-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UcSjd+SMg0brqtquR7AWW9vY1KVXbhW31uIjKj+39tiY1Yvh10XvZcPt0asqTbno 2IcrUfMT5cUcMgSvQIG4Pw== 0000950131-98-002155.txt : 19980331 0000950131-98-002155.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950131-98-002155 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE MANAGEMENT INC /DE/ CENTRAL INDEX KEY: 0000104938 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 362660763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07327 FILM NUMBER: 98578725 BUSINESS ADDRESS: STREET 1: 3003 BUTTERFIELD RD CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 6305728800 MAIL ADDRESS: STREET 1: 3003 BUTTERFIELD ROAD CITY: OAKBROOK STATE: IL ZIP: 60523 FORMER COMPANY: FORMER CONFORMED NAME: WASTE MANAGEMENT INC DATE OF NAME CHANGE: 19930527 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K [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 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-7327 ---------------- WASTE MANAGEMENT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-2660763 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3003 BUTTERFIELD ROAD, OAK BROOK, ILLINOIS 60523 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 572-8800 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $1.00 par value New York Stock Exchange Zurich Stock Exchange Chicago Stock Exchange Geneva Stock Exchange London Stock Exchange Basle Stock Exchange Frankfurt Stock Exchange Liquid Yield Option Notes due 2001 New York Stock Exchange 8 3/4% Debentures due 2018 New York Stock Exchange Liquid Yield Option Notes due 2012 New York Stock Exchange Chemical Waste Management, Inc. Liquid Yield Option Notes due 2010 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None 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. [_] THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY STOCKHOLDERS WHO WERE NOT AFFILIATES (AS DEFINED BY REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION) OF THE REGISTRANT WAS APPROXIMATELY $10,657,397,087 AT FEBRUARY 1, 1998 (BASED ON THE CLOSING SALE PRICE ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE ON JANUARY 30, 1998, AS REPORTED BY THE WALL STREET JOURNAL (MIDWEST EDITION)). AT MARCH 18, 1998, THE REGISTRANT HAD ISSUED AND OUTSTANDING AN AGGREGATE OF 455,182,521 SHARES OF ITS COMMON STOCK OF RECORD (EXCLUDING 10,886,361 SHARES HELD IN THE WASTE MANAGEMENT, INC. EMPLOYEE STOCK BENEFIT TRUST). DOCUMENTS INCORPORATED BY REFERENCE None - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- ITEM 1. BUSINESS.......................................................... 1 GENERAL.................................................................. 1 NORTH AMERICAN SOLID AND HAZARDOUS WASTE MANAGEMENT SERVICES............. 3 Solid Waste Management, Recycling and Related Services.................. 4 Hazardous Waste Management and Related Services......................... 7 INTERNATIONAL WASTE MANAGEMENT AND RELATED SERVICES...................... 9 Collection Services..................................................... 10 Treatment and Disposal Services......................................... 10 TRASH-TO-ENERGY AND RELATED SERVICES..................................... 12 REGULATION............................................................... 12 General................................................................. 12 Waste Management Services............................................... 14 Trash-to-Energy and Related Services.................................... 15 RCRA.................................................................... 17 Superfund............................................................... 18 International Waste Management and Related Services..................... 19 COMPETITION.............................................................. 19 INSURANCE................................................................ 21 EMPLOYEES................................................................ 21 ACQUISITIONS AND DISPOSITIONS............................................ 22 ITEM 2. PROPERTIES........................................................ 23 ITEM 3. LEGAL PROCEEDINGS................................................. 24 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 26 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................................................. 27 ITEM 6. SELECTED FINANCIAL DATA........................................... 28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION...................................................... 30 RESULTS OF OPERATIONS.................................................... 30 FINANCIAL CONDITION...................................................... 44 OUTLOOK.................................................................. 48 FORWARD-LOOKING INFORMATION.............................................. 49 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........ 50 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................................... 97 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 98 DIRECTORS OF THE REGISTRANT.............................................. 98 EXECUTIVE OFFICERS OF THE REGISTRANT..................................... 100 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................. 101 ITEM 11. EXECUTIVE COMPENSATION........................................... 102 STOCK OPTIONS............................................................ 104 LONG TERM INCENTIVE PLAN AWARDS.......................................... 106 PENSION AND RETIREMENT PLANS............................................. 107
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PAGE ---- COMPENSATION OF DIRECTORS................................................. 108 OUTSIDE DIRECTORS' PLANS.................................................. 108 STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS............................. 108 DIRECTORS' CHARITABLE ENDOWMENT PROGRAM................................... 109 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............... 109 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 110 SECURITY OWNERSHIP OF MANAGEMENT.......................................... 110 Ownership of Company Common Stock........................................ 110 Ownership of WTI Common Stock............................................ 112 Ownership of WM International Ordinary Shares............................ 113 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................... 115 MEETINGS AND COMMITTEES OF THE BOARD...................................... 115 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 117 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K.. 123
ii PART I ITEM 1. BUSINESS. GENERAL Waste Management, Inc. (formerly "WMX Technologies, Inc.") is a leading international provider of waste management services. Unless the context indicates to the contrary, as used in this report the terms "Company" and "Waste Management" refer to Waste Management, Inc. and its subsidiaries. The Company provides integrated solid waste management services in North America through Waste Management of North America, Inc., a wholly owned subsidiary of the Company (referred to herein, together with its subsidiaries and certain affiliated companies providing waste management and related services, as "WMNA"). The Company's solid waste management services are provided to commercial, industrial, municipal and residential customers, as well as to other waste management companies, and consist of solid waste collection, transfer, resource recovery and disposal services. As part of these services, the Company is engaged in providing, through its Recycle America(R) and other programs, paper, glass, plastic and metal recycling services to commercial and industrial operations and curbside collection of such materials from residences and in removing methane gas from sanitary landfill facilities for use in electricity generation. In addition, through WMNA, the Company provides Port-O-Let(R) portable sanitation services to municipalities and commercial and special event customers. WMNA also manages the on-site industrial cleaning services businesses owned by the Company's Rust International Inc. subsidiary. In June 1997, the Company completed the sale of most of the Company's solid waste assets in Canada to a subsidiary of USA Waste Services, Inc. ("USA Waste"). See Note 5 to Consolidated Financial Statements set forth in Item 8 herein. The Company also provides hazardous waste management services. The Company's chemical waste treatment, storage, disposal and related services in North America are provided through WMNA and Chemical Waste Management, Inc., a wholly owned subsidiary of the Company (referred to herein, together with its subsidiaries, as "CWM"), and are provided to commercial and industrial customers, as well as to other waste management companies and to governmental entities. Through Advanced Environmental Technical Services, L.L.C., a wholly owned subsidiary of the Company (referred to herein, together with its subsidiaries as "AETS"), the Company provides on-site integrated hazardous waste management services, including hazardous waste identification, packaging, removal and recycling services, to industrial, institutional and governmental customers. Through its wholly owned Chem-Nuclear Systems, L.L.C. subsidiary (referred to herein, together with its subsidiaries, as "Chem- Nuclear"), the Company also furnishes radioactive waste management services, primarily to electric utilities and governmental entities. The Company provides comprehensive waste management and related services outside North America through Waste Management International plc, a subsidiary owned approximately 56% by the Company and 12% each by the Company's Rust International Inc. and Wheelabrator Technologies Inc. subsidiaries (referred to herein, together with its subsidiaries, as "WM International"). WM International provides a wide range of solid and hazardous waste management services in seven countries in Europe, seven countries in the Asia-Pacific region and Argentina, Brazil, and Israel. Wheelabrator Technologies Inc., an approximately 67%-owned subsidiary of the Company (referred to herein, together with its subsidiaries, as "WTI"), is a leading developer of facilities for, and provider of services to, the trash- to-energy and waste-fuel powered independent power markets. WTI develops, arranges financing for, operates and owns facilities that dispose of trash and other waste materials in an environmentally acceptable manner by recycling them into electrical or steam energy. WTI is also pursuing the development, ownership and operation of power plants for industrial customers. In addition, WTI is involved in the treatment and management of biosolids resulting from the treatment of wastewater by converting them into useful fertilizers and the recycling of organic wastes into compost material useable for horticultural and agricultural purposes. WTI also designs and installs technologically advanced air pollution control systems and equipment. In 1996, WTI sold its water process, manufacturing and custom engineering business and in 1997 sold its water-contract operations, outsourcing and privatization business. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" herein. Printed on recycled 1 paper. LOGO In June 1997, the Company announced an offer to acquire, for $15 per share in cash, all of the approximately 53 million outstanding shares of WTI it does not already own. The price was increased to $16.50 per share pursuant to a definitive merger agreement subsequently negotiated with a special committee of independent WTI directors. The terms of the agreement have been approved by the WTI special committee and by the Boards of Directors of the Company and WTI, but the transaction remains subject to the approval of the holders of a majority of WTI's outstanding shares, other than those held by the Company, voting on it at a special meeting of WTI stockholders to be held March 30, 1998. Several lawsuits have been filed which seek, among other things, to enjoin the proposed transaction. The Company believes that it has met the legal standards applicable to transactions of this type and intends to vigorously defend itself in these lawsuits. Rust International Inc., a subsidiary owned approximately 60% by the Company and 40% by WTI (referred to herein, together with its subsidiaries, as "Rust"), is engaged in furnishing environmental and infrastructure consulting and a variety of other on-site industrial and related services primarily to clients in the public sector and petrochemical, chemical, energy, utility, pulp and paper, environmental services and other industries. In early 1998, Rust sold its approximately 37% interest in OHM Corporation, a publicly traded provider of environmental remediation services ("OHM"), and received a distribution from OHM of additional shares of NSC Corporation, a publicly traded provider of asbestos abatement and other specialty contracting services ("NSC"). The distribution increased Rust's interest in NSC from approximately 40% to 54%. The Company's strategic plans call for the Company to focus on the provision of waste management services and to sell or discontinue various businesses which do not fit within that focus. The Company has therefore reported its continuing operations as being within a single industry segment, waste management services. The Company's continuing consolidated revenues were approximately $8.5 billion in 1994, $9.1 billion in 1995, $9.2 billion in 1996 and $9.2 billion in 1997. For information relating to the Company's operations in different geographic groups, see Note 14 to the Company's Consolidated Financial Statements set forth below in Item 8. For interim periods, the revenues and net income of certain of the Company's operations may fluctuate for a number of reasons, including there being for some businesses less activity during the winter months. On March 10, 1998, the Company entered into a definitive merger agreement (the "Merger Agreement") with USA Waste Services, Inc. ("USA Waste") pursuant to which the Company will be merged with a wholly-owned subsidiary of USA Waste (the "Merger"). Pursuant to the Merger Agreement, the Company's stockholders will receive .725 shares of common stock of USA Waste for each share of common stock of the Company. The consummation of the Merger is subject to a number of conditions, including the expiration or termination of the applicable merger review waiting period under the Hart-Scott-Rodino Anti- Trust Improvements Act of 1976, approval by the stockholders of each company and other typical closing conditions. In addition, the Merger is contingent upon the transaction qualifying for pooling-of-interests accounting treatment. In order to qualify for pooling-of-interests accounting treatment, the Company intends to sell a portion of its treasury shares pursuant to a registered public offering prior to the closing of the Merger. A lawsuit by an alleged Company stockholder purporting to represent a class of the Company's stockholders has been filed (although the Company has not yet been served) against the Company and members of its Board of Directors alleging breaches of fiduciary duty by the defendants in connection with the Merger. The lawsuit seeks, among other things, to have the transaction enjoined and to recover unspecified damages. The Company believes the suit to be without merit and intends to contest it vigorously. Regulatory or technological developments relating to the environment may require companies engaged in waste management services and related businesses, including the Company, to modify, supplement or replace equipment and facilities at costs which may be substantial. Because the continuing business in which the Company is engaged is intrinsically connected with the protection of the environment and the potential discharge of materials into the environment, a material portion of the Company's capital expenditures is, directly or indirectly, related to such items. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Financial Condition" set forth below in Item 7 for a review of property and equipment expenditures by the Company for the last four years. The Company believes that, in general, it tends to benefit when environmental regulation increases, which may increase the demand for its services, and that it has the resources and experience to manage environmental risk. 2 Although the Company strives to conduct its operations in compliance with applicable laws and regulations, the Company believes that in the existing climate of heightened legal, political and citizen awareness and concerns, companies in the waste management services industry, including the Company, will be faced, in the normal course of operating their businesses, with fines and penalties and the need to expend funds for remedial work and related activities with respect to waste treatment, disposal and trash-to-energy facilities. Where the Company concludes that it is probable that a liability has been incurred, a provision is made in the Company's financial statements for the Company's best estimate of the liability based on management's judgment and experience, and information available from regulatory agencies. This estimate is also based upon an analysis of the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of a specific site, as well as the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, then the Company provides for the minimum amount within the range, in accordance with generally accepted accounting principles. Such estimates are subsequently revised, as necessary, as additional information becomes available. While the Company does not anticipate that the amount of any such revision will have a material adverse effect on the Company's operations or financial condition, the measurement of environmental liabilities is inherently difficult and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies, the existence and ability of other potentially responsible third parties (including insurance carriers) to contribute to the settlement of such liabilities or other factors could materially alter this expectation at any time. Such matters could have a material adverse impact on earnings for one or more fiscal quarters or years. While in general the Company's business has benefited from increased governmental regulation, the business itself is subject to extensive and evolving regulation by federal, state, local and foreign authorities. Due to the complexity of regulation of the industry and to public pressure, implementation of existing and future laws, regulations or initiatives by different levels of government may be inconsistent and difficult to foresee. In addition, the demand for certain of the Company's services may be adversely affected by the amendment or repeal, or reduction in enforcement of, federal, state and foreign laws and regulations on which the Company's business is dependent. Demand for certain of the Company's services may also be adversely affected by delays or reductions in funding, or failure of legislative bodies to fund, agencies or programs under such laws and regulations. Although it is not always able to do so, the Company makes a continuing effort to anticipate regulatory, political and legal developments that might affect its operations. The Company cannot predict the extent to which any legislation or regulation that may be enacted, amended, repealed or enforced, or any failure or delay in enactment or enforcement of legislation or regulations or funding of agencies or programs, in the future may affect its operations. The Company was incorporated in Delaware in 1968 and subsequently succeeded to certain businesses owned by its organizers and others. The Company's common stock is listed on the New York Stock Exchange under the trading symbol "WMX" and is also listed on the Frankfurt Stock Exchange, the London Stock Exchange, the Chicago Stock Exchange and the Swiss Stock Exchanges in Basle, Zurich and Geneva. Unless the context indicates to the contrary, all statistical and financial information under Item 1 and Item 2 of this report is given as of December 31, 1997. Also, unless the context indicates to the contrary, statistical and financial data appearing under the caption "North American Solid and Hazardous Waste Management Services" relate only to the Company's WMNA, CWM, AETS and Chem-Nuclear groups of subsidiaries and do not include any data relating to Rust, Rust's on-site industrial cleaning services business managed by WMNA, WTI or WM International. For discussions of the data relating to WM International and WTI, see "International Waste Management and Related Services" and "Trash- to-Energy and Related Services." NORTH AMERICAN SOLID AND HAZARDOUS WASTE MANAGEMENT SERVICES The Company's North American solid waste management and recycling services include residential, commercial and industrial collection, transfer and disposal services and related services provided by WMNA. 3 The Company's North American hazardous waste management services include chemical waste treatment, storage, disposal and related services provided by WMNA and CWM, on-site integrated hazardous waste management services provided by AETS and low-level radioactive waste disposal services provided by Chem- Nuclear. Many of the Company's solid and hazardous waste services are marketed on an integrated basis to the Company's national account customers and to other large industrial customers. For each of the four years in the period ended December 31, 1997, the North American solid and hazardous waste revenue amounted to 67.3%, 67.5%, 68.2% and 68.0%, respectively, of the Company's total revenues. For each of the four years in the period ended December 31, 1997, the following table shows the percentages of the Company's total North American solid and hazardous waste services revenue (excluding on-site industrial cleaning services revenue) arising from the Company's principal solid and hazardous waste services:
YEAR ENDED DECEMBER 31, -------------------------- 1994 1995 1996 1997 ----- ----- ----- ----- Solid Waste and Recycling Collection Services: Residential................................ 19.9% 20.1% 20.4% 20.8% Commercial................................. 26.2 25.2 25.7 25.6 Roll-off and Industrial.................... 21.0 19.8 20.4 20.5 Solid Waste Disposal, Transfer and Related Services.................................... 21.7 25.0 24.5 24.7 Hazardous Waste Services..................... 11.2 9.9 9.0 8.4 ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
SOLID WASTE MANAGEMENT, RECYCLING AND RELATED SERVICES At December 31, 1997, WMNA conducted solid waste management, recycling and related services operations in 47 states, the District of Columbia, Canada and Mexico. During 1994, 1995, 1996 and 1997, operations in California, Florida and Pennsylvania together accounted for approximately 31%, 29%, 26% and 29%, respectively, of North American solid waste revenue. No customer accounted for as much as 3% of such revenue in 1994, 1995, 1996 or 1997. COLLECTION WMNA provides solid waste collection services to approximately 1.1 million commercial and industrial customers. Collection services are also provided to approximately 11.8 million homes and apartment units. These services in many cases include collection of recyclable commodities. See "Recycling and Energy Recovery--Recycling" for a description of recycling services. Commercial and Industrial Many of WMNA's commercial and industrial customers utilize containers to store solid waste, including "roll-offs," which are large containers that are dropped off at construction or other sites for the deposit of waste and then hoisted when full onto a truck for transport. These containers, ranging from 1 to 45 cubic yards in size, are usually provided to the customer as part of WMNA's services. Stationary compactors, which compact the volume of the stored waste prior to collection, are frequently installed on the premises of large volume customers and are usually provided to these customers in conjunction with WMNA's collection services. Containerization enables WMNA to service most of its commercial and industrial customers with collection vehicles operated by a single employee. Compaction serves to decrease the frequency of collection. Commercial and industrial collection services (which include containerized service to apartment buildings) are generally performed under one- to three- year service agreements. Fees are determined by such considerations as market factors, collection frequency, type of equipment furnished, length of service agreement, type and volume or weight of the waste collected, distance to the disposal facility and cost of disposal. 4 Residential Most of WMNA's residential solid waste collection services are performed under contracts with, or franchises granted by, municipalities giving WMNA exclusive rights to service all or a portion of the homes in their respective jurisdictions. Such contracts or franchises usually range in duration from one to five years. The fees received by WMNA are based primarily on market factors, frequency and type of service, the distance to processing or disposal facilities and cost of processing or disposal. Residential collection fees are either paid by the municipalities out of tax revenues or service charges or are paid directly by the residents receiving the service. TRANSFER WMNA operates 164 solid waste transfer stations. A transfer station is a facility where solid waste is received from collection vehicles and then transferred to, and in some cases compacted in, large, specially constructed trailers for transportation to disposal or resource recovery facilities. This procedure reduces costs by improving utilization of collection personnel and equipment and improving the efficiency of transporting waste to final disposal facilities. The services of these facilities are provided to municipalities or counties and in most instances are also used by WMNA and by other collection companies. Fees are generally based upon such considerations as competition, the type and volume or weight of the waste transferred, the extent of processing of recyclable materials, the transport distance involved and the cost of disposal. RECYCLING AND ENERGY RECOVERY Recycling WMNA provides recycling services in the United States through its Recycle America(R) and other programs. Recycling involves the removal of reusable materials from the waste stream for processing and sale or other disposition for use in various applications. Participating commercial and industrial operations use containers to separate recyclable paper, glass, plastic and metal wastes for collection, processing and sale by WMNA. Fees are determined by such considerations as competition, frequency of collection, type and volume or weight of the recyclable material, degree of processing required, distance the recyclable material must be transported and value of the recyclable material. As part of its residential solid waste collection services, WMNA engages in curbside collection of recyclable materials from residences in the United States, also through its Recycle America(R) and other programs. Curbside recycling services generally involve the collection of recyclable paper, glass, plastic and metal waste materials, which may be separated by residents into different waste containers or commingled with other recyclable materials. The recyclable materials are then typically deposited at a local materials recovery facility where they are sorted and processed for resale. The prices received by the Company for recyclable materials fluctuate substantially from quarter to quarter and year to year depending upon domestic and foreign demand for such materials, the quality of such materials, prices for new materials and other factors. In some instances, the Company enters into agreements with customers or the local governments of municipalities in which it provides recycling services whereby the customers or the governments share in the gains and losses resulting from fluctuation in prices of recyclable commodities. These agreements mitigate both the Company's gains and losses from such fluctuations. As of December 31, 1997, WMNA provided curbside recycling services to approximately 7.9 million households in the United States. WMNA has approximately 211,000 commercial and industrial recycling services customers. WMNA operates 129 materials recovery facilities for the receipt and processing of recyclable materials. Such processing consists of separating recyclable materials according to type and baling or otherwise preparing the separated materials for sale. 5 WMNA also participates in joint ventures with Stone Container Corporation and American National Can Corporation to engage, respectively, in the businesses of marketing paper fibre and aluminum, steel, and glass containers for recycling. In each case WMNA sells to the joint venture, or has the joint venture market, the paper fibre or containers collected by WMNA to Stone Container, American National Can or other parties who will process them for reuse. The joint venture with American National Can also owns and operates six glass processing facilities. During 1997, the Stone Container joint venture marketed approximately 2.1 million tons of paper fiber and the American National Can joint venture processed approximately 466,000 tons of other recyclable materials. WMNA also provides tire and demolition and construction debris recycling services. Energy Recovery At 38 WMNA-owned or -operated sanitary landfill facilities, WMNA is engaged in methane gas recovery operations. These operations involve the installation of a gas collection system into a sanitary landfill facility. Through the gas collection system, gas generated by decomposing solid waste is collected and transported to a gas-processing facility at the landfill site. Through physical processes methane gas is separated from contaminants. The processed methane gas generally is then either sold directly to industrial users or to an affiliate of the Company which uses it as a fuel to power electricity generators. Electricity generated by these facilities is sold, usually to public utilities under long-term sales contracts, often under terms or conditions which are subject to approval by regulatory authorities. The Company also engages in other resource recovery activities through WTI's trash-to-energy and related operations and Waste Management International's operations. See "Trash-to-Energy and Related Services" and "International Waste Management and Related Services." DISPOSAL WMNA operates 130 solid waste sanitary landfill facilities. Of this number, 101 are owned by WMNA and the remainder are leased from, or operated under contract with, other parties. Additional facilities are in various stages of development. WMNA also provides yard-waste composting services, bioremediation of petroleum-contaminated soils and solidification of difficult-to-treat liquid wastes at a number of its disposal facilities. All of the sanitary landfill facilities are subject to governmental regulation. See "Regulation-- Waste Management Services--Solid Waste." A sanitary landfill site must have geological and hydrological properties and design features which limit the possibility of water pollution, directly or by leaching. Sanitary landfill operations, which include carefully planned excavation, continuous spreading and compacting of solid waste and covering of the waste, are designed to maintain sanitary conditions, insure optimum utilization of the airspace and prepare the site for ultimate use for other purposes. Landfill site operations are required to be conducted in accordance with the terms of permits obtained from various regulatory authorities, which typically incorporate the requirements of Subtitle D of the Resource Conservation and Recovery Act of 1976 ("RCRA") or applicable state requirements, whichever are stricter. These requirements address such matters as daily volume limitations, placement of daily, interim and final site cover materials on waste disposed at the site, construction and operation of methane gas and leachate management systems, periodic groundwater monitoring activity and final closure requirements and post-closure monitoring and maintenance activities. Suitable sanitary landfill facilities and permission to expand existing facilities may be difficult to obtain in some areas because of land scarcity, local resident opposition and governmental regulation. As its existing facilities become filled in such areas, the solid waste disposal operations of WMNA are and will continue to be materially dependent on its ability to purchase, lease or otherwise obtain operating rights for additional sites or expansion of existing sites and to obtain the necessary permits from regulatory authorities to construct and operate them. In addition, there can be no assurance that additional sites can be obtained or that existing facilities can continue to be expanded or operated. However, management believes that the facilities currently available to WMNA are sufficient to meet the needs of its operations in most areas for the foreseeable future. 6 To develop a new facility, WMNA must expend significant time and capital resources without any certainty that the necessary permits will ultimately be issued for such facility or that the Company will be able to achieve and maintain the desired disposal volume at such facility. If the inability to obtain and retain necessary permits, the failure of a facility to achieve the desired disposal volume or other factors cause WMNA to abandon development efforts for a facility, the capitalized development expenses of the facility are written off. In varying degrees, WMNA utilizes its own sanitary landfill facilities to accommodate its disposal requirements for collection and transfer operations. In 1994, 1995, 1996 and 1997 approximately 55%, 57%, 60% and 61%, respectively, of the solid waste collected by WMNA was disposed of in sanitary landfill facilities operated by it. Usually these facilities are also used by other companies and government agencies on a noncontract basis for fees determined by such considerations as competition and the type and volume or weight of the waste. RELATED SERVICES WMNA also provides or manages several types of services which are compatible with its solid waste collection operations. Included in these operations are on-site industrial cleaning services and portable sanitation services. WMNA manages the business of Rust Industrial Services Inc., a subsidiary of Rust ("RIS"), which provides on-site industrial services, including water blasting, tank cleaning, explosives blasting, chemical cleaning, industrial vacuuming, catalyst handling and separation technologies. RIS provides these services primarily for clients in the petrochemical, chemical, and pulp and paper industries, utilities and, to a lesser extent, the public sector. RIS also assists clients in the nuclear and utility industries in solving electrical, mechanical, engineering and related technical services problems. Prior to selling the businesses in 1996 and early 1997, RIS also provided scaffolding rental and erection services primarily to the chemical, petrochemical and utilities industries and a variety of other on-site services. Waste Management Federal Services, Inc., a subsidiary of Rust, also provides hazardous, radioactive and mixed waste program and facilities management services, primarily to the United States Department of Energy and other federal government agencies. Such services include waste treatment, storage, characterization and disposal and privatization services. WMNA also provides portable sanitation services to municipalities and commercial customers. The portable sanitation services, which are marketed under the Port-O-Let(R) trade name, are also used at numerous special events and public gatherings. HAZARDOUS WASTE MANAGEMENT AND RELATED SERVICES CHEMICAL WASTE MANAGEMENT SERVICES The Company operates chemical waste treatment, storage and disposal facilities in 18 states and also owns a majority interest in a subsidiary which operates a resource recovery and storage facility and a disposal facility in Mexico. The chemical wastes handled by the Company include industrial by-products and residues that have been identified as "hazardous" pursuant to RCRA, as well as other materials contaminated with a wide variety of chemical substances. Chemical waste may be collected from customers and transported by WMNA or CWM or contractors retained by them or delivered by customers to their facilities. Chemical waste is transported primarily in specially constructed tankers and semi-trailers, including stainless steel and rubber or epoxy-lined tankers and vacuum trucks, or in containers or drums on trailers designed to comply with applicable regulations and specifications of the U.S. Department of Transportation ("DOT") relating to the transportation of hazardous materials. WMNA and CWM also operate several facilities at which waste collected from or delivered by customers may be analyzed and consolidated prior to further shipment. 7 All of the Company's seven United States secure hazardous waste land disposal facilities have been issued permits under RCRA. See "Regulation--RCRA." In general, the Company's secure land disposal facilities have received the necessary permits and approvals to accept chemical wastes, although some of such sites may accept only certain chemical wastes. Only chemical wastes in a stable, solid form which meet applicable regulatory requirements may be buried in the Company's secure disposal cells. These land disposal facilities are sited, constructed and operated in a manner designed to provide long-term containment of such waste. Chemical wastes may be treated prior to disposal. Physical treatment methods include distillation, evaporation and separation, all of which effectively result in the separation or removal of solid materials from liquids. Chemical treatment methods include chemical oxidation and reduction, chemical precipitation of heavy metals, hydrolysis and neutralization of acid and alkaline wastes and essentially involve the transformation of wastes into inert materials through one or more chemical reaction processes. At two of its locations, the Company isolates treated chemical wastes in liquid form by injection into deep wells. Deep well technology involves drilling wells in suitable rock formations far below the base of fresh water and separated from it by other substantial geological confining layers. AETS provides on-site integrated hazardous waste management services, including hazardous waste identification, packaging, removal and recycling services in North America. These services include on-site hazardous waste data management, education and training, inventory control and other administrative services, lab pack services, drum identification services, household hazardous waste programs, less-than-full load waste pickup and consolidation services, and related services. AETS provides these services primarily to industrial, institutional and public sector customers, including laboratories. In the United States, most chemical wastes generated by industrial processes are handled "on-site" at the generators' facilities. Since the mid-1970's, public awareness of the harmful effects of unregulated disposal of chemical wastes on the environment and health has led to extensive and evolving federal, state and local regulation of chemical waste management activities. The major federal statutes regulating the management of chemical wastes include RCRA, the Toxic Substances Control Act ("TSCA") and the Comprehensive Environmental Response, Compensation and Liabilities Act of 1980, as amended ("CERCLA" or "Superfund"), all primarily administered by the United States Environmental Protection Agency ("EPA"). The hazardous waste management business is heavily dependent upon the extent to which regulations promulgated under these or similar state statutes and their enforcement over time effectively require wastes to be specially handled or managed and disposed of in facilities of the type owned and operated by the Company. See "Regulation--Waste Management Services--Hazardous Waste," "--RCRA" and "--Superfund." The chemical waste services industry currently has substantial excess capacity caused by a number of factors, including a decline in environmental remediation projects generating hazardous waste for off-site treatment and disposal, continuing efforts by hazardous waste generators to reduce volume and to manage the wastes on-site, and the uncertain regulatory environment regarding hazardous waste management and remediation requirements. These factors have led to reduced demand and increased pressure on pricing for chemical waste management services, conditions which the Company expects to continue for the foreseeable future. LOW-LEVEL AND OTHER RADIOACTIVE WASTE SERVICES Radioactive wastes with varying degrees of radioactivity are generated by nuclear reactors and by medical, industrial, research and governmental users of radioactive material. Radioactive wastes are generally classified as either high-level or low-level. High-level radioactive waste, such as spent nuclear fuel and waste generated during the reprocessing of spent fuel from nuclear reactors, contains substantial quantities of long-lived radionuclides and is the ultimate responsibility of the federal government. Low-level radioactive waste, which decays more quickly than high-level waste, largely consists of dry compressible wastes (such as contaminated gloves, paper, tools and clothing), resins and filters which have removed radioactive contaminants from nuclear reactor cooling water, solidified wastes from power plants which have become contaminated with radioactive substances and irradiated hardware. Chem-Nuclear provides comprehensive low-level radioactive waste management services in the United States consisting of disposal, processing and various other special services. To a lesser extent, it provides services with respect to radioactive waste that has become mixed with regulated chemical waste. 8 Chem-Nuclear's radioactive disposal operations involve primarily low-level radioactive waste. Its Barnwell, South Carolina facility, which has been in operation since 1971, is one of three licensed commercial low-level radioactive waste disposal facilities in the United States. A trust has been established and funded to pay the estimated cost of decommissioning the Barnwell facility. A second fund, for the extended care of the facility, is funded by a surcharge on each cubic foot of waste received. Chem-Nuclear may be liable for additional costs if the extra charges collected to restore and maintain the facility are insufficient to cover the cost of restoring or maintaining the site after its closure. The Company does not expect this to have a material adverse impact on future operating results. Under state legislation enacted in 1995, the Barnwell site is authorized to operate until its current permitted disposal capacity is fully utilized. However, that legislation was attached to a state appropriations bill that included a provision for a state tax of $235 to be imposed on every cubic foot of waste disposed of at the Barnwell facility. As a result of decreased disposal volume and a shortfall in anticipated tax revenue, in June 1997, the State of South Carolina enacted new legislation requiring that Chem-Nuclear guarantee certain portions of anticipated tax revenues from the facility. Such reduced disposal volume and the requirement that Chem-Nuclear fund such tax payments have caused Chem-Nuclear to review its alternatives with respect to the Barnwell facility. If Chem-Nuclear determines to close the Barnwell site, the Company's earnings for one or more fiscal quarters or years could be adversely affected. Chem-Nuclear also processes low-level radioactive waste at its customers' plants to enable such waste to be shipped in dry rather than liquid form to meet the requirements for receipt at disposal facilities and to reduce the volume of waste that must be transported. Processing operations include solidification, demineralization, dewatering and filtration. Other services offered by Chem-Nuclear include providing electro-chemical, abrasive and chemical removal of radioactive contamination, providing management services for spent nuclear fuel storage pools and storing and incinerating liquid radioactive organic wastes. INTERNATIONAL WASTE MANAGEMENT AND RELATED SERVICES The Company is a leading provider of waste management and related services internationally, primarily through WM International, which conducts essentially all of the waste management operations of the Company located outside North America. International waste management and related services comprised approximately 20.0%, 20.5%, 20.7% and 19.5% of the Company's total revenue in each of the four years ended December 31, 1994, 1995, 1996 and 1997. WM International's business may broadly be characterized into two areas of activity, collection services and treatment and disposal services. The following table shows the derivation of WM International's revenue for the years indicated and includes revenue from construction of treatment or disposal facilities for third parties under "Treatment and Disposal Services":
YEAR ENDED DECEMBER 31 ------------------------- 1994 1995 1996 1997 ---- ---- ---- ---- Collection Services................................... 64% 64% 65% 63% Treatment and Disposal Services....................... 36% 36% 35% 37%
While the Company has had international operations since the mid-1970's, the bulk of the Company's international operations and revenues are derived from the acquisition from 1990 to 1995 of numerous companies and interests in Europe. However, with its acquisition goals largely completed, WM International has engaged in only a few small acquisitions since 1995 and has begun to dispose of certain operations which do not fit within its long-term strategy. In accordance with its objective of maintaining a local identity, WM International, in certain cases, operates through companies or joint ventures in which WM International and its affiliates own less than a 100% interest. For example, WM International is a party to a joint venture with Wessex to provide waste management and related services in the United Kingdom. 9 WM International's revenue mix by country varies from year to year. Countries in which revenue exceeded 10% of WM International's consolidated total were: Italy (26%) and Germany (12%) in 1994; Italy (23%), Germany (14%), the Netherlands (11%) and the United Kingdom (11%) in 1995; Italy (25%), the United Kingdom (12%), Germany (11%) and the Netherlands (11%) in 1996; and Italy (25%), the United Kingdom (15%) and the Netherlands (11%) in 1997. While WM International has considerable experience in mobilizing for and managing foreign projects, its operations continue to be subject generally to such risks as currency fluctuations and exchange controls, the need to recruit and retain suitable local labor forces and to control and coordinate operations in different jurisdictions, changes in foreign laws or governmental policies or attitudes concerning their enforcement, political changes, local economic conditions and international tensions. In addition, price adjustment provisions based on certain formulae or indices may not accurately reflect the actual impact of inflation on the cost of performance. During 1997, the Company sold all of its operations in France and Spain and certain other businesses in Germany and Austria. In addition, in January 1998 the Company sold its waste-to-energy facility located in Hamm, Germany. See "--Treatment and Disposal Services" below. COLLECTION SERVICES Collection services include collection and transportation of solid, hazardous and medical wastes and recyclable material from residential, commercial and industrial customers. Street, industrial premises, office and parking lot cleaning services are also performed by WM International, along with portable sanitation/toilet services for occasions such as outdoor concerts and special events. The residential solid waste collection process, as well as the commercial and industrial solid and hazardous waste collection process, is similar to that utilized by the Company in the United States. Business is obtained through public bids or tenders, negotiated contracts, and, in the case of commercial and industrial customers, direct contracts. Residential solid waste collection is typically performed by WM International pursuant to municipal contracts. At December 31, 1997, WM International had approximately 1,540 municipal contracts, serving more than 4.8 million residential properties. The scope, specifications, services provided and duration of such contracts vary substantially, with some contracts encompassing landfill disposal of collected waste, street sweeping and other related municipal services. The largest number of municipal contracts held by WM International is in Italy where WM International services approximately 1.7 million residential properties. Pricing for municipal contracts is generally based on volume of waste, number and frequency of collection pick-ups, and disposal arrangements. Longer-term contracts typically have formulae for periodic price increases or adjustments. WM International also provides curbside recycling services similar to those provided by WMNA in North America. WM International's commercial and industrial solid and hazardous waste collection services are generally contracted for by individual establishments. In addition to solid waste collection customers, WM International provides services to small quantity waste generators, as well as larger petrochemical, pharmaceutical and other industrial customers, including collection of hazardous, chemical or medical wastes or residues. WM International has approximately 293,000 commercial and industrial customers. Contract terms and prices vary substantially among jurisdictions and types of customer. WM International also provides commercial and industrial recycling services. TREATMENT AND DISPOSAL SERVICES Treatment and disposal services include processing of recyclable materials, operation of both solid and hazardous waste landfills, operation of municipal and hazardous waste incinerators, operation of water and wastewater treatment facilities, operation of hazardous waste treatment facilities and construction of treatment or disposal facilities for third parties. Treatment and disposal services are provided under contracts which may be obtained through public bid or tender or direct negotiation, and are also provided directly to other waste service companies. 10 Once collected, solid wastes may be processed in a recyclables processing facility for sale or other disposition for use in various applications. Unprocessed solid wastes, or the portion of the waste stream remaining after recovery of recyclable materials, require disposal, which may be accomplished through incineration (in connection with which the energy value may be recovered in a trash-to-energy facility) or through disposal in a solid waste landfill. The relative use of landfills versus incinerators differs from country to country and will depend on many factors, including the availability of land, geological and hydrological conditions, the availability and cost of technology and capital, and the regulatory environment. The main determinants of the disposal method are the disposal costs at local landfills, as incineration is generally more expensive, community preferences and regulatory provisions. At present, in most countries in which WM International operates, landfilling is the predominant disposal method employed. WM International owns or operates solid waste landfills in Argentina, Australia, Brazil, Denmark, Germany, Hong Kong, Italy, New Zealand, Sweden and the United Kingdom. Landfill disposal agreements may be separate contracts or an integrated portion of collection or treatment contracts. Demand for solid waste incineration is affected primarily by landfill disposal costs, government regulations and, increasingly, public perception issues. The incineration process for non-hazardous solid waste has also been influenced by two significant factors in recent years: (i) increasingly strict control over air emissions from incinerators; and (ii) increasing emphasis on trash-to-energy incinerators, which utilize heat produced by incinerators to generate electricity and other energy. Incineration generates approximately 30% residue (by weight), which is either landfilled or, if permitted, recycled for use as a road base or in other construction uses. Prior to January 1998, WM International operated a waste-to-energy incinerator in Hamm, Germany. In light of the current overcapacity in the German waste-to-energy market and the pending renegotiation of WM International's disposal contracts with the local communities, WM International entered into an agreement in April 1997 to sell the facility. The transaction was completed in January 1998. Revenues from the Hamm facility accounted for approximately 2% of WM International's 1997 consolidated revenue. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Results of Operations." In 1992, WM International entered into a contract with the County of Gutersloh, Germany to design, construct, own and operate a trash-to-energy facility. The facility is designed to convert 268,000 metric tons per year of municipal waste and sewage sludge into energy. During 1995, WM International's permit application to develop and operate the Gutersloh facility was denied. WM International appealed the denial through the German administrative court system. Throughout 1996 and 1997, WM International and the County of Gutersloh engaged in discussions regarding the future viability of the proposed project as well as the County of Gutersloh's right to terminate the 25-year operating agreement and the lease agreement covering the site on which the plant is to be constructed. In 1997, the County exercised its right to terminate the lease agreement for the plant site, effectively terminating the permitting process and the pending administrative court proceedings. The County has also informally indicated its intention to terminate WM International's operating agreement. As a result of the termination of the lease agreement and the threatened termination of the operating agreement, WM International reserved the full amount of its unamortized development cost in the project as a part of the special charge recorded in the fourth quarter of 1997. WM International is assessing its options to seek redress against the County of Gutersloh and against state permitting authorities, but no assurances can be given that it will be successful in obtaining damages in respect of the project. WM International also operates five small, conventional municipal solid and other waste incineration facilities. WM International and WTI have also formed a joint venture to develop trash-to-energy projects outside Germany, Italy and North America. See "Competition" below. WM International owns or operates hazardous waste treatment facilities in Brazil, Brunei, Finland, Germany, Hong Kong, Indonesia, Italy, the Netherlands, Sweden and the United Kingdom. 11 TRASH-TO-ENERGY AND RELATED SERVICES WTI, through its subsidiaries, is a leading developer, operator and owner of trash-to-energy and waste fuel powered independent power facilities in the United States. These facilities, either owned or operated, give WTI approximately 920 megawatts per hour of electric generating capacity. WTI's trash-to-energy projects utilize proven boiler and grate technology and are capable of processing up to 23,750 tons of solid waste per day. The heat from this combustion process is converted into high-pressure steam, which typically is used to generate electricity for sale to public utility companies under long-term contracts. WTI's trash-to-energy development activities have historically involved a number of contractual arrangements with a variety of private and public entities, including municipalities (which supply trash for combustion), utilities or other power users (which purchase the energy produced by the facility), lenders, public debtholders, joint venture partners and equity investors (which provide financing for the project) and the contractors or subcontractors responsible for building the facility. In addition, WTI's activities have often included identifying and acquiring sites for the facility and for the disposal of residual ash produced by the facility and obtaining necessary permits and licenses from local, state and federal regulatory authorities. WTI also develops, operates and, in some cases, owns independent power projects, which either cogenerate electricity and thermal energy or generate electricity alone for sale to customers, including utilities and private industry. Cogeneration is a technology which allows the simultaneous production of two or more useful forms of energy from a single primary fuel source, thus providing a more efficient use of a fuel's total energy content. These power systems use waste wood, waste tires, waste coal or natural gas as fuel, and employ state-of-the-art technology, such as fluidized-bed combustion, to ensure the efficient burning of fuel with reduced emission levels. In addition, WTI develops, operates and owns projects that compost organic wastes and treat and manage biosolids. WTI provides a range of biosolids management services, including land application, drying, pelletizing, alkaline stabilization and composting, to more than 275 communities, typically pursuant to multi-year contracts under which WTI is paid by the generator to make beneficial use of the biosolids. Land application involves the application of non-hazardous biosolids as a natural fertilizer on farmland pursuant to rigorous site-specific permits issued by applicable state authorities. Biosolids are also used in land reclamation projects such as strip mines. Regulations issued by the EPA in December 1992 under the Clean Water Act encourage the beneficial use of municipal sewage sludge by recognizing the resource value of biosolids as a fertilizer and soil conditioner, and establish requirements for land application designed to protect human health and the environment. WTI also develops and operates facilities at which biosolids are dried and pelletized and has three facilities currently in operation, with one other facility undergoing start-up activity. WTI has approximately 536 dry-tons-per- day of biosolids drying capacity in operation. Biosolids which have been dried are generally used as fertilizer by farmers, commercial landscapers and nurseries and as a bulking agent by fertilizer manufacturers. WTI subsidiaries also design and install advanced air pollution control equipment and design, construct and maintain tall concrete chimneys and storage silos. WTI's expertise in air pollution control technologies and chimney design and construction is used in the design and construction of WTI's trash-to-energy facilities, which WTI believes strengthens its competitive position. REGULATION GENERAL While, in general, the Company's waste management services business has benefited from increased governmental regulation, the industry in which the Company operates has become subject to extensive and evolving regulation by federal, state, local and foreign authorities. In particular, the regulatory process requires firms in the Company's industry to obtain and retain numerous governmental permits to conduct various aspects 12 of their operations, any of which may be subject to revocation, modification or denial. As a result of governmental policies and attitudes relating to the industry, which are subject to reassessment and change, the Company believes that its ability to obtain applicable permits from governmental authorities on a timely basis, and to retain such permits, could become impaired. The Company is not in a position at the present time to assess the extent of the impact of such potential changes in governmental policies and attitudes on the permitting processes, but it could be significant. In particular, adverse decisions by governmental authorities on permit applications submitted by the Company may result in abandonment of projects, premature closure of facilities or restriction of operations, which could result in a loss of earnings from a facility, a write-off of capitalized costs or both. Federal, state, local and foreign governments have also from time to time proposed or adopted other types of laws, regulations or initiatives with respect to the waste management services industry. Included among them are laws, regulations and initiatives to ban or restrict the international, interstate or intrastate shipment of wastes, impose higher taxes on out-of- state waste shipments than in-state shipments, reclassify certain categories of hazardous wastes as non-hazardous and regulate disposal facilities as public utilities. Certain state and local governments have promulgated "flow control" regulations, which attempt to require that all waste generated within the state or local jurisdiction must go to certain disposal sites. The United States Congress has from time to time considered legislation that would enable or facilitate such bans, restrictions, taxes and regulations. Due to the complexity of regulation of the industry and to public pressure, implementation of existing or future laws, regulations or initiatives by different levels of government may be inconsistent and is difficult to foresee. Many state and local governments have enacted mandatory or voluntary recycling laws and bans on the disposal of yard-waste in landfills. An effect of these and similar laws is to reduce the volume of wastes that would otherwise be disposed in landfills. In addition, municipalities and other governmental entities with whom the Company contracts to provide solid waste collection or disposal services, or both, may require the Company as a condition of securing the business to provide recycling services and operate recycling and composting facilities, which may cause the Company to incur substantial costs. The Company makes a continuing effort to anticipate regulatory, political and legal developments that might affect its operations but is not always able to do so. The Company cannot predict the extent to which any legislation or regulation that may be enacted, amended, repealed or enforced, or any failure or delay in enactment or enforcement of legislation or regulations or funding of government agencies or programs, in the future may affect its operations. Such matters could have a material adverse impact on the Company's earnings for one or more fiscal quarters or years. The demand for certain of the services provided by the Company, particularly its hazardous waste management services, is dependent in part on the existence and enforcement of federal, state and foreign laws and regulations which govern the discharge of hazardous substances into the environment and on the funding of agencies and programs under such laws and regulations. Such businesses will be adversely affected to the extent that such laws or regulations are amended or repealed, with the effect of reducing the regulation of, or liability for, such activity, that the enforcement of such laws and regulations is lessened or that funding of agencies and programs under such laws and regulations is delayed or reduced. In particular, the EPA continues to consider proposals under RCRA to redefine the term "hazardous waste" for regulatory purposes. Under some such proposals, wastes containing minimal concentrations of hazardous substances would no longer be subject to the stringent record-keeping, handling, treatment and disposal rules applied to hazardous wastes under RCRA. Other EPA proposals would cause certain wastes which presently must be managed in TSCA-approved facilities to be eligible for disposal in facilities not approved under TSCA. These proposals would, if adopted, reduce the volume of wastes for which the Company's hazardous waste management services are needed. In addition to environmental laws and regulations, federal government contractors, including the Company, are subject to extensive regulation under the Federal Acquisition Regulation and numerous statutes which deal with the accuracy of cost and pricing information furnished to the government, the allowability of costs charged to the government, the conditions under which contracts may be modified or terminated, and other similar matters. Various aspects of the Company's operations are subject to audit by agencies of the federal government in connection with its performance of work under such contracts as well as its submission of bids or proposals to 13 the government. Failure to comply with contract provisions or other applicable requirements may result in termination of the contract, the imposition of civil and criminal penalties against the Company, or the suspension or debarment of all or a part of the Company from federal government work, which could have a material adverse impact upon the Company's financial condition or earnings for one or more fiscal quarters or years. Among the reasons for debarment are violations of various statutes, including those related to employment practices, the protection of the environment, the accuracy of records and the recording of costs. Some state and local governments have similar suspension and debarment laws or regulations. Because of the high level of public awareness of environmental issues, companies in the waste management services business, including the Company, may in the normal course of their business be expected periodically to become subject to judicial and administrative proceedings. Governmental agencies may seek to impose fines on the Company or revoke, deny renewal of, or modify the Company's operating permits or licenses. The Company is also subject to actions brought by private parties or special interest groups in connection with the permitting or licensing of its operations, alleging violations of such permits and licenses, or other matters. In addition, increasing governmental scrutiny of the environmental compliance records of the Company, CWM, WTI, Rust, WM International or their affiliates could cause a private or public entity seeking waste management services to disqualify the Company from competing for one or more projects, on the grounds that these records display inadequate attention to environmental compliance. WASTE MANAGEMENT SERVICES SOLID WASTE Operating permits are generally required at the state and local level for landfills, transfer stations and collection vehicles. Operating permits need to be renewed periodically and may be subject to revocation, modification, denial or non-renewal for various reasons, including failure of the Company to satisfy regulatory concerns. With respect to solid waste collection, regulation takes such forms as licensing of collection vehicles, truck safety requirements, vehicular weight limitations and, in certain localities, limitations on rates, area, time and frequency of collection. With respect to solid waste disposal, regulation covers various matters, including landfill location and design, groundwater monitoring, gas control, liquid runoff and rodent, pest, litter and traffic control. Zoning and land use requirements and limitations are encountered in the solid waste collection, transfer, recycling and energy recovery and disposal phases of the Company's business. In almost all cases the Company is required to obtain conditional use permits or zoning law changes in order to develop transfer station, resource recovery or disposal facilities. In addition, the Company's disposal facilities are subject to water and air pollution laws and regulations. Noise pollution laws and regulations may also affect the Company's operations. Governmental authorities have the power to enforce compliance with these various laws and regulations and violators are subject to injunctions, fines and revocation of permits. Private individuals may also have the right to sue to enforce compliance. Safety standards under the Occupational Safety and Health Act ("OSHA") are also applicable to the Company's solid waste and related services operations. The EPA and various states acting pursuant to EPA-delegated authority have promulgated rules pursuant to RCRA which serve as minimum requirements for land disposal of municipal wastes. The rules establish more stringent requirements than previously applied to the siting, construction, operations, closure and post-closure monitoring and maintenance of all but the smallest municipal waste landfill facilities. In certain cases, the failure of some states to adopt the federal requirements may increase costs to meet inconsistent federal and state laws applicable to the same facility. The Company does not believe that continued compliance with the more stringent minimum requirements will have a material adverse effect on the Company's operations. See also "RCRA" and "Superfund" below for additional regulatory information. In March 1996, the EPA issued regulations that require large, municipal solid waste landfills to install and monitor systems to collect and control landfill gas. The regulations apply to landfills that are designed to accommodate 2.5 million cubic meters or more of municipal solid waste and that accepted waste for disposal after November 8, 1987, regardless of whether the site is active or closed. The date by which each affected 14 landfill must have such a gas collection and control system depends on whether the landfill began operation before or after May 30, 1991. Landfills constructed, reconstructed, modified or first accepting waste after May 30, 1991 generally must have systems in place by late 1998. Older landfills generally will be regulated by the states and will be required to have landfill gas systems in place within approximately 30 months of EPA's approval of the state program. Many state solid waste regulations already require collection and control systems. Compliance with the new regulations is not expected to have a material adverse effect on the Company. HAZARDOUS WASTE WMNA and CWM are required to obtain federal, state, local and foreign governmental permits for their chemical waste treatment, storage and disposal facilities. Such permits are difficult to obtain, and in most instances extensive geological studies, tests and public hearings are required before permits may be issued. WMNA's and CWM's chemical waste treatment, storage and disposal facilities are also subject to siting, zoning and land use restrictions, as well as to regulations (including certain requirements pursuant to federal statutes) which may govern operating procedures and water and air pollution, among other matters. In particular, WMNA's and CWM's operations in the United States are subject to the Safe Drinking Water Act (which regulates deep well injection), TSCA (pursuant to which the EPA has promulgated regulations concerning the disposal of PCBs), the Clean Water Act (which regulates the discharge of pollutants into surface waters and sewers by municipal, industrial and other sources) and the Clean Air Act (which regulates emissions into the air of certain potentially harmful substances). In their transportation operations, WMNA and CWM are subject to the jurisdiction of the Interstate Commerce Commission and regulated by the DOT and by regulatory agencies in each state. Employee safety and health standards under OSHA are also applicable. All of WMNA's and CWM's chemical waste treatment or disposal facilities in the United States have been issued permits under RCRA. The regulations governing issuance of permits contain detailed standards for hazardous waste facilities on matters such as construction, waste analysis, security, inspections, training, preparedness and prevention, emergency procedures, reporting and recordkeeping, closure and post-closure monitoring and maintenance. Once issued, a final permit has a maximum fixed term of 10 years, and such permits for land disposal facilities are required to be reviewed five years from the date of issuance. The issuing agency (either the EPA or an authorized state) may review or modify a permit at any time during its term. The Company believes that WMNA and CWM maintain each of their operating treatment, storage or disposal facilities in substantial compliance with the applicable requirements promulgated pursuant to RCRA. It is possible, however, that the issuance or renewal of a permit could be made conditional upon the initiation or completion of modifications or corrective actions at facilities, which might involve substantial additional capital expenditures on the part of WMNA or CWM. Although the Company is informed that WMNA and CWM anticipate the reauthorization of each permit at the end of its term if the facility's operations are in compliance with applicable requirements, there can be no assurance that such will be the case. The radioactive waste services of Chem-Nuclear are also subject to extensive governmental regulation. Due to the extensive geological and hydrological testing and environmental data required, and the complex political environment, it is difficult to obtain permits for radioactive waste disposal facilities. Various phases of Chem-Nuclear's low-level radioactive waste management services are regulated by various state agencies, the United States Nuclear Regulatory Commission (the "NRC") and the DOT. Regulations applicable to Chem- Nuclear's operations include those dealing with packaging, handling, labeling and routing of radioactive materials, and prescribe detailed safety and equipment standards and requirements for training, quality control and insurance, among other matters. Employee safety and health standards under OSHA are also applicable. See also "RCRA" and "Superfund" below for additional regulatory information. TRASH-TO-ENERGY AND RELATED SERVICES WTI's business activities are subject to environmental regulation under federal, state and local laws and regulations, including the Clean Air Act, the Clean Water Act and RCRA. The Company believes that WTI's 15 business is conducted in an environmentally responsible manner in material compliance with applicable laws and regulations. The Company does not anticipate that WTI's maintaining compliance with current requirements will result in any material decrease in earnings. There can be no assurance, however, that such requirements will not change so as to require significant additional expenditures. In particular, within the next several years, the air pollution control systems at certain trash-to-energy facilities owned or leased by WTI most likely will be required to be modified to comply with more stringent air pollution control standards adopted by the EPA in December 1995 for municipal waste combusters. The compliance dates will vary by facility, but all affected facilities most likely will be required to be in compliance with the standards by the end of the year 2000. Currently available technologies are adequate to meet the new standards. Although the total expenditures required for such modifications are estimated to be $180 million to $220 million, they are not expected to have a material adverse effect on the Company's liquidity or results of operations because provisions in the impacted facilities' long-term waste supply agreements generally allow WTI to recover from customers the majority of incremental capital and operating costs. Customer shares of capital and financing costs are typically recovered over the remaining life of the waste supply agreements, and pro rata operating costs are recovered in the period incurred. There can be no assurance, however, that in such event WTI would be able to recover, for each project, all such increased costs from its customers. Moreover, it is possible that future developments, such as increasingly strict requirements of environmental laws, and enforcement policies thereunder, could affect the manner in which WTI operates its projects and conducts its business, including the handling, processing or disposal of the wastes, by-products and residues generated thereby. Also, in May 1994, the U.S. Supreme Court ruled that state and local governments may not constitutionally restrict the free movement of trash in interstate commerce through the use of flow control laws. Such laws typically involve a local government specifying a jurisdictional disposal site for all solid waste generated within its borders. Since the ruling, several decisions of state or federal courts have invalidated regulatory flow control schemes in a number of jurisdictions. Other judicial decisions have upheld non-regulatory means by which municipalities may effectively control the flow of municipal solid waste. In addition, federal legislation has been proposed, but not yet enacted, to effectively grandfather existing flow control mandates. There can be no assurance that such alternatives to regulatory flow control will in every case be found lawful or that such legislation will be enacted into law. WTI's Gloucester County, New Jersey facility has historically relied on a disposal franchise for substantially all of its supply of municipal solid waste. On May 1, 1997, the Third Circuit Court of Appeals (the "Third Circuit") permanently enjoined the State of New Jersey from enforcing its franchise system as a form of unconstitutional solid waste flow control, but stayed the injunction for so long as any appeals were pending. On November 10, 1997, the United States Supreme Court announced its decision not to review the Third Circuit decision, thereby ending the stay and, effectively, the facility's disposal franchise. The State had continued to enforce flow control during the stay period. In response, the Gloucester facility has lowered its prices and solicited new customers. Under the reimbursement agreement between the project company that owns the Gloucester facility and the bank that provides credit support to the project, the termination of the waste franchise constitutes an event of default. WTI and the credit support bank are presently discussing the consequences of these developments. The New Jersey legislature has been considering various legislative solutions, including a bill that provides for the payment and recovery of bonded indebtedness incurred by counties, public authorities and certain qualified private vendors in reliance on the state's franchise system. The Company currently believes that, through either legislative action or a project recapitalization, the Gloucester project can be restructured to operate profitably, albeit at reduced levels, in the absence of regulatory flow control. The Supreme Court's 1994 ruling and subsequent court decisions have not to date had a material adverse effect on any of WTI's trash-to-energy operations. Federal legislation has been proposed, but not yet enacted, to effectively grandfather existing flow control mandates. In the event that such legislation is not adopted, WTI believes that affected municipalities will endeavor to implement alternative lawful means to continue controlling 16 the flow of waste. In view of the uncertain state of the law at this time, however, WTI is unable to predict whether such efforts would be successful or what impact, if any, this matter might have on WTI's trash-to-energy facilities. WTI's energy facilities are also subject to the provisions of various energy- related laws and regulations, including the Public Utility Regulatory Policies Act of 1978 ("PURPA"). The ability of WTI's trash-to-energy and small power production facilities to sell power to electric utilities on advantageous terms and conditions and to avoid burdensome public utility regulation has historically depended, in part, upon the applicability of certain provisions of PURPA, which generally exempts WTI from state and federal regulatory control over electricity prices charged by, and the finances of, WTI and its energy- producing subsidiaries. As state legislatures and the United States Congress have accelerated their consideration of the manner in which economic efficiencies can be gained by deregulating the electric generation industry, utilities and others have taken the position that power sales agreements entered into pursuant to PURPA which provide for rates in excess of current market rates should be voidable as "stranded assets." WTI's power production facilities are qualifying facilities under PURPA and depend on the sanctity of their power sales agreements for their economic viability. Although a repeal or modification of PURPA is possible within the next two years, WTI believes that federal law offers strong protection to the PURPA contracts and recent state and federal agency and court decisions have unanimously upheld the inviolate nature of these contracts. In addition, state legislative actions to date have not attempted to abrogate these contracts. While there is some risk that future utility restructurings, court decisions and/or legislative or administrative action in this area could have an adverse effect on the business of WTI, in light of recent developments, WTI currently believes such risk is remote. The operations of WTI's existing trash-to-energy and other small power production facilities business are not currently expected to be materially and adversely affected if the various benefits of PURPA are repealed or substantially reduced on a prospective basis. Finally, the passage of the Energy Policy Act of 1992 created an alternative ownership mechanism by which WTI's future independent power projects would be able to participate in the electricity generation industry without the burdens of traditional public utility regulation. However, WTI can give no assurances that future utility restructurings, court decisions or legislative or administrative action in this area will not have a material adverse impact on WTI's financial position or results of operations. RCRA Pursuant to RCRA, the EPA has established and administers a comprehensive, "cradle-to-grave" system for the management of a wide range of industrial by- products and residues identified as "hazardous" wastes. States that have adopted hazardous waste management programs with standards at least as stringent as those promulgated by the EPA may be authorized by the EPA to administer their programs in lieu of RCRA. Under RCRA and federal transportation laws, a transporter must deliver hazardous waste in accordance with a manifest prepared by the generator of the waste and only to a treatment, storage or disposal facility having a RCRA permit or interim status under RCRA. Every facility that treats or disposes of hazardous wastes must obtain a RCRA permit from the EPA or an authorized state and must comply with certain operating standards. The RCRA permitting process involves applying for interim status and also for a final permit. Under RCRA and the implementing regulations, facilities which have obtained interim status are allowed to continue operating by complying with certain minimum standards pending issuance of a permit. RCRA also imposes restrictions on land disposal of certain hazardous wastes and prescribes standards for hazardous waste land disposal facilities. Under RCRA, land disposal of certain types of untreated hazardous wastes has been banned except where the EPA has determined that land disposal of such wastes and treatment residuals should be permitted. The disposal of liquids in hazardous waste land disposal facilities is also prohibited. The EPA from time to time considers fundamental changes to its regulations under RCRA that could facilitate exemptions from hazardous waste management requirements, including policies and regulations that 17 could implement the following changes: redefine the criteria for determining whether wastes are hazardous; prescribe treatment levels which, if achieved, could render wastes non-hazardous; encourage further recycling and waste minimization; reduce treatment requirements for certain wastes to encourage alternatives to incineration; establish new operating standards for combustion technologies; and indirectly encourage on-site remediation. To the extent such changes are adopted, they can be expected to adversely affect the demand for the Company's chemical waste management services. In this regard, the EPA has recently proposed regulations which would have the effect of reducing the volume of waste classified as hazardous for RCRA regulatory purposes. See "Regulation--General--Waste Management Services--Hazardous Waste." In addition to the foregoing provisions, RCRA regulations require the Company to demonstrate financial responsibility for possible bodily injury and property damage to third parties caused by both sudden and nonsudden accidental occurrences. See "Insurance." Also, RCRA regulations require the Company to provide financial assurance that funds will be available when needed for closure and post-closure care at its waste treatment, storage and disposal facilities, the costs of which could be substantial. Such regulations allow the financial assurance requirements to be satisfied by various means, including letters of credit, surety bonds, trust funds, a financial (net worth) test and a guarantee by a parent corporation. Under RCRA regulations, a company must pay the closure costs for a waste treatment, storage or disposal facility owned by it upon the closure of the facility and thereafter pay post- closure care costs. If such a facility is closed prior to its originally anticipated time, it is unlikely that sufficient funds or reserves will have been accrued over the life of the facility to provide for such costs, and the owner of the facility could suffer a material adverse impact as a result. Consequently, it may be difficult to close such facilities to reduce operating costs at times when, as is currently the case in the hazardous waste services industry, excess treatment, storage or disposal capacity exists. SUPERFUND Superfund provides for EPA-coordinated response and removal actions to releases of hazardous substances into the environment, and authorizes the federal government either to clean up facilities at which hazardous substances have created actual or potential environmental hazards or to order persons responsible for the situation to do so. Superfund assigns liability for these response and other related costs to parties involved in the generation, transfer and disposal of such hazardous substances. Superfund has been interpreted as creating strict, joint and several liability for costs of removal and remediation, other necessary response costs and damage to natural resources. Liability extends to owners and operators of waste disposal facilities (and waste transportation vehicles) from which a release occurs, persons who owned or operated such facilities at the time the hazardous substances were disposed, persons who arranged for disposal or treatment of a hazardous substance at or transportation of a hazardous substance to such a facility, and waste transporters who selected such facilities for treatment or disposal of hazardous substances. Liability may be trebled if the responsible party fails to perform a removal or remedial action ordered under the law. For additional information concerning potential Superfund liability, see "Legal Proceedings." Superfund created a revolving fund to be used by the federal government to pay for the cleanup efforts. For the federal government's 1997 fiscal year, a maximum of approximately $1.4 billion of Superfund spending was authorized. The federal government has also approved approximately the same amount of 1998 Superfund spending authorization. The U. S. Congress is expected to consider reauthorization and revision of the Superfund statute in 1998. In addition to possible changes in the statute's funding mechanisms and provisions for allocating cleanup responsibility, it is possible that Congress also will fundamentally alter the statute's provisions governing the selection of appropriate site cleanup remedies. For example, Congress may consider whether to continue Superfund's current reliance on stringent technology standards issued under other statutes (such as RCRA) to govern removal and treatment of remediation wastes or to adopt new approaches such as national or site-specific risk based standards. This and other potential policy changes could significantly affect the stringency and extent of site remediation, the types of remediation techniques that will be employed, and the degree to which permitted 18 hazardous waste management facilities will be used for remediation wastes. In addition, Congress may consider revision of the liability imposed by the Superfund law for remediation of contamination caused prior to a party's acquisition of a contaminated site, which could reduce the remediation obligations of the Company and others who currently are jointly and severally liable for remediation obligations under Superfund. INTERNATIONAL WASTE MANAGEMENT AND RELATED SERVICES WM International's operations are subject to the general business, liability, land-use planning and other environmental laws and regulations of the countries where the services are performed and, in Europe, to European Union ("EU") regulations and directives. The degree of local enforcement of applicable laws and regulations varies substantially between, and even within, the various countries in which WM International operates. In addition to the statutes and regulations imposed by national, state or provincial, and municipal or other local authorities, many of the countries in which WM International operates are members of the EU. The EU has issued and continues to issue environmental directives and regulations covering a broad range of environmental matters and has created a European Environmental Agency responsible for monitoring and collating member state environmental data. The Single European Act, passed in 1987, established three fundamental principles to guide the development of future EU environmental law: (i) the need for preventative action; (ii) the correction of environmental problems at the source; and (iii) the polluter's liability for environmental damage. The Treaty on European Union, signed in December 1991, came into force in November 1993. Revised in Amsterdam in June 1997, the Treaty now regards "sustainable development" as a key component of EU policy-making and requires that environmental protection be integrated into the definition and application of all EU laws. The impact of current and future EU legislation will vary from country to country according to the degree to which existing national requirements already meet or fall short of the new EU standards and, in some jurisdictions, may require extensive public and private sector investment and the development and provision of the necessary technology, expertise, administrative procedures and regulatory structures. These extensive laws and regulations are continually evolving in response to technological advances and heightened public and political concern. Outside Europe, continuing industrialization, population expansion and urbanization have caused increased levels of pollution with all of the resultant social and economic implications. The desire to sustain economic growth and address historical pollution problems is being accompanied by investments in environmental infrastructure, particularly in Southeast Asia, and the introduction of regulatory standards to further control industrial activities. The Company believes that WM International's business is conducted in material compliance with applicable laws and regulations and does not anticipate that maintaining such compliance will adversely affect the Company's financial position. There can be no assurance, however, that such requirements will not change so as to require significant additional expenditures or operating costs. COMPETITION WMNA encounters intense competition, primarily in the pricing and rendering of services, from various sources in all phases of its waste management and related operations. In the solid waste collection phase, competition is encountered, for the most part, from national, regional and local collection companies as well as from municipalities and counties (which, through use of tax revenues, may be able to provide such services at lower direct charges to the customer than can WMNA) and some large commercial and industrial companies which handle their own waste collection. In the solid waste transfer, resource recovery and disposal phases of its operations, competition is encountered primarily from municipalities, counties, local governmental agencies, other national or regional waste management companies and certain large corporations not primarily involved in 19 the solid waste management services business. The Company also encounters intense competition in pricing and rendering of services in its portable sanitation service business, and the on-site industrial cleaning services business of Rust managed by WMNA, from numerous large and small competitors. In addition, Rust's program and facilities management business encounters intense competition, primarily in pricing, quality and reliability of services, from various sources in all aspects of its business. In its hazardous waste management operations, the Company encounters competition from a number of sources, including several national or regional firms specializing primarily in chemical waste management, local waste management concerns and, to a much greater extent, generators of chemical wastes which seek to reduce the volume of or otherwise process and dispose of such wastes themselves. The basis of competition is primarily technical expertise and the price, quality and reliability of service. WM International encounters intense competition from local companies and governmental entities in particular countries, as well as from major international companies. Pricing, quality of service and type of equipment utilized are the primary methods of competition for collection services, and proximity of suitable treatment or disposal facilities, technical expertise, price, quality and reliability of services are the primary methods of competition for treatment and disposal services. WTI experiences substantial competition in all aspects of its business. It competes with a large number of firms, both nationally and internationally, some of which may have substantially greater financial and technical resources than WTI. The principal competitive factors with respect to its project development activities include technological performance, service, technical know-how, price and performance guarantees. Competing for selection as a project developer may require commitment of substantial resources over a long period of time, without any certainty of being ultimately selected. Competition for attractive development opportunities is intense, as there are a number of competitors in the industry interested in such opportunities. Pursuant to the First Amended and Restated International Business Opportunities Agreement, dated January 1, 1993, by and among CWM, WTI, Waste Management International, Inc., WM International, Rust and the Company (as amended, the "IBOA"), each of CWM, WTI, Rust and the Company has agreed that, until the later of July 1, 2000 or the date on which the Company ceases to beneficially own a majority of the outstanding voting equity interests of such subsidiary or ceases to beneficially own a majority of the outstanding voting equity interests of WM International, and in each case no longer has an option to obtain such ownership, such subsidiary or the Company will not engage (except through WM International) in waste management services; design, development, construction and operation of trash-to-energy facilities in Italy or Germany; collection, storage, processing, treatment or disposal of hazardous wastes (including hazardous substance remediation services); or design, engineering and construction (where the customer is seeking third-party operation), operation and maintenance of water, wastewater and sewage treatment facilities (including facilities for treating hazardous waste streams whether or not the customer is seeking third-party operation) outside North America (i.e., the United States, its territories and possessions, Canada and Mexico) (the "WM International Allocated Activities"), except with respect to licensing of technology and minor interests of CWM, WTI or Rust in publicly held entities. WTI may engage outside North America in the design, engineering, construction, operation and maintenance of chimneys and air pollution control facilities (the "WTI Allocated Activities"). Rust may engage outside North America in activities relating to industrial facility and power plant maintenance services (the "Rust Allocated Activities"). Sales by the Company of recyclables, licensing of technology and minor investments by the Company in publicly held entities are also permitted activities of the Company outside North America. WM International has agreed that for the same time periods as are applicable to CWM, WTI, Rust and the Company above in this paragraph, it will not engage in North America in the type of activities included within the WM International Allocated Activities outside North America and will not engage in the WTI Allocated Activities or the Rust Allocated Activities. Businesses or assets acquired by a party to the IBOA which are in the domain of another party thereto (according to the allocations described above) must be offered for sale to the other party at fair market value. In addition, WTI and WM International have entered into an agreement whereby WTI will have primary responsibility for the early-stage development of trash- to-energy projects outside North America (except in Italy 20 and Germany) and WM International will have the right to acquire up to 49% of all equity of any such project available to WM International, WTI and their affiliates, with WTI or other investors owning the balance. This arrangement is non-cancelable by WTI or WM International without the other's consent prior to 2000. If the arrangement is canceled, the right to develop trash-to-energy projects reverts to being part of the WM International Allocated Activities. By agreement among the parties, the Company is responsible for determining business allocations among CWM, WTI, Rust, the Company and WM International which are not controlled by the allocations set forth in the preceding two paragraphs. In this connection CWM, WTI, Rust, the Company and WM International have agreed that in order to minimize the potential for conflicts of interest among various subsidiaries under the common control of the Company and for so long as the Company shall have beneficial ownership of a majority of the outstanding voting equity interests of such subsidiary (or an option to obtain such ownership), the Company has the right to direct future business opportunities to the Company or the Company-controlled subsidiary which, in the Company's reasonable and good faith judgment, has the most experience and expertise in that line of business, provided that the Company may not allocate a business opportunity to a particular subsidiary if such business opportunity would involve the subsidiary in a breach of its agreement not to compete as described in the immediately preceding paragraphs. Opportunities outside North America relating to the provision of future waste management services are generally to be allocated to WM International, except that opportunities outside North America relating to the WTI Allocated Activities and the Rust Allocated Activities are generally to be allocated to WTI and Rust, as the case may be. No party is liable for consequential damages, except for lost profits, for any breach of the IBOA. In addition, in connection with the transfer by Rust of its hazardous and radioactive substance remediation business in 1995 and its scaffolding rental and erection business in 1996, the Company and Rust agreed with the respective purchasers not to engage in providing those services in North America prior to 2002 (in the case of the remediation business) and 2001 (in the case of the scaffolding business). In connection with WTI's sale of its water process, manufacturing and custom engineering business, the Company and WTI agreed with the purchaser not to engage in such business in the United States or any other country in which WTI conducted such business at the time of sale until 2001. INSURANCE While the Company believes it operates professionally and prudently, its business exposes it to various risks, including, for example, the potential for harmful substances escaping into the environment and causing damage or injuries, the cost of which could be substantial. The Company currently maintains liability insurance coverage for occurrences under various environmental impairment, primary casualty and excess liability insurance policies. The Company's insurance program includes coverage for pollution liability resulting from "sudden and accidental" releases of contaminants and pollutants. The Company believes that the coverage terms, available limits of liability, and costs currently offered by the insurance market do not represent sufficient value to warrant the purchase of "non-sudden and accidental" pollution liability insurance coverage. As such, the Company has chosen not to purchase risk transfer "non-sudden and accidental" pollution liability insurance coverage. To satisfy existing government requirements, the Company has secured non-risk transfer pollution liability insurance coverage in amounts believed to be in compliance with federal and state law requirements for "non-sudden and accidental" pollution. The Company must reimburse the insurer for losses incurred and covered by this insurance policy. In the event the Company continues not to purchase risk transfer "non- sudden and accidental" pollution liability insurance coverage, the Company's net income could be adversely affected in the future if "non-sudden and accidental" pollution losses should occur. EMPLOYEES The Company and its subsidiaries employ a total of approximately 58,900 persons in their worldwide continuing operations. Of this number, the Company employs approximately 37,200 persons in its North 21 American solid and hazardous waste management services operations (excluding employees of the Rust on-site industrial cleaning services business operated by WMNA). Of this total, approximately 27,600 persons are employed in solid and hazardous waste collection, transfer, resource recovery and disposal activities, and approximately 9,600 in managerial, executive, sales, clerical, data processing and other solid waste and related activities. As of December 31, 1997, WM International employed approximately 14,600 persons. Of this number, approximately 10,400 persons were employed in its collection services operations, 2,300 in its treatment and disposal services operations and 1,900 in administrative functions. As of December 31, 1997, WTI had approximately 1,900 full-time employees in its continuing operations. Rust employed approximately 5,200 persons at December 31, 1997 in the on- site industrial cleaning services business managed by WMNA and Rust's program and facilities management services business. ACQUISITIONS AND DISPOSITIONS Since August 1971, the Company has acquired a number of companies, and certain assets of other companies, engaged in various phases of the environmental services industry. See Note 5 to the Company's Consolidated Financial Statements set forth below in Item 8. The amounts and types of consideration generally have been determined by direct negotiations with the owners of the businesses acquired. In most instances, the owners of the acquired businesses were few in number, and often certain key former owners have continued to operate the businesses following acquisition by the Company. During 1997, the Company continued to acquire additional operations in the waste management services industry, purchasing 45 businesses for an aggregate of $51.4 million in cash and notes, assumed debt of $17.6 million, and approximately 122,000 shares of the Company's common stock. Acquisitions have historically contributed significantly to the Company's growth. However, in recent years the Company's acquisition activity relative to the size of its revenue base has significantly decreased, and the Company has disposed of significant amounts of non-waste management services businesses and assets, as well as underperforming or poorly positioned waste management services businesses. As it focuses on its core waste management services business, the Company intends to continue engaging in such dispositions. The Company's growth prospects may be affected by the decision to engage in such dispositions and by the availability of additional business acquisitions at reasonable prices and the Company's ability to finance such acquisitions. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" set forth below in Item 7 for a discussion of capital expenditures by the Company, including acquisitions. Other well- capitalized companies also compete intensely for businesses available to be acquired. The acquisition of businesses entails certain inherent risks. Although the Company reviews businesses to be acquired, because of the nature of the liabilities involved in these businesses, there can be liabilities which will not become known until after the transactions are consummated. The Company seeks to minimize the impact of these liabilities and expenditures by attempting to obtain indemnities and warranties from the seller which may be supported by deferring payment of a portion of the purchase price. These indemnities and warranties, if obtained, may not, however, fully cover the liabilities due to their limited scope, amount, or duration, the financial limitations of the indemnitor or warrantor, or other reasons. Businesses purchased may require expenditures to make up for deferred maintenance and to improve the quality or quantity of assets acquired. In certain cases, the Company establishes reserves in respect of the anticipated costs of remediation for acquired sites. In June 1996, the Company announced plans to divest $1.0 billion of non-core assets and non-integrated businesses by the end of 1998. In February 1997, the Company announced plans to divest an additional $1.5 billion of such investments by the end of 1999. As a result of these divestiture programs, the Company and its subsidiaries have sold the following businesses and investments: Rust sold its North American engineering and 22 construction business and its industrial scaffolding businesses in 1996; WTI sold its water process, manufacturing and custom-engineered systems businesses in 1996; WM International entered into an agreement in 1996 to sell its investment in Wessex Water Plc (which transaction closed in 1997); the Company sold its approximately 20% interest in ServiceMaster L.P. ("ServiceMaster") to ServiceMaster for approximately $626 million in 1997; WTI sold its remaining water services business to U.S. Filter for 2.3 million registered shares of U.S. Filter, valued at approximately $64 million, in 1997; WM International sold substantially all of its operations in France and Spain in 1997 and entered into an agreement to sell its Hamm, Germany waste-to-energy facility in 1997 (which transaction closed in 1998); and the Company sold certain of its North American solid waste operations. The Company's plans also include the sale by Rust of its remaining domestic and international engineering and consulting business and the sale or joint venturing of the WM International business in Austria. In connection with the Merger Agreement with USA Waste, the Company may be required to dispose of certain of its waste management businesses and assets. See also "Management's Discussion and Analysis of Results of Operations and Financial Condition--Financial Condition" set forth below in Item 7. For a more detailed discussion of the Company's recent acquisitions and dispositions, see "Management's Discussion and Analysis of Results of Operations and Financial Condition--Results of Operations" set forth below in Item 7, and Note 5 to the Company's Consolidated Financial Statements which are set forth below in Item 8. ITEM 2. PROPERTIES. The principal property and equipment of the Company consists of land (primarily disposal sites), buildings and waste treatment or processing facilities (other than disposal sites), and vehicles and equipment, which as of December 31, 1997 represented approximately 14%, 7% and 33%, respectively, of the Company's total consolidated assets. The Company believes that its vehicles, equipment and operating properties are well maintained and suitable for its current operations. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" set forth below in Item 7 for a discussion of property and equipment expenditures by the Company for the last four years and the capital budget for 1998. The Company's subsidiaries lease numerous office and operating facilities throughout the world. For the year ended December 31, 1997, aggregate annual rental payments on real estate leased by the Company and its subsidiaries approximated $111.4 million. The principal fixed assets of WMNA consist of vehicles and equipment (which include, among other items, approximately 19,900 collection and transfer vehicles, 1.5 million containers and 24,600 stationary compactors in the United States and Canada). WMNA owns or leases real property in most states in which it is doing business. At December 31, 1997, 101 solid waste disposal facilities, aggregating approximately 65,440 total acres, including approximately 16,170 permitted acres, were owned by WMNA in the United States and Canada and 29 facilities, aggregating approximately 13,560 total acres, including approximately 6,035 permitted acres, were leased from parties not affiliated with WMNA under leases expiring from 1998 to 2085. At December 31, 1997, the Company owned or leased in the United States a total of seven treatment, storage or disposal facilities. At such date, the Company's seven United States chemical waste facilities with secure land disposal sites aggregated approximately 7,870 acres, including approximately 1,475 permitted acres. The principal property and equipment of WM International consist of land (primarily disposal sites) and vehicles and equipment, which as of December 31, 1997 represented approximately 9.3% and 20.4%, respectively, of WM International's assets. The principal fixed assets utilized in WM International's collection services operations at December 31, 1997, consisted of vehicles and equipment (which included, among other items, approximately 6,700 collection, transportation, and other route vehicles and approximately 260 pieces of landfill and other heavy equipment), and approximately 310,000 containers, including approximately 3,300 stationary compactors. In addition, WM International owns approximately 730 pieces of hazardous waste equipment, consisting predominately of containers and collection vehicles. WTI currently owns, operates or leases 16 trash-to-energy facilities (which facilities are capable of processing up to 23,750 tons of solid waste per day), eight cogeneration and small power production facilities, 23 two coal handling facilities, biosolids drying, pelletizing and composting facilities, and various other office and warehouse facilities. Facilities leased or operated (but not owned) by WTI are under leases or agreements having terms expiring from the years 1998 to 2020, subject to renewal options in certain cases. ITEM 3. LEGAL PROCEEDINGS. The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment and the potential for the unintended or unpermitted discharge of materials into the environment. In the ordinary course of conducting its business activities, the Company becomes involved in judicial and administrative proceedings involving governmental authorities at the federal, state and local level, including, in certain instances, proceedings instituted by citizens or local governmental authorities seeking to overturn governmental action where governmental officials or agencies are named as defendants together with the Company or one or more of its subsidiaries, or both. In the majority of the situations where proceedings are commenced by governmental authorities, the matters involved relate to alleged technical violations of licenses or permits pursuant to which the Company operates or is seeking to operate or laws or regulations to which its operations are subject or are the result of different interpretations of the applicable requirements. From time to time, the Company pays fines or penalties in environmental proceedings relating primarily to waste treatment, storage or disposal facilities. Subject to the discussion set forth below concerning the New Milford, Connecticut landfill, which is owned and operated by a wholly owned subsidiary of the Company, the Company believes that these matters will not have a material adverse effect on its results of operations or financial condition. However, the outcome of any particular proceeding cannot be predicted with certainty, and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies or other factors could materially alter this expectation at any time. The Company or certain of its subsidiaries have been identified as potentially responsible parties in a number of governmental investigations and actions relating to waste disposal facilities which may be subject to remedial action under Superfund. The majority of these proceedings are based on allegations that certain subsidiaries of the Company (or their predecessors) transported hazardous substances to the sites in question, often prior to acquisition of such subsidiaries by the Company. Such proceedings arising under Superfund typically involve numerous waste generators and other waste transportation and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which costs could be substantial. As of December 31, 1997, the Company or its subsidiaries had been notified that they are potentially responsible parties in connection with 89 locations listed on the Superfund National Priority List ("NPL"). Of the 89 NPL sites at which claims have been made against the Company, 17 are sites which the Company has come to own over time. All of the NPL sites owned by the Company were initially sited by others as land disposal facilities. At each of the 17 owned facilities, the Company is working in conjunction with the government to characterize or to remediate identified site problems. In addition, at these 17 facilities the Company has either agreed with other legally liable parties on an arrangement for sharing the costs of remediation or is pursuing resolution of an allocation formula. The 72 NPL sites at which claims have been made against the Company and which are not owned by the Company are at different procedural stages under Superfund. At some of these sites, the Company's liability is well defined as a consequence of a governmental decision as to the appropriate remedy and an agreement among liable parties as to the share each will pay for implementing that remedy. At others, where no remedy has been selected or the liable parties have been unable to agree on an appropriate allocation, the Company's future costs are uncertain. The Company periodically reviews its role, if any, with respect to each such site, giving consideration to the nature of the Company's alleged connection to the location (e.g., owner, operator, transporter or generator), the extent of the Company's alleged connection to the location (e.g., amount and nature of waste hauled to the location, number of years of site operation by the Company or other relevant factors), the accuracy and strength of evidence connecting the Company to the location, the number, connection and financial ability of other named and unnamed potentially responsible parties at the location, and the nature and estimated cost of the likely 24 remedy. Where the Company concludes that it is probable that a liability has been incurred, a provision is made in the Company's financial statements for the Company's best estimate of the liability based on management's judgment and experience, information available from regulatory agencies and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of a specific site, as well as the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, then the Company provides for the minimum amount within the range, in accordance with generally accepted accounting principles. Amounts recorded are discounted where appropriate. Sites subject to state action under state laws similar to the federal Superfund statute are treated by the Company in the same way as NPL sites. The Company's estimates are subsequently revised, as deemed necessary, as additional information becomes available. While the Company does not anticipate that the amount of any such revisions will have a material adverse effect on the Company's operations or financial condition, the measurement of environmental liabilities is inherently difficult and the possibility remains that technological, regulatory or enforcement developments, the results of environmental studies, or other factors could materially alter this expectation at any time. Such matters could have a material adverse impact on earnings for one or more fiscal quarters or years. From time to time, the Company and certain of its subsidiaries are named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of a Company subsidiary's having owned, operated or transported waste to a disposal facility which is alleged to have contaminated the environment or, in certain cases, conducted environmental remediation activities at sites. Some of such lawsuits may seek to have the Company or its subsidiaries pay the costs of groundwater monitoring and health care examinations of allegedly affected persons for a substantial period of time even where no actual damage is proven. While the Company believes it has meritorious defenses to these lawsuits, their ultimate resolution is often substantially uncertain due to the difficulty of determining the cause, extent and impact of alleged contamination (which may have occurred over a long period of time), the potential for successive groups of complainants to emerge, the diversity of the individual plaintiffs' circumstances, and the potential contribution or indemnification obligations of co-defendants or other third parties, among other factors. Accordingly, it is possible such matters could have a material adverse impact on the Company's earnings for one or more fiscal quarters or years. A Company subsidiary has been involved in litigation challenging a municipal zoning ordinance which restricted the height of its New Milford, Connecticut, landfill to a level below that allowed by the permit previously issued by the Connecticut Department of Environmental Protection ("DEP"). Although a lower Court had declared the zoning ordinance's height limitation unconstitutional, during 1995 the Connecticut Supreme Court reversed this ruling and remanded the case for further proceedings in the Superior Court. In November 1995, the Superior Court ordered the subsidiary to apply for all governmental permits needed to remove all waste above the height allowed by the zoning ordinance, and the Connecticut Supreme Court has upheld that ruling. The Company is complying with the order of the Superior Court while also seeking an alternative resolution to this matter. The Company is unable to predict the outcome of this matter at this time. Depending upon the nature of any plan eventually approved by applicable regulatory authorities for removing the waste, the actual volume of waste to be moved, and other currently unforseeable factors, the subsidiary could incur costs which would have a material adverse impact on the Company's results of operations in one or more future periods. The Company has brought suit against a substantial number of insurance carriers in an action entitled Waste Management, Inc. et al. v. The Admiral Insurance Company, et al. pending in the Superior Court in Hudson County, New Jersey. In this action the Company is seeking a declaratory judgment that environmental liabilities asserted against the Company or its subsidiaries, or that may be asserted in the future, are covered by insurance policies purchased by the Company or its subsidiaries. The Company is also seeking to recover defense costs and other damages incurred as a result of the assertion of environmental liabilities against the Company or its subsidiaries for events occurring over at least the last 25 years at approximately 140 sites and the defendant insurance carriers' denial of coverage of such liabilities. While the Company has reached settlements with some 25 of the carriers, the remaining defendants have denied liability to the Company and have asserted various defenses, including that environmental liabilities of the type for which the Company is seeking relief are not risks covered by the insurance policies in question. The remaining defendants are contesting these claims vigorously. Discovery is nearly complete as to the 12 sites in the first phase of the case and discovery is expected to continue for several years as to the remaining sites. Currently, trial dates have not been set. The Company is unable at this time to predict the outcome of this proceeding. No amounts have been recognized in the Company's financial statements for potential recoveries. Several purported class action lawsuits and one purported derivative lawsuit seeking injunctive relief and unspecified money damages were filed in the Chancery Court in and for New Castle County, Delaware against the Company, WTI, and individual directors of WTI in connection with the June 20, 1997 proposal by the Company to acquire all of the shares of WTI common stock which the Company does not own. The Company has agreed to a merger in which WTI's stockholders would receive $16.50 in cash per share of WTI's common stock. See "Business--General" above. The lawsuits allege, among other things, that the defendants have breached fiduciary duties to WTI's minority stockholders because the merger consideration contemplated by the proposal was inadequate and unfair. In addition, the purported derivative lawsuit alleges that the proposal was part of a plan to misappropriate WTI's corporate opportunity to repurchase its own shares. The Company believes that its actions and those of WTI and its Board of Directors in connection with the proposal have been in accordance with Delaware law. Accordingly, the Company intends to contest these lawsuits vigorously. In November and December 1997, several alleged purchasers of the Company's stock brought purported class action lawsuits against the Company and several of its current and former officers in the United States District Court for the Northern District of Illinois. Each of the lawsuits asserts that the defendants violated the federal securities laws by issuing allegedly false and misleading statements in 1996 and 1997 about the Company's financial condition. Among other things, the plaintiffs allege that the Company employed accounting practices that were improper and that caused its publicly filed financial statements to be materially false and misleading. The lawsuits demand, among other relief, unspecified monetary damages, attorneys' fees and the costs of conducting the litigation. The Company intends to defend itself vigorously in this litigation. In January 1998, the 14 purported class actions were consolidated before one judge in the Northern District of Illinois. Plaintiffs have until May 1998 to file a consolidated amended complaint. It is not possible at this time to predict the impact this litigation may have on the Company, although it is reasonably possible that the outcome may have a materially adverse impact on its financial condition or results of operations in one or more future periods. The Company is also aware that the Securities and Exchange Commission has commenced a formal investigation with respect to the Company's previously filed financial statements and related accounting policies, procedures and system of internal controls. The Company intends to cooperate with such investigation. The Company is unable to predict the outcome or impact of this investigation at this time. A lawsuit by an alleged Company stockholder purporting to represent a class of the Company's stockholders has been filed in the Chancery Court in and for New Castle County, Delaware (although the Company has not yet been served) against the Company and members of its Board of Directors alleging breaches of fiduciary duty by the defendants in connection with the Merger with USA Waste. The lawsuit seeks, among other things, to have the Merger enjoined and to recover unspecified damages. The Company believes the suit to be without merit and intends to contest it vigorously. The Company and certain of its subsidiaries are also currently involved in other civil litigation and governmental proceedings relating to the conduct of their business. While the outcome of any particular lawsuit or governmental investigation cannot be predicted with certainty, the Company believes that these matters will not have a material adverse effect on its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to the Company's security holders during the fourth quarter of 1997. 26 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is traded on the New York Stock Exchange and the Chicago Stock Exchange under the symbol "WMX." The following table sets forth by quarter for the last two years the high and low sale prices of the Company's common stock on the New York Stock Exchange Composite Tape as reported by the Dow Jones News Retrieval Service, and the dividends declared by the Board of Directors of the Company on its common stock.
1996 QUARTERLY CASH SUMMARY DIVIDENDS ------------ DECLARED HIGH LOW PER SHARE ---- ---- --------- First......................................... $32 1/8 $27 3/4 $.15 Second........................................ 36 1/8 31 5/8 .16 Third......................................... 33 1/4 28 5/8 .16 Fourth........................................ 36 5/8 32 1/8 .16 1997 QUARTERLY CASH SUMMARY DIVIDENDS ------------ DECLARED HIGH LOW PER SHARE ---- ---- --------- First......................................... $37 1/2 $30 1/8 $.16 Second........................................ 34 1/4 28 .17 Third......................................... 35 3/8 29 1/4 .17 Fourth........................................ 35 21 15/16 .17
At March 1, 1998, the Company had approximately 45,000 stockholders of record. Due in part to the high level of public awareness of the business in which the Company is engaged, regulatory enforcement proceedings or other unfavorable developments involving the Company's operations or facilities, including those in the ordinary course of business, may be expected to engender substantial publicity which could from time to time have an adverse impact upon the market price for the Company's common stock. In February 1997, the Company's Board of Directors approved a new repurchase program to replace the program approved in December 1995. Under the new program, the Company is authorized to purchase during 1997 and 1998 up to 50 million shares of its common stock in the open market, in privately negotiated transactions or through issuer tender offers. The Company repurchased 30 million shares through a "Dutch auction" tender offer in the second quarter of 1997 but did not repurchase any other shares that year. The Company does not expect to conduct any repurchases in 1998. During 1994, 1995, 1996 and 1997, the Company sold put options on 42.3 million shares of its common stock in conjunction with the repurchase program. The put options gave the holders the right at maturity to require the Company to repurchase its shares at specified prices. In the event the options were exercised, the Company could elect to pay the holder in cash the difference between the strike price and the market price of the Company's shares, in lieu of repurchasing the stock. For information concerning the exercise or expiration of these put options and related information, see "Management's Discussion and Analysis of Results of Operations and Financial Condition-- Financial Condition" set forth below in Item 7. The Company's ability to pay dividends is restricted under a credit agreement; however, so long as no event of default has occurred and is continuing, the Company is permitted to pay regularly scheduled dividends in amounts not to exceed $100 million in any calendar quarter. However, the Merger Agreement with USA Waste limits the Company to current dividends of $0.17 per share, or approximately $77.35 million per quarter. 27 ITEM 6. SELECTED FINANCIAL DATA. The following selected consolidated financial information for each of the six years in the period ended December 31, 1997 is derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants, whose report is included herein. The information below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" set forth below in Item 7 and the Company's Consolidated Financial Statements, and the related Notes, and the other financial information set forth below in Item 8. WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED SELECTED FINANCIAL DATA FOR THE SIX YEARS ENDED DECEMBER 31, 1997 (000'S OMITTED EXCEPT PER SHARE AMOUNTS)
RESTATED --------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 ----------- ----------- ----------- ----------- ----------- ------------ Revenue................. $ 8,661,027 $ 7,827,280 $ 8,537,883 $ 9,100,225 $ 9,225,636 $ 9,188,582 ----------- ----------- ----------- ----------- ----------- ------------ Costs and expense....... $ 7,216,101 $ 6,560,716 $ 7,090,342 $ 7,606,679 $ 7,756,225 $ 8,324,613 Asset impairment loss... 20,437 29,009 33,970 53,772 64,729 1,480,262 Special charges......... 219,900 524,767 -- 335,587 370,735 145,990 Gains from stock transactions of subsidiaries and exchange of Exchangeable LYONs..... (374,755) (15,109) -- -- -- -- Other expenses, net..... 322,542 175,729 299,423 232,540 373,480 291,390 ----------- ----------- ----------- ----------- ----------- ------------ Income (loss) from continuing operations before income taxes.... $ 1,256,802 $ 552,168 $ 1,114,148 $ 871,647 $ 660,467 $ (1,053,673) Provision for income taxes.................. 455,377 283,347 512,683 451,741 436,473 215,667 ----------- ----------- ----------- ----------- ----------- ------------ Income (loss) from continuing operations.. $ 801,425 $ 268,821 $ 601,465 $ 419,906 $ 223,994 $ (1,269,340) Income (loss) from discontinued operations............. -- 19,886 27,324 4,863 (263,301) 95,688 Extraordinary items..... -- -- -- -- -- (516) Accounting changes...... (61,739) -- (1,281) (84,672) -- (1,936) ----------- ----------- ----------- ----------- ----------- ------------ Net income (loss)....... $ 739,686 $ 288,707 $ 627,508 $ 340,097 $ (39,307) $ (1,176,104) =========== =========== =========== =========== =========== ============ Average common shares outstanding............ 492,534 484,885 483,748 485,346 489,171 466,601 =========== =========== =========== =========== =========== ============ Basic earnings (loss) per share: Continuing operations.. $ 1.62 $ 0.55 $ 1.24 $ 0.86 $ 0.46 $ (2.72) Discontinued operations............ -- 0.05 0.06 0.01 (0.54) 0.20 Extraordinary item..... -- -- -- -- -- -- Accounting changes..... (0.12) -- -- (0.17) -- -- ----------- ----------- ----------- ----------- ----------- ------------ Net income (loss).... $ 1.50 $ 0.60 $ 1.30 $ 0.70 $ (0.08) $ (2.52) =========== =========== =========== =========== =========== ============ Diluted earnings (loss) per share: Continuing operations.. $ 1.62 $ 0.55 $ 1.24 $ 0.86 $ 0.46 $ (2.72) Discontinued operations............ -- 0.04 0.06 0.01 (0.54) 0.20 Extraordinary item..... -- -- -- -- -- -- Accounting changes..... (0.12) -- -- (0.17) -- -- ----------- ----------- ----------- ----------- ----------- ------------ Net income (loss).... $ 1.50 $ 0.59 $ 1.30 $ 0.70 $ (0.08) $ (2.52) =========== =========== =========== =========== =========== ============ Dividends per share..... $ 0.50 $ 0.58 $ 0.60 $ 0.60 $ 0.63 $ 0.67 =========== =========== =========== =========== =========== ============ Ratio of earnings to fixed charges.......... 4.67 to 1 2.11 to 1 3.13 to 1 2.61 to 1 2.15 to 1 N/A =========== =========== =========== =========== =========== ============ December 31, Property and equipment, net........ $ 7,510,836 $ 8,180,905 $ 8,559,526 $ 8,815,839 $ 8,798,400 $ 7,254,149 =========== =========== =========== =========== =========== ============ Total assets........... $13,944,385 $15,716,369 $16,444,947 $17,457,159 $17,083,577 $ 13,589,098 =========== =========== =========== =========== =========== ============ Long-term debt......... $ 4,312,511 $ 6,143,685 $ 6,024,478 $ 6,390,041 $ 6,971,607 $ 5,078,557 =========== =========== =========== =========== =========== ============ Stockholders' equity... $ 4,014,490 $ 3,682,143 $ 3,907,150 $ 4,042,646 $ 3,741,761 $ 1,345,652 =========== =========== =========== =========== =========== ============
28 - -------- Notes: (1) As a result of a comprehensive review begun in the third quarter of 1997, the Company determined that certain items of expense were incorrectly reported in previously issued financial statements. The Company has accordingly restated its financial results for the years 1992 through 1996. Stockholders' equity, at December 31, 1991, was restated from $4,133.1 million to $3,934.5 million. (See Note 2 to Consolidated Financial Statements). (2) The Company recorded an asset impairment loss in 1997, and restated prior year financial statements to retroactively recognize impairment losses in earlier years. See Note 16 to Consolidated Financial Statements. (3) The results for 1992 include a non-taxable gain of $351.1 million (before minority interest) resulting from the initial public offering of Waste Management International plc ("WM International"), less $80.6 million of related exit costs, primarily to write down international assets not included in WM International, as well as special charges of $219.9 million (before tax and minority interest) primarily related to writedowns of the Company's medical waste business, Chemical Waste Management Inc. ("CWM") incinerators in Chicago, Illinois, and Tijuana, Mexico, a former subsidiary's investment in its asbestos abatement business, and certain costs incurred by the former subsidiary and CWM related to the formation of Rust International Inc. ("Rust"). (4) The results for 1993 include a non-taxable gain of $15.1 million (before minority interest), relating to the issuance of shares by Rust, as well as a special asset revaluation and restructuring charge of $524.8 million (before tax and minority interest) recorded by CWM related primarily to a revaluation of its thermal treatment business, and a provision of approximately $14 million to adjust deferred income taxes resulting from the 1993 tax law change. (5) The results for 1995 include a special charge of $140.6 million (before tax) recorded by CWM, primarily to write off its investment in facilities and technologies that it abandoned because they do not meet customer service or performance objectives, and a special charge of $194.6 million (before tax and minority interest) recorded by WM International relating to actions it had decided to take to sell or otherwise dispose of non- core businesses and investments, as well as core businesses and investments in low potential markets, abandon certain hazardous waste treatment and processing technologies, and streamline its country management organization. (6) In 1995, the Rust Board of Directors approved a plan to sell or otherwise discontinue Rust's process engineering, construction, specialty contracting and similar lines of business. During 1996, the sale of the industrial process engineering and construction business, based in Birmingham, Alabama, was completed. In 1996, Wheelabrator Technologies Inc. ("WTI") sold its water process systems and equipment manufacturing businesses, and Rust sold its industrial scaffolding business. WTI entered into an agreement to sell its water and wastewater facility operations and privatization business and Rust began implementing plans to exit its remaining domestic and international engineering and consulting business. These businesses were classified as discontinued operations in the financial statements. The Rust disposition was not completed within one year, and accordingly in 1997 this business has been reclassified back into continuing operations, as operations held for sale, in accordance with generally accepted accounting principles. The unused portion ($87.0 million) of the previously recorded provision for loss on disposal was reversed in discontinued operations, and an impairment loss provision of $122.2 million was recognized in continuing operations. (7) The results for 1996 include special charges of $47.1 million (before tax and minority interest) related to WM International's sale of its investment in Wessex Water Plc and a charge of $169.5 million (before tax and minority interest) to revalue its investments in France, Austria and Spain in contemplation of exiting these markets and to write off an investment in a hazardous waste disposal facility. Also in 1996, Waste Management of North America, Inc. ("WMNA") and CWM recorded special charges of $154.1 million (before tax) for reengineering their finance and administration functions and increasing reserves for certain litigation. (8) In 1997, the Company recorded a special charge of $41.6 million (pretax) for severance related to WMNA, and WM International recorded a charge of $104.4 million (before tax and minority interest) to reflect costs of demobilization following the loss of the contract renewal for Buenos Aires, Argentina, divestiture or closure of underperforming businesses, and the writeoff of projects it decided to no longer pursue. (9) In 1992, the Company changed its accounting for income taxes and post- retirement benefits other than pensions as a result of new standards issued by the Financial Accounting Standards Board. In 1995, the Company changed its accounting for capitalized interest on landfill cell construction. See Note 3 to Consolidated Financial Statements. (10) Earnings were inadequate to cover fixed charges in 1997. Earnings would have to increase by $1,026.1 million to cover fixed charges and bring the ratio of earnings to fixed charges to one-to-one. 29 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. (TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS) As more fully described in the Notes to Consolidated Financial Statements, certain financial information in this Report has been restated to correct previously issued financial statements. On March 10, 1998, the Company entered into a definitive merger agreement (the "Merger Agreement") with USA Waste Services, Inc. ("USA Waste") pursuant to which the Company will be merged with a wholly-owned subsidiary of USA Waste (the "Merger"). Pursuant to the Merger Agreement, the Company's stockholders will receive .725 shares of common stock of USA Waste for each share of common stock of the Company. The consummation of the Merger is subject to a number of conditions, including the expiration or termination of the applicable merger review waiting period under the Hart-Scott-Rodino Anti- Trust Improvements Act of 1976, approval by the stockholders of each company and other typical closing conditions. In addition, the Merger is contingent upon the transaction qualifying for pooling-of-interests accounting treatment. In order to qualify for pooling-of-interests accounting treatment, the Company intends to sell a portion of its treasury shares pursuant to a registered public offering prior to the closing of the Merger. A lawsuit by an alleged Company stockholder purporting to represent a class of the Company's stockholders has been filed (although the Company has not yet been served) against the Company and the members of its Board of Directors alleging breaches of fiduciary duty by the defendants in connection with the Merger. The lawsuit seeks, among other things, to have the transaction enjoined and to recover unspecified damages. The Company believes the suit to be without merit and intends to contest it vigorously. Upon the consummation of the Merger, certain long-term debt of Waste Management International plc ("WM International") may be accelerated and become payable with three months notice. At December 31, 1997, this debt totalled approximately $209 million, but by March 17, 1998 had been reduced to $71 million. In addition, Wessex Water Plc ("Wessex") has an option to acquire WM International's ownership in its United Kingdom business at fair market value that may become exercisable upon the consummation of the Merger. In 1997, this business had revenues of approximately $276 million and operating income (before minority interest) of approximately $25 million. WM International had a net investment of approximately $315 million in the business at December 31, 1997. RESULTS OF OPERATIONS CONSOLIDATED Consolidated 1997 (loss) from continuing operations of Waste Management, Inc. (formerly WMX Technologies, Inc.) and its subsidiaries ("Waste Management" or the "Company") was $(1,269.3) million or $(2.72) per share compared with income of $224.0 million or $0.46 per share in 1996, $419.9 million or $0.86 per share in 1995, and $601.5 million or $1.24 per share in 1994. Net (loss) was $(1,176.1) million or $(2.52) per share in 1997, $(39.3) million or $(0.08) per share in 1996, with net income of $340.1 million or $0.70 per share in 1995 and $627.5 million or $1.30 per share in 1994. Per share amounts referred to in this paragraph and throughout Management's Discussion and Analysis are Basic Earnings Per Share as defined by Statement of Financial Accounting Standards ("FAS") No. 128. (See Note 11 to Consolidated Financial Statements). Consolidated 1997 revenue from continuing operations was $9.19 billion compared with $9.23 billion in 1996, $9.10 billion in 1995 and $8.54 billion in 1994. Results for all periods were impacted by special charges, asset impairments, other adjustments, changes in estimates, and for 1995 and 1997, by changes in accounting principles. The Company has undertaken a number of initiatives in response to changing conditions in its markets and in the environmental services industry. In January 1997, the Board of Directors approved a package of strategic 30 initiatives designed to enhance stockholder value, the cornerstone of which is a focus solely on waste management services in domestic and selected international markets where the Company can be first or second in market share. In support of this, the Company divested non-core and non-integrated businesses and assets valued at approximately $1.4 billion in 1997 with an additional $400 million targeted for disposition by the end of 1998. A significant portion of the proceeds from the 1997 asset sales was utilized to repurchase 30 million shares of the Company's common stock in a Dutch Auction tender offer which was concluded in the second quarter of the year. In November 1997, the Board of Directors approved a major organizational restructuring and cost-control program to substantially reduce overhead in its North American waste services operations. As a result of the restructuring, approximately 1,200 operating manager and managerial support staff positions were eliminated, or about 20% of that employee group. It also reduced the number of profit centers from 250 to 31, and established a regional based operating structure which is focused on specific customer segments, including commercial, industrial, residential and governmental accounts. The program additionally includes new computer systems and purchasing and fleet management initiatives designed to further reduce the Company's operating costs over the next three years. As a result of the strategy to focus on waste management services, late in 1996 and early 1997, the Company sold its domestic water operations as well as its minority interest in Wessex. The environmental and infrastructure engineering and consulting services lines of business have been classified as continuing operations held for sale in the accompanying financial statements. The Company had expected to complete the sale of these businesses in 1997, and at this time is pursuing such sales. See "Discontinued Operations and Other Asset Dispositions" below for further discussion. The Company has agreed to acquire all of the approximately 53 million shares of Wheelabrator Technologies Inc. ("WTI") which it does not already own at a price of $16.50 per share. A special meeting of stockholders of WTI is scheduled for March 30, 1998 to vote on the proposal, and the transaction is expected to close as soon as practicable thereafter if the transaction is approved. 1995 OPERATIONS COMPARED WITH 1994 Revenue. Consolidated revenue growth from 1994 to 1995 is shown in the table which follows:
PERCENT 1994 1995 CHANGE -------- -------- ------- North America (excluding trash-to-energy).... $5,936.8 $6,311.6 6.3% North American trash-to-energy............... 926.9 956.1 3.2 WM International............................. 1,710.9 1,865.1 9.0 Intercompany revenue......................... (36.7) (32.6) -------- -------- Total...................................... $8,537.9 $9,100.2 6.6% ======== ======== ===
The solid waste services portion of North American revenue was $5.53 billion in 1995 compared with $5.10 billion in 1994, an increase of 8.4%. Solid waste services revenue growth in 1995 by line of business is shown in the following table:
PERCENT CHANGE ------- Residential....................................................... 8.1% Commercial........................................................ 2.8 Rolloff and industrial............................................ 0.6 Disposal, transfer and other...................................... 23.2
Revenue growth due to acquisitions was 1.0%, with 7.4% growth resulting from price and volume increases. A significant portion of this internal growth, 2.0%, was the result of higher average recyclable commodity prices in 1995 vs. 1994. Actual commodity sales were approximately $100 million higher due to this higher average rate. Additionally, commodity volumes were higher in 1995 due to the Company's marketing efforts and the 31 acquisition of additional material recovery facilities, adding an additional $135 million of revenue, and thus accounting for approximately 2.6% of the North American solid waste revenue growth. The remaining 2.8% was a combination of price and volume in the other lines of business. North American hazardous waste revenue continued to decline in 1995 as waste minimization, recycling, over-capacity and shifting governmental regulation and enforcement continued to adversely affect the industry. Total 1995 hazardous waste revenue was $611.4 million compared with $643.1 million in 1994. Pricing and volume were both negative, only partially offset by the 1995 acquisition of a 60% interest in Advanced Environmental Technical Services, L.L.C. In addition, unusually high revenue in the second quarter of 1994 at the Company's Barnwell, South Carolina, low-level radioactive waste disposal facility adversely affected 1995 comparisons. North American (WTI) trash-to-energy revenue was essentially flat from 1994 to 1995 as higher revenue from operating plants was largely offset by lower construction revenue on the Lisbon, Connecticut, facility (which commenced operations January 1, 1996). Approximately 78% of the growth in revenue from operating plants was accounted for by the Falls Township and Ridge Generating Station facilities, which began operations in 1994. Contractual price escalation on long-term trash disposal and energy sales contracts, partly offset by curtailment of electrical purchases by certain utility customers, accounted for the balance of the operating plant revenue growth. Spot pricing on the whole was stable, although there were increases in certain markets offset by declines in others. WM International revenue, in U.S. dollars, increased $154.2 million or 9.0% in 1995 compared with 1994. Components of the revenue change are as follows:
PERCENT CHANGE ------- Price............................................................. 1.8% Volume (including start-ups)...................................... (3.2) Purchased businesses.............................................. 4.5 Foreign currency translation...................................... 5.9 ---- Total........................................................... 9.0% ====
The major cause of the 1995 volume decline was less construction revenues as a result of the completion of the construction phase of the SENT Landfill in Hong Kong, which opened during the year. A new pricing mechanism introduced by the Hong Kong government in March 1995, which required generators to absorb a portion of the disposal cost for waste brought to WM International's Hong Kong incinerator, resulted in volume declines in certain waste streams, but the impact was offset with other volumes. Pricing in Europe was negatively impacted in 1995 by relatively low inflation, highly competitive conditions in the solid waste market in France, softness in segments of the hazardous waste market, and a continuation of lower prices on rebids of municipal contracts in Italy. Acquisition activity continued to be below WM International's historical levels and focused particularly on "tuck-in" acquisitions which can complement or expand existing operations in a given market. WM International also increased its acquisition and construction of material recovery facilities to take advantage of an emphasis on recycling as an alternative to land disposal. Operating Expenses. Operating expenses increased $487.0 million or 8.1% in 1995 over 1994. Remediation expenses, net of insurance recoveries increased $29.5 million. The Company recorded additional loss reserves of $14.2 million related to long-term contracts of its Chem-Nuclear subsidiary. In addition, approximately $73.6 million of software development costs, certain landfill development and expansion projects and other deferred costs which the Company determined were not realizable were expensed in 1995. Excluding the above, operating expenses were relatively constant as a percentage of revenue for 1995 as compared to 1994 overall. North American solid waste operating expenses declined as a percentage of revenue 32 primarily as a result of higher recyclable commodity prices. In addition, milder winter weather in many parts of North America, increased internalization of recyclables processing, and continuing route productivity enhancements positively impacted operating expenses. Hazardous waste operating expenses increased, however, as a percentage of revenue in 1995 due to continued downward pressure on prices, a lower revenue base and a shift in revenue mix toward lower margin services offsetting the benefit of headcount reductions. Operating expenses at WM International increased as a result of higher labor costs in Italy and widespread strikes and industrial actions against the government in France in the fourth quarter of 1995. Selling and administrative expenses. Selling and administrative expenses increased $29.4 million or 2.8% in 1995 over 1994. While there was an increase in absolute dollars, as a percentage of revenue, selling and administrative expenses declined from 12.4% in 1994 to 12.0% in 1995. The decline as a percentage of revenue crossed all operating groups as productivity enhancements were instituted throughout the Company allowing selling and administrative costs to be spread over a larger revenue base. The increase in absolute dollars resulted primarily from acquisitions and pay-for-performance compensation plans. Special Charges. In the first quarter of 1995, in response to the continuing deterioration of the chemical waste services market, the Company's Chemical Waste Management, Inc. ("CWM") subsidiary realigned its organization, and in connection therewith, recorded a special charge of $140.6 million before tax ($91.4 million after tax). The charge related primarily to a write-off of the investment in facilities and technologies that CWM abandoned because they did not meet customer service or performance objectives, but also includes $22.0 million of future cash payments for rents under non-cancelable leases, guaranteed bank obligations of a joint venture, and employee severance. The majority of the cash expenditures were paid in 1995, although certain of the non-cancellable leases extend through the year 2002. In the fourth quarter of 1995, WM International recorded a special charge of $194.6 million ($152.4 million after tax) primarily related to the actions it had decided to take to sell or otherwise dispose of non-core businesses and investments, as well as core businesses and investments in low potential markets, abandon certain hazardous waste treatment and processing technologies, and streamline its country management organization. The charge reduced the Company's income by approximately $153.3 million before tax ($111.0 million after tax). The charge included $34.3 million of cash payments for employee severance and rents under non-cancelable leases. Approximately $11.2 million of the cash costs were paid in 1995. The majority of the balance was paid in 1996, although certain rent payments on abandoned leased facilities continue into the future. 1996 OPERATIONS COMPARED WITH 1995 Revenue. The following table sets forth changes in consolidated revenue from 1995 to 1996:
PERCENT 1995 1996 CHANGE -------- -------- ------- North America (excluding trash-to-energy).... $6,311.6 $6,406.1 1.5% North American trash-to-energy............... 956.1 952.3 (0.4) WM International............................. 1,865.1 1,913.8 2.6 Intercompany revenue......................... (32.6) (46.6) -------- -------- Total...................................... $9,100.2 $9,225.6 1.4% ======== ======== ====
The solid waste services portion of North American revenue grew 3.5% to $5.73 billion in 1996. Solid waste services revenue growth in 1996 by line of business is shown in the following table:
PERCENT CHANGE ------- Residential....................................................... 4.2% Commercial........................................................ 4.1 Rolloff and industrial............................................ 5.7 Disposal, transfer and other...................................... 0.7
33 Although the Company pursued price increases in 1996, the impact on North American solid waste services revenue growth was minimal as a year-long decline in recyclable commodity prices largely offset the benefit of increases in the commercial and industrial markets. Volume growth added approximately 2.0% to such revenue. Acquisitions, net of dispositions, accounted for approximately 1.5%. Recycling revenue declined 16.0% from 1995 to 1996 due to the substantial price decline in recyclable commodities. The Company responded by reducing its processing of lower grades of paper, adjusting the capacity of its recycling operations and continually striving to reduce processing costs and improve the marketing of commodities. However, despite these efforts, it was unable to replace the profits associated with the stronger 1995 recyclable commodities market. North American hazardous waste revenue declined 7.7% from 1995 as the industry problems continued. The North American trash-to-energy revenue comparison is adversely affected by the loss of the Lisbon construction revenue in 1996. Excluding this factor, 1996 revenue grew $33.8 million, or 3.7%, to $952.3 million. The commercial operations of the Lisbon facility, which began in January 1996, contributed $18.4 million of the increase. WTI acquired two industrial cogeneration plants (so-called "inside-the-fence" facilities) during the year as part of its strategy to leverage its energy plant operating capabilities and project finance expertise by owning and/or operating power plants for industrial customers. Together these acquisitions contributed $7.3 million to 1996 revenue growth. Contractual price escalation at existing facilities, additional processing at several trash-to-energy plants, and lower energy purchase curtailment accounted for most of the remaining revenue growth. Overall spot pricing remained stable during the year. Expressed in U.S. dollars, WM International revenue increased $48.7 million or 2.6% in 1996 compared with 1995. Components of the revenue change are as follows:
PERCENT CHANGE ------- Price............................................................. 1.4% Volume............................................................ (0.6) Purchased businesses.............................................. 1.2 Foreign currency translation...................................... 0.6 ---- Total........................................................... 2.6% ====
Although WM International was able to implement price increases on its services despite weak economies in many of its markets, the impact of such increases was adversely affected by recyclable commodities prices falling substantially from their highs in 1995. Difficult economic conditions in Germany, France and Italy, as well as the closure of a landfill in France, resulted in a volume decline, partially offset by hazardous waste volume growth in The Netherlands and solid waste volume growth in the United Kingdom. In addition, the Company was awarded contracts to design, build and operate for fifteen years two transfer stations in Hong Kong. Construction revenue on one of these projects contributed to revenue growth in 1996. International acquisition activity was insignificant. Operating expenses. Operating expenses increased $145.8 million or 2.2% in 1996 over 1995. This increase was greater than the revenue increase due to several reasons. Self-insurance expense increased $57.0 million in 1996 over 1995. This increase consisted of $31.0 million related to growth of prior years claims, $18.0 million related to implementation of new claims reporting processes for the Company's North American solid waste operations and $8.0 million related to higher 1996 claims and claims cost growth. In addition, the Company accrued provisions for certain loss-making recycling contracts in 1996 totaling $12.4 million. During 1996 certain route optimization software along with other software projects became obsolete, resulting in $7.4 million being charged to operating expenses. Remediation expenses, net of insurance settlement recoveries declined by $13.4 million in 1996 from 1995, primarily as a result of additional settlements with insurance companies. Excluding the above, operating expenses for 1996 compared to 1995 increased. A large part of the increase was due to reduced recyclable commodity prices in 1996 as compared to 1995. Major declines in recyclable 34 commodity pricing resulted in actual disposal cost being incurred in some cases to physically dispose of certain commodities which could not be sold. In addition, operating expenses were impacted by severe weather during the year, particularly in comparison to a mild 1995 winter in North America, and higher fuel costs. Operating expenses as a percentage of revenue for WM International was impacted by lower margin Hong Kong construction revenues and volume declines in Europe that more than offset productivity improvements from streamlining of its operations. Operating expenses in the trash-to-energy business declined in both real terms and as a percentage of revenue as the result of the absence of the Lisbon construction revenue, which carried no margin. Selling and administrative expenses. Selling and administrative expenses increased only $3.7 million in 1996 from 1995. As a percentage of revenue such expenses declined from 12.0% to 11.9%. In 1996 the Company had two large receivables totaling $10.6 million charged to bad debt expense as a result of disputes with one customer and insolvency of another. In addition, $8.0 million was expensed primarily to write-off obsolete sales/customer oriented software program costs. These expenses were offset by productivity improvements in administrative processes throughout the organization. Special Charges. In the fourth quarter of 1996, WM International recorded a provision of $77.0 million after tax related to the sale of its investment in Wessex and a charge of $169.5 million after tax to revalue its investments in France, Austria and Spain in contemplation of exiting all or part of these markets or forming joint ventures. The charge also included the write-off of an investment in a hazardous waste disposal facility in Germany because regulatory changes adversely affected its volumes. These charges, primarily of a non-cash nature, reduced the Company's income by $213.6 million after tax. Also, in the fourth quarter of 1996, Waste Management and CWM recorded pretax charges of $154.1 million ($100.2 million after tax) for reengineering their finance and administrative functions and increasing reserves for certain litigation, including a dispute involving the computation of royalties on the Emelle, Alabama, hazardous waste landfill. In December 1996, a federal court in Memphis, Tennessee, held CWM liable for approximately $100.3 million in damages to the former owners of the Emelle site. CWM is appealing the decision. Any settlement of the Emelle litigation would be a cash payment, but the timing of such payment is uncertain. The balance of the charge is primarily non-cash, with $13.4 million of cash-related items paid largely in 1997. 1997 OPERATIONS COMPARED WITH 1996 Revenue. The following table sets forth changes in consolidated revenue from 1996 to 1997:
PERCENT 1996 1997 CHANGE -------- -------- ------- North America (excluding trash-to-energy)... $6,406.1 $6,451.3 0.7 % North American trash-to-energy.............. 952.3 998.5 4.9 WM International............................ 1,913.8 1,790.0 (6.5) Intercompany revenue........................ (46.6) (51.2) -------- -------- Total..................................... $9,225.6 $9,188.6 (0.4)% ======== ======== ====
The solid waste services portion of North American revenue fell by 0.2% to $5.72 billion in 1997, primarily due to divestiture of virtually all of the Canadian business mid-year, as well as the sale of other various underperforming North America locations. North American solid waste services revenue growth by line of business is shown in the following table:
PERCENTAGE CHANGE ---------- Residential.................................................... 1.2% Commercial..................................................... (1.2) Rolloff and industrial......................................... (0.3) Disposal, transfer and other................................... 0.0
35 Overall North American solid waste services revenue for the year decreased 0.2% primarily as a result of the effect of divestitures net of acquisitions which accounted for a 1.5% decrease. Excluding such net divestitures, overall revenue increased 1.3% as a result of a combination of higher prices and increased volumes. The 1997 revenue growth started out slightly negative in the first quarter as a result of lost customers in late 1996 following a price increase earlier in 1996. Revenue growth generally strengthened throughout the year, finishing with fourth quarter revenue in excess of three percent over the prior year sales, after considering divestitures. Pricing was fairly weak throughout the year, particularly during the first two quarters. Approximately one-third of the internal growth for the year came from pricing and the other two-thirds from volume. The hazardous waste segment revenue continued to decline slightly, falling about 6.8% from 1996. The increase in the North American trash-to-energy revenues of $46.2 million is largely attributed to $60.2 million of construction revenue for facilities that are being built and operated by WTI but owned by customers. Excluding this construction activity, 1997 revenue decreased $14.2 million or 1.5% from 1996 levels. Divestiture of certain biosolids landspreading contracts and lower air pollution control engineering revenues were primarily responsible. Spot waste disposal pricing remained stable on an overall basis compared to 1996, with slight strengthening in New England being offset by continued downward pressure in the South Florida markets. Expressed in U.S. dollars, WM International revenue decreased $123.8 million or 6.5% in 1997 compared with 1996. Components of the revenue change are as follows:
PERCENT CHANGE ------- Price............................................................ 4.4 % Volume........................................................... (1.4) Purchased businesses, net of divestitures........................ (2.5) Foreign currency translation..................................... (7.0) ---- Total.......................................................... (6.5)% ====
Increased landfill disposal taxes, which are passed through in disposal rates, accounted for 2.5% out of the 4.4% revenue growth from price. Volume in 1997 was lower than 1996 in three key markets. In Italy, landfill volumes were reduced as the result of permitting delays on landfill expansions and new landfill projects. The impact of this reduced capacity is expected to continue into 1998. Revenue declined in Latin America from abnormally high levels in 1996 from cleaning activities for Buenos Aires during the 1996 mayoral election, and in Germany as a result of general economic and competitive conditions. Partially offsetting these items were improved volumes in the Netherlands. Divestitures impacting 1997 revenue include the sale of various operations within France, Spain, Austria, and Germany. The sale of these operations reduced 1997 revenue by approximately 3.5% or $67 million from 1996 levels. In addition, the weakness of the various currencies in which WM International earns its revenues created a negative translation impact on total reported revenue for the year. Foreign currency movement has had, and can be expected to continue to have, an impact on reported revenue, expenses and net income. See "Derivatives and Market Risks" for further detail. Operating Expenses. Operating expenses increased $534.6 million or 8.0% in 1997 over 1996. This increase occurred despite a slight revenue decline due to several reasons. Remediation expenses, net of insurance recoveries increased $96.8 million in 1997 from 1996. In 1997, insurance recoveries were $33.9 million higher than in 1996, and were more than offset by remediation cost increases of $130.7 million. The increased remediation costs reflect $49.9 million of expense resulting from implemention of SOP 96-1 (see "Accounting Principles" below), $14.8 million of expense related to a change in the discount rate from 7% to 6% in the fourth quarter of 1997 and the balance primarily related to changes in remediation cost estimates at several disposal sites. Self-insurance expenses increased $95.0 million in 1997 from 1996. This increase included $56.0 million related to changes in estimating techniques with the balance coming from growth of prior years' claims. The Company incurred losses in 1997 and accrued provisions in 1997 for loss-making contracts totaling $136.2 million. These were primarily several large contracts with respect to which the Company determined in 1997 36 that such losses would continue for the contracts' duration. A large portion of this loss provision relates to multi-year recyclables processing contracts. The Company also recorded $13.6 million of additional reserves related to long-term contracts of its Chem-Nuclear subsidiary as a result of changes in estimated contract results. Other major items affecting operating expense in 1997 were accruals of $20.3 million primarily related to excess lease obligations, and other asset disposals or write-downs totaling $28.9 million primarily related to hazardous waste projects, obsolete inventory, scrapped equipment including recycling assets and obsolete/unused software. Effective October 1, 1997, the Board of Directors approved a management recommendation to revise the Company's North American collection fleet management policy. Front-end loaders will be replaced after 8 years, and rear- end loaders and rolloff trucks after 10 years. The previous policy was to not replace front-end loaders before they were a minimum of 10 years old and other heavy collection vehicles before they were a minimum of 12 years old. As a result of this decision, the Company recognized an impairment writedown of $70.9 million in the fourth quarter of 1997 for those vehicles scheduled for replacement in the next two years under the new policy. Depreciable lives were adjusted commencing in the fourth quarter of 1997 to reflect the new policy. Also effective October 1, 1997, the Company reduced depreciable lives on containers from 15 and 20 years to 12 years, and ceased assigning salvage value in computing depreciation on North American collection vehicles and containers. These changes in estimates increased depreciation expense by $33.7 million in the fourth quarter of 1997. Also effective October 1, 1997, the Company changed its process for estimating landfill lives. The Company now amortizes landfill costs over estimated landfill capacity which includes permitted landfill airspace plus expansions which are probable of being obtained in the next five years. The Company's prior practice was to consider likely expansions in the amortization calculations, whether or not the permits were expected to be obtained within the next five years. Factors in determining probable expansions on a site-by- site basis include secured rights to required land, status of legal, environmental, regulatory and political issues, and the extent to which the permit application process has proceeded. This change in estimate increased depreciation and amortization by $12.7 million and the provision for closure and post-closure by $3.1 million in the fourth quarter of 1997, and resulted in estimated landfill capacity declining from 2.9 billion cubic yards to 1.8 billion cubic yards. After considering the above, operating expenses as a percentage of revenue for 1997 compared to 1996 increased. Hazardous waste operating expenses increased as a percentage of revenue due to continued pressure on prices, lower volumes and a shift in revenue mix toward lower margin services. Trash- to-energy operating costs increased as a percentage of revenue primarily due to the impact of increased construction revenue, which has a lower associated margin. WM International operating expenses increased largely as a result of lower margins for the operations in Italy. Selling and Administrative Expenses. Selling and administrative expenses increased $33.8 million or 3.1% in 1997 over 1996. As a percentage of revenue, selling and administrative expenses increased from 11.9% in 1996 to 12.3% in 1997. Included in selling and administrative expenses in 1997 were $39.0 million in additional legal expense reflecting changes in estimates of litigation-related liabilities. In addition, 1997 bad debt expense included $8.7 million related to two large accounts receivable disputes settled in 1997, $6.7 million of accounts receivable in the New York City area that in part were compromised as a result of agreements made with the New York City licensing authorities, and $3.2 million for certain partner/venture receivables. The Company also wrote off $4.0 million in various sales-related assets which included prepaid advertising credits that were expected to expire before their use. The Company reduced other administrative expenses as a result of divestitures and is continuing to make productivity improvements in many administrative areas. Special Charges. In 1997, the Company recorded a special charge of $41.6 million (primarily in the fourth quarter) for severance. Employees terminated were primarily field operating management and related support personnel. Approximately $5.9 million of the severance had been paid by December 31, 1997, with the balance to be paid in 1998 and thereafter. 37 WM International also recorded a special charge in 1997 ($104.4 million before tax and minority interest) to reflect the costs of demobilization in Argentina following loss of the contract renewal for the City of Buenos Aires, divestiture or closure of underperforming businesses, primarily in Italy and Germany and the writeoff of costs of projects, primarily in Germany, which it decided to no longer pursue. The charge included $14.8 million of severance, primarily related to operating personnel in Buenos Aires and with closed or divested businesses in Italy and Germany. These terminations are expected to occur and the severance paid in 1998. OTHER ITEMS Asset Impairment Loss. As a result of the comprehensive review of operating assets and investments discussed in Notes 2, 3 and 16 to Consolidated Financial Statements, the Company recorded an impairment loss of $1.48 billion in 1997. Prior period financial statements were restated to recognize impairment losses in earlier periods. Asset impairment loss was $34.0 million in 1994, $53.8 million in 1995, and $64.7 million in 1996. The 1994 impairment losses included $22.4 million related to unsuccessful or abandoned landfill development or expansion projects. In addition, the Company abandoned certain vehicle-related systems development projects totalling $7.3 million. Several properties identified as surplus were written down to fair value, resulting in $4.3 million in such charges. The 1995 impairment losses included $48.2 million for several unsuccessful landfill development or expansion projects. This included one site with an impairment loss of $29.9 million, which was recognized as a result of the passage of legislation prohibiting a previously planned expansion. The 1996 impairment losses were primarily related to recycling investments. Of the $47.8 million impairment loss related to these investments, $35.7 million represented goodwill, primarily related to two acquisitions made in 1995. These impairment losses were the result of major price declines in the recyclable paper market caused by an industry wide-pricing collapse in the pulp and paper market. In addition, impairment losses of $13.4 million were recognized with respect to landfill facilities, primarily as a result of one landfill site having its volumes curtailed and a planned expansion becoming remote. In 1997 impairment losses were primarily due to revaluation of numerous treatment and disposal facilities of the Company and associated goodwill. Revaluation of investments in the North American hazardous waste services business accounted for $776.2 million of the impairment loss. This impairment was a result of continuing pricing and volume declines in the hazardous waste services markets, which currently have excess capacity. Changes in environmental regulations are also allowing certain hazardous waste streams to be managed by others with less expensive treatment and disposal alternatives. In addition, $344.8 million of the 1997 impairment losses related to solid waste landfills. This included $163.9 million related to the Company's abandonment of several landfill development or expansion projects. The balance of this impairment loss was primarily the result of substantial pricing or volume declines at certain landfills and a shortening of estimated life of 10 landfills (See Note 3 to Consolidated Financial Statements). As a result of the Company's adoption of a new fleet replacement policy in 1997, certain older collection vehicles became impaired and a loss was recorded totaling $70.9 million (See Note 3 to Consolidated Financial Statements). Other 1997 impairment losses included $122.2 million related to the revaluation of Rust International Inc. ("Rust") domestic engineering and consulting business, discussed below under "Discontinued Operations and Other Major Asset Dispositions". Impairment losses of $38.2 million were also recorded for surplus real estate being held for sale. WTI recorded a 1997 impairment loss of $57.2 million. This included $47.1 million related to revaluation of a wood waste burning independent power production facility. Interest. The following table sets forth the components of consolidated interest expense, net:
1994 1995 1996 1997 ------- ------ ------ ------ Interest expense......................... $ 456.1 $507.8 $498.0 $472.9 Interest income.......................... (42.8) (34.9) (27.9) (37.6) Capitalized interest..................... (105.9) (43.9) (35.6) (26.0) ------- ------ ------ ------ Interest expense, net.................... $ 307.4 $429.0 $434.5 $409.3 ======= ====== ====== ======
38 Gross interest expense increased from 1994 to 1995 as a result of an earlier management decision to increase the leverage of the Company. Debt levels increased in 1995, primarily a result of the acquisition of the public ownership of CWM and Rust. The large decline in capitalized interest in 1995 is due to a change in accounting methods effective January 1, 1995. Capitalized interest declined further in 1996 and 1997 as significant capital projects were completed and the Company reduced capital spending. See "Financial Condition--Capital Structure" and Note 3 to Consolidated Financial Statements. Although the Company repurchased a substantial number of its shares in 1996 and 1997, debt levels were reduced in 1997 resulting in lower interest expense. Minority Interest. Minority interest declined from 1994 to 1995 as a result of the 1995 purchases by the Company of the publicly-owned shares of CWM and Rust and lower earnings by certain subsidiaries, as well as the minority interest share (approximately $41.3 million) in the WM International special charge. Minority interest declined from 1995 to 1996 as a result of higher earnings by certain subsidiaries and the minority interest share (approximately $63.8 million) in the WM International special charges. Minority interest in 1997 was comparable to 1996, and was impacted by $27.9 million related to the WM International 1997 special charge and $15.9 million by the 1997 WTI asset impairment loss. Sundry Income, Net. Below is a summary of major components in sundry income, net.
1994 1995 1996 1997 ------ ------ ------ ------ Gain on sale of investments/businesses...... $ 25.1 $168.9 $ 30.1 $180.3 Writedown of investments.................... -- -- -- (25.7) Equity income............................... 60.2 77.0 61.4 (6.9) Other....................................... 24.6 6.8 10.5 25.6 ------ ------ ------ ------ Sundry income, net.......................... $109.9 $252.7 $102.0 $173.3 ====== ====== ====== ======
Equity income in 1994, 1995 and 1996 included income from ServiceMaster L.P. ("ServiceMaster") and Wessex investments of $60.2 million, $77.0 million and $59.4 million, respectively. These investments were sold in the second quarter of 1997 with no equity income recorded for Wessex or ServiceMaster. Equity income in the second quarter of 1997 was also reduced by $10.4 million related to a special charge recorded by OHM Corporation ("OHM"), an environmental remediation services business approximately 37% owned by Rust. Gains/(loss) on sale of investments/businesses are primarily related to the following items (1) $25.1 million gain on sale of the Company's Modulaire mobile office services business in 1994; (2) $160 million gain the fourth quarter of 1995 recorded as a result of the exchange of an interest in ServiceMaster Consumer Services L.P. for an interest in ServiceMaster and an option to purchase 1.25 million ServiceMaster limited partnership shares; (3) $30.1 million in 1996 and $43.4 million in 1997 of gains on sales of North American solid waste businesses, (including $32.6 million on sale of Canadian operations); and (4) $129 million gain in the first quarter of 1997 from the sale of the Company's investment in ServiceMaster. Writedown of investments includes $19.5 million related to the OHM investment and $6.2 million in other investments, all of which were recorded in the fourth quarter of 1997. Income Taxes. The consolidated income tax rate varies between years as a result of shifts in the source of taxable income. The inability to realize tax benefits on a portion of the 1994, 1995, 1996 and 1997 special charges and asset impairment loss resulted in an increased tax provision in those years, primarily attributable to non-deductible goodwill and the writedown of investments in subsidiaries. In addition, the Company increased deferred tax valuation allowances and other tax reserves. See Note 4 to Consolidated Financial Statements. Discontinued Operations and Other Major Asset Dispositions. During the fourth quarter of 1995, the Company announced that Rust would sell or discontinue its process engineering, construction, specialty contracting and similar lines of business. Further, as the Company refined its business strategy to focus on waste management services, other business units were identified in 1996 and 1997 as units to be either sold or discontinued. In 1996, Rust sold its engineering and construction business as well as its industrial scaffolding business for $295.1 million, and WTI sold its water process, manufacturing and custom engineered systems business for 39 $369.6 million in cash. In 1997, Rust disposed of certain of its international engineering and consulting businesses and WTI sold its remaining water services business for 2.3 million registered shares of U.S. Filter stock, valued at approximately $64 million. The Rust engineering and scaffolding businesses and its international engineering and consulting businesses, together with the WTI water businesses, have all been classified as discontinued operations in the accompanying financial statements. Because Rust did not sell its remaining domestic engineering and consulting businesses prior to December 31, 1997, these businesses have been reclassified as continuing operations held for sale in the accompanying financial statements for all periods. The original provision, established in 1996, for loss on the sale (approximately $87 million) of these discontinued businesses has been reversed as income in "income (loss) on disposal" in discontinued operations, and a new provision for loss on sale (approximately $122 million) was provided as an asset impairment loss in the Consolidated Statements of Income, all in the fourth quarter of 1997. While the Company intends to sell these businesses, it is unable to estimate when a buyer will be found and a sale can be consummated. In 1997, Waste Management sold its investment in ServiceMaster for $626 million, and sold various non-integrated waste services businesses in North America for $288.9 million. Additionally in 1997, WM International sold businesses in France, Spain, Austria and Germany for $128.3 million and its approximately 20% interest in Wessex for approximately $300 million. In early 1998, WM International sold its Hamm, Germany waste-to-energy facility for $137 million. Also in early 1998, Rust's 37% ownership of OHM was sold for cash totaling $111.2 million. This sale occurred in connection with the merger of OHM with International Technology Corporation. As part of this transaction, Rust received a distribution of shares of NSC Corporation, a leading U.S. asbestos abatement contractor, increasing its ownership of NSC Corporation to 54.3%. ACCOUNTING PRINCIPLES Effective January 1, 1994, the Company adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits." The change reduced 1994 net income by $1.3 million. Effective January 1, 1995, the Company changed its method of capitalizing interest on landfill cell construction. See Note 3 to Consolidated Financial Statements. The change reduced 1995 net income by $84.7 million. Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The effect of adoption was not material. Impairments recorded prior to 1996 followed a methodology consistent with FAS No. 121. FAS No. 123, "Accounting for Stock-Based Compensation" also became effective in 1996. However, FAS No. 123 permitted compensation to continue to be accounted for under Accounting Principles Board Opinion No. 25, and the Company elected to follow this alternative. See Note 9 to Consolidated Financial Statements. Effective January 1, 1997, the Company adopted American Institute of Certified Public Accountants Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities." SOP 96-1 provides that environmental remediation liabilities should be accrued when the criteria of FAS No. 5, "Accounting for Contingencies," are met. It also provides that the accrual for such liabilities should include future costs for those employees expected to devote a significant amount of time directly to the remediation effort. The adoption of SOP 96-1 reduced 1997 pretax income from continuing operations by $49.9 million. In the fourth quarter of 1997, the Company began expensing process reengineering costs (including $3.0 million previously capitalized) in accordance with Emerging Issues Task Force consensus 97-13, reducing 1997 net income by $1.9 million. Also in 1997, the Company began presenting earnings per share in accordance with FAS No. 128. See Note 11 to Consolidated Financial Statements for further discussion. 40 In June 1997, the Financial Accounting Standards Board issued FAS No. 130, "Reporting Comprehensive Income," and FAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." Both statements are effective for fiscal years beginning after December 15, 1997, although FAS No. 131 does not apply to the Company's interim financial statements until 1999. FAS No. 130 requires only a different format for presentation of information already included in the Company's financial statements. FAS No. 131 modifies the basis for determining segments and expands required disclosure, but does not affect accounting principles and, accordingly, will not require any change to reported financial position, results of operations or cash flows. The Company is currently evaluating the impact of FAS No. 131 on its segment reporting. DERIVATIVES AND MARKET RISKS In the normal course of business, the Company is exposed to market risk, including changes in interest rates, currency exchange rates, certain commodity prices and certain equity prices. From time to time, the Company and certain of its subsidiaries use derivatives to manage some portion of these risks. The derivatives used are simple agreements which provide for payments based on the notional amount, with no multipliers or leverage. All derivatives are related to actual or anticipated exposures or transactions of the Company. While the Company is exposed to credit risk in the event of non-performance by counterparties to derivatives, in all cases such counterparties are highly rated financial institutions and the Company does not anticipate non- performance. The Company does not hold or issue derivative financial instruments for trading purposes. The Company monitors its derivative positions by regularly evaluating the positions at market and by performing sensitivity analyses. The Company has performed sensitivity analyses to determine how market rate changes will affect the fair value of the Company's market risk sensitive derivatives and related positions. Such an analysis is inherently limited in that it represents a singular, hypothetical set of assumptions. Actual market movements may vary significantly from the Company's assumptions. The effects of such market movements may also directly or indirectly affect Company rights and obligations not covered by the sensitivity analysis. Fair value sensitivity is further not necessarily indicative of the ultimate cash flow or earnings effect on the Company from the assumed market rate movements. Interest Rate Exposure. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's debt obligations, which are mainly denominated in U.S. dollars. In addition, interest rate swaps are used to lock-in or limit the variability in the interest expense of certain floating rate debt obligations. An instantaneous, one percentage point decline in interest rates across all maturities and applicable yield curves would adversely affect the fair value of the Company's combined debt and interest rate swap position by approximately $250 million. This analysis does not reflect the effect that declining interest rates would have on other items such as pension liabilities, nor the favorable impact they would have on interest expense and cash payments for interest. Currency Rate Exposure. From time to time, the Company and certain of its subsidiaries have used foreign currency derivatives to seek to mitigate the impact of translation on foreign earnings and income from foreign investees. Typically these derivatives have taken the form of purchased put options or collars. There were no currency derivatives outstanding at December 31, 1997, that relate to hedging the translation of foreign earnings. The Company occasionally incurs currency risk from cross border transactions. When such transactions are anticipated or committed to, the Company may enter into forward contracts or purchase options to reduce or eliminate the related foreign exchange risk. The Company also incurs exchange rate risk from borrowings denominated in foreign currencies. An instantaneous, 10 percent adverse movement in foreign exchange rates would affect the fair value of the Company's foreign currency borrowings and foreign exchange hedges at December 31, 1997, by approximately $30 million. The total effect on the Company from movements in exchange rates will also be influenced by other factors. For example, an increase in the fair value of foreign currency denominated debt caused by exchange rate movements may be more than offset by an increase in the value of the Company's net investment in foreign countries. 41 Commodities Price Exposure. The Company operates a large fleet of vehicles that require the purchase of a significant amount of diesel fuel. The Company uses crude oil collars and swaps as a proxy to seek to mitigate the risk of fluctuations in diesel fuel prices. The Company's fuel collars consist of a call option or "cap" and a corresponding put option at a lower price or "floor." The cap limits the Company's potential increased operating cost from higher fuel prices whereas the floor limits the Company's potential cost savings from a decline in fuel prices. Under its fuel swap agreements, the Company collects payments from the swap counterparty when fuel prices average above a certain reference price. When prices average below said reference prices, the Company makes payments to the counterparty. All of the Company's fuel hedges are cash settled. Quantities hedged do not exceed committed fuel purchases or anticipated usage in any period. An instantaneous, 10 percent decrease in the applicable reference price for hedges in place at December 31, 1997, would cause a fair value loss to the Company of approximately $6 million. The Company expects that these losses would be offset by savings from buying fuel at prices below December 31, 1997, market prices. Equity Price Exposure. The Company occasionally obtains stock that it needs to hold for a certain period of time. The Company sometimes seeks to mitigate its market exposure to such holdings by entering into equity collars. Such a collar consists of a "cap" that limits the Company's potential for gain from appreciation in the stock price as well as a "floor" that limits the Company's loss potential from a decline in the stock price. An instantaneous, 10 percent decline in the price of the shares held by the Company at December 31, 1997, would adversely affect the combined fair value of the stock and collar positions by approximately $2 million. The Company is also further subject to equity price exposure from Company debt issues that are convertible into the Company's common stock. These debt issues had an aggregate carrying value of $494.5 million as of December 31, 1997. An instantaneous, 10 percent increase in the Company's stock price on December 31, 1997, would increase the fair value of the Company's convertible debt by approximately $23 million. See Note 7 to Consolidated Financial Statements for further discussion of the use and accounting for derivative instruments. Also see "Financial Condition--Capital Structure" for a discussion of the Company's sale of put options in connection with its stock repurchase program. ENVIRONMENTAL MATTERS The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment. As such, a significant portion of the Company's operating costs and capital expenditures could be characterized as costs of environmental protection. Such costs may increase in the future as a result of legislation or regulation; however, the Company believes that in general it tends to benefit when environmental regulation increases, which may increase the demand for its services, and that it has the resources and experience to manage environmental risk. As part of its ongoing operations, the Company provides for estimated closure and post-closure monitoring costs over the operating life of disposal sites as air space is consumed. The Company has also established procedures to evaluate potential remedial liabilities at closed sites which it owns or operated or to which it transported waste, including 89 sites listed on the Superfund National Priority List ("NPL") as of December 31, 1997. Where the Company concludes that it is probable that a liability has been incurred, provision is made in the financial statements. See Note 8 to Consolidated Financial Statements for additional information regarding the Company's environmental liabilities. Estimates of the extent of the Company's degree of responsibility for a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult, and the ultimate outcome may differ from current estimates. However, the Company believes that its extensive experience in the environmental services industry, as well as its involvement with a large number of sites, provides a reasonable basis for estimating its aggregate liability. As additional information becomes available, estimates are adjusted as necessary. While the Company does not anticipate that such adjustments would be material to its financial 42 statements, it is reasonably possible that technological, regulatory or enforcement developments, the results of environmental studies, the existence and ability of other potentially responsible third parties to contribute to the settlements of such liabilities, or other factors could alter this expectation and necessitate the recording of additional liabilities which could be material. The Company spent, net of recoveries from other potentially responsible parties, $71.5 million, $38.5 million, $69.8 million and $14.7 million on remedial activities at closed sites in 1994, 1995, 1996, and 1997 respectively, and anticipates such net expenditures of approximately $57.3 million in 1998. The Company has filed suit against numerous insurance carriers seeking reimbursement for past and future remedial, defense and tort claim costs at a number of sites. Carriers involved in these matters have typically denied coverage and are defending against the Company's claims. While the Company is vigorously pursuing such claims, it regularly considers settlement opportunities when appropriate terms are offered. Settlements received to date ($50.1 million in 1994, $38.2 million in 1995, $60.3 million in 1996, and $94.3 million in 1997) have been included in operating expenses as an offset to environmental expenses. From time to time, the Company and certain of its subsidiaries are named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of a Company subsidiary's having owned, operated or transported waste to disposal facilities which are alleged to have contaminated the environment or, in certain cases, conducted environmental remediation activities at such sites. YEAR 2000 ISSUES Waste Management, like many other companies, expects to incur expenditures to address the so-called "Year 2000" problem. The Year 2000 problem exists because many computer systems and applications currently use two-digit data fields to designate a year. As the century date change occurs, date-sensitive systems will recognize the year 2000 as 1900, or not at all. This inability to properly recognize or handle the year 2000 may cause systems to process critical financial and operational information incorrectly, or to fail completely. The reengineering of the finance and administrative processes, which the Company began in 1996, includes new computer software which will be Year 2000 compliant, and will resolve the issue for many of the financial and administrative systems. The Company's principal customer billing and customer service systems are currently being remediated to comply with Year 2000 issues. To varying degrees, the Company has assessed and continues to assess the impact of the Year 2000 issue on other systems, including those used by its customer billing and customer service functions. The Company has not completely identified its exposure to the Year 2000 issue, or formulated its plans for addressing and resolving this issue in other systems, but expects to be able to do so or to effectively work around unresolved problems in a timely manner. The Company has established a Year 2000 program management office to coordinate the efforts of its own staff of information technology professionals and outside consultants engaged to reprogram, replace or test software and related assets affected by the Year 2000 issue. The Company spent approximately $6.0 million in 1997 for Year 2000 modification of computer systems and estimates it will spend an additional $45 million in 1998 and 1999, excluding the cost of new hardware and software which will be principally capitalized and is included in the capital budget. The Company believes its contemplated actions will effectively address the Year 2000 issue, but should that not be the case, a material disruption of its business could result. Specific factors that might cause the Company not to be able to address the Year 2000 issue effectively and that could influence the amount and timing of future costs include, but are not limited to, the availability and cost of personnel trained in this specialized area, the nature and amount of programming required to upgrade and replace the affected software, the ability to locate and correct all relevant computer codes, the success of the Company's principal suppliers in addressing the Year 2000 issue and similar uncertainties. 43 FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES The Company had working capital deficits of $1,047.1 million, $280.9 million, and $2,046.9 million as of December 31, 1995, 1996, and 1997 respectively. The Company operates in a capital intensive service industry with neither significant inventory nor seasonal variation in receivables, and generates substantial cash from operating activities. As a result, emphasis is placed on minimizing working capital requirements. The increase in working capital between 1995 and 1996 is a result of lower current debt maturities, strong cash flow, including the proceeds from the sale of a portion of the WTI water business late in 1996, and the reclassification to current of the investment in Wessex to be sold, partially offset by increased accruals for losses on the sale of certain investments. The increase in working capital deficit between 1996 and 1997 results primarily from lower levels of cash and short-term investments ($451 million), higher levels of long-term debt payable within one year ($995 million) and higher accrued expenses ($290 million) related to loss contract provision reserves, increased self insurance reserves and other reserves recorded as a result of the comprehensive review performed by management. See Note 2 to Consolidated Financial Statements. Cash flow from operating activities, less capital expenditures (other than acquisitions) and dividends, which the Company defines as "owners' cash flow," is available to meet current obligations, make acquisitions, reduce debt, or repurchase common stock. Management has adopted a cash-driven financial strategy including reduced capital spending and divestiture of non-core assets and non-integrated businesses. Owners' cash flow was approximately $0.3 billion, $0.5 billion, $1.0 billion, and $1.8 billion in 1994 through 1997 respectively. The Company expects to generate approximately $400 million during 1998 from the divestiture of certain non-core investments and non- integrated businesses subject to constraints necessitated to meet pooling-of- interests accounting treatment as required in the Merger with USA Waste. The Company believes that it has adequate liquidity and resources to meet its needs for replacement capital and finance anticipated growth. See "Capital Structure." In February 1998, the credit ratings on the Company's senior unsecured long- term debt were lowered to BBB by Standard & Poor's Rating Services and Baa3 by Moody's Investors Service. Previously, the Company's debt was rated A- and Baa1 by Standard & Poor's and Moody's, respectively. The lower credit ratings, which are still investment grades, are not expected to have a material effect on the Company's availability of long-term debt funding. These ratings are independently issued by the rating agencies and are subject to change at any time. On December 29, 1997 the Company put in place bank credit facilities totalling $800 million for general corporate purposes including standby liquidity for its commercial paper program. The facilities consist of a $550 million standby trade receivables sale agreement and a $250 million revolving credit agreement, both of which expire June 30, 1998. The Company historically has met its short-term funding requirements through the issuance of commercial paper in the public markets, with bank credit facilities available as standby liquidity. In February 1998, Moody's lowered its rating of the Company's commercial paper from Prime-2 ("P2") to Prime-3 ("P3"), and there may be times when the Company is unable to issue sufficient commercial paper to meet its needs. The market for A2/P3-rated commercial paper is somewhat smaller than for higher-rated commercial paper. At such times, the Company will fund its requirements using the bank credit facilities which are in place and sufficient to meet such needs. In connection with the planned purchase of the remaining publicly held WTI shares, the Company has entered into a commitment with the Chase Manhattan Bank ("Chase") whereby Chase, along with other financial institutions, has committed, subject to the satisfaction of certain conditions, to provide new credit facilities in the amount of $1.1 billion. The new credit facilities, which will have a termination date of December 31, 1998 (subject to earlier termination in the event of a change-in-control, including the Merger with USA Waste), will provide the funding needed to complete the WTI transaction and replace the Company's existing $250 million revolving credit facility. Additionally, the termination date of the Company's $550 million standby trade receivables sale agreement will be extended from June 30, 1998 to December 31, 1998. 44 ACQUISITIONS AND CAPITAL EXPENDITURES Capital expenditures, including $56.8 million, $154.1 million, $91.8 million and $19.3 million for property and equipment of purchased businesses in 1994, 1995, 1996 and 1997, respectively, are shown in the following table:
DECEMBER 31 --------------------------------- 1994 1995 1996 1997 -------- -------- -------- ------ Land (primarily disposal sites)......... $ 566.9 $ 470.5 $ 406.2 $359.9 Buildings and leasehold improvements.... 141.2 148.8 109.3 76.4 Vehicles................................ 226.0 345.8 204.9 160.9 Containers.............................. 167.9 181.2 115.8 112.1 Other equipment......................... 395.0 348.1 319.2 189.5 -------- -------- -------- ------ Total................................. $1,497.0 $1,494.4 $1,155.4 $898.8 ======== ======== ======== ======
In 1994, the Company and its principal subsidiaries acquired 119 businesses for $197.2 million in cash and notes, $17.3 million of debt assumed, 73,809 shares of Company common stock and 156,124 shares of WTI common stock. During 1995, 136 businesses were acquired for $224.3 million in cash and notes, $77.7 million of debt assumed, and 2.2 million shares of the Company's common stock. In 1996, 83 businesses were acquired for $104.8 million in cash and notes, $39.4 million of debt assumed, and approximately 8.2 million shares of the Company's common stock. During 1997, 45 businesses were acquired for $51.4 million in cash and notes, $17.6 million of debt assumed, and 121,551 shares of the Company's common stock. The Board of Directors has approved a capital expenditure budget of $1,300.0 million for 1998, excluding acquisitions, although the Merger Agreement with USA Waste limits the Company's 1998 capital expenditures, excluding acquisitions, to $1.2 billion. The increase in the 1998 capital expenditure budget primarily reflects increased spending for vehicles resulting from the adoption of a new fleet management strategy in the fourth quarter of 1997, as well as an anticipated increase in spending for new information systems and landfill cell construction. The Company currently expects to finance capital expenditures through cash flow from operations and believes that it has adequate resources to finance attractive acquisitions that become available. CAPITAL STRUCTURE Although the Company has placed increasing emphasis on generating owners' cash flow during 1994-1997, a substantial portion of such cash has been returned to stockholders through stock repurchases. Debt to total capital ratios were adversely impacted by the issuance of the subordinated notes discussed below which were used to repurchase the publicly held shares of CWM in 1995 and by the substantial reduction in stockholders' equity as a result of common stock repurchases and losses sustained in 1996 and 1997. The following table sets forth certain of the Company's leverage ratios:
DECEMBER 31 ---------------------- 1994 1995 1996 1997 ---- ---- ---- ---- Long-term debt as a percent of total capital..... 51.5% 52.9% 58.2% 67.4% Short-term and long-term debt as a percent of short-term debt and total capital............... 54.9% 56.8% 60.0% 73.0%
The above ratios include minority interest in subsidiaries and put options as part of total capital. In January 1995, the Company acquired all of the approximately 21.4% of the outstanding shares of CWM that it did not already own, in return for convertible subordinated debt. In July 1995, Waste Management acquired the approximately 3.1 million Rust shares held by the public for $16.35 per share in cash. In June 1997, the Company announced an offer to acquire, for $15 per share in cash, all of the approximately 53 million 45 outstanding shares of WTI it does not already own. The price was increased to $16.50 per share pursuant to a definitive agreement subsequently negotiated with a special committee of independent WTI directors. The terms of the agreement have been approved by the WTI special committee and by the Boards of Directors of the Company and WTI, but the transaction remains subject to the approval of the holders of a majority of WTI's outstanding shares, other than those held by the Company, voting on it at a special meeting of WTI stockholders to be held March 30, 1998. In addition, this transaction is the subject of several lawsuits which seek, among other things, to enjoin the proposed transaction. The Company believes that it has met the legal standards applicable to transactions of this type and intends to vigorously defend itself in the lawsuits. The Boards of Directors of Waste Management and WTI had authorized their respective companies to repurchase shares of their own common stock. Waste Management repurchased 30 million shares through a "Dutch auction" tender offer in the second quarter of 1997 but did not repurchase any other shares that year. The Company does not at this time expect to repurchase any additional shares of its own common stock. WTI repurchased 5.1 million shares in the first six months of 1997 but terminated its repurchase activity following the Waste Management offer to acquire the remaining publicly held shares. During 1994 through 1996, in conjunction with its previously authorized repurchase program, Waste Management sold put options on 42.3 million shares of its common stock. The put options give the holders the right at maturity to require the Company to repurchase its shares at specified prices. Proceeds from the sale of put options were credited to additional paid-in capital. See Note 10 to Consolidated Financial Statements for further information. There were no put options outstanding at December 31, 1997, and the Company does not at this time expect to sell additional options in the future. In 1994, the Company formed an Employee Stock Benefit Trust and sold 12.6 million shares of treasury stock to the Trust in return for a 30-year, 7.33% note with interest payable quarterly and principal due at maturity. The Company has agreed to contribute to the Trust each quarter funds sufficient, when added to dividends on the shares held by the Trust, to pay interest on the note as well as principal outstanding at maturity. At the direction of an administrative committee composed of Company officers, the Trust will use the shares or proceeds from the sale of the shares to pay employee benefits, and to the extent of such payments by the Trust, the Company will forgive principal and interest on the note. RISKS AND UNCERTAINTIES During the first quarter of 1995, WM International received an assessment from the Swedish Tax Authority of approximately 417 million Krona (approximately $53 million) plus interest from the date of the assessment, relating to a transaction completed in 1990. WM International believes that all appropriate tax returns and disclosures were filed at the time of the transaction and intends to vigorously contest the assessment. A Company subsidiary has been involved in litigation challenging a municipal zoning ordinance which restricted the height of its New Milford, Connecticut, landfill to a level below that allowed by the permit previously issued by the Connecticut Department of Environmental Protection ("DEP"). Although a lower Court had declared the zoning ordinance's height limitation unconstitutional, during 1995 the Connecticut Supreme Court reversed this ruling and remanded the case for further proceedings in the Superior Court. In November 1995, the Superior Court ordered the subsidiary to apply for all governmental permits needed to remove all waste above the height allowed by the zoning ordinance, and the Connecticut Supreme Court has upheld that ruling. The Company is complying with the order of the Superior Court while also seeking an alternative resolution to this matter. The Company is unable to predict the outcome of this matter at this time. Depending upon the nature of any plan eventually approved by applicable regulatory authorities for removing the waste, the actual volume of waste to be moved, and other currently unforseeable factors, the subsidiary could incur costs which would have a material adverse impact on the Company's results of operations in one or more future periods. In May 1994, the U.S. Supreme Court ruled that state and local governments may not constitutionally restrict the free movement of waste in interstate commerce through the use of regulatory flow control laws. Such 46 laws typically involve a local government specifying a jurisdictional disposal site for all solid waste generated within its borders. Since the ruling, several decisions of state or federal courts have invalidated regulatory flow control schemes in a number of jurisdictions. Other judicial decisions have upheld non-regulatory means by which municipalities may effectively control the flow of municipal solid waste. In addition, federal legislation has been proposed, but not yet enacted, to effectively grandfather existing flow control mandates. There can be no assurance that such alternatives to regulatory flow control will in every case be found to be lawful or that such legislation will be enacted into law. The Supreme Court's 1994 ruling and subsequent court decisions have not to date had a material adverse affect on any of the Company's operations. In the event that legislation to effectively grandfather existing flow control mandates is not adopted, the Company believes that affected municipalities will endeavor to implement alternative lawful means to continue controlling the flow of waste. However, given the uncertainty surrounding the matter, it is not possible to predict what impact, if any, it may have in the future on the Company's disposal facilities, particularly WTI's trash-to-energy facilities. WTI's Gloucester County, New Jersey, facility relies on a disposal franchise for substantially all of its supply of municipal solid waste. On May 1, 1997, the Third Circuit Court of Appeals ("Third Circuit") permanently enjoined the State of New Jersey from enforcing its franchise system as a form of unconstitutional solid waste flow control, but stayed the injunction for so long as any appeals were pending. On November 10, 1997, the U.S. Supreme Court announced its decision not to review the Third Circuit decision, thereby ending the stay and, arguably, the facility's disposal franchise. The State had continued to enforce flow control during the stay period. In light of the current circumstances, the facility has lowered its prices and solicited new customers. Under the reimbursement agreement between the project company that owns the Gloucester facility and the bank that provides credit support to the project, the termination of the waste franchise constitutes an event of default. WTI and the credit support bank are presently disputing the consequences of these developments. The New Jersey legislature has been considering various alternative solutions, including a bill that provides for the payment and recovery of bonded indebtedness incurred by counties, public authorities and certain qualified private vendors in reliance on the State's franchise system. WTI currently believes that, through either legislative action or a project recapitalization, the Gloucester project can be restructured to operate, in the absence of regulatory flow control, at a level of profitability which will not result in a material adverse impact on consolidated results. Within the next several years, the air pollution control systems at certain trash-to-energy facilities owned or leased by WTI will be required to be modified to comply with more stringent air pollution control standards adopted by the United States Environmental Protection Agency in December 1995 for municipal waste combusters. The compliance dates will vary by facility, but all affected facilities will be required to be in compliance with the new rules by the end of the year 2000. Currently available technologies will be adequate to meet the new standards. The total capital expenditures required for such modifications are estimated to be in the $180-$220 million range. The impacted facilities long-term waste supply agreements generally require that customers pay, based on tonnage delivered, their proportionate share of incremental capital, financing, and operating costs resulting from changes in environmental regulations. Customer shares of capital and financing costs are typically recovered over the remaining life of the waste supply agreements. Pro rata operating costs are recovered in the period incurred. The Company currently expects to recover approximately two-thirds of the incremental expenditures incurred to comply with these stricter air emission standards. As the states and the U.S. Congress have accelerated their consideration of ways in which economic efficiencies can be gained by deregulating the electric generation industry, some have argued that over-market power sales agreements entered into pursuant to the Public Utilities Regulatory Policies Act of 1978 ("PURPA") should be voidable as "stranded assets." WTI's power production facilities are qualifying facilities under PURPA and depend on the sanctity of their power sales agreements for their economic viability. WTI believes that federal law offers strong protections to its PURPA contracts, and recent state and federal agency and court 47 decisions have unanimously upheld the inviolate nature of these contracts. While there is a risk that future utility restructurings, court decisions or legislative or administrative action in this area could have an adverse effect on its business, the Company currently believes such risk is remote. In the ordinary course of conducting its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including antitrust and environmental matters and commercial disputes. Some of these proceedings may result in fines, penalties or judgments being assessed against the Company which, from time to time, may have an impact on earnings for a particular quarter or year. The Company believes it has adequately provided for such matters in its financial statements and does not believe that their outcome, individually or in the aggregate, will have a material adverse impact on its business or financial condition. In November and December 1997, several alleged purchasers of the Company's stock brought purported class action lawsuits against the Company and several of its current and former officers in the United States District Court for the Northern District of Illinois. Each of the lawsuits asserts that the defendants violated the federal securities laws by issuing allegedly false and misleading statements in 1996 and 1997 about the Company's financial condition and results of operations. Among other things, the plaintiffs allege that the Company employed accounting practices that were improper and that caused its publicly-filed financial statements to be materially false and misleading. The lawsuits demand, among other relief, unspecified monetary damages, attorneys' fees, and the costs of conducting the litigation. The Company intends to defend itself vigorously in this litigation. In January 1998, the fourteen purported class actions were consolidated before one judge in the Northern District of Illinois. Plaintiffs have until May 1998 to file a consolidated amended complaint. It is not possible at this time to predict the impact this litigation may have on the Company, although it is reasonably possible that the outcome may have a materially adverse impact on its financial condition or results of operations in one or more future periods. The Company is also aware that the Securities and Exchange Commission has commenced a formal investigation with respect to the Company's previously filed financial statements and related accounting policies, procedures and system of internal controls. The Company intends to cooperate with such investigation. The Company is unable to predict the outcome or impact of this investigation at this time. A lawsuit by an alleged Company stockholder purporting to represent a class of the Company's stockholders has been filed in the Chancery Court in and for New Castle County, Delaware (although the Company has not yet been served) against the Company and the members of its Board of Directors alleging breaches of fiduciary duty by the defendants in connection with the Merger. The lawsuit seeks, among other things, to have the transaction enjoined and to recover unspecified damages. The Company believes the suit to be without merit and intends to contest it vigorously. WM International operates facilities in Hong Kong which are owned by the Hong Kong government. The Hong Kong economy has been impacted by the economic uncertainty associated with many of the countries in the region. High and volatile interest rates have resulted from speculation regarding its currency. In addition to Hong Kong, WM International has operations in Indonesia and Thailand. These countries have experienced illiquidity, volatile currency exchange rates and interest rates, and reduced economic activity. WM International, and therefore the Company, will be affected for the foreseeable future by economic conditions in this region, although it is not possible to determine the extent of such impact. At December 31, 1997, WM International had a net investment of $107.5 million in these countries. Pretax income from Hong Kong was $25.7 million in 1997. Income from Indonesia and Thailand has not been significant to date. OUTLOOK The Company believes that its current strategy and the actions it has taken during 1997 and and thus far in 1998 position it for long-term growth and improved profitability in a rapidly changing waste services market. However, a number of challenges remain. Continued moderate economic growth is expected to result in 48 relatively modest levels of solid waste volume growth and increasing competition limits pricing opportunities somewhat. WTI has no new trash-to- energy plants expected to come on-stream in the near future, and two of its facilities will be negatively impacted by the renewal of existing contracts at lower prices in 1998. The North American hazardous waste industry remains depressed. Divestiture of discontinued and non-core businesses and monetization of other assets must be completed, thereby allowing capital to be redeployed. The Company is responding to these challenges with increased management focus on its core waste management services business, improved productivity through improved management practices and the use of technology, and greater emphasis on generating cash and controlling capital expenditures. Management has also adopted economic value added ("EVA(R)") as a key performance measurement to guide its operations management to improve returns on invested capital. The Company expects during 1998 that moderate revenue growth in the solid waste business will be more than offset by divestitures, declines in hazardous waste revenues and reduced pricing on two of WTI's long-term contracts. Cost reduction efforts will be more than offset by increases in depreciation and amortization expense, costs to implement key initiatives such as strategic sourcing, fleet management and information systems, and costs associated with the completion of the accounting review and related matters. For 1998, the Company expects its capital expenditures, exclusive of acquisitions to increase to $1.2 billion as it accelerates the purchasing of new collection vehicles in connection with its new fleet management strategy and as it invests in new information systems to improve its financial, administrative, marketing, sales and customer service processes. While the decision to change its fleet management strategy will increase expenditures for new collection vehicles by approximately $150 million in 1998 and $200 million in 1999, the Company anticipates maintenance and operating savings in 1999 and beyond of $20 million to $40 million per year. The Company will continue to seek to improve returns by leveraging its network of assets and will also seek to enhance its position in current markets with acquisitions that complement existing operations and resources. At the same time, the Company will continue to dispose of non-core and non- integrated businesses where returns are not satisfactory. FORWARD-LOOKING INFORMATION. Except for historical data, the information herein constitutes forward- looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors, including failure of the Company to complete the Merger with USA Waste, failure to achieve timely the cost savings anticipated by the parties as a result of the Merger, changes in the price of recyclable commodities, severe weather conditions, slowing of the overall economy, higher interest rates, market risk associated with derivatives, failure of the Company's restructuring plans to produce the cost savings anticipated, the inability to complete the divestiture of discontinued businesses or the monetization of other assets at appropriate prices and terms. The Company makes no commitment to disclose any revisions to forward- looking statements, or any facts, events or circumstances after the date hereof, that may bear upon forward-looking statements. 49 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK For an analysis of the Company's market risk, see "Management's Discussion and Analysis of Results of Operations and Financial Condition--Results of Operations" set forth above in Item 7. 50 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- 1.Consolidated Financial Statements Report of Independent Public Accountants................................ 53 Consolidated Balance Sheets as of December 31, 1995, 1996 and 1997...... 54 Consolidated Statements of Income for each of the four years ended December 31, 1997...................................................... 56 Consolidated Statements of Cash Flows for each of the four years ended December 31, 1997...................................................... 57 Consolidated Statements of Stockholders' Equity for each of the four years ended December 31, 1997.......................................... 58 Notes to Consolidated Financial Statements.............................. 62 2.Schedule
Schedule II--Valuation and Qualifying Accounts (as Restated).............. 127
51 [THIS PAGE INTENTIONALLY LEFT BLANK] 52 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors of Waste Management, Inc.: We have audited the accompanying consolidated balance sheets of Waste Management, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1997, 1996 and 1995, and the related consolidated statements of income, cash flows and stockholders' equity for each of the four years in the period ended December 31, 1997 (1996 and prior as restated--See Note 2). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Waste Management, Inc. and subsidiaries as of December 31, 1997, 1996 and 1995, and the results of their operations and their cash flows for each of the four years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, effective January 1, 1995, the Company changed its method of accounting for capitalized interest on landfill cell construction and effective January 1, 1997, the Company changed its method of accounting for environmental remediation liabilities. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II (1996 and prior as restated) listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois, February 24, 1998 (except with respect to the matters discussed in Note 19, as to which the date is March 17, 1998). 53 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995, 1996 AND 1997 ($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
RESTATED ------------------------ 1995 1996 1997 ----------- ----------- ----------- CURRENT ASSETS Cash and cash equivalents............. $ 169,541 $ 323,288 $ 132,811 Short-term investments................ 12,156 319,338 59,296 Accounts receivable, less reserve of $67,927 in 1995, $52,847 in 1996 and $51,805 in 1997...................... 1,623,563 1,650,719 1,539,413 Employee receivables.................. 8,496 10,084 7,817 Parts and supplies.................... 143,527 135,417 119,039 Costs and estimated earnings in excess of billings on uncompleted contracts. 242,675 240,531 158,610 Prepaid expenses...................... 120,344 119,273 128,520 ----------- ----------- ----------- Total Current Assets................ $ 2,320,302 $ 2,798,650 $ 2,145,506 ----------- ----------- ----------- PROPERTY AND EQUIPMENT, at cost Land, primarily disposal sites........ $ 4,202,829 $ 4,583,699 $ 3,811,887 Buildings............................. 1,532,475 1,485,045 1,327,179 Vehicles and equipment................ 7,115,078 7,454,460 6,572,424 Leasehold improvements................ 84,854 85,431 77,202 ----------- ----------- ----------- $12,935,236 $13,608,635 $11,788,692 Less-Accumulated depreciation and amortization......................... (4,119,397) (4,810,235) (4,534,543) ----------- ----------- ----------- Total Property and Equipment, Net... $ 8,815,839 $ 8,798,400 $ 7,254,149 ----------- ----------- ----------- OTHER ASSETS Intangible assets relating to acquired businesses, net...................... $ 3,892,355 $ 3,871,919 $ 3,198,374 Net assets of continuing businesses and surplus real estate held for sale................................. 235,354 227,351 154,384 Sundry, including other investments... 1,575,337 1,387,257 836,685 Net assets of discontinued operations. 617,972 -- -- ----------- ----------- ----------- Total Other Assets.................. $ 6,321,018 $ 5,486,527 $ 4,189,443 ----------- ----------- ----------- Total Assets...................... $17,457,159 $17,083,577 $13,589,098 =========== =========== ===========
54 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--(CONTINUED) AS OF DECEMBER 31, 1995, 1996 AND 1997 ($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
RESTATED ------------------------ 1995 1996 1997 ----------- ----------- ----------- CURRENT LIABILITIES Portion of long-term debt payable within one year...................... $ 1,088,033 $ 553,493 $ 1,548,465 Accounts payable...................... 999,164 951,491 758,047 Accrued expenses...................... 1,076,017 1,362,048 1,652,314 Unearned revenue...................... 204,166 212,541 233,579 ----------- ----------- ----------- Total Current Liabilities........... $ 3,367,380 $ 3,079,573 $ 4,192,405 ----------- ----------- ----------- DEFERRED ITEMS Income taxes.......................... $ 549,682 $ 562,906 $ 212,869 Environmental liabilities............. 750,703 673,492 840,378 Other................................. 714,252 723,112 808,556 ----------- ----------- ----------- Total Deferred Items................ $ 2,014,637 $ 1,959,510 $ 1,861,803 ----------- ----------- ----------- LONG-TERM DEBT, less portion payable within one year........................ $ 6,390,041 $ 6,971,607 $ 5,078,557 ----------- ----------- ----------- NET LIABILITIES OF DISCONTINUED OPERA- TIONS.................................. $ -- $ 57,874 $ -- ----------- ----------- ----------- MINORITY INTEREST IN SUBSIDIARIES....... $ 1,380,496 $ 1,177,463 $ 1,110,681 ----------- ----------- ----------- COMMITMENTS AND CONTINGENCIES PUT OPTIONS............................. $ 261,959 $ 95,789 $ -- ----------- ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, $1 par value (issuable in series); 50,000,000 shares authorized; none outstanding during the years..................... $ -- $ -- $ -- Common stock, $1 par value; 1,500,000,000 shares authorized; 498,817,093 shares issued in 1995 and 507,101,774 in 1996 and 1997......... 498,817 507,102 507,102 Additional paid-in capital............ 438,816 887,026 932,253 Cumulative translation adjustment..... (102,943) (79,213) (239,319) Retained earnings..................... 3,582,861 3,228,346 1,735,371 ----------- ----------- ----------- $ 4,417,551 $ 4,543,261 $ 2,935,407 Less-Treasury stock; 12,782,864 shares in 1996 and 41,177,630 in 1997, at cost................................. -- 419,871 1,271,885 1988 Employee Stock Ownership Plan.. 13,062 6,396 -- Employee Stock Benefit Trust (11,769,788 shares in 1995 and 10,886,361 in 1996 and 1997, at market)............................ 350,151 353,807 299,375 Minimum pension liability........... 11,692 18,885 7,393 Restricted stock unearned compensation....................... -- 2,541 11,102 ----------- ----------- ----------- Total Stockholders' Equity.......... $ 4,042,646 $ 3,741,761 $ 1,345,652 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity............. $17,457,159 $17,083,577 $13,589,098 =========== =========== ===========
The accompanying notes are an integral part of these balance sheets. 55 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE FOUR YEARS ENDED DECEMBER 31, 1997 (000'S OMITTED EXCEPT PER SHARE AMOUNTS)
RESTATED ---------------------------------- 1994 1995 1996 1997 ---------- ---------- ---------- ----------- REVENUE....................... $8,537,883 $9,100,225 $9,225,636 $ 9,188,582 ---------- ---------- ---------- ----------- Operating expenses.......... $6,027,979 $6,514,932 $6,660,766 $ 7,195,376 Special charges............. -- 335,587 370,735 145,990 Asset impairment loss....... 33,970 53,772 64,729 1,480,262 Selling and administrative expenses................... 1,062,363 1,091,747 1,095,459 1,129,237 Interest expense............ 350,220 463,861 462,424 446,888 Interest income............. (42,793) (34,883) (27,904) (37,580) Minority interest........... 126,042 81,367 41,289 45,442 (Income) loss from continuing operations held for sale, net of minority interest................... (24,143) (25,110) (315) 9,930 Sundry income, net.......... (109,903) (252,695) (102,014) (173,290) ---------- ---------- ---------- ----------- Income (loss) from continuing operations before income taxes........ $1,114,148 $ 871,647 $ 660,467 $(1,053,673) Provision for income taxes.. 512,683 451,741 436,473 215,667 ---------- ---------- ---------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS................... $ 601,465 $ 419,906 $ 223,994 $(1,269,340) ---------- ---------- ---------- ----------- Discontinued Operations: Income from operations, less applicable income taxes and minority interest of $45,031 in 1994, $9,125 in 1995 and $17,490 in 1996... $ 27,324 $ 38,686 $ 22,620 $ -- Income (loss) on disposal or from reserve adjustment, net of applicable income taxes and minority interest of ($3,005) in 1995, ($18,640) in 1996 and $100,842 in 1997........... -- (33,823) (285,921) 95,688 ---------- ---------- ---------- ----------- INCOME (LOSS) BEFORE EXTRAOR- DINARY ITEM AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNT- ING PRINCIPLES............... $ 628,789 $ 424,769 $ (39,307) $(1,173,652) ---------- ---------- ---------- ----------- Extraordinary loss on refinancing of debt, net of tax benefit and minority interest of $767............. $ -- $ -- $ -- $ (516) Cumulative effect of changes in accounting principles, net of tax benefit of $819 in 1994, $48,147 in 1995 and $1,100 in 1997......................... (1,281) (84,672) -- (1,936) ---------- ---------- ---------- ----------- NET INCOME (LOSS)............. $ 627,508 $ 340,097 $ (39,307) $(1,176,104) ========== ========== ========== =========== AVERAGE COMMON SHARES OUT- STANDING..................... 483,748 485,346 489,171 466,601 ========== ========== ========== =========== EARNINGS (LOSS) PER SHARE: Basic-- Continuing operations....... $ 1.24 $ 0.86 $ 0.46 $ (2.72) Discontinued operations..... 0.06 0.01 (0.54) 0.20 Extraordinary item.......... -- -- -- -- Cumulative effect of changes in accounting principles... -- (0.17) -- -- ---------- ---------- ---------- ----------- NET INCOME (LOSS)......... $ 1.30 $ 0.70 $ (0.08) $ (2.52) ========== ========== ========== =========== Diluted-- Continuing operations....... $ 1.24 $ 0.86 $ 0.46 $ (2.72) Discontinued operations..... 0.06 0.01 (0.54) 0.20 Extraordinary item.......... -- -- -- -- Cumulative effect of changes in accounting principles... -- (0.17) -- -- ---------- ---------- ---------- ----------- NET INCOME (LOSS)......... $ 1.30 $ 0.70 $ (0.08) $ (2.52) ========== ========== ========== ===========
The accompanying notes are an integral part of these statements. 56 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FOUR YEARS ENDED DECEMBER 31, 1997 (000'S OMITTED)
RESTATED ------------------------------------- 1994 1995 1996 1997 ----------- ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) for the year..................... $ 627,508 $ 340,097 $ (39,307) $(1,176,104) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............. 996,407 1,035,018 1,065,683 1,080,105 Provision for deferred income taxes............. 204,400 114,000 196,500 (405,100) Undistributed earnings of equity investees......... (48,200) 1,500 (34,200) 8,000 Minority interest in subsidiaries............. 148,783 81,789 42,111 44,687 Interest on Liquid Yield Option Notes and Subordinated Notes....... 33,551 23,021 22,343 20,682 Contribution to 1988 Employee Stock Ownership Plan..................... 7,930 6,667 6,666 6,396 Special charges........... -- 335,587 370,735 145,990 Asset impairment loss..... 33,970 53,772 64,729 1,480,262 Extraordinary item........ -- -- -- 516 Cumulative effect of changes in accounting principles............... 1,281 84,672 -- 1,936 Loss (income) on disposal of discontinued operations or reserve adjustments, net of tax and minority interest.... -- 33,823 285,921 (95,688) (Gain) on disposition of business and assets...... (25,100) (168,875) (30,086) (180,293) Changes in assets and liabilities, excluding effects of acquired or divested companies: Receivables, net.......... (119,785) 60,817 (1,718) 57,922 Other current assets...... (57,509) 23,412 5,747 62,602 Sundry other assets....... (43,116) (71,766) (132,311) 127,125 Accounts payable.......... 182,874 39,669 (61,268) (165,829) Accrued expenses and unearned revenue......... 32,363 (76,398) 11,923 529,763 Deferred items............ (298,097) 84,301 (185,532) 11,587 Other, net................ 57,163 (52,535) 52,092 48,446 ----------- ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES...... $ 1,734,423 $ 1,948,571 $ 1,640,028 $ 1,603,005 ----------- ----------- ----------- ----------- Cash flows from investing activities: Short-term investments.... $ 2,755 $ 17,804 $ 1,170 $ (53,569) Capital expenditures...... (1,440,238) (1,340,261) (1,063,552) (879,545) Proceeds from asset monetization program..... 287,046 165,716 752,345 1,375,206 Cost of acquisitions, net of cash acquired......... (197,201) (224,304) (104,778) (51,360) Other investments......... (26,246) (50,119) (16,372) (8,877) Acquisition of minority interests................ (57,865) (170,854) (342,034) (104,165) ----------- ----------- ----------- ----------- NET CASH OBTAINED FROM (USED FOR) INVESTING ACTIVITIES................ $(1,431,749) $(1,602,018) $ (773,221) $ 277,690 ----------- ----------- ----------- ----------- Cash flows from financing activities: Cash dividends............ $ (290,266) $ (291,421) $ (308,265) $ (309,577) Proceeds from issuance of indebtedness............. 1,710,586 1,803,383 2,907,544 1,105,427 Repayments of indebtedness............. (1,752,552) (1,860,451) (2,933,632) (1,967,048) Proceeds from exercise of stock options, net....... 7,970 14,132 65,766 41,220 Contributions from minority interests....... 22,169 24,394 10,242 -- Other distributions to minority stockholders by affiliated companies..... -- -- -- (36,341) Stock repurchases......... -- -- (473,560) (903,248) Proceeds from sales of put options.................. 29,965 21,622 18,845 -- Settlement of put options. -- (12,019) -- (1,605) ----------- ----------- ----------- ----------- NET CASH USED FOR FINANCING ACTIVITIES................ $ (272,128) $ (300,360) $ (713,060) $(2,071,172) ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents. $ 30,546 $ 46,193 $ 153,747 $ (190,477) Cash and cash equivalents at beginning of year...... 92,802 123,348 169,541 323,288 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of year............ $ 123,348 $ 169,541 $ 323,288 $ 132,811 =========== =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized.............. $ 307,257 $ 439,323 $ 402,321 $ 428,531 Income taxes, net of refunds received......... 241,657 283,165 326,679 344,188 Supplemental schedule of noncash investing and financing activities: LYONs converted into common stock of the Company.................. 1,594 2,598 2,176 659 Liabilities assumed in acquisitions of businesses............... 225,723 219,285 114,897 23,356 Fair market value of Company and subsidiary stock issued for acquired businesses............... 4,773 66,172 236,001 2,696 Exchange of interest in ServiceMaster Consumer Services L.P............. -- 467,000 -- -- Subordinated Notes issued for acquisition of CWM minority interest........ $ -- $ 436,830 $ -- $ -- =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 57 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE FOUR YEARS ENDED DECEMBER 31, 1997 ($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
ADDITIONAL CUMULATIVE COMMON PAID-IN TRANSLATION STOCK CAPITAL ADJUSTMENT -------- ---------- ----------- Balance, January 1, 1994, as previously reported...................................... $496,217 $668,470 $(245,587) Cumulative effect of prior period adjustments.. -- 14,117 -- -------- -------- --------- Balance, January 1, 1994, as restated.......... $496,217 $682,587 $(245,587) -------- -------- --------- Net income for the year (restated)............ $ -- $ -- $ -- Cash dividends ($.60 per share)............... -- -- -- Dividends paid to Employee Stock Benefit Trust........................................ -- 5,617 -- Common stock issued upon exercise of stock options...................................... -- (5,948) -- Treasury stock received in connection with exercise of stock options.................... -- -- -- Tax benefit of non-qualified stock options exercised.................................... -- 1,527 -- Contribution of 1988 ESOP (375,312 shares).... -- -- -- Treasury stock received as settlement for claims....................................... -- -- -- Common stock issued upon conversion of LYONs.. 96 1,442 -- Common stock issued for acquisitions.......... 74 1,471 -- Temporary equity related to put options....... -- (252,328) -- Proceeds from sale of put options............. -- 29,965 -- Sale of shares to Employee Stock Benefit Trust (12,601,609 shares).......................... -- (106,327) -- Adjustment of Employee Stock Benefit Trust to market value................................. -- 16,064 -- Adjustment for minimum pension liability...... -- -- -- Transfer of equity interests among controlled subsidiaries................................. -- (2,803) -- Cumulative translation adjustment of foreign currency statements.......................... -- -- 94,755 -------- -------- --------- Balance, December 31, 1994, as restated........ $496,387 $371,267 $(150,832) -------- -------- --------- Net income for the year (restated)............ $ -- $ -- $ -- Cash dividends ($.60 per share)............... -- -- -- Dividends paid to Employee Stock Benefit Trust........................................ -- 7,207 -- Common stock issued upon exercise of stock options...................................... 44 (4,405) -- Treasury stock received in connection with exercise of stock options.................... -- -- -- Tax benefit of non-qualified stock options exercised.................................... -- 2,049 -- Contribution of 1988 ESOP (322,508 shares).... -- -- -- Treasury stock received as settlement for claims....................................... -- -- -- Common stock issued upon conversion of LYONs.. 150 2,448 -- Common stock issued for acquisitions.......... 2,236 15,768 -- Temporary equity related to put options....... -- (9,631) -- Proceeds from sale of put options............. -- 21,622 -- Settlement of put options..................... -- (12,019) -- Common stock purchased through nonqualified deferred compensation plan................... -- 38 -- Adjustment of Employee Stock Benefit Trust to market value................................. -- 43,943 -- Adjustment for minimum pension liability...... -- -- -- Transfer of equity interests among controlled subsidiaries................................. -- 529 -- Cumulative translation adjustment of foreign currency statements.......................... -- -- 47,889 -------- -------- --------- Balance, December 31, 1995, as restated........ $498,817 $438,816 $(102,943) -------- -------- ---------
58 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE FOUR YEARS ENDED DECEMBER 31, 1997 ($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
1988 EMPLOYEE EMPLOYEE MINIMUM RESTRICTED STOCK RETAINED TREASURY STOCK STOCK PENSION UNEARNED EARNINGS STOCK OWNERSHIP PLAN BENEFIT TRUST LIABILITY COMPENSATION - ---------- -------- -------------- ------------- --------- ---------------- $3,693,108 $425,097 $27,659 $ -- $ -- $-- (483,341) -- -- -- 8,085 -- - ---------- -------- ------- -------- ------- --- $3,209,767 $425,097 $27,659 $ -- $ 8,085 $-- - ---------- -------- ------- -------- ------- --- $ 627,508 $ -- $ -- $ -- $ -- $-- (290,266) -- -- -- -- -- (5,617) -- -- -- -- -- -- (8,250) -- (5,928) -- -- -- 260 -- -- -- -- -- -- -- -- -- -- -- -- (7,930) -- -- -- -- 2,741 -- -- -- -- -- (56) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (419,792) -- 313,465 -- -- -- -- -- 16,064 -- -- -- -- -- -- (350) -- -- -- -- -- -- -- -- -- -- -- -- -- - ---------- -------- ------- -------- ------- --- $3,541,392 $ -- $19,729 $323,601 $ 7,735 $-- - ---------- -------- ------- -------- ------- --- $ 340,097 $ -- $ -- $ -- $ -- $-- (291,421) -- -- -- -- -- (7,207) -- -- -- -- -- -- (1,763) -- (17,393) -- -- -- 663 -- -- -- -- -- -- -- -- -- -- -- -- (6,667) -- -- -- -- 1,100 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 43,943 -- -- -- -- -- -- 3,957 -- -- -- -- -- -- -- -- -- -- -- -- -- - ---------- -------- ------- -------- ------- --- $3,582,861 $ -- $13,062 $350,151 $11,692 $-- - ---------- -------- ------- -------- ------- ---
The accompanying notes are an integral part of these statements. 59 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED) FOR THE FOUR YEARS ENDED DECEMBER 31, 1997 ($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
ADDITIONAL CUMULATIVE COMMON PAID-IN TRANSLATION STOCK CAPITAL ADJUSTMENT -------- ---------- ----------- Balance, January 1, 1996, as restated.......... $498,817 $438,816 $(102,943) -------- -------- --------- Net (loss) for the year (restated)............ $ -- $ -- $ -- Cash dividends ($.63 per share)............... -- -- -- Dividends paid to Employee Stock Benefit Trust........................................ -- 6,943 -- Common stock repurchase (14,390,000 shares)... -- -- -- Common stock issued upon exercise of stock options and grants of restricted stock....... 217 (10,938) -- Treasury stock received in connection with exercise of stock options.................... -- -- -- Tax benefit of non-qualified stock options exercised.................................... -- 6,859 -- Unearned compensation related to issuance of restricted stock to employees................ -- -- -- Earned compensation related to restricted stock (net of reversals on forfeited shares). -- -- -- Contribution to 1988 ESOP (307,041 shares).... -- -- -- Treasury stock received as settlement for claims....................................... -- -- -- Common stock issued upon conversion of LYONs.. 111 1,905 -- Common stock issued for acquisitions.......... 7,957 219,867 -- Temporary equity related to put options....... -- 166,170 -- Proceeds from sale of put options............. -- 18,845 -- Common stock purchased through nonqualified deferred compensation plan................... -- 6,281 -- Adjustment of Employee Stock Benefit Trust to market value................................. -- 32,278 -- Adjustment for minimum pension liability...... -- -- -- Cumulative translation adjustment of foreign currency statements.......................... -- -- 23,730 -------- -------- --------- Balance, December 31, 1996, as restated........ $507,102 $887,026 $ (79,213) -------- -------- --------- Net (loss) for the year....................... $ -- $ -- $ -- Cash dividends ($.67 per share)............... -- -- -- Dividends paid to Employee Stock Benefit Trust........................................ -- 7,294 -- Common stock repurchase (30,000,000 shares)... -- -- -- Common stock issued upon exercise of stock options and grants of restricted stock....... -- (6,051) -- Compensation paid with stock options.......... -- 701 -- Tax benefit of non-qualified stock options exercised.................................... -- 2,741 -- Unearned compensation related to issuance of restricted stock to employees................ -- -- -- Earned compensation related to restricted stock (net of reversals on forfeited shares). -- -- -- Reversal of unearned compensation upon cancellation of restricted stock............. -- -- -- Contribution to 1988 ESOP (295,089 shares).... -- -- -- Treasury stock received as settlement for claims....................................... -- -- -- Common stock issued upon conversion of LYONs.. -- (324) -- Common stock issued for acquisitions.......... -- (1,057) -- Temporary equity related to put options....... -- 95,789 -- Settlement of put options..................... -- (1,605) -- Common stock purchased through nonqualified deferred compensation plan................... -- 2,171 -- Adjustment of Employee Stock Benefit Trust to market value................................. -- (54,432) -- Adjustment for minimum pension liability...... -- -- -- Cumulative translation adjustment of foreign currency statements.......................... -- -- (160,106) -------- -------- --------- Balance, December 31, 1997..................... $507,102 $932,253 $(239,319) -------- -------- ---------
60 WASTE MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED) FOR THE FOUR YEARS ENDED DECEMBER 31, 1997 ($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
1988 EMPLOYEE EMPLOYEE MINIMUM RESTRICTED STOCK RETAINED TREASURY STOCK STOCK PENSION UNEARNED EARNINGS STOCK OWNERSHIP PLAN BENEFIT TRUST LIABILITY COMPENSATION - ----------- ---------- -------------- ------------- --------- ---------------- $3,582,861 $ -- $13,062 $350,151 $11,692 $ -- - ----------- ---------- ------- -------- ------- ------- $ (39,307) $ -- $ -- $ -- $ -- $ -- (308,265) -- -- -- -- -- (6,943) -- -- -- -- -- -- 473,560 -- -- -- -- -- (53,323) -- (28,622) -- -- -- 5,458 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 2,640 -- -- -- -- -- (99) -- -- (6,666) -- -- -- -- 2,513 -- -- -- -- -- (160) -- -- -- -- -- (8,177) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 32,278 -- -- -- -- -- -- 7,193 -- -- -- -- -- -- -- - ----------- ---------- ------- -------- ------- ------- $ 3,228,346 $ 419,871 $ 6,396 $353,807 $18,885 $ 2,541 - ----------- ---------- ------- -------- ------- ------- $(1,176,104) $ -- $ -- $ -- $ -- $ -- (309,577) -- -- -- -- -- (7,294) -- -- -- -- -- -- 903,248 -- -- -- -- -- (47,271) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 23,444 -- -- -- -- -- (2,357) -- -- -- -- -- (12,526) -- -- (6,396) -- -- -- -- 773 -- -- -- -- -- (983) -- -- -- -- -- (3,753) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (54,432) -- -- -- -- -- -- (11,492) -- -- -- -- -- -- -- - ----------- ---------- ------- -------- ------- ------- $1,735,371 $1,271,885 $ -- $299,375 $ 7,393 $11,102 - ----------- ---------- ------- -------- ------- -------
The accompanying notes are an integral part of these statements. 61 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS UNLESS OTHERWISE NOTED) NOTE 1. BUSINESS AND FINANCIAL STATEMENTS Waste Management, Inc. (formerly WMX Technologies, Inc.) and its subsidiaries ("Waste Management" or the "Company") provide waste management and related services to governmental, residential, commercial, and industrial customers in the United States and in select international markets. The Company previously provided process engineering and construction, specialty contracting and industrial scaffolding services through its Rust International Inc. ("Rust") subsidiary, water process systems, equipment manufacturing and water and wastewater facility operations and privatization services through its Wheelabrator Technologies Inc. ("WTI") subsidiary. As of December 31, 1997, WTI and Rust had sold all of these businesses, and accordingly they are classified as discontinued operations in the accompanying financial statements. The Company now operates in only the waste management services industry. See Note 14 for details of certain financial information by geographic area. The accompanying financial statements are prepared on a consolidated basis and include the Company and its majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Certain of the Company's subsidiaries are restricted as to payment of dividends to the Company. However, the Company has access to the net assets of such subsidiaries through intercompany loans and advances. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, income and expenses and disclosures of contingencies. Future events could alter such estimates in the near term. NOTE 2. RESTATEMENT AND RECLASSIFICATION The Company has restated and reclassified its financial statements for each of the three years ended December 31, 1996. The cumulative after-tax effect for periods prior to January 1, 1994, has been reflected as a charge to beginning retained earnings in the Consolidated Statements of Stockholders' Equity. Unaudited quarterly financial data for the years 1995 and 1996 and the first three quarters of 1997, as shown in Note 20, has also been restated and reclassified. Except as otherwise stated herein, all information presented in the Consolidated Financial Statements and related notes includes all such restatements and reclassifications. As a result of a comprehensive review begun in the third quarter of 1997, the Company determined that certain items of expense were incorrectly reported in previously issued financial statements. These principally relate to vehicle, equipment and container depreciation expense, capitalized interest and income taxes. With respect to depreciation, the Company determined that incorrect vehicle and container salvage values had been used, and errors had been made in the expense calculations. The Company also concluded that capitalized interest relating to landfill construction projects had been misstated. On January 1, 1995, the Company changed its accounting for capitalized interest (see "Capitalized Interest"), but the cumulative "catch- up" charge was not properly recorded in the 1995 financial statements, and errors were made in applying the new method in subsequent years. Capitalized interest for 1995, 1996 and the first three quarters of 1997 has accordingly been restated. The prior period restatements also include earlier recognition of certain asset value impairments (primarily related to land, landfill and recycling investments) and of environmental liabilities (primarily related to remediation and landfill closure and post-closure expense accruals including restatement of purchase accounting). The reduction of the special charge in 1996 is due primarily to the reversal of software impairment charges which were recorded prematurely. 62 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the restatements by category is as follows:
CUMULATIVE RESTATEMENTS THROUGH DECEMBER 31, 1996 ----------------------- (IN MILLIONS) Vehicle, equipment and container depreciation expense......................................... $ 509 Capitalized interest............................. 192 Environmental and closure/post-closure costs and reserves........................................ 173 Purchase accounting related to remediation reserves........................................ 128 Asset impairment losses.......................... 214 Software impairment charges...................... (85) Other, including minority interest............... 301 ------ Total pretax................................... $1,432 Tax effects on above items including income tax reserve adjustments............................. (297) ------ $1,135 ======
In the fourth quarter of 1997, the Company reclassified the results of certain Rust business units to continuing operations held for sale. These businesses had previously been reported as discontinued operations. Accounting standards require such reclassification because divestiture did not occur within one year from the date the businesses were initially reported as discontinued operations. 63 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company also reclassified certain items of income and expense in previously issued financial statements. The primary effect of such reclassification is to increase various expense categories by amounts which had been offset against gains in sundry income. Such reclassifications, which did not change net income, affected various line items within the Consolidated Statements of Income. The effect of such reclassifications, and the restatements discussed above, on the income statement line items, is shown in the following table:
AS PREVIOUSLY AS REPORTED RECLASSIFICATIONS RESTATEMENTS RESTATED ------------- ----------------- ------------ -------- 1994 Revenue................. $8,482.7 $ 55.2 $ -- $8,537.9 -------- ------ ------- -------- Operating expenses...... $5,827.6 $ 42.2 $ 158.2 $6,028.0 Asset impairment loss... -- -- 34.0 34.0 Selling and administra- tive expenses.......... 997.2 51.6 13.5 1,062.3 Interest, net........... 300.3 1.4 5.7 307.4 Minority interest....... 127.0 6.5 (7.5) 126.0 (Income) loss from con- tinuing operations held for sale............... -- (24.1) -- (24.1) Sundry income, net...... (64.4) (51.0) 5.5 (109.9) Provision for income taxes.................. 552.6 13.9 (53.8) 512.7 (Income) loss from dis- continued operations... (42.0) 14.7 -- (27.3) Cumulative effect of changes in accounting principles............. -- -- 1.3 1.3 -------- ------ ------- -------- Net Income.......... $ 784.4 $ -- $(156.9) $ 627.5 ======== ====== ======= ======== 1995 Revenue................. $9,053.0 $ 47.2 $ -- $9,100.2 -------- ------ ------- -------- Operating expenses...... $6,220.9 $162.1 $ 131.9 $6,514.9 Special charge.......... 335.2 -- 0.4 335.6 Asset impairment loss... -- -- 53.8 53.8 Selling and administra- tive expenses.......... 1,004.9 102.9 (16.1) 1,091.7 Interest, net........... 384.7 13.2 31.1 429.0 Minority interest....... 81.9 (4.3) 3.8 81.4 (Income) loss from con- tinuing operations held for sale............... -- (25.1) -- (25.1) Sundry income, net...... (76.5) (172.5) (3.7) (252.7) Provision for income taxes.................. 483.7 8.9 (40.9) 451.7 (Income) loss from dis- continued operations... 14.3 (38.0) 18.8 (4.9) Cumulative effect of changes in accounting principles............. -- -- 84.7 84.7 -------- ------ ------- -------- Net Income.......... $ 603.9 $ -- $(263.8) $ 340.1 ======== ====== ======= ======== 1996 Revenue................. $9,187.0 $ 38.6 $ -- $9,225.6 -------- ------ ------- -------- Operating expenses...... $6,372.8 $ 7.8 $ 280.2 $6,660.8 Special charge.......... 471.6 -- (100.9) 370.7 Asset impairment loss... -- -- 64.7 64.7 Selling and administra- tive expenses.......... 979.2 45.9 70.4 1,095.5 Interest, net........... 348.1 51.0 35.4 434.5 Minority interest....... 57.6 0.9 (17.2) 41.3 (Income) loss from con- tinuing operations held for sale............... -- (0.3) -- (0.3) Sundry income, net...... (85.2) (56.0) 39.1 (102.1) Provision for income taxes.................. 565.1 (9.9) (118.7) 436.5 (Income) loss from dis- continued operations... 285.7 (0.8) (21.6) 263.3 -------- ------ ------- -------- Net Income (loss)... $ 192.1 $ -- $(231.4) $ (39.3) ======== ====== ======= ========
64 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) These restatements increased (decreased) previously reported results and earnings per share as shown in the following table:
YEAR ENDED DECEMBER 31 ------------------------- 1994 1995 1996 ------- ------- ------- Income from continuing operations before income tax- es................................................. $(180.8) $(230.3) $(382.4) Provision for income taxes.......................... 39.9 32.0 128.6 ------- ------- ------- Income from continuing operations................... $(140.9) $(198.3) $(253.8) Discontinued operations............................. ( 14.7) 19.2 22.4 Cumulative effect of accounting change.............. (1.3) (84.7) -- ------- ------- ------- Net income.......................................... $(156.9) $(263.8) $(231.4) ======= ======= ======= Earnings per share-- Basic-- Continuing operations............................. $ (0.29) $ (0.41) $ (0.52) Discontinued operations........................... (0.03) 0.04 0.04 Accounting change................................. -- (0.17) -- ------- ------- ------- Net income...................................... $ (0.32) $ (0.54) $ (0.48) ======= ======= ======= Diluted-- Continuing operations............................. $ (0.29) $ (0.39) $ (0.51) Discontinued operations........................... (0.03) 0.04 0.03 Accounting change................................. -- (0.17) -- ------- ------- ------- Net income...................................... $ (0.32) $ (0.52) $ (0.48) ======= ======= =======
65 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3. SUMMARY OF ACCOUNTING POLICIES Revenue Recognition. The Company is primarily in a service business and recognizes revenue when services are performed. Results from long-term contracts are recorded on the percentage-of-completion basis with losses recognized in full when identified. Changes in project performance and conditions, estimated profitability and final contract settlements may result in future revisions to long-term contract costs and income. Foreign Currency. The functional currency of the majority of the Company's foreign subsidiaries is the local currency of the country in which the subsidiary operates. Accordingly, such subsidiaries' assets and liabilities are translated at the rates of exchange at the balance sheet date while income statement accounts are translated at the average exchange rates in effect during the period. The resulting translation difference is charged or credited directly to stockholders' equity, as revenues, expenses and cash flows of the subsidiaries are primarily in their local currencies. Foreign exchange transaction losses (income) (net of related income taxes and minority interest) of $3.3 million, $2.2 million, $ 0.3 million and ($0.9) million are included in the Consolidated Statements of Income for 1994, 1995, 1996, and 1997, respectively. Cash Equivalents. All highly liquid investments with maturities of three months or less at date of purchase are considered to be cash equivalents. Short-Term Investments. As part of its cash management program, the Company from time-to-time maintains a portfolio of marketable investment securities ($12.2 million, $11.0 million and $3.0 million at December 31, 1995, 1996 and 1997, respectively). The securities have an investment grade of not less than A and a term to earliest maturity generally of less than one year, and include tax exempt securities, certificates of deposit and Euro-dollar time deposits. These securities are carried at cost. Short-term investments also include investments classified as "trading," which are carried at market price with unrealized gains and losses included in Sundry Income. At December 31, 1996, this category included the shares of Wessex Water Plc ("Wessex") (see Note 15). At December 31, 1997, this category included certain other equity securities classified as "trading" as well as a price collar related to such investment. These securities were delivered in 1998 in exchange for the cap price of the collar. See Note 7. Environmental Liabilities. The Company provides for estimated closure and post-closure monitoring costs over the operating life of disposal sites as airspace is consumed. The Company has also established procedures to evaluate potential remedial liabilities at closed sites which it owns or operated, or to which it transported waste, including 89 sites listed on the Superfund National Priority List ("NPL"). When the Company concludes that it is probable that a liability has been incurred, provision is made in the financial statements, based upon management's judgment and prior experience, for the Company's best estimate of the liability. Such estimates are subsequently revised as deemed necessary as additional information becomes available. See Note 8 for additional information. Contracts in Process. Information with respect to contracts in process (which relate primarily to contracts involving a substantial construction component) at December 31, 1995, 1996 and 1997, is as follows:
1995 1996 1997 -------- -------- -------- Costs and estimated earnings on uncompleted contracts....................................... $1,176.6 $1,192.2 $1,511.7 Less: Billing on uncompleted contracts........... (952.8) (979.9) (1,374.1) -------- -------- -------- Total contracts in process..................... $ 223.8 $ 212.3 $ 137.6 ======== ======== ========
66 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Contracts in process are included in the Consolidated Balance Sheets under the following captions:
1995 1996 1997 ------ ------ ------ Costs and estimated earnings in excess of billings on uncompleted contracts................................. $242.7 $240.5 $158.6 Billings in excess of costs and estimated earnings on uncompleted contracts (included in unearned revenue).. (18.9) (28.2) (21.0) ------ ------ ------ Total contracts in process........................... $223.8 $212.3 $137.6 ====== ====== ======
All contracts in process are expected to be billed and collected within five years. Accounts receivable includes retainage which has been billed, but which is not due pursuant to contract provisions until completion. Such retainage at December 31, 1997, is $5.3 million, including $1.1 million that is expected to be collected after one year. Retainage was $8.0 million at December 31, 1996, and $12.8 million at December 31, 1995. Property and Equipment. Property and equipment (including major repairs and improvements) are capitalized and stated at cost. Items of an ordinary maintenance or repair nature are charged directly to operations. Disposal sites are carried at cost and to the extent the land component exceeds end use realizable value, such excess is amortized over the estimated life of the disposal site. Disposal site improvement costs are capitalized and charged to operations over the shorter of the estimated usable life of the site or the improvement. Preparation costs for individual secure land disposal cells are recorded as land improvements. Cell costs are amortized as the airspace is filled. Significant costs capitalized for such cells include excavation and grading costs, costs relating to the design and construction of liner systems, and gas collection and leachate collection systems. Depreciation and Amortization. The cost, less estimated salvage value for certain types of assets, of property and equipment had been depreciated over the following estimated useful lives on the straight-line method: buildings, 10 - 40 years; heavy collection vehicles, 10 - 12 years; other vehicles, 3 - 6 years; rolloff containers, 20 years; other containers, 15 years; machinery and equipment, 3 - 20 years; leasehold improvements, over the life of the applicable lease. Effective October 1, 1997, the Board of Directors approved a management recommendation to revise the Company's North American collection fleet management policy. Front-end loaders will be replaced after 8 years, and rear- end loaders and rolloff trucks after 10 years. The previous policy was to not replace front-end loaders before they were a minimum of 10 years old and other heavy collection vehicles before they were a minimum of 12 years old. As a result of this decision, the Company recognized an impairment writedown of $70.9 million in the fourth quarter of 1997 for those vehicles scheduled for replacement in the next two years under the new policy (see Note 16). Depreciable lives have been adjusted commencing in the fourth quarter of 1997 to reflect the new policy. Also effective October 1, 1997, the Company reduced depreciable lives on containers from 15 and 20 years to 12 years, and ceased assigning salvage value in computing depreciation on North American collection vehicles or containers. These changes in estimates increased depreciation expense by $33.7 million in the fourth quarter of 1997. Also effective October 1, 1997, the Company changed its process for estimating landfill lives. The Company now amortizes landfill costs over estimated landfill capacity which includes permitted landfill airspace plus expansions which are probable of being obtained in the next five years. The Company's prior practice was to consider likely future expansions in the amortization calculations, whether or not the permits were expected to be obtained within the next five years. Factors in determining probable expansions on a site-by-site basis include secured rights to required land, status of legal, environmental, regulatory and political issues, and the extent to which the permit application process has proceeded. This change in estimate increased depreciation and amortization by $12.7 million and the provision for closure and post-closure by $3.1 million in the fourth quarter of 1997, and resulted in estimated landfill capacity declining from 2.9 billion cubic yards to 1.8 billion cubic yards. 67 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Intangible Assets. Intangible assets relating to acquired businesses consist primarily of the cost of purchased businesses in excess of market value of net assets acquired ("goodwill"). Such goodwill is amortized on a straight-line basis over a period of not more than forty years. The accumulated amortization of intangible assets amounted to $582.9 million, $685.8 million and $670.7 million as of December 31, 1995, 1996 and 1997, respectively. On an ongoing basis, the Company measures realizability of goodwill by the ability of acquired businesses to generate current and expected future after- tax operating income in excess of annual amortization. If such realizability is in doubt, an adjustment is made to reduce the carrying value of the goodwill. Capitalized Interest. Interest has been capitalized on significant landfills, trash-to-energy plants and other projects under construction. Amounts capitalized and netted against Interest Expense in the Consolidated Statements of Income were $105.9 million in 1994, $43.9 million in 1995, $35.6 million in 1996, and $26.0 million in 1997. Effective January 1, 1995, the Company changed its method of capitalizing interest on landfill cells. Previously, interest was capitalized using a method that allocated construction costs incurred to airspace on a total landfill basis. The new method uses as a base for interest capitalization the discrete construction activities related to each cell and results in less interest being capitalized. In a landfill disposal services market characterized by substantial price competition and minimal anticipated volume growth, the new method reduces the risk of an asset impairment in the future. The change reduced 1995 net income from continuing operations by $20.0 million or approximately $0.04 per share. The unaudited proforma effect of this change to a preferable method, on 1994 and 1995 had the change been made as of January 1, 1994, and excluding the cumulative effect of the accounting change, is shown in the following table:
ACTUAL PRO FORMA ------------- ------------- 1994 1995 1994 1995 ------ ------ ------ ------ Income from continuing operations.................. $601.5 $419.9 $581.5 $419.9 Net Income......................................... 627.5 340.1 607.5 424.8 Earnings per share-- Basic Income from continuing operations................ $ 1.24 $ 0.86 $ 1.20 $ 0.86 Net income....................................... 1.30 0.70 1.26 0.87 Diluted Income from continuing operations................ $ 1.24 $ 0.86 $ 1.20 $ 0.86 Net Income....................................... 1.30 0.70 1.26 0.87
Self-Insurance. The Company self-insures for auto, general liability and workers' compensation claims up to $5 million per claim. Provision is made in each accounting period for estimated losses, including losses incurred but not reported, and related reserves are adjusted as additional claim information becomes available. Claim reserves are discounted at 6%, 7% and 6% at December 31, 1995, 1996 and 1997, respectively, based on historical payment patterns. The self-insurance reserve included in the accompanying balance sheet was $151.7 million, $188.0 million and $226.7 million at December 31, 1995, 1996 and 1997, respectively. In the fourth quarter of 1997, the Company modified its self-insurance reserve determination technique. The revised loss projection process improves the estimation of future growth in claims. This change in estimate resulted in a $56 million pre-tax charge. Derivative Financial Instruments. In the normal course of business, the Company enters into a variety of derivative financial instruments to manage currency, interest rate, commodity (fuel) and equity price risk. See Note 7 to Consolidated Financial Statements for a description of these financial instruments and the methods of accounting for them. 68 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Accounting Principles. Effective January 1, 1994, the Company adopted FAS No. 112, "Employers' Accounting for Postemployment Benefits." The change reduced 1994 net income by $1.3 million. Effective January 1, 1995, the Company changed its method of capitalizing interest on landfill cell construction. See "Capitalized Interest." The cumulative effect of this change reduced 1995 net income by $84.7 million. Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Impairments recorded prior to 1996 followed a methodology consistent with FAS No. 121, and accordingly the adoption of this statement did not have a material impact on the financial statements. FAS No. 123, "Accounting for Stock-Based Compensation," also became effective in 1996. However, FAS No. 123 permitted compensation to continue to be accounted for under Accounting Principles Board Opinion No. 25, and the Company elected to follow this alternative. See Note 9. Effective January 1, 1997, the Company adopted American Institute of Certified Public Accountants Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities." SOP 96-1 provides that environmental remediation liabilities should be accrued when the criteria of FAS No. 5, "Accounting for Contingencies," are met. It also provides that the accrual for such liabilities should include future costs for those employees expected to devote a significant amount of time directly to the management of remediation liabilities. The adoption of SOP 96-1 reduced 1997 pretax income by $49.9 million. In the fourth quarter of 1997, the Company began expensing process reengineering costs (including $3.0 million previously capitalized) in accordance with Emerging Issues Task Force consensus 97-13, reducing 1997 net income by $1.9 million. Also in 1997, the Company began presenting earnings per share in accordance with FAS No. 128. See Note 11 for further discussion. In June 1997, the Financial Accounting Standards Board issued FAS No. 130, "Reporting Comprehensive Income," and FAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." Both statements are effective for fiscal years beginning after December 15, 1997, although FAS No. 131 does not apply to the Company's interim financial statements until 1999. FAS No. 130 requires only a different format for presentation of information already included in the Company's financial statements. FAS No. 131 modifies the basis for determining segments and expands required segment disclosure, but does not affect accounting principles and, accordingly, will not require any change to reported financial position, results of operations or cash flows. The Company is currently evaluating the impact of FAS No. 131 on its segment reporting. 69 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4. INCOME TAXES The following tables set forth income from continuing operations before income taxes, showing domestic and international sources, and the income tax provision showing the components by governmental taxing authority, for the years 1994 through 1997. Income (Loss) From Continuing Operations Before Income Taxes
1994 1995 1996 1997 -------- ------ ------ --------- Domestic..................................... $ 952.5 $882.1 $654.9 $(1,153.3) International................................ 161.6 (10.5) 5.6 99.6 -------- ------ ------ --------- $1,114.1 $871.6 $660.5 $(1,053.7) ======== ====== ====== ========= Income Tax Provision (Benefit) Current tax expense U.S. federal............................... $ 230.1 $248.2 $172.3 $ 476.7 State and local............................ 52.6 54.2 50.2 67.1 Foreign.................................... 25.6 35.3 17.5 77.0 -------- ------ ------ --------- Total current............................ $ 308.3 $337.7 $240.0 $ 620.8 -------- ------ ------ --------- Deferred tax expense U.S. federal............................... $ 145.4 $112.6 $ 96.8 $ (371.5) State and local............................ 16.9 19.9 23.7 (26.4) Foreign.................................... 42.1 (18.5) 76.0 (7.2) -------- ------ ------ --------- Total deferred........................... $ 204.4 $114.0 $196.5 $ (405.1) -------- ------ ------ --------- Total provision.......................... $ 512.7 $451.7 $436.5 $ 215.7 ======== ====== ====== =========
The federal statutory tax rate is reconciled to the effective tax rate as follows:
1994 1995 1996 1997 ----- ----- ----- ------ Tax provision (benefit) at U.S. statutory rate... 35.00% 35.00% 35.00% (35.00)% U.S. state and local taxes, net of federal benefit......................................... 4.05 5.53 7.27 2.50 Non-deductible goodwill.......................... 2.66 4.09 8.50 18.15 Writedown of investments in subsidiary........... 0.25 -- 8.98 4.04 Minority interests............................... 4.68 4.42 3.89 0.91 Deferred tax valuation and other tax reserves.... (0.40) 3.82 0.89 25.25 Gain on sale of foreign subsidiary............... -- -- 2.65 -- Other............................................ (0.22) (1.03) (1.09) 4.62 ----- ----- ----- ------ 46.02% 51.83% 66.09% 20.47% ===== ===== ===== ======
The increased impact of non-deductible goodwill on the 1997 consolidated tax provision is attributable to the asset impairment losses discussed in Note 16. As a result of the 1997 comprehensive review, the Company increased deferred tax valuation allowances and other tax reserves. 70 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes result from the recognition in different periods of revenue and expense for tax and financial statement purposes. The primary deferred tax (assets) liabilities are as follows:
DECEMBER 31 ------------------------------ 1995 1996 1997 --------- -------- --------- Deferred tax assets Reserves not deductible until paid........... $ (651.9) $ (599.7) $ (708.2) Deferred revenue............................. (28.5) (20.3) (14.0) Net operating losses and tax credit carryforwards............................... (266.9) (233.0) (193.7) Basis difference due to land writedowns...... (24.4) (26.4) (99.1) Other........................................ (79.9) (85.3) (113.7) --------- -------- --------- Subtotal..................................... $(1,051.6) $ (964.7) $(1,128.7) --------- -------- --------- Deferred tax liabilities Depreciation and amortization................ $ 1,076.3 $1,036.9 $ 850.9 Other........................................ 398.9 384.6 281.9 --------- -------- --------- Subtotal................................... $ 1,475.2 $1,421.5 $ 1,132.8 --------- -------- --------- Valuation allowance............................ $ 126.1 $ 106.1 $ 208.8 --------- -------- --------- Net deferred tax liabilities................... $ 549.7 $ 562.9 $ 212.9 ========= ======== =========
The Company's subsidiaries have approximately $13.0 million of alternative minimum tax credit carryforwards that may be used indefinitely and capital loss carryforwards of approximately $52.7 million with expiration dates through 2002. Various subsidiaries have U.S. federal and foreign operating loss carryforwards of approximately $514 million and state operating loss carryforwards of approximately $601 million. Foreign operating losses of $481 million may be carried forward indefinitely; the remaining loss carryforwards have expiration dates through the year 2012. Valuation allowances have been established for uncertainties in realizing the benefits of tax loss and credit carryforwards. While the Company expects to realize the deferred tax assets in excess of the valuation allowances, changes in estimates of future taxable income or in tax laws could alter this expectation. During 1995, the valuation allowance increased, primarily for the uncertainty of realizing foreign operating loss carryforwards. The valuation allowance decreased in 1996 by approximately $20 million due primarily to the realization of capital loss carryforwards and adjustments for certain operating loss carryforwards previously estimated to be unrealizable. In 1997, the valuation allowance increased approximately $102.7 million, composed of increases to allowances due to the uncertainty of realizing alternative minimum tax credits, tax benefits from certain asset impairment writedowns (primarily land), foreign tax credits, and net operating loss carryforwards, partially offset by reductions in allowances attributable primarily to foreign net operating loss carryforwards. The Company has concluded that its foreign business requires that the undistributed earnings of its foreign subsidiaries be reinvested indefinitely outside the United States. If the reinvested earnings were to be remitted, the U.S. income taxes due under current tax law would not be material. NOTE 5. BUSINESS ACQUISITIONS AND DIVESTITURES In 1994, the Company and its principal subsidiaries acquired 119 businesses for $197.2 million in cash and notes, $17.3 million of debt assumed, 73,809 shares of Company common stock and 156,124 shares of WTI common stock. During 1995, 136 businesses were acquired for $224.3 million in cash and notes, $77.7 million of debt assumed, and 2.2 million shares of the Company's common stock. In 1996, 83 businesses were acquired for $104.8 million in cash and notes, $39.4 million of debt assumed, and 8.2 million shares of the Company's common stock. 71 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) During 1997, 45 businesses were acquired for $51.4 million in cash and notes, assumed debt of $17.6 million, and 121,551 shares of the Company's common stock. Three of the 1995 acquisitions, which otherwise met pooling of interests criteria, were not significant in the aggregate and, consequently, prior period financial statements were not restated. The remaining acquisitions were accounted for as purchases. The pro forma effect of the acquisitions made during the four years was not material. In January 1995, the Company acquired all of the approximately 21.4% of the outstanding shares of CWM that it did not already own for $436.8 million of convertible subordinated notes. See Note 6 for additional information. In July 1995, the Company acquired all of the approximately 3.1 million shares of Rust held by the public, for $16.35 per share in cash. During 1997, the Company divested 24 solid waste operations in North America for a total price of $288.9 million. The largest of these transactions was the sale of most of its Canadian operations. Its Waste Management International plc ("WM International") subsidiary sold substantially all of its remaining operations in France for approximately $112 million, and its business in Spain for approximately $16.3 million, and entered into an agreement for the sale (completed in January 1998) of its Hamm, Germany waste-to-energy plant for approximately $137.0 million. In June 1997, the Company announced an offer to acquire, for $15 per share in cash, all of the approximately 53 million outstanding shares of WTI it does not already own. The price was increased to $16.50 per share pursuant to a definitive merger agreement subsequently negotiated with a special committee of independent WTI directors. The terms of the agreement have been approved by the WTI special committee and by the Boards of Directors of the Company and WTI, but the transaction remains subject to the approval of the holders of a majority of WTI's outstanding shares, other than those held by the Company, voting on it at a special meeting of WTI stockholders to be held March 30, 1998. Several lawsuits have been filed which seek, among other things, to enjoin the proposed transaction. The Company believes that it has met the legal standards applicable to transactions of this type and intends to vigorously defend itself in these lawsuits. 72 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6. DEBT The details relating to debt (including capitalized leases, which are not material) as of December 31, 1995, 1996 and 1997, are as follows:
1995 1996 1997 -------- -------- -------- Commercial Paper weighted average interest 5.7% in 1995, 5.8% in 1996 and 6.1% in 1997................ $1,119.4 $ 645.9 $ 356.3 Tailored Rate ESOP Notes, weighted average interest 4.74% in 1995 and 4.58% in 1996.................... 20.0 20.0 -- Notes and debentures, interest 6% to 8.75%, due 1998-2026.......................................... 3,583.3 4,083.3 4,133.3 Solid waste disposal revenue bonds, interest 4.15% to 7.15%, due 1998-2013............................ 251.1 240.0 274.6 Installment loans and notes payable, interest 5.34% to 10.6%, due 1998-2020............................ 1,197.8 1,137.1 518.9 Project debt, interest 3.95% to 10.64%, due 1998- 2018............................................... 735.6 833.8 829.0 Other long-term borrowings.......................... 31.5 30.2 20.5 Liquid Yield Option Notes, zero coupon-subordinated, interest 9%, due 2001 ("LYONS").................... 8.9 7.4 7.4 Liquid Yield Option Notes, zero coupon-subordinated, interest 6%, due 2012 ("Exchangeable LYONs")....... 54.0 53.4 9.5 Liquid Yield Option Notes, zero coupon-subordinated, interest 6%, due 2010 ("CWM LYONs")................ 36.8 29.3 27.4 Subordinated Notes, interest 5.75%, due 2005 ("Subordinated Notes")............................. 439.6 444.7 450.2 -------- -------- -------- Total debt.......................................... $7,478.0 $7,525.1 $6,627.1 Less--current portion............................... 1,088.0 553.5 1,548.5 -------- -------- -------- Long-term portion................................... $6,390.0 $6,971.6 $5,078.6 ======== ======== ========
The long-term debt as of December 31, 1997, is due as follows: Second year..................................................... $ 434.7 Third year...................................................... 743.2 Fourth year..................................................... 511.3 Fifth year...................................................... 644.4 Sixth year and thereafter....................................... 2,745.0 -------- $5,078.6 ========
The LYONs, Exchangeable LYONs and CWM LYONs are redeemable at the option of the holders on each June 30 until maturity, and the Exchangeable LYONs and the CWM LYONs at the option of the Company at any time, at the issue price plus accrued original issue discount to the date of redemption ($764.31, $429.86 and $474.09 per security, respectively, at December 31, 1997). Each LYON is convertible into 34.88 shares of the Company's common stock at any time. The Exchangeable LYONs and CWM LYONs are convertible as discussed below. In the Company's acquisition in 1995 of the outstanding CWM shares it did not already own, the CWM public stockholders received a Subordinated Note, with a principal amount at maturity of $1,000, for every 81.1 CWM shares held, with cash paid in lieu of issuance of fractional notes. The notes are subordinated to all existing and future senior indebtedness of Waste Management. Each note bears cash interest at the rate of two percent per annum of the $1,000 principal amount at maturity, payable semi-annually. The difference between the principal amount at maturity of $1,000 and the $717.80 stated issue price of each note represents the stated discount. At the option of the holder, each note will be purchased for cash by Waste Management on March 15, 73 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1998, and March 15, 2000, at prices of $789.95 and $843.03, respectively. Accrued unpaid interest to those dates will also be paid. The notes will be callable by Waste Management on and after March 15, 2000, for cash, at the stated issue price plus accrued stated discount and accrued but unpaid interest through the date of redemption. In addition, each note is convertible at any time prior to maturity into 26.078 shares of Waste Management common stock, subject to adjustment upon the occurrence of certain events. Upon any such conversion, Waste Management will have the option of paying cash equal to the market value of the Waste Management shares which would otherwise be issuable. As of December 31, 1997, there were 549,404 such notes outstanding with a maturity value amounting to $549.4 million. In connection with the Company's 1995 acquisition of the publicly held CWM shares, CWM LYONs and Exchangeable LYONs which had been convertible into or exchangeable for CWM shares became convertible into the number of notes discussed in the preceding paragraph to which the holders would have been entitled had they converted or exchanged the LYONs immediately prior to the merger approval. As of December 31, 1997, the CWM LYONs and Exchangeable LYONs were convertible or exchangeable into 8,332 and 4,695 Subordinated Notes, respectively. Such Subordinated Notes in turn would be convertible into a total of 339,718 shares of the Company's common stock. The securities described above and certain of the Company's other debt instruments are redeemable at the option of the holders prior to maturity and, accordingly, those which may be redeemed in 1998 are classified as current in the accompanying financial statements at December 31, 1997. In prior years, such borrowings were classified as long-term because the Company had committed credit facilities in place to refinance them. The Company has in place committed standby trade receivables sale and revolving credit facilities totaling $800 million with a group of six banks led by Chase Manhattan Bank (the "Lenders") for general corporate purposes and to support the Company's commercial paper program. The Lenders are committed to fund up to $550 million, if requested by the Company, by purchasing eligible receivables. Additionally, the Company has a $250 million unsecured revolving credit agreement with the Lenders. Both facilities were put in place in December 1997 and expire June 30, 1998. The facilities provide for commitment fees ranging from 18.75 to 37.5 basis points per annum and interest rates tied to prime or LIBOR plus a margin. Under the terms of the revolving credit agreement as amended, the Company is required to maintain net worth of $1.0 billion and consolidated debt (as defined in the agreement) not to exceed 3.5 times earnings (as defined in the agreement) before interest, taxes, depreciation and amortization for the preceding four calendar quarters. As of December 31, 1997, the Company was in compliance with such restrictions. The Company had not obtained any funds under either facility as of February 24, 1998. NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS From time to time, the Company and certain of its subsidiaries use derivatives to manage interest rate, currency, commodity (fuel) and equity price risk. The Company's policy is to use derivatives for risk management purposes only, and it does not enter into such contracts for trading purposes. The Company enters into derivatives only with counterparties which are financial institutions having credit ratings of at least A- or A3, to minimize credit risk. The amount of derivatives outstanding at any one point in time and gains or losses from their use have not been and are not expected to be material to the Company's financial statements. Instruments used as hedges must be effective at managing risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments must have a high degree of inverse correlation with changes in market values or cash flows of underlying hedged items. Derivatives that meet the hedge criteria are accounted for under the deferral or accrual method, except for currency agreements as discussed below. If a derivative does not meet or ceases to meet the aforementioned criteria, or if the designated hedged item ceases to exist, then the Company subsequently uses 74 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) fair value accounting for the derivative, with gains or losses included in sundry income. If a derivative is terminated early, any gain or loss, including amounts previously deferred, is deferred and amortized over the remaining life of the terminated contract or until the anticipated transaction occurs. Interest Rate Agreements. Certain of the Company's subsidiaries have entered into interest rate swap agreements to balance fixed and floating rate debt in accordance with management's criteria. The agreements are contracts to exchange fixed and floating interest rate payments periodically over a specified term without the exchange of the underlying notional amounts. The agreements provide only for the exchange of interest on the notional amounts at the stated rates, with no multipliers or leverage. Differences paid or received are accrued in the financial statements as a part of interest expense on the underlying debt over the life of the agreements and the swap is not recorded on the balance sheet or marked to market. As of December 31, 1997, interest rate agreements in notional amounts and with terms as set forth in the following table were outstanding:
NOTIONAL DURATION OF CURRENCY AMOUNT RECEIVE PAY AGREEMENTS -------- ----------- -------- ----- --------------- Hong Kong Dollar..................... 100 million Floating Fixed Jan '96-Jul '98 Italian Lira......................... 98 billion Floating Fixed Mar '96-Mar '99 German Deutschemark.................. 150 million Floating Fixed Mar '96-Jan '00 Dutch Guilder........................ 115 million Floating Fixed Nov '96-Jan '00 U. S. Dollar......................... 24 million Floating Fixed Apr '97-Dec '12
Currency Agreements. From time to time, the Company and certain of its subsidiaries use foreign currency derivatives to seek to mitigate the impact of translation on foreign earnings and income from foreign investees. Typically these have taken the form of purchased put options or collars. The Company receives or pays, based on the notional amount of the option, the difference between the average exchange rate of the hedged currency against the base currency and the average (strike price) contained in the option. Complex instruments involving multipliers or leverage are not used. Although the purpose for using such derivatives is to mitigate currency risk, they do not qualify for hedge accounting under generally accepted accounting principles and accordingly, must be adjusted to market value at the end of each accounting period with gains or losses included in sundry income. There were no currency derivatives of this type outstanding at December 31, 1997. The Company sometimes also uses foreign currency forward contracts to hedge committed transactions when the terms of such a transaction are known and there is a high probability that the transaction will occur. At December 31, 1997, a subsidiary had sold Italian Lira forward for delivery in 1998 to hedge foreign exchange exposure on a specific transaction. The amount was not material to the consolidated financial statements, and any gain or loss will be included in the measurement of the identified transaction. Commodity Agreements. The Company utilizes derivatives to seek to mitigate the impact of fluctuations in the price of fuel used by its vehicles. Quantities hedged do not exceed anticipated fuel purchases in any period. Gains or losses are recognized in operating expenses, as cost of fuel purchases, when paid or received. The primary instruments used are collars, swaps and swaptions. Collars consist of the purchase of call options along with a corresponding sale of put options at a lower price, with the effect of establishing a "cap" and a "floor" with respect to the price of specified quantities of fuel. A swap is an agreement with a counterparty whereby the Company pays a fixed price and receives a floating price for specified quantities during a given period. In a swaption, the Company is paid a premium by the counterparty for the right, but not the obligation, at the end of the option period (usually 90 to 180 days) to enter into a swap with respect to a specified quantity in a given period in the future. The following table summarizes the Company's position in crude oil derivatives at December 31, 1997:
CONTRACT TYPE QUANTITY PERIOD ---- ---------------- -------- Collars......................................... 1.2 million bbls 1998 Collars......................................... 2.0 million bbls 1999 Collars......................................... 1.0 million bbls 2000 Swaps........................................... 0.5 million bbls 2000 Swaptions (exercisable in 1998)................. 0.5 million bbls 2000
75 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Equity Investments. The Company occasionally acquires common stock that it needs to hold for a period of time. To mitigate its exposure to fluctuations in the market price of such investments during the holding period, the Company sometimes enters into hedging arrangements consisting of put options or collars. Changes in the intrinsic value of such instruments are recorded in stockholders' equity if the underlying stock is classified as "available for sale" and in sundry income if it is classified as "trading." The offsetting change in the value of the derivative is included in short term investments on the balance sheet. At December 31, 1997, the Company had outstanding a collar, which expired in 1998, on an investment in a publicly traded equity security. The market price of the security was in excess of the cap value of the collar at both December 31 and upon expiration, and accordingly, the Company delivered the shares in exchange for the cap price, with no gain or loss recognized in 1998. See Note 10 for a discussion of the Company's sale of put options in connection with its authorized stock repurchase program. NOTE 8. ENVIRONMENTAL COSTS AND LIABILITIES The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment. As such, a significant portion of the Company's operating costs and capital expenditures could be characterized as costs of environmental protection. Such costs may increase in the future as a result of legislation or regulation, however, the Company believes that in general it tends to benefit when environmental regulation increases, which may increase the demand for its services, and that it has the resources and experience to manage environmental risk. As part of its ongoing operations, the Company provides for estimated closure and post-closure monitoring costs over the estimated operating life of disposal sites as airspace is consumed. Such costs for U.S. landfills are estimated based on the technical requirements of the Subtitle C and D regulations of the U.S. Environmental Protection Agency or the applicable state requirements, whichever are stricter, and include such items as final cap and cover on the site, methane gas and leachate management, and groundwater monitoring. Such costs for foreign landfills are estimated based on compliance with local laws, regulations and customs. The Company has also established procedures to evaluate its potential remedial liabilities at closed sites which it owns or operated, or to which it transported waste, including 89 sites listed on the NPL. The majority of situations involving NPL sites relate to allegations that subsidiaries of the Company (or their predecessors) transported waste to the facilities in question, often prior to the acquisition of such subsidiaries by the Company. The Company routinely reviews and evaluates sites requiring remediation, including NPL sites, giving consideration to the nature (e.g., owner, operator, transporter, or generator), and the extent (e.g., amount and nature of waste hauled to the location, number of years of site operation by the Company, or other relevant factors) of the Company's alleged connection with the site, the accuracy and strength of evidence connecting the Company to the location, the number, connection and financial ability of other named and unnamed potentially responsible parties ("PRPs"), and the nature and estimated cost of the likely remedy. Cost estimates are based on management's judgment and experience in remediating such sites for the Company as well as for unrelated parties, information available from regulatory agencies as to costs of remediation, and the number, financial resources and relative degree of responsibility of other PRPs who are jointly and severally liable for remediation of a specific site, as well as the typical allocation of costs among PRPs. These estimates are sometimes a range of possible outcomes. In such cases, the Company provides for the amount within the range which constitutes its best estimate. If no amount within the range appears to be a better estimate than any other amount, then the Company provides for the minimum amount within the range in accordance with FAS No. 5. The Company believes that it is "reasonably possible," as that term is defined in FAS No. 5 ("more than remote but less than likely"), that its potential liability, at the high end of such ranges, would be approximately $201.9 million higher 76 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) on a discounted basis in the aggregate than the estimate that has been recorded in the financial statements as of December 31, 1997. Estimates of the extent of the Company's degree of responsibility for remediation of a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult, and the ultimate outcome may differ from current estimates. However, the Company believes that its extensive experience in the environmental services business, as well as its involvement with a large number of sites, provides a reasonable basis for estimating its aggregate liability. As additional information becomes available, estimates are adjusted as necessary. While the Company does not anticipate that any such adjustment would be material to its financial statements, it is reasonably possible that technological, regulatory or enforcement developments, the results of environmental studies, the existence and ability of other potentially responsible third parties to contribute to the settlements of such liabilities, or other factors could necessitate the recording of additional liabilities which could be material. Where the Company believes that both the amount of a particular environmental liability and the timing of the payments are reliably determinable, the cost in current dollars is inflated at 3% until expected time of payment and then discounted to present value at 6% (7% at December 31, 1995 and 1996). The portion of the Company's recorded environmental liabilities that is not inflated or discounted was $440.9 million, $358.5 million and $344.7 million at December 31, 1995, 1996 and 1997, respectively. Had the Company not discounted any portion of its liability, the amount recorded would have been increased by approximately $368 million at December 31, 1997. As of December 31, the Company's liabilities for closure, post-closure monitoring and environmental remediation costs were as follows:
1995 1996 1997 -------- -------- -------- Current portion, included in accrued expenses....... $ 140.3 $ 123.9 $ 127.2 Non-current portion................................. 750.7 673.5 840.4 -------- -------- -------- Total recorded.................................... $ 891.0 $ 797.4 $ 967.6 Amount to be provided over remaining life of active sites, including discount of $332 million in 1995, $305 million in 1996 and $368 million in 1997 related to recorded amounts........................ 2,817.2 2,666.4 1,919.9 -------- -------- -------- Expected aggregate undiscounted environmental liabilities........................................ $3,708.2 $3,463.8 $2,887.5 ======== ======== ========
The decline between 1996 and 1997 in the expected aggregate undiscounted amount is primarily due to a reduction in estimated airspace (see Note 3), which correspondingly reduces closure and post-closure costs. Anticipated payments of environmental liabilities at December 31, 1997, are as follows: 1998............................................................. $ 127.2 1999............................................................. 153.5 2000............................................................. 121.7 2001............................................................. 115.0 2002............................................................. 91.3 Thereafter....................................................... 2,278.8 -------- Total.......................................................... $2,887.5 ========
77 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In addition to the amounts above, at certain sites the Company has perpetual care obligations aggregating $657,000 per year beginning in 2027. From time to time, the Company and certain of its subsidiaries are named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of a Company subsidiary's having owned, operated or transported waste to a disposal facility which is alleged to have contaminated the environment or, in certain cases, conducted environmental remediation activities at such sites. While the Company believes it has meritorious defenses to these lawsuits, their ultimate resolution is often substantially uncertain due to a number of factors, and it is possible such matters could have a material adverse impact on the Company's earnings for one or more quarters or years. The Company has filed suit against numerous insurance carriers seeking reimbursement for past and future remedial, defense and tort claim costs at a number of sites. Carriers involved in these matters have typically denied coverage and are defending against the Company's claims. While the Company is vigorously pursuing such claims, it regularly considers settlement opportunities when appropriate terms are offered. Settlements to date ($50.1 million in 1994, $38.2 million in 1995, $60.3 million in 1996, and $94.3 million in 1997) have been included in operating expenses as an offset to environmental expenses. NOTE 9. STOCK OPTIONS The Company has two stock option plans currently in effect under which future grants may be issued: the 1997 Waste Management, Inc. Equity Incentive Plan (the "1997 Plan") and the 1992 Stock Option Plan for Non-Employee Directors (the "Directors' Plan"). The plans provide for accelerated vesting upon a "change in control" of the Company as defined in the plans. Options granted under the 1997 Plan are generally exercisable in three equal cumulative installments beginning one year after the date of grant. Options granted under the Directors' Plan become exercisable in five equal annual installments beginning six months after the date of grant. Under the 1997 Plan, non-qualified stock options may be granted at a price not less than 100% of the market value on the date of grant, for a term of not more than ten years. Twenty-three million shares of the Company's common stock were initially reserved for issuance under this plan. Pursuant to the Directors' Plan, 150,000 shares of the Company's common stock were initially reserved. Options for a total of 15,000 shares are to be granted, in five equal annual installments commencing with election to the Board, to each person who is not an officer or full-time employee of the Company or any of its subsidiaries. As part of the acquisitions of the CWM and Rust shares not previously owned by the Company, as discussed in Note 5, outstanding CWM stock options were converted into options to acquire approximately 2,873,000 Company shares at a weighted-average price of $34.90 per share and outstanding Rust stock options were converted into options to acquire approximately 1,976,000 Company shares at a weighted-average price of $30.26 per share. 78 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The status of the plans, including predecessor plans, replacement plans and similar plans for employees generally (together "Prior Plans") under which options remain outstanding, during the four years ended December 31, 1997, was as follows (shares in thousands):
1994 1995 1996 1997 ---------------- ---------------- ---------------- ---------------- WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE ------ --------- ------ --------- ------ --------- ------ --------- Outstanding at beginning of year................ 11,682 $33.63 13,811 $32.24 19,629 $32.04 20,170 $32.33 Granted................. 3,729 26.49 3,117 27.29 4,106 31.90 6,203 31.19 Exercised............... 462 17.77 721 20.47 2,614 25.96 1,138 26.61 Canceled: Prior plans............ 1,138 33.54 1,427 32.76 1,466 33.63 1,176 36.88 Current plans.......... -- -- -- -- -- -- 2,061 33.01 Additional shares available for future grant.................. 6,000 -- -- -- 515 -- 23,000 -- Converted CWM, Rust and other stock options.... -- -- 4,849 33.01 515 18.07 -- -- Shares no longer available for future grant.................. -- -- 2,914 -- -- -- -- -- Outstanding at end of year................... 13,811 32.24 19,629 32.04 20,170 32.33 21,998 31.99 Options exercisable at end of year............ 7,210 33.77 9,860 33.57 12,577 33.87 15,055 32.78 Options available for future grant........... 15,290 -- 4,726 -- 1,044 -- 18,789 -- Weighted average fair value of options granted (disclosure not applicable for 1994) .. -- N/A -- $ 9.60 -- $10.53 -- $10.23
The following table summarizes information about stock options outstanding as of December 31, 1997 (shares in thousands):
OPTIONS OPTIONS OUTSTANDING EXERCISABLE ---------------------------- ---------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE - ------------------------ ------ ----------- --------- ------ --------- $15.71-$17.16.................... 78 5.2 years $16.18 75 $16.19 21.39- 29.87.................... 5,990 6.0 years 26.74 4,940 26.65 30.05- 39.27.................... 13,950 6.6 years 32.51 8,061 33.72 $40.10-$61.03.................... 1,980 3.2 years 44.90 1,979 44.89 ------ ------ 21,998 6.1 years $31.99 15,055 $32.78 ====== ======
As permitted by FAS No. 123, "Accounting for Stock-Based Compensation," the Company has elected to continue to account for its employee stock option plans under Accounting Principles Board Opinion No. 25. Accordingly, no compensation cost has been recognized for grants of stock options. Had compensation cost been determined under FAS No. 123, the Company's net income and income per share would have been as follows:
1995 1996 1997 ------ ------ --------- Net income (loss)- As reported........................................ $340.1 $(39.3) $(1,176.1) Proforma........................................... 336.1 (50.4) (1,194.3) Basic income (loss) per share- As reported........................................ $ 0.70 $(0.08) $ (2.52) Proforma........................................... 0.69 (0.10) (2.57) Diluted income (loss) per share- As reported........................................ $ 0.70 $(0.08) $ (2.52) Proforma........................................... 0.69 (0.10) (2.57)
79 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Because FAS No. 123 has not been applied to options granted prior to January 1, 1995, this proforma disclosure may not be indicative of future results. The fair value of options granted is estimated at the date of grant using an option pricing model substantially equivalent to the Black-Scholes model with the following assumptions:
1995 1996 1997 ----- ----- ----- Risk-free interest rate.................................... 7.19% 6.25% 6.71% Dividend yield............................................. 2% 2% 2% Expected volatility........................................ 25.17% 25.17% 25.17% Expected life in years..................................... 7 7 7
Commencing in 1996, the Company also made grants of restricted stock. Compensation expense for grants of restricted shares is recognized ratably over the vesting period (generally five to ten years) and amounted to $0.1 million and $2.4 million in 1996 and 1997, respectively. Unamortized compensation expense related to grants of restricted stock was $11.1 million at December 31, 1997. NOTE 10. CAPITAL STOCK The Board of Directors has the authority to create and issue up to 50 million shares of $1 par preferred stock at such time or times, in such series with such designations, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof as it may determine. No shares of the preferred stock have been issued. The Boards of Directors of Waste Management and WTI have authorized their respective companies to repurchase shares of their own common stock (up to 50 million shares in the case of Waste Management and 30 million shares in the case WTI) in the open market, in privately negotiated transactions, or through issuer tender offers. Both authorizations replaced prior common stock repurchase authorizations. Waste Management repurchased 30 million shares through a "Dutch auction" tender offer in the second quarter but has not repurchased any other shares in 1997 and does not expect to conduct any repurchases in 1998. WTI repurchased 5.1 million shares in the first six months of 1997 but suspended its repurchase activity following the Waste Management offer to acquire its remaining public shares. During 1994 through 1996, the Company sold put options on 42.3 million shares of its common stock. The put options gave the holders the right at maturity to require the Company to repurchase shares of its common stock at specified prices. Proceeds from the sale of put options were credited to additional paid-in capital. The amount the Company would be obligated to pay to repurchase shares of its common stock if all outstanding put options were exercised was reclassified to a temporary equity account. In the event the options were exercised, the Company had the right to pay the holder in cash the difference between the strike price and the market price of the Company's shares, in lieu of repurchasing the stock. Options on 32.5 million shares expired unexercised, as the price of the Company's stock was in excess of the strike price at maturity. The Company repurchased 3.1 million shares of stock at a cost of $107.5 million, and 6.7 million options were settled for cash of $13.6 million. There were no put options outstanding at December 31, 1997. 80 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11. EARNINGS PER SHARE In February 1997, the FASB issued FAS No. 128, "Earnings Per Share" ("EPS"), which supersedes Accounting Principles Board Opinion No. 15. Primary EPS is replaced by Basic EPS, which is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Fully diluted EPS is replaced by Diluted EPS which gives effect to all dilutive potential common shares. The Company was required to adopt FAS No. 128 in the fourth quarter of 1997. All prior periods presented have been restated. Basic and Diluted (1997 diluted computations not shown as all potentially issuable common shares are antidilutive) EPS from continuing operations are computed as follows:
1994 1995 1996 1997 ------ ------ ------ --------- Basic EPS Income from continuing operations as reported.................................... $601.5 $419.9 $224.0 $(1,269.3) Average common shares outstanding............ 483.7 485.3 489.2 466.6 ------ ------ ------ --------- Basic EPS from continuing operations......... $ 1.24 $ 0.86 $ 0.46 $ (2.72) ====== ====== ====== ========= Diluted EPS Income from continuing operations as reported.................................... $601.5 $419.9 $224.0 After tax interest on Subordinated Notes and LYONs....................................... 0.6 9.1 -- ------ ------ ------ Adjusted income from continuing operations... $602.1 $429.0 $224.0 ------ ------ ------ Average common shares outstanding.............. 483.7 485.3 489.2 Add effect of dilutive securities- Stock options, unvested restricted stock and put options................................. 0.4 0.6 0.8 Subordinated Notes........................... -- 14.4 -- LYONs........................................ 0.7 -- -- ------ ------ ------ Adjusted average shares.................... 484.8 500.3 490.0 ------ ------ ------ Diluted EPS from continuing operations......... $ 1.24 $ 0.86 $ 0.46 $ (2.72) ====== ====== ====== =========
Common shares potentially issuable upon conversion of CWM LYONs and Exchangeable LYONs and exercise of stock options with exercise prices greater than the average price of the Company's stock were not included in the calculation of Diluted EPS in any year, nor were shares potentially issuable with respect to Subordinated Notes or LYONs in 1996, because their effect is antidilutive. In 1997 the Company had a loss from continuing operations and, accordingly, no adjustment is made to Basic EPS because all potentially issuable common shares would be antidilutive. At December 31, 1997, there were 37.4 million common shares potentially issuable with respect to stock options, restricted shares and convertible debt, which could dilute Basic EPS in the future. During 1997, the Company issued 1.2 million shares upon exercise of stock options and conversion of debt. NOTE 12. COMMITMENTS AND CONTINGENCIES The Company leases many of its operating and office facilities for various terms. Rents charged to costs and expenses in the Consolidated Statements of Income amounted to $177.2 million in 1994, $170.3 million in 1995, $164.5 million in 1996 and $159.7 million in 1997. These amounts include rents under long-term leases, short-term cancelable leases and rents charged as a percentage of revenue, but are exclusive of financing leases capitalized for accounting purposes. 81 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The long-term rental obligations as of December 31, 1997, are due as follows: First year...................................................... $ 140.4 Second year..................................................... 130.1 Third year...................................................... 121.8 Fourth year..................................................... 111.3 Fifth year...................................................... 100.5 Sixth through tenth years....................................... 438.5 Eleventh year and thereafter.................................... 125.7 -------- $1,168.3 ========
The Company's insurance program includes coverage for pollution liability resulting from "sudden and accidental" releases of contaminants and pollutants. Management believes that the coverage terms, available limits of liability, and costs currently offered by the insurance market do not represent sufficient value to warrant the purchase of "non-sudden and accidental" pollution liability insurance coverage. As such, the Company has chosen not to purchase risk transfer "non-sudden and accidental" pollution liability insurance coverage. To satisfy existing government requirements, the Company has secured non-risk-transfer pollution liability insurance coverage in amounts believed to be in compliance with federal and state law requirements for "non-sudden and accidental" pollution. The Company must reimburse the insurer for losses incurred and covered by this insurance policy. In the event the Company continues not to purchase risk transfer "non- sudden and accidental" pollution liability insurance coverage, net income could be adversely affected in the future if "non-sudden and accidental" pollution losses should occur. The Company has issued or is a party to approximately 3,370 bank letters of credit, performance bonds and other guarantees. Such financial instruments (averaging approximately $669,000 each), including those provided for affiliates and not otherwise recorded, are given in the ordinary course of business. A substantial portion of these performance bonds are issued by a wholly-owned insurance company subsidiary, the sole business of which is to issue such bonds to customers of the Company and its subsidiaries. Approximately $277.7 million (at fair market value) of Company assets have been contributed to this subsidiary to meet regulatory minimum capital requirements. Because virtually no claims have been made against these financial instruments in the past, management does not expect these instruments will have a material adverse effect on the consolidated financial position or results of operations of the Company. During the first quarter of 1995, WM International received an assessment from the Swedish Tax Authority of approximately 417 million Krona (approximately $53 million) plus interest from the date of the assessment, relating to a transaction completed in 1990. WM International believes that all appropriate tax returns and disclosures were properly filed at the time of the transaction and intends to vigorously contest the assessment. A Company subsidiary has been involved in litigation challenging a municipal zoning ordinance which restricted the height of its New Milford, Connecticut, landfill to a level below that allowed by the permit previously issued by the Connecticut Department of Environmental Protection ("DEP"). Although a lower Court had declared the zoning ordinance's height limitation unconstitutional, during 1995 the Connecticut Supreme Court reversed this ruling and remanded the case for further proceedings in the Superior Court. In November 1995, the Superior Court ordered the subsidiary to apply for all governmental permits needed to remove all waste above the height allowed by the zoning ordinance, and the Connecticut Supreme Court has upheld that ruling. The Company is complying with the order of the Superior Court while also seeking an alternative resolution to this matter. The Company is unable to predict the outcome of this matter at this time. Depending upon the nature of any plan eventually approved by applicable regulatory authorities for removing the waste, the actual volume of waste to be moved, and other currently unforseeable factors, the subsidiary could incur costs which would have a material adverse impact on the Company's results of operations in one or more future periods. 82 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In May 1994, the U.S. Supreme Court ruled that state and local governments may not constitutionally restrict the free movement of trash in interstate commerce through the use of regulatory flow control laws. Such laws typically involve a local government specifying a jurisdictional disposal site for all solid waste generated within its borders. Since the ruling, several decisions of state or federal courts have invalidated regulatory flow control schemes in a number of jurisdictions. Other judicial decisions have upheld non-regulatory means by which municipalities may effectively control the flow of municipal solid waste. In addition, federal legislation has been proposed, but not yet enacted, to effectively grandfather existing flow control mandates. There can be no assurance that such alternatives to regulatory flow control will in every case be found to be lawful or that such legislation will be enacted into law. The Supreme Court's 1994 ruling and subsequent court decisions have not to date had a material adverse affect on any of the Company's operations. In the event that legislation to effectively grandfather existing flow control mandates is not adopted, the Company believes that affected municipalities will endeavor to implement alternative lawful means to continue controlling the flow of waste. However, given the uncertainty surrounding the matter, it is not possible to predict what impact, if any, it may have in the future on the Company's disposal facilities, particularly WTI's trash-to-energy facilities. WTI's Gloucester County, New Jersey, facility has historically relied on a disposal franchise for substantially all of its supply of municipal solid waste. On May 1, 1997, the Third Circuit Court of Appeals ("Third Circuit") permanently enjoined the State of New Jersey from enforcing its franchise system as a form of unconstitutional solid waste flow control, but stayed the injunction for so long as any appeals were pending. On November 10, 1997, the U.S. Supreme Court announced its decision not to review the Third Circuit decision, thereby ending the stay and, arguably, the facility's disposal franchise. The State had continued to enforce flow control during the stay period. In light of the current circumstances, the facility has lowered its prices and solicited new customers. Under the reimbursement agreement between the project company that owns the Gloucester facility and the bank that provides credit support to the project, the termination of the waste franchise constitutes an event of default. WTI and the credit support bank are presently disputing the consequences of these developments. The New Jersey legislature has been considering various alternative solutions, including a bill that provides for the payment and recovery of bonded indebtedness incurred by counties, public authorities and certain qualified private vendors in reliance on the State's franchise system. WTI currently believes that, through either legislative action or a project recapitalization, the Gloucester project can be restructured to operate, in the absence of regulatory flow control, at a level of profitability which will not result in a material adverse impact on consolidated results. Within the next several years, the air pollution control systems at certain trash-to-energy facilities owned or leased by WTI will be required to be modified to comply with more stringent air pollution control standards adopted by the United States Environmental Protection Agency in December 1995 for municipal waste combusters. The compliance dates will vary by facility, but all affected facilities will be required to be in compliance with the new rules by the end of the year 2000. Currently available technologies will be adequate to meet the new standards. The total capital expenditures required for such modifications are estimated to be in the $180-$220 million range. The impacted facilities long-term waste supply agreements generally require that customers pay, based on tonnage delivered, their proportionate share of incremental capital, financing, and operating costs resulting from changes in environmental regulations. Customer shares of capital and financing costs are typically recovered over the remaining life of the waste supply agreements. Pro rata operating costs are recovered in the period incurred. The Company currently expects to recover approximately two-thirds of the incremental expenditures incurred to comply with these stricter air emission standards. As the states and the U.S. Congress have accelerated their consideration of ways in which economic efficiencies can be gained by deregulating the electric generation industry, some have argued that over-market 83 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) power sales agreements entered into pursuant to the Public Utilities Regulatory Policies Act of 1978 ("PURPA") should be voidable as "stranded assets." WTI's power production facilities are qualifying facilities under PURPA and depend on the sanctity of their power sales agreements for their economic viability. WTI believes that federal law offers strong protections to its PURPA contracts, and recent state and federal agency and court decisions have unanimously upheld the inviolate nature of these contracts. While there is a risk that future utility restructurings, court decisions or legislative or administrative action in this area could have an adverse effect on its business, the Company currently believes such risk is remote. In the ordinary course of conducting its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including antitrust and environmental matters and commercial disputes. Some of these proceedings may result in fines, penalties or judgments being assessed against the Company which, from time to time, may have an impact on earnings for a particular quarter or year. The Company believes it has adequately provided for such matters in its financial statements and does not believe that their outcome, individually or in the aggregate, will have a material adverse impact on its financial condition or results of operations. Several purported class action lawsuits and one purported derivative lawsuit seeking injunctive relief and unspecified money damages were filed in the Chancery Court in and for New Castle County, Delaware against the Company, WTI, and individual directors of WTI in connection with the June 20, 1997 proposal by the Company to acquire all of the shares of WTI common stock which the Company does not own. The Company has agreed to a merger in whch WTI's stockholders would receive $16.50 in cash per share of WTI's common stock. The lawsuits allege, among other things, that the defendants have breached fiduciary duties to WTI's minority stockholders because the merger consideration contemplated by the proposal was inadequate and unfair. In addition, the purported derivative lawsuit alleges that the proposal was part of a plan to misappropriate WTI's corporate opportunity to repurchase its own shares. The Company believes that its actions and those of WTI and its Board of Directors in connection with the proposal have been in accordance with Delaware law. Accordingly, the Company intends to contest these lawsuits vigorously. In November and December 1997, several alleged purchasers of the Company's stock brought purported class action lawsuits against the Company and several of its current and former officers in the United States District Court for the Northern District of Illinois. Each of the lawsuits asserts that the defendants violated the federal securities laws by issuing allegedly false and misleading statements in 1996 and 1997 about the Company's financial condition and results of operations. Among other things, the plaintiffs allege that the Company employed accounting practices that were improper and that caused its publicly-filed financial statements to be materially false and misleading. The lawsuits demand, among other relief, unspecified monetary damages, attorneys' fees, and the costs of conducting the litigation. The Company intends to defend itself vigorously in this litigation. In January 1998, the fourteen purported class actions were consolidated before one judge in the Northern District of Illinois. Plaintiffs have until May 1998 to file a consolidated amended complaint. It is not possible at this time to predict the impact this litigation may have on the Company, although it is reasonably possible that the outcome may have a materially adverse impact on its financial condition or results of operations in one or more future periods. No provision has been made in the Consolidated Financial Statements for future costs or liabilities, if any, associated with this litigation. The Company is also aware that the Securities and Exchange Commission has commenced a formal investigation with respect to the Company's previously filed financial statements and related accounting policies, procedures and system of internal controls. The Company intends to cooperate with such investigation. The Company is unable to predict the outcome or impact of this investigation at this time. A lawsuit by an alleged Company stockholder purporting to represent a class of the Company's stockholders has been filed in the Chancery Court in and for New Castle County, Delaware (although the Company has not yet been served) against the Company and the members of its Board of Directors alleging breaches of fiduciary duty by the defendants in connection with the Merger. The lawsuit seeks, among other things, to have the 84 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) transaction enjoined and to recover unspecified damages. The Company believes the suit to be without merit and intends to contest it vigorously. NOTE 13. BENEFIT PLANS The Company has a qualified defined benefit pension plan for all eligible non-union domestic employees of Waste Management, CWM and Waste Management of North America, Inc. ("WMNA"). The benefits are based on the employee's years of service and compensation during the highest five consecutive years out of the last ten years of employment. The Company's funding policy is to contribute annually an amount determined in consultation with its actuaries, approximately equal to pension expense, except as may be limited by the requirements of the Employee Retirement Income Security Act. An actuarial valuation report is prepared for the plan as of September 30 each year and used, as permitted by FAS No. 87, for the year-end disclosures. Net periodic pension expense for 1994 through 1997, based on discount rates of 8.5%, 8.5%, 7.75% and 7.75%, respectively, included the following components:
1994 1995 1996 1997 ------ ------ ------ ------ Service cost-benefits earned during the year.... $ 11.1 $ 11.8 $ 14.0 $ 15.0 Interest cost on projected benefit obligation... 11.5 13.2 14.4 17.1 Expected return on plan assets.................. (12.3) (13.2) (13.8) (17.1) Net amortization and deferral................... (1.3) -- 1.8 2.8 ------ ------ ------ ------ Net periodic pension expense.................. $ 9.0 $ 11.8 $ 16.4 $ 17.8 ====== ====== ====== ======
Assumptions used to determine the plan's funded status and pension expense for the following year were as follows:
1995 1996 1997 ---- ---- ---- Discount rate................................................. 7.75% 7.75% 7.25% Rate of increase in compensation.............................. 4.0% 3.5% 3.5% Long-term rate of return on plan assets....................... 9.0% 9.0% 9.0%
The following table sets forth the plan's funded status and the amount recognized in the Company's Consolidated Balance Sheets at December 31, 1995, 1996 and 1997, for its pension plan:
1995 1996 1997 ------- ------- ------- Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $152.0 million, $182.5 million and $231.0 million at December 31, 1995, 1996 and 1997, respectively............................... $(167.3) $(199.5) $(248.9) ======= ======= ======= Projected benefit obligations..................... $(191.1) $(223.7) $(284.8) Plan assets at fair value, primarily common stocks, bonds and real estate.............................. 149.1 193.7 264.9 ------- ------- ------- Plan assets less than projected benefit obligation.. $ (42.0) $ (30.0) $ (19.9) Unrecognized net loss............................... 47.8 52.6 55.2 Unrecognized overfunding at date of adoption (January 1, 1985) of FAS No. 87, net of amortization, being recognized over 15 years....... (6.4) (4.9) (3.3) Adjustment to recognize minimum liability........... (17.6) (23.5) -- ------- ------- ------- Prepaid pension cost (pension liability) included in the Consolidated Balance Sheets.................... $ (18.2) $ (5.8) $ 32.0 ======= ======= =======
The Company also has a non-qualified Supplemental Executive Retirement Plan for certain officers of Waste Management, CWM and WMNA, and an ERISA Excess Plan for non-officer managers of those companies who's eligible compensation exceeds the ERISA limit (collectively, the "SERP"). The SERP, which is unfunded, provides eligible executives with defined pension benefits outside the qualified Waste Management, Inc. Retirement Plan, based on average earnings and years of service. The SERP is valued each year (at 85 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) September 30) by the Company's independent actuaries, using the same assumptions as used for the qualified plan. The following table sets forth information relating to the SERP:
1995 1996 1997 ------ ------ ------ Actuarial present value of benefit obligations: Accumulated benefit obligation including vested benefits of $24.5 million, $27.7 million and $36.3 million at December 31, 1995, 1996 and 1997, respectively........................................ $(24.5) $(33.2) $(41.0) ------ ------ ------ Projected benefit obligation......................... $(29.5) $(37.1) $(44.1) Plan assets at fair value, primarily contributions made after the measurement date............................ 0.1 0.1 -- ------ ------ ------ Plan assets less than projected benefit obligation..... $(29.4) $(37.0) $(44.1) Unrecognized net loss.................................. 6.5 11.2 11.8 Unrecognized underfunding at date of adoption of FAS No. 87, net of amortization, being recognized over 15 years................................................. 2.5 1.7 1.4 Adjustment to recognize minimum liability.............. (4.0) (9.0) (10.1) ------ ------ ------ Liability recorded (in Other Deferred Items)........... $(24.4) $(33.1) $(41.0) ====== ====== ======
SERP expense for 1994, 1995, 1996 and 1997 included the following components:
1994 1995 1996 1997 ---- ---- ---- ---- Service cost - benefits earned during the year....... $1.0 $1.1 $1.3 $1.0 Interest............................................. 1.7 2.2 2.2 2.8 Net amortization and deferral........................ 0.8 1.1 1.0 1.1 ---- ---- ---- ---- Total expense...................................... $3.5 $4.4 $4.5 $4.9 ==== ==== ==== ====
WM International participates in both defined benefit and defined contribution retirement plans for its employees in various countries. The projected benefit obligation, plan assets and unfunded liability of the WM International defined benefit plans are not material. Other subsidiaries participate in various multi-employer pension plans covering certain employees not covered under the Company's pension plan, pursuant to agreements with collective bargaining units who are members of such plans. These plans are generally defined benefit plans; however, in many cases, specific benefit levels are not negotiated with or known by the employer-contributors. Contributions of $16.1 million, $18.3 million, $16.5 million and $18.6 million for subsidiaries' defined benefit plans were made and charged to income in 1994, 1995, 1996 and 1997, respectively. Waste Management, WMNA and CWM provide postretirement health care benefits to eligible employees, and WTI provides certain postretirement benefits other than pensions to a limited number of former employees of a manufacturing business it has sold. The following table analyzes the obligation for postretirement benefits other than pensions (primarily health care costs), measured as of December 31 of each year, which is included in other deferred items on the Consolidated Balance Sheets.
1995 1996 1997 ----- ----- ----- Accumulated Postretirement Benefit Obligations: Retirees............................................. $42.4 $42.2 $43.1 Other fully eligible participants.................... 5.5 6.7 1.5 Other active participants............................ 9.8 10.1 19.9 ----- ----- ----- $57.7 $59.0 $64.5 Unrecognized: Prior service (cost) credit.......................... 0.6 0.3 (3.9) Gain................................................. 7.9 8.5 8.7 ----- ----- ----- $66.2 $67.8 $69.3 ===== ===== =====
86 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For measurement purposes, a 7.5% annual rate of increase in the per capita cost of covered health care claims was assumed for 1998; the rate was assumed to decrease by 0.5% per year to 6.0% in 2001 and remain at that level thereafter. Increasing the assumed health care cost trend by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1997 by approximately $4.0 million and the aggregate of the service and interest cost components of net postretirement health care cost for 1997 by approximately $0.3 million. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.75% in 1995 and 1996 and 7.0% in 1997. The expense for postretirement health care benefits was as follows:
1994 1995 1996 1997 ---- ---- ---- ---- Service cost.......................................... $1.1 $1.1 $0.7 $1.8 Interest.............................................. 3.6 4.3 3.5 4.6 ---- ---- ---- ---- Total expense....................................... $4.7 $5.4 $4.2 $6.4 ==== ==== ==== ====
The Company had an Employee Stock Ownership Plan ("1988 ESOP") for all eligible non-union United States and Canadian employees of Waste Management, CWM and WMNA. The benefits are based on the employee's years of service and compensation. The Company contributes each year an amount, if any, determined by the Board of Directors of the Company. This plan terminated December 31, 1997. Information concerning the 1988 ESOP is as follows:
1994 1995 1996 1997 ---- ---- ---- ---- Expense recorded (contribution)............................ $7.9 $6.7 $6.7 $6.4 ==== ==== ==== ==== Interest expense on 1988 ESOP debt......................... $2.0 $1.1 $1.0 $1.0 ==== ==== ==== ==== Dividends on unallocated 1998 ESOP shares used by the 1988 ESOP...................................................... $0.8 $0.6 $0.4 $0.2 ==== ==== ==== ====
The Company has a Profit Sharing and Savings Plan ("PSSP") available to certain employees of Waste Management, Inc., CWM and WMNA. The terms of the PSSP allow for annual contributions by the Company as determined by the Board of Directors as well as a match of employee contributions up to $750 per employee ($500 prior to January 1, 1996). Charges to operations for the PSSP were $27.3 million in 1994, $24.9 million in 1995, $16.0 million in 1996 and $17.9 million in 1997. Effective January 1, 1998, the plan was renamed the "Retirement Savings Plan", the matching contribution formula was increased, and the discretionary annual contribution was discontinued. Rust, WTI and WM International also sponsor non-contributory and contributory defined contribution plans covering both salaried and hourly employees. Employer contributions are generally based upon fixed amounts of eligible compensation and amounted to $12.1 million, $13.6 million, $12.4 million and $19.1 million during 1994, 1995, 1996 and 1997, respectively. During 1994, the Company established an Employee Stock Benefit Trust and sold 12.6 million shares of treasury stock to the Trust in return for a 30- year, 7.33% note with interest payable quarterly and principal due at maturity. The Company has agreed to contribute to the Trust each quarter funds sufficient, when added to dividends on the shares held by the Trust, to pay interest on the note as well as principal outstanding at maturity. At the direction of an administrative committee comprised of Company officers, the trustee will use the shares or proceeds from the sale of shares to pay employee benefits, and to the extent of such payments by the Trust, the Company will forgive principal and interest on the note. The shares of common stock issued to the Trust are not considered to be outstanding in the computation of earnings per share until the shares are utilized to fund obligations for which the trust was established. Changes in the market value of these shares are charged or credited to Additional Paid-In Capital. 87 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 14. COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS As discussed in Note 1, the Company believes that all of its material operations are part of the waste management services industry, and it currently reports as a single industry segment. Foreign operations in 1997 were conducted in ten countries in Europe, seven countries in the Asia Pacific region, and Canada, Mexico, Brazil, Israel and Argentina. However, during the year, WMNA sold most of its Canadian operations, and WM International sold substantially all of its operations in France, Spain and Austria. WM International also learned in late September that its joint venture company's bid to continue to provide waste collection and cleaning services to the City of Buenos Aires, which represented a substantial portion of its business in Argentina, was not successful. Information relating to the Company's continuing operations is set forth in the following table (operating income is defined as revenue less operating expenses, special charges, asset impairment loss and selling and administrative expenses):
UNITED OTHER STATES EUROPE FOREIGN CONSOLIDATED --------- -------- ------- ------------ 1994 Revenue............................... $ 6,654.6 $1,322.7 $560.6 $ 8,537.9 ========= ======== ====== ========= Operating income...................... $ 1,166.2 $ 184.2 $ 63.2 $ 1,413.6 ========= ======== ====== ========= Identifiable assets................... $11,587.0 $3,471.0 $748.3 $15,806.3 ========= ======== ====== ========= 1995 Revenue............................... $ 7,060.2 $1,527.3 $512.7 $ 9,100.2 ========= ======== ====== ========= Operating income...................... $ 1,069.0 $ 2.4 $ 32.8 $ 1,104.2 ========= ======== ====== ========= Identifiable assets................... $12,384.1 $3,682.4 $772.7 $16,839.2 ========= ======== ====== ========= 1996 Revenue............................... $ 7,103.1 $1,539.2 $583.3 $ 9,225.6 ========= ======== ====== ========= Operating income...................... $ 972.2 $ (12.8) $ 74.5 $ 1,033.9 ========= ======== ====== ========= Identifiable assets................... $12,752.4 $3,503.0 $828.2 $17,083.6 ========= ======== ====== ========= 1997 Revenue............................... $ 7,222.4 $1,411.8 $554.4 $ 9,188.6 ========= ======== ====== ========= Operating income...................... $ (855.1) $ 27.3 $ 65.5 $ (762.3) ========= ======== ====== ========= Identifiable assets................... $10,438.0 $2,613.7 $537.4 $13,589.1 ========= ======== ====== =========
No single customer accounted for as much as 3% of consolidated revenue in 1994, 1995, 1996 or 1997. WM International operates facilities in Hong Kong which are owned by the Hong Kong government. The Hong Kong economy has been impacted by the economic uncertainty associated with many of the countries in the region. High and volatile interest rates have resulted from speculation regarding its currency. In addition to Hong Kong, WM International has operations in Indonesia and Thailand. These countries have experienced illiquidity, volatile currency exchange rates and interest rates, and reduced economic activity. WM International, and therefore the Company, will be affected for the foreseeable future by economic conditions in this region, although it is not possible to determine the extent of such impact. At December 31, 1997, WM International had a net investment of $107.5 million in these countries (including Hong Kong). Pretax income from Hong Kong was $25.7 million in 1997. Income from Indonesia and Thailand has not been significant to date. 88 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 15. SPECIAL CHARGES In the first quarter of 1995, in response to the continuing deterioration of the chemical waste services market, CWM realigned its organization, and in connection therewith, recorded a special charge of $140.6 million before tax ($91.4 million after tax). The charge related primarily to a write-off of the investment in facilities and technologies that CWM abandoned because they did not meet customer service or performance objectives, but also includes $22.0 million of future cash payments for rents under non-cancelable leases, guaranteed bank obligations of a joint venture, and employee severance. The majority of the cash expenditures were paid in 1995, although certain of the non-cancelable leases extend through the year 2002. In the fourth quarter of 1995, WM International recorded a special charge of $194.6 million ($152.4 million after tax) primarily related to the actions it had decided to take to sell or otherwise dispose of non-core businesses and investments, as well as core businesses and investments in low potential markets, abandon certain hazardous waste treatment and processing technologies, and streamline its country management organization. The charge reduced the Company's income by approximately $153.3 million before tax ($111.0 million after tax). The charge included $34.3 million of cash payments for employee severance and rents under non-cancelable leases. Approximately $11.2 million of the cash costs were paid in 1995. The majority of the balance was paid in 1996, although certain rent payments on abandoned leased facilities continue into the future. In the fourth quarter of 1996, WM International recorded a provision of $77.0 million after tax related to the sale of its investment in Wessex and a charge of $169.5 million after tax to revalue its investments in France, Austria and Spain in contemplation of exiting all or part of these markets or forming joint ventures. The charge also included the write-off of an investment in a hazardous waste disposal facility in Germany because regulatory changes adversely affected its volumes. These charges, primarily of a non-cash nature, reduced the Company's income by $213.6 million after tax. Also, in the fourth quarter of 1996, Waste Management and CWM recorded pretax charges of $154.1 million ($100.2 million after tax) for reengineering their finance and administrative functions and increasing reserves for certain litigation, including a dispute involving the computation of royalties on the Emelle, Alabama, hazardous waste landfill. In December 1996, a federal court in Memphis, Tennessee, held CWM liable for approximately $100.3 million in damages to the former owners of the Emelle site. CWM is appealing the decision. Any settlement of the Emelle litigation would be a cash payment, but the timing is not currently estimable. The balance of the charge is primarily non-cash, with $13.4 million of cash-related items paid mostly in 1997. In 1997, the Company recorded a special charge of $41.6 million (primarily in the fourth quarter) for severance. Employees terminated were primarily field operating management and related support personnel. Approximately $5.9 million of the severance had been paid by December 31, 1997, with the balance being paid in 1998 and thereafter. WM International also recorded a special charge in 1997 ($104.4 million before tax and minority interest) to reflect the costs of demobilization in Argentina following loss of the contract renewal for the City of Buenos Aires, divestiture or closure of underperforming businesses, primarily in Italy and Germany and the writeoff of costs of projects, primarily in Germany, which it decided to no longer pursue. The charge included $14.8 million of severance, primarily related to operating personnel in Buenos Aires and with closed or divested businesses in Italy and Germany. These terminations are expected to occur and the severance paid in 1998. 89 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 16. ASSET IMPAIRMENT LOSS As a result of the comprehensive review of operating assets and investments discussed in Note 2, the Company recorded an impairment loss of $1,401.2 million in the fourth quarter of 1997, and restated prior financial statements to retroactively recognize impairment losses in earlier periods. Fair values were determined for landfills, hazardous waste facilities, recycling investments and other facilities, primarily based on future cashflow projections discounted back using discount rates appropriate for the risks involved with the specific assets. For surplus real estate, market opinions and appraisals were used. In determining fair values for abandoned projects and vehicles to be sold, recoverable salvage values were determined using market estimates. The losses related to the following asset categories:
IMPAIRMENT LOSS ---------- 1994-- Landfills, related primarily to management decisions to abandon expansion projects due to political or competitive factors, which will result in closure earlier than previously expected.......... $ 22.4 Abandonment of other projects, primarily vehicle on board computer systems projects................................................. 7.3 Surplus real estate............................................... 4.3 -------- Total........................................................... $ 34.0 ======== 1995-- Landfills, related primarily to management decisions to abandon expansion projects due to political or competitive factors, which will result in closure earlier than previously expected.......... $ 48.2 Hazardous waste facility costs, resulting from continuing market deterioration, increased competition, excess capacity and changing regulation.............................................. 2.2 Other, primarily abandoned computer systems project costs......... 1.9 Surplus real estate............................................... 1.5 -------- Total........................................................... $ 53.8 ======== 1996-- Landfills, related primarily to management decisions to abandon expansion projects due to political or competitive factors, which will result in closure earlier than previously expected.......... $ 13.4 Recycling investments, related primarily to pricing, overcapacity and competitive factors.......................................... 47.8 Other, primarily equipment to be scrapped......................... 2.0 Surplus real estate............................................... 1.5 -------- Total........................................................... $ 64.7 ======== 1997-- Landfills, related primarily to management decisions to abandon expansions and development projects due to political or competitive factors, which will result in closure earlier than previously expected (includes $233.8 million for hazardous waste sites)........................................................... $ 578.6 Hazardous waste facilities, resulting from continuing market deterioration, increased competition, excess capacity and changing regulation.............................................. 131.4 Goodwill, primarily related to landfills and hazardous waste facilities impaired (includes $411 million related to hazardous waste business).................................................. 433.4 Write-down of WTI long-lived assets, including $47.1 million related to a wood waste burning independent power production facility......................................................... 57.2 Recycling investments, related primarily to continued pricing, overcapacity and competitive factors............................. 21.5 Write-down to estimated net realizable value of trucks to be sold as a result of new fleet management policy (Note 2).............. 70.9 Write-down to estimated net sales proceeds of business to be sold (Note 17)........................................................ 122.2 Abandoned equipment and facilities................................ 26.9 Surplus real estate............................................... 38.2 -------- Total........................................................... $1,480.3 ========
90 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Impaired assets to be sold are primarily businesses to be sold (see Note 17) and surplus real estate. The carrying amount of such real estate was $73.3 million at December 31, 1997. The Company is currently marketing these properties; however, since the disposal date cannot be accurately estimated, these assets are classified as long-term assets in the accompanying balance sheet at December 31, 1997. NOTE 17. DISCONTINUED OPERATIONS In the fourth quarter of 1995, the Rust Board of Directors approved a plan to sell or otherwise discontinue Rust's process engineering, construction, specialty contracting and similar lines of business. During the second quarter of 1996, the sale of the industrial process engineering and construction businesses, based in Birmingham, Alabama, was completed. During the fourth quarter of 1996, WTI sold its water process systems and equipment manufacturing businesses. WTI had also entered into an agreement to sell its water and wastewater facility operations and privatization business, which was sold in 1997. As of September 30, 1996, Rust sold its industrial scaffolding business and began implementing plans to exit its remaining international engineering and consulting business. Waste Management recorded a fourth-quarter provision for loss of $360.0 million before tax and minority interest in connection with the planned divestiture of these businesses, and others subsequently reclassified to continuing operations (see discussion below). The discontinued businesses have been segregated and the accompanying consolidated balance sheets, statements of income and related footnote information have been restated. Revenues from the discontinued businesses were $1,186.5 million in 1994, $1,511.0 million in 1995, $734.5 million for 1996 and $84.8 million in 1997. The decreases in revenue during the periods primarily reflect the sales of certain of the discontinued businesses. Results of their operations in 1997 were not material and were included in the reserve for loss on disposition provided previously. The following table summarizes the assets and liabilities as of December 31, 1995 and 1996, which are reflected on the consolidated balance sheet as net assets of discontinued operations. The Company had no operations classified as discontinued as of December 31, 1997.
1995 1996 ------- ------- Current assets.......................................... $ 445.1 $ 74.7 Property and equipment and other noncurrent assets...... 570.4 173.8 Current liabilities..................................... (306.7) (47.5) Noncurrent liabilities.................................. (90.8) (258.9) ------- ------- Net assets (liabilities) of discontinued operations... $ 618.0 $ (57.9) ======= =======
At December 31, 1996, management also classified as discontinued and planned to sell Rust's domestic environmental and infrastructure engineering and consulting business and CWM's high organic waste fuel blending services business. In 1997, management reclassified the CWM business back into continuing operations, and classified certain of its sites as operations held for sale. The Rust disposition was not completed within one year, and accordingly this business has been reclassified back into continuing operations, as operations held for sale, at December 31, 1997, in accordance with generally accepted accounting principles, although management is continuing its efforts to market its investment in this business. As these businesses were reclassified to continuing operations, the remaining provision for loss on disposal ($95 million after tax--$87 million related to Rust and $8 million related to CWM) was reversed in discontinued operations and an impairment loss for Rust 91 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of $122.2 million was recorded in continuing operations. Prior year financial statements have been restated. Information regarding the businesses reclassified as continuing operations held for sale is as follows:
1994 1995 1996 1997 ------ ------ ------ ------- Results of operations-- Revenue...................................... $373.0 $368.2 $361.5 $ 350.4 Income (loss) before tax after minority interest.................................... 24.1 25.1 0.3 (9.9) Net income (loss)............................ $ 12.1 $ 13.9 $ 0.1 $ (6.7) ------ ------ ------ ------- Condensed balance sheet-- Current assets...................................... $125.3 $147.5 $ 118.6 Property and equipment and other noncurrent assets.. 163.7 162.0 164.7 Current liabilities................................. (39.0) (44.2) (41.0) Noncurrent liabilities.............................. (14.6) (37.9) (161.2) ------ ------ ------- Net assets........................................ $235.4 $227.4 $ 81.1 ====== ====== =======
The net assets are included in Net Assets of Continuing Businesses Held for Sale in the accompanying balance sheet. At December 31, 1997, this caption also includes $73.3 million of surplus real estate which the Company is actively marketing. NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FAS No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company, using available market information and commonly accepted valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company or holders of the instruments could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on information available to management as of December 31, 1995, 1996, and 1997. Such amounts have not been revalued since those dates, and current estimates of fair value may differ significantly from the amounts presented herein.
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 ------------------- ------------------ ------------------ ESTIMATED ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE -------- --------- -------- --------- -------- --------- Nonderivatives-- Assets-- Cash and cash equivalents.......... $ 169.5 $ 169.5 $ 323.3 $ 323.3 $ 132.8 $ 132.8 Receivables........... 1,632.1 1,632.1 1,660.8 1,660.8 1,547.2 1,547.2 Short-term investments.......... 12.2 12.2 319.3 319.3 59.3 59.3 Liabilities-- Commercial paper...... 1,119.4 1,120.2 645.9 646.2 356.3 356.5 Project debt.......... 735.6 880.6 833.8 896.7 829.0 885.2 Liquid Yield Option Notes and Subordinated Notes... 539.3 576.0 534.8 602.7 494.5 512.1 Other borrowings...... 5,083.8 5,284.5 5,510.6 5,610.0 4,947.3 5,063.4 Derivatives relating to debt................... -- (0.1) -- (4.8) -- (3.3) Other derivatives-- Assets................ -- -- -- 2.8 -- -- Liabilities........... (0.1) (16.6) -- (0.1) -- (0.3) Letters of credit, performance bonds and guarantees............. -- -- -- -- -- --
92 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Cash, Receivables and Investment. The carrying amounts of these items are a reasonable estimate of their fair value. Liabilities. For debt issues that are publicly traded, fair values are based on quoted market prices or dealer quotes. Due to the short-term nature of the ESOP notes, their carrying value approximates fair value. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. Derivatives. The fair value of derivatives generally reflects the estimated amounts that the Company would receive or pay to terminate the contracts at December 31, thereby taking into account unrealized gains and losses. Dealer quotes are available for most of the Company's derivatives. Unrealized gains and losses are shown as assets and liabilities, as offsetting such amounts against the related nonderivative instrument is permitted only pursuant to a right of setoff or master netting agreement. Off-Balance-Sheet Financial Instruments. In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk, such as bank letters of credit, performance bonds and other guarantees, which are not reflected in the accompanying consolidated balance sheets. Such financial instruments are to be valued based on the amount of exposure under the instrument and the likelihood of performance being required. In the Company's experience, virtually no claims have been made against these financial instruments. Management does not expect any material losses to result from these off-balance-sheet instruments and, therefore, is of the opinion that the fair value of these instruments is zero. NOTE 19. SUBSEQUENT EVENTS On March 10, 1998, the Company entered into a definitive merger agreement (the "Merger Agreement") with USA Waste Services, Inc. ("USA Waste") pursuant to which the Company will be merged with a wholly-owned subsidiary of USA Waste (the "Merger"). Pursuant to the Merger Agreement, the Company's stockholders will receive .725 shares of common stock of USA Waste for each share of common stock of the Company. The consummation of the Merger is subject to a number of conditions, including the expiration or termination of the applicable merger review waiting period under the Hart-Scott-Rodino Anti- Trust Improvements Act of 1976, approval by the stockholders of each company and other closing conditions. In addition, the Merger is contingent upon the transaction qualifying for pooling-of-interests accounting treatment. In order to qualify for pooling-of-interests accounting treatment, the Company intends to sell a portion of its treasury shares pursuant to a registered public offering prior to the closing of the Merger. A lawsuit by an alleged Company stockholder purporting to represent a class of the Company's stockholders has been filed (although the Company has not yet been served) against the Company and the members of its Board of Directors alleging breaches of fiduciary duty by the defendants in connection with the Merger. The lawsuit seeks, among other things, to have the transaction enjoined and to recover unspecified damages. The Company believes the suit to be without merit and intends to contest it vigorously. Upon the consummation of the Merger, certain long-term debt of WM International may be accelerated and become payable with three months notice. At December 31, 1997, this debt totalled approximately $209 million, however, by March 17, 1998 it had been reduced to $71 million. In addition, Wessex has an option to acquire WM International's ownership in its United Kingdom business at fair market value that may become exercisable upon the consummation of the Merger. In 1997, this business had revenues of approximately $276 million and operating income (before minority interest) of approximately $25 million. WM International had a net investment of approximately $315 million in the business at December 31, 1997. The Company may have other "change of control" provisions in customer and employee contracts or agreements, governmental franchises or facility permits that may be triggered by the closing of the proposed Merger. The Company is currently in the process of reviewing these contracts, franchises and permits, but does not expect at this time that the effect of these provisions, in the event they are triggered by the Merger, will have a material adverse effect on future results of operations. 93 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On March 15, 1998, approximately $2.5 million face amount of Subordinated Notes (see Note 6) were submitted for redemption by the holders in accordance with their terms. The next optional redemption date is March 15, 2000, and accordingly the remaining outstanding Subordinated Notes will be classified as long-term as of March 31, 1998. In connection with the planned purchase of the remaining publicly held WTI shares, the Company has entered into a commitment with the Chase Manhattan Bank ("Chase") whereby Chase, along with other financial institutions, has committed, subject to the satisfaction of certain conditions, to provide new credit facilities in the amount of $1.1 billion. The new credit facilities, which will have a termination date of December 31, 1998 (subject to earlier termination in the event of a change-in-control, including the Merger with USA Waste), will provide the funding needed to complete the WTI transaction and replace the Company's existing $250 million revolving credit facility. Additionally, the termination date of the Company's $550 million standby trade receivables sale agreement will be extended from June 30, 1998 to December 31, 1998. NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is an analysis of certain items in the Consolidated Statements Income, as restated and reclassified (see Note 2), by quarter for 1995, 1996, and 1997. Sum of per share amounts for the quarters does not always equal the full year amount due to rounding and, in the case of Diluted EPS, the method of calculation prescribed by FAS No. 128. See Note 15 for a discussion of special charges, Note 16 for a discussion of the asset impairment losses, and Note 17 for a discussion of operations discontinued during 1995 and 1996.
1995 ---------------------------------------------------------------------------------- FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------------- ------------------- ------------------- ------------------- PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED ---------- -------- ---------- -------- ---------- -------- ---------- -------- Revenue................. $2,151.8 $2,164.3 $2,326.3 $2,339.2 $2,322.3 $2,334.2 $2,252.6 $2,262.5 Operating expenses...... 1,485.3 1,542.4 1,603.4 1,671.2 1,589.9 1,645.9 1,542.3 1,655.4 Asset impairment loss... -- 33.7 -- 3.5 -- 3.8 -- 12.8 Special charges......... 140.6 141.0 -- -- -- -- 194.6 194.6 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit......... $ 525.9 $ 447.2 $ 722.9 $ 664.5 $ 732.4 $ 684.5 $ 515.7 $ 399.7 Selling and administrative expenses............... 245.2 250.5 256.3 275.1 251.8 270.6 251.6 295.6 Interest, net........... 97.7 108.5 97.4 113.7 96.2 111.3 93.4 95.5 Minority interest....... 26.1 26.0 37.0 37.0 34.7 34.7 (15.9) (16.4) Sundry income........... (16.9) (22.1) (14.1) (29.2) (23.4) (39.0) (22.1) (187.5) Provision for income tax.................... 82.6 64.4 143.2 126.8 152.3 132.2 105.6 128.3 -------- -------- -------- -------- -------- -------- -------- -------- Income from continuing operations............. $ 91.2 $ 19.9 $ 203.1 $ 141.1 $ 220.8 $ 174.7 $ 103.1 $ 84.2 Discontinued operations. 10.0 7.0 16.0 7.9 13.1 7.6 (53.4) (17.6) Accounting changes...... -- (84.7) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss).... $ 101.2 $ (57.8) $ 219.1 $ 149.0 $ 233.9 $ 182.3 $ 49.7 $ 66.6 ======== ======== ======== ======== ======== ======== ======== ======== Basic income (loss) per share- Continuing operations.. $ 0.19 $ 0.04 $ 0.42 $ 0.29 $ 0.45 $ 0.36 $ 0.21 $ 0.17 Discontinued operations............ 0.02 0.01 0.03 0.02 0.03 0.02 (0.11) (0.03) Accounting changes..... -- (0.17) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss)...... $ 0.21 $ (0.12) $ 0.45 $ 0.31 $ 0.48 $ 0.38 $ 0.10 $ 0.14 ======== ======== ======== ======== ======== ======== ======== ======== Diluted income (loss) per share- Continuing operations.. $ 0.19 $ 0.04 $ 0.41 $ 0.29 $ 0.44 $ 0.35 $ 0.21 $ 0.17 Discontinued operations............ 0.02 0.01 0.03 0.01 0.03 0.02 (0.11) (0.03) Accounting changes..... -- (0.17) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss)...... $ 0.21 $ (0.12) $ 0.44 $ 0.30 $ 0.47 $ 0.37 $ 0.10 $ 0.14 ======== ======== ======== ======== ======== ======== ======== ========
94 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1996 ---------------------------------------------------------------------------------- FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------------- ------------------- ------------------- ------------------- PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED ---------- -------- ---------- -------- ---------- -------- ---------- -------- Revenue................. $2,144.5 $2,144.5 $2,331.0 $2,331.0 $2,372.7 $2,372.7 $2,338.8 $2,377.4 Operating expenses...... 1,494.8 1,532.7 1,619.3 1,701.4 1,630.5 1,716.8 1,628.2 1,709.9 Asset impairment loss... -- 0.1 -- 11.7 -- 1.7 -- 51.2 Special charges......... -- -- -- -- -- -- 471.6 370.7 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit......... $ 649.7 $ 611.7 $ 711.7 $ 617.9 $ 742.2 $ 654.2 $ 239.0 $ 245.6 Selling and administrative expenses............... 245.9 261.8 246.7 259.6 240.4 264.7 246.2 309.4 Interest, net........... 87.5 102.5 87.9 105.3 84.9 111.4 87.8 115.3 Minority interest....... 27.2 26.5 31.4 29.5 32.1 28.3 (33.1) (43.0) Sundry income........... (17.3) (23.9) (21.4) (21.4) (23.5) (37.7) (23.0) (19.4) Provision for income tax.................... 126.2 111.2 149.4 130.8 168.1 132.2 121.4 62.3 -------- -------- -------- -------- -------- -------- -------- -------- Income from continuing operations............. $ 180.2 $ 133.6 $ 217.7 $ 114.1 $ 240.2 $ 155.3 $ (160.3) $ (179.0) Discontinued operations. 5.0 4.8 5.3 20.5 5.0 (72.8) (301.0) (215.8) -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss)....... $ 185.2 $ 138.4 $ 223.0 $ 134.6 $ 245.2 $ 82.5 $ (461.3) $ (394.8) ======== ======== ======== ======== ======== ======== ======== ======== Basic income (loss) per share- Continuing operations.. $ 0.37 $ 0.27 $ 0.44 $ 0.23 $ 0.49 $ 0.32 $ (0.33) $ (0.37) Discontinued operations............ 0.01 0.01 0.01 0.04 0.01 (0.15) (0.62) (0.44) -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss)...... $ 0.38 $ 0.28 $ 0.45 $ 0.27 $ 0.50 $ 0.17 $ (0.95) $ (0.81) ======== ======== ======== ======== ======== ======== ======== ======== Diluted income (loss) per share- Continuing operations.. $ 0.36 $ 0.27 $ 0.43 $ 0.23 $ 0.48 $ 0.31 $ (0.33) $ (0.37) Discontinued operations............ 0.01 0.01 0.01 0.04 0.01 (0.14) (0.62) (0.44) -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss)...... $ 0.37 $ 0.28 $ 0.44 $ 0.27 $ 0.49 $ 0.17 $ (0.95) $ (0.81) ======== ======== ======== ======== ======== ======== ======== ========
95 WASTE MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997 ------------------------------------------------------------------------ FOURTH FIRST QUARTER SECOND QUARTER THIRD QUARTER QUARTER ------------------- ------------------- ------------------- --------- PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED ---------- -------- ---------- -------- ---------- -------- Revenue................. $2,198.3 $2,205.0 $2,327.3 $2,333.3 $2,351.2 $2,351.2 $ 2,299.1 Operating expenses...... 1,617.8 1,697.5 1,639.2 1,715.5 1,839.2 1,819.5 1,962.9 Asset impairment loss... -- 5.9 -- 46.9 -- 26.2 1,401.2 Special charges......... -- 15.9 -- 0.9 -- 0.9 128.3 -------- -------- -------- -------- -------- -------- --------- Gross profit........ $ 580.5 $ 485.7 $ 688.1 $ 570.0 $ 512.0 $ 504.6 $(1,193.3) Selling and administrative expenses............... 261.2 249.8 253.8 257.1 266.5 292.2 330.1 Interest, net........... 95.5 102.7 93.6 101.1 92.3 99.7 105.8 Minority interest....... 27.8 27.1 27.9 27.9 30.4 29.4 (39.0) Sundry income........... (133.9) (135.5) (32.5) (28.1) (8.1) (8.1) 8.4 Provision for income tax.................... 151.5 127.2 170.1 127.9 67.7 61.6 (101.0) -------- -------- -------- -------- -------- -------- --------- Income from continuing operations............. $ 178.4 $ 114.4 $ 175.2 $ 84.1 $ 63.2 $ 29.8 $(1,497.6) Discontinued operations. -- 0.6 0.8 7.6 -- 0.2 87.3 Accounting changes...... -- -- -- -- -- -- (2.0) Extraordinary item...... -- -- -- -- -- -- (0.5) -------- -------- -------- -------- -------- -------- --------- Net income (loss)....... $ 178.4 $ 115.0 $ 176.0 $ 91.7 $ 63.2 $ 30.0 $(1,412.8) ======== ======== ======== ======== ======== ======== ========= Basic income (loss) per share- Continuing operations. $ 0.37 $ 0.24 $ 0.37 $ 0.18 $ 0.14 $ 0.07 $ (3.29) Discontinued operations........... -- -- -- 0.01 -- -- 0.19 Accounting changes.... -- -- -- -- -- -- -- Extraordinary item.... -- -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- --------- Net income (loss)..... $ 0.37 $ 0.24 $ 0.37 $ 0.19 $ 0.14 $ 0.07 $ (3.10) ======== ======== ======== ======== ======== ======== ========= Diluted income (loss) per share- Continuing operations. $ 0.36 $ 0.23 $ 0.37 $ 0.18 $ 0.14 $ 0.07 $ (3.29) Discontinued operations........... -- -- -- 0.01 -- -- 0.19 Accounting changes.... -- -- -- -- -- -- -- Extraordinary item.... -- -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- --------- Net income (loss)..... $ 0.36 $ 0.23 $ 0.37 $ 0.19 $ 0.14 $ 0.07 $ (3.10) ======== ======== ======== ======== ======== ======== =========
96 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 97 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS OF THE REGISTRANT Set forth below are the names and ages of each of the members of the Company's Board of Directors, the positions they hold with the Company and summaries of their business experience. Unless otherwise indicated, all information is as of February 1, 1998. H. JESSE ARNELLE, age 64, has been a director of the Company since 1992. In October 1997, he became counsel to Womble, Carlyle, Sandridge and Rice, a law firm in Winston-Salem, North Carolina. For more than ten years prior thereto, Mr. Arnelle was a senior partner of Arnelle, Hastie, McGee, Willis and Greene, a San Francisco-based law firm. From 1993 to 1998, he served as Vice Chairman and the Chairman of the Pennsylvania State University Board of Trustees. Mr. Arnelle is also a director of Florida Power & Light (FPL Group), Eastman Chemical Co., Textron Corporation, Wells Fargo & Company and Wells Fargo Bank N.A., Armstrong World Industries and Union Pacific Resources, Inc. DR. PASTORA SAN JUAN CAFFERTY, age 57, has served as a director of the Company since July 1994. She has been a Professor since 1985 at the University of Chicago, where she has been a member of the faculty since 1971. Dr. Cafferty also serves as a director of Kimberly-Clark Corporation, Harris Bankcorp and its subsidiary, Harris Trust and Savings Bank, and People's Energy Corporation and on the Boards of the Rush-Presbyterian-St. Luke's Medical Center and the Lyric Opera Association, both in Chicago. JERRY E. DEMPSEY, age 65, has served as a director of the Company since 1984. From September 1993 until July 1997, he was Chairman and Chief Executive Officer of PPG Industries, Inc., a glass, coatings and chemicals company, and thereafter its Chairman until he retired on November 1, 1997. From April 1984 to May 1988, Mr. Dempsey served as Vice Chairman of the Board of the Company. From May 1988 to June 1993, Mr. Dempsey was Senior Vice President of the Company. From September 1991 to May 1993, Mr. Dempsey served as Chairman of the Board of CWM. Mr. Dempsey is also a director of Navistar International Corp. and Eastman Chemical Co. DR. JAMES B. EDWARDS, age 70, has served as a director of the Company since 1995 and has been President of the Medical University of South Carolina since November 1982. From January 1981 to November 1982, he served as the United States Secretary of Energy, and previously as Governor of the State of South Carolina. Dr. Edwards is also a director of Phillips Petroleum Company, SCANA Corporation, Imo Industries Inc. and National Data Corporation. DONALD F. FLYNN, age 58, has served as a director of the Company since 1981 and as Chairman of the Board and President of Flynn Enterprises, Inc., a financial advisory and venture capital firm, since February 1988. He has also been since February 1997 the Vice Chairman of Blue Chip Casino, Inc., an owner and operator of a riverboat gaming vessel in Michigan City, Indiana. He also served as Chairman of the Board and Chief Executive Officer of Discovery Zone, Inc. ("Discovery Zone"), an operator of indoor fun and fitness centers for children, from July 1992 until February 1996 and May 1995, respectively. Discovery Zone, which in March 1996 announced that it filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code, emerged from bankruptcy with a Plan of Reorganization that was approved by the bankruptcy court in July 1997. Mr. Flynn was a Senior Vice President of the Company from May 1975 to January 1991. He also served as the Company's Chief Financial Officer from March 1972 to December 1989 and the Company's Treasurer from May 1979 to December 1986. Mr. Flynn is also a director of Extended Stay America, Inc., Psychemedics Corporation, WTI and WM International. RODERICK M. HILLS, age 67, has served as a director of the Company since November 1997, President of Hills Enterprises, Ltd. (formerly The Manchester Group Ltd.), a consulting firm, since 1987 and as a Partner in Hills & Hills, a law firm, since 1994. Mr. Hills has also served as Vice Chairman of Oak Industries, Inc., a manufacturing firm, since 1989. Mr. Hills served from September to November 1996 as Chairman of Federal-Mogul Corporation, an automotive parts manufacturing firm. Mr. Hills served as Chairman of the Securities and 98 Exchange Commission from 1975 to 1977 and as counsel to the President of the United States in 1975. Mr. Hills is also a Director of Federal-Mogul Corporation and Oak Industries, Inc. ROBERT S. MILLER, age 56, has served as a director since May 1997. He was elected Chairman of the Board and named Acting Chief Executive Officer of the Company in October 1997. On March 10, 1998, Mr. Miller was named Chief Executive Officer of the Company. Mr. Miller is also serving as Vice Chairman of Morrison Knudsen Corporation, an engineering and construction firm. He served as Chief Executive Officer of Federal Mogul Corporation, an automotive parts manufacturing firm, from September until November 1996 and as Chairman of Morrison Knudsen Corporation from April 1995 until September 1996. In addition, since 1993 he has served as Vice President and Treasurer of Moore Mill and Lumber, a privately-held forest products firm, and from 1992 to 1993, he served as Senior Partner of James D. Wolfensohn, Inc., an investment banking firm. From 1979 to 1992, Mr. Miller worked at Chrysler Corporation, an automobile and truck manufacturing firm, rising to become Vice Chairman of the Board after serving as the Company's Chief Financial Officer. Mr. Miller is a director of Federal Mogul Corporation, Fluke Corporation, Morrison Knudsen Corporation, Pope & Talbot, Inc., and Symantec Corporation. PAUL M. MONTRONE, age 56, has served as a director of the Company since January 1997. Mr. Montrone has been Chairman of the Board since January 1998 and President, Chief Executive Officer and a director since December 1991, of Fisher Scientific International, Inc., a distributor of laboratory equipment and supplies. Since May 1995, Mr. Montrone has served as Chairman of the General Chemical Group, Inc., a manufacturer and distributor of chemicals ("General Chemical") and from prior to 1992 to May 1995 as President and a director of General Chemical. He also served as Vice Chairman of the Board of Abex, Inc., a designer and manufacturer of engineered components for aerospace, defense, industrial and commercial markets, or its predecessors, from 1992 to 1995. Mr. Montrone was a director of WTI or a predecessor thereof from prior to 1989 until January 1997. PEER PEDERSEN, age 73, has been a director of the Company since 1979 and Chairman of the Board and Managing Partner of the law firm of Pedersen & Houpt, P.C. for more than the past five years. Mr. Pedersen is also a director of Aon Corporation, Boston Chicken, Inc., Latin American Growth Fund, Tennis Corporation of America and Extended Stay America, Inc. JAMES R. PETERSON, age 70, has been a director of the Company since 1980 and was a director and President and Chief Executive Officer of The Parker Pen Company from January 1982 to January 1985. The Parker Pen Company was principally involved in the manufacture and distribution of writing instruments and in providing temporary help services. Mr. Peterson is also a director of The Dun & Bradstreet Corporation and Cognizant Corporation. JOHN C. POPE, age 48, has served as a director of the Company since November 1997. Since January 1996, he has been Chairman of the Board of MotivePower Industries, Inc., a manufacturer and remanufacturer of locomotives and locomotive components. Mr. Pope served as President and Chief Operating Officer of United Airlines and its parent corporation, UAL Corporation, from April 1992 to July 1994. Prior thereto he served as Vice Chairman of both companies beginning in November 1990, and as Executive Vice President, Marketing and Finance beginning in October 1990, as Executive Vice President, Marketing and Planning from May 1989 to September 1990 and as Chief Financial Officer beginning in January 1988. Mr. Pope is also a director of Federal- Mogul Corporation, Wallace Computer Services, Inc., Medaphis Corporation, MotivePower Industries, Inc., Lamalie Associates, Inc. and Dollar Thrifty Automotive Group, Inc. STEVEN G. ROTHMEIER, age 51, has served as a director of the Company since March 1997 and has been Chairman and Chief Executive Officer of Great Northern Capital, a private investment management, consulting and merchant banking firm, since March 1993. From November 1989 until March 1993, he was President of IAI Capital Group, a venture capital and merchant banking firm. For more than ten years prior thereto, he served Northwest Airlines, Inc. or its parent corporation, NWA, Inc., in various executive capacities, including Chairman and Chief Executive Officer from 1986 to 1989. Mr. Rothmeier is also a director of Honeywell, Inc., Department 56, Inc., EW Blanch Holdings, Inc. and Precision Castparts Corp. 99 ALEXANDER B. TROWBRIDGE, age 68, has served as a director of the Company since 1985 and President of Trowbridge Partners, Inc., a consulting services firm, since January 1990. He was President of the National Association of Manufacturers, Washington, D.C., from January 1980 to January 1990. Mr. Trowbridge also served as U.S. Secretary of Commerce in 1967 and 1968 and as Vice Chairman of Allied Chemical Corp. from 1976 to 1980. He also serves as a director of New England Life Insurance Co., The Rouse Co., Harris Corp., Sun Co. Inc., the Gillette Co., Warburg-Pincus Counsellors Funds and Icos Corp. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names and ages of the Company's executive officers (as defined by regulations of the Securities and Exchange Commission), the positions they hold with the Company and summaries of their business experience. Executive officers are elected by the Board of Directors and serve at the pleasure of the Board. All information is as of February 1, 1998. JERRY W. CAUDLE, age 55, has been Senior Vice President of the Company since December 1997. He served as a Group President of WMNA beginning in 1992, having previously been Vice President--West Region since October 1990. Mr. Caudle has been employed by the Company since 1974. DONALD R. CHAPPEL, age 46, who was named Acting Chief Financial Officer of the Company in October 1997, has served as its Vice President--Financial Services since November 1996 and Vice President and Controller (North American operations) since August 1995. From 1991 to July 1995, Mr. Chappel was Vice President and Controller--West and Mountain Areas of WMNA, and from July to August 1995 Vice President and Controller of CWM. Prior thereto he had served as Vice President and Controller--WMI Urban Services, beginning in June 1987 when he joined the Company. MICHAEL J. COLE, age 50, was elected a Senior Vice President of the Company in December 1997. From September 1996 to November 1997, Mr. Cole served as Group President of WMNA. Mr. Cole served as a Vice President of the Company from May to September 1996, and as its Group President--Technology Services from March to September 1996. He was previously President and Chief Executive Officer of CWM from March 1995 to March 1996, and President of Chem-Nuclear from June 1991 to March 1995. Mr. Cole has been employed by the Company since 1976. L. MICHAEL COLLIER, age 50, was elected a Senior Vice President of the Company in December 1997. From June 1996 until December 1997, he was a Group President of WMNA. From November 1995 to May 1996, Mr. Collier served as Executive Vice President of WMNA, and from September 1990 to October 1995 as Vice President and Chief Operating Officer of WM International. Mr. Collier has been employed by the Company since 1973. HERBERT A. GETZ, age 42, has been a Senior Vice President of the Company since May 1995, a Vice President of the Company since May 1990 and General Counsel since August 1992. He has also been Secretary of the Company since January 1988. He also served as Assistant General Counsel of the Company from December 1985 until August 1992. Mr. Getz has also held the offices of Vice President, General Counsel and Secretary of WMNA from April 1989 until December 1993, and Vice President and Secretary of Rust from January 1993 to May 1994. He has also served as Secretary of WTI from July 1995 to January 1997, a position he previously held, as well as being the General Counsel of WTI, from November 1990 until May 1993. Mr. Getz commenced employment with the Company in 1983. He is a director of NSC Corporation and OHM Corporation. JOSEPH M. HOLSTEN, age 45, has been Executive Vice President and Chief Operating Officer of the Company since February 1997. He was Chief Executive Officer of WM International from July 1995 to March 1997. From October 1993 to July 1995, he was Executive Vice President and Chief Financial Officer of WMNA. Mr. Holsten was Vice President of Acquisitions and Project Development for WM International from April 1992 to August 1993 and Vice President, Chief Financial Officer and Treasurer of Rust from September to October 1993. Mr. Holsten has been employed by the Company since 1981. 100 ROBERT S. MILLER, age 56, has served as a director of the Company since May 1997. He was elected Chairman of the Board and named Acting Chief Executive Officer in October 1997. For a discussion of Mr. Miller's business experience and positions with other companies, see "Directors of the Registrant." JAMES E. O'CONNOR, age 48, has been a Senior Vice President of the Company since December 1997. Since 1993 he has served as Group President of WMNA. Mr. O'Connor began his employment with the Company in 1972. D. P. PAYNE, age 55, has been a Senior Vice President of the Company since April 1995, a position he previously held from 1990 to 1993. He also served as President and Chief Executive Officer and a director of CWM from September 1991 to March 1995. Mr. Payne has been employed by the Company since 1990. MARK T. SPEARS, age 40, was appointed Vice President and Controller of the Company in November 1997. Prior to this position, Mr. Spears served as Vice President and Assistant Controller from July 1997. Between 1995 and 1997, he served as Vice President and Controller of WM International. From 1993 to 1995, he was Vice President and Controller of Rust after holding increasingly responsible financial positions with WM International between 1989 and 1993. Mr. Spears joined the Company in 1988. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE In 1997 Dr. Cafferty and Mr. Montrone made late filings of reports required by Section 16(a) relating to purchases of the Company's common stock. Such reports were due on July 10, 1997 and September 8, 1997 and were filed on July 26, 1997 and September 13, 1997, respectively. 101 ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth certain information with respect to compensation for services in all capacities paid by the Company and its subsidiaries for the past three years, to or on behalf of each person who served as Chief Executive Officer during 1997, the four other most highly compensated executive officers of the Company as of December 31, 1997, and two additional individuals who were not serving as executive officers at December 31, 1997, but for whom disclosure is required under Securities and Exchange Commission rules: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION ----------------------------------- ----------------------------------------------- BONUS(1) AWARDS PAYOUTS -------------------- ----------- --------- OTHER SECURITIES LONG- ALL OTHER ANNUAL RESTRICTED UNDERLYING TERM INCENTIVE NAME AND PRINCIPAL STOCK- COMPEN- STOCK OPTIONS INCENTIVE COMPEN- POSITION(5) YEAR SALARY CASH BASED SATION(2) AWARDS(5) (SHARES)(6) PAYOUTS SATION(7) ------------------ ---- --------- ------- --------- --------- ---------- ----------- --------- --------- Robert S. Miller 1997 $ 92,308 $ 0 0 $ -- $ 12,500 78,000 0 $ 0 Acting Chairman of the Board and Chief Executive Officer Dean L. Buntrock 1997 0 0 0 243,447(3) 0 283,111 0 0 Former Chairman of the 1996 1,250,000 0 0 88,516(3) 0 176,656 0 750 Board and Chief 1995 1,400,000 0 1,792,000(1) 437,980(1)(3) 0 205,505 0 10,500 Executive Officer(8) Ronald T. LeMay 1997 450,000 0 0 -- 11,684,300 2,000,000 0 0 Former Chairman of the Board, President and Chief Executive Officer(8) Phillip B. Rooney 1997 2,500,000 0 0 57,934 0 0 0 750 Former President and 1996 1,250,000 0 435,247(1) 124,880(1) 0 476,183 0 750 Chief Executive Officer(8) 1995 1,000,000 0 1,141,000(1) 261,280(1) 0 146,789 0 10,500 Joseph M. Holsten 1997 650,000 300,000 0 -- 1,794,375 166,556 0 750 Executive Vice 1996 440,000 252,058 0 225,280(4) 0 173,253 0 0 President and Chief 1995 400,000 246,750 0 96,957(4) 0 175,780 0 10,500 Operating Officer James E. Koenig 1997 600,000 0 0 -- 0 79,867 0 750 Former Executive Vice 1996 600,000 355,000 0 -- 1,485,000 186,514 0 750 President(8) 1995 517,000 420,000 0 -- 0 62,615 0 10,500 Jerry W. Caudle 1997 325,000 225,223(1) 0 -- 770,775 27,038 0 750 Senior Vice 1996 310,000 97,534 97,534(1) -- 0 22,003 0 750 President 1995 300,000 0 182,400(1) -- 0 24,771 0 8,803 Herbert A. Getz 1997 450,000 0 0 -- 0 59,900 0 750 Senior Vice President, 1996 450,000 112,500 0 -- 1,155,000 146,136 0 750 General Counsel 1995 365,000 300,000 0 -- 0 44,725 0 10,500 and Secretary William P. Hulligan 1997 475,000 0 0 -- 0 51,373 0 750 Executive Vice 1996 475,000 0 95,000(1) -- 0 48,699 0 750 President, 1995 445,000 0 365,790(1) 74,748(1) 0 36,743 0 10,500 Waste Management of North America, Inc. D. P. Payne 1997 420,000 0 0 -- 1,054,575 55,907 0 750 Senior Vice President 1996 420,000 0 105,000(1) -- 0 43,060 0 750 1995 400,000 0 322,250(1) 74,879(1) 0 47,706 0 750
- ------- (1) All of the amounts shown under "Bonus--Stock-Based" were deferred and are deemed to be invested in shares of the Company's common stock, and thus fully "at risk" until after retirement or other termination of employment. The deferring officers received a 20% Company match of the bonus deferred, included under "Other Annual Compensation," which vests over a four-year period and is also deemed invested and "at risk" in the same manner as the deferred bonus. See Note 1 to the table in "Security of Ownership of Certain Beneficial Owners and Management--Securities Ownership of Management" set forth below in Item 12. Of the total amount of Mr. Caudle's bonus, $31,362 was subject to mandatory "banking" under the Company's Corporate Incentive Bonus Plan and remains "at risk" during 1998. 102 (2) Excludes perquisites and other benefits, unless the aggregate amount of such compensation is at least the lesser of either $50,000 or 10 percent of the total annual salary and bonus reported for the named executive officer. (3) Includes financial planning expenses of $68,000 paid by the Company on behalf of the named executive officer in 1995 and 1996 and $60,000 in 1997, and personal use of Company aircraft in 1997 valued at $174,749. (4) Includes foreign service premium ($96,000 in 1996 and $40,000 in 1995) and housing allowance ($96,000 in 1996 and $40,000 in 1995). (5) The value shown is as of the date of issuance. Dividends are paid or accrued on restricted stock awards at the same rate as paid to all stockholders. For a description of the restrictions on such stock, see "Certain Transactions." Mr. LeMay's restricted stock award was forfeited upon his resignation. (6) The numbers shown in the table above represent options for the purchase of shares of the Company's common stock granted to the named persons under the Employee Plans. For Mr. Holsten, such numbers include the following numbers of shares underlying options to acquire common stock of WM International: 160,000 in 1996 and 140,000 in 1995. Mr. LeMay's options terminated upon his resignation. (7) Amounts of All Other Compensation are amounts contributed by the Company for fiscal years 1995, 1996 and 1997 under the Company's Profit Sharing and Savings Plan and for fiscal year 1995 under the Company's Profit Sharing and Savings Plus Plan for the persons named above. (8) Robert S. Miller served in such capacity from October 29, 1997. Dean L. Buntrock served in such capacity from February 17, 1997 until July 13, 1997. Ronald T. LeMay served in such capacity from July 13, 1997 until October 29, 1997. Phillip B. Rooney served in such capacity from January 1, 1997 to February 17, 1997. James E. Koenig served in such capacity until October 31, 1997. William P. Hulligan served in such capacity until November 30, 1997. 103 STOCK OPTIONS The following tables set forth certain information with respect to stock options granted to the persons named in the Summary Compensation Table during the year ended December 31, 1997. No options were granted to the persons named in the Summary Compensation Table during the year ended December 31, 1997 by WTI or WM International. COMPANY OPTION GRANTS IN 1997 INDIVIDUAL GRANTS
PERCENTAGE POTENTIAL REALIZABLE NUMBER OF TOTAL VALUE AT ASSUMED OF COMPANY ANNUAL RATES OF SECURITIES OPTIONS STOCK PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(8) OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------------------- NAME GRANTED(1) IN 1997 (PER SHARE) DATE(7) 0% 5% 10% - ---- ---------- ---------- ----------- ---------- --- -------------- --------------- Robert S. Miller........ 3,000(2) .05 $30.05 5/09/07 $ 0 $ 56,695 $ 143,676 75,000(3) 1.21 23.375 11/04/07 0 1,102,531 2,794,030 Dean L. Buntrock........ 150,000(4) 2.42 33.00 3/04/07 0 3,113,028 7,889,025 133,111(5) 2.15 30.05 5/09/07 0 2,515,569 6,374,947 Ronald T. LeMay......... 2,000,000 32.24 33.10 7/13/07 0 41,632,824 105,505,751 Phillip B. Rooney....... -- -- -- -- -- -- -- Jerry W. Caudle......... 27,038(5) .44 30.05 5/09/07 0 510,972 1,294,903 Herbert A. Getz......... 59,900(5) .97 30.05 5/09/07 0 1,132,007 2,868,728 James E. Koenig......... 79,867(5) 1.29 30.05 5/09/07 0 1,509,349 3,824,987 William P. Hulligan..... 51,373(5) .83 30.05 5/09/07 0 970,862 2,460,354 Joseph M. Holsten....... 66,556(5) 1.07 30.05 5/09/07 0 1,257,794 3,187,497 100,000(6) 1.61 33.85 6/20/07 0 2,128,808 5,394,818 D. P. Payne............. 55,907(5) .90 30.05 5/09/07 0 1,056,546 2,677,496 All stockholders as a group(9)............... -- -- $30.05 5/09/07 $ 0 $8,585,108,686 $21,756,350,814
- -------- (1) The option holder has the right to pay the exercise price by delivering previously acquired shares of the Company's common stock, and to have shares withheld to satisfy tax withholding requirements in connection with the exercise of options. Such options become immediately exercisable upon a Change in Control of the Company, as defined in the option plan. Options are non-transferable other than by will or the laws of descent and distribution. (2) Options become exercisable May 9, 1998. (3) Options become exercisable upon termination of service. (4) Options become exercisable in three equal cumulative annual installments commencing March 4, 1998. (5) Options become exercisable in three equal cumulative annual installments commencing May 9, 1998. (6) Options become exercisable in three equal cumulative installments commencing June 20, 1998. (7) Options have a term of ten years, subject to earlier termination in certain events related to termination of employment. Mr. LeMay's options terminated upon his resignation. Mr. Koenig's options terminate on October 31, 2000. (8) The amounts under the columns labeled "5%" and "10%" are included by the Company pursuant to certain rules promulgated by the Securities and Exchange Commission and are not intended to forecast future appreciation, if any, in the price of the Company's stock. Such amounts are based on the assumption that the named persons hold the options granted for their full term. The actual value of the options will vary 104 in accordance with the market price of the Company's common stock. The column headed "0%" is included to demonstrate that the options were granted at fair market value and optionees will not recognize any gain without an increase in the stock price, which increase benefits all stockholders commensurately. (9) Based upon the price of the Company's stock and the total shares outstanding as of the date of grant, if the price of the Company's common stock increased at the 5% or 10% rates shown in the table above, stockholders as a group would realize aggregate gains (excluding dividends) in the amounts shown above during the period from grant date to the May 9, 2007 option expiration date. The following table sets forth certain information as to each exercise of stock options during the year ended December 31, 1997 by the persons named in the Summary Compensation Table and the fiscal year-end value of unexercised options: AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUE
NUMBER OF SECURITIES UNDER- VALUE OF UNEXERCISED IN- LYING UNEXERCISED OPTIONS THE-MONEY OPTIONS AT SHARES AT DECEMBER 31, 1997 DECEMBER 31, 1997(1) ACQUIRED VALUE ------------------------------ ------------------------- NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ---------- -------------- -------------- ----------- ------------- Robert S. Miller Company Options........ 0 $ 0 0 78,000 $ 0 $309,375 Dean L. Buntrock Company Options........ 0 0 1,217,704 0 88,451 0 WM International Options............... 0 0 200,000 0 0 0 Ronald T. LeMay Company Options........ 0 0 0 0 0 0 Phillip B. Rooney Company Options........ 0 0 1,323,408 0 152,844 0 WM International Options............... 0 0 200,000 0 0 0 Jerry W. Caudle Company Options........ 0 0 112,957 49,963 29,391 2,064 Herbert A. Getz Company Options........ 0 0 167,383 172,231 32,280 3,727 WTI Options............ 240,000 1,515,744 0 0 0 0 WM International Options............... 0 0 40,000 0 0 0 James E. Koenig Company Options........ 0 0 455,318 0 59,209 0 WTI Options............ 120,000 757,872 0 0 0 0 WM International Options............... 0 0 200,000 0 0 0 William P. Hulligan Company Options........ 0 0 202,376 96,086 43,145 3,061 Joseph M. Holsten Company Options........ 0 0 63,506 187,317 18,158 2,981 WM International Options............... 0 0 306,666 153,334 0 0 D. P. Payne Company Options........ 0 0 284,814 100,515 285,228 3,975
- -------- (1) Market value less exercise price, before payment of applicable income taxes. 105 LONG TERM INCENTIVE PLAN AWARDS The following table sets forth certain information as to awards under the Company's Long Term Incentive Plan (the "LTIP") with respect to the year ended December 31, 1997 to the persons named in the Summary Compensation Table:
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS SHARES, OR OTHER UNDER NON-STOCK UNITS OR PERIOD UNTIL PRICE BASED PLANS(3) OTHER MATURATION ----------------------------- NAME RIGHTS(1) OR PAYOUT(2) THRESHOLD TARGET MAXIMUM - ---- --------- ------------ --------- -------- ---------- Robert S. Miller........... -- -- -- -- -- Dean L. Buntrock........... -- -- -- -- -- Ronald T. LeMay............ -- -- -- -- -- Phillip B. Rooney.......... -- -- -- -- -- Jerry W. Caudle............ -- 3 years $130,000 $130,000 $ 812,500 Herbert A. Getz............ -- 3 years 180,000 180,000 1,125,000 James E. Koenig............ -- 3 years 240,000 240,000 1,500,000 Joseph M. Holsten.......... -- 3 years 260,000 260,000 1,625,000 William P. Hulligan........ -- -- -- -- -- D. P. Payne................ -- 3 years 168,000 168,000 1,050,000
- -------- (1) Awards consist of the designation of target percentages of annual salary at the end of the performance period to be paid if the Company achieves certain performance objectives. No payout occurs unless the Company achieves certain threshold performance objectives. Above the threshold, payouts may be greater than the target percentage to the extent that the Company's performance exceeds or fails to meet the target objectives specified in the plan. Payouts under the LTIP are based on the rank of the Company's total stockholder return (stock price appreciation plus reinvested dividends) among the total stockholder returns of the companies that comprise the Dow Jones Industrial Average over the performance period. (2) The performance period includes calendar years 1997, 1998 and 1999. (3) Provided that the participant is an officer of the Company or one of its subsidiaries at the end of the performance period, an amount equal to 50% of the performance award, if any, is to be paid in cash, and the remaining 50% is to be deemed to be invested in common stock of the Company. The participant is entitled to receive the value of such deemed investment on the date three years after the end of the performance period. Estimated future payouts were calculated using 1997 salaries, assume that a performance award will be earned at the levels shown, and do not reflect any possible subsequent increase or decrease in the value of the portion of the award which would be required to be deferred under the terms of the plan. 106 PENSION AND RETIREMENT PLANS The following table sets forth estimated annual benefits payable upon retirement under the Company's Pension Plan and its Supplemental Executive Retirement Plan ("SERP") to employees of the Company in specified remuneration and years of service classifications. For purposes of the following table, it is assumed that the five executive officers named in the cash compensation table are eligible for the SERP benefits and that each such officer's annualized Final Average Compensation (as defined below) will be equal to his average annual compensation for the three years ended December 31, 1997. PENSION PLAN TABLE
YEARS OF SERVICE(2)(3) --------------------------------------------------------- REMUNERATION(1) 15 20 25 30 35 40 - --------------- -------- -------- -------- -------- ---------- ---------- $ 400,000........... $ 90,000 $120,000 $150,000 $180,000 $ 210,000 $ 240,000 500,000........... 112,500 150,000 187,500 225,000 262,500 300,000 600,000........... 135,000 180,000 225,000 270,000 315,000 360,000 700,000........... 157,500 210,000 262,500 315,000 367,500 420,000 800,000........... 180,000 240,000 300,000 360,000 420,000 480,000 900,000........... 202,500 270,000 337,500 405,000 472,500 540,000 1,000,000........... 225,000 300,000 375,000 450,000 525,000 600,000 1,100,000........... 247,500 330,000 412,500 495,000 577,500 660,000 1,200,000........... 270,000 360,000 450,000 540,000 630,000 720,000 1,300,000........... 292,500 390,000 487,500 585,000 682,500 780,000 1,400,000........... 315,000 420,000 525,000 630,000 735,000 840,000 1,500,000........... 337,500 450,000 562,500 675,000 787,500 900,000 1,600,000........... 360,000 480,000 600,000 720,000 840,000 960,000 1,700,000........... 382,500 510,000 637,500 765,000 892,500 1,020,000 1,800,000........... 405,000 540,000 675,000 810,000 945,000 1,080,000 1,900,000........... 427,500 570,000 712,500 855,000 997,500 1,140,000 2,000,000........... 450,000 600,000 750,000 900,000 1,050,000 1,200,000
- -------- (1) Upon normal retirement at age 65 or after completing five years of participation in the Company's Pension Plan, whichever is later, a participant is entitled to a pension based on the average of the participant's eligible compensation for the highest five consecutive years out of his or her last 10 years of service. For this purpose, a participant's eligible compensation generally includes all of his or her cash compensation, subject, in 1997, to the statutory maximum of $160,000. The annual lifetime benefit is equal to (i) 1% of average eligible compensation, multiplied by (ii) the number of his or her years of service, and, for a participant retiring at age 65 with 10 years of service, may not be less than $100 per month. Under the SERP, eligible participants who retire following age 60, or retire with at least 30 years of service, are entitled to a monthly benefit equal to (i) 1.5% of the participant's Final Average Compensation per year of service (Final Average Compensation is the monthly average compensation of such participant for the highest three consecutive calendar years out of his or her last 10 calendar years of service), reduced by (ii) the amount of such participant's monthly benefit under the Pension Plan. Compensation used for calculating benefits under the SERP includes only the participant's salary and annual incentive bonus. Eligible participants are those officers who have served in such capacities for at least 10 years at the time of retirement. Payment of benefits under the SERP is made on the same basis as payments under the Pension Plan, and both plans provide for reduced payouts in the event of early retirement. (2) At December 31, 1997, the credited years of service for current and former executive officers were as follows: Mr. Miller--0; Mr. Buntrock--41; Mr. LeMay--0; Mr. Rooney--28; Mr. Caudle--22; Mr. Getz--14; Mr. Koenig--20; Mr. Hulligan--19; Mr. Holsten--15; Mr. Payne--7. 107 (3) Benefits shown are computed on a straight-life annuity basis at normal retirement age. Provision is made for payment of pensions in joint and survivor form and in various other forms and at other times, on an actuarially equivalent basis. Benefits are not subject to reduction for social security benefits. COMPENSATION OF DIRECTORS Each member of the Board of Directors of the Company who is not an employee of the Company is paid an annual retainer of $50,000, 50% of which is paid in shares of restricted common stock of the Company. Such directors also receive $1,000 for each day on which they perform substantial work on behalf of a Committee of the Board, which includes attendance at meetings of Committees of which such directors are members. Each director is expected to accumulate, over a five year period, an equity interest in the Company equivalent to 300% of the annual retainer for Board service. Directors may elect to receive 100% of their retainer in the form of restricted common stock of the Company. Directors who have met or exceeded the Board's minimum stock ownership goal may elect to receive up to 100% of their annual retainer in cash. The Company maintains a major medical expense insurance policy which is available to all directors of the Company. The policy covers the medical and dental expenses of the directors in excess of the coverage provided by the director's primary health insurance program. OUTSIDE DIRECTORS' PLANS The Company has two unfunded deferred compensation plans for non-employee members of its Board of Directors. Under the Deferred Directors' Fee Plan, as amended, such directors may make an irrevocable election annually to defer receipt of all or a portion of the directors' fees payable to them until termination of their membership on the Board of Directors. Such amounts deferred prior to January 1, 1998 are deemed to be invested in the Company's common stock or, at the election of the director, in the common stock of any of the Company's majority-owned public subsidiaries, and during the period of deferral, such deferred amounts are credited with the dividends or stock splits that would be received had such investment actually been made. Upon termination of the director's service, the common stock deemed reflected by his or her deferred account is deemed to be sold, and the deemed proceeds of such sale (or an amount equal to the amount originally deferred, if greater) will be distributed to the director in cash, in a lump sum or installments. Accounts deferred after December 31, 1997 will be credited with interest from time to time at a rate equal to the weekly average rate on the ten year U.S. Treasury Note. Upon termination of the director's service, the value of the account on the books of the Company will be distributed to the director in cash, in a lump sum or installments. Under the Directors' Phantom Stock Plan, certain non-employee directors received a one-time grant of 5,000 Phantom Shares at the time of adoption of such plan or at the time they first became directors. Each of such Phantom Shares was initially deemed to be equal in value to one share of the Company's common stock at the time of award. Phantom Shares are credited to a bookkeeping account which is adjusted to reflect stock (but not cash) dividends or stock splits which would be received with respect to an equivalent number of shares of the Company's common stock. Upon termination of the director's service, the director is paid an amount in cash, in a lump sum or installments, for each Phantom Share then credited to his or her account, equal to the then difference between the market price of the Company's common stock at the time of award and the average closing prices of one share of the Company's common stock on the New York Stock Exchange Composite Tape for the most recent 10 consecutive trading days immediately preceding such termination. In 1991, the Company's Board of Directors terminated its authority to make additional grants under the Directors' Phantom Stock Plan. STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS The 1992 Stock Option Plan for Non-Employee Directors (the "Directors Plan") of the Company provides for the awards of options covering an aggregate of 150,000 shares of the Company's common stock. Each director of the Company first elected in 1997 or thereafter who is neither an officer nor full-time employee of the Company or any of its subsidiaries, upon election or appointment to the Board of Directors, is granted an option to purchase 3,000 shares of the Company's common stock on the date of election and on the next four 108 anniversaries if re-elected. Each such director elected before 1997 received an option to purchase a total of 15,000 shares of the Company's common stock on the date of his or her election. All options under the Directors Plan are granted at the fair market value of the stock at the time of grant and are for a term of 10 years from the date of grant. Options granted in 1997 or thereafter become exercisable after one year following the grant date. Options granted prior to 1997 become exercisable with respect to 20% of the total number of shares subject to the option six months after the date of grant and with respect to an additional 20% at the end of each 12-month period thereafter on a cumulative basis during the succeeding four years. Under the Directors Plan, in the event that the Company's shares of common stock are changed by a stock dividend, split or combination of shares, or a merger, consolidation or reorganization with another company in which holders of the Company's common stock receive other securities, or any other relevant change in the capitalization of the Company, a proportionate or equitable adjustment will be made in the number or kind of shares subject to unexercised options or available for options and in the purchase price for shares. If an option expires or is terminated or cancelled unexercised as to any shares, such released shares may again be optioned (including a grant in substitution for a cancelled option). Shares subject to options may be made available from unissued or reacquired shares of common stock. Options are not transferable by the optionee otherwise than by will or the laws of descent and distribution, provided that the Board of Directors may grant options that are transferable, without payment of consideration, to immediate family members of the optionee or to trusts or partnerships for such family members or to charitable organizations (each an "Option Transferee"), subject to the Company's procedures for administration, and may amend outstanding options to provide for such transferability. Options terminate if the optionee ceases to be a director of the Company for any reason other than death, permanent disability, resignation or retirement. If the optionee ceases to be a director because of death or permanent disability, the optionee or the optionee's heirs, legatees, legal representative or the Option Transferee may exercise the option in full at any time during its term within three months after the date of termination. In the event of resignation or retirement, an option may be exercised by the optionee (or if the optionee dies within three months after such termination, by the optionee's heirs, legatees or legal representative) or the Option Transferee at any time during its specified term prior to three months after the date of such resignation or retirement, but only to the extent it was exercisable at the date of such resignation or retirement. Prior to January 1, 1992, upon election to the Board of Directors non- employee directors received options for 10,000 shares under the Company's 1981 Stock Option Plan for Non-Employee Directors (the "1981 Plan"), the terms of which are substantially similar to the Directors Plan. No person who is the holder of an option granted under the 1981 Plan or the Employee Plans or who has purchased shares upon the exercise of such an option is eligible for a grant of options under the Directors Plan. DIRECTORS' CHARITABLE ENDOWMENT PROGRAM The Company maintains a Directors' Charitable Endowment Program pursuant to which the Company has purchased life insurance policies on members of the Board of Directors. Under the program, death benefits will be paid to the Company, and the Company in turn will donate such death benefits (up to $100,000 for each year of service on the Company's Board of Directors, subject to a $1,000,000 limit) to one or more charitable organizations recommended by the director. Directors derive no financial benefit from this program because all charitable deductions accrue solely to the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation and Stock Option Committee of the Company's Board of Directors consisted during 1997 of Messrs. Pedersen (Chairman), Arnelle, Edwards, Montrone and Peterson and Dr. Cafferty. There are no interlocks requiring disclosure or insider members of this committee. 109 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. SECURITY OWNERSHIP OF MANAGEMENT OWNERSHIP OF COMPANY COMMON STOCK The following table sets forth certain information as of February 1, 1998 as to the beneficial ownership of common stock of the Company by the directors and, each person who served as Chief Executive Officer during 1997, the four other most highly compensated executive officers of the Company as of December 31, 1997, two additional individuals who were not serving as executive officers at December 31, 1997, but for whom disclosure is required pursuant to the rules of the Securities and Exchange Commission (the "SEC"), and all directors and persons serving as executive officers of the Company as a group:
NUMBER OF SHARES PERCENT OF SHARES OF COMMON STOCK COMMON OTHER THAN OF THE COMPANY STOCK EXERCISABLE EXERCISABLE BENEFICIALLY OF THE OPTIONS OPTIONS OWNED(2) COMPANY ----------- ----------- ---------------- ---------- Directors (Other than Executive Officers) H. Jesse Arnelle......... 1,338 15,000 16,338(3) * Pastora San Juan Cafferty................ 5,000 12,000 17,000 * Jerry E. Dempsey......... 395,020 0 395,020 * James B. Edwards......... 2,277 9,000 11,277 * Donald F. Flynn.......... 508,234 0 508,234 * Roderick M. Hills........ 1,021 0 1,021 * Paul M. Montrone......... 4,500 3,000 7,500 * Peer Pedersen............ 232,258 0 232,258(3) * James R. Peterson........ 84,068 0 84,068(3) * John C. Pope............. 4,621 0 4,621 * Steven G. Rothmeier...... 1,511 3,000 4,511 * Alexander B. Trowbridge.. 2,400 0 2,400(3) * Current and Former Executive Officers(1) Robert S. Miller......... 1,511 0 1,511(3) Dean L. Buntrock......... 2,133,305 1,172,645 3,305,950 * Jerry W. Caudle.......... 44,387 120,291 164,678 * Herbert A. Getz.......... 82,564 182,762 265,326 * Joseph M. Holsten........ 63,193 67,924 131,117 * William P. Hulligan...... 42,634 218,609 261,243 * James E. Koenig.......... 100,883 450,894 551,777 * Ronald T. LeMay.......... 0 0 0 * D. P. Payne.............. 51,543 299,167 350,710 * Phillip B. Rooney........ 73,951 1,258,537 1,332,488 * All directors and executive officers as a group including persons named above (27 persons)........ 3,948,118 4,070,494 8,018,612 1.8%
- -------- *Less than 1 percent. (1) Pursuant to the Company's Non-Qualified Profit Sharing and Savings Plus Plan, Messrs. Buntrock, Caudle, Getz, Holsten, Hulligan, Payne, Rooney and all executive officers as a group acquired beneficial ownership of the equivalent of an additional 77,943, 11,791, 368, 311, 25,737, 17,937, 66,086 and 209,868 shares, respectively, of common stock of the Company in connection with their voluntary deferral of incentive awards pursuant to the terms of the Company's Corporate Incentive Bonus Plan. (2) Directors and executive officers included in the group have sole voting power and sole investment power over shares listed, except (i) shares covered by options granted under the Company's stock option plans which were exercisable within 60 days of February 1, 1998; (ii) shares held pursuant to the Company's 110 Profit Sharing and Savings Plan; (iii) Messrs. Edwards, Pedersen and Peterson, whose shares listed above include 312, 12,856 and 1,668 shares issuable upon conversion of the convertible subordinated notes due 2005 of the Company ("Company Notes"), respectively; and (iv) Messrs. Buntrock, Dempsey, Getz, Koenig, Miller and Pedersen, and all executive officers and directors as a group (including such individuals), who have shared voting and investment power over 146,833, 394,020, 42,032, 52,631, 1,000, 19,402 and 657,918 shares, respectively. Such shares shown for Messrs. Buntrock, Dempsey, and Pedersen are held in trusts or foundations over which such individuals share voting and investment power with other co-trustees or directors of such trusts and foundations. Such shares shown for Messrs. Getz, Koenig and Miller are held jointly with their spouses. Ownership of shares shown for Messrs. Buntrock, Dempsey, Edwards, Getz, Koenig and Pope, and for all executive officers and directors as a group, includes shares of common stock of the Company not held directly by them but held by or for the benefit of (i) their spouses or (ii) their minor children and other children residing with them, as to which they have neither investment power nor voting power. Shares were held by or for the benefit of such spouses or children of the following persons and the executive officers and directors as a group at February 1, 1998, in the amounts indicated: Mr. Buntrock-- 41,373 (held by spouse); Mr. Dempsey--1,000 (held by spouse); Dr. Edwards-- 254 (held by spouse with 104 such shares issuable upon conversion of Company Notes), Mr. Getz--240 (held by spouse), Mr. Koenig--30 (held by spouse), Mr. Pope--600 (held in trust for children); and all executive officers and directors as a group (including such individuals)--43,604. Additionally, ownership of shares shown for Mr. Koenig includes 1,200 shares held by him as trustee of a family trust in which Mr. Koenig has no pecuniary interest. Each of the above named persons and the members of such group disclaim any beneficial ownership of such shares. (3) Pursuant to the Company's Deferred Directors' Fee Plan, described below under "Outside Directors' Plans," Messrs. Arnelle, Miller, Pedersen, and Peterson have also acquired beneficial ownership of the equivalent of 1,239, 1,158, 30,541 and 4,950 shares, respectively, of the Company's common stock through their voluntary deferral of all or a portion of their directors' fees. Pursuant to the Company's Directors' Phantom Stock Plan, described below under "Outside Directors' Plans," Messrs. Pedersen, Peterson and Trowbridge each have also acquired beneficial ownership of the equivalent of 40,000 shares of the Company's common stock. 111 OWNERSHIP OF WTI COMMON STOCK The following table sets forth certain information as of February 1, 1998 as to the beneficial ownership of WTI common stock by the directors, each person who served as Chief Executive Officer during 1997, the four other most highly compensated executive officers of the Company as of December 31, 1997, two additional individuals who were not serving as executive officers at December 31, 1997, but for whom disclosure is required under SEC rules, and all directors and persons serving as executive officers of the Company as a group:
NUMBER OF SHARES OF WTI COMMON STOCK PERCENT OF BENEFICIALLY WTI COMMON NAME OWNED(1)(2)(3) STOCK(2)(3) - ---- -------------- ----------- Directors (Other than Executive Officers) H. Jesse Arnelle.................................. 0 * Pastora San Juan Cafferty......................... 0 * Jerry E. Dempsey.................................. 34,336 * James B. Edwards.................................. 0 * Donald F. Flynn................................... 45,245 * Roderick M. Hills................................. 0 * Paul M. Montrone.................................. 256,000 * Peer Pedersen..................................... 0 * James R. Peterson................................. 0 * John C. Pope...................................... 0 * Steven G. Rothmeier............................... 0 * Alexander B. Trowbridge........................... 0 * Executive Officers Robert S. Miller................................. 0 * Dean L. Buntrock.................................. 116,377 * Jerry W. Caudle................................... 0 * Herbert A. Getz................................... 73,414 * Joseph M. Holsten................................. 0 * William P. Hulligan............................... 0 * James E. Koenig................................... 1,500 * Ronald T. LeMay................................... 0 * D. P. Payne....................................... 0 * Phillip B. Rooney................................. 10,000 * All directors and executive officers as a group including persons named above (27 persons)....................................... 536,872 *
- -------- *Less than 1 percent. (1) Directors and executive officers included in the group have sole voting power and sole investment power over WTI shares listed, except (i) WTI shares covered by options exercisable within 60 days of February 1, 1998; (ii) 10,000 WTI shares deemed to be beneficially owned by each of Messrs. Buntrock, Flynn and Rooney as a result of restricted units granted pursuant to WTI's Restricted Unit Plan for Non-Employee Directors, (iii) 1,000 shares held by Mr. Dempsey's spouse and (iv) Messrs. Getz and Koenig, and all executive officers and directors as a group, who have shared voting and investment power over 73,414, 1,500 and 74,914 WTI shares, respectively. Such shares shown for Messrs. Getz and Koenig are held jointly with their spouses. Such persons disclaim any beneficial ownership of the WTI shares subject to such restricted units. (2) Excludes an aggregate of 104,621,810 WTI shares beneficially owned by the Company that may be deemed beneficially owned by Mr. Miller because he may be deemed to be an affiliate of the Company. Mr. Miller disclaims any beneficial ownership of such WTI shares. 112 (3) The numbers and percentages of WTI shares shown in the table above are based on the assumption that currently outstanding stock options covering WTI shares which were exercisable within 60 days of February 1, 1998 had been exercised as follows: Mr. Montrone--256,000; and all executive officers and directors as a group (including such individuals)--256,000. Such persons and the members of such group disclaim any beneficial ownership of the shares subject to such options. OWNERSHIP OF WM INTERNATIONAL ORDINARY SHARES The following table sets forth certain information as of February 1, 1998 as to the beneficial ownership of WM International ordinary shares (including ordinary shares represented by American Depositary Shares) by the directors, each person who served as Chief Executive Officer during 1997, the four other most highly compensated executive officers of the Company as of December 31, 1997, two additional individuals who were not serving as executive officers at December 31, 1997 but for whom disclosure is required under SEC rules, and all directors and persons serving as executive officers of the Company as a group:
NUMBER OF SHARES OF WM INTERNATIONAL ORDINARY PERCENT OF WM SHARES INTERNATIONAL BENEFICIALLY ORDINARY NAME OWNED(1)(2)(3) SHARES(2)(3) - ---- -------------- ------------- Directors (Other than Executive Officers) H. Jesse Arnelle................................ 0 * Pastora San Juan Cafferty....................... 0 * Jerry E. Dempsey................................ 5,000 * James B. Edwards................................ 2,000 * Donald F. Flynn................................. 250,000 * Roderick M. Hills............................... 0 * Peer Pedersen................................... 5,000 * James R. Peterson............................... 0 * John C. Pope.................................... 0 * Steven G. Rothmeier............................. 0 * Alexander B. Trowbridge......................... 300 * Current and Former Executive Officers Robert S. Miller................................ 0 * Dean L. Buntrock................................ 211,600 * Jerry W. Caudle................................. 0 * Herbert A. Getz................................. 40,000 * Joseph M. Holsten............................... 307,666 * William P. Hulligan............................. 50,000 * James E. Koenig................................. 202,500 * Ronald T. LeMay................................. 0 * D. P. Payne..................................... 200 * Phillip B. Rooney............................... 210,000 * All directors and executive officers as agroup including persons named above (27 persons)...... 1,708,099 *
- -------- *Less than 1 percent. (1) Directors and executive officers included in the group have sole voting power and sole investment power over WM International shares listed, except (i) WM International shares covered by options exercisable within 60 days of February 1, 1998; and (ii) Messrs. Koenig, Payne, and Trowbridge, and all executive officers and directors as a group (including such individuals), who have shared voting and investment power 113 over 2,500, 200, 300 and 3,000 WM International shares, respectively. Such WM International shares shown for Messrs. Koenig, Payne and Trowbridge are held jointly with their respective spouses. Ownership of shares shown for Messrs. Buntrock and Dempsey includes WM International shares not held directly by them but held by or for the benefit of their spouses as to which they have neither investment power nor voting power. WM International shares were held by or for the benefit of such spouses of the following persons at February 1, 1998 in the amounts indicated: Mr. Buntrock--1,500; Mr. Dempsey--5,000. Each of the above named persons disclaims any beneficial ownership of such shares. (2) Excludes an aggregate of 300,000,000 WM International shares beneficially owned by the Company that may be deemed beneficially owned by Messrs. Miller and Holsten because each such person may be deemed to be an affiliate of the Company. Excludes an aggregate of 45,000,000 WM International shares beneficially owned by WTI that may be deemed beneficially owned by Mr. Miller because he may be deemed to be an affiliate of WTI. Each such person disclaims any beneficial ownership of such WM International shares. (3) The numbers and percentages of WM International shares shown in the table above are based on the assumption that currently outstanding stock options covering WM International shares which were exercisable within 60 days of February 1, 1998 had been exercised as follows: Messrs. Buntrock, Flynn, Getz, Koenig, Holsten and Rooney 200,000, 200,000, 40,000, 200,000, 306,666 and 200,000, respectively; and all executive officers and directors as a group (including such individuals)--1,569,999. Such persons and members of such group disclaim any beneficial ownership of the shares subject to such options. 114 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The Company does not know of any person who, as of February 1, 1998, directly owned more than five percent of the Company's outstanding common stock. The Company, however, received a copy of a Schedule 13D filed by a group consisting of George Soros, Soros Fund Management LLC, Quantum Industrial Partners LDC, QIH Management Investor, L.P., QIH Management, Inc., Stanley F. Druckenmiller, and Duquesne Capital Management, L.L.C. The Schedule 13D filed by such persons indicate that such persons may be deemed to be a group within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. The Company also received a Schedule 13G for the year ended December 31, 1997 from Barrow, Hanley, Mewhinney & Strauss, Inc. ("BHMS"). Pursuant to the aggregation and attribution rules relating to the beneficial ownership of securities promulgated under the Securities Exchange Act of 1934, as amended, BHMS is deemed to be the beneficial owner of such shares shown because BHMS is an investment management company which exercises discretionary investment management over accounts holding such shares. No managed account alone owns five percent or more of the Company's common stock. The information presented in the following table is taken from the above-referenced Schedules 13D and 13G:
TITLE AMOUNT AND NATURE OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS ------ ----------------------------------------- ----------------- ---------- Common Barrow, Hanley, Mewhinney & Strauss, Inc. 22,684,500 5.0 Stock One McKinney Plaza 3232 McKinney Avenue Dallas, Texas 75204-2429 Common George Soros 25,225,600 5.5 Stock Soros Fund Management LLC QIH Management Investor, L.P. QIH Management, Inc. Stanley F. Druckenmiller 888 Seventh Avenue, 33rd Floor New York, New York 10106 Quantum Industrial Partners LDC Kaya Flamboyan 9 Curacao, Netherlands Antilles Duquesne Capital Management, LLC 2579 Washington Road, Suite 322 Pittsburgh, Pennsylvania 15241-2591
MEETINGS AND COMMITTEES OF THE BOARD The Board of Directors has designated several committees of the Board, including a Compensation and Stock Option Committee, an Audit Committee and a Nominating and Governance Committee. The Board of Directors held an aggregate of 17 regular and special meetings in 1997. The Compensation and Stock Option Committee is responsible for making recommendations to the Board of Directors regarding salaries and incentive awards to be paid to executive officers of the Company, and for the administration of and the grant of equity-based incentives under the Company's 1997 Equity Incentive Plan (the "1997 Company Plan"), and the administration of the Company's 1982 Stock Option Plan, as amended (the "1982 Company Plan") and 1992 Stock Option Plan (the "1992 Company Plan" and together with the 1982 Company Plan and the 1997 Company Plan, the "Employee Plans"). The Audit Committee's functions include making recommendations to the Board of Directors on the selection of the Company's independent auditors, reviewing the arrangements for and scope of the independent auditors' examination, reviewing the results of the annual audit, meeting with the independent auditors, the Board of Directors and certain officers of the Company 115 to review the adequacy of internal controls and reporting, reviewing compliance with the Company's policies on business ethics and environmental, health and safety compliance and performing any other duties or functions deemed appropriate by the Board. The Nominating and Governance Committee's principal function is to identify and propose to the full Board qualified nominees to fill vacancies on the Board as they occur, and to review and report to the Board on director compensation, monitor and make recommendations to the Board as to corporate governance matters and review and make recommendations to the Board concerning the organization and functioning of the Board and its committees. The Compensation and Stock Option Committee currently consists of Messrs. Pedersen (Chairman), Arnelle, Edwards, Montrone, Peterson and Dr. Cafferty; the Audit Committee currently consists of Messrs. Hills (Chairman), Pope and Rothmeier; and the Nominating and Governance Committee currently consists of Messrs. Trowbridge (Chairman), Arnelle, Miller and Montrone. During 1997, the Compensation and Stock Option Committee met eleven times, the Audit Committee met eight times and the Nominating and Governance Committee met five times. In 1997, during the time each director served in such capacity, nine directors attended 100% of the aggregate of the regular and special meetings of the Board of Directors and applicable committee meetings, six other directors attended at least 85% of the aggregate of all meetings of the Board of Directors and applicable committee meetings, and Dr. Edwards attended 70% of the aggregate of all meetings of the Board of Directors and applicable committee meetings. 116 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. When an option is exercised by an optionee under the Employee Plans or WTI's stock option plans at a time when the fair market value of the underlying stock exceeds the option exercise price, the difference is treated as ordinary income to the optionee for income tax purposes and the company which issued the options is entitled to a deduction equal to such amount. To facilitate an optionee's purchase of stock upon exercise of such options, the Company and WTI each had a policy prior to April 1998 of making available interest-free loans, in an amount up to the equivalent of all applicable tax withholding requirements, to optionees whose exercise of options results in ordinary income to them in excess of $10,000. All such loans normally are required to be repaid not later than April 15 in the year following the year in which such loans were made, unless otherwise extended. There were no such loans from the Company and WTI in excess of $60,000 made pursuant to such policy in 1997. The Company and WTI also each makes available to optionees interest-free loans for a period not to exceed 15 days to facilitate the exercise of options and the sale of the underlying stock. The largest aggregate amounts of such loans from the Company and WTI in excess of $60,000 which were outstanding to the directors and executive officers of the Company since January 1, 1997 were as follows: Mr. Koenig--$1,416,800. Such loan was repaid within the 15-day period. The Company also extended Mr. Getz a loan in the amount of $2,136,744 to facilitate the exercise of WTI options during an 18-day period in which he was precluded by Company policy from selling the underlying shares. Such loan was repaid at the end of such period and did not remain outstanding at March 15, 1998. Mr. Getz was indemnified by the Company against approximately $5,800 of interest on such loan and the income tax consequences of such indemnification. In connection with his transfer in 1995 from CWM, where he was President, to the Company, the Company entered into an employment agreement with D. P. Payne under which Mr. Payne will be paid a minimum annual salary of $400,000. Mr. Payne also is eligible to receive annual bonuses and all benefits generally available to executives of the Company. The term of Mr. Payne's employment under the agreement continues through December 31, 1999. Upon the death or permanent disability of Mr. Payne, the Company will pay his then current salary (including bonuses accrued as of the date of termination) for the balance of the calendar year in which such death or disability occurs but in no event for less than 180 days. If the Company terminates Mr. Payne's employment, it will continue to pay him an amount equal to his base salary until the end of the term of the agreement plus any unpaid but fully accrued annual bonus for the prior calendar year payable under the Annual Plan, unless the termination was for cause, in which case its obligations under the agreement cease. During the term of the agreement and for two years after the termination of the agreement, Mr. Payne has agreed not to compete with the Company or its subsidiaries. In March 1997, the Compensation Committee approved granting to Mr. Payne 34,500 restricted shares of common stock under the Company's 1997 Equity Incentive Plan (the "1997 Equity Plan"). In June 1997, Mr. Payne's employment agreement was amended to provide that in the event he should be terminated without cause during the term of the agreement or at any time thereafter, he would be provided with a minimum of ten years' service credit under the SERP. In February 1998, Mr. Payne entered into a new employment security agreement with the Company which superseded his prior agreement and which contains terms that are substantially similar to the agreements discussed below that were extended to certain other senior officers in March 1997. The terms of Mr. Payne's March 1997 restricted stock award agreement are also substantially similar to those awarded to such other officers at such time (see discussion below). In June 1996, in connection with his election as the Company's Chief Executive Officer, the Company entered into an amended and restated employment agreement with Phillip B. Rooney. The agreement replaced an agreement originally entered into between the Company and Mr. Rooney in 1986. Under the agreement Mr. Rooney would be paid a minimum annual salary of $1,250,000 as President and Chief Executive Officer of the Company. Mr. Rooney also was eligible to receive annual bonuses and all benefits generally available to executives of the Company. The Company also agreed to provide Mr. Rooney with a split-dollar life insurance arrangement with a death benefit of approximately $10 million. The term of Mr. Rooney's employment under the agreement was to continue through June 6, 2001 and would have been automatically extended on each anniversary date for a period of five years from such anniversary date unless either party gave written notice of termination prior to the anniversary date. Upon the death or permanent disability of Mr. Rooney, the Company 117 would have paid annually $2,500,000 for the balance of the term of the agreement. If the Company breached or terminated the agreement or reduced the nature and scope of Mr. Rooney's authority and duties, it would have continued to pay him for five years unless the termination was for cause, in which case its obligations under the agreement would have ceased. In the event of a change in control of the Company, Mr. Rooney was entitled to elect to terminate the agreement and receive a lump sum payment of three times his average annual compensation (including bonuses) over the immediately preceding five years, which amount would be increased should an excise tax be imposed on him because of the payment. Were a change in control of the Company to have occurred on December 31, 1997 and if Mr. Rooney's employment with the Company were terminated as provided in the employment agreement, it is estimated that Mr. Rooney would have been eligible to receive approximately $5,457,620 (assuming no increase for any excise tax). During the term of the agreement and for a period of three years thereafter, Mr. Rooney agreed not to compete with the Company or its subsidiaries. In connection with Mr. Rooney's resignation as President and Chief Executive Officer on February 17, 1997, the Company gave notice of its decision to terminate such agreement. As a result of such notice, the agreement will terminate on February 17, 2002, unless earlier terminated pursuant to the agreement. During 1997, Mr. Rooney began to receive cash compensation under the agreement at an annual rate of $2,500,000 in lieu of all salary, bonuses, incentive or other performance-based compensation and the Compensation Committee accelerated the vesting of all unvested stock options held by Mr. Rooney. In August 1996, the Company entered into employment agreements with James E. Koenig, former Executive Vice President of the Company, and Herbert A. Getz, Senior Vice President and General Counsel of the Company (the "Executives"). The agreements provide that Mr. Koenig would be paid a minimum annual salary of $600,000 and Mr. Getz would be paid a minimum annual salary of $450,000. Each of the Executives also would be eligible to receive annual bonuses and all benefits generally available to executives of the Company. The term of the Executive's employment under each of the agreements continues until August 14, 1999 and is automatically extended on each anniversary date for a period of three years from such anniversary date unless the Company gives notice of termination, in which case the term is automatically extended and expires three years from the date of such notice. Upon the death or permanent disability of the Executive, the Company will pay annually the Executive's then current base salary for thirty-six months. If the Company terminates the agreement or reduces the nature and scope of the Executive's duties or relocates the primary employment location of the Executive, it will continue to pay him his then current base salary and his prorated annual bonus and long term bonus for three years unless the termination was for cause, in which case its obligations under the agreement cease. In the event of a change of control of the Company, the Executive may elect to terminate the agreement and receive a lump sum payment of three times his average annual compensation (including bonuses) over the immediately preceding five years, which amount will be increased should an excise tax be imposed on him because of the payment. Were a change in control to have occurred on December 31, 1997 and if each Executive's employment with the Company were terminated as provided in the employment agreements, it is estimated that Messrs. Koenig and Getz would have been eligible to receive approximately $2,113,081 and $1,479,101, respectively (assuming no increase for any excise tax). During the term of the agreements, and for a period of one year thereafter, each Executive has agreed not to compete with the Company or its subsidiaries. Concurrently with the execution of the employment agreements, the Company granted to Mr. Koenig 45,000 shares of its common stock and to Mr. Getz 35,000 shares of its common stock, subject in each case to a restricted stock agreement. Under the terms of the restricted stock agreements, the Executive cannot sell, assign, pledge or otherwise transfer such shares until the expiration of the period of the covenant not to compete contained in the employment agreement or his death or permanent disability. Except as provided below, if the Executive voluntarily terminates his employment prior to the tenth anniversary of the grant of such shares, all shares shall be forfeited. If such termination occurs after such tenth anniversary, such shares shall be vested, but remain subject to such restrictions. Vesting accelerates upon termination by the Company of the Executive's employment other than for cause, upon his retirement on or after reaching age 60, if the Company reduces the nature or scope of his authority and duties or his compensation or changes the location of his employment, or upon his death or permanent disability. Dividends upon such shares are deemed to be reinvested in additional shares and subject to the same restrictions. In connection with Mr. Koenig's resignation as Executive Vice President on October 31, 1997, the Company gave notice of its decision to terminate Mr. Koenig's employment 118 agreement. As a result of such notice, the agreement will terminate on October 31, 2000, unless earlier terminated pursuant to the agreement. During 1997, Mr. Koenig began to receive cash compensation at an annual rate of $600,000. On March 10, 1998, the Company's Board of Directors approved an amendment to Mr. Getz's employment agreement to fix the amounts payable thereunder in the event the Company terminates Mr. Getz's employment without cause or he is constructively discharged at $900,000 per year. This amount represents his current base salary plus his target annual and long-term incentive levels. In consideration thereof, the Company obtained a commitment from Mr. Getz to remain with the Company through the Merger with USA Waste and for a reasonable transition time thereafter, which will be until at least June 30, 1999 unless terminated earlier by the Company. In March 1997, the Company's Board of Directors approved an employment security agreement with John D. Sanford, the Company's Senior Vice President and Chief Financial Officer. Mr. Sanford voluntarily resigned on October 29, 1997. The term of the agreement was to continue until March 11, 1999, and was to be automatically extended on each anniversary date for a period of two years from such anniversary date unless a party were to give 30 days' prior written notice of termination. If the Company were to have terminated Mr. Sanford's employment, or reduced the nature and scope of Mr. Sanford's duties or relocated his primary employment location, it would have continued to pay him his then current base salary for two years and his prorated annual bonus for the year of such termination, reduction or relocation, unless the termination was for cause, in which case its obligations under the agreement would cease. In addition, the Company was required to request the Compensation Committee to accelerate all of Mr. Sanford's unvested stock options. During the term of the agreement and for a period of one year thereafter, Mr. Sanford agreed not to compete with the Company or its subsidiaries. The Compensation Committee also granted to Mr. Sanford 28,800 restricted shares of its common stock under the 1997 Equity Plan. Upon Mr. Sanford's voluntary termination of his employment, all shares were forfeited. In March 1997, the Company's Board of Directors approved employment security agreements with Jerry W. Caudle, James E. O'Connor, Michael J. Cole and L. Michael Collier, each a Senior Vice President of the Company, and Donald R. Chappel, Vice President and Acting Chief Financial Officer of the Company, the terms of which are substantially similar to Mr. Sanford's employment security agreement. The Compensation Committee also granted shares of restricted common stock under the Company's 1997 Equity Plan to such officers in the following amounts: Mr. Caudle--23,900; Mr. O'Connor--23,600; Mr. Cole--23,200; Mr. Collier--23,900; and Mr. Chappel--17,700. Under the terms of the restricted stock award agreement entered into in connection with this grant, and except as provided below, the officer will not be able to sell, assign, pledge or otherwise transfer such shares prior to ten years from the date of the grant. If the officer voluntarily terminates his employment before the tenth anniversary of the date of the grant, or if he should be terminated by the Company for cause, all shares will be forfeited. Vesting of all such shares will accelerate upon a change in control of the Company, the officer's retirement after age 62, or his death or disability. If the officer's employment is terminated without cause, the vesting of such shares will be accelerated at 2.5% of the grant for every three months of completed service after the date of the grant. Release of vested shares will occur upon satisfaction of the obligation not to compete under the officer's employment security agreement. Dividends upon such shares will be deemed to be reinvested in additional shares and subject to the same restrictions. The Company also entered into a similar agreement with Mark T. Spears, Vice President and Controller of the Company, in July 1997, but without making a grant of restricted shares. In June 1997, the Company's Board of Directors approved an employment security agreement with Joseph M. Holsten, the Company's Executive Vice President and Chief Operating Officer. The term of the agreement continues until June 20, 2000, provided that unless a party gives 30 days' prior written notice on June 20, 1998 and on each successive June 20, the term of the agreement shall be renewed for a period ending on the earlier of the date three years from such June 20 or the date of his sixty-second birthday unless earlier terminated pursuant to the terms of the agreement. The agreement provides for Mr. Holsten's salary to be increased to $650,000 as of June 20, 1997, and for him to be paid a cash bonus of $300,000 for 1997. If the Company terminates Mr. Holsten's employment, or reduces the nature and scope of Mr. Holsten's duties or relocates his primary employment location, it will continue to pay him his then current base salary for three years and his prorated 119 annual and long term incentive plan compensation with respect to any participation rights in the Company's annual or long term incentive plans which have been awarded prior to the date of the notice of termination, unless the termination was for cause, in which case all of the Company's obligations under the agreement will cease. In addition, under such circumstances the Company will request the Compensation Committee to accelerate all of Mr. Holsten's unvested stock options. During the term of the agreement and for a period of one year thereafter or during the three-year period after termination, if longer, Mr. Holsten has agreed not to compete with the Company or its subsidiaries. The Compensation Committee also granted to Mr. Holsten 55,000 shares of restricted common stock under the 1997 Equity Plan. The terms of Mr. Holsten's restricted stock award agreement are substantially similar to those extended to certain other senior officers in March 1997. The Compensation Committee also approved granting to Mr. Holsten options to acquire 100,000 shares of the Company's common stock under the 1997 Equity Plan. In connection with the agreement, the Company has agreed to loan Mr. Holsten $1,000,000 to purchase shares of the Company's common stock at an annual rate equal to the three month London Interbank Offered Rate for the first London business day of each quarter that the loan is outstanding. In June 1997, the Company entered into a Supplemental Retirement Benefit Agreement with Thomas C. Hau, then the Company's Vice President, Controller and Principal Accounting Officer, which provides that, if Mr. Hau remains employed by the Company until at least April 1, 1998, or such earlier date as his employment is terminated as a result of death, disability or involuntary termination other than for cause, the monthly SERP benefit payable to Mr. Hau shall be equal to three percent of Mr. Hau's Final Average Compensation per year of service, and that Mr. Hau's benefits under the Company's Non-Qualified Profit Sharing and Savings Plus Plan will be vested. Effective July 13, 1997, the Company entered into an employment agreement with Ronald T. LeMay, in connection with his election as Chairman of the Board, President and Chief Executive Officer of the Company. Mr. LeMay voluntarily resigned on October 29, 1997. The term of Mr. LeMay's employment under the agreement was to continue until July 13, 2002, and was to be automatically extended for additional one-year periods after such date unless either party were to give at least 12 months prior written notice electing not to extend the term of employment. The employment agreement provided that Mr. LeMay would be paid an annual base salary of $1,500,000, subject to increase in the discretion of the Board of Directors, and would participate in the Company's Corporate Incentive Bonus Plan with a target bonus opportunity equal to 80% of his base salary and with his 1997 incentive award to be not less than $1 million. The agreement also provided that Mr. LeMay would participate in the LTIP, with guaranteed minimum payouts of $350,000 and $250,000 for the performance periods ending in 1998 and 1999, respectively. The agreement further provided that Mr. LeMay would be awarded options to acquire 500,000 shares of the Company's common stock in each of four years beginning in April 1998 at an exercise price not less than the closing sale price of the common stock on the date of grant. Each such future option grant would have vested nine and one-half years after the date of grant, provided that if the price of a share of the Company's common stock were at least 1.6105 times the exercise price for at least 30 trading days within a consecutive period of 45 trading days between the fourth and fifth anniversaries of the date of grant, that grant would become exercisable on the fifth anniversary of the date of the grant. Pursuant to the employment agreement, Mr. LeMay was granted under the 1997 Equity Plan (a) 353,000 restricted shares of the Company's common stock with terms substantially similar to those of Mr. Caudle's restricted stock award described above, except that the restrictions were to lapse with respect to 20% of the restricted shares on each of the first five anniversaries of the award date, and (b) options to purchase a total of two million shares of the Company's common stock at an exercise price of $33.10 per share. Under the employment agreement, Mr. LeMay was also granted stock appreciation rights with respect to 500,000 shares of Sprint Corporation common stock at an exercise price of $47.9375 per share, which were to become exercisable on June 9, 2002 and expire on June 8, 2007. Mr. LeMay was granted stock appreciation rights with respect to an additional 500,000 shares of Sprint Corporation common stock at the same exercise price, which were to become exercisable on the fifth anniversary of the grant date only if the fair market value of Sprint Corporation common stock were at least $95.875 per share on any 30 trading days within a consecutive period of 45 trading days between the fourth and fifth anniversaries of the grant date, or alternatively, if such condition were not met, on 120 the last day of such a 45-day period between the fourth and sixth anniversaries of the grant date but only if the fair market value of Sprint Corporation common stock were at least $95.875 on any 30 trading days during such period. Under the employment agreement, Mr. LeMay also received credit for 12 years of benefit and eligibility service under the SERP upon commencement of employment (with his SERP benefits to vest at the rate of 20% on each of the first five anniversaries of the effective date of the employment agreement and to be offset by any other pension benefit he may have received from the Company or Sprint Corporation), and was also entitled to a survivor benefit in the form of 10 annual payments each equal to 25% of his highest annual salary during the five-year period immediately preceding his death if he were to die before retirement (or if he were to die after retiring or becoming permanently disabled, a benefit equal to 300% of his highest annual salary during the five-year period immediately prior to the time of his retirement or disability, payable either in a lump sum or in installments). At least 13 months before retirement, Mr. LeMay was permitted to elect a supplemental retirement benefit in lieu of all or a portion of such survivor benefit. In the event Mr. LeMay's employment were terminated due to his death, the Company would have been required to pay his base salary through the end of the month in which the death occured, he would have received pro rata payouts of any annual incentive and LTIP awards, his outstanding stock options would have been exercisable until the earlier of the first anniversary of the date of death or the tenth anniversary of the date of grant, the restrictions on his restricted stock would have lapsed, and the Sprint Corporation stock appreciation rights would have been exercisable in accordance with their terms. In the event of his termination due to disability, Mr. LeMay would have been entitled to receive substantially the same benefits. In the event Mr. LeMay's employment were terminated without cause or constructively terminated without cause, the Company would have been obligated to pay his base incentive and LTIP awards plus an annual incentive award based on his target bonus opportunity for 24 months following the date of termination, his outstanding stock options would have been exercisable until the earlier of the third anniversary of the date of termination or the tenth anniversary of the date of grant, the restrictions on his restricted stock would have lapsed, and the Sprint Corporation stock appreciation rights would have been exercisable in accordance with their terms. In the event of termination without cause or constructive termination without cause after a change in control of the Company, Mr. LeMay would have received the same benefits, except that in lieu of the salary and annual incentive benefits described above, Mr. LeMay would have received his base salary and annual incentive awards for 36 months following termination, which amount would have been increased should an excise tax be imposed on him because of the payments. During the term of his employment and for a period of three years thereafter, Mr. LeMay agreed not to compete with the Company or its subsidiaries. As a result of his voluntary resignation on October 29, 1997, Mr. LeMay forfeited all benefits under his employment agreement other than salary through the date of resignation. Effective October 29, 1997, the Company entered into an employment agreement with Robert S. Miller, Acting Chairman of the Board and Chief Executive Officer of the Company. The term of Mr. Miller's employment under the agreement continues until the earlier of (a) approval by the Board of Directors of the Company of the hiring of a successor as Chairman of the Board and Chief Executive Officer, (b) Mr. Miller's death or disability, or (c) termination of his service upon written notice given either by Mr. Miller or the Board at least seven days prior to the effective date of such termination. The agreement provides that Mr. Miller will be paid a salary at the annual rate of $600,000 for so long as he serves as Acting Chairman of the Board and Chief Executive Officer. Pursuant to the agreement, Mr. Miller was granted an option under the 1997 Company Plan to purchase 75,000 shares of common stock at an exercise price of $23.375, exercisable upon the earlier of (a) the Board's approval of the hiring of Mr. Miller's successor as Chairman of the Board and Chief Executive Officer, (b) Mr. Miller's death or disability, or (c) the termination of Mr. Miller's employment by the Board. Upon becoming exercisable, the option will remain exercisable through the earlier of November 3, 2007 or the ninetieth day after Mr. Miller ceases to serve as a member of the Board. The salary and option described above were Mr. Miller's exclusive compensation for his service as Acting Chairman of the Board and Chief Executive Officer of the Company. On March 10, 1998, the Board appointed Robert S. Miller as Chief Executive Officer, approved an increase in his annual salary to $900,000, named him as a participant in the Annual Plan and established his 1998 annual incentive target level at 80% of his salary, and granted him an option for 235,000 121 shares of the Company's common stock at an exercise price of $24.3875 on the same terms as his November 4, 1997 stock option grant. The options expire ten years after their grant or, if earlier, 90 days following Mr. Miller's retirement from the Board. On February 5, 1998, the Company sold an aircraft with a net book value of $11,491,835 to Dean L. Buntrock, former Chairman of the Board and Chief Executive Officer of the Company, for $14,058,886 in cash. The price was determined after the Company obtained four independent appraisals ranging from $13,772,998 to $14,500,000, with an average of $14,165,124, which was then reduced by half of the estimated amount of an avoided broker's commission. The Company also entered into an agreement pursuant to which the Company may lease the aircraft on a non-exclusive basis. The lease has a one year term, subject to termination by either party at any time upon thirty days' notice. The Company also entered into a sublease of hangar space for the aircraft for a term of one year, renewing annually thereafter, pursuant to which the Company will recoup approximately 25% of the Company's charges for rent, taxes, utilities, common area maintenance and other support costs at the Company's hangar. The Company also entered into a management services agreement pursuant to which the Company will provide flight crews, maintenance, recordkeeping and scheduling services for the aircraft. The Company is to be paid a management fee of $60,000 per year, two pilots' salaries and benefits, one mechanic's salary and benefits, and 100% of the necessary recurring training costs for two pilots and one mechanic. In addition, Mr. Buntrock will pay separately all direct expenses connected with the operation and maintenance of the aircraft. The Management Services Agreement will have a term of one year. If this agreement is terminated, the hangar sublease will terminate as well. The terms of these agreements with Mr. Buntrock were reviewed and approved by the Audit Committee and the Board of Directors as being fair to the Company and in its best interests. On March 10, 1998, the Board approved an employment security agreement with Paul G. George as the Company's new Senior Vice President--Human Resources. The term of the agreement continues until March 10, 1999 and automatically extends on each March 10 for a period of two years from such anniversary date unless a party were to give 30 days' prior written notice of termination. If the Company were to terminate Mr. George's employment, or reduce his salary, benefits or the nature and scope of Mr. George's duties or relocate his primary employment location, it would continue to pay him his then current base salary for two years, his prorated annual bonus for the year of such termination, reduction or relocation and all of Mr. George's unvested stock options will automatically accelerate, unless the termination was for cause, in which case its obligations under the agreement would cease. The agreement also gives Mr. George protection in the form of a tax gross-up payment in the event an excise tax under Internal Revenue Code Section 4999 is triggered as a result of the payments under the agreement. During the term of the agreement and for a period of one year thereafter, Mr. George has agreed not to compete with the Company or its subsidiaries. 122 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K. (a) Financial Statements included in Item 8. (i) Consolidated Statements of Income for the four years ended December 31, 1997; (ii) Consolidated Balance Sheets--December 31, 1995, 1996 and 1997; (iii) Consolidated Statements of Stockholders' Equity for the four years ended December 31, 1997; (iv) Consolidated Statements of Cash Flows for the four years ended December 31, 1997; (v) Notes to Consolidated Financial Statements; and (vi) Report of Independent Public Accountants. (b) Schedule. Schedule II--Valuation and Qualifying Accounts. All other schedules have been omitted because the required information is not significant or is included in the financial statements or the notes thereto, or is not applicable. (c) Exhibits. The exhibits to this report are listed in the Exhibit Index elsewhere herein. Included in the exhibits listed therein are the following exhibits which constitute management contracts or compensatory plans or arrangements: (i) Waste Management, Inc. 1982 Stock Option Plan, as amended to March 11, 1988 (Exhibit 10.3 to registrant's 1988 annual report on Form 10-K); (ii) Deferred Director's Fee Plan, as amended (Exhibit 10.3 to registrant's 1990 annual report on Form 10-K); (iii) Director's Phantom Stock Plan (Exhibit 10.9 to registrant's 1984 annual report on Form 10-K); (iv) Amended and Restated Employment Agreement, dated as of June 17, 1996, by and between the registrant and Phillip B. Rooney (Exhibit 10.1 to registrant's report on Form 10-Q for the quarter ended September 30, 1996); (v) Waste Management, Inc. Corporate Incentive Bonus Plan (Exhibit B to registrant's Proxy Statement for its 1995 Annual Meeting of Stockholders); (vi) Waste Management, Inc. Supplemental Executive Retirement Plan, as amended and restated as of November 11, 1997 (filed with this report); (vii) Chemical Waste Management, Inc. 1992 Stock Option Plan (Exhibit 10.19 to Chemical Waste Management, Inc.'s 1991 annual report on Form 10- K); (viii) Employment Security Agreement dated July 28, 1997 between the registrant and Mark T. Spears (filed with this report); (ix) Chemical Waste Management, Inc. 1986 Stock Option Plan, as amended (Exhibit 10.1 to Chemical Waste Management, Inc.'s 1989 annual report on Form 10-K); (x) Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plus Plan (Exhibit 10.11 to registrant's 1995 annual report on Form 10-K); 123 (xi) Amendment No. 1 to Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plus Plan (Exhibit 10.12 to registrant's 1996 annual report on Form 10-K); (xii) Amendment No. 2 to Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plan (filed with this report); (xiii) Waste Management, Inc. Director's Charitable Endowment Plan (Exhibit 10.20 to registrant's 1989 annual report on Form 10-K); (xiv) Supplemental Retirement Benefit Agreement dated as of January 1, 1991 by and between registrant and Donald F. Flynn (Exhibit 10.17 to registrant's 1990 annual report on Form 10-K); (xv) Restricted Unit Plan for Non-Employee Directors of Wheelabrator Technologies Inc. as amended through June 10, 1991 (Exhibit 19.03 to the report on Form 10-Q of Wheelabrator Technologies Inc. for the quarter ended June 30, 1991); (xvi) 1988 Stock Plan for Executive Employees of Wheelabrator Technologies Inc. and its subsidiaries (the "WTI 1988 Stock Plan") (Exhibit 28.1 to Amendment No. 1 to the registration statement of Wheelabrator Technologies Inc. on Form S-8, Registration No. 33-31523); (xvii) Amendments dated as of September 7, 1990 to the WTI 1988 Stock Plan (Exhibit 19.02 to the 1990 annual report on Form 10-K of Wheelabrator Technologies Inc.); (xviii) Amendment dated as of November 1, 1990 to the WTI 1988 Stock Plan (Exhibit 19.04 to the 1990 annual report on Form 10-K of Wheelabrator Technologies Inc.); (xix) 1986 Stock Plan for Executive Employees of Wheelabrator Technologies Inc. and its subsidiaries (the "WTI 1986 Stock Plan") (Exhibit 28.2 to Amendment No. 1 to the registration statement of Wheelabrator Technologies Inc. on Form S-8, Registration No. 33-31523); (xx) Amendment dated as of November 1, 1990 to the WTI 1986 Stock Plan (Exhibit 19.03 to the 1990 annual report on Form 10-K of Wheelabrator Technologies Inc.); (xxi) Amended and Restated Employment Agreement dated as of June 20, 1997 between the registrant and D. P. Payne (Exhibit 10.21 to Post-Effective Amendment No. 2 to registrant's registration statement on Form S-1, Registration No. 333-01327); (xxii) Waste Management, Inc. 1992 Stock Option Plan (Exhibit 10.31 to registrant's registration statement on Form S-1, Registration No. 33- 44849); (xxiii) Waste Management, Inc. Amended and Restated 1992 Stock Option Plan for Non-Employee Directors (Exhibit 10.23 to registrant's 1996 annual report on Form 10-K); (xxiv) Deferred Director's Fee Plan of Wheelabrator Technologies Inc. adopted June 10, 1991 (Exhibit 19.02 to the quarterly report on Form 10-Q of Wheelabrator Technologies Inc. for the quarter ended June 30, 1991); (xxv) Waste Management International plc Share Option Plan (Exhibit 10.1 to the registration statement on Form F-1 of Waste Management International plc, Registration No. 33-46511); (xxvi) Amendment dated as of December 6, 1991 to the WTI 1986 Stock Plan (Exhibit 19.01 to the 1991 annual report on Form 10-K of Wheelabrator Technologies Inc.); (xxvii) Amendment dated as of December 6, 1991 to the WTI 1988 Stock Plan (Exhibit 19.02 to the 1991 annual report on Form 10-K of Wheelabrator Technologies Inc.); (xxviii) Amendment dated as of December 6, 1991 to the Restricted Unit Plan for Non-Employee Directors of Wheelabrator Technologies Inc. (Exhibit 19.05 to the 1991 annual report on Form 10-K of Wheelabrator Technologies Inc.); (xxix) Waste Management, Inc. Long Term Incentive Plan (as amended and restated as of January 27, 1994) (Exhibit A to registrant's Proxy Statement for its 1995 Annual Meeting of Stockholders); 124 (xxx) Employment Agreement dated as of August 15, 1996 between the registrant and James E. Koenig (Exhibit 10.2 to registrant's report on Form 10-Q for the quarter ended September 30, 1996); (xxxi) Employment Agreement dated as of August 15, 1996 between the registrant and Herbert A. Getz (Exhibit 10.3 to registrant's report on Form 10-Q for the quarter ended September 30, 1996); (xxxii) Restricted Stock Agreement dated as of August 15, 1996 between the registrant and James E. Koenig (Exhibit 10.4 to registrant's report on Form 10-Q for the quarter ended September 30, 1996); (xxxiii) Restricted Stock Agreement dated as of August 15, 1996 between the registrant and Herbert A. Getz (Exhibit 10.5 to registrant's report on Form 10-Q for the quarter ended September 30, 1996); (xxxiv) Letter Agreement dated as of February 17, 1997 between the registrant and Phillip B. Rooney (Exhibit 10.38 to registrant's 1996 annual report on Form 10-K); (xxxv) Waste Management, Inc. 1997 Equity Incentive Plan (Exhibit A to registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders); (xxxvi) Employment Security Agreement dated as of March 11, 1997 between the registrant and Jerry W. Caudle (filed with this report); (xxxvii) Employment Security Agreement dated as of June 20, 1997 between the registrant and Joseph M. Holsten (incorporated by reference to Exhibit 10.40 to Post-Effective Amendment No. 2 to registrant's registration statement on Form S-1, Registration No. 333-01327); (xxxviii) Employment Agreement dated as of July 13, 1997 between the registrant and Ronald T. LeMay (Exhibit 10.1 to registrant's report on Form 8-K dated August 8, 1997); (xxxix) Letter Agreement dated as of November 4, 1997 between the registrant and Robert S. Miller (filed with this report); (xl) Form of restricted stock agreement between registrant and certain Directors of the registrant (filed with this report); (xli) Amendment to Employment Agreement dated as of March 10, 1998 between the registrant and Herbert A. Getz (filed with this report); (xlii) Loan and Indemnification Agreement dated as of November 25, 1997 between the registrant and Herbert A. Getz (filed with this report); (xliii) Employment Security Agreement dated as of February 9, 1998 between the registrant and Paul G. George (filed with this report); (xliv) Employment Security Agreement dated as of March 11, 1997 between the registrant and James E. O'Connor (filed with this report); (xlv) Employment Security Agreement dated as of March 11, 1997 between the registrant and Luther Michael Collier (filed with this report); (xlvi) Employment Security Agreement dated as of March 11, 1997 between the registrant and Michael J. Cole (filed with this report); (xlvii) Employment Security Agreement dated as of March 11, 1997 between the registrant and Donald R. Chappel (filed with this report); (xlviii) Form of Restricted Stock Award Agreement under the Waste Management, Inc. 1997 Equity Incentive Plan (Exhibit 10.40 to Post- Effective Amendment No. 2 to registrant's registration statement on Form S- 1, Registration No. 333-01327); and (xlix) Restricted Stock Award Certificate dated as of June 20, 1997 between the registrant and Joseph M. Holsten (Exhibit 10.40 to Post- Effective Amendment No. 2 to registrant's registration statement on Form S- 1 Registration No. 333-01327). 125 (d) Reports on Form 8-K. During the fourth quarter of 1997, the Company filed reports on Form 8-K as follows: (i) a report dated October 10, 1997 reporting under Item 5 that on October 10, 1997 the registrant issued a new release announcing its results from continuing operations for the quarter ended September 30, 1997 would be below analysts' expectations and announcing the registrant might record a charge to income that could be material to its results of operations for the year. (ii) a report dated October 29, 1997 reporting under Item 5 that the registrant's Board of Directors had received and accepted the resignation of the registrant's Chairman and Chief Executive Officer, Ronald T. LeMay, and that the Board had named Robert S. Miller, a director of the registrant, as the Chairman of the Board and Acting Chief Executive Officer. The report also reported under Item 5 that Senior Vice President and Chief Financial Officer, John D. Sanford, had resigned from the registrant, and Donald R. Chappel would serve as the registrant's acting Chief Financial Officer. The report also announced that former Executive Vice President, James E. Koenig, had resigned. (iii) a report dated November 4, 1997 reporting under Item 5 that the registrant's Board of Directors had elected two new directors, Roderick M. Hills and John C. Pope, and that the Board had been expanded by one member with the elections. In addition, the report announced the formation of a Search Committee to seek a new Chief Executive Officer and certain changes affecting three Board committees. The report also announced that the Board had elected Mark T. Spears as Controller of the registrant, succeeding Thomas C. Hau. (iv) a report dated December 8, 1997 reporting under Item 5 that the registrant had announced it had signed a definitive merger agreement with its approximately 67% owned subsidiary, Wheelabrator Technologies Inc., under which the registrant will acquire approximately 53 million shares of the subsidiary at a cash purchase price of $16.50 per share. 126 WASTE MANAGEMENT, INC. AND SUBSIDIARIES FINANCIAL STATEMENT SCHEDULE ($000'S OMITTED) SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (AS RESTATED)
EFFECT OF BALANCE CHARGED ACCOUNTS FOREIGN BALANCE BEGINNING TO WRITTEN CURRENCY END OF OF YEAR INCOME OFF OTHER(A) TRANSLATION YEAR --------- ------- -------- -------- ----------- ------- 1994--Reserve for doubt- ful accounts (B)(C).... $57,279 $35,720 $(38,621) $5,072 $ 1,760 $61,210 1995--Reserve for doubt- ful accounts (C)....... $61,210 $48,914 $(45,224) $1,814 $ 1,213 $67,927 1996--Reserve for doubt- ful accounts (B)(C).... $67,927 $52,766 $(69,799) $4,374 $ (245) $55,023 1997--Reserve for doubt- ful accounts (B) (C)... $55,023 $51,691 $(51,406) $ 641 $(2,605) $53,344 ======= ======= ======== ====== ======= =======
- -------- (A) Reserves of companies accounted for as purchases. (B) Includes reserves for doubtful long-term notes receivable. (C) Excludes discontinued operations. 127 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN OAK BROOK, ILLINOIS ON THE 30TH DAY OF MARCH 1998. Waste Management, Inc. /s/ Robert S. Miller By___________________________________ Robert S. Miller Chairman of the Board and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert S. Miller Director, Chairman of the ____________________________________ Board and Chief Executive Robert S. Miller Officer /s/ Jerry E. Dempsey Director ____________________________________ Jerry E. Dempsey /s/ Donald F. Flynn Director ____________________________________ Donald F. Flynn /s/ Peer Pedersen Director ____________________________________ Peer Pedersen /s/ James R. Peterson Director ____________________________________ James R. Peterson /s/ John C. Pope Director ____________________________________ John C. Pope /s/ Alexander B. Trowbridge Director ____________________________________ Alexander B. Trowbridge /s/ H. Jesse Arnelle Director March 30, 1998 ____________________________________ H. Jesse Arnelle /s/ Pastora San Juan Cafferty Director ____________________________________ Pastora San Juan Cafferty /s/ James B. Edwards Director ____________________________________ James B. Edwards /s/ Paul M. Montrone Director ____________________________________ Paul M. Montrone /s/ Steven G. Rothmeier Director ____________________________________ Steven G. Rothmeier /s/ Roderick M. Hills Director ____________________________________ Roderick M. Hills /s/ Mark T. Spears Vice President, Controller ____________________________________ and Principal Accounting Mark T. Spears Officer /s/ Donald R. Chappel Vice President, Acting Chief ____________________________________ Financial Officer, Treasurer Donald R. Chappel and Principal Financial Officer
128 WASTE MANAGEMENT, INC. EXHIBIT INDEX NUMBER AND DESCRIPTION OF EXHIBIT* 1. Inapplicable 2. Inapplicable 3.1(a) Restated Certificate of Incorporation of registrant, as amended as of May 24, 1985 (incorporated by reference to Exhibit 4.1 to registrant's report on Form 10-Q for the quarter ended June 30, 1985) 3.1(b) Certificate of Amendment of Restated Certificate of Incorporation of registrant, recorded May 23, 1986 (incorporated by reference to Exhibit 4(c) to registrant's registration statement on Form S-8, Registration No. 33-6265) 3.1(c) Certificate of Amendment of Restated Certificate of Incorporation of registrant, recorded May 15, 1987 (incorporated by reference to Exhibit 4.5(d) to registrant's registration statement on Form S-4, Registration No. 33-15518) 3.1(d) Certificate of Amendment of Restated Certificate of Incorporation of registrant, filed May 19, 1989 (incorporated by reference to Exhibit 3(e) to registrant's registration statement on Form S-3, Registration No. 33-30190) 3.1(e) Certificate of Amendment of Restated Certificate of Incorporation of registrant, filed May 18, 1990 (incorporated by reference to Exhibit 4(h) to registrant's registration statement on Form S-8, Registration No. 33-35936) 3.1(f) Certificate of Amendment of Restated Certificate of Incorporation of registrant, filed May 14, 1993 (incorporated by reference to Exhibit 4(a) to registrant's report on Form 8-K dated May 14, 1993) 3.1(g) Certificate of Amendment of Restated Certificate of Incorporation of registrant, filed May 9, 1997 (incorporated by reference to Exhibit 3(a) to registrant's report on Form 8-K dated May 9, 1997) 3.1(h) Conformed copy of Restated Certificate of Incorporation of registrant, as amended (incorporated by reference to Exhibit 3(b) to registrant's report on Form 8-K dated May 9, 1997) 3.2 By-laws of registrant, as amended and restated as of November 4, 1997 (incorporated by reference to Exhibit 3 to registrant's report on Form 10-Q for the quarter ended September 30, 1997) 4.1(a) Trust Indenture dated as of August 1, 1989 (incorporated by reference to Exhibit 4.3(a) to registrant's 1990 annual report on Form 10-K) 4.1(b) First Supplemental Indenture dated as of December 1, 1990 (incorporated by reference to Exhibit 4.3(b) to registrant's 1990 annual report on Form 10-K) 4.2 Trust Indenture dated as of June 1, 1993 (incorporated by reference to Exhibit 4 to the registrant's current report on Form 8-K dated July 15, 1993) 4.3 Credit Agreement (as amended and restated), dated as of December 29, 1997, among Waste Management, Inc., The Chase Manhattan Bank, as administrative agent, and the lenders named therein, as amended 5. Inapplicable 6. Inapplicable 7. Inapplicable
- -------- * In the case of incorporation by reference to documents filed under the Securities Exchange Act of 1934, the registrant's file number under that Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act is 0-14246. EX-1 NUMBER AND DESCRIPTION OF EXHIBIT* 8. Inapplicable 9. None 10.1 Waste Management, Inc. 1982 Stock Option Plan, as amended to March 11, 1988 (incorporated by reference to Exhibit 10.3 to registrant's 1988 annual report on Form 10-K) 10.2 Deferred Director's Fee Plan, as amended (incorporated by reference to Exhibit 10.3 to registrant's 1990 annual report on Form 10-K) 10.3 Director's Phantom Stock Plan (incorporated by reference to Exhibit 10.9 to registrant's 1984 annual report on Form 10-K) 10.4 Amended and Restated Employment Agreement, dated as of June 17, 1996, by and between the registrant and Phillip B. Rooney (incorporated by reference to Exhibit 10.1 to registrant's report on Form 10-Q for the quarter ended September 30, 1996) 10.5 Waste Management, Inc. Corporate Incentive Bonus Plan (incorporated by reference to Exhibit B to the registrant's Proxy Statement for its 1995 Annual Meeting of Stockholders) 10.6 Waste Management, Inc. Supplemental Executive Retirement Plan, as amended and restated as of November 11, 1997 10.7 Waste Management, Inc. Long Term Incentive Plan, as amended and restated as of January 27, 1994 (incorporated by reference to Exhibit A to the registrant's Proxy Statement for its 1995 Annual Meeting of Stockholders) 10.8 Employment Security Agreement dated as of July 28, 1997 between the registrant and Mark T. Spears 10.9 Chemical Waste Management, Inc. 1986 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to Chemical Waste Management, Inc.'s 1989 annual report on Form 10-K) 10.10 Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plus Plan (incorporated by reference to Exhibit 10.11 to registrant's 1995 Annual Report on Form 10-K) 10.11 Amendment No. 2 to Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plus Plan 10.12 Amendment No. 1 to the Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plus Plan (incorporated by reference to Exhibit 10.12 to registrant's 1996 annual report on Form 10-K) 10.13 Waste Management, Inc. Director's Charitable Endowment Plan (incorporated by reference to Exhibit 10.20 to registrant's 1989 annual report on Form 10-K) 10.14 Supplemental Retirement Benefit Agreement dated as of January 1, 1991 by and between registrant and Donald F. Flynn (incorporated by reference to Exhibit 10.17 to registrant's 1990 annual report on Form 10-K) 10.15 Restricted Unit Plan for Non-Employee Directors of Wheelabrator Technologies Inc. as amended through June 10, 1991 (incorporated by reference to Exhibit 19.03 to the report on Form 10-Q of Wheelabrator Technologies Inc. for the quarter ended June 30, 1991) 10.16 1988 Stock Plan for Executive Employees of Wheelabrator Technologies Inc. and its subsidiaries (the "WTI 1988 Stock Plan") (incorporated by reference to Exhibit 28.1 to Amendment No. 1 to the registration statement of Wheelabrator Technologies Inc. on Form S-8, Registration No. 33-31523) 10.17 Amendments dated as of September 7, 1990 to the WTI 1988 Stock Plan (incorporated by reference to Exhibit 19.02 to the 1990 annual report on Form 10-K of Wheelabrator Technologies Inc.)
- -------- * In the case of incorporation by reference to documents filed under the Securities Exchange Act of 1934, the registrant's file number under that Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act is 0-14246. EX-2 NUMBER AND DESCRIPTION OF EXHIBIT* 10.18 Amendment dated as of November 1, 1990 to the WTI 1988 Stock Plan (incorporated by reference to Exhibit 19.04 to the 1990 annual report on Form 10-K of Wheelabrator Technologies Inc.) 10.19 1986 Stock Plan for Executive Employees of Wheelabrator Technologies Inc. and its subsidiaries (the "WTI 1986 Stock Plan") (incorporated by reference to Exhibit 28.2 to Amendment No. 1 to the registration statement of Wheelabrator Technologies Inc. on Form S-8, Registration No. 33-31523) 10.20 Amendment dated as of November 1, 1990 to the WTI 1986 Stock Plan (incorporated by reference to Exhibit 19.03 to the 1990 annual report on Form 10-K of Wheelabrator Technologies Inc.) 10.21 Amended and Restated Employment Agreement dated as of June 20, 1997 between the registrant and D. P. Payne (incorporated by reference to Exhibit 10.21 to Post-Effective Amendment No. 2 to registrant's registration statement on Form S-1, Registration No. 333-01327) 10.22 Waste Management, Inc. 1992 Stock Option Plan (incorporated by reference to Exhibit 10.31 to registrant's registration statement on Form S-1, Registration No. 33-44849) 10.23 Waste Management, Inc. Amended and Restated 1992 Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.23 to registrant's 1996 annual report on Form 10-K) 10.24 Deferred Director's Fee Plan of Wheelabrator Technologies Inc. adopted June 10, 1991 (incorporated by reference to Exhibit 19.02 to the quarterly report on Form 10-Q of Wheelabrator Technologies Inc. for the quarter ended June 30, 1991) 10.25 Waste Management International plc Share Option Plan (incorporated by reference to Exhibit 10.1 to the registration statement on Form F-1 of Waste Management International plc, Registration No. 33-46511) 10.26 Amendment dated as of December 6, 1991 to the WTI 1986 Stock Plan (incorporated by reference to Exhibit 19.01 to the 1991 annual report on Form 10-K of Wheelabrator Technologies Inc.) 10.27 Amendment dated as of December 6, 1991 to the WTI 1988 Stock Plan (incorporated by reference to Exhibit 19.02 to the 1991 annual report on Form 10-K of Wheelabrator Technologies Inc.) 10.28 Amendment dated as of December 6, 1991 to the Restricted Unit Plan for Non-Employee Directors of Wheelabrator Technologies Inc. (incorporated by reference to Exhibit 19.05 to the 1991 annual report on Form 10-K of Wheelabrator Technologies Inc.) 10.29 First Amended and Restated International Business Opportunities Agreement by and among registrant, Chemical Waste Management, Inc., Wheelabrator Technologies Inc., Waste Management International, Inc., Waste Management International plc and Rust International Inc., dated as of January 1, 1993 (incorporated by reference to Exhibit 28 to the registration statement on Form S-3 of Wheelabrator Technologies Inc., Registration No. 33-59606) 10.30 Amendment dated as of January 28, 1994 relating to the International Business Opportunities Agreement (incorporated by reference to Exhibit 10.19 to the 1993 annual report on Form 10-K of Chemical Waste Management, Inc.) 10.31 Chemical Waste Management, Inc. 1992 Stock Option Plan (incorporated by reference to Exhibit 10.19 to the 1991 annual report on Form 10-K of Chemical Waste Management, Inc.) 10.32 Amendment dated as of July 10, 1995 to the International Business Opportunities Agreement (incorporated by reference to Exhibit 10 to the quarterly report on Form 10-Q of Wheelabrator Technologies Inc. for the quarter ended September 30, 1995) 10.33 Employment Agreement dated as of August 15, 1996 between the registrant and James E. Koenig (incorporated by reference to Exhibit 10.2 to registrant's report on Form 10-Q for the quarter ended September 30, 1996)
- -------- * In the case of incorporation by reference to documents filed under the Securities Exchange Act of 1934, the registrant's file number under that Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act is 0-14246. EX-3 NUMBER AND DESCRIPTION OF EXHIBIT* 10.34 Employment Agreement dated as of August 15, 1996 between the registrant and Herbert A. Getz (incorporated by reference to Exhibit 10.3 to registrant's report on Form 10-Q for the quarter ended September 30, 1996) 10.35 Restricted Stock Agreement dated as of August 15, 1996 between the registrant and James E. Koenig (incorporated by reference to Exhibit 10.4 to registrant's report on Form 10-Q for the quarter ended September 30, 1996) 10.36 Restricted Stock Agreement dated as of August 15, 1996 between the registrant and Herbert A. Getz (incorporated by reference to Exhibit 10.5 to registrant's report on Form 10-Q for the quarter ended September 30, 1996) 10.37 Letter Agreement dated as of February 17, 1997 between the registrant and Phillip B. Rooney (incorporated by reference to Exhibit 10.38 to registrant's 1996 Annual Report on Form 10-K) 10.38 Waste Management, Inc. 1997 Equity Incentive Plan (incorporated by reference to Exhibit A to the registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders) 10.39 Form of Restricted Stock Award Agreement under the Waste Management, Inc. 1997 Equity Incentive Plan (incorporated by reference to Exhibit 10.40 to Post-Effective Amendment No. 2 to registrant's registration statement on Form S-1, Registration No. 333-01327) 10.40 Employment Security Agreement dated as of June 20, 1997 between the registrant and Joseph M. Holsten (incorporated by reference to Exhibit 10.40 to Post-Effective Amendment No. 2 to registrant's registration statement on Form S-1, Registration No. 333-01327) 10.41 Restricted Stock Award Certificate dated as of June 20, 1997 between the registrant and Joseph M. Holsten (incorporated by reference to Exhibit 10.40 to Post-Effective Amendment No. 2 to registrant's registration statement on Form S-1, Registration No. 333-01327) 10.42 Employment Security Agreement dated as of March 11, 1997 between the registrant and Jerry W. Caudle 10.43 Agreement and Plan of Merger dated as of March 10, 1998 among USA Waste Services, Inc. ("USA Waste") Dome Merger Sub, Inc., and the registrant (incorporated by reference to Exhibit 99.1 to the current report on Form 8-K dated March 10, 1998 of USA Waste) 10.44 Employment Security Agreement dated as of July 13, 1997 between the registrant and Ronald T. LeMay (incorporated by reference to Exhibit 10.1 to registrant's report on Form 8-K dated August 8, 1997) 10.45 Letter Agreement dated as of November 4, 1997 between the registrant and Robert S. Miller 10.46 Form of restricted stock agreement between the registrant and certain directors of the registrant 10.47 Receivables Sale Agreement, dated as of December 29, 1997, among Waste Management, Inc., Waste Management Financing Corporation, and the Sellers named therein 10.48 Receivables Transfer and Servicing Agreement, dated as of December 29, 1997, among Waste Management, Inc., Waste Management Financing Corporation, The Chase Manhattan Bank, as administrative agent, and the participants named therein 10.49 Amendment to Employment Agreement dated as of March 10, 1998 between the registrant and Herbert A. Getz. 10.50 Loan and Indemnification Agreement dated as of November 25, 1997 between the registrant and Herbert A. Getz.
- -------- * In the case of incorporation by reference to documents filed under the Securities Exchange Act of 1934, the registrant's file number under that Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act was 1-9253, Wheelabrator Technologies Inc.'s file number under that Act is 0-14246, and USA Waste Services, Inc.'s file number is 1-12154. EX-4 NUMBER AND DESCRIPTION OF EXHIBIT* 10.51 Employment Security Agreement dated as of February 9, 1998 between the registrant and Paul G. George. 10.52 Agreement and Plan of Merger dated as of December 8, 1997 by and among the registrant, WMI Merger Sub, Inc., and WTI (incorporated by reference to Appendix A to WTI's proxy statement for the special meeting of stockholders to be held on March 30, 1998) 10.53 Employment Security Agreement dated as of March 11, 1997 between the registrant and James E. O'Connor 10.54 Employment Security Agreement dated as of March 11, 1997 between the registrant and Luther Michael Collier 10.55 Employment Security Agreement dated as of March 11, 1997 between the registrant and Michael J. Cole 10.56 Employment Security Agreement dated as of March 11, 1997 between the registrant and Donald R. Chappel 11. None 12. Computation of ratio of earnings to fixed charges 13. None 14. Inapplicable 15. Inapplicable 16. None 17. Inapplicable 18. None 19. Inapplicable 20. Inapplicable 21. List of subsidiaries of registrant 22. Inapplicable 23. Consent of Independent Public Accountants 24. None 25. Inapplicable 26. Inapplicable 27. Financial Data Schedule 28. None
- -------- *In the case of incorporation by reference to documents filed under the Securities Exchange Act of 1934, Wheelabrator Technologies, Inc.'s file number under that Act is 0-14246. EX-5 EX-4.3 2 CREDIT AGREEMENT DATED 12-29-97 EXHIBIT 4.3 CONFORMED COPY ================================================================================ CREDIT AGREEMENT (as amended and restated) dated as of December 29, 1997 among WASTE MANAGEMENT, INC., The Lenders Party Hereto and THE CHASE MANHATTAN BANK, as Administrative Agent $250,000,000 REVOLVING CREDIT FACILITY ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I Definitions............................... 1 ----------- SECTION 1.01. Defined Terms........................................... 1 SECTION 1.02. Terms Generally......................................... 11 SECTION 1.03. Accounting Terms; GAAP.................................. 12 ARTICLE II The Credits............................... 12 ----------- SECTION 2.01. Commitments............................................. 12 SECTION 2.02. Loans and Borrowings.................................... 12 SECTION 2.03. Requests for Borrowings................................. 12 SECTION 2.04. Funding of Borrowings................................... 13 SECTION 2.05. Interest Elections...................................... 13 SECTION 2.06. Termination and Reduction of Commitments................ 15 SECTION 2.07. Repayment of Loans; Evidence of Debt.................... 15 SECTION 2.08. Prepayment of Loans..................................... 16 SECTION 2.09. Commitment Fees......................................... 16 SECTION 2.10. Interest................................................ 16 SECTION 2.11. Alternate Rate of Interest.............................. 17 SECTION 2.12. Increased Costs......................................... 17 SECTION 2.13. Break Funding Payments.................................. 18 SECTION 2.14. Taxes................................................... 19 SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs................................................ 20 SECTION 2.16. Mitigation Obligations; Replacement of Lenders.......... 21 ARTICLE III Representations and Warranties...................... 22 ------------------------------ SECTION 3.01. Corporate Existence..................................... 22 SECTION 3.02. Corporate Power and Authority; Enforceability........... 22 SECTION 3.03. No Conflicts; No Burdensome Restrictions................ 22 SECTION 3.04. Financial Statements; Liabilities; Disclosure; No Material Adverse Change................................. SECTION 3.05. Litigation.............................................. 23 SECTION 3.06. Property Matters........................................ 24 SECTION 3.07. Compliance; No Default.................................. 24 SECTION 3.08. Investment and Holding Company Status................... 24 SECTION 3.09. Taxes................................................... 24 SECTION 3.10. Labor Matters........................................... 24 -i- SECTION 3.11. ERISA................................................... 25 ARTICLE IV Conditions................................ 25 ---------- SECTION 4.01. Effective Date.......................................... 25 SECTION 4.02. Each Credit Event....................................... 26 ARTICLE V Affirmative Covenants.......................... 26 --------------------- SECTION 5.01. Financial Statements and Other Information.............. 26 SECTION 5.02. Notices of Material Events.............................. 27 SECTION 5.03. Existence; Conduct of Business.......................... 28 SECTION 5.04. Payment of Obligations.................................. 28 SECTION 5.05. Maintenance of Properties; Insurance.................... 28 SECTION 5.06. Books and Records; Inspection Rights.................... 28 SECTION 5.07. Compliance with Laws and Contractual Obligations........ 28 SECTION 5.08. Use of Proceeds......................................... 28 SECTION 5.09. New Subsidiary Guarantors............................... 28 ARTICLE VI Negative Covenants............................ 29 ------------------ SECTION 6.01. Financial Covenants..................................... 29 SECTION 6.02. Subsidiary Indebtedness; Guarantee Obligations.......... 29 SECTION 6.03. Liens; Sale/Leaseback Transactions...................... 30 SECTION 6.04. Fundamental Changes..................................... 32 SECTION 6.05. Restricted Payments..................................... 32 SECTION 6.06. Transactions with Affiliates............................ 32 SECTION 6.07. Limitation on Optional Payments and Modifications of Debt Instruments..................................... 33 SECTION 6.08. Limitation on Changes in Fiscal Periods................. 33 SECTION 6.09. Restrictive Agreements.................................. 33 ARTICLE VII Events of Default............................ 34 ----------------- ARTICLE VIII The Administrative Agent......................... 36 ------------------------ ARTICLE IX Miscellaneous.............................. 37 ------------- SECTION 9.01. Notices................................................. 37 SECTION 9.02. Waivers; Amendments..................................... 38 -ii- SECTION 9.03. Expenses; Indemnity; Damage Waiver...................... 39 SECTION 9.04. Successors and Assigns.................................. 40 SECTION 9.05. Survival................................................ 42 SECTION 9.06. Counterparts; Integration; Effectiveness................ 42 SECTION 9.07. Severability............................................ 42 SECTION 9.08. Right of Setoff......................................... 42 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process................................................. 43 SECTION 9.10. WAIVER OF JURY TRIAL.................................... 43 SECTION 9.11. Headings................................................ 43 SECTION 9.12. Confidentiality......................................... 43 SCHEDULES: - --------- Schedule 1.01 -- Disclosed Matters Schedule 1.02 -- Subsidiary Guarantors on Effective Date Schedule 2.01 -- Commitments Schedule 6.02 -- Existing Indebtedness and Investment Commitments Schedule 6.03 -- Existing Liens Schedule 6.09 -- Existing Restrictions EXHIBITS: - -------- Exhibit A -- Form of Addendum Exhibit B -- Form of Assignment and Acceptance Exhibit C -- Form of Borrowing Request Exhibit D -- Form of Opinion of Counsel Exhibit E -- Form of Subsidiary Guarantee -iii- CREDIT AGREEMENT, dated as of December 29, 1997, among WASTE MANAGEMENT, INC., a Delaware corporation (the "Borrower"), the Lenders party hereto, and THE CHASE MANHATTAN BANK, as Administrative Agent. The parties hereto agree as follows: I. ARTICLE I Definitions ----------- SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Addendum" means an instrument, substantially in the form of Exhibit A, by which a Lender becomes a party to this Agreement, effective on the Effective Date. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. 2 "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit B or any other form approved by the Administrative Agent. "Attributable Debt" means, in respect of a Sale/Leaseback Transaction, as at the time of determination, the present value (discounted at the interest rate assumed in making calculations in accordance with FAS 13) of the total obligations of the Borrower or the relevant Subsidiary, as lessee, for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Availability Period" means the period from and including January 1, 1998 (or, if later, the Effective Date) to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrowing" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03, substantially in the form of Exhibit C. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City, Pittsburgh, Pennsylvania, Charlotte, North Carolina or Chicago, Illinois are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any "person" or "group" (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the SEC thereunder as in effect on the date hereof), of shares representing more than 20% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated; or (c) the failure of WMNA to remain a Wholly Owned Subsidiary of the Borrower. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.12(b), by any lending office of such 3 Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Loans hereunder in an aggregate principal amount not to exceed the amount of such commitment, as such commitment may be (a) reduced from time to time pursuant to Section 2.06 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. "Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any non-cash extraordinary, unusual or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business) and (f) any other non-cash charges, and minus, without duplication and to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income, (b) any non-cash extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business) and (c) any other non-cash income, all as determined on a consolidated basis. "Consolidated Leverage Ratio" means, at any date, the ratio of (a) Consolidated Total Debt on such date to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters ending with the most recent fiscal quarter for which the relevant financial information is available. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "Consolidated Net Worth" means the total stockholders' equity of the Borrower and its consolidated Subsidiaries determined in accordance with GAAP. 4 "Consolidated Total Debt" means, at any date, the aggregate principal amount of all long-term debt (whether or not classified as a current liability) and short-term debt required to be classified and accounted for as such on a balance sheet of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP and consistent with the most recent balance sheet referred to in Section 3.04. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Credit Parties" means the collective reference to the Borrower and the Subsidiary Guarantors. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the collective reference to (a) actions, suits and proceedings and the environmental matters disclosed in Schedule 1.01 and (b) matters disclosed pursuant to filings made by the Borrower with the SEC that were publicly available prior to the Effective Date. "dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02), which date is December 29, 1997. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any of its Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 5 "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any of its ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from the Borrower or any of its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.16(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or is attributable to such Foreign Lender's failure or inability to comply with Section 2.14(e), except to the extent that such Foreign Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.14(a). "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. 6 "Financial Officer" means the chief financial officer, principal accounting officer, treasurer, assistant treasurer or controller of the Borrower. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, 7 (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Indemnitees" has the meaning set forth in Section 9.03(b). "Interest Election Request" means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.05. "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part. "Interest Period" means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two or three months thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Investments" has the meaning set forth in Section 6.02(c). "Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the 8 Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means the collective reference to this Agreement and the Subsidiary Guarantee. "Loan Repayment Obligations" has the meaning set forth in Section 6.02(c). "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (b) the ability of the Credit Parties taken as a whole to perform their respective obligations under this Agreement and the other Loan Documents or (c) the rights of or benefits available to the Lenders under this Agreement and the other Loan Documents. "Material Indebtedness" means Indebtedness of, commitments providing for the incurrence of Indebtedness by, or obligations in respect of one or more Hedging Agreements of, any one or more of the Borrower and its Subsidiaries in a principal amount exceeding, individually or in the aggregate, $100,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. Material Indebtedness shall not include the Loans or the Commitments. "Maturity Date" means June 30, 1998. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Participant" has the meaning set forth in Section 9.04(e). "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. 9 "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, statutory landlord's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any of its ERISA Affiliates is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Register" has the meaning set forth in Section 9.04(e). "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Loans and unused Commitments representing at least 51% of the sum of the total Loans and unused Commitments outstanding at such time. 10 "Requirement of Law" means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Restricted Payment" means, with respect to the Borrower and its Subsidiaries, any dividend or other distribution (whether in cash, securities or other property) made by the Borrower or such Subsidiary with respect to any shares of any class its capital stock, or any payment (whether in cash, securities or other property) by the Borrower or such Subsidiary, including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of its capital stock or any option, warrant or other right to acquire any shares of any class of its capital stock. "Sale/Leaseback Transaction" has the meaning set forth in Section 6.03(b). "SEC" means the Securities and Exchange Commission. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "owner") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the owner in the owner's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the owner or one or more subsidiaries of the owner or by the owner and one or more subsidiaries of the owner. "Subsidiary" means any subsidiary of the Borrower, other than WMFC. "Subsidiary Guarantee" means the Subsidiary Guarantee, substantially in the form of Exhibit E, executed and delivered by each of the Subsidiary Guarantors. "Subsidiary Guarantors" means the collective reference to each domestic Wholly Owned Subsidiary of the Borrower listed on Schedule 1.02 and each other domestic Wholly Owned Subsidiary of the Borrower that becomes a Subsidiary Guarantor after the Effective Date pursuant to Section 5.09. 11 "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Trade Receivables Facility" has the meaning set forth in Section 4.01. "Transactions" means the execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party, the borrowing of Loans and the use of the proceeds thereof. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. "Wholly Owned Subsidiary" means, as to any Person, any other Person all of the capital stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. "WMFC" means Waste Management Financing Corporation. "WMNA" means Waste Management of North America, Inc. "WME" means Waste Management International P.L.C. "WTI" means Wheelabrator Technologies, Inc. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.03. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time. 12 II. ARTICLE II The Credits ----------- SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount not to exceed such Lender's Commitment. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans. SECTION 2.02. Loans and Borrowings. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.11, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. Notwithstanding anything to the contrary herein, there shall not at any time be more than a total of ten Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 noon, New York City time, on the Business Day of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; 13 (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received (on the date of receipt so long as the 1:00 p.m. deadline specified above is satisfied), in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.05. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest 14 Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.06. Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.08, the aggregate outstanding principal amount of the Loans would exceed the total Commitments. 15 (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. (d) Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.08. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of 16 prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.06, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.06. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.10. SECTION 2.09. Commitment Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at an annual rate of 0.375% on the average daily unutilized amount of the Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which such Commitment terminates. Accrued commitment fees shall be payable in arrears, based on invoices submitted by the Administrative Agent to the Borrower, on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on March 31, 1998, and shall be paid in immediately available funds to the Administrative Agent for distribution to the Lenders. Commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). Commitment fees paid shall not be refundable under any circumstances. SECTION 2.10. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus 0.25%. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus 1.25%. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided above. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion and (iv) all accrued interest shall be payable upon termination of the Commitments. 17 (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.11. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. SECTION 2.12. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount 18 or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 30 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than six months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided, further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof. (e) Notwithstanding any other provision of this Section 2.12, no Lender shall demand compensation for any increased cost or reduction or other amount referred to above if it shall not at the time be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements. SECTION 2.13. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is permitted to be revocable under Section 2.08(b) and is revoked in accordance herewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.16, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, the loss to any Lender attributable to any such event shall be deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit equal to the principal amount of such Loan for the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted LIBO Rate for such Interest Period, over (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for dollar deposits from other banks in the eurodollar market at the commencement of such period. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.14. Taxes. (a) Any and all payments by or an account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for 19 any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or the relevant Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Each Foreign Lender shall deliver to the Borrower and the Administrative Agent two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Foreign Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Foreign Lender delivers a Form W-8, an annual certificate representing that such Foreign Lender is not a "bank" for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Foreign Lender claiming complete exemption from U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Foreign Lender on or before the date it becomes a party to this Agreement. In addition, each Foreign Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender. Each Foreign Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this Section 2.14(e), a Foreign Lender shall not be required to deliver any form pursuant to this Section 2.14(e) that such Foreign Lender is not legally able to deliver. SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or under Section 2.12, 2.13 or 2.14, or otherwise) prior to 1:00 p.m., 20 New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except that payments pursuant to Sections 2.12, 2.13 and 2.14 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. 21 (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(b), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Section until all such unsatisfied obligations are fully paid. SECTION 2.16. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. III. ARTICLE III Representations and Warranties ------------------------------ The Borrower represents and warrants to the Lenders that: SECTION 3.01. Existence. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. 22 SECTION 3.02. Power and Authority; Enforceability. The Transactions are within the corporate or other organizational powers of each Credit Party and have been duly authorized by all necessary corporate or other organizational and, if required, stockholder action. Each Loan Document has been duly executed and delivered by each Credit Party party thereto and constitutes a legal, valid and binding obligation of each such Credit Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. No Conflicts; No Burdensome Restrictions. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. SECTION 3.04. Financial Statements; Liabilities; Disclosure; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 1996, reported on by Arthur Andersen LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 1997, signed by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. As of the Effective Date, the Borrower and its Subsidiaries do not have any material Guarantee obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including, without limitation, any material interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that have materially changed from those reflected, individually or in the aggregate, in either (i) the most recent financial statements referred to in this paragraph or (ii) filings made by the Borrower with the SEC that were publicly available prior to the Effective Date. During the period from December 31, 1996 to and including the date hereof there has been no disposition by the Borrower or any of its Subsidiaries of any material part of their business or property (determined on a consolidated basis with respect to the Borrower and its Subsidiaries), other than dispositions disclosed in filings made by the Borrower with the SEC that were publicly available prior to the Effective Date. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. (b) None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender on or prior to the Effective Date in connection with the negotiation of this Agreement or delivered hereunder, taken as a whole, contains any material misstatement of fact or omits to state any material fact 23 necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. (c) During the period from December 31, 1996 through the Effective Date, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole. (d) In connection with the representations and warranties made by the Borrower in this Section 3.04, the Lenders agree that the Borrower shall not be deemed in breach of any representation or warranty in this Section 3.04 on account of the Borrower's completing the matters or taking the actions described in the Borrower's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, as filed with the SEC, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations--Outlook", or, in respect of any such matter or action or other matters emerging from comments received by the Borrower from the SEC or the Borrower's ongoing review of its accounting policies, practices or procedures, incurring charges, increasing reserves or writing down asset values or adjusting, revising or restating financial statements or footnotes for one or more quarters or years, so long as the nature and amount of any such charge, reserve, write-down, adjustment, revision or restatement are substantially within the parameters disclosed to the Lenders prior to the Effective Date. SECTION 3.05. Litigation. Except for the Disclosed Matters, as of the Effective Date, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (a) could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (b) that involve this Agreement or the Transactions. SECTION 3.06. Property Matters. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, and none of such property is subject to any Lien except as permitted by Section 6.03. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (c) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. 24 (d) The Subsidiaries listed on Schedule 1.01 under the heading "Material Receivables-Generating Subsidiaries" constitute each of the Subsidiaries that, as of November 30, 1997, had aggregate outstanding accounts receivable owing to it in excess of $20,000,000. SECTION 3.07. Compliance; No Default. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.08. Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. Labor Matters. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (a) there are no strikes or other labor disputes against the Borrower or any of its Subsidiaries pending or, to the knowledge of the Borrower, threatened, (b) hours worked by and payment made to employees of the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters and (c) all payments due from the Borrower or any of its Subsidiaries on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the Borrower or the relevant Subsidiary. SECTION 3.11. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $40,000,000 the fair market value of the assets of all such underfunded Plans. IV. ARTICLE IV Conditions ---------- SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived by each Lender): (a) The Administrative Agent shall have received (i) from each relevant Credit Party, a counterpart of each Loan Document (or a copy thereof by facsimile transmission) 25 signed on behalf of each Credit Party party thereto and (ii) from each Lender listed on Schedule 2.01, an executed Addendum (or a copy thereof by facsimile transmission). (b) The Borrower, certain of its Subsidiaries and WMFC shall have entered into receivables-based financing arrangements (the "Trade Receivables Facility") providing for at least $550,000,000 of financing. (c) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Winston & Strawn, counsel for the Borrower, substantially in the form of Exhibit D, and covering such other matters relating to the Borrower and its Subsidiaries, the Loan Documents or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (d) The Administrative Agent shall have received such documents and certificates as the Administrative Agent may reasonably request relating to the organization, existence and good standing of the Credit Parties, incumbency of officers thereof, the authorization of the Transactions, any necessary corporate, organizational, governmental and third party approvals and any other legal matters relating to the Credit Parties, the Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Credit Parties set forth in this Agreement (other than Sections 3.04(c) and 3.05) and the other Loan Documents shall be true and correct on and as of the date of such Borrowing. (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. (c) At the time of such Borrowing, the aggregate Net Investment of all Participants shall equal or exceed the Maximum Transfer Amount (as each such term is defined in the Trade Receivables Facility). Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section. V. ARTICLE V Affirmative Covenants --------------------- 26 Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 105 days after the end of each fiscal year of the Borrower, to the extent prepared to comply with SEC requirements, a copy of Form 10- Ks filed with the SEC for such fiscal year or, if no such Form 10-K was so filed by Borrower for such fiscal year, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, in each case reported on by Arthur Andersen LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, to the extent prepared to comply with SEC requirements, a copy of Form 10-Qs filed with the SEC for such fiscal quarter or, if no such Form 10-Q was so filed by Borrower for such fiscal quarter, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, in each case certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 6.01 and, with respect to any items exceeding $10,000,000, Sections 6.02(a)(viii) and 6.03(a)(vii) and (iii) stating whether any change in GAAP has had a material effect on the financial statements accompanying such certificate and specifying the nature of any such change; (d) promptly after the same become available, copies of all reports on Form 10-K, 10-Q or 8-K and all proxy statements filed by the Borrower or WTI with the SEC and any materials distributed by the Borrower or WTI to its shareholders generally; and (e) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidi ary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. 27 SECTION 5.02. Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, sale of assets, liquidation or dissolution permitted under Section 6.04. SECTION 5.04. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. SECTION 5.06. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, will cause each of its Wholly Owned Subsidiaries to and, to the extent practicable, will cause each of its other Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. 28 SECTION 5.07. Compliance with Laws and Contractual Obligations. The Borrower will, and will cause each of its Subsidiaries to, comply with all Requirements of Law (including, without limitation, Environmental Laws) and all Contractual Obligations applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. Use of Proceeds. The proceeds of the Loans and of the Trade Receivables Facility will be used only to finance the working capital needs of the Borrower and its Subsidiaries in the ordinary course of business and to refinance indebtedness of the Borrower outstanding on the Effective Date and maturing prior to the Maturity Date and to refinance commercial paper of the Borrower maturing prior to the Maturity Date. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. SECTION 5.09. New Subsidiary Guarantors. With respect to (a) any new domestic Wholly Owned Subsidiary (other than captive insurance companies) created (including any such Subsidiary surviving a merger transaction) or acquired after the Effective Date by the Borrower that, as of the most recent date prior to such acquisition for which the relevant information is available had aggregate outstanding accounts receivable owing to it in excess of $20,000,000 and (b) WTI in the event that it becomes a Wholly Owned Subsidiary after the Effective Date, the Borrower will promptly (i) cause such Subsidiary to become a party to the Subsidiary Guarantee and (ii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to such Subsidiary, which opinions shall be substantially comparable to those delivered in respect of the Subsidiary Guarantors on the Effective Date. VI. ARTICLE VI Negative Covenants ------------------ Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. Financial Covenants. (a) The Borrower will not permit the Consolidated Leverage Ratio at any time to exceed 3.50 to 1. (b) The Borrower will not permit Consolidated Net Worth at any time to be less than $1,000,000,000. SECTION 6.02. Subsidiary Indebtedness; Guarantee Obligations. (a) The Borrower will not permit any of its Wholly Owned Subsidiaries to create, incur, assume or permit to exist any Indebtedness, except: (i) Indebtedness created hereunder, under the Subsidiary Guarantee or under the Trade Receivables Facility; (ii) Indebtedness existing on the date hereof and, in the case of any item of Indebtedness exceeding $25,000,000, described on Schedule 6.02, and extensions, 29 renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; (iii) Indebtedness of any Subsidiary to the Borrower or any other Subsidiary and, in the case of any item of Indebtedness exceeding $25,000,000 outstanding on the date hereof and owing to any non-Wholly Owned Subsidiary, described on Schedule 6.02, so long as such Indebtedness results from the operation of the Borrower's cash management system in the ordinary course of business consistent with past practices; (iv) Indebtedness of any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations, provided that such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement; and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; (v) Indebtedness of any Person that becomes a Subsidiary after the date hereof and any Indebtedness assumed in connection with the acquisition of any assets or secured by a Lien on any assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that such Indebtedness exists at the time such Person becomes a Subsidiary or at the time such acquisition is consummated and is not created in contemplation of or in connection with such Person becoming a Subsidiary or the consummation of such acquisition; (vi) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, bankers acceptances, letters of credit, surety bonds or other similar obligations arising in the ordinary course of business consistent with past practices, and extensions, renewals and replacements thereof; (vii) Indebtedness of any foreign Subsidiary of the Borrower to the Borrower or any other Subsidiary, provided that the Investment resulting from the incurrence of such Indebtedness is permitted by Section 6.02(c); and (viii) other Indebtedness for all Wholly Owned Subsidiaries in an aggregate principal amount not exceeding $100,000,000 at any one time outstanding. (b) The Borrower will not, and will not permit any of its Wholly Owned Subsidiaries to, Guarantee any obligations of any other Person, except (i) Guarantees by the Borrower or any Subsidiary Guarantor of obligations of any Subsidiary not prohibited hereunder, provided that any Investment resulting from the making of such Guarantee is permitted by Section 6.02(c) and (ii) Guarantees by the Borrower or WMNA of obligations of third parties made in the ordinary course of business consistent with past practices, provided that after the Effective Date, no more than $25,000,000 of additional Guarantees of Indebtedness for borrowed money shall be made pursuant to this clause (ii). (c) The Borrower will not, and will not permit any of its Wholly Owned Subsidiaries to, after the Effective Date, make any investment, loan or advance in or to, or Guarantee any obligations of (collectively, "Investments"), any Person (other than a Wholly Owned Subsidiary or WMFC), except: 30 (i) Investments funded prior to the Effective Date; (ii) Investments made pursuant to binding commitments, Loan Repayment Obligations (as defined below) or Guarantees in effect on the Effective Date and, in the case of any commitment, Loan Repayment Obligation or Guarantee exceeding $25,000,000, as described on Schedule 6.02, so long as such Investments are not funded until the Borrower or the relevant Subsidiary is required by the terms thereof to do so; and (iii) other Investments for the Borrower and its Wholly Owned Subsidiaries, taken together, not exceeding $100,000,000 in the aggregate at any one time outstanding. The repayment of Indebtedness owing by the Borrower or any Wholly Owned Subsidiary to any non-Wholly Owned Subsidiary ("Loan Repayment Obligations") shall be deemed to be an Investment for the purposes of this paragraph (c). SECTION 6.03. Liens; Sale/Leaseback Transactions. (a) The Borrower will not, and will not permit any Subsidiary (other than WME and its subsidiaries) to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (i) Permitted Encumbrances; (ii) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof, or incurred pursuant to binding commitments in effect on the date hereof, and, in the case of Liens securing obligations (or commitments in respect thereof) in excess of $25,000,000, described on Schedule 6.03; provided that (A) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (B) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (iii) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (B) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (C) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; together with extensions, renewals and replacements of any such Liens that satisfy the requirements specified in clauses (B) and (C) above; (iv) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (A) such security interests secure Indebtedness permitted by clause (iv) of Section 6.02(a), (B) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (C) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (D) such security interests shall not apply to any other property 31 or assets of the Borrower or any Subsidiary; together with extensions, renewals and replacements of any such Liens that satisfy the requirements specified in clauses (A), (C) and (D) above; (v) any Lien that may be deemed to be created by the Trade Receivables Facility; (vi) judgment Liens created by or resulting from any litigation or legal proceeding if released or bonded within 30 days of the date of creation thereof, unless such litigation or legal proceedings could reasonably be expected to have a Material Adverse Effect; and (vii) other Liens not otherwise permitted by the foregoing clauses (i) through (vi) securing any Indebtedness of any Subsidiary; provided, that the aggregate outstanding principal amount of obligations secured by Liens permitted by this clause (vii), when added to the then outstanding amount of Attributable Debt, shall not exceed $50,000,000. (b) The Borrower will not, and will not permit any Subsidiary to, enter into any arrangement with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or such Subsidiary (each, a "Sale/Leaseback Transaction"), unless the aggregate outstanding principal amount of Attributable Debt resulting from all such transactions, when added to the then outstanding amount of obligations secured by Liens permitted by Section 6.03(a)(vii), does not exceed $50,000,000. (c) The applicability of the covenants contained in this Section 6.03 to non-Wholly Owned Subsidiaries is subject to the provisions of Section 9.02(c). SECTION 6.04. Fundamental Changes. The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any substantial part of its assets (determined on a consolidated basis with respect to the Borrower and its Subsidiaries), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (a) any Person (other than WMNA) may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (b) any Person (other than the Borrower) may merge into WMNA in a transaction in which WMNA is the surviving corporation, (c) any Person (other than the Borrower or WMNA) may merge into any Subsidiary in a transaction in which the surviving entity is or becomes a Subsidiary (provided that, if the non- surviving Person is a Subsidiary Guarantor, the surviving Person shall be or become a Subsidiary Guarantor), (c) any Subsidiary (other than WMNA) may sell, transfer, lease or otherwise dispose of its assets to another Subsidiary (provided that, if the transferor is a Subsidiary Guarantor, the transferee shall be or become a Subsidiary Guarantor) and (d) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders. SECTION 6.05. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries (other than WME and its subsidiaries) to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its 32 capital stock or rights thereto, (b) the Borrower and its Subsidiaries may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (c) any Subsidiary may declare and pay dividends on a pro rata basis to the holders of its capital stock, (d) so long as no Event of Default shall have occurred and be continuing, the Borrower may pay regularly scheduled dividends in an aggregate amount not to exceed $100,000,000 in any calendar quarter and (e) so long as no Event of Default shall have occurred and be continuing, the Borrower and each Subsidiary may repurchase its capital stock so long as the aggregate amount expended in connection with all such repurchases does not exceed $50,000,000 during the term of this Agreement. The applicability of the covenants contained in this Section 6.05 (to the extent relating to repurchases of capital stock) to non-Wholly Owned Subsidiaries is subject to the provisions of Section 9.02(c). SECTION 6.06. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's- length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.05. SECTION 6.07. Limitation on Optional Payments and Modifications of Debt Instruments. The Borrower will not, and will not permit any of its Subsidiaries (other than WME and its subsidiaries) to, (a) optionally make or offer to make any payment, prepayment, repurchase or redemption of or otherwise defease or segregate funds with respect to any item of its Indebtedness having a principal amount in excess of $100,000,000 (other than in connection with any refinancing of any such item of Indebtedness in full through the incurrence of Indebtedness permitted hereby and other than in connection with payment of Indebtedness under existing revolving credit facilities) or (b) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any item of its Indebtedness having a principal amount in excess of $100,000,000 (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon, (ii) does not involve the payment of a consent fee, (iii) does not adversely affect the interests of the Administrative Agent or any Lender under any Loan Document or (iv) is of a technical or clarifying nature). The applicability of the covenants contained in this Section 6.07 to non-Wholly Owned Subsidiaries is subject to the provisions of Section 9.02(c). SECTION 6.08. Limitation on Changes in Fiscal Periods. The Borrower will not change its method of determining fiscal quarters or fiscal years. SECTION 6.09. Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries (other than WME and its subsidiaries) to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock, to make or repay loans or advances to the Borrower or any other Subsidiary, to transfer assets to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; 33 provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions contained in documentation governing Indebtedness of (or commitments providing for the incurrence of Indebtedness by) the Borrower or any of its Subsidiaries which are in effect on the date hereof and identified on Schedule 6.09, together with any restrictions and conditions contained in documentation governing any Indebtedness incurred (or commitments received) after the Effective Date so long as any such restrictions or conditions are no more onerous than those applicable to the corresponding type of Indebtedness (or commitment) referred to on said Schedule, (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) above shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (v) clause (a) above shall not apply to customary provisions in leases restricting the assignment thereof. VII. ARTICLE VII Events of Default ----------------- If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days; (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof, shall prove to have been incorrect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to the existence of the Borrower or WMNA) or 5.08 or in Article VI; (e) any Credit Party shall fail to observe or perform any covenant, condition or agreement contained in this Agreement or the other Loan Documents (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of the Required Lenders) to the Borrower; (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, 34 when and as the same shall become due and payable (subject, in the case of interest, to the expiration of any stated grace period); (g) (i) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, but subject to the expiration of any stated grace period) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, to require the prepayment, repurchase, redemption or defeasance thereof, or to terminate any commitment associated therewith, prior to its scheduled maturity or termination date or (ii) a Termination Event occurs under and as defined in the Trade Receivables Facility; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; or (m) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the 35 Administrative Agent may, with the consent of the Required Lenders, and shall, at the request of the Required Lenders, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then out standing to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. VIII. ARTICLE VIII The Administrative Agent ------------------------ Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or in any other Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document 36 or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. 37 IX. ARTICLE IX Miscellaneous ------------- SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at 3003 Butterfield Road, Oak Brook, Illinois 60523, Attention of Vice President - Finance (Telecopy No. 630-572-1340); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York 10081, Attention of Janet Beldon (Telecopy No. (212) 552-5662), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Joe Lillis (Telecopy No. (212) 270-1063); and (c) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement, any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by each Credit Party party thereto and the Required Lenders or by each Credit Party party thereto and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby, (iv) release all or 38 substantially all of the Subsidiary Guarantors from their obligations under the Subsidiary Guarantee, without the written consent of each Lender, or (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. (c) Each Lender agrees that, in the event that any transaction that would be prohibited by Section 6.03, Section 6.05 (in the case of repurchases of capital stock) or Section 6.07 is consummated or proposed to be consummated by a non-Wholly Owned Subsidiary as a result of recommendations by management or the independent members of the board of directors of such Subsidiary, such Lender will not unreasonably withhold its consent to any request by the Borrower to effectuate appropriate modifications to this Agreement permitting such transaction, subject to satisfaction of any conditions such Lender reasonably deems appropriate in connection therewith. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower agrees to pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions of this Agreement or any other Loan Document (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel (including the reasonably documented and allocated cost of internal counsel) for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this Section, or in connection with the Loans made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof. (b) The Borrower agrees to indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or the consummation of the Transactions or any other transactions contemplated hereby or thereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. 39 (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable not later than 10 days after written demand therefor. SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (iv) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.14 and 9.03). Any assignment or transfer by 40 a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Section 2.12 or 2.14 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.14 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.14(e) as though it were a Lender. (g) Prior to disclosing information relating to the Borrower and its Subsidiaries to any proposed assignee or Participant, each Lender shall cause such proposed assignee or Participant to enter into a confidentiality agreement substantially in the form previously executed and delivered by such Lender or otherwise acceptable to the Borrower. 41 (h) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12, 2.13, 2.14 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. 42 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. The Borrower hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) The Borrower irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Confidentiality. Each Lender agrees to maintain the confidentiality of information furnished to it by or on behalf of the Borrower in connection with the Transactions as provided in any separate confidentiality agreement entered into between the Borrower and such Lender. 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. WASTE MANAGEMENT, INC. By: /s/ William Keightley --------------------- Title: Assistant Treasurer THE CHASE MANHATTAN BANK, as Administrative Agent By: /s/ B. Joseph Lillis -------------------- Title: Managing Director EX-10.6 3 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT 10.6 WASTE MANAGEMENT, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -------------------------------------- (As Amended and Restated as of November 11, 1997) Waste Management, Inc. (formerly "WMX Technologies, Inc."), a Delaware corporation, established this Supplemental Executive Retirement Plan effective as of January 1, 1988, amended and restated the Plan effective as of May 14, 1993 and again effective January 24, 1995. The Plan was further amended and restated to make other necessary and desirable changes effective November 11, 1997, all as set forth below. 1. Definitions. Wherever used in this Plan, the following terms shall ----------- have the following meanings, unless a different meaning is clearly required by the context: (a) Code: The Internal Revenue Code of 1986, as amended from time to ---- time. Reference to a section of the Code shall include that section and any corresponding provisions of any future legislation that amends, supplements or supersedes that section. (b) Committee: With respect to participation in the Plan by --------- individuals who are executive officers of the Company whose compensation is administered by the Compensation and Stock Option Committee of the Company's Board of Directors, the term "Committee" shall mean the Compensation and Stock Option Committee of the Company's Board of Directors. With respect to participation in the Plan by all other individuals, the term "Committee" shall mean the Executive Committee of the Company (or one or more persons designated by it). (c) Company: Waste Management, Inc., a Delaware corporation. ------- (d) Compensation: A Participant's "compensation" for any year is such ------------ Participant's total salary and bonus as accrued in the consolidated financial records of the Company and its subsidiaries for that year (without regard to any reduction thereto under any salary reduction agreement entered into under section 125 or 401(k) of the Code), but excluding any other form of compensation such as bonuses under the Company's or any subsidiary's long-term incentive bonus program, income attributable to stock options or Company contributions under pension, profit sharing or other plans. (e) Disability: A physical or mental disability as defined for ---------- purposes of the Pension Plan. (f) Final Average Compensation: The monthly average of a -------------------------- Participant's Compensation with the Company or a Participating Subsidiary for the three consecutive calendar years in which such Participant's aggregate Compensation was the highest out of the last ten calendar years ending on or before such Participant's date of retirement or other termination of employment. 2 (g) Inactive Participant: An individual who became a Participant -------------------- hereunder and thereafter ceased to be in the class of employees eligible to participate in the Plan as a result of the classification of exempt employees pursuant to the total compensation review conducted in 1997 or who is designated by the Committee as an Inactive Participant. An Inactive Participant shall continue to be a Participant for purposes of continuing to accrue Eligibility Service hereunder, but not Benefit Service. The benefits of an Inactive Participant shall be determined in accordance with Section 5(c), unless provided for separately in an agreement with the Company in which case the terms of that agreement shall prevail. (h) Normal Retirement Date: The first day of the month coinciding ---------------------- with or next following the Participant's 60th birthday. (i) Participant: Any person who is eligible to participate in this ----------- Plan as provided in Section 3 and who is designated as a Participant by the Committee. A Participant shall remain a Participant for such period of time as such person is designated as a Participant by the Committee. Except where the context requires otherwise, the term "Participant" shall also mean an Inactive Participant or a retired or terminated Participant who continues to be entitled to receive retirement benefits under this Plan after retirement or other termination of employment. (j) Participating Subsidiary: Waste Management of North America, ------------------------ Inc., Chemical Waste Management, Inc., any majority-owned subsidiary of either or any other subsidiary of the Company designated by the Committee from time to time. (k) Pension Plan: The Waste Management, Inc. Pension Plan, as amended ------------ from time to time. (l) Plan: This Waste Management, Inc. Supplemental Executive ---- Retirement Plan, as amended from time to time (commonly referred to as the "SERP"). (m) Service: A Participant's service for purposes of eligibility for ------- benefits and amount of benefits, determined as follows: (i) Benefit Service: A Participant's benefit service as --------------- determined for purposes of the Pension Plan; provided, however, that the Benefit Service of an Inactive Participant shall be determined on the date immediately preceding the date the Participant became an Inactive Participant. (ii) Eligibility Service: A Participant's period of service from ------------------- the date the Participant commenced or recommenced participation in the Plan or such earlier date as is approved by the Committee at the time the Participant is designated as such, and ending on the later of the date the Participant ceases to be a Participant hereunder by reason of retirement, death or termination of employment or the date the Participant ceases to be a Transferred Participant or an Inactive Participant. Notwithstanding the foregoing, a Participant's period of participation in the Chemical Waste Management, Inc. Supplemental Executive Retirement Plan 3 prior to its merger into the Plan shall be counted as Eligibility Service hereunder. Notwithstanding any provision contained herein to the contrary, but subject to the break in service rules of the Pension Plan with respect to the determination of Benefit Service, all periods of service shall be aggregated. All other terms used in both this Plan and in the Pension Plan shall have the same meaning as in the Pension Plan, and all actuarial calculations under this Plan shall be made on the same basis as for the similar purpose under the Pension Plan. 2. Purpose. The purpose of this Plan is to provide a retirement income ------- to eligible executives of the Company and its subsidiaries to supplement the pensions payable under the Company's Pension Plan. 3. Eligibility. Effective July 1, 1997, any person who is designated as ----------- Level F or above under the Company's compensation administration system and who is a participant in the Pension Plan shall be eligible to be a Participant in this Plan, unless the Committee shall affirmatively act to exclude the individual. In addition, the Committee may in its discretion from time to time designate other key employees of the Company or any Participating Subsidiary as eligible to participate, or to continue participating, in the Plan. 4. Eligibility for Benefits. Benefits under this Plan shall be payable ------------------------ in respect of a Participant only if the Participant's termination of employment (for reasons other than death or Disability) occurs on or after the date such Participant has completed ten years of Eligibility Service, either as a Participant or an Inactive Participant, as evidenced in the records of the Committee. In the event of the Participant's termination of employment for reason of death or Disability, such Participant shall be entitled to receive his or her accrued benefit under the Plan in such manner and at such time as provided in Section 7 of the Plan. 5. Amount of Benefits. ------------------ (a) Normal Retirement. If a Participant retires after having become ----------------- eligible for benefits hereunder and on or after such Participant's Normal Retirement Date, the monthly amount of such Participant's benefits under the Plan, commencing on or after Normal Retirement Date, shall be (i) 1-1/2% of Final Average Compensation per year of Benefit Service, reduced by (ii) the amount of such Participant's monthly benefit under the Pension Plan (determined without regard to any qualified domestic relations order to which such Participant's benefit under the Pension Plan is or was subject). (b) Early Retirement. If a Participant retires or terminates ---------------- employment after having become eligible for benefits hereunder, but before his or her Normal Retirement Date, the monthly amount of such Participant's benefits shall be determined in accordance with Section 5(a), except that if the Participant has completed less than 30 years of Benefit Service such amount shall be reduced at the rate of 2/10 of 1% for each of the first 60 months by which the benefit commencement date precedes the Participant's Normal Retirement Date, and for each 4 additional month at such rate as is determined by the Committee in its discretion. Notwithstanding the foregoing sentence, the 5 Committee in its discretion may determine with respect to any particular Participant that any such reduction shall be at a lower rate or that no such reduction shall apply. (c) Inactive Participants. Effective July 1, 1997, notwithstanding --------------------- any other provision of this Section 5 to the contrary, the benefit of a Participant who is an Inactive Participant at the time of retirement or termination of service with the Company or an affiliated entity shall be determined as follows: (i) if the individual became an Inactive Participant after having completed ten years of Eligibility Service, the monthly amount of benefits under the Plan shall be based on the provisions of Subsections 5(a) and (b) as of the date immediately preceding the date the Participant became an Inactive Participant, based on Benefit Service, Final Average Compensation and the Participant's accrued benefit under the Pension Plan as of such date; and (ii) if the individual became an Inactive Participant before having completed ten years of Eligibility Service, the monthly amount of benefits under the Plan commencing on or after Normal Retirement Age shall be 0.5% of Final Average Compensation per year of Eligibility Service completed prior to his designation as an Inactive Participant, with no offset for the pension received under the Pension Plan; provided, however, that the Inactive Participant completes ten years of Eligibility Service prior to his retirement or termination of service. 6. Disability. If a Participant's employment is terminated because of ---------- Disability after having become eligible for benefits hereunder, but before Normal Retirement Date, such Participant shall be eligible to receive a benefit under the Plan beginning on his Normal Retirement Date. The amount of benefit under this Plan to such a Participant shall be determined in accordance with Section 5, but shall be reduced for any year by any benefits payable to the Participant for that year under any long-term disability program maintained or contributed to by the Company or a Participating Subsidiary. In computing the Benefit Service of such a Participant, his Service shall include the period of Disability determined in the same manner as for purposes of the Pension Plan. 7. Payment of Benefits. Payment of a Participant's benefits under this ------------------- Plan shall begin as of the same date as such Participant's pension commencement date under the Pension Plan, unless an earlier commencement date is specifically approved by the Committee, in which case the Committee shall provide for such adjustment in the amount of benefits as it determines in its discretion to be appropriate. Payment of such benefits shall be in the form of a straight life annuity and shall continue thereafter monthly for the Participant's life. However, if payment of a Participant's pension under the Pension Plan is to be made in the form of a qualified joint and survivor annuity or in any other optional form, the benefits under this Plan shall be paid in that same form, in an amount actuarially equivalent to the straight life annuity otherwise payable hereunder, and with the same contingent annuitant or contingent beneficiary as under the Pension Plan. 8. Surviving Spouse Benefit. ------------------------ (a) If a Participant dies (i) after having become eligible for benefits hereunder 6 and (ii) either (A) before termination of employment or (B) after termination of employment and before the commencement of benefits under the Plan, provided in case (B), the Participant and his or her spouse had not effectively waived the qualified joint and survivor annuity under the Pension Plan, the Participant's surviving spouse shall be eligible to receive a monthly benefit for life. (b) Such surviving spouse benefit shall be in the monthly amount that would have been payable under this Plan to the Participant's surviving spouse under the qualified joint and survivor annuity described in Section 7 if: (i) in the case of a Participant who dies after attaining the "earliest benefit commencement date" (as defined below), the Participant had retired on the day before his or her death and elected to commence receiving benefits under this Plan as of such date, or (ii) in the case of a Participant who dies on or before the earliest benefit commencement date, the Participant had lived and begun to receive benefits under this Plan on the earlier benefit commencement date and had died on the day after that date, calculated in either case on the basis of the Participant's Final Average Compensation and Benefit Service as of the date of death or termination of employment, whichever is earlier, or the date the Participant became an Inactive Participant, if applicable. For purposes of this Section 8(b), a Participant's "earliest benefit commencement date" is the first day of the month coinciding with or next following the later of (A) such Participant's 55th birthday or (B) completion of ten years of participation hereunder. (c) Payment of the surviving spouse benefit hereunder shall begin as of the same date as the spouse's benefit payable to the surviving spouse under the Pension Plan, unless an earlier commencement date is specifically approved by the Committee, in which case the Committee shall provide for such adjustment in the amount of benefit as it determines in its discretion to be appropriate. Payment of such surviving spouse benefit shall continue thereafter monthly for the spouse's life. However, if the payment of the surviving spouse's benefit under the Pension Plan is to be made in some other form, the benefits under this Plan shall be paid in that same form, in an amount actuarially equivalent to the annuity otherwise payable hereunder, as under the Pension Plan. 9. Conditions on Benefits. If a Participant engages in competition with ---------------------- the Company or any affiliated entity (without prior authorization in writing) or is discharged for cause, or performs acts of willful malfeasance or gross negligence in a matter of material importance to the Company or any affiliated entity, benefits payable thereafter to the Participant or such Participant's surviving spouse shall be forfeited at the discretion of the Company's Board of Directors and the Company shall have no further obligation to the Participant or spouse under the Plan. 10. Re-employment. If a retired Participant is re-employed by the Company ------------- or a Participating Subsidiary, no benefits shall be payable during the period of re-employment, and 7 the benefits payable following subsequent retirement shall be calculated so as to take into account such Participant's additional period of service and Final Average Compensation, with appropriate actuarial adjustment for any benefits paid under the Plan following such Participant's earlier retirement; provided, however, that the amount of such benefit as recalculated, before taking into account any such actuarial adjustment, shall not be less than such Participant's benefit immediately following such Participant's earlier retirement. 11. Administration and Interpretation. The Committee shall be the Plan --------------------------------- administrator. The Committee shall have the authority to control and manage the operation and administration of the Plan, to adopt rules and regulations regarding the administration of the Plan, to interpret the Plan, to determine the conditions subject to which any benefits may be payable, and to make any other determinations which the Committee believes are necessary or advisable for the administration of the Plan. The Committee shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Committee with respect to the Plan. Determinations by the Committee shall be final and binding on all parties with respect to all matters relating to the Plan. The Committee may delegate all or any part of its authority to any officer of the Company. 12. Claims Procedure. ---------------- (a) If a Participant or other person believes that such person is entitled to benefits under the Plan, such person may file a claim for benefits in writing with the Committee. If a claim for benefits is wholly or partially denied, the Committee shall give the claimant written notice of the denial within a reasonable period of time after receipt of the claim by the Committee. Such notice shall set forth: (i) the specific reason or reasons for the denial, (ii) specific reference to pertinent provisions of the Plan on which the denial is based, (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and (iv) an explanation of the claim review procedure. (b) A claimant whose claim is denied, or such claimant's duly authorized representative, may submit a written request for review to the Committee within 60 days after receiving notice of the denial. In connection with such request, the claimant or his authorized representatives may review pertinent documents and may submit issues and comments in writing. If such a request is made, the Committee shall make a full and fair review of the denial of the 8 claim and shall make a decision not later than 60 days after receipt of the request, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request. The decision on review shall be in writing and shall include specific reasons for the decision and specific references to the pertinent provisions of the Plan on which the decision is based. 13. Amendment and Termination. The Plan may be amended or terminated at ------------------------- any time by action of the Company's Board of Directors or the Compensation and Stock Option Committee thereof. However, no such action shall, without the consent of the Participant, reduce or impair the benefits then currently payable to a Participant or surviving spouse, nor divest a Participant of any benefits such Participant would have been entitled to receive had such Participant resigned from the Company's employ immediately before the effective date of the amendment or termination. 14. Miscellaneous. ------------- (a) Spendthrift provision. No interest of any person or entity in, or --------------------- right to receive a benefit under the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a benefit be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. (b) No Guarantee of Employment. Nothing in the Plan shall be -------------------------- construed as a contract of employment or be deemed to confer upon any Participant the right to be retained in the service of the Company or any affiliated entity, nor shall it interfere with the right of the Company or any affiliated entity to discharge or otherwise deal with any Participant without regard to the existence of this Plan. (c) No Funding. The Plan shall at all times be entirely unfunded and ---------- no provision shall at any time be made with regard to segregating any assets of the Company for payment of any benefits hereunder. All benefits under the Plan are payable, as and when they come due, solely from the general assets of the Company. No Participant, surviving spouse or other person shall have any interest in any particular assets of the Company by reason of the right to receive a benefit under the Plan and any such Participant, surviving spouse or other person shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. Nothing contained in the Plan shall constitute a guaranty by the Company or any other entity or person that the assets of the Company will be sufficient to pay any benefit hereunder. (d) Facility of Payment. When, in the Committee's opinion, a ------------------- Participant or surviving spouse is under a legal disability or is incapacitated in any way so as to be unable to 9 manage his or her affairs, the benefits hereunder may be paid to the Participant or spouse, or to a duly appointed guardian or conservator, custodian, adult relative, or directly for the benefit, of the Participant or surviving spouse, as the Committee shall in its discretion determine. Any such payments shall constitute a complete discharge therefor with respect to the Plan, the Committee and the Company. (e) Withholding for Taxes. Notwithstanding any other provisions of --------------------- this Plan, all payments hereunder shall be subject to any applicable withholding for all federal, state and local taxes. (f) Corporate successors. The Plan shall not be automatically -------------------- terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate. (g) Unclaimed benefit. Each Participant shall keep the Company ----------------- informed of his current address and the current address of his spouse. The Committee shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Company within three years after the date on which payment of the Participant's benefit may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Committee is unable to locate any surviving spouse of the Participant, then the Company shall have no further obligation to pay any benefit hereunder to such Participant or surviving spouse or any other person and such benefit shall be irrevocably forfeited. (h) Limitations on liability. Notwithstanding any of the preceding ------------------------ provisions of the Plan, neither the Company nor any individual acting as an employee or agent of the Company shall be liable to any Participant, former Participant, surviving spouse or any other person for any claim, loss, liability or expense incurred in connection with the Plan. (i) Governing Law. The Plan shall be construed and administered ------------- according to the laws of the State of Illinois to the extent that such laws are not preempted by the laws of the United States of America. (j) Gender and Number. In the Plan, wherever the context admits, ----------------- words in the singular include the plural and words in the plural include the singular, and masculine terms shall be deemed to include the feminine. (k) Headings. The headings of sections are included solely for -------- convenience of reference, and if there is any conflict between such headings and the text of the Plan, the text shall control. 10 * * * The foregoing is the true and complete text of the Waste Management, Inc. Supplemental Executive Retirement Plan as amended and restated by the Compensation and Stock Option Committee of the Board of Directors of Waste Management, Inc. as of November 11, 1997. /s/ Herbert A. Getz _____________________________ Herbert A. Getz Senior Vice President and Secretary 11 EX-10.8 4 EMPLOYMENT SECURITY AGREEMENT EXHIBIT 10.8 WASTE MANAGEMENT, INC. EMPLOYMENT SECURITY AGREEMENT THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 28th day of July, 1997, between WASTE MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the "Company"), and Mark T. Spears (hereinafter referred to as the "Executive"): W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has previously served and is serving as Vice President and Assistant Controller of the Company; and WHEREAS, the Executive has developed extensive experience with respect to the management and operations of the Company and its subsidiaries which it considers extremely valuable to the continued prosperity of the Company; and WHEREAS, the Company wishes to ensure that it will continue to have the Executive available to perform for the Company and its subsidiaries duties as Vice President and Assistant Controller; and WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms, conditions and obligations of the parties with respect to such employment and this Agreement is intended by the parties to supersede all previous agreements and understandings, whether written or oral, concerning such employment. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. The Company's applicable subsidiary (hereinafter the "Employer") shall continue to employ the Executive upon the terms and conditions hereinafter set forth. The Executive shall perform such duties and responsibilities for the Employer which are commensurate with his position as may be assigned him by the Company's Vice President and Controller. The Executive shall report to the Vice President and Controller of the Company. Incident to the performance of such duties, the Executive shall be provided by the Employer with office space, facilities and secretarial assistance commensurate with that currently being provided to the Executive. 2. TERM. Subject only to the provisions hereof set forth in Section 7, the term of this Agreement (herein the "Term") shall be for a period beginning on the date hereof and ending on April 30, 2000 or, if earlier, on the Executive's 62nd birthday on which birthday this Agreement shall terminate unless earlier terminated in accordance with the terms hereof. 3. COMPENSATION. During the Term, the Executive's salary shall be payable at intervals not less often than semi-monthly. The Executive's salary shall be established be either the Executive Committee of the Company, or in the event the Executive is among the Company officers whose compensation is subject to review by the Compensation and Stock Option Committee of the Board of Directors of the Company, by such Committee (the applicable committee being referred to herein as the "Committee") and all adjustments thereto and all aspects of the Executive's incentive or performance compensation shall be established by the Committee in its sole discretion. In the event there is no Committee in existence at any time, the term Committee shall be deemed to mean the Chief Executive Officer of the Company. During the Term, the Executive shall also receive such benefits and perquisites (the "Benefits") which are made available to similarly positioned executives of the Employer including, without limitation, incentive compensation, loans, awards, insurance, stock options, stock purchase plans, benefits from qualified plans or non-qualified plans or other benefit plans now or hereafter existing which are adopted by the Employer for the benefit of its employees generally and for the benefit of the Employer's officers, all such Benefits to be provided in such amounts as may be determined from time to time by the Committee in its discretion. 4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full time, attention, and energy to the business of the Employer and the Executive shall not be engaged in any other business activity pursued for gain, profit, or other pecuniary advantage which activity interferes with the Executive's duties and responsibilities provided for herein. 5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that: ------------------------------------ (a) During the Term and for a period of one year thereafter or during any Severance Period, if longer (the "Restricted Period"), Executive agrees that he will not (without the written consent of the Chairman of the Board) engage directly or indirectly in any business within the United States (financially as an investor or lender or as an employee, director, officer, partner, independent contractor, consultant or owner or in any other capacity calling for the rendition of personal services or acts of management, operation or control) which is directly competitive with the business at any time during the Restricted Period conducted by the Company or any of its subsidiaries or Affiliates as defined below. Notwithstanding the foregoing, Executive shall be entitled to own securities of any corporation conducting a business competitive with the business of the Company or any of its subsidiaries or Affiliates so long as the securities of such corporation are listed on a national securities exchange and the securities owned directly or indirectly by Executive do not represent more than two percent (2%) of any class of the outstanding securities of such company. (b) During the Restricted Period, in addition to the obligations pursuant to Subsection 5(a), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) directly or indirectly induce any customers of the Company or of corporations or businesses which directly or indirectly control or are controlled by or under common control with the Company ("Affiliates") to patronize any business similar to that of the Company, (ii) canvass, solicit or accept any similar business from any customer of the Company or any Affiliates, (iii) 2 directly or indirectly request or advise any customer of the Company or Affiliates to withdraw, curtail or cancel such customer's business with the Company or Affiliates, (iv) directly or indirectly disclose to any other person, firm or corporation the names or addresses of any of the customers of the Company or Affiliates, or (v) compete with the Company or Affiliates in acquiring or merging with any other business or acquiring the assets of such other business. (c) During the Restricted Period, in addition to the obligations pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any business in which [he/she] engages directly or indirectly will (i) hire or attempt to hire any employee of the Company or its Affiliates nor (ii) directly or indirectly encourage any employee of the Company or its Affiliates to terminate employment with the Company or its Affiliates. Notwithstanding the foregoing, it shall not be deemed a violation of this subsection if a business which employs Executive hires or attempts to hire an employee of the Company or its Affiliates and Executive has no knowledge of, control over or involvement with such solicitation. (d) In the event that any of the provisions of this Section 5 should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable laws, then such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by law. 6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment he is or will be making use of, acquiring or adding to the Employer's and Company's confidential information which includes, but is not limited to, memoranda and other materials or records of a proprietary nature and records and policy matters relating to finance, personnel, management and operations. Therefore, in order to protect the Employer's and Company's confidential information and to protect other employees who depend on the Employer and Company for regular employment, the Executive agrees that he will not in any way utilize any of said confidential information except in connection with his employment by the Employer, and except in connection with the business of the Employer and Company he will not copy, reproduce or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. 7. TERMINATION. ----------- (a) Death or Disability. If the Executive should become physically or mentally disabled and unable to perform his duties hereunder for a continuous period in excess of ninety (90) days (in the reasonable opinion of the Committee), or if the Executive should die while an employee of the Employer, this Agreement and Executive's employment with the Employer shall immediately terminate. (b) Termination by the Employer for Cause. The following events shall create in the Employer a right to terminate the Executive's employment under this Agreement prior to the expiration of the Term: (i) the commission of fraud, embezzlement or theft by the Executive in connection with the Executive's duties; (ii) the intentional wrongful damage to property of the 3 Company, the Employer and/or their Affiliates by the Executive; (iii) the intentional wrongful disclosure by the Executive of any secret process or confidential information of the Company, the Employer and/or their Affiliates; or (iv) the violation of the Executive's non-disclosure, non-solicitation and non-competition covenants set forth in Sections 5 and 6. In the event of such a Termination for cause pursuant to this Subsection, all of the obligations of the Employer and the Company under this Agreement shall immediately terminate. (c) Other Termination by Employer. In the event the Employer shall elect to terminate Executive's employment for any reason other than those specified in Subsection 7(a) or 7(b), it shall provide written notice of such termination to Executive. In the event that there occurs without the written consent of the Executive: (i) a change in the Executive's duties or responsibilities, or a change in the Executive's reporting relationships, either of which results in or reflects a diminution of the scope or importance of the Executive's duties and responsibilities; (ii) a reduction in the Executive's then current annual base salary (other than as part of reductions in annual base salary affecting the Employer's officers generally); (iii) a reduction in the level of benefits available or awarded under employee and officer benefit plans and programs, including, but not limited to annual and long-term incentive and stock-based plans and programs (other than as part of reductions in such benefit plans or programs affecting the Employer's officers generally); or (iv) a relocation of Executive's primary employment location to a location which is more than 50 miles from his current location then Executive may deliver written notice of termination to the Company within three months of such event (which shall be effective even if such three months expire after the end of the Term). In either case and subject to the execution and delivery by Executive to the Company of the release described in Section 9 hereof, the Company shall provide Executive with severance compensation and benefits as follows: (u) Executive shall receive an amount equal to one month's current base salary for each full year of service with the Company, the Employer or their Affiliates, but in no event less than one year's nor more than two years' continued base salary, payable at intervals not less frequently than monthly over a period of months equal to the number of months of severance pay provided for by this subsection (u), (such period of payment to be referred to as the "Severance Period"); 4 (v) with respect to any participation rights in the Company's annual or long-term incentive plans which have been awarded to Executive prior to the end of the Term, Executive shall be entitled to receive a prorated award under any such plan, payable if and when awards are paid to other similarly positioned officers of the Employer, such proration to be determined by dividing the number of whole or partial months the Executive is employed during the incentive compensation performance period by the total number of months in the incentive compensation performance period; (w) with respect to the Executive's stock options, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of the Executive's outstanding stock options be accelerated, such options shall remain exercisable during the Severance Period (unless they shall expire earlier by their terms) and such options shall otherwise be treated in accordance with the terms of their respective grants; (x) the Executive's medical, dental and vision Benefits shall be continued on the same basis as offered to active salaried employees for the Severance Period or until such earlier time as the Executive becomes employed and eligible for such benefits under a plan of the new employer; and continuation coverage under COBRA shall commence at the end of the Severance Period; (y) credit for vesting and benefit service under the Company's Supplemental Executive Retirement Plan shall be provided to Executive for the Severance Period; and (z) all other Benefits shall be paid or continued only to the extent the terms thereof provide for payment or continuation following the termination of employment. The foregoing shall be in lieu of all salary, bonuses or incentive or performance based compensation for the remainder of the Term. If Executive should die during the Severance Period, any remaining severance payments shall be made to Executive's surviving spouse or, if none, to his estate. (d) Voluntary Termination. If during the Term the Executive should voluntarily terminate his employment with the Employer for any reason, including retirement, other than as described in Subsection 7(c) hereof, the obligations of the Employer and the Company under this Agreement shall terminate forthwith, other than obligations to (i) pay the Executive's base salary to the date of termination, (ii) pay all incentive compensation earned by the Executive for performance periods which are completed prior to the date of termination, at such times and on the same basis amounts as such incentive compensation becomes payable to other executives of the Employer and (iii) pay or make available to the Executive all Benefits which by their terms or under applicable law survive the voluntary termination of the Executive's employment; and the Executive shall remain bound by his non-disclosure, non-solicitation and non-competition covenants set forth in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding stock options shall be treated in accordance with the terms of their 5 respective grants or awards, except that in the case of retirement on or after age 62, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated. 8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in Subsection 7(c) to the contrary, the Executive may make an irrevocable written election, within 30 days of receipt or delivery of the written termination notice provided for in Subsection 7(c), that would extend the time period during which the base salary is to be paid under Subsection 7(c) for one additional year. The total amount of base salary that is to be paid under Subsection 7(c) will not be affected by this election. If such election is made, the term "Severance Period" will be deemed to refer to such extended payment period. 9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in Subsection 7(c) to the contrary and in consideration therefor, severance benefits thereunder shall only become payable by the Company if the Executive executes and delivers to the Company a General Release and Cooperation Agreement on or after the date of written notice of termination of Executive's employment and in substantially the form attached as Exhibit A hereto. 10. NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when deposited in the U.S. mail in a registered, postage prepaid envelope addressed: If to the Executive, at his address set forth below, and if to the Company, c/o Chairman of the Board, WASTE MANAGEMENT, INC., 3003 Butterfield Road, Oak Brook, Illinois 60521, with a copy to the General Counsel, WASTE MANAGEMENT, INC., at the same address. 11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The rights of the Executive and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon their respective heirs, personal representatives, successors and assigns. 12. MISCELLANEOUS. ------------- (a) This Agreement shall be subject to and governed by the laws of the State of Illinois. (b) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (c) This Agreement may not be modified except by an agreement in writing executed by the parties hereto. (d) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. 6 (e) This Agreement shall supersede any and all prior employment agreements or understandings, written or oral, with Executive. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WASTE MANAGEMENT, INC. /s/ John D. Sanford By______________________________ John D. Sanford Senior Vice President /s/ Mark T. Spears ________________________________ Mark T. Spears Address: 66 Sterling Circle Apt. 101 Wheaton, IL 60187 7 EX-10.11 5 AMEND. #2 TO NON-QUAL. PROFIT SHAR. & SAV. PLAN EXHIBIT 10.11 AMENDMENT NO. 2 TO THE WASTE MANAGEMENT NON-QUALIFIED RETIREMENT SAVINGS PLUS PLAN WHEREAS, Waste Management, Inc., a Delaware corporation (the "Corporation"), has maintained the Non-Qualified Retirement Savings Plus Plan, previously known as the Non-Qualified Profit Sharing and Savings Plus Plan, (the "Plus Plan") since January 1, 1994, and subsequently amended and restated the Plus Plan as of January 1,1996 and amended the Plus Plan January 1, 1997; and WHEREAS, pursuant to Subsection 5.3 of Section V of the Plus Plan, the Corporation reserves the right to amend the Plus Plan at any time; and WHEREAS, the Corporation now desires to amend the Plus Plan to broaden the scope of those eligible to participate, to allow for a supplemental allocation to the extent qualified matching contributions are limited, to limit the level of voluntary deferrals and to make other desirable changes; NOW, THEREFORE, the Plus Plan is hereby amended as follows: I. Effective January 1, 1998, the name of the Plus Plan be changed to the Waste Management Non-Qualified Retirement Savings Plus Plan. II. Effective January 1, 1998, Section 1.1 is amended to read as follows: Account. The record of a Participant's interest under the Plan. Accounts are kept solely for record keeping purposes and shall not require segregation of any Company assets. Accounts are subdivided into the (i) Profit Sharing Plus Account; (ii) Voluntary Deferral Account; (iii) Matching Supplement Account; and the (iv) Matching Plus Account. III. Effective January 1, 1998, a new Section 1.8.A is added to read as follows: Matching Account. The record under the Savings Plan of the basic matching contributions allocated to a Participant thereunder, plus any earnings and minus any losses. IV. Effective January 1, 1998, all references to "Profit Sharing Plan" shall be deemed to mean "Savings Plan", unless the context otherwise requires, and Section 1.13 is amended to read as follows: Savings Plan. The Waste Management Retirement Savings Plan. V. Effective July 1, 1997, Section 3.1 is amended to read as follows: 3.1 Participation. For any given Plan Year, any employee of the Company or any of its majority-owned subsidiaries will be eligible to participate in the Plan if he or she (i) is (a) an active Participant in the Profit Sharing Plan (or, after December 31, 1997, the Savings Plan), or (b) if in the six-month waiting period of the Savings Plan, classified as job level C or above under the Company's compensation brackets, and (ii) is classified as job level G or above under the Company's compensation brackets. VI. Effective July 1, 1997, Section 4.3 is amended to read as follows: 4.3 Voluntary Deferral Elections. Prior to the beginning of each Plan Year, a Participant may elect, on a form provided by the Committee, to have his Compensation reduced in increments of 1% up to a maximum of (i) in the case of base salary, (A) 100% for Participants who are classified as job level C or above under the Company's compensation brackets, or (B) 20% for all other Participants, and (ii) in the case of annual bonus, 100% of the amount payable, or such other percentage as specified from time to time by the Committee in accordance with such rules and other limitations as the Committee may from time to time specify. VII. Effective January 1, 1998, a new Section 4.3A shall be added to read as follows: 4.3A Allocation to Matching Supplement Account. If during a Plan Year, (i) a Participant has made the maximum 401(k) election allowable under the 2 Savings Plan and has not received the full basic match in the Savings Plan otherwise available but for the restrictions of Code Sections 401(a)(17), 401(k), 401(m) and 415, and (ii) the Participant makes Savings Supplement deferrals, such Participant's Matching Supplement Account shall be credited as of the end of each calendar year with an amount equal to: (a) $1 for each $1 of the first $750 of Savings Supplement elected in the calendar year plus $.50 for each $1 of Savings Supplement elected in the calendar year above $750 up to 6% of Compensation up to $500,000, minus (b) the basic matching contribution that was actually allocated to the Participant's Matching Account for the calendar year. VIII. Effective January 1, 1997, Section 4.6(b) is amended to read as follows: (b) With respect to the payment of benefits hereunder, (A) the payment of any (i) amounts of any deferred bonus deemed to be invested in Company stock and the deemed earnings thereon and (ii) Matching Plus Account balances, shall be made in Company common stock, and (B) the payment of any amounts not described in (A) shall be made in cash. In the case of payment in Company common stock, the stock shall be valued at its fair market value as of the applicable date (i.e., Termination of Employment or the one year anniversary of Termination of Employment) which shall, unless the Committee otherwise determines, be the average of the closing sale prices per share of the Company's common stock on the New York Stock Exchange Composite Tape (as reported in The Wall Street Journal, Midwest Edition) (or if the Company's common stock is not then trade don the New York Stock Exchange, reported on the principal market where such common stock is actively traded) on each of the ten trading days immediately preceding the applicable date. IX. Except as set forth herein, the provisions of the Plus Plan shall remain in effect. IN WITNESS WHEREOF, this Amendment No. 2 has been executed on this 30th day of December 1997, by a duly authorized officer of the Corporation. /s/ Herbert A. Getz ---------------------------------------- Herbert A. Getz Senior Vice President and Secretary 3 EX-10.42 6 EMPLOYMENT SECURITY AGREEMENT EXHIBIT 10.42 WMX TECHNOLOGIES, INC. EMPLOYMENT SECURITY AGREEMENT THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation (hereinafter referred to as the "Company"), and Jerry W. Caudle (hereinafter referred to as the "Executive"): W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has previously served and is serving as Area President (Southwest) of the Company, employed by Waste Management of Texas, Inc.; and WHEREAS, the Executive has developed extensive experience with respect to the management and operations of the Company and its subsidiaries which it considers extremely valuable to the continued prosperity of the Company; and WHEREAS, the Company wishes to ensure that it will continue to have the Executive available to perform for the Company and its subsidiaries duties as Area President (Southwest); and WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms, conditions and obligations of the parties with respect to such employment and this Agreement is intended by the parties to supersede all previous agreements and understandings, whether written or oral, concerning such employment. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the "Employer") shall continue to employ the Executive as an employee at will upon the terms and conditions hereinafter set forth. The Executive shall perform such duties and responsibilities for the Employer which are commensurate with his position as may be assigned him by the Company's Executive Vice President and Chief Operating Officer and shall serve as a member of the Management Committee of the Company. The Executive shall report to the Executive Vice President and Chief Operating Officer of the Company. Incident to the performance of such duties, the Executive shall be provided by the Employer with office space, facilities and secretarial assistance commensurate with that currently being provided to the Executive. 2. TERM. Subject only to the provisions hereof set forth in Section 7, the term of this Agreement (herein the "Term") shall be for a period beginning on the date hereof and ending on March 10, 1999. Subject to the provisions of Section 7 hereof, and unless a party gives 30 days' prior written notice to the other, on March 10, 1998 and on each successive March 10, the Term of this Agreement shall be renewed for a period ending on the earlier of (i) the date two (2) years from such March 10, or (ii) the date of the Executive's 62nd birthday on which birthday this Agreement shall terminate unless earlier terminated in accordance with the terms hereof. 3. COMPENSATION. During the Term, the Executive's salary shall be payable at intervals not less often than semi-monthly. The Executive's salary shall be established by either the Compensation and Stock Option Committee of the Board of Directors of the Company (subject to approval by the full Board) or, in the event Executive is not among the Company officers whose compensation is subject to review by the Compensation and Stock Option Committee of the Board, by the Executive Committee of the Company (the applicable committee being referred to herein as the "Committee") and all adjustments thereto and all aspects of the Executive's incentive or performance compensation shall be established by the Committee in its sole discretion. In the event there is no Committee in existence at any time, the term Committee shall be deemed to refer to the Chief Executive Officer of the Company. During the Term, the Executive shall also receive such benefits and perquisites (the "Benefits") which are made available to similarly positioned executives of the Employer including, without limitation, incentive compensation, loans, awards, insurance, stock options, stock purchase plans, benefits from qualified plans or non-qualified plans or other benefit plans now or hereafter existing which are adopted by the Employer for the benefit of its employees generally and for the benefit of the Employer's officers, all such Benefits to be provided in such amounts as may be determined from time to time by the Committee in its discretion. 4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full time, attention and energy to the business of the Employer and the Executive shall not be engaged in any other business activity pursued for gain, profit or other pecuniary advantage which activity interferes with the Executive's duties and responsibilities provided for herein. 5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that: (a) During the Term and for a period of one year thereafter or during any Severance Period, if longer (the "Restricted Period"), Executive agrees that he will not (without the written consent of the Chairman of the Board) engage directly or indirectly in any business within the United States (financially as an investor or lender or as an employee, director, officer, partner, independent contractor, consultant or owner or in any other capacity calling for the rendition of personal services or acts of management, operation or control) which is directly competitive with the business at any time during the Restricted Period conducted by the Company or any of its subsidiaries or Affiliates as defined below. Notwithstanding the foregoing, Executive shall be entitled to own securities of any corporation conducting a business competitive with the business of the Company or any of its subsidiaries or Affiliates so long as the securities of such corporation are listed on a national securities exchange and the securities owned directly or indirectly by Executive do not represent more than two percent (2%) of any class of the outstanding securities of such company. (b) During the Restricted Period, in addition to the obligations pursuant to Subsection 5(a), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) directly or indirectly induce any customers of the Company or of corporations or 2 businesses which directly or indirectly control or are controlled by or under common control with the Company ("Affiliates") to patronize any business similar to that of the Company, (ii) canvass, solicit or accept any similar business from any customer of the Company or any Affiliates, (iii) directly or indirectly request or advise any customer of the Company or Affiliates to withdraw, curtail or cancel such customer's business with the Company or Affiliates, (iv) directly or indirectly disclose to any other person, firm or corporation the names or addresses of any of the customers of the Company or Affiliates, or (v) compete with the Company or Affiliates in acquiring or merging with any other business or acquiring the assets of such other business. (c) During the Restricted Period, in addition to the obligations pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) hire or attempt to hire any employee of the Company or its Affiliates nor (ii) directly or indirectly encourage any employee of the Company or its Affiliates to terminate employment with the Company or its Affiliates. Notwithstanding the foregoing, it shall not be deemed a violation of this subsection if a business which employs Executive hires or attempts to hire an employee of the Affiliates and Executive has no knowledge of, control over or involvement with such solicitation. (d) In the event that any of the provisions of this Section 5 should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable laws, then such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by law. 6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment he is or will be making use of, acquiring or adding to the Employer's and Company's confidential information which includes, but is not limited to, memoranda and other materials or records of a proprietary nature and records and policy matters relating to finance, personnel, management and operations. Therefore, in order to protect the Employer's and Company's confidential information and to protect other employees who depend on the Employer and Company for regular employment, the Executive agrees that he will not in any way utilize any of said confidential information except in connection with his employment by the Employer, and except in connection with the business of the Employer and Company he will not copy, reproduce or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. 7. TERMINATION. (a) Death or Disability. If the Executive should become physically or mentally disabled and unable to perform his duties hereunder for a continuous period in excess of ninety (90) days (in the reasonable opinion of the Committee), or if the Executive should die while an employee of the Employer, this Agreement and Executive's employment with the Employer shall immediately terminate. 3 (b) Termination by the Employer for Cause. The following events shall create in the Employer a right to terminate the Executive's employment under this Agreement prior to the expiration of the Term: (i) the commission of fraud, embezzlement or theft by the Executive in connection with the Executive's duties; (ii) the intentional wrongful damage to property of the Company, the Employer and/or their Affiliates by the Executive; (iii) the intentional wrongful disclosure by the Executive of any secret process or confidential information of the Company, the Employer and/or their Affiliates; or (iv) the violation of the Executive's non-disclosure, non-solicitation and non- competition covenants set forth in Sections 5 and 6. In the event of such a Termination for cause pursuant to this Subsection, all of the obligations of the Employer and the Company under this Agreement shall immediately terminate. (c) Other Termination by Employer. In the event the Employer shall elect to terminate Executive's employment for any reason other than those specified in Subsection 7(a) or 7(b), it shall provide written notice of such termination to Executive. In the event that there occurs without the written consent of the Executive: (i) a change in the Executive's duties or responsibilities, or a change in the Executive's reporting relationships, either of which results in or reflects a diminution of the scope or importance of the Executive's duties and responsibilities; (ii) a reduction in the Executive's then current annual base salary (other than as part of reductions in annual base salary affecting the Employer's officers generally); (iii) a reduction in the level of benefits available or awarded under employee and officer benefit plans and programs, including, but not limited to annual and long-term incentive and stock-based plans and programs (other than as part of reductions in such benefit plans or programs affecting the Employer's officers generally); (iv) a relocation of Executive's primary employment location to a location which is more than 50 miles from his current location; or (v) the Company terminates the automatic renewal provision of this Agreement by providing Executive with 30 days' prior written notice as provided in Section 2 hereof then Executive may deliver written notice of termination of his employment to the Company within three months of such event (which notice shall be effective even if such three months expire after the end of the Term). In either case and subject to the execution and delivery by Executive to the Company of the release described in Section 9 hereof, the Company shall provide Executive with severance compensation and benefits as follows: 4 (t) Executive shall receive an amount equal to his then current base salary for two years, payable at intervals not less frequently than monthly over a period of two years following the end of the Term (such period of payment to be referred to herein as the "Severance Period"); (u) with respect to any participation rights in the Company's annual or long-term incentive plans which have been awarded to Executive prior to the end of the Term, Executive shall be entitled to receive a prorated award under any such plan, payable if and when awards are paid to other similarly positioned officers of the Employer, such proration to be determined by dividing the number of whole or partial months the Executive is employed during the incentive compensation performance period by the total number of months in the incentive compensation performance period; (v) with respect to Executive's stock options, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated, such options shall remain exercisable during the Severance Period (unless they shall expire earlier by their terms) and such options shall otherwise be treated in accordance with the terms of their respective grants; (w) the Executive's restricted stock shall be treated in accordance with the terms of the Restricted Stock Award Certificate applicable thereto; (x) the Executive's medical, dental and vision Benefits shall be continued on the same basis as offered to active salaried employees for the Severance Period or until such earlier time as the Executive becomes employed and eligible for such benefits under a plan of the new employer, and continuation coverage under COBRA shall commence at the end of the Severance Period; and (y) credit for vesting and benefit service under the Company's Supplemental Executive Retirement Plan shall be provided to Executive for the Severance Period; and (z) all other Benefits shall be paid or continued only to the extent the terms thereof provide for payment or continuation following the termination of employment. The foregoing shall be in lieu of all salary, bonuses or incentive or performance based compensation for the remainder of the Term. If Executive should die during the Severance Period, any remaining severance payments shall be made to Executive's surviving spouse or, if none, to his estate. (d) Voluntary Termination. If during the Term the Executive should voluntarily terminate his employment with the Employer for any reason, including retirement, other than as described in Subsection 7(c) hereof, the obligations of the Employer and the Company under this Agreement shall terminate forthwith, other than obligations to (i) pay the 5 Executive's base salary to the date of voluntary termination, (ii) pay all incentive compensation earned by the Executive for performance periods which are completed prior to the date of voluntary termination, at such times and on the same basis amounts as such incentive compensation becomes payable to other executives of the Employer and (iii) pay or make available to the Executive all Benefits which by their terms or under applicable law survive the voluntary termination of the Executive's employment; and the Executive shall remain bound by his non-disclosure, non-solicitation and non-competition covenants set forth in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding stock options and the vesting of the Executive's restricted stock shall be treated in accordance with the terms of their respective grants or awards, except that in the case of retirement on or after age 62, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated. 8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in Subsection 7(c) to the contrary, the Executive may make an irrevocable written election, within 30 days of receipt or delivery of the written termination notice provided for in Subsection 7(c), that would extend the time period during which the base salary is to be paid under Subsection 7(c) for one additional year. The total amount of base salary that is to be paid under Subsection 7(c) will not be affected by this election. If such election is made, the term "Severance Period" will be deemed to refer to such extended payment period. 9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in Subsection 7(c) to the contrary and in consideration therefor, severance benefits thereunder shall only become payable by the Company if the Executive executes and delivers to the Company a General Release and Cooperation Agreement on or after the date of written notice of termination of Executive's employment and in substantially the form attached as Exhibit A hereto. 10. NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when deposited in the U.S. mail in a registered, postage prepaid envelope addressed: If to the Executive, at his address set forth below, and if to the Company, c/o Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook, Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at the same address. 11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The rights of the Executive and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon their respective heirs, personal representatives, successors and assigns. 12. MISCELLANEOUS. (a) This Agreement shall be subject to and governed by the laws of the State of Illinois. 6 (b) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (c) This Agreement may not be modified except by an agreement in writing executed by the parties hereto. (d) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. (e) This Agreement shall supersede any and all prior employment agreements or understandings, written or oral, with Executive. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WMX TECHNOLOGIES, INC. By /s/ Dean L. Buntrock ------------------------------------- Dean L. Buntrock, Chairman of the Board By /s/ Jerry W. Caudle ------------------------------------- Jerry W. Caudle Address: 1320 Greenway Suite 1000 Irving, TX 75038 7 EX-10.45 7 LETTER AGREEMENT EXHIBIT 10.45 [LETTERHEAD OF WASTE MANAGEMENT] November 4, 1997 Mr. Robert S. Miller 20 Maury Mountain Lane Sun River, Oregon 97707 Dear Steve: This is to confirm the agreement which we have reached regarding your service as Acting Chairman of the Board and Chief Executive Officer of Waste Management, Inc. (the "Company"). 1. The term of your service commenced on October 29, 1997 and will continue until the earliest of (a) approval by the Board of Directors of the Company (the "Board") of the hiring of your successor as Chairman of the Board and Chief Executive Officer of the Company, (b) your death or disability, or (c) termination of your service by written notice given either by you or the Board at least seven (7) days prior to the effective date of such termination. 2. As Acting Chairman of the Board and Chief Executive Officer of the Company, you will have general responsibility for the direction and supervision of the Company, with all powers and duties consistent with such positions, subject to the reasonable direction of the Board. You will report directly to the Board and will devote to your duties such time as you and the Board determine to be necessary for the proper conduct of the business of the Company. 3. As your compensation for serving as Acting Chairman of the Board and Chief Executive Officer, you will receive a salary at the annual rate of $600,000, paid in accordance with the normal payroll practices of the Company, and you are also receiving an option to purchase 75,000 shares of common stock of the Company pursuant to the Company's 1997 Equity Incentive Plan. The exercise price for the shares will be $23.375 per share. That option will become exercisable as to all of the option shares upon the termination of your service pursuant to part (a) or (b) of Paragraph 1, above, or upon earlier termination by the Board giving notice pursuant to part (c) of Paragraph 1 above. Upon becoming exercisable, the option will remain exercisable through the earlier of November 3, 2007 or the 90th day after you cease to serve as a member of the Board. 4. The salary and option described in Paragraph 3, above, will be your exclusive compensation for your service as Acting Chairman of the Board and Chief Executive Officer of the Company. Accordingly, you hereby waive, to the full extent permitted by law, participation in all other compensation and employee benefit plans, programs and practices of the Company, including (but not by way of limitation) annual or long-term incentive compensation plans, retirement plans (including the Supplemental Executive Retirement Plan) and severance pay plans (including the severance program for senior officers). 5. During the term of your service, you will be entitled to be reimbursed, pursuant to the Company's applicable expense reimbursement policies, for travel and other expenses incurred by you in connection with your services rendered pursuant to this letter agreement. 6. To the fullest extent permitted by law, the Company will, during and after the term of your service as Acting Chairman of the Board and Chief Executive Officer, indemnify you (including the advancement of expenses) for any judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, incurred by you in connection with the defense of any lawsuit or other claim to which you are made or threatened to be made a party by reason of being or having been an officer, director or employee of the Company. 7. The Company will provide for the withholding of any taxes required to be withheld by federal, state or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Company to you or for your benefit in connection with your service as Acting Chairman of the Board and Chief Executive Officer. The Company may, at its option, (a) withhold such taxes from any cash payments to which you become entitled, (b) require you to pay to the Company in cash such amounts as may be required to satisfy such withholding obligations and/or (c) make other satisfactory arrangements with you to satisfy such withholding obligations. If the foregoing is consistent with your understanding, please countersign the enclosed copy of this letter and return it to me. Sincerely, WASTE MANAGEMENT, INC. By: /s/ Peer Pedersen ----------------------------------- Peer Pedersen Chairman of the Compensation and Stock Option Committee Accepted and agreed to this 25 day of November 1997 /s/ Robert S. Miller - -------------------------------- Robert S. Miller EX-10.46 8 FORM OF RESTRICTED STOCK AGREEMENT Exhibit 10.46 WMI WASTE MANAGEMENT, INC. RESTRICTED STOCK AGREEMENT -------------------------- This Restricted Stock Agreement (the "Agreement"), made this ___ of ___________, _______, by and between WASTE MANAGEMENT, INC., a Delaware corporation (hereinafter called the "Corporation"), and _____________, a director of the Corporation (hereinafter called the "Director"); WITNESSETH: WHEREAS, the Board of Directors of the Corporation has determined it to be in the best interests of the Corporation to grant restricted stock awards to its directors in order to provide such directors with an additional stake in the results of the Corporation, to more closely align their interests with those of the Corporation's stockholders and to encourage them to continue serving the Corporation; and WHEREAS, the Board of Directors has made such an award to the Director and the Director has agreed to the terms and conditions thereof as set forth in this Agreement; NOW, THEREFORE, for and in consideration of the mutual covenants and agreements of the parties hereto, it is agreed as follows: 1. Grant. Pursuant to this Agreement, the Corporation will from time to time grant to the Director and the Director will accept certain shares (the "Restricted Shares") of common stock, $1.00 par value, of the Corporation (the "Common Stock"), subject to the restrictions, terms and conditions set forth in this Agreement. 2. Restrictions. During the Restricted Period described in Paragraph 4 below, the Director may not, directly or indirectly, by operation of law or otherwise, voluntarily or involuntarily, anticipate, alienate, attach, sell, assign, pledge, encumber, charge or otherwise transfer any of the Restricted Shares (the "Restrictions"). Upon the expiration of the Restricted Period, all Restrictions shall lapse. 3. Award Date. The effective date of a grant of the Restricted Shares to the Director (the "Award Date") shall be set forth in an Award Certificate delivered to the Director at the time of the Grant. 4. Restricted Period. The Restricted Period shall commence on the Award Date and shall expire on the last day of the calendar month during which the Director's service as a director of the Corporation terminates or, if earlier, the first to occur of the following dates: (a) the Director's death; or (b) the Director's total disability, which shall mean a physical or mental condition such that the Director is unable to perform the functions required by his or her membership on the Board of Directors as determined by a physician acceptable to the Corporation. 5. (a) Effect of Termination of Service and Other Events. Subject to the provisions of Section 5(b) hereof, in the event of the termination of the Director's membership on the Board of Directors of the Corporation, and all other corporations, partnerships, joint ventures, affiliates, or other entities in which the Corporation is the direct or indirect beneficial owner of not less than 20% of all issued and outstanding equity interests, prior to the Vesting Date (as defined below), 100% of the Restricted Shares granted in such grant shall be forfeited. In the event of the termination of the Director's membership on the Board of Directors of the Corporation after the Vesting Date of such grant, 100% of the Restricted Shares granted in such grant shall be "Vested Restricted Shares"; provided, however, that Vested Restricted Shares shall continue to be subject to the Restrictions until the expiration of the Restricted Period pursuant to Paragraph 4 above. However, and notwithstanding the foregoing, to the extent provided in Paragraph 5(b) all Restricted Shares shall be considered Vested Restricted Shares. The Vesting Date shall be the first to occur of (i) the six month anniversary of the Award Date, or (ii) the date of the Corporation's annual meeting of stockholders next following the Award Date. (b) Accelerated Vesting. Upon the occurrence of any event described in this Paragraph 5(b), the forfeited percentage shall be zero and 100% of the Restricted Shares shall become Vested Restricted Shares: (i) the date of a Change in Control of the Corporation; or (ii) the date of any event described in Paragraph 4(a) or (b). (c) Change in Control. For purposes of this Agreement, "Change in Control" shall mean: (i) The Corporation is merged or consolidated or reorganized into or with another corporation or other legal person (an "Acquiror") and as a result of such merger, consolidation or reorganization less than 75% of the outstanding voting securities or other capital interests of the surviving, resulting or acquiring corporation or other legal person are owned in the aggregate by the stockholders of the Corporation, directly or indirectly, immediately prior to such merger, consolidation or reorganization, other than by the Acquiror or any corporation or other legal person controlling, controlled by or under common control with the Acquiror; (ii) The Corporation sells all or substantially all of its business and/or assets to an Acquiror, of which less than 75% of the outstanding voting securities or other capital interests are owned in the aggregate by the stockholders of the Corporation, directly or indirectly, immediately prior to such sale, other than by any corporation or other legal person controlling, controlled by or under common control with the Acquiror; 2 (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any person or group (as the terms "person" and "group" are used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act and the rules and regulations promulgated thereunder) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 20% or more of the issued and outstanding shares of voting securities of Corporation; or (iv) During any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Corporation's stockholders, of each new director of the Corporation was approved by a vote of at least two-thirds of such directors of the Corporation then still in office who were directors of the Corporation at the beginning of any such period. 6. Custody of Restricted Shares; Tax Withholding; Voting; Dividends. ----------------------------------------------------------------- (a) Certificates Representing Restricted Shares. The Restricted Shares will be registered in the name of the Director and the certificates, if any, evidencing such shares shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to the Restricted Shares. Shares may be issued without certificates, in the Corporation's discretion, to the extent permitted from time to time by Corporation procedures. All certificates representing Restricted Shares shall be retained by the Corporation, together with a stock power executed by the Director in proper form for transfer into the Corporation's name of all certificates representing Restricted Shares which are forfeited to the Corporation in accordance with Paragraph 5. (b) Delivery to the Director; Tax Withholding. Certificates representing Restricted Shares with respect to which all Restrictions have lapsed shall be delivered by the Corporation to the Director (or in the event of the Director's death, to the Director's designated beneficiary or, if no beneficiary has been designated, to the Director's estate) promptly after the expiration of the Restricted Period. (c) Voting Rights. The Director will have all rights of a stockholder with respect to voting of the Restricted Shares. (d) Dividends and Other Distributions. Directors to whom Restricted Shares have been granted hereunder shall be entitled to all dividends and other distributions paid with respect thereto during the Restricted Period, provided that if such dividend or other distribution is in the form of additional shares of Common Stock, such additional shares shall be deemed to be part of the Restricted Shares (and, as such, shall be held subject to the Restrictions hereunder), subject to a vesting period equal to the remaining vesting period, if any, of the Restricted Shares with respect to which they were distributed. At the Director's irrevocable election, (i) cash dividends paid with respect to the Restricted Shares shall be, or 3 shall be deemed to be, reinvested in additional Common Stock and (ii) other distributions in respect of Restricted Shares shall be held by the Company on behalf of such Director, and shall be deemed to be part of the Restricted Shares to which such dividends and other distributions relate and, as such, shall be held subject to the Restrictions hereunder. The Director may revoke such election only with respect to dividends and other distributions not yet declared. 7. Source of Common Stock. All Restricted Shares granted under this Agreement will be issued from treasury shares held by the Corporation. 8. Entire Understanding. This Agreement constitutes the entire understanding between the parties relating to the matters described herein and supersedes and cancels all prior written and oral understandings and agreements with respect to such matters. 9. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Director's executors, administrators, legal representatives, heirs and legatees and the successors and assigns of the Corporation. 10. Partial Invalidity. The various provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Should any provision of this Agreement be determined to be void and unenforceable, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision or part thereof, and such provision or part thereof shall be deemed modified to the extent required to permit enforcement. Without limiting the generality of the foregoing, if the scope of any provision contained in this Agreement is too broad to permit enforcement to its full extent, but may be made enforceable by limitations thereon, such provision shall be enforced to the maximum extent permitted by law, and the Director hereby agrees that such scope may be judicially modified accordingly. 11. Waiver. The waiver of any party hereto of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach. 12. Governing Law. This Agreement shall be governed by, and interpreted, construed and enforced in accordance with, the laws of the State of Illinois. 4 IN WITNESS WHEREOF, the Corporation has caused this Restricted Stock Agreement to be signed and the Director has executed the same the day and year first above written. WASTE MANAGEMENT, INC. By:_________________________________ Chairman of the Board DIRECTOR ____________________________________ 5 WASTE MANAGEMENT, INC. RESTRICTED STOCK AWARD CERTIFICATE ---------------------------------- ================================================================================ Director:__________________________________ SSN:___________________________ Number of Shares of Restricted Stock:______ Award Date:____________________ Vesting Schedule: 100% vested on the six month anniversary of the Award Date Restricted Period: From Award Date through last day of the month of Director's service on the Board ================================================================================ The Restricted Stock Award represented by this Certificate is made pursuant to the Restricted Stock Agreement with Waste Management, Inc. dated_____, 199_, the terms of which are incorporated herein by reference. Except to the extent expressly provided herein, capitalized terms used in this Certificate shall have the same meaning ascribed thereto in the Agreement, a copy which has been delivered to the Director. The Restricted Stock subject to this Certificate is subject to the restrictions set forth in Article 2 of the Agreement, which include, but are not limited to, prohibitions on the sale, transfer, assignment, pledge or encumbrance of the Restricted Stock during the Restricted Period set forth on this Certificate. The Restricted Stock shall be forfeited if the Director terminates service as a director before the vesting date set forth above. Notwithstanding the foregoing, if the Director's employment is terminated due to death or Disability, or a Change in Control occurs, the Restricted Stock shall be fully vested on the date of termination and all restrictions shall lapse. All dividends and other distributions payable with respect to such Restricted Stock shall be credited to the Director. However, the Director may execute a Dividend and Distribution Election Form which shall provide that cash dividends with respect to the Restricted Stock are to be reinvested in additional Common Stock and other distributions are to be held by the Company, in which case such dividends and distributions shall be subject to the same restrictions and vesting period as the Restricted Stock. The Director's acceptance of the Restricted Stock will be deemed his or her acceptance of the terms under which such Restricted Stock is granted. The certificate representing the Restricted Stock subject to this Certificate has been registered in the name of the Director and deposited with the Company. Each certificate bears an appropriate legend referring to the provisions of the Agreement and this Certificate. The Director shall have executed an Irrevocable Stock Power and delivered it to the Company. The Restricted Stock Award represented by this Certificate shall inure to the benefit of and be binding upon the Director and the Company and their respective heirs, executors, administrators, successors, and assigns. The Director shall execute the attached Beneficiary Designation Form with respect to the Restricted Stock. IN WITNESS WHEREOF, the Company has caused this Restricted Stock Award Certificate to be executed as of the day and year set forth above. WASTE MANAGEMENT, INC. By:________________________________ Its: Chairman of the Board IRREVOCABLE STOCK POWER ----------------------- FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to WASTE MANAGEMENT, INC., _____ shares of the common stock, $1 par value, of WASTE MANAGEMENT, INC. represented by Certificate(s) No. ______, inclusive, standing in the name of the undersigned on the books of said Company and ____________ shares of such common stock purchased pursuant to said Company's Dividend Reinvestment Plan in acct. no. ________________ at the transfer agent for such common stock. The undersigned does hereby irrevocably constitute and appoint ________________ attorney to transfer the said stock on the books of said Company, with full power of substitution in the premises. Dated: ______________________ _________________________________ Signature BENEFICIARY DESIGNATION FORM ---------------------------- Pursuant to the Restricted Stock Agreement dated ____________________, 199_, the undersigned hereby designates Name: ____________________________________ Relationship: ____________________________________ SSN: ____________________________________ Address: ____________________________________ ____________________________________ as my beneficiary with respect to the payment of my Restricted Stock and any associated dividend, distribution or other rights. This designation shall remain in effect until revoked in a subsequent writing delivered to the Company designating a new beneficiary. Dated:_________________________ ____________________________________ Signature EX-10.47 9 RECEIVABLES SALE AGREEMENT Exhibit 10.47 Conformed Copy - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WASTE MANAGEMENT FINANCING CORPORATION WASTE MANAGEMENT, INC. AND THE SELLERS NAMED HEREIN _____________ RECEIVABLES SALE AGREEMENT _____________ Dated as of December 29, 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS 1.1 Defined Terms.......................................................... 1 1.2 Terms Generally........................................................ 1 1.3 Accounting Terms; GAAP................................................. 2 ARTICLE II PURCHASE AND SALE OF RECEIVABLES 2.1 Purchase and Sale of Receivables....................................... 2 2.2 Purchase Price......................................................... 5 2.3 Payment of Purchase Price.............................................. 5 2.4 No Repurchase.......................................................... 6 2.5 Rebates, Adjustments, Returns and Reductions; Modifications............ 6 2.6 Limited Repurchase Obligation.......................................... 7 2.7 Obligations Unaffected................................................. 8 2.8 Certain Charges........................................................ 8 2.9 Certain Allocations.................................................... 8 ARTICLE III CONDITIONS TO PURCHASE AND SALE 3.1 Conditions Precedent to the Company's Initial Purchase of Receivables.. 8 3.2 Conditions Precedent to All the Company's Purchases of Receivables..... 10 3.3 Conditions Precedent to Sellers' Obligations........................... 11 3.4 Conditions Precedent to the Addition of a Seller....................... 11 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of the Sellers Relating to the Sellers.. 12 (a) Organization, Corporate Powers.................................. 12
(b) Authorization.................................................... 13 (c) Enforceability................................................... 13 (d) Governmental Approvals; No Conflicts............................. 13 (e) Capitalization................................................... 13 (f) Litigation; Compliance with Laws................................. 13 (g) Compliance with Laws and Agreements.............................. 14 (h) Taxes............................................................ 14 (i) Accuracy and Completeness of Information......................... 14 (j) Employee Benefit Plans........................................... 14 (k) Solvency......................................................... 14 (k) Absence of Certain Restrictions.................................. 15 (l) Indebtedness to Company.......................................... 15 (m) Designated Accounts.............................................. 15 (n) Filings.......................................................... 15 (o) Offices.......................................................... 15 (p) Receivables Documents............................................ 16 (q) Investment Company Act........................................... 16 (r) Bulk Sales Act................................................... 16 (s) Names............................................................ 16 (t) No Purchase Termination Event.................................... 16 (u) No Fraudulent Transfer........................................... 16 (v) Collection Procedures............................................ 16 4.2 Representations and Warranties of the Sellers Relating to the Agreement and the Receivables......................................... 16 4.3 Representations and Warranties of the Company................................ 17 (a) Organization, Corporate Powers................................... 17 (b) Authorization.................................................... 17 (c) Enforceability................................................... 17 (d) Accounting Treatment............................................. 17 ARTICLE V AFFIRMATIVE COVENANTS................................. 18 5.1 Certificates; Other Information......................................... 18 5.2 Compliance with Laws, etc............................................... 18 5.3 Preservation of Corporate Existence..................................... 18 5.4 Preservation of Separate Existence...................................... 18 5.5 Visitation Rights....................................................... 19 5.6 Keeping of Records and Books of Account................................. 20 5.7 Location of Records..................................................... 20 5.8 Computer Files.......................................................... 20 5.9 Payment of and Compliance with Obligations.............................. 20 5.10 Policies............................................................... 21 5.11 Taxes; ERISA........................................................... 21 5.12 Collections............................................................ 21
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Page ---- 5.13 Furnishing Copies, etc................................................ 22 5.14 Obligations with Respect to Obligors and Receivables.................. 22 5.15 Responsibilities of the Sellers....................................... 23 5.16 Further Action........................................................ 23 5.17 Sale of Receivables................................................... 23 ARTICLE VI NEGATIVE COVENANTS 6.1 Liens.................................................................. 24 6.2 Extension or Amendment of Receivables.................................. 24 6.3 Ineligible Receivables................................................. 24 6.4 Change in Payment Instructions to Obligors............................. 24 6.5 Change in Name......................................................... 24 6.6 Policies............................................................... 24 6.7 Modification of Ledger................................................. 24 6.8 Business of the Sellers................................................ 24 6.9 Accounting of Purchases................................................ 25 6.10 Instruments........................................................... 25 ARTICLE VII PURCHASE TERMINATION EVENTS.............................. 25 ARTICLE VIII THE SUBORDINATED NOTE 8.1 Subordinated Note...................................................... 28 8.2 Restrictions on Transfer of Subordinated Note.......................... 28 ARTICLE IX MISCELLANEOUS 9.1 Further Assurances..................................................... 28 9.2 Payments............................................................... 29 9.3 Costs and Expenses..................................................... 29 9.4 Successors and Assigns................................................. 30 9.5 GOVERNING LAW.......................................................... 30 9.6 No Waiver; Cumulative Remedies......................................... 30 9.7 Amendments and Waivers................................................. 31
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Page ---- 9.8 Severability........................................................... 31 9.9 Notices................................................................ 31 9.10 Counterparts.......................................................... 31 9.11 Construction of Agreement as Security Agreement....................... 32 9.12 WAIVERS OF JURY TRIAL................................................. 32 9.13 Jurisdiction; Consent to Service of Process........................... 32 9.14 Addition of Sellers................................................... 33 9.15 Termination of Sellers................................................ 33 9.16 No Bankruptcy Petition................................................ 33 9.17 Termination........................................................... 33
ANNEX X Definitions SCHEDULES 1 Names; Balance of Receivables; Locations of Chief Executive Offices; Locations of Receivables Records; Jurisdiction of Incorporation; Jurisdictions in which Qualified to do Business; Effective Date; Seller Category 2 Designated Accounts (To be delivered on the Commencement Date and shall become a part hereof for all purposes.) 3 Discounted Percentage EXHIBITS A Form of Subordinated Note BB Form of Additional Seller Supplement C Form of Designation of Effective Date -iv- RECEIVABLES SALE AGREEMENT, dated as of December 29, 1997, among Waste Management, Inc., a Delaware corporation ("WMI"), as master servicer (in such capacity, the "Master Servicer"), the Subsidiaries of WMI from time to time parties hereto, in their capacities as sellers of Receivables (each a "Seller" and collectively, the "Sellers") and Waste Management Financing Corporation, a Delaware corporation (the "Company" or the "Purchaser"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, in the ordinary course of business, each Seller generates Receivables (as defined herein); and WHEREAS, each Seller desires to sell to the Company, and the Company is willing to purchase from such Seller, all of such Seller's right, title and interest in, to and under the Receivables (as defined herein) now existing or hereafter created and the rights of such Seller in, to and under all Receivable Assets (as so defined) related thereto; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Defined Terms. Capitalized terms used in this Agreement shall ------------- have the respective meanings assigned to such terms in Annex X hereto unless otherwise defined herein. 1.2 Terms Generally. The definitions of terms herein shall apply --------------- equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, subsections, Exhibits 2 and Schedules shall be construed to refer to Articles and subsections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. 1.3 Accounting Terms; GAAP. Except as otherwise expressly provided ---------------------- herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time. ARTICLE II PURCHASE AND SALE OF RECEIVABLES 2.1 Purchase and Sale of Receivables. (a) Each of the Sellers -------------------------------- hereby sells, transfers, assigns and conveys, without recourse (except as expressly provided herein), to the Purchaser, all its present and future right, title and interest in, to and under: (i) all Receivables existing at the opening of business on the Effective Date with respect to such Seller and all such Receivables thereafter arising from time to time until but not including the date an Early Termination occurs with respect to such Seller; (ii) the Related Property in respect of such Receivables; (iii) all Collections in respect of such Receivables; (iv) all rights (including rescission, replevin or reclamation, but none of the obligations) relating to such Receivables or arising therefrom; (v) all proceeds of or payments in respect of any and all of the foregoing clauses (i) through (iv). Such property described in the foregoing clauses (i) through (v) shall be referred to herein as the "Receivable Assets." Subject to the terms and conditions set forth herein, the Purchaser hereby agrees to purchase the Receivable Assets of each Seller. The term "Effective Date" when used with respect to any Seller shall mean the date specified as the "Effective Date" for such Seller on Schedule 1 hereto or in the notice delivered by WMI pursuant to the following sentence. WMI may at any time, and from time to time after the Commencement Date, by delivery to the Purchaser (with a copy to the Administrative Agent) of written notice 3 substantially in the form of Exhibit C irrevocably designate with respect to any Seller the date that shall be the "Effective Date" with respect to such Seller. (b) On the Effective Date with respect to a Seller and on the date of creation of each newly created Receivable (but only so long as no Early Termination shall have occurred and be continuing with respect to such Seller), all of such Seller's right, title and interest in and to (i) in the case of the Effective Date, all then existing Receivables and all other Receivable Assets in respect of such Receivables and (ii) in the case of each such date of creation, all such newly created Receivables and all other Receivable Assets in respect of such Receivables shall be considered to be part of the assets that have been sold, transferred, assigned, set over and otherwise conveyed to the Purchaser pursuant to paragraph (a) above without any further action by any Seller or any other Person. Anything herein to the contrary notwithstanding, to the extent any Seller shall not have received payment from the Purchaser of the Purchase Price for any Receivable and other related Receivable Assets in accordance with the terms of subsection 2.3, such Receivable and Receivable Assets shall, upon receipt by the Purchaser and the Administrative Agent of notice from such Seller of such failure to receive payment, immediately and automatically be sold, assigned, transferred and reconveyed by the Purchaser to such Seller without any further action by the Purchaser or any other Person. (c) The parties to this Agreement intend that, for accounting and commercial purposes, the transactions contemplated by this subsection 2.1 hereby shall be, and shall be treated as, a purchase by the Purchaser and a sale by each Seller of the Purchased Receivables and other Receivable Assets and not a lending transaction. All sales of Receivables and other Receivable Assets by each Seller hereunder shall be without recourse to, or representation or warranty of any kind (express or implied) by, such Seller, except as otherwise specifically provided herein. The foregoing sale, assignment, transfer and conveyance does not constitute and is not intended to result in the creation or assumption by the Purchaser of any obligation of any Seller or any other Person in connection with the Receivables, the other Receivable Assets or any agreement or instrument relating thereto, including any obligation to any Obligor. (d) In connection with the foregoing conveyances, each Seller agrees to record and file, or cause to be recorded and filed, at its own expense, financing statements (and continuation statements with respect to such financing statements when applicable) with respect to the Receivables and the Receivable Assets now existing and hereafter acquired pursuant to this Agreement by the Purchaser from each Seller and in each case meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary to perfect and maintain perfection of the Purchaser's purchase of such Receivables and any other Receivable Assets and to deliver to the Administrative Agent no later than 10 days after the Commencement Date (i) where available, a file- stamped copy or certified statement of such financing statement or other evidence of such filing and (ii) otherwise, a photocopy, certified by a Responsible Officer to be a true and correct 4 copy, of each such financing statement or other filing made no later than 10 days after the Commencement Date. (e) In connection with the foregoing sales, transfers, assignments and conveyances, each Seller agrees at its own expense, no later than 30 days after the Effective Date with respect to such Seller that it will, as agent of the Purchaser indicate or cause to be indicated on the computer files (but not on individual invoices or individual collection files) relating to the Receivables of such Seller (by means of a general legend that will automatically appear at or near the beginning of any screen, list or print-out of such Receivables) that, unless otherwise specifically identified on such screen, list or print-out as a receivable not so sold, transferred, assigned and conveyed, all Receivables included in such screen, list or print-out and all other Receivable Assets (and any other similar related property) have been sold, transferred, assigned and conveyed to the Purchaser in accordance with this Agreement. (f) As further confirmation of the sale of the Receivables, it is understood and agreed that the Purchaser shall have the following rights: (i) the Purchaser shall have the right at any time to notify, or require that any Seller at its own expense notify, the respective Obligors of the Purchaser's ownership of the Purchased Receivables and other Receivable Assets and may direct that payment of all amounts due or to become due under the Purchased Receivables be made directly to the Purchaser or its designee; (ii) the Purchaser shall have the right to (A) sue for collection on any Purchased Receivables or (B) sell any Purchased Receivables to any Person for a price that is acceptable to the Purchaser; (iii) each Seller shall, upon the Purchaser's written request and at such Seller's expense, (A) assemble all of such Seller's documents, instruments and other records (including credit files and computer tapes or disks) that (1) evidence or will evidence or record Receivables sold by such Seller and (2) are otherwise necessary or desirable to effect Collections of such Purchased Receivables (collectively, the "Documents") and (B) deliver the Documents to the Purchaser or its designee at a place designated by the Purchaser. In recognition of such Seller's need to have access to any Documents which may be transferred to the Purchaser hereunder, whether as a result of its continuing business relationship with any Obligor for Receivables purchased hereunder, the Purchaser hereby grants to each Seller an irrevocable license to access the Documents transferred by such Seller to the Purchaser and to access any such transferred computer software in connection with any activity arising in the ordinary course of such Seller's business; provided, that such Seller -------- shall not disrupt or otherwise interfere with the Purchaser's use of and access to the Documents and its computer software during such license period; 5 (iv) each Seller hereby grants to the Purchaser and the Administrative Agent an irrevocable power of attorney (coupled with an interest) to take any and all steps in such Seller's name necessary or desirable, in the reasonable opinion of the Purchaser, to collect all amounts due under the Purchased Receivables, including, without limitation, enforcing the Purchased Receivables and exercising all rights and remedies in respect thereof and endorsing such Seller's name on checks and other instruments representing Collections; and (v) promptly upon written request of the Purchaser, after the occurrence of a Servicer Event of Default, each Seller will (A) deliver to the Purchaser all licenses, rights, computer programs, related material, computer tapes, disks, cassettes and data necessary for the immediate collection of the Purchased Receivables by the Purchaser, with or without the participation of such Seller (excluding software licenses which by their terms are not permitted to be so delivered; provided, that such -------- Seller shall use reasonable efforts to obtain the consent of the relevant licensor to such delivery) and (B) make such arrangements with respect to the collection of the Purchased Receivables as may be reasonably required by the Purchaser. 2.2 Purchase Price. The amount payable by the Company to a Seller -------------- (the "Purchase Price") for Receivables and Receivable Assets existing on the Effective Date with respect to such Seller and for newly created Receivables and Receivable Assets on any Payment Date under this Agreement shall be equal to the product of (a) the aggregate outstanding Principal Amount of such Receivables as set forth in the applicable Daily Report and (b) the Discounted Percentage for such Payment Date. 2.3 Payment of Purchase Price. (a) Upon fulfillment of the ------------------------- conditions set forth in Article III, the Purchase Price for Receivables and other Receivable Assets shall be paid or provided for in the manner provided below on each day for which a Daily Report is prepared and delivered to the Company (each such day, a "Payment Date"). Each Seller hereby appoints the Master Servicer as its agent to receive payment of the Purchase Price for Receivables sold by it to the Company and hereby authorizes the Company to make all payments due to such Seller directly to, or as directed by, the Master Servicer. The Master Servicer hereby accepts and agrees to such appointment and to the provisions of subsection 2.3(d). (b) The Purchase Price for Receivables and Receivable Assets with respect thereto purchased by the Company on any Payment Date shall be paid by the Company on such Payment Date as follows: (i) by netting the amount of any Seller Adjustment Payments or Seller Repurchase Payments pursuant to subsection 2.5 or 2.6 against such Purchase Price; 6 (ii) to the extent available for such purpose, in cash from Collections; (iii) to the extent available for such purpose, in cash from the net proceeds of the sale of an interest in such Purchased Receivables by the Company to other Persons; (iv) at the option of the Company, by means of an addition to the principal amount of the Subordinated Note, as appropriate in accordance with this subsection, in an aggregate amount equal to the remaining portion of the Purchase Price; provided, that on the Commencement Date, amounts -------- available pursuant to clause (v) shall be used prior to making any payment of the Purchase Price by means of an addition to the Subordinated Note; provided, however, that the Company may pay by means of additions to the -------- ------- principal amount of the Subordinated Note only if, at the time of such payment and after giving effect thereto, the fair market value of its assets, after giving effect for this purpose to any Adjustments with respect to the Purchased Receivables or any participation interest therein sold to the Participants under the Receivables Transfer Agreement, is greater than the sum of (i) the amount of its liabilities, including its liabilities on the Subordinated Note and all fees payable under the Receivables Transfer Agreement, and (ii) the Minimum Equity Amount. Any such addition to the principal amount of the Subordinated Note shall be allocated among the Sellers by the Master Servicer. The Master Servicer may evidence such payments by means of additions to the principal amount of the Subordinated Note by recording the date and amount thereof on the books and records of the Master Servicer or the Sellers or on the grid attached to the Subordinated Note; provided, that the failure to make any such -------- recordation or any error in such grid shall not adversely affect any Seller's rights; and (v) in cash from the proceeds of capital contributed by WMI to the Company in respect of its equity interest in the Company. (c) The Master Servicer may allocate among the Sellers the payment of the Purchase Price for Receivables and any amounts netted therefrom pursuant to subsection 2.3(b)(i). The Company shall be entitled to pay all amounts in respect of the Purchase Price of Receivables to an account of the Master Servicer without regard to whether or how such payments are allocated by the Master Servicer to the Sellers. Each Seller agrees that payment to the Master Servicer of the Purchase Price shall constitute payment to such Seller. All payments under this Agreement (i) shall be made on the date specified therefor in Dollars in same day funds or by check, as the Master Servicer shall elect, (ii) shall be made not later than 3:00 p.m (New York City time) on the date specified therefor and (iii) shall be made (x) if to any Seller, to the bank account for such Seller designated in writing by the Master Servicer to the Company and (y) if to the Master Servicer, to the bank account designated in writing by the Master Servicer to the Company. 7 (d) Whenever any payment to be made under this Agreement shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. Amounts not paid when due in accordance with the terms of this Agreement shall bear interest at a rate equal at all times to the ABR plus 2%, payable on demand. ---- 2.4 No Repurchase. Except to the extent expressly set forth herein, ------------- no Seller shall have any right or obligation under this Agreement, by implication or otherwise, to repurchase from the Company any Purchased Receivables or other Receivable Assets or to rescind or otherwise retroactively effect any purchase of any Purchased Receivables or Receivable Assets after the Payment Date relating thereto. 2.5 Rebates, Adjustments, Returns and Reductions; Modifications. ----------------------------------------------------------- From time to time a Seller may make Adjustments to Receivables in accordance with this subsection 2.5 and subsection 6.2. Each Seller (with respect to which its Effective Date has occurred), jointly and severally, agrees to pay to the Company (regardless of which Seller shall have granted such Adjustment), the amount of any such Adjustment (a "Seller Adjustment Payment") as follows: (i) prior to an Early Termination with respect to all Sellers, the amount of any such Seller Adjustment Payment shall be paid by (x) effectively netting the product of such Adjustment and the Discount Percentage then in effect against the Purchase Price of Receivables created after the grant of such Adjustment in accordance with subsection 2.3(b)(i) and paying the remainder of such Seller Adjustment Payment in cash on the first Settlement Date to occur after the grant of such Adjustment and (y) after an Early Termination with respect to all Sellers, the amount of any such Seller Adjustment Payment shall be paid in cash no later than five Business Days after the grant of such Adjustment. An "Adjustment" shall mean any rebate, administrative fee, discount, credit memo, refund, non-cash payment or adjustment (including, without limitation, as a result of the application of any special or other discounts or any reconciliations) in respect of any Receivable, the amount owing for any returns or cancellations and the amount of any other reduction of any payment under any Receivable in each case granted or made by the applicable Seller to the related Obligor; provided, that an "Adjustment" does not include any Defaulted -------- Receivables. The amount of any Adjustment shall be set forth on the first Daily Report prepared after the date the Adjustment is first recorded on the computer records of the Master Servicer or any of its Subsidiaries, which for purposes of this subsection 2.5 shall constitute the date of "grant" thereof. Each Seller agrees to promptly record Adjustments in accordance with its historical practices. 2.6 Limited Repurchase Obligation. In the event that any of the ----------------------------- representations or warranties contained in subsection 4.2 in respect of any Receivable shall be or have been incorrect in any material respect as of the date made or deemed made, or any Receivable shall become subject to any MDN defense, dispute, offset or counterclaim of any kind (other than as expressly permitted by this Agreement) or any Seller shall breach any covenant contained in subsection 8 5.2, 5.10, 5.14 5.15 or Article VI with respect to any Receivable (each of the foregoing events or circumstances, a "Repurchase Event"), such Receivable shall cease to be an Eligible Receivable on the date on which such Repurchase Event occurs. In addition, if any Repurchase Event shall occur with respect to any Receivable, then each Seller (with respect to which its Effective Date has occurred), jointly and severally, agrees to pay to the Company an amount (the "Repurchase Amount") in cash equal to the Purchase Price of such Receivable (whether the Company paid such Purchase Price in cash or otherwise) less Collections received by the Company in respect of such Receivable, regardless of which Seller shall have been responsible for such Repurchase Event, such payment to occur no later than the 30th day after the day such Repurchase Event becomes known (or should have become known with due diligence) to any Seller (except that if such day is not a Business Day, such payment shall be made on the Business Day immediately succeeding such day) unless such Repurchase Event shall have been cured on or before such day; provided, that, prior to the occurrence -------- of an Early Termination with respect to all Sellers, any such payments to the Company shall be netted against the Purchase Price of newly created Receivables in accordance with subsection 2.3(b)(i) to the extent of such Purchase Price and the remaining amount of such Seller Repurchase Payment due to the Company after such netting, if any, shall be paid to the Company on such date in cash. Any payment by any Seller pursuant to this subsection 2.6 is referred to as a "Seller Repurchase Payment." If, on or prior to such 30th day (or the Business Day immediately succeeding such 30th day, as applicable), any Seller shall so reacquire any such Receivable, then the Company shall have no further remedy against the Sellers in respect of the Repurchase Event with respect to such reacquired Receivable. Upon a Seller Repurchase Payment, the Company shall automatically and without further action be deemed to sell, transfer, assign, set over and otherwise convey to the applicable Seller, without recourse, representation or warranty, all the right, title and interest of the Company in, to and under such Receivable and the other Receivable Assets with respect thereto. The Company shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by such Seller to effect the conveyance of such Receivable pursuant to this subsection 2.6. 2.7 Obligations Unaffected. The obligations of the Sellers to the ---------------------- Company under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable or any sale of a Receivable. 2.8 Certain Charges. Each of the Sellers and the Company agrees that --------------- late charge revenue, reversals of discounts, other fees and charges and other similar items, whenever created, accrued in respect of Purchased Receivables shall be the property of the Company notwithstanding the occurrence of an Early Termination, and all Collections with respect thereto shall continue to be allocated and treated as Collections in respect of Purchased Receivables. 2.9 Certain Allocations. Each of the Sellers hereby agrees that, ------------------- following the occurrence of an Early Termination in respect of any Seller, all 9 Collections and other proceeds received in respect of Receivables generated by such Seller shall be applied first, to pay the outstanding Principal Amount of ----- Purchased Receivables (as of the date of such Early Termination) of the Obligor to whom such Collections are attributable until such Purchased Receivables are paid in full and second, to such Seller to pay Receivables of such Obligor not ------ sold to the Company; provided, however, that notwithstanding the foregoing, if -------- ------- any such Seller can attribute a Collection to a specific Obligor and a specific Receivable, then such Collection shall be applied to pay such Receivable of such Obligor. ARTICLE III CONDITIONS TO PURCHASE AND SALE 3.1 Conditions Precedent to the Company's Initial Purchase of --------------------------------------------------------- Receivables. The obligation of the Company to purchase the Receivables and the - ----------- other Receivable Assets hereunder on the Commencement Date from any Seller is subject to the conditions precedent, which may be waived by the Company, that (a) each of the Transaction Documents shall be in full force and effect and (b) the conditions set forth below shall have been satisfied on or before the Commencement Date: (i) the Company shall have received copies of duly adopted resolutions of the board of directors of each Seller as in effect on the Commencement Date and in form and substance reasonably satisfactory to the Company, authorizing this Agreement, the documents to be delivered by such Seller hereunder and the transactions contemplated hereby, certified by the Secretary or Authorized Signatory of such Seller; (ii) the Company shall have received duly executed certificates of the Secretary or an Authorized Signatory of each Seller, dated the Commencement Date and in form and substance reasonably satisfactory to the Company, certifying the names and true signatures of the officers (or such other person) authorized on behalf of such Seller to sign this Agreement and any instruments or documents in connection with this Agreement (on which certificates the Company may conclusively rely until such time as the Company shall receive from such Seller a revised certificate with respect to such Seller meeting the requirements of this subsection (ii)); (iii) with respect to the Category A Sellers, to the extent available, the Company shall have received the certificate or articles of incorporation and by-laws of such Seller, duly certified by the Secretary or an Authorized Signatory of such Seller; (iv) the Company shall have received a "short-form" good standing certificate with respect to each Seller; 10 (v) each Seller shall have made available for filing and recordation, at its own expense, UCC-1 financing statements (and other similar instruments) with respect to the Receivables and the other Receivable Assets in such manner and in such jurisdictions as are necessary or desirable to perfect the Company's ownership interest thereof under the Uniform Commercial Code (or any other similar law), and all other action necessary, in the reasonable judgment of the Company, to perfect the Company's ownership of the Receivables and the other Receivable Assets shall have been duly taken; (vi) the Company shall have received (A) with respect to each Seller, a written search report listing all effective financing statements that name the applicable Seller as debtor or assignor and that are filed in the jurisdictions that the Company determines are necessary or appropriate, together with copies of such financing statements, and (B) with respect to each Category A Seller, tax and judgment lien searches in DuPage County and Cook County, Illinois; (vii) the Company shall be satisfied that the Sellers' systems, procedures and record keeping relating to the Purchased Receivables are in all material respects sufficient and satisfactory in order to permit the purchase and administration of the Purchased Receivables in accordance with the terms and intent of this Agreement; and (viii) the Company and the Administrative Agent shall have received a certificate from each Seller, dated the Commencement Date and signed by one of its Responsible Officers, in form satisfactory to the Company and the Administrative Agent, confirming compliance with the conditions precedent set forth in this subsection 3.1. 3.2 Conditions Precedent to All the Company's Purchases of ------------------------------------------------------ Receivables. The obligation of the Company to pay a Seller for any Receivable - ----------- and other Receivable Assets with respect thereto on each Payment Date (including any Effective Date) shall be subject to the further conditions precedent, which may be waived by the Company, that on such Payment Date: (a) the following statements shall be true (and the acceptance by such Seller of the Purchase Price for any Receivables on any Payment Date shall constitute a representation and warranty by such Seller that on such Payment Date the statements in clauses (i) and (ii) below are true): (i) the representations and warranties of such Seller contained in subsections 4.1 (other than subsection 4.1(f)(1)) and 4.2 shall be true and correct in all material respects on and as of such Payment Date as though made on and as of such date, except insofar as such representations and warranties are expressly made only as of 11 another date (in which case they shall be true and correct in all material respects as of such other date); and (ii) after giving effect to such purchase, no Purchase Termination Event of the type specified in paragraph (e), (h), (i) or (j) of Article VII with respect to such Seller (or Incipient Purchase Termination Event with respect thereto) shall have occurred and be continuing; and (iii) there has been no material adverse change since the date of this Agreement in the collectibility of the Receivables of such Seller (other than due to a change in the creditworthiness of the Obligors); (b) the Company shall have received payment in full of all amounts for which payment is due from such Seller pursuant to subsection 2.5, 2.6 or 9.3; (c) the Company shall have received such other approvals, opinions or documents as the Company may reasonably request; and (d) such Seller shall have complied with all of its covenants in all material respects and satisfied all of its obligations in all material respects under this Agreement required to be complied with or satisfied as of such date; provided, however, that the failure of any Seller to satisfy any of the - -------- ------- foregoing conditions shall not prevent such Seller from subsequently selling Receivables upon satisfaction of all such conditions or exercising its rights under subsection 2.1(b). The acceptance of the Purchase Price for any Receivable and other Receivable Assets on each Payment Date by each Seller shall constitute a representation and warranty by such Seller that the conditions to the sale thereof on such Payment Date shall have been satisfied. 3.3 Conditions Precedent to Sellers' Obligations. (a) The -------------------------------------------- obligations of each Seller on the Commencement Date shall be subject to the conditions precedent that such Seller shall have received on or before the Commencement Date the following, each dated the Commencement Date and in form and substance satisfactory to such Seller: (i) a copy of duly adopted resolutions of the board of directors of the Company authorizing this Agreement, the documents to be delivered by the Company hereunder and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of the Company; and 12 (ii) a duly executed certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other documents to be delivered by it hereunder. (b) The obligations of each Seller on each Payment Date shall be subject to the condition precedent that after giving effect to such purchase, no Termination Event set forth in paragraph (f) (other than clause (iii) thereof) of Article IX of the Receivables Transfer Agreement shall have occurred and be continuing. 3.4 Conditions Precedent to the Addition of a Seller. No Subsidiary ------------------------------------------------ of WMI approved by the Company as an additional Seller pursuant to subsection 9.14 shall be added as a Seller hereunder unless the conditions set forth below shall have been satisfied on or before the date designated for the addition of such Seller (the "Seller Addition Date"): (i) the Company shall have received an Additional Seller Supplement substantially in the form of Exhibit B hereto, duly executed and delivered by such Seller; (ii) the Company shall have received copies of duly adopted resolutions of the board of directors of such Seller as in effect on the related Seller Addition Date and in form and substance reasonably satisfactory to the Company, authorizing this Agreement, the documents to be delivered by such Seller hereunder and the transactions contemplated hereby, certified by the Secretary or an Authorized Signatory of such Seller; (iii) the Company shall have received the certificate or articles of incorporation and by-laws of such Seller, duly certified by the Secretary or an Authorized Signatory of such Seller; (iv) the Company shall have received a "short-form" good standing certificate with respect to each Seller; (v) the Company shall have received duly executed certificates of the Secretary or an Authorized Signatory of such Seller dated the related Seller Addition Date and in form and substance reasonably satisfactory to the Company, certifying the names and true signatures of the officers authorized on behalf of such Seller to sign the Additional Seller Supplement or any instruments or documents in connection with this Agreement (on which certificates the Company may conclusively rely until such time as the Company shall receive from such Seller a revised certificate with respect to such Seller meeting the requirements of this subsection (v)); 13 (vi) such Seller shall have made available for filing and recordation, at its own expense, UCC-1 financing statements (and other similar instruments) with respect to the Receivables and the other Receivable Assets in such manner and in such jurisdictions as are necessary or desirable to perfect the Company's ownership interest thereof under the Uniform Commercial Code (or any other similar law), and all other action necessary, in the opinion of the Company, to perfect the Company's ownership of the Receivables and the other Receivable Assets shall have been duly taken; (vii) the Company shall have received (i) with respect to each Seller, a written search report listing all effective financing statements that name the applicable Seller as debtor or assignor and that are filed in the jurisdictions that the Company determines are necessary or appropriate, together with copies of such financing statements (none of which shall cover any Receivables or Receivable Assets), and (ii) with respect to each Seller, tax and judgment lien searches showing no such Liens that are not permitted by the Transaction Documents; and (viii) the Company and the Administrative Agent shall have received a certificate from each Seller, dated the Seller Addition Date and signed by one of its Responsible Officers, in form satisfactory to the Company and the Administrative Agent, confirming compliance with the conditions precedent set forth in this subsection 3.4. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of the Sellers Relating to the ------------------------------------------------------------- Sellers. Each Seller hereby represents and warrants to the Company on the - ------- Commencement Date, its Effective Date and on each Payment Date that: (a) Organization, Corporate Powers. It is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite corporate power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required and has the corporate power and authority to execute, deliver and perform each of the Transaction Documents and each agreement or instrument contemplated hereby or thereby to which it is or will be a party. 14 (b) Authorization. The Sale Transactions are within its corporate powers and have been duly authorized by all requisite corporate and, if required, stockholder action. (c) Enforceability. Each of this Agreement and the other Transaction Documents to which it is a party has been duly executed and delivered by it and constitutes a legal, valid and binding obligation of it enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (d) Governmental Approvals; No Conflicts. The execution, delivery and performance by it of this Agreement and each of the other Transaction Documents to which it is a party, the sale of Receivables by it hereunder and the consummation of the other transactions contemplated by any of the foregoing (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of it or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon such Seller or its assets, or give rise to a right thereunder to require any payment to be made by such Seller, and (d) will not result in the creation or imposition of any Lien on any asset of such Seller. (e) Capitalization. All of its Capital Stock is owned directly or indirectly by WMI. (f) Litigation; Compliance with Laws. (1) Except for the Disclosed Matters, as of the Commencement Date, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to its knowledge, threatened against or affecting such Seller (a) could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (b) that involve this Agreement or the Sale Transactions. (2) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, such Seller (i) has not failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has not become subject to any Environmental Liability, (iii) has 15 not received notice of any claim with respect to any Environmental Liability or (iv) does not know of any basis for any Environmental Liability. (3) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. (g) Compliance with Laws and Agreements. It is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (h) Taxes. It has timely filed or caused to be filed all Tax returns which are required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (i) Taxes that are being contested in good faith by appropriate proceedings and for which it has set aside on its books adequate reserves or (ii) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. (i) Accuracy and Completeness of Information. It has disclosed to the Company all agreements, instruments and corporate or other restrictions to which it is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. (j) Employee Benefit Plans. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $40,000,000 the fair market value of the assets of all such underfunded Plans. (k) Solvency. The sale of the Receivables by it to the Company has not been made in contemplation of the occurrence of any Insolvency Event. Both prior to and after giving effect to the transactions occurring on the Effective Date or such Closing Date, (i) the fair value of the assets of such Seller at a fair valuation will exceed the debts and liabilities, subordinated, contingent or otherwise, of such Seller; (ii) the present fair salable value of the property of such Seller will be greater than the 16 amount that will be required to pay the probable liability of such Seller on its debts and other liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; (iii) such Seller will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) such Seller will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted. For all purposes of clauses (i) through (iv) above, the amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. Such Seller does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it and the timing of and amounts of cash to be payable in respect of its debt. (k) Absence of Certain Restrictions. No indenture, certificate of designation for preferred stock, agreement or other instrument to which it or any of its Subsidiaries is a party will prohibit or materially restrain, or have the effect of prohibiting or materially restraining, or imposing materially adverse conditions upon, the sale and assignment of Receivable Assets. (l) Indebtedness to Company. Immediately prior to consummation of the transactions contemplated hereby on the Commencement Date, it had no outstanding Indebtedness to the Company other than amounts permitted by this Agreement. (m) Designated Accounts. Set forth in Schedule 2 is a complete and accurate description as of the Effective Date of each Designated Account currently maintained by such Seller. Such Designated Account will only be used for the collection of Receivables and the Designated Bank has received standing instructions to transfer at least as often as once each day (unless the amount on deposit on such day is less than $5,000) that is a Business Day for such Designated Bank and in any event by 1:00 p.m. (New York City time) on the Business Day following each such day of deposit, by wire transfer of immediately available funds all available funds on deposit in such Designated Account to the Concentration Account (either directly or indirectly through another Designated Account) along with any remittance advisements or payment invoices on deposit therein. (n) Filings. Upon the making of the filings and the performance of the acts described in clause (v) of subsection 3.1 or clause (vi) of subsection 3.4, as the case may be, all filings and other acts (including but not limited to all filings and other acts necessary or advisable under the Uniform Commercial Code of each relevant jurisdiction) shall have been made 17 or performed such that the Company has a first priority perfected ownership interest in respect of all Receivables. (o) Offices. The offices at which each Seller keeps its records concerning the Receivables are located at the addresses previously disclosed to the Company or have been reported to the Company and the Administrative Agent in accordance with the provisions of subsection 5.7 of this Agreement. The chief executive office of such Seller is located at the address set forth on Schedule 1 (as such location may be changed from time to time in accordance with subsection 5.7 of this Agreement) and is the place where the Company is "located" for the purposes of Section 9- 103(3)(d) of the UCC as in effect in the State of New York. The state and county where the chief executive office of such Seller is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York has not changed in the past four months. The Seller is duly qualified to do business in each state set forth opposite its name on Schedule 1 hereto and is not qualified to do business in any other state. (p) Receivables Documents. Upon the delivery, if any, by it to the Company of licenses, rights, computer programs, related materials, computer tapes, disks, cassettes and data relating to the administration of the Purchased Receivables pursuant to subsection 2.1(f)(v), the Company shall have been furnished with all materials and data necessary to permit immediate collection of the Purchased Receivables without the participation of any Seller in such collection. (q) Investment Company Act. It is not an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended. (r) Bulk Sales Act. No transaction contemplated hereby with respect to any Seller requires compliance with, or will be subject to avoidance under, any bulk sales act or similar law. (s) Names. The legal name of each Seller is as set forth on Schedule 1 to this Agreement. It has no trade names, fictitious names, assumed names or "doing business as" names, which do not include either the words "Waste Management" or "Chemical Waste Management". (t) No Purchase Termination Event. As of the Commencement Date and its Effective Date, no Purchase Termination Event or Incipient Purchase Termination Event with respect to such Seller has occurred and is continuing. (u) No Fraudulent Transfer. Such Seller is not entering into this Agreement with the intent (whether actual or constructive) to hinder, delay, or defraud its present or future creditors and is receiving 18 reasonably equivalent value and fair consideration for the Receivables originated by it being transferred hereunder. (v) Collection Procedures. It has in place procedures pursuant to the Transaction Documents which are either necessary or advisable to ensure the timely collection of Receivables originated by it. 4.2 Representations and Warranties of the Sellers Relating to the ------------------------------------------------------------- Agreement and the Receivables. Each Seller hereby represents and warrants to - ----------------------------- the Company on the Effective Date and on each Payment Date that with respect to the Receivables being paid for as of such date: (a) Eligible Receivable. Other than with respect to Receivables which such Seller states in writing (in the applicable Daily Report) are not Eligible Receivables on such date, each Receivable is, as of its Payment Date, an Eligible Receivable. The aggregate outstanding Principal Amount of Receivables sold by it on any Payment Date is correctly set forth on the Daily Report. (b) Title; No Liens. Such Seller is the sole legal and beneficial owner of such Receivables, and upon the sale of each Receivable of such Seller, the Company will become the sole legal and beneficial owner of such Receivable, free and clear of any Liens (except for Permitted Liens) and no effective financing statement or other instrument similar in effect covering all or any part of such Purchased Receivable, Related Property or Collections with respect thereto will at such time be on file against such Seller in any filing or recording office except such as have been filed in favor of the Company in accordance with this Agreement. 4.3 Representations and Warranties of the Company. The Company --------------------------------------------- hereby represents and warrants to itself as follows: (a) Organization, Corporate Powers. It is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite corporate power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required and has the corporate power and authority to execute, deliver and perform each of the Transaction Documents and each other agreement or instrument contemplated hereby or thereby to which it is or will be a party. (b) Authorization. The Transactions are within the corporate powers of the Company and have been duly authorized by all requisite corporate and, if required, stockholder action. 19 (c) Enforceability. Each of this Agreement and each of the other Transaction Documents to which it is a party has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (d) Accounting Treatment. The Company will not prepare any financial statements that shall account for the transactions contemplated hereby, nor will it in any other respect (other than for tax purposes) account for the transactions contemplated hereby, in a manner that is inconsistent with the Company's ownership interest in the Receivables. ARTICLE V AFFIRMATIVE COVENANTS Each Seller hereby agrees that, so long as there are any amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company or until an Early Termination with respect to such Seller, whichever is later, such Seller or the Master Servicer on behalf of such Seller shall: 5.1 Certificates; Other Information. Furnish to the Company: ------------------------------- (a) not later than 90 days after the end of each fiscal year and not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year, a certificate of a Responsible Officer of the Master Servicer stating that, to such officer's knowledge (after due inquiry), such Seller during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Transaction Documents to which it is a party to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Purchase Termination Event or Incipient Purchase Termination Event except as specified in such certificate; and (b) promptly, such additional financial and other information as the Company may from time to time reasonably request. 5.2 Compliance with Laws, etc. Comply in all material respects with -------------------------- its certificate of incorporation and by-laws and all laws, rules, regulations and orders of any Governmental Authority, whether now in effect or hereafter enacted, applicable to the Purchased Receivables, except to the extent that failure to comply therewith could not have a Material Adverse Effect. Each Seller will 20 comply, in all material respects, with its obligations under contracts with Obligors relating to the Purchased Receivables, except to the extent such compliance would result in a violation of the laws, rules, regulations or orders of any Governmental Authority. 5.3 Preservation of Corporate Existence. (i) Preserve and maintain ----------------------------------- its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation and (ii) qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the nature of its business so requires, except where the failure so to qualify would not, individually or in the aggregate with other such failures, have a Material Adverse Effect shall be given; provided, that notwithstanding the foregoing, any Seller may be -------- consolidated or merged with or into or dissolved into any other Seller so long as written notice of such consolidation or merger shall be given to the Company and the Administrative Agent at least one day prior to the date thereof. 5.4 Preservation of Separate Existence. (i) Maintain its deposit ---------------------------------- account or accounts separate from those of the Company and ensure that its funds will not be diverted to the Company, nor will such funds be commingled with the funds of the Company; provided, that notwithstanding the foregoing, such Seller -------- may have Collections on its Receivables, whether or not sold to the Company, deposited into the Designated Accounts or the Concentration Account; (ii) To the extent that it shares any officers or other employees with the Company, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among it and the Company, and it and the Company shall bear their fair shares of the salary and benefit costs associated with all such common officers and employees; (iii) To the extent that it jointly contracts with the Company to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly between it and the Company, and it and the Company shall bear their fair shares of such costs. To the extent that it contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of the Company, the costs incurred in so doing shall be fairly allocated between it and the Company in proportion to the benefit of the goods or services each is provided, and it and the Company shall bear their fair shares of such costs. All material transactions between it and the Company, whether currently existing or hereafter entered into, shall be only on an arm's length basis, it being understood and agreed that the transactions contemplated in the Transaction Documents meet the requirements of this clause (iii); (iv) Maintain office space separate from the office space of the Company (but which may be located at the same address as the Company). To 21 the extent that it and the Company have offices in the same location, there shall be a fair and appropriate allocation of overhead costs between them, and each shall bear its fair share of such expenses; (v) Not assume or guarantee any of the liabilities of the Company; and (vi) Take, or refrain from taking, as the case may be, all other actions that are necessary to be taken or not to be taken in order (x) to ensure that the assumptions and factual recitations set forth in the Specified Bankruptcy Opinion Provisions remain true and correct in all material respects with respect to it (and, to the extent within its control, to ensure that the assumptions and factual recitations set forth in the Specified Bankruptcy Opinion Provisions remain true and correct with respect to the Company) and (y) to comply in all material respects with those procedures described in such provisions that are applicable to it. 5.5 Visitation Rights. At any reasonable time during normal business ----------------- hours and from time to time, in each case upon reasonable notice to such Seller and the Master Servicer, permit (i) the Company and the Administrative Agent, or any of their respective agents or representatives, (A) to examine and make copies of and abstracts from the records, books of account and documents (including computer tapes and disks) of each Seller relating to the Purchased Receivables hereunder and (B) following the termination of the appointment of WMI as Master Servicer with respect to the Purchased Receivables, to be present at the offices and properties of such Seller to administer and control the collection of amounts owing on the Purchased Receivables and (ii) the Company and the Administrative Agent, or any of their respective agents or representatives, to visit the properties of such Seller for the purpose of examining such records, books of account and documents, and to discuss the affairs, finances and accounts of such Seller relating to the Purchased Receivables or such Seller's performance hereunder with any of its officers or directors and with its independent certified public accountants (subject to any requirements of confidentiality imposed by law or contract). 5.6 Keeping of Records and Books of Account. Maintain and implement, --------------------------------------- or cause to be maintained or implemented, administrative and operating procedures reasonably necessary or advisable for the collection of amounts owing on all Purchased Receivables, and, until any delivery to the Company, keep and maintain, or cause to be kept and maintained, all documents, books, records and other information reasonably necessary or advisable for the collection of amounts owing on all such Purchased Receivables and other Receivable Assets with respect thereto. 5.7 Location of Records. Keep its chief place of business and chief ------------------- executive office at the locations referred to for it on Schedule 1 hereto or, upon 30 days prior written notice to the Company and the Administrative Agent, at such other locations in a jurisdiction where all action required by subsection 5.16(a) 22 shall have been taken and completed and be in full force and effect. Keep the offices where it keeps the records concerning the Purchased Receivables (and all original documents relating thereto) at the locations referred to in subsection 4.1(o). 5.8 Computer Files. At its own cost and expense, retain the ledger -------------- used by such Seller as a master record of the Obligors and retain copies of all documents relating to each Obligor as custodian and agent for the Company and other Persons with interests in the Purchased Receivables and mark the computer tape or other physical records of the Purchased Receivables to the effect that interests in the Purchased Receivables existing with respect to the Obligors listed thereon have been sold to the Company. 5.9 Payment of and Compliance with Obligations. Pay, discharge or ------------------------------------------ otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on its books or except where the failure to so pay, discharge or otherwise satisfy such obligations would not have a Material Adverse Effect in respect of such Seller. Such Seller shall defend the right, title and interest of the Company in, to and under the Receivables originated by it and the other Receivable Assets, whether now existing or hereafter created, against all claims of third parties claiming through such Seller. Such Seller will duly fulfill all obligations on its part to be fulfilled under or in connection with each Receivable originated by it and will do nothing to impair the rights of the Company in such Receivable. 5.10 Policies. Perform its obligations in accordance with and comply -------- in all material respects with the Policies and the Company Policies as amended from time to time in accordance with the Transaction Documents, in regard to the Receivables originated by it and the other Receivable Assets. 5.11 Taxes; ERISA. (a) Pay and discharge promptly all Taxes, ------------ assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and -------- ------- discharge shall not be required with respect to any such Tax, assessment, charge, levy or claim so long as (i) the validity or amount thereof shall be contested in good faith by appropriate proceedings and such Seller shall set aside on its books adequate reserves as required by GAAP with respect thereto, (ii) such Tax, assessment, charge, levy or claim is in respect of property Taxes for property that such Seller has determined to abandon and the sole recourse for such Tax, assessment, charge, levy or claim is to such property and (iii) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. 23 (b) (i) Comply in all material respects with the applicable provisions of ERISA and (ii) furnish to the Company (w) as soon as possible, and in any event within 30 days after any Responsible Officer of such Seller or any ERISA Affiliate of such Seller knows or has reason to know that any Reportable Event has occurred that alone or together with any other Reportable Event could reasonably be expected to result in liability of the Master Servicer, such Seller or any of their ERISA Affiliates to the PBGC in an aggregate amount exceeding $40,000,000 a statement of a Financial Officer setting forth details as to such Reportable Event and the action proposed to be taken with respect thereto, together with a copy of the notice, if any, of such Reportable Event given to the PBGC, (x) promptly after any Responsible Officer learns of receipt thereof, a copy of any notice such Seller or any of its ERISA Affiliates may receive from the PBGC relating to the intention of the PBGC to terminate any Plan or Plans (other than a Plan maintained by any of their ERISA Affiliates which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a trustee to administer any Plan or Plans, (y) within 20 days after the due date for filing with the PBGC pursuant to Section 412(n) of the Code a notice of failure to make a required installment or other payment with respect to a Plan, a statement of a Financial Officer setting forth details as to such failure and the action proposed to be taken with respect thereto, together with a copy of such notice given to the PBGC and (z) promptly after any Responsible Officer learns thereof and in any event within 30 days after receipt thereof by such Seller or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by such Seller or such ERISA Affiliate concerning (I) the imposition of Withdrawal Liability exceeding $10,000,000 or (II) a determination that a Multiemployer Plan is, or is expected to be, terminated or in reorganization, in each case within the meaning of Title IV of ERISA. 5.12 Collections. Instruct each Obligor to make payments in respect ----------- of its Receivables in accordance with its current practices with respect to such Obligor to a Designated Account or to the Concentration Account and to comply in all material respects with procedures with respect to Collections reasonably specified from time to time by the Company. With respect to payments in respect of any Receivables that are made directly to such Seller (including, without limitation, any employees thereof or independent contractors employed thereby), such Seller shall, within one Business Day of receipt thereof, deliver (which may be via regular mail) or deposit such amount to a Designated Account or to the Concentration Account and, prior to forwarding such amounts, such Seller shall hold such payments in trust as custodian for the Company and the Participants. 5.13 Furnishing Copies, etc. Furnish to the Company: ----------------------- (a) within five Business Days of the Company's request, a certificate of the Financial Officer of such Seller or of the Master Servicer on behalf of such Seller certifying, as of the date thereof, to the knowledge of such officer, that no Purchase Termination Event has occurred and is continuing, and setting forth the computations used by the Financial 24 Officer of such Seller in making such determination or if one has so occurred specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto; (b) promptly upon obtaining knowledge of the occurrence of any Purchase Termination Event or Incipient Purchase Termination Event, written notice thereof specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto; (c) promptly following request therefor, such other information, documents, records or reports regarding or with respect to the Purchased Receivables of the applicable Seller, as the Company may from time to time reasonably request; (d) promptly upon obtaining knowledge of the occurrence thereof, written notice of any event of default or default under any other Transaction Document; (e) promptly upon obtaining knowledge of the occurrence thereof, written notice of any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect; and (f) promptly upon determining that any Purchased Receivable designated as an Eligible Receivable on the applicable Daily Report or Settlement Statement was not an Eligible Receivable as of the date provided therefor, written notice of such determination. 5.14 Obligations with Respect to Obligors and Receivables. (i) Take ---------------------------------------------------- all actions on its part reasonably necessary to maintain in full force and effect its material rights under all contracts relating to each Purchased Receivable originated by it, and (ii) perform all services relating to, or which give rise to, each Purchased Receivable originated by it. 5.15 Responsibilities of the Sellers. Notwithstanding anything ------------------------------- herein to the contrary, (i) each Seller shall perform or cause to be performed all its obligations under the Policies and the Company Policies related to the Purchased Receivables to the same extent as if such Purchased Receivables had not been transferred to the Company hereunder, (ii) the exercise by the Company of any of its rights hereunder shall not relieve any Seller of its obligations with respect to such Purchased Receivables and (iii) except as provided by law, the Company shall not have any obligation or liability with respect to any Purchased Receivables, nor shall the Company be obligated to perform any of the obligations or duties of any Seller thereunder. 25 5.16 Further Action. In addition to the foregoing: -------------- (a) Each Seller agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable in such Seller's reasonable judgment or that the Company may reasonably request, in order to more fully effect the purposes of this Agreement and the transfer of the Receivables hereunder, to protect or more fully evidence the Company's right, title and interest in the Purchased Receivables, or to enable the Company to exercise or enforce any of its rights in respect thereof. (b) Each Seller hereby irrevocably authorizes the Company to file one or more financing or continuation statements (and other similar instruments), and amendments thereto, relative to all or any part of the Purchased Receivables and the other Receivable Assets sold or to be sold by such Seller without the signature of such Seller to the extent permitted by applicable law. (c) If any Seller fails to perform any of its agreements or obligations under this Agreement, the Company may (but shall not be required to) perform, or cause performance of, such agreements or obligations, and the expenses of the Company incurred in connection therewith shall be payable by such Seller as provided in subsection 9.3. The Company agrees promptly to notify such Seller after any such performance; provided, however, that the failure to give such notice shall -------- ------- not affect the validity of any such performance. 5.17 Sale of Receivables. Sell Receivables solely in accordance with ------------------- the terms of this Agreement. ARTICLE VI NEGATIVE COVENANTS Each Seller hereby agrees that, so long as there are any amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company or until an Early Termination with respect to such Seller, whichever is later, such Seller shall not, directly or indirectly: 6.1 Liens. Except as otherwise expressly herein provided, sell, ----- assign (by operation of law or otherwise), transfer or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Receivables or other Receivable Assets, or assign any right to receive proceeds in respect thereof except for Permitted Liens. ------ 26 6.2 Extension or Amendment of Receivables. Extend, make any ------------------------------------- Adjustment to, rescind, cancel, amend or otherwise modify, or attempt or purport to extend, amend or otherwise modify, the terms of any Purchased Receivables, except (i) in accordance with the terms of the Policies and the Company Policies, (ii) as required by any Requirement of Law, or (iii) in the case of Adjustments (whether or not permitted by any other clause of this sentence), compliance with provisions of subsection 2.5. 6.3 Ineligible Receivables. Take any action to cause, or which would ---------------------- permit, an Eligible Receivable to cease to be an Eligible Receivable, except as otherwise expressly provided by this Agreement; provided, that in no event shall -------- an Eligible Receivable becoming a Defaulted Receivable constitute a breach of this subsection 6.3. 6.4 Change in Payment Instructions to Obligors. Instruct any Obligor ------------------------------------------ of any Purchased Receivables to make any payments with respect to any Receivables other than in accordance with its current practices with respect to such Obligor or to a Designated Account or the Concentration Account. 6.5 Change in Name. Change its name, use an additional name or -------------- change its identity or corporate structure in any manner which would or might make any financing statement or continuation statement (or other similar instrument) relating to this Agreement seriously misleading within the meaning of Section 9-402(7) of the Uniform Commercial Code (or any other similar law) or impair the perfection of the Company's interest in any Receivable under any similar law, without 30 days prior written notice to the Company; provided, that -------- notwithstanding the foregoing, any Seller may be consolidated or merged with or into or dissolved into any other Seller so long as written notice of such consolidation or merger shall be given to the Company and the Administrative Agent at least one day prior to the date thereof. 6.6 Policies. Make any change or modification (or permit any change -------- or modification to be made) to the Policies or the Company Policies, except (i) if such changes or modifications are necessary under any Requirement of Law or (ii) if such changes or modifications would not reasonably be likely to have a Material Adverse Effect. 6.7 Modification of Ledger. Delete or otherwise modify the marking ---------------------- on the ledger referred to in subsection 5.8. 6.8 Business of the Sellers. (a) Engage at any time in any business ----------------------- or business activity other than the business currently conducted by it and business activities reasonably incidental thereto or (b) fail to maintain and operate such business in substantially the manner in which it is presently conducted and operated if such failure would result in a Material Adverse Effect. 27 6.9 Accounting of Purchases. Prepare any financial statements which ----------------------- shall account for the transactions contemplated hereby in any manner other than as sales of the Purchased Receivables by such Seller to the Company or in any other respect account for or treat the transactions contemplated hereby (including for accounting purposes, except as required by law) in any manner other than as sales of the Purchased Receivables by such Seller to the Company; provided, however, that this subsection shall not apply for any tax or tax - -------- ------- accounting purposes. 6.10 Instruments. Take any action to cause any Receivable to be ----------- evidenced by any instrument (as defined in the Uniform Commercial Code as in effect in the State of New York) except in connection with the enforcement or collection of a Receivable. ARTICLE VII PURCHASE TERMINATION EVENTS If any of the following events (herein called "Purchase Termination Events") shall have occurred and be continuing: (a) any Seller shall fail (i) to pay any amount due pursuant to subsection 2.5 or 2.6 in accordance with the provisions thereof and such failure shall continue unremedied for a period of five days from the earlier of (A) the date any officer of such Seller or the Master Servicer obtains knowledge of such default and (B) the date such Seller receives notice of such default from the Company or the Administrative Agent or (ii) to pay any other amount required to be paid by such Seller hereunder within two Business Days of the date when due; or (b) any Seller shall fail to observe or perform any covenant or agreement applicable to it contained in subsection 5.2. 5.7, 5.8, 5.13(b), 5.14 or 5.16(a) or Article VI; provided, that a Purchase Termination Event -------- shall not be deemed to have occurred under this paragraph (b) based upon a failure to observe a covenant giving rise to a Repurchase Event if the Seller shall have complied with the provisions of subsection 2.6 in respect thereof; or (c) any Seller shall fail to observe or perform any covenant or agreement applicable to it contained herein (other than as specified in paragraph (a) or (b) of this Article VII); provided, that no such failure -------- shall constitute a Purchase Termination Event under this paragraph (c) unless such default shall continue unremedied for a period of 30 consecutive days from the earlier of (A) the date any Responsible Officer of such Seller or the Master Servicer obtains knowledge of such default and (B) the date such Seller receives notice of such default from the Company or the Administrative Agent; or 28 (d) any representation, warranty, certification or statement made or deemed made by any Seller to this Agreement or in any statement, record, certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been false or misleading in any material respect on or as of the date made or deemed made; provided, that a Purchase -------- Termination Event shall not be deemed to have occurred under this paragraph (d) based upon a breach of any representation or warranty set forth in subsection 4.2 if the Sellers shall have complied with the provisions of subsection 2.6 in respect thereof; or (e) (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (x) relief in respect of any Seller or Seller Guarantor or of a substantial part of the property or assets of any Seller or Seller Guarantor under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, State or foreign bankruptcy, insolvency, receivership or similar law, (y) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Seller or Seller Guarantor or for a substantial part of the property or assets of any Seller or Seller Guarantor or (z) the winding-up or liquidation of any Seller or Seller Guarantor; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (ii) any Seller or Seller Guarantor shall (t) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, State or foreign bankruptcy, insolvency, receivership or similar law, (u) consent to the institution of, or fail to contest in a timely and appropriate manner, to any proceeding or the filing of any petition described in clause (e)(i) above, (v) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Seller or Seller Guarantor or for a substantial part of the property or assets of such Seller or Seller Guarantor, (w) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (x) make a general assignment for the benefit of creditors, (y) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (z) take any action for the purpose of effecting any of the foregoing; or (f) (i) there shall have occurred a Termination Event under the Receivables Transfer Agreement or (ii) the Amortization Period shall have commenced; or (g) any Seller ceases to be a, direct or indirect, wholly owned Subsidiary of WMI; or (h) a notice of Lien shall have been filed by the PBGC against any Seller under Section 412(n) of the Code or Section 302(f) of ERISA for a 29 failure to make a required installment or other payment to a plan to which Section 412(n) of the Code or Section 302(f) of ERISA applies unless there shall have been delivered to the Administrative Agent proof of release of such Lien; or (i) any Lien in an amount equal to or greater than $1,000,000 has been asserted against or imposed on the Receivables pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9607(1), or any equivalent or comparable state law, relating to or arising from the costs of, response to, or investigation, remediation or monitoring of, any environmental contamination resulting from the current or past operations of any Seller, unless such Lien is being contested in good faith and for which such Seller has set aside on its books adequate reserves; or (j) a Federal tax notice of Lien, in an amount equal to or greater than $1,000,000, shall have been filed against any Seller unless there shall have been delivered to the Administrative Agent proof of release of such Lien; then, (aa) in the case of any Purchase Termination Event described in paragraph (e) (other than clause (ii)(y) thereof) above with respect to any Seller, automatically the obligation of the Company to purchase Receivables from such Seller shall thereupon automatically terminate without notice of any kind, which is hereby waived by the Sellers; (bb) in the case of any Purchase Termination Event described in paragraph (e) (other than clause (ii)(y) thereof) above with respect to any Seller Guarantor, or any Purchase Termination Event described in paragraph (f)(ii), automatically the obligation of the Company to purchase Receivables from all Sellers shall thereupon automatically terminate without notice of any kind which is hereby waived by the Sellers; (cc) in the case of any Purchase Termination Event relating to any Seller, so long as such Purchase Termination Event shall be continuing, the Company may (subject to subsection 9.4) terminate its obligation to purchase Receivables from such Seller by written notice to such Seller and (dd) in the case of the occurrence of one or more Purchase Termination Events relating to Sellers that generated more than 10% of the aggregate sales of all Sellers during the most recently ended calendar month, so long as such Purchase Termination Events shall be continuing, the Company may (subject to subsection 9.4) terminate its obligation to purchase Receivables from all Sellers by written notice to the Sellers (any termination pursuant to clause (aa), (bb), (cc) or (dd) of this Article VII which affects a Seller is herein called an "Early Termination" with respect to such Seller); provided, however, that in the event of an involuntary petition or proceeding - -------- ------- as described in paragraphs (e)(i) above, the Company shall not purchase Receivables from such Seller until such time, if any, as such involuntary petition or proceeding has been dismissed; provided, that such dismissal shall -------- have occurred within 60 days of the filing of such petition or the commencement of such proceeding. 30 ARTICLE VIII THE SUBORDINATED NOTE 8.1 Subordinated Note. On the Effective Date, the Company shall ----------------- issue to WMI as agent for the Sellers, a subordinated note substantially in the form of Exhibit A (the "Subordinated Note"). The aggregate principal amount of the Subordinated Note at any time shall be equal to the difference between (a) the aggregate principal amount of the issuance thereof and each addition to the principal amount of the Subordinated Note with respect to each Seller pursuant to the terms of subsection 2.3 minus (b) the aggregate amount of all payments ----- made in respect of the principal of the Subordinated Note. All payments made in respect of the Subordinated Note shall be allocated among the Sellers by the Master Servicer. Each Seller's interest in the Subordinated Note shall equal the sum of each addition thereto allocated to such Seller pursuant to subsection 2.3(c) less the sum of each repayment thereof allocated to such Seller. All payments made in respect of the Subordinated Note shall be allocated, first, to ----- pay accrued and unpaid interest thereon, and second, to pay the outstanding ------ principal amount thereof. Interest on the outstanding principal amount of the Subordinated Note (as such principal amount may have been increased pursuant to the following proviso) shall accrue at the ABR in effect from time to time from and including the Commencement Date and shall be paid on each Settlement Date with respect to amounts accrued and not paid as of the last day of the preceding Settlement Period and/or the maturity date thereof; provided, however, that -------- ------- accrued interest on the Subordinated Note which is not so paid may be added to the principal amount of the Subordinated Note. Principal not prepaid pursuant to the terms hereof and of the other Transaction Documents shall be payable on the maturity date thereof. Default in the payment of principal or interest under the Subordinated Note shall not constitute a default or event of default or a Purchase Termination Event hereunder or a Termination Event under the Receivables Transfer Agreement. 8.2 Restrictions on Transfer of Subordinated Note. Neither the --------------------------------------------- Subordinated Note, nor any right of any Seller to receive payments thereunder, shall be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed. ARTICLE IX MISCELLANEOUS 9.1 Further Assurances. (a) Each Seller agrees, from time to time, ------------------ to do and perform any and all acts and to execute any and all further instruments reasonably required or requested by the Company more fully to effect the purposes of this Agreement and the sales of the Receivables hereunder, including, without limitation, the execution of any financing statements or continuation statements (and other similar instruments) relating to the Receivables for filing under the 31 provisions of the Uniform Commercial Code, or any similar law, of any applicable jurisdiction. (b) From time to time at the request of a Seller, the Company shall deliver to such Seller such documents, assignments, releases and instruments of termination as such Seller may reasonably request to evidence the reconveyance by the Company to such Seller of a Receivable pursuant to the terms of subsection 2.1(b) or 2.6; provided, that the Company shall have been paid all -------- amounts due thereunder; and the Company and the Master Servicer shall take such action as such Seller may reasonably request, at the expense of such Seller, to assure that any such Receivable, the other Receivables Assets with respect thereto and the proceeds thereof do not remain commingled with Collections hereunder. 9.2 Payments. Each cash payment to be made by any of the Company or -------- the Sellers hereunder shall be made on the required Payment Date and in immediately available funds at the office of the payee set forth below its signature hereto or to such other office as may be specified by either party in a notice to the other party hereto in Dollars. 9.3 Costs and Expenses. The Sellers, jointly and severally, agree ------------------ (a) to pay or reimburse the Company for all its out-of-pocket costs and expenses incurred in connection with the preparation and execution of, and any amendment, supplement or modification to, this Agreement, the other Transaction Documents and any other documents prepared in connection herewith and therewith, the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, all reasonable and documented fees and disbursements of counsel, (b) to pay or reimburse the Company for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and any of the other Transaction Documents, including, without limitation, the reasonable fees and disbursements of counsel to the Company, (c) to pay, indemnify and hold the Company harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and any such other documents and (d) to pay, indemnify and hold the Company harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (i) which may at any time be imposed on, incurred by or asserted against the Company in any way relating to or arising out of this Agreement or the Transaction Documents or the transactions contemplated hereby and thereby or in connection herewith or any action taken or omitted by the Company under or in connection with any of the foregoing (all such other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements being herein called "Indemnified Liabilities") or (ii) which would not have been imposed on, incurred 32 by or asserted against the Company but for its having purchased the Receivables hereunder; provided, that such indemnity shall not be available to the extent -------- that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of the Company; and provided, further, that the Sellers shall have no obligation under -------- ------- this subsection 9.3 to the Company with respect to Indemnified Liabilities arising from (i) any action taken, or omitted to be taken, by a Servicer which is not an Affiliate of the Sellers, (ii) any action taken by the Participants or the Company at the direction of the Administrative Agent in collecting from an Obligor or (iii) a delay in payment, or a default, by an Obligor with respect to any Purchased Receivable (other than arising out of (x) any discharge, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Purchased Receivable (including, without limitation, a defense based on such Purchased Receivable not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms) or any other claim resulting from the sale of the merchandise or services related to any such Purchased Receivable or the furnishing or failure to furnish such merchandise or services, (y) a failure by any Seller to perform its duties or obligations under this Agreement or (z) the sale of any Purchased Receivable that is designated on the applicable Daily Report to be an Eligible Receivable and is determined to have been at the date of such sale not an Eligible Receivable). The agreements in this subsection shall survive the collection of all Receivables, the termination of this Agreement and the payment of all amounts payable hereunder. 9.4 Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the Sellers and the Company and their respective successors (whether by merger, consolidation or otherwise) and assigns. Each Seller agrees that it will not assign or transfer all or any portion of its rights or obligations hereunder without the prior written consent of the Company. The Sellers acknowledge that the Company shall assign all of its rights hereunder to the Participants. Each Seller consents to such assignment and agrees that the Administrative Agent and, to the extent provided in the Receivables Transfer Agreement, the Participants shall be entitled to enforce the terms of this Agreement and the rights (including, without limitation, the right to grant or withhold any consent or waiver or give any notice) of the Company directly against such Seller, whether or not a Purchase Termination Event or a Termination Event has occurred and that no consent, waiver or notice given hereunder by the Company shall be effective unless the Administrative Agent has given its written consent thereto. Each Seller further agrees that, in respect of its obligations hereunder, it will act at the direction of and in accordance with all requests and instructions from the Administrative Agent (including, without limitation, pursuant to subsection 2.1(f)) until the Net Investment of the Participants are paid in full. Each of the Administrative Agent and the Participants shall have the rights of third-party beneficiaries under this Agreement. 33 9.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF ------------- THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 9.6 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Company, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. 9.7 Amendments and Waivers. Neither this Agreement nor any terms ---------------------- hereof may be amended, supplemented or modified except in a writing signed by the Company and any affected Seller and consented to by the Administrative Agent. 9.8 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent such prohibition or unenforceability without invalidating 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. 9.9 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Company and WMI, and in care of WMI in the case of the Sellers, or to such other address as may be hereafter notified by the respective parties hereto: The Company: Waste Management Financing Corporation 3003 Butterfield Road Oak Brook, Illinois 60523 Attention: Treasurer Telephone: 630-572-3018 Telecopy: 630-572-1340 With a copy to the Administrative Agent: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: Loan and Agency Services 34 Telecopy: (212) 552-5662 WMI: Waste Management, Inc. 3003 Butterfield Road Oak Brook, Illinois 60523 Attention: Vice President-Finance Telecopy: 630-572-1340 9.10 Counterparts. This Agreement may be executed by one or more of ------------ the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company. 9.11 Construction of Agreement as Security Agreement. This Agreement ----------------------------------------------- shall constitute a security agreement under applicable law. 9.12 WAIVERS OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE --------------------- FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SUBSECTION 9.12. 9.13 Jurisdiction; Consent to Service of Process. (a) Each party ------------------------------------------- hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Transaction Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Company may otherwise have to bring any action or proceeding relating to this Agreement or the other 35 Transaction Documents against any Seller or its properties in the courts of any jurisdiction. (b) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent they may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Transaction Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in subsection 9.9. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 9.14 Addition of Sellers. Subject to subsection 3.4 hereof, ------------------- subsection 8.23 of the Receivables Transfer Agreement and the terms and conditions of this subsection 9.14, from time to time one or more additional, direct or indirect, wholly owned Subsidiaries of WMI may become Sellers hereunder and parties hereto. If any such Subsidiary wishes to become an additional Seller, it shall submit a request to such effect in writing to the Company. The Company, in its sole and absolute discretion, may agree to or deny any such request; provided, that if the Company shall have failed to respond to -------- any such request within 30 days after receipt thereof, such request shall be deemed to have been denied. If the Company shall have agreed to any such request, such Subsidiary shall become an additional Seller hereunder and a party hereto on the related Seller Addition Date upon satisfaction of the conditions set forth in subsection 3.4. 9.15 Termination of Sellers. (a) From and after the date that any ---------------------- Seller notifies the Company and the Administrative Agent that such Seller has ceased to be a direct or indirect wholly owned Subsidiary of WMI, the Company shall cease buying Receivables and other Receivable Assets from such Seller. Each such Seller shall be released as a Seller party hereto for all purposes and shall cease to be a party hereto on the date on which there are no amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company, whether such amounts have been repurchased, collected or written off in accordance with the Policies and the Company Policies. Prior to such date, such Seller shall be obligated to perform its servicing and other obligations hereunder and under the Transaction Documents to which it is a party with respect to Purchased Receivables previously sold by such Seller to the Company, including, without limitation, its obligation to deposit Collections into the appropriate Designated Accounts. (b) A terminated Seller shall have no obligation to repurchase any Receivables other than Receivables sold by any Seller to the Company prior to such Seller's termination which are subject to a Repurchase Event. 36 9.16 No Bankruptcy Petition. Each Seller and WMI, by entering into ---------------------- this Agreement, and any present or future holder of the Subordinated Note, by its acceptance thereof, covenants and agrees that, prior to the date which is one year and one day after the date of termination of this Agreement pursuant to subsection 9.17, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law. 9.17 Termination. This Agreement will terminate at such time as (a) ----------- the commitment of the Company to purchase Receivables from all Sellers hereunder shall have terminated and (b) all Receivables purchased hereunder have been collected, and the proceeds thereof turned over to the Company, and all other amounts owing to the Company hereunder shall have been paid in full or, if Receivables sold hereunder have not been collected such Receivables have become Defaulted Receivables and the Company shall have completed its collection efforts in respect thereto; provided, however, that the indemnities of the -------- ------- Sellers to the Company set forth in this Agreement shall survive such termination; and provided, further, that, to the extent any amounts remain due -------- ------- and owing to the Company hereunder, the Company shall remain entitled to receive any collections on Receivables sold hereunder which have become Defaulted Receivables after it shall have completed its collection efforts in respect thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written. WASTE MANAGEMENT, INC., as Master Servicer By: /s/ William C. Keightley ------------------------------ Name: William C. Keightley Title: Treasurer WASTE MANAGEMENT FINANCING CORPORATION By: /s/ Daniel Shoener ----------------------------- Name: Daniel Shoener Title: Auithorized Signatory The Sellers: ----------- ADVANCED ENVIRONMENTAL TECHNICAL SERVICES, L.L.C. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer AMERICAN REFUSE SYSTEMS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CALIFORNIA ACQUISITION SUB, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CEDAR HAMMOCK REFUSE DISPOSAL CORPORATION By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CHARLOTTE LANDSCAPING & SANITATION SERVICE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CHEM NUCLEAR SYSTEMS, L.L.C. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CHEMICAL WASTE MANAGEMENT, INC. 39 By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CHEMICAL WASTE MANAGEMENT OF INDIANA, L.L.C. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CHEMICAL WASTE MANAGEMENT OF THE NORTHWEST, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer COMMUNITY REFUSE, LIMITED By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CWM CHEMICAL SERVICES, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CWM HOLDINGS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CWM RESOURCE MANAGEMENT, INC. 40 By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer CWM RESOURCE RECOVERY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer DEBRIS PROCESSORS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer DIVERSIFIED SCIENTIFIC SERVICES, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer GEOLOGICAL RECLAMATION OPERATIONS AND WASTE SYSTEMS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer GEORGIA WASTE SYSTEMS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 41 GULF DISPOSAL, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer HARRIS SANITATION, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer KEENE ROAD LANDFILL, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer MODERN TRASH REMOVAL OF NEW YORK, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer NEW ENGLAND CR, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer NICHOLS SANITATION, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 42 OCMULGEE DISPOSAL, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer OIL AND SOLVENT PROCESS COMPANY By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer REFUSE SERVICES, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer REUTER RECYCLING OF FLORIDA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer SALEM WASTE DISPOSAL CENTER, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer SC HOLDINGS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 43 TOWN & COUNTRY REFUSE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer TRAIL RIDGE LANDFILL, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WARNER COMPANY By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASHINGTON WASTE HAULING & RECYCLING, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASHINGTON WASTE SYSTEMS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE AWAY GROUP, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 44 WASTE MANAGEMENT COLLECTION AND RECYCLING, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT DISPOSAL SERVICES OF ARIZONA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT DISPOSAL SERVICES OF COLORADO, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT DISPOSAL SERVICES OF MAINE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT DISPOSAL SERVICES OF MARYLAND, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT DISPOSAL SERVICES OF OREGON, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 45 WASTE MANAGEMENT DISPOSAL SERVICES OF PENNSYLVANIA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT DISPOSAL SERVICES OF VIRGINIA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT DISPOSAL SERVICES OF WASHINGTON, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Treasurer WASTE MANAGEMENT OF ALABAMA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF ALAMEDA COUNTY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley 46 Title: Assistant Treasurer WASTE MANAGEMENT OF ARIZONA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF ARKANSAS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF CALIFORNIA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF CAMBRIDGE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF CAROLINAS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF CENTRAL FLORIDA, INC. By: /s/ William C. Keightley -------------------------------- 47 Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF CENTRAL JERSEY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF COLORADO, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF CONNECTICUT, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF DELAWARE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT INC. OF FLORIDA By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF GEORGIA, INC. 48 By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF GRASS VALLEY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF GREATER WASHINGTON, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF HAWAII, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF IDAHO, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF ILLINOIS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 49 WASTE MANAGEMENT OF INDIANA, L.L.C. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF IOWA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF KANSAS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF KENTUCKY HOLDINGS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF KENTUCKY, L.L.C. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF LAGRANGE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 50 WASTE MANAGEMENT OF LEON COUNTY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF LOUISIANA, L.L.C. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF MAINE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF MARYLAND, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF MASSACHUSETTS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF MICHIGAN, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 51 WASTE MANAGEMENT OF MINNESOTA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF MISSISSIPPI, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF MISSOURI, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF MONTANA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF NEBRASKA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF NEW HAMPSHIRE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 52 WASTE MANAGEMENT OF NEW MEXICO, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF NEW YORK, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF NEW YORK CITY, L.P. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF NORTH AMERICA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF NORTH JERSEY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF OHIO, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 53 WASTE MANAGEMENT OF OKLAHOMA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF ORANGE COUNTY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF OREGON, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF ORLANDO, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF PENNSYLVANIA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF RHODE ISLAND, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 54 WASTE MANAGEMENT OF SOUTH CAROLINA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF SOUTH DAKOTA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF SOUTH JERSEY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT INC. OF TENNESSEE By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF TEXAS, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF TRI-CITIES, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 55 WASTE MANAGEMENT OF TROUTDALE, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF UTAH, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF VIRGINIA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF WEST VIRGINIA, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF WISCONSIN, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WASTE MANAGEMENT OF WYOMING, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer 56 WASTE RESOURCES OF TAMPA BAY, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WESTERN COMPLIANCE SERVICES, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer WM OF NEW YORK, INC. By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Assistant Treasurer EX-10.48 10 RECEIVABLES TRANSFER & SERVICING AGMT. EXHIBIT 10.48 Conformed Copy ================================================================================ WASTE MANAGEMENT FINANCING CORPORATION WASTE MANAGEMENT, INC. as Master Servicer THE OTHER SERVICERS NAMED HEREIN THE PARTICIPANTS NAMED HEREIN RECEIVABLES TRANSFER AND SERVICING AGREEMENT __________________ Dated as of December 29, 1997 THE CHASE MANHATTAN BANK as Administrative Agent ================================================================================ TABLE OF CONTENTS -----------------
Page ---- ARTICLE I Definitions..................................... 1 1.1 Defined Terms.............................................................. 1 1.2 Terms Generally............................................................ 1 1.3 Accounting Terms; GAAP..................................................... 2 ARTICLE II Acquisition and Transfer of Participating Interest....................... 2 2.1 Acquisition and Transfer of Participating Interest......................... 2 2.2 Participating Interest..................................................... 5 2.3 Payment for Initial Transfer of a Participating Interest and any Increase in Net Investment; Acquisition and Transfer Procedure.................. 5 2.4 Commitment Fees............................................................ 6 2.5 Fee and Purchase Discount Amount Calculations.............................. 7 2.6 Interest on Overdue Payments............................................... 7 2.7 Establishment of Accounts; Allocation of Collections; Reinvestment of Principal Collections.................................................. 8 2.8 Payments; Pro Rata Treatment............................................... 11 2.9 Netting of Payments........................................................ 12 2.10 Termination or Reduction of Commitment..................................... 12 2.11 Optional Retransfer; Reduction of Net Investment........................... 12 2.12 Mandatory Reductions in Net Investment..................................... 13 ARTICLE III Increased Costs................................. 14 3.1 Alternate Determination of Purchase Discount Amounts....................... 14 3.2 Increased Costs............................................................ 15 3.3 Indemnity.................................................................. 16 3.4 Taxes...................................................................... 16 3.5 Mitigation Obligations; Replacement of Participants........................ 18
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Page ---- ARTICLE IV Termination.................................. 18 4.1 Termination............................................................... 18 ARTICLE V Covenants, Representations and Warranties..................... 18 5.1 Representations and Warranties of the Company Relating to the Company..... 18 (a) Organization; Corporate Powers................................... 19 (b) Authorization.................................................... 19 (c) Enforceability................................................... 19 (d) Governmental Approvals; No Conflicts............................. 19 (e) Litigation, etc.................................................. 19 (f) Compliance with Laws and Agreements.............................. 20 (g) Ownership of Property; Liens..................................... 20 (h) Investment Company Act; Other Regulations........................ 20 (i) Taxes............................................................ 20 (j) Ownership; Subsidiaries.......................................... 20 (k) Pro Forma Balance Sheet.......................................... 20 (l) No Material Adverse Change....................................... 21 (m) Solvency......................................................... 21 (n) Employee Benefit Plans........................................... 21 5.2 Representations and Warranties of the Company Relating to this Agreement and the Receivables................................................... 22 5.3 Retransfer Obligation..................................................... 23 5.4 Obligations Unaffected.................................................... 24 ARTICLE VI Conditions to Effectiveness/Transfers/Reinvestments................ 24 6.1 Commencement Date......................................................... 24 6.2 Condition to each Increase in Net Investment.............................. 26 ARTICLE VII Affirmative Covenants............................... 27 7.1 Financial Statements...................................................... 28 7.2 Certificates; Other Information........................................... 28
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Page ---- 7.3 Existence; Businesses and Properties; Insurance; Receivables.............. 29 7.4 Payment of Obligations.................................................... 29 7.5 Inspection of Property; Books and Records; Discussions.................... 30 7.6 Notices................................................................... 30 7.7 Net Worth................................................................. 30 7.8 Use of Proceeds........................................................... 30 7.9 Separate Corporate Existence.............................................. 31 7.10 Facility Rating........................................................... 32 7.11 Purchase of Receivables................................................... 32 7.12 Delivery of Collections................................................... 32 ARTICLE VIII Negative Covenants................................. 32 8.1 Accounting of Transfers................................................... 32 8.2 Limitation on Indebtedness................................................ 32 8.3 Limitation on Liens....................................................... 33 8.4 Limitation on Guarantees.................................................. 33 8.5 Limitation on Fundamental Changes......................................... 33 8.6 Limitation on Sale of Assets.............................................. 33 8.7 Limitation on Dividends and Payments on Subordinated Note................. 33 8.8 Business of the Company................................................... 34 8.9 Limitation on Investments, Loans and Advances............................. 34 8.10 Limitation on Sales and Leasebacks........................................ 34 8.11 Transactions with Affiliates.............................................. 34 8.12 Capital Stock............................................................. 34 8.13 Amendments................................................................ 34 8.14 Receivables Sale Agreement, etc........................................... 34 8.15 Policies.................................................................. 34 8.16 No Powers of Attorney..................................................... 35 8.17 Receivables Not to Be Evidenced by Promissory Notes....................... 35 8.18 Ownership of Assets and Property.......................................... 35 8.19 Rescission or Cancellation................................................ 35 8.20 Ineligible Receivables.................................................... 35 8.21 Offices................................................................... 35 8.22 Change in Name............................................................ 36 8.23 Addition of Sellers....................................................... 36 8.24 Operating Expenses........................................................ 36 ARTICLE IX Events of Termination............................... 36
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Page ---- ARTICLE X The Administrative Agent............................ 39 10.1 Appointment............................................................ 39 10.2 Delegation of Duties................................................... 40 10.3 Exculpatory Provisions................................................. 40 10.4 Reliance By the Administrative Agent................................... 40 10.5 Notice of Default or Termination Event................................. 41 10.6 Non-Reliance on the Administrative Agent and Other Participants........ 41 10.7 Indemnification........................................................ 42 10.8 The Administrative Agent in Its Individual Capacity.................... 42 10.9 Successor Administrative Agent......................................... 42 ARTICLE XI Miscellaneous................................. 43 11.1 Further Assurances..................................................... 43 11.2 Payments............................................................... 43 11.3 Costs and Expenses..................................................... 43 11.4 Successors and Assigns; Assignments; Participations.................... 44 11.5 GOVERNING LAW.......................................................... 46 11.6 No Waiver; Cumulative Remedies......................................... 46 11.7 Amendments and Waivers................................................. 47 11.8 Severability........................................................... 47 11.9 Notices................................................................ 47 11.10 Counterparts........................................................... 48 11.11 Construction of Agreement as Security Agreement........................ 48 11.12 Adjustments; Set-off................................................... 48 11.13 Jurisdiction; Consent to Service of Process............................ 49 11.14 Acknowledgements....................................................... 50 11.15 WAIVER OF JURY TRIAL................................................... 50 11.16 Confidentiality........................................................ 50 11.17 No Bankruptcy Petition, etc............................................ 51 11.18 Tax Treatment.......................................................... 51 ARTICLE XII Servicing................................... 51 12.1 Servicing; Accounts; Collections........................................ 51 12.2 Collections by the Servicers; Indemnity................................. 55 12.3 Maintenance of Records.................................................. 58 12.4 Rebates, Adjustments, Returns and Reductions; Modifications............. 59
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Page ---- 12.5 Daily Reports; Settlement Statements...................................... 59 12.6 Representations, Warranties and Covenants of the Servicers................ 60 12.7 Acquisition Obligation.................................................... 66 12.8 Obligations Unaffected.................................................... 67 12.9 Addition of Servicers..................................................... 68 12.10 Interest on Overdue Payments.............................................. 68 12.11 Servicer Events of Defaults............................................... 68
ANNEX X Definitions SCHEDULES 1 Names, Addresses and Commitments of Participants 2 Names; Balance of Receivables; Location of Chief Executive Offices; Location of Receivables Records; Jurisdictions of Incorporation; Jurisdiction in which Qualified to do Business; Effective Date; Seller Category 3 Designated Accounts (To be delivered on the Commencement Date and shall become a part hereof for all purposes.) EXHIBITS A Form of Request for Transfer and Assignment B Reserve Events C Form of Settlement Statement D Form of Additional Servicer Supplement E Form of Responsible Officer's Certificate as to Solvency, etc. F Form of Daily Report G Form of Assignment and Acceptance -v- RECEIVABLES TRANSFER AND SERVICING AGREEMENT, dated as of December 29, 1997, among WASTE MANAGEMENT FINANCING CORPORATION, a Delaware corporation (the "Company"), WASTE MANAGEMENT, INC., a Delaware corporation ("WMI"), as master servicer (in such capacity, the "Master Servicer"), each of the Subsidiaries of WMI from time to time parties hereto, in their capacities as servicers of receivables (in such capacities, the "Servicers"), the several financial institutions from time to time parties to this Agreement (the "Participants") and THE CHASE MANHATTAN BANK, a New York corporation, as administrative agent for the Participants (the "Administrative Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company desires to sell, assign, transfer and convey to the Participants, and the Participants desire to acquire a Participating Interest (as hereinafter defined) in, all the Company's right, title and interest in, to and under the Receivables (as hereinafter defined) now existing or hereafter created and in the rights of the Company in, to and under all other Related Property (as hereinafter defined); NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I Definitions 1.1 Defined Terms. Capitalized terms used in this Agreement shall ------------- have the respective meanings assigned to such terms in Annex X hereto unless otherwise defined herein. 1.2 Terms Generally. The definitions of terms herein shall apply --------------- equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein," "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, subsections, Exhibits and Schedules shall be construed to refer to Articles and subsections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. 1.3 Accounting Terms; GAAP. Except as otherwise expressly provided ---------------------- herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time. ARTICLE II Acquisition and Transfer of Participating Interest 2.1 Acquisition and Transfer of Participating Interest. (a) By -------------------------------------------------- execution of this Agreement and subject to the terms and conditions contained herein, the Company does hereby sell, transfer, assign, set over and otherwise convey, without recourse (except as expressly provided herein), to the Participants and to the Administrative Agent, for the benefit of the Participants, and each Participant hereby severally agrees to purchase and acquire from the Company, a senior undivided participating interest from time to time (in an amount specified in subsection 2.2 and subject to the limitations specified in subsections 2.2 and 2.3(c)) in all right, title and interest of the Company in, to and under the following, whether now owned or hereafter acquired (collectively, the "Receivables Property," and together with the property described in subsections 2.1(b) and 2.1(c), the "Pooled Property"): (i) all Receivables; (ii) all Collections; (iii) all Related Property; (iv) all rights (including rescission, replevin or reclamation, but none of the obligations) relating to any Receivable or arising therefrom; (v) all proceeds of, or payments in respect of, the foregoing, including, without limitation, whatever is received upon the sale, exchange, collection or other disposition of the foregoing or proceeds (including, without limitation, whatever is received upon the sale, exchange, collection or other disposition of the foregoing and all "proceeds" as defined in Section 9-306 of the UCC as in effect in the State of New York) thereof, including all Recoveries relating thereto. (b) In addition, to secure the obligation of the Company hereunder, including, without limitation the obligations set forth in subsection 2.7, the Company hereby assigns to the Administrative Agent, for the benefit of the Participants, and grants to the Administrative Agent, for the benefit of the Participants, a security interest in all its right, title and interest in, to and under the Receivables Sale Agreement and the Receivables Sale Agreement Guarantee, including (i) all property assigned thereunder and all rights of the Company to receive moneys due and to become due under or pursuant to such agreement, whether payable as fees, expenses, costs or otherwise, (ii) all rights of the Company to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to such agreement, (iii) claims of the Company for damages arising out of or for breach of or default under such agreement, (iv) the right of the Company to amend, waive or terminate such agreement, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder, (v) all other rights, remedies, powers, privileges and claims of the Company under or in connection with such agreement (whether arising pursuant to such agreement or otherwise available to the Company at law or in equity), including the rights of the Company to enforce such agreement and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or in connection therewith whether or not a Termination Event has occurred and is continuing and (vi) all monies due or to become due and all amounts received with respect to the items listed in clauses (i) through (v) and all proceeds (including, without limitation, whatever is received upon the sale, exchange, collection or other disposition of the foregoing and all "proceeds" as defined in Section 9-306 of the UCC as in effect in the State of New York) thereof, including all Recoveries relating thereto (the Pooled Property described in this sentence being referred to herein as the "Transferred Agreements"). (c) In addition, to secure the obligations of the Company hereunder, including, without limitation, the obligations set forth in subsection 2.7, the Company hereby grants to the Administrative Agent, for the benefit of the Participants, a security interest in all right, title and interest of the Company in, to and under the following, whether now owned or hereafter acquired: (i) all equipment in all its forms, wherever located, now or hereafter existing (including all software, data bases, materials, books, records, magnetic tapes, disks and cassettes relating to the Receivables and all other equipment in which information concerning the Receivables is stored), and all parts thereof and accessions thereto (any and all such equipment, parts and accessions being the "Equipment"); (ii) all the following (the "Accounts"): (A) the Collection Account and the SPC Collection Account and, to the extent provided further herein, any interest in the Designated Accounts or the Concentration Account, all funds and other evidences of payment held therein and all certificates and instruments, if any, from time to time representing or evidencing such Account or any funds and other evidences of payment held therein; (B) any operating account or other accounts of the Company, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing any such operating account or any funds held therein; (C) all Cash Equivalents and all certificates and instruments from time to time representing or evidencing the Cash Equivalents; (D) all notes, certificates of deposit and other instruments from time to time hereafter delivered or transferred to, or otherwise possessed by, the Administrative Agent for and on behalf of the Company in substitution for or in addition to any of the then-existing Accounts; and (E) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any and all of the then- existing Accounts; and (iii) all proceeds of or payments in respect of any and all of the foregoing (including proceeds that constitute property of the types described in clauses (i) and (ii) above and including Collections) and, to the extent not otherwise included, all payments under insurance (whether or not the Administrative Agent is the loss payee in respect thereof), or any indemnity, warranty or guaranty payable by reason of loss or damage to or otherwise with respect to any of the Pooled Property. (d) In connection with the assignment, set over and conveyance to the Participants pursuant to subsection 2.1(a), the Company, the Master Servicer and the Participants agree that the Administrative Agent shall constitute a "secured party" as defined in Section 9-105(m) of the UCC. Each reference in this Agreement, unless the context otherwise requires, to the sale, assignment, transfer, set over or conveyance of a Receivable or other Receivables Property shall be construed as a reference to the sale, assignment, transfer, set over or conveyance of the senior undivided participating interest in the Receivable and the other Receivables Property to the Participants hereunder. In connection with the foregoing assignment, the Company and the Master Servicer agree to deliver to the Administrative Agent each item evidencing a Receivable or other Receivables Property (including any original documents or instruments as are necessary to effect such assignment) in which the transfer of an interest is perfected under the UCC or otherwise solely by possession and not by filing a financing statement or similar document. Notwithstanding the assignment of the Transferred Agreements set forth in subsection 2.1(b), the Company does not hereby assign or delegate any of its duties or obligations under the Transferred Agreements to the Administrative Agent or the Participants and neither the Administrative Agent nor any Participant accepts such duties or obligations, and the Company shall continue to have the right and the obligation to purchase Receivables from the Sellers thereunder from time to time. The foregoing assignment, set-over and conveyance does not constitute and is not intended to result in a creation or an assumption by the Administrative Agent or the Participant, of any obligation of the Master Servicer, the Company, any Seller or any other Person in connection with the Receivables or under any agreement or instrument relating thereto, including, without limitation, any obligation to any Obligor. In connection with such assignments, the Company agrees to record and file, at its own expense, any financing statements (and continuation statements with respect to such financing statements when applicable) or, where applicable, registrations in the appropriate records, (i) with respect to the Receivables now existing and hereafter created and (ii) with respect to any other Pooled Property a security interest in which may be perfected under the relevant UCC, legislation or similar statute by such filing or registration, as the case may be, in each case meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary to perfect and maintain perfection of the assignment of the Receivables and such other Pooled Property (excluding returned merchandise) to the Participants and the Administrative Agent, and to deliver a file-stamped copy or certified statement of such financing statement or registration or other evidence of such filing or registration to the Administrative Agent not later than the 10th day after the Commencement Date. The Administrative Agent shall be under no obligation whatsoever to file such financing statement, or a continuation statement to such financing statement, or to make any other filing or other registration under the UCC, other relevant legislation or similar statute in connection with such transfer. The Administrative Agent shall be entitled to conclusively rely on the filings or registrations made by or on behalf of the Company without any independent investigation and the Company's obligation to make such filings as evidence that such filings have been made. In connection with such assignments, the Company and the Master Servicer further agree, at their own expense, on or prior to the Commencement Date, to indicate, or to cause to be indicated, in their respective computer files containing a master database of Receivables and to cause each Seller to indicate in its records containing a master database of Receivables that the Receivables have been conveyed to the Company or the Participants, as the case may be, pursuant to the Receivables Sale Agreement or this Agreement, respectively, for the benefit of the Participants. 2.2 Participating Interest. Subject to the terms and conditions set ---------------------- forth herein (including, without limitation, subsections 2.3(c) and 6.2), each Participant agrees during the Commitment Period to ratably purchase a Participating Interest and ratably increase its Net Investment in an aggregate amount that will not result in such Participant's Net Investment exceeding such Participant's Commitment and the Net Investment of all Participants exceeding the aggregate Commitments then in effect. The senior undivided participating interest of the Participants in the Receivables and the Receivables Property (the "Participating Interest"; a Participant's Commitment Percentage of such Participating Interest shall equal such Participant's "Participating Interest") shall equal, at any date of determination thereof, the Net Investment at such date and the Participating Interest of any Participant shall equal, at any date of determination thereof, the Net Investment of such Participant at such date. The Participating Interest shall, among other things, entitle the Participants to receive the amounts distributable to the Participants pursuant to subsection 2.7, including, without limitation, Purchase Discount Amounts which shall accrue thereon in accordance with this Agreement and the payment of the Net Investment. The Company agrees to provide any Participant upon its request with a certificate evidencing such Participant's Participating Interest. 2.3 Payment for Initial Transfer of a Participating Interest and any ---------------------------------------------------------------- Increase in Net Investment; Acquisition and Transfer Procedure. (a) The - -------------------------------------------------------------- Company shall notify the Administrative Agent of the amount of the initial transfer and assignment of a Participating Interest or any request for an Increase in Net Investment pursuant to this subsection 2.3. The amount which the Participants shall pay for such initial transfer and assignment or Increase in Net Investment shall equal the amount of such initial transfer and assignment or Increase in Net Investment, as the case may be. Amounts payable to the Company in respect of the initial transfer and assignment of a Participating Interest or any Increase in Net Investment on such Closing Date shall be obtained by the Administrative Agent from the Participants and paid by the Administrative Agent to the Company in accordance with the provisions of subsection 2.8(a). (b) Subject to subsections 2.3(c) and 6.2, the initial transfer and assignment of a Participating Interest or an Increase in Net Investment of the Participants shall occur, upon notice from the Company, on any Business Day during the Commitment Period (each date on which the initial transfer and assignment of a Participating Interest in the Receivables or an Increase in Net Investment of the Participants occurs hereunder being herein referred to as the "Closing Date" applicable to such transfer and assignment or such increase, as the case may be); provided, that the Company shall have given the Administrative -------- Agent irrevocable notice (effective upon receipt) of such request substantially in the form of Exhibit A hereto (the "Request for Transfer and Assignment") no later than (i) if the initial transfer and assignment of a Participating Interest or the Increase in Net Investment on such date is to be priced solely with reference to ABR, 12:00 Noon (New York City time) on such Closing Date or (ii) if all or a portion of the initial transfer and assignment of a Participating Interest or the Increase in Net Investment is to be allocated to a Fixed Tranche, 11:00 a.m. (New York City time) three Business Days prior to such Closing Date; provided, further, that the provisions of this subsection 2.3(b) -------- ------- shall not restrict the allocations of Collections pursuant to subsection 2.7. Such notice shall state (i) the Closing Date, (ii) the amount of the initial transfer and assignment of a Participating Interest or the Increase in Net Investment, as the case may be, for the proposed transaction, (iii) what portion thereof will be allocated to a Fixed Tranche and/or the Floating Tranche and (iv) if any portion thereof is to be allocated to a Fixed Tranche, the length of the Transfer Period therefor. After receipt by the Administrative Agent of the Request for Transfer and Assignment from the Company, the Administrative Agent shall promptly provide notice (which may be telephonic but shall be confirmed in writing) to each Participant of the Closing Date and of the portion of the Participating Interest or the Increase in Net Investment allocable to such Participant on such Closing Date. (c) Each Participant shall have no obligation to acquire a Participating Interest or to increase its Net Investment on any Closing Date hereunder: (1) unless, in the case of an Increase in Net Investment, the Increase in Net Investment for all Participants on such Closing Date is equal to at least $10,000,000 or an integral multiple of $1,000,000 in excess thereof; (2) to the extent that, after giving effect to (A) in the case of the initial transfer and assignment of a Participating Interest, such transfer, and (B) in the case of an Increase in Net Investment, such Increase in Net Investment on such date, the Net Investment for all Participants would exceed the Maximum Transfer Amount; or (3) if the Commitments of the Participants have terminated pursuant to Article IX. The initial transfer and assignment of the Participating Interest or an Increase in Net Investment allocable to the Participants as a group shall be allocated to each Participant according to the Commitment Percentage of such Participant. 2.4 Commitment Fees. The Company agrees to pay to the Administrative --------------- Agent, for the account of the Participants, a commitment fee (the "Commitment Fee") for the Commitment Period, computed at the rate of 0.1875 of 1% per annum on the average daily excess of the Maximum Commitment over the Net Investment for each day during the period for which such Commitment Fee is payable. Accrued Commitment Fees shall be payable in arrears, based on invoices submitted by the Administrative Agent to the Company, on the Settlement Date occurring in March, June, September and December and on the date of the termination of the Commitment, commencing on March 20, 1998 and shall be paid in immediately available funds to the Administrative Agent for distribution to the Participants. 2.5 Fee and Purchase Discount Amount Calculations. (a) Calculations --------------------------------------------- of per annum rates under this Agreement shall be made on the basis of a 360-day year for actual days elapsed, except that Commitment Fees and Purchase Discount Amounts on the Floating Tranche determined by reference to the Prime Rate shall be calculated on the basis of a 365- (or 366-, as the case may be) day year. Each determination of the Adjusted LIBO Rate hereunder by the Administrative Agent shall be conclusive and binding upon each of the parties hereto in the absence of manifest error. Any change in the Purchase Discount Amount resulting from a change in ABR or the Statutory Reserve Rate shall become effective as of the opening of business on the day on which such change is announced. (b) On any Business Day, the Company may, subject to paragraph (c) below, elect to allocate all or any portion of the Net Investment not allocated to a Fixed Tranche to one or more Fixed Tranches with Transfer Periods commencing on such Business Day by giving the Administrative Agent irrevocable written or telephonic (confirmed in writing) notice thereof, which notice must be received by the Administrative Agent prior to 1:00 p.m., New York City time, three Business Days prior to such Business Day. Such notice shall specify (i) the applicable Business Day, (ii) the Transfer Period for each Fixed Tranche to which a portion of the Net Investment is to be allocated and (iii) the portion of the Net Investment being allocated to each such Fixed Tranche. Promptly upon receipt of each such notice, the Administrative Agent shall notify each Participant of the contents thereof. If the Administrative Agent shall not have received timely notice as aforesaid with respect to all or any portion of the Net Investment, the Purchase Discount Amount on such amount shall be calculated by reference to the ABR. (c) Anything contained in this Agreement to the contrary notwithstanding, (i) the portion of the Net Investment allocable to any Fixed Tranche must be an amount equal to $10,000,000 or an integral multiple of $1,000,000 in excess thereof, (ii) no more than ten Fixed Tranches shall be outstanding at any one time and (iii) after the occurrence and during the continuance of any Termination Event, at the end of the related Transfer Period all of the Net Investment allocated to any Fixed Tranche shall be reallocated to the Floating Tranche. 2.6 Interest on Overdue Payments. If any amount payable by the ---------------------------- Company to the Participants or the Administrative Agent hereunder, whether on account of fees or expenses or on account of amounts collected by the Company or amounts payable by the Company pursuant to Article III or subsection 5.3, or otherwise, is not paid by the Company or otherwise on the relevant Settlement Date or other relevant date, such amount shall be payable together with interest, payable on demand, for each day from such Settlement Date or other relevant date, as the case may be, until such amount is paid in full at a rate per annum equal to the ABR plus 2%. ---- 2.7 Establishment of Accounts; Allocation of Collections; ----------------------------------------------------- Reinvestment of Principal Collections. - ------------------------------------- (a) (i) The Administrative Agent shall establish and maintain in the name of the Administrative Agent a trust account (the "Collection Account"). Collections deposited into the SPC Collection Account will be transferred to the Collection Account as set forth in Article XII. All Collections otherwise received by any Servicer, the Master Servicer or the Company shall be deposited by it either to a Designated Account or into the Concentration Account as set forth in Article XII. The Administrative Agent shall have sole and exclusive dominion over and control of the Collection Account, and the Company, the Sellers and the Master Servicer shall not have any dominion over or control of any such account. (ii) Amounts deposited in the Collection Account shall be invested by the Administrative Agent as directed by the Master Servicer in Cash Equivalents maturing not later than the next Business Day. (iii) Any earnings (net of losses and investment expenses) on such invested funds in any Collection Account ("Investment Earnings") will be treated as Collections and retained therein. (iv) Neither the Company nor the Master Servicer nor any Servicer nor any Person claiming by, through or under the Company, any Servicer or the Master Servicer shall have any right, title or interest in, or any control over the use of, or any right to withdraw moneys from, the Collection Account, except (A) the right to give directions for investments of amounts on deposit therein as expressly provided for in paragraph (ii) above and (B) pursuant to the authority granted to the Master Servicer in subsection 12.2, the Master Servicer shall have the power, revocable by the Administrative Agent, to instruct the Administrative Agent to make withdrawals from the Collection Account for the purpose of carrying out the Administrative Agent's duties hereunder. Delivery of a Daily Report by the Master Servicer or a Servicer instructing the Administrative Agent to make withdrawals from the Collection Account shall be deemed to constitute a representation and warranty that such withdrawal is authorized pursuant to the terms hereof and all conditions to such withdrawal have been satisfied. In the event that the Master Servicer or a Servicer fails to deliver a Daily Report, the Administrative Agent may (but shall not be obligated to) apply Receivable Proceeds in accordance with this subsection 2.7 to the payment of amounts to be paid to the Participants and the Administrative Agent. The Company agrees that all Receivable Proceeds shall be applied and paid in accordance with this subsection 2.7. Any Receivable Proceeds not applied on any Business Day in accordance with this subsection 2.7 shall be retained in the Collection Account until applied in accordance with this subsection 2.7. (b) Prior to the commencement of an Amortization Period, the Collections, Retransfer Payments, Adjustment Payments and the other proceeds of the Pooled Property deposited in the Collection Account (collectively, "Receivable Proceeds") shall be applied by the Administrative Agent on each Business Day (in accordance with the Daily Report provided by the Master Servicer or a Servicer, upon which the Administrative Agent may conclusively rely on), as follows: (i) first, if such Business Day is a Settlement Date, to the payment of the Monthly Servicing Fee to the Master Servicer for the benefit of the Master Servicer and any Servicer or to a Substitute Servicer; (ii) second, on each Purchase Discount Amount Payment Date to the payment in arrears of accrued Purchase Discount Amounts on such Purchase Discount Amount Payment Date to the Participants in respect of the Participating Interest; (iii) third, to the payment of (x) the Commitment Fees and (y) any other amounts, if any, accrued and payable on such Business Day to the Administrative Agent and the Participants in respect of the Participating Interest or hereunder (including, without limitation, amounts payable under Article III); (iv) fourth, to retain in the Collection Account the Reserve Amount for such Business Day; (v) fifth, to the payments, if any, required by subsection 2.12 on such Business Day; (vi) sixth, to the payment of the Company's indemnity obligations hereunder and, then, to the Company's operating account for the payment of the operating expenses of the Company incurred or reserved for on such Business Day; provided, that the aggregate amounts paid to the -------- Company's operating account pursuant to this clause (v) shall not exceed, for any fiscal year of the Company, $250,000; (vii) seventh, to the Company to pay for Receivables acquired from the Sellers pursuant to the Receivables Sale Agreement in the aggregate amount specified in the applicable Daily Report; provided, that -------- the Company may elect to (A) retain all or any portion of such amounts in the Collection Account and (B) on the next Reduction Date, if the Company shall have given the Administrative Agent irrevocable notice in accordance with subsection 2.11(b), have all or any portion of such amounts remitted to the Participants on such Reduction Date and have the Net Investment reduced accordingly (subject to the payment by the Company of any amounts required pursuant to subsection 3.3); (viii) eighth, to the extent such expenses are not paid pursuant to clause (vi) above, to the Company's operating account for the payment of the operating expenses of the Company incurred or reserved for such Business Day; (ix) ninth, at the Company's option and subject to the terms of this Agreement and the Subordinated Note, to make payments on account of the Subordinated Note, in the aggregate amount specified in the applicable Daily Report; and (x) tenth, at the Company's option and subject to the terms of this Agreement, to the Company to enable the Company to make payments on account of Restricted Payments in the aggregate amount specified in the applicable Daily Report, so long as the outstanding principal amount of the Subordinated Note shall be zero at the time of such payment and all accrued interest thereon shall have been paid in full; provided, that - -------- (A) in no event shall any Receivable Proceeds be distributed from the Collection Account with respect to clauses (v)-(x) above to the extent such distribution would necessitate a payment under subsection 2.12; (B) in no event shall any Receivable Proceeds be distributed from the Collection Account with respect to clauses (ix) and (x) above if any Seller Repurchase Payments or Seller Adjustment Payments are owing (whether or not then due) to the Company and are unpaid; (C) in no event shall any Receivable Proceeds be distributed from the Collection Account with respect to clauses (vii) and (viii) above (other than a distribution in accordance with the proviso in clause (vii)), if a Termination Event of a type set forth in subsection (f), (h)(ii), (i), (m) or (n) of Article IX (or a Potential Termination Event in respect thereof) has occurred and is continuing or would as a result of such payment; and (E) in no event shall any Receivable Proceeds be distributed from the Collection Account with respect to clauses (ix) and (x) above if any Termination Event or a Potential Termination Event with respect to a Termination Event of a type set forth in subsection (f), (g), (h)(ii), (i), (m) or (n) of Article IX shall have occurred and be continuing or would occur as a result of such payment. (c) During any Amortization Period, all Receivable Proceeds shall be applied by the Administrative Agent on each Business Day (in accordance with the Daily Report provided by the Master Servicer or a Servicer, upon which the Administrative Agent may conclusively rely) as follows: (i) first, (x) to the payment of Monthly Servicing Fees of the Master Servicer or any Substitute Servicer and (y) to the payment of the reasonable operating expenses of the Company (subject to the limitations set forth in subsection 2.7(b)(vi)); (ii) second, to the payment on the last Business Day of each week to the Participants in respect of the Participating Interest first to the payment in arrears of accrued Purchase Discount Amounts and then to the payment of the Net Investment until such time as the Net Investment and Purchase Discount Amounts thereon shall have been paid in full; (iii) third, after such time as the Net Investment and Purchase Discount Amounts have been paid in full to the payment to the Participants and the Administrative Agent of all other amounts (including, without limitation, amounts payable under Article III) that are payable to the Administrative Agent and its Affiliates and the Participants hereunder, until such amounts shall have been paid in full; and (iv) fourth, after such time as the Net Investment and Purchase Discount Amounts thereon and all other amounts that are due and payable to the Administrative Agent and the Participants shall have been paid in full, the remainder to the Company. (d) The Master Servicer shall as soon as possible but no later than one Business Day after receipt of any Collections and other proceeds determine whether or not they are with respect to Purchased Receivables and shall as soon as possible notify the Administrative Agent of such determination. The Administrative Agent shall as soon as possible thereafter transfer any Collections that are not with respect to Purchased Receivables from the Collection Account to the Master Servicer for payment to the applicable Person; provided, that with respect to -------- any Collections for which the Administrative Agent has not been provided such a determination by the Master Servicer by the end of the fifth Business Day from the date of receipt thereof, such Collections shall be deemed to be Collections with respect to Purchased Receivables and no other Person shall have any rights therein except to the extent provided in applicable state laws governing the laws of restitution and mistake. Notwithstanding the foregoing, during any Amortization Period, all cash collections and other proceeds received in respect of an Obligor with respect to all Receivables of such Obligor shall be applied first, to pay the outstanding principal balance of Purchased Receivables of - ----- such Obligor until Purchased Receivables with respect to such Obligor are paid in full and second, amounts in excess thereof shall be paid to the Master ------ Servicer for payment to the Person legally entitled thereto to pay the outstanding principal balance of all remaining Receivables with respect to such Obligor. The Master Servicer agrees that in making each such determination with respect to Collections and other proceeds, the Master Servicer represents and warrants at such time, to the best of the Master Servicer's knowledge, that such determination is true and correct. 2.8 Payments; Pro Rata Treatment. (a) Subject to the terms and ---------------------------- conditions hereof, not later than 1:00 p.m. (New York City time) on each date on which the Participants are notified to remit payments to the Administrative Agent or as the Administrative Agent shall direct on account of any Increase in Net Investment, each Participant shall make available to the Administrative Agent or as the Administrative Agent shall direct an amount in immediately available funds equal to the amount of such remittance calculated as provided herein. The Administrative Agent shall credit the proceeds of such payments (on the date of receipt so long as the 1:00 p.m. deadline specified above is satisfied) in a timely manner in accordance with the instructions of the Company. (b) Unless the Administrative Agent shall have been notified in writing by any Participant prior to a Closing Date that such Participant will not make the amount which would constitute its portion of the Participating Interest or Increase in Net Investment on such date available to the Administrative Agent, the Administrative Agent may assume that such Participant has made such amount available to the Administrative Agent on such Closing Date, and the Administrative Agent may, in reliance upon such assumption, make available to the Company, a corresponding amount. If such amount is made available to the Administrative Agent on a date after such Closing Date, such Participant shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period, (ii) the amount of such Participant's portion of the Participating Interest or Increase in Net Investment and (iii) a fraction the numerator of which is the number of days that elapse from and including such Closing Date to the date on which such Participant's funds shall have become immediately available to the Administrative Agent and the denominator of which is 360. A certificate of the Administrative Agent submitted to any Participant with respect to any amounts owing under this subsection 2.8(b) shall be conclusive, absent manifest error. If such Participant's portion of the Participating Interest or Increase in Net Investment is not in fact made available to the Administrative Agent by such Participant within three Business Days of such Closing Date, the Administrative Agent shall be entitled to recover such amount with interest thereon at a per annum rate equal to the ABR, on demand, from the Company. No provision contained in this subsection 2.8(b) shall prejudice any rights of the Company against any Participant. (c) Except where an amount is payable to a particular Participant, all amounts payable to the Participants shall be paid to each Participant in an amount equal to such Participant's Commitment Percentage of the aggregate amount thereof payable to the Participants. 2.9 Netting of Payments. Anything contained in this Agreement to the ------------------- contrary notwithstanding, the Administrative Agent may, in its sole discretion, net any amounts the Administrative Agent is required to make available to the Company on any day pursuant to subsection 2.7(b) or any other subsection of this Agreement against any amounts the Administrative Agent is required to make available to the Participants on such day pursuant to subsection 2.7(b) or any other provision of this Agreement. At the request of any Participant, the Administrative Agent will provide an accounting of any amounts netted pursuant to the preceding sentence. 2.10 Termination or Reduction of Commitment. The Company may on any -------------------------------------- Settlement Date, upon three Business Days prior written notice to the Administrative Agent (effective upon receipt), (i) terminate the Participants' Commitments hereunder or (ii) reduce the Maximum Commitment hereunder in an amount equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof; provided, that the Maximum Commitment may not be reduced below the Net - -------- Investment. After receipt by the Administrative Agent of any such notice from the Company, the Administrative Agent shall promptly provide a copy of such notice to each Participant. Upon any such reduction, the Commitment of each Participant shall be reduced pro rata according to the Commitment Percentage of --- ---- such Participant. Upon any such termination or reduction as aforesaid, the Maximum Commitment of the Participants shall terminate or be reduced, as the case may be. Any such termination shall not in any way affect the Company's obligations under Article III hereof. Once terminated or reduced, the Commitments of the Participants cannot be reinstated unless otherwise agreed in writing by all of the Participants. 2.11 Optional Retransfer; Reduction of Net Investment. (a) On any ------------------------------------------------ Settlement Date during the Amortization Period on which the Net Investment equals 10% or less of the Net Investment as of the first day of the Amortization Period, the Company shall have the option, exercisable upon one Business Day prior notice to the Administrative Agent (effective upon receipt), to acquire the Participants' total Participating Interest at a transfer price equal to the Net Investment plus all Purchase Discount Amounts and all accrued and unpaid fees to the date of such transfer plus any amounts payable pursuant to Article III. After receipt by the Administrative Agent of any such notice from the Company, the Administrative Agent shall promptly provide a copy of such notice to each Participant. (b) The Company may, in accordance with subsection 2.7(b)(vii), reduce the Net Investment on any date (a "Reduction Date") which is a Business Day, without premium or penalty (other than amounts payable pursuant to subsection 3.3), upon at least three Business Days irrevocable notice to the Administrative Agent, in the case of reductions in the Net Investment that are part of any Fixed Tranche, and one Business Day irrevocable notice to the Administrative Agent, in the case of reductions in the Net Investment that are part of the Floating Tranche, specifying (a) the Tranches to be reduced, (b) the date and amount of such reduction and (c) if such reduction is of a combination of Fixed Tranche amounts and Floating Tranche amounts, the amount of reduction allocable to each (and, with respect to such Fixed Tranche, each Tranche thereof). Upon receipt of any such notice, the Administrative Agent will promptly notify each Participant thereof. If any such notice is given, amounts on deposit in the Collection Account shall be applied pursuant to subsection 2.7(b)(vi) on the date specified therein. Each reduction of the Net Investment pursuant to this subsection 2.11(b) shall be in an amount equal to the lesser of (x) a whole multiple of $1,000,000 and (y) the Net Investment then outstanding. 2.12 Mandatory Reductions in Net Investment. (a) On any Business -------------------------------------- Day during the Commitment Period on which the Net Investment exceeds the Maximum Transfer Amount (except to the extent Excess Application Amounts in respect of such excess are being held in a cash collateral account pursuant to subsection 2.12(c)), all Receivable Proceeds (after the payment of amounts pursuant to clauses (i), (ii) and (iii) of subsection 2.7(b) on such Business Day) shall be applied on such Business Day to reduce the Net Investment (and the Purchase Discount Amounts accrued on the portion thereof so repaid) in such amount as shall be necessary so that after giving effect to such payment there shall be no such excess and, to the extent such Receivable Proceeds are not sufficient to pay such excess (and the Purchase Discount Amount accrued thereon) on such Business Day, all subsequent Receivable Proceeds (after the payment of amounts pursuant to clauses (i), (ii) and (iii) of subsection 2.7(b) on such Business Day) shall be applied to pay such excess (and the Purchase Discount Amounts accrued thereon) until so paid. (b) Notwithstanding anything to the contrary set forth in this Agreement, any mandatory reduction hereunder shall be applied, unless the Administrative Agent receives instructions from the Company otherwise, (i) first, to the Floating Tranche, (ii) second, to any Fixed Tranche the then- applicable Transfer Period with respect to which ends on the date of the relevant payment and (iii) third, unless otherwise directed by the Company pursuant to subsection 2.12(c), to the other Fixed Tranches as selected by the Administrative Agent in its sole discretion; provided, that, in any event, the -------- Company shall pay such amounts, if any, required by subsection 3.3. (c) In the event the amount of any mandatory reduction required to be made on any date pursuant to this subsection 2.12 shall exceed the aggregate of the amounts described in clauses (i) and (ii) of paragraph (b) above with respect to such date (the amount of any such excess being called the "Excess Application Amount"), the Company shall have the right to direct the Administrative Agent to, in lieu of making such reduction in full, first apply such reduction in the manner contemplated by said clauses (i) and (ii) and deposit an amount equal to the Excess Application Amount with the Administrative Agent in a cash collateral account maintained (pursuant to documentation satisfactory to the Administrative Agent) by and in the sole dominion and control of the Administrative Agent. Any amounts so deposited shall be held by the Administrative Agent and applied to the reduction of the applicable Fixed Tranches at the end of the current Transfer Period applicable thereto. On any Business Day on which (x) collected amounts remain on deposit in or to the credit of such cash collateral account after giving effect to the payments made on such day pursuant to this paragraph (c) and (y) the Company shall have delivered to the Administrative Agent a written request or a telephonic request (which shall be promptly confirmed in writing) that such remaining collected amounts be invested in the Cash Equivalents specified in such request, the Administrative Agent shall use its reasonable efforts to invest such remaining collected amounts in such Cash Equivalents; provided, that the Administrative Agent shall have continuous dominion and - -------- full control over any such investments (and over any interest that accrues thereon) to the same extent that it has dominion and control over such cash collateral account and no Cash Equivalent shall mature after the end of the Transfer Period for which it is to be applied. Unless a Termination Event or Potential Termination Event then exists or would result, the Company shall have the right to direct the Administrative Agent to withdraw any amount from such cash collateral account if (i) the applicable Fixed Tranches have been reduced to zero and the accrued Purchase Discount Amount thereon has been paid in full or (ii) the Net Investment has otherwise ceased to exceed the Maximum Transfer Amount. (d) All payments under this subsection 2.12 shall be subject to subsection 3.3 but otherwise without premium or penalty. All payments in reduction of the Net Investment under this subsection 2.12 shall be accompanied by the Purchase Discount Amounts on the amount being paid accrued to the date of payment. ARTICLE III Increased Costs 3.1 Alternate Determination of Purchase Discount Amounts. If prior ---------------------------------------------------- to the commencement of any Transfer Period for a Fixed Tranche: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Transfer Period; or (b) the Administrative Agent is advised by the Required Participants that the Adjusted LIBO Rate for such Transfer Period will not adequately and fairly reflect the cost to such Participants (or Participant) of making or maintaining their Eurodollar Participating Interests (or its Eurodollar Participating Interest) included in such Fixed Tranche for such Transfer Period; then the Administrative Agent shall give notice thereof to the Company and the Participants by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Company and the Participants that the circumstances giving rise to such notice no longer exist, (i) any request under subsection 2.5(b) that requests the conversion of any Participating Interest to, or continuation of any Participating Interest as, a Fixed Tranche shall be ineffective and (ii) if any Request for Transfer and Assignment requests a Fixed Tranche, such Participating Interest shall be made as a Floating Tranche. 3.2 Increased Costs. (a) If any Change in Law shall: --------------- (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Participant (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Participant or the London interbank market any other condition affecting this Agreement or Eurodollar Participating Interests of any such Participant; and the result of any of the foregoing shall be to increase the cost to such Participant of purchasing or maintaining any Eurodollar Participating Interests (or of maintaining its obligation to purchase any such Participating Interest) or to reduce the amount of any sum received or receivable by such Participant (whether of Net Investment, payment of Purchase Discount Amount or otherwise), then the Company will pay to such Participant such additional amount or amounts as will compensate such Participant for such additional costs incurred or reduction suffered. (b) If any Participant determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Participant's capital or on the capital of such Participant's holding company, if any, as a consequence of this Agreement or its obligations pursuant hereto to a level below that which such Participant or such Participant's holding company could have achieved but for such Change in Law (taking into consideration such Participant's policies and the policies of such Participant's holding company with respect to capital adequacy), then from time to time the Company will pay to such Participant such additional amount or amounts as will compensate such Participant or such Participant's holding company for any such reduction suffered. (c) A certificate of a Participant setting forth the amount or amounts necessary to compensate such Participant or its holding company as specified in paragraph (a) or (b) of this subsection 3.2 shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Participant the amount shown as due on any such certificate within 30 days after receipt thereof. (d) Failure or delay on the part of any Participant to demand compensation pursuant to this subsection 3.2 shall not constitute a waiver of such Participant's right to demand such compensation; provided, that the Company -------- shall not be required to compensate a Participant pursuant to this subsection 3.2 for any increased costs or reductions incurred more than six months prior to the date that such Participant notifies the Company of the Change in Law giving rise to such increased costs or reductions and of such Participant's intention to claim compensation therefor; provided, further, that, if the Change in Law -------- ------- giving rise to such increased costs or reductions is retroactive, then the six- month period referred to above shall be extended to include the period of retroactive effect thereof. (e) Notwithstanding any other provision of this subsection 3.2, no Participant shall demand compensation for any increased cost or reduction or other amount referred to above if it shall not at the time be the general policy or practice of such Participant to demand such compensation in similar circumstances under comparable provisions of other agreements. 3.3 Indemnity. In the event of (a) the payment of any Net Investment --------- in respect of any Eurodollar Participating Interest other than on the last day of a Transfer Period applicable thereto (including as a result of a Termination Event), (b) the conversion of any Eurodollar Participating Interest other than on the last day of the Transfer Period applicable thereto, (c) the failure to transfer, convert, continue or reduce any Participating Interest on the date specified in any notice delivered pursuant hereto or pursuant to subsection 2.12 or (d) the assignment of any Eurodollar Participating Interest other than on the last day of the Transfer Period applicable thereto as a result of a request by the Company pursuant to subsection 3.5, then, in any such event, the Company shall compensate each Participant for the loss, cost and expense attributable to such event. In the case of a Eurodollar Participating Interest, the loss to any Participant attributable to any such event shall be deemed to include an amount determined by such Participant to be equal to the excess, if any, of (i) the amount of interest that such Participant would pay for a deposit equal to the Participating Interest for the period from the date of such payment, conversion, failure or assignment to the last day of the then-current Transfer Period for such Participating Interest (or, in the case of a failure to transfer, convert or continue, the duration of the Transfer Period that would have resulted from such transfer, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted LIBO Rate for such Transfer Period, over (ii) ---- the amount of interest that such Participant would earn on such amount for such period if such Participant were to invest such amount for such period at the interest rate that would be bid by such Participant (or an affiliate of such Participant) for Dollar deposits from other banks in the eurodollar market at the commencement of such period. A certificate of any Participant setting forth any amount or amounts that such Participant is entitled to receive pursuant to this subsection shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Participant the amount shown as due on any such certificate within 10 days after receipt thereof. 3.4 Taxes. (a) Any and all payments by or an account of any ----- obligation of the Company, any Servicer or the Master Servicer (each, a "Tax Indemnifying Party") hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if any Tax Indemnifying Party -------- or the Administrative Agent shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this subsection) the Administrative Agent or the relevant Participant receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Indemnifying Party shall make such deductions and (iii) the Indemnifying Party or the Administrative Agent, as the case may be, shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Company shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Company shall indemnify the Administrative Agent and each Participant, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this subsection) paid by the Administrative Agent or such Participant, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Company by a Participant or by the Administrative Agent on its own behalf or on behalf of a Participant shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Tax Indemnifying Party to a Governmental Authority, such Tax Indemnifying Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Each Foreign Participant shall deliver to the Company and the Administrative Agent two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Foreign Participant claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Foreign Participant delivers a Form W-8, an annual certificate representing that such Foreign Participant is not a "bank" for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Company and is not a controlled foreign corporation related to the Company (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Foreign Participant claiming that it is entitled to a complete exemption from U.S. federal income withholding tax on all payments by the Company under this Agreement. Such forms shall be delivered by each Foreign Participant on or before the date it becomes a party to this Agreement, assuming its Participating Interest is properly classified as indebtedness for United States federal income tax purposes. In addition, each Foreign Participant shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Participant. Each Foreign Participant shall promptly notify the Company at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Company (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this subsection 3.4,(e), a Foreign Participant shall not be required to deliver any form pursuant to this subsection 3.4(e) (i) that such Foreign Participant is not legally able to deliver or (ii) if the Participating Interests have been characterized as anything other than indebtedness for United States income tax purposes. (f) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this subsection 3.4 shall survive the termination of this Agreement. 3.5 Mitigation Obligations; Replacement of Participants. If any --------------------------------------------------- Participant requests compensation under subsection 3.2, or if the Company is required to pay any additional amount to any Participant or any Governmental Authority for the account of any Participant pursuant to subsection 3.4, then such Participant shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the relevant Tax Indemnifying Party or to designate a different lending office for funding or booking its Participating Interest hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Participant, such filing, designation or assignment (i) would eliminate or reduce amounts payable pursuant to subsection 3.2 or 3.4, as the case may be, in the future and (ii) would not subject such Participant to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Participant. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Participant in connection with any such designation or assignment. ARTICLE IV Termination 4.1 Termination. This Agreement will terminate at such time after ----------- the expiration of the Commitment Period when the Net Investment has been reduced to zero, all Purchase Discount Amounts accrued thereon have been paid in full and all other amounts owing to the Participants and the Administrative Agent hereunder shall have been paid in full; provided, however, that the indemnities -------- ------- of the Company, the Servicers and the Master Servicer to the Participants and the Administrative Agent set forth in this Agreement (including those set forth in Article III) shall survive such termination. Upon (i) the expiration of the Commitment Period and (ii) the reduction of the Net Investment to zero and the payment in full of all Purchase Discount Amounts and all other amounts owing to the Participants and the Administrative Agent hereunder, the Administrative Agent shall, at the expense of the Company, execute such Uniform Commercial Code termination statements and such other documents, and take such other actions, as the Company may reasonably request to evidence the termination of the ownership interest of the Participants in the Receivables and the payment of all amounts owing pursuant to and in connection with this Agreement. ARTICLE V Covenants, Representations and Warranties 5.1 Representations and Warranties of the Company Relating to the ------------------------------------------------------------- Company. The Company hereby represents and warrants to the Administrative Agent - ------- and the Participants, (x) as of the Commencement Date, and (y) with respect to an Increase in Net Investment, as of the related Closing Date, unless, such representation or warranty expressly relates only to a prior date, that: (a) Organization; Corporate Powers. The Company is duly organized, ------------------------------ validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite corporate power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required and has the corporate power and authority to execute, deliver and perform each of the Transaction Documents and each agreement or instrument contemplated hereby or thereby to which it is or will be a party. (b) Authorization. The Transactions are within the corporate powers ------------- of the Company and have been duly authorized by all necessary corporate and, if required, stockholder action. (c) Enforceability. This Agreement has been duly executed and -------------- delivered by the Company and constitutes, and each other Transaction Document if and when executed and delivered by the Company will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (d) Governmental Approvals; No Conflicts. The Transactions (a) do ------------------------------------ not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or any order of any Governmental Authority, (c) will not violate or result in a default under any 21 indenture, agreement or other instrument binding upon the Company or its assets, or give rise to a right thereunder to require any payment to be made by the Company and (d) will not result in the creation or imposition of any Lien on any asset of the Company. (e) Litigation, etc. (i) There are no actions, suits or --------------- proceedings by or before any arbitrator or Governmental Authority pending or, to the knowledge of the Company, threatened against, the Company which (a) could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (b) that involve this Agreement or the Transactions. (ii) Except with respect to matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, the Company (a) has not failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (b) has not become subject to any Environmental Liability, (c) has not received notice of any claim with respect to any Environmental Liability or (d) does not know of any basis for any Environmental Liability. (f) Compliance with Laws and Agreements. The Company is in ----------------------------------- compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Termination Event or Potential Termination Event has occurred and is continuing. (g) Ownership of Property; Liens. (i) The Company has good title ---------------------------- to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. (ii) The Company owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Company does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (h) Investment Company Act; Other Regulations. (i) The Company is ----------------------------------------- not an "investment company," as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended. (ii) The Company is not a "holding company," as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. (iii) The Company is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock. 22 (iv) The assignment and transfer of the Participating Interests hereunder and the use of the proceeds thereof and the other Transactions will not violate or be inconsistent with the provisions of the Regulations of the Board, including Regulations G, T, U and X. (i) Taxes. The Company has timely filed or caused to be filed all ----- Tax returns which are required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it. (j) Ownership; Subsidiaries. All the issued and outstanding capital ----------------------- stock of the Company is owned, legally and beneficially, directly or indirectly, by WMI. The Company has no Subsidiaries. (k) Pro Forma Balance Sheet. The Company has heretofore furnished to ----------------------- the Administrative Agent and each of the Participants its pro forma balance sheet after giving effect to the transactions to take place on the Commencement Date. Such balance sheet (i) was prepared in good faith on the basis of reasonable assumptions and (ii) discloses all material liabilities, direct or contingent, of the Company as of the date thereof. (l) No Material Adverse Change. As of the Commencement Date, there -------------------------- has been no material adverse change in the business, properties, assets, operations or financial condition of the Company (after giving effect to the Transactions contemplated to occur on or prior to the Commencement Date pursuant to the Transaction Documents) since the date of the pro forma balance sheet referred to in paragraph (k) above. (m) Solvency. Both prior to and after giving effect to the -------- transactions occurring on the Commencement Date or each Closing Date, (i) the fair value of the assets of the Company at a fair valuation will exceed the debts and liabilities, subordinated, contingent or otherwise, of the Company; (ii) the present fair salable value of the property of the Company will be greater than the amount that will be required to pay the probable liability of the Company on its debts and other liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; (iii) the Company will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Company will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted. For all purposes of clauses (i) through (iv) above, the amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. The Company does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it and the timing of and amounts of cash to be payable in respect of its debt. 23 (n) Employee Benefit Plans. No ERISA Event has occurred or is ---------------------- reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $40,000,000 the fair market value of the assets of all such underfunded Plans. (o) Names. The legal name of the Company is as set forth in this ----- Agreement. The Company has not had, nor has, any trade names, fictitious names, assumed names or "doing business as" names. (p) Liabilities. Other than, (i) the liabilities, commitments or ----------- obligations (whether absolute, accrued, contingent or otherwise) arising under or in respect of the Transaction Documents and (ii) immaterial amounts due and payable in the ordinary course of business of a special-purpose company, the Company does not have any liabilities, commitments or obligations (whether absolute, accrued, contingent or otherwise), whether due or to become due. (q) Collection Procedures. The Company and each Seller have in place --------------------- procedures pursuant to the Policies which are either necessary or advisable to ensure the timely collection of Receivables in accordance with the Transaction Documents. (r) Designated Accounts. The Designated Banks are the only ------------------- institutions holding any Designated Accounts for the receipt of payments from Obligors in respect of Receivables and the Obligors have been instructed to make payments to Designated Accounts. Each Designated Account set forth in Schedule 3 to this Agreement is free and clear of any Lien other than a Lien created pursuant to this Agreement. (s) Bulk Sales. The execution, delivery and performance of this ---------- Agreement do not require compliance with any "bulk sales" law by the Company. The representations and warranties set forth in this subsection 5.1 shall survive the initial transfer of a Participating Interest and any Increase in the Net Investment. Upon discovery by the Company, any Participant or the Administrative Agent of a breach of any of the foregoing representations and warranties, the Person discovering such breach shall give prompt written notice to such other Persons. 5.2 Representations and Warranties of the Company Relating to this -------------------------------------------------------------- Agreement and the Receivables. The Company hereby represents and warrants to - ----------------------------- the Administrative Agent and the Participants, (x) as of the Commencement Date, and (y) with respect to an Increase in Net Investment, as of the related Closing Date, unless such representation or warranty expressly relates only to a prior date, that: 24 (a) The Company is the sole legal and beneficial owner of such Receivables, and upon the sale of each Receivable, the Participants will become the sole legal and beneficial owner of such Receivable, free and clear of any Liens except for Permitted Liens. The Company has not sold, assigned or transferred, or granted any existing Lien on, the Receivables or any of the other Pooled Property, or any interest therein, to any Person, except the Participants hereunder. (b) This Agreement effects a valid transfer and assignment to the Participants of an undivided, participating ownership interest in all right, title and interest of the Company in the Receivables and the Related Property or, if this Agreement does not effect a transfer and assignment of such an ownership interest, it effects a grant of a "security interest" (as defined in the Uniform Commercial Code as in effect in the State of New York) in such property to the Participants, which, in the case of existing Receivables and the Related Property is enforceable upon execution and delivery of this Agreement, and which will be enforceable with respect to such Receivables and the Related Property hereafter created and the proceeds thereof upon such creation. On or prior to the initial Closing Date, all filings and other acts necessary or advisable (including but not limited to all filings and other acts necessary or advisable under the Uniform Commercial Code of each relevant jurisdiction) have been made or performed in order to grant the Participants a first priority perfected ownership interest in respect of all Receivables acquired by the Company and Related Property. On the Commencement Date and, in the case of the Receivables hereafter created and the proceeds thereof, upon the creation thereof, the Participants shall have a first priority perfected ownership or security interest in such property. (c) The offices at which the Company keeps its records concerning the Receivables either (x) are located at the addresses set forth on Schedule 2 or (y) have been reported to the Administrative Agent in accordance with the provisions of subsection 8.21 of this Agreement. The chief executive office of the Company is located at the address set forth on Schedule 2 (as such location may be changed from time to time in accordance with subsection 8.21 of this Agreement) and is the place where the Company is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York. The State and county where the chief executive office of the Company is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York has not changed in the past four months. (d) On the date each Receivable transferred to the Participants is so transferred, each such Receivable that is included in the calculation of the amount of Eligible Receivables on such date is an Eligible Receivable. Each Receivable that is classified by the Company as an Eligible Receivable in any document or report (including, without limitation, any Daily Report) delivered hereunder shall be a Receivable with respect to which all of the criteria contained in the definition of "Eligible Receivable" hereunder are satisfied. 25 The representations and warranties set forth in this subsection 5.2 shall survive the initial transfer of a Participating Interest and any Increase in Net Investment. Upon discovery by the Company, any Participant or the Administrative Agent of a breach of any of the foregoing representations and warranties, the Person discovering such breach shall give prompt written notice to such other Persons. 5.3 Retransfer Obligation. (a) In the event of any breach of any of --------------------- the representations or warranties of the Company contained in subsection 5.2 in any material respects or the Company shall breach any covenant contained in Article VIII then upon the earlier to occur of the discovery of such event by the Company, or receipt by the Company of written notice of such event given by the Administrative Agent, the outstanding Principal Amount of Eligible Receivables used to calculate the amount of Aggregate Eligible Receivables shall be reduced by the Principal Amount of Receivables as to which such representations and warranties were breached; provided, however, that (i) prior -------- ------- to the Amortization Period, to the extent that such a reduction would cause the Invested Percentage to be more than the Maximum Invested Percentage, the Company agrees to acquire such Receivables and any Related Property with respect thereto on the terms and conditions set forth in paragraph (b) below and (ii) during the Amortization Period, the Company agrees to acquire such Receivables and any Related Property with respect thereto on the terms and conditions set forth in paragraph (b) below. (b) If any breach of a representation or warranty or other event which necessitates the Company's reacquisition of a Receivable pursuant to paragraph (a) above remains uncured, the Company shall acquire such Receivable and any Related Property with respect thereto by depositing into the Collection Account in immediately available funds no later than the fifth Business Day after discovery or notice of such breach, an amount equal to (i) prior to an Amortization Period, the lesser of (A) the amount necessary to cause the Invested Percentage to equal the Maximum Invested Percentage and (B) the Principal Amount of such Receivable or (ii) during an Amortization Period, the Principal Amount of such Receivables (a payment pursuant to clause (ii), a "Retransfer Payment"). Upon deposit of the Retransfer Payment and written notice from the Company to the Administrative Agent that such Retransfer Payment has been made, the Participants shall automatically and without further action be deemed to transfer, assign, set-over and otherwise convey to the Company, free and clear of any Lien created by the Participants but otherwise without recourse, representation or warranty, all the right, title and interest of the Participants in and to such Receivable, all Related Property with respect thereto, all monies due or to become due with respect thereto and all proceeds thereof and such reacquired Receivable shall be treated by the Participants as collected in full as of the date on which it was transferred. The Administrative Agent shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the Company to effect the conveyance of such Receivables pursuant to this subsection 5.3 and Collections relating thereto. 5.4 Obligations Unaffected. The obligations of the Company to the ---------------------- Administrative Agent and the Participants under this Agreement shall not be affected 26 by reason of any invalidity, illegality or irregularity of any Receivable or any transfer and assignment of a Receivable. ARTICLE VI Conditions to Effectiveness/Transfers/Reinvestments 6.1 Commencement Date. This Agreement shall become effective on the ----------------- date (the "Commencement Date") on which each of the following conditions precedent are either (x) satisfied or (y) waived by the Required Participants: (a) The Company, each Servicer and the Master Servicer shall have delivered to the Administrative Agent, with a copy for each Participant, (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of such Person, certified as of a recent date by the Secretary of State of the state of incorporation thereof, and such certificate or articles shall be in form and substance satisfactory to the Administrative Agent, and a certificate as to the good standing of such Person as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary or other authorized person of such Person dated the Commencement Date and certifying (A) that attached thereto is a true and complete copy of the Bylaws of such Person as in effect on the Commencement Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions in form and substance satisfactory to the Administrative Agent and duly adopted by the Board of Directors of such Person authorizing the execution, delivery and performance of the Transaction Documents to which such Person is a party and the transactions contemplated thereby, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of such Person has not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer executing any Transaction Document or any other document delivered in connection herewith or therewith on behalf of such Person; and (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary or other authorized person executing the certificate pursuant to clause (ii) above. (b) There shall have been delivered to the Administrative Agent, with a copy for each Participant, the written opinions of (i) Winston & Strawn, special counsel for the Company, the Servicers and the Master Servicer, in form and substance satisfactory to the Administrative Agent with respect to the treatment of the sales under the Receivables Sale Agreement as a "true sale", the non-substantive consolidation of the Master Servicer and its Affiliates and the Company, certain other corporate matters, the enforceability of this Agreement and the other Transaction Documents and the creation, perfection and priority of "security interests" in Receivables under New York and Illinois 27 law and (ii) Herbert A. Getz, Esq., general counsel of Waste Management, Inc., in form and substance satisfactory to the Administrative Agent with respect to certain corporate matters, in each case addressed to the Administrative Agent and the Participants, dated the Commencement Date, and such additional opinions, if any, as may be reasonably requested by the Administrative Agent. (c) Any documents (including, without limitation, financing statements) required to be filed in order to create, in favor of the Administrative Agent, a perfected ownership/security interest in the Pooled Property with respect to which an ownership/security interest may be perfected by a filing under the UCC or other comparable statute, shall, in each case, have been properly prepared and executed for immediate filing in each office in each jurisdiction in which the Company maintains its principal executive office and such filings are the only filings required in order to perfect the transfer of the Receivables to the Participants. (d) The Administrative Agent shall have received a certificate from the Company, dated the Commencement Date and signed by one of its Responsible Officers, in form and substance satisfactory to the Administrative Agent, confirming compliance with the conditions precedent set forth in this subsection 6.1. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Commencement Date. (f) The Administrative Agent shall have received (i) a copy of the Receivables Sale Agreement, duly executed on behalf of WMI, each of the Sellers and the Company, (ii) a copy of the Receivables Sale Agreement Guarantee, duly executed by the Seller Guarantors, and (iii) a copy of the Subordinated Note, duly executed by the Company for the benefit of WMI as agent for each of the Sellers. (g) A Responsible Officer of the Company shall have certified that all conditions to the obligations of the Company and each of the Sellers under the Receivables Sale Agreement shall have been satisfied in all respects (or waived by the Administrative Agent) and a copy of all documents delivered thereunder shall be delivered to the Administrative Agent. (h) The Administrative Agent shall have received, as certified by a Responsible Officer of the Company, copies of (i) the written Policies, or, to the extent that the credit and collection policies of the Sellers are not in written form at the Commencement Date, a written description of the historical credit and collection practices of the Sellers and proposed practices for the Company, in each case in form and substance acceptable to the Administrative Agent and (ii) the Company Policies and such policies shall be acceptable to the Administrative Agent. 28 (i) The Administrative Agent shall have reviewed the computer programs, material tapes, data and back-up plans of the Sellers required for the collection of Receivables and shall be satisfied that the foregoing, including the procedures of the Sellers for the preparation, storage and retrieval thereof, are sufficient upon the termination of the Master Servicer or any Servicer that is an Affiliate of the Company to permit (i) the Company or the Administrative Agent to collect the Receivables with or without the participation of the Sellers or any servicer and (ii) a third-party servicer to collect the Receivables with or without the participation of the Sellers or the Company. (j) The composition of the Company's Board of Directors (including the independent director) shall be reasonably acceptable to the Administrative Agent. (k) The Administrative Agent shall have received (i) the pro forma opening balance sheet for the Company referred to in subsection 5.1(l) and (ii) the consolidated financial statements of the Master Servicer referred to in subsection 12.6(s). (l) The Administrative Agent shall have received a certificate dated the Commencement Date and signed by a Responsible Officer of the Company, substantially in the form of Exhibit E, to the effect that the Company will be solvent after giving effect to the transactions occurring on the Commencement Date. (m) The Administrative Agent (i) shall have received evidence reasonably satisfactory to it that the Designated Accounts, the Concentration Account, the SPC Collection Account and the Collection Account shall have been established in accordance with the terms and provisions hereof, and (ii) shall otherwise be satisfied with the arrangements for collection of the Receivables pursuant hereto, including the establishment of standing instructions regarding the transfer of funds to the Concentration Account. (n) The Initial Sellers shall have commenced selling Receivables to the Company. Upon request, Participants may receive copies of the items delivered to the Administrative Agent in accordance with Subsection 6.1. 6.2 Condition to each Increase in Net Investment. The obligations of -------------------------------------------- the Participants to acquire the Participating Interest or increase the Net Investment on any Closing Date are subject to the conditions that: (a) no Termination Event or Potential Termination Event shall have occurred and then be continuing, and no such Termination Event or Potential Termination Event shall occur as a result of the proposed acquisition or Increase in Net Investment on such Closing Date; 29 (b) the representations and warranties of the Company set forth in Article V shall be true and correct in all material respects on and as of such Closing Date as though made on and as of such date, except insofar as such representations and warranties are expressly made only as of another date (in which case they shall be true and correct in all material respects as of such other date); (c) the representations and warranties of the Sellers set forth in subsection 4.1 (other than subsection 4.1(f)(1)) in the Receivables Sale Agreement, as though made on and as of such date, except insofar as such representations and warranties are expressly made only as of another date (in which case they shall be true and correct in all material respects as of such other date); (d) the representations and warranties of the Servicers and the Master Servicer set forth in Article XII (other than subsection 12.6(d)(i) and 12.6(r)(iii) shall be true and correct in all material respects on and as of such Closing Date as though made on and as of such date, except insofar as such representations and warranties are expressly made only as of another date (in which case they shall be true and correct in all material respects as of such other date); (e) the Company or the Master Servicer shall have delivered a Daily Report on such date and such Daily Report shall demonstrate that after giving effect to such acquisition or increase the Net Investment of the Participants shall not exceed the Maximum Transfer Amount on such date; and (f) the Administrative Agent shall have timely received all notices, statements and certificates relating to such Closing Date required by subsections 2.3 and 12.5. Each acquisition or Increase in Net Investment on any Closing Date shall constitute a representation and warranty by the Company that the conditions to the transfer thereof on such Closing Date, as the case may be, have been satisfied. ARTICLE VII Affirmative Covenants The Company hereby agrees that, unless and until this Agreement is terminated pursuant to subsection 4.1, the Company shall: 7.1 Financial Statements. Furnish to each Participant as soon as -------------------- available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited balance sheet of the Company as at the end of such quarter and the related unaudited statements of income and retained earnings and 30 cash flows of the Company for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case, with respect to any such financial statements covering any fiscal quarter commencing after the first anniversary of the Commencement Date, in comparative form the figures for the corresponding quarter and portion of the previous year, certified by a Responsible Officer of the Company as being fairly stated in all material respects (subject to normal year-end audit adjustments) all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or Responsible Officer, as the case may be, and disclosed therein). 7.2 Certificates; Other Information. Furnish to each Participant, or ------------------------------- in the case of paragraph (d), the Administrative Agent: (a) Concurrently with the delivery of the financial statements referred to in subsection 7.1, a certificate of a Responsible Officer of the Company stating that, to the best of such Responsible Officer's knowledge, the Company during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Transaction Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Termination Event or Potential Termination Event, except as specified in such certificate; and (b) Promptly, such additional financial and other information as any Participant may from time to time reasonably request by written notice to the Company (through the Administrative Agent). (c) Promptly upon receipt, but in no event later than 30 days after the Commencement Date, evidence reasonably satisfactory to the Administrative Agent of each filing, registration or recordation required under subsection 6.1(c) of this Agreement and subsection 3.1(b)(v) of the Receivables Sale Agreement and evidence reasonably satisfactory to the Administrative Agent of the payment of any necessary fee, tax or expense relating thereto. (d) Not later than 30 days after the Commencement Date, written opinions of local counsel reasonably acceptable to the Administrative Agent in states (other than Illinois and New York) in which any Category A Seller conducts the majority of its business and any other state in which more than 10% of the revenue of all Sellers during the first eleven months of 1997 arose, covering the perfection and priority of "security interests" in Receivables, in each case addressed to the Administrative Agent and the Participants and in form and substance satisfactory to the Administrative Agent. 31 (e) Not later than 10 days after the merger or consolidation of any Category A Seller with and into another Seller which is not a Category A Seller, or any merger or consolidation of Sellers which create a Seller similar in size to the original Category A Sellers, and without duplication of opinions delivered pursuant to paragraph (d) above, written opinions of local counsel reasonably acceptable to the Administrative Agent in states in which any such surviving corporation conducts the majority of its business covering the perfection and priority of "security interests" in Receivables, in each case addressed to the Administrative Agent and the Participants and in form and substance satisfactory to the Administrative Agent. (f) Not later than 60 days after the Commencement Date, with respect to each Category A Seller and Category B Seller, tax and judgment lien searches in jurisdictions reasonably requested by the Administrative Agent. 7.3 Existence; Businesses and Properties; Insurance; Receivables. ------------------------------------------------------------ (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; comply in all material respects with all applicable laws, rules, regulations and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith, if any, may be properly conducted at all times. (c) Keep its insurable properties insured (including through self- insurance) at all times by financially sound and reputable insurers in such amounts as shall be customary for similar businesses and maintain such other insurance, of such types, to such extent and against such risks, as is customary with companies in the same or similar businesses; and maintain such other insurance as may be required by law. (d) Defend the right, title and interest of the Participants in, to and under the Receivables and the other Pooled Property, whether now existing or hereafter created, against all claims of third parties claiming through or under the Company, the Sellers, the Master Servicer or the Servicers. (e) Duly fulfill all material obligations on its part to be fulfilled under or in connection with each Receivable and do nothing that could reasonably be expected to impair the rights of the Participants in any Receivable. 32 7.4 Payment of Obligations. Pay its obligations including Tax ---------------------- Liabilities, that if not paid could result in a Material Adverse Effect before the same shall become delinquent or in default except where (a) the validity or amount thereof shall be contested in good faith by appropriate proceedings, (b) the Company shall set aside on its books adequate reserves as required in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. 7.5 Inspection of Property; Books and Records; Discussions. Maintain ------------------------------------------------------ all financial records in accordance with GAAP and permit any Persons designated by the Administrative Agent (or, during the continuance of any Termination Event, any Participant) to visit and inspect the financial records and the properties of the Company at reasonable times, upon reasonable notice and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any Persons designated by the Administrative Agent (or, during the continuance of any Termination Event, any Participant) to discuss the affairs, finances and condition of the Company with the officers thereof and independent accountants therefor (subject to reasonable requirements of confidentiality, including requirements imposed by law or by contract). 7.6 Notices. Promptly give notice to the Administrative Agent and ------- each Participant of: (a) the occurrence of any Termination Event, Potential Termination Event, Servicer Default or Servicer Event of Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto; (b) any Lien not permitted by subsection 8.3 on any Receivable or any other Pooled Property other than the conveyances and Liens hereunder and under the Receivables Sale Agreement; (c) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Company in respect of which there is a reasonable possibility of an adverse determination and which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; and (d) any development known to a Responsible Officer of the Company that has resulted in, or could reasonably be anticipated to result in, a Material Adverse Effect. 7.7 Net Worth. Maintain at all times a consolidated net worth, as --------- determined in accordance with GAAP, of at least the Minimum Equity Amount. 7.8 Use of Proceeds. The Company shall use the proceeds of the --------------- initial transfer and assignment of the Participating Interest and of any Increases in Net Investment (a) to acquire Receivables from the Sellers pursuant to the Receivables 33 Sale Agreement in an amount not to exceed the aggregate amount specified in the applicable Daily Report, (b) to pay operating expenses of the Company, (c) to make payments on account of the Subordinated Note in the aggregate amount specified in the applicable Daily Report, and (d) to make payments on account of Restricted Payments in the aggregate amount specified in the applicable Daily Report in each case subject to the priority, restrictions and limitations set forth in subsection 2.7(b) as if such proceeds constituted Receivable Proceeds. 7.9 Separate Corporate Existence. The Company shall: ---------------------------- (a) maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial banking institutions and ensure that the funds of the Company will not be diverted to any other Person or for other than corporate uses of the Company, nor will such funds be commingled with the funds of any Seller or any other Subsidiary or Affiliate of any Seller; provided, that notwithstanding the foregoing, Collections in respect of -------- Purchased Receivables and Receivables may be deposited into the Designated Accounts and the Concentration Account; (b) to the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees; (c) to the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that the Company contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods or services are provided, and each such entity shall bear its fair share of such costs. All material transactions between the Company and any of its Affiliates, whether currently existing or hereafter entered into, shall be only on an arm's length basis, it being understood and agreed that the transactions contemplated in the Transaction Documents meet the requirements of this clause (c); (d) maintain a principal executive office at a separate address from the address of WMI and its Affiliates; provided, that segregated offices in -------- the same building shall constitute separate addresses for purposes of this clause (d). To the extent that the Company and any of its stockholders or Affiliates have offices in the same location, there 34 shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses; (e) issue separate financial statements prepared not less frequently than quarterly and prepared in accordance with GAAP; (f) conduct its affairs in its own name and strictly in accordance with its articles of incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, payroll and intercompany transaction accounts; (g) not assume or guarantee any of the liabilities of any Seller, any Servicer or any Affiliate of any thereof; and (h) take, or refrain from taking, as the case may be, all other actions that are necessary to be taken or not to be taken in order to (x) ensure that the assumptions and factual recitations set forth in the Specified Bankruptcy Opinion Provisions remain true and correct in all material respects with respect to the Company and (y) comply with those procedures described in such provisions which are applicable to the Company. 7.10 Facility Rating. Promptly upon request of the Administrative --------------- Agent, at the expense of the Company, cause the receivables purchase facility created by this Agreement to be rated by S&P or another nationally recognized rating agency designated by the Administrative Agent. 7.11 Purchase of Receivables. Purchase Receivables solely pursuant ----------------------- to (i) the Receivables Sale Agreement or (ii) this Agreement. 7.12 Delivery of Collections. In the event that the Company receives ----------------------- Collections directly from Obligors, deposit such Collections into the Concentration Account or the Collection Account within one Business Day after receipt thereof by the Company. ARTICLE VIII Negative Covenants The Company hereby agrees that, unless and until this Agreement is terminated pursuant to subsection 4.1, the Company shall not directly or indirectly: 35 8.1 Accounting of Transfers. Prepare any financial statements which ----------------------- shall account for the transactions contemplated hereby (other than capital contributions contemplated hereby) in any manner other than as sales of participating interests in the Purchased Receivables by the Company to the Participants or in any other respect account for or treat the transactions contemplated hereby (including for financial accounting purposes, except as required by law) (other than capital contributions and loans from Affiliates contemplated hereby) in any manner other than as assignments and transfers of participating interests in the Purchased Receivables by the Company to the Participants; provided, however, that this subsection 8.1 shall not apply for -------- ------- any tax or tax accounting purposes. 8.2 Limitation on Indebtedness. Create, incur, assume or suffer to -------------------------- exist any Indebtedness, except: (a) Indebtedness evidenced by the Subordinated Note; (b) Indebtedness representing fees, expenses and indemnities payable pursuant to and in accordance with the Transaction Documents; and (c) Indebtedness for services supplied or furnished to the Company in an amount not to exceed $100,000 at any time outstanding; provided, that any Indebtedness -------- permitted hereunder and described in clauses (a) and (c) shall be payable by the Company solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts by the Company hereunder and shall be non-recourse other than with respect to proceeds in excess of the proceeds needed to be so applied. 8.3 Limitation on Liens. Create, incur, assume or suffer to exist ------------------- any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for Permitted Liens. 8.4 Limitation on Guarantees. Become or remain liable, directly or ------------------------ contingently, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise, except in connection with indemnification obligations of the Company to the limited extent provided in the Company's articles of incorporation and by-laws; provided, that any such indemnification shall be paid -------- solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts hereunder, shall be non-recourse other than with respect to proceeds in excess of the proceeds necessary to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. 8.5 Limitation on Fundamental Changes. Enter into any merger, --------------------------------- consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or make any material change in its present method of conducting business or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in its present method of conducting business, other than the assignments and transfers to the Participants contemplated hereby. 36 8.6 Limitation on Sale of Assets. Convey, sell, lease, assign, ---------------------------- transfer or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, other than (a) the assignments and transfers contemplated hereby and (b) sales or other dispositions of property with an aggregate book value not exceeding $10,000 in any period of twelve consecutive fiscal months. 8.7 Limitation on Dividends and Payments on Subordinated Note. --------------------------------------------------------- Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Company, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company (such declarations, payments, setting apart, purchases, redemptions, defeasances, retirements, acquisitions and distributions being herein called "Restricted Payments"), or make, directly or indirectly, payments in any form in respect of the Subordinated Note except that, so long as no breach of subsection 7.7, no Termination Event or Potential Termination Event with respect to a Termination Event set forth in subsection (f), (g), (h)(ii), (i), (m) or (n) of Article IX shall have occurred and be continuing or would result therefrom and the Amortization Period has not commenced, the Company may (a) make payments on the Subordinated Note and (b) make Restricted Payments, each pursuant to subsection 2.7; provided, however, -------- ------- such Restricted Payment are made no more frequently than on a weekly basis and is effected in accordance with all corporate and legal formalities applicable to the Company, all such payments made on any date shall be paid solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts hereunder. 8.8 Business of the Company. Engage at any time in any business or ----------------------- business activity other than the acquisition of Receivables pursuant to the Receivables Sale Agreement, the assignments and transfers hereunder and the other transactions contemplated by the Transaction Documents, and any activity incidental to the foregoing and necessary or convenient to accomplish the foregoing, or enter into or be a party to any agreement or instrument other than in connection with the foregoing. 8.9 Limitation on Investments, Loans and Advances. Make any advance, --------------------------------------------- loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person, except for the Receivables and the other Pooled Property. 8.10 Limitation on Sales and Leasebacks. Enter into any arrangement ---------------------------------- with any Person providing for the leasing by the Company of real or personal property which has been or is to be sold or transferred by the Company to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company. 37 8.11 Transactions with Affiliates. Sell or transfer any property or ---------------------------- assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates except as expressly contemplated by the Transaction Documents. 8.12 Capital Stock. Issue any Capital Stock to any Person or permit ------------- any of its Capital Stock to be transferred to any Person. 8.13 Amendments. Amend (or permit to be amended) its Certificate of ---------- Incorporation. 8.14 Receivables Sale Agreement, etc. Amend, supplement or otherwise -------------------------------- modify (or permit to be amended, supplemented or otherwise modified) any material provision of the Receivables Sale Agreement or any of the other Transaction Documents or give any consent, waiver or notice to any Seller thereunder or other party or parties thereto without the consent of the Administrative Agent and the Required Participants. 8.15 Policies. Amend, supplement or otherwise modify in any material -------- respect (or permit to be amended, supplemented or otherwise modified in any material respect) the Policies or the Company Policies or vary the implementation of the Policies or the Company Policies other than (a) with the consent of the Required Participants and (b) changes that are required by applicable law; provided, that material changes to the Policies and the Company -------- Policies shall include, without limitation, changes to the timing of Defaulted Receivables and changes to the creditworthiness criteria used in determining whether to extend credit to a Person and in determining the amount of such credit to extend. 8.16 No Powers of Attorney. Grant any powers of attorney to any --------------------- Person for any purposes except (a) for the purpose of permitting any Person to perform any ministerial functions on behalf of the Company that are not prohibited by or inconsistent with the terms of the Transaction Documents; (b) to the Administrative Agent in connection herewith; or (c) as expressly permitted by the Transaction Documents. 8.17 Receivables Not to Be Evidenced by Promissory Notes. Take any --------------------------------------------------- action to cause any Receivable to be evidenced by any "instrument" (as defined in the UCC as in effect in any state in which the Company's or the applicable Seller's chief executive office or books and records relating to such Receivable are located), except in connection with its enforcement or collection of an Aged Receivable. 8.18 Ownership of Assets and Property. Own or lease any material -------------------------------- tangible assets other than as expressly contemplated pursuant to the terms of this Agreement and the other Transaction Documents, or own or lease any facilities or incur, create, assume or permit to exist any lease obligations other leases of office space, equipment or other facilities for use by the Company in its ordinary course of business, employment agreements, service agreements, agreements relating to shared employees and the other Transaction Documents and agreements necessary to perform its obligations under the Transaction Documents. 38 employees and the other Transaction Documents and agreements necessary to perform its obligations under the Transaction Documents. 8.19 Rescission or Cancellation. Rescind or cancel any Receivable or -------------------------- modify or extend any term or provision of any thereof without the prior written consent of the Required Participants, except (a) in the ordinary course of its business and consistent with the Policies and the Company Policies or (b) as required by any Requirement of Law; provided, that the Company may cause -------- Receivables to become Defaulted Receivables and may allow Sellers to make Adjustments in accordance with subsection 2.5 of the Receivables Sale Agreement. 8.20 Ineligible Receivables. Without the prior written approval of ---------------------- the Required Participants, take any action to cause, or which would permit, an Eligible Receivable to cease to be an Eligible Receivable, except as otherwise expressly provided for in this Agreement. 8.21 Offices. (a) Move outside the state where such office is now ------- located the location of its chief executive office or of any of the offices where it keeps its records with respect to the Receivables without (i) 30 days' prior written notice to the Administrative Agent and (ii) taking all actions reasonably requested by the Administrative Agent (including but not limited to all filings and other acts necessary or advisable under the Uniform Commercial Code of each relevant jurisdiction) in order to continue the Participants' first priority perfected ownership interest in all Receivables now owned or hereafter created or (b) fail to give the Administrative Agent prompt notice of a change within the state where such office is now located of the location of its chief executive office or any office where it keeps its records with respect to the Receivables; provided, however, that the Company shall not change the location -------- ------- of its chief executive office to outside of the United States, or to a state which is within the Tenth Circuit unless it delivers an Opinion of Counsel reasonably acceptable to the Administrative Agent to the effect that Octagon Gas ----------- Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993) is no longer controlling - ----------------------- precedent in the Tenth Circuit. 8.22 Change in Name. Change its name, identity or corporate -------------- structure in any manner which would or might make any financing statement or continuation statement (or other similar instrument) filed in accordance herewith seriously misleading within the meaning of Section 9-402(7) of the UCC as in effect in any applicable jurisdiction in which UCC filings have been made without 30 days' prior written notice to the Administrative Agent. 8.23 Addition of Sellers. Agree to the addition of any Subsidiary as ------------------- an additional Seller pursuant to subsection 9.14 of the Receivables Sale Agreement unless the Administrative Agent and the Required Participants have approved such addition in writing. 8.24 Operating Expenses. Incur or otherwise become liable for ------------------ operating expenses other than expenses for office space, equipment, personnel, 39 office supplies, computer time, services of third party professionals and other reasonable overhead expenses. ARTICLE IX Events of Termination If any of the following events (herein called "Termination Events") shall have occurred and be continuing: (a) the Company shall fail to deliver any Daily Report or any Settlement Statement conforming in all material respects to the requirements of subsection 12.5 and such failure shall continue for two consecutive Business Days; provided, that if a Force Majeure Delay shall -------- have occurred with respect to any Servicer or the Master Servicer, the failure of the Company to deliver any Daily Report or Settlement Statement, shall not, in either case, constitute a Termination Event unless such failure continues for longer than the lesser of (x) ten consecutive Business Days and (y) the length of such Force Majeure Delay; (b) the Company shall fail to pay, or the Participants or the Administrative Agent shall not be paid, any amount (i) required to be paid hereunder in respect of reduction of the Net Investment when required to be paid or (ii) required to be paid in respect of Purchase Discount Amounts, any other amounts payable to the Participants or Administrative Agent or any payment reflected in any Daily Report or Settlement Statement as being required to be made by the Company, in any case, with respect to this clause (ii), within five Business Days after the date when required to be paid; (c) default shall be made in the due observance or performance by the Company of any covenant, condition or agreement contained in subsection 7.7 or Article VIII; (d) the Company shall fail to observe or perform any covenant or agreement applicable to it contained herein (other than as specified in paragraph (a), (b) or (c) of this Article IX); provided, that no such -------- failure shall constitute a Termination Event under this paragraph (d) unless such failure shall continue unremedied for a period of 30 consecutive days after notice thereof from the Administrative Agent or the Required Participants to the Company; (e) any representation, warranty, certification or statement made or deemed made by the Company in this Agreement or in any Settlement Statement or other certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been false or misleading in any material respect on or as of the date made or deemed made; provided, -------- that a Termination Event shall not be deemed to have occurred under this paragraph (e) based upon a 40 breach of a representation or warranty contained in subsection 5.2 if the Company shall have complied with the provisions of subsection 5.3(b) in respect thereof; (f) (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (A) liquidation, reorganization or other relief in respect of the Company or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (B) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (ii) the Company shall (A) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (B) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (f)(i) of this subsection, (C) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, (D) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (E) make a general assignment for the benefit of creditors or (F) take any action for the purpose of effecting any of the fore going; or (iii) the Company shall become unable, admit in writing or fail generally to pay its debts as they become due; (g) any event or condition occurs that results in any Material Indebtedness of WMI or any Subsidiary of WMI or the Credit Facility becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, but subject to the expiration of any stated grace period) the holder or holders of any Material Indebtedness or the Credit Facility or any trustee or agent on its or their behalf to cause any Material Indebtedness or the Credit Facility to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, or to terminate any commitment associated therewith, prior to its scheduled maturity or termination date; provided, that this clause (g) shall not -------- apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) (i) an ERISA Event shall have occurred that, in the opinion of the Required Participants, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; or (ii) a notice of Lien shall have been filed by the PBGC against the Company under Section 412(n) of the Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Code or Section 302(f) of ERISA applies unless there 41 shall have been delivered to the Administrative Agent proof of release of such Lien; (i) a Federal tax notice of Lien, in an amount equal to or greater than $1,000,000, shall have been filed against the Company unless the Company shall have delivered to the Administrative Agent proof of release of such Lien or against the Master Servicer unless the Master Servicer shall have set aside on its books adequate reserves or there shall have been delivered to the Administrative Agent proof of release of such Lien; (j) there shall have occurred a Change in Control; (k) (i) one or more judgments for the payment of money in an aggregate amount in excess of $100,000 shall be rendered against the Company and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company to enforce any such judgment; or (ii) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 shall be rendered against WMI or any Subsidiary of WMI or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of WMI or any Subsidiary of WMI to enforce any such judgment; or (l) any material provision of the Transaction Documents shall not be in full force and effect, enforceable in accordance with its terms, or the Company, a Seller or the Master Servicer, or any Affiliate of any of the foregoing, shall so assert in writing; (m) the Participating Interest shall for any reason cease to be a valid and perfected first priority undivided ownership interest in the Receivables; (n) the Company shall have become an "investment company" under the Investment Company Act of 1940; (o) one or more Purchase Termination Events shall have occurred and be continuing or an Early Termination shall have occurred, in each case with respect to Sellers which in the aggregate generated more than 10% of the aggregate revenues of all Sellers during the immediately preceding Settlement Period; (p) the Company shall fail to pay the Purchase Price for any newly created Receivable when due pursuant to subsection 2.3 of the Receivables Sale Agreement (including, without limitation, by application of any restrictions in such subsection); provided that no such failure shall -------- constitute a Termination Event under this paragraph (p) unless such failure shall continue for five consecutive Business Days; 42 (q) a Servicer Event of Default shall have occurred and be continuing; or (r) the Net Investment exceeds the Maximum Transfer Amount on the second Business Day following any Settlement Date, after giving effect to the calculation of the Maximum Invested Percentage on such Settlement Date, and after application of Collections and all other payments and amounts to reduce the Net Investment to and including such second Business Day (except to the extent Excess Application Amounts in respect of such excess are being held in a cash collateral account pursuant to subsection 2.12(c)); then, (x) if such event is (I) a Termination Event described in paragraph (f) (other than clause (iii) thereof) above or (II) a Termination Event described in paragraph (q) above resulting from a Purchase Termination Event described in paragraph (e) of subsection 12.11, automatically the Commitments and the Commitment Period shall thereupon terminate without notice of any kind, which is hereby waived by the Company and (y) if such event is any other Termination Event, so long as such Termination Event shall be continuing, the Administrative Agent may, with the consent of the Required Participants, and shall, upon the request of the Required Participants, by notice to the Company terminate the Commitments and the Commitment Period. In addition, in the event of (i) the occurrence of a Termination Event described in paragraph (f) above or (ii) the Net Investment has not been reduced to zero within six months after the termination of the Commitments and the Commitment Period, the Administrative Agent shall proceed to sell, dispose of, or otherwise liquidate the Receivable and the Related Property in a commercially reasonable manner and on commercially reasonable terms, which shall include the solicitation of competitive bids and Administrative Agent shall proceed to consummate the sale, liquidation or disposition of the Receivables and the Related Property as provided above with the highest bidder for the Receivables and the Related Property. The Company or any of its Affiliates shall be permitted to bid for the Receivables and the Related Property. In addition, the Company or any of its Affiliates shall have the right to match any bid by a third person and be granted the right to purchase the Receivables and Related Property at such matched bid price. All reasonable costs and expenses incurred by the Administrative Agent in such sale shall be reimburse to the Administrative Agent as provided herein. The proceeds from the sale, disposition or liquidation of the Receivables shall be treated as Collections on the Receivables and such proceeds shall be applied in accordance with subsection 2.7. ARTICLE X The Administrative Agent 10.1 Appointment. Each Participant hereby irrevocably designates and ----------- appoints the Administrative Agent as the agent of such Participant under this Agreement and each Participant irrevocably authorizes the Administrative Agent, as the agent for such Participant, to take such action on its behalf under the 43 provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto, including, but not limited to, the signing by the Administrative Agent, as agent for the Participants, of any financing statements related to the Receivables. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Participant, the Company, any Servicer or the Master Servicer, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. 10.2 Delegation of Duties. The Administrative Agent may perform any -------------------- and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Affiliates. The exculpatory provisions of the succeeding paragraphs shall apply to any such sub-agent and to the Affiliates of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the Participating Interests provided for herein as well as activities as Administrative Agent. 10.3 Exculpatory Provisions. Neither the Administrative Agent nor ---------------------- any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action (including, without limitation, any action under subsection 2.7 hereof) lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the transactions contemplated hereby or thereby (except for its or such Person's own gross negligence or willful misconduct), (ii) responsible in any manner to any party hereto for any recitals, statements, representations or warranties made by the Company, any Servicer, the Master Servicer or any of the Participants or any officer thereof contained in this Agreement, or in any certificate, report, statement or other document (including, without limitation, any Daily Report or Settlement Statement) referred to or provided for in, or received by the Administrative Agent under or in connection with this Agreement or the transactions contemplated hereby or thereby or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or (iii) for any failure of the Company, any Servicer, the Master Servicer, or any of the Participants to perform their respective obligations hereunder. The Administrative Agent shall not be under any obligation to any party hereto to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or to inspect the properties, books or records of the Company, any Servicer, the Master Servicer or any of the Participants. 10.4 Reliance By the Administrative Agent. The Administrative Agent ------------------------------------ shall be entitled to rely, and shall be fully protected in relying, upon any writing, (including, without limitation, any Daily Report or Settlement Statement) resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it 44 to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any of the Participants and counsel to the Company, any Servicer or the Master Servicer), independent accountants and other experts selected by the Administrative Agent, as the case may be. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Participants as it deems appropriate or it shall first be indemnified to its satisfaction by the Participants against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Participants entitled to give such a request hereunder, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Participants. 10.5 Notice of Default or Termination Event. The Administrative -------------------------------------- Agent shall not be deemed to have knowledge or notice of the occurrence of any default or Termination Event hereunder unless the Administrative Agent has received notice from a Participant, the Company, any Servicer or the Master Servicer referring to this Agreement, describing such default or Termination Event and stating that such notice is a "notice of default" or a "notice of Termination Event", as the case may be. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give promptly notice thereof to the Participants and to the Company. The Administrative Agent shall take such action with respect to such default or Termination Event as shall be reasonably directed by the Required Participants; provided, that unless -------- and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to), subject to the terms hereof, take such action, or refrain from taking such action, with respect to such default or Termination Event as it shall deem advisable in the best interests of the Participants. 10.6 Non-Reliance on the Administrative Agent and Other Participants. --------------------------------------------------------------- Each Participant hereby expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Company, any Servicer or the Master Servicer, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Participant. Each Participant hereby represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Participant, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property and financial and other condition and creditworthiness of the Company, the Servicers and the Master Servicer and made its own decision to acquire a Participating Interest hereunder and enter into this Agreement. Each Participant hereby also represents that it will, independently and without reliance upon the Administrative Agent or any other Participant, and based on such documents and 45 information as it shall deem appropriate at the time, continue to make its own appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property and financial and other condition and creditworthiness of the Company, the Servicers and the Master Servicer. Except for notices, reports and other documents expressly required to be furnished to the Participants by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Participant with any information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company, any Servicer or the Master Servicer which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7 Indemnification. Each Participant hereby agrees to indemnify --------------- the Administrative Agent in its capacity as such (to the extent not reimbursed by the Company or the Master Servicer and without limiting the obligation of the Company and the Master Servicer to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this subsection 10.7, from and against any and all subsection 11.3(b)(i) Indemnified Liabilities which may at any time (including without limitation at any time following the termination of the commitment of the Participants to increase their Participating Interest hereunder) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement, or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided, -------- that no Participant shall be liable for the payment of any portion of such Indemnified Liabilities resulting from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection 10.7 shall survive the termination of the commitments of the Participants to acquire a Participating Interest hereunder, the collection of all Receivables, the termination of this Agreement and the payment of all amounts payable hereunder. 10.8 The Administrative Agent in Its Individual Capacity. The --------------------------------------------------- Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company, the Servicers, the Master Servicer or any of their affiliates as though the Administrative Agent were not the Administrative Agent. With respect to any Participating Interests purchased or maintained by it under this Agreement, the Administrative Agent shall have the same rights and powers hereunder as any Participant and may exercise the same as though it were not the Administrative Agent, and the term "Participant" shall include the Administrative Agent in its individual capacity. 10.9 Successor Administrative Agent. Subject to the appointment and ------------------------------ acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by notifying the Participants and the Company. Upon any such resignation, the Required Participants shall have the right to appoint a successor in consultation with the Company. If no successor shall have 46 been so appointed by the Required Participants and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Participants, appoint a successor Administrative Agent, with the consent of the Company (not to be unreasonably withheld), which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank which is also a bank. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After the Administrative Agent's resignation hereunder, the provisions of this Article X and of subsection 11.3 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. ARTICLE XI Miscellaneous 11.1 Further Assurances. Each of the Company, the Servicers and the ------------------ Master Servicer agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments reasonably required or requested by the Administrative Agent at the request of any Participant more fully to effect the purposes of this Agreement and the assignments and transfers of the Participating Interest hereunder, including, without limitation, the execution of any financing statements or continuation statements relating to the Receivables for filing under the provisions of the Uniform Commercial Code, or any similar law, of any applicable jurisdiction. 11.2 Payments. Each payment to be made by any of the Participants, -------- the Company, any of the Servicers or the Master Servicer hereunder shall be made on the required payment date in Dollars and in immediately available funds at the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017 or to such other office as may be specified by the Administrative Agent in a notice to the Company, the Servicers, the Master Servicer and the Participants. 11.3 Costs and Expenses. (a) The Company agrees to pay all ------------------ reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates in connection with the preparation of this Agreement and the other Transaction Documents, or by the Administrative Agent and its Affiliates in connection with the syndication of the Commitments or the administration of this Agreement, or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby contemplated shall be consummated) or incurred by the Administrative Agent or any Participant in connection with the enforcement or protection of their rights in connection with this Agreement and the other Transaction Documents, including its rights under this subsection, or in connection with the purchases made hereunder, including in connection with any 47 workout, restructuring or negotiations in respect thereof, including the reasonable fees, charges and disbursements of Simpson Thacher & Bartlett, counsel for the Administrative Agent, and, the reasonable fees, charges and disbursements of any other counsel (including the reasonable allocated costs of internal counsel if a Participant elects to use internal counsel in lieu of outside counsel) for the Administrative Agent or any Participant (but no more than one such counsel for any Participant). (b) The Company agrees to indemnify the Administrative Agent, each Participant and each of their respective directors, officers, employees and agents (each such Person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Transaction Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (the "subsection 11.3(b)(i) Indemnified Liabilities") (ii) the use of the proceeds of the initial transfer and assignment of the Participating Interest and of any Increases in Net Investment, (iii) any Environmental Liability related in any way to the Company, or (iv) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; provided, that such indemnity -------- shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (A) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee (treating, for this purpose only, any Participant and its directors, officers, employees and agents as a single Indemnitee) or (B) arise from (x) any Receivable which becomes a Charge-Off as a result of non-payment by the Obligor with respect thereto, (y) any action taken, or omitted to be taken, by any Servicer which is not an Affiliate of WMI, or (z) any action taken by the Participants in collecting from an Obligor. (d) The provisions of this subsection 11.3 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of all or any portion of the Net Investment, the invalidity or unenforceability of any term or provision of this Agreement or any other Transaction Document, or any investigation made by or on behalf of the Administrative Agent or any Participant. All amounts due under this subsection 11.3 shall be payable on written demand therefor. 11.4 Successors and Assigns; Assignments; Participations. (a) The --------------------------------------------------- provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Participants, the Master Servicer, the Servicers, the Administrative Agent and their respective successors and assigns, except that the Company, the Servicers and the Master Servicer may not assign or transfer any of its or their rights or obligations under this Agreement without the prior written consent of each Participant (and any attempted assignment or transfer by the Company without such 48 consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Affiliates of each of the Administrative Agent and the Participants) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Participant may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Participating Interest and any Commitment of such Participant); provided, that (i) except in the case of an assignment to a Participant or an - -------- Affiliate of a Participant, each of the Company and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld and the parties hereto agree that the potential payment of amounts under subsections 3.2, 3.3 or 3.4 to such assignee does not constitute a basis upon which to withhold such consent), (ii) except in the case of an assignment to a Participant or an Affiliate of a Participant or an assignment of the entire remaining amount of the assigning Participant's Commitment, the amount of the Commitment of the assigning Participant subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Company and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Participant's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Participant, shall deliver to the Administrative Agent an Administrative Questionnaire; provided, further, that any consent of the Company -------- ------- otherwise required under this paragraph shall not be required if a Termination Event under clause (f) of Article IX has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this subsection, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Participant under this Agreement, and the assigning Participant thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Participant's rights and obligations under this Agreement, such Participant shall cease to be a party hereto but shall continue to be entitled to the benefits of subsections 3.2, 3.3, 3.4 and 11.3). Any assignment or transfer by a Participant of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Participant of a participation in such rights and obligations in accordance with paragraph (e) of this subsection. (c) The Administrative Agent, acting for this purpose as an agent of the Company, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the 49 names and addresses of the Participants, and the Commitment of, and the Net Investment of, each Participant pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Company, the Administrative Agent and the Participants may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Participant hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Participant and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Participant hereunder), the processing and recordation fee referred to in paragraph (b) of this subsection and any written consent to such assignment required by paragraph (b) of this subsection, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Participant may, without the consent of the Company or the Administrative Agent, sell participations to one or more banks or other entities (an "Additional Participant") in all or a portion of such Participant's rights and obligations under this Agreement (including all or a portion of its Participating Interest and any Commitment of any Participant); provided, that -------- (i) such Participant's obligations under this Agreement shall remain unchanged, (ii) such Participant shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Company, the Administrative Agent and the other Participants shall continue to deal solely and directly with such Participant in connection with such Participant's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Participant sells such a participation shall provide that such Participant shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided, that such agreement or instrument may provide that such Participant - -------- will not, without the consent of the Additional Participant, agree to any amendment, modification or waiver described in the first proviso to subsection 11.7(b) that affects such Additional Participant. Subject to paragraph (f) of this subsection, the Company agrees that each Additional Participant shall be entitled to the benefits of subsections 3.2, 3.3 and 3.4 to the same extent as if it were a Participant and had acquired its interest by assignment pursuant to paragraph (b) of this subsection. (f) An Additional Participant shall not be entitled to receive any greater payment under subsection 3.2 or 3.4 than the applicable Participant would have been entitled to receive with respect to the participation sold to such Additional Participant, unless the sale of the participation to such Additional Participant is made with the Company's prior written consent. An Additional Participant that would be a Foreign Participant if it were a Participant shall not be entitled to the benefits of subsection 3.4 unless the Company is notified of the participation sold to such Additional Participant and such Additional Participant 50 agrees, for the benefit of the Company, to comply with subsection 3.4(e) as though it were a Participant. (g) Any Participant may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Participant, including any such pledge or assignment to a Federal Reserve Bank, and this subsection shall not apply to any such pledge or assignment of a security interest; provided, that no such pledge or assignment -------- of a security interest shall release a Participant from any of its obligations hereunder or substitute any such assignee for such Participant as a party hereto. (h) Each Participant that is a special-purpose securitization conduit and has a Conduit Party that provides liquidity and/or credit facilities in connection with such conduit's pro rata share of the Participating Interest shall be entitled to receive payments pursuant to Article III as though such Conduit Party were a Participant hereunder but no such payment shall exceed the amount such conduit shall be obligated to pay to such Conduit Party pursuant to similar sections of the liquidity and/or credit facilities agreement between such conduit and such Conduit Party. No conduit shall be entitled to receive any payment contemplated by subsection 3.4 if the Conduit Party with respect to which such payment is being claimed could not have satisfied the requirements of subsection 3.4(e) (if such Conduit Party were a Participant). 11.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF ------------- THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 11.6 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Administrative Agent or the Participants, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. 11.7 Amendments and Waivers. Neither this Agreement nor any terms ---------------------- hereof may be amended, supplemented, modified or waived except in accordance with the provisions of this subsection 11.7. The Required Participants may, or, with the written consent of the Required Participants, the Administrative Agent may, from time to time, (a) enter into with the Company, the Master Servicer and the Servicers written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or changing in any manner the rights of the Participants, the Company, the Servicers or the Master Servicer hereunder or (b) waive in a written instrument, on such terms and conditions as the Required Participants or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or any default or Termination Event and its consequences; provided, however, that no -------- ------- such waiver and no such 51 amendment, supplement or modification shall (i) extend the Scheduled Termination Date; or reduce the rate or extend the time of payment of any Purchase Discount Amount or Commitment Fee; or extend the time of payment of any mandatory reduction of the Net Investment; or modify subsection 2.12 so that the fact that the Net Investment exceeds the Maximum Transfer Amount does not necessitate a mandatory reduction in the Net Investment; or change the definition of "Maximum Invested Percentage" or consent to any amendment to subsection 2.6 of the Receivables sale Agreement; or increase the amount of any Participant's Commitment; or amend, modify or waive any provision of this subsection 11.7; or reduce the percentage specified in the definition of Required Participants; or consent to the assignment or transfer by the Company, any Servicer or the Master Servicer of any of their respective rights and obligations under this Agreement (except in accordance with Article XII); or release any substantial portion of the Pooled Property (other than pursuant to subsection 5.3 or 12.7); in each case without the written consent of each Participant directly affected thereby or (ii) amend, modify or waive any provision of Article X without the written consent of the Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Participants and shall be binding upon the Company, the Servicers, the Master Servicer, the Participants, the Administrative Agent and all future holders of a Participating Interest. In the case of any waiver, the Company, the Servicers, the Master Servicer, the Participants and the Administrative Agent shall be restored to their former position and rights hereunder, any default or Termination Event waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other default or Termination Event, or impair any right consequent thereon. 11.8 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent such prohibition or unenforceability without invalidating 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. 11.9 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Company and the Administrative Agent, as set forth under their signatures on the signature pages hereof (in the case of the Master Servicer and the Servicers) and as set forth on Schedule 1 hereto (in the case of the Participants), or to such other address as may be hereafter notified by the respective parties hereto: 52 The Company: Waste Management Financing Corporation 3003 Butterfield Road Oak Brook, Illinois 60523 Attention: Treasurer Telephone: (630) 572-3018 Telecopy: (630) 572-1340 The Administrative Agent: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: Loan and Agency Services Telecopy: (212) 552-5662 provided, that any notice, request or demand to or upon the Administrative Agent - -------- or the Participants pursuant to subsections 2.3, 2.7, 2.8, 2.10, 2.11 and 2.12 shall not be effective until received. 11.10 Counterparts. This Agreement may be executed by one or more of ------------ the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 11.11 Construction of Agreement as Security Agreement. (a) Subject ----------------------------------------------- to subsection 11.18, although it is the intent of the parties to this Agreement that the conveyance of the Company's right, title and interest in, to and under the Receivables and the Related Property pursuant to this Agreement shall constitute a purchase and sale and not a loan, in the event that such conveyance is deemed to create a loan, the Company hereby grants to the Administrative Agent, for the benefit of the Participants, a perfected first priority security interest in all of the Company's present and future right, title and interest in, to and under the Receivables and the Related Property to secure the payment of the applicable Net Investment interest thereon and the other fees and expenses payable to the Participants, and that this Agreement shall constitute a security agreement under applicable law in favor of the Administrative Agent, for the benefit of the Participants. (b) Each Servicer hereby grants to the Administrative Agent on behalf of the Participants a first priority security interest in all of the Servicer's right, title and interest in, to and under its records relating to the Receivables and Related Property serviced by it to secure all of the Company's obligations hereunder. (c) This Agreement shall constitute a security agreement under applicable law. 53 11.12 Adjustments; Set-off. (a) If any Participant (a "benefitted -------------------- Participant") shall at any time receive any payment of all or part of its Participating Interest of the Net Investment, or any Purchase Discount Amount in respect thereof, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in paragraph (f) of Article IX, or otherwise) in a greater proportion than any such payment to and collateral received by any other Participant, if any, in respect of such other Participant's Participating Interest of the Net Investment, or any Purchase Discount Amount in respect thereof, such benefitted Participant shall acquire for cash from the other Participants such portion of each such other Participant's Participating Interest of the Net Investment, or shall provide such other Participants with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Participant to share the excess payment or benefits of such collateral or proceeds ratably with each of the Participants; provided, however, that if all or any portion of such excess payment or - -------- ------- benefits is thereafter recovered from such benefitted Participant, such acquisition shall be rescinded, and the transfer price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Participants provided by law, each Participant shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, upon any amount, other than amounts in respect of Net Investment and the Purchase Discount Amounts with respect thereto, becoming payable by the Company hereunder to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Participant or any branch or agency thereof to or for the credit or the account of the Company. Each Participant agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Participant; provided, that the failure to give such notice shall not affect the -------- validity of such set-off and application. 11.13 Jurisdiction; Consent to Service of Process. (a) Each of the ------------------------------------------- Company, the Master Servicer and each Servicer hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Transaction Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall 54 affect any right that the Administrative Agent or any Participant may otherwise have to bring any action or proceeding relating to this Agreement or the other Transaction Documents against the Company, the Master Servicer or any Servicer or their properties in the courts of any jurisdiction. (b) Each of the Company, the Master Servicer and each Servicer hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Transaction Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in subsection 11.9. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 11.14 Acknowledgements. Each of the Company, the Master Servicer and ---------------- each Servicer hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Transaction Documents to which it is a party; (b) neither the Administrative Agent nor any Participant has any fiduciary relationship with or duty to the Company, the Master Servicer or any Servicer arising out of or in connection with this Agreement or any of the other Transaction Documents, and the relationship between the Administrative Agent and the Participants, on one hand, and the Company, on the other hand, in connection herewith or therewith is solely that of purchaser/creditor and seller/debtor; and (c) no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby among the Participants or among the Company, the Master Servicer or any Servicer and the Participants. 11.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE -------------------- FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED 55 TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SUBSECTION 11.15. 11.16 Confidentiality. Each Participant agrees to maintain the --------------- confidentiality of information furnished to it by or on behalf of the Company or the Master Servicer in connection with the Transactions as provided in any separate confidentiality agreement entered into between the Company and/or the Master Servicer and such Participant. 11.17 No Bankruptcy Petition, etc. Each Servicer, the Master --------------------------- Servicer, each Participant and the Administrative Agent covenants and agrees that, prior to the date which is one year and one day after the date of termination of this Agreement pursuant to subsection 4.1, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law. The Company, the Master Servicer, the Servicers, and the Participants each agree that it will not institute against, or join any other Person in instituting against any Participant that is a special-purpose securitization conduit, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other similar proceeding under the laws of the United States or any state of the United States. The obligations of any Participant under this Agreement are solely the corporate obligations of such Participant. No recourse shall be had for the payment of any amount owing in respect to this Agreement or for the payment of any fee hereunder or for any other obligation or claim arising out of or based upon this Agreement against any direct or indirect stockholder or other owner, employee, officer, director or incorporator of any Participant. 11.18 Tax Treatment. It is the intent of the Company and the ------------- Participants that, for federal, state and local income and franchise tax purposes, the Participating Interest will be indebtedness of the Company secured by the Pooled Property. The Company and the Participants agree to treat the Company as the owner of the Pooled Property and the Participating Interest as indebtedness of the Company secured by the Pooled Property and the Purchase Discount Amount as interest for United States tax purposes (including for reporting purposes), except as otherwise required by law or any tax authorities. This subsection 11.18 shall survive the termination of this Agreement and shall be binding on all transferees. In addition, each of the parties hereto represents and warrants that it is entering into this Agreement for its own account and on its own behalf and that it does not intend this Agreement (or the transactions contemplated thereby) to create a partnership, joint venture or other similar arrangement between, or among, the parties hereto. The powers granted and obligations undertaken in this Agreement shall be construed so as to further such intent. 56 ARTICLE XII Servicing 12.1 Servicing; Accounts; Collections. (a) Appointment of -------------------------------- -------------- Servicers. The Participants and the Company hereby appoint (i) the Master - --------- Servicer and the Servicers as their agents to service and administer the Receivables originated by the Sellers and (ii) the Master Servicer as their agent to coordinate the servicing of the Receivables by the Servicers. Each of the Servicers and the Master Servicer hereby consents to such appointment and agrees to service and administer the Receivables in accordance with the terms and conditions contained herein. The Company hereby appoints the Master Servicer, and the Master Servicer hereby consents to such appointment, to take any actions on behalf of the Company which by the terms hereof have been delegated to the Master Servicer and any further actions incidental thereto. The Company and the Master Servicer may agree, in accordance with subsection 8.11, that the Master Servicer may perform on behalf of the Company certain of the Company's obligations under the Transaction Documents. Prior to the occurrence of a Complete Servicing Transfer, on each Settlement Date, the Servicers and the Master Servicer shall receive the Monthly Servicing Fee for performing their functions as Servicers and Master Servicer hereunder as provided in subsection 2.7. (b) Establishment of Accounts. (i) The Master Servicer and the ------------------------- Servicers shall establish and maintain (A) one or more bank accounts which may be in the name of the Master Servicer or any Servicer (each, an "Initial Deposit Account") for the deposit of Collections on Purchased Receivables ("Purchased Receivables Collections") and Collections on Receivables of any Subsidiary of WMI which are not Purchased Receivables ("WMI Collections") and (B) one or more bank accounts which shall be in the name of the Master Servicer or any Servicer (each, a "Subsequent Deposit Account") for the deposit of Purchased Receivables Collections and WMI Collections on deposit in any Initial Deposit Account or for the direct deposit of Purchased Receivables Collections or WMI Collections. The Initial Deposit Accounts and the Subsequent Deposit Accounts are collectively referred to herein as the "Designated Accounts." Each of the Master Servicer and the Servicers represents, warrants, covenants and agrees that (X) the Designated Accounts shall only be used for the deposit of Purchased Receivables Collections and WMI Collections and (Y) the Designated Banks shall have received standing instructions from the Master Servicer or the Servicer, as applicable, directing that all available funds on deposit in any Designated Account on such day be transferred at least as often as once each day (unless the amount on deposit on such day is less than $5,000) that is a business day for such Designated Bank and in any event by 1:00 p.m. (New York City time) on the business day following each such day of deposit, by a wire transfer in immediately available funds to the Concentration Account (either directly or through the Subsequent Deposit Account). (ii) The Master Servicer shall establish and maintain an account (the "Concentration Account") which shall initially be held in the name of the Master 57 Servicer or any Servicer for the central collection of Purchased Receivables Collections and WMI Collections. The Master Servicer agrees that at any time after the initial acquisition of the Participating Interest (the "Initial Acquisition Date"), it shall upon five days prior written notice from the Administrative Agent, transfer the Concentration Account and/or the Initial Deposit Account held at The First National Bank of Chicago (Account No. 5758807) to the name of the Administrative Agent, which shall hold such account as agent for the benefit of (1) with respect to Purchased Receivables Collections, the Participants and the Company and (2) with respect to WMI Collections, the Master Servicer pursuant to an agreement to be entered into in form and substance reasonably satisfactory to the Master Servicer and the Administrative Agent. The Master Servicer represents, warrants, covenants and agrees that (A) the Concentration Account shall only be used for the deposit of Purchased Receivables Collections and WMI Collections and (B) the Designated Bank at which the Concentration Account is held shall have received standing instructions from the Master Servicer directing that available funds on deposit in the Concentration Account on such day shall be transferred in accordance with the instructions provided by the Master Servicer at least as often as once each day that is a business day for such Designated Bank and in any event by 1:00 p.m. (New York City time) on the business day following each such day of deposit, by a wire transfer of immediately available funds, to the SPC Collection Account and such other account designated by the Master Servicer. (iii) The Company shall establish and maintain an account (the "SPC Collection Account") which shall initially be held in the name of the Company for the deposit of Purchased Receivables Collections. The Company agrees that at any time after the Initial Acquisition Date, it shall upon five days prior written notice from the Administrative Agent transfer the SPC Collection Account to the name of the Administrative Agent which shall hold such account for the benefit of the Participants. The Company represents, warrants, covenants and agrees that (A) the SPC Collection Account shall only be used for the deposit of Purchased Receivables Collections and (B) the Designated Bank at which the SPC Collection Account is held shall have received standing instructions from the Company directing that all available funds on deposit in the SPC Collection Account on such day be transferred at least as often as once each day that is a business day for such bank and in any event by 1:00 p.m. (New York City time) on the business day following each such day of deposit, by a wire transfer of immediately available funds, (1) during any time when any Net Investment is outstanding, to the Collection Account and (2) otherwise, to an account designated in writing by the Master Servicer to make payments as provided in subsection 12.1(c)(ii). (iv) In the event a Termination Event shall occur and be continuing, the Master Servicer and the Servicers, at the request of the Administrative Agent, agree to notify (and, if such Servicer fails to so notify, the Company irrevocably grants the Administrative Agent the authority to notify) all Obligors on Purchased Receivables to make all future payments directly to the Collection Account or any other account designated by the Administrative Agent. Upon the termination of the Commitment Period as a result of the occurrence of a Termination Event, the Master Servicer agrees it shall, upon five days prior written notice from the 58 Administrative Agent, transfer the Designated Accounts to the name of the Administrative Agent, which shall hold such account as agent for the benefit of (1) with respect to Purchased Receivables Collections, the Participants and the Company and (2) with respect to WMI Collections, the Master Servicer pursuant to an agreement to be entered into in form and substance reasonably satisfactory to the Master Servicer and the Administrative Agent. (v) Upon the transfer to the name of the Administrative Agent of the SPC Collection Account, the Administrative Agent shall have sole and exclusive dominion over and control of the SPC Collection Account and the Company, the Master Servicer and any Servicer shall not have any right to make withdrawals from the SPC Collection Account other than the right to authorize transfers to the Collection Account as set forth herein and pursuant to the terms hereof. (vi) The Administrative Agent shall treat all collections received by it or deposited in the Collection Account as "Collections" for purposes of this Agreement as of the Business Day Received (as defined in the immediately succeeding sentence). As used herein, the term "Business Day Received" shall mean (i) if funds are otherwise deposited in the Collection Account by 1:00 p.m. (New York City time), such day of deposit and (ii) if funds are deposited in the Collection Account after 1:00 p.m. (New York City time), the Business Day next following such day of deposit. (c) Collection Procedures. (i) All Collections received by any --------------------- Servicer, the Master Servicer or the Company shall be deposited by it to a Designated Account as soon as possible after receipt thereof, such deposit to occur in no event later than the Business Day after such receipt. Each Collection shall be deposited into a Designated Account by delivery of a check of an Obligor, by wire transfer from an account of such Obligor to such Designated Account or by means of by a wire transfer in immediately available funds and shall be transferred from such Designated Account (either directly or through another Designated Account) to the Concentration Account at least as often as once each day that is a business day for the applicable Designated Bank, such transfer from such Designated Account to be commenced in any event by 1:00 p.m. (New York City time) on the Business Day following such day of deposit; provided, that Collections may, at the option of the applicable -------- Obligor, be deposited directly into the Concentration Account. (ii) All Collections deposited in the Concentration Account shall be transferred to the SPC Collection Account on the same day that they are deposited in the Concentration Account. The Master Servicer, the Servicers and the Company agree that no amounts may be withdrawn from the Concentration Account on any day until the amount of Purchased Receivables Collections deposited therein on such day have been transferred to the SPC Collection Account. If within five days after an amount has been deposited in the Concentration Account, the Master Servicer or the Servicers are not able to determine whether or not such amount is a Purchased Receivables Collection or a WMI Collection, such amount shall be deemed to be a Purchased Receivables Collection and shall immediately be transferred to the SPC 59 Collection Account. On any Business Day when the Net Investment is zero, subject to the terms and conditions hereof, amounts deposited in the SPC Collection Account shall be paid to an account designated by the Master Servicer to pay for Receivables acquired from the Seller pursuant to the Receivables Sale Agreement, make payments on the Subordinated Note or make Restricted Payments. On any Business Day when any Net Investment is outstanding, all amounts deposited in the SPC Collection Account on such day shall be transferred to the Collection Account on such day. (iii) Each of the Company, the Master Servicer and each Servicer represents, warrants, covenants and agrees that all Collections shall be collected, processed and deposited pursuant to, and in accordance with, the terms of this Agreement and that it shall take all actions necessary to permit the transfer of funds as described in this subsection 12.1 on a timely basis. (iv) The Company represents, warrants, covenants and agrees that it shall not make or maintain any deposits in any bank account, deposit account or trust account with any financial institution other than the Designated Accounts, the Concentration Account, the SPC Collection Account and the Collection Account as provided for by this Agreement and other than one operating account funded solely with amounts disbursed as operating expenses pursuant to subsection 2.7. The Company shall provide the Administrative Agent with the account number and location of such account, and any other information as the Administrative Agent may reasonably request with respect thereto. The Company represents, warrants, covenants and agrees that it shall have no bank accounts or interest in bank accounts other than the Designated Accounts, the Concentration Account, the SPC Collection Account and the Collection Account and such operating account. The Company represents, warrants, covenants and agrees that no new bank accounts or deposit accounts will be established unless and until the Company has received the prior written consent of the Administrative Agent. (v) Each of the Company, the Master Servicer and each Servicer represents, warrants, covenants and agrees that no location other than the Designated Accounts and the Concentration Account has been established for the deposit of Collections. Each of the Company, the Master Servicer and each Servicer represents, warrants, covenants and agrees that no new location for the deposit of Collections will be established unless and until the Company has received the prior written consent of the Administrative Agent. (vi) The Company agrees to pay all fees for the services of the Designated Banks in respect of the SPC Collection Account, and the Master Servicer agrees to pay or cause to be paid all fees for the services of the Designated Banks in respect of the Designated Accounts and the Concentration Account. 12.2 Collections by the Servicers; Indemnity. (a) The Master --------------------------------------- Servicer and each Servicer shall manage the servicing and administration of the Receivables, the collection of payments due under the Receivables and the charging off of any Receivables as uncollectible, all in accordance with the Policies, the 60 Company Policies and all the terms and provisions of this Agreement. The Master Servicer and each Servicer shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable, but at all times subject to the terms of this Agreement. Without limiting the generality of the foregoing and subject to subsection 12.7, the Master Servicer and each Servicer agree to cause each Subsidiary of the Master Servicer to continue to perform such servicing functions with respect to the Receivables originated by such Subsidiary that such Subsidiary has historically performed; provided that the Master Servicer and each Servicer shall remain liable for the failure of any such Subsidiary to perform such functions and each Servicer or its designee is hereby authorized and empowered to give direction to the Administrative Agent with respect to withdrawals from, and payments to, the Collection Account in accordance with the Daily Report and as otherwise specified in this Agreement. The Master Servicer and each Servicer will, at its cost and expense and as agent for the Participants and the Company, use its best efforts to collect, consistent with its past practices, as and when the same becomes due, the amount owing on each Receivable for which it is the Servicer. No Servicer will make any material changes that deviate from the Policies or the Company Policies in its administrative, servicing and collection systems without the prior written approval of the Required Participants. In the event of default under any Receivable, the responsible Servicer shall have the power and authority, on behalf of the Participants and the Company, to take such action in respect of such Receivable as such Servicer may reasonably deem advisable. In the enforcement or collection of any Receivable, each Servicer shall be entitled to sue thereon in (i) its own name, (ii) if, but only if, the Administrative Agent consents in writing, as agent of the Participants, or (iii) if, but only if, the Company consents in writing, as agent for the Company. In no event shall any Servicer or the Master Servicer be entitled to take any action which would make the Administrative Agent or any of the Participants or the Company a party to any litigation without the express prior written consent of the Administrative Agent or each such Participant or the Company, as the case may be. (b) The Master Servicer and the Servicers which are Affiliates of Company hereby agree, jointly and severally, to indemnify and hold harmless each Indemnitee (as defined in subsection 11.3(b)), from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of the Master Servicer and the Servicers which are Affiliates of the Company pursuant to the Transactions, including but not limited to any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided, that the Master Servicer and the -------- Servicers which are Affiliates of the Company shall not so indemnify any Indemnitee for any loss, liability, damage, injury, cost or expense of such Indemnitee (i) arising solely from a default by an Obligor with respect to any Receivable (other than arising out of (A) any discharge, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Purchased Receivable arising 61 from the actions of the Master Servicer or Servicer which is an Affiliate of the Company (including, without limitation, a defense based on such Purchased Receivable's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or (B) a failure by the Master Servicer or Servicer which is an Affiliate of the Company to perform its duties or obligations under this Agreement), or (ii) to the extent that such liability, cost or expense arises from the gross negligence, bad faith or wilful misconduct of such Indemnitee or any other Indemnitee. The provisions of this indemnity shall run directly to, and be enforceable by, an injured party and shall survive the termination of this Agreement and the resignation of the Master Servicer or any Servicer which is an Affiliate of the Company. (c) The Servicers, the Master Servicer and the Company each hereby irrevocably grant to the Administrative Agent an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Master Servicer, such Servicer or the Company or in its own name at any time after the occurrence of a Complete Servicing Transfer all steps necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or owned by the Master Servicer, such Servicer or the Company or transmitted to or received by the Administrative Agent as payment on account or otherwise in respect of any Receivable. (d) Upon the occurrence and during the continuance of any Servicer Event of Default, the Administrative Agent shall, at the request of the Required Participants, by giving two Business Days' notice in writing to the Master Servicer (a "Transfer Notice"), terminate any or all Servicer or Master Servicer administrative, servicing and collection functions provided for herein as to any or all of the Servicers and the Master Servicer (the termination of all such functions with respect to all Servicers and the Master Servicer being referred to as a "Complete Servicing Transfer" and any other such termination being referred to as a "Partial Servicing Transfer"). Upon the occurrence of either a Partial Servicing Transfer or a Complete Servicing Transfer, without limitation, (i) a designee of the Required Participants (for purposes of paragraphs (d) through (e) of this subsection 12.2, the term "Substitute Servicer" means such designee, as appropriate) shall administer the administrative, servicing and collection functions of each terminated Servicer and/or the Master Servicer, as the case may be (each, a "Transferring Servicer") (in the case of a Partial Servicing Transfer) or all Servicers and the Master Servicer (in the case of a Complete Servicing Transfer) in any manner it deems fit (which may include notifying any Obligor of the assignment to the Participants of the interest in the affected Receivables and/or directing any Obligor to make all payments in respect of the affected Receivables in the name of the Substitute Servicer); provided, that the Substitute Servicer shall furnish or cause to be furnished to - -------- the Company such information as such Company needs to perform its obligations under this Agreement, and the Company may, without independent investigation, rely on such information for all purposes of this Agreement and (ii) the Company, each Transferring Servicer (in the case of a Partial Servicing Transfer) or each Servicer and the Master Servicer (in the case of a Complete Servicing Transfer) shall, at its own expense, (x) if so 62 requested by the Substitute Servicer, endorse each instrument, if any, evidencing any Receivable to the Substitute Servicer in such manner as the Substitute Servicer shall reasonably direct and (y) perform, or cause to be performed by any Person involved in administrative, servicing or collection functions on behalf of or under the direction of each Transferring Servicer (in the case of a Partial Servicing Transfer) or each Servicer and the Master Servicer (in the case of a Complete Servicing Transfer) or the Company, any and all acts, any and all documents as, in each case, may be reasonably requested by the Substitute Servicer in order to effect the purposes of this Agreement and the transfer and assignment of the Participating Interest and to perfect and protect the ownership interest of the Participants in the Receivables and the Related Property. Each Servicer agrees to serve as a Substitute Servicer if so designated by the Required Participants at any time and from time to time. Upon the occurrence of a Partial Servicing Transfer or a Complete Servicing Transfer, each Transferring Servicer (in the case of a Partial Servicing Transfer) or each Servicer and the Master Servicer (in the case of a Complete Servicing Transfer) shall promptly transfer its electronic records relating to its Receivables to the Substitute Servicer in such electronic form as the Substitute Servicer may reasonably request and shall promptly transfer to the Substitute Servicer all other records, correspondence and documents necessary for the continued servicing of such Receivables in the manner and at such times as the Substitute Servicer shall reasonably request; provided, that to the extent that such -------- Transferring Servicer or such Servicer and the Master Servicer, as the case may be, is required to have, as a result of a continuing relationship with the related Obligors, access to any such records in respect of its Receivables, the Substitute Servicer shall allow such Transferring Servicer or such Servicer and the Master Servicer, as the case may be, to have reasonable access to such records upon reasonable advance notice and so long as such access shall not disrupt or otherwise interfere with the Substitute Servicer's use of such records in performing its duties hereunder. Upon the occurrence of a Partial Servicing Transfer or a Complete Servicing Transfer, each Transferring Servicer (in the case of a Partial Servicing Transfer) or each Servicer and the Master Servicer (in the case of a Complete Servicing Transfer) shall promptly transfer to the Administrative Agent non-exclusive licenses to use any computer programs, material tapes, disks, cassettes and data necessary or advisable to permit the collection of Receivables by a Servicer without the participation of any Seller or the Company or, to the extent that such transfer would violate legal restrictions applicable thereto, shall establish other arrangements to use any computer programs, material tapes, disks, cassettes and data necessary or advisable to permit the collection of Receivables by a Servicer without the participation of any Seller or the Company. (e) Each Transferring Servicer (in the case of a Partial Servicing Transfer) or each Servicer and the Master Servicer (in the case of a Complete Servicing Transfer) and the Company shall each execute and deliver such additional documents and shall take such further action as the Substitute Servicer may reasonably request to effect or evidence the transfer of servicing and shall execute and deliver to the Substitute Servicer such powers-of-attorney (in addition to the power of attorney provided for in subsection 12.2(c)) as may be 63 necessary or appropriate to enable the Substitute Servicer, on behalf of the Participants, to endorse for payment any check, draft or other instrument delivered in payment of any amount under or in respect of an affected Receivable. If any Servicer, the Master Servicer or the Company receives any cash or checks, drafts or other instruments for the payment of money on account or otherwise in respect of the Purchased Receivables, such Servicer, the Master Servicer or the Company shall segregate such cash and other items, hold such cash and other items in trust for the benefit of the Participants and cause such cash and other items (properly endorsed, where required, so that such items may be collected by the Substitute Servicer) to be transmitted or delivered to the Substitute Servicer for deposit in the Concentration Account within one Business Day after the date any such cash or other item shall have been identified and segregated by such Servicer, the Master Servicer or the Company as being on account of a Purchased Receivable. 12.3 Maintenance of Records. Each Servicer and the Master Servicer ---------------------- will hold in trust for the Participants at the office of such Servicer or Master Servicer set forth in Schedule 2 such books of account and other records as it currently maintains for its own purposes in the ordinary course of its business, which books of account and other records shall be in a form reasonably satisfactory to the Administrative Agent to determine at any time the status of the Receivables and all collections and payments in respect thereof (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof). The Administrative Agent may at any time and from time to time upon reasonable prior notice during the regular business hours of any Servicer or the Master Servicer inspect, audit, check and make abstracts from the books, accounts, records, or other papers of such Servicer or the Master Servicer pertaining to the Receivables. From time to time upon the written request of the Administrative Agent, which request shall be promptly made upon a request therefor to the Administrative Agent by any Participant, each Servicer or the Master Servicer, at its own expense, will as promptly as is practicable deliver to the Administrative Agent a schedule of the Receivables indicating as to each Receivables information as to the Obligor thereon, the unpaid balance thereof, the amount and delinquency of any Receivable that is past due and such other information as the Administrative Agent may reasonably request. Upon the written request of the Administrative Agent, which request may only be made at any time after a Partial Servicing Transfer or a Complete Servicing Transfer, each terminated Servicer and the Master Servicer, at its own expense, will deliver to the Administrative Agent, or to any agent selected by the Administrative Agent, any records pertaining thereto and evidence thereof as the Administrative Agent may deem necessary to enable it to enforce the Participants' rights thereunder; provided, that to the -------- extent that such terminated Servicer or the Master Servicer is required to have, as a result of a continuing relationship with the related Obligors, access to any such records in respect of its Receivables, the Administrative Agent (or the agent selected by it) shall allow such terminated Servicer or the Master Servicer to have reasonable access to such records upon reasonable advance notice and so long as such access shall not disrupt or otherwise interfere with the Administrative Agent's (or its agent's) use of such records in performing its duties hereunder. Upon the expiration of the 64 Commitment Period, the reduction of the Net Investment to zero and the payment in full of all amounts owing to the Participants and the Administrative Agent hereunder, the Administrative Agent will promptly return to the Servicers and the Master Servicer any such records delivered to the Administrative Agent or its agent. 12.4 Rebates, Adjustments, Returns and Reductions; Modifications. ----------------------------------------------------------- From time to time the Master Servicer or a Servicer may make Adjustments to Receivables in accordance with subsection 12.6(o). If the Master Servicer or any Servicer makes any Adjustment, then, in any such case, the amount of Receivables will be automatically reduced by the principal amount of such Adjustment. Any Adjustment shall be made on the Business Day on which such adjustment obligation arises or is identified. In addition, (and without limiting the obligations of the Sellers under the Receivables Sale Agreement to make Seller Adjustment Payment in respect thereof) if, after giving effect to any such Adjustment, the Invested Percentage would exceed the Maximum Invested Percentage, the Company shall pay to the Administrative Agent, for the account of the Participants, an amount equal to the lesser of (i) the dollar amount of such Adjustment and (ii) the amount necessary to cause the Invested Percentage to equal the Maximum Invested Percentage (the amount of each such payment is referred to herein as an "Adjustment Payment"). Such Adjustment Payment shall be treated as a Collection and shall be distributed in accordance with the applicable provisions of subsection 2.7. 12.5 Daily Reports; Settlement Statements. (a) On each Business Day ------------------------------------ the Company and Master Servicer, jointly and severally, agree to prepare a written report (the "Daily Report") in the form of Exhibit F, with such changes as may be agreed upon by the Administrative Agent, the Company and the Master Servicer, setting forth for the preceding Business Day (the "Reporting Day") total Collections, the amount of Receivables created and the Aggregate Eligible Receivables, and such other information as the Administrative Agent may request, which report shall show such information for all Sellers as well as only with respect to Sellers whose Effective Date has occurred. The Master Servicer shall complete such Daily Report and deliver it to the Administrative Agent prior to 12:00 Noon (New York City time) on the second Business Day following the Reporting Day. Each Daily Report shall be transmitted by telecopy to the Administrative Agent at the telecopy number specified in subsection 11.9. (b) Not later than five Business Days prior to each Settlement Date until the Participating Interest of the Participants in the Receivables has been reduced to zero and the Commitments of the Participants hereunder have been terminated, the Company and the Master Servicer, jointly and severally, agree to submit to the Administrative Agent a statement (hereinafter, a "Settlement Statement"), substantially in the form attached hereto as Exhibit C or such other form as may be acceptable to the Administrative Agent, which statement shall show such information for all Sellers as well as only with respect to Sellers whose Effective Date has occurred. Promptly upon receipt thereof, the Administrative Agent shall forward a copy of each Settlement Statement to each Participant. 65 (c) (i) Within 45 days after the end of each fiscal quarter of WMI, the Master Servicer will deliver to the Administrative Agent and each Participant a certificate of a Responsible Officer of the Master Servicer stating that (a) a review of the activities of the Master Servicer and each Servicer and its performance hereunder during such fiscal quarter was made under the supervision of such Responsible Officer, (b) to the best knowledge of such Responsible Officer, based on such review, the Master Servicer and each Servicer has accurately and correctly performed its obligations hereunder in all material respects throughout such quarter, or, if there has been a material default in the performance of any such obligation, specifying the nature and status of each such default and (c) to the best knowledge of such Responsible Officer, based on such review, each Daily Report and Settlement Statement was accurate and correct in all material respects, except as specified in such certificate. 12.6 Representations, Warranties and Covenants of the Servicers. ---------------------------------------------------------- Each Servicer and the Master Servicer hereby makes the following representations, warranties and covenants to the Participants and the Administrative Agent: (a) Organization; Powers. Such Person is duly organized, validly -------------------- existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. (b) Authorization; Enforceability. The Servicing Transactions are ----------------------------- within the corporate powers of such Person and have been duly authorized by all necessary corporate and, if required, stockholder action. Each Transaction Document has been duly executed and delivered by such Person and constitutes a legal, valid and binding obligation of each such Person, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (c) Governmental Approvals; No Conflicts. The Servicing ------------------------------------ Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of such Person or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon such Person or its assets, or give rise to a right thereunder to require any payment to be made by such Person, and (d) will not result in the creation or imposition of any Lien on any asset of such Person. 66 (d) Litigation and Environmental Matters. (i) Except for the ------------------------------------ Disclosed Matters, as of the Commencement Date, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of such Person, threatened against or affecting such Person (A) could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (B) that involve this Agreement or the Transactions. (ii) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, such Person (i) has not failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has not become subject to any Environmental Liability, (iii) has not received notice of any claim with respect to any Environmental Liability or (iv) does not know of any basis for any Environmental Liability. (e) Compliance with Laws and Agreements. Such Person is in compliance ----------------------------------- with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Servicer Event of Default has occurred and is continuing. (f) Taxes. Such Person has timely filed or caused to be filed all Tax ----- returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Person has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. (g) Agreement to Cooperate. The Master Servicer shall from time to ---------------------- time and at any time provide, and shall cause its Subsidiaries to provide, information with respect to the business, operations, properties and financial matters of the Master Servicer and such Subsidiaries to the Company, its officers, employees, agents and professional advisers in connection with the replacement or refinancing, in whole or in part, of this Agreement and the other Transaction Documents with a new receivables financing facility in which ownership interests in, or notes, commercial paper, certificates or other debt instruments secured by, the Receivables shall be sold in one or more public offerings, private placements or otherwise (such facility, the "Replacement Facility"), and the Master Servicer shall otherwise cooperate with, and cause its Subsidiaries to cooperate with, the Company and such officers, employees, agents and professional advisers in the negotiation, development, preparation and execution of, such Replacement Facility. 67 (h) Protection of Participants' Rights. Such Person shall take no ---------------------------------- action, nor omit to take any action, which act or omission would substantially impair the rights of Participants in the Receivables, nor shall it reschedule, revise or defer payments due on any Receivable except in accordance with the Policies and the Company Policies or except as otherwise expressly permitted by this Agreement; provided, that such Person -------- shall have no obligation to the Participants or the Administrative Agent under this paragraph (h) in respect of Receivables which become Defaulted Receivables as a result of non-payment by the Obligor with respect thereto. (i) Security Interest. Except for the conveyance hereunder and under ----------------- the Receivables Sale Agreement, such Person will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Receivable or other Pooled Property transferred and assigned to the Participants, whether now existing or hereafter created, or any interest therein, and such Person shall defend the right, title and interest of the Participants in, to and under any Receivable or other Pooled Property transferred and assigned to the Participants, whether now existing or hereafter created, against all claims of third parties claiming through or under such Person, the Master Servicer or any Seller. (j) Location of Offices. The chief executive office of each Servicer ------------------- and the Master Servicer is listed on Schedule 2, which office is the place where such Person is "located" for the purposes of Section 9-103(3)(d) of the Uniform Commercial Code of the State of New York, and the offices of each Servicer and the Master Servicer where such Servicer and the Master Servicer keeps its records concerning the Receivables are also listed in said Schedule. Such Person (i) will not move outside the State listed on Schedule 2 under the heading "Chief Executive Office" the location of its chief executive office or outside of the State listed on Schedule 2 under the heading "Offices Where Records Kept" the location of any of the offices where it keeps its records with respect to the Receivables without 30 days' prior written notice to the Administrative Agent and (ii) will promptly take all actions reasonably required (including but not limited to all filings and other acts necessary or advisable under the Uniform Commercial Code of each jurisdiction) in order to continue the first priority perfected ownership interest of the Participants in all Receivables and other Pooled Property now owned or hereafter created. Such Person will give the Administrative Agent prompt notice of a change within the State listed on Schedule 2 of the location of its chief executive office or of a change within the State listed on Schedule 2 of the location of any office where it keeps its records with respect to the Receivables and the other Pooled Property. (k) No Adverse Change. There has not been since the date of this ----------------- Agreement any material adverse change in the ability of such Person to perform its obligations under Article XII of this Agreement. 68 (l) Designated Accounts and other Payment Methods. Listed on --------------------------------------------- Schedule 3 is each Designated Account to which, as of the initial Closing Date, the Obligors have been directed to remit payments on account of the Receivables, except to the extent that any of the Servicers, in the normal course of their business and consistent with past practices, have directed such Obligors to remit payments by (i) delivering cash, a check or other instrument to or in care of the Person delivering goods to such Obligor, (ii) a wire transfer of such funds directly to the Concentration Account or (iii) delivering a check to the business offices, agents or officers of such Servicer. Neither the Master Servicer nor any Servicer shall (i) add or terminate any bank as a bank at which a Designated Account is maintained, (ii) add or terminate any such Designated Account at any such bank, (iii) make any change in its instructions to any Obligor regarding payments to be made to any such bank or Designated Account or (iv) revoke any standing instructions directing such Designated Bank to transfer amounts on deposit therein to the Concentration Account as provided in subsection 12.1; provided, that a Servicer may at any time change its -------- instructions to Obligors so as to require such Obligors to make payments to a different Designated Account, so long as such Servicer has previously delivered to the Administrative Agent evidence that standing instructions in form and substance reasonably satisfactory to the Administrative Agent regarding such Designated Account will be delivered to the applicable Designated Bank. (m) Reports. The information with respect to the Receivables ------- serviced by such Person contained in each Settlement Statement will be true and correct in all material respects as of the date of such Settlement Statement. (n) Instruments. Such Person will not take any action to cause any ----------- Receivable to be evidenced by any "instrument" (as defined in the Uniform Commercial Code as in effect in the State of New York) except in connection with the enforcement or collection of a Receivable. (o) Extension of Receivables; Amendment of Policies. Extend, make ----------------------------------------------- any Adjustment to, rescind, cancel, amend or otherwise modify, or attempt or purport to extend, amend or otherwise modify, the terms of any Purchased Receivables, except (i) in accordance with the terms of the Policies and the Company Policies, (ii) as required by any Requirement of Law, (iii) in the case of Adjustments, upon making an Adjustment Payment pursuant to subsection 12.4 or (iv) with the consent of the Required Participants, provided the Servicers may cause Receivables to become Defaulted Receivables. Neither the Servicers nor the Master Servicer shall amend or otherwise modify or waive any term or condition of the Policies or the Company Policies except in accordance with subsection 5.10 of the Receivables Sale Agreement. 69 (p) Ineligible Receivables. Without the prior written approval of ---------------------- the Required Participants, such Person shall not take any action to cause, or which would permit, an Eligible Receivable to cease to be an Eligible Receivable, except as expressly permitted in this Agreement. (q) Notices. Such Person will give written notice to the ------- Administrative Agent and each Participant promptly upon obtaining knowledge of the occurrence of any Termination Event, Potential Termination Event, Servicer Default or Servicer Event of Default (which notice shall specify what, if any, action will be taken with respect thereto). (r) Financial Statements; Liabilities; Disclosure; No Material ---------------------------------------------------------- Adverse Change. (i) The Master Servicer has heretofore furnished to the -------------- Participants its consolidated balance sheet and statements of income, stockholders equity and cash flows (A) as of and for the fiscal year ended December 31, 1996, reported on by Arthur Andersen LLP, independent public accountants, and (B) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 1997, signed by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Master Servicer and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (B) above. As of the Commencement Date, the Master Servicer and its Subsidiaries do not have any material Guarantee obligations, contingent liabilities and liabilities for taxes, or any long- term leases or unusual forward or long-term commitments, including, without limitation, any material interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that have materially changes from those reflected, individually or in the aggregate, in either (i) the most recent financial statements referred to in this paragraph or (ii) filings made by the Master Servicer with the SEC that were publicly available prior to the Commencement Date. During the period from December 31, 1996 to and including the date hereof there has been no disposition by the Master Servicer or any of its Subsidiaries of any material part of their business or property (determined on a consolidated basis with respect to the Master Servicer and its Subsidiaries), other than dispositions disclosed in filings made with the SEC that were publicly available prior to the Commencement Date. The Master Servicer has disclosed to the Participants all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. (ii) None of the reports, financial statements, certificates or other information furnished by or on behalf of the Master Servicer to the Administrative Agent or any Participant on or prior to the Commencement Date in connection with the negotiation of this Agreement or delivered 70 hereunder, taken as a whole, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that, with respect to projected financial -------- information, the Master Servicer represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. (iii) During the period from December 31, 1996 through the Commencement Date, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Master Servicer and its Subsidiaries, taken as a whole. (iv) In connection with the representations and warranties made by the Master Servicer in this subsection 12.6(r), the Participants agree that the Master Servicer shall not be deemed in breach of any representation or warranty in this paragraph on account of the Master Servicer's completing the matters or taking the actions described in the Master Servicer's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, as filed with the SEC, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations--Outlook", or, in respect of any such matter or action or other matters emerging from comments received by the Master Servicer from the SEC or the Master Servicer's ongoing review of its accounting policies, practices or procedures, incurring charges, increasing reserves or writing down asset values or adjusting, revising or restating financial statements or footnotes for one or more quarters or years, so long as the nature and amount of any such charge, reserve, write-down, adjustment, revision or restatement are substantially within the parameters disclosed to the Participants prior to the Commencement Date. (s) Financial Statements. The Master Servicer shall furnish to each -------------------- Participant: (i) as soon as available, but in any event within 105 days after the end of each fiscal year of the Master Servicer, to the extent prepared to comply with SEC requirements, a copy of the Form 10-K filed with the SEC for such fiscal year or, if no such Form 10-K was so filed by the Master Servicer for such fiscal year, a copy of the consolidated balance sheet of the Master Servicer and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income, shareholders' equity and retained earnings and cash flows for such year, setting forth the comparative amounts for the previous year and in each case certified without a "going concern" or like qualification or exception, or scope limitation, by Arthur Andersen & Co. or other independent certified public accountants of recognized standing reasonably acceptable to the Administrative Agent; and 71 (ii) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of the Master Servicer, to the extent prepared to comply with SEC requirements, a copy of Form 10-Qs filed with the SEC for such fiscal quarter or, if no such Form 10-Q was so filed by the Master Servicer for such fiscal quarter, the unaudited consolidated balance sheet of the Master Servicer and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income, shareholders' equity and retained earnings and cash flows of the Master Servicer and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth the comparative amounts for the corresponding quarter and portion of the previous year, in each case certified by a Responsible Officer of the Master Servicer as being fairly stated in all material respects (subject to normal year-end audit adjustments); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or Responsible Officer, as the case may be, and disclosed therein) except that the monthly financial statements provided pursuant to clause (iii) shall only be consistent with GAAP in all material respects and that the monthly financial statements provided pursuant to clause (iii) shall not be required to include footnotes. (t) Certificates; Other Information. The Master Servicer shall ------------------------------- furnish to each Participant concurrently with the delivery of the financial statements referred to in clause (s)(i) and (ii), a certificate of a Responsible Officer of the Master Servicer stating that, to the best of such Responsible Officer's knowledge, each Transaction Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Transaction Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Servicer Default or Servicer Event of Default except as specified in such certificate. (u) Separate Corporate Existence of the Company. The Master Servicer ------------------------------------------- shall cause the Company to comply with the provisions of subsection 7.9. Neither the Master Servicer nor any Servicer shall take any action, or omit to take any action, which is inconsistent with the provisions thereof. (v) Accuracy of Schedule 2. Schedule 2 is a true and complete ---------------------- listing of (i) all Subsidiaries of the Master Servicer that generate Receivables and (ii) the jurisdiction of incorporation of each such Subsidiary and all states in which each such Subsidiary is qualified to do business the amount of Receivables set forth opposite each Subsidiaries' name is the true and 72 correct balance of Receivables owned by such Subsidiary as of the date indicated on Schedule 2. Each of the Master Servicer and each Servicer agrees and acknowledges that each of the representations and warranties contained in this subsection 12.6 shall be deemed to have been made by the Master Servicer or such Servicer, as the case may be, (x) as of the Commencement Date, and (y) with respect to an Increase in Net Investment, as of the related Closing Date, unless, in either case, such representation or warranty expressly relates only to a prior date. 12.7 Acquisition Obligation. (a) In the event of any breach of any ---------------------- of the representations, warranties or covenants of the Master Servicer or any Servicer which is an Affiliate of the Company contained in subsection 12.6(e), (h), (i), (j), (o), or (p), then upon the earlier to occur of the discovery of such event by a Responsible Officer of such Person, or receipt by such Person of written notice of such event given by the Administrative Agent, the outstanding Principal Amount of Receivables shall be reduced by the Principal Amount of such Receivables in respect of which such representation or warranty was incorrect or such covenant was breached; provided, however, that (i) prior to the -------- ------- Amortization Period, to the extent that such a reduction would cause the Invested Percentage to be more than the Maximum Invested Percentage, the Master Servicer and the Servicers which are Affiliates of the Company, jointly and severally, agree to acquire such Receivable and any Related Property with respect thereto on the terms and conditions set forth in paragraph (b) below and (ii) during the Amortization Period, the Master Servicer and the Servicers which are Affiliates of the Company, jointly and severally, agree (regardless of which such Servicer or Master Servicer shall have been responsible for such breach) to acquire such Receivable and any Related Property with respect thereto on the terms and conditions set forth in paragraph (b) below. In the event of any breach of any of the representations, warranties or covenants of the Master Servicer or any Servicer which is not an Affiliate of the Company contained in subsection 12.6(e), (h), (i), (j), (o) or (p), then upon the earlier to occur of the discovery of such event by such Person, or receipt by such Person of written notice of such event given by the Administrative Agent, the outstanding Principal Amount of Receivables shall be reduced by the Principal Amount of such Receivables in respect of which such representation or warranty was incorrect or such covenant was breached upon the deposit by the Master Servicer or such Servicer (which deposit the Master Servicer or such Servicer hereby agrees to make) into the Collection Account in immediately available funds an amount equal to the Principal Amount of such Receivable (together with payments pursuant to paragraph (b), "Servicer Transfer Payments"). (b) If any breach of a representation, warranty or covenant by a Servicer or the Master Servicer which is an Affiliate of the Company which necessitates the acquisition of a Receivable by the Master Servicer and the Servicers pursuant to paragraph (a) remains uncured on the day which is 5 days after discovery or notice of such breach, the Master Servicer and such Servicers shall acquire such Receivable and any Related Property with respect thereto by depositing into the Collection Account in immediately available funds on such 5th 73 day (or, if such day is not a Business Day, the immediately succeeding Business Day), an amount equal to (i) prior to an Amortization Period, the lesser of (A) the amount necessary to cause the Invested Percentage to equal the Maximum Invested Percentage and (B) the Principal Amount of such Receivable or (ii) during an Amortization Period, the Principal Amount of such Receivable (also, a "Servicer Transfer Payment"). Upon deposit of the Servicer Transfer Payment, the Participants shall automatically and without further action be deemed to sell, transfer, assign, set-over and otherwise convey to such Person, free and clear of any Lien created by the Participants but otherwise without recourse, representation or warranty, all the right, title and interest of the Participants in and to such Receivable, and all Related Property with respect thereto; and such retransferred Receivable shall be treated by the Participants as collected in full as of the date on which it was transferred. The Administrative Agent shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the Master Servicer to effect the conveyance of such Receivables pursuant to this subsection 12.7. 12.8 Obligations Unaffected. The obligations of the Master Servicer, ---------------------- each Servicer and the Company to the Administrative Agent and the Participants under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable or any transfer and assignment of a Receivable. 12.9 Addition of Servicers. Subject to the terms and conditions --------------------- hereof, from time to time one or more Subsidiaries of WMI which the Administrative Agent has approved may become additional Servicers parties hereto upon execution by each such Subsidiary of an Additional Servicer Supplement. 12.10 Interest on Overdue Payments. If any amount payable by the ---------------------------- Servicers or the Master Servicer to the Participants or the Administrative Agent hereunder, whether on account of fees or expenses or on account of amounts collected by the Servicers or the Master Servicer or amounts payable pursuant to subsection 12.4 or 12.7, or otherwise, is not paid by such Servicer or the Master Servicer, as the case may be, on the relevant Settlement Date or other relevant date, such amount shall be payable together with interest for each day from such Settlement Date or other relevant date, as the case may be, until such amount is paid in full at a rate per annum equal to ABR plus 2%. ---- 12.11 Servicer Events of Defaults. If any of the following events --------------------------- (herein called "Servicer Events Of Default") shall have occurred and be continuing: (a) any Servicer or the Master Servicer, as the case may be, (1) shall fail to deliver any Daily Report or any Settlement Statement conforming in all material respects to the requirements of subsection 12.5 and such failure shall continue unremedied for two consecutive Business Days after the Administrative Agent shall have delivered notice thereof to such Servicer or the Master Servicer, as the case may be; provided, that if -------- a 74 Force Majeure Delay shall have occurred with respect to the Servicers or the Master Servicer, the failure to deliver any Daily Report or Settlement Statement, shall not constitute, in either case, a Servicer Event of Default unless such failure continues for longer than the lesser of (x) ten consecutive Business Days and (y) the length of such Force Majeure Delay (or, if greater, two Business Days) after the Administrative Agent shall have delivered notice of such failure to the Company, or (2) shall fail to make any payment reflected in such Daily Report or Settlement Statement as being required to be made by it thereunder on the date such report or statement is delivered; (b) any Servicer or the Master Servicer, as the case may be, shall fail to pay any amount required to be paid by it hereunder (other than those specified in paragraph (a) of this subsection 12.11) within five Business Days after the date when due; (c) any Servicer or the Master Servicer, as the case may be, shall fail to observe or perform any covenant or agreement applicable to it contained herein (other than as specified in subsections (a) and (b) of this subsection 12.11); provided, that, except in the case of any failure -------- to observe or perform any covenant contained in subsection 12.6(q), no such failure shall constitute a Servicer Event of Default under this paragraph (c) unless such failure shall continue unremedied for a period of 30 consecutive days after notice thereof from the Administrative Agent, the Required Participants or the Company; provided, that a Servicer Event of -------- Default shall not be deemed to have occurred under this paragraph (c) based upon a breach of a representation, warranty or covenant contained in subsection 12.6(e), (h), (i), (j), (o) or (p) if the Servicers and Master Servicer shall have complied with the provisions of subsection 12.7 with respect thereto; (d) any representation, warranty, certification or statement made or deemed made by any Servicer or the Master Servicer, as the case may be, in this Agreement or in any Settlement Statement or other certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been false or misleading in any material respect on or as of the date made or deemed made; provided, that a Servicer Event of -------- Default shall not be deemed to have occurred under this paragraph (d) based upon a breach of a representation, warranty or covenant contained in subsection 12.6(e), (h), (i), (j), (o) or (p) if the Servicers and Master Servicer shall have complied with the provisions of subsection 12.7 with respect thereto; (e) (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Servicer or the Master Servicer, as the case may be, or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the 75 appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Servicer or Master Servicer, as the case may be, or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (ii) any Servicer or the Master Servicer shall (A) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (B) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this subsection, (C) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Servicer or the Master Servicer or for a substantial part of its assets, (D) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (E) make a general assignment for the benefit of creditors or (F) take any action for the purpose of effecting any of the foregoing; or (iii) any Servicer or the Master Servicer shall become unable, admit in writing or fail generally to pay its debts as they become due; (f) a Purchase Termination Event shall have occurred and be continuing under the Receivables Sale Agreement with respect to Sellers which in the aggregate generated more than 10% of the aggregate revenues of all Sellers during the immediately preceding Settlement Period; then, in any such event, so long as such Servicer Event of Default shall be continuing, with the consent of the Required Participants the Administrative Agent or the Company may, or upon the request of the Required Participants the Administrative Agent or the Company shall, terminate the rights of any or all of the Servicers and the Master Servicer in accordance with subsection 12.2(d) by notice to each such Servicer and/or the Master Servicer, as the case may be. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. WASTE MANAGEMENT FINANCING CORPORATION By: /s/ Dan Shoener -------------------------------- Name: Dan Shoener Title: Authorized Signatory WASTE MANAGEMENT, INC., as Master Servicer By: /s/ William C. Keightley -------------------------------- Name: William C. Keightley Title: Treasurer Address for Notices: 3003 Butterfield Road Oak Brook, Illinois 60523 Attention: Vice President-Finance Telecopy: (603) 572-1340 The Servicers: ------------- WASTE MANAGEMENT OF NORTH AMERICA, INC. By: /s/ William C. Keightley ------------------------------------ Name: William C. Keightley Title: Authorized Signatory Address for Notices for all Servicers: 3003 Butterfield Road Oak Brook, Illinois 60523 Attention: Vice President - Finance Telecopy: (630) 572-1340 THE CHASE MANHATTAN BANK, as Administrative Agent and as a Participant By: /s/ B. Joseph Lillis --------------------------------- Name: B. Joseph Lillis Title: Managing Director Participants: ------------ Bank of America National Trust and ---------------------------------- Savings Association ------------------- (Name of Participant) By: /s/ Mark A. Wegener --------------------- Name: Mark A. Wegener Title: Attorney-in-Fact Address for Notices: 231 S. LaSalle St. Suite 1602 Chicago, IL 606097 Attention: Willem van Beek Telecopy: (312) 923-0273 CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Konstantina Kourmpetis ---------------------------------- Name: Konstantina Kourmpetis Title: Vice President Address for Notices: 1301 Avenue of the Americas New York, NY 10019 Attention: Tina Kourmpetis Telecopy: (212) 459-3258 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Jerry J. Kane ------------------------------ Name: Jerry J. Kane Title: Senior Vice President Address for Notices: One First National Plaza, Suite 0954 Chicago, IL 60670 Attention: Susan Cassa Telecopy: (312) 732-4487 FIRST UNION NATIONAL BANK By: /s/ Edward H. Ross ------------------------------ Name: Edward H. Ross Title: Vice President Address for Notices: One First Union Center, DC5 Charlotte, NC 28288 Attention: Douglas Sleeper Telecopy: (704) 374-2802 THREE RIVERS FUNDING CORPORATION -------------------------------------- (Name of Participant) By: /s/ Stewart Cutler ----------------------------- Name: Stewart Cutler Title: Vice President Address for Notices: Mellon Financial Markets, Inc. One Mellon Bank Center, Room 400 Pittsburgh, PA 15258 Attention: Jonathan F. Widich Telecopy: (412) 234-5434 SCHEDULE 1 ---------- NAMES, ADDRESSES AND COMMITMENTS OF PARTICIPANTS ------------------------------------------------
Commitment ---------- THE CHASE MANHATTAN BANK.......................................... $103,125,000 270 Park Avenue New York, New York 10017 Attention: Loan and Agency Services Telecopy: (212) 552-5662 BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION.............. 89,375,000 231 South LaSalle Street Chicago, IL 60697 Attention: Willem Van Beek Telecopy: (312) 923-0273 CREDIT LYONNAIS NEW YORK BRANCH................................... 89,375,000 1301 Avenue of the Americas New York, NY 10019 Attention: Tina Kourmpetis Telecopy: (212) 459-3258 THE FIRST NATIONAL BANK OF CHICAGO................................ 89,375,000 1 First National Plaza, Suite 0954 Chicago, IL 60670 Attention: Susan Cassa Telecopy: (312) 732-4487 FIRST UNION NATIONAL BANK......................................... 89,375,000 One First Union Center, DC5 Charlotte, NC 28288 Attention: Douglas Sleeper Telecopy: (704) 374-2802 THREE RIVERS FUNDING CORPORATION.................................. 89,375,000 c/o Mellon Financial Markets, Inc. One Mellon Bank Center Room 400 Pittsburgh, PA 15258 Attention: Jonathan F. Widich Telecopy: (412) 234-5434
ANNEX X "ABR": for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Accounts": as defined in subsection 2.1(c)(ii) of the Receivables Transfer Agreement. "Additional Participant": as defined in subsection 11.4(e) of the Receivables Transfer Agreement. "Additional Seller Supplement": an instrument substantially in the form of Exhibit B to the Receivables Sale Agreement by which a Subsidiary of WMI becomes a Seller party to the Receivables Sale Agreement. "Additional Servicer Supplement": an instrument substantially in the form of Exhibit D to the Receivables Transfer Agreement by which a Subsidiary of WMI becomes a Servicer party to the Receivables Transfer Agreement. "Adjusted LIBO Rate": with respect to a Fixed Tranche for any Transfer Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate in effect for such Transfer Period multiplied by (b) the Statutory Reserves Rate. "Adjustment": as defined in subsection 2.5 of the Receivables Sale Agreement. "Adjustment Payment": as defined in subsection 12.4 of the Receivables Transfer Agreement. "Administrative Agent": The Chase Manhattan Bank, in its capacity as administrative agent for the Participants under the Receivables Transfer Agreement. "Administrative Questionnaire": an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate": with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. 2 "Aged Receivable": as of any date of determination, any Receivable (a) which is unpaid in whole or in part for more than 91 days after its original invoice date or (b) which is, as of such date of determination, a Defaulted Receivable. "Aged Receivable Amount": as of any date, the aggregate amount of Aged Receivables which would otherwise have been Eligible Receivables as of the most recent Settlement Period End Date, but for the fact that such Receivables were Aged Receivables as of such day. "Aggregate Eligible Receivables": as of any date of determination (a) the aggregate outstanding Principal Amount of all Eligible Receivables on such date (provided that for purposes of this clause (a) the criteria set forth in clause (b) of the definition of Eligible Receivables shall not be applicable) minus (b) the Aged Receivable Amount as of such date minus (c) ----- ----- the aggregate Excess Amounts with respect to all Obligors on such date; provided, that all calculations required in determining Aggregate Eligible -------- Receivables (a) shall include, and shall only include, Eligible Receivables of Sellers as to which their Effective Date has occurred and (b) shall not include Receivables of a Seller from which the Company has ceased purchasing Receivables pursuant to subsection 9.15 of the Receivables Sale Agreement or a Seller with respect to which the Company has terminated its obligation to acquire Receivables pursuant to Article VII of the Receivables Sale Agreement. "Agreement": the agreement wherein such term is used, as the same may be amended, supplemented or otherwise modified from time to time. "Amortization Period": the period commencing on the date the Commitment Period ends and ending with the termination of the Receivables Transfer Agreement pursuant to subsection 4.1 thereof. "Applicable Eurodollar Margin": .675% per annum; provided, that for -------- any day on which the Net Investment exceeds 50% of the Maximum Commitment, the Applicable Eurodollar Margin for such day shall be .75% per annum. "Applicable Obligor Percentage": with respect to any Obligor, 4.0%. "Assessment Rate": for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided, that -------- if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall 3 be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Participants. "Assignment and Acceptance": an assignment and acceptance entered into by a Participant and an assignee (with the consent of any party whose consent is required by subsection 11.4 of the Receivables Transfer Agreement), and accepted by the Administrative Agent, substantially in the form of Exhibit G to the Receivables Transfer Agreement. "Authorized Signatory": any Person designated as such or as "Authorized Representative" in the resolutions delivered to the Company pursuant to subsection 3.1(b)(i) of the Receivables Sale Agreement. "benefitted Participant": as defined in subsection 11.12 of the Receivables Transfer Agreement. "Board": the Board of Governors of the Federal Reserve System of the United States of America. "Business Day": any day that is not a Saturday, Sunday or other day on which commercial banks in New York City, Pittsburgh, Pennsylvania, Charlotte, North Carolina or Chicago, Illinois are authorized or required by law to remain closed; provided, however, that, when used in connection -------- ------- with the determination of any Adjusted LIBO Rate, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Business Day Received": as defined in subsection 12.1(b)(vi) of the Receivables Transfer Agreement. "Capital Lease Obligations": of any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and the amount of which at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "Cash Equivalents": deposit accounts, book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence: 4 (a) direct obligations of, and obligations fully guaranteed as to timely payment by, the United States of America; (b) federal funds, demand deposits, time deposits or certificates of deposit of any depositary institution or trust company incorporated under the laws of the United States of America or any State thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by Federal or State banking or depositary institution authorities; provided, that at the time of the investment or contractual -------- commitment to invest therein, the commercial paper or other short-term unsecured and uncollateralized debt obligations (other than such obligations the rating of which is based upon the credit of a Person other than such depository institution or trust company) thereof shall have a credit rating from each of the Rating Agencies in one of the two highest investment categories granted thereby; (c) commercial paper having, at the time of the investment or contractual commitment to invest therein, a rating in one of the two highest rating categories by each of the Rating Agencies rating such commercial paper; (d) investments in money market funds (including funds for which the Administrative Agent or any of its Affiliates is investment manager or adviser) having a rating from each of the Rating Agencies rating such money market fund in one of the two highest investment categories granted thereby; (e) bankers' acceptances issued by any depository institution or trust company referred to in clause (b) above; or (f) repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with a depositary institution or trust company (acting as principal) described in clause (b) above. "Category A Seller": any Seller designated as a "Category A Seller" on Schedule 1 to the Receivables Sale Agreement. "Category B Seller": any Seller designated as a "Category B Seller" on Schedule 1 to the Receivables Sale Agreement. "Category C Seller": any Seller designated as a "Category C Seller" on Schedule 1 to the Receivables Sale Agreement. "Change in Control": (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any "person" or 5 "group" (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the SEC thereunder as in effect on the date hereof), of shares representing more than 20% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of WMI; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of WMI by Persons who were neither (i) nominated by the board of directors of WMI nor (ii) appointed by directors so nominated; or (c) the failure of WMNA at any time to be wholly owned, either directly or indirectly, by WMI. "Change in Law": (a) the adoption of any law, rule or regulation after the date of the Receivables Transfer Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of the Receivables Transfer Agreement or (c) compliance by any Participant (or, for purposes of subsection 3.2(b) of the Receivables Transfer Agreement, by any lending office of such Participant or by such Participant's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of the Receivables Transfer Agreement. "CWM": Chemical Waste Management, Inc., a Delaware corporation. "CIMS System": the Customer Information Management System maintained by WMNA in Oak Brook, Illinois. "Closing Date": as defined in subsection 2.3(b) of the Receivables Transfer Agreement. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collection Account": as defined in subsection 2.7(a)(i) of the Receivables Transfer Agreement. "Collections": all collections and all amounts received in respect of the Receivables, including Recoveries, Seller Repurchase Payments, Seller Adjustment Payments and Servicer Transfer Payments and, together with all collections and amounts received in respect of the Related Property in the form of cash, checks, wire transfers or any other form of cash payment, and all proceeds of Receivables and collections thereof (including, without limitation, collections constituting an account or general intangible or evidenced by a note, instrument, security, contract, security agreement, chattel paper or other evidence of indebtedness or security, whatever is received upon the sale, exchange, collection or other disposition of, or any indemnity, warranty or guaranty payable in respect of, the foregoing and all "proceeds," as defined in Section 9-306 of the UCC 6 as in effect in the State of New York, of the foregoing) and any Investment Earnings. "Commencement Date": as defined in subsection 6.1 of the Receivables Transfer Agreement. "Commitment": of each Participant, the amount set forth opposite the name of such Participant on Schedule 1 to the Receivables Transfer Agreement, as such amount may be changed pursuant to subsection 2.10 or 11.4 of the Receivables Transfer Agreement. "Commitment Fee": as defined in subsection 2.4 of the Receivables Transfer Agreement. "Commitment Percentage": as to any Participant, (a) on or prior to the termination of the Commitments, the percentage equivalent of a fraction the numerator of which is the Commitment of such Participant and the denominator of which is the Maximum Commitment and (b) thereafter, the percentage equivalent of a fraction the numerator of which is the Commitment of such Participant immediately prior to such termination and the denominator of which is the Maximum Commitment immediately prior to such termination. "Commitment Period": the period from and including the Commencement Date, up to but not including the first to occur of (a) the Scheduled Termination Date, (b) any termination of the Commitments pursuant to Article IX of the Receivables Transfer Agreement and (c) termination (but not reduction) of the Commitments pursuant to subsection 2.10 of the Receivables Transfer Agreement. "Company": Waste Management Financing Corporation, a Delaware corporation. "Company Policies": the written policies of the Company with respect to Defaulted Receivables. "Complete Servicing Transfer": as defined in subsection 12.2(d) of the Receivables Transfer Agreement. "Concentration Account": as defined in subsection 12.1(b)(ii) of the Receivables Transfer Agreement. "Conduit Party": in the case of any Participant which is a special- purpose securitization conduit or similar entity, each bank or financial institution which from time to time provides liquidity and/or credit facilities to or for the account of such Participant to fund such Participant's obligations under the Receivables Transfer Agreement or to 7 support the securities (if any) issued by such Participant to fund such obligations. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control": the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise; "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Facility": the $250,000,000 Revolving Credit Facility under the Credit Agreement dated December 29, 1997 among WMI, the Lenders party thereto and the Chase Manhattan Bank, as Administrative Agent as amended, supplemented or otherwise modified from time to time. "Daily Report": as defined in subsection 12.5(a) of the Receivables Transfer Agreement. "Defaulted Receivable": all Receivables (or portions thereof) which, in accordance with the Policies and Company Policies, have or should have been written off as uncollectible, including without limitation the Receivables of any Obligor which becomes the subject of any voluntary or involuntary bankruptcy proceeding. "Designated Account": as defined in subsection 12.1(b)(i) of the Receivables Transfer Agreement. "Designated Bank": each bank identified on the Commencement Date at which any Designated Account, the Concentration Account and the SPC Collection Account is held, and any replacements therefor or additions thereto agreed to in writing by the Administrative Agent. "Disclosed Matters": with respect to the Master Servicer, any Servicer and any Seller, the matters described in the Master Servicer's Annual Report on Form 10-K for the year ended December 31, 1997, and Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1997. "Discounted Percentage": as defined in Schedule 3 to the Receivables Sale Agreement. "Documents": as defined in subsection 2.1(f)(iii) of the Receivables Sale Agreement. 8 "Dollars," "U.S. Dollars" and "$": dollars in lawful currency of the United States of America. "Early Termination": as defined in Article VII of the Receivables Sale Agreement. "Effective Date": as defined in subsection 2.1(a) of the Receivables Sale Agreement. "Eligible Obligor": as of any date of determination, each Obligor in respect of a Receivable that satisfies the following eligibility criteria: (a) it is a resident of the United States, its territories or possessions; (b) it is not a Seller or an Affiliate of a Seller; and (c) it is not the subject of any voluntary or involuntary bankruptcy proceeding; "Eligible Receivable": as of any date of determination, each Receivable owing by an Eligible Obligor in existence as of such date that is not subject to a Repurchase Event and that as of such date satisfies each of the following eligibility criteria: (a) it constitutes either (i) an account within the meaning of Section 9-106 of the UCC of the State the law of which governs the perfection of the interest granted in it, or (ii) a general intangible (to the extent that such Receivable includes interest, finance charges, returned check or late charges on sales or similar taxes) within the meaning of Section 9-106 of such UCC; (b) it is not an Aged Receivable; (c)(i) the goods related to it shall have been shipped or the services related to it shall have been performed or (ii) it shall have been billed to the Obligor and it is a Receivables arising from waste disposal services for single family dwellings and relates to services to be performed no later than 105 days after the invoice date of such Receivable or a Receivables arising from scheduled, periodic, fixed waste disposal services for commercial customers and multi-unit residential dwellings and relates to services to be performed no later than 45 days after the invoice date of such Receivable; (d) it shall have been recorded in the CIMS System or other computer information management systems maintained by WMI, WMNA, CWM, or any other Seller; 9 (e) it is denominated and payable only in U.S. Dollars in the United States; (f) it arose in the ordinary course of business from the sale of goods, products or services of the relevant Seller and in accordance with the Policies of such Seller and, at such date of determination, no Early Termination has occurred with respect to such Seller; (g) (i) it does not contravene any applicable law, rule or regulation and the applicable Seller is not in violation of any law, rule or regulation in connection with it, in each case which would in any way render such Receivable unenforceable or would otherwise impair in any material respect the collectibility of such Receivable and (ii) it is not subject to any investigation or proceeding known by such Seller that would reasonably be expected to adversely affect its payment or enforceability; (h) it is an account receivable representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended; (i) it is not a Receivable for which the applicable Seller has established an offsetting specific reserve; provided, that a -------- Receivable subject only in part to the foregoing shall be an Eligible Receivable to the extent not so subject; (j) it is not a Receivable with original payment terms in excess of 60 days from its original invoice date, or in respect of which the applicable Seller has (i) altered the basis of the aging from the initial due date for payment such that the final due date extends to a date more than 60 days from its original invoice date or (ii) otherwise made any modification except in the ordinary course of business and consistent with the Policies of such Seller; (k) all required consents, approvals or authorizations necessary for the creation and enforceability of it and the effective assignment and sale thereof by the applicable Seller to the Company and by the Company to the Participants shall have been obtained with respect to such Receivable; provided, that with respect to Receivables owing by -------- Government Obligors, such Receivables shall constitute Eligible Receivables notwithstanding the failure of such Receivables to satisfy this clause (k) except to the extent such failure adversely affects the collectibility of such Receivables by the Company or the Participants; 10 (l) the applicable Seller is not in default in any material respect under the terms of the contract, if any, from which such Receivable arose; (m) all right, title and interest in it has been validly sold to the Company by the applicable Seller pursuant to the Receivables Sale Agreement; (n) the Company or the Participants will have legal and beneficial ownership therein free and clear of all Liens other than Permitted Liens and such Receivable has been the subject of either a valid transfer from the Company to the Participants or, alternatively, the grant of a first priority perfected security interest therein to the Participants free and clear of all Liens other than Permitted Liens; (o) it is not subject to any dispute in whole or in part or to any offset, counterclaim, defense, rescission, recoupment or subordination; provided, that a Receivable subject only in part to any -------- of the foregoing shall be an Eligible Receivable to the extent not so subject; (p) it is at all times the legal, valid and binding obligation of the Obligor thereon, enforceable against such Obligor to pay the full Principal Amount thereof in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or law); (q) as of the related Payment Date, neither the Company nor the applicable Seller has (i) taken any action that would impair the rights of the Administrative Agent or the Participants or (ii) failed to take any action that was necessary to avoid impairing the rights therein of the Administrative Agent or the Participants; (r) each of the representations and warranties made in the Receivables Sale Agreement by the applicable Seller with respect to such Receivable is true and correct in all material respects; and (s) at the time such Receivable was sold by the applicable Seller to the Company under the Receivables Sale Agreement, no event described in paragraph (e) of Article VII of the Receivables Sale Agreement (without giving effect to any requirement as to the passage of time) had occurred with respect to such Seller. 11 "Environmental Laws": all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability": of any Person, any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of such Person or any Subsidiary thereof directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "Equipment": as defined in subsection 2.1(c)(i) of the Receivables Transfer Agreement. "ERISA": the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate": with respect to any Person, any trade or business (whether or not incorporated) that is a member of a group of which such Person is a member and which is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event": for any Person, (a) any "reportable event," as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by such Person or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by such Person or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by such Person or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by such Person or any ERISA Affiliate of any notice, or the receipt by any 12 Multiemployer Plan from such Person or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar Participating Interest": with respect to any Participant, that portion of its Participating Interest in the Receivables with respect to which the Purchase Discount Amount is determined by reference to the Adjusted LIBO Rate. "Excess Amount": at any time, with respect to any Obligor, the excess (if any) of (a) the aggregate outstanding Principal Amount of the Eligible Receivables owing by such Obligor as of the most recent Settlement Period End Date over (b) the Applicable Obligor Percentage of the aggregate ---- outstanding Principal Amount as of such Settlement Period End Date of all Eligible Receivables, in each case originated by Sellers as to which the Effective Date has occurred, which amount shall be recalculated, as of such Settlement Period End Date, in the event the Effective Date occurs with respect to any Seller after such date and prior to the next Settlement Period End Date. "Excess Application Amount": as defined in subsection 2.12(c) of the Receivables Transfer Agreement. "Excluded Taxes": with respect to the Administrative Agent and any Participant or any other recipient of any payment to be made by or on account of any obligation of the Company, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Participant, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America and (c) in the case of a Foreign Participant (other than an assignee pursuant to a request by the Company under subsection 3.5 of the Receivables Transfer Agreement), any withholding tax that is imposed on amounts payable to such Foreign Participant at the time such Foreign Participant becomes a party to the Receivables Transfer Agreement or is attributable to such Foreign Participant's failure or inability to comply with subsection 3.4(e) of the Receivables Transfer Agreement), except (i) to the extent that such Foreign Participant's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Company with respect to such withholding tax pursuant to subsection 3.4(a) of the Receivables Transfer Agreement or (ii) such withholding taxes are imposed as a result of the Participating Interests being characterized as anything other than indebtedness for United States federal income tax purposes. 13 "Federal Funds Effective Rate": for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer": of any corporation, the chief financial officer, principal accounting officer, treasurer, assistant treasurer or controller of such corporation. "Fixed Tranche": a portion of the Net Investment on which the rate at which the Purchase Discount Amount accrues is based upon the Adjusted LIBO Rate. "Floating Tranche": that portion of the Net Investment not allocated to a Fixed Tranche and the Purchase Discount Amount in respect of which is based upon the ABR. "Force Majeure Delay": with respect to any Servicer or the Master Servicer, any cause or event which is beyond the control and not due to the negligence of such Servicer or the Master Servicer, as the case may be, which delays, prevents or prohibits such Person's delivery of Daily Reports and/or Settlement Statements, as the case may be, including, without limitation, computer, electrical and mechanical failures, acts of God or the elements and fire; provided, that no such cause or event shall be -------- deemed to be a Force Majeure Delay unless the affected Servicer or Master Servicer shall have given the Company and the Administrative Agent written notice thereof as soon as possible after the beginning of such delay. "Foreign Participant": any Participant or Administrative Agent that is organized under the laws of a jurisdiction other than that in which the Company is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP": generally accepted accounting principles in the United States of America. "Governmental Authority": the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, 14 legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Government Obligor": the United States government or any state or local government or any subdivision thereof, or any agency, department or instrumentality thereof. "Guarantee": of or by any Person (the "guarantor") any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term "Guarantee" shall not -------- include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials": all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos- containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement": any interest rate protection agreement, foreign- currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Incipient Purchase Termination Event": any condition or act specified in Article VII of the Receivables Sale Agreement that, with the giving of notice or the lapse of time or both, would become a Purchase Termination Event. "Increase in Net Investment": for any applicable Closing Date, the Dollar amount by which the Net Investment of the Participants is being increased on such Closing Date. 15 "Indebtedness": of any Person, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Liabilities": as defined in subsection 9.3 of the Receivables Sale Agreement. "Indemnified Taxes": Taxes other than Excluded Taxes. "Indemnitee": as defined in subsection 11.3(b) of the Receivables Transfer Agreement. "Initial Acquisition Date": as defined in subsection 12.1(b)(ii) of the Receivables Transfer Agreement. "Initial Deposit Account": as defined in subsection 12.1(b)(i) of the Receivables Transfer Agreement. "Initial Sellers": the Sellers with an applicable Effective Date of the Commencement Date. "Insolvency Event": the occurrence of any event of the type described in paragraph (e) of Article VII of the Receivables Sale Agreement. "Invested Percentage": a fraction the numerator of which is Net Investment and the denominator of which is Aggregate Eligible Receivables. 16 "Investment Earnings": as defined in subsection 2.7(a)(iii) of the Receivables Transfer Agreement. "LIBO Rate": with respect to a Fixed Tranche for any Transfer Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Transfer Period, at the rate for Dollar deposits with a maturity comparable to such Transfer Period. In the event that such rate is not available at such time for any reason, then the "LIBO ---- Rate" with respect to a Fixed Tranche for any Transfer Period shall be the ---- rate at which Dollar deposits of $5,000,000, and for a period comparable to the applicable Transfer Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Transfer Period. "Lien": with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Margin Stock": as defined in Regulation U. "Master Servicer": WMI, in its capacity as master servicer under the Receivables Transfer Agreement. "Material Adverse Effect": (i) a materially adverse effect on the business, operations, property or condition (financial or otherwise) of WMI and its Subsidiaries taken as a whole or on the Company, (ii) a material impairment of the ability of the Company, the Master Servicer, any Servicer, or the Sellers, taken as a whole, to perform their obligations under the Transaction Documents, (iii) a material impairment of the validity or enforceability of any of the Transaction Documents against any such Person, (iv) a material impairment of the collectibility of the Receivables taken as a whole or (v) a material impairment of the interests, rights or remedies of the Administrative Agent or the Participants under or with respect to the Receivables or the Transaction Documents. 17 "Material Indebtedness": for any Person, Indebtedness of, commitments providing for the incurrence of Indebtedness by, or obligations in respect of one or more Hedging Agreements, of any one or more of such Person and its Subsidiaries in a principal amount exceeding, individually or in the aggregate, $100,000,000; for purposes of determining Material Indebtedness, the "principal amount" of the obligations of such Person or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Person or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Maximum Commitment": $550,000,000, as such amount may be reduced pursuant to subsection 2.10 of the Receivables Transfer Agreement. "Maximum Invested Percentage": at a particular date, 100% minus the ----- sum of (a) 18% and (b) following the occurrence of each Reserve Event, an additional 1% for each Reserve Event. "Maximum Transfer Amount": at a particular date, the lesser of (a) the Maximum Commitment at such date and (b) the product of (i) the Maximum Invested Percentage at such date and (ii) Aggregate Eligible Receivables as of the close of business on the Business Day preceding such date. "Minimum Equity Amount": $150,000,000. "Monthly Servicing Fee": for each Settlement Period, the product of (a) the number of days in such period, (b) 1% and (c) the average daily principal balance of Purchased Receivables during such period divided by ------- 365. "Moody's": Moody's Investors Service, Inc. and its successors. "Multiemployer Plan": with respect to any Person, a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Investment": at any time, (i) when used with respect to all Participants, the excess, if any, of (a) the aggregate of the amounts paid by the Participants pursuant to subsection 2.3 of the Receivables Transfer Agreement over (b) the aggregate amount of Receivable Proceeds distributed ---- to the Participants in payment of the Net Investment pursuant to the Receivables Transfer Agreement and (ii) when used with respect to a Participant, the excess, if any, of (a) the aggregate of the amounts paid by such Participant pursuant to subsection 2.3 of the Receivables Transfer Agreement over (b) the aggregate amount of Receivable Proceeds distributed ---- to such Participant in payment of the Net Investment pursuant to the Receivables Transfer Agreement. 18 "Obligor": with respect to any Receivable, the Person or Persons obligated to make payments with respect to such Receivable, including any guarantor thereof. "Other Taxes": (i) any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under the Receivables Transfer Agreement or from the execution, delivery or enforcement of, or otherwise with respect to, the Transaction Documents or (ii) any and all Taxes imposed directly or indirectly on any Participant as a result of the Participating Interests being characterized as anything other than indebtedness for United States federal income tax purposes (including, without limitation, any taxes on any entity deemed to have been created pursuant to the Receivables Transfer Agreement). "Partial Servicing Transfer": as defined in subsection 12.2(d) of the Receivables Transfer Agreement. "Participant": the Persons listed on Schedule 1 to the Receivables Transfer Agreement and any other Person that shall have become a party to the Receivables Transfer Agreement pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party thereto pursuant to an Assignment and Acceptance. "Participating Interest": as defined in subsection 2.2 of the Receivables Transfer Agreement. "Payment Date": as defined in subsection 2.3(a) of the Receivables Sale Agreement. "PBGC": the Pension Benefit Guaranty Corporation, referred to and defined in ERISA, and any successor entity performing similar functions. "Permitted Liens": Liens created pursuant to the Receivables Transfer Agreement or the Receivables Sale Agreement and any other Liens securing obligations not in excess of $100,000 in the aggregate (with respect to all Receivables) at any time outstanding. "Person": any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan": with respect to any Person, any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Person or any ERISA Affiliate is (or, if such plan were terminated, 19 would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Policies": with respect to any Seller which has set forth its credit and collection policies in writing, such written credit and collection policies as they have been applied by such Seller in the ordinary course of its business prior to the Commencement Date and, with respect to any Seller which has not set forth its credit and collection policies in writing, its credit and collection policies as in effect and applied by such Seller in the ordinary course of its business prior to the Commencement Date, in each case as the same may be amended, supplemented or otherwise modified from time to time in accordance with the Receivables Transfer Agreement and the Receivables Sale Agreement. "Pooled Property": as defined in subsection 2.1(a) of the Receivables Transfer Agreement. "Potential Termination Event": any Termination Event and any event or condition that upon notice, lapse of time or both would constitute a Termination Event. "Prime Rate": the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Principal Amount": with respect to any Receivable, the amount due thereunder (expressed in Dollars), net of any available prompt payment discount, volume discount or other promotional discount or rebate. "Purchase Discount Amount": a purchase discount which (a) accrues to the Participants in respect of the Participating Interest on the outstanding amount of the Net Investment; (b) is payable in arrears on each Purchase Discount Amount Payment Date (both prior to and after the commencement of the Amortization Period) occurring during the period commencing on the date of the first transfer and assignment of the Participating Interest in Receivables and Related Property pursuant to subsection 2.3(a) of the Receivables Transfer Agreement and ending on the date on which the Net Investment is equal to zero and the Commitments of the Participants have terminated; and (c) is calculated at a rate per annum equal to: (i) in respect of that portion of the Net Investment allocated to any Fixed Tranche, the sum of the Adjusted LIBO Rate with respect thereto plus the Applicable Eurodollar Margin and (ii) in respect of that ---- portion of the Net Investment not allocated to any Fixed Tranche, ABR in effect from time to time during the period for which payment is made. 20 "Purchase Discount Amount Payment Date": (a) as to the Floating Tranche, each Settlement Date, (b) as to any Fixed Tranche having a Transfer Period of one, two or three months, the last day of such Transfer Period and (c) as to any Tranche, any date on which the principal portion of the Net Investment represented thereby is paid, prepaid or is otherwise due (by mandatory prepayment, acceleration or otherwise). "Purchased Receivables Collections": as defined in subsection 12.1(b)(i) of the Receivables Transfer Agreement. "Purchase Price": as defined in subsection 2.2 of the Receivables Sale Agreement. "Purchase Termination Event": as defined in Article VII of the Receivables Sale Agreement. "Purchased Receivable": any Receivable sold transferred, assigned or conveyed or purported to be sold, transferred, assigned or conveyed to the Company by any Seller pursuant to, and in accordance with the terms of, the Receivables Sale Agreement and not resold to such Seller pursuant to subsection 2.1(b) or 2.6 thereof. "Rating Agencies": Moody's and S&P. "Receivables": the indebtedness and payment obligations of any Person to a Seller (including, without limitation, obligations constituting an account or general intangible or evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security) arising from a sale of merchandise or the provision of services by a Seller, including, without limitation, any right to payment for goods sold or for services rendered, whether or not it has been earned by performance, and including the right to payment of any interest, sales taxes, finance charges, returned check or late charges and other obligations of such Person with respect thereto. "Receivable Assets": as defined in subsection 2.1(a) of the Receivables Sale Agreement. "Receivable Proceeds": as defined in subsection 2.7(b) of the Receivables Transfer Agreement. "Receivables Property": as defined in subsection 2.1(a) of the Receivables Transfer Agreement. "Receivables Sale Agreement": the Receivables Sale Agreement, dated as of December 29, 1997, among the Sellers, the Master Servicer and the 21 Company, as buyer, as amended, supplemented or otherwise modified from time to time. "Receivables Sale Agreement Guarantee": the Seller Guarantee, dated as of December 29, 1997, executed by the Seller Guarantors party thereto in favor of the Company, as amended, supplemented or otherwise modified from time to time. "Receivables Transfer Agreement": the Receivables Transfer and Servicing Agreement, dated as of December 29, 1997, among the Company, as seller, the Master Servicer, the Servicers, the Participants and the Administrative Agent, as amended, supplemented or otherwise modified from time to time. "Recoveries": amounts collected (net of out-of-pocket costs of collection) in respect of Defaulted Receivables. "Reduction Date": as defined in subsection 2.11(b) of the Receivables Transfer Agreement. "Register": as defined in subsection 11.4(c) of the Receivables Transfer Agreement. "Regulation G, T, U or X": Regulation G, T, U or X, respectively, of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Related Property": (A) all goods (including returned goods), if any, relating to the sale which gave rise to any Receivable; (B) all other security interests or Liens and property subject thereto from time to time purporting to secure payment of any Receivable, whether pursuant to the contract related to such Receivable or otherwise or pursuant to any obligations evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security and the proceeds thereof, together with all financing statements or similar instruments signed by an Obligor describing any collateral securing such Receivable; and (C) all guarantees, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of any Receivable whether pursuant to the contract related to such Receivable or otherwise or pursuant to any obligations evidenced by a note, instrument, contract, security 22 agreement, chattel paper or other evidence of indebtedness or security and the proceeds thereof. "Replacement Facility": as defined in subsection 12.6(g) of the Receivables Transfer Agreement. "Reportable Event": any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code). "Reporting Day": as defined in subsection 12.5(a) of the Receivables Transfer Agreement. "Repurchase Amount": as defined in subsection 2.6 of the Receivables Sale Agreement. "Repurchase Event": as defined in subsection 2.6 of the Receivables Sale Agreement. "Request for Transfer and Assignment": as defined in subsection 2.3(b) of the Receivables Transfer Agreement. "Required Participants": Participants having Commitment Percentages the sum of which, in the aggregate, equals at least 51%. "Requirement of Law": as to any Person, for any Person, the certificate or articles of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Reserve Amount": for any Business Day in any Settlement Period which occurs prior to the Settlement Date occurring in such Settlement Period, the product of (x) the lesser of (i) the number of Business Days (including such Business Day) which have occurred in such Settlement Period and (ii) 10 and (y) one-tenth of the sum of the amount payable pursuant to clause (i), (ii) and (iii)(x) of subsection 2.7(b) of the Receivables Transfer Agreement on the Settlement Date and/or Purchase Discount Payment Dates occurring during such Settlement Period (which amount shall be adjusted for any increases and decreases in the Net Investment, including any such increases and decreases which occur after the tenth Business Day of such Settlement Period). 23 "Reserve Event": any event specified on Exhibit B to the Receivables Transfer Agreement. "Responsible Officer": with respect to any Person, the Chairman or Vice Chairman of the Board, President, Chief Financial Officer, any Controller, Principal Accounting Officer, Treasurer, Assistant Treasurer, Secretary or Authorized Signatory of such Person. "Restricted Payments": as defined in subsection 8.7 of the Receivables Transfer Agreement. "Retransfer Payment": as defined in subsection 5.3(b) of the Receivables Transfer Agreement. "S&P": Standard & Poor's Ratings Services and its successors. "Sale Transactions": the execution, delivery and performance by each of the Sellers of the Receivables Sale Agreement and each of the other Transaction Documents to which it is a party, the sale of Receivables by each Seller thereunder and the consummation of the other transactions contemplated by any of the foregoing. "Scheduled Termination Date": June 30, 1998. "SEC": means the Securities and Exchange Commission. "Seller Addition Date": as defined in subsection 3.4 of the Receivables Sale Agreement. "Seller Adjustment Payment": as defined in subsection 2.5 of the Receivables Sale Agreement. "Seller Guarantors": WMI and WMNA. "Seller Repurchase Payment": as defined in subsection 2.6 of the Receivables Sale Agreement. "Sellers": the collective reference to WMI, in its capacity as a Seller under the Receivables Sale Agreement, the Subsidiaries of WMI listed as Sellers on Schedule 1 to the Receivables Sale Agreement and any Subsidiaries of WMI which have been added as Sellers in accordance with the provisions of the Receivables Sale Agreement and the other Transaction Documents, all of the foregoing in their capacities as Sellers under the Receivables Sale Agreement; each, individually, a "Seller". 24 "Servicer Default": any Servicer Event of Default and any event or condition that upon notice, lapse of time or both would constitute a Servicer Event of Default. "Servicer Event of Default": as defined in subsection 12.11 of the Receivables Transfer Agreement. "Servicer Transfer Payment": as defined in subsection 12.7(b) of the Receivables Transfer Agreement. "Servicers": initially each of WMI and WMNA in its capacity as a servicer together with any other Person which has been added as a Servicer in accordance with the provisions of the Receivables Transfer Agreement, in their capacities as servicers under the Receivables Transfer Agreement. "Servicing Transactions": the execution, delivery and performance by the Master Servicer or any Servicer of each of the Transaction Documents to which the Master Servicer or any Servicer is a party and the servicing and collection of the Receivables under the Receivables Transfer Agreement and the consummation of the other transactions contemplated by any of the foregoing. "Settlement Date": with respect to any calendar month, the day that is 20 calendar days following the last day of such calendar month (or, if such 20th calendar day is not a Business Day, the next succeeding Business Day). "Settlement Period": each fiscal month of the Master Servicer (including fiscal months occurring prior to the Commencement Date). "Settlement Period End Date": at any time, the last day of the most recent Settlement Period for which a Settlement Statement has been delivered (or until the first Settlement Statement is delivered, as of the last day of November). "Settlement Statement": as defined in subsection 12.5(b) of the Receivables Transfer Agreement. "Settlement Statement Date": with respect to any calendar month for which a Settlement Statement is required to be prepared, the day that is 15 calendar days following the last day of such calendar month (or, if such 15th calendar day is not a Business Day, the next succeeding Business Day). "SPC Collection Account": as defined in subsection 12.1(b)(iii) of the Receivables Transfer Agreement. 25 "Specified Bankruptcy Opinion Provisions": the provisions contained in the legal opinion delivered pursuant to subsection 6.1(b)(i) of the Receivables Transfer Agreement relating to the non-substantive consolidation of the Master Servicer and its Affiliates and the Company under the heading "Assumptions of Fact". "Statutory Reserve Rate": a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages ----- (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Fixed Tranches shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets which may be available from time to time to any Participant under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Note": as defined in subsection 8.1 of the Receivables Sale Agreement. "subsection 11.3(b)(1) Indemnified Liabilities": as defined in subsection 11.3(b)(i) of the Receivables Transfer Agreement. "Subsequent Deposit Account": as defined in subsection 12.1(b)(i) of the Receivables Transfer Agreement. "Subsidiary": with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent. "Substitute Servicer": as defined in subsection 12.2(d) of the Receivables Transfer Agreement. 26 "Tax Indemnifying Party": as defined in subsection 3.4(a) of the Receivables Transfer Agreement. "Taxes": any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Termination Event": as defined in Article IX of the Receivables Transfer Agreement. "Tranches": the collective reference to the Floating Tranche and the Fixed Tranches. "Transaction Documents": the Receivables Transfer Agreement, the Receivables Sale Agreement, the Receivables Sale Agreement Guarantee and the Subordinated Note. "Transaction Parties": the Company, the Master Servicer, the Sellers, the Seller Guarantors and the Servicers. "Transactions": the execution, delivery and performance by the Company of each of the Transaction Documents to which the Company is a party, the assignment transfer of the Participating Interests thereunder and the consummation of the other transactions contemplated by any of the foregoing. "Transfer Notice": as defined in subsection 12.2(d) of the Receivables Transfer Agreement. "Transfer Period": with respect to any portion of the Net Investment allocated to a Fixed Tranche: (a) initially, the period commencing on the Closing Date or conversion date, as the case may be, with respect to such Fixed Tranche and ending one, two or three months thereafter (or such shorter period which is less than one month as the Administrative Agent in its sole discretion may agree), as selected by the Company in its notice of Closing Date or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Transfer Period applicable to such Fixed Tranche and ending one, two or three months thereafter (or such shorter period which is less than one month as the Administrative Agent in its sole discretion may agree), as selected by the Company by irrevocable notice to the Administrative Agent not less than three Business Days 27 prior to the last day of the then current Transfer Period with respect thereto; provided, that all of the foregoing provisions relating to Transfer Periods -------- are subject to the following: (1) if any Transfer Period would otherwise end on a day that is not a Business Day, such Transfer Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Transfer Period into another calendar month, in which event such Transfer Period shall end on the next preceding Business Day; (2) any Transfer Period that would otherwise extend beyond the Scheduled Termination Date shall end on the Scheduled Termination Date; and (3) any Transfer Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Transfer Period) shall end on the last Business Day of the calendar month of such Transfer Period. "Transferred Agreements": as defined in subsection 2.1(b) of the Receivables Transfer Agreement. "Transferring Servicer": as defined in subsection 12.2(d) of the Receivables Transfer Agreement. "Withdrawal Liability": liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. "WMI": Waste Management, Inc., a Delaware corporation. "WMI Collections": as defined in subsection 12.1(b)(i) of the Receivables Transfer Agreement. "WMNA": Waste Management of North America, Inc., an Illinois corporation. EX-10.49 11 REV. GETZ EMPLOYMENT SECURITY AGMT. EXHIBIT 10.49 WASTE MANAGEMENT, INC. AMENDMENT TO EMPLOYMENT AGREEMENT -------------------- This amendment dated as of March 10, 1998, to the Employment Agreement ("Agreement") dated as of August 15, 1996, between Waste Management, Inc. (formerly known as "WMX Technologies, Inc."), a Delaware corporation ("Company"), and Herbert A. Getz ("Executive"): WITNESSETH ---------- WHEREAS, the Executive is employed with the Company pursuant to the Agreement; WHEREAS, the Company and the Executive desire to amend the Agreement as set forth herein; NOW THEREFORE, for and in consideration of the premises and the mutual covenants contained in this Amendment and in the Agreement, and other consideration, the parties agree to amend Section 6(c) of the Agreement as follows: 1. A new second paragraph shall be added to Section 6(c) to read: "Notwithstanding the foregoing and the fact that circumstances described in clause (i) above have occurred, and additional changes described in such clause (i) are likely to occur at or after the Effective Time (as defined in that Agreement and Plan of Merger among USA Waste Services, Inc., a wholly-owned subsidiary thereof and the Company, dated as of March 10, 1998 (the "Merger Agreement")), Executive agrees that he will not deliver a written notice of termination to the Company with respect to any action described in (i) above prior to the earlier of: (A) the date of termination of the Merger Agreement or abandonment of the merger contemplated thereby, or (B) June 30, 1999. Nothing in the foregoing sentence shall (I) constitute Executive's written consent to any actions described in clause (i), regardless of when such actions occurred or occur, or (II) alter in any manner whatsoever Executive's ability to deliver a written notice of termination at any time after the occurrence of any event described in clauses (ii), (iii) or (iv) above, or to deliver a written notice at any time after the date described in clause (A) or (B) above with respect to any event described in clause (i) above, regardless of when such event occurred or occurs." 2. The final paragraph of Section 6(c) is hereby amended in its entirety to read: "During the remainder of the Term, the Executive (or in the event of his death, the Executive's beneficiary) shall be entitled to receive annual payments equal to $900,000 which annual amount shall be payable ratably at intervals not less frequently than monthly. Such amounts shall be in lieu of all salary, bonuses or long-term incentive or performance based compensation for the remainder of the Term, other than any annual or long-term incentives which may become payable under the terms thereof with respect to any performance period which is on-going at the time written notice of termination is given under this Section 6(c) taking into account Executive's employment for the remainder of the Term. In addition, the Executive's outstanding stock options shall be accelerated and shall be 100% vested and the Executive shall be treated as having retired on the last day of the Term for the purposes of the Company's stock option plans applicable to such stock options. Further, for the remainder of the Term the Executive and his family shall continue to participate in all employee welfare benefit plans generally available to employees and executives of the Company in accordance with the terms of such welfare benefit plans, and all service earned by such Executive during the remainder of the Term shall be credited for participation, vesting and benefit accrual under all employee pension benefit plans maintained by the Company to which the Executive is entitled to participate in accordance with their terms, including without limitation the SERP." 3. Section 6(d)(ii) is hereby amended in its entirety to read: In the event of a Change of Control, (other than a Change in Control resulting from the merger contemplated by the Merger Agreement (as defined in Subsection 6(c)), the Executive may elect at any time during the Term to terminate this Agreement and receive, in lieu of base compensation a lump sum payment equal to three (3) times the average of the Executive's annual compensation (including annual and long term bonuses) from the Company for the five (5) calendar years ending prior to the date of the Change of Control. Such amount shall be paid to the Executive within thirty (30) days after the date the Executive notifies the Company in 2 writing of his election to terminate this Agreement pursuant to this Subsection 6(d). In the event that the Executive does not elect to terminate this Agreement and elect the lump sum payment provided herein, the provisions of Subsection 6(c) shall remain in effect. 4. Except to the extent expressly amended hereby, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment to the Employment Agreement, as of the day and year first written above. WASTE MANAGEMENT, INC. By: /s/ Robert S. Miller /s/ Herbert A. Getz ----------------------------- ----------------------------- Chairman of the Board Herbert A. Getz 3 EX-10.50 12 LOAN & INDEMNIFICATION AGREEMENT Exhibit 10.50 November 25, 1997 Mr. Herbert A. Getz 3003 Butterfield Road Oak Brook, Illinois 60523 Re: Loan and Indemnification Agreement Dear Herb: You currently hold options to acquire 240,000 shares of the common stock of Wheelabrator Technologies Inc. ("WTI") at an option exercise price of $8.9031 per share, under the 1986 Stock Plan for Executive Employees of Wheelabrator Technologies Inc. and its Subsidiaries (the "WTI 1986 Plan"). These grants of stock options expire on November 30, 1997. Ordinarily, you could exercise these options and sell the shares of common stock of WTI that you would receive (the "WTI Option Shares") and benefit from the increase in the price of WTI's common stock that has resulted from, among other things, the pending offer by Waste Management, Inc. (the "Company") to acquire all of the publicly held shares of common stock of WTI (the "WTI Offer"). However, under the Company's securities trading policy, you have been denied the ability to sell the WTI Option Shares while the negotiation of the WTI Offer is pending. As a result of this unforeseeable conjunction of the impending expiration of the WTI options, the Company's pending negotiations with WTI, and the Company's securities trading policy, the Board of Directors of the Company has determined that it would be appropriate to preserve for you the ability to benefit from the value of your WTI options and to hold you harmless from the adverse consequences of the Company's requirement that you comply with the Company's securities trading policy. Accordingly, the Board of Directors has authorized me, on behalf of the Company, to enter into an agreement with you upon the following terms and conditions. Upon the terms of the Promissory Note and Security Agreement attached hereto as Exhibit 1 (the "Note"), the Company will loan you $2,136,744, the aggregate exercise price of your WTI options, to be used solely for payment of the aggregate exercise price of your WTI options. This loan will be fully collaterized by a security interest in such number of WTI Option Shares that, valued at $15.375, yesterday's closing price, shall be equal to the principal amount of the loan. You will also surrender a sufficient number of shares of WTI common stock to WTI to satisfy applicable federal and state income tax withholding requirements, pursuant to the terms of the WTI 1986 Plan. To hold you harmless from the risk that the Company's securities trading policy would deny you the ability to sell the WTI Option Shares for at least the amount of the Company's lowest publicly-disclosed offer price in the WTI Offer (the "Lowest Offer Price"), the Company hereby agrees to indemnify you to the extent that the market price for WTI common stock on the date that you receive clearance to sell the WTI Option Shares is below the Lowest Offer Price (the "Sale Price Indemnification"). The Company will also indemnify you for the interest due on the Note, and any consequence resulting from the federal and state income and payroll taxation on the imputation of interest income and income from the Sale Price Indemnification, if any. These income items will be grossed-up for federal and state income and payroll tax purposes and added to your Form W-2. If you agree with the terms of this agreement, please indicate your acceptance of the agreement by signing below, and by executing and delivering the attached Promissory Note and Security Agreement, UCC-1 forms, and option exercise forms on or before November 28, 1997. Very truly yours, WASTE MANAGEMENT, INC. By: /s/ Peer Pedersen ------------------------ Peer Pedersen Chairman, Compensation and Stock Option Committee AGREED AND ACCEPTED: /s/ Herbert A. Getz - ------------------------- Herbert A. Getz EX-10.51 13 EMPLOYMENT SECURITY AGREEMENT EXHIBIT 10.51 WASTE MANAGEMENT, INC. EMPLOYMENT SECURITY AGREEMENT THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 9th day of February, 1998, between WASTE MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the "Company"), and Paul G. George (hereinafter referred to as the "Executive"): W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive is serving as Senior Vice President-Human Resources of Waste Management, Inc.; and WHEREAS, the Executive has extensive experience with respect to the field of human resources and related fields which the Company considers extremely valuable to the continued prosperity of the Company; and WHEREAS, the Company wishes to ensure that it will have the Executive available to perform for the Company and its subsidiaries duties as Senior Vice President-Human Resources; and WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms, conditions and obligations of the parties with respect to such employment and this Agreement is intended by the parties to supersede all previous agreements and understandings, whether written or oral, concerning such employment. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. The Company (hereinafter the "Employer") shall employ the Executive as an employee at will upon the terms and conditions hereinafter set forth. The Executive shall perform such duties and responsibilities for the Employer which are commensurate with his position as may be assigned him by the Company's Chief Executive Officer and shall serve as a member of the Executive Committee of the Company. The Executive shall report to the Chief Executive Officer of the Company. Incident to the performance of such duties, the Executive shall be provided by the Employer with office space, facilities and secretarial assistance commensurate with that currently being provided to the Executive. 2. TERM. Subject only to the provisions hereof set forth in Section 7, the term of this Agreement (herein the "Term") shall be for a period beginning on the date hereof and ending on March 10, 1999. Subject to the provisions of Section 7 hereof, and unless a party gives 30 days' prior written notice to the other, on March 10, 1998 and on each successive March 10, the Term of this Agreement shall be renewed for a period ending on the earlier of (i) the date two (2) years from such March 10, or (ii) the date of the Executive's 62nd birthday on which birthday this Agreement shall terminate unless earlier terminated in accordance with the terms hereof. 3. COMPENSATION. During the Term, the Executive's salary shall be payable at intervals not less often than semi-monthly. The Executive's salary shall initially be $350,000 per annum and thereafter be established by either the Compensation and Stock Option Committee of the Board of Directors of the Company (subject to approval by the full Board) or, in the event Executive is not among the Company officers whose compensation is subject to review by the Compensation and Stock Option Committee of the Board, by the Executive Committee of the Company (the applicable committee being referred to herein as the "Committee") and all adjustments thereto and all aspects of the Executive's incentive or performance compensation shall be established by the Committee in its sole discretion. In the event there is no Committee in existence at any time, the term Committee shall be deemed to refer to the Chief Executive Officer of the Company. During the Term, the Executive shall also receive such benefits and perquisites (the "Benefits") which are made available to similarly positioned executives of the Employer including, without limitation, incentive compensation, loans, awards, insurance, stock options, stock purchase plans, benefits from qualified plans or non-qualified plans or other benefit plans now or hereafter existing which are adopted by the Employer for the benefit of its employees generally and for the benefit of the Employer's officers, all such Benefits to be provided in such amounts as may be determined from time to time by the Committee in its discretion. 4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full time, attention and energy to the business of the Employer and the Executive shall not be engaged in any other business activity pursued for gain, profit or other pecuniary advantage which activity interferes with the Executive's duties and responsibilities provided for herein. 5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that: ------------------------------------ (a) During the Term and for a period of one year thereafter or during any Severance Period, if longer (the "Restricted Period"), Executive agrees that he will not (without the written consent of the Chief Executive Officer) engage directly or indirectly in any business within the United States (financially as an investor or lender or as an employee, director, officer, partner, independent contractor, consultant or owner or in any other capacity calling for the rendition of personal services or acts of management, operation or control) which is directly competitive with the business at any time during the Term conducted by the Company or any of its subsidiaries or Affiliates as defined below. Notwithstanding the foregoing, Executive shall be entitled to own securities of any corporation conducting a business competitive with the business of the Company or any of its subsidiaries or Affiliates so long as the securities of such corporation are listed on a national securities exchange and the securities owned directly or indirectly by Executive do not represent more than two percent (2%) of any class of the outstanding securities of such company. (b) During the Restricted Period, in addition to the obligations pursuant to Subsection 5(a), Executive agrees that neither he nor any business in which he engages directly or 2 indirectly will (i) directly or indirectly induce any customers of the Company or of corporations or businesses which directly or indirectly control or are controlled by or under common control with the Company ("Affiliates") to patronize any business similar to that of the Company, (ii) canvass, solicit or accept any similar business from any customer of the Company or any Affiliates, (iii) directly or indirectly request or advise any customer of the Company or Affiliates to withdraw, curtail or cancel such customer's business with the Company or Affiliates, (iv) directly or indirectly disclose to any other person, firm or corporation the names or addresses of any of the customers of the Company or Affiliates, or (v) compete with the Company or Affiliates in acquiring or merging with any other business or acquiring the assets of such other business. (c) During the Restricted Period, in addition to the obligations pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) hire or attempt to hire any employee of the Company or its Affiliates nor (ii) directly or indirectly encourage any employee of the Company or its Affiliates to terminate employment with the Company or its Affiliates. Notwithstanding the foregoing, it shall not be deemed a violation of this subsection if a business which employs Executive hires or attempts to hire an employee of the Affiliates and Executive has no knowledge of, control over or involvement with such solicitation. (d) In the event that any of the provisions of this Section 5 should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable laws, then such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by law. 6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment he is or will be making use of, acquiring or adding to the Employer's and Company's confidential information which includes, but is not limited to, memoranda and other materials or records of a proprietary nature and records and policy matters relating to finance, personnel, management and operations. Therefore, in order to protect the Employer's and Company's confidential information and to protect other employees who depend on the Employer and Company for regular employment, the Executive agrees that he will not in any way utilize any of said confidential information except in connection with his employment by the Employer, and except in connection with the business of the Employer and Company he will not copy, reproduce or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. 7. TERMINATION. ----------- (a) Death or Disability. If the Executive should become physically or mentally disabled and unable to perform his duties hereunder for a continuous period in excess of ninety (90) days (in the reasonable opinion of the Committee), or if the Executive should die while an employee of the Employer, this Agreement and Executive's employment with the Employer shall immediately terminate. 3 (b) Termination by the Employer for Cause. The following events shall create in the Employer a right to terminate the Executive's employment under this Agreement prior to the expiration of the Term: (i) the commission of fraud, embezzlement or theft by the Executive in connection with the Executive's duties; (ii) the intentional wrongful damage to property of the Company, the Employer and/or their Affiliates by the Executive; (iii) the intentional wrongful disclosure by the Executive of any secret process or confidential information of the Company, the Employer and/or their Affiliates; or (iv) the violation of the Executive's non-disclosure, non-solicitation and non- competition covenants set forth in Sections 5 and 6. In the event of such a Termination for cause pursuant to this Subsection, all of the obligations of the Employer and the Company under this Agreement shall immediately terminate. (c) Other Termination by Employer. In the event the Employer shall elect to terminate Executive's employment for any reason other than those specified in Subsection 7(a) or 7(b), it shall provide written notice of such termination to Executive. In the event that there occurs without the written consent of the Executive: (i) a change in the Executive's duties, title or responsibilities, or a change in the Executive's reporting relationships, either of which results in or reflects a diminution of the scope or importance of the Executive's duties and responsibilities; (ii) a reduction in the Executive's then current annual base salary (other than as part of reductions in annual base salary affecting the Employer's officers generally); (iii) a reduction in the level of benefits available or awarded under employee and officer benefit plans and programs, including, but not limited to annual and long-term incentive and stock-based plans and programs (other than as part of reductions in such benefit plans or programs affecting the Employer's officers generally); (iv) a relocation of Executive's primary employment location to a location which is more than 50 miles from his current location; or (v) the Company terminates the automatic renewal provision of this Agreement by providing Executive with 30 days' prior written notice as provided in Section 2 hereof then Executive may deliver written notice of termination of his employment to the Company within three months of such event (which notice shall be effective even if such three months expire after the end of the Term). In the event of notice being given by the Employer or Executive under this Subsection 7(c) within one year of Executive's initial employment with the Employer, and subject to the execution and delivery by Executive to the Company of the release described in Section 10 hereof, the Company shall provide 4 Executive with the severance compensation and benefits set forth in (u), (w), (x), (y), and (z) below. In the event of notice being given by the Employer or Executive under this Subsection 7(c) after one year of Executive's initial employment with the Employer, subject to the execution and delivery by Executive to the Company of the release described in Section 10 hereof, the Company shall provide Executive with severance compensation and benefits set forth in (u)-(z) below: (u) Executive shall receive an amount equal to his then current base salary for two years, payable at intervals not less frequently than monthly over a period of two years following the end of the Term (such period of payment to be referred to herein as the "Severance Period"); (v) with respect to any participation rights in the Company's annual or long-term incentive plans which have been awarded to Executive prior to the end of the Term, Executive shall be entitled to receive a prorated award under any such plan, payable if and when awards are paid to other similarly positioned officers of the Employer, such proration to be determined by dividing the number of whole or partial months the Executive is employed during the incentive compensation performance period by the total number of months in the incentive compensation performance period; (w) with respect to Executive's stock options, the exercisability of Executive's outstanding stock options shall be accelerated, and such options shall remain exercisable during the Severance Period (unless they shall otherwise expire earlier by their terms) and such options shall otherwise be treated in accordance with the terms of their respective grants; (x) the Executive's medical, dental and vision Benefits shall be continued on the same basis as offered to active salaried employees for the Severance Period or until such earlier time as the Executive becomes employed and eligible for such benefits under a plan of the new employer, and continuation coverage under COBRA shall commence at the end of the Severance Period; and (y) credit for vesting and benefit service under the Company's Supplemental Executive Retirement Plan shall be provided to Executive for the Severance Period; and (z) all other Benefits shall be paid or continued only to the extent the terms thereof provide for payment or continuation following the termination of employment. 5 The foregoing shall be in lieu of all salary, bonuses or incentive or performance based compensation for the remainder of the Term. If Executive should die during the Severance Period, any remaining severance payments shall be made to Executive's surviving spouse or, if none, to his estate. (d) Voluntary Termination. If during the Term the Executive should voluntarily terminate his employment with the Employer for any reason, including retirement, other than as described in Subsection 7(c) hereof, the obligations of the Employer and the Company under this Agreement shall terminate forthwith, other than obligations to (i) pay the Executive's base salary to the date of voluntary termination, (ii) pay all incentive compensation earned by the Executive for performance periods which are completed prior to the date of voluntary termination, at such times and on the same basis amounts as such incentive compensation becomes payable to other executives of the Employer and (iii) pay or make available to the Executive all Benefits which by their terms or under applicable law survive the voluntary termination of the Executive's employment; and the Executive shall remain bound by his non-disclosure, non- solicitation and non-competition covenants set forth in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding stock options shall be treated in accordance with the terms of their respective grants or awards, except that in the case of retirement on or after age 62, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated. 8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in Subsection 7(c) to the contrary, the Executive may make an irrevocable written election, within 30 days of receipt or delivery of the written termination notice provided for in Subsection 7(c), that would extend the time period during which the base salary is to be paid under Subsection 7(c) for one additional year. The total amount of base salary that is to be paid under Subsection 7(c) will not be affected by this election. If such election is made, the term "Severance Period" will be deemed to refer to such extended payment period. 9. EXCISE TAX. In the event that an excise tax ("Excise Tax") is imposed on Executive under Section 4999 of the Internal Revenue Code (or any successor provision of like import) on the payments due under Subsection 7(c) (collectively, the "Payments"), Executive shall be paid an additional amount ("Gross Up") no later than 30 days prior to the date such Excise Tax is due, such that the net amount retained by Executive after deduction of the Excise Tax on the Payments and any federal and state income taxes on the Payments and the Gross Up shall be equal to the Payments. For purposes of determining the Gross Up, Executive shall be deemed to pay federal and state income taxes at the highest marginal rate of taxation in the calendar year in which the Payments or Gross Up is to be made. The opinion of whether such Excise Tax is payable and the amount thereof shall be based upon a "substantial authority opinion" of tax counsel selected by the Company and reasonably acceptable to Executive. If such opinion is not finally accepted by the IRS upon audit, then appropriate adjustments shall be computed (with Gross Up) by tax counsel based upon the final amount of Excise Tax so 6 determined. The amount shall be paid by the appropriate party in one lump cash sum within 30 days of such computation. 10. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in Subsection 7(c) or Section 9 to the contrary and in consideration therefor, severance benefits and the Gross Up thereunder shall only become payable by the Company if the Executive executes and delivers to the Company a General Release and Cooperation Agreement on or after the date of written notice of termination of Executive's employment or prior to the date the Gross Up is paid, as applicable, and in substantially the form attached as Exhibit A hereto. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when deposited in the U.S. mail in a registered, postage prepaid envelope addressed: If to the Executive, at his address set forth below or such other address as Executive may direct, and if to the Company, c/o Chief Executive Officer, Waste Management, Inc., 3003 Butterfield Road, Oak Brook, Illinois 60523, with a copy to the General Counsel, Waste Management, Inc., at the same address. 12. ASSIGNMENT. The Executive may not assign his obligations hereunder. The rights of the Executive and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon their respective heirs, personal representatives, successors and assigns. 13. MISCELLANEOUS. ------------- (a) This Agreement shall be subject to and governed by the laws of the State of Illinois. (b) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (c) This Agreement may not be modified except by an agreement in writing executed by the parties hereto. (d) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. (e) This Agreement shall supersede any and all prior employment agreements or understandings, written or oral, with Executive. 7 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WASTE MANAGEMENT, INC. By /s/ Robert S. Miller ------------------------------ Robert S. Miller, Acting Chairman of the Board /s/ Paul G. George -------------------------------- Paul G. George Address: 1101 First Street, Unit 207 Coronado, CA 92118 8 EX-10.53 14 WMX TECHNOLOGIES EMPLOYMENT SECURITY AGREEMENT Exhibit 10.53 WMX TECHNOLOGIES, INC. EMPLOYMENT SECURITY AGREEMENT THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation (hereinafter referred to as the "Company"), and James E. O'Connor (hereinafter referred to as the "Executive"): W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has previously served and is serving as Area President (Florida) of the Company, employed by Waste Management Inc. of Florida; and WHEREAS, the Executive has developed extensive experience with respect to the management and operations of the Company and its subsidiaries which it considers extremely valuable to the continued prosperity of the Company; and WHEREAS, the Company wishes to ensure that it will continue to have the Executive available to perform for the Company and its subsidiaries duties as Area President (Florida); and WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms, conditions and obligations of the parties with respect to such employment and this Agreement is intended by the parties to supersede all previous agreements and understandings, whether written or oral, concerning such employment. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the "Employer") shall continue to employ the Executive as an employee at will upon the terms and conditions hereinafter set forth. The Executive shall perform such duties and responsibilities for the Employer which are commensurate with his position as may be assigned him by the Company's Executive Vice President and Chief Operating Officer and shall serve as a member of the Management Committee of the Company. The Executive shall report to the Executive Vice President and Chief Operating Officer of the Company. Incident to the performance of such duties, the Executive shall be provided by the Employer with office space, facilities and secretarial assistance commensurate with that currently being provided to the Executive. 2. TERM. Subject only to the provisions hereof set forth in Section 7, the term of this Agreement (herein the "Term") shall be for a period beginning on the date hereof and ending on March 10, 1999. Subject to the provisions of Section 7 hereof, and unless a party gives 30 days' prior written notice to the other, on March 10, 1998 and on each successive March 10, the Term of this Agreement shall be renewed for a period ending on the earlier of (i) the date two (2) years from such March 10, or (ii) the date of the Executive's 62nd birthday on which birthday this Agreement shall terminate unless earlier terminated in accordance with the terms hereof. 3. COMPENSATION. During the Term, the Executive's salary shall be payable at intervals not less often than semi-monthly. The Executive's salary shall be established by either the Compensation and Stock Option Committee of the Board of Directors of the Company (subject to approval by the full Board) or, in the event Executive is not among the Company officers whose compensation is subject to review by the Compensation and Stock Option Committee of the Board, by the Executive Committee of the Company (the applicable committee being referred to herein as the "Committee") and all adjustments thereto and all aspects of the Executive's incentive or performance compensation shall be established by the Committee in its sole discretion. In the event there is no Committee in existence at any time, the term Committee shall be deemed to refer to the Chief Executive Officer of the Company. During the Term, the Executive shall also receive such benefits and perquisites (the "Benefits") which are made available to similarly positioned executives of the Employer including, without limitation, incentive compensation, loans, awards, insurance, stock options, stock purchase plans, benefits from qualified plans or non-qualified plans or other benefit plans now or hereafter existing which are adopted by the Employer for the benefit of its employees generally and for the benefit of the Employer's officers, all such Benefits to be provided in such amounts as may be determined from time to time by the Committee in its discretion. Notwithstanding the foregoing, Executive shall receive vesting and benefit service credit under the Company's Supplemental Executive Retirement Plan ("SERP") for the period of his absence from the Company from May 1979 through December 1981 if (i) he remains employed with the Company or its affiliates through his 55th birthday, or (ii) prior to his 55th birthday, his employment with the Company and its affiliates terminates for reasons other than his resignation or his termination by the Company or an affiliate for cause. Further, Executive will become vested in his benefit accrued under the SERP in the event of (i) his death, (ii) disability, (iii) the occurrence of any event described in subparagraphs 7(c)(i) and 7(c)(ii), or (iv) the elimination of the SERP by the Company. 4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full time, attention and energy to the business of the Employer and the Executive shall not be engaged in any other business activity pursued for gain, profit or other pecuniary advantage which activity interferes with the Executive's duties and responsibilities provided for herein. 5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that: ------------------------------------ (a) During the Term and for a period of one year thereafter or during any Severance Period, if longer (the "Restricted Period"), Executive agrees that he will not (without the written consent of the Chairman of the Board) engage directly or indirectly in any business within the United States (financially as an investor or lender or as an employee, director, officer, partner, independent contractor, consultant or owner or in any other capacity calling for the rendition of personal services or acts of management, operation or control) which is directly competitive with the business at any time during the Restricted Period conducted by the Company or any of its subsidiaries or Affiliates as defined below. Notwithstanding the foregoing, Executive shall be entitled to own securities of any corporation conducting a business competitive with the business of the Company or any of its subsidiaries or Affiliates so long as the securities of such corporation are listed on a national securities exchange and the securities owned directly or indirectly by Executive do not represent more than two percent (2%) of any class of the outstanding securities of such company. (b) During the Restricted Period, in addition to the obligations pursuant to Subsection 5(a), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) directly or indirectly induce any customers of the Company or of corporations or businesses which directly or indirectly control or are controlled by or under common control with the Company ("Affiliates") to patronize any business similar to that of the Company, (ii) canvass, solicit or accept any similar business from any customer of the Company or any Affiliates, (iii) directly or indirectly request or advise any customer of the Company or Affiliates to withdraw, curtail or cancel such customer's business with the Company or Affiliates, (iv) directly or indirectly disclose to any other person, firm or corporation the names or addresses of any of the customers of the Company or Affiliates, or (v) compete with the Company or Affiliates in acquiring or merging with any other business or acquiring the assets of such other business. (c) During the Restricted Period, in addition to the obligations pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) hire or attempt to hire any employee of the Company or its Affiliates nor (ii) directly or indirectly encourage any employee of the Company or its Affiliates to terminate employment with the Company or its Affiliates. Notwithstanding the foregoing, it shall not be deemed a violation of this subsection if a business which employs Executive hires or attempts to hire an employee of the Affiliates and Executive has no knowledge of, control over or involvement with such solicitation. (d) In the event that any of the provisions of this Section 5 should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable laws, then such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by law. 6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment he is or will be making use of, acquiring or adding to the Employer's and Company's confidential information which includes, but is not limited to, memoranda and other materials or records of a proprietary nature and records and policy matters relating to finance, personnel, management and operations. Therefore, in order to protect the Employer's and Company's confidential information and to protect other employees who depend on the Employer and Company for regular employment, the Executive agrees that he will not in any way utilize any of said confidential information except in connection with his employment by the Employer, and except in connection with the business of the Employer and Company he will not copy, reproduce or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. 7. TERMINATION. ----------- (a) Death or Disability. If the Executive should become physically or mentally disabled and unable to perform his duties hereunder for a continuous period in excess of ninety (90) days (in the reasonable opinion of the Committee), or if the Executive should die while an employee of the Employer, this Agreement and Executive's employment with the Employer shall immediately terminate. (b) Termination by the Employer for Cause. The following events shall create in the Employer a right to terminate the Executive's employment under this Agreement prior to the expiration of the Term: (i) the commission of fraud, embezzlement or theft by the Executive in connection with the Executive's duties; (ii) the intentional wrongful damage to property of the Company, the Employer and/or their Affiliates by the Executive; (iii) the intentional wrongful disclosure by the Executive of any secret process or confidential information of the Company, the Employer and/or their Affiliates; or (iv) the violation of the Executive's non-disclosure, non-solicitation and non- competition covenants set forth in Sections 5 and 6. In the event of such a Termination for cause pursuant to this Subsection, all of the obligations of the Employer and the Company under this Agreement shall immediately terminate. (c) Other Termination by Employer. In the event the Employer shall elect to terminate Executive's employment for any reason other than those specified in Subsection 7(a) or 7(b), it shall provide written notice of such termination to Executive. In the event that there occurs without the written consent of the Executive: (i) a change in the Executive's duties or responsibilities, or a change in the Executive's reporting relationships, either of which results in or reflects a diminution of the scope or importance of the Executive's duties and responsibilities; (ii) a reduction in the Executive's then current annual base salary (other than as part of reductions in annual base salary affecting the Employer's officers generally); (iii) a reduction in the level of benefits available or awarded under employee and officer benefit plans and programs, including, but not limited to annual and long-term incentive and stock-based plans and programs (other than as part of reductions in such benefit plans or programs affecting the Employer's officers generally); (iv) a relocation of Executive's primary employment location to a location which is more than 50 miles from his current location; or (v) the Company terminates the automatic renewal provision of this Agreement by providing Executive with 30 days' prior written notice as provided in Section 2 hereof then Executive may deliver written notice of termination of his employment to the Company within three months of such event (which notice shall be effective even if such three months expire after the end of the Term). In either case and subject to the execution and delivery by Executive to the Company of the release described in Section 9 hereof, the Company shall provide Executive with severance compensation and benefits as follows: (t) Executive shall receive an amount equal to his then current base salary for two years, payable at intervals not less frequently than monthly over a period of two years following the end of the Term (such period of payment to be referred to herein as the "Severance Period"); (u) with respect to any participation rights in the Company's annual or long-term incentive plans which have been awarded to Executive prior to the end of the Term, Executive shall be entitled to receive a prorated award under any such plan, payable if and when awards are paid to other similarly positioned officers of the Employer, such proration to be determined by dividing the number of whole or partial months the Executive is employed during the incentive compensation performance period by the total number of months in the incentive compensation performance period; (v) with respect to Executive's stock options, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated, such options shall remain exercisable during the Severance Period (unless they shall expire earlier by their terms) and such options shall otherwise be treated in accordance with the terms of their respective grants; (w) the Executive's restricted stock shall be treated in accordance with the terms of the Restricted Stock Award Certificate applicable thereto; (x) the Executive's medical, dental and vision Benefits shall be continued on the same basis as offered to active salaried employees for the Severance Period or until such earlier time as the Executive becomes employed and eligible for such benefits under a plan of the new employer, and continuation coverage under COBRA shall commence at the end of the Severance Period; and (y) credit for vesting and benefit service under the Company's Supplemental Executive Retirement Plan shall be provided to Executive for the Severance Period; and (z) all other Benefits shall be paid or continued only to the extent the terms thereof provide for payment or continuation following the termination of employment. The foregoing shall be in lieu of all salary, bonuses or incentive or performance based compensation for the remainder of the Term. If Executive should die during the Severance Period, any remaining severance payments shall be made to Executive's surviving spouse or, if none, to his estate. (d) Voluntary Termination. If during the Term the Executive should voluntarily terminate his employment with the Employer for any reason, including retirement, other than as described in Subsection 7(c) hereof, the obligations of the Employer and the Company under this Agreement shall terminate forthwith, other than obligations to (i) pay the Executive's base salary to the date of voluntary termination, (ii) pay all incentive compensation earned by the Executive for performance periods which are completed prior to the date of voluntary termination, at such times and on the same basis amounts as such incentive compensation becomes payable to other executives of the Employer and (iii) pay or make available to the Executive all Benefits which by their terms or under applicable law survive the voluntary termination of the Executive's employment; and the Executive shall remain bound by his non-disclosure, non- solicitation and non-competition covenants set forth in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding stock options and the vesting of the Executive's restricted stock shall be treated in accordance with the terms of their respective grants or awards, except that in the case of retirement on or after age 62, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated. 8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in Subsection 7(c) to the contrary, the Executive may make an irrevocable written election, within 30 days of receipt or delivery of the written termination notice provided for in Subsection 7(c), that would extend the time period during which the base salary is to be paid under Subsection 7(c) for one additional year. The total amount of base salary that is to be paid under Subsection 7(c) will not be affected by this election. If such election is made, the term "Severance Period" will be deemed to refer to such extended payment period. 9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in Subsection 7(c) to the contrary and in consideration therefor, severance benefits thereunder shall only become payable by the Company if the Executive executes and delivers to the Company a General Release and Cooperation Agreement on or after the date of written notice of termination of Executive's employment and in substantially the form attached as Exhibit A hereto. 10. NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when deposited in the U.S. mail in a registered, postage prepaid envelope addressed: If to the Executive, at his address set forth below, and if to the Company, c/o Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook, Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at the same address. 11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The rights of the Executive and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon their respective heirs, personal representatives, successors and assigns. 12. MISCELLANEOUS. ------------- (a) This Agreement shall be subject to and governed by the laws of the State of Illinois. (b) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (c) This Agreement may not be modified except by an agreement in writing executed by the parties hereto. (d) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. (e) This Agreement shall supersede any and all prior employment agreements or understandings, written or oral, with Executive. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WMX TECHNOLOGIES, INC. By /s/ Dean L. Buntrock ------------------------------ Dean L. Buntrock, Chairman of the Board /s/ James E. O'Connor -------------------------------- James E. O'Connor Address: 8190 N.W. 47th Drive Coral Springs, FL 33067 EX-10.54 15 EMPLOYMENT SECURITY AGREEMENT EXHIBIT 10.54 WMX TECHNOLOGIES, INC. EMPLOYMENT SECURITY AGREEMENT THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation (hereinafter referred to as the "Company"), and Luther Michael Collier (hereinafter referred to as the "Executive"): W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has previously served and is serving as Area President (Mid Atlantic) of the Company, employed by Waste Management of Pennsylvania, Inc.; and WHEREAS, the Executive has developed extensive experience with respect to the management and operations of the Company and its subsidiaries which it considers extremely valuable to the continued prosperity of the Company; and WHEREAS, the Company wishes to ensure that it will continue to have the Executive available to perform for the Company and its subsidiaries duties as Area President (Mid Atlantic); and WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms, conditions and obligations of the parties with respect to such employment and this Agreement is intended by the parties to supersede all previous agreements and understandings, whether written or oral, concerning such employment. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the "Employer") shall continue to employ the Executive as an employee at will upon the terms and conditions hereinafter set forth. The Executive shall perform such duties and responsibilities for the Employer which are commensurate with his position as may be assigned him by the Company's Executive Vice President and Chief Operating Officer and shall serve as a member of the Management Committee of the Company. The Executive shall report to the Executive Vice President and Chief Operating Officer of the Company. Incident to the performance of such duties, the Executive shall be provided by the Employer with office space, facilities and secretarial assistance commensurate with that currently being provided to the Executive. 2. TERM. Subject only to the provisions hereof set forth in Section 7, the term of this Agreement (herein the "Term") shall be for a period beginning on the date hereof and ending on March 10, 1999. Subject to the provisions of Section 7 hereof, and unless a party gives 30 days' prior written notice to the other, on March 10, 1998 and on each successive March 10, the Term of this Agreement shall be renewed for a period ending on the earlier of (i) the date two (2) years from such March 10, or (ii) the date of the Executive's 62nd birthday on which birthday this Agreement shall terminate unless earlier terminated in accordance with the terms hereof. 3. COMPENSATION. During the Term, the Executive's salary shall be payable at intervals not less often than semi-monthly. The Executive's salary shall be established by either the Compensation and Stock Option Committee of the Board of Directors of the Company (subject to approval by the full Board) or, in the event Executive is not among the Company officers whose compensation is subject to review by the Compensation and Stock Option Committee of the Board, by the Executive Committee of the Company (the applicable committee being referred to herein as the "Committee") and all adjustments thereto and all aspects of the Executive's incentive or performance compensation shall be established by the Committee in its sole discretion. In the event there is no Committee in existence at any time, the term Committee shall be deemed to refer to the Chief Executive Officer of the Company. During the Term, the Executive shall also receive such benefits and perquisites (the "Benefits") which are made available to similarly positioned executives of the Employer including, without limitation, incentive compensation, loans, awards, insurance, stock options, stock purchase plans, benefits from qualified plans or non-qualified plans or other benefit plans now or hereafter existing which are adopted by the Employer for the benefit of its employees generally and for the benefit of the Employer's officers, all such Benefits to be provided in such amounts as may be determined from time to time by the Committee in its discretion. 4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full time, attention and energy to the business of the Employer and the Executive shall not be engaged in any other business activity pursued for gain, profit or other pecuniary advantage which activity interferes with the Executive's duties and responsibilities provided for herein. 5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that: (a) During the Term and for a period of one year thereafter or during any Severance Period, if longer (the "Restricted Period"), Executive agrees that he will not (without the written consent of the Chairman of the Board) engage directly or indirectly in any business within the United States (financially as an investor or lender or as an employee, director, officer, partner, independent contractor, consultant or owner or in any other capacity calling for the rendition of personal services or acts of management, operation or control) which is directly competitive with the business at any time during the Restricted Period conducted by the Company or any of its subsidiaries or Affiliates as defined below. Notwithstanding the foregoing, Executive shall be entitled to own securities of any corporation conducting a business competitive with the business of the Company or any of its subsidiaries or Affiliates so long as the securities of such corporation are listed on a national securities exchange and the securities owned directly or indirectly by Executive do not represent more than two percent (2%) of any class of the outstanding securities of such company. (b) During the Restricted Period, in addition to the obligations pursuant to Subsection 5(a), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) directly or indirectly induce any customers of the Company or of corporations or 2 businesses which directly or indirectly control or are controlled by or under common control with the Company ("Affiliates") to patronize any business similar to that of the Company, (ii) canvass, solicit or accept any similar business from any customer of the Company or any Affiliates, (iii) directly or indirectly request or advise any customer of the Company or Affiliates to withdraw, curtail or cancel such customer's business with the Company or Affiliates, (iv) directly or indirectly disclose to any other person, firm or corporation the names or addresses of any of the customers of the Company or Affiliates, or (v) compete with the Company or Affiliates in acquiring or merging with any other business or acquiring the assets of such other business. (c) During the Restricted Period, in addition to the obligations pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) hire or attempt to hire any employee of the Company or its Affiliates nor (ii) directly or indirectly encourage any employee of the Company or its Affiliates to terminate employment with the Company or its Affiliates. Notwithstanding the foregoing, it shall not be deemed a violation of this subsection if a business which employs Executive hires or attempts to hire an employee of the Affiliates and Executive has no knowledge of, control over or involvement with such solicitation. (d) In the event that any of the provisions of this Section 5 should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable laws, then such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by law. 6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment he is or will be making use of, acquiring or adding to the Employer's and Company's confidential information which includes, but is not limited to, memoranda and other materials or records of a proprietary nature and records and policy matters relating to finance, personnel, management and operations. Therefore, in order to protect the Employer's and Company's confidential information and to protect other employees who depend on the Employer and Company for regular employment, the Executive agrees that he will not in any way utilize any of said confidential information except in connection with his employment by the Employer, and except in connection with the business of the Employer and Company he will not copy, reproduce or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. 7. TERMINATION. (a) Death or Disability. If the Executive should become physically or mentally disabled and unable to perform his duties hereunder for a continuous period in excess of ninety (90) days (in the reasonable opinion of the Committee), or if the Executive should die while an employee of the Employer, this Agreement and Executive's employment with the Employer shall immediately terminate. 3 (b) Termination by the Employer for Cause. The following events shall create in the Employer a right to terminate the Executive's employment under this Agreement prior to the expiration of the Term: (i) the commission of fraud, embezzlement or theft by the Executive in connection with the Executive's duties; (ii) the intentional wrongful damage to property of the Company, the Employer and/or their Affiliates by the Executive; (iii) the intentional wrongful disclosure by the Executive of any secret process or confidential information of the Company, the Employer and/or their Affiliates; or (iv) the violation of the Executive's non-disclosure, non-solicitation and non- competition covenants set forth in Sections 5 and 6. In the event of such a Termination for cause pursuant to this Subsection, all of the obligations of the Employer and the Company under this Agreement shall immediately terminate. (c) Other Termination by Employer. In the event the Employer shall elect to terminate Executive's employment for any reason other than those specified in Subsection 7(a) or 7(b), it shall provide written notice of such termination to Executive. In the event that there occurs without the written consent of the Executive: (i) a change in the Executive's duties or responsibilities, or a change in the Executive's reporting relationships, either of which results in or reflects a diminution of the scope or importance of the Executive's duties and responsibilities; (ii) a reduction in the Executive's then current annual base salary (other than as part of reductions in annual base salary affecting the Employer's officers generally); (iii) a reduction in the level of benefits available or awarded under employee and officer benefit plans and programs, including, but not limited to annual and long-term incentive and stock-based plans and programs (other than as part of reductions in such benefit plans or programs affecting the Employer's officers generally); (iv) a relocation of Executive's primary employment location to a location which is more than 50 miles from his current location; or (v) the Company terminates the automatic renewal provision of this Agreement by providing Executive with 30 days' prior written notice as provided in Section 2 hereof then Executive may deliver written notice of termination of his employment to the Company within three months of such event (which notice shall be effective even if such three months expire after the end of the Term). In either case and subject to the execution and delivery by Executive to the Company of the release described in Section 9 hereof, the Company shall provide Executive with severance compensation and benefits as follows: 4 (t) Executive shall receive an amount equal to his then current base salary for two years, payable at intervals not less frequently than monthly over a period of two years following the end of the Term (such period of payment to be referred to herein as the "Severance Period"); (u) with respect to any participation rights in the Company's annual or long-term incentive plans which have been awarded to Executive prior to the end of the Term, Executive shall be entitled to receive a prorated award under any such plan, payable if and when awards are paid to other similarly positioned officers of the Employer, such proration to be determined by dividing the number of whole or partial months the Executive is employed during the incentive compensation performance period by the total number of months in the incentive compensation performance period; (v) with respect to Executive's stock options, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated, such options shall remain exercisable during the Severance Period (unless they shall expire earlier by their terms) and such options shall otherwise be treated in accordance with the terms of their respective grants; (w) the Executive's restricted stock shall be treated in accordance with the terms of the Restricted Stock Award Certificate applicable thereto; (x) the Executive's medical, dental and vision Benefits shall be continued on the same basis as offered to active salaried employees for the Severance Period or until such earlier time as the Executive becomes employed and eligible for such benefits under a plan of the new employer, and continuation coverage under COBRA shall commence at the end of the Severance Period; and (y) credit for vesting and benefit service under the Company's Supplemental Executive Retirement Plan shall be provided to Executive for the Severance Period; and (z) all other Benefits shall be paid or continued only to the extent the terms thereof provide for payment or continuation following the termination of employment. The foregoing shall be in lieu of all salary, bonuses or incentive or performance based compensation for the remainder of the Term. If Executive should die during the Severance Period, any remaining severance payments shall be made to Executive's surviving spouse or, if none, to his estate. (d) Voluntary Termination. If during the Term the Executive should voluntarily terminate his employment with the Employer for any reason, including retirement, other than as described in Subsection 7(c) hereof, the obligations of the Employer and the Company under this Agreement shall terminate forthwith, other than obligations to (i) pay the 5 Executive's base salary to the date of voluntary termination, (ii) pay all incentive compensation earned by the Executive for performance periods which are completed prior to the date of voluntary termination, at such times and on the same basis amounts as such incentive compensation becomes payable to other executives of the Employer and (iii) pay or make available to the Executive all Benefits which by their terms or under applicable law survive the voluntary termination of the Executive's employment; and the Executive shall remain bound by his non-disclosure, non-solicitation and non-competition covenants set forth in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding stock options and the vesting of the Executive's restricted stock shall be treated in accordance with the terms of their respective grants or awards, except that in the case of retirement on or after age 62, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated. 8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in Subsection 7(c) to the contrary, the Executive may make an irrevocable written election, within 30 days of receipt or delivery of the written termination notice provided for in Subsection 7(c), that would extend the time period during which the base salary is to be paid under Subsection 7(c) for one additional year. The total amount of base salary that is to be paid under Subsection 7(c) will not be affected by this election. If such election is made, the term "Severance Period" will be deemed to refer to such extended payment period. 9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in Subsection 7(c) to the contrary and in consideration therefor, severance benefits thereunder shall only become payable by the Company if the Executive executes and delivers to the Company a General Release and Cooperation Agreement on or after the date of written notice of termination of Executive's employment and in substantially the form attached as Exhibit A hereto. 10. NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when deposited in the U.S. mail in a registered, postage prepaid envelope addressed: If to the Executive, at his address set forth below, and if to the Company, c/o Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook, Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at the same address. 11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The rights of the Executive and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon their respective heirs, personal representatives, successors and assigns. 6 12. MISCELLANEOUS. (a) This Agreement shall be subject to and governed by the laws of the State of Illinois. (b) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (c) This Agreement may not be modified except by an agreement in writing executed by the parties hereto. (d) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. (e) This Agreement shall supersede any and all prior employment agreements or understandings, written or oral, with Executive. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WMX TECHNOLOGIES, INC. By /s/ Dean L. Buntrock ------------------------------------- Dean L. Buntrock, Chairman of the Board /s/ Luther Michael Collier ---------------------------------------- Luther Michael Collier Address: 5 Lakeview Drive Newton, PA 18940 7 EX-10.55 16 WMX TECHNOLOGIES EMPLOYMENT SECURITY AGREEMENT EXHIBIT 10.55 WMX TECHNOLOGIES, INC. EMPLOYMENT SECURITY AGREEMENT THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation (hereinafter referred to as the "Company"), and Michael J. Cole (hereinafter referred to as the "Executive"): W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has previously served and is serving as Area President (Midwest) of the Company, employed by Waste Management of Illinois, Inc.; and WHEREAS, the Executive has developed extensive experience with respect to the management and operations of the Company and its subsidiaries which it considers extremely valuable to the continued prosperity of the Company; and WHEREAS, the Company wishes to ensure that it will continue to have the Executive available to perform for the Company and its subsidiaries duties as Area President (Midwest); and WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms, conditions and obligations of the parties with respect to such employment and this Agreement is intended by the parties to supersede all previous agreements and understandings, whether written or oral, concerning such employment. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the "Employer") shall continue to employ the Executive as an employee at will upon the terms and conditions hereinafter set forth. The Executive shall perform such duties and responsibilities for the Employer which are commensurate with his position as may be assigned him by the Company's Executive Vice President and Chief Operating Officer and shall serve as a member of the Management Committee of the Company. The Executive shall report to the Executive Vice President and Chief Operating Officer of the Company. Incident to the performance of such duties, the Executive shall be provided by the Employer with office space, facilities and secretarial assistance commensurate with that currently being provided to the Executive. 2. TERM. Subject only to the provisions hereof set forth in Section 7, the term of this Agreement (herein the "Term") shall be for a period beginning on the date hereof and ending on March 10, 1999. Subject to the provisions of Section 7 hereof, and unless a party gives 30 days' prior written notice to the other, on March 10, 1998 and on each successive March 10, the Term of this Agreement shall be renewed for a period ending on the earlier of (i) the date two (2) years from such March 10, or (ii) the date of the Executive's 62nd birthday on which birthday this Agreement shall terminate unless earlier terminated in accordance with the terms hereof. 3. COMPENSATION. During the Term, the Executive's salary shall be payable at intervals not less often than semi-monthly. The Executive's salary shall be established by either the Compensation and Stock Option Committee of the Board of Directors of the Company (subject to approval by the full Board) or, in the event Executive is not among the Company officers whose compensation is subject to review by the Compensation and Stock Option Committee of the Board, by the Executive Committee of the Company (the applicable committee being referred to herein as the "Committee") and all adjustments thereto and all aspects of the Executive's incentive or performance compensation shall be established by the Committee in its sole discretion. In the event there is no Committee in existence at any time, the term Committee shall be deemed to refer to the Chief Executive Officer of the Company. During the Term, the Executive shall also receive such benefits and perquisites (the "Benefits") which are made available to similarly positioned executives of the Employer including, without limitation, incentive compensation, loans, awards, insurance, stock options, stock purchase plans, benefits from qualified plans or non-qualified plans or other benefit plans now or hereafter existing which are adopted by the Employer for the benefit of its employees generally and for the benefit of the Employer's officers, all such Benefits to be provided in such amounts as may be determined from time to time by the Committee in its discretion. 4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full time, attention and energy to the business of the Employer and the Executive shall not be engaged in any other business activity pursued for gain, profit or other pecuniary advantage which activity interferes with the Executive's duties and responsibilities provided for herein. 5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that: ------------------------------------ (a) During the Term and for a period of one year thereafter or during any Severance Period, if longer (the "Restricted Period"), Executive agrees that he will not (without the written consent of the Chairman of the Board) engage directly or indirectly in any business within the United States (financially as an investor or lender or as an employee, director, officer, partner, independent contractor, consultant or owner or in any other capacity calling for the rendition of personal services or acts of management, operation or control) which is directly competitive with the business at any time during the Restricted Period conducted by the Company or any of its subsidiaries or Affiliates as defined below. Notwithstanding the foregoing, Executive shall be entitled to own securities of any corporation conducting a business competitive with the business of the Company or any of its subsidiaries or Affiliates so long as the securities of such corporation are listed on a national securities exchange and the securities owned directly or indirectly by Executive do not represent more than two percent (2%) of any class of the outstanding securities of such company. 2 (b) During the Restricted Period, in addition to the obligations pursuant to Subsection 5(a), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) directly or indirectly induce any customers of the Company or of corporations or businesses which directly or indirectly control or are controlled by or under common control with the Company ("Affiliates") to patronize any business similar to that of the Company, (ii) canvass, solicit or accept any similar business from any customer of the Company or any Affiliates, (iii) directly or indirectly request or advise any customer of the Company or Affiliates to withdraw, curtail or cancel such customer's business with the Company or Affiliates, (iv) directly or indirectly disclose to any other person, firm or corporation the names or addresses of any of the customers of the Company or Affiliates, or (v) compete with the Company or Affiliates in acquiring or merging with any other business or acquiring the assets of such other business. (c) During the Restricted Period, in addition to the obligations pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) hire or attempt to hire any employee of the Company or its Affiliates nor (ii) directly or indirectly encourage any employee of the Company or its Affiliates to terminate employment with the Company or its Affiliates. Notwithstanding the foregoing, it shall not be deemed a violation of this subsection if a business which employs Executive hires or attempts to hire an employee of the Affiliates and Executive has no knowledge of, control over or involvement with such solicitation. (d) In the event that any of the provisions of this Section 5 should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable laws, then such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by law. 6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment he is or will be making use of, acquiring or adding to the Employer's and Company's confidential information which includes, but is not limited to, memoranda and other materials or records of a proprietary nature and records and policy matters relating to finance, personnel, management and operations. Therefore, in order to protect the Employer's and Company's confidential information and to protect other employees who depend on the Employer and Company for regular employment, the Executive agrees that he will not in any way utilize any of said confidential information except in connection with his employment by the Employer, and except in connection with the business of the Employer and Company he will not copy, reproduce or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. 7. TERMINATION. ----------- (a) Death or Disability. If the Executive should become physically or mentally disabled and unable to perform his duties hereunder for a continuous period in excess of ninety (90) days (in the reasonable opinion of the Committee), or if the Executive should die 3 while an employee of the Employer, this Agreement and Executive's employment with the Employer shall immediately terminate. (b) Termination by the Employer for Cause. The following events shall create in the Employer a right to terminate the Executive's employment under this Agreement prior to the expiration of the Term: (i) the commission of fraud, embezzlement or theft by the Executive in connection with the Executive's duties; (ii) the intentional wrongful damage to property of the Company, the Employer and/or their Affiliates by the Executive; (iii) the intentional wrongful disclosure by the Executive of any secret process or confidential information of the Company, the Employer and/or their Affiliates; or (iv) the violation of the Executive's non-disclosure, non-solicitation and non- competition covenants set forth in Sections 5 and 6. In the event of such a Termination for cause pursuant to this Subsection, all of the obligations of the Employer and the Company under this Agreement shall immediately terminate. (c) Other Termination by Employer. In the event the Employer shall elect to terminate Executive's employment for any reason other than those specified in Subsection 7(a) or 7(b), it shall provide written notice of such termination to Executive. In the event that there occurs without the written consent of the Executive: (i) a change in the Executive's duties or responsibilities, or a change in the Executive's reporting relationships, either of which results in or reflects a diminution of the scope or importance of the Executive's duties and responsibilities; (ii) a reduction in the Executive's then current annual base salary (other than as part of reductions in annual base salary affecting the Employer's officers generally); (iii) a reduction in the level of benefits available or awarded under employee and officer benefit plans and programs, including, but not limited to annual and long-term incentive and stock-based plans and programs (other than as part of reductions in such benefit plans or programs affecting the Employer's officers generally); (iv) a relocation of Executive's primary employment location to a location which is more than 50 miles from his current location; or (v) the Company terminates the automatic renewal provision of this Agreement by providing Executive with 30 days' prior written notice as provided in Section 2 hereof then Executive may deliver written notice of termination of his employment to the Company within three months of such event (which notice shall be effective even if such three months expire after the end of the Term). In either case and subject to the execution and delivery by 4 Executive to the Company of the release described in Section 9 hereof, the Company shall provide Executive with severance compensation and benefits as follows: (t) Executive shall receive an amount equal to his then current base salary for two years, payable at intervals not less frequently than monthly over a period of two years following the end of the Term (such period of payment to be referred to herein as the "Severance Period"); (u) with respect to any participation rights in the Company's annual or long-term incentive plans which have been awarded to Executive prior to the end of the Term, Executive shall be entitled to receive a prorated award under any such plan, payable if and when awards are paid to other similarly positioned officers of the Employer, such proration to be determined by dividing the number of whole or partial months the Executive is employed during the incentive compensation performance period by the total number of months in the incentive compensation performance period; (v) with respect to Executive's stock options, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated, such options shall remain exercisable during the Severance Period (unless they shall expire earlier by their terms) and such options shall otherwise be treated in accordance with the terms of their respective grants; (w) the Executive's restricted stock shall be treated in accordance with the terms of the Restricted Stock Award Certificate applicable thereto; (x) the Executive's medical, dental and vision Benefits shall be continued on the same basis as offered to active salaried employees for the Severance Period or until such earlier time as the Executive becomes employed and eligible for such benefits under a plan of the new employer, and continuation coverage under COBRA shall commence at the end of the Severance Period; and (y) credit for vesting and benefit service under the Company's Supplemental Executive Retirement Plan shall be provided to Executive for the Severance Period; and (z) all other Benefits shall be paid or continued only to the extent the terms thereof provide for payment or continuation following the termination of employment. The foregoing shall be in lieu of all salary, bonuses or incentive or performance based compensation for the remainder of the Term. If Executive should die during the Severance Period, any remaining severance payments shall be made to Executive's surviving spouse or, if none, to his estate. 5 (d) Voluntary Termination. If during the Term the Executive should voluntarily terminate his employment with the Employer for any reason, including retirement, other than as described in Subsection 7(c) hereof, the obligations of the Employer and the Company under this Agreement shall terminate forthwith, other than obligations to (i) pay the Executive's base salary to the date of voluntary termination, (ii) pay all incentive compensation earned by the Executive for performance periods which are completed prior to the date of voluntary termination, at such times and on the same basis amounts as such incentive compensation becomes payable to other executives of the Employer and (iii) pay or make available to the Executive all Benefits which by their terms or under applicable law survive the voluntary termination of the Executive's employment; and the Executive shall remain bound by his non-disclosure, non- solicitation and non-competition covenants set forth in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding stock options and the vesting of the Executive's restricted stock shall be treated in accordance with the terms of their respective grants or awards, except that in the case of retirement on or after age 62, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated. 8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in Subsection 7(c) to the contrary, the Executive may make an irrevocable written election, within 30 days of receipt or delivery of the written termination notice provided for in Subsection 7(c), that would extend the time period during which the base salary is to be paid under Subsection 7(c) for one additional year. The total amount of base salary that is to be paid under Subsection 7(c) will not be affected by this election. If such election is made, the term "Severance Period" will be deemed to refer to such extended payment period. 9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in Subsection 7(c) to the contrary and in consideration therefor, severance benefits thereunder shall only become payable by the Company if the Executive executes and delivers to the Company a General Release and Cooperation Agreement on or after the date of written notice of termination of Executive's employment and in substantially the form attached as Exhibit A hereto. 10. NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when deposited in the U.S. mail in a registered, postage prepaid envelope addressed: If to the Executive, at his address set forth below, and if to the Company, c/o Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook, Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at the same address. 11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The rights of the Executive and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon their respective heirs, personal representatives, successors and assigns. 6 12. MISCELLANEOUS. ------------- (a) This Agreement shall be subject to and governed by the laws of the State of Illinois. (b) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (c) This Agreement may not be modified except by an agreement in writing executed by the parties hereto. (d) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. (e) This Agreement shall supersede any and all prior employment agreements or understandings, written or oral, with Executive. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WMX TECHNOLOGIES, INC. By /s/ Dean L. Buntrock --------------------------- Dean L. Buntrock, Chairman of the Board /s/ Michael J. Cole ----------------------------- Michael J. Cole Address: 2276 Regency Woods Drive Lisle, IL 60532 7 EX-10.56 17 WMX TECHNOLOGIES SECURITY AGREEMENT EXHIBIT 10.56 WMX TECHNOLOGIES, INC. EMPLOYMENT SECURITY AGREEMENT THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation (hereinafter referred to as the "Company"), and Donald R. Chappel (hereinafter referred to as the "Executive"): W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has previously served and is serving as Vice President and Controller (North American Operations) of the Company; and WHEREAS, the Executive has developed extensive experience with respect to the management and operations of the Company and its subsidiaries which it considers extremely valuable to the continued prosperity of the Company; and WHEREAS, the Company wishes to ensure that it will continue to have the Executive available to perform for the Company and its subsidiaries duties as Vice President & Controller (North American Operations); and WHEREAS, the Company and the Executive desire to set forth in this Agreement the terms, conditions and obligations of the parties with respect to such employment and this Agreement is intended by the parties to supersede all previous agreements and understandings, whether written or oral, concerning such employment. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the "Employer") shall continue to employ the Executive as an employee at will upon the terms and conditions hereinafter set forth. The Executive shall perform such duties and responsibilities for the Employer which are commensurate with his position as may be assigned him by the Company's Senior Vice President and Chief Financial Officer and shall serve as a member of the Management Committee of the Company. The Executive shall report to the Senior Vice President and Chief Financial Officer of the Company. Incident to the performance of such duties, the Executive shall be provided by the Employer with office space, facilities and secretarial assistance commensurate with that currently being provided to the Executive. 2. TERM. Subject only to the provisions hereof set forth in Section 7, the term of this Agreement (herein the "Term") shall be for a period beginning on the date hereof and ending on March 10, 1999. Subject to the provisions of Section 7 hereof, and unless a party gives 30 days' prior written notice to the other, on March 10, 1998 and on each successive March 10, the Term of this Agreement shall be renewed for a period ending on the earlier of (i) the date two (2) years from such March 10, or (ii) the date of the Executive's 62nd birthday on which birthday this Agreement shall terminate unless earlier terminated in accordance with the terms hereof. 3. COMPENSATION. During the Term, the Executive's salary shall be payable at intervals not less often than semi-monthly. The Executive's salary shall be established by either the Compensation and Stock Option Committee of the Board of Directors of the Company (subject to approval by the full Board) or, in the event Executive is not among the Company officers whose compensation is subject to review by the Compensation and Stock Option Committee of the Board, by the Executive Committee of the Company (the applicable committee being referred to herein as the "Committee") and all adjustments thereto and all aspects of the Executive's incentive or performance compensation shall be established by the Committee in its sole discretion. In the event there is no Committee in existence at any time, the term Committee shall be deemed to refer to the Chief Executive Officer of the Company. During the Term, the Executive shall also receive such benefits and perquisites (the "Benefits") which are made available to similarly positioned executives of the Employer including, without limitation, incentive compensation, loans, awards, insurance, stock options, stock purchase plans, benefits from qualified plans or non-qualified plans or other benefit plans now or hereafter existing which are adopted by the Employer for the benefit of its employees generally and for the benefit of the Employer's officers, all such Benefits to be provided in such amounts as may be determined from time to time by the Committee in its discretion. 4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full time, attention and energy to the business of the Employer and the Executive shall not be engaged in any other business activity pursued for gain, profit or other pecuniary advantage which activity interferes with the Executive's duties and responsibilities provided for herein. 5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that: ------------------------------------ (a) During the Term and for a period of one year thereafter or during any Severance Period, if longer (the "Restricted Period"), Executive agrees that he will not (without the written consent of the Chairman of the Board) engage directly or indirectly in any business within the United States (financially as an investor or lender or as an employee, director, officer, partner, independent contractor, consultant or owner or in any other capacity calling for the rendition of personal services or acts of management, operation or control) which is directly competitive with the business at any time during the Restricted Period conducted by the Company or any of its subsidiaries or Affiliates as defined below. Notwithstanding the foregoing, Executive shall be entitled to own securities of any corporation conducting a business competitive with the business of the Company or any of its subsidiaries or Affiliates so long as the securities of such corporation are listed on a national securities exchange and the securities owned directly or indirectly by Executive do not represent more than two percent (2%) of any class of the outstanding securities of such company. 2 (b) During the Restricted Period, in addition to the obligations pursuant to Subsection 5(a), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) directly or indirectly induce any customers of the Company or of corporations or businesses which directly or indirectly control or are controlled by or under common control with the Company ("Affiliates") to patronize any business similar to that of the Company, (ii) canvass, solicit or accept any similar business from any customer of the Company or any Affiliates, (iii) directly or indirectly request or advise any customer of the Company or Affiliates to withdraw, curtail or cancel such customer's business with the Company or Affiliates, (iv) directly or indirectly disclose to any other person, firm or corporation the names or addresses of any of the customers of the Company or Affiliates, or (v) compete with the Company or Affiliates in acquiring or merging with any other business or acquiring the assets of such other business. (c) During the Restricted Period, in addition to the obligations pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any business in which he engages directly or indirectly will (i) hire or attempt to hire any employee of the Company or its Affiliates nor (ii) directly or indirectly encourage any employee of the Company or its Affiliates to terminate employment with the Company or its Affiliates. Notwithstanding the foregoing, it shall not be deemed a violation of this subsection if a business which employs Executive hires or attempts to hire an employee of the Affiliates and Executive has no knowledge of, control over or involvement with such solicitation. (d) In the event that any of the provisions of this Section 5 should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable laws, then such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by law. 6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his employment he is or will be making use of, acquiring or adding to the Employer's and Company's confidential information which includes, but is not limited to, memoranda and other materials or records of a proprietary nature and records and policy matters relating to finance, personnel, management and operations. Therefore, in order to protect the Employer's and Company's confidential information and to protect other employees who depend on the Employer and Company for regular employment, the Executive agrees that he will not in any way utilize any of said confidential information except in connection with his employment by the Employer, and except in connection with the business of the Employer and Company he will not copy, reproduce or take with him the original or any copies of said confidential information and will not disclose any of said confidential information to anyone. 7. TERMINATION. ----------- (a) Death or Disability. If the Executive should become physically or mentally disabled and unable to perform his duties hereunder for a continuous period in excess of ninety (90) days (in the reasonable opinion of the Committee), or if the Executive should die 3 while an employee of the Employer, this Agreement and Executive's employment with the Employer shall immediately terminate. (b) Termination by the Employer for Cause. The following events shall create in the Employer a right to terminate the Executive's employment under this Agreement prior to the expiration of the Term: (i) the commission of fraud, embezzlement or theft by the Executive in connection with the Executive's duties; (ii) the intentional wrongful damage to property of the Company, the Employer and/or their Affiliates by the Executive; (iii) the intentional wrongful disclosure by the Executive of any secret process or confidential information of the Company, the Employer and/or their Affiliates; or (iv) the violation of the Executive's non-disclosure, non-solicitation and non- competition covenants set forth in Sections 5 and 6. In the event of such a Termination for cause pursuant to this Subsection, all of the obligations of the Employer and the Company under this Agreement shall immediately terminate. (c) Other Termination by Employer. In the event the Employer shall elect to terminate Executive's employment for any reason other than those specified in Subsection 7(a) or 7(b), it shall provide written notice of such termination to Executive. In the event that there occurs without the written consent of the Executive: (i) a change in the Executive's duties or responsibilities, or a change in the Executive's reporting relationships, either of which results in or reflects a diminution of the scope or importance of the Executive's duties and responsibilities; (ii) a reduction in the Executive's then current annual base salary (other than as part of reductions in annual base salary affecting the Employer's officers generally); (iii) a reduction in the level of benefits available or awarded under employee and officer benefit plans and programs, including, but not limited to annual and long-term incentive and stock-based plans and programs (other than as part of reductions in such benefit plans or programs affecting the Employer's officers generally); (iv) a relocation of Executive's primary employment location to a location which is more than 50 miles from his current location; or (v) the Company terminates the automatic renewal provision of this Agreement by providing Executive with 30 days' prior written notice as provided in Section 2 hereof then Executive may deliver written notice of termination of his employment to the Company within three months of such event (which notice shall be effective even if such three months expire after the end of the Term). In either case and subject to the execution and delivery by 4 Executive to the Company of the release described in Section 9 hereof, the Company shall provide Executive with severance compensation and benefits as follows: (t) Executive shall receive an amount equal to his then current base salary for two years, payable at intervals not less frequently than monthly over a period of two years following the end of the Term (such period of payment to be referred to herein as the "Severance Period"); (u) with respect to any participation rights in the Company's annual or long-term incentive plans which have been awarded to Executive prior to the end of the Term, Executive shall be entitled to receive a prorated award under any such plan, payable if and when awards are paid to other similarly positioned officers of the Employer, such proration to be determined by dividing the number of whole or partial months the Executive is employed during the incentive compensation performance period by the total number of months in the incentive compensation performance period; (v) with respect to Executive's stock options, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated, such options shall remain exercisable during the Severance Period (unless they shall expire earlier by their terms) and such options shall otherwise be treated in accordance with the terms of their respective grants; (w) the Executive's restricted stock shall be treated in accordance with the terms of the Restricted Stock Award Certificate applicable thereto; (x) the Executive's medical, dental and vision Benefits shall be continued on the same basis as offered to active salaried employees for the Severance Period or until such earlier time as the Executive becomes employed and eligible for such benefits under a plan of the new employer, and continuation coverage under COBRA shall commence at the end of the Severance Period; and (y) credit for vesting and benefit service under the Company's Supplemental Executive Retirement Plan shall be provided to Executive for the Severance Period; and (z) all other Benefits shall be paid or continued only to the extent the terms thereof provide for payment or continuation following the termination of employment. The foregoing shall be in lieu of all salary, bonuses or incentive or performance based compensation for the remainder of the Term. If Executive should die during the Severance Period, any remaining severance payments shall be made to Executive's surviving spouse or, if none, to his estate. 5 (d) Voluntary Termination. If during the Term the Executive should voluntarily terminate his employment with the Employer for any reason, including retirement, other than as described in Subsection 7(c) hereof, the obligations of the Employer and the Company under this Agreement shall terminate forthwith, other than obligations to (i) pay the Executive's base salary to the date of voluntary termination, (ii) pay all incentive compensation earned by the Executive for performance periods which are completed prior to the date of voluntary termination, at such times and on the same basis amounts as such incentive compensation becomes payable to other executives of the Employer and (iii) pay or make available to the Executive all Benefits which by their terms or under applicable law survive the voluntary termination of the Executive's employment; and the Executive shall remain bound by his non-disclosure, non- solicitation and non-competition covenants set forth in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding stock options and the vesting of the Executive's restricted stock shall be treated in accordance with the terms of their respective grants or awards, except that in the case of retirement on or after age 62, the Company will recommend to the Compensation and Stock Option Committee of the Board of Directors of the Company that the exercisability of Executive's outstanding stock options be accelerated. 8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in Subsection 7(c) to the contrary, the Executive may make an irrevocable written election, within 30 days of receipt or delivery of the written termination notice provided for in Subsection 7(c), that would extend the time period during which the base salary is to be paid under Subsection 7(c) for one additional year. The total amount of base salary that is to be paid under Subsection 7(c) will not be affected by this election. If such election is made, the term "Severance Period" will be deemed to refer to such extended payment period. 9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in Subsection 7(c) to the contrary and in consideration therefor, severance benefits thereunder shall only become payable by the Company if the Executive executes and delivers to the Company a General Release and Cooperation Agreement on or after the date of written notice of termination of Executive's employment and in substantially the form attached as Exhibit A hereto. 10. NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when deposited in the U.S. mail in a registered, postage prepaid envelope addressed: If to the Executive, at his address set forth below, and if to the Company, c/o Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook, Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at the same address. 11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The rights of the Executive and the rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon their respective heirs, personal representatives, successors and assigns. 6 12. MISCELLANEOUS. ------------- (a) This Agreement shall be subject to and governed by the laws of the State of Illinois. (b) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (c) This Agreement may not be modified except by an agreement in writing executed by the parties hereto. (d) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. (e) This Agreement shall supersede any and all prior employment agreements or understandings, written or oral, with Executive. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WMX TECHNOLOGIES, INC. By /s/ Dean L. Buntrock --------------------------------- Dean L. Buntrock, Chairman of the Board /s/ Donald R. Chappel ----------------------------------- Donald R. Chappel Address: 8120 Scenic Drive Willow Springs, IL 60480 7 EX-12 18 COMPUTATION OF RATIO OF EARNINGS Exhibit 12 WASTE MANAGEMENT, INC. Ratio of Earnings to Fixed Charges For the six years ended December 31, 1997 (Unaudited) (millions of dollars, except ratio)
Restated/(1)/ ------------------------------------------------------------------ 1992/(2)/ 1993/(3)/ 1994 1995/(4)(5)/ 1996/(6)/ 1997/(7)/ --------- --------- ------- ------------ --------- ------------ Income (Loss) From Continuing Operations Before Income Taxes, Undistributed Earnings from Affiliated Companies, Minority Interest, and Cumulative Effect of Accounting Changes................. $1,409.8 $ 587.1 $ 1,192.0 $ 954.5 $ 667.6 $ (1,000.2) Interest Expense....................... 315.8 388.3 456.1 507.8 498.0 472.9 Capitalized Interest................... (86.5) (100.6) (105.9) (43.9) (35.6) (26.0) One-Third of Rents Payable in the Next Year................... 44.7 48.5 53.9 56.8 51.4 46.8 -------- --------- --------- --------- --------- ---------- Income (Loss) From Continuing Operations Before Income Taxes, Undistributed Earnings from Affiliated Companies, Minority Interest, and Cumulative Effect of Accounting Changes, Plus Interest and One-Third of Rents.................. $1,683.8 $ 923.3 $ 1,596.1 $ 1,475.2 $ 1,181.4 $ (506.5) -------- --------- --------- --------- --------- ---------- Interest Expense........................ $ 315.8 $ 388.3 $ 456.1 $ 507.8 $ 498.0 $ 472.8 One-Third of Rents Payable in the Next Year........................... 44.7 48.5 53.9 56.8 51.4 46.8 -------- --------- --------- --------- --------- ---------- Interest Expenses plus One-Third of Rents............................ $ 360.5 $ 436.8 $ 510.0 $ 564.6 $ 549.4 $ 519.6 -------- --------- --------- --------- --------- ---------- Ratio of Earnings to Fixed Charges....................... 4.67 to 1 2.11 to 1 3.13 to 1 2.61 to 1 2.15 to 1 N/A Coverage Deficiency(8).................. - - - - - $ 1,026.1
- ------------ Notes: (1) As a result of a comprehensive review, begun in the third quarter of 1997 the Company determined that certain items of expense were incorrectly reported in previously issued financial statements. The Company has accordingly restated its financial results for the years 1992 through 1996. Stockholders' equity, at December 31, 1991, was restated from $4,133.1 million to 3,934.5 million. (See Note 2 to Consolidated Financial Statements). (2) The results for 1992 include a non-taxable gain of $351.1 million (before minority interest) resulting from the initial public offering of WM International, less $80.6 million of related exit costs, primarily to write down international assets not included in WM International, as well as special charges of $219.9 million (before tax and minority interest) primarily related to writedowns of the Company's medical waste business, CWM incinerators in Chicago, Illinois, and Tijuana, Mexico, a former subsidiary's investment in its asbestos abatement business, and certain costs incurred by the former subsidiary and CWM related to the formation of Rust. (3) The results for 1993 include a non-taxable gain of $15.1 million (before minority interest), relating to the issuance of shares by Rust, as well as a special asset revaluation and restructuring charge of $524.8 million (before tax and minority interest) recorded by CWM related primarily to a revaluation of its thermal treatment business, and a provision of approximately $14 million to adjust deferred income taxes resulting from the 1993 tax law change. (4) The results for 1995 include a special charge of $140.6 million (before tax) recorded by CWM, primarily to write off its investment in facilities and technologies that it abandoned because they do not meet customer service or performance objectives, and a special charge of $194.6 million (before tax and minority interest) recorded by WM International relating to actions it had decided to take to sell or otherwise dispose of non-core businesses and investments, as well as core businesses and investments in low potential markets, abandon certain hazardous waste treatment and processing technologies, and streamline its country management organization. (5) In 1995, the Rust Board of Directors approved a plan to sell or otherwise discontinue Rust's process engineering, construction, specialty contracting and similar lines of business. During 1996, the sale of the industrial process engineering and construction business, based in Birmingham, Alabama, was completed. In 1996, WTI sold its water process systems and equipment manufacturing businesses, and Rust sold its industrial scaffolding business. WTI entered into an agreement to sell its water and wastewater facility operations and privatization business and Rust began implementing plans to exit its remaining domestic and international engineering and consulting business. These businesses were classified as discontinued operations in the financial statements. The Rust disposition was not completed within one year, and accordingly in 1997 this business has been reclassified back into continuing operations, as operations held for sale, in accordance with generally accepted accounting principles. The unused portion ($87.0 million) of the previously recorded provision for loss on disposal was reversed in discontinued operations, and an impairment loss provision of $122.2 million was recognized in continuing operations. (6) The results for 1996 include special charges of $47.1 million (before tax and minority interest) related to WM International's sale of its investment in Wessex and a charge of $169.5 million (before tax and minority interest) to revalue its investments in France, Austria and Spain in contemplation of exiting these markets and to write off an investment in a hazardous waste disposal facility. Also in 1996, WMNA and CWM recorded special charges of $154.1 million (before tax) for reengineering their finance and administration functions and increasing reserves for certain litigation. (7) In 1997, the Company recorded a special charge of $41.6 million (pretax) for severance related to WMNA and WM International recorded a charge of $104.4 million (before tax and minority interest) to reflect costs of demobilization following the loss of the contract renewal for Buenos Aires, Argentina, divestiture or closure of underperforming businesses, and the writeoff of projects it decided to no longer pursue. Also in 1997, the Company recorded an asset impairment loss and restated prior year financial statements to retroactively recognize impairment losses in earlier years. See Note 16 to Consolidated Financial Statements. (8) Earnings are inadequate to cover fixed charges in 1997. Coverage deficiency represents the amount that earnings would have to increase ($1,026.1 million) to cover fixed charges and bring the ratio of earnings to fixed charges to one-to-one. EX-21 19 LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF WASTE MANAGEMENT, INC. -------------------------------------- The following is a list of all direct and indirect subsidiaries of the registrant as of March __, 1998. The state or other jurisdiction of incorporation or organization is indicated in parentheses following each subsidiary's name. The names of the divisions or other business units of each subsidiary are indented and listed below the relevant subsidiary's name. A & B Builders, Inc. (Texas) AB Gosta M. Skoglund (Sweden) Advanced Environmental Technical Services, L.L.C. (Delaware) Aero-Metric, Inc. (Wisconsin) Afvalstoffen Terminal Mocrdijk B.V. (Netherlands) Am.Eco S.r.l. (Italy) American Refuse Systems, Inc. (North Carolina) ARS - Waste Management of Central North Carolina ARS - Waste Management of Eastern North Carolina ARS - Waste Management of South Carolina Arabian Cleaning Enterprise, Ltd. (Saudi Arabia) Arkansas Valley Waste Limited Partnership (Illinois) Ark BV (Netherlands) Aseo S.A. (Argentina) Aspica s.r.l. (Italy) Auxiwaste SA (France) Avica S.r.l. (Italy) Baltimore Refuse Energy Systems Company, Limited Partnership Belpar Chemical Services, Inc. (West Virginia) B. Holmes (Graded Paper) Ltd. (United Kingdom) Bio-Energy Partners (Illinois) Brand Construction Services, Inc. (Delaware) Brand Marine Services, Inc. (Delaware) Bridgeport Resco Company, L.P. BRINI of North America, Inc. (Connecticut) Burton, Adams, Kemp & King, Inc. (North Carolina) California Acquisition Sub, Inc. (Delaware) Canada Crinc, Ltd. (New Brunswick) C. A. van Vliet Containertransport (Netherlands) C. A. van Vliet Techneik B.V. (Netherlands) Cedar Hammock Refuse Disposal Corporation (Florida) Waste Management of Manatee County Waste Management of Sarasota County Cemtech L.P. (Delaware) Cemtech Management, Inc. (Delaware) Ceriani Cave (Italy) Chamberlain Resources, Inc. (Arizona) Charlotte Landscaping and Sanitation Services, Inc. (Florida) Chemical Waste Management, Inc. (Delaware) Trade Waste Incineration Chemical Waste Management de Mexico, S.A. de C.V. (Mexico) Chemical Waste Management of Indiana, L.L.C. (Delaware) Chemical Waste Management of New Jersey, Inc. (New Jersey) Chemical Waste Management of Pennsylvania, Inc. (Delaware) Chemical Waste Management of the Northwest, Inc. (Washington) Chem-Nuclear Systems, L.L.C. (Delaware) CID MRRF, Inc. (Delaware) CNS Holdings, Inc. (Delaware) CNSI Sub, Inc. (Delaware) Commercial Sanitation Waste Partners, L.P. Compania Schreiber de Servicios (Spain) Container Recycling Alliance, L.P. (Delaware) Cord Industrienster Spykerisse BV (Netherlands) Cote D'Azur Assainissement (France) Cote D'Azur Entretien (France) CWM Cement, Inc. (Delaware) CWM Chemical Services, L.L.C. (Delaware) CWM Resource Recovery, Inc. (Ohio) Dan-Clean DK A/S (Denmark) Dankompost APS (Denmark) Dansk Miljotoilet A/S (Denmark) Darmstadt-Dieburg mbH Uwertstofferfassungs - Gesellschaft (Germany) Davies Bros (Waste) Ltd & Greenwood (DB) Containers Ltd. (England) Decker Disposal, Inc. (Florida) Deconditionnement, Maintenance Et Securite SA ("DMS") Demart Sarl (France) Deponie Bentheim Entsorgung Verwaltungsgeskellschaft mbH (Germany) Derichebourg Est (France) Derichebourg Hygiene (France) Derichebourg Ile De France (France) Derichebourg Midi Pyrenees (France) Derichebourg Nord (France) Derichebourg Quest (France) Derichebourg Sap Sarl (France) Derichebourg Sas SA (France) Derichebourg Services Sarl (France) Derichebourg Seta SA (France) Derichebourg Sud Quest Sarl (France) Derichebourg Var Sarl (France) 2 Diversified Scientific Services, Inc. (Tennessee) Downfield Services Ltd (United Kingdom) Drakesmore Development Ltd (United Kingdom) Durachem Limited Partnership (Maryland) Ecocentro s.p.a. (Italy) Eco-Consult s.r.l. (Italy) Ecol Italiana S.p.A. (Italy) Ecol S.A. (Argentina) Ecopi Srl (Italy) Ecoserve Limtied (Hong Kong) Ecoservizi S.p.A. (Italy) Edward Bros (Waste Paper) Ltd (United Kingdom) Elme Transport AB (Sweden) Eksjo Renhallning AB (Sweden) EMICA S.r.l. (Italy) Enviroland, Incorporated (Michigan) Environmental Waste Concepts, Ltd. (Illinois) Enviropace Limited (Hong Kong) ESG Entsorgungswirtschaft Soest GmbH (Germany) Esposito Srl (Italy) Eureco s.r.l. (Italy) EUV Entsorgungs-u. Verwertungs-GmbH (Germany) Fempack Limited (United Kingdom) Fineco Italiana S.r.l. (Italy) FJBCC Sarl (France) France Metal Recyclage (France) Franchi E Caserio S.r.l. (Italy) Fratelli Visconti S.r.l. (Italy) Gebr. Van Vliet B.V. (Netherlands) General Nuclear Systems, Inc. (Delaware) General Sanitation Corporation (Florida) Geopol S.A.R.L. (France) Georgia Waste Systems, Inc. (Georgia) B. J. Recycling and Disposal Facility Chapman Waste Disposal Rolling Hills Recycling and Disposal Facility Waste Management of Augusta - Aiken Waste Management of Atlanta Waste Management of Macon Gesam Gestione Servizi Ambientali S.p.A. (Italy) GES Gesellschaft zur Entsorgung von Sekundaerrohstoffen mbH (Germany) Gestion Des Rebuts D.M.P. Inc. (Quebec) WMI Mauricie Bois - Franc WMI Parc Hirondelles 3 Gestioni Ambientali (Italy) Glegg Industries, Inc. (Ontario) Grand Disposal Partners, L.P. (Illinois) Greenfield WMI Transfer Limited (Hong Kong) Greenhills Landfill Restoration Limited (Hong Kong) Green Valley Landfill Limited (Hong Kong) Gruning GmbH Wertstoffaufbereitung und Containerdienst (Germany) G.T.I. - Generale Trasporti Immondizie s.r.l. (Italy) Guam Resource Recovery Partners, L.P. Gulf Disposal, Inc. (Florida) Hall-ing Refuse Partners, L.P. (Illinois) Harris Disposal Service, Inc. (Florida) Harris Sanitation, Inc. (Florida) Hedco Landfill Limited (United Kingdom) Hollander Industriediensten Amsterdam BV (Netherlands) Ib Jorgensen Handelaktiesglskab (Denmark) Ichochema B.V. (Netherlands) Icopower B.V. (Netherlands) Icotech (Netherlands) Icova B.V. (Netherlands) Icova/Maltha Glascollecting B.V. (Netherlands) IGM S.p.A. (Italy) Infectious Waste Management Limited Partnership (Illinois) Ingenieria Urbana S.A. (Spain) Interport Paper Company Limited (United Kingdom) IPS Rochester Inc. (Delaware) IRA S.r.l. (Italy) Jaartsveld Groen En Milieu B.V. (Netherlands) JABB II, LLC Jydsk Miljoservice A/S (Denmark) Kahle Landfill, Inc. (Missouri) Keene Road Landfill, Inc. (Florida) Kennedy & Donkin Africa (Botswana) Partnership (Botswana) Kennedy & Donkin Africa (Malawi) Partnership (Malawi) Kennedy & Donkin Building Services Limited (United Kingdom) Kennedy & Donkin Generation & Industrial Limited (United Kingdom) Kennedy & Donkin Information Systems Ltd. (United Kingdom) Kennedy & Donkin International Ltd. (Hong Kong) Kennedy & Donkin Ltd. (United Kingdom) Kennedy & Donkin Malaysia Ltd. (Delaware) Kennedy & Donkin (Middle East) Limited (Cyprus) Kennedy & Donkin Overseas Ltd. (United Kingdom) 4 Kennedy & Donkin Power Ltd. (United Kingdom) Kennedy & Donkin Quality Engineering Limited (United Kingdom) Kennedy & Donkin Quality Inc. (Delaware) Kennedy & Donkin Systems Control Ltd. (United Kingdom) Kennedy & Donkin Transportation Ltd. (United Kingdom) Klok Containers BV (Netherlands) KNAB GmbH (Germany) KNAB Zwischenlager Verwaltungs- ung Betriebsgesellschaft mbH (Germany) Landskrona-Svalovs Renhallnigs AB (Sweden) LFG Production, L.P. LJA Land Development Engineering & Surveying Inc. (Delaware) Ljungby Renhallning & Transport AB (Sweden) Ljusne Renhallnings AB (Sweden) Loristan Services Limited (United Kingdom) LSS & Associates, Inc. (Arizona) Malardalens Tankservice AB (Sweden) M & O Waste Management Limited Partnership (Illinois) Mashor Reym Sdn Bhd (Malaysia) Mashr & Reym Charters Sdn Bhd (Brunei) Massachusetts Refusetech, Inc. (Delaware) Matrix Construction, Incorporated (Texas) Matrix Engineering, Inc. (Texas) Megastock Ltd. (United Kingdom) Meurthe Et Moselle Service Sarl (France) Middlemass Holdings Pty Limited (Australia) Middlemass Industrial Services Pty Limited (Australia) Midwest Transport, Inc. (Wisconsin) Milieu Express B.V. (Netherlands) Missouri Disposal Partners, L.P. (Illinois) Missouri Waste Management Partners L.P. Mountain Indemnity Insurance Company (Vermont) M.P.S. Mdical Package Service srl (Italy) M.S.T.S. Lizenz GmbH (Germany) M.S.T.S., Inc. (Delaware) Mull Entsorgung West GmbH & Co. KG (Germany) Mull Entsorgung West Verwaltungs GmbH (Germany) Nassjo Renhallining AB (Sweden) National Guaranty Insurance Company (Vermont) National Seal Company (Illinois) National Service Cleaning Corp. (Connecticut) National Surface Cleaning, Inc. (New Hampshire) New England CR Inc. (Massachusetts) New York Organic Fertilizer Company 5 NH/VT Energy Recovery Corporation (New Hampshire) Nice Nettooyage Sarl (France) Nichols Sanitation, Inc. (Florida) Lake Placid Sanitation North Broward County Resource Recovery Project, Inc. (Florida) North Broward Holdings Inc. (Delaware) Norwaste Limited (United Kingdom) NSC Corporation (Massachusetts) NSC Energy Services, Inc. (Delaware) NSC Sales Corp. (Virgin Islands) NSC Specialty Coatings, Inc. (Delaware) NYOFCO Holdings Inc. (Delaware) Ocean Combustion Service, B.V. (Netherlands) Oil & Solvent Process Company (California) Olshan Demolishing Company, Inc. (Texas) Olshan Demolishing Management, Inc. (Delaware) O.V.E.R. s.r.l. (Italy) Pacific Waste Management Holdings Pty. Limited. (Australia) Pacific Waste Management Pte. Ltd. (Singapore) Pacific Waste Management Pty Limited (Australia) Pacific Waste Management Limited (Hong Kong) Pacific Waste Management Ltd. (New Zealand) Park Services, Inc. (Delaware) Penn-Warner Club, Inc. (Delaware) Pearl Delta WMI Limited (Hong Kong) Photodigit Ltd. (United Kingdom) Pilmuir Waste Disposal Limited (United Kingdom) P.I.T.E.F. S.r.l. (Italy) Plant Control Services, Inc. (Texas) PPK Limited (Australia) Practical Recycling Systems Ltd. (United Kingdom) PT Prtasada Painunah Limbah Industrie (Indonesia) PT Waste Management Indonesia (Indonesia) Pullman Chimney of Canada Ltd. (Canada) Pullman-Hoffman, Inc. (Ohio) Pullman Power Products Corporation (Delaware) Pullman Power Products International Corporation (Delaware) Pullman Power Products of Canada Limited (Canada) Pullman Power Products of Ohio, Inc. (Ohio) Pullman Torkelson Utility Fuels Company (Delaware) PWM Affiliates Superannuation Fund Pty Limited (Australia) Questquill Limited (United Kingdom) R A Johnson (Haulage) Ltd. (England) Rancho Estates Properties, Inc. (Delaware) RCC Fiber Company, Inc. (Delaware) Recupieri Piemontesi srl (Italy) Refuse Energy Systems Company, J.V. Refuse Services, Inc. (Florida) 6 Clay County Recycling and Disposal Facility Jacksonville Waste Control Lake City Waste Control Sunbeam Recycling and Disposal Facility Trinity Recycling and Disposal Facility Waste Management of Clay County Waste Management of Jacksonville Waste Management of Putnam County Regin B.V. (Netherlands) REI Holdings, Inc. (Delaware) Renovadan Miljoservice A/S (Denmark) Rent-a-Weld (Wirral) Ltd. (United Kingdom) Resco Holdings Inc. (Delaware) Residuos Industriales Multiquim, S.A. de C.V. (Mexico) Reuter Recycling of Florida, Inc. (Florida) Reym B.V. (Netherlands) Reym GmbH (Netherlands) RGH Recycling GmbH (Germany) Ri-Eco S.r.l. (Italy) Ridge Generating Station Limited Partnership RIH Inc. (Delaware) Riley Energy Systems of Lisbon Corporation (Delaware) Riley Energy Systems of Lisbon Connecticut Corp. (Connecticut) RIS Risk Management Inc. (Delaware) RRT Design & Construction Corp. (Delaware) RRT Empire of Mid-Connecticut, Inc. (Connecticut) RRT Empire of Monroe County, Inc. (New York) RRT Empire Returns Corporation (New York) RRT Land Corp. (New York) RRT of New Jersey, Inc. (New Jersey) RRT of Pennsylvania, Inc. (Pennsylvania) RRT of Philadelphia, Inc. (Delaware) RRT of Springfield, Massachusetts, Inc. (Massachusetts) RRT Plastics Corp. (Delaware) RRT Plastics of N.J., Inc. (New Jersey) RRT-Recycle America, Inc. (Delaware) Rudolf Beck & Sohne Aktiengesellschaft (Austria) Rust Architecture Inc. (Wisconsin) Rust Architecture & Geology of North Carolina, P.C. (North Carolina) Rust Associates Ltd. (Canada) Rust Capital Corporation (Delaware) Rust China Ltd. (Delaware) Rust Engineering & Construction Inc. (Delaware) Rust Engineering do Brasil Construcoes Ltda. (Brasil) 7 Rust Environment & Infrastructure Inc. (Wisconsin) Rust Environment & Infrastructure of Canada Inc. (Alberta) Rust Environment & Infrastructure of Michigan Inc. (Michigan) Rust Environment & Infrastructure of New York Inc. (New York) Rust Environment & Infrastructure of North Carolina Inc. (North Carolina) Rust Environment & Infrastructure of Ohio Inc. (Ohio) Rust Environment & Infrastructure, P.E., ARCH. L.S., P.C. (New York) Rust Federal Environmental Services Inc. (Delaware) Rust Germany GmbH (Germany) Rust Industrial Cleaning Inc. (Delaware) Rust Industrial Services Inc. (Delaware) Rust International Holdings Inc. (Delaware) Rust International Inc. (Delaware) Rust International of North Carolina, P.C. (North Carolina) Rust JRP Ltd (Hong Kong) Rust JRP Pte Ltd (Singapore) Rust Limited (United Kingdom) Rust MRM Limited (United Kingdom) Rust North America Holdings Inc. (Delaware) Rust Overseas B.V. (Netherlands) Rust PPK Pty Ltd. (New South Wales, Australia) Rust Remedial Services Holding Company Inc. (Delaware) Rust Servicios Ambientales e Infraestructura, S.A. de C.V. (Mexico) Rust Sweden Holdings A B (Sweden) Rust Utility Services Inc. (Delaware) Rust VA Projekt AB (Sweden) S & B Waste Management Partners, Ltd. Sacagica s.r.l. (Italy) Saframa S.A. (Argentina) Sakab Batteri B (Sweden) Salutec, S.A. (Argentina) Saneanientos Sellberg S.A. (Spain) S.A.P. s.p.a. (Italy) S.A.R.I. S.p.A. (Italy) S.A.S.P.I S.p.A. (Italy) SCA Services, Inc. (Delaware) Mohawk Valley Sanitary Landfill S.C.E.A. Du Bosnier (France) SC Holdings, Inc. (Pennsylvania) L & D Landfill Sanitary Landfill Sengelose Kompost A/S (Denmark) SERPOL (France) 8 Service de Rehabilitation des Dechets (S.R.D.) (France) Servicios Especiales de Recoleccion de Basura, S.A. de C.V. (Mexico) Servicios Integrales de Protection Ambiental, S.A. de C.V. (Mexico) Servizi Piemonte S.r.l. (Italy) SES Bridgeport, L.L.C. SES Connecticut Inc. (Delaware) SES Seattle Inc. (Delaware) Shereg Schleswig Holsteinische Entsorgung u. Recycling GmbH (Germany) Skaraborgs Engergi - Och Mijo AB (Sweden) Sidel (France) Signal Capital Sherman Station Inc. (Delaware) Signal Own-And-Operate Inc. (Delaware) Signal RESCO, Inc. (Delaware) S.I.R.T.I.S. s.r.l. (Italy) Sir-Mas (Italy) Sistemas Para Control de Desechos Solidos, S.A. de C.V. (Mexico) SMC Smaltimenti Controllati S.p.a. (Italy) SNC Rust Canada Limited (Canada) S.N.U. Di Esposito Carlo & C. (Italy) Soaring Vista Properties, Inc. Soaring Vista Properties, Inc. (Maryland) Societ A. Grenet SARL (France) Societe Civile Immobiliere Les Amandiers (France) Societe D'Amenagement Et D'Exploitation De Terrains Agricoles (France) Societe D'Economie Mixte De Cabourg Et De Sa Region (SEMCAR)(France) Societe D'Etudes et de realisation D'Amenagements De Terrains (France) Societe Europeenne de Ferrailles et de Machefers (France) Societe Parisienne D'Amenagement De Terrains (SPAT) (France) Sogea S.r.l. (Italy) South Broward County Resource Recovery Project, Inc. (Florida) South Broward Holdings Inc. (Delaware) South China WMI Transfer Limited (Hong Kong) S.P.E.M. S.p.A. (Italy) Suburban Sanitation, Ltd. Svensk Avfallskonvertering AB (Sweden) S. V. Farming Corp. (New Jersey) Swindell-Dressler Energy Supply Company (Delaware) Swindell-Dressler Leasing Company (Delaware) Sylvans Kemiteknik AB (Sweden) Sylvan & Qvibelius AB (Sweden) Techim S.r.l. (Italy) Terra Quest - Mohave, Inc. (Arizona) The Rust Engineering Company Limited (Canada) The Rust Engineering Company of Michigan (Michigan) 9 The Woodlands of Van Buren, Inc. (Delaware) Tijuana Equilibrio Ecologico, S.A. de C.V. (Mexico) TLS Waste Services, L.P. Tomoka Refuse, L.P. Town and Country Refuse, Inc. (Florida) Port-O-Let Trail Ridge Landfill, Inc. (Delaware) Transportbedrijf Van Bliet B.V. (Nederlands) Tra.S.E. s.p.a. (Italy) TVG Transport u. Verwertungsgesellschaft (Germany) Tyneside Waste Paper Co Ltd. (United Kingdom) UK Waste Management Holdings (United Kingdom) UK Waste Management Limited (United Kingdom) United Waste Partners, L.P. (Illinois) Vanerborgs Stadbudsbyra AB (Sweden) Van Vliet Recycling B.V. (Netherlands) Van Vliet Speciaal Afval B.V. (Netherlands) VAP Project AB (Sweden) VE-Part S.r.l. (Italy) Vliko B.V. (Netherlands) Warner Company (Delaware) Warner East Warner West Washington Waste Hauling & Recycling, Inc. (Delaware) Mountain Group - Northwest Office Port-O-Let Recycle America Valley Topsoil Waste Management - Northwest Waste Management of Ellensburg Waste Management of Greater Wenatchee Waste Management of Kennewick Waste Management of Seattle Waste Management of Spokane Waste Management of Yakima Waste Management - SnoKing Waste Management - Rainier WMI Services Washington Waste Systems, Inc. (Washington) Wass Entreprenad AB (Sweden) Waste Away Group, Inc. (Alabama) Environmental Waste Systems LaGrange Transfer Station 10 Montgomery Transfer Station Phenix City Transfer Springhill Landfill Waste Management of Alabama - Central Waste Management of Alabama - East Waste Management of Alabama - North Waste Management of Alabama - South Waste Clearance (Holdings) Limited (United Kingdom) Waste Handling Company (W.H.C.) B.V. (Holland) Waste Management Asia B.V. (Netherlands) Waste Management Czechoslovakia s.r.o. (Czechoslovakia) Waste Management Collection and Recycling, Inc. (California) American Waste Systems Empire Waste Management Great Western Reclamation Recycle America SAWDCO Collection Sunset Environmental Valley Waste Management Waste Management of Inland Valley Waste Management of Sacramento Waste Management of San Gabriel/Pomona Valley Waste Management of Santa Cruz County Waste Management of the Central Valley Waste Management of Woodland Waste Management de Mexico, S.A. de C.V. (Mexico) Waste Management Development B.V. (Netherlands) Waste Management Disposal Services of Arizona, Inc. (Delaware) Waste Management Disposal Services of Colorado, Inc. (Colorado) Central Weld Sanitary Landfill Colorado Springs Recycling and Disposal Facility County Line Recylcing and Disposal Facility Denver/Arapahoe Disposal Site East Weld Sanitary Landfill North Weld Sanitary Landfill Waste Management of Colorado - Landfill Division Waste Management Disposal Services of Maine, Inc. (Maine) Waste Management Disposal Services of Maine - Crossroads Waste Management Disposal Services of Maryland, Inc. (Maryland) Sandy Hill Waste Management Disposal Services of Massachusetts, Inc. (Massachusetts) Waste Management Disposal Services of Oregon, Inc. (Delaware) Columbia Ridge Landfill and Recycling Center 11 Oregon Waste Systems Waste Management Disposal Services of Pennsylvania, Inc. (Pennsylvania) Burlington County Resource Recovery Facilities Complex G.R.O.W.S. Landfill Meadowlands Baler Facility Meadowland Recycling and Disposal Facility Northwest Sanitary Landfill Pottstown Landfill and Recycling Center Waste Management Disposal Services of Virginia, Inc. (Delaware) Middle Peninsula Landfill and Recycling Facility Waste Management Disposal Services of Washington, Inc. (Delaware) Greater Wenatchee Regional Landfill and Recycling Center Waste Management of Washington Waste Management Do Brasil, Ltda Empreendimentos Ambientals (Brazil) Waste Management Environmental Services B.V. (Netherlands) Waste Management Espana S.A. (Spain) Waste Management Federal Services, Inc. (Delaware) Waste Management Federal Services of Colorado, Inc. (Delaware) Waste Management Federal Services of Hanford, Inc. (Delaware) Waste Management Federal Services of Idaho, Inc. (Delaware) Waste Management France (Holdings) (France) Waste Management France S.A. (France) Waste Management France S.A.R.L. (France) Waste Management Geotech, Inc. (Delaware) Waste Management Greece Anonymous Commercial Company (Greece) Waste Management Hausmullentsorgung GmbH (Austria) Waste Management Holding Gesellschaft mbH (Austria) Waste Management, Inc. (Illinois) Waste Management Inc. of Florida (Florida) Atlantic Waste Management Broward Disposal Central Disposal Environmental Waste Systems Florida Environmental Waste Florida Disposal Florida Resource Management Gulf Coast Recycling and Disposal Facility Hillsborough Heights Recycling and Disposal Facility Medley Landfill & Recycling Center Rubbish Gobbler Southeast Recycling and Disposal Facility Southern Sanitation Service South Florida Service Center United Sanitation Recycling and Disposal Facility 12 Waste Management of Bay County Waste Management of Collier County Waste Management of Dade County Waste Management of Monroe County Waste Management of Pasco County Waste Management of Tampa Waste Management, Inc. of Tennessee (Tennessee) Chestnut Ridge Landfill and Recycling Center Waste Management of Tennessee - Clarksville Waste Management of Tennessee - Jackson Waste Management of Tennessee - Knoxville Waste Management of Tennessee - Memphis Waste Management of Tennessee - Nashville West Camden Sanitary Landfill Waste Management Industrial Services, Inc. (Delaware) Waste Management International, Inc. (Delaware) Waste Management International, Ltd. (Bermuda) Waste Management International plc (United Kingdom) Waste Management International Services Limited (United Kingdom) Waste Management International Y CIA (Chile) Waste Management Italia S.r.l. (Italy) Waste Management (Land) Limited (United Kingdom) Waste Management Limited (United Kingdom) Waste Management Mexico Services, S.A. de C.V. (Mexico) Waste Management Nederland B.V. (Netherlands) Waste Management N.Z. Ltd. (New Zealand) Waste Management of Alabama, Inc. (Alabama) Recycle America - Birmingham Valley View Sanitary Landfill Waste Management of Alabama - Central Waste Management of Alabama - East Waste Management of Alabama - Mobile Waste Management of Alabama - North Waste Management of Alabama - Northwest Waste Management of Alabama - South Waste Management of Alameda County, Inc. (California) Altamont Landfill and Resource Recovery Facility Central Division Davis Street Station for Material Recovery and Transfer East Bay Disposal Co. Livermore Dublin Disposal Northern Division Recycle America of Northern California Southern Division 13 Sunnyvale Recycling and Disposal Facility Tri-Cities Recycling and Disposal Facility Waste Management of Arizona, Inc. (California) Asset Recovery Group Butterfield Station Recycling and Disposal Facility Industrial Services Division Sky Harbor Regional Transfer & Recycling Center 27th Avenue Recycling and Disposal Facility Waste Management of Northern Arizona Waste Management of Phoenix - North Waste Management of Phoenix - Recycle America Waste Management of Phoenix - South Waste Management of Tucson Waste Management of Tucson - Recycle America Waste Management of Verde Valley WMI Services - Phoenix Waste Management of Arkansas, Inc. (Delaware) Brushy Island Recycling and Disposal Facility Jefferson County Recylcing and Disposal Facility Shannon Road Recycling and Disposal Facility Union County Recycling and Disposal Facility Waste Management of Arkansas North Waste Management of Arkansas South Waste Management of California, Inc. (California) Kirby Canyon Recycling and Disposal Facility Lancaster Recycling and Disposal Facility Simi Valley Recycling and Disposal Facility Universal Refuse Removal of El Cajon Waste Management of Fresno County Waste Management of Lancaster Waste Management of Los Angeles Waste Management of Los Angeles - South Waste Management of North County Waste Management of San Diego Waste Management of San Fernando Valley Waste Management of Santa Clara County Waste Management of the Desert WMI Services Waste Management of Carolinas, Inc. (North Carolina) Piedmont Landfill and Recycling Center Waste Management of Asheville Waste Management of Carolinas Waste Management of Central Carolina Waste Management of Eastern Carolina 14 Waste Management of the Piedmont Waste Management of Raleigh/Durham Waste Management of Wilmington Waste Management of the Triad Waste Management of Central Florida, Inc. (Florida) Alachua Waste Management Waste Management of Colorado, Inc. (Colorado) Canon City Disposal and Recycling Colorado Springs Transfer Station Englewood Transfer Station Port-O-Let Waste Management of Aurora Waste Management of Colorado - Aurora Facility Waste Management of Colorado - North Facility Waste Management of Colorado - Recycle Facility Waste Management of Colorado - South Facility Waste Management of Colorado Springs - Recycle America Facility Waste Management of Denver Waste Management of Denver - Recycle America Processing Facility Waste Management of Northern Colorado Waste Management of Pueblo Waste Management of the Rockies WMI Medical Services Waste Management of Connecticut, Inc. (Connecticut) New Milford Recycling and Disposal Facility Waste Management of Connecticut - New Milford Waste Management of Connecticut - Norwalk Waste Management of Connecticut - Wallingford Waste Management of Delaware, Inc. (Delaware) Waste Management of Delaware - Wilmington Waste Management of Delmarva Waste Management of Five Oaks Recycling and Disposal Facility, Inc. (Delaware) Waste Management of Florida Holding Company, Inc. (Delaware) Waste Management of Florida, Inc. (Delaware) Waste Management of Georgia, Inc. (Georgia) Live Oak Landfill Superior Sanitation Landfill Waste Management of Savannah Waste Management of the Tennessee Valley Waste Management of Grass Valley, Inc. (Delaware) Waste Management of Hawaii, Inc. (Hawaii) Waimanalo Gulch Recycling and Disposal Facility West Hawaii Landfill Waste Management of Idaho, Inc. (Idaho) 15 Waste Management of Illinois, Inc. (Delaware) Banner/Western Disposal Service Chain of Rocks Recycling and Disposal Facility CID DeKalb County Recycling and Disposal Facility Durbin Paper Stock Company Five Oaks Recycling and Disposal Facility Greene Valley Recycling and Disposal Facility Kankakee Recycling and Disposal Facility Laraway Recycling and Disposal Facility McLean County Disposal and Recycling Services Milam Recycling and Disposal Facility Prairie Hill Recycling and Disposal Facility Settler's Hill Recycling and Disposal Facility Tazewell Recycling and Disposal Facility TCD Services United Waste Systems Waste Management - Metro Waste Management - North Waste Management - Northwest Waste Management - West Waste Management of Metro East Waste Management of Peoria Waste Management of the South Suburbs Wheatland Prairie Recycling and Disposal Facility Woodland Recycling and Disposal Facility Waste Management of Indiana Holdings One, Inc. (Delaware) Waste Management of Indiana Holdings Two, Inc. (Delaware) Waste Management of Indiana, L.L.C. (Delaware) Deercroft Recycling and Disposal Facility Glenwood Ridge Recycling and Disposal Facility Oak Ridge Recycling and Disposal Facility Prairie View Recycling and Disposal Facility Superior Waste Systems Twin Bridges Recycling and Disposal Facility Waste Management of Central Indiana Waste Management of Evansville Waste Management of Fort Wayne Waste Management of Indianapolis Waste Management of Indianapolis - Hamilton County Transfer Waste Management of Lafayette Waste Management of Muncie Waste Management of Northwest Indiana Waste Management of Warsaw 16 Wheeler Recycling and Disposal Facility Waste Management of Iowa, Inc. (Iowa) Solid Waste Systems Waste Management of Kansas, Inc. (Kansas) Forest View Recycling and Disposal Facility Rolling Meadows Recycling & Disposal Facility Solid Waste Systems Topeka Waste Systems Waste Management of Wichita Waste Management - Refuse Control Waste Management of Kentucky Holdings, Inc. (Delaware) Waste Management of Kentucky, L.L.C. (Delaware) Blue Ridge Recycling and Disposal Facility Kramer Lane Recycling and Disposal Facility Lexington Recycling and Disposal Facility Outer Loop Recycling and Disposal Facility Waste Management of Kentucky - Gray Disposal Waste Management of Kentucky - Lexington Waste Management of Kentucky - Louisville Waste Management of Kentucky - Madison Disposal Waste Management of Kentucky - Stevens Dispos-All Service Waste Management of Leon County, Inc. (Florida) Springhill Regional Sanitary Landfill Waste Management of Louisiana Holdings One, Inc. (Delaware) Waste Management of Louisiana Holdings Two, Inc. (Delaware) Waste Management of Louisiana, L.L.C. (Delaware) Acadiana Recycling and Disposal Facility Acadia Parish Sanitary Landfill Alexandria Recycling and Disposal Facility American Waste and Pollution Control-Algiers Residential American Waste and Pollution Control-Eastern New Orleans Residential American Waste and Pollution Control-Kelvin Recycling and Disposal Facility American Waste and Pollution Control-St. Bernard Parish Residential American Waste and Pollution Control-Slidell American Waste and Pollution Control-West Jefferson Residential Jefferson Davis Recycling and Disposal Facility Kelvin Recycling and Disposal Facility Magnolia Recycling and Disposal Facility Pelican Recycling and Disposal Facility Pelican State Environmental Services Waste Management of Acadiana Waste Management of Baton Rouge Waste Management of the Bayous Waste Management of Central Louisiana 17 Waste Management of Lake Charles Waste Management of New Orleans Waste Management of Northeast Louisiana Waste Management of Northwest Louisiana Waste Management of the Pines Waste Management of St. Landry Waste Management of St. Tammany Waste Management of South Louisiana Waste Management Services of Louisiana Woodside Recycling and Disposal Facility Waste Management of Maine, Inc. (Maine) Waste Management of Maine - Portland Waste Management of Maryland, Inc. (Maryland) Mobile Offices of Maryland Waste Management of Cambridge Waste Management of Greater Washington Waste Management of Maryland - Baltimore Waste Management of Southern Maryland WMI Medical Services WMI Services of Maryland Waste Management of Massachusetts, Inc. (Massachusetts) Somerville Transfer Station Waste Management - Container Services Waste Management of Boston - North Waste Management of Central Massachusetts Waste Management of Massachusetts - Gloucester Waste Management of Massachusetts - South Shore Waste Management of Michigan, Inc. (Michigan) Autumn Hills Recycling and Disposal Facility Cedar Ridge Recycling and Disposal Facility Eagle Valley Recycling and Disposal Facility Efficient Sanitation Northern Oaks Recycling and Disposal Facility Recycle America - Metro Detroit Tri-City Recycling and Disposal Facility Valley Rubbish Venice Park Recycling and Disposal Facility Waste Management of Detroit - Residential Waste Management - Metro Detroit Waste Management of Michigan - Alma Transfer and Recycling Facility Waste Management of Michigan - Area Disposal Waste Management of Michigan - Burr Oak Waste Management of Michigan - Central Waste Management of Michigan - Detroit East Recycling Transfer Facility 18 Waste Management of Michigan - Detroit Transfer and Recycling Facility Waste Management of Michigan - Detroit MRF/Transfer Waste Management of Michigan - Dowagiac Transfer and Recycling Facility Waste Management of Michigan - Holland Waste Management of Michigan - Holland Transfer and Recycling Facility Waste Management of Michigan - Mideast Waste Management of Michigan - Mideast/Port Huron Waste Management of Michigan - Midwest Waste Management of Michigan - Northern Waste Management of Michigan - Recycle America/Grand Rapids Waste Management of Michigan - Southwest Waste Management of Michigan - Western Westside Recycling and Disposal Facility WMI Services - Eastern Michigan/Northwest Ohio Woodland Meadows Recycling and Disposal Facility Waste Management of Minnesota, Inc. (Minnesota) Anoka Recycling and Disposal Facility Dietman Sanitation & Recycling Northern Waste Systems Recycle America of Minnesota Sun Prairie Recycling and Disposal Facility Waste Management - Blaine Waste Management - LeSueur Waste Management - Rochester Waste Management - Savage Waste Management - St. Cloud Waste Management of Hastings WMI Services of Minnesota Waste Management of Mississippi, Inc. (Mississippi) Pecan Grove Landfill Pine Ridge Landfill Plantation Oaks Landfill Prairie Bluff Landfill Waste Management of Central Mississippi - Jackson Waste Management of Central Mississippi - Kosciusko Waste Management of Central Mississippi - Meridian Waste Management of Central Mississippi - Vicksburg Waste Management of North Mississippi - Clarksdale Waste Management of North Mississippi - Columbus Waste Management of North Mississippi - Corinth Waste Management of North Mississippi - Greenville Waste Management of North Mississippi - Grenada Waste Management of North Mississippi - Tupelo Waste Management of South Mississippi - Gulfport 19 Waste Management of South Mississippi - McComb Waste Management of South Mississippi - Natchez Waste Management of South Mississippi - Pine Belt Waste Management of Missouri, Inc. (Delaware) Black Oak Recycling and Disposal Facility Environmental Industries Kahle Recycling and Disposal Facility Meramec Hauling Pezold Hauling Rumble Recycling and Disposal Facility Waste Management of Kansas City Waste Management of Springfield Waste Management of St. Louis Waste Management of the Ozarks Waste Management of Montana, Inc. (Delaware) Waste Management of Great Falls Waste Management of Nebraska, Inc. (Delaware) Douglas County Recycling and Disposal Facility Waste Management of New Hampshire, Inc. (Connecticut) Turnkey Recycling and Environmental Enterprises Waste Management of New Hampshire - Londonderry Waste Management of New Hampshire - New Hampton Waste Management of New Hampshire - Rochester Waste Management of New Hampshire - Peterborough Waste Management of New Jersey, Inc. (Delaware) Avenue A Transfer & Recycling Center Middle Martee Landfill Recycle America Waste Management of Camden Waste Management of New Mexico, Inc. (New Mexico) Hobbs Recycling and Disposal Facility Rio Rancho Recycling and Disposal Facility San Juan County Recycling and Disposal Facility Waste Management of Albuquerque - Recycle America Processing Facility Waste Management of Four Corners Waste Management of Southeast New Mexico Waste Management of the Southwest Waste Management of New York, L.L.C. High Acres Landfill and Recycling Facility Waste Management of Eastern New York Waste Management of Hudson Valley Waste Management of New York - Albion Waste Management of New York - Buffalo Waste Management of New York - Rochester 20 Waste Management of New York - Syracuse Waste Management of New York - Utica Waste Management of Southwestern New York WMI Services of New York Waste Management of North Dakota, Inc. (Delaware) Northern Waste Systems Waste Management of Ohio, Inc. (Delaware) Countywide Recycling and Disposal Facility ELDA Recycling and Disposal Facility Evergreen Recycling and Disposal Facility Herrick Valley Recycling and Disposal Facility Lake County Recycling and Disposal Facility Pinnacle Road Recycling and Disposal Facility Seneca East Recycling and Disposal Facility Stony Hollow Recycling and Disposal Facility Suburban Recycling and Disposal Facility Waste Management of Ohio - Akron Waste Management of Ohio - Blaylock Waste Management of Ohio - Cleveland Transfer and Recycling Facility Waste Management of Ohio - Cleveland West Waste Management of Ohio - Columbus Waste Management of Ohio - Columbus Transfer and Recycling Facility Waste Management of Ohio - Findlay Waste Management of Ohio - IWD Waste Management of Ohio - Koogler Waste Management of Ohio - Lima Waste Management of Ohio - Lima Transfer and Recycling Facility Waste Management of Ohio - M & M Sanitation Waste Management of Ohio - Newark Waste Management of Ohio - Northwest Waste Management of Ohio - Recycle America/Toledo Waste Management of Ohio - S.E.M. Waste Management of Ohio - Shelby County Transfer Waste Management of Ohio - Suburban Sanitation Service Waste Management of Ohio - Western Reserve Waste Management of Ohio - Youngstown WMI Services - Ohio Waste Management of Oklahoma, Inc. (Oklahoma) East Oak Recycling and Disposal Facility Muskogee Recycling and Disposal Facility Quarry Recycling and Disposal Facility Waste Management of Oklahoma City Waste Management of Tulsa Waste Management of Oregon, Inc. (Oregon) 21 Metro South Transfer Station Port-O-Let Waste Management of Vancouver U.S.A. Zero Garbage Waste Management of Orlando, Inc. (Florida) Waste Management of Pennsylvania, Inc. (Pennsylvania) Alderfer & Frank Lake View Landfill (Northern) Mid-Atlantic Recycling and Distribution Center Milton Grove Demolition and Tire Recycling Philadelphia Transfer and Recycling Station Pottsville Transfer Station Recycle America River Road Landfill Steel Valley Transfer Station The Forge Recycling and Resource Recovery Center Tully Town Resource Recovery Facility Waste Automation Waste Management - Allentown Waste Management - Dixon Recycling Waste Management of Camp Hill Waste Management of Delaware Valley - North Waste Management of Delaware Valley - South Waste Management of Erie Waste Management of Greater Lancaster Waste Management of Greencastle Waste Management of Greenville Waste Management of Indian Valley Waste Management of Laurel Valley Waste Management of Northeast Pennsylvania Waste Management of Pennsylvania - Hauling Waste Management of Pittsburgh Waste Management of Pottstown Waste Management of Wilkinsburg WMI Medical Services of New Jersey WMI Medical Services of New York WMI Medical Services of Pennsylvania WMI Medical Services of West Virginia Waste Management of Pinellas County, Inc. (Florida) Suncoast Recycle America Center Waste Management of Rhode Island, Inc. (Delaware) Waste Management of Rhode Island - Newport Waste Management of South Carolina, Inc. (South Carolina) Charleston Landfill 22 Hickory Hill Sanitary Landfill Palmetto Landfill Sandy Pines Landfill Waste Management of South Carolina Waste Management of the Low Country Waste Management of South Dakota, Inc. (South Dakota) Waste Management of Sioux Falls Waste Management of the Black Hills Waste Management of Texas, Inc. (Texas) All Waste Paper Recycling Atascocita Recycling and Disposal Facility Austin Community Disposal Co. Bluebonnet Recycling and Disposal Facility Centex Waste Management Coastal Plains Recycling and Disposal Facility Comal County Recycling and Disposal Facility Covell Gardens Landfill DFW Recycling and Disposal Facility Eastside Recycling and Disposal Facility Fogle Garbage Service Garbage Gobbler Hillside Recycling and Disposal Facility Kingwood Garbage Service Lacy Lakeview Recycling and Disposal Facility Longhorn Disposal Northwest Transfer Station Oak Hill Recycling and Disposal Facility Pecan Prairie Recycling and Disposal Facility Recycle America - Dallas Bulk Grade Division Recycle America - Dallas High Grade Division S & B Trucking & Sanitation Security Landfill Skyline Recycling and Disposal Facility Texas Waste Management Waste Management of Fort Worth Recycling and Disposal Facility Waste Management - Golden Triangle Waste Management of Dallas - East Waste Management of Dallas Recycle America Processing Facility Waste Management of Dallas - West Waste Management of East Texas Waste Management of Fort Worth Waste Management of Fort Worth Recylcing and Disposal Facility Waste Management of Houston Waste Management of Northeast Texas 23 Waste Management of Southeast Texas Waste Management of Southeast Texas - Angleton Waste Management of Southeast Texas - Dickinson Waste Management of South Texas Waste Management of West Texas Westside Recycling and Disposal Facility Williamson County Recycling and Disposal Facility WMI Services of Dallas WMI Services of North Texas WMI Services of Texas Waste Management of Utah, Inc. (Utah) Waste Management of Northern Utah Reliable Waste Systems Waste Management of Salt Lake Waste Management of Virginia, Inc. (Virginia) Manassas Transfer Station Waste Management of Hampton Roads Waste Management of Northern Virginia Waste Management of Northern Virginia - Crown Disposal Waste Management of the Outer Banks Waste Management of Richmond/Fiber Fuels Waste Management of Richmond Port-O-let Waste Management of Richmond Recycle America Waste Management of Virginia - Blue Ridge WMI Services of Hampton Roads WMI Services of Virginia Waste Management of West Virginia, Inc. (Delaware) Waste Management of Shenandoah Valley Waste Management of Wisconsin, Inc. (Wisconsin) Best Disposal Mallard Ridge Recycling and Disposal Facility Metro/Stone Ridge Recycling and Disposal Facility Orchard Ridge Recycling and Disposal Facility Parkview Recycling and Disposal Facility Pheasant Run Recycling and Disposal Facility Ridgeview Recycling and Disposal Facility Timberline Trail Recycling and Disposal Facility UWS Transportation Valley Trail Recycling and Disposal Facility Waste Management - Northeast Wisconsin Waste Management of Fox Valley Waste Management of La Crosse Waste Management of Madison Waste Management of Milwaukee 24 Waste Management of Muskego Waste Management of Rockford Waste Management of Wisconsin - East Waste Management Southwest Waste Management of St. Croix Valley Waste Management - Tri County WMI Services of Wisconsin Waste Management of Wyoming, Inc. (Delaware) Waste Management Paper Stock Company, Inc. (Delaware) Southern Sanitation Southeast - Recycle America Waste Management of Florida - Recycle America Waste Management of Sarasota - Recycle America Waste Management of Tampa - Recycle America Waste Management Pepierentsorgung Gesellschaft mbH (Austria) Waste Management Partners, Inc. (Delaware) American Refuse Systems, Inc. Ocmulgee Disposal, Inc. Waste Management Partners of Bozeman, Ltd. (Illinois) Waste Management Partners of Grand County, L.P. Waste Management Partners of Midland/Odessa (Illinois) Waste Management Partners of Paris, Ltd. (Illinois) Waste Management Partners of Southeast North Dakota, L.P. (Illinois) Waste Management Plastic Products, Inc. (Delaware) Waste Management Precision Services, Inc. (Delaware) Waste Management Project Services B.V. (Netherlands) Waste Management Queensland Pty. Limited (Queensland) Waste Management Recycling and Disposal Services of California, Inc. (California) Bradley Landfill and Recycling Center Waste Management of Northern California Waste Management of Southern California Waste Management Recycling & Services Ltd (Hong Kong) Waste Management Remediation Services B.V. (Netherlands) Waste Management Republic of China (China) Waste Management (Rock Common) Limited (United Kingdom) Waste Management (Roxby) Limited (United Kingdom) Waste Management Services, C.A. (Venezuela) Waste Management Services S A (Switzerland) Waste Management South America B.V. (Netherlands) Waste Management Stendahl GmbH (Germany Waste Management Technology Center, Inc. (Delaware) Waste Management Thailand B.V. (Netherlands) Waste Management (W.M.) Israel Limited (Israel) Waste Resources of Tampa Bay, Inc. (Florida) Waste Resources of Tennessee, Inc. (Tennessee) 25 Waste Services Company Partnership (Colorado) Waterblast Ltd. (United Kingdom) Wessex Waste Management Limited (United Kingdom) WESI Baltimore Inc. (Delaware) WESI Capital Inc. (Delaware) WESI Peekskill Inc. (Delaware) WESI Westchester Inc. (Delaware) Westchester Resco Company, L.P. Western Compliance Services, Inc. (Oregon) Western Waste Partners, L.P. Westley Trading Ltd (United Kingdom) Westmore-United Waste, Ltd. Wheelabrator Air Pollution Control Inc. (Delaware) Wheelabrator Baltimore L.L.C. Wheelabrator-Berger (Maschinenfabriken) GmbH (West Germany) Wheelabrator-Berger Stiftung GmbH (West Germany) Wheelabrator Canada Inc. (Ontario) Wheelabrator Carteret Inc. (Delaware) Wheelabrator Cedar Creek Inc. (Delaware) Wheelabrator Claremont Company, L.P. Wheelabrator Clean Water New Jersey Inc. (Delaware) Wheelabrator Coal Services Company (Delaware) Wheelabrator Concord Company, L.P. Wheelabrator Concord Inc. (Delaware) Wheelabrator Connecticut Inc. (Delaware) Wheelabrator Culm Services Inc. (Delaware) Wheelabrator Energy Leasing Company (Delaware) Wheelabrator Energy Systems Inc. (Delaware) Wheelabrator Environmental Systems Inc. (Delaware) Wheelabrator Falls Inc. (Delaware) Wheelabrator Frackville Energy Company Inc. (Delaware) Wheelabrator Frackville Properties Inc. (Delaware) Wheelabrator Fuel Services Inc. (Delaware) Wheelabrator Fuels Service Corporation (Delaware) Wheelabrator Gloucester Company, L.P. Wheelabrator Gloucester Inc. (Delaware) Wheelabrator Guam Inc. (Delaware) Wheelabrator Hudson Energy Company Inc. (Delaware) Wheelabrator Land Resources Inc. (Delaware) Wheelabrator Lassen Inc. (Delaware) Wheelabrator Martell Inc. Wheelabrator McKay Bay Inc. (Florida) Wheelabrator Mecklenburg Inc. (Delaware) Wheelabrator Millbury Inc. (Delaware) 26 Wheelabrator New Hampshire Inc. (Delaware) Wheelabrator New Jersey Inc. (Delaware) Wheelabrator NHC Inc. (Delaware) Wheelabrator North Broward Inc. (Delaware) Wheelabrator North Shore Inc. (Delaware) Wheelabrator Norwalk Energy Company Inc. (Delaware) Wheelabrator Peekskill Inc. (Delaware) Wheelabrator Penacook Inc. (Delaware) Wheelabrator Pinellas Inc. (Delaware) Wheelabrator Plant Services Inc. (Delaware) Wheelabrator Polk Inc. (Delaware) Wheelabrator Power Marketing Inc. (Delaware) Wheelabrator Putnam Inc. (Delaware) Wheelabrator Ridge Energy Inc. (Delaware) Wheelabrator San Diego Inc. (Delaware) Wheelabrator Saugus Inc. (Delaware) Wheelabrator Shasta Energy Company Inc. (Delaware) Wheelabrator Sherman Energy Company, G.P. Wheelabrator Sherman Station One Inc. (Delaware) Wheelabrator Sherman Station Two Inc. (Delaware Wheelabrator Shrewsbury Inc. (Delaware) Wheelabrator South Broward Inc. (Delaware) Wheelabrator Spokane Inc. (Delaware) Wheelabrator Technologies Inc. (Delaware) Wheelabrator Tidewater Inc. (Delaware) Wheelabrator Utility Services Inc. (Delaware) Wheelabrator Water Technologies Baltimore L.L.C. Wheelabrator Water Technologies Canada Inc. (Ontario) Wheelabrator Water Technologies Inc. (Maryland) Williams Disposal Service, Inc. (Florida) Winnipeg Waste Disposal Limited Partnership (Manitoba) WMD Boeckmann Ohlig (Germany) WMD Fuchs GmbH (Germany) WMD Just Entsorgung GmbH (Germany) WMD Knoess & Anthes GmbH (Germany) WMD Milojoservice A/S (Denmark) WMD Schrieber Entsorgung Kiel GmbH (Germany) WMD Schreiber GmbH (Germany) WMD Waste Management Deutschland Holding GmbH (Germany) WMI Canada Divesture Sub, Inc. (Canada) WMI Medical Services of Arizona, Inc. (Delaware) WMI Medical Services of Indiana, Inc. (Indiana) WMI Medical Services of Ohio, Inc. (Ohio) WMI Medical Services - Dayton 27 WMI Medical Services - Toledo WMI Medical Services - Youngstown WMI Merger Sub, Inc. (Delaware) WMI Mexico Holdings, Inc. (Delaware) WMI Quebec Inc. (Quebec) WMI Sellbergs AB (Sweden) WMI Sverige AB (Sweden) WMI Services of Nevada, Inc. (Nevada) WMI Urban Services, Inc. (Delaware) WMI Waste Management of Canada Inc. (Canada) TCL Waste Systems Waste Management Big Bear Services Waste Management Fraser Valley Waste Management Halton/Hamilton Waste Management Materials Processing - Recycle Canada Waste Management Materials Processing - Toronto Transfer Waste Management McLellan Disposal Waste Management of Oxford/Perth Waste Management of Calgary Waste Management of Edmonton Waste Management of Greater Toronto Waste Management of Greater Vancouver Waste Management of Southwestern Ontario Waste Management of the Okanagan Waste Management York/Simcoe West Edmonton Recycling and Disposal Facility WMI du Quebec WMI - Hull/Ottawa WMI Recyclage Quebec WMI Rive - Sud WMI Waste Management DuCanada WMNA Container Recycling, Inc. (Delaware) WMNA Rail-Cycle Sub, Inc. (Delaware) WM Paper Recycling, Inc. (Delaware) WM Partnership Holdings, Inc. (Delaware) WM Portugal (Gestao De Residuos) LDA (Portugal) WM Umwelttechnik Gmbh (Germany) WM Ymparistopalvelut OY (Finland) W R Pollard and Son Limited (United Kingdom) WTI China I Limited Partnership WTI China One Inc. (Delaware) WTI China Two Inc. (Delaware) WTI China Holdings I Inc. (Cayman Islands) WTI China Holdings II Inc. 28 WTI International Energy Inc. (Delaware) WTI International Holdings Inc. (Delaware) WTI Qicheng LLC (Cayman Islands) WTI Rust Holdings Inc. (Delaware) WTI Taicang LLC (Cayman Islands) WTI Yingkou LLC (Cayman Islands) 29 EX-23 20 CONSENT OF INDEPENDENT PUBLIC ACCTS. Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included or incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (registration nos. 33-7201, 33-17447, 33-26733, 33-35936, 33-63702, 33-64266, 33-62285, 33-64427, 33-64431 and 333-01325), previously filed Registration Statement on Form S-3 (registration no. 333-25291) and previously filed Registration Statement on Form S-4 (registration no. 33-56891). Arthur Anderson LLP /s/ Arthur Anderson LLP Chicago, Illinois March 25, 1998 EX-27.1 21 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the December 31, 1996 consolidated balance sheet and the consolidated statement of income for the twelve-month period ended December 31, 1996 and is qualified in its entirety by reference to such financial statements and the footnotes thereto. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 323,288 319,338 1,703,566 52,847 0 2,798,650 13,608,635 4,810,235 17,083,577 3,079,573 6,971,607 0 0 507,102 3,234,659 17,083,577 0 9,225,636 0 7,096,230 0 52,766 462,424 660,467 436,473 223,994 (263,301) 0 0 (39,307) (.08) (.08)
EX-27.2 22 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the December 31, 1997 consolidated balance sheet and the consolidated statement of income for the twelve-month period ended December 31, 1997 and is qualified in its entirety by reference to such financial statements and the footnotes thereto. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 132,811 59,296 1,591,218 51,805 0 2,145,506 11,788,692 4,534,543 13,589,098 4,192,405 5,078,557 0 0 507,102 838,550 13,589,098 0 9,188,582 0 8,821,628 0 51,691 446,888 (1,053,673) 215,667 (1,269,340) 95,688 (516) (1,936) (1,176,104) (2.52) (2.52)
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