporation and By-Laws or under the agreement
between Company and Officer attached hereto as Exhibit 2, Company
shall indemnify Officer at all times during and after the Term of
the Agreement to the maximum extent permitted under applicable
law of the State of Illinois or any successor provision thereof
and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action,
suit, or proceeding, to the maximum extent permitted under such
applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed the
Agreement.
COMPANY:
AMERICAN DISPOSAL SERVICES, INC.,
a Delaware corporation
By: __________________________________
Name
Title
Date: ________________________________
OFFICER:
______________________________________
Name
Date: ________________________________
ANNEX A
The Gross-Up Payment shall be equal to the excess of the Total
Payments over the payment provided for by this paragraph. For
purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i)
all payments or benefits received or to be received by Officer in
connection with a Change in Control or the termination of
Officer's employment (whether payable pursuant to the terms of
the Agreement or of any other plan, arrangement or agreement with
Corporation, its successors, any person whose actions result in a
Change in Control or any person affiliated (or which, as a result
of the completion of the transactions causing a Change in
Control, will become affiliated) with Corporation or such person
within the meaning of Section 1504 of the Code (the "Total
Payments")) shall be treated as "parachute payments" (within the
meaning of Section 280G(b)(2) of the Code) unless, in the opinion
of tax counsel selected by Corporation's independent auditors and
reasonably acceptable to Officer, such payments or benefits (in
whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of
the Code) shall be treated as subject to the Excise Tax, unless
in the opinion of such tax counsel such excess parachute payments
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code, or are
not otherwise subject to the Excise Tax, and (ii) the value of
any noncash benefits or any deferred payment or benefit shall be
determined by the Corporation's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of
taxation in the state and locality of the residence of Officer on
the Early Termination Date, net of the maximum reduction in
federal income taxes that could be obtained from deduction of
such state and local taxes.
EXHIBIT 10.9
________________________________________________________________
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
AMERICAN DISPOSAL SERVICES, INC.
a Delaware corporation,
and
STEPHEN P. LAVEY
an individual
________________________________________________________________
TABLE OF CONTENTS
PAGE
1. Position and Duties; Location . . . . . . . . . . . . . 1
2. Term of Employment. . . . . . . . . . . . . . . . . . . 2
3. Compensation, Benefits and Reimbursement. . . . . . . . 2
3.1 Base Salary . . . . . . . . . . . . . . . . . . . 2
3.2 Increases in Base Salary . . . . . . . . . . . . . 2
3.3 Bonus . . . . . . . . . . . . . . . . . . . . . . 3
(a) Target Bonus . . . . . . . . . . . . . . . . 3
(b) Determination of Bonus . . . . . . . . . . . 3
3.4 Additional Benefits . . . . . . . . . . . . . . . 3
(a) Officer Benefits. . . . . . . . . . . . . . . 3
(b) Vacation . . . . . . . . . . . . . . . . . . 3
(c) Life Insurance . . . . . . . . . . . . . . . 4
(d) Reimbursement for Expenses . . . . . . . . . 4
(e) Withholding . . . . . . . . . . . . . . . . . 4
4. Termination of the Agreement. . . . . . . . . . . . . . 4
4.1 Termination by Company Defined . . . . . . . . . . 4
(a) Termination Without Cause . . . . . . . . . . 4
(b) Termination For Cause . . . . . . . . . . . . 4
(c) Termination by Reason of Death or Disability. 5
4.2 Termination by Officer Defined . . . . . . . . . . 5
(a) Termination Other Than For Good Reason. . . . 5
(b) Termination For Good Reason . . . . . . . . . 6
(c) Good Reason Following a Change in
Control . . . . . . . . . . . . . . . . . . . 6
4.3 Effect of Termination . . . . . . . . . . . . . . 8
(a) Termination by Company . . . . . . . . . . . 8
(i) Termination Without Cause. . . . . . . . 8
(ii) Termination For Cause . . . . . . . . . 8
(iii) Termination Due to Death or Permanent
Disability. . . . . . . . . . . . . . . 9
(b) Termination by Officer . . . . . . . . . . . 9
(i) Termination Other Than For Good
Reason . . . . . . . . . . . . . . . . . 9
(ii) Termination For Good Reason. . . . . . . 9
4.4 Severance Payment. . . . . . . . . . . . . . . . . 10
(a) Definition of "Severance Payment" . . . . . . 10
(b) Payment of Severance Payment. . . . . . . . . 10
(c) Other Severance Benefits. . . . . . . . . . . 11
(d) Full Settlement of All Obligations. . . . . . 12
(e) Change in Control . . . . . . . . . . . . . . 12
4.5 Gross-Up . . . . . . . . . . . . . . . . . . . . . 14
4.6 Offset . . . . . . . . . . . . . . . . . . . . . . 14
5. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . 14
5.1 Payment Obligations. . . . . . . . . . . . . . . . 14
5.2 Confidentiality. . . . . . . . . . . . . . . . . . 15
5.3 Waiver . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Entire Agreement; Modifications. . . . . . . . . . 15
5.5 Notices. . . . . . . . . . . . . . . . . . . . . . 15
5.6 Headings . . . . . . . . . . . . . . . . . . . . . 16
5.7 Governing Law. . . . . . . . . . . . . . . . . . . 16
5.8 Arbitration. . . . . . . . . . . . . . . . . . . . 16
5.9 Severability . . . . . . . . . . . . . . . . . . . 16
5.10 Survival of Company's Obligations. . . . . . . . . 16
5.11 Survival of Certain Rights and Obligations . . . . 17
5.12 Counterparts . . . . . . . . . . . . . . . . . . . 17
5.13 Indemnification. . . . . . . . . . . . . . . . . . 17
EXECUTIVE EMPLOYMENT AGREEMENT
THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of the first day of January, 1998, (the
"Effective Date"), by and between AMERICAN DISPOSAL SERVICES,
INC., a Delaware corporation (the "Company") and STEPHEN P.
LAVEY, an individual (the "Officer").
RECITAL
WHEREAS, the Officer has been employed by and currently
serves as the Company's Vice President and Chief Financial
Officer;
WHEREAS, the Company recognizes Officer's substantial
contribution to the growth and success of the Company; and
desires to provide for continued employment of Officer in order
to reinforce and encourage his continued attention and dedication
to the Company as a member of the Company's senior management;
WHEREAS, Company desires to continue to employ Officer
as Vice President and Chief Financial Officer, and Officer is
willing to continue to accept such employment by Company, on the
terms and subject to the conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the foregoing
mutual covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Position and Duties; Location.
During the Term (as defined in Paragraph 2 below) of
the Agreement, Officer agrees to be employed by and to serve the
Company as its Vice President and Chief Financial Officer subject
to the control of the Board of Directors (the "Board"), and the
Company agrees to employ and retain Officer in such capacities.
During the Term (as defined in Paragraph 2 below) Officer agrees
to devote substantially all of his working time, energy, efforts
and abilities to the business affairs of the Company and its
subsidiaries. Officer's principal place of business will be
located within 25 miles of Burr Ridge, Illinois. The Company
shall provide Officer with working facilities and support
services as are suitable to his position and appropriate for the
performance of his duties.
2. Term of Employment.
The Term (the "Term") of the Agreement shall be for the
period commencing on the Effective Date and ending on the last
day of the eighteenth (18th) month following the Effective Date
(the "Termination Date"), unless terminated earlier pursuant to
the Agreement (the "Early Termination Date"); provided, however,
that commencing on the last day of the twelfth (12th) month
following the Effective Date and each subsequent anniversary
thereof, the Term shall be automatically extended for one (1)
additional year unless, no later than six (6) months before such
date, either party shall have given written notice to the other
that it does not wish to extend the Term of the Agreement.
References herein to the Term of the Agreement shall refer to
both the initial Term and any such extended Term.
3. Compensation, Benefits and Reimbursement.
3.1 Base Salary. During the Term of the Agreement and
subject to the terms and conditions set forth herein, Company
agrees to pay to Officer an annual "Base Salary" equal to
_______________ Thousand Dollars ($____________), or such higher
amount as may from time-to-time be determined by the Board.
Unless otherwise agreed in writing by Officer and Company, the
salary shall be payable in substantially equal semimonthly
installments in accordance with the standard policies of Company
in existence from time-to-time.
3.2 Increases in Base Salary. Officer's Base Salary
shall be reviewed no less frequently than on each anniversary of
the Effective Date during the Term by the Board (or such
committee as may be appointed by the Board for such purpose).
The Base Salary payable to Officer may be increased on each such
anniversary date (and such other times as the Board or a
committee of the Board may deem appropriate during the Term of
the Agreement) to an amount determined by the Board (or a
committee of the Board). Any increase in Base Salary or other
compensation shall in no way limit or reduce any other
obligations of Company hereunder and, once established at an
increased specified rate, Officer's Base Salary shall not be
reduced unless Officer otherwise agrees in writing.
3.3 Bonus. During the Term of the Agreement, Officer
shall be eligible for the following bonus:
(a) Target Bonus. Officer shall be eligible to
receive an annual bonus for each fiscal year of the Company (or
portion thereof) during the Term of the Agreement as determined
below. Any such bonus shall be payable within seventy-five (75)
days after the end of Company's fiscal year to which such bonus
relates; provided, however, that the Chief Executive Officer of
the Company may defer payment of such bonus for a period not to
exceed one year if such officer determines that deferral is in
the best interests of the Company.
(b) Determination of Bonus. With respect to each
fiscal year during the Term, the actual amount of the bonus
payable pursuant to Subparagraph (a) shall be determined on the
basis of criteria with respect to the performance of Officer
and/or Company established by the Board (or a committee of the
Board) in consultation with the Chief Executive Officer of the
Company prior to the commencement of the fiscal year and such
other factors and conditions as the Board may deem relevant;
provided, however, that the criteria for the bonus for 1998 shall
be established in the first quarter of 1998.
3.4 Additional Benefits. During the Term of the
Agreement, Officer shall be entitled to the following additional
benefits:
(a) Officer Benefits. Officer shall be entitled
to such benefits as are generally provided by the Company to its
senior executive employees including, without limitation, (i)
Company stock incentive plans, annual incentive compensation
plans, profit sharing/pension plans, deferred compensation plans,
annual physical examinations, dental, vision, sick pay, and
medical plans, personal catastrophe and accidental death
insurance plans, financial planning and automobile arrangements,
retirement plans and supplementary executive retirement plans, if
any, and (ii) personal leave, sick leave and vacation leave to
the extent such leaves are provided to all senior executive
employees. Officer is also entitled to the benefit of any life
and health insurance plans, pension, stock option plans and other
similar plans as the Company may have or may establish from
time-to-time for its senior executive employees.
(b) Vacation. Officer shall be entitled to a
minimum of four (4) weeks of vacation during each year during the
Term of the Agreement and any extensions thereof, prorated for
partial years. Any accrued vacation not taken during any year
may be carried forward to subsequent years; provided, that
Officer may not accrue more than eight (8) weeks of unused
vacation at any time.
(c) Life Insurance. During Term of the
Agreement, Company shall, at its sole cost and expense, procure
and keep in effect term life insurance (a minimum two (2) year
term certain policy) on the life of Officer, payable to such
beneficiaries as Officer may from time-to-time designate, in the
aggregate amount of One Million Five Hundred Thousand Dollars
($1,500,000); provided, however, in no event shall the premiums
for such insurance policy exceed three times normal and customary
rates for a normal healthy male of similar age. Such policy
shall be owned by Officer or by a member of his immediate family.
The Company shall have no incidents of ownership therein.
(d) Reimbursement for Expenses. During the Term
of the Agreement, Company shall reimburse Officer for all
reasonable out-of-pocket business and/or entertainment expenses
incurred by Officer for the purpose of and in connection with the
performance of his services pursuant to the Agreement. Officer
shall be entitled to such reimbursement upon the presentation by
Officer to the Company of vouchers or other statements itemizing
such expenses in reasonable detail consistent with Company's
policies.
(e) Withholding. Compensation and benefits paid
to Officer under the Agreement shall be subject to applicable
federal, state and local wage deductions and other deductions
required by law.
4. Termination of the Agreement.
4.1 Termination by Company Defined.
(a) Termination Without Cause. Subject to the
provisions set forth in Paragraph 4.3 below, "Termination Without
Cause" shall constitute any termination by Company other than
termination for "Cause" (as defined in Paragraph 4.1(b) below).
(b) Termination For Cause. Subject to the
provisions set forth in Paragraph 4.3 below, prior to the
Termination Date, the Company shall have the right to terminate
the Agreement for "Cause"; provided, however, that Officer shall
not be deemed to have been terminated for Cause without (i)
reasonable written notice to Officer setting forth the reasons
for the Company's intention to terminate for "Cause", (ii) an
opportunity for the Officer, together with his counsel, to be
heard before the Board, and (iii) delivery to the Officer of a
written notice of termination (which date of delivery of such
notice shall be the Early Termination Date), as defined herein,
from the Board finding that in the good faith opinion of the
Board, Officer was guilty of conduct set forth therein, and
specifying the particulars thereof in detail. For purposes of
the Agreement, "Cause" shall mean the following:
A commission of a felony, a crime involving
moral turpitude, embezzlement,
misappropriation of property of the Company
or a subsidiary, any other act involving
dishonesty or fraud with respect to the
Company or a subsidiary; a material breach of
a directive of the Board which has not been
cured within a specified reasonable time
after written notice of breach; or a repeated
failure after written notice to follow the
reasonable directives of the Board.
(c) Termination by Reason of Death or Disability.
Subject to the provisions set forth in Paragraph 4.3 below, prior
to the Termination Date, Company shall have the right to
terminate the Agreement by reason of Officer's death or Permanent
Disability. For purposes of the Agreement, "Permanent
Disability" shall mean the following:
The Officer is unable to perform his duties
hereunder for 180 days during any 365
consecutive days by reason of physical or
mental disability. The disability will be
deemed to have occurred on the one hundred
and eightieth (180th) day of Officer's
absence or lack of adequate performance.
4.2 Termination by Officer Defined.
(a) Termination Other Than For Good Reason.
Subject to the provisions set forth in Paragraph 4.3 below,
Officer shall have the right to terminate the Agreement for any
reason other than for Good Reason (as defined in Paragraph 4.2(b)
below), at any time prior to the Termination Date, upon written
notice delivered to Company thirty (30) days prior to the
effective date of termination specified in such notice (which
date shall be the applicable Early Termination Date).
(b) Termination For Good Reason. Subject to the
provisions of Paragraph 4.3 below, Officer shall have the right
to terminate the Agreement prior to the Termination Date in the
event of the material breach of the Agreement by Company, if such
breach is not cured by Company within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company, or, following a Change in Control (as
defined in Paragraph 4.4(e) below), under the circumstances set
forth in Paragraph 4.2(c) below. For purposes of the Agreement,
termination of the Agreement by Officer in the event of Company's
material breach of the Agreement in accordance with the
provisions of this Paragraph 4.2(b) shall be defined as
termination by Officer for "Good Reason."
(c) Good Reason Following a Change in Control.
Following a Change in Control (as defined in Paragraph 4.4(e)
below), "Good Reason" shall mean, without Officer's express
written consent, a material breach of the Agreement by Company,
including the occurrence of any of the following circumstances,
which breach is not fully corrected within thirty (30) days after
written notice thereof specifying the nature of such breach has
been delivered to Company:
(i) the assignment to Officer of any duties
inconsistent with the position in Company that Officer held
immediately prior to the Change in Control, or an adverse
alteration in the nature or status of Officer's responsibilities
from those in effect immediately prior to such change;
(ii) a substantial change in the nature of
the business operations of Company;
(iii) a reduction by Company in Officer's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(iv) the relocation of Company's principal
executive offices to a location more than 25 miles from Burr
Ridge, Illinois (or, if different, the town in which such offices
are located immediately prior to the Change in Control), or
Company's requiring Officer to be based anywhere other than
Company's principal executive offices except for required travel
on Company's business to an extent substantially consistent with
Officer's business travel obligations immediately prior to the
Change in Control;
(v) the failure by Company to pay Officer
any portion of his current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all
officers of Company and all officers of any person whose actions
resulted in a Change in Control or any person affiliated with
Company or such person, or to pay Officer any portion of an
installment of deferred compensation under any deferred
compensation program of Company, within seven (7) days of the
date such compensation is due;
(vi) the failure by Company to continue in
effect any compensation plan in which Officer participates
immediately prior to the Change in Control which is material to
Officer's total compensation, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by Company to
continue Officer's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of
participation relative to other participants, as existed at the
time of the Change in Control;
(vii) the failure by Company to continue to
provide Officer with benefits substantially similar to those
under any of Company's life insurance, medical, health and
accident, or disability plans in which Officer was participating
at the time of the Change in Control, the taking of any action by
Company which would directly or indirectly materially reduce any
of such benefits or deprive Officer of any material fringe
benefit enjoyed by him at the time of the Change in Control, or
the failure by Company to provide Officer with the number of paid
vacation days to which he is entitled on the basis of years of
service with Company in accordance with Company's normal vacation
policy in effect at the time of the Change in Control or pursuant
to Officer's existing employment agreement, if any; or
(viii) the failure of Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform the Agreement.
Notwithstanding the above, during the one year period
immediately following the occurrence of a Change in Control,
"Good Reason" shall mean termination of employment by the
Executive for any reason other than death or Permanent
Disability.
Officer's right to terminate Officer's employment for
Good Reason shall not be affected by Officer's incapacity due to
physical or mental illness. Officer's continued employment shall
not constitute consent to, or a waiver of rights with respect to,
any circumstance constituting Good Reason hereunder.
4.3 Effect of Termination. In the event that the
Agreement is terminated by Company or Officer prior to the
Termination Date in accordance with the provisions of this
Paragraph 4, the obligations and covenants of the parties under
this Paragraph 4 shall be of no further force and effect, except
for the obligations of the parties set forth below in this
Paragraph 4.3, and such other provisions of the Agreement which
shall survive termination of the Agreement as provided in
Paragraph 6.11 below. Except as otherwise specifically set
forth, all amounts due upon termination shall be payable on the
date such amounts would otherwise have been paid had the
Agreement continued through its Term; provided, however, that
Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall
be payable within thirty (30) days following the Early
Termination Date.
In the event of any such early termination in
accordance with the provisions of this Paragraph 4.3, Officer
shall be entitled to the following:
(a) Termination by Company.
(i) Termination Without Cause. In the event
that Company terminates the Agreement without Cause pursuant to
Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned
Base Salary (as defined below); (ii) earned benefits and
reimbursable expenses; (iii) any earned bonus which Officer has
been awarded pursuant to the terms of the Agreement or any other
plan or arrangement as of the Early Termination Date, but which
has not been received by Officer as of such date; (iv) any
compensation earned but deferred ("Deferred Amounts"); and (v)
the Severance Payment (as defined in Paragraph 4.4 below).
(ii) Termination For Cause. In the event
that Company terminates the Agreement for Cause pursuant to
Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned
Base Salary; (ii) any earned bonus which Officer has been awarded
pursuant to the terms of the Agreement or any other plan or
arrangement as of the Early Termination Date, but which has not
been received by Officer as of such date; (iii) earned benefits
and reimbursable expenses; and (iv) any Deferred Amounts.
Following delivery to Officer of the notice described in
Paragraph 4.1(b)(i), the Company may suspend Officer from further
duties with full pay and benefits as provided hereunder as if
Officer continued to be employed until the delivery of the notice
of termination described in Paragraph 4.1(b)(iii). Officer shall
not be entitled to any future annual bonus or Severance Payment.
(iii) Termination Due to Death or Permanent
Disability. In the event that the Company terminates the
Agreement by reason of Officer's death or Permanent Disability
pursuant to Paragraph 4.1(c) above, Officer shall be entitled to
(i) Earned Base Salary (as defined below); (ii) earned benefits
and reimbursable expenses; (iii) any earned bonus which Officer
has been awarded pursuant to the terms of the Agreement or any
other plan or arrangement as of the Early Termination Date, but
which has not been received by Officer as of such date; (iv) any
Deferred Amounts; and (v) all outstanding options (whether or not
exercisable at the Early Termination Date) shall become fully and
immediately vested and may be exercised for one year following
such termination.
(b) Termination by Officer.
(i) Termination Other Than For Good Reason.
In the event that Officer terminates the Agreement other than for
Good Reason, Officer shall be entitled to (i) Earned Base Salary;
(ii) any earned bonus which Officer has been awarded pursuant to
the terms of the Agreement or any other plan or arrangement as of
the Early Termination Date, but which has not been received by
Officer as of such date; (iii) earned benefits and reimbursable
expenses; and (iv) any Deferred Amounts. Officer shall not be
entitled to any future annual bonus or Severance Payment.
(ii) Termination For Good Reason. In the
event that Officer terminates the Agreement for Good Reason,
Officer shall be entitled to (i) Earned Base Salary; (ii) earned
benefits and reimbursable expenses; (iii) any earned bonus which
Officer has been awarded pursuant to the terms of the Agreement
or any other plan or arrangement as of the Early Termination
Date, but which has not been received by Officer as of such date;
(iv) any Deferred Amounts; and (v) the Severance Payment (as
defined in Paragraph 4.4 below).
The term "Earned Base Salary" shall mean all
semimonthly installments of the Base Salary which have become due
and payable to Officer, together with any partial monthly
installment prorated on a daily basis up to and including the
applicable Termination Date.
4.4 Severance Payment.
(a) Definition of "Severance Payment." For
purposes of the Agreement, the term "Severance Payment" shall
mean an amount equal to the sum of (i) the Base Salary otherwise
payable to Officer during the remainder of the Term had such
early termination of the Agreement not occurred ("Severance
Period") and (ii) for each full or partial year remaining in the
Severance Period, the average of the annual bonuses earned by
Officer in the two (2) years immediately preceding the date of
termination (or if there are less than two (2) years immediately
preceding such date, an amount equal to the immediately preceding
bonus earned) ("Average Bonus"); provided, however, that in the
event that, following a Change in Control (as defined in
Paragraph 4.4(e) below), the Company terminates the Agreement
without Cause pursuant to Paragraph 4.1(a) above or Officer
terminates the Agreement for Good Reason pursuant to Paragraph
4.2(c) above, the term "Severance Payment" shall mean an amount
equal to no less than three (3) times the sum of the Base Salary
then in effect and the Average Bonus which Average Bonus shall
not be less than 50% of Base Salary).
(b) Payment of Severance Payment. In the event
that Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, that portion of such Severance Payment that
represents Base Salary shall be payable in monthly installments,
and that portion of such Severance Payment that represents the
Average Bonus shall be payable on the dates such amounts would
have been paid had Officer continued in Company's employment for
the Severance Period; provided, however, that in the event of a
Termination Following a Change in Control (as defined in
Paragraph 4.4(e) below), the Severance Payment shall be payable
in a lump sum within ten (10) days following such termination.
(c) Other Severance Benefits. In the event that
Officer is entitled to any Severance Payment pursuant to
Paragraph 4.3 above, he shall also be entitled to:
(i) the full and immediate vesting of any awards
granted to Officer under the Company's stock option and incentive
compensation plans; and
(ii) to the extent elected by Officer within five days
of the Early Termination Date, in lieu of shares of Company
common stock issuable upon exercise of outstanding options (which
options shall be cancelled upon the making of the payment
referred to below), a lump sum payment, in cash, equal to the
product of (a) the excess of (x) in the case of ISOs granted
after the date hereof, the closing price of shares of Company
common stock as reported on the NASDAQ National Market on or
nearest the Early Termination Date (or, if not listed on such
exchange, on the nationally recognized exchange or quotation
system on which trading volume in shares of Company common stock
is highest), or in the case of all other options, the higher of
such closing price or the highest per share price for shares of
common stock of the Company actually paid in connection with any
Change in Control, over (y) the per share exercise price of such
option held by Officer (whether or not then fully exercisable),
and (b) the number of shares of common stock of the Company
covered by each such option as elected by Officer; provided,
however, that if the Company is prevented by the terms of its
debt instruments from making the payment described herein,
Officer shall immediately execute a cashless exercise of all
options for which such Officer elected to receive cash (whether
or not fully exercisable at the Early Termination Date) and shall
dispose of the common stock underlying such options as soon as
practicable and the Company will pay Officer the aggregate
difference between the price of the common stock at the time such
shares are sold and the price determined under (x) above;
provided further, that in the event and to the extent that such
shares cannot be sold for any reason, the Company will repurchase
such shares at the price determined under (x) above; provided,
however, that notwithstanding the foregoing, the following shall
apply with respect to a Termination without Cause pursuant to
Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a
Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent
Officer within five days of the Early Termination Date elects to
receive cash in lieu of shares of Company common stock issuable
upon exercise of outstanding options (which options shall be
cancelled upon the making of the exercises referred to below),
Officer shall immediately complete a cashless exercise of all
options for which Officer elects to receive cash (whether or not
fully exercisable at the Early Termination Date) and shall
attempt to dispose of the common stock underlying such options
within three weeks of such exercise and the Company will pay
Officer the aggregate difference between the price of the common
stock at the time such shares are sold and the price determined
under (x) above; provided further, that in the event and to the
extent such shares cannot be sold within the three week period
for any reason, the Company will repurchase such shares at the
price determined under (x) above; and
(iii) continued participation throughout the Severance
Period in all employee welfare and pension benefit plans,
programs or arrangements. In the event Officer's participation
in any such plan, program or arrangement is barred, Company shall
arrange to provide Officer with substantially similar benefits.
(d) Full Settlement of All Obligations. Officer
hereby acknowledges and agrees that any Severance Payment paid to
Officer hereunder shall be deemed to be in full and complete
settlement of all obligations of Company under the Agreement.
(e) Change in Control. For purposes of the
Agreement, "Termination Following a Change in Control" shall mean
a termination of Officer's employment with Company following a
"Change in Control" by Officer for Good Reason or by Company
other than for Cause. A "Change in Control" shall be deemed to
have occurred if:
(i) Any Person, as such term is used in
section 3(a)(9) of the Securities Exchange Act of 1934 as amended
from time to time (the "Exchange Act"), as modified and used in
sections 13(d) and 14(d) thereof, (other than (A) the Company or
any of its subsidiaries, (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
of its affiliates, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, (D) a
corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, or (E) a person or group as
used in Rule 13d-1(b) under the Exchange Act, that is or becomes
the Beneficial Owner, as such term is defined in Rule 13d-3 under
the Exchange Act, directly or indirectly, of securities of the
Company and is entitled to file on Schedule 13G or any successor
form with respect to such securities) becomes the Beneficial
Owner of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The following individuals cease for any
reason to constitute a majority of the number of directors then
serving: individuals who, on the date hereof, constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on
the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(iii) There is consummated a merger or
consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, at least seventy-five percent
(75%) of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates other than
in connection with the acquisition by the Company or its
affiliates of a business) representing twenty-five percent (25%)
or more of the combined voting power of the Company's then
outstanding securities; or
(iv) The stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
seventy-five (75%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the
Company immediately prior to such sale.
4.5 Gross-Up. In the event Officer is required
pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (the "Code")
to pay (through withholding or otherwise) an excise tax on
"excess parachute payments" (as defined in Section 280G(b) of the
Code) made by the Company pursuant to the Agreement or otherwise,
Company shall pay Officer, no later than the tenth (10th) day
following the Early Termination Date, an additional amount (a
"Gross-Up Payment") as is necessary to place Officer in the same
after-tax financial position that he would have been in if he had
not incurred any tax liability under Section 4999 of the Code.
The Gross-Up Payment shall be determined pursuant to the
procedures set forth in Annex A hereto.
4.6 Offset. Officer shall not be required to mitigate
the amount of any payment provided for under the Agreement by
seeking other employment or otherwise, nor will any payments
provided to him under the Agreement be subject to offset in
respect of any claims which the Company may have against Officer
other than with respect to loans by Officer from the Company
which are the subject of an executed note between Officer and the
Company, nor shall any payment provided hereunder be reduced by
any compensation earned by Officer as the result of employment by
another employer or by retirement benefits.
5. Miscellaneous.
5.1 Payment Obligations. Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right
or action which Company may have against Officer or others. In
no event shall the Officer be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to Officer under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not Officer
obtains other employment. Company agrees to pay promptly upon
receipt of proper invoices, to the fullest extent permitted by
law, all legal fees and expenses which Officer may reasonably
incur as a result of any contest by Company, Officer or others of
the validity, interpretation or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest
initiated by Officer about the amount of any payment due pursuant
to this Agreement); provided, however, that in the event that it
is finally determined by arbitration pursuant to Paragraph 5.8
that Officer was terminated for Cause or that, in the case of
termination of this Agreement by Officer, Good Reason did not
exist, then Officer shall be obligated to repay to Company the
full amount of all such legal fees and expenses paid for Officer
by Company in connection with that contest.
5.2 Confidentiality. Officer agrees that all
confidential and proprietary information relating to the business
of Company shall be kept and treated as confidential both during
and after the Term of the Agreement, except as may be permitted
in writing by the Board or as such information is within the
public domain or comes within the public domain without any
breach of the Agreement.
5.3 Waiver. The waiver of the breach of any provision
of the Agreement shall not operate or be construed as a waiver of
any subsequent breach of the same or other provision hereof.
5.4 Entire Agreement; Modifications. Except as
otherwise provided herein and the letter attached hereto as
Exhibit 1, the Agreement (together with the agreements and plans
referred to herein) represents the entire understanding among the
parties with respect to the subject matter hereof, and the
Agreement supersedes any and all prior understandings,
agreements, plans and negotiations, whether written or oral, with
respect to the subject matter hereof, including without
limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses,
reimbursements or other payments to Officer from Company. All
modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is
sought.
5.5 Notices. All notices and other communications
under the Agreement shall be in writing and shall be given by
facsimile or first class mail, certified or registered with
return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours
after transmission of a facsimile to the respective persons named
below:
If to Company: American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, Illinois 60521
If to Officer: Stephen P. Lavey
4322 North Kildare Avenue
Chicago, Illinois 60641
Any party may change such party's address for notices
by notice duly given pursuant hereto.
5.6 Headings. The paragraph headings herein are
intended for reference only and shall not by themselves determine
the construction or interpretation of the Agreement.
5.7 Governing Law. The Agreement shall be governed by
and construed in accordance with the laws of the State of
Illinois without regard to its principles of conflict of laws.
5.8 Arbitration. Any controversy or claim arising out
of or relating to the Agreement or the breach of the Agreement
that cannot be resolved by Officer on the one hand or the Company
on the other, including any dispute as to the calculation of
Officer's benefits or any payment hereunder, shall be submitted
to arbitration in the City of Chicago, in accordance with
Illinois state law and the procedures of the American Arbitration
Association. The determination of the arbitrator shall be
conclusive and binding on the Company and Officer, and judgment
may be entered on the arbitrator's award in any court having
jurisdiction.
5.9 Severability. Should a court or other body of
competent jurisdiction determine that any provision of the
Agreement is excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, all other provisions of the Agreement shall
be deemed valid and enforceable to the extent possible.
5.10 Survival of Company's Obligations. Company's
obligations hereunder shall not be terminated by reason of any
liquidation, dissolution, bankruptcy, cessation of business, or
similar event relating to Company. The Agreement shall not be
terminated by any merger or consolidation or other reorganization
of Company. In the event any such merger, consolidation or
reorganization shall be accomplished by transfer of stock or by
transfer of assets or otherwise, the provisions of the Agreement
shall be binding upon and inure to the benefit of the surviving
or resulting corporation or person. The Agreement shall be
binding upon and inure to the benefit of the executors,
administrators, heirs, successors and assigns of the parties;
provided, however, that except as herein expressly provided, the
Agreement shall not be assignable either by Company (except to an
affiliate of the Company, in which event Company shall remain
liable if the affiliate fails to meet any obligations to make
payments or provide benefits or otherwise) or by Officer.
5.11 Survival of Certain Rights and Obligations. The
rights and obligations of the parties hereto pursuant to
Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13
hereof shall survive the termination of the Agreement.
5.12 Counterparts. The Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute one and the same Agreement.
5.13 Indemnification. In addition to any rights to
indemnification to which Officer is entitled under the Company's
Articles of Incorporation and By-Laws or under the agreement
between Company and Officer attached hereto as Exhibit 2, Company
shall indemnify Officer at all times during and after the Term of
the Agreement to the maximum extent permitted under applicable
law of the State of Illinois or any successor provision thereof
and any other applicable state law, and shall pay Officer's
expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action,
suit, or proceeding, to the maximum extent permitted under such
applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed the
Agreement.
COMPANY:
AMERICAN DISPOSAL SERVICES, INC.,
a Delaware corporation
By: ________________________________
Name
Title
Date: ______________________________
OFFICER:
____________________________________
Name
Date: ______________________________
ANNEX A
The Gross-Up Payment shall be equal to the excess of the Total
Payments over the payment provided for by this paragraph. For
purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i)
all payments or benefits received or to be received by Officer in
connection with a Change in Control or the termination of
Officer's employment (whether payable pursuant to the terms of
the Agreement or of any other plan, arrangement or agreement with
Corporation, its successors, any person whose actions result in a
Change in Control or any person affiliated (or which, as a result
of the completion of the transactions causing a Change in
Control, will become affiliated) with Corporation or such person
within the meaning of Section 1504 of the Code (the "Total
Payments")) shall be treated as "parachute payments" (within the
meaning of Section 280G(b)(2) of the Code) unless, in the opinion
of tax counsel selected by Corporation's independent auditors and
reasonably acceptable to Officer, such payments or benefits (in
whole or in part) do not constitute parachute payments, including
by reason of Section 280G(b)(4)(A) of the Code, and all "excess
parachute payments" (within the meaning of Section 280G(b)(1) of
the Code) shall be treated as subject to the Excise Tax, unless
in the opinion of such tax counsel such excess parachute payments
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code, or are
not otherwise subject to the Excise Tax, and (ii) the value of
any noncash benefits or any deferred payment or benefit shall be
determined by the Corporation's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up
Payment, Officer shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of
taxation in the state and locality of the residence of Officer on
the Early Termination Date, net of the maximum reduction in
federal income taxes that could be obtained from deduction of
such state and local taxes.
EXHIBIT 10.15
_________________________________________________________________
PURCHASE AGREEMENT
by and among
the STOCKHOLDERS
of
ILLINOIS BULK HANDLERS, INC.,
SHRED-ALL RECYCLING SYSTEMS, INC.,
FRED B. BARBARA TRUCKING CO., INC.,
ENVIRONTECH, INC.
and
AMERICAN DISPOSAL SERVICES, INC.
dated as of September 9, 1997
_________________________________________________________________
TABLE OF CONTENTS
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . 2
ARTICLE II SALE AND PURCHASE OF STOCK. . . . . . . . . . . . 15
2.1 Stock Purchase . . . . . . . . . . . . . . . . . . 15
2.2 Purchase Price . . . . . . . . . . . . . . . . . . 16
ARTICLE III CLOSING. . . . . . . . . . . . . . . . . . . . . 26
3.1 The Closing. . . . . . . . . . . . . . . . . . . . 26
3.2 Obligations of Sellers . . . . . . . . . . . . . . 26
3.3 Obligations of Buyer . . . . . . . . . . . . . . . 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE PRINCIPAL STOCKHOLDER. . . . . . . . . . . . . . . . . . 27
4.1 Organization and Qualification . . . . . . . . . . 27
4.2 Authority; No Breach . . . . . . . . . . . . . . . 28
4.3 Securities and Ownership . . . . . . . . . . . . . 30
4.4 [Intentionally Omitted]. . . . . . . . . . . . . . 31
4.5 Financial Statements. . . . . . . . . . . . . . . 31
4.6 Interests of Related Persons . . . . . . . . . . . 32
4.7 Absence of Undisclosed Liabilities . . . . . . . . 32
4.8 Absence of Certain Changes or Events . . . . . . . 33
4.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . 34
4.10 Assets . . . . . . . . . . . . . . . . . . . . . . 35
4.11 Intellectual Property. . . . . . . . . . . . . . . 38
4.12 [Intentionally Omitted]. . . . . . . . . . . . . . 38
4.13 [Intentionally Omitted]. . . . . . . . . . . . . . 38
4.14 Contracts. . . . . . . . . . . . . . . . . . . . . 38
4.15 Customers and Suppliers. . . . . . . . . . . . . . 39
4.16 Insurance. . . . . . . . . . . . . . . . . . . . . 39
4.17 Litigation, Etc. . . . . . . . . . . . . . . . . . 40
4.18 Compliance with Law; Necessary
Authorizations . . . . . . . . . . . . . . . . . . 41
4.19 Environmental Matters . . . . . . . . . . . . . . 41
4.20 Labor Difficulties . . . . . . . . . . . . . . . . 42
4.21 Employee Benefit Plans . . . . . . . . . . . . . . 44
4.22 [Intentionally Omitted]. . . . . . . . . . . . . . 46
4.23 Questionable Payments .. . . . . . . . . . . . . . 46
4.24 Finders. . . . . . . . . . . . . . . . . . . . . . 46
4.25 Disclosure . . . . . . . . . . . . . . . . . . . . 47
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . 47
5.1 Organization and Qualification . . . . . . . . . . 47
5.2 Authority. . . . . . . . . . . . . . . . . . . . . 47
5.3 Capital Stock . . . . . . . . . . . . . . . . . . 48
5.4 No Breach. . . . . . . . . . . . . . . . . . . . . 48
5.5 Finders. . . . . . . . . . . . . . . . . . . . . . 49
5.6 Investment Purpose. . . . . . . . . . . . . . . . 49
5.7 No Knowledge of Breach. . . . . . . . . . . . . . 49
5.8 SEC Reports and Financial Statements. . . . . . . 49
5.9 Absence of Certain Changes. . . . . . . . . . . . 51
5.10 ADS Common Stock Issuable to the Sellers. . . . . 51
ARTICLE VI COVENANTS. . . . . . . . . . . . . . . . . . . . 51
6.1 Conduct of Business of the
Operating Companies. . . . . . . . . . . . . . . . 51
6.2 Company Records. . . . . . . . . . . . . . . . . . 52
6.3 Filings and Authorizations . . . . . . . . . . . . 53
6.4 Publicity. . . . . . . . . . . . . . . . . . . . . 54
6.5 Distribution of Net Cash Balances
and Distributed Assets to Sellers. . . . . . . . . 54
6.6 Discussions with Others. . . . . . . . . . . . . . 57
6.7 Supplements to Disclosure Schedule . . . . . . . . 57
6.8 Covenant to Satisfy Conditions . . . . . . . . . . 58
6.9 Further Assurances . . . . . . . . . . . . . . . . 58
6.10 Delivery of Periodic Reports . . . . . . . . . . . 58
6.11 Nasdaq . . . . . . . . . . . . . . . . . . . . . . 58
6.12 Tax Matters. . . . . . . . . . . . . . . . . . . . 59
ARTICLE VII [INTENTIONALLY OMITTED]. . . . . . . . . . . . . 64
ARTICLE VIII CONDITIONS TO CLOSING . . . . . . . . . . . . . 64
8.1 Conditions Precedent to Obligations of Buyer . . . 64
(a) Representations and Warranties Accurate . . . 64
(b) Performance by Sellers . . . . . . . . .. . . 65
(c) [Intentionally Omitted] . . . . . . . . . . . 65
(d) Consents. . . . . . . . . . . . . . . . . . . 65
(e) No Legal Prohibition. . . . . . . . . . . . . 65
(f) Certificate. . . . . . . . . . . . . . . . . 66
(g) Opinion of Counsel for Sellers. . . . . . . . 66
(h) HSR Act . . . . . . . . . . . . . . . . . . . 66
(i) Repayment of Indebtedness . . . . . . . . . . 66
(j) Small Business Set Asides . . . . . . . . . . 66
(k) Material Adverse Change . . . . . . . . . . . 66
(l) Releases. . . . . . . . . . . . . . . . . . . 67
(m) Resale Agreement. . . . . . . . . . . . . . . 67
(n) Non-Competition Agreement . . . . . . . . . . 67
(o) Employment Agreements . . . . . . . . . . . . 67
(p) Barbara Agreement . . . . . . . . . . . . . . 67
(q) Facility Lease. . . . . . . . . . . . . . . . 67
(r) Additional Documents, Etc. . . . . . . . . . . 68
8.2 Conditions Precedent To Obligations
Of Sellers. . . . . . . . . . . . . . . . . . . . . 68
(a) Representations and Warranties Accurate. . . . 68
(b) Performance by Buyer . . . . . . . . . . . . . 68
(c) Consents. . . . . . . . . . . . . . . . . . . 68
(d) No Legal Prohibition . . . . . . . . . . . . . 69
(e) Certificate. . . . . . . . . . . . . . . . . . 69
(f) Opinion of Counsel for Buyer . . . . . . . . . 69
(g) HSR Act. . . . . . . . . . . . . . . . . . . . 69
(h) Material Adverse Change. . . . . . . . . . . . 70
(i) Nasdaq . . . . . . . . . . . . . . . . . . . . 70
(j) [Intentionally Omitted]. . . . . . . . . . . . 70
(k) Effective Registration Statement . . . . . . . 70
(l) Employment Agreements. . . . . . . . . . . . . 70
(m) Barbara Agreement. . . . . . . . . . . . . . . 70
(n) Facility Lease . . . . . . . . . . . . . . . . 70
(o) Additional Documents, Etc. . . . . . . . . . 70
ARTICLE IX INDEMNIFICATION . . . . .. . . . . . . . . . . . . 71
9.1 Survival of Representations and Warranties. . . . . 71
9.2 Indemnification by Sellers. . . . . . . . . . . . . 71
9.3 Indemnification by Buyer. . . . . . . . . . . . . . 73
9.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . 74
9.5 Terms and Conditions of Indemnification . . . . . . 75
9.6 Treatment of Payments . . . . . . . . . . . . . . . 77
ARTICLE X ESCROW. . . . . . . . . . . . . . . . . . . . . . . 77
10.1 Establishment of Escrow Account . . . . . . . . . . 77
10.2 Funding of and Withdrawals From
Escrow Account. . . . . . . . . . . . . . . . . . . 77
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 78
11.1 Termination; Liquidated Damages. . . . . . . . . . 78
11.2 Expense. . . . . . . . . . . . . . . . . . . . . . 79
11.3 Amendment. . . . . . . . . . . . . . . . . . . . . 79
11.4 Entire Agreement . . . . . . . . . . . . . . . . . 80
11.5 Waivers. . . . . . . . . . . . . . . . . . . . . . 80
11.6 Notices. . . . . . . . . . . . . . . . . . . . . . 80
11.7 Counterparts . . . . . . . . . . . . . . . . . . . 81
11.8 Governing Law. . . . . . . . . . . . . . . . . . . 81
11.9 Binding Effect; Third Party Beneficiaries;
Assignment . . . . . . . . . . . . . . . . . . . . 82
11.10 Severability. . . . . . . . . . . . . . . .. . . . 82
11.11 Headings . . . . . . . . . . . . . . . . . . . . . 83
11.12 No Agency. . . . . . . . . . . . . . . . . . . . . 83
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of September 9, 1997 by
and among the stockholders of ILLINOIS BULK HANDLERS, INC., an
Illinois corporation ("Handlers"), SHRED-ALL RECYCLING SYSTEMS,
INC., an Illinois corporation ("Recycling"), FRED B. BARBARA
TRUCKING CO., INC., an Illinois corporation ("Trucking"), and
ENVIRONTECH, INC., a Delaware corporation ("Environtech")
(Handlers, Recycling, Trucking and Environtech are hereinafter
collectively referred to as the "Operating Companies"), set forth
on the signature page hereto (collectively, the "Sellers"), and
AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the
"Buyer").
W I T N E S S E T H:
WHEREAS, the Sellers own all of the issued and
outstanding shares of capital stock (the "Stock") of the
Operating Companies; and
WHEREAS, the Sellers desire to sell and transfer, and
the Buyer desires to purchase and acquire, all of the Stock of
the Operating Companies, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, OF
THE REPRESENTATIONS, WARRANTIES, COVENANTS AND MUTUAL AGREEMENTS
HEREINAFTER CONTAINED AND OF OTHER GOOD AND VALUABLE
CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, THE
PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
The terms defined in this Article I, whenever used
herein (including without limitation the Exhibits and Schedules
hereto), shall have the following meanings for all purposes of
this Agreement:
"ADS Common Stock" means the Common Stock, par value
$.01 per share, of Buyer.
"Affiliate" of a Person means any other Person that
directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with such
Person.
"Agreement" means this agreement among the parties set
forth on the first page hereof, including without limitation all
Exhibits and Schedules hereto.
"Average Daily Tonnage" means the total volume of waste
received divided by the number of days, other than a Saturday,
Sunday or holiday for employees of the City of Chicago, on which
waste was received.
"Balance Sheet Date" means June 30, 1997.
"Barbara Agreement" has the meaning given to it in
Section 8.1(p) of this Agreement.
"Business" means the solid waste collection,
transportation, processing, hauling, transfer and disposal
business conducted by the Operating Companies.
"Business Day" means any day other than a Saturday,
Sunday or other day on which commercial banks in New York City or
Chicago, Illinois are required or authorized by law to be closed.
"Buyer" has the meaning given to it in the caption
hereof.
"Buyer Claimant" has the meaning given to it in Section
9.2 of this Agreement.
"Buyer Shares" means any shares of ADS Common Stock to
be delivered to the Sellers pursuant to this Agreement.
"Claimant" means the party seeking indemnification
under Article IX of this Agreement.
"Closing" means the closing of the transactions
contemplated by this Agreement which shall occur on the Closing
Date.
"Closing Date" means September 10, 1997, or such other
date as the parties may mutually agree.
"Code" means the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations promulgated thereunder.
"Covenant Not to Compete" means the obligations of the
Principal Stockholder under the Non-Competition Agreement.
"Consent" means any consent, approval, authorization,
license or order of, registration, declaration or filing with, or
notice to, or waiver from, any federal, state, local, foreign or
other Governmental Entity or any Person, including, without
limitation, any security holder or creditor which is necessary to
be obtained, made or given by any of the Sellers or the Operating
Companies in connection with the execution and delivery by the
Sellers of this Agreement, the performance by the Sellers of
their obligations hereunder and the consummation of the
transactions contemplated hereby.
"Disclosure Schedule" means the disclosure schedule
attached to this Agreement as Exhibit 4.0, and includes but is
not limited to each of the Schedules expressly referred to in
Article IV.
"Distributed Assets" has the meaning given to it in
Section 6.5 of this Agreement.
"Employee Benefit Plan" means any bonus, deferred
compensation, pension, profit-sharing, retirement, stock
purchase, stock option, stock appreciation, other forms of
incentive compensation, excess benefit, supplemental pension
insurance, disability, medical, supplemental unemployment,
vacation benefits, severance, or post-retirement insurance,
compensation or benefit, welfare or any other employee benefit
plans, arrangements or practices, whether written or oral.
"Employment Agreements" has the meaning given to it in
Section 8.1(o) of this Agreement.
"Encumbrance" means any security interests, liens,
pledges, charges, encumbrances, options, rights of first refusal,
mortgages, indentures, security agreements or other similar
agreements or agreements restricting voting or transfer.
"Environmental Action" means any complaint, summons,
citation, notice, directive, order, claim, litigation,
investigation, proceeding, judgment, letter or other written
communication from any Federal, state, local or municipal agency,
department, bureau, office or other authority or any third party
involving a Hazardous Discharge or any violation of any Permit or
Environmental Laws.
"Environment" means any surface or subsurface physical
medium or natural resource, including, air, land, soil, surface
waters, ground waters, stream and river sediments.
"Environmental Laws" means any federal, state, local or
common law, rule, regulation, ordinance, code, order or judgment
relating to the injury to, or the pollution or protection of
human health and safety or the Environment.
"Environmental Liabilities" means any claims,
judgments, damages (including punitive damages), losses,
penalties, fines, liabilities, encumbrances, liens, violations,
costs and expenses (including attorneys and consultants fees) of
investigation, assessment, remediation or defense of any matter
relating to human health, safety or the Environment of whatever
kind or nature by any Person or Governmental Entity, which are
incurred as a result of (i) the existence of Hazardous Substances
in, on, under, at or emanating from any Real Property, (ii) the
offsite transportation, treatment, storage or disposal of
Hazardous Substances generated by any of the Operating Companies
or (iii) the violation of any Environmental Laws by any of the
Operating Companies.
"Environtech" has the meaning given to it in the
caption hereof.
"Environtech Landfill" means the solid waste disposal
facility located in Morris, Illinois and owned by Environtech.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations
promulgated thereunder.
"Escrow Account" means the trust account established
and maintained with the Escrow Agent pursuant to the Escrow
Agreement.
"Escrow Agent" means Lakeside Bank, 2141 S. Indiana,
Chicago, Illinois 60616.
"Escrow Agreement" means an Escrow Agreement with the
Escrow Agent in substantially the form annexed hereto as Exhibit
1A.
"Escrow Amount" has the meaning given to it in Section
2.2(b) of this Agreement.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Facility Lease" has the meaning given to it in Section
8.1(q) of this Agreement.
"Financial Statements" means (i) the combined balance sheets as
of December 31, 1994, December 31, 1995 and December 31, 1996 and
the related combined statements of operations, stockholder's
equity and cash flows of the Operating Companies for the fiscal
years then ended, in each case audited by Ernst & Young, L.L.P.,
and including in each case the related notes thereto, and (ii)
the combined balance sheets as of June 30, 1997, and the
related combined statements of operations, stockholder's equity
and cash flows of the Operating Companies for the six-month
period then ended, in each case audited by Ernst & Young, L.L.P.,
and including in each case, the related notes thereto.
"GAAP" means United States generally accepted
accounting principles, applied on a consistent basis which
assumes the continuation of each of the Operating Companies as a
going concern.
"Governmental Entity" means any federal, state, local
or foreign government, political subdivision, legislature, court,
agency, department, bureau, commission or other governmental
regulatory authority, body or instrumentality to which any of the
Operating Companies is subject.
"Handlers" has the meaning given to it in the caption
hereof.
"Hazardous Discharge" means any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping of Hazardous
Substances, whether on or off the premises of any of the
Operating Companies.
"Hazardous Substance" means petroleum, petroleum
products, petroleum-derived substances, radioactive materials,
hazardous wastes, polychlorinated biphenyls, lead based paint,
radon, urea formaldehyde, asbestos or any materials containing
asbestos, and any materials or substances regulated or defined as
or included in the definition of "hazardous substances,"
"hazardous materials," "hazardous constituents," "toxic
substances," "pollutants," "contaminants" or any similar
denomination intended to classify or regulate substances by
reason of toxicity, carcinogenicity, ignitability, corrosivity or
reactivity under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder.
"Indemnitor" means the party against whom
indemnification is sought under Article IX of this Agreement.
"Intellectual Property" means patents and pending
patent applications, registered and unregistered trademarks,
service marks, logos, and copyrights, trade names and pending
registrations and applications to register or renew the
registration of any of the foregoing, computer software and other
similar intellectual property rights material to the Operating
Companies considered as a single enterprise in connection with
the conduct of their respective businesses.
"Material Adverse Effect" means any material adverse
effect on the business, results of operations or financial
condition of the Operating Companies considered as a single
enterprise.
"MRF Contract" has the meaning given to it in Section
2.2(c) of this Agreement.
"Net Cash Balances" has the meaning given to it in
Section 6.5 of this Agreement.
"Non-Competition Agreement" has the meaning given to it
in Section 8.1(n) of this Agreement.
"Operating Companies" means, collectively, Handlers,
Recycling, Trucking, and Environtech.
"Pension Plan" means any "employee pension benefit
plan" within the meanings of Section 3(2) of ERISA maintained or
contributed to by or on behalf of any of the Operating Companies.
"Person" means an individual, corporation, partnership,
limited liability company, firm, joint venture, association,
joint stock company, trust, unincorporated organization or other
entity, or any governmental or quasi-governmental body or
regulatory authority.
"Permits" means all licenses, certificates of
authority, permits, orders, consents, approvals, registrations,
local siting approvals, authorizations, qualifications and
filings under any federal, state or local laws or with any
Governmental Entities.
"Permitted Encumbrances" means (i) exceptions to title
as set forth in Section 4.10(a) of the Disclosure Schedule; (ii)
liens for Taxes not yet payable or any Taxes being contested in
good faith (and which are reflected in Section 4.9 of the
Disclosure Schedule); (iii) liens arising as a matter of law in
the ordinary course of business, provided that the obligations
secured by such liens are not delinquent or are being contested
in good faith; and (iv) such imperfections of title and
encumbrances, if any, as do not, in the aggregate, materially
interfere with the present use of any of the properties and
assets of the Operating Companies subject thereto.
"Principal Stockholder" means Fred B. Barbara.
"Property" means any Real Property and any personal or
mixed property, whether tangible or intangible.
"Purchase Price" means the purchase price for the Stock
as set forth in Section 2.2 of this Agreement.
"Real Property" means any real property presently or
formerly owned, used, leased, occupied, managed or operated by
any of the Operating Companies.
"Recycling" has the meaning given to it in the caption
hereof.
"Related Person" has the meaning given to it in Section
4.6 hereof.
"Resale Agreement" has the meaning given to it in
Section 8.1(m) of this Agreement.
"Section 338 Forms" shall mean all returns, documents,
statements, and other forms that are required to be submitted to
any federal, state, county, or other local taxing authority in
connection with a Section 338(h)(10) Election. Section 338 Forms
shall include, without limitation, any "statement of section 338
election" and United States Internal Revenue Service Form 8023
(together with any schedules or attachments thereto) that are
required pursuant to applicable Treasury Regulations.
"Section 338(h)(10) Election" means an election
described in Section 338(h)(10) of the Code with respect to the
sale of the Stock of the Operating Companies to Buyer pursuant to
this Agreement. "Section 338(h)(10) Election" shall also include
any substantially similar election under a state or local taxing
statute.
"Securities Act" means the Securities Act of 1933, as
amended.
"Sellers" has the meaning given to it in the caption
hereof.
"Seller Claimant" has the meaning given to it in
Section 9.3 hereof.
"Stock" has the meaning given to it in the recitals
hereto.
"Subsidiary" with respect to any party, means any
corporation, partnership, joint venture or other organization,
whether incorporated or unincorporated, of which (i) such party
or any other Subsidiary of such party is a general partner; (ii)
voting power to elect a majority of the board of directors or
others performing similar functions with respect to such
corporation, partnership, joint venture or other organization is
held by such party and/or one or more of its Subsidiaries; or
(iii) at least 50% of the equity, other securities or other
interests is, directly or indirectly, owned or controlled by such
party and/or by one or more of its Subsidiaries.
"Tax Return" means each and every report, return,
declaration, information return, statement or other information
required to be supplied to a taxing or governmental authority
with respect to any Tax or Taxes, including without limitation
any combined or consolidated return for any group of entities
including any of the Operating Companies.
"Taxes" (or "Tax" where the context requires) shall
mean all federal, state, county, provincial, local, foreign and
other taxes (including, without limitation, income, profits,
premium, estimated, excise, sales, use, local host fees, land
fill taxes, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, withholding,
employment and payroll related and property taxes and other
governmental charges and assessments), whether attributable to
statutory or nonstatutory rules and whether or not measured in
whole or in part by net income, and including without limitation
interest, additions to tax or interest, charges and penalties
with respect thereto and all costs of defending any Tax
proceedings.
"Transaction Documents" means, collectively, this
Agreement, the Escrow Agreement, the Barbara Agreement, the
Employment Agreements, the Non-Competition Agreement, the Resale
Agreement and the Facility Lease.
"Trucking" has the meaning given to it in the caption
hereof.
"Valuation Termination Date" means the first to occur
of (i) the Date of Termination (as defined in the Barbara
Agreement); provided, however, that in no event shall the
Valuation Termination Date occur earlier than the fifth
anniversary of the Closing Date unless the Barbara Agreement is
terminated pursuant to Section 6(c) or Section 6(d)(i)(B)
thereof, and (ii) the ninth anniversary of the Closing Date.
"Welfare Plans" has the meaning given to it in Section
4.22 hereof.
ARTICLE II
SALE AND PURCHASE OF STOCK
2.1 Stock Purchase. Upon the terms and subject to the
conditions hereof, and upon the basis of the agreements,
representations and warranties contained in this Agreement,
Sellers shall sell, transfer, assign, convey, set over and
deliver to Buyer, and Buyer shall purchase and acquire from
Sellers, on the Closing Date, all of the Stock, free and clear of
any and all Encumbrances other than any applicable restrictions
on the further transfer of the Stock that may be imposed by
Federal and state securities laws.
2.2 Purchase Price. (a) The aggregate initial
Purchase Price for the Stock and the Covenant Not to Compete
shall be equal to Fifty-Eight Million, Five Hundred Thousand
Dollars ($58,500,000) subject to adjustment as provided in
Sections 2.2(c),(d),(e),(f),(g),(h) and (i) below. The initial
Purchase Price shall be allocated as set forth on Exhibit 2.2(a)
hereto.
(b) The initial Purchase Price shall be paid to
Sellers on the Closing Date as follows:
(i) $37,875,000 in immediately available funds by
wire transfer to a bank account or accounts specified by the
Principal Stockholder in a written notice delivered to Buyer not
later than two (2) Business Days prior to the Closing Date;
(ii) $6,000,000 (the "Escrow Amount") in
immediately available funds by wire transfer to an Escrow Account
specified by the Escrow Agent in accordance with Article X
hereof; and
(iii) Certificates representing 539,917 Buyer
Shares registered in the names and in the denominations specified
by the Principal Stockholder in a written notice delivered to the
Buyer not later than two (2) Business Days prior to the Closing
Date.
(c) If during the period commencing on the Closing
Date and ending on the Valuation Termination Date, Buyer or any
of its Subsidiaries enters into a contract with the City of
Chicago to operate a materials recycling facility ("MRF")
currently being operated in the City of Chicago at 43rd Street
and Racine Avenue by Recycling having an initial term of at least
seven years and on other terms and conditions that are no less
favorable to the Buyer than those set forth on Exhibit 2.2(c)
hereto (the "MRF Contract"), Buyer will make the payments set
forth in Clauses (i), (ii), (iii) and (iv) below to the Principal
Stockholder for the benefit of the former stockholders of
Recycling (and such adjustment to the Purchase Price shall be
allocated as set forth on Exhibit 2.2(a) hereto to the purchase
of the stock of Recycling). If the MRF Contract is for an
initial term of at least five years but less than six years,
Buyer will make 5/7ths of the payments set forth in Clauses (i),
(ii), (iii) and (iv) below to the Principal Stockholder for the
benefit of the former stockholders of Recycling. Upon each of
the first two one-year renewals of the MRF Contract, if any,
beyond the initial five-year term, Buyer will make 1/7th of the
payments set forth in Clauses (i), (ii), (iii) and (iv) below to
the Principal Stockholder for the benefit of the former
stockholders of Recycling. If the MRF Contract is for an initial
term of at least six years but less than seven years, Buyer will
make 6/7ths of the payments set forth in Clauses (i), (ii),
(iii) and (iv) below to the Principal Stockholder for the benefit
of the former stockholders of Recycling. Upon a one-year renewal
of the MRF Contract, if any, beyond the initial six-year term,
Buyer will make 1/7th of the payments set forth in Clauses (i),
(ii), (iii) and (iv) below to the Principal Stockholder for the
benefit of the former stockholders of Recycling.
(i) Upon receipt of the MRF Contract and the
commencement of the delivery of municipal solid waste to the
Buyer's or any of its Subsidiary's, as the case may be, MRF
pursuant to such contract, the sum of $5,000,000;
(ii) Six months following the satisfaction of the
conditions set forth in Clause (i) above, an amount equal to the
product of (A) $50,000 and (B) the Average Daily Tonnage of
municipal solid waste generated by the MRF Contract during such
six-month period; provided, however, that in no event shall the
payment to be made pursuant to this Clause (ii) exceed
$15,000,000;
(iii) Eighteen months following the satisfaction
of the conditions set forth in Clause (i) above, an amount equal
to the difference between (A) the product of (1) $50,000 and (2)
the Average Daily Tonnage of municipal solid waste generated by
the MRF Contract during such eighteen-month period and (B) the
aggregate payments theretofore made pursuant to Clauses (i) and
(ii) above; provided, however, that in no event shall the payment
to be made pursuant to this Clause (iii) exceed $10,000,000;
(iv) eighteen months following the satisfaction
of the conditions set forth in Clause (i) above, an amount equal
to the product of (A) $20,000 and (B) the Average Daily Tonnage
of municipal solid waste generated by the MRF Contract during
such eighteen-month period which exceeds 700 tons; and
(v) an amount equal to $250,000 for each one-year
renewal of the MRF Contract, if any, beyond seven years obtained
(on terms at least as favorable to Buyer as those contained in
such contract during the initial term), whether any such renewal
occurs prior to or after the Valuation Termination Date.
In no event shall the aggregate payments to
be made pursuant to Clauses (i), (ii) and (iii) of this Section
2.2(c) exceed $30,000,000. Any payment required to be made
pursuant to Clauses (i), (ii), (iii) or (iv) above shall be made
by Buyer not later than twenty (20) Business Days following the
satisfaction of the applicable conditions and shall be payable
75% in cash by wire transfer of immediately available funds to an
account or accounts designated by the Principal Stockholder to
Buyer in the manner specified herein for delivery of notices and
25% by delivery to the Principal Stockholder of Buyer Shares.
The number of Buyer Shares to be delivered in each case shall be
determined by dividing the dollar value of the Buyer Shares to be
delivered to the Principal Stockholder by the average of the last
reported prices of ADS Common Stock on the Nasdaq National Market
for the 20 consecutive trading days ending on the trading day
immediately preceding the day on which the applicable conditions
were satisfied. Any payment required to be made pursuant to
Clause (v) above shall be made by Buyer not later than twenty
(20) Business Days following such renewal and shall be payable in
cash by wire transfer of immediately available funds to an
account or accounts designated by the Principal Stockholder to
Buyer in the manner specified herein for delivery of notices.
(d) If during the period commencing on the Closing
Date and ending on the Valuation Termination Date, Environtech
receives (i) final, non-appealable local siting approval from the
local authority with jurisdiction over siting to increase the
airspace available for disposal of the Environtech Landfill by at
least 2,000,000 cubic yards over the original sited airspace
available for disposal of 6,119,318 cubic yards, and (ii) the
local host agreement between Environtech and the City of Morris
and the local host agreement between Environtech and the County
of Grundy are amended to permit the disposal of a minimum of
2,500 tons of solid waste per day at the Environtech Landfill
(with such amendments being final and binding), Buyer will pay to
the Principal Stockholder for the benefit of the former
stockholders of Environtech an amount equal to the product of (A)
$1.00 and (B) the difference between the number of cubic yards in
the new sited capacity and 6,119,318 cubic yards; provided,
however, that in no event shall the payment to be made pursuant
to this Section 2.2(d) exceed $10,000,000 (and such adjustment to
the Purchase Price shall be allocated as set forth on Exhibit
2.2(a) hereto to the purchase of the stock of Environtech). Any
such payment shall be made by the Buyer not later than twenty
(20) Business Days following the satisfaction of the foregoing
conditions and shall be payable 75% in cash by wire transfer of
immediately available funds to an account or accounts designated
by the Principal Stockholder to Buyer in the manner specified
herein for delivery of notices and 25% by delivery to the
Principal Stockholder of that number of Buyer Shares (rounded up
to the nearest whole number) determined by dividing the dollar
value of the Buyer Shares to be delivered to the Principal
Stockholder by the average of the last reported sale prices of
the ADS Common Stock on the Nasdaq National Market for the 20
consecutive trading days ending on the trading day immediately
preceding the day on which the applicable conditions were
satisfied.
(e) If during the period commencing on the Closing
Date and ending on the Valuation Termination Date, Buyer or any
of its Subsidiaries receives a final non-appealable S.B. 172
siting approval from the applicable local jurisdictional
authority to site and develop a transfer station of at least 350
tons per day in DuPage County, Illinois, Buyer will pay to the
Principal Stockholder for the benefit of the former stockholders
of Recycling the sum of five hundred thousand dollars
($500,000.00); provided, however, that if the Buyer or any of its
Subsidiaries receives a final non-appealable permit from the
Illinois Environmental Protection Agency to operate the transfer
station at the rate of at least 350 tons per day, Buyer will pay
to the Principal Stockholder for the benefit of the former
stockholders of Recycling an additional amount equal to
$3,000,000 plus the product of (A) $500,000 and (B) the number of
full 50 ton per day increments covered by the permit in excess of
350 tons per day (and such adjustment to the Purchase Price shall
be allocated as set forth on Exhibit 2.2(a) hereto to the
purchase of the stock of Recycling). In no event shall the
aggregate payments to be made pursuant to this Section 2.2(e)
exceed $5,000,000. Any such payment shall be made by the Buyer
not later than twenty (20) Business Days following the
satisfaction of the foregoing conditions and shall be payable 75%
in cash by wire transfer of immediately available funds to an
account or accounts designated by the Principal Stockholder to
Buyer in the manner specified herein for delivery of notices and
25% by delivery to the Principal Stockholder of that number of
Buyer Shares (rounded up to the nearest whole number) determined
by dividing the dollar value of the Buyer Shares to be delivered
to the Principal Stockholder by the average of the last reported
sale prices of the ADS Common Stock on the Nasdaq National Market
for the 20 consecutive trading days ending on the trading day
immediately preceding the day on which the applicable conditions
were satisfied.
(f) If during the period commencing on the Closing
Date and ending on the Valuation Termination Date, Buyer or any
of its Subsidiaries receives a contract from the City of Chicago
to operate a MRF currently being operated by a third party in the
City of Chicago on terms at least as favorable to the Buyer or
such Subsidiary, as the case may be, as those contained in the
MRF Contract (other than with respect to the term of such
contract), and provided that the MRF Contract is still in effect,
Buyer will make the following payments to the Principal
Stockholder for the benefit of the former stockholders of
Recycling: (i) upon receipt of such contract an amount equal to
the product of (A) $1,000,000 and (B) the number of full years in
the initial term of such contract; provided, however, that in no
event shall the aggregate payment to be made pursuant to clause
(i) of this Section 2.2(f) exceed $5,000,000 and (ii) an amount
equal to $250,000 for each one-year renewal of such contract
obtained (on terms at least as favorable to Buyer as those
contained in such contract during the initial term), whether any
such renewal occurs prior to or after the Valuation Termination
Date (and such adjustment to the Purchase Price shall be
allocated as set forth on Exhibit 2.2(a) hereto to the purchase
of the stock of Recycling). Any payment required to be made
pursuant to clause(i) of this Section 2.2(f) shall be made by
Buyer not later than twenty (20) Business Days following the
satisfaction of the applicable conditions and shall be payable
75% in cash by wire transfer of immediately available funds to an
account or accounts designated by the Principal Stockholder to
Buyer in the manner specified herein for delivery of notices and
25% by delivery to the Principal Stockholder of that number of
Buyer Shares (rounded up to the nearest whole number) determined
by dividing the dollar value of the Buyer Shares to be delivered
to the Principal Stockholder by the average of the last reported
sale prices of the ADS Common Stock on the Nasdaq National Market
for the 20 consecutive trading days ending on the trading day
immediately preceding the day on which the applicable conditions
were satisfied. Any payment required to be made pursuant to
clause (ii) above shall be made by Buyer not later than twenty
(20) Business Days following any such renewal and shall be
payable in cash by wire transfer of immediately available funds
to an account or accounts designated by the Principal Stockholder
to Buyer in the manner specified herein for delivery of notices.
(g) For each full calendar month during the period
commencing on the Closing Date and ending on the Valuation
Termination Date, in which the tonnage of municipal solid waste
hauled by the Buyer and its Subsidiaries during such month in
Illinois on behalf of Browning-Ferris Industries, Inc. exceeds
30,000 tons, Buyer shall remit to the Principal Stockholder for
the benefit of the former stockholders of Trucking an amount
equal to the product of (i) one dollar ($1) and (ii) the
difference between (A) the tonnage actually hauled on behalf of
Browning-Ferris Industries, Inc. during such month and (B) 30,000
tons (and such adjustment to the Purchase Price shall be
allocated as set forth on Exhibit 2.2(a) hereto to the purchase
of the stock of Trucking). Any such payment shall be made by the
Buyer not later than ten (10) Business Days following the end of
such month, by wire transfer of immediately available funds to an
account or accounts designated by the Principal Stockholder to
Buyer in the manner specified hereinafter or delivery of notices.
(h) For each full calendar month during the period
commencing on the Closing Date and ending on the Valuation
Termination Date in which the aggregate tonnage of municipal
solid waste delivered during such month to Recycling's transfer
station located at 43rd Street and Racine in the City of Chicago
pursuant to Recycling's Bulk Contract with the City of Chicago
annexed hereto as Exhibit 2.2(h)(i) and Recycling's C and D
Contract with the City of Chicago annexed hereto as Exhibit
2.2(h)(ii) exceeds 13,000, Buyer shall remit to the Principal
Stockholder for the benefit of the former stockholders of
Recycling an amount equal to the product of (i) two dollars ($2)
and (ii) the difference between (A) the aggregate tonnage of
waste actually delivered as provided above during such month and
(B)13,000 tons (and such adjustment to the Purchase Price shall
be allocated as set forth on Exhibit 2.2(a) hereto to the
purchase of the stock of Recycling). Any such payment shall be
made by the Buyer not later than ten (10) Business Days following
the end of such month, by wire transfer of immediately available
funds to an account or accounts designated by the Principal
Stockholder to Buyer in the manner specified herein for delivery
of notices.
(i) The payment to be made pursuant to Section
2.2(b)(i) above shall be increased by an amount equal to the cost
of all capital expenditures made by the Operating Companies
during the period from April 1, 1997 through the Closing Date
(and such adjustment to the Purchase Price shall be allocated as
set forth on Exhibit 2.2(a) hereto); provided, however, that in
no event shall the increase in the payment to be made pursuant to
this Section 2.2(i) exceed $750,000.
ARTICLE III
CLOSING
3.1 The Closing. The Closing shall take place at 9:00
a.m, local time, on the Closing Date, at the offices of Skadden,
Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive,
Chicago, Illinois, or at such other time, date or place as the
parties may mutually agree, subject to the satisfaction or waiver
of all of the conditions to Closing set forth in Article VIII
hereof.
3.2 Obligations of Sellers. At or prior to the
Closing, Sellers shall deliver or cause to be delivered to Buyer
the following:
(a) Certificates representing the Stock, duly
endorsed in blank for transfer or accompanied by stock powers
duly endorsed in blank.
(b) The certificates, legal opinion and other
documents required by Section 8.1 hereof.
(c) Appropriate receipts.
(d) All other documents, instruments and writings
required to be delivered by Sellers at or prior to the Closing
Date pursuant to this Agreement.
3.3 Obligations of Buyer. At or prior to the Closing,
Buyer shall deliver or cause to be delivered to Sellers the
following:
(a) The initial Purchase Price in the manner provided
by Section 2.2(b) of this Agreement.
(b) The certificates, legal opinion and other
documents required by Section 8.2 hereof.
(c) Appropriate receipts.
(d) All other documents, instruments and writings,
required to be delivered by Buyer at or prior to the Closing Date
pursuant to this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PRINCIPAL STOCKHOLDER
The Principal Stockholder hereby represents and
warrants to Buyer as follows (all such representations and
warranties are qualified by the Disclosure Schedule attached to
this Agreement as Exhibit 4.0):
4.1 Organization and Qualification. Each of the
Operating Companies is a corporation duly organized, validly
existing and good standing under the laws of the State of its
organization, with corporate power and authority to own, lease
and operate its assets and properties and carry on its business
as presently owned or conducted. Each of the Operating Companies
is licensed or qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction in which,
because of its business conducted there or the nature of its
assets or properties there, it would be required to be so
licensed or qualified, except where the failure to be so
qualified or in good standing would not have a Material Adverse
Effect. Each such jurisdiction is set forth in Schedule 4.1 of
the Disclosure Schedule. The copies of the certificate or
articles of incorporation (or other charter or organization
documents), including all amendments thereto, and by-laws of each
of the Operating Companies delivered to Buyer are complete and
accurate copies of such instruments as currently in effect.
4.2 Authority; No Breach. (a) Each of the Sellers has
all requisite power and authority to execute and deliver this
Agreement and to perform his or her obligations hereunder. The
execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of each of
the Sellers. This Agreement has been duly executed and delivered
by each of the Sellers and constitutes the legal, valid and
binding obligation of each of the Sellers, enforceable against
such Seller in accordance with its terms except that (i) the
enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (ii) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may
be brought.
(b) Except as set forth in Schedule 4.2 of the
Disclosure Schedule, neither the execution and delivery of this
Agreement by any of the Sellers nor the consummation of the
transactions contemplated herein, nor the full performance by the
Sellers, of their obligations hereunder do or will: (i) violate
any provision of the certificate or articles of incorporation (or
other charter or organization documents), as the case may be, or
by-laws, if applicable, of any of the Operating Companies; (ii)
conflict with, result in a breach or violation of, or constitute
a default under (or an event which, with or without notice, lapse
of time or both, would constitute a default) or result in the
invalidity of, or accelerate the performance required by or cause
or give rise to any right of acceleration or termination of any
right or obligation pursuant to any agreement or contract to
which any of the Sellers or the Operating Companies is a party or
by which any of them (or any of their respective assets or
properties) is subject or bound; (iii) result in the creation of,
or with the passage of time result in the creation of, any
Encumbrance upon the Stock or any assets or properties of the
Operating Companies; (iv) violate any writ, injunction, statute,
law, ordinance, rule, regulation, judgment, award, Permit,
decree, order, or process of any Governmental Entity; or (v)
require any of the Sellers or the Operating Companies to obtain
any Consent, except as may be required under the HSR Act, which,
in the cases of clauses (ii), (iii), (iv) or (v) above, would
have a Material Adverse Effect.
4.3 Securities and Ownership. (a) The total number of
shares of capital stock, and the classes and par values thereof,
which each of the Operating Companies is authorized to issue, the
designation, par value and number of such shares which are issued
and outstanding and the identity and number of such outstanding
shares owned (of record and beneficially) by each holder thereof
are as set forth in Schedule 4.3 of the Disclosure Schedule and
no other shares of any other class or series of capital stock are
issued and outstanding.
(b) None of the Operating Companies has issued any
securities in violation of any preemptive or similar rights and
there are no outstanding (i) securities convertible into or
exchangeable for any shares of capital stock or other securities
of any of the Operating Companies; (ii) subscriptions, options,
warrants, calls, commitments, preemptive rights or other rights
of any kind (absolute, contingent or otherwise) entitling any
third party to acquire or otherwise receive from any of the
Operating Companies any shares of capital stock or other
securities; (iii) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the
issuance of any capital stock of any of the Operating Companies,
any such convertible or exchangeable securities, or any such
subscriptions, options, warrants or rights. There are no shares
of stock or other securities of any of the Operating Companies
reserved for issuance for any purpose.
(c) The Stock has been duly authorized, validly issued
and is fully paid and nonassessable.
(d) The Sellers own and upon the consummation of the
transactions contemplated hereby Buyer will acquire at the
Closing good and valid title to the Stock free and clear of any
and all Encumbrances other than any applicable restrictions on
the further transfer of the Stock that may be imposed by Federal
and state securities laws and Encumbrances arising as a result of
any action taken by the Buyer or any Affiliate of the Buyer.
(e) None of the Operating Companies owns, directly or
indirectly, any economic, voting or other ownership interest in
any other Person.
4.4 [Intentionally Omitted]
4.5 Financial Statements. The Financial Statements
have been prepared from the books and records of the Operating
Companies, and present fairly (i) the combined financial position
of the Operating Companies at the dates thereof and (ii) the
combined results of operations for the respective periods then
ended, in each case in accordance with GAAP. The books and
records of the Operating Companies are accurate and complete in
all material respects.
4.6 Interests of Related Persons. Except as set forth
in Schedule 4.6 of the Disclosure Schedule or as otherwise
contemplated by the terms of this Agreement, none of the Sellers
nor any officer, director, relative, significant other, or
Affiliate of any of the Sellers or the Operating Companies
(collectively, the "Related Persons"):
(a) owns any interest in any Person which is a
competitor, supplier or customer of any of the Operating
Companies;
(b) owns, in whole or in part, any property, asset or
right, used in connection with the business of any of the
Operating Companies;
(c) has an interest in any contract or agreement
pertaining to the business of any of the Operating Companies; or
(d) has any contractual arrangements with any of the
Operating Companies.
4.7 Absence of Undisclosed Liabilities. Except as set
forth in Schedule 4.7 of the Disclosure Schedule, none of the
Operating Companies has any direct or indirect material
liabilities, losses or obligations of any nature, whether
absolute, accrued, contingent or otherwise, that would be
required to be reflected on a balance sheet or the notes thereto
prepared in accordance with GAAP other than (i) liabilities
reflected, accrued or reserved for in the Financial Statements,
(ii) liabilities disclosed in the Disclosure Schedule, (iii)
liabilities incurred in the ordinary course of business
subsequent to the Balance Sheet Date and not inconsistent with
past practice, (iv) liabilities or performance obligations
arising in the ordinary course of business (and not as a result
of a breach or default by any of the Operating Companies) out of
or under agreements, contracts, leases, arrangements or
commitments to which any of the Operating Companies is a party or
(v) liabilities under this Agreement.
4.8 Absence of Certain Changes or Events. Except as
set forth in Schedule 4.8 of the Disclosure Schedule or as
otherwise provided herein, since the Balance Sheet Date the
business of each of the Operating Companies has been conducted
only in the ordinary course and consistent with past practice.
Except as set forth in Schedule 4.8 of the Disclosure Schedule or
as otherwise provided herein, since the Balance Sheet Date none
of the Operating Companies has:
(a) suffered any material adverse change in the
business, results of operations or financial condition of the
Operating Companies considered as a single enterprise;
(b) suffered any material damage, destruction or
casualty loss (whether or not covered by insurance);
(c) authorized, declared, set aside or paid any
dividend or other distribution other than distributions
consistent with past practice;
(d) directly or indirectly redeemed, purchased or
otherwise acquired any of its shares of capital stock;
(e) paid, discharged or satisfied any material claim,
liability or obligation other than the payment, discharge or
satisfaction of liabilities and obligations incurred in the
ordinary course of business and consistent with past practice;
(f) canceled any debts or waived any material claims
or rights other than in the ordinary course of business;
(g) sold, transferred, or otherwise disposed of any of
its properties or assets which are material to the Operating
Companies considered as a single enterprise, except in the
ordinary course of business and consistent with past practice; or
(h) agreed, whether in writing or otherwise, to take
any action described in this Section 4.8.
4.9 Taxes. (a) Each of the Operating Companies is an
S corporation within the meaning of Section 1361 of the Code, the
"S" election made by each such company has not been revoked or
terminated and none of such companies or any shareholder thereof
has taken any action which would cause the termination of such
"S" election. Each of the Operating Companies has duly, timely
and properly filed when due, all federal, state, local and other
Income Tax Returns and all other material Tax Returns required to
be filed by it with respect to its sales, income, business or
operations (including without limitation any consolidated or
combined Tax Returns in which it is included) and, as of the
Closing Date, such Tax Returns, as amended prior to the date
hereof, will be true, complete and accurate in all material
respects. As of the Closing Date, each of the Operating
Companies will have duly paid (or made provision for in the
Balance Sheet) all Taxes due from them. True and complete copies
of all of such Tax Returns for the past three fiscal years have
been previously provided to Buyer.
(b) All amounts required to be withheld by the
Operating Companies from or on behalf of employees for income,
social security and unemployment insurance taxes have been
collected or withheld and either paid to the appropriate
governmental agency or set aside and, to the extent required by
law, held in accounts for such purpose.
4.10 Assets. (a) As of the Closing Date, each of the
Operating Companies will have good and valid title to all the
personal property assets (tangible and intangible) which such
company purports to own on the date hereof (in each case other
than the Net Cash Balances, Distributed Assets and assets
disposed of in the ordinary course of business) free and clear of
all Encumbrances (other than Permitted Encumbrances).
(b) Schedule 4.10(b) of the Disclosure Schedule
contains a complete and correct list of all Real Property to be
owned by any of the Operating Companies as of the Closing Date as
well as a list of any options to acquire any Real Property held
by any of the Operating Companies. As of the Closing Date, the
Operating Companies will have good and valid title to all such
owned Real Property, free and clear of all Encumbrances (other
than Permitted Encumbrances).
(c) Schedule 4.10(c) of the Disclosure Schedule
contains a complete and correct list of all Real Property leased
by any of the Operating Companies. Each of the Operating
Companies enjoys peaceful possession of all such property.
Sellers have previously delivered to Buyer true, complete and
correct copies of all lease documents relating to such property.
To the knowledge of the Principal Stockholder, all lease
documents are valid, binding and enforceable in accordance with
their terms and are in full force and effect. All material work
required to be done by any of the Operating Companies as a tenant
on such Real Property has been duly performed. No event has
occurred which constitutes or, with the passing of time or giving
of notice, or both, would constitute, a material default by any
of the Operating Companies under any such lease document.
(d) No Real Property owned or leased by any of the
Operating Companies is subject to any rights of way, building use
restrictions, easements, reservations or limitations which would
materially restrict any of the Operating Companies or the Buyer
from conducting the Business after the Closing. Neither the
whole nor any portion of the Real Property, leaseholds or any
other assets of any of the Operating Companies is subject to any
governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor to the knowledge of
the Principal Stockholder, has any such condemnation,
expropriation or taking been proposed.
(e) Schedule 4.10(e) sets forth with respect to any
Real Property which is listed on Schedule 4.10(b) or (c) and is a
sanitary landfill, the estimated remaining landfill airspace
which has been sited pursuant to applicable local siting
procedures under S.B. 172 (which is defined to be available
airspace from the bottom of the final cap to the top of the
liner) and the estimated remaining landfill airspace for which
there is a development permit from the Illinois Environmental
Protection Agency, in each case as of the date of this Agreement.
(f) Schedule 4.10(f) contains a true and complete list
with respect to each of the Operating Companies of:
(i) the number and size of containers, stationary
compactors and other similar equipment which is owned or leased
by the Operating Companies; and
(ii) the number of vehicles used in the business
of the Operating Companies together with information as to the
make, description of body and chassis, model and serial number,
and year of each such vehicle.
4.11 Intellectual Property. Schedule 4.11 of the
Disclosure Schedule contains an accurate and complete summary of
(a) all Intellectual Property owned by any of the Operating
Companies and (b) all licenses of Intellectual Property to or
from the Operating Companies and contracts or agreements
pertaining to such licenses. The Operating Companies' rights in
and to such Intellectual Property and licenses are sufficient to
permit the Operating Companies to conduct their respective
businesses in all material respects as presently conducted.
4.12 [Intentionally Omitted]
4.13 [Intentionally Omitted]
4.14 Contracts. Schedule 4.14 of the Disclosure
Schedule lists all contracts, agreements and amendments thereto,
to which any of the Operating Companies is a party or by which
any of its assets or properties may be bound, which are material
to the operation of the businesses of the Operating Companies
considered as a single enterprise. To the knowledge of the
Principal Stockholder, except as set forth in Section 4.14 of the
Disclosure Schedule, (i) each of such material contracts,
agreements and understandings is in full force and effect, except
where the failure to be in full force and effect would not have a
Material Adverse Effect and (ii) there are no existing defaults
by any party thereunder, which default would result in a Material
Adverse Effect. Accurate and complete copies of each contract
and agreement referred to in Schedule 4.14, together with all
amendments thereto, have been heretofore made available to Buyer
for review.
4.15 Customers and Suppliers. Except as set forth on
Schedule 4.15 of the Disclosure Schedule:
(i) To the knowledge of the Principal
Stockholder, the business relationship of the Operating Companies
with each material customer or supplier is a good commercial
working relationship and no material customer or supplier has
canceled or otherwise terminated such relationship.
(ii) None of the Operating Companies is engaged
in any material disputes with any material customers or suppliers
and the Principal Stockholder does not know of any facts which
lead him to conclude that any material customer or supplier
intends to discontinue or otherwise materially modify its
relationship with the Operating Companies after the Closing Date.
4.16 Insurance. Schedule 4.16 of the Disclosure
Schedule contains a true and complete list of all insurance
policies covering any of the Operating Companies or otherwise
held by or on behalf of them, or any aspect of their assets or
business, indicating the type of coverage, name of insured, the
insurer, the amount of coverage, the deductibles, the premium and
the expiration date thereof and the aggregate amounts paid
thereunder. Schedule 4.16 of the Disclosure Schedule contains a
list of any pending claims under any of the foregoing. The
Principal Stockholder knows of no reason why any of such
insurance policies would be terminated, suspended, modified or
amended, or not renewed on substantially identical terms
(including without limitation premium costs), or would require
alteration of any equipment or any improvements to Real Property
occupied by or leased to or by the Operating Companies, or the
purchase of additional equipment, or the modification of any of
the methods of doing business.
4.17 Litigation, Etc. Except as set forth on Schedule
4.17 of the Disclosure Schedule, there has not been in the
twenty-four months prior to the date hereof, nor is there as of
the date hereof, any claim, action, suit, proceeding or
investigation of any kind or nature whatsoever, by or before any
court or governmental or other regulatory or administrative
agency or commission or tribunal pending or, to the knowledge of
the Principal Stockholder, threatened against the Operating
Companies or their business, Properties, officers or directors,
or which questions or challenges the validity of this Agreement
or any action taken or to be taken by the Sellers pursuant to
this Agreement or in connection with the transactions
contemplated hereby which would have a Material Adverse Effect or
a material adverse effect on the Sellers' ability to consummate
the transactions contemplated hereby. None of the Operating
Companies is subject to any judgment, order or decree which may
have a Material Adverse Effect that has not been satisfied or
complied with.
4.18 Compliance with Law; Necessary Authorizations.
Except as set forth on Schedule 4.18 of the Disclosure Schedule,
each of the Operating Companies is in compliance in respect of
its business, operations and properties, with all applicable
laws, rules, regulations, orders, building and other codes,
zoning and other ordinances, Permits, authorizations, judgments
and decrees of all Governmental Entities, except where the
failure to be in such compliance would not be reasonably likely
to have a Material Adverse Effect.
4.19 Environmental Matters. Except as set forth on
Schedule 4.19 of the Disclosure Schedule, all of the operations
of the Operating Companies are in compliance with all applicable
Environmental Laws except where the failure to be in such
compliance would not be reasonably likely to have a Material
Adverse Effect and none of the Operating Companies is subject to
any Environmental Liabilities which would be reasonably likely to
have a Material Adverse Effect.
(a) None of the Operating Companies has in the past
engaged in activities that (i) were in violation of any
Environmental Law and (ii) after the Closing Date, would be
reasonably likely to have a Material Adverse Effect;
(b) There is no pending or, to the knowledge of the
Principal Stockholder, threatened claim, lawsuit or
administrative proceeding against the Operating Companies under
any Environmental Law which would be reasonably likely to have a
Material Adverse Effect. None of the Operating Companies has
received written notice from any person, including but not
limited to any federal, state, or local governmental agency,
alleging that the Operating Companies are in violation of any
applicable Environmental Law or otherwise may be liable under any
applicable Environmental Law, which violation or liability would
be reasonably likely to have a Material Adverse Effect;
(c) There have been no Releases, spills or discharges
of Hazardous Substances on or underneath any of the Real Property
that would be reasonably likely to have a Material Adverse
Effect. For purposes of this subsection, the term "Releases"
shall have the meaning given to it in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
and the Resource Conservation Recovery Act, as amended.
4.20 Labor Difficulties. To the knowledge of the
Principal Stockholder, except to the extent set forth in Schedule
4.20 of the Disclosure Schedule:
(a) there is no labor strike, or dispute, grievance,
arbitration proceeding, slowdown or stoppage, or charge of unfair
labor practice actually pending, threatened against or affecting
the Operating Companies;
(b) none of the Operating Companies has, during the
twelve (12) month period prior to the date hereof, experienced
any work stoppage or other labor dispute including, without
limitation, the filing of an unfair labor practice complaint with
the National Labor Relations Board or any other Governmental
Entity against it;
(c) there are no charges or complaints of
discrimination pending before the Equal Employment Opportunity
Commission or any state or local agency with respect to the
Operating Companies;
(d) no union or collective bargaining agreement which
is binding on the Operating Companies restricts it from
relocating or closing any of its operations; and
(e) no unions or other collective bargaining units
have been certified or recognized by the Operating Companies as
representing any of its employees and there are no existing union
organizing efforts or representation questions with respect to
any of the employees of the Operating Companies.
4.21 Employee Benefit Plans. Except as set forth in
Schedule 4.21 of the Disclosure Schedule, there are no Employee
Benefit Plans maintained or sponsored by the Operating Companies
applicable to employees or former employees of the Operating
Companies or with respect to which any of the Operating Companies
has any liability. Accurate and complete copies of each written
Employee Benefit Plan and an accurate summary of each material
oral Employee Benefit Plan have been heretofore made available to
Buyer. None of the Operating Companies has any formal commitment
to create any additional Plan or arrangement that would affect
any employee or former employee of the Operating Companies.
(a) Included in Schedule 4.21 of the Disclosure
Schedule is a list of each Pension Plan maintained by or on
behalf of the Operating Companies. No Pension Plan is a
"multiemployer pension plan" within the meaning of Section 3(37)
of ERISA. Neither the Operating Companies, nor any of the ERISA
Plans, has engaged in a "prohibited transaction," within the
meaning of (i) Section 4975 of the Code, or (ii) Section 406 of
ERISA, with respect to any Pension Plan which might subject any
such plan or related trust, or any trustee or administrator
thereof, or the Operating Companies to a material tax or penalty
imposed by Section 4975 of the Code or to a material civil
penalty imposed by Section 502 of ERISA. Except as set forth in
Schedule 4.21 of the Disclosure Schedule, each of the Pension
Plans has been operated and administered in all material respects
in accordance with the applicable provisions of ERISA and the
Code. Except as set forth in Schedule 4.21 of the Disclosure
Schedule, none of the Pension Plans subject to Title IV of ERISA
has, since September 2, 1974, been completely or partially
terminated, nor has there been any "reportable event," as such
term is defined in Section 4043(b) of ERISA, with respect to any
such plan since the effective date of said Section 4043(b). None
of the Pension Plans or related trusts incurred any "accumulated
funding deficiency," as such term is defined in Section 412 of
the Code, whether or not waived, since the effective date of said
Section 412.
(b) Included in Schedule 4.21 of the Disclosure
Schedule is a list of all material "employee welfare benefit
plans," within the meaning of Section 3(1) of ERISA, whether or
not insured, maintained by or on behalf of the Operating
Companies ("Welfare Plans"). Except as set forth in Schedule
4.21 of the Disclosure Schedule, each Welfare Plan is and has
been in material compliance with the applicable provisions of
ERISA and the Code. Except as set forth on Schedule 4.21 of the
Disclosure Schedule or otherwise required by applicable law, none
of the Operating Companies participate in or make contributions
to any Welfare Plan that provides post-employment or post-
retirement benefits to retired or former employees of the
Operating Companies. Each of the Operating Companies has
complied in all material respects with all of its obligations,
including without limitation the making of all required
contributions, under each of the Welfare Plans.
(c) Except as set forth in Schedule 4.21 of the
Disclosure Schedule, there is no Pension Plan or Welfare Plan
maintained in connection with any trust described in Section
501(c)(9) of the Code.
4.22 [Intentionally Omitted]
4.23 Questionable Payments. None of the Operating
Companies, or any director, officer, agent, employee, or any
other Person acting on behalf of the Operating Companies, or any
of the Sellers has, directly or indirectly, used any corporate
funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses; made any unlawful payment to government
officials or employees or to political parties or campaigns;
established or maintained any unlawful fund of corporate monies
or other assets; made or received any bribe, or any unlawful
rebate, payoff, influence payment, kickback or other unlawful
payment to any governmental or non-governmental Person.
4.24 Finders. Neither Sellers nor the Operating
Companies nor any of their respective directors or officers, has
taken any action that, directly or indirectly, would obligate
Buyer or, after the Closing Date, the Operating Companies, to
anyone acting as broker, finder, financial advisor or in any
similar capacity in connection with this Agreement or any of the
transactions contemplated hereby.
4.25 Disclosure. No representation or warranty by
Sellers in this Agreement, in any documents or papers furnished
to Buyer or its representatives by or on behalf of any of the
Sellers pursuant to this Agreement or any statement contained in
the Disclosure Schedule or any certificates delivered hereunder
contains or will contain any untrue statement of material fact or
omits or will omit to state a material fact necessary to make the
statements in this Agreement or therein in light of the
circumstances under which they were made, not misleading, other
than untrue statements and omissions which would not have a
Material Adverse Effect. All copies of contracts, agreements and
other documents made available to Buyer or any of its
representatives pursuant hereto are true and complete.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants as follows:
5.1 Organization and Qualification. Buyer is a
corporation duly organized, validly existing and in good standing
in its jurisdiction of incorporation.
5.2 Authority. Buyer has all requisite corporate
power and authority to execute and deliver this Agreement and the
other Transaction Documents to be executed and delivered by Buyer
at the Closing and to perform, carry out and consummate the
transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the other
Transaction Documents have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes, and each of
the other Transaction Documents when duly executed and delivered
by Buyer at the Closing, will constitute, the legal, valid and
binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.
5.3 Capital Stock. The authorized capital stock of
Buyer consists of 20,000,000 shares of Common Stock, par value
$.01 per share, of which 14,375,339 shares are issued and
outstanding as of the date hereof, and 5,000,000 shares of
Preferred Stock, par value $.01 per share, of which no shares are
issued and outstanding as of the date hereof.
5.4 No Breach. Neither the execution and delivery of
this Agreement and the other Transaction Documents by Buyer nor
the consummation of the transactions contemplated herein and
therein and the full performance by Buyer of its obligations
hereunder and thereunder do or will: (i) violate any provision
of the certificate of incorporation or by-laws of Buyer; (ii)
conflict with, violate, result in a breach of or constitute a
default under any writ, injunction, statute, law, ordinance,
rule, regulation, judgment, award, decree, order, or process of
any Governmental Entity; (iii) require Buyer to obtain any
Consent, except as may be required under the HSR Act.
5.5 Finders. Neither Buyer nor any of its directors
or officers, has taken any action that, directly or indirectly,
would obligate any of the Sellers to pay a fee to anyone acting
as a broker, finder, financial advisor or in any similar capacity
in connection with this Agreement or any of the transactions
contemplated hereby.
5.6 Investment Purpose. Buyer is acquiring the Stock
for investment only and not with a view to resale in connection
with any distribution of the Stock, except in compliance with the
Securities Act, and all other applicable securities laws.
5.7 No Knowledge of Breach. As of the date hereof,
the Buyer has no knowledge of any material breach of any of the
representations and warranties of the Principal Stockholder
contained herein.
5.8 SEC Reports and Financial Statements. (a) Since
December 31, 1996, Buyer has filed all required forms, reports
and documents with the SEC required to be filed by it pursuant to
the Securities Act and the Exchange Act, all of which have
complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act. Buyer
has made available to the Sellers copies of all such forms,
reports and documents (hereinafter collectively referred to as
the "Buyer Reports"). None of the Buyer Reports, including,
without limitation, any financial statements or schedules
included therein, as of the time filed, contained any untrue
statement of material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent information
contained in any of the Buyer Reports, including without
limitation any financial statements or schedules included
therein, has been revised, corrected or superseded by a later-
filed form, report or document, none of the Buyer Reports,
including, without limitation, any financial statements or
schedules included therein, presently contains any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and
changes in financial position (including the related notes
thereto) of Buyer included in the financial statements contained
in Buyer's Annual Report on Form 10-K for the year ended December
31, 1996 and in Buyer's Quarterly Report on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997, present fairly
the consolidated financial position of Buyer as of their
respective dates, and the consolidated results of operations and
changes in consolidated financial position for the period then
ended, all in conformity with generally accepted accounting
principles applied on a consistent basis, subject in the case of
unaudited interim financial statements to normal year-end audit
adjustments.
5.9 Absence of Certain Changes. Since June 30, 1997
and through the date hereof (a) the business of Buyer has been
conducted only in the ordinary course and consistent with past
practice in all material respects and (b) there has been no
material adverse change in the financial condition, results of
operations, or business of Buyer and its Subsidiaries considered
as a single enterprise.
5.10 ADS Common Stock Issuable to the Sellers. The
Buyer Shares, when delivered as herein provided, will be validly
issued, fully paid and nonassessable, and will not be subject to
preemptive rights. The Buyer Shares shall be of a class
registered under the Exchange Act, shall have been issued
pursuant to an effective Registration Statement under the
Securities Act and, at the time of their issuance, duly included
for quotation on the Nasdaq National Market System.
ARTICLE VI
COVENANTS
6.1 Conduct of Business of the Operating Companies.
Sellers covenant that from the date hereof and until the Closing
Date, except as contemplated by this Agreement, as disclosed in
the Disclosure Schedule or expressly consented to by an
instrument in writing signed by Buyer, the Sellers will cause
each of the Operating Companies to: (i) conduct its business and
operations only in the ordinary course, consistent with past
practice, and (ii) not declare or pay any dividend or make any
distribution in respect of its capital other than distributions
consistent with past practice.
6.2 Company Records. (a) Prior to the Closing Date,
during normal business hours and with reasonable advance notice
to the Principal Stockholder and without material disruption to
the business and operations of any of the Operating Companies,
the Principal Stockholder shall cause the Operating Companies to
afford Buyer, its attorneys, accountants and representatives,
reasonable access to the Operating Companies and their business,
books, records and employees, and shall provide to and cause the
Operating Companies to provide to Buyer and its representatives
such additional financial and operating data and other
information as the Buyer shall from time to time reasonably
request.
(b) Except as otherwise provided in Section 6.12, the
Principal Stockholder and the Buyer agree that from the
date hereof and until such time as the statute of
limitations with respect to all tax matters which are
the subject of Section 6.12 has expired, during normal
business hours, each such party will permit, at no
charge, cost or expense to such party and without
disruption of such party's business, the other party
and his or its respective auditors and other
representatives to have reasonable access to the
properties, auditors and officers of the Operating
Companies and to all books and records relating to the
Operating Companies and to examine and take copies
thereof. Each such party agrees not to destroy at any
time any files or records which are subject to this
Section 6.2(b) without giving reasonable notice to the
other party, and within 30 days of receipt of such
notice, such other party may cause to be delivered to
him or it the records intended to be destroyed, at such
other party's expense.
6.3 Filings and Authorizations. Each of the Sellers
and Buyer, as promptly as practicable, (i) shall make, or cause
to be made, all such filings and submissions under laws, rules
and regulations applicable to it or its Affiliates, as may be
required to consummate the transfer of the Stock in accordance
with the terms of this Agreement, and (ii) shall use all
commercially reasonable efforts to obtain, or cause to be
obtained, all Consents from all governmental and non-governmental
Persons necessary to be obtained by it or its Affiliates, in
order to consummate such transfer. The Operating Companies,
Sellers and Buyer shall coordinate and cooperate with one another
in exchanging such information and supplying such reasonable
assistance as may be reasonably requested by each in connection
with the foregoing.
6.4 Publicity. From the date hereof to the Closing
Date, neither Sellers nor Buyer shall issue or make, or cause, or
in the case of Sellers permit any of the Operating Companies to
have issued or made, the publication or dissemination of any
press release or other announcement to divulge the existence of
this Agreement or with respect to the transactions contemplated
hereby except (i) as required by law or (ii) after consultation
with and prior approval of the other parties hereto, which
approval shall not be unreasonably withheld.
6.5 Distribution of Net Cash Balances and Distributed
Assets to Sellers. (a) Prior to the Closing, the Operating
Companies shall distribute to the Sellers all of the Net Cash
Balances as of the close of business on the day immediately prior
to the Closing. "Net Cash Balances" shall mean all of the cash
of the Operating Companies less the sum of (i) the then aggregate
amount of customer prepayments and (ii) the amount, if any, by
which the then aggregate accounts payable of the Operating
Companies exceed the then aggregate accounts receivable of the
Operating Companies, in each case as of the close of business on
the day immediately prior to the Closing. Prior to the Closing,
the Operating Companies shall distribute to the Sellers those
assets of the Operating Companies set forth in Schedule 6.5(a) of
the Disclosure Schedule (the "Distributed Assets").
(b) As soon as practicable, but in no event later than
90 days following the Closing Date, the Principal Stockholder
shall prepare and deliver to the Buyer a Statement of Net Cash
Balances of the Operating Companies as of the close of business
on the day immediately prior to the Closing (the "Closing Date
Statement") together with the workpapers used in the preparation
thereof. The Buyer shall have 10 days to review the Closing Date
Statement after receipt thereof. Unless the Buyer delivers
written notice to the Principal Stockholder on or prior to the
10th day after the Buyer's receipt of the Closing Date Statement
of the Buyer's objection to the Closing Date Statement and
specifying in reasonable detail all disputed items and the basis
therefor, the Buyer shall be deemed to have accepted and agreed
to the Closing Date Statement. If the Buyer so notifies the
Principal Stockholder of its objection to the Closing Date
Statement, the Buyer and the Principal Stockholder shall, within
30 days following such notice (the "Resolution Period"), attempt
to resolve their differences and any resolution by them as to any
disputed amounts shall be final, binding and conclusive. If
following resolution of any disputed amount there do not remain
in dispute amounts the aggregate net effect of which exceeds
$250,000, then all amounts remaining in dispute shall be deemed
to have been resolved in favor of the Closing Date Statement
delivered by the Principal Stockholder to the Buyer.
(c) If, at the conclusion of the Resolution Period,
the aggregate net effect of all amounts remaining in dispute
exceeds $250,000, then all amounts remaining in dispute shall be
submitted to Arthur Andersen LLP (the "Neutral Auditors").
All fees and expenses relating to the work, if any, to
be performed by the Neutral Auditors shall be borne equally by
the Principal Stockholder and the Buyer. The Neutral Auditors
shall act as an arbitrator to determine, based solely on
presentations by the Principal Stockholder and the Buyer, and not
by independent review, only those issues still in dispute. The
Neutral Auditors' determination shall be made within 30 days of
their selection, whether or not such presentations by the
Principal Stockholder and the Buyer have been made within such
period, and shall be set forth in a written statement delivered
to the Principal Stockholder and the Buyer and shall be final,
binding and conclusive. The term "Adjusted Closing Date
Statement," as hereinafter used, shall mean the definitive
Closing Date Statement agreed to by the Principal Stockholder and
the Buyer in accordance with Section 6.5(b) or the definitive
Closing Date Statement resulting from the determinations made by
the Neutral Auditors in accordance with this Section 6.5(c) (in
addition to those items theretofore agreed to by the Principal
Stockholder and the Buyer).
(d) Net Cash Balances shall be increased or decreased,
as the case may be, dollar for dollar, to the extent the Net Cash
Balances reflected in the Adjusted Closing Date Statement is
greater than or less than, respectively, the Net Cash Balances
distributed to the Sellers prior to the Closing. The amount of
any increase to or reduction of Net Cash Balances pursuant to
this Section 6.5 shall be paid by wire transfer in immediately
available funds to the account specified by the Principal
Stockholder or the Buyer, as the case may be, within five
business days after the Adjusted Closing Date Statement is agreed
to or any remaining disputed items are ultimately determined by
the Neutral Auditors.
6.6 Discussions with Others. From the date hereof
until the Closing Date Sellers will not and will not permit the
Operating Companies, nor shall the Sellers authorize or knowingly
permit any officer, director, employee or representative of
Sellers or the Operating Companies, to solicit or enter into
negotiations with any party, other than Buyer, with regard to a
purchase and sale of any portion of the capital stock of the
Operating Companies, any material portion of the assets of the
Operating Companies or any merger or consolidation of the
Operating Companies with any third party.
6.7 Supplements to Disclosure Schedule. From time to
time prior to the Closing, the Principal Stockholder and Buyer
will promptly supplement or amend the sections of the Disclosure
Schedule relating to their respective representations and
warranties in this Agreement with respect to any matter,
condition or occurrence hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required
to be set forth or described in their respective sections of the
Disclosure Schedule. Except with respect to a supplement or
amendment not objected to in writing by the other party within
five business days after receipt thereof, no supplement or
amendment by either party shall have any effect for the purpose
of (i) determining satisfaction by Sellers of the conditions set
forth in Sections 8.1(a) and 8.2(b) hereof or the compliance by
Sellers with the covenant set forth in Section 6.1 hereof or (ii)
determining satisfaction by Buyer of the conditions set forth in
Sections 8.2(a) and 8.2(b) hereof.
6.8 Covenant to Satisfy Conditions. Each party agrees
to use all reasonable efforts to ensure that the conditions set
forth in Article VIII hereof are satisfied, insofar as such
matters are within the control of such party.
6.9 Further Assurances. The parties hereto shall from
time to time after the Closing Date execute and deliver such
additional instruments and documents, as any party hereto may
reasonably request to consummate the transfers and other
transactions contemplated hereby.
6.10 Delivery of Periodic Reports. From and after the
date hereof and prior to the Closing Date, Buyer shall deliver to
the Sellers, copies of all registration statements and regular
periodic reports, if any, which Buyer shall file with the
Securities and Exchange Commission.
6.11 Nasdaq. Buyer shall use its best efforts to have
the Buyer Shares authorized for inclusion on the Nasdaq National
Market System, upon official notice of issuance, as promptly as
practicable.
6.12 Tax Matters.
(a) Liability of the Sellers for Taxable Periods
Ending on or Before Closing Date. The Principal Stockholder
shall be liable for, and shall indemnify, defend, and hold the
Buyer and its Affiliates harmless against, any and all Taxes of,
or payable by, the Operating Companies for any taxable year or
taxable period ending on or before the Closing Date, including,
but not limited to, the Illinois Replacement Tax and any other
income or franchise Tax imposed with respect to the built-in gain
in the assets of the Operating Companies as of the Closing Date,
whether such Tax is imposed (with respect to the taxable year
that includes the Closing Date or, on account of any payments
pursuant to Sections 2.2(c) through (i). The Sellers shall
timely file or cause to be filed all Tax Returns relating to the
Operating Companies for any taxable year ending on or before the
Closing Date. The Sellers shall determine the amount of taxable
income of the Operating Companies on the basis of its permanent
records and consistent with the past income tax accounting
methods utilized in preparing its prior income tax returns,
except as otherwise required by law.
(b) Liability of the Buyer and the Sellers for
Taxable Periods Commencing Before and Ending After the Closing
Date. The Buyer shall cause each Operating Company to pay all
Taxes due from such Operating Company for any taxable year or
taxable period commencing before and ending after the Closing
Date (the "Split Tax Period"). Upon timely notice from the
Buyer, the Sellers shall pay to such Operating Company prior to
the due date for such Taxes an amount equal to the amount of such
Taxes that have not been paid as of the Closing Date and would
have been due from such Operating Company if the Split Tax Period
had ended on the Closing Date.
(c) Liability of the Buyer for Taxable Periods
Commencing After Closing Date. The Buyer and the Operating
Companies shall be liable for, and shall indemnify and hold the
Sellers and any of their respective Affiliates harmless against,
(i) any and all Taxes of, or payable by, the Operating Companies
for any taxable year or taxable period commencing after the
Closing Date and (ii) any Taxes relating to operations, acts or
omissions of the Buyer or the Operating Companies that occur
after the Closing on the Closing Date.
(d) Refunds or Credits. Any refunds or credits
attributable to Taxes for which the Sellers are liable pursuant
to Section 6.12(a) or (b) shall be solely for the account of the
Sellers, and, to the extent that such refunds or credits are
attributable to Taxes for which the Buyer is liable pursuant to
Section 6.12(b) or (c), such refunds or credits shall be solely
for the account of the Buyer. The Buyer shall cause the
Operating Companies promptly to forward to the Sellers or to
reimburse the Sellers for any such refunds or credits due the
Sellers after receipt thereof by either the Buyer or the
Operating Companies, and the Sellers shall promptly forward to
the Operating Companies or reimburse the Operating Companies for
any refunds or credits due the Operating Companies after receipt
thereof by the Sellers of such refunds or credits that are for
the account of the Operating Companies hereunder.
(e) Mutual Cooperation. As soon as practicable,
but in any event within 30 days after the Sellers' or the Buyer's
request, as the case may be, the Buyer shall or shall cause the
Operating Companies to deliver to the Sellers, or the Sellers
shall deliver to the Buyer, such information and other data in
the possession of the Sellers, the Buyer or the Operating
Companies, as the case may be, relating to the Tax Returns and
Taxes of, or with respect to, the Operating Companies, including
such information and other data customarily required by the
Sellers or the Buyer, as the case may be, to cause the payment of
all Taxes or to permit the preparation of any Tax Returns for
which it has responsibility or liability or to respond to audits
by any taxing authorities with respect to any Tax Returns or
Taxes for which it has any responsibility or liability under this
Agreement or otherwise or to otherwise enable the Sellers or the
Buyer, as the case may be, to satisfy its accounting or Tax
requirements. For a period of seven years after the Closing,
and, if at the expiration thereof any Tax audit or judicial
proceeding is in progress or the applicable statute of
limitations has been extended, for such longer period as such
audit or judicial proceeding is in progress or such statutory
period is extended, each party shall maintain and make available
to the other, on reasonable request, copies of any and all
information, books and records referred to in this Section
6.12(e). After such period, any party may dispose of such
information, books and records, provided that prior to such
disposition such party shall give the other a reasonable
opportunity to take possession of such information, books and
records.
(f) Contests. Whenever any taxing authority
asserts a claim, makes an assessment or otherwise disputes or
affects the Tax reporting position of the Operating Companies for
periods ending on or prior to the Closing Date or the amount of
Taxes for which the Sellers are or may be liable under this
Agreement, the Buyer shall, promptly upon receipt by the Buyer or
the Operating Companies of notice thereof, inform the Sellers,
and the Sellers shall have the right to control any resulting
proceedings and to determine whether and when to settle any such
claim, assessment or dispute, but only to the extent such
proceedings or determinations affect the Tax reporting position
of the Operating Companies for periods ending on or prior to the
Closing Date or the amount of Taxes for which the Sellers are
liable under this Agreement, and not in a manner that binds the
Operating Companies' Tax reporting position for taxable periods
following the Closing Date, without the consent of the Buyer,
which shall not be unreasonably withheld. Whenever any taxing
authority asserts a claim, makes an assessment or otherwise
disputes the amount of Taxes for which the Buyer is liable under
this Agreement, the Sellers shall, promptly upon receiving notice
thereof, inform the Buyer. The Buyer shall have the right to
control any resulting proceedings and to determine whether and
when to settle any such claim, assessment or dispute; provided
that neither the Sellers nor the Buyer or any of its Affiliates
shall take any position on any Tax Return or in any contest or
proceedings that is inconsistent with this Agreement.
(g) Section 338(h)(10) Elections and Forms. (i)
With respect to the Buyer's acquisition of the Stock hereunder,
the Buyer and the Sellers shall jointly make all available
Section 338(h)(10) Elections with respect to the Operating
Companies in accordance with applicable tax laws on a timely
basis and as set forth herein. The Buyer and the Sellers will
supply in advance to one another copies of all correspondence,
filings or communications (or memoranda setting forth the
substance thereof) to be sent or made by the Buyer and the
Sellers or their respective representatives to or with the
Internal Revenue Service relating to any Section 338(h)(10)
Elections. The Buyer and the Sellers agree to report the
transfers under this Agreement consistent with any Section
338(h)(10) Elections, and shall take no position contrary thereto
unless required to do so by applicable tax laws pursuant to a
"determination" (as described in Section 1313 of the Code).
(ii) The Buyer shall be responsible for the
preparation and filing of all Section 338 Forms in accordance
with applicable tax laws and the terms of this Agreement, and the
Buyer shall deliver such forms and related documents to the
Sellers at least forty (40) days prior to the date such Section
338 Forms are required to be filed under applicable tax laws.
The Sellers shall execute and deliver to the Buyer such documents
or forms as are reasonably requested by the Buyer and are
required by any tax laws to properly complete the Section 338
Forms, no more than twenty (20) days after the date such
documents or forms are requested by the Buyer.
(iii) The Buyer and the Sellers will allocate the
"Modified Agreement Deemed Sale Price," as computed under
applicable Treasury Regulations (or similar state law
provisions), among the assets of the Operating Companies for tax
purposes in accordance with the intended allocations set forth in
Schedule 6.12 hereto.
ARTICLE VII
[INTENTIONALLY OMITTED]
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions Precedent to Obligations of Buyer. The
obligation of Buyer under this Agreement to consummate the
purchase of the Stock on the Closing Date shall be subject to the
satisfaction, at or prior to the Closing Date, of all of the
following conditions, any one or more of which may be waived by
Buyer:
(a) Representations and Warranties Accurate. The
representations and warranties of the Sellers contained in this
Agreement shall be true and correct in all material respects on
the Closing Date with the same force and effect as though made on
and as of the Closing Date, except for changes permitted or
contemplated by the terms of this Agreement.
(b) Performance by Sellers. Each of the Sellers shall
have performed and complied in all material respects with all
covenants and agreements required to be performed or complied
with by such parties hereunder on or prior to the Closing Date.
(c) [Intentionally Omitted]
(d) Consents. All Consents required in connection
with the purchase and sale of the Stock and the consummation of
the Closing (including those set forth on Exhibit 8.1(d) hereto)
shall have been duly obtained, made or given and shall be in full
force and effect, without the imposition upon Buyer, or any of
the Operating Companies, of any material condition, restriction
or required undertaking.
(e) No Legal Prohibition. No suit, action,
investigation, inquiry or other proceeding by any Governmental
Entity or other Person shall have been instituted or threatened
which arises out of or relates to this Agreement or the
transactions contemplated hereby and no injunction, order, decree
or judgment shall have been issued and be in effect or threatened
to be issued by any Governmental Entity of competent
jurisdiction, and no statute, rule or regulation shall have been
enacted or promulgated by any Governmental Entity and be in
effect, which in each case restrains or prohibits the
consummation of the purchase and sale of the Stock.
(f) Certificate. Buyer shall have received a
certificate, dated the Closing Date, signed by the Principal
Stockholder, to the effect that the conditions set forth in
Sections 8.1(a) and 8.1(b) have been satisfied.
(g) Opinion of Counsel for Sellers. Buyer shall have
received an opinion, dated the Closing Date, from Skadden, Arps,
Slate, Meagher & Flom (Illinois), special counsel to the
Principal Stockholder, in form reasonably acceptable to Buyer.
(h) HSR Act. The required waiting period under the
HSR Act shall have expired or been earlier terminated.
(i) Repayment of Indebtedness. All indebtedness of
the Operating Companies (other than trade accounts payable
incurred in the ordinary course of business and equipment leases)
shall have been repaid in full and evidence of such repayment,
reasonably satisfactory to Buyer, shall have been delivered to
Buyer.
(j) Small Business Set Asides None of the customer
accounts of any of the Operating Companies shall have been
designated by the appropriate Governmental Entity as "small
business set-aside" contracts.
(k) Material Adverse Change. No material adverse
change shall have occurred in the business of the Operating
Companies and no other event, loss, damage, condition or state of
facts of any character shall exist which has a Material Adverse
Effect.
(l) [Intentionally Omitted]
(m) Resale Agreement. Sellers shall have executed
and delivered to Buyer the Resale Agreement in substantially the
form annexed hereto as Exhibit 8.1(m) (the "Resale Agreement").
(n) Non-Competition Agreement. The Principal
Stockholder shall have executed and delivered to Buyer the Non-
Competition Agreement in substantially the form annexed hereto as
Exhibit 8.1(n) (the "Non-Competition Agreement").
(o) Employment Agreements. The persons set forth on
Exhibit 8.1(o) shall have each executed and delivered the
Employment Agreement in substantially the form set forth on
Exhibit 8.1(o) (collectively, the "Employment Agreements").
(p) Barbara Agreement. The Principal Stockholder
shall have executed and delivered the Barbara Agreement in
substantially the form annexed hereto as Exhibit 8.1(p) (the
"Barbara Agreement").
(q) Facility Lease. The Principal Stockholder shall
have executed and delivered the lease for the premises located in
Chicago, Illinois in substantially the form annexed hereto as
Exhibit 8.1(q) (the "Facility Lease").
(r) Additional Documents, Etc. Sellers shall have
delivered to Buyer such other documents, instruments and
certificates as shall be reasonably requested by Buyer or Buyer's
counsel for the purpose of effecting the transactions provided
for and contemplated by this Agreement.
8.2 Conditions Precedent To Obligations Of Sellers.
The obligations of the Sellers under this Agreement to consummate
the sale of the Stock on the Closing Date shall be subject to the
satisfaction, at or prior to the Closing Date, of all of the
following conditions, any one or more of which may be waived by
Sellers:
(a) Representations and Warranties Accurate. The
representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects on
the Closing Date with the same force and effect as though made on
and as of the Closing Date.
(b) Performance by Buyer. Buyer shall have performed
and complied in all material respect with all covenants and
agreements required to be performed or complied with by the Buyer
hereunder on or prior to the Closing Date.
(c) Consents. All Consents required in connection
with the purchase and sale of the Stock and the consummation of
the Closing shall have been duly obtained, made or given and
shall be in full force and effect, without the imposition upon
the Sellers of any material condition, restriction or required
undertaking.
(d) No Legal Prohibition. No suit, action,
investigation, inquiry or other proceeding by any Governmental
Entity or other Person shall have been instituted or threatened
which arises out of or relates to this Agreement, or the
transactions contemplated hereby and no injunction, order, decree
or judgment shall have been issued and be in effect or threatened
to be issued by any Governmental Entity of competent
jurisdiction, and no statute, rule or regulation shall have been
enacted or promulgated by any Governmental Entity and be in
effect, which in each case restrains or prohibits the
consummation of the purchase and sale of the Stock.
(e) Certificate. The Sellers shall have received a
certificate, dated the Closing Date, signed on behalf of Buyer by
a principal corporate officer of Buyer, to the effect that the
conditions set forth in Sections 8.2(a) and 8.2(b) have been
satisfied.
(f) Opinion of Counsel for Buyer. The Sellers shall
have received an opinion from Proskauer Rose LLP, special counsel
to the Buyer, dated the Closing Date, in form reasonably
acceptable to Sellers.
(g) HSR Act. The required waiting period under the
HSR Act shall have expired or been earlier terminated.
(h) Material Adverse Change. No material adverse
change shall have occurred in the business of the Buyer and no
other event, loss, damage, condition or state of facts of any
character shall exist which has a material adverse effect on the
business, results of operations or financial condition of Buyer
and its Subsidiaries considered as a single enterprise.
(i) Nasdaq The Buyer Shares to be delivered to the
Sellers at the Closing shall have been authorized for inclusion
on the Nasdaq National Market System, upon official notice of
issuance.
(j) [Intentionally Omitted]
(k) Effective Registration Statement. The issuance of
the Buyer Shares pursuant to Section 2.2(a) above shall have been
effected pursuant to an effective Registration Statement under
the Securities Act.
(l) Employment Agreements. Buyer shall have executed
and delivered the Employment Agreements.
(m) Barbara Agreement. The Barbara Agreement shall
have been executed and delivered by the parties thereto.
(n) Facility Lease. The Principal Stockholder shall
have executed and delivered the Facility Lease.
(o) Additional Documents, Etc. Buyer shall have
delivered to Sellers such other documents, instruments and
certificates as shall be reasonably requested by Sellers or
Sellers' counsel for the purpose of effecting the transactions
provided for and contemplated by this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties. All
representations and warranties contained in Articles IV and V
shall survive the Closing and shall remain in full force and
effect through the last day of the 18th calendar month following
the calendar month in which the Closing Date occurred; provided,
however, that the representations and warranties contained in
Sections 4.3(c), 4.3(d) and 5.10 shall remain in full force and
effect indefinitely and the representations and warranties
contained in Section 4.9 shall remain in full force and effect
until the expiration of the applicable statute of limitations.
9.2 Indemnification by Sellers. Subject to the limits
set forth in this Article IX, from and after the Closing, Sellers
shall jointly and severally indemnify and save Buyer, its
Affiliates and their respective directors, officers and agents,
(collectively "Buyer Claimants" and individually "Buyer
Claimant") harmless from and defend each of them from and against
any and all demands, claims, actions, liabilities, losses, costs,
damages or reasonable expenses whatsoever (including without
limitation reasonable attorneys' fees and expenses)
(collectively, "Claims") incurred by the Buyer Claimants
resulting from or arising out of (i) any inaccuracy or breach of
any representation or warranty of the Principal Stockholder
contained herein; and (ii) any breach of any covenant or
obligation of Sellers contained herein; provided, however, that
if the Closing occurs, all written amendments or supplements to
the Disclosure Schedule made prior to the Closing shall be deemed
to have been made a part of the Disclosure Schedule as of the
date hereof. Notwithstanding anything contained herein to the
contrary, (a) Sellers shall not be required to indemnify a Buyer
Claimant hereunder unless the aggregate cumulative sum of all
amounts for which indemnity would otherwise be due hereunder to
any and all Buyer Claimants exceeds $250,000, in which case
Sellers shall only be responsible for the excess; (b) the
aggregate liability of the Sellers under this Article IX shall
not exceed an amount equal to $6,000,000; (c) any indemnification
liability arising hereunder shall be limited to the amount of
actual damages sustained by any Buyer Claimant by reason of such
breach, net of any insurance proceeds with respect thereto
payable to or for the benefit of the Buyer Claimant; and (d)
Buyer Claimants' indemnification for any Claims pursuant to this
Section 9.2 shall be calculated net of any net (giving effect to
the payment of any additional taxes that may be incurred by Buyer
Claimants from the treatment of such indemnification payments as
taxable income or gain to Buyer Claimants) tax benefit to Buyer
Claimants (utilized by Buyer Claimants against income of Buyer
Claimants in the year that Buyer Claimants deducts such
liability, loss, claim, cost or expense in its income tax
returns, regardless of whether Buyer Claimants receives any tax
benefits in any other year by reason of any net operating loss or
other available income tax carryforwards or carrybacks),
resulting from such Claims. The provisions of this Section 9.2
shall not apply to the Sellers' obligations under Section 6.12
hereof.
9.3 Indemnification by Buyer. Subject to the limits
set forth in this Article IX from and after the Closing, Buyer
shall indemnify and save Sellers, their Affiliates and their
respective directors, officers and agents, (collectively "Seller
Claimants" and individually "Seller Claimant") harmless from and
defend each of them from and against any and all Claims incurred
by the Seller Claimants resulting from or arising out of (i) any
inaccuracy or breach of any representation or warranty of Buyer
contained herein, and (ii) any breach of any covenant or
obligation of Buyer contained herein; provided, however, that
Buyer shall not be required to indemnify a Seller Claimant
hereunder unless the aggregate cumulative sum of all amounts for
which indemnity would otherwise be due hereunder to any and all
Seller Claimants exceeds $250,000, in which case Buyer shall only
be responsible for the excess; and provided, further, that the
aggregate liability of the Buyer under this Article IX shall not
exceed the sum of $6,000,000. Notwithstanding anything contained
herein to the contrary, (a) any indemnification liability arising
hereunder shall be limited to the amount of actual damages
sustained by any Seller Claimant by reason of such breach, net of
any insurance proceeds with respect thereto payable to or for the
benefit of the Seller Claimant; and (b) Seller Claimants'
indemnification for any Claims pursuant to this Section 9.3 shall
be calculated net of any net (giving effect to the payment of any
additional taxes that may be incurred by Seller Claimants from
treatment of such indemnification payments as taxable income or
gain to Seller Claimants) tax benefit to Seller Claimants
(utilized by Seller Claimants against income of Seller Claimants
in the year that Seller Claimants deducts such liability, loss,
claim, cost or expense in its income tax returns, regardless of
whether Seller Claimants receives any tax benefits in any other
year by reason of any net operating loss or other available
income tax carryforwards or carrybacks), resulting from such
Claims.
9.4 Exclusive Remedy. Any indemnity obligations of
the Sellers pursuant to Section 9.2 hereof (other than indemnity
obligations arising from a breach of Sections 4.3(c) or 4.3(d)
hereof after the last day of the 18th calendar month following
the calendar month in which the Closing Date occurred), shall be
satisfied solely by payment from the Escrow Account, upon the
terms and subject to the conditions set forth in Section 9.2
hereof and in the Escrow Agreement, and the extent of any such
payments shall be the Buyer Claimants' sole and exclusive remedy
in the event of any Claims for indemnification under such Section
9.2. The provisions of Section 9.2 and section 9.3 hereof shall
not apply to the claims, obligations, liabilities, covenants and
representations regarding Taxes, which shall be governed solely
by the terms of Section 6.12 hereof. The parties acknowledge and
agree that the remedies provided in this Agreement are their
exclusive remedies with respect to actions, occurrences or events
that took place on or prior the Closing Date, whether or not an
equitable, legal or administrative action has been commenced as
of the Closing Date with respect to such actions, occurrences or
events.
9.5 Terms and Conditions of Indemnification. The
respective obligations and liabilities of Sellers and of Buyer to
indemnify pursuant to this Article IX shall be subject to the
following terms and conditions:
(a) The party seeking indemnification (the "Claimant")
must give the other party or parties, as the case may be (the
"Indemnitor"), written notice of any such claim promptly. The
Claimant's failure to give prompt notice, however, shall not
serve to eliminate or limit the Claimant's right to
indemnification hereunder except to the extent such failure
prejudices the rights of the Indemnitor.
(b) The respective obligations and liabilities of
Sellers and of Buyer to indemnify pursuant to this Article IX in
respect of any Claim by a third party shall be subject to the
following additional terms and conditions:
(i) The Indemnitor shall have the right to undertake,
by counsel or other representatives of its own choosing
reasonably satisfactory to Claimant, the defense, compromise, and
settlement of such Claim.
(ii) In the event that the Indemnitor shall elect not
to undertake such defense, or within a reasonable time after
notice of any such claim from the Claimant shall fail to defend,
the Claimant (upon further written notice to the Indemnitor)
shall have the right to undertake the defense, compromise or
settlement of such claim, by counsel or other representatives of
its own choosing, on behalf of and for the account and risk of
the Indemnitor.
(iii) Notwithstanding anything in this Section 9.4 to
the contrary, (A) if there is a reasonable probability that a
Claim may materially and adversely affect the Claimant other than
as a result of money damages or other money payments, the
Claimant shall have the right, at its own cost and expense, to
participate in the defense, compromise or settlement of the
Claim, (B) the Indemnitor shall not, without the Claimant's
written consent, settle or compromise any Claim or consent to
entry of any judgment which does not include as an unconditional
term thereof the giving by the claiming party or the plaintiff to
the Claimant of a release from all liability in respect of such
claim, and (C) in the event that the Indemnitor undertakes
defense of any Claim, the Claimant by counsel or other
representative of its own choosing and at its sole cost and
expense, shall have the right to consult with the Indemnitor and
its counsel or other representatives concerning such claim and
the Indemnitor and the Claimant and their respective counsel or
other representatives shall cooperate with respect to such claim,
subject to the execution and delivery of a mutually satisfactory
joint defense agreement.
9.6 Treatment of Payments. The Buyer and the Sellers
agree to treat all payments pursuant to Sections 2.2, 9.2 and 9.3
as adjustments (i.e., reductions or increases, as the case may
be) of the Purchase Price for income tax purposes and file all
income Tax Returns in a manner consistent with such treatment,
unless (i) otherwise required by a court of competent
jurisdiction or (ii) such party receives a written opinion from a
nationally recognized law firm (which opinion and law firm shall
be reasonably acceptable to the other party) that there is no
substantial authority (within the meaning of Section
6662(d)(2)(B)(i) of the Code) for such position.
ARTICLE X
ESCROW
10.1 Establishment of Escrow Account. The Principal
Stockholder and the Buyer shall, on or prior to the Closing Date,
establish the Escrow Account.
10.2 Funding of and Withdrawals From Escrow Account.
At the Closing, Buyer shall cause the cash comprising the Escrow
Amount to be deposited into the Escrow Account. Withdrawals of
amounts from the Escrow Account may only be made by Buyer to
indemnify any of the Buyer Claimants for any Claims asserted
against, imposed upon or incurred by such Buyer Claimants in
accordance with the terms and conditions set forth in Section 9.2
hereof and the Escrow Agreement. Any cash remaining in the
Escrow Account on the last day of the 18th calendar month
following the calendar month in which the Closing Date occurred
for which claims have not theretofore been made by Buyer shall be
remitted to the Principal Stockholder in accordance with the
terms and conditions set forth in the Escrow Agreement.
ARTICLE XI
MISCELLANEOUS
11.1 Termination; Liquidated Damages. (a) This
Agreement may be terminated and abandoned by Buyer or Sellers, by
written notice to the other party, if the transactions
contemplated by this Agreement have not been consummated by
October 1, 1997, unless the failure of such consummation shall be
due to the failure of the party seeking to terminate this
Agreement to comply in all material respects with the agreements
and covenants contained herein to be performed by such party on
or before such date. This Agreement may be terminated by mutual
consent of the parties at any time.
(b) Buyer understands that the damages which may be
suffered by Sellers if Buyer fails to complete the Closing in a
timely fashion as a result of its breach of this Agreement shall
be difficult to ascertain and the parties therefore agree that
the Sellers shall be entitled (in addition to the expenses to be
paid by Buyer pursuant to Section 11.2 below) (i)to liquidated
damages in an amount equal to that number of Buyer Shares
determined by dividing (A) $2,000,000 by (B) the average last
reported sale price ADS Common Stock for the twenty trading days
immediately preceding the date of breach and (ii) a certified
copy of the Financial Statements. Under the circumstances
described in this Section, Buyer will issue such Buyer Shares to
Seller. The liquidated damages and Financial Statements referred
to in this Section 11.1(b) shall be Sellers' only remedy in the
event of Buyer's failure to complete the Closing in a timely
manner as a result of Buyer's breach of this Agreement and
Sellers hereby waive any further rights in connection therewith.
11.2 Expense. Except for sales, transfer and other
similar taxes, levies and charges that may be imposed, levied or
assessed in connection with the consummation of the transactions
contemplated hereby, which will be paid 1/2 by Buyer and 1/2 by
Sellers, and the fees and expenses incurred in connection with
the preparation of the Financial Statements, which will be paid
by Buyer, each party hereto shall pay its own expenses incurred
in connection with this Agreement and the transactions
contemplated hereby.
11.3 Amendment. This Agreement may not be modified,
amended, altered or supplemented except by a written agreement
executed by Buyer and Sellers.
11.4 Entire Agreement. This Agreement, together with
the Exhibits and Schedules hereto, the other Transaction
Documents and the instruments and other documents delivered
pursuant to this Agreement and the other Transaction Documents,
contain the entire agreement of the parties relating to the
subject matter hereof, and supersede all prior agreements,
understandings, representations, warranties and covenants of any
kind between the parties. All others are specifically waived.
11.5 Waivers. Waiver by any party of any breach of or
failure to comply with any provision of this Agreement by the
other party shall not be construed as, or constitute, a
continuing waiver of such provision, or a waiver of any other
breach of, or failure to comply with, any other provision of this
Agreement. No waiver of any such breach or failure or of any
term or condition of this Agreement shall be effective unless in
a written notice signed by the waiving party and delivered, in
the manner required for notices generally, to each affected
party.
11.6 Notices. All notices and other communications
hereunder shall be validly given or made if in writing, when
delivered personally (by courier service or otherwise), when sent
by telecopy with confirmation by postage-prepaid first class
mail, or when actually received when mailed by first-class
certified or registered United States mail, postage-prepaid and
return receipt requested, and all legal process with regard
hereto shall be validly served when served in accordance with
applicable law, in each case to the address of the party to
receive such notice or other communication set forth below, or at
such other address as any party hereto may from time to time
advise the other parties pursuant to this Subsection:
If to Sellers:
c/o Fred B. Barbara
4400 South Racine
Chicago, IL 60609
Telecopier: (773) 847-2773
with a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, IL 60606
Telecopier: (312) 407-0411
Attention: William R. Kunkel, Esq.
If to Buyer:
American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, IL 60521
Telecopier: (630) 655-1455
Attention: General Counsel
11.7 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 together shall constitute one and the
same document.
11.8 Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of Illinois (i.e., without regard to its conflicts of law
rules).
11.9 Binding Effect; Third Party Beneficiaries;
Assignment. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their
respective legal representatives, successors, heirs,
distributees, devisees, legatees and permitted assigns. Except
as expressly set forth herein, nothing expressed or referred to
in this Agreement is intended or shall by construed to give any
Person other than the parties to this Agreement, or their
respective legal representatives, successors, heirs,
distributees, devisees, legatees and permitted assigns, any legal
or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein. Neither party may
assign this Agreement nor any of its rights hereunder, other than
any right to payment of a liquidated sum, nor delegate any of its
obligations hereunder, without the prior written consent of the
other, except that (i) Buyer may, at the Closing, assign title to
the Stock to one or more of its Subsidiaries and (ii) Buyer may
assign its rights to receive payments under this Agreement to any
Affiliate or to any Person providing financing to Buyer.
11.10 Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall
not invalidate the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction, and any such provision, to the extent invalid or
unenforceable, shall be replaced by a valid and enforceable
provision which comes closest to the intention of the parties
underlying such invalid or unenforceable provision.
11.11 Headings. The headings contained in this
Agreement are for reference purposes only and shall not modify
define, limit, expand or otherwise affect in any way the meaning
or interpretation of this Agreement.
11.12 No Agency. No party hereto shall be deemed
hereunder to be an agent of, or partner or joint venturer with,
any other party hereto.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
Sellers:
__________________________________
FRED B. BARBARA
__________________________________
__________________________________
__________________________________
__________________________________
__________________________________
Buyer:
AMERICAN DISPOSAL SERVICES, INC.
By:______________________________
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-13719) pertaining to the American
Disposal Services, Inc. 1996 Stock Option Plan of our report
dated February 24, 1998, with respect to the consolidated
financial statements of American Disposal Services, Inc. included
in the 1997 Annual Report (Form 10-K) for the year ended December
31, 1997.
Chicago, Illinois
March 27, 1998
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