-----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, ECl62CKfFxutFpdb9y7pmj2gz3GplxPADQVhgwXjHFlEDRXMfYcn/Jluhf8rBdYu VsOAmVAToWCj/0OK9xWs6g== 0000912057-96-014421.txt : 19960715 0000912057-96-014421.hdr.sgml : 19960715 ACCESSION NUMBER: 0000912057-96-014421 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19960712 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN DISPOSAL SERVICES INC CENTRAL INDEX KEY: 0000881655 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 133858494 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-04889 FILM NUMBER: 96593764 BUSINESS ADDRESS: STREET 1: 745 MCCLINTOK DR STREET 2: SUITE 305 CITY: BURR RIDGE STATE: IL ZIP: 60521 BUSINESS PHONE: 7086551105 MAIL ADDRESS: STREET 1: 745 MCCLINTOCK DRIVE STREET 2: SUITE 305 CITY: BURR RIDGE STATE: IL ZIP: 60521 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996 REGISTRATION NO. 333-4889 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ AMERICAN DISPOSAL SERVICES, INC. (Exact name of registrant as specified in its charter) DELAWARE 4953 13-3858494 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) No.)
745 MCCLINTOCK DRIVE SUITE 305 BURR RIDGE, ILLINOIS 60521 (708) 655-1105 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ANN L. STRAW, ESQ. AMERICAN DISPOSAL SERVICES, INC. 745 MCCLINTOCK DRIVE SUITE 305 BURR RIDGE, ILLINOIS 60521 (708) 655-1105 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES OF COMMUNICATIONS TO: Stephen W. Rubin, Esq. Howard L. Shecter, Esq. Proskauer Rose Goetz & Mendelsohn LLP Morgan, Lewis & Bockius LLP 1585 Broadway 101 Park Avenue New York, New York 10036 New York, New York 10178 (212) 969-3000 (212) 309-6000
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC: As soon as possible after the Registration Statement becomes effective. -------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMERICAN DISPOSAL SERVICES, INC. CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS - ------------------------------------------------------------------------ -------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.................................... Facing Page of Registration Statement; Cross Reference Sheet; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front Cover Page; Outside Back Cover Page 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............................................... Prospectus Summary; Risk Factors; The Company 4. Use of Proceeds.............................................. Use of Proceeds 5. Determination of Offering Price.............................. Underwriting 6. Dilution..................................................... Dilution 7. Selling Security Holders..................................... Not applicable 8. Plan of Distribution......................................... Outside Front Cover Page; Underwriting 9. Description of Securities to be Registered................... Description of Capital Stock 10. Interest of Named Experts and Counsel........................ Not applicable 11. Information With Respect to the Registrant (a) Description of Business........................... Prospectus Summary; Business; Management's Discussion and Analysis of Financial Condition and Results of Operations (b) Description of Property........................... Business (c) Legal Proceedings................................. Business (d) Dividends and Related Stockholder Matters......... Risk Factors; Capitalization; Dividend Policy; Description of Capital Stock (e) Financial Statements.............................. Consolidated Financial Statements; Unaudited Interim Condensed Consolidated Financial Statements; Unaudited Pro Forma Consolidated Financial Statements; Financial Statements of Acquired Companies (CDI Acquisition) (f) Selected Financial Data........................... Prospectus Summary; Selected Consolidated Financial Data (g) Supplementary Financial Information............... Not applicable (h) Management's Discussion and Analysis of Financial Condition and Results of Operations.............. Management's Discussion and Analysis of Financial Condition and Results of Operations (i) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. Experts (j) Directors and Executive Officers.................. Management (k) Executive Compensation............................ Management (l) Security Ownership of Certain Beneficial Owners and Management................................... Principal Stockholders; Shares Eligible for Future Sale (m) Certain Relationships and Related Transactions.... Certain Transactions 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................................. Not applicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JULY 12, 1996 2,750,000 SHARES [LOGO] COMMON STOCK -------------- All of the shares of Common Stock offered hereby are being issued and sold by American Disposal Services, Inc. (the "Company"). It is currently estimated that the initial public offering price will be between $12 and $14 per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. Prior to this offering, there has been no public market for the Common Stock of the Company. The Common Stock has been approved for quotation on the Nasdaq National Market under the trading symbol "ADSI." SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK OFFERED HEREBY. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT (1) COMPANY (2) - ------------------------------------------------------------------------------------------- Per Share......................... $ $ $ Total (3)......................... $ $ $ - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the Underwriters and other information. (2) Before deducting expenses of the offering payable by the Company estimated at $1,000,000. (3) The Underwriters have been granted an option, exercisable within 30 days from the date hereof, to purchase up to 412,500 additional shares of Common Stock, at the Price to Public per share, less the Underwriting Discount, for the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------- The shares of Common Stock are offered by the Underwriters when, as and if delivered to and accepted by them, subject to their right to withdraw, cancel or reject orders in whole or in part and subject to certain other conditions. It is expected that delivery of the certificates representing the shares will be made against payment on or about , 1996, at the offices of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281. ------------------- OPPENHEIMER & CO., INC. CS FIRST BOSTON The date of this Prospectus is , 1996. [MAP] ------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMPANY'S COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. The Company intends to furnish its stockholders annual reports containing financial statements audited by its independent certified public accountants and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL FINANCIAL INFORMATION, SHARE AND PER SHARE DATA IN THIS PROSPECTUS: (I) GIVE EFFECT TO AN EXCHANGE OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE ("COMMON STOCK"), IN CONNECTION WITH THE FORMATION OF A HOLDING COMPANY, EFFECTIVE AS OF JANUARY 1, 1996; (II) GIVE EFFECT TO A 13.5 FOR 1 STOCK SPLIT; (III) EXCLUDE 1,085,070 SHARES OF COMMON STOCK OF THE COMPANY ISSUABLE UPON EXERCISE OF OUTSTANDING WARRANTS AND STOCK OPTIONS; AND (IV) ASSUME NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. AS USED IN THIS PROSPECTUS, THE TERMS "COMPANY" AND "AMERICAN DISPOSAL SERVICES" REFER COLLECTIVELY TO AMERICAN DISPOSAL SERVICES, INC. AND ITS SUBSIDIARIES, UNLESS THE CONTEXT OTHERWISE REQUIRES. ------------------------ THE COMPANY American Disposal Services is a regional, integrated, non-hazardous solid waste services company that provides solid waste collection, transfer and disposal services primarily in the Midwest. The Company owns five solid waste landfills and owns, operates or has exclusive contracts to receive waste from seven transfer stations. The Company's landfills and transfer stations are supported by its collection operations, which serve over 85,000 residential, commercial and industrial customers. The Company began its operations in the Midwest and currently has operations in Arkansas, Illinois, Kansas, Missouri, Ohio, Oklahoma and Pennsylvania. The Company has adopted an acquisition-based growth strategy, and intends to continue its expansion, generally in its existing and proximate markets. A cornerstone of the Company's growth strategy is to identify and acquire solid waste landfills located in secondary markets that are within approximately 125 miles of significant metropolitan centers and to secure dedicated waste streams for such landfills by acquisition or development of transfer stations and acquisition of collection companies. The Company expects the current consolidation trends in the solid waste industry to continue as many independent landfill and collection operators lack the capital resources, management skills and technical expertise necessary to operate in compliance with increasingly stringent environmental and other governmental regulations. Due in part to this consolidation, the Company believes that significant opportunities exist to expand and further integrate its operations in each of its existing markets. Since January 1993, the Company has acquired 22 solid waste businesses, including four solid waste landfills, 17 solid waste collection companies and one transfer station. The Company's operating program generally involves a four-step process: (i) acquiring solid waste landfills in its target markets; (ii) securing captive waste streams for its landfills through the acquisition or development of transfer stations serving those markets, through acquisitions of collection companies and by entering into long-term contracts directly with customers or collection companies; (iii) making "tuck-in" acquisitions of collection companies to further penetrate its target markets; and (iv) integrating these businesses into the Company's operations to achieve operating efficiencies and economies of scale. The implementation of the Company's operating program is substantially complete in its Missouri region (which also includes Arkansas, Kansas and Oklahoma), where the Company has completed the acquisition of 12 collection companies and the acquisition or development of three transfer stations. The Company is in the initial phases of its operating program in the Illinois, Ohio and Pennsylvania regions in which the Company began operations in 1995. In addition, the Company may, as specific opportunities arise, evaluate and pursue acquisitions in the solid waste collection and disposal industry that do not strictly conform to the Company's four-step operating program. The Company's operating strategy emphasizes the integration of its solid waste collection and disposal operations and the internalization of waste collected. One of the Company's goals is for its captive waste streams (including the Company's collection operations and third party haulers operating under long-term contracts) to provide in excess of 50% of the volume of solid waste disposed of at each of its landfills. During the three months ended March 31, 1996, the Company's captive waste constituted an average of approximately 63% of the solid waste disposed of at its landfills. 3 Each member of the Company's senior operating management team has worked at a senior level in the solid waste industry in the Midwest for over 10 years. The Company has recorded net losses to common stockholders of approximately $749,000, $2.4 million and $3.7 million during the fiscal years ended December 31, 1993, 1994 and 1995, respectively. Additionally, the Company has had working capital deficits in the past, and at March 31, 1996, the Company had a working capital deficit of approximately $9.6 million. RISK FACTORS Prospective purchasers of the Common Stock offered hereby should carefully consider the factors set forth under the caption "Risk Factors." Among other things, prospective purchasers should be aware of the risks associated with: (i) the Company's ability to manage its growth effectively; (ii) the availability of acquisition targets and integration of future acquisitions; (iii) the Company's history of losses and working capital deficits and its integration of completed acquisitions; (iv) the Company's limited operating history; (v) the Company's significant leverage; (vi) the Company's ability to compete in the highly competitive solid waste collection and disposal industry; and (vii) the Company's ability to fund future capital requirements and working capital deficits. THE OFFERING Common Stock offered.............. 2,750,000 shares Common Stock outstanding after the Offering......................... 8,426,901 shares (1) Use of proceeds................... Reduction of indebtedness, acquisitions, working capital and general corporate purposes. Nasdaq National Market symbol..... ADSI
- ------------------------ (1) Does not include 1,085,070 shares of Common Stock issuable upon the exercise of warrants and stock options outstanding as of March 31, 1996. 4 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA THREE MONTHS ENDED YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31, ------------------------------- DECEMBER 31, --------------------- 1993 1994 1995 1995 (1) 1995 1996 --------- --------- --------- ------------ --------- ---------- STATEMENT OF OPERATIONS DATA: Revenues........................................... $ 7,730 $ 18,517 $ 30,004 $ 44,500 $ 5,034 $ 11,724 Cost of operations................................. 5,750 12,647 17,286 22,330 3,047 6,108 Selling, general and administrative expenses....... 1,646 4,910 5,882 9,493 1,080 1,935 Depreciation and amortization expense.............. 1,166 3,226 6,308 13,040 984 2,718 --------- --------- --------- ------------ --------- ---------- Operating income (loss)............................ (832) (2,266) 528 (363) (77) 963 Interest expense................................... (417) (1,497) (3,030) (5,314) (511) (1,617) Interest income.................................... 35 2 189 189 4 78 --------- --------- --------- ------------ --------- ---------- Loss before income taxes and extraordinary item.... (1,214) (3,761) (2,313) (5,488) (584) (576) Income tax benefit (expense)....................... 391 1,372 (332) (332) 156 160 --------- --------- --------- ------------ --------- ---------- Loss before extraordinary item..................... (823) (2,389) (2,645) $ (5,820) (428) (416) ------------ ------------ Extraordinary item -- gain (loss) on early retirement of debt................................ 74 -- (908) -- -- --------- --------- --------- --------- ---------- Net loss........................................... (749) (2,389) (3,553) (428) (416) Preferred stock dividend requirement of subsidiary........................................ -- -- (190) -- (63) --------- --------- --------- --------- ---------- Net loss to common stockholders.................... $ (749) $ (2,389) $ (3,743) $ (428) $ (479) --------- --------- --------- --------- ---------- --------- --------- --------- --------- ---------- Pro forma net loss per share of common stock....... $ (.96) ------------ ------------ Pro forma weighted average common stock and common stock equivalent shares used to calculate pro forma share amounts............................... 6,065,445 ------------ ------------ Supplemental pro forma net loss per share of common stock (5)......................................... $ (.59) ------------ ------------ OTHER DATA: EBITDA (2)......................................... $ 334 $ 960 $ 6,836 $ 12,677 $ 907 $ 3,681 EBITDA margin (3).................................. 4.3% 5.2% 22.8% 28.5% 18.0% 31.4%
MARCH 31, 1996 ---------------------------- ACTUAL AS ADJUSTED (4) ----------- --------------- BALANCE SHEET DATA: Cash and cash equivalents............................................................ $ 6,706 $ 17,830 Working capital (deficit)............................................................ (9,558) 16,440 Property and equipment, net.......................................................... 81,696 81,696 Total assets......................................................................... 115,432 128,555 Long-term debt, net of current portion............................................... 49,006 46,664 Redeemable preferred stock of subsidiary............................................. 1,908 -- Total stockholders' equity........................................................... 33,318 65,566
- ------------------------ (1) Pro forma information for the year ended December 31, 1995 gives effect to the CDI Acquisition (as defined in "The Company") and borrowings outstanding under the Credit Facility (as defined in "Risk Factors -- Significant Leverage") and the application of the net proceeds therefrom, as if each of the foregoing had occurred or been in effect on January 1, 1995. See the Pro Forma Consolidated Statement of Operations and related notes included elsewhere herein. (2) EBITDA represents operating income plus depreciation and amortization. While EBITDA data should not be construed as a substitute for operating income, net income (loss) or cash flows from operations in analyzing the Company's operating performance, financial position and cash flows, the Company has included EBITDA data (which are not a measure of financial performance under generally accepted accounting principles) because it understands that such data are commonly used by certain investors to evaluate a company's performance in the solid waste industry. (3) EBITDA margin represents EBITDA expressed as a percentage of revenues. (4) Adjusted to give effect to borrowings outstanding under the Credit Facility and the application of the net proceeds therefrom, and the sale of the Common Stock offered hereby and the application of the estimated net proceeds therefrom as described in "Use of Proceeds." See "Capitalization." (5) Supplemental pro forma net loss per share of Common Stock for the year ended December 31, 1995 represents pro forma net loss per share of Common Stock adjusted to give effect to the issuance of 1,375,000 shares, the number of shares of Common Stock being issued in the Offering the proceeds of which are being used to repay approximately $16.1 million of the Credit Facility, as if such issuance and repayment was completed on the first day of the period presented, and a related reduction in interest expense. 5 RISK FACTORS AN INVESTMENT IN THE SHARES OF COMMON STOCK BEING OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. IN ADDITION, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER "PROSPECTUS SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS -- INTRODUCTION," "BUSINESS -- INDUSTRY BACKGROUND," "BUSINESS -- STRATEGY," "BUSINESS -- ACQUISITION PROGRAM," "BUSINESS -- OPERATIONS" AND "BUSINESS -- ENVIRONMENTAL REGULATIONS" AS WELL AS IN THE PROSPECTUS GENERALLY. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONCERNING THE COMPANY AND ITS BUSINESS CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. ABILITY TO MANAGE GROWTH The Company's goal is to increase the scale of its operations significantly through the acquisition of other solid waste businesses and through internal growth. Consequently, the Company may experience periods of rapid growth with significantly increased staffing level requirements. Such growth could place a significant strain on the Company's management and on its operational, financial and other resources. The Company's ability to maintain and manage its growth effectively will require it to develop its management information systems capabilities and improve its operational and financial systems and controls. Moreover, the Company will need to attract, train, motivate, retain and manage its senior managers, technical professionals and other employees. Any failure to expand its management information system capabilities, to implement and improve its operational and financial systems and controls or to recruit appropriate additional personnel in an efficient manner at a pace consistent with the Company's business growth would have a material adverse effect on the Company's business, financial condition and results of operations. AVAILABILITY OF ACQUISITION TARGETS; INTEGRATION OF FUTURE ACQUISITIONS The Company's ongoing acquisition program is a key element of its acquisition-based growth strategy for expanding its solid waste management services. Consequently, the future growth of the Company depends in large part upon the successful continuation of this acquisition program. The Company may encounter substantial competition in its efforts to acquire landfills, transfer stations and collection companies. There can be no assurance that the Company will succeed in locating or acquiring appropriate acquisition candidates at price levels and on terms and conditions that the Company considers appropriate. In addition, if in the future the Company is successful in acquiring targeted companies, it will need to integrate these acquired companies into the Company's operations. There can be no assurance that the Company will successfully integrate future acquisitions into its operations. See "Business -- Strategy," "-- Acquisition Program" and "-- Competition." HISTORY OF LOSSES AND WORKING CAPITAL DEFICITS; INTEGRATION OF COMPLETED ACQUISITIONS The Company has recorded net losses to common stockholders of approximately $749,000, $2.4 million and $3.7 million during the fiscal years ended December 31, 1993, 1994 and 1995, respectively, and has had working capital deficits in the past. See "-- Funding of Future Capital Requirements and Working Capital Deficits" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Introduction." The financial position and results of operations of the Company will depend to a large extent on the Company's ability to integrate effectively the operations of the 22 companies it has acquired from January 1993 to date and to realize expected efficiencies and economies of scale from such acquisitions. There can be no assurance that the Company's efforts to integrate these operations will be effective, that expected efficiencies and economies of scale will be realized or that the Company will be able to consolidate successfully its operations. The failure to achieve any of these results could cause the Company's net losses and working capital deficits to continue and could have a material adverse effect on the Company's business, financial condition and results of operations. 6 LIMITED OPERATING HISTORY Following the Exchange (as defined in "The Company"), the Company began operating as a consolidated entity effective as of January 1, 1996. Prior to 1996, the Company's operations were conducted by ADS, Inc. ("ADS") and County Disposal, Inc. ("CDI"), two subsidiaries of the Company, the operations of which were acquired by the Company's stockholders in 1993 and 1995, respectively. Accordingly, the Company has a limited history of operating as a consolidated entity and may experience difficulties as it integrates the operations of its subsidiaries. SIGNIFICANT LEVERAGE The Company has incurred significant debt obligations in connection with financing its acquisitions and business growth. In May 1996 the Company entered into an $87 million revolving credit and term loan facility with Internationale Nederlanden (U.S.) Capital Corporation, as administrative agent, and Morgan Guaranty Trust Company of New York, as documentation agent (the "Credit Facility"). As of March 31, 1996, the Company's consolidated indebtedness was $67.6 million, its consolidated total assets were $115.4 million and its stockholders' equity was $33.3 million (or $48.5, $128.6 and $65.6 million, respectively, as adjusted to give effect to borrowings outstanding under the Credit Facility and the application of the net proceeds therefrom, and the sale of the Common Stock offered hereby and the application of the estimated net proceeds therefrom as described under "Use of Proceeds"). During the three months ended March 31, 1996, the Company's operating income plus depreciation and amortization ("EBITDA") was $3.7 million, and interest expense during this period was $1.6 million. The Company's ability to meet its debt service obligations and to reduce its total debt will depend upon its future performance, which, in turn, will be subject to general economic conditions and to financial, business and other factors affecting the operations of the Company, many of which are beyond the Company's control. If the Company fails to generate sufficient cash flow to repay its debt, the Company may be required to refinance all or a portion of its existing debt or to obtain additional financing. There can be no assurance that such refinancing or any additional financing could be obtained on terms favorable to the Company or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." HIGHLY COMPETITIVE INDUSTRY The solid waste collection and disposal business is highly competitive and requires substantial amounts of capital. The Company competes with numerous solid waste management companies, many of which are significantly larger and have greater financial resources than the Company. The Company also competes with those counties, municipalities and solid waste districts that maintain their own waste collection and disposal operations. These counties, municipalities and solid waste districts may have financial advantages due to the availability to them of user fees, charges or tax revenues and the greater availability to them of tax-exempt financing. In addition, competitors may reduce the price of their services in an effort to expand market share or to win competitively bid municipal contracts. There can be no assurance that the Company will be able to compete successfully. See "Business -- Competition." FUNDING OF FUTURE CAPITAL REQUIREMENTS AND WORKING CAPITAL DEFICITS The Company's acquisition-based growth strategy has resulted in a steady increase in its capital requirements, and such increase may continue in the future as the Company pursues its strategy. The Company has incurred working capital deficits in the past, and there can be no assurance that its available working capital will be sufficient in the future as it pursues its growth strategy. At March 31, 1996, the Company had a working capital deficit of approximately $9.6 million. For calendar year 1996, the Company expects to spend approximately $13 million for capital expenditures. To the extent that internally generated cash, the cash available to the Company from the net proceeds of the Offering and cash available under the Credit Facility are not sufficient to provide the cash required for future operations, capital expenditures, acquisitions, debt repayment obligations and financial assurance obligations, the Company will require additional equity or debt financing in order to provide such cash. There can be no assurance, however, that such financing will be available or, if available, will be on terms satisfactory to the Company. Where appropriate, the Company may seek to minimize the use of cash to finance its acquisitions by using capital 7 stock, assumption of indebtedness or notes. However, there can be no assurance the owners of the businesses the Company may wish to acquire will be willing to accept non-cash consideration in whole or in part. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Business -- Acquisition Program." DEPENDENCE ON THIRD PARTY COLLECTION OPERATIONS A portion of the solid waste delivered to the Company's landfills is delivered by third party collection companies under informal arrangements or without long-term contracts. If these third parties discontinued their arrangements with the Company and if the Company were unable to replace these third party arrangements without incurring significant additional costs, the Company's business, financial condition and results of operations might be materially adversely affected. LIMITATIONS ON EXPANSION The Company's operating program depends on its ability to expand and develop its landfills, transfer stations and collection operations. The process of obtaining permits to operate or expand solid waste landfills and transfer stations has become increasingly difficult and expensive, often taking several years, requiring numerous hearings and compliance with zoning, environmental and other regulatory measures, and often being subject to resistance from citizen or other groups. There can be no assurance that the Company will be successful in obtaining the permits it requires or that such permits will not contain onerous terms and conditions. An inability to receive such permits could have a material adverse effect on the Company's business, financial condition and results of operations. See "-- Extensive Environmental and Land Use Laws and Regulations." In some areas, suitable land may be unavailable for new landfill sites. There can be no assurance that the Company will be successful in obtaining new landfill sites or expanding the permitted capacity of its current landfills once its landfill capacity has been consumed. In such event, the Company could be forced to dispose of collected waste at landfills operated by its competitors, which could have a material adverse effect on the Company's landfill revenues and collection expenses. See "Business -- Operations -- Landfills." EXTENSIVE ENVIRONMENTAL AND LAND USE LAWS AND REGULATIONS The Company is subject to extensive and evolving environmental and land use laws and regulations, which have become increasingly stringent in recent years as a result of greater public interest in protecting and cleaning up the environment. These laws and regulations affect the Company's business in many ways, including as set forth below. See "Business -- Environmental Regulations" for further information concerning the matters set forth below. EXTENSIVE PERMITTING REQUIREMENTS. In order to develop and operate a landfill or other solid waste management facility, it is necessary to obtain and maintain in effect one or more facility permits and other governmental approvals, including those related to zoning, environmental and land use. In addition, the Company may be required to obtain similar permits and approvals in order to expand its existing landfill and solid waste management operations. These permits and approvals are difficult and time consuming to obtain and are frequently subject to community opposition, opposition by various local elected officials or citizens and other uncertainties. In addition, after an operating permit for a landfill or other facility is obtained, the permit may be subject to modification or revocation by the issuing agency, and it may be necessary to obtain periodically a renewal of the permit, which may reopen opportunities for opposition to the permit. Moreover, from time to time, regulatory agencies may delay the review or grant of these required permits or approvals or may modify the procedures or increase the stringency of the standards applicable to its review or grant of such permits or approvals. In addition, the Company may not be able to ensure that its landfill operations are included and remain in the solid waste management plan of the state or county in which such operations are conducted. The Company may also have difficulty obtaining host agreements with counties or local communities, or existing host communities may demand modifications of existing host agreements in connection with planned expansions, either of which could increase the Company's costs and reduce its margins. There can be no assurance that the Company will be successful in obtaining and maintaining in effect the permits and approvals required for the successful operation and growth of its business, including permits or approvals required for planned landfill expansions, and the failure by the Company to obtain or 8 maintain in effect a permit significant to its business could materially adversely affect the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." DESIGN, OPERATION AND CLOSURE REQUIREMENTS. The design, operation and closure of landfills are subject to extensive regulations. These regulations include, among others, the regulations (the "Subtitle D Regulations") establishing minimum federal requirements adopted by the United States Environmental Protection Agency (the "EPA") in October 1991 under Subtitle D of the Resource Conservation and Recovery Act of 1976 ("RCRA"). The Subtitle D Regulations generally became effective on October 9, 1993 (except for certain municipal solid waste landfills accepting less than 100 tons per day, as to which the effective date was April 9, 1994, and new financial assurance requirements, which are scheduled to become effective April 9, 1997). The Subtitle D Regulations require all states to adopt regulations regarding landfill design, operation and closure requirements that are as stringent as, or more stringent than, the Subtitle D Regulations. All states in which the Company's landfills are located have in place extensive landfill regulations consistent with the Subtitle D requirements. These federal and state regulations require the Company to design the landfill in accordance with stringent technical requirements, monitor groundwater, post financial assurances, and fulfill landfill closure and post-closure obligations. These regulations could also require the Company to undertake investigatory, remedial and monitoring activities, to curtail operations or to close a landfill temporarily or permanently. Furthermore, future changes in these regulations may require the Company to modify, supplement, or replace equipment or facilities at costs which may be substantial. LEGAL AND ADMINISTRATIVE PROCEEDINGS. In the ordinary course of its business, the Company may become involved in a variety of legal and administrative proceedings relating to land use and environmental laws and regulations. These may include proceedings by federal, state or local agencies seeking to impose civil or criminal penalties on the Company for violations of such laws and regulations, or to impose liability on the Company under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") or comparable state statutes, or to revoke or deny renewal of a permit; actions brought by citizens' groups, adjacent landowners or governmental entities opposing the issuance of a permit or approval to the Company or alleging violations of the permits pursuant to which the Company operates or laws or regulations to which the Company is subject; and actions seeking to impose liability on the Company for any environmental damage at its landfill sites or that its landfills or other properties may have caused to adjacent landowners or others, including groundwater or soil contamination. The Company could incur substantial legal expenses during the course of the aforementioned proceedings, and the adverse outcome of one or more of these proceedings could materially adversely affect the Company's business, financial condition and results of operations. See "Business -- Legal Proceedings." During the ordinary course of its operations, the Company has from time to time received, and expects that it may in the future receive, citations or notices from governmental authorities that its operations are not in compliance with its permits or certain applicable environmental or land use laws and regulations. The Company generally seeks to work with the authorities to resolve the issues raised by such citations or notices. There can be no assurance, however, that the Company will always be successful in this regard, and the failure to resolve a significant issue could result in one or more of the adverse consequences to the Company described below under "Potential Liabilities." POTENTIAL LIABILITIES. There may be various adverse consequences to the Company in the event that a facility owned or operated by the Company (or a predecessor owner or operator whose liabilities the Company may have acquired expressly or under successor liability theories) causes environmental damage, in the event that waste transported by the Company (or a predecessor) causes environmental damage at another site, in the event that the Company fails (or a predecessor failed) to comply with applicable environmental and land use laws and regulations or the terms of a permit or outstanding consent order or in the event the Company's owned or operated facility or the soil or groundwater thereunder is or becomes contaminated. These may include the imposition of substantial monetary penalties on the Company; the issuance of an order requiring the curtailment or termination of the operations involved or affected; the revocation or denial of permits or other approvals necessary for continued operation or landfill expansion; the imposition of liability on the Company in respect of any environmental damage (including groundwater 9 or soil contamination) at its landfill sites or that its landfills or other facilities or other Company-owned or operated facilities caused to adjacent landowners or others or environmental damage at another site associated with waste transported by the Company; the imposition of liability on the Company under CERCLA or under comparable state laws; and criminal liability for the Company or its officers. Any of the foregoing could materially adversely affect the Company's business, financial condition and results of operations. As described under "Business -- Environmental Regulations," CERCLA and analogous state laws impose retroactive strict joint and several liability on various parties that are, or have been, associated with a site from which there has been, or is threatened, a release of any hazardous substance (as defined by CERCLA) into the environment. Liability under RCRA, CERCLA and analogous state laws may include responsibility for costs of site investigations, site cleanup, natural resources damages and property damages. Liabilities under RCRA, CERCLA and analogous state laws can be very substantial and, if imposed upon the Company, could materially adversely affect the Company's business, financial condition and results of operations. In the ordinary course of its landfill and waste management operations and in connection with its review of landfill and other operations to be acquired, the Company has discovered, and may in the future discover, indications of groundwater contamination at certain landfills. In such events, the Company would seek or be required to determine the magnitude and source of the problem and, if appropriate or required by applicable regulations, to design and implement measures to remedy, or halt the spread of, the contamination. There can be no assurance, however, that contamination discovered at a landfill or at other Company sites will not result in one or more of the adverse consequences to the Company described above. TYPE, QUANTITY AND SOURCE LIMITATIONS. Certain permits and approvals may limit the types of waste that may be accepted at a landfill or the quantity of waste that may be accepted at a landfill during a given time period. In addition, certain permits and approvals, as well as certain state and local regulations, may limit a landfill to accepting waste that originates from specified geographic areas or seek to restrict the importation of out-of-state waste or otherwise discriminate against out-of-state waste. Generally, restrictions on the importation of out-of-state waste have not withstood judicial challenge. However, from time to time federal legislation is proposed which would allow individual states to prohibit the disposal of out-of-state waste or to limit the amount of out-of-state waste that could be imported for disposal and would require states, under certain circumstances, to reduce the amounts of waste exported to other states. Although such legislation has not yet been adopted by Congress, if this or similar legislation is enacted, states in which the Company operates landfills could act to limit or prohibit the importation of out-of-state waste. Such state actions could materially adversely affect landfills within those states that receive a significant portion of waste originating from out-of-state. In addition, certain states and localities may for economic or other reasons restrict the exportation of waste from their jurisdiction or require that a specified amount of waste be disposed of at facilities within their jurisdiction. In 1994, the United States Supreme Court held unconstitutional, and therefore invalid, a local ordinance that sought to impose flow controls on taking waste out of the locality. However, certain state and local jurisdictions continue to seek to enforce such restrictions and, in certain cases, the Company may elect not to challenge such restrictions based upon various considerations. In addition, the aforementioned proposed federal legislation would allow states and localities to impose certain flow control restrictions. These restrictions could result in the volume of waste going to landfills being reduced in certain areas, which may materially adversely affect the Company's ability to operate its landfills at their full capacity and/or affect the prices that can be charged for landfill disposal services. These restrictions may also result in higher disposal costs for the Company's collection operations. If the Company were unable to pass such higher costs through to its customers, the Company's business, financial condition and results of operations could be materially adversely affected. POTENTIAL LIABILITIES ASSOCIATED WITH ACQUISITIONS The businesses acquired by the Company may have liabilities that the Company did not discover or may have been unable to discover during its pre-acquisition investigations, including liabilities arising from 10 environmental contamination or non-compliance by prior owners with environmental laws or regulatory requirements, and for which the Company, as a successor owner, may be responsible. Any indemnities or warranties, due to their limited scope, amount, or duration, the financial limitations of the indemnitor or warrantor or other reasons, may not fully cover such liabilities. DEPENDENCE ON SENIOR MANAGEMENT The Company is highly dependent on its senior management team. The loss of the services of any member of senior management may have a material adverse effect on the Company's business, financial condition and results of operations. In an effort to minimize this risk, the Company has entered into employment contracts with certain members of senior management. The Company does not maintain "key man" life insurance with respect to members of senior management except for a $2.0 million policy maintained on the Company's President. DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS The Company intends to use 50%, or approximately $16.1 million, of the estimated net proceeds from the Offering to repay certain indebtedness. The Company anticipates that the remaining net proceeds of this Offering will be used for acquisitions, working capital and general corporate purposes. The Company's management will have complete discretion to allocate the balance of the net proceeds from the Offering among acquisitions, working capital and general corporate purposes. See "Use of Proceeds." LIMITS ON INSURANCE COVERAGE There can be no assurance that the Company's pollution liability insurance will provide sufficient coverage in the event an environmental claim were made against the Company or that the Company will be able to maintain in place such insurance at reasonable costs. An uninsured or underinsured claim of sufficient magnitude could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Liability Insurance and Bonding." INCURRENCE OF CHARGES RELATED TO CAPITALIZED EXPENDITURES In accordance with generally accepted accounting principles, the Company capitalizes certain expenditures and advances relating to acquisitions, pending acquisitions and landfill development and expansion projects. Indirect acquisition costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. The Company's policy is to charge against earnings any unamortized capitalized expenditures and advances (net of any portion thereof that the Company estimates will be recoverable, through sale or otherwise) relating to any operation that is permanently shut down, any pending acquisition that is not consummated, and any landfill development or expansion project that is not or not expected to be successfully completed. Therefore, the Company may be required to incur a charge against earnings in future periods, which charge, depending upon the magnitude thereof, could materially adversely affect the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" for a discussion of capitalized expenditures in connection with certain operations and projects. USE OF ALTERNATIVES TO LANDFILL DISPOSAL Alternatives to landfill disposal, such as recycling and composting, are increasingly being used. In addition, incineration is an alternative to landfill disposal in certain of the Company's markets. There also has been an increasing trend at the state and local levels to mandate recycling and waste reduction at the source and to prohibit the disposal of certain type of wastes, such as yard wastes, at landfills. These developments may result in the volume of waste going to landfills being reduced in certain areas, which may affect the Company's ability to operate its landfills at their full capacity or affect the prices that can be charged for landfill disposal services. For example, Illinois, Ohio and Pennsylvania, states in which the Company operates landfills, have adopted bans on the disposal of yard waste or leaves in landfills located in those states, and all of the states in which the Company operates landfills have adopted rules restricting or limiting disposal of tires at landfills. In addition, each of the states in which the Company operates landfills has adopted plans or requirements which set goals for specified percentages of certain solid waste items to be recycled. These recycling goals are being phased in over the next few years. These alternatives, if and when 11 adopted and implemented, may have a material adverse effect on the business, financial condition and results of operations of the Company. See "Business -- Environmental Regulations -- State and Local Regulations." ABILITY TO MEET FINANCIAL ASSURANCE OBLIGATIONS The Company is required to post a performance bond or a bank letter of credit or to provide other forms of financial assurance in connection with closure and post-closure obligations with respect to landfills or its other solid waste management operations and may be required to provide such financial assurance in connection with municipal residential collection contracts. As of July 11, 1996, the Company had outstanding approximately $15 million of performance bonds and $90,000 in letters of credit. If the Company were unable to obtain surety bonds or letters of credit in sufficient amounts, or to provide other required forms of financial assurance, it would be unable to remain in compliance with the Subtitle D Regulations or comparable state requirements and, among other things, might be precluded from entering into certain municipal collection contracts and obtaining or holding landfill operating permits. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Business -- Liability Insurance and Bonding." SEASONALITY The Company's revenues tend to be somewhat lower in the winter months. This is primarily attributable to the fact that: (i) the volume of waste relating to construction and demolition activities tends to increase in the spring and summer months; and (ii) the volume of industrial and residential waste in the regions where the Company operates tends to decrease during the winter months. In addition, particularly harsh weather conditions may delay the development of landfill capacity and otherwise result in the temporary suspension of certain of the Company's operations and could materially adversely affect the Company's overall business, financial condition and results of operations. HOLDING COMPANY STRUCTURE The Company was formed in connection with the Exchange pursuant to which all of the outstanding common stock of ADS and CDI was exchanged for Common Stock. As a result of the Exchange, the Company is a holding company that conducts all of its operations through its subsidiaries. Accordingly, the Company will rely on distributions from ADS and CDI to provide the funds necessary to meet its obligations under the Credit Facility and otherwise. The ability of either subsidiary to make such payments to the Company is subject to applicable laws and contractual restrictions that may restrict or prohibit the making of such payments. CONTROL BY EXISTING STOCKHOLDERS Immediately following the Offering, the Company's principal stockholders will beneficially own approximately 60% of the outstanding shares of the Company's Common Stock. See "Principal Stockholders." As a result, such persons will have the ability to exercise significant influence over all matters requiring stockholder approval, such as the election of directors, mergers and acquisitions. Such a high level of ownership by such persons and entities may have a significant effect in delaying, deferring or preventing a change in control of the Company. ANTI-TAKEOVER PROVISIONS The Board of Directors may issue up to 5,000,000 shares of Preferred Stock in the future without stockholder approval upon such terms as the Board of Directors may determine. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying or preventing a change in control of the Company without further action by the stockholders. The Company has no present plans to issue any shares of Preferred Stock. See "Description of Capital Stock -- Undesignated Preferred Stock." In addition, following the Offering the Company will become subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the 12 date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 also could have the effect of delaying or preventing a change of control of the Company. See "Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter Provisions." NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained after the Offering. The initial public offering price will be determined through negotiations between the Company, and the representatives of the Underwriters based on several factors and may not be indicative of the market price of the Common Stock after the Offering. See "Underwriting." The market price of the shares of Common Stock may be highly volatile and is likely to be affected by factors such as actual or anticipated fluctuations in the Company's operating results, announcements of new contracts by the Company, its competitors or their customers, government regulatory action, general market conditions and other factors. In addition, the stock market has from time-to-time experienced significant price and volume fluctuations that have particularly affected the market prices for the common stock of solid waste disposal companies and that have often been unrelated to the operating performance of particular companies. These broad market fluctuations may also adversely affect the market price of the Company's Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has occurred against the issuing company. There can be no assurance that such litigation will not occur in the future with respect to the Company. Such litigation could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on the Company's business, financial condition and results of operations. Any adverse determination in such litigation could also subject the Company to significant liabilities. IMMEDIATE AND SUBSTANTIAL DILUTION The assumed initial public offering price is substantially higher than the net tangible book value per share of Common Stock. Investors purchasing shares of Common Stock in the Offering will therefore incur immediate and substantial net tangible book value dilution. To the extent that stock options and warrants (currently outstanding or subsequently granted) to purchase the Company's Common Stock are exercised, there may be further dilution. See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE Sale of substantial amounts of shares in the public market or the prospect of such sales could adversely affect the market price of the Company's Common Stock. Upon completion of the Offering, the Company will have outstanding 8,426,901 shares of Common Stock, of which the 2,750,000 shares offered hereby will be freely tradeable. The Company's officers and directors and holders of 5% or more of the outstanding shares of Common Stock prior to the Offering, who beneficially own an aggregate of 5,888,279 shares of Common Stock or options or warrants to purchase shares of Common Stock, have agreed not to offer, sell, contract to sell or grant any option to purchase or otherwise dispose of such securities for 180 days after the date of this Prospectus without the prior written consent of Oppenheimer & Co., Inc. In its sole discretion and at any time without notice, Oppenheimer & Co., Inc. may release all or any portion of the shares subject to lock-up agreements. In addition, following 180 days after the Offering, the holders of 5,032,861 shares of Common Stock and warrants to purchase 215,455 shares of Common Stock have demand and "piggy-back" rights with respect to the registration of such shares of Common Stock for sale to the public. If such holders, by exercising their registration rights, cause a large number of shares to be sold in the public market, such sales could have an adverse effect on the market price for the Company's Common Stock. In addition, if the Company is required to include such shares in Company-initiated registration statements, this could have an adverse effect on the Company's ability to raise needed capital. See "Shares Eligible for Future Sale" and "Underwriting." The Company intends to file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), upon completion of the Offering or shortly thereafter, covering the sale of 1,100,000 shares of Common Stock reserved for issuance under the Company's 1996 Stock Option Plan. 13 Upon completion of the Offering, there will be outstanding options to purchase a total of 869,615 shares of Common Stock and warrants to purchase a total of 215,455 shares of Common Stock. See "Management -- 1996 Stock Option Plan." ABSENCE OF DIVIDENDS The Company has never declared or paid dividends on its Common Stock and does not anticipate paying dividends in the foreseeable future. See "Dividend Policy." 14 THE COMPANY American Disposal Services, Inc. was incorporated in the State of Delaware in November 1995. The Company is the sole stockholder of ADS, an Oklahoma corporation that was formed in January 1991, and CDI, a Delaware corporation that was formed in April 1995. The Company acquired all the shares of the common stock of ADS and CDI, effective as of January 1, 1996, in exchange for which the previous stockholders of ADS and CDI received shares of the Company's Common Stock (the "Exchange"). As part of the Exchange, all options and warrants that had previously been granted by ADS and CDI were cancelled in exchange for options and warrants granted by the Company. In addition, effective as of May 31, 1996, the Company completed a 13.5-for-1 stock split of the Company's Common Stock (the "Stock Split"; together with the Exchange, the "Restructuring"). In January 1993, affiliates of Charterhouse Group International, Inc. ("Charterhouse") acquired a majority interest in ADS, the primary asset of which was the Pittsburg County landfill near McAlester, Oklahoma. In connection with the Charterhouse investment, ADS recruited the Company's President in January 1993, and assembled the balance of the Company's senior management team between 1993 and 1995. As a result of the management team's substantial experience in the solid waste industry and the financial expertise and capital provided by Charterhouse, the Company was able to finance its acquisition-based growth strategy, which from the outset focused on the identification and acquisition of solid waste landfills located in secondary markets. Using this strategy, CDI acquired three landfills in Illinois, Ohio and Pennsylvania in 1995 (the "CDI Acquisition"). Since January 1993, the Company has acquired 22 solid waste businesses, including four solid waste landfills, 17 solid waste collection companies and one transfer station. The Company's principal executive offices are located at 745 McClintock Drive, Suite 305, Burr Ridge, Illinois 60521, and its telephone number is (708) 655-1105. USE OF PROCEEDS The net proceeds to the Company from the sale of the Common Stock offered hereby, assuming an initial public offering price of $13.00 per share, after deducting underwriting discounts and offering expenses payable by the Company, are estimated to be approximately $32.2 million (approximately $37.2 million if the Underwriters' over-allotment option is exercised in full). The Company intends to use such proceeds: (i) to repay approximately $16.1 million of one of the term loans outstanding under the Credit Facility which bears an interest rate of 8.79% and has a maturity date of June 30, 2001; and (ii) to apply the remaining approximately $16.1 million for acquisitions, working capital and general corporate purposes. See "Risk Factors -- Discretion of Management to Allocate Offering Proceeds." The proceeds from the Credit Facility repaid all of the Company's existing bank debt and a portion of a note payable to a stockholder, and redeemed the preferred stock of a subsidiary. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." While the Company has entered into letters of intent for certain proposed acquisitions, these proposed transactions are not material to the Company's business. Pending use of the net proceeds for the above purposes, the Company intends to invest such funds in short-term, investment-grade securities, including government obligations and money market instruments. DIVIDEND POLICY The Company has never declared or paid any dividends on its Common Stock, and neither ADS nor CDI has declared or paid any dividends on its common stock. The Company and its Board of Directors currently intend to retain any earnings for use in the operation and expansion of the Company's business and do not anticipate paying any dividends on the Common Stock for the foreseeable future. The Credit Facility prohibits the payment of cash dividends without prior bank approval. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 15 DILUTION The net tangible book value of the Company's Common Stock as of March 31, 1996 was $15,761,000, or $2.78 per share. The "net tangible book value as adjusted" per share represents the amount of total tangible assets of the Company less total liabilities, divided by 8,426,901, the number of shares of Common Stock outstanding after the Offering, after giving effect to the sale of 2,750,000 shares of Common Stock offered hereby at an assumed public offering price of $13.00 per share and application of the estimated net proceeds therefrom. The net tangible book value as adjusted of the Company as of March 31, 1996 would have been $48,009,000 or $5.70 per share. This represents an immediate increase in net tangible book value as adjusted of $2.92 per share to existing stockholders and an immediate dilution of $7.30 per share to new investors purchasing shares in the Offering. The following table illustrates the dilution per share as described above: Assumed public offering price....................................... $ 13.00 Net tangible book value before the Offering....................... $ 2.78 Increase attributable to new investors............................ 2.92 --------- Net tangible book value as adjusted after the Offering.............. 5.70 --------- Dilution to new investors........................................... $ 7.30 --------- ---------
If the Underwriters' over-allotment option is exercised in full, the net tangible book value as adjusted will be $6.00 per share, resulting in dilution to new investors purchasing shares in the Offering of $7.00 per share. The following table sets forth, on an as adjusted basis as of March 31, 1996, the number of shares of Common Stock purchased from the Company, the total cash consideration paid to the Company and the average price per share paid by the existing stockholders and by new investors purchasing shares of Common Stock in the Offering, assuming an initial public offering price of $13.00 per share.
SHARES TOTAL CASH PURCHASED (1) CONSIDERATION AVERAGE ----------------------- -------------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ----------- ------------- ----------- ----------- Existing stockholders...................... 5,676,901 67.4% $ 41,589,000 53.8% $ 7.33 New investors.............................. 2,750,000 32.6% 35,750,000 46.2% $ 13.00 ---------- --- ------------- --- Total.................................. 8,426,901 100% $ 77,339,000 100% ---------- --- ------------- --- ---------- --- ------------- ---
- ------------------------ (1) The foregoing table assumes no exercise of the Underwriters' over-allotment option or of warrants and stock options outstanding as of March 31, 1996. As of March 31, 1996, there were outstanding warrants and options to purchase an aggregate of 1,085,070 shares of Common Stock. To the extent that additional options are granted under the Company's 1996 Stock Option Plan, there could be further dilution to new investors if the exercise price of such options is less than the initial public offering price per share. See "Management -- 1996 Stock Option Plan." 16 CAPITALIZATION The following table sets forth: (i) the actual capitalization of the Company at March 31, 1996; and (ii) the capitalization of the Company at March 31, 1996 as adjusted to reflect borrowings under the Credit Facility and the application of the net proceeds therefrom to repay all of the Company's existing bank debt and a portion of a note payable to a stockholder, and redeem the preferred stock of a subsidiary, and the sale of 2,750,000 shares of Common Stock offered hereby and the application of the estimated net proceeds therefrom to repay $16.1 million of borrowings outstanding under the Credit Facility. See "Use of Proceeds."
MARCH 31, 1996 --------------------- AS ACTUAL ADJUSTED --------- ---------- (IN THOUSANDS) Current portion of long-term obligations......................................... $ 4,167 $ 1,793 Note payable to stockholder (1).................................................. 12,500 -- --------- ---------- Short term debt and current portion of long-term obligations................... $ 16,667 $ 1,793 --------- ---------- --------- ---------- Long-term obligations............................................................ $ 49,006 $ 46,664 Redeemable preferred stock of subsidiary......................................... 1,908 -- Stockholders' equity (2): Preferred stock: 5,000,000 shares authorized; no shares issued or outstanding................................................................... -- -- Common stock: 20,000,000 shares authorized; 5,676,901 shares issued and outstanding; 8,426,901 shares issued and outstanding as adjusted.............. 57 84 Warrants outstanding........................................................... 107 107 Additional paid-in capital..................................................... 41,532 73,753 Accumulated deficit............................................................ (8,378) (8,378) --------- ---------- Total stockholders' equity................................................... 33,318 65,566 --------- ---------- Total capitalization....................................................... $ 84,232 $ 112,230 --------- ---------- --------- ----------
- ------------------------ (1) Subsequent to March 31, 1996, $7.5 million of the note payable was repaid with borrowings under the Credit Facility, and the remaining $5.0 million was repaid with existing cash. (2) Excludes 412,500 additional shares of Common Stock that may be sold pursuant to the Underwriters' over-allotment option and 1,085,070 shares of Common Stock reserved for issuance pursuant to the exercise of outstanding warrants and stock options under the Company's 1996 Stock Option Plan. 17 SELECTED CONSOLIDATED FINANCIAL DATA The following table presents selected consolidated statement of operations, balance sheet and other data of the Company for the periods presented. See "The Company" and the Notes to the consolidated financial statements included elsewhere herein for information concerning the basis of presentation. The following selected consolidated financial data as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 have been derived from the audited consolidated financial statements of the Company included elsewhere in this Prospectus and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected consolidated financial data as of December 31, 1991, 1992 and 1993 and for the years ended December 31, 1991 and 1992, are derived from audited consolidated financial statements that are not included herein. The selected consolidated financial data as of March 31, 1996 and for the three months ended March 31, 1995 and 1996 are unaudited but have been prepared on the same basis as the audited financial data and, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for such periods. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of results to be expected for the full fiscal year.
THREE MONTHS ENDED MARCH YEARS ENDED DECEMBER 31, 31, --------------------------------------------------------------- ----------- 1991 1992 1993 1994 1995 1995 ----------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues.................................. $ 33 $ 146 $ 7,730 $ 18,517 $ 30,004 $ 5,034 Cost of operations........................ 22 249 5,750 12,647 17,286 3,047 Selling, general and administrative expenses................................. 167 625 1,646 4,910 5,882 1,080 Depreciation and amortization expense..... 9 100 1,166 3,226 6,308 984 ----------- ----------- ----------- ----------- ----------- ----------- Operating income (loss)................... (165) (828) (832) (2,266) 528 (77) Interest expense.......................... -- (26) (417) (1,497) (3,030) (511) Interest income........................... -- -- 35 2 189 4 ----------- ----------- ----------- ----------- ----------- ----------- Loss before income taxes and extraordinary item..................................... (165) (854) (1,214) (3,761) (2,313) (584) Income tax benefit (expense).............. -- -- 391 1,372 (332) 156 ----------- ----------- ----------- ----------- ----------- ----------- Loss before extraordinary item............ (165) (854) (823) (2,389) (2,645) (428) Extraordinary item -- gain (loss) on early retirement of debt....................... -- -- 74 -- (908) -- ----------- ----------- ----------- ----------- ----------- ----------- Net loss.................................. (165) (854) (749) (2,389) (3,553) (428) Preferred stock dividend requirement...... -- -- -- -- (190) -- ----------- ----------- ----------- ----------- ----------- ----------- Net loss applicable to common stockholders............................. $ (165) $ (854) $ (749) $ (2,389) $ (3,743) $ (428) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Loss per share of common stock: Loss before extraordinary item.......... $ (.31) $ (1.42) $ (.51) $ (.91) $ (.76) $ (.15) ----------- ----------- ----------- ----------- ----------- ----------- Extraordinary item...................... -- -- .04 -- (.24) -- ----------- ----------- ----------- ----------- ----------- ----------- Net loss................................ $ (.31) $ (1.42) $ (.47) $ (.91) $ (1.00) $ (.15) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average common stock and common stock equivalent shares used to calculate per share amounts........................ 539,508 600,832 1,607,586 2,612,749 3,729,055 2,770,889 OTHER DATA: EBITDA (1)................................ $ (156 ) $ (728 ) $ 334 $ 960 $ 6,836 $ 907 EBITDA margin (2)......................... (472.7 )% (498.6 )% 4.3 % 5.2 % 22.8 % 18.0% 1996 ----------- STATEMENT OF OPERATIONS DATA: Revenues.................................. $ 11,724 Cost of operations........................ 6,108 Selling, general and administrative expenses................................. 1,935 Depreciation and amortization expense..... 2,718 ----------- Operating income (loss)................... 963 Interest expense.......................... (1,617) Interest income........................... 78 ----------- Loss before income taxes and extraordinary item..................................... (576) Income tax benefit (expense).............. 160 ----------- Loss before extraordinary item............ (416) Extraordinary item -- gain (loss) on early retirement of debt....................... -- ----------- Net loss.................................. (416) Preferred stock dividend requirement...... (63) ----------- Net loss applicable to common stockholders............................. $ (479) ----------- ----------- Loss per share of common stock: Loss before extraordinary item.......... $ (.08) ----------- Extraordinary item...................... -- ----------- Net loss................................ $ (.08) ----------- ----------- Weighted average common stock and common stock equivalent shares used to calculate per share amounts........................ 6,065,445 OTHER DATA: EBITDA (1)................................ $ 3,681 EBITDA margin (2)......................... 31.4 %
DECEMBER 31, ----------------------------------------------------- MARCH 31, 1991 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents...................................... $ 109 $ 12 $ 2,134 $ 548 $ 6,383 $ 6,706 Working capital (deficit)...................................... 118 (332) 788 (2,237) (8,819) (9,558) Property and equipment, net.................................... 393 467 15,156 17,062 81,250 81,696 Total assets................................................... 629 705 35,651 37,557 114,693 115,432 Long-term debt and capital lease obligations, net of current portion....................................................... -- -- 16,073 18,487 48,789 49,006 Redeemable preferred stock of subsidiary....................... -- -- -- -- 1,908 1,908 Stockholders' equity........................................... 585 89 12,531 12,132 33,855 33,318
- ------------------------------ (1) EBITDA represents operating income plus depreciation and amortization. While EBITDA data should not be construed as a substitute for operating income, net income (loss) or cash flows from operations in analyzing the Company's operating performance, financial position and cash flows, the Company has included EBITDA data (which are not a measure of financial performance under generally accepted accounting principles) because it understands that such data are commonly used by certain investors to evaluate a company's performance in the solid waste industry. (2) EBITDA margin represents EBITDA expressed as a percentage of revenues. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the "Selected Consolidated Financial Data", the Company's Consolidated Financial Statements and the notes thereto and the Company's Pro Forma Financial Statements and the notes thereto, included elsewhere herein. INTRODUCTION The Company has adopted an acquisition-based growth strategy that focuses on: (i) the identification and acquisition of solid waste landfills located in secondary markets that are within approximately 125 miles of significant metropolitan centers; and (ii) securing dedicated waste streams for such landfills by the acquisition or development of transfer stations and the acquisition of collection companies. The Company has completed 22 acquisitions since January 1993. All of these acquisitions were accounted for under the purchase method of accounting for business combinations. Accordingly, the amortization of goodwill and landfill airspace reflects the fair market value of the Company's assets at the time of their acquisition rather than their historical cost basis, and the results of operations for such acquired businesses are included in the Company's financial statements only from the applicable date of acquisition. As a result, the Company believes its historical results of operations for the periods presented are not directly comparable. There are several other aspects of the Company's growth strategy that cause management to believe that the Company's historical results of operations may not be consistent with future performance, including the following: - CONCENTRATION OF LANDFILL ASSETS. Since the CDI Acquisition, the mix of the Company's assets has been concentrated in landfills, as opposed to collection and transfer station operations. As a result of goodwill associated with the Company's acquisitions and the amortization expense associated with its landfill assets and closure obligations, the amount of depreciation and amortization as a percentage of the Company's revenues for the year ended December 31, 1995 and for the three months ended March 31, 1996 was relatively high as compared to other solid waste companies (21.0% and 23.2%, respectively). Management believes that this percentage is likely to decline as the Company penetrates the market in its Illinois, Ohio and Pennsylvania regions by acquiring or developing transfer stations, acquiring collection operations and making "tuck-in" acquisitions of collection companies. - MANAGEMENT CAPABILITIES. Since 1993, the Company has assembled a management team with substantial experience in the solid waste industry. The Company believes that its senior management team has the ability to manage the Company's operations as they expand. Therefore, the Company believes that the amount of selling, general and administrative expenses is likely to decline as a percentage of revenues as the Company grows. - CELL DEVELOPMENT COSTS. Cells developed to date at the landfills acquired in the CDI Acquisition have been constructed with double liner composite systems. The Company is exploring the possibility of using alternative design systems at its Ohio and Illinois landfills, which should result in lower cell development costs. Consistent with its operating program, the Company believes acquisitions of solid waste companies will have a positive impact on its future results of operations and, accordingly, believes that the Company's historical results should be considered in conjunction with the Unaudited Pro Forma Consolidated Financial Statements and the notes thereto included elsewhere herein. Additionally, neither the historical nor the pro forma results of operations fully reflect the operating efficiencies and improvements that are expected to be achieved by integrating acquired businesses, internalizing waste flows to the Company's landfills and realizing other synergies. See "Business -- Strategy." GENERAL REVENUES. The Company's revenues are attributable primarily to fees charged to customers for waste collection, transfer and disposal services. The Company's collection services are generally provided under 19 direct agreements with its customers or pursuant to contracts with municipalities. Commercial and municipal contract terms, where used, generally range from one to five years and commonly have automatic renewal options. A relatively small portion of such agreements also provide for the prepayment of certain fees, which fees are reflected as deferred revenues. The table below shows for the periods indicated, the percentage of the Company's total revenues attributable to services provided:
THREE MONTHS ENDED MARCH YEARS ENDED DECEMBER 31, 31, ------------------------------------- ------------------------ 1993 1994 1995 1995 1996 ----------- ----------- ----------- ----------- ----------- Collection (1).................................... 57.8% 68.0% 55.3% 63.5% 39.4% Transfer.......................................... --(2) 9.1 5.0 8.9 1.9 Landfill (1)...................................... 42.2 22.8 39.0 27.0 58.5 Other............................................. -- 0.1 0.7 0.6 0.2 ----- ----- ----- ----- ----- Total Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
- ------------------------ (1) The portion of collection revenues attributable to disposal charges for waste collected by the Company and disposed of at the Company's landfills has been excluded from collection revenues and included in landfill revenues. (2) In 1993, the Company did not separately account for its revenues from collection and transfer operations and, accordingly, revenues from transfer operations are reflected as collection revenues. A component of the Company's business strategy is to maximize internalization of waste it collects and thereby realize higher margins from its operations. By disposing of waste at Company-owned landfills, the Company retains the margin generated through disposal operations that would otherwise be earned by third-party landfills. During the three months ended March 31, 1996, 98% of the total tonnage collected by the Company was disposed of at Company-owned landfills. This represents approximately 29% of the total tonnage disposed of at Company-owned landfills in the three months ended March 31, 1996. During such period, 34% of the total tonnage disposed of at Company-owned landfills was delivered pursuant to long-term contracts. EXPENSES. Cost of operations include labor, maintenance and repairs, equipment and facility rent, utilities and taxes, the costs of ongoing environmental compliance, safety and insurance, disposal costs and costs of independent haulers transporting Company waste to disposal sites. Disposal costs include certain landfill taxes, host community fees, landfill site maintenance, fuel and other equipment operating expenses and provision for post-closure expenses, consisting of cap maintenance, groundwater monitoring, methane gas control and recovery and leachate treatment/disposal, anticipated to be incurred in the future. Selling, general and administrative ("SG&A") expenses include management, clerical and administrative compensation, overhead, sales costs, community relations expenses, provisions for estimated uncollectible accounts receivable and unrealizable acquisition costs and management fees paid to an affiliate of Charterhouse. Upon closing of the Offering, in lieu of paying such management fees, the Company will begin to pay a salary to the Company's Chairman (which should result in savings to the Company of approximately $300,000 per annum). See "Certain Transactions." Depreciation and amortization expense includes depreciation of fixed assets, closure costs and amortization of landfill airspace, goodwill, other intangibles and loan origination fees. The amount of landfill amortization expense related to airspace consumption can vary materially from landfill to landfill depending upon the purchase price, landfill configuration and cell development costs. Certain direct landfill development costs, such as engineering, upgrading, construction and permitting costs, are capitalized and amortized based on airspace consumed. All of the Company's capitalized expenditures relating to cell development and landfill expansion work are in connection with cells for which the Company holds a permit for development. The Company believes that the costs associated with engineering, owning and operating landfills will increase in the future as a result of federal, state and local regulation and a growing community awareness of the landfill permitting process. Although there can be no assurance, the 20 Company believes that it will be able to implement price increases sufficient to offset these increased expenses. All indirect landfill development costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. The Company capitalizes engineering, legal, accounting and other direct costs incurred in connection with potential acquisitions, accounted for using the purchase method for business combinations. The Company, however, routinely evaluates such capitalized costs and expenses those costs related to acquisitions not likely to occur. Indirect acquisition costs, such as executive salaries, general corporate overhead and other corporate services, are expensed as incurred. Accrued closure and post-closure costs represent an estimate of the current value of the future obligations associated with closure and post-closure monitoring of non-hazardous solid waste landfills currently owned by the Company. Site specific closure and post-closure engineering cost estimates are prepared annually for landfills owned by the Company. Estimated costs are accrued based on accepted tonnage as landfill airspace is consumed. The Company periodically updates its estimates of future closure and post-closure costs. These changes are accounted for on a prospective basis. The Company expects its closure and post-closure costs per ton to decrease as it expands landfill capacity and as such costs are amortized over greater airspace. The Company has estimated that, as of December 31, 1995, total costs for post-closure activities, including cap maintenance, groundwater monitoring, methane gas control and recovery and leachate treatment/disposal for up to 30 years after closure in certain cases, will approximate $11.3 million. In addition, the Company has estimated that, as of December 31, 1995, closure costs expected to occur during the operating lives of these facilities and expensed over these facilities' useful lives will approximate $28.4 million. At December 31, 1994 and 1995 and March 31, 1996, accruals for landfill closure and post-closure costs (including costs assumed through acquisitions) were approximately $1.1 million, $6.2 million and $6.6 million, respectively. The accruals reflect relatively young landfills with estimated remaining lives, based on current waste flows, that range from 4 to 46 years, and an estimated average remaining life of greater than 20 years. RESULTS OF OPERATIONS The following table sets forth items in the Company's consolidated statement of operations as a percentage of revenues for the periods indicated.
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ---------------------------------- ---------------------- 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ---------- Revenues............................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of operations..................................... 74.4 68.3 57.6 60.5 52.1 Selling, general and administrative expenses........... 21.3 26.5 19.6 21.5 16.5 Depreciation and amortization expenses................. 15.1 17.4 21.0 19.6 23.2 ----- ----- ----- ----- ----- Operating income (loss)................................ (10.8) (12.2) 1.8 (1.6) 8.2 Interest expense, net.................................. (4.9) (8.1) (9.5) (10.0) (13.1) Income tax (expense) benefit........................... 5.0 7.4 (1.1) 3.1 1.4 Extraordinary gain (loss), net of income tax........... 1.0 -- (3.0) -- -- ----- ----- ----- ----- ----- Net loss........................................... (9.7)% (12.9)% (11.8)% (8.5)% (3.5)% ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- EBITDA margin.......................................... 4.3% 5.2% 22.8% 18.0% 31.4%
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 REVENUES. Revenues for the three months ended March 31, 1996 were $11.7 million compared to $5.0 million for the three months ended March 31, 1995. The increase in revenues is due primarily to the effects of the CDI Acquisition (which occurred after March 31, 1995). Revenues of $7.2 million for the 1996 period 21 were generated from companies acquired since March 31, 1995, while revenues attributable to existing operations amounted to $4.5 million, a decrease of $552,000. This decrease was due primarily to the lapse of an exclusive contract with a transfer station in Oklahoma. COST OF OPERATIONS. Cost of operations for the three months ended March 31, 1996 was $6.1 million compared to $3.0 million for the three months ended March 31, 1995. This increase was attributable primarily to the associated increase in revenues described above. As a percentage of revenues, cost of operations decreased to 52.1% in the 1996 period from 60.5% in the 1995 period. The resulting increase in margins was due primarily to the Company's higher proportion of landfill operations (which generally have higher margins than disposal operations), with landfill revenues increasing from $1.4 million to $6.9 million and from 27.0% to 58.5% as a percentage of revenues. Margins also increased because of increased operating efficiencies resulting from the consolidation of hauling operations and the opening of new transfer stations in the Company's Missouri region. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased to $1.9 million for the three months ended March 31, 1996 compared to $1.1 million for the three months ended March 31, 1995. The aggregate increase in SG&A expenses resulted from expenses associated with the CDI Acquisition, and an increase in personnel and other expenses related to the anticipated growth of the Company. As a percentage of revenues, SG&A expenses decreased to 16.5% in the 1996 period from 21.5% in the 1995 period. The decrease in SG&A expenses as a percentage of revenues is due partially to a significant increase in revenue producing assets while corporate level personnel and other related expenses increased moderately. SG&A expenses in future periods should be positively affected by savings of approximately $300,000 per annum due to the termination, effective at the closing of the Offering, of the Company's management agreement with an affiliate of its principal stockholder. See "Certain Transactions." DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense for the three months ended March 31, 1996 was $2.7 million compared to $1.0 million for the three months ended March 31, 1995. The increase in depreciation and amortization expense is due primarily to the CDI Acquisition which significantly increased landfill airspace amortization and provision for closure costs, and, to a lesser extent, the capital expenditures associated with such acquisition. See "-- Introduction." As a percentage of revenues, depreciation and amortization expense was 23.2% and 19.6% for the three months ended March 31, 1996 and March 31, 1995, respectively. The relatively high percentages are primarily due to the configuration of the Wheatland landfill during the three months ended March 31, 1995 and the high concentration of the Company's assets in landfills following the CDI Acquisition during the three months ended March 31, 1996. Net fixed assets increased to $81.7 million at March 31, 1996 from $17.3 million at March 31, 1995 and goodwill, net of accumulated amortization expense, increased to $15.6 million at March 31, 1996 from $13.6 million at March 31, 1995. NET INTEREST EXPENSE. Net interest expense was $1.5 million for the three months ended March 31, 1996 compared to $507,000 for the three months ended March 31, 1995. This increase is attributable to additional debt incurred to complete the CDI Acquisition. INCOME TAXES. The Company recorded an income tax benefit of $160,000 for the three months ended March 31, 1996 and $156,000 for the three months ended March 31, 1995 primarily due to the effects of differences in the treatment of goodwill for book and tax purposes. YEARS ENDED DECEMBER 31, 1995 AND 1994 REVENUES. Revenues in 1995 were $30.0 million compared to $18.5 million in 1994. The increase in revenues was due primarily to the effects of the CDI Acquisition and, to a lesser extent, price and volume increases attributable to existing operations. Revenues of $10.1 million in 1995 were generated from companies acquired during 1995, while increases in revenue attributable to operations acquired prior to 1996 amounted to $1.3 million. COST OF OPERATIONS. Cost of operations in 1995 was $17.3 million compared to $12.6 million in 1994. This increase in costs was attributable primarily to increases in the Company's revenues described above. As a percentage of revenues, cost of operations was 57.6% in 1995 compared to 68.3% in 1994. This decrease 22 was due primarily to operating efficiencies and improvements from the Company's development of its Missouri region and the impact of the CDI Acquisition, which shifted the relative proportion of the Company's assets toward landfills that typically operate at higher margins than collection operations. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $5.8 million in 1995 compared to $4.9 million in 1994. The increase was a result of expenses associated with the CDI Acquisition, expenses incurred in connection with the Company's increase in personnel and other expenses related to the anticipated expansion of the Company's operations. SG&A expenses as a percentage of revenues were 19.6% in 1995 compared to 26.5% in 1994. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense in 1995 was $6.3 million compared to $3.2 million in 1994. The increase in depreciation and amortization expense is due to the acquisition of the CDI landfills, with their relatively higher depreciation and amortization expense compared to depreciation and amortization expense of collection operations, depreciation of increased capital expenditures and a one time write-off of $505,000 following the Company's election in 1995 not to pursue the enforcement of several covenants not to compete. Net fixed assets increased to $81.3 million in 1995 from $17.1 million in 1994 and goodwill, net of accumulated amortization expense, increased to $15.7 million in 1995 from $13.6 million in 1994. NET INTEREST EXPENSE. Net interest expense increased to $2.8 million in 1995 from $1.5 million in 1994. This increase primarily reflects increased indebtedness incurred in connection with acquisitions and capital expenditures. INCOME TAXES. Although the Company recorded a net loss in 1995, the Company recorded an income tax expense of $300,000 in 1995 because the Company's subsidiaries were not then consolidated and CDI reported a profit in 1995. The Company recorded an income tax benefit of $1.4 million in 1994. See Note 6 of the Notes to Consolidated Financial Statements included elsewhere herein. EXTRAORDINARY EXPENSE. In 1995, the Company recognized an extraordinary loss of $908,000, representing unamortized deferred debt issuance cost in connection with the extinguishment of debt outstanding under a prior credit facility. YEARS ENDED DECEMBER 31, 1994 AND 1993 REVENUES. Revenues in 1994 were $18.5 million compared to $7.7 million in 1993. The increase in revenues was due primarily to the effects of 1993 acquisitions, the operations of which were included in the Company's financial results for a full year beginning in 1994, and the additional impact of acquisitions completed during 1994. COST OF OPERATIONS. Cost of operations in 1994 were $12.6 million compared to $5.8 million in 1993. The increase in the cost of operations principally reflects costs associated with acquired operations. Cost of operations as a percentage of revenues, however, decreased from 74.4% in 1993 to 68.3% in 1994. The improvement in margins in 1994 resulted primarily from lower third-party disposal costs as a result of diverting waste at acquired businesses from third-party landfills to Company-owned landfills. Margins also benefitted from the integration of acquired companies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $4.9 million in 1994 compared to $1.6 million in 1993. SG&A expenses as a percentage of revenues were 26.5% in 1994 compared to 21.3% in 1993. This increase reflects expenses incurred in connection with the Company's increase in personnel and other expenses related to the anticipated growth of the Company. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense in 1994 was $3.2 million compared to $1.2 million in 1993. The increase in depreciation and amortization expense is due to the full year impact of acquisitions completed during 1993. NET INTEREST EXPENSE. Net interest expense increased to $1.5 million in 1994 from $382,000 in 1993, primarily because the Company's indebtedness increased subsequent to 1993 as a result of acquisitions, landfill development and other capital expenditures. 23 LIQUIDITY AND CAPITAL RESOURCES Due to the capital intensive nature of the solid waste industry, the Company has used, and expects to continue using, substantially all cash generated from operations to fund acquisitions, capital expenditures and landfill development. Certain operating equipment has also been acquired using leases which have short and medium-term maturities. As a result, the Company has incurred working capital deficits in the past, and there can be no assurance that its available working capital will be sufficient in the future as it pursues its acquisition-based growth strategy. Historically, the Company has satisfied its acquisition, capital expenditure and working capital needs primarily through equity infusions from its principal stockholders and bank financing. The Company's capital expenditure and working capital requirements have increased significantly, reflecting the Company's rapid growth by acquisition and development of revenue producing assets, and will increase further as the Company continues to pursue its acquisition-based growth strategy. During 1994, the Company spent $5.6 million in capital expenditures, of which $1.7 million was for cell development at the Company's initial two landfills. During 1995, when the Company acquired three more landfills, the Company spent $6.2 million in capital expenditures, of which $4.9 million was for cell development. In connection with such acquisitions, the Company required $25.5 million in equity infusions from its principal stockholders and $36.7 million in bank debt. In 1996, the Company expects to spend approximately $13 million for capital expenditures of which $8.1 million is anticipated to be used for cell development. The increase in cell development costs in 1996 over 1995 will be due to the Company's ownership of the Clarion, Livingston and Wyandot landfills for the entire year and the fact that increased volumes at the landfills will cause cell development to occur prior to the winter season when construction activities cease. Operating activities provided net cash of $5.6 million in 1995 and used net cash of $1.1 million in 1994. From 1994 to 1995, depreciation and amortization expense increased by $3.1 million and accounts payable and accrued liabilities increased by $1.8 million. The increase in each of these items was primarily due to the Company's purchase of three landfills in 1995. See " -- Introduction." Investing activities used net cash of $68.4 million and $6.2 million in 1995 and 1994, respectively. The increase in the amount of net cash used in investing activities between 1994 and 1995 is primarily due to the CDI Acquisition. Financing activities provided net cash of $68.6 million and $5.7 million in 1995 and 1994, respectively. The increase in net cash provided by financing activities reflects proceeds from a 1995 credit facility, a note payable to a stockholder and net proceeds from issuances of common stock. In May 1996, the Company entered into the $87 million Credit Facility with Internationale Nederlanden (U.S.) Capital Corporation, as administrative agent, and Morgan Guaranty Trust Company of New York, as documentation agent, which repaid all of the Company's existing bank debt and a portion of a note payable to a stockholder, and redeemed the preferred stock of a subsidiary. In connection with such refinancing, the Company recognized an extraordinary loss of $721,000, representing unamortized deferred debt issuance cost. The Credit Facility provides the Company with two term loans of $38 million and $25 million which will be used to repay existing debt and financing fees, a $7 million revolving credit facility for working capital purposes, and a $17 million expansion facility which may only be used for acquisitions. The various loans and lines of credit under the Credit Facility bear interest at rates per annum equal to, at the Company's discretion, either: (i) the higher of (a) the federal funds rate plus 1/2 of 1% and (b) the prime rate, plus an applicable margin ranging from 1.00% to 1.75%; or (ii) the London Interbank Offered Rate ("LIBOR"), plus an applicable margin ranging from 2.50% to 3.25%, and have maturities ranging from 2001 to 2003. As of July 11, 1996, the Company had borrowed $73.4 million under the Credit Facility. As of such date, the interest rates on the various loans and lines of credit under the Credit Facility ranged from 8.00% to 8.75% and the total unused availability under the Credit Facility was $13.6 million, of which $6.0 million may be used for working capital purposes and $7.6 million may be used for acquisitions. The Company's ability to use the expansion facility is based upon a number of covenants, including the maintenance of specified debt to equity and fixed charge coverage ratios. The Company is in compliance with the terms of these covenants. Other covenants contain limitations on the payments of dividends, the incurrence of additional debt and the use of proceeds from debt or equity issuances. The Credit Facility requires the Company to use 50% of the 24 proceeds of any equity offering (including the Offering) to repay a portion of the term loans then outstanding. Upon consummation of this Offering and the application of the net proceeds therefrom, the Company expects to have $13.6 million of availability under the Credit Facility, of which $6.0 million may be used for working capital purposes and $7.6 million may be used for acquisitions. The Company expects that Subtitle D and other regulations that apply to the non-hazardous waste disposal industry will require the Company, as well as others in the industry, to alter operations and to modify or replace existing facilities. Such expenditures have been and will continue to be substantial. Regulatory changes could accelerate expenditures for closure and post-closure monitoring and obligate the Company to spend sums in addition to those presently reserved for such purposes. These factors, together with the other factors discussed above, could substantially increase the Company's operating costs. See "Risk Factors -- Extensive Environmental and Land Use Laws and Regulations." The Company intends to satisfy its interest obligations as well as future capital expenditures and working capital requirements, with cash flows from operations and borrowings under the Credit Facility. After completion of the Offering, the Company may need to raise additional capital to fund the acquisition and integration of additional solid waste businesses. The Company may raise such funds through bank financings or public or private offerings of its securities. There can be no assurance that the Company will be able to secure such funding, if necessary, on favorable terms, if at all. If the Company is not successful in securing such funding, the Company's ability to pursue its business strategy may be impaired and results of operations for future periods may be adversely affected. See "Risk Factors -- Capital Requirements and Limited Working Capital." CDI ACQUISITION Through the CDI Acquisition, the Company acquired three landfills and certain other assets (the "MSG Facilities") from the Municipal Services Group of Envirite Corporation. See "The Company." For the periods presented in the historical financial statements of the MSG Facilities included elsewhere herein, the MSG Facilities' funds were generated from operating activities and from financing through Envirite Corporation's credit facility. Separate historical financial statements for the MSG Facilities could not be prepared because Envirite Corporation did not maintain intercompany accounts that would allow calculation of corporate overhead allocations and certain balance sheet items. Operating cash flows from the MSG Facilities for the fiscal years ended January 1, 1994 and December 31, 1994 and the period from January 1, 1995 to the dates of acquisition of such properties were $3.1 million, $3.0 million and $3.8 million, respectively. Capital expenditures for the MSG Facilities for the fiscal years ended January 1, 1994 and December 31, 1994 and the period from January 1, 1995 to the dates of acquisition of such properties were $4.7 million, $2.1 million and $2.2 million, respectively. These cash flows may have been different if the MSG Facilities had operated independently of Envirite Corporation for the periods presented. INFLATION AND PREVAILING ECONOMIC CONDITIONS To date, inflation has not had a significant impact on the Company's operations. Consistent with industry practice, most of the Company's contracts provide for a pass through of certain costs, including increases in landfill tipping fees and, in some cases, fuel costs. The Company therefore believes it should be able to implement price increases sufficient to offset most cost increases resulting from inflation. However, competitive factors may require the Company to absorb at least a portion of these cost increases, particularly during periods of high inflation. The Company is unable to determine the future impact of a sustained economic slowdown. SEASONALITY The Company's revenues tend to be somewhat lower in the winter months. This is primarily attributable to the fact that: (i) the volume of waste relating to construction and demolition activities tends to increase in the spring and summer months; and (ii) the volume of industrial and residential waste in the regions where the Company operates tends to decrease during the winter months. In addition, particularly harsh weather conditions may delay the development of landfill capacity and otherwise result in the temporary suspension of certain of the Company's operations and could materially adversely affect the Company's overall business, financial condition and results of operations. 25 BUSINESS INTRODUCTION American Disposal Services is a regional, integrated, non-hazardous solid waste services company that provides solid waste collection, transfer and disposal services primarily in the Midwest. The Company owns five solid waste landfills and owns, operates or has exclusive contracts to receive waste from seven transfer stations. The Company's landfills and transfer stations are supported by its collection operations, which serve over 85,000 residential, commercial and industrial customers. The Company began its operations in the Midwest and currently has operations in Arkansas, Illinois, Kansas, Missouri, Ohio, Oklahoma and Pennsylvania. The Company has adopted an acquisition-based growth strategy, and intends to continue its expansion, generally in its existing and proximate markets. A cornerstone of the Company's growth strategy is to identify and acquire solid waste landfills located in secondary markets that are within approximately 125 miles of significant metropolitan centers and to secure dedicated waste streams for such landfills by acquisition or development of transfer stations and acquisition of collection companies. The Company expects the current consolidation trends in the solid waste industry to continue as many independent landfill and collection operators lack the capital resources, management skills and technical expertise necessary to operate in compliance with increasingly stringent environmental and other governmental regulations. Due in part to this consolidation, the Company believes that significant opportunities exist to expand and further integrate its operations in each of its existing markets. Since January 1993, the Company has acquired 22 solid waste businesses, including four solid waste landfills, 17 solid waste collection companies and one transfer station. The Company's operating program generally involves a four-step process: (i) acquiring solid waste landfills in its target markets; (ii) securing captive waste streams for its landfills through the acquisition or development of transfer stations serving those markets, through acquisitions of collection companies and by entering into long-term contracts directly with customers or collection companies; (iii) making "tuck-in" acquisitions of collection companies to further penetrate its target markets; and (iv) integrating these businesses into the Company's operations to achieve operating efficiencies and economies of scale. The implementation of the Company's operating program is substantially complete in its Missouri region (which also includes Arkansas, Kansas and Oklahoma), where the Company has completed the acquisition of 12 collection companies and the acquisition or development of three transfer stations. The Company is in the initial phases of its operating program in the Illinois, Ohio and Pennsylvania regions in which the Company began operations in 1995. In addition, the Company may, as specific opportunities arise, evaluate and pursue acquisitions in the solid waste collection and disposal industry that do not strictly conform to the Company's four-step operating program. The Company's operating strategy emphasizes the integration of its solid waste collection and disposal operations and the internalization of waste collected. One of the Company's goals is for its captive waste streams (including the Company's collection operations and third party haulers operating under long-term contracts) to provide in excess of 50% of the volume of solid waste disposed of at each of its landfills. During the three months ended March 31, 1996, the Company's captive waste constituted an average of approximately 63% of the solid waste disposed of at its landfills. INDUSTRY BACKGROUND In the United States, landfilling is at present the most common means of disposing of non-hazardous municipal solid waste ("MSW"), which consists primarily of refuse and garbage from households and commercial establishments. In addition, landfilling is one of the means of disposing of certain special waste. Special waste, some types of which may require special handling, consists of all waste not regulated as hazardous waste under federal or state laws other than MSW and may include asbestos, petroleum contaminated soil, incinerator ash, foundry sands and sewage and industrial sludges. In October 1991, the EPA adopted the Subtitle D Regulations, which generally became effective on October 9, 1993 (except for certain MSW landfills accepting less than 100 tons per day, as to which the effective date was April 9, 1994, and new financial assurance requirements, which are scheduled to become 26 effective April 9, 1997). The Subtitle D Regulations specify design, siting, operating, monitoring, closure and financial requirements for landfill operations and, among other things, require upgraded or new composite landfill liners, leachate collection and treatment, groundwater and methane gas monitoring, stricter siting and locational criteria, closure and extended post-closure requirements and financial assurances (such as a surety bond) that the owner or operator can meet certain of these obligations. Each state is required to revise its applicable solid waste regulations or programs to meet the requirements of the Subtitle D Regulations or such requirements automatically will be imposed by the EPA. Many states have already adopted regulations or programs as stringent as, or more stringent than, the Subtitle D Regulations, including all of those in which the Company's landfills are located. The Company believes that in recent years there has been a trend towards consolidation of landfill ownership and that a similar trend is emerging in the solid waste collection industry, which historically has been characterized by numerous small companies. The Company believes that these trends will continue and are the result of several factors: - The Subtitle D Regulations and related state regulations and programs have significantly increased the amount of capital and the technical expertise required in order to own and operate a landfill. As a result, many landfill operators that lack the required capital or expertise are electing to sell their landfills, as an alternative to closing them. - A number of municipalities are electing to privatize the operations of their municipal landfills as an alternative to funding the changes to these landfills that are required in order to comply with the Subtitle D Regulations and related state regulations and programs. - As a result of heightened sensitivity to environmental concerns by many communities, it is becoming increasingly desirable in many markets for collection companies to provide waste reuse and reduction programs, such as recycling and composting, in addition to conventional waste collection services. This development, as well as more stringent bonding requirements being imposed on waste collection companies by various municipalities, have increased the amount of capital generally required for waste collection operations, causing private collection companies that lack the requisite capital to sell their operations to better capitalized companies. STRATEGY The Company's objective is to build a large regional fully-integrated solid waste services company with an established market presence in secondary markets. The Company's strategy for achieving this objective is to establish a market presence generally anchored by its landfills; to increase volume in its markets through "tuck-in" acquisitions of collection companies and marketing to new customers; to provide a high level of customer service; to implement selective price increases; and to continue to implement strict cost controls and reduce corporate overhead as a percentage of revenues. The Company believes that this strategy of building an integrated entity should provide it with competitive cost advantages in its targeted regional markets. The Company's ability to implement its strategy is enhanced by the experience of its senior managers and their knowledge of the solid waste industry. There can be no assurance, however, that the Company will be successful in the execution of its strategy. See "Risk Factors." The Company targets acquisitions in geographic areas characterized by one or more of the following criteria: (i) the availability of permitted and underutilized landfill capacity located outside of, but within 125 miles of, a significant metropolitan center; (ii) the absence of a dominant competitor in the area which would preclude the Company from implementing its business strategy; (iii) anticipated economic and population growth; and (iv) near or medium-term scheduled closures of competing landfills. The Company has adopted the following four-step operating program in executing its business strategy: 1. LANDFILL ACQUISITIONS. Once the Company identifies an area that qualifies under its target market criteria, the Company seeks to establish a market presence, generally by acquiring one or more landfills in that area that can be accessed economically from the metropolitan center or from the regional market area, either through direct hauling or through strategically located transfer stations. In evaluating a landfill acquisition, the Company considers, among others, the following factors: (i) current 27 disposal costs together with transportation costs to the targeted landfill relative to transportation and disposal costs of potential competitors; (ii) expected landfill life; (iii) opportunities for landfill expansion; and (iv) projected short-term ability to secure a minimum of 500 tons per day of disposal volume. 2. SECURE CAPTIVE WASTE VOLUMES. After the Company has acquired a landfill, it seeks to build a market presence and increase the utilization of the landfill by securing captive waste streams, which includes developing and acquiring transfer stations, entering into waste collection contracts and acquiring waste collection companies. Generally, the Company pursues the acquisition of collection companies that: (i) have well-established residential or commercial collection routes and accounts; (ii) own and operate transfer stations; or (iii) do not own landfills and are vulnerable to volatile disposal pricing, which the Company believes it can minimize through landfill ownership. 3. "TUCK-IN" ACQUISITIONS. The Company acquires service rights, obligations, machinery and equipment in "tuck-in" acquisitions of collection companies to: (i) increase the waste stream directed to its landfills; (ii) maximize its market presence; and (iii) take advantage of economies of scale which should increase earnings and return on capital. 4. INTEGRATION AND EXPANSION OF OPERATIONS. Immediately upon closing any acquisition, the Company integrates the acquired company into its operations by: (i) instituting strict cost control procedures; (ii) consolidating and rationalizing collection routes and pricing; (iii) implementing Company operating policies and procedures (including programs designed to improve employee productivity and equipment utilization); (iv) establishing a sales and marketing force; and (v) converting the acquired company to the Company's accounting, data processing and management reporting systems. During the transition period following acquisitions, the Company retains the management of certain companies it acquires in order to benefit from management's local operating knowledge and the goodwill it has developed. Additionally, on a selective basis, the Company seeks to expand the capacity of its landfills to accommodate increasing waste volumes and improve profitability. ACQUISITION PROGRAM In January 1993, representatives of Charterhouse and the Company's management formulated an acquisition-based growth strategy to establish a large regional fully-integrated solid waste management services company. To execute its strategy, affiliates of Charterhouse acquired a majority interest in ADS, which owned one landfill in Oklahoma, and began assembling a senior management team. See "The Company." Using ADS as a platform for this strategy, the Company has increased the number of landfills it owns from one to five and has completed 22 acquisitions of solid waste companies since January 1993. The Company has assembled an experienced acquisition team comprised of operations, environmental, engineering, legal, financial and accounting personnel, each engaged in identifying and evaluating acquisition opportunities in order to execute its operating program. The Company has established pre-acquisition review procedures for acquisition candidates, including legal, financial, engineering, operational and environmental reviews. The environmental review includes, where appropriate, investigation of geologic, hydrogeologic and other site conditions, past and current operations (including types of waste deposited), design and construction records, permits, regulatory compliance history, regulatory agency records and available soil sampling, groundwater and air monitoring results. The Company uses regional managers to assist in the acquisition process by identifying suitable candidates and performing pre-acquisition review and evaluation tasks. In considering whether to proceed with an acquisition, in addition to determining whether the candidate meets the Company's criteria described above, the Company evaluates a number of factors, including: (i) the acquisition candidate's historical and projected financial results; (ii) any expected synergies with one or more of the Company's existing operations; (iii) the proposed purchase price and the Company's expected resultant internal rate of return on investment and the expected impact on the Company's earnings per share; (iv) whether the candidate will enhance the Company's ability to effect other acquisitions in the vicinity; (v) the candidate's customer service reputation and relationships with the local communities; (vi) the composition and size of the candidate's customer base; (vii) the types of services provided by the 28 candidate; and (viii) whether the candidate has definable and controllable liabilities, including potential environmental liabilities. The Company believes that significant opportunities exist to acquire new landfills and to develop its existing markets, and reviews acquisition opportunities on an on-going basis. The Company has completed 22 acquisitions of solid waste companies since January 1993, which are summarized in the table below.
COMPANY BUSINESS PRINCIPAL LOCATION DATE ACQUIRED - ----------------------------------- -------------------------- ------------------------- --------------------- MISSOURI REGION: Wheatland Landfill Scammon, KS January 1993 Pittsburg Sanitation Collection Pittsburg, KS January 1993 Ozark Sanitation Collection Carthage, MO January 1993 Trashmaster Collection Joplin, MO January 1993 A-1 Trash Service Collection Verona/Aurora, MO April 1993 Tate's Transfer Transfer Station Verona/Aurora, MO April 1993 Renfro Sanitation Collection Branson, MO June 1993 B&B Trash Collection Pittsburg, KS July 1993 B&B Refuse Collection Neosho, MO December 1993 Apex Sanitation Collection Grove, OK and Green December 1993 Forest, AR Epps Sanitation Collection Branson, MO December 1993 Cummings Sanitation Collection Nixa, MO May 1994 Light Hauling Collection Branson, MO August 1994 Poole's Sanitation Collection Bentonville, AR August 1994 Southwest Waste Collection Springfield, MO July 1996 WESTERN PENNSYLVANIA REGION: Clarion Landfill and Collection Leeper, PA June 1995 Mauthe Sanitation Collection Strattanville, PA March 1996 OHIO REGION: Wyandot Landfill Upper Sandusky, OH August 1995 Environmental Transportation and Collection Findlay, OH May 1996 Management R&R Waste Disposal Collection Findlay, OH May 1996 Seneca Disposal Collection Tiffin, OH June 1996 ILLINOIS REGION: Livingston Landfill Pontiac, IL November 1995
MISSOURI REGION. The Company established a market presence in the southwest Missouri region in January 1993 with the acquisition of its Wheatland landfill. The implementation of the Company's operating program is substantially complete in its Missouri region. Since purchasing the Wheatland landfill, the Company has acquired one transfer station and independently developed two transfer stations. The Company also has exclusive contracts to accept waste from two other transfer stations. Additionally, the Company acquired 13 collection companies, including the three operations purchased simultaneously with the Wheatland landfill. The collection operations and transfer stations have been consolidated into three divisions. The Company has integrated acquired companies by consolidating and rationalizing routes and pricing, reducing overhead through consolidating an acquired company's operations, implementing the Company's cost controls and operating procedures, converting acquired companies to the Company's management reporting systems and implementing a sales and marketing team. The Company continues to pursue "tuck-in" acquisitions of collection companies to increase its per ton margins through internalizing waste streams. The Company also seeks to expand its operations by taking advantage of the economic efficiencies provided by its integrated operations and is in the process of developing another transfer station. Since the acquisition of its Wheatland landfill, the Company has increased the waste volume at its landfill by approximately 800 tons per day. 29 WESTERN PENNSYLVANIA REGION. The Company entered the western Pennsylvania region in June 1995 with the acquisition of its Clarion landfill and an affiliated collection company. The Clarion landfill is located within 110 miles of Pittsburgh and Erie, Pennsylvania. The Company is in the early stages of its operating program in the western Pennsylvania region. Since the acquisition of the Clarion landfill, the Company has reached the maximum allowable waste volume by increasing deliveries to this landfill by approximately 300 tons per day, primarily through the expansion of its market presence and the geographic scope of its operations. As part of its ongoing strategy in the western Pennsylvania market, the Company seeks to increase its volume of internalized waste through additional "tuck-in" acquisitions in order to increase per ton margins. In March 1996, the Company completed its first "tuck-in" acquisition of a collection company in this region. OHIO REGION. The Company established a market presence in north-central Ohio in August 1995 with the acquisition of its Wyandot landfill, which is located within approximately 125 miles of Cleveland, Ohio and within approximately 75 miles of Toledo and Columbus, Ohio. The Company is in the early stages of its operating program in the north-central Ohio region. Since the acquisition of the Wyandot landfill, the Company has increased the waste volume at this landfill by approximately 300 tons per day, primarily through operating under contract with two transfer stations and implementing a new sales focus. The Company recently completed the acquisition of three collection companies in the Ohio region and is pursuing the acquisition of additional collection companies to increase its volume of internalized waste. To further expand its operations, the Company is seeking to increase capacity at the Wyandot landfill. See "-- Operations -- Landfills." Prior to the acquisition by the Company, the Wyandot landfill's waste volume was composed primarily of special waste. The Company is seeking to increase the volume of MSW relative to special waste deposited at the Wyandot landfill through shifting the focus of its sales and marketing efforts towards MSW collections. ILLINOIS REGION. The Company established a market presence in north-central Illinois in November 1995 with the acquisition of its Livingston landfill, which is located approximately 90 miles from downtown Chicago. The acquisition of the Livingston landfill was attractive to the Company's management because of the expected closing of two competing landfills that currently accept an aggregate of approximately 15,000 tons per day and the management team's experience with the Chicago market. The Company is in the early stages of its operating program in the north-central Illinois region. Since the acquisition of the Livingston landfill, the Company has increased the waste volume at this landfill by approximately 1,000 tons per day through intensified sales and marketing efforts. Presently, the Company is independently developing one transfer station and is pursuing the acquisition of another. Additionally, the Company is pursuing the acquisition of collection companies of varying size to increase its volume of internalized waste which is currently delivered pursuant to brokerage contracts. The Company is also seeking to expand capacity at the Livingston landfill. See "-- Operations -- Landfills." There can be no assurance that the Company will be successful in implementing its operating program in any of these existing markets or in any future markets. See "Risk Factors -- Ability to Manage Growth," " -- Availability of Acquisition Targets; Integration of Future Acquisitions," " -- History of Losses and Working Capital Deficits; Integration of Completed Acquisitions," "-- Limited Operating History," "-- Funding of Future Capital Requirements and Working Capital Deficits" and "-- Limitations on Expansion." OPERATIONS The Company's waste management operations include the ownership and operation of solid waste landfills, transfer stations and waste collection services. The Company's landfills are relatively underutilized given their potential size and the fact that the Company's operating program in a majority of its markets has not yet been completed. There can be no assurance, however, that the Company will be successful in executing its operating program. See "Risk Factors." The Company believes that all of its landfills and transfer stations comply with or exceed the requirements mandated by the Subtitle D Regulations and the applicable state regulations. The Company regularly monitors incoming waste at its landfills to determine if such wastes are in compliance with its permits. 30 LANDFILLS The Company currently owns five landfill operations permitted to receive solid waste. These landfill operations are located in Illinois, Ohio, Pennsylvania, Kansas and Oklahoma. Each of the Company's landfill operations is located on land owned by the Company. The permitted waste streams at each of these landfills include both MSW and certain special waste (the type of special waste varying from landfill to landfill). During the three months ended March 31, 1996, the Company's captive waste (including the Company's collection operations and third party haulers operating under long-term contracts) constituted an average of approximately 63% of the solid waste disposed of at its landfills. The table and landfill descriptions below provide certain additional information, as of May 1, 1996, regarding the five landfill operations that the Company currently owns and operates.
APPROXIMATE ACREAGE APPROXIMATE --------------------------- UNUSED PERMITTED LANDFILLS LOCATION TOTAL PERMITTED (1) AIRSPACE (2) - --------------------------------------- ------------------------ --------- ---------------- ---------------- (IN MILLIONS OF CUBIC YARDS) Livingston............................. Pontiac, IL 556 255(3) 31.4(3) Wyandot................................ Upper Sandusky, OH 344 87 6.7 Clarion................................ Leeper, PA 606 60 4.7 Wheatland.............................. Scammon, KS 68 55 1.7 Pittsburg County....................... Pittsburg, OK 76 15 0.5 --------- --- --- Total.............................. 1,650 472 45.0 --------- --- --- --------- --- ---
- ------------------------ (1) Permitted acreage, as used in this table and in this Prospectus, represents the portion of the total acreage on which disposal cells and supporting facilities have been constructed (including any that may have been filled or capped) or may be constructed based upon an approval issued by the state generally authorizing the development or siting of a landfill on the acreage. Prior to actually constructing and/or operating each new disposal cell on the permitted acreage, it may be necessary, depending upon the regulatory requirements of the particular state, for the Company to obtain additional authorizations with respect to such cell. The portion of total acreage that is not currently permitted acreage is not currently available for waste disposal. (2) Unused permitted airspace represents in cubic yards the portion of the permitted acreage that has not yet been used for waste disposal but may be available for waste disposal after certain approvals are secured and, in some instances, new disposal cells are constructed. Prior to actually constructing and/or operating a new disposal area or cell on permitted acreage, it may be necessary, depending upon the regulatory requirements of the particular state or locality, for the Company to obtain additional authorizations. (3) Includes approximately 200 acres and 26.0 million cubic yards for which the Company has received siting approval, a prerequisite to obtaining a permit for a landfill in Illinois. The Company submitted its application for a permit in November 1995. There can be no assurance that any permit received will be for the same specifications as the application, or that additional terms or conditions will not be imposed. The Company monitors the available permitted in-place disposal capacity at each of its landfills on an ongoing basis and evaluates whether to seek to expand this capacity. In making this evaluation, the Company considers various factors, including the volume of waste projected to be disposed of at the landfill, the size of the unpermitted acreage included in the landfill, the likelihood that the Company will be successful in obtaining the necessary approvals and permits required for the expansion and the costs that would be involved in developing the expanded capacity. The Company also considers on an ongoing basis the extent to which it is advisable, in light of changing market conditions and/or regulatory requirements, to seek to expand or change the permitted waste streams at a particular landfill or to seek other permit modifications. Set forth below is certain information concerning certain of the new permits, permit modifications and approvals that the Company is currently seeking or expects to seek to enable it to expand its disposal 31 capacity. There can be no assurance that the Company will succeed in obtaining any of such permits, permit modifications or approvals, or that additional permits, permit modifications or approvals will not be required or that additional requirements will not be imposed by regulatory agencies. See "Risk Factors -- Limitations on Expansion" and "-- Extensive Environmental Land Use Laws and Regulations." LIVINGSTON. The Livingston landfill consists of approximately 556 acres, of which approximately 255 are permitted acres. There are approximately 31.4 million cubic yards of unused permitted or sited airspace, including approximately 26.0 million cubic yards for which the Company has received siting approval, a prerequisite to obtaining a permit for a landfill in Illinois. Cells developed to date at the Livingston landfill have been constructed with double composite liner systems. In October 1995, Livingston received local siting approval from the Livingston County Board for a major lateral and vertical expansion and re-permitting of the site. The local siting approval included authorization to expand the residual waste monofill into a facility capable of accepting various special wastes and MSW. The siting approval also included authorization to develop additional acreage north of the existing site. The net effect of this approval was to increase the sited acreage by 200 acres to approximately 255 acres and increase the site's available capacity from approximately 6.0 million cubic yards to an estimated available capacity of approximately 31.4 million cubic yards as of January 1, 1996. The Company submitted its permit application in November 1995 and such application is pending before the Illinois Environmental Protection Agency. In addition, the Company is seeking permission from applicable regulatory authorities to use single composite liner systems in constructing new cells, which the Company believes should reduce cell development costs. The Company anticipates that after the planned expansion, the Livingston landfill would have approximately 20 years of total site life at current disposal levels. WYANDOT. The Wyandot landfill consists of approximately 344 acres in three proximate locations, and the Company has an option to purchase up to approximately 94 additional acres in the vicinity. Approximately 87 of the owned acres are permitted, and there are approximately 6.7 million cubic yards of unused permitted airspace. Cells developed to date at the Wyandot landfill have been constructed with double composite liner systems. The Company plans to seek permission from applicable regulatory authorities to use alternative designs in constructing new cells, which the Company believes should reduce cell development costs. The Company plans to apply for a permit from the Ohio Environmental Protection Agency to expand its landfill capacity by using the valley between two of the hills that are currently permitted for waste disposal, as well as the option acreage. The Company anticipates that if it exercised its option, obtained the required permits and constructed the additional landfill areas, the Wyandot landfill would have approximately 20 years of total site life at currently anticipated disposal levels. CLARION. The Clarion landfill consists of approximately 606 acres, of which approximately 60 are permitted acres. There are approximately 4.7 million cubic yards of unused permitted airspace. Cells developed at the Clarion landfill have been, and due to regulatory requirements will continue to be, constructed with double liner systems. The Clarion landfill has approximately 13 years of total site life at current disposal levels. WHEATLAND. The Wheatland landfill consists of approximately 68 acres, and the Company has an option to purchase up to approximately 800 additional acres in the vicinity. Approximately 55 of the owned acres are permitted acres and there are approximately 1.7 million cubic yards of unused permitted airspace. The Company anticipates that after a planned expansion, the Wheatland landfill would have approximately eight years of total site life at current disposal levels. In addition, the Company is evaluating several alternatives for further expansion at the Wheatland landfill or for developing a landfill at a different site. PITTSBURG COUNTY. The Pittsburg County landfill consists of approximately 76 acres, of which approximately 15 are permitted acres. There are approximately 0.5 million cubic yards of unused permitted airspace. The Company plans to apply for a permit in the near future to build a lateral expansion that would increase permitted capacity to approximately 30 acres. The Company anticipates that after the planned expansion, the Pittsburg County landfill would have approximately 25 years of total site life at current disposal levels. 32 TRANSFER STATIONS The Company has an active program to acquire, develop and operate transfer stations in its landfill markets. Presently the Company owns, operates or has exclusive contracts to receive waste from a total of seven transfer stations (three of which are owned and four of which are under exclusive contract to provide their waste to the Company) at which solid waste collected from individual customers in Company-owned vehicles or waste delivered by third-party collection companies is unloaded, compacted, reloaded and transported to Company-owned landfills. The use of transfer stations reduces the Company's costs by improving its utilization of collection personnel and equipment and increasing the market area that the Company's landfills can serve. See, however, "Risk Factors -- Extensive Environmental and Land Use Laws and Regulations." The Company plans to expand into contiguous or proximate markets through the development or acquisition of additional transfer stations in 1996. COLLECTION OPERATIONS The Company collects solid waste from over 85,000 residential, commercial and industrial customers through its own collection operations and through brokerage arrangements with other haulers. The Company's collection operations are conducted generally within a 50-mile radius of either its transfer stations or landfills, which allows the Company to serve a geographic area within a radius of approximately 125 miles from its landfills. The Company also contracts with local generators of solid waste and directs the waste to either its own landfill or to a third-party landfill or for additional handling at one of its transfer stations. During the three months ended March 31, 1996, the Company's captive waste (including the Company's collection operations and third party haulers operating under long-term contracts) constituted an average of approximately 63% of the solid waste disposed of at its landfills. See, however, "Risk Factors -- Dependence on Third Party Collection Operations." Fees for the Company's commercial and industrial collection services are determined by such factors as collection frequency, type of equipment and containers furnished, the type, volume and weight of the waste collected, the distance to the disposal or processing facility and the cost of disposal or processing. A majority of the Company's commercial and industrial waste collection services are performed under contracts. Substantially all of the Company's municipal solid waste collection services are performed under contracts with municipalities. These contracts grant the Company exclusive rights to service all or a portion of the residential homes in a specified community or provide a central repository for residential waste drop-off. The Company had 46 municipal contracts in place as of March 31, 1996. Municipal contracts in the Company's market areas are typically awarded, at least initially, on a competitive bid basis and usually range in duration from one to five years. Fees are based primarily on the frequency and type of service, the distance to the disposal or processing facility and the cost of disposal or processing. Municipal collection fees are usually paid either by the municipalities from tax revenues or through direct service charges to the residents receiving the service. The Company also provides subscription residential collection services directly to households. SALES AND MARKETING The Company has a coordinated marketing strategy which is formulated at the corporate level and implemented at the regional level to achieve its desired mix of MSW and special waste in each of its regions. For example, certain employees of the Company in its Ohio and Pennsylvania regions focus on securing special waste generated by industrial customers. In addition to competitive pricing, the Company's marketing strategy emphasizes quality service particularly with respect to rapid turnaround time at its landfills. Each manager implements the Company's marketing strategy, which is overseen by senior management. Depending upon the size of the region and its customer mix, each manager may focus on commercial, industrial, residential or municipal accounts to a varying degree. The Company maintains periodic contact with all of its accounts to increase customer retention. Company salespersons call on prospective customers in a specified geographic territory. 33 Since the Company acquires its waste collection operations primarily from entrepreneurs who generally do not have independent sales forces, the Company often retains these entrepreneurs during the transition period following the acquisition of such operations to acquaint the Company's sales force with the acquired companies' customer base. The Company has a diverse customer base, with no single customer accounting for more than 10% of the Company's revenues in 1995. The Company does not believe that the loss of any single customer would have a material adverse effect on the Company's results of operation. COMPETITION The solid waste collection and disposal business is highly competitive and requires substantial amounts of capital. The Company competes with numerous local and regional companies and, in selected areas, with the large national waste management companies. The industry is led by four national waste companies, WMX Technologies, Inc., Browning-Ferris Industries, Inc., Laidlaw Waste Systems, Inc. and USA Waste Services, Inc. and includes numerous local and regional companies of varying sizes and competitive resources such as Sanifill, Inc., United Waste Systems, Inc., Allied Waste Industries, Inc. and Republic Industries, Inc. The large national companies, as well as a number of the regional companies, are significantly larger and have greater financial resources than the Company. The Company also competes with those counties and municipalities that maintain their own waste collection and disposal operations. These counties and municipalities may have financial advantages due to the availability to them of tax revenues and tax exempt financing. The Company competes primarily by charging competitive prices and offering quality service. Competitors may reduce the price of their services in an effort to expand market share or to win competitively bid municipal contracts. The solid waste collection and disposal industry is currently undergoing significant consolidation, and the Company encounters competition in its efforts to acquire landfills and collection operations. Accordingly, it may become uneconomical for the Company to make further acquisitions or the Company may be unable to locate or acquire suitable acquisition candidates at price levels and on terms and conditions that the Company considers appropriate, particularly in markets the Company does not already serve. Competition in the disposal industry may also be affected by the increasing national emphasis on recycling and other waste reduction programs, which may reduce the volume of waste deposited in landfills. See "Risk Factors -- Highly Competitive Industry" and "-- Use of Alternatives to Landfill Disposal." LIABILITY INSURANCE AND BONDING The Company carries a broad range of insurance for the protection of its assets and operations that it believes is customary to the waste management industry, including pollution liability coverage. Specifically, each of the Company's five landfills has pollution liability coverage of $1.0 million per occurrence or $2.0 million in the aggregate subject to a $25,000 deductible. Nevertheless, if the Company were to incur liability for environmental damage which exceeds coverage limits or is not covered by insurance, its business, financial condition and results of operations could be materially adversely affected. The Company is required to post a performance bond or a bank letter of credit or to provide other forms of financial assurance in connection with closure and post-closure obligations with respect to landfills and its other solid waste management operations and may be required to provide such financial assurance in connection with municipal residential collection contracts. As of July 11, 1996, the Company had outstanding approximately $15 million of performance bonds and $90,000 in letters of credit. If the Company were unable to obtain surety bonds or letters of credit in sufficient amounts, or to provide other required forms of financial assurance, it would be unable to remain in compliance with the Subtitle D Regulations or comparable state requirements and, among other things, might be precluded from entering into certain municipal collection contracts and obtaining or holding landfill operating permits. EMPLOYEES At June 30, 1996, the Company employed approximately 347 employees, 30 of whom were managers or professionals, 246 of whom were hourly paid employees involved in collection, transfer and disposal 34 operations, and 71 of whom were sales, clerical, data processing or other administrative employees. None of the Company's employees is represented by unions, and the Company has no knowledge of any organizational efforts among its employees. The Company believes that its relations with its employees are good. ENVIRONMENTAL REGULATIONS The Company is subject to extensive and evolving environmental laws and regulations that have been enacted in response to technological advances and increased concern over environmental issues. These regulations are administered by the EPA and various other federal, state and local environmental, transportation, health and safety agencies. The Company believes that there will continue to be increased regulation, legislation and regulatory enforcement actions related to the solid waste management, collection and disposal industry. In light of these developments, the Company attempts to anticipate future regulatory requirements that might be imposed and plans accordingly to remain in compliance with the regulatory framework. In order to develop and operate a landfill, transfer station or other solid waste management facility, the Company typically must go through several governmental review processes and obtain one or more permits and often zoning or other land use approvals. These permits and zoning or land use approvals are difficult and time consuming to obtain or to secure renewal of and sometimes are opposed by various local elected officials and citizens' groups. Once obtained, operating permits generally must be periodically renewed and are subject to modification and revocation by the issuing agency. The Company's operation of solid waste management facilities subject it to certain operational, monitoring, site maintenance, closure and post-closure and financial assurance obligations which change from time to time and which could give rise to increased capital expenditures and operating costs. In connection with the Company's acquisition of existing landfills, it is often necessary to expend considerable time, effort and money in complying with the governmental review and permitting process necessary to maintain or increase the capacity of these landfills. Governmental authorities have the power to enforce compliance with these laws and regulations and to obtain injunctions or impose civil or criminal penalties in the case of violations. During the ordinary course of its landfill operations, the Company has from time to time received citations or notices from such authorities that such operations are not in compliance with certain applicable environmental laws and regulations. Upon receipt of such citations or notices, the Company generally works with the authorities in an attempt to resolve the issues raised by such citations or notices. Failure to correct the problems to the satisfaction of the authorities could lead to curtailed operations or even closure of a landfill. In order to transport solid waste, it is generally necessary for the Company to possess one or more permits from state or local agencies. These permits must also be periodically renewed and are subject to modification and revocation by the issuing agency. In addition, the Company's waste transportation operations are subject to evolving law and regulations that impose operational, monitoring, training and safety requirements. The Company operates in substantial conformity with its permits. The principal federal, state and local statutes and regulations applicable to the Company's operations are as follows: THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA"). RCRA regulates the generation, treatment, storage, handling, transportation and disposal of solid waste and requires states to develop programs to insure the safe disposal of solid waste. RCRA divides solid waste into two groups, hazardous and non-hazardous. Wastes are generally classified as hazardous wastes if they: (i) either (a) are specifically included on a list of hazardous wastes or (b) exhibit certain hazardous characteristics; and (ii) are not specifically designated as non-hazardous. Wastes classified as hazardous under RCRA are subject to much stricter regulation than wastes classified as non-hazardous. Among the wastes that are specifically designated as non-hazardous waste are household waste and special wastes. These wastes, which will be accepted at the Company's landfills, may contain substances that may be as toxic or prone to cause contamination as some wastes classified and regulated as hazardous. 35 In October 1991, the EPA adopted the Subtitle D Regulations. These new regulations became generally effective in October 1993 (except for certain MSW landfills accepting less than 100 tons per day, as to which the effective date was April 9, 1994, and new financial assurance requirements, which become effective April 9, 1997) and include location restrictions, siting criteria, facility design standards, operating criteria, closure and post-closure requirements, financial assurance requirements, groundwater monitoring requirements, groundwater remediation standards and corrective action requirements. In addition, these new regulations require that new landfill units meet more stringent liner design criteria (typically, composite soil and synthetic liners or two or more synthetic liners) designed to keep leachate out of groundwater and have extensive collection systems to carry away leachate for treatment prior to disposal. Groundwater wells must also be installed at virtually all landfills to monitor groundwater quality. The Company believes that there is no groundwater contamination at its landfills that is material to its financial condition. The regulations also require, where threshold test levels are present, that methane gas generated at landfills be controlled in a manner that will protect human health and the environment. Each state is required to revise its landfill regulations to meet these requirements or such requirements will be automatically imposed upon it by the EPA. Each state is also required to adopt and implement a permit program or other appropriate system to ensure that landfills within the state comply with the Subtitle D criteria. All states in which the Company owns landfills have adopted regulations or programs as stringent as or more stringent than the Subtitle D Regulations, which were first proposed in August 1988. All states in which the Company's landfills are located have adopted the required plans and have submitted them to the EPA for review. Pennsylvania, Oklahoma, Ohio and Illinois have each received full EPA approval for their programs, and Kansas has received partial approval for its program. THE FEDERAL WATER POLLUTION CONTROL ACT OF 1977, AS AMENDED (THE "CLEAN WATER ACT"). The Clean Water Act establishes rules regulating the discharge of pollutants from a variety of sources, including solid waste disposal sites, into waters of the United States. If runoff or collected leachate from the Company's landfills is discharged into waters of the United States, the Clean Water Act would require the Company to apply for and obtain a discharge permit, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in such discharge. Also, virtually all landfills are required to comply with the new federal storm water regulations, which are designed to prevent possibly contaminated storm water from flowing into surface waters. These regulations required that applications for stormwater discharge permits be submitted by October 1992. The Company is working with the appropriate regulatory agencies to ensure that its facilities are in compliance with Clean Water Act requirements, particularly as they apply to treatment and discharge of leachate and storm water. The Company has secured or has applied for the required discharge permits under the Clean Water Act or comparable state-delegated programs. In those instances where the Company's applications for discharge permits are pending and a final discharge permit has not been issued, the Company is substantially in compliance with applicable substantive standards set by the respective states in administering the Clean Water Act. To ensure compliance with the Clean Water Act pretreatment and discharge requirements, the Company has arranged to discharge its effluent to municipal wastewater treatment facilities, except at the Pittsburg County landfill, where the state regulatory agency has allowed recirculation of the Company's leachate to a lined area of the landfill. THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF 1980 ("CERCLA"). CERCLA established a regulatory and remedial program intended to provide for the investigation and cleanup of facilities from which there has been, or is threatened, a release of any hazardous substance into the environment. CERCLA's primary mechanism for remedying such problems is to impose strict joint and several liability for cleanup of facilities on current owners and operators of the site, former owners and operators of the site at the time of the disposal of the hazardous substances, as well as the generators of the hazardous substances and the transporters who arranged for disposal or transportation of the hazardous substances. The costs of CERCLA investigation and cleanup can be very substantial. Liability under CERCLA does not depend upon the existence or disposal of "hazardous waste" but can also be founded upon the existence of even very small amounts of the many hundreds of "hazardous substances" listed by the EPA, many of which can be found in household waste. If the Company were to be found to be a responsible party for a CERCLA cleanup, either at one of the Company's owned or operated facilities, or at a site where waste transported by the Company has been stored or disposed of, the Company could be held completely 36 responsible for all investigative and remedial costs even if others may also be liable. CERCLA also authorizes the imposition of a lien in favor of the United States upon all real property subject to or affected by a remedial action for all costs for which a party is liable. The Company's ability to obtain reimbursement from others for their allocable share of such costs would be limited by the Company's ability to find other responsible parties and prove the extent of their responsibility and by the financial resources of such other parties. In the past, legislation has been introduced in Congress to limit the liability of municipalities and others under CERCLA as generators and transporters of municipal solid waste. Although such legislation has not been enacted, if it were to pass it would limit the Company's ability to seek full contribution from municipalities for CERCLA cleanup costs even if the hazardous substances that were released and caused the need for cleanup at one of the Company's facilities were generated by or transported to the facility by a municipality. Continued funding for implementation of RCRA, the Clean Water Act and CERCLA is scheduled for reauthorization by Congress this year. Depending upon whether and how Congress acts, it is possible that each of these laws may be changed in ways that may significantly affect the Company's business. THE CLEAN AIR ACT. The Clean Air Act, including the 1990 amendments, provides for regulation, through state implementation of federal requirements, of the emission of air pollutants from certain landfills based upon the date of the landfill construction and volume per year of emissions of regulated pollutants. The EPA has recently promulgated new source performance standards regulating air emissions of certain regulated pollutants (methane and non-methane organic compounds) from municipal solid waste landfills. The EPA has also issued regulations controlling the emissions of particular regulated air pollutants from municipal solid waste landfills. Landfills located in areas designated as having air pollution problems may be subject to even more extensive air pollution controls and emission limitations. In addition, the EPA has issued standards regulating the disposal of asbestos-containing materials. Each of the federal statutes described above contains provisions authorizing, under certain circumstances, the bringing of lawsuits by private citizens to enforce the provisions of the statutes. THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970 ("OSHA"). OSHA establishes employer responsibilities and authorizes the promulgation by the Occupational Safety and Health Administration of occupational health and safety standards, including the obligation to maintain a workplace free of recognized hazards likely to cause death or serious injury, to comply with adopted worker protection standards, to maintain certain records, to provide workers with required disclosures and to implement certain health and safety training programs. Various of those promulgated standards may apply to the Company's operations, including those standards concerning notices of hazards, safety in excavation and demolition work, the handling of asbestos and asbestos-containing materials, and worker training and emergency response programs. The Company's employees are trained to respond appropriately in the event there is an accidental spill or release of packaged asbestos-containing materials or other regulated substances during transportation or landfill disposal. STATE AND LOCAL REGULATION. Each state in which the Company now operates or may operate in the future has laws and regulations governing the generation, storage, treatment, handling, transportation and disposal of solid waste, water and air pollution and, in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of landfills and transfer stations. In addition, many states have adopted "Superfund" statutes comparable to, and in some cases more stringent than, CERCLA. These statutes impose requirements for investigation and cleanup of contaminated sites and liability for costs and damages associated with such sites, and some provide for the imposition of liens on property owned by responsible parties. Furthermore, many municipalities also have ordinances, local laws and regulations affecting Company operations. These include zoning and health measures that limit solid waste management activities to specified sites or activities, flow control provisions that direct the delivery of solid wastes to specific facilities, laws that grant the right to establish franchises for collection services and then put out for bid for the right to provide collection services, and bans or other restrictions on the movement of solid wastes into a municipality. 37 Certain permits and approvals may limit the types of waste that may be accepted at a landfill or the quantity of waste that may be accepted at a landfill during a given time period. In addition, certain permits and approvals, as well as certain state and local regulations, may limit a landfill to accepting waste that originates from specified geographic areas or seek to restrict the importation of out-of-state waste or otherwise discriminate against out-of-state waste. Generally, restrictions on the importation of out-of-state waste have not withstood judicial challenge. However, from time to time federal legislation is proposed which would allow individual states to prohibit the disposal of out-of-state waste or to limit the amount of out-of-state waste that could be imported for disposal and would require states, under certain circumstances, to reduce the amounts of waste exported to other states. Although such legislation has not been passed by Congress yet, if this or similar legislation is enacted, states in which the Company operates landfills could act to limit or prohibit the importation of out-of-state waste. Such state actions could materially adversely affect landfills within those states that receive a significant portion of waste originating from out-of-state. In addition, certain states and localities may for economic or other reasons restrict the exportation of waste from their jurisdiction or require that a specified amount of waste be disposed of at facilities within their jurisdiction. In 1994, the United States Supreme Court held unconstitutional, and therefore invalid, a local ordinance that sought to impose flow controls on taking waste out of the locality. However, certain state and local jurisdictions continue to seek to enforce such restrictions and, in certain cases, the Company may elect not to challenge such restrictions based upon various considerations. In addition, the aforementioned proposed federal legislation would allow states and localities to impose certain flow control restrictions. These restrictions could result in the volume of waste going to landfills being reduced in certain areas, which may materially adversely affect the Company's ability to operate its landfills at their full capacity and/or affect the prices that can be charged for landfill disposal services. These restrictions may also result in higher disposal costs for the Company's collection operations. If the Company were unable to pass such higher costs through to its customers, the Company's business, financial condition and results of operations could be materially adversely affected. There has been an increasing trend at the state and local level to mandate and encourage waste reduction at the source and waste recycling and to prohibit or restrict the disposal of certain types of solid wastes, such as yard wastes, leaves and tires, in landfills. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could affect the Company's ability to operate its facilities at their full capacity. PROPERTY AND EQUIPMENT The principal fixed assets used by the Company in connection with its landfill operations are its landfills which are described under "Business -- Operations -- Landfills." The five landfill operations currently owned by the Company are situated on sites owned by the Company. The principal fixed assets used by the Company in its collection operations and transfer stations are approximately 47 acres of land used for transfer stations and other facilities related to collection operations (of which approximately 27 acres are owned and 20 acres are leased); and approximately 68 landfill equipment and machinery units, 16,887 collection containers and small equipment units and 283 trucks and trailers (in each instance, such number includes owned and leased units). The Company's corporate headquarters are located in Burr Ridge, Illinois, where it leases approximately 4,000 square feet of space. LEGAL PROCEEDINGS In the normal course of its business and as a result of the extensive governmental regulation of the waste industry, the Company may periodically become subject to various judicial and administrative proceedings involving federal, state or local agencies. In these proceedings, an agency may seek to impose fines on the Company to revoke, or to deny renewal of, an operating permit held by the Company. From time to time, the Company also may be subject to actions brought by citizens' groups or adjacent landowners in connection with the permitting and licensing of its landfills or transfer stations, or alleging environmental damage or violations of the permits and licensees pursuant to which the Company operates. 38 Thirty-four plaintiffs in the vicinity of the Company's Wheatland landfill initiated a suit in 1993 seeking actual and punitive damages for nuisance, trespass and negligence. The suit is pending in the District Court of Crawford County, Kansas. Plaintiffs claim to have suffered a diminution in real property values, lost past and future profits for three businesses, reduced use and enjoyment of their residences for individual plaintiffs, mental anguish and personal injury. Three plaintiffs have since voluntarily withdrawn their cases and two additional plaintiffs have reached settlement with the Company for an aggregate of $70,000. The Company has entered into a settlement agreement with the remaining plaintiffs and is awaiting court approval for the settlement agreement with respect to the claims made by three plaintiffs who are minors. The Company believes that such agreement will not materially adversely affect its business, financial condition or results of operations. In addition, the Company is or may become party to various claims and suits pending for alleged damages to persons and property, alleged violation of certain laws and for alleged liabilities arising out of matters occurring during the normal operation of the waste management business. In the opinion of management, the liability, if any, under these claims and suits would not materially adversely affect the business, financial condition or results of operations of the Company. 39 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information concerning the Company's executive officers and directors as of May 31, 1996:
NAME AGE POSITION - ------------------------------------- --------- -------------------------------------------------------------- David C. Stoller..................... 46 Chairman; Director Richard De Young..................... 42 President; Director Scott H. Flamm....................... 41 Senior Vice President; Chief Financial Officer; Director Richard Kogler....................... 37 Vice President; Chief Operating Officer Ann L. Straw......................... 43 Vice President; General Counsel; Secretary Lawrence R. Conrath.................. 39 Vice President; Controller John J. McDonnell.................... 41 Vice President -- Engineering Merril M. Halpern.................... 62 Director A. Lawrence Fagan (1)................ 66 Director Richard T. Henshaw, III (2).......... 57 Director G.T. Blankenship (2)................. 68 Director Norman Steisel (1)................... 54 Director
- ------------------------ (1) Member of audit committee (2) Member of compensation committee DAVID C. STOLLER has been Chairman and a director of the Company since the Exchange. He has served in the same capacities for ADS (since January 1993) and CDI (since May 1995). He has also been (since August 1992) the Chairman of Charterhouse Environmental Capital Group, Inc. ("Charterhouse Environmental Capital"), which provides management and consulting services to companies with environmental operations including the Company. Charterhouse Environmental Capital is an affiliate of Charterhouse. Mr. Stoller was a partner at the law firm of Milbank, Tweed, Hadley & McCloy (where he remains as "Of Counsel") from January 1989 through July 1992. RICHARD DE YOUNG has been President and a director of the Company since the Exchange. He has also served as President of ADS since April 1994 and as a director since September 1993 and was the Chief Operating Officer and Vice President for ADS from January 1993 through April 1994. Mr. De Young has been a director of CDI since May 1995. From June 1982 through January 1993 he was employed by Waste Management of North America, a subsidiary of WMX Technologies, Inc. ("WMX"), most recently as a regional Operations Vice President, with responsibility for landfill and collection operations in the Midwest region. SCOTT H. FLAMM has been a Senior Vice President, and the Chief Financial Officer of the Company since May 1996 and a director since the Exchange. From the Exchange until May 1996, he was Vice Chairman of the Company. He previously served as Vice Chairman of CDI since May 1995. He has been a director of ADS (since January 1993) and CDI (since May 1995). He has also been Executive Vice President of Charterhouse Environmental Capital since January 1993. From 1988 until January 1993, he was Executive Vice President and Chief Operating Officer and a director of Catalyst Energy, an independent power producer. RICHARD KOGLER has been a Vice President and the Chief Operating Officer of the Company since the Exchange. He previously served in the same capacities for ADS since May 1995 and he has been President of CDI since May 1995. From October 1984 through May 1995 Mr. Kogler was employed by WMX, most recently as a regional Operations Vice President. 40 ANN L. STRAW has been Vice President and General Counsel of the Company since the Exchange. She previously served in the same capacities for ADS (since June 1995) and for CDI (since June 1995). She has been the Secretary of CDI since July 1995. From 1986 through May 1995 she was employed by WMX, most recently as a Group Counsel for WMX's Midwest Group. LAWRENCE R. CONRATH has been Controller of the Company since the Exchange and a Vice President since May 1996. He previously served as Controller for ADS since May 1994. Prior to joining the Company, Mr. Conrath spent two years with United Waste Systems, Inc., as Regional Controller of its Michigan region. From 1978 through 1990, Mr. Conrath was employed by WMX in several financial positions, most recently as Director of Accounting for the WMX Urban Services Group. JOHN J. MCDONNELL has been Vice President -- Engineering of the Company since the Exchange. He previously served as Environmental Engineer for ADS (since February 1993) and CDI (since June 1995). From 1985 through February 1993, Mr. McDonnell was employed by WMX, most recently as an Engineering Manager. MERRIL M. HALPERN has served as a director of the Company since the Exchange. Since October 1984, Mr. Halpern has served as Chairman of the Board of Charterhouse, which is a private investment firm specializing in leveraged buy-out acquisitions. From 1973 to October 1984, Mr. Halpern served as President and Chief Executive Officer of Charterhouse. Mr. Halpern is also a director of Dreyer's Grand Ice Cream, Inc., a manufacturer and distributor of ice cream products; Del Monte Corporation, a processor and marketer of canned foods and vegetables; Designer Holdings Ltd., a developer and marketer of designer sportswear lines ("Designer Holdings"); Insignia Financial Group, Inc., a real estate management firm; and Microwave Power Devices, Inc., a manufacturer of highly linear power amplifiers primarily for the wireless telecommunications market ("MPD"). A. LAWRENCE FAGAN has served as a director of the Company since the Exchange. He has been Executive Vice President of Charterhouse since 1984. Mr. Fagan is also a director of Designer Holdings and MPD. RICHARD T. HENSHAW, III has been a director of the Company since the Exchange. He has served as a director of ADS (since January 1993) and CDI (since May 1995). Mr. Henshaw has been a Senior Vice President of Charterhouse since 1991. Prior thereto he was a Senior Vice President of The Bank of New York. G.T. BLANKENSHIP has been a director of the Company since the Exchange. He previously served as a director of ADS (since January 1991). Mr. Blankenship has been a self-employed private investor since 1990. NORMAN STEISEL has been the President of EnEssCo Strategies, a strategic consulting services firm specializing in government regulated markets, since January 1994. From January 1990 through December 1993, Mr. Steisel was the First Deputy Mayor of the City of New York. Prior to 1990, he was a Senior Vice President at Lazard Freres & Co., specializing in environmental corporate and municipal finance. See "Certain Transactions" and "Principal Stockholders" for certain information concerning the Company's directors and executive officers. Directors of the Company hold office until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier resignation or removal. All officers are appointed by and serve at the discretion of the Board of Directors. There are no family relationships among any directors or officers of the Company. The Board of Directors has established a compensation committee and an audit committee. The compensation committee reviews executive salaries, administers any bonus, incentive compensation and stock option plans of the Company, including the American Disposal Services, Inc. 1996 Stock Option Plan, and approves the salaries and other benefits of the executive officers of the Company. In addition, the compensation committee consults with the Company's management regarding pension and other benefit plans and compensation policies and practices of the Company. The audit committee reviews the professional services provided by the Company's independent auditors, the independence of such auditors from management of the Company, the annual financial statements of the Company and the Company's system of 41 internal accounting controls. The audit committee also reviews such other matters with respect to the accounting, auditing and financial reporting practices and procedures of the Company as it may find appropriate or may be brought to its attention, and meets from time to time with members of the Company's internal audit staff. EMPLOYMENT AGREEMENTS In May 1996, Mr. Stoller entered into an employment agreement with the Company, under which he serves as the Company's Chairman. The employment agreement provides for an annual base salary of $300,000 and terminates on the first anniversary of the closing of the Offering. The employment agreement provides that Mr. Stoller will receive a $600,000 payment in the event his employment is terminated following a "change-in-control" of the Company. In May 1996, Mr. De Young entered into an employment agreement with the Company, effective upon closing of the Offering, under which he serves as the Company's President. The employment agreement provides for an annual base salary of $300,000 and terminates on the third anniversary of the closing of the Offering. The employment agreement provides that Mr. De Young will receive a $600,000 payment in the event his employment is terminated following a "change-in-control" of the Company. In addition, if the Company retains an officer (other than the Chairman of the Board) in a capacity that is senior to Mr. De Young, or if his responsibilities are materially diminished (other than for cause), Mr. De Young will have the right to terminate his employment in which event he will be entitled to receive payments equal to the greater of $750,000 or the remaining aggregate amount of base salary otherwise payable under the employment agreement. In January 1993, Mr. McDonnell entered into an employment agreement with ADS, under which he serves as the Company's Vice President -- Engineering. The employment agreement currently provides for an annual base salary of $127,000 and terminates on January 26, 1998. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1995, the Board of Directors determined the compensation of all the Company's executive officers. Since May 16, 1996, all such deliberations were made by the Company's compensation committee. The compensation committee of the Board of Directors consists of Messrs. Blankenship and Henshaw. No member of the compensation committee or executive officer of the Company has a relationship that would constitute an interlocking relationship with the executive officers or directors of another entity. DIRECTOR COMPENSATION The only directors who will be compensated for services as a director are Messrs. Blankenship and Steisel, each of whom will receive $2,000 for each meeting of the Board of Directors which he attends and $500 for each meeting of a committee of the Board of Directors which he attends. EXECUTIVE COMPENSATION The following table sets forth, for the year ended December 31, 1995, the cash compensation paid and shares underlying options granted to Mr. De Young, the President of the Company, and each other executive officer whose salary for such fiscal year was in excess of $100,000. The Company did not pay bonuses to these individuals during the year ended December 31, 1995. SUMMARY COMPENSATION TABLE
SHARES UNDERLYING SALARY OPTIONS GRANTED ---------- ---------------- Richard De Young, President.............................................. $ 230,092 212,109 Scott H. Flamm, Senior Vice President, Chief Financial Officer........... 122,106(1) 83,989 John J. McDonnell, Vice President -- Engineering......................... 109,447 49,205
- ------------------------ (1) Represents the salary received since June 1995, when Mr. Flamm became an employee of the Company. 42 STOCK OPTIONS The following table contains information concerning the grant of options to purchase shares of the Company's Common Stock to each of the named executive officers of the Company during the year ended December 31, 1995. No stock appreciation rights ("SARS") were granted in 1995. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------- PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF SECURITIES GRANTED TO STOCK APPRECIATION FOR UNDERLYING EMPLOYEES EXERCISE OPTION TERM (1) OPTIONS IN FISCAL PRICE EXPIRATION -------------------------- NAME GRANTED YEAR ($/SHARE) DATE (2) 5% 10% - ------------------------- ----------- ----------- ----------- ------------ ------------ ------------ Richard De Young......... 212,109 30.41% $ 7.41 8/1/2005 $ 2,741,676 $ 5,038,778 Scott H. Flamm........... 83,989 12.04% $ 7.41 12/27/2005 1,119,965 2,099,602 John J. McDonnell........ 1,263 0.18% $ 7.17 2/23/2002 12,666 19,322 47,942 6.87% $ 7.41 8/1/2005 619,688 1,138,891
- ------------------------ (1) Based on certain assumed rates of appreciation from an assumed share price of $13.00 as of June 1, 1996. The potential realizable values set forth above do not take into account applicable tax and expense payments that may be associated with such option exercises. Actual realizable value, if any, will be dependent on the future price of the Common Stock on the actual date of exercise, which may be earlier than the stated expiration date. The 5% and 10% assumed annualized rates of stock price appreciation over the exercise period of the options used in the table above are mandated by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of the future price of the Common Stock on any date. There is no representation either express or implied that the stock price appreciation rates for the Common Stock assumed for purposes of this table will actually be achieved. (2) Each option is subject to earlier termination if the officer's employment with the Company is terminated. The following table sets forth information for each of the named executive officers with respect to the value of options outstanding as of December 31, 1995. There were no options exercised during 1995. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS 1995 AT DECEMBER 31, 1995 (1) -------------------------- -------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------ ----------- ------------- ----------- ------------- Richard De Young................................ 26,537 256,205 $ 154,711 $ 1,444,501 Scott H. Flamm.................................. 14,822 69,167 82,855 386,644 John J. McDonnell............................... 8,846 63,904 51,572 361,054
- ------------------------ (1) Represents the difference between an assumed share price of $13.00 and the exercise price per share of the in-the-money options, multiplied by the number of shares underlying the in-the-money options. 1996 STOCK OPTION PLAN Effective as of January 1, 1996, the Company adopted the American Disposal Services, Inc. 1996 Stock Option Plan (the "Plan"). The Plan is a stock plan providing for the grant of incentive stock options and nonqualified stock options to key employees and consultants of the Company and its subsidiaries. ADMINISTRATION. The Plan is administrated by the compensation committee of the Company's Board of Directors (the "Committee"). The Committee determines the key employees and consultants eligible to receive options and the terms thereof, all in a manner consistent with the Plan. 43 SHARES SUBJECT TO OPTIONS. The Plan provides that the total number of shares of Common Stock that may be subject to options shall be 1,100,000 shares. Shares subject to any option which terminates or expires unexercised will be available for subsequent grants. OPTIONS. The Plan provides for the grant of incentive stock options and nonqualified stock options to key employees and consultants, as determined by the Committee. The exercise price of incentive stock options granted under the Plan shall be at least 100% of fair market value of the Common Stock on the date of grant and the exercise price of nonqualified stock options shall be at least equal to the par value of the Common Stock. Nonqualified stock options shall be exercisable for not more than ten years, and incentive stock options may be exercisable for up to ten years except as otherwise provided. The Committee may provide that an optionee may pay for shares upon exercise of an option: (i) in cash; (ii) in already-owned shares of Common Stock; (iii) by agreeing to surrender then exercisable options equivalent in value; (iv) by payment through a cash or margin arrangement with a broker; (v) in shares otherwise issuable upon exercise of the option; or (vi) by such other medium or by any combination of (i), (ii), (iii), (iv) or (v) as authorized by the Committee. The grant of an option may be accompanied by a reload option, which gives an optionee who pays the exercise price of an option with shares of Common Stock an additional option to acquire the same number of shares that was used to pay for the original option. Under certain circumstances, including termination of employment upon retirement, disability or death, the option may be exercised during an extended period. In connection with the Restructuring, all options to purchase shares of ADS and CDI were exchanged for options to purchase shares of Common Stock under the Plan. CERTAIN TRANSACTIONS Messrs. Stoller and Flamm are officers of Charterhouse Environmental Capital, an affiliate of Charterhouse, which has been providing management and consulting services to the Company since 1993. These services include: services relating to the Company's banking and other financial relationships including assistance in connection with the financing and refinancing of corporate indebtedness; analysis and assistance from both a financial and operational standpoint in connection with the expansion of the Company's business operations; assistance with strategic planning; and advice related to acquisitions. Fees paid by the Company to Charterhouse Environmental Capital were $314,000 in 1993, $515,000 in 1994 and $659,000 in 1995. These management and consulting services will be terminated effective at the closing of the Offering. See, however, "Management -- Employment Agreements." On November 16, 1995, the Company borrowed $12.5 million from Charterhouse Equity Partners II, L.P. See "Principal Stockholders." The loan matures on November 15, 1996 and bears interest at a rate per annum equal to the prime rate plus 3%. The Company repaid this loan in June 1996 with $7.5 million of borrowings under the Credit Facility and the remaining $5.0 million was repaid with existing cash. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Effective as of January 1, 1996, the Company entered into agreements with each of its executive officers providing that, upon such officer's exercise of stock options granted in exchange for options previously granted by CDI, the Company will pay to such officer an amount equal to the tax savings actually recognized by the Company as a result of the deductions attributable to such exercise. In no event can the payment to be received by an executive officer under such agreement exceed the difference between the federal income tax actually paid by such officer as a result of such option exercise and the amount of federal income tax that would have been paid by such officer had such option exercise been taxed at the capital gains rate. All future transactions, including loans, between the Company and its officers, directors, principal stockholders or their affiliates will be subject to approval of a majority of the independent and disinterested outside directors, and will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties. 44 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to beneficial ownership of the Common Stock as of May 31, 1996 and as adjusted to reflect the sale of the Common Stock offered hereby, by: (i) each person known by the Company to be the beneficial owner of more than 5% of the Company's Common Stock; (ii) each of the Company's directors; (iii) the Company's Chief Executive Officer and each of the Company's other executive officers; and (iv) the Company's directors and executive officers as a group.
PERCENTAGE OWNERSHIP (1) NUMBER OF SHARES -------------------------- BENEFICIALLY PRIOR TO AFTER NAME AND ADDRESS OF BENEFICIAL OWNERS OWNED OFFERING OFFERING - -------------------------------------------------------------- ----------- ------------ ------------ Charterhouse Environmental Holdings, L.L.C. (2)............... 1,867,289 32.9% 22.2% Charterhouse Equity Partners II, L.P. (3)..................... 2,511,973 44.2% 29.8% CDI Equity, LLC (4)........................................... 644,109 11.3% 7.6% David C. Stoller (5).......................................... 60,271 1.1% * Richard De Young (5)(6)....................................... 38,540 * * Scott H. Flamm (5)............................................ 23,764 * * Merril M. Halpern (7)......................................... -- -- -- A. Lawrence Fagan (7)......................................... -- -- -- Richard T. Henshaw, III (7)................................... -- -- -- G.T. Blankenship (8).......................................... 100,935 1.8% 1.2% Norman Steisel................................................ -- -- -- Richard Kogler (5)............................................ 1,177 * * Ann L. Straw (5).............................................. 777 * * John J. McDonnell (5)(9)...................................... 13,441 * * Lawrence R. Conrath (5)(10)................................... 5,264 * * All directors and executive officers as a group (12 persons) (5).......................................................... 244,169 4.3% 2.9%
- ------------------------ * Less than one percent. (1)Assumes no exercise of the Underwriters' over-allotment option to purchase up to 412,500 additional shares of Common Stock from the Company. See "Underwriting." (2)The address of Charterhouse Environmental Holdings, L.L.C. ("Charter Environmental") is c/o Charterhouse Group International, Inc., 535 Madison Avenue, New York, New York 10022. Charterhouse Equity Partners, L.P. ("CEP") and StollerCo Partners, L.P. ("StollerCo") are the members of Charter Environmental, with a majority of the ownership interests being held by CEP. The general partner of CEP is CHUSA Equity Investors, L.P., whose general partner is Charterhouse Equity, Inc., a wholly-owned subsidiary of Charterhouse. As a result of the foregoing, all of the shares of Common Stock held by Charter Environmental would, for purposes of Section 13(d) of the Securities Exchange Act of 1934, be considered to be beneficially owned by Charterhouse. Messrs. Stoller and Flamm are partners of StollerCo and disclaim beneficial ownership of shares of Common Stock held of record by Charter Environmental. (3)The address of Charterhouse Equity Partners II, L.P. ("CEP II") is c/o Charterhouse Group International, Inc., 535 Madison Avenue, New York, New York 10022. The general partner of CEP II is CHUSA Equity Investors II, L.P., whose general partner is Charterhouse Equity II, Inc., a wholly-owned subsidiary of Charterhouse. As a result of the foregoing, all of the shares of Common Stock held by CEP II would, for purposes of Section 13(d) of the Securities Exchange Act of 1934, be considered to be beneficially owned by Charterhouse. 45 (4)The address of CDI Equity, LLC is c/o Aetna Life and Casualty Company, Conveyor IG6U, 151 Farmington Avenue, Hartford, Connecticut 06156. The member interests in CDI Equity, LLC are held as follows: 99% by Aetna Life Insurance Company, which is a wholly-owned subsidiary of Aetna Life and Casualty Company, and 1% by CDI Equity, Inc., a wholly-owned subsidiary of Aetna Life Insurance Company. (5)Includes options exercisable within 60 days of May 31, 1996 to purchase 57,804, 36,073, 22,232, 1,177, 12,446, 4,767 and 777 shares granted under the American Disposal Services, Inc. 1996 Stock Option Plan to Messrs. Stoller, De Young, Flamm, Kogler, McDonnell and Conrath and Ms. Straw, respectively. For purposes of computing the percentage of outstanding shares beneficially held by each person or group of persons named above on a given date, any security which such person or persons has the right to acquire within 60 days after such date is deemed to be beneficially owned for the purpose of computing the percentage ownership of such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any person. (6)Includes 2,467 shares held jointly by Mr. De Young and his wife. (7)Merril M. Halpern and A. Lawrence Fagan are executive officers, directors and stockholders of Charterhouse and Richard T. Henshaw, III is an executive officer of Charterhouse. Messrs. Halpern, Fagan and Henshaw each disclaim beneficial ownership of the shares of Common Stock beneficially owned by Charterhouse. (8) Includes 7,995 shares held by Mr. Blankenship's wife, of which Mr. Blankenship disclaims beneficial ownership. (9) Includes 996 shares held by Mr. McDonnell's minor children. (10) Includes 498 shares held jointly by Mr. Conrath and his wife. 46 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 20,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01 per share, (the "Preferred Stock"). The discussions of the Common Stock and Preferred Stock here and elsewhere in this Prospectus are qualified in their entirety by reference to: (i) the Certificate of Incorporation of the Company, as amended, a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part; and (ii) the applicable Delaware law. COMMON STOCK Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Stockholders casting a plurality of votes of the stockholders entitled to vote in an election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor, subject to any preferential dividend rights of Preferred Stock that may be issued at such future time or times. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company after the payment of all debts and other liabilities and subject to the prior rights of Preferred Stock that may be outstanding at such time. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares of Common Stock offered by the Company in the Offering will be, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. As of May 31, 1996, there were 5,676,901 shares of Common Stock outstanding and held of record by approximately 65 stockholders after giving effect to the Restructuring. After giving effect to the issuance of the 2,750,000 shares of Common Stock offered by the Company hereby (assuming no exercise of the Underwriters' over-allotment option), there will be 8,426,901 shares of Common Stock outstanding upon the closing of the Offering. UNDESIGNATED PREFERRED STOCK The Company's Certificate of Incorporation authorizes 5,000,000 shares of Preferred Stock. The Board of Directors has the authority to issue the Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock. The issuance of Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock, including the loss of voting control of others. At present, the Company has no plans to issue any of the Preferred Stock. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (for the purposes of determining the number of shares outstanding, under Delaware law, those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer are excluded from the calculation); or (iii) on or subsequent to such date, the business 47 combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Section 203 defines a business combination to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; (iii) subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Certain provisions of the Company's Certificate of Incorporation and Delaware law may have a significant effect in delaying, deferring or preventing a change in control of the Company and may adversely affect the voting and other rights of other holders of Common Stock. In particular, the ability of the Board of Directors to issue Preferred Stock without further stockholder approval may have the effect of delaying, deferring or preventing a change in control of the Company and may adversely affect the voting and other rights of other holders of Common Stock. REGISTRATION RIGHTS After the Offering, the holders of 5,032,861 shares of Common Stock and warrants to purchase 215,455 shares of Common Stock will be entitled to certain rights with respect to the registration of such shares under the Securities Act. Under the terms of the agreements between the Company and the holders of such registrable securities, if the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include shares of such Common Stock therein. The holders of such registrable securities may also require the Company on two separate occasions to file a registration statement under the Securities Act at the Company's expense with respect to their shares of Common Stock, and the Company is required to use its diligent reasonable efforts to effect such registration. These rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration. TRANSFER AGENT The Transfer Agent for the Common Stock is the Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004. Its telephone number is (212) 509-4000. SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no market for the Common Stock. Future sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. Upon completion of the Offering, the Company will have approximately 8,426,901 shares of Common Stock outstanding (assuming no exercise of the Underwriters' overallotment option). Of these shares, the 2,750,000 shares sold in the Offering will be freely transferable without restriction or registration under the Securities Act, except for any shares purchased by an existing "affiliate" of the Company, as that term is defined by the Securities Act (an "Affiliate"), which shares will be subject to the resale limitations of Rule 144 adopted under the Securities Act. After the Offering, the holders of 5,032,861 shares of Common Stock, and warrants to purchase 215,455 shares of Common Stock, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. See "Description of Capital Stock -- Registration Rights." Registration of such 48 shares under the Securities Act would result in such shares becoming freely tradeable without restriction under the Securities Act (except for shares purchased by Affiliates) immediately upon the effectiveness of such registration. The Company's officers and directors and holders of 5% or more of the outstanding shares of Common Stock prior to the Offering, who beneficially own an aggregate of 5,888,279 shares of Common Stock or options or warrants to purchase shares of Common Stock, have agreed not to offer, sell, contract to sell or grant any option to purchase or otherwise dispose of such securities for 180 days after the date of this Prospectus, without the prior written consent of Oppenheimer & Co., Inc. Additionally, the Company has agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or any rights to acquire Common Stock for a period 180 days after the date of this Prospectus, without the prior written consent of Oppenheimer & Co., Inc., subject to certain limited exceptions. In general, under Rule 144 as currently in effect, beginning 90 days after the Offering, a person (or person whose shares are aggregated) who owns shares that were purchased from the Company (or any Affiliate) at least two years previously, including persons who may be deemed Affiliates of the Company, is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of the Company's Common Stock or the average weekly trading volume of the Company's Common Stock in the Nasdaq National Market during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. Any person (or persons whose shares are aggregated) who is not deemed to have been an Affiliate of the Company at any time during the 90 days preceding a sale, and who owns shares within the definition of "restricted securities" under Rule 144 under the Securities Act that were purchased from the Company (or any Affiliate) at least three years previously, would be entitled to sell such shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements. It is anticipated that after the expiration of such 90 day period no shares of Common Stock will be immediately eligible for sale under Rule 144. The Company intends to file a registration statement under the Securities Act covering approximately 1,100,000 shares of Common Stock issued or reserved for issuance under the Plan. See "Management -- 1996 Stock Option Plan." Such registration statement is expected to be filed prior to the end of the 1996 calendar year and will automatically become effective upon filing. Accordingly, shares registered under such registration statement pursuant to the Plan will, subject to Rule 144 volume limitations applicable to Affiliates, be available for sale in the open market, except to the extent that such shares are subject to vesting restrictions. At May 31, 1996, options to purchase 869,615 shares were issued and outstanding under the Plan. 49 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company has agreed to sell to each of the Underwriters named below, and each of the Underwriters, for whom Oppenheimer & Co., Inc. and CS First Boston Corporation are acting as Representatives, has severally agreed to purchase from the Company, the respective number of shares of Common Stock set forth opposite the name of such Underwriter below:
NUMBER OF SHARES OF UNDERWRITER COMMON STOCK - ---------------------------------------------------------------------------------------- -------------- Oppenheimer & Co., Inc.................................................................. CS First Boston Corporation............................................................. -------------- Total............................................................................... 2,750,000 -------------- --------------
The Underwriters propose to offer the shares of Common Stock directly to the public initially at the public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be changed by the Representatives. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any are taken. The Company has granted the Underwriters an option, exercisable for up to 30 days after the date of this Prospectus, to purchase up to an aggregate of 412,500 additional shares of Common Stock to cover over-allotments, if any. If the Underwriters exercise such option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them as shown in the foregoing table bears to the 2,750,000 shares of Common Stock offered hereby. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the shares of Common Stock offered hereby. The Representatives have advised the Company that the Underwriters do not intend to confirm sales in excess of 5% of the shares offered hereby to any account over which they exercise discretionary authority. The Company has agreed to indemnify the representatives of the Underwriters and the several Underwriters against certain liabilities, including, without limitation liabilities under the Securities Act. The Company's officers and directors and holders of 5% or more of the outstanding shares of Common Stock prior to the Offering, who beneficially own an aggregate of 5,888,279 shares of Common Stock or options or warrants to purchase shares of Common Stock, have agreed not to offer, sell, contract to sell, pledge or grant any option to purchase or otherwise dispose of such securities for 180 days after the date of this Prospectus without the prior written consent of Oppenheimer & Co., Inc. The Company has also agreed not to offer, sell, contract to sell, or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or any rights to acquire Common Stock (other than shares issuable upon exercise of outstanding options and warrants) for a period of 180 days after the date of this Prospectus, without the prior written consent of Oppenheimer & Co., Inc., subject to certain limited exceptions. See "Shares Eligible for Future Sale." 50 Prior to the Offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in such negotiations are prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations and stages of development of other companies which the Company and the Representatives believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant by the Representatives. LEGAL MATTERS The legality of the Common Stock offered hereby will be passed upon for the Company by Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036. Certain legal matters will be passed upon for the Underwriters by Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178. EXPERTS The consolidated financial statements of the Company at December 31, 1994 and 1995 and for each of the two years in the period ended December 31, 1995, appearing in this Prospectus and the Registration Statement of which this Prospectus forms a part have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated statements of operations, stockholders' equity and cash flows of the Company for the fiscal year ended December 31, 1993, included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. In 1994 the Company appointed Ernst & Young LLP to replace Arthur Andersen LLP as its principal accountants. The Company dismissed Arthur Andersen LLP during 1994. The reports of Arthur Andersen LLP on the 1993 financial statements of the Company did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change accountants was approved by the Company's Board of Directors. There were no disagreements with the former accountants during the two fiscal years preceding their replacement or during the subsequent interim period preceding their replacement on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the former accountants' satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their reports. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain items of which are omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement and to the financial statements, schedules, and exhibits filed as a part thereof. The Registration Statement, including all schedules and exhibits thereto, may be inspected without charge at the public reference facilities maintained by the Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at the Commission's regional offices at 7 World Trade Center, 13th floor, New York, New York and 51 500 West Madison Street, Suite 1400, Chicago, Illinois. Copies of such material may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Statements contained in this Prospectus concerning the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement or otherwise with the Commission, each such statement being qualified in all respects by such reference. The Company believes that all material elements of such contracts and documents are described in this Prospectus. 52 INDEX TO FINANCIAL STATEMENTS
PAGE --------- AMERICAN DISPOSAL SERVICES, INC. AND SUBSIDIARIES: CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors........................................................................... F-2 Report of Independent Accountants........................................................................ F-3 Consolidated Balance Sheets at December 31, 1995 and 1994................................................ F-4 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993........................................................................................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993..................................................................................... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993............... F-7 Notes to Consolidated Financial Statements............................................................... F-8 UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet at March 31, 1996................................................... F-18 Condensed Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995....... F-19 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995....... F-20 Notes to Condensed Consolidated Financial Statements..................................................... F-21 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Pro Forma Consolidated Statement of Operations for the year ended December 31, 1995...................... F-23 ACQUIRED COMPANIES (CDI ACQUISITION): ENVIRITE CORPORATION, MSG FACILITIES Report of Independent Auditors........................................................................... F-25 Statements of Net Assets Acquired at December 31, 1994 and January 1, 1994............................... F-26 Statements of Revenue and Direct Operating Expenses for the fiscal years ended December 31, 1994 and January 1, 1994......................................................................................... F-27 Notes to Financial Statements............................................................................ F-28 Report of Independent Auditors........................................................................... F-31 Statement of Revenue and Direct Operating Expenses for the period ended November 15, 1995................ F-32 Notes to Financial Statements............................................................................ F-33
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors American Disposal Services, Inc. We have audited the accompanying consolidated balance sheets of American Disposal Services, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1995 and 1994 financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Disposal Services, Inc. as of December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois March 22, 1996 , except as to Note 10 for which the date is May 30, 1996 F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of American Disposal Services, Inc.: We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of American Disposal Services, Inc. and subsidiaries for the year ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of American Disposal Services, Inc. and subsidiaries for the year ended December 31, 1993, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma April 15, 1994 F-3 AMERICAN DISPOSAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
DECEMBER 31, --------------------- 1995 1994 ---------- --------- Current assets: Cash and cash equivalents................................................................ $ 6,383 $ 548 Cash held in escrow...................................................................... 156 191 Trade receivables -- Net of allowance for doubtful accounts of $476 and $408............. 6,331 2,560 Prepaid expenses......................................................................... 686 97 Inventory................................................................................ 312 184 ---------- --------- Total current assets....................................................................... 13,868 3,580 Property and equipment, net................................................................ 81,250 17,062 Other assets: Cost over fair value of net assets of acquired businesses, net of accumulated amortization of $823 and $451........................................................... 15,739 13,569 Other intangible assets, net of accumulated amortization of $305 and $455................ 1,081 1,435 Debt issuance costs, net of accumulated amortization of $71 and $234..................... 815 1,002 Other.................................................................................... 1,940 909 ---------- --------- $ 114,693 $ 37,557 ---------- --------- ---------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable to stockholder.............................................................. $ 12,500 $ -- Accounts payable......................................................................... 3,185 881 Accrued liabilities...................................................................... 2,360 1,440 Deferred revenues........................................................................ 1,202 948 Current portion of long-term debt and capital lease obligations.......................... 3,440 2,548 ---------- --------- Total current liabilities.................................................................. 22,687 5,817 Long-term debt and capital lease obligations, net of current portion....................... 48,789 18,487 Accrued environmental and landfill costs................................................... 6,214 1,121 Deferred income taxes...................................................................... 1,240 -- Redeemable preferred stock of subsidiary................................................... 1,908 -- Stockholders' equity: Common stock, $.01 par value, 20,000,000 shares authorized; shares issued and outstanding; 1995 -- 5,676,901; 1994 -- 2,382,345....................................... 57 24 Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued and outstanding in 1995 and 1994........................................................................ -- -- Warrants outstanding..................................................................... 107 107 Additional paid-in capital............................................................... 41,590 16,157 Accumulated deficit...................................................................... (7,899) (4,156) ---------- --------- 33,855 12,132 ---------- --------- $ 114,693 $ 37,557 ---------- --------- ---------- ---------
See accompanying notes. F-4 AMERICAN DISPOSAL SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ---------------------------------------- 1995 1994 1993 ------------ ------------ ------------ Revenues................................................................ $ 30,004 $ 18,517 $ 7,730 Cost of operations...................................................... 17,286 12,647 5,750 Selling, general, and administrative expenses........................... 5,882 4,910 1,646 Depreciation and amortization........................................... 6,308 3,226 1,166 ------------ ------------ ------------ Operating income (loss)................................................. 528 (2,266) (832) Interest expense........................................................ (3,030) (1,497) (417) Interest income......................................................... 189 2 35 ------------ ------------ ------------ Loss before income taxes and extraordinary item......................... (2,313) (3,761) (1,214) Income tax benefit (expense)............................................ (332) 1,372 391 ------------ ------------ ------------ Loss before extraordinary item.......................................... (2,645) (2,389) (823) Extraordinary item -- Gain (loss) on early retirement of debt........... (908) -- 74 ------------ ------------ ------------ Net loss................................................................ (3,553) (2,389) (749) Preferred stock dividend requirement of subsidiary...................... (190) -- -- ------------ ------------ ------------ Net loss applicable to common stockholders.............................. $ (3,743) $ (2,389) $ (749) ------------ ------------ ------------ ------------ ------------ ------------ Per common share: Loss before extraordinary item........................................ $ (.76) $ (.91) $ (.51) Extraordinary item.................................................... (.24) -- .04 ------------ ------------ ------------ Net loss.............................................................. $ (1.00) $ (.91) $ (.47) ------------ ------------ ------------ ------------ ------------ ------------ Weighted average common stock and common stock equivalent shares outstanding............................................................ 3,729,055 2,612,749 1,607,586 ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes. F-5 AMERICAN DISPOSAL SERVICES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
COMMON STOCK ADDITIONAL TOTAL ----------------------- WARRANTS PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT OUTSTANDING CAPITAL DEFICIT EQUITY ---------- ----------- ------------- ----------- ------------ ------------ Balance -- December 31, 1992......... 212,288 $ 2 $ -- $ 1,105 $ (1,018) $ 89 Issuance of common stock, net of issuance costs...................... 1,887,664 19 -- 13,065 -- 13,084 Issuance of common stock warrants.... -- -- 107 -- -- 107 Net loss............................. -- -- -- -- (749) (749) ---------- --- ----- ----------- ------------ ------------ Balance -- December 31, 1993......... 2,099,952 21 107 14,170 (1,767) 12,531 Issuance of common stock, net of issuance costs...................... 282,393 3 -- 1,987 -- 1,990 Net loss............................. -- -- -- -- (2,389) (2,389) ---------- --- ----- ----------- ------------ ------------ Balance -- December 31, 1994......... 2,382,345 24 107 16,157 (4,156) 12,132 Issuance of common stock, net of issuance costs...................... 3,294,556 33 -- 25,433 -- 25,466 Net loss............................. -- -- -- -- (3,553) (3,553) Dividends on preferred stock of subsidiary.......................... -- -- -- -- (190) (190) ---------- --- ----- ----------- ------------ ------------ Balance -- December 31, 1995......... 5,676,901 $ 57 $ 107 $ 41,590 $ (7,899) $ 33,855 ---------- --- ----- ----------- ------------ ------------ ---------- --- ----- ----------- ------------ ------------
See accompanying notes. F-6 AMERICAN DISPOSAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 ---------- --------- ---------- OPERATING ACTIVITIES Net loss........................................................................ $ (3,553) $ (2,389) $ (749) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary item, net....................................................... 908 -- (74) Depreciation and amortization................................................. 6,308 3,226 1,166 Provision for environmental and landfill costs................................ 292 48 39 Deferred income taxes......................................................... 47 (1,372) (391) Changes in current assets and liabilities, net of effects from acquisitions: Trade receivables........................................................... (340) (625) (1,714) Prepaid expenses, cash held in escrow and other assets...................... (33) (361) (560) Inventory................................................................... (128) (96) (68) Accounts payable and accrued liabilities.................................... 1,846 235 1,226 Deferred revenue............................................................ 254 210 737 ---------- --------- ---------- Net cash provided by (used in) operating activities............................. 5,601 (1,124) (388) INVESTING ACTIVITIES Capital expenditures............................................................ (6,173) (5,600) (5,592) Cost of acquisitions............................................................ (62,201) (580) (17,469) ---------- --------- ---------- Net cash used in investing activities........................................... (68,374) (6,180) (23,061) FINANCING ACTIVITIES Net proceeds from issuances of common stock..................................... 25,466 1,990 12,885 Net proceeds from issuance of preferred stock of subsidiary..................... 1,908 -- -- Preferred stock dividend requirements of subsidiary............................. (190) -- -- Proceeds from issuance of long-term debt........................................ 45,068 6,319 19,836 Repayments of indebtedness...................................................... (2,698) (2,511) (6,301) Debt issuance costs............................................................. (946) (80) (849) ---------- --------- ---------- Net cash provided by financing activities....................................... 68,608 5,718 25,571 ---------- --------- ---------- Net increase (decrease) in cash and cash equivalents............................ 5,835 (1,586) 2,122 Cash and cash equivalents, at beginning of year................................. 548 2,134 12 ---------- --------- ---------- Cash and cash equivalents at end of year........................................ $ 6,383 $ 548 $ 2,134 ---------- --------- ---------- ---------- --------- ---------- Supplemental cash flow information: Cash paid for interest........................................................ $ 2,515 $ 1,426 $ 331 Cash paid for income taxes.................................................... 478 -- --
See accompanying notes. F-7 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 1. FORMATION AND BASIS OF PRESENTATION ADS, Inc. (ADS) was organized January 15, 1991, to acquire, develop, and operate nonhazardous municipal solid waste disposal, collection, and transfer operations and provide nonhazardous solid waste disposal management services to commercial, industrial, and residential customers. During 1993, an affiliate of Charterhouse Equity Partners, L.P. (CEP) purchased a controlling interest in ADS. County Disposal, Inc. (County) was incorporated by Charterhouse Equity Partners II, L.P. (CEPII) on April 27, 1995, for the purpose of acquiring certain net assets of Envirite Corporation (Envirite). On April 28, 1995, Envirite and County entered into an Asset Purchase Agreement whereby County agreed to purchase from Envirite certain landfill facilities and waste transportation and collection equipment located in Livingston County, Illinois, and Wyandot County, Ohio; all of the issued and outstanding capital stock of County Environmental Services, Inc., a wholly-owned subsidiary of Envirite, which owned and operated a landfill facility and waste transportation and collection equipment located in Clarion County, Pennsylvania; and certain related assets and assumption of certain liabilities. Effective January 1, 1996, the stockholders of ADS and County exchanged their shares for shares of a newly created holding company by the name of American Disposal Services, Inc. (the Company). This share exchange (the Exchange) qualifies as a transfer of companies under common control as affiliates of Charterhouse Group International, Inc. are the general partners and in control of CEP and CEPII and, accordingly, the transaction has been accounted for at historical cost in a manner similar to pooling of interests accounting. The financial statements have been prepared as if this Exchange had occurred as of December 31, 1992. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentration of credit risks consist primarily of trade receivables. Credit risk on trade receivables is minimized as a result of the large and diverse nature of the Company's customer base. The Company maintains an allowance for losses based on the expected collectibility of accounts receivable. Credit losses have been within management's expectations. FAIR VALUE OF FINANCIAL INSTRUMENTS Trade receivables, trade payables, and debt obligations are carried at cost which approximates fair value. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents represent cash in banks and liquid investments with original maturities of three months or less. CASH HELD IN ESCROW Cash held in escrow represents cash held in banks restricted to fund obligations incurred in acquiring businesses. F-8 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORY Inventory is stated at the lower of cost (first in, first out method) or market and consists principally of equipment parts, materials, and supplies. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the respective assets as follows: Vehicles and equipment............... 3 to 12 years 25 to 30 Buildings............................ years
Expenditures for major renewals are capitalized, and expenditures for routine maintenance and repairs are charged to expense as incurred. Capitalized landfill costs include expenditures for land and related airspace, permitting costs and preparation costs. Landfill permitting and preparation costs represent only direct costs related to these activities, including legal, engineering, construction of landfill improvements, cell development costs, and the direct costs of Company personnel dedicated for these purposes. Preparation costs for individual secure land disposal cells are recorded in property and equipment and amortized as the airspace is filled. INTANGIBLE ASSETS The cost over fair value of net assets of acquired businesses is amortized on the straight-line method over periods not exceeding 40 years. Other intangible assets, substantially all of which are covenants not to compete and customer lists, are amortized on the straight-line method over their estimated lives, typically no more than 12 years. Amortization expense for fiscal years 1995, 1994, and 1993 related to intangible assets was $1.4 million, $600,000, and $345,000, respectively. In 1995, the Company determined not to enforce certain covenants not to compete which arose from 1993 transactions with the net book value of such covenants of $505,000, fully written-off and included in 1995 amortization expense. DEFERRED ACQUISITION COSTS The Company capitalizes engineering, legal, accounting, and other direct costs paid to outside parties that are incurred in connection with potential acquisitions. The Company, however, routinely evaluates such capitalized costs and charges to expense those relating to abandoned acquisition candidates. Indirect acquisition costs, such as executive salaries, general corporate overhead, and other corporate services are expensed as incurred. Net deferred acquisition costs, included in other intangible assets, were approximately $370,000 and $379,000 at December 31, 1995 and 1994, respectively. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS Accrued environmental and landfill costs represent landfill accruals which are provided for environmental compliance costs and closure and post-closure costs. These accruals are based on accounting estimates by management determined primarily from the results of engineering studies and reviews and on interpretation of the technical standards of the Environmental Protection Agency's Subtitle D regulations, or the approved state counterpart, and the proposed air emissions standards under the Clean Air Act as they are being applied on a state-by-state basis. The Company typically provides accruals for these costs as permitted airspace of such facilities is consumed. Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes. Certain of these accrued environmental and landfill costs, principally capping, leachate collection and removal, and methane gas control and recovery, are operating and maintenance costs to be incurred during the 30-year period after the facility closes, but are accrued during the operating F-9 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) life of the site in accordance with the landfill operation requirements of Subtitle D and the proposed air emissions standards. An environmental and landfill cost accrual is provided as a liability assumed for purchased landfill operations based on permitted airspace consumed prior to the acquisition date and is included in the purchase price allocation (see Note 3). The Company has estimated that, as of December 31, 1995, post-closure expenses, including cap maintenance, groundwater monitoring, methane gas control and recovery and leachate treatment/disposal for up to 30 years after closure in certain cases, will approximate $11.3 million. In addition, the Company has estimated that, as of December 31, 1995, closure costs expected to occur during the operating lives of these facilities' useful lives will approximate $28.4 million. These accruals are reviewed by management periodically and revised prospectively for any significant changes in future cost estimates. INCOME TAXES Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. DEFERRED REVENUES Revenues billed prior to the performance of services are deferred and recorded as income in the period in which the related services are rendered, generally over a three-month period. RECLASSIFICATIONS Certain 1994 and 1993 financial statement amounts have been reclassified to conform with the 1995 presentation. EARNINGS PER SHARE Earnings per share is based on the weighted average number of common stock and common stock equivalent shares outstanding during each year and incremental shares from the assumed exercise of options and warrants granted within one year of the initial public offering computed using the treasury stock method. STOCK-BASED COMPENSATION The Company typically grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB No. 25, and, accordingly, typically recognizes no compensation expense for these stock option grants and intends to continue to do so. 3. ACQUISITIONS As described in Note 1, the Company acquired three landfills and a waste collection operation (the Envirite Acquisition) during 1995. The Company also acquired three waste collection operations during 1994, and nine waste collection operations, a transfer station and a landfill during 1993. F-10 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 3. ACQUISITIONS (CONTINUED) The operating results of these businesses since the dates of acquisition are included in the consolidated statements of operations. All of the Company's acquisitions were accounted for as purchases and, accordingly, the purchase prices have been allocated to the net assets acquired based upon fair values at the dates of acquisition with the residual amounts allocated to cost over fair value of net assets acquired. The purchase prices allocated to the net assets acquired were as follows (in thousands):
1995 1994 1993 --------- --------- --------- Property and equipment.......................................... $ 62,288 $ 580 $ 9,837 Accounts receivable and inventory............................... 3,363 -- -- Other assets.................................................... 1,664 -- 1,995 Cost over fair value of net assets acquired..................... 3,060 -- 12,003 Acquisition price financed by sellers........................... -- -- (3,500) Total liabilities assumed....................................... (8,174) -- (2,829) --------- --------- --------- Total cash paid............................................. $ 62,201 $ 580 $ 17,506 --------- --------- --------- --------- --------- ---------
The pro forma unaudited results of operations for the years ended December 31, 1995 and 1994, assuming the Envirite Acquisition occurred at January 1, 1994, were as follows (in thousands, except per share data):
1995 1994 ------------ ------------ Revenues.......................................................... $ 44,500 $ 37,338 Operating loss.................................................... (276) (5,009) Net loss applicable to common stockholders........................ (6,788) (8,367) Pro forma loss per share of common stock.......................... (1.82) (3.20) Weighted average common stock and common stock equivalent shares outstanding...................................................... 3,729,055 2,612,749
4. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows (in thousands):
DECEMBER 31, ----------------------- 1995 1994 --------- ------------ Land................................................................. $ 5,038 $ 280 Landfills............................................................ 66,529 8,382 Buildings............................................................ 2,695 659 Vehicles and equipment............................................... 14,335 10,956 --------- ------------ 88,597 20,277 Less: Accumulated depreciation and amortization...................... (7,347) (3,215) --------- ------------ $ 81,250 $ 17,062 --------- ------------ --------- ------------
F-11 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 5. OBLIGATIONS Obligations, which approximate fair value, are summarized as follows (in thousands):
DECEMBER 31, -------------------- 1995 1994 --------- --------- Long-term debt: Term loan, Bank of America............................................ $ 20,000 $ -- Revolving loan, Bank of America....................................... 10,847 -- Term loan A, ING Capital Corporation.................................. 12,525 9,300 Term loan B, ING Capital Corporation.................................. 4,000 -- Acquisition loan, ING Capital Corporation............................. -- 8,573 Revolving loan, ING Capital Corporation............................... 2,423 2,050 Other long-term borrowings, with interest ranging from 7.0% to 11.0%................................................................ 1,285 1,003 Capital lease obligations: Capital lease obligations with interest and principal due monthly through 1999, at various interest rates ranging from 6.0% to 9.5%, secured by equipment................................................. 1,149 109 --------- --------- 52,229 21,035 Less: Current portion................................................. 3,440 2,548 --------- --------- Long-term obligations, net of current portion......................... $ 48,789 $ 18,487 --------- --------- --------- ---------
On September 21, 1995, County, a subsidiary of the Company, entered into a credit agreement with Bank of America that provides for borrowings of up to $45 million to finance acquisitions and provide working capital. The facility consists of a $20 million term loan and a $25 million revolving loan, which is currently limited to $20 million until certain earnings requirements are met. The term loan bears a rate of interest per annum based on the London Interbank Offered Rate (LIBOR) plus 3.75% (9.1% at December 31, 1995) or the higher of prime plus 1.25% (9.75% at December 31, 1995) or the Federal Funds Rate plus 1.75% (7.5% at December 31, 1995) and is due in quarterly installments beginning in December 1996 through September 2000. The revolving loan bears interest based on LIBOR plus 3.25% (8.6% at December 31, 1995) or the higher of prime plus 0.75% (9.25% at December 31, 1995) or at the Federal Funds Rate plus 1.25% (7.0% at December 31, 1995) and matures on September 21, 1998. The revolving loan provides for commitment fees of 1/2% per annum on the unused portions payable monthly in arrears. The facility is secured by substantially all of the assets of County. Under the terms of the credit agreement, County is subject to various debt covenants, including maintenance of certain financial ratios and restrictions on additional indebtedness, payment of cash dividends, capital expenditures, rental obligations, and asset dispositions. In conjunction with obtaining the credit agreement, the Company granted 97,575 warrants to purchase shares of common stock of the Company at $7.41 per share. On October 13, 1995, ADS, a subsidiary of the Company, extinguished an existing credit agreement and entered into a new credit agreement with the Internationale Nederlanden (U.S.) Capital Corporation, as agent (ING), to provide for borrowings of up to approximately $23 million. As a result of the early extinguishment of the credit agreement, the Company recognized an extraordinary loss of $907,720 representing unamortized deferred debt issuance cost. The facility consists of a $12.5 million term loan A, $4.0 million term loan B, and a $6.4 million revolving loan. Term loan A bears a rate of interest per annum based on the London Interbank Offered Rate (LIBOR) plus 3% (8.35% at December 31, 1995), or the higher of prime plus 1.50% (10.00% at December 31, 1995), or Federal Funds Rate plus 1.75% (7.50% at December 31, 1995), and is due in quarterly installments through December 31, 2000. Term loan B bears a rate of F-12 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 5. OBLIGATIONS (CONTINUED) interest per annum based on the higher of prime plus 3.00% (11.5% at December 31, 1995) or Federal Funds Rate plus 3.25% (9.00% at December 31, 1995, which can be fixed at March 31, 1996, at the Company's option, and is due in quarterly installments beginning March 31, 1998 through December 31, 2000. The revolving loan bears interest at the higher of prime plus 1.25% (9.75% at December 31, 1995), or Federal Funds Rate plus 1.5% (7.25% at December 31, 1995), and matures on December 31, 2000. The revolving loans provide for commitment fees of 1/2% per annum on the unused portions payable monthly in arrears. The ING facility is secured by substantially all of the assets of ADS. Under the terms of the ING credit agreement, ADS is subject to various debt covenants, including maintenance of certain financial ratios and restrictions on additional indebtedness, payment of cash dividends, capital expenditures, rental obligations, and asset dispositions. Maturities of long-term obligations (excluding capital lease obligations) are as follows (in thousands): 1996............................................................... $ 2,929 1997............................................................... 6,252 1998............................................................... 18,613 1999............................................................... 8,386 2000 and thereafter................................................ 14,900 --------- $ 51,080 --------- ---------
At December 31, 1995, the Company had outstanding a $12,500,000 unsecured note payable to a stockholder, which was issued on November 16, 1995 and is due November 15, 1996, bearing an annual interest rate of prime plus 3% (11.5% at December 31, 1995). Interest expense relating to this note payable of approximately $180,000 was incurred in 1995. F-13 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 6. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows (in thousands):
DECEMBER 31, -------------------- 1995 1994 --------- --------- (IN THOUSANDS) Deferred tax assets arising from: Net operating loss carryforwards........................................ $ 3,111 $ 2,311 Bad debt reserves....................................................... 41 118 Closure and post-closure costs.......................................... 421 91 Amortization of intangibles............................................. 550 76 --------- --------- Total deferred tax assets............................................. 4,123 2,596 Valuation allowance....................................................... (2,323) (310) --------- --------- Net deferred tax assets............................................... 1,800 2,286 Deferred tax liabilities arising from: Property and equipment.................................................. 2,898 2,172 Amortization of intangibles............................................. 84 74 Capital leases.......................................................... 32 11 Discharge of indebtedness............................................... 26 29 --------- --------- Total deferred tax liabilities........................................ 3,040 2,286 --------- --------- Net deferred tax liability............................................ $ (1,240) $ -- --------- --------- --------- ---------
At December 31, 1995, the Company has net operating loss (NOL) carryforwards of approximately $8.4 million for income tax purposes that expire in years 2006 to 2010. The utilization of the NOL carryforwards is limited by future taxable earnings generated at the subsidiary level. The Company recorded a valuation allowance against the NOL carryforwards to reflect uncertainty as to the utilization of such benefit for financial reporting purposes, of approximately $2.3 million at December 31, 1995. The valuation allowance decreased during 1994 by $81,000 and increased during 1993 by $391,000 due to changes in the certainty of utilizing NOL carryforwards. Significant components of the income tax expense (benefits) were as follows (in thousands):
DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Current: Federal.......................................................... $ 141 $ -- $ -- State............................................................ 144 -- -- --------- --------- --------- 285 -- -- Deferred: Federal.......................................................... 38 (1,205) (330) State............................................................ 9 (167) (61) --------- --------- --------- 47 (1,372) (391) --------- --------- --------- Total provision................................................ $ 332 $ (1,372) $ (391) --------- --------- --------- --------- --------- ---------
F-14 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 6. INCOME TAXES (CONTINUED) A reconciliation from the statutory income tax rate to the effective income tax rate was as follows:
DECEMBER 31, ---------------------------------------- 1995 1994 1993 ------------ ------------ ------------ Federal statutory income tax rate........................... (34.0)% (34.0)% (34.0)% Effect of: State taxes, net of federal tax effect.................... 3.1 (2.9) (3.5) Net operating loss with no benefit........................ 39.6 0.1 3.6 Other, net................................................ 1.6 0.3 1.7 ----- ----- ----- Effective tax rate...................................... 10.3% (36.5)% (32.2)% ----- ----- ----- ----- ----- -----
7. RELATED PARTIES During 1995, the Company entered into a new management agreement with a stockholder. The agreement specifies certain services to be rendered to the Company in exchange for annual management fees of $700,000. Management fees of approximately $659,000, $515,000, and $314,000 were incurred in 1995, 1994, and 1993, respectively. 8. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL AND REGULATORY REQUIREMENTS The business and activities of the Company are or may become heavily regulated by the Environmental Protection Agency, the Department of Transportation, the Interstate Commerce Commission, and various state environmental and transportation regulatory authorities. The Company is subject to various statutes and regulations which include, but are not limited to, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, and various state regulations. The full impact of these laws and regulations and adoption of new statutes and regulations with respect to the Company's facilities and operations is uncertain and could have material adverse effects on the Company's business, results of operations, and financial condition in that the Company: (i) could be required to incur additional expenses in compliance efforts; (ii) might be unable to comply, forcing the Company to cease operations; and (iii) could incur additional liability for past operation of acquired assets. These regulations may also impose restrictions on the Company's operations, such as limiting the expansion of disposal facilities, limiting or banning the disposal of out-of-state waste or certain other categories of waste, or mandating the disposal of local refuse. Although the Company believes it is in substantial compliance with current regulatory requirements, because of heightened political and public concern over environmental issues, companies in the waste disposal industry, including the Company, may become subject to judicial and administrative proceedings involving federal, state, or local agencies in the normal course of business. The Company has obtained pollution liability insurance covering claims for sudden or gradual onset environmental damage at its landfill sites. The Company carries a comprehensive general liability insurance policy which management considers adequate to protect its assets and operations from other risks. The Company also may be subject to claims for personal injury or property damage arising out of motor vehicle accidents involving its trucks. The Company currently carries insurance with policy limits which management believes to be sufficient to cover these risks. If the Company were to incur liabilities in excess of its insurance limits, its financial condition could be adversely affected. F-15 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) In connection with three of the Company's existing landfills (one in 1994), the Company has provided financial assurance bonds for approximately $6.3 million at December 31, 1995 from a financial institution to provide financial assurance that closure and post-closure expenses will be met in the event that the Company is not able to fulfill its closure and post-closure obligations. At December 31, 1995, future minimum lease payments under noncancelable lease obligations are as follows (in thousands):
CAPITAL OPERATING LEASES LEASES --------- ----------- 1996..................................................................... $ 598 $ 1,548 1997..................................................................... 431 1,101 1998..................................................................... 192 1,015 1999..................................................................... 104 852 2000 and thereafter...................................................... -- 379 --------- ----------- Total minimum lease payments......................................... 1,325 $ 4,895 ----------- ----------- Less: Amount representing interest....................................... 176 --------- Present value of minimum lease payments.............................. $ 1,149 --------- ---------
Rental expense in 1995, 1994, and 1993 was approximately $793,000, $132,000, and $85,000, respectively. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with several officers. The terms of these agreements include annual salary commitments of approximately $795,000. The agreements are effective through 1998. In addition, the officers were granted options to purchase shares of the Company's common stock (see Note 9). OTHER The Company has entered into certain Net Profits Agreements (the Agreements) in conjunction with the September 1991 Pittsburg County landfill acquisition. The Agreements require the Company to pay a total of 15% of the net profits, as defined in the Agreements, from the related acquired landfill operation to two individuals who are not currently stockholders of ADS. These payments are required for the life of the acquired landfill. Through December 31, 1995, no amounts related to the Agreements were payable. REDEEMABLE PREFERRED STOCK OF SUBSIDIARY On March 28, 1995, ADS, a subsidiary of the Company, issued 1,950 shares of its Series A Preferred Stock and 46,550 warrants to purchase shares of common stock of the Company, for $1,950,000. The holder of the warrants can purchase one common share for each warrant held at the exercise price of $0.10 per share on or before December 31, 2002. The holder of Series A Preferred Stock is entitled to receive, out of funds legally available, cumulative cash dividends at a rate of $130 per share per annum, payable in equal quarterly installments. ADS may redeem all or part of the Series A Preferred Stock then outstanding by paying to the holders of the shares being redeemed a redemption price equal to the sum of the amount of accrued and unpaid cumulative dividends on the shares being redeemed, plus $1,000 per share redeemed on the first day of each February, May, August, and November in each year, commencing on May 1, 1995. In connection with the Exchange, 5,000,000 shares of new preferred stock of the Company were authorized with none issued at December 31, 1995. F-16 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1994 AND 1993 9. STOCKHOLDERS' EQUITY STOCK OPTIONS The Company's Board of Directors adopted the American Disposal Services, Inc. 1996 Stock Option Plan effective January 1, 1996. The plan permits grants of options up to an aggregate 1,100,000 shares of common stock to employees and certain consultants of the Company, on such terms as the Company's compensation committee (or a stock option subcommittee thereof) determines. Options to purchase an aggregate 806,014 shares were granted under the plan as of January 1, 1996 to replace existing stock options granted by ADS and County. An aggregate of 123,638 options have an exercise price of $7.17 per share, and vest in 20% increments on each anniversary of the date of the original grant of the ADS stock options that they replace. An aggregate of 10,464 options have an exercise price of $7.17 per share, and vest in 33 1/3% increments on each anniversary of the date of the original grant of the ADS stock options that they replace. An aggregate of 671,912 options have an exercise price of $7.41 per share, and vest in part over a three-year period and in part based on the Company's financial performance through fiscal 1998. All vesting is subject to acceleration under specified circumstances. All the foregoing stock options were originally granted at their fair value at the date of grant. The new options granted under the 1996 Option Plan expire ten years from the date of the original grant of the ADS and County stock options they replace. As of December 31, 1995, the number of shares vested under the 1996 Option Plan was 105,223. No options were exercised during the three years ended December 31, 1995. Options to purchase an aggregate 63,601 shares were granted outside the plan to a former employee as of January 1, 1996 and are fully vested. Such shares have an exercise price of $7.17 per share, increasing at 25% per annum from the date of original grant of the ADS stock options they replace. STOCK WARRANTS In connection with obtaining a credit agreement in 1993, the Company issued warrants to ING to purchase 71,330 shares of common stock. In 1993, 44,606 warrants were issued with an exercise price of $4.72 per share and 26,137 warrants were issued with an exercise price of $7.17 per share. An additional 587 shares were issued in 1995 under terms of the credit agreement with an exercise price of $4.72 per share. The common stock was valued by management at $7.17 on the date of issuance of the warrants. Given the difference between the exercise price and the value of the common stock, the Company recorded the warrants as a component of equity and recognized debt issuance cost of $106,666. The warrants expire ten years from date of issuance. 10. SUBSEQUENT EVENT On May 30, 1996, the stockholders of the Company approved a 13.5 to 1 stock split. The accompanying financial statements are presented as if the stock split had taken place on December 31, 1992. F-17 AMERICAN DISPOSAL SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) ASSETS
MARCH 31, 1996 ----------- (UNAUDITED) Current assets: Cash and cash equivalents (includes restricted cash of $156)....................................... $ 6,706 Trade receivables, net............................................................................. 6,563 Other current assets............................................................................... 670 ----------- Total current assets................................................................................. 13,939 Property, plant, and equipment, net.................................................................. 81,696 Other assets: Cost over fair value of assets acquired, net....................................................... 15,636 Other intangibles assets, net...................................................................... 1,921 Other assets....................................................................................... 2,240 ----------- $ 115,432 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable due to stockholder.................................................................... $ 12,500 Accounts payable................................................................................... 2,821 Accrued liabilities and deferred revenues.......................................................... 4,009 Current portion of long-term debt and capital lease obligations.................................... 4,167 ----------- Total current liabilities............................................................................ 23,497 Long-term debt and capital lease obligations, net of current portion................................. 49,006 Accrued environmental and landfill costs............................................................. 6,623 Deferred income taxes................................................................................ 1,080 Redeemable preferred stock of subsidiary............................................................. 1,908 Total stockholders' equity (5,676,901 shares of common stock issued and outstanding)................. 33,318 ----------- $ 115,432 ----------- -----------
See accompanying notes. F-18 AMERICAN DISPOSAL SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ------------------------ 1996 1995 ---------- ------------ (UNAUDITED) Revenues............................................................................... $ 11,724 $ 5,034 Cost of operations..................................................................... 6,108 3,047 Selling, general, and administrative expenses.......................................... 1,935 1,080 Depreciation and amortization.......................................................... 2,718 984 ---------- ------------ Operating income (loss)................................................................ 963 (77) Interest expense....................................................................... (1,617) (511) Interest income........................................................................ 78 4 ---------- ------------ Loss before income taxes............................................................... (576) (584) Income tax benefit..................................................................... 160 156 ---------- ------------ Net loss............................................................................... (416) (428) Preferred stock dividend requirement of subsidiary..................................... (63) -- ---------- ------------ Net loss applicable to common stockholders............................................. $ (479) $ (428) ---------- ------------ ---------- ------------ Loss per share of common stock......................................................... $ (.08) $ (.15) ---------- ------------ ---------- ------------ Weighted average common stock and common stock equivalent shares outstanding........... 6,065,445 2,770,889 ---------- ------------ ---------- ------------
See accompanying notes. F-19 AMERICAN DISPOSAL SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------- 1996 1995 --------- --------- (UNAUDITED) OPERATING ACTIVITIES Net loss..................................................................................... $ (416) $ (428) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.............................................................. 2,718 984 Provision for environmental and landfill costs............................................. 118 12 Deferred income taxes...................................................................... (160) (156) Changes in working capital:................................................................ Trade receivables........................................................................ (232) 109 Accounts payable......................................................................... (364) (5) Accrued liabilities and deferred revenue................................................. 447 (317) Other working capital.................................................................... (93) (268) --------- --------- Net cash provided by (used in) operating activities.......................................... 2,018 (69) INVESTING ACTIVITIES Capital expenditures......................................................................... (2,674) (991) --------- --------- Net cash used in investing activities........................................................ (2,674) (991) FINANCING ACTIVITIES Net proceeds from issuance of preferred stock of subsidiary.................................. -- 1,908 Preferred stock dividend requirement of subsidiary........................................... (63) -- Net borrowings (repayments).................................................................. 944 (1,170) Cash paid for stock issuance costs........................................................... (58) -- --------- --------- Net cash provided by financing activities.................................................... 823 738 --------- --------- Net increase (decrease) in cash and cash equivalents (including restricted cash)............. 167 (322) Cash and cash equivalents (including restricted cash) at beginning of period................. 6,539 739 --------- --------- Cash and cash equivalents (including restricted cash) at end of period....................... $ 6,706 $ 417 --------- --------- --------- ---------
See accompanying notes. F-20 AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 (UNAUDITED) 1. FORMATION AND BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1996, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes included elsewhere herein. Effective January 1, 1996, the stockholders of ADS and County exchanged their shares for shares of a newly created holding company by the name of American Disposal Services, Inc. (the Company). This share exchange (the Exchange) qualifies as a transfer of companies under common control and, accordingly, the transaction has been accounted for at historical cost in a manner similar to pooling of interest accounting. The financial statements have been prepared as if the Exchange occurred on December 31, 1994. 2. RELATED PARTY INTEREST EXPENSE
THREE MONTHS ENDED MARCH 31, -------------------- 1996 1995 --------- --------- (IN THOUSANDS) Charterhouse Equity Partners II, L.P....................................... $ 359 $ -- --------- --------- --------- ---------
3. ENVIRONMENTAL MATTERS See Note 8 of Notes to Consolidated Financial Statements included elsewhere herein for a description of environmental matters. 4. ACQUISITIONS As described in Note 3 of Notes to Consolidated Financial Statements included elsewhere herein, the pro forma results of operations for the three months ended March 31, 1996 and 1995 assuming the Envirite Acquisition had occurred at January 1, 1995 were as follows (in thousands, except share data):
THREE MONTHS ENDED MARCH 31, ---------------------- 1996 1995 ---------- ---------- Revenues........................................................ $ 11,724 $ 10,006 Operating income................................................ 963 112 Net loss applicable to common stockholders...................... (479) (1,048) Pro forma loss per share of common stock........................ $ (.08) $ (.17) Weighted average common stock and common stock equivalent shares outstanding.................................................... 6,065,445 6,065,445
5. SUBSEQUENT EVENT In May 1996, the Company negotiated a new credit agreement with Internationale Nederlanden (U.S.) Capital Corporation (ING), as administrative agent, and Morgan Guaranty Trust Company of New York, as documentation agent, that provides for borrowings of up to $87 million to finance acquisitions and provide working capital, which was used to repay the existing credit agreements with Bank of America and ING, as well as the note payable to stockholder and redeemable preferred stock of subsidiary. The facility consists of F-21 5. SUBSEQUENT EVENT (CONTINUED) a $38 million term loan A, $25 million term loan B, $7 million revolving loan, and $17 million acquisition facility. The rate of interest is equal to either a base rate plus an applicable margin or the London Interbank Offered Rate (LIBOR) plus an applicable margin. The base rate is the higher of the Federal Funds Rate plus 0.5% or the prime rate. Term loan A bears an interest rate of the base rate plus 1.25% or LIBOR plus 2.75% and is due in quarterly installments beginning in December 1996 through June 2001. Term loan B bears an interest rate of the base rate plus 1.75% or LIBOR plus 3.25% and is due in quarterly installments beginning in December 1996 through June 2003. The revolving loan bears an interest rate of the base rate plus 1.00% or LIBOR plus 2.50% and matures on June 30, 2001. The acquisition facility bears an interest rate of the base rate plus 1.50% or LIBOR plus 3.00% and is due in quarterly installments beginning in September 1998 through March 2000. The revolving loan and acquisition facility provide for commitment fees of 1/2% per annum on the unused portions. The facility is secured by substantially all of the assets of the Company. Under terms of the credit agreement, the Company is subject to various debt covenants, including maintenance of certain financial ratios and other restrictions. The Credit Facility requires the Company to use 50% of the proceeds of any equity offering to repay a portion of the term loans. F-22 AMERICAN DISPOSAL SERVICES, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) PRO FORMA FINANCIAL DATA The following unaudited Pro Forma Consolidated Statement of Operations of the Company is based on the historical Consolidated Financial Statements of the Company and Envirite Corporation MSG Facilities included elsewhere herein, adjusted to give effect to the Envirite Acquisition and the refinancing transactions. The Pro Forma Consolidated Statement of Operations for the year ended December 31, 1995 gives effect to the Envirite Acquisition and the refinancing transactions, as if they had occurred as of January 1, 1995. The Pro Forma Consolidated Statement of Operations does not purport to represent what the Company's results of operations would actually have been had the Envirite Acquisition in fact occurred on such date or to project the Company's results of operations for any future period or date. The Pro Forma Consolidated Statement of Operations does not give effect to any transactions other then the Envirite Acquisition and the refinancing transactions, as discussed in the notes to the Pro Forma Consolidated Statement of Operations set forth below. The Envirite Acquisition was accounted for using the purchase method of accounting. Under purchase accounting, tangible and identifiable intangible assets acquired and liabilities assumed are recorded at their respective fair values. The Pro Forma adjustments are based on available information and upon certain assumptions that management of the Company believes are reasonable under the circumstances. The Pro Forma Financial Data and accompanying notes should be read in conjunction with the historical Consolidated Financial Statements of the Company and Envirite Corporation MSG Facilities, including the notes thereto, and other financial information pertaining to the Company included elsewhere herein.
ACQUISITIONS ----------------------------- HISTORICAL HISTORICAL (1) ADJUSTMENTS (2) REFINANCING (3) PRO FORMA ----------- ------------ --------------- --------------- ------------ Revenues................................. $ 30,004 $ 14,496 $ -- $ -- $ 44,500 Cost of operations....................... 17,286 5,044 22,330 Selling, general and administrative expenses................................ 5,882 2,146 1,465 9,493 Depreciation and amortization............ 6,308 5,861 784 87 13,040 ----------- ------------ ------- ----- ------------ Operating income (loss).................. 528 1,445 (2,249) (87) (363) Interest Expense......................... (3,030) (2,241) (43) (5,314) Interest Income.......................... 189 -- 189 ----------- ------------ ------- ----- ------------ Loss before income taxes and extraordinary item...................... (2,313) 1,445 (4,490) (130) (5,488) Income tax benefit (expense)............. (332) (332) ----------- ------------ ------- ----- ------------ Net loss................................. $ (2,645) $ 1,445 $ (4,490) $ (130) $ (5,820) ----------- ------------ ------- ----- ------------ ----------- ------------ ------- ----- ------------ Net loss per share of common stock....... $ (.96) ------------ ------------ Weighted average common stock and common stock equivalent shares outstanding..... 6,065,445 ------------ ------------ EBITDA (4)............................... $ 12,677 ------------ ------------
F-23 AMERICAN DISPOSAL SERVICES, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) - ------------------------ (1) Reflects the combined historical statement of revenues and direct operating expenses for the Municipal Services Group (MSG) of Envirite Corporation for the period of January 1, 1995 through the dates of acquisitions as follows: - Clarion County, Pennsylvania -- June 8, 1995 - Wyandot County, Ohio -- August 1, 1995 - Livingston County, Illinois -- November 16, 1995 (2) Adjustments to reflect the historical amounts for the acquisitions noted in footnote (1) as follows (in thousands): Incremental amortization of landfill costs recorded in purchase accounting......................................................... $ 752 Incremental goodwill amortization of assets acquired in excess of fair value......................................................... 32 Incremental interest expense on additional debt..................... 2,241 Incremental selling, general and administrative expenses, including management salaries and benefits, professional fees and other expenses........................................................... 1,465 --------- $ 4,490 --------- ---------
(3) Adjustments to reflect the new credit facility, which replaces: (i) the Bank of America term loan and revolver; (ii) the ING Capital Corporation term loans and revolver; (iii) $7.5 million of the note payable to a stockholder; and (iv) the redeemable perferred stock of a subsidiary as follows (in thousands): Interest Expense Term loan A at $38 million bearing an interest rate of 8.79%..... $ 3,340 Term loan B at $21 million bearing an interest rate of 9.29%..... 1,974 Less historical and adjusted interest expense.................... (5,271) --------- Net adjustment................................................... $ 43 --------- --------- Debt Issuance Costs Amortization for new credit facility............................. $ 345 Less historical amortization..................................... (258) --------- Net adjustment................................................... $ 87 --------- ---------
An average LIBOR rate of 6.04% was used for the year ended December 31, 1995. The debt issuance costs were allocated on a pro-rata basis to the respective components of the new credit facility. (4) EBITDA represents operating income plus depreciation and amortization. While EBITDA data should not be construed as a substitute for operating income, net income (loss) or cash flows from operations in analyzing the Company's operating performance, financial position and cash flows, the Company has included EBITDA data (which are not a measure of financial performance under generally accepted accounting principles) because it understands that such data are commonly used by certain investors to evaluate a company's performance in the solid waste industry. F-24 REPORT OF INDEPENDENT AUDITORS The Board of Directors Envirite Corporation We have audited the accompanying statements of net assets acquired of the MSG Facilities of Envirite Corporation as of December 31, 1994 and January 1, 1994, and the related statements of revenue and direct operating expenses for the years then ended. These financial statements are the responsibility of Envirite Corporation'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 statements of net assets acquired and revenue and direct operating expenses are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statements. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1, the accompanying financial statements were prepared for the purpose of complying with Rule 3-05 of Regulation S-X of the Securities and Exchange Commission, as agreed to by representatives of the Commission, and are not intended to be a complete presentation of assets and liabilities and results of operations on a stand-alone basis of the MSG Facilities. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets acquired of the MSG Facilities of Envirite Corporation at December 31, 1994 and January 1, 1994, and the revenue and direct operating expenses for the years then ended, as described in Note 1, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Philadelphia, Pennsylvania November 8, 1995 F-25 ENVIRITE CORPORATION MSG FACILITIES STATEMENTS OF NET ASSETS ACQUIRED ASSETS
DECEMBER 31, JANUARY 1, 1994 1994 ------------- ------------- Accounts receivable................................................................ $ 3,329,720 $ 1,883,946 Wyandot trust fund................................................................. 1,029,770 664,521 Property, plant and equipment, at cost: Land, primarily disposal sites................................................... 28,682,963 26,911,426 Buildings........................................................................ 850,276 838,985 Machinery and equipment.......................................................... 6,075,446 5,387,264 ------------- ------------- 35,608,685 33,137,675 Less accumulated depreciation.................................................... (7,073,154) (5,054,868) ------------- ------------- Net property, plant and equipment.................................................. 28,535,531 28,082,807 ------------- ------------- Total assets................................................................... $ 32,895,021 $ 30,631,274 ------------- ------------- LIABILITIES AND NET ASSETS ACQUIRED Closure and post-closure liabilities............................................... $ 3,790,695 $ 2,223,407 Financing agreements............................................................... 1,189,196 -- Capital leases payable............................................................. 270,808 294,793 ------------- ------------- Total liabilities.............................................................. 5,250,699 2,518,200 ------------- ------------- Net assets acquired................................................................ $ 27,644,322 $ 28,113,074 ------------- ------------- ------------- -------------
See accompanying notes. F-26 ENVIRITE CORPORATION MSG FACILITIES STATEMENTS OF REVENUE AND DIRECT OPERATING EXPENSES
FISCAL YEARS ENDED, ---------------------------- DECEMBER 31, JANUARY 1, 1994 1994 ------------- ------------- Sales.............................................................................. $ 18,820,589 $ 14,873,841 Direct operating costs and expenses: Cost of sales.................................................................... 13,279,680 10,475,968 Selling and administrative....................................................... 4,452,969 3,445,685 ------------- ------------- Operating profit................................................................... $ 1,087,940 $ 952,188 ------------- ------------- ------------- -------------
See accompanying notes. F-27 ENVIRITE CORPORATION MSG FACILITIES NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION On April 28, 1995, Envirite Corporation (Envirite) and County Disposal, Inc. (County) entered into an Asset Purchase Agreement (the Agreement) whereby County agreed to purchase from Envirite certain landfill facilities and waste transportation and collection equipment located in Livingston County, Illinois (Livingston Facility) and Wyandot County, Ohio (Wyandot Facility), all of the issued and outstanding capital stock of County Environmental Services, Inc., a wholly-owned subsidiary of Envirite, which owns and operates a landfill facility and waste transportation and collection equipment located in Clarion County, Pennsylvania (Clarion Facility) (collectively, the MSG Facilities), and certain related assets, and assume certain liabilities. The accompanying Statements of Net Assets Acquired present as of December 31, 1994 and January 1, 1994, the MSG Facilities' assets to be acquired and certain liabilities assumed (including those represented by the capital stock of County Environmental Services, Inc.) by County pursuant to the Agreement. Cash, income tax benefits and liabilities, and certain other assets and liabilities, related to the MSG Facilities will be retained by Envirite and are not included herein. Pursuant to the Agreement, County assumes certain other liabilities that are not required by generally accepted accounting principles to be recorded in these financial statements. The Statements of Revenue and Direct Operating Expenses represent those revenues and expenses that are specifically identifiable to the MSG Facilities and do not include certain corporate expenses. As a result, the accompanying Statements are not intended to be a complete presentation of the MSG Facilities' assets and liabilities and results of operations had they been operated as a stand-alone entity. ACCOUNTS RECEIVABLE Pursuant to the Agreement, accounts receivable represent amounts not greater than 60 days old. All other receivables are retained by Envirite. WYANDOT TRUST FUND These amounts are held in trust to meet legal requirements for closure and post-closure obligations for the Wyandot Facility. PROPERTY, PLANT, AND EQUIPMENT Costs associated with the acquisition and development of disposal sites are recorded as land and amortized as landfill capacity is consumed. Plant and equipment is depreciated under the straight-line method. Estimated useful lives are 15 to 35 years for buildings and 3 to 8 years for machinery and equipment. Depreciation and landfill amortization expense was $2,183,000 and $2,110,000 in 1994 and 1993, respectively. As of January 2, 1994, the Company changed the estimated useful lives of certain transportation assets from five to eight years. The effect of this change in useful lives was to increase the operating profit by $136,000 in 1994. FISCAL YEAR The Company utilizes a 52 - 53 week fiscal year. There were 53 weeks in the 1993 fiscal year and 52 weeks in the 1994 fiscal year. CLOSURE AND POST-CLOSURE COSTS The estimated costs associated with meeting regulatory requirements for the closure and post-closure monitoring of landfills are charged to expense as landfill capacity is consumed. Post-closure monitoring is F-28 ENVIRITE CORPORATION MSG FACILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) generally required for thirty years from the time the landfill is closed. These costs and landfill capacities are based on engineering estimates and are reviewed annually. Landfill closure and post-closure costs of $1,709,000 and $1,228,000 were expensed in 1994 and 1993, respectively. In accordance with regulatory requirements, Envirite provides financial assurance for closure and post-closure monitoring. These requirements are satisfied either by providing a letter of credit or funding a trust. In accordance with these requirements, Envirite had $3,239,000 of letters of credit outstanding at December 31, 1994 for these purposes and $1,029,770 is held in trust. SELLING AND ADMINISTRATIVE EXPENSE Included in direct selling and administrative expense for the year ended December 31, 1994 is approximately $700,000 of one-time charges related to bonus payments to certain Envirite employees who assisted in the disposition of the landfills. 2. RENT EXPENSE Rent expense for leased office space and certain equipment was $386,000 and $259,000 in 1994 and 1993, respectively. Future annual rentals for these operating leases will be as follows: 1995............................................................ $ 597,170 1996............................................................ 597,170 1997............................................................ 484,016 1998............................................................ 391,948 1999............................................................ 166,332 --------- $2,236,636 --------- ---------
3. CAPITAL LEASES Property, plant, and equipment includes leased property under capital leases as follows:
DECEMBER 31, JANUARY 1, 1994 1994 ------------ ---------- Machinery and equipment............................................ $ 552,191 $ 456,000 Less accumulated depreciation...................................... 213,966 122,766 ------------ ---------- $ 338,225 $ 333,234 ------------ ---------- ------------ ----------
Future minimum lease payments under these capital leases together with the present value of the minimum lease payments as of December 31, 1994 are as follows: 1995.............................................................. $ 138,649 1996.............................................................. 88,124 1997.............................................................. 44,221 1998.............................................................. 23,261 1999.............................................................. 13,572 --------- Total minimum lease payments.................................. 307,827 Less amount representing interest................................. (37,019) --------- Present value of minimum lease payments........................... $ 270,808 --------- ---------
F-29 ENVIRITE CORPORATION MSG FACILITIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994 4. FINANCING AGREEMENTS Financing agreements are secured by certain equipment used at the MSG Facilities and are at interest rates ranging from 7.6% to 10.7% with monthly principal payments through July 1999. The amount of the liability is based on the purchased assets collateralizing the debt. County Environmental Services, Inc. is a guarantor of one financing agreement, a portion of which relates to the purchased assets. The amount of the guarantee not related to purchased assets is $430,000 as of November 8, 1995. 5. ASSETS PLEDGED AS COLLATERAL At December 31, 1994, Envirite had a loan and security agreement providing for a revolving credit facility for $28,300,000 including cash borrowings and letters of credit (the "Revolving Credit Facility"). Collateral includes a security interest in accounts receivable and certain real property included in the accompanying financial statements and the stock of a subsidiary of Envirite. 6. SUBSEQUENT EVENT As of November 8, 1995, the Wyandot and Clarion Facilities have been sold to County in accordance with the Agreement. Cash borrowings and irrevocable letters of credit under Envirite's Revolving Credit Facility at that date were $0 and $4,656,424, respectively. F-30 REPORT OF INDEPENDENT AUDITORS The Board of Directors Envirite Corporation We have audited the accompanying statement of revenue and direct operating expenses of the MSG Facilities of Envirite Corporation for the period January 1, 1995 to November 15, 1995. This financial statement is the responsibility of Envirite Corporation's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue and direct operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement. We believe that our audit provides a reasonable basis for our opinion. As described in Note 1, the accompanying financial statement was prepared for the purpose of complying with Rule 3-05 of Regulation S-X of the Securities and Exchange Commission, as agreed to by representatives of the Commission, and is not intended to be a complete presentation of results of operations on a stand-alone basis of the MSG Facilities. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenue and direct operating expenses of the MSG Facilities of Envirite Corporation for the period January 1, 1995 to November 15, 1995, as described in Note 1, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Philadelphia, Pennsylvania February 9, 1996 F-31 ENVIRITE CORPORATION MSG FACILITIES STATEMENT OF REVENUE AND DIRECT OPERATING EXPENSES FOR THE PERIOD JANUARY 1, 1995 TO NOVEMBER 15, 1995 Sales....................................................................... $ 14,495,965 Direct operating costs and expenses: Cost of sales............................................................. 10,904,948 Selling and administrative................................................ 2,145,510 -------------- Operating profit............................................................ $ 1,445,507 -------------- --------------
See accompanying notes. F-32 ENVIRITE CORPORATION MSG FACILITIES NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD JANUARY 1, 1995 TO NOVEMBER 15, 1995 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION On April 28, 1995, Envirite Corporation (Envirite) and County Disposal, Inc. (County) entered into an Asset Purchase Agreement (the Agreement) whereby County agreed to purchase from Envirite certain landfill facilities and waste transportation and collection equipment located in Livingston County, Illinois (Livingston Facility) and Wyandot County, Ohio (Wyandot Facility), all of the issued and outstanding capital stock of County Environmental Services, Inc., a wholly-owned subsidiary of Envirite, which owns and operates a landfill facility and waste transportation and collection equipment located in Clarion County, Pennsylvania (Clarion Facility) (collectively, the MSG Facilities), and certain related assets, and to assume certain liabilities. The Statement of Revenue and Direct Operating Expenses represents those revenues and expenses from January 1, 1995 to the dates of sale of the three facilities (June 8, 1995 for Clarion; August 1, 1995 for Wyandot; November 16, 1995 for Livingston) that are specifically identifiable to the MSG Facilities and do not include certain corporate expenses. As a result, the accompanying Statement is not intended to be a complete representation of the MSG Facilities' results of operations had they been operated as a stand-alone entity. CLOSURE AND POST-CLOSURE COSTS The estimated costs associated with meeting regulatory requirements for the closure and post-closure monitoring of landfills are charged to expense as landfill capacity is consumed. Post-closure monitoring is generally required for thirty years from the time the landfill is closed. These costs and landfill capacities are based on engineering estimates and are reviewed annually. Landfill closure and post-closure costs of $1,472,000 were expensed in the period January 1, 1995 to November 15, 1995. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statement and accompanying notes. Actual results could differ from those estimates. 2. RENT EXPENSE Rent expense for leased office space and certain equipment was $482,000 for the period January 1, 1995 to November 15, 1995. F-33 - ------------------------------------------------ ------------------------------------------------ - ------------------------------------------------ ------------------------------------------------ NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary................................... 3 Risk Factors......................................... 6 The Company.......................................... 15 Use of Proceeds...................................... 15 Dividend Policy...................................... 15 Dilution............................................. 16 Capitalization....................................... 17 Selected Consolidated Financial Data................. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations................ 19 Business............................................. 26 Management........................................... 40 Certain Transactions................................. 44 Principal Stockholders............................... 45 Description of Capital Stock......................... 47 Shares Eligible for Future Sale...................... 48 Underwriting......................................... 50 Legal Matters........................................ 51 Experts.............................................. 51 Additional Information............................... 51 Index to Financial Statements........................ F-1
------------------- UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2,750,000 SHARES [LOGO] COMMON STOCK ----------------- P R O S P E C T U S ----------------- OPPENHEIMER & CO., INC. CS FIRST BOSTON , 1996 - ------------------------------------------------ ------------------------------------------------ - ------------------------------------------------ ------------------------------------------------ PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table shows the expenses, other than underwriting discounts, which the Company expects to incur in connection with the issuance and distribution of the securities being registered under this registration statement. All expenses are estimated except for the Securities and Exchange Commission registration fee and the NASD filing fee. Securities and Exchange Commission registration fee............. $ 15,268 Nasdaq entry fee................................................ 38,567 NASD filing fee................................................. 4,928 Blue Sky fees and expenses...................................... 25,000 Legal fees and expenses......................................... 400,000 Accounting fees and expenses.................................... 175,000 Printing and engraving expenses................................. 100,000 Transfer agent's fee............................................ 3,000 Miscellaneous................................................... 238,237 --------- Total....................................................... $1,000,000 --------- ---------
- ------------------------ ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of the State of Delaware ("Section 145") permits a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In the case of an action by or in the right of the corporation, Section 145 permits the corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation. No indemnification may be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in the preceding two paragraphs, Section 145 requires that he be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. II-1 Section 145 provides that expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative, or investigative action, suit, or proceeding may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in Section 145. Article Fifth of the Company's Certificate of Incorporation eliminates the personal liability of the directors of the Company to the Company or its stockholders for monetary damages for breach of fiduciary duty as directors, with certain exceptions, and Article Sixth requires indemnification of directors and officers of the Company, and for advancement of litigation expenses to the fullest extent permitted by Section 145. Article Sixth of the Company's By-laws provides for indemnification of the Company's officers and directors to the fullest extent permitted by Section 145 and other applicable laws as currently in effect and as they may be amended in the future. The Underwriting Agreement filed herewith as Exhibit 1.1 provides for indemnification of the directors, certain officers, and controlling persons of the Company by the Underwriters against certain civil liabilities, including liabilities under the Securities Act. The Company has also entered into agreements with its directors and executive officers providing for indemnification in certain circumstances. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. As part of the Exchange, the Company issued an aggregate of 5,676,901 shares of its Common Stock, options to purchase 869,615 shares of Common Stock and Warrants to purchase 215,455 shares of Common Stock (after giving effect to the Stock Split) to the then stockholders, option holders and warrant holders, respectively, of ADS and CDI, effective as of January 1, 1996. No underwriters were engaged in connection with the foregoing sales of securities. Such sales were made in reliance on the exemption set forth in Section 4(2) of the Securities Act of 1933, as amended ("Securities Act"), relating to sales by an issuer not involving a public offering. All of the foregoing shares are deemed to be restricted securities for the purposes of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBITS - ----------- ---------------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement 3.1 Restated Certificate of Incorporation of the Company* 3.2 Amendment to Restated Certificate of Incorporation* 3.3 By-laws of the Company* 4.1 Specimen Common Stock Certificate 5.1 Opinion of Proskauer Rose Goetz & Mendelsohn LLP 10.1 Credit Agreement dated as of May 30, 1996 among the Company, Internationale Nederlanden (U.S.) Capital Corporation, as administrative agent, and Morgan Guaranty Trust Company of New York, as documentation agent, and the other financial institutions party thereto 10.2 Registration Rights Agreement dated as of January 1, 1996 among the Company and certain of its stockholders 10.3 Employment Agreement dated as of May 31, 1996 between the Company and Richard De Young 10.4 Employment Agreement dated January 26, 1993 between the Company and John J. McDonnell, as amended* 10.5 Employment Agreement dated May 16, 1995 between the Company and Richard T. Kogler*
II-2
EXHIBIT NO. DESCRIPTION OF EXHIBITS - ----------- ---------------------------------------------------------------------------------------------------- 10.6 Employment Agreement dated June 2, 1995 between the Company and Ann L. Straw* 10.7 Employment Agreement dated May 3, 1994 between the Company and Lawrence R. Conrath* 10.8 Employment Agreement dated as of May 31, 1996 between the Company and David C. Stoller 10.9 American Disposal Services, Inc. 1996 Stock Option Plan 10.10 Form of Indemnification Agreement between the Company and its directors 10.11 Form of Indemnification Agreement between the Company and its executive officers 10.12 Form of Indemnification Agreement between the Company and its directors and executive officers 10.13 Form of Tax-Sharing Agreement between the Company and its executive officers 21.1 Subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 23.2 Consent of Ernst & Young LLP 23.3 Consent of Arthur Andersen LLP 23.4 Consent of Proskauer Rose Goetz & Mendelsohn LLP (included in exhibit 5.1) 24.1 Powers of Attorney*
- ------------------------ (*) Previously filed. (b) Financial Statement Schedules None ITEM 17. UNDERTAKINGS. The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. The Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement (filed herewith as Exhibit 1.1) certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described above in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted against the Registrant by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this amendment to the Registrant's registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Burr Ridge, State of Illinois, on July 11, 1996. AMERICAN DISPOSAL SERVICES, INC. By: /s/ RICHARD DE YOUNG* ----------------------------------- Richard De Young PRESIDENT Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registrant's registration statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------------------------------ ---------------------------------------- --------------- /s/ DAVID C. STOLLER* Chairman and Director July 11, 1996 ------------------------------------------- (principal executive officer) David C. Stoller /s/ RICHARD DE YOUNG* President and Director July 11, 1996 ------------------------------------------- Richard De Young /s/ SCOTT H. FLAMM Senior Vice President, Chief Financial July 11, 1996 ------------------------------------------- Officer and Director (principal Scott H. Flamm financial officer) /s/ LAWRENCE R. CONRATH* Vice President and Controller (principal July 11, 1996 ------------------------------------------- accounting officer) Lawrence R. Conrath /s/ MERRIL M. HALPERN* Director July 11, 1996 ------------------------------------------- Merril M. Halpern /s/ A. LAWRENCE FAGAN* Director July 11, 1996 ------------------------------------------- A. Lawrence Fagan /s/ RICHARD T. HENSHAW, III* Director July 11, 1996 ------------------------------------------- Richard T. Henshaw, III /s/ G. T. BLANKENSHIP* Director July 11, 1996 ------------------------------------------- G. T. Blankenship
II-4 SIGNATURE TITLE DATE - ------------------------------------------------------ ---------------------------------------- --------------- /s/ NORMAN STEISEL* Director July 11, 1996 ------------------------------------------- Norman Steisel By: /S/ SCOTT H. FLAMM --------------------------------------- Scott H. Flamm Attorney-in-Fact
II-5 Registration No. 333-4889 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ EXHIBITS TO AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ AMERICAN DISPOSAL SERVICES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE - ----------- ------------------------------------------------------------------------------------------- --------- 1.1 Form of Underwriting Agreement 3.1 Restated Certificate of Incorporation of the Company* 3.2 Amendment to Restated Certificate of Incorporation* 3.3 By-laws of the Company* 4.1 Specimen Common Stock Certificate 5.1 Opinion of Proskauer Rose Goetz & Mendelsohn LLP 10.1 Credit Agreement dated as of May 30, 1996 among the Company, Internationale Nederlanden (U.S.) Capital Corporation, as administrative agent, and Morgan Guaranty Trust Company of New York, as documentation agent, and the other financial institutions party thereto 10.2 Registration Rights Agreement dated as of January 1, 1996 among the Company and certain of its stockholders 10.3 Employment Agreement dated as of May 31, 1996 between the Company and Richard De Young 10.4 Employment Agreement dated January 26, 1993 between the Company and John J. McDonnell, as amended* 10.5 Employment Agreement dated May 16, 1995 between the Company and Richard T. Kogler* 10.6 Employment Agreement dated June 2, 1995 between the Company and Ann L. Straw* 10.7 Employment Agreement dated May 3, 1994 between the Company and Lawrence R. Conrath* 10.8 Employment Agreement dated as of May 31, 1996 between the Company and David C. Stoller 10.9 American Disposal Services, Inc. 1996 Stock Option Plan 10.10 Form of Indemnification Agreement between the Company and its directors 10.11 Form of Indemnification Agreement between the Company and its executive officers 10.12 Form of Indemnification Agreement between the Company and its directors and executive officers 10.13 Form of Tax-Sharing Agreement between the Company and its executive officers 21.1 Subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 23.2 Consent of Ernst & Young LLP 23.3 Consent of Arthur Andersen LLP 23.4 Consent of Proskauer Rose Goetz & Mendelsohn LLP (included in exhibit 5.1) 24.1 Powers of Attorney*
- ------------------------ (*) Previously filed. EX-1.1 2 EXHIBIT 1.1 DRAFT OF MAY 21, 1996 [ ] Shares American Disposal Services, Inc. Common Stock UNDERWRITING AGREEMENT ________ __, 1996 Oppenheimer & Co., Inc. CS First Boston c/o Oppenheimer & Co., Inc. Oppenheimer Tower World Financial Center New York, New York 10281 On behalf of the Several Underwriters named in Schedule I attached hereto. Gentlemen: American Disposal Services, Inc., a Delaware corporation (the "Company"), proposes to sell to you and the other underwriters named in Schedule I to this Agreement (the "Underwriters"), for whom you are acting as Representatives, an aggregate of [ ] shares (the "Firm Shares") of the Company's common stock, $0.01 par value (the "Common Stock"). In addition, the Company proposes to grant to the Underwriters an option to purchase up to an additional [ ] shares (the "Option Shares") of Common Stock from it for the purpose of covering over-allotments in connection with the sale of the Firm Shares. The Firm Shares and the Option Shares are together called the "Shares." 1. SALE AND PURCHASE OF THE SHARES. On the basis of the representations, warranties and agreements contained in, and subject to the terms and conditions of, this Agreement: (a) The Company agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at $[ ] per share (the "Initial Price"), the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I to this Agreement. (b) The Company grants to the several Underwriters an option to purchase, severally and not jointly, all or any part of the Option Shares at the Initial Price. The number of Option Shares to be purchased by each Underwriter shall be the same percentage (adjusted by the Representatives to eliminate fractions) of the total number of Option Shares to be purchased by the Underwriters as such Underwriter is purchasing of the Firm Shares. Such option may be exercised only to cover over-allotments in the sales of the Firm Shares by the Underwriters and may be exercised in whole or in part at any time on or before 12:00 noon, New York City time, on the business day before the Firm Shares Closing Date (as defined below), and only once thereafter within 30 days after the date of this Agreement, in each case upon written or telegraphic notice, or verbal or telephonic notice confirmed by written or telegraphic notice, by the Representatives to the Company no later than 12:00 noon, New York City time, on the business day before the Firm Shares Closing Date or at least two business days before the Option Shares Closing Date (as defined below), as the case may be, setting forth the number of Option Shares to be purchased and the time and date (if other than the Firm Shares Closing Date) of such purchase. 2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm Shares to the Representatives for the respective accounts of the Underwriters, and payment of the purchase price by certified or official bank check or checks payable in New York Clearing House (next day) funds to the Company, shall take place at the offices of Oppenheimer & Co., Inc., at Oppenheimer Tower, World Financial Center, New York, New York 10281, at 10:00 a.m., New York City time, on the third business day following the date of this Agreement, provided, however, that if the Shares sold hereunder are priced after 4:30 p.m., New York time, on any business day, payment and delivery in respect of the Firm Shares shall take place on the fourth business day following the date of this Agreement; if it is determined that settlement within the foregoing time frame is not feasible, then payment and delivery in respect of the Firm Shares shall occur at such time on such other date, not later than 10 business days after the date of this Agreement, as shall be agreed upon by the Company and the Representatives (such time and date of delivery and payment are called the "Firm Shares Closing Date"). - 2 - In the event the option with respect to the Option Shares is exercised, delivery by the Company of the Option Shares to the Representatives for the respective accounts of the Underwriters and payment of the purchase price by certified or official bank check or checks payable in New York Clearing House (next day) funds to the Company shall take place at the offices of Oppenheimer & Co., Inc. specified above at the time and on the date (which may be the same date as, but in no event shall be earlier than, the Firm Shares Closing Date) specified in the notice referred to in Section 1(b) (such time and date of delivery and payment are called the "Option Shares Closing Date"). The Firm Shares Closing Date and the Option Shares Closing Date are called, individually, a "Closing Date" and, together, the "Closing Dates." Certificates evidencing the Shares shall be registered in such names and shall be in such denominations as the Representatives shall request at least two full business days before the Firm Shares Closing Date or, in the case of Option Shares, on the day of notice of exercise of the option as described in Section l(b) and shall be made available to the Representatives for checking and packaging, at such place as is designated by the Representatives, at least one full business day before the Firm Shares Closing Date (or the Option Shares Closing Date in the case of the Option Shares). 3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The Company has prepared in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the published rules and regulations thereunder (the "Rules") adopted by the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (No. 333-[ ]), including a preliminary prospectus relating to the Shares, and has filed with the Commission the Registration Statement and such amendments thereto as may have been required to the date of this Agreement. Copies of such Registration Statement (including all amendments thereto) and of the related preliminary prospectus have heretofore been delivered by the Company to you. The term "Registration Statement" means the Registration Statement as amended at the time and on the date it becomes effective (the "Effective Date"), including all exhibits and information, if any, deemed to be part of the Registration Statement pursuant to Rule 424(a) and Rule 430A of the Rules. The term "preliminary prospectus" means any preliminary prospectus (as described in Rule 430 of the Rules) included at any time as a part of the Registration Statement. The term "Prospectus" means the prospectus in the form first used to confirm sales of the Shares (whether such prospectus was included in the Registration Statement at the time of effectiveness or was subsequently filed with the Commission pursuant to Rule 424(b) of the Rules) or the preliminary prospectus forming part of the Registration Statement at the time - 3 - it was declared effective together with the term sheet permitted under Rule 434(b) and filed with the Commission pursuant to Rule 424(b), as applicable. The Company understands that the Underwriters propose to make a public offering of the Shares, as set forth in and pursuant to the Prospectus, as soon after the Effective Date and the date of this Agreement as the Representatives deem advisable. The Company hereby confirms that the Underwriters and dealers have been authorized to distribute or cause to be distributed each preliminary prospectus and are authorized to distribute the Prospectus (as from time to time amended or supplemented if the Company furnishes amendments or supplements thereto to the Underwriters). 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to each Underwriter as follows: (a) On the Effective Date the Registration Statement complied, and on the date of the Prospectus, on the date any post-effective amendment to the Registration Statement shall become effective, on the date any supplement or amendment to the Prospectus is filed with the Commission and on each Closing Date, the Registration Statement and the Prospectus (and any amendment thereof or supplement thereto) will comply in all material respects with the applicable provisions of the Securities Act and the Rules and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Commission thereunder; the Registration Statement did not, as of the Effective Date, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and on the other dates referred to above neither the Registration Statement nor the Prospectus, nor any amendment thereof or supplement thereto, will contain any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. When any related preliminary prospectus was first filed with the Commission (whether filed as part of the Registration Statement or any amendment thereto or pursuant to Rule 424(a) of the Rules) and when any amendment thereof or supplement thereto was first filed with the Commission, such preliminary prospectus as amended or supplemented complied in all material respects with the applicable provisions of the Securities Act and the Rules and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not - 4 - misleading. The Company makes no representation or warranty as to the paragraph with respect to stabilization or the paragraph with respect to affiliate transactions on the inside front cover page of the Prospectus and the statements contained under the caption "Underwriting" in the Prospectus. The Company acknowledges that such statements constitute the only information furnished in writing by the Representatives on behalf of the several Underwriters specifically for inclusion in the Registration Statement, any preliminary prospectus or the Prospectus. (b) All contracts and other documents required to be filed as exhibits to the Registration Statement have been filed with the Commission as exhibits to the Registration Statement. (c) The financial statements of the Company (including all notes and schedules thereto) included in the Registration Statement and Prospectus fairly present the financial position, the results of operations and cash flows and the stockholders' equity (deficit) and the other information purported to be shown therein of the Company at the respective dates and for the respective periods to which they apply; and such financial statements have been prepared in conformity with generally accepted accounting principles, consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of the results for such periods have been made. The schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein; and the historical financial information and statistical data set forth in the Prospectus under the captions "Summary Consolidated Financial Information," "Capitalization," and "Selected Consolidated Financial Data" are fairly stated in all material respects in relation to the financial statements from which they have been derived. The pro forma financial data included in the Registration Statement and the Prospectus present fairly the information shown therein, comply in all material respects with the requirements of the Act and the Rules and Regulations with respect to pro forma financial statements, have been properly compiled on the pro forma basis described therein and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (d) Each of Ernst & Young LLP, Arthur Andersen LLP and Deloitte & Touche LLP, whose reports are filed with the Commission as a part of the Registration Statement, - 5 - are and, during the periods covered by their reports, were independent public accountants as required by the Securities Act and the Rules. (e) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware. Each subsidiary of the Company has been duly incorporated or formed and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation or organization. The Company has no subsidiary or subsidiaries other than as set forth on Schedule II hereto and does not control, directly or indirectly, any other corporation, partnership, joint venture, association or other business organization. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its assets or properties (owned, leased or licensed) or the nature of its business makes such qualification necessary. Except as disclosed in the Registration Statement and the Prospectus, the Company and its subsidiaries do not own, lease or license any asset or property or conduct any business outside the United States of America. Each of the Company and its subsidiaries has all requisite corporate power and authority, and all necessary authorizations, approvals, consents, orders, licenses, certificates and permits of and from all governmental or regulatory bodies or any other person or entity, to own, lease and license its assets and properties and conduct its businesses as now being conducted and as described in the Registration Statement and the Prospectus; no such authorization, approval, consent, order, license, certificate or permit contains a materially burdensome restriction other than as disclosed in the Registration Statement and the Prospectus; and the Company has all such corporate power and authority, and such authorizations, approvals, consents, orders, licenses, certificates and permits to enter into, deliver and perform this Agreement and to issue and sell the Shares (except as may be required under the Securities Act and state and foreign Blue Sky laws). (f) Except as disclosed in the Registration Statement and the Prospectus, the Company owns or possesses adequate and enforceable rights to use all (to the extent any of them exist) patents, patent applications, trademarks, trademark applications, service marks, copyrights, copyright applications, licenses and other similar rights (collectively, the "Intangibles") necessary for the conduct of its business as now being conducted and as described in the Registration Statement and the Prospectus. The Company has not infringed, is not - 6 - infringing, and has not received any notice of infringement of, any Intangible of any other person and the Company does not know of any basis therefor. The Company has not received any notice of infringement of any of its Intangibles and the Company does not know of any basis therefor. (g) Each of the Company and its subsidiaries has good and marketable title in fee simple to each of the items of personal property which are reflected in the financial statements referred to in Section 4(c) or are referred to in the Registration Statement and the Prospectus as being owned by it and valid and enforceable leasehold interests in each of the items of real and personal property which are referred to in the Registration Statement and the Prospectus as being leased by it, in each case free and clear of all liens, encumbrances, claims, security interests and defects, other than those described in the Registration Statement and the Prospectus. (h) Except as disclosed in the Registration Statement and the Prospectus, there is no litigation or governmental or other proceeding or investigation before any court or before or by any public body or board pending or, to the Company's best knowledge, threatened (and the Company does not know of any basis therefor) against, or involving the assets, properties or businesses of, the Company or any of its subsidiaries which, if determined adversely to the Company or any of its subsidiaries, would materially adversely affect the value or the operation of any such assets or properties or the business, results of operations or financial condition of the Company or any of its subsidiaries. (i) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as described therein, there has not been any adverse change or any adverse development or event involving a prospective change in the assets or properties, earnings, business affairs or business prospects, results of operations or condition (financial or otherwise) of the Company, whether or not arising from transactions in the ordinary course of business; each of the Company and its subsidiaries has not entered into any transaction, other than in the ordinary course of business, that is material to the Company; each of the Company and its subsidiaries has not sustained any material loss or interference with its assets, businesses or properties from fire, explosion, earthquake, flood or other calamity, whether or not covered by insurance, or from any labor dispute or any court or legislative or - 7 - other governmental action, order or decree; and since the date of the latest balance sheet included in the Registration Statement and the Prospectus, except as reflected therein, each of the Company and its subsidiaries has not undertaken any liability or obligation, direct or contingent, except for liabilities or obligations undertaken in the ordinary course of business. (j) Each agreement listed in the Exhibits to the Registration Statement is in full force and effect and is valid and enforceable by the Company or one of its subsidiaries in accordance with its terms, assuming the due authorization thereof by each of the other parties thereto. Neither the Company, nor to the best of the Company's knowledge, any other party is in default in the observance or performance of any term or obligation to be performed by it under any such agreement, and no event has occurred which with notice or lapse of time or both would constitute such a default which default or event would have a material adverse effect on the assets or properties, business, results of operations or financial condition of the Company. No default exists, and no event has occurred which with notice or lapse of time or both would constitute a default, in the due performance and observance of any term, covenant or condition, by the Company of any other indenture, mortgage, deed of trust, note or any other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them or their properties or businesses is bound or affected which default or event would have a material adverse effect on the assets or properties, business, results of operations or financial condition of the Company. (k) Each of the Company and its subsidiaries is not in violation of any term or provision of its charter or by-laws or of any franchise, license, permit, judgment, decree, order, statute, rule or regulation, where the consequences of such violation would have a material adverse effect on the assets or properties, business, results of operations or financial condition of the Company. (l) Neither the execution, delivery and performance of this Agreement by the Company nor the consummation of any of the transactions contemplated hereby or thereby (including, without limitation, the issuance and sale by the Company of the Shares) will give rise to a right to terminate or accelerate the due date of any payment due under, or conflict with or result in the breach of any term or provision of, or constitute a default (or any - 8 - event which with notice or lapse of time or both would constitute a default) under, or require any consent or waiver under, or result in the execution or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any of its subsidiaries pursuant to the terms of, any indenture, mortgage, deed of trust, note or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them or their properties or businesses is bound, or any franchise, license, permit, judgment, decree, order, statute, rule or regulation applicable to the Company or any of its subsidiaries or violate any provision of the charter or by-laws of the Company or any of its subsidiaries. (m) The Company has an authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus. All of the outstanding shares of Common Stock have been duly and validly authorized and have been duly and validly issued and are fully paid and nonassessable and none of them was issued in violation of any preemptive or other similar statutory right. The Shares, when issued and sold pursuant to this Agreement, will be duly and validly issued, fully paid and nonassessable and none of them will be issued in violation of any preemptive or other similar statutory right. Except as disclosed in the Registration Statement and the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and no commitment, plan or agreement to issue, any share of stock of the Company or any security convertible into, or exercisable or exchangeable for, stock of the Company. The Common Stock and the undesignated preferred stock, $0.01 par value (the "Preferred Stock") and the Shares conform to all statements in relation thereto contained in the Registration Statement and the Prospectus. (n) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as described or referred to therein, the Company has not (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, (ii) entered into any transaction not in the ordinary course of business or (iii) declared or paid any dividend or made any distribution on any shares of its stock or redeemed, purchased or otherwise acquired or agreed to redeem, purchase or otherwise acquire any shares of its stock. (o) No holder of any security of the Company has any right to have any security owned by such holder - 9 - included in the Registration Statement or to demand registration of any security owned by such holder during the period ending 180 days from the date of this Agreement. The Company has obtained from all officers and directors of the Company, the holders of certain vested options to purchase Common Stock and certain other stockholders and warrantholders of the Company, who together hold [ ] shares of Common Stock (including [ ] shares of Common Stock issuable upon exercise of stock options and warrants), their enforceable written agreement that for a period of at least 180 days from the date of this Agreement they will not, without the prior written consent of the Representatives, sell, distribute, pledge, grant any option for the sale of, or otherwise dispose of, directly or indirectly, or encumber, or exercise any registration rights with respect to, any shares of Common Stock (or any securities convertible into, exercised for, or exchangable for any shares of Common Stock) owned by them. (p) All necessary corporate action has been duly and validly taken by the Company to authorize the execution, delivery and performance of this Agreement and the issuance and sale of the Shares. This Agreement has been duly and validly executed and delivered by the Company and constitutes and will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (A) as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles and (B) with respect to this Agreement, to the extent that rights to indemnity or contribution under this Agreement may be limited by federal and state securities laws or the public policy underlying such laws. (q) Each of the Company and its subsidiaries is conducting its business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations, except where the failure to be so in compliance would not have a material adverse effect on the assets or properties, business, results of operations or financial condition of the Company. (r) No transaction has occurred between or among the Company and any of its officers or directors or any affiliate or affiliates of any such officer or director that is required to be described in and is not described in the Registration Statement and the Prospectus. - 10 - (s) The Company has not taken, nor will it take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of any of the Shares. (t) The Company has filed all federal, state, local and foreign tax returns which are required to be filed through the date hereof, or has received extensions thereof, and has paid all taxes shown on such returns and all assessments received by it. (u) The Shares have been approved for quotation on the National Association of Securities Dealers Automated Quotation ("Nasdaq") National Market, subject to official notice of issuance. (v) The Company has complied with all of the requirements and filed the required forms as specified in Florida Statutes Section 517.075. 5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters under this Agreement are several and not joint. The respective obligations of the Underwriters to purchase the Shares are subject to each of the following terms and conditions: (a) The Prospectus shall have been timely filed with the Commission in accordance with Section 6(A)(a). (b) No order preventing or suspending the use of any preliminary prospectus or the Prospectus shall have been or shall be in effect, and no order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for such purpose shall be pending before or threatened by the Commission, and any requests for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the satisfaction of the Representatives. (c) The representations and warranties of the Company contained in this Agreement and in the certificates delivered pursuant to Section 5(d) shall be true and correct when made and on and as of each Closing Date as if made on such date and the Company shall have performed all covenants and agreements and satisfied all the conditions contained in this Agreement required to be performed or satisfied by it at or before such Closing Date. - 11 - (d) The Representatives shall have received on each Closing Date a certificate, addressed to the Representatives and dated such Closing Date, of the chief executive or chief operating officer and the chief financial officer or chief accounting officer of the Company, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectus and this Agreement and that the representations and warranties of the Company in this Agreement are true and correct on and as of such Closing Date with the same effect as if made on such Closing Date and the Company has performed all covenants and agreements and satisfied all conditions contained in this Agreement required to be performed or satisfied by it at or prior to such Closing Date. (e) The Representatives shall have received at the time this Agreement is executed and on each Closing Date a letter or letters signed by Ernst & Young LLP, addressed to the Representatives and dated, respectively, the date of this Agreement and each such Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Securities Act and the Rules, that the response to Item 10 of the Registration Statement is correct insofar as it relates to them and stating in effect that: (i) in their opinion the audited financial statements and financial statement schedules and pro forma financial statements included in the Registration Statement and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Rules; (ii) on the basis of a reading of the amounts included in the Registration Statement and the Prospectus under the headings "Summary Consolidated Financial Information" and "Selected Consolidated Financial Data;" their limited review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited interim financial information for the three month period ended March 31, 1996 and as at March 31, 1996, as indicated in their report dated March 31, 1996; carrying out certain procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders and directors and finance and audit committees of the - 12 - Company, and inquiries of certain officials of the Company who have responsibility for financial and accounting matters of the Company as to transactions and events subsequent to the date of the latest audited financial statements, nothing came to their attention which caused them to believe that: (A) the amounts in "Summary Consolidated Financial Information" and "Selected Consolidated Financial Data" included in the Registration Statement and the Prospectus do not agree with the corresponding amounts in the audited and unaudited financial statements from which such amounts were derived; or (B) the unaudited financial statements as of and for the three months ended March 31, 1996 included in the Registration Statement (i) do not comply in form in all material respects with the applicable accounting requirements of the Securities Act and the Rules and (ii) are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements; or (C) (i) with respect to the Company there were, at a specified date not more than five business days prior to the date of the letter, any increases in the total current liabilities and long-term debt of the Company or capital stock of the Company or decreases in working capital (deficit) or total stockholders' equity (deficit) of the Company, as compared with the amounts shown on the Company's unaudited March 31, 1996 balance sheet included in the Registration Statement and the Prospectus, or (ii) for the period from March 31, 1996 to such specified date not more than five business days prior to the date of the letter, there were any increases in net losses except for increases in net losses set forth in the Registration Statement and the Prospectus, in which case the Company shall deliver to the Representatives a letter containing an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Representatives; (iii) they have performed certain other procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or - 13 - statistical information derived from the general accounting records of the Company) set forth in the Registration Statement and the Prospectus and specified by the Representatives agrees with the accounting records of the Company; and (iv) on the basis of a reading of the unaudited pro forma financial statements included in the Registration Statement and the Prospectus (the "pro forma financial statements"); carrying out certain specified procedures; inquiries of certain officials of the Company who have responsibility for financial and accounting matters; and proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the pro forma financial statements, nothing came to their attention which caused them to believe that the pro forma financial statements do not comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of such statements. References to the Registration Statement and the Prospectus in this paragraph (e) are to such documents as amended and supplemented at the date of the letter. (f) The Representatives shall have received at the time this Agreement is executed and on each Closing Date a letter or letters signed by Arthur Andersen LLP, addressed to the Representatives and dated, respectively, the date of this Agreement and each such Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Securities Act and the Rules, that the response to Item 10 of the Registration Statement is correct insofar as it relates to them and stating in effect that: (i) in their opinion the audited financial statements and financial statement schedules included in the Registration Statement and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Rules; and (ii) they have performed certain other procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the - 14 - general accounting records of the Company) set forth in the Registration Statement and the Prospectus and specified by the Representatives agrees with the accounting records of the Company. References to the Registration Statement and the Prospectus in this paragraph (f) are to such documents as amended and supplemented at the date of the letter. (g) The Representatives shall have received at the time this Agreement is executed and on each Closing Date a letter or letters signed by Deloitte & Touche LLP, addressed to the Representatives and dated, respectively, the date of this Agreement and each such Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Securities Act and the Rules, that the response to Item 10 of the Registration Statement is correct insofar as it relates to them and stating in effect that: (i) attached thereto are the audited financial statements of the Company for the fiscal year ended December 31, 1991 reported on by them, which, in their opinion, comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Rules; and (ii) the amounts in "Selected Consolidated Financial Date" included in the Registration Statement and the Prospectus agree with the corresponding amounts in the audited financial statements reported on by them from which such amounts were derived. References to the Registration Statement and the Prospectus in this paragraph (g) are to such documents as amended and supplemented at the date of the letter. (h) The Representatives shall have received on each Closing Date from Proskauer Rose Goetz & Mendelsohn LLP, counsel for the Company, an opinion, addressed to the Representatives and dated such Closing Date, and stating in effect that: (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware. Each subsidiary of the Company has been duly incorporated or formed and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation or organization. - 15 - (ii) Each of the Company and its subsidiaries has all requisite corporate power and authority to own, lease and license its assets and properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus; and the Company has all requisite corporate power and authority and all necessary governmental, and all other necessary authorizations, approvals, consents, orders, licenses, certificates and permits, to enter into, deliver and perform this Agreement and to issue and sell the Shares, other than those required under the Securities Act and state and foreign Blue Sky laws. (iii) The Company has authorized and issued capital stock as set forth under the caption "Capitalization" in the Prospectus; the certificates evidencing the Shares are in due and proper legal form and have been duly authorized for issuance by the Company; all of the outstanding shares of Common Stock of the Company have been duly and validly authorized and have been duly and validly issued and are fully paid and nonassessable and none of them was issued in violation of any preemptive or other similar statutory right. The Shares, when issued and sold pursuant to this Agreement, will be duly and validly issued, fully paid and nonassessable and none of them will have been issued in violation of any preemptive or other similar statutory right. Except as disclosed in the Registration Statement and the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and no commitment, plan or agreement to issue, any share of stock of the Company or any security convertible into, or exercisable or exchangeable for, stock of the Company. The Common Stock, the Preferred Stock and the Shares conform to all statements in relation thereto contained in the Registration Statement and the Prospectus. (iv) All necessary corporate action has been duly and validly taken by the Company to authorize the execution, delivery and performance of this Agreement. This Agreement has been duly and validly executed and delivered by the Company and constitutes and will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable - 16 - principles and (B) with respect to this Agreement, to the extent that rights to indemnity or contribution under this Agreement may be limited by federal or state securities laws or the public policy underlying such laws. (v) Neither the execution, delivery and performance of this Agreement by the Company nor the consummation of any of the transactions contemplated hereby (including, without limitation, the issuance and sale by the Company of the Shares) will give rise to a right to terminate or accelerate the due date of any payment due under, or conflict with or result in the breach of any term or provision of, or constitute a default (or any event which with notice or lapse of time, or both, would constitute a default) under, or require any consent or waiver under, or result in the execution or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any of its subsidiaries pursuant to the terms of, any indenture, mortgage, deed of trust, note or other agreement or instrument of which such counsel is aware and to which the Company or any of its subsidiaries is a party or by which any of them or their properties or businesses is bound, or any franchise, license, permit, judgment, decree, order, statute, rule or regulation of which such counsel is aware and applicable to the Company or any of its subsidiaries or violate any provision of the charter or by-laws of the Company or any of its subsidiaries. (vi) To the best of such counsel's knowledge, no default exists, and no event has occurred which with notice or lapse of time or both would constitute a default, in the due performance and observance of any term, covenant or condition, of any indenture, mortgage, deed of trust, note or any other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them or their assets or properties or businesses is bound or affected which default would have a material adverse effect on the assets or properties, business, results of operations or financial condition of the Company. (vii) To the best of such counsel's knowledge, each of the Company and its subsidiaries is not in violation of any term or provision of its charter or by-laws or of any franchise, license, permit, judgment, decree, order, statute, rule or regulation, where the consequences of such violation would have a material adverse effect on the assets or properties, - 17 - businesses, results of operations or financial condition of the Company. (viii) No consent, approval, authorization or order of any court or governmental agency or body is required for the performance of this Agreement by the Company or the consummation of the transactions contemplated hereby, except such as have been obtained under the Securities Act and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the several Underwriters. (ix) Except as described in the Registration Statement and the Prospectus, to the best of such counsel's knowledge, there is no litigation or governmental or other proceeding or investigation before any court or before or by any public body or board pending or threatened (and such counsel does not know of any basis therefor) against, or involving the assets, properties or businesses of, the Company or any of its subsidiaries which, if determined adversely to the Company or any of its subsidiaries, would materially adversely affect the value or the operation of any such assets or properties or the business, results of operations or financial condition of the Company or any of its subsidiaries. (x) The agreement of the Company, all its officers and directors, the holders of certain vested options to purchase Common Stock and certain other stockholders and warrantholders of the Company stating that for a period of 180 days from the date of the Prospectus they will not, without the Representatives' prior written consent sell, distribute, pledge, grant any option for the sale of, or otherwise dispose of, directly or indirectly, or encumber, or exercise any registration rights with respect to, any shares of Common Stock (or any securities convertible into, exercisable for, or exchangeable for any shares of Common Stock) owned by them has been duly and validly delivered by such persons and constitutes a legal, valid and binding obligations of each such person enforceable against each such person in accordance with its terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. - 18 - (xi) The statements in the Prospectus under the captions "Risk Factors--Extensive Environmental and Land Use Laws and Regulations;" "--Anti-Takeover Provisions;" "--Shares Eligible for Future Sale; Possible Adverse Effect on Future Market Price;" "Business-- Environmental Regulations;" "--Legal Proceedings;" "Management-- Compensation Committee Interlocks and Insider Participation;" "-- Executive Compensation;" "--1996 Stock Option Plan;" "Certain Transactions;" "Description of Capital Stock" and "Shares Eligible for Future Sale" insofar as such statements constitute a summary of documents referred to therein or matters of law, are fair summaries of the material provisions thereof and accurately present the information called for with respect to such documents and matters. All contracts and other documents required to be filed as exhibits to, or described in, the Registration Statement have been so filed with the Commission or are fairly described in the Registration Statement, as the case may be. (xii) The Registration Statement, all preliminary prospectuses and the Prospectus and each amendment or supplement thereto (except for the financial statements and notes and schedules and other financial and statistical data included therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Rules. (xiii) The Registration Statement has become effective under the Securities Act, and no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are threatened, pending or contemplated. To the extent deemed advisable by such counsel, they may rely as to matters of fact on certificates of responsible officers of the Company and public officials and on the opinions of other counsel satisfactory to the Representatives as to matters which are governed by laws other than the laws of the State of New York, the General Corporation Law of the State of Delaware and the federal laws of the United States; provided that such counsel shall state that in their opinion the Underwriters and they are justified in relying on such other opinions. Copies of such certificates and other opinions shall be furnished to the Representatives and counsel for the Underwriters. In addition, such counsel shall state that such counsel has participated in conferences with officers and other - 19 - representatives of the Company, representatives of the Representatives and representatives of the independent certified public accountants of the Company, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus (except as specified in the foregoing opinion), on the basis of the foregoing no facts have come to the attention of such counsel which lead such counsel to believe that the Registration Statement at the time it became effective (except with respect to the financial statements and notes and schedules thereto and other financial and statistical data, as to which such counsel need make no statement) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus as amended or supplemented (except with respect to the financial statements and notes and schedules thereto and other financial and statistical data, as to which such counsel need make no statement) on the date thereof contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (i) All proceedings taken in connection with the sale of the Firm Shares and the Option Shares as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives and their counsel and the Underwriters shall have received from Morgan, Lewis & Bockius LLP a favorable opinion, addressed to the Representatives and dated such Closing Date, with respect to the Shares, the Registration Statement and the Prospectus, and such other related matters, as the Representatives may reasonably request, and the Company shall have furnished to Morgan, Lewis & Bockius LLP such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (j) The Representatives shall have received on each Closing Date a certificate, including exhibits thereto, addressed to the Representatives and dated such Closing Date, of the Secretary or an Assistant Secretary of the Company, signed in such officer's capacity as such officer, as to the (i) certificate of incorporation and bylaws of the Company, (ii) resolutions authorizing the execution and delivery of the Registration Statement, this Agreement and the performance of the transactions contemplated by this Agreement, the Registration Statement, the Prospectus and the offering of the Shares, and (iii) incumbency of the person or persons authorized - 20 - to execute and deliver the Registration Statement, this Agreement and any other documents contemplated by the offering of the Shares. (k) The Representatives shall have received on each Closing Date certificates of the Secretaries of State of each State where the Company or any of its subsidiaries is incorporated and doing business as to the good standing of the Company or such subsidiary, listing all charter documents on file, if applicable, qualification of the Company or such subsidiary to do business as a foreign corporation, if applicable, payment of taxes and filing of annual reports. In addition, the Representatives shall have received copies of all charter documents of the Company, County Disposal, Inc. and ADS, Inc. certified by the Secretary of State of the State of such corporation's incorporation. (l) The Representatives shall have received on each Closing Date a certificate, addressed to the Representatives, and dated such Closing Date, of an executive officer of the Company to the effect that the signer of such certificate has reviewed and understands the provisions of Section 517.075 of the Florida Statutes, and represents that the Company has complied, and at all times will comply, with all provisions of Section 517.075 and further, that as of such Closing Date, neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba. 6. COVENANTS OF THE COMPANY. (A) The Company covenants and agrees as follows: (a) The Company shall prepare the Prospectus in a form approved by the Representatives and file such Prospectus pursuant to Rule 424(b) under the Securities Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if such second business day would be more than fifteen business days after the Effective Date of the Registration Statement or any post- effective amendment thereto, such earlier date as would permit such Prospectus to be filed without filing a post-effective amendment as set forth in Rule 430A(a)(3) under the Securities Act, and shall promptly advise the Representatives (i) when the Registration Statement shall have become effective, (ii) when any amendment thereof shall have become effective, (iii) of any request by the Commission for any amendment of the Registration Statement or the Prospectus or for any additional information, (iv) of the prevention or suspension of the use of any - 21 - preliminary prospectus or the Prospectus or of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company shall not file any amendment of the Registration Statement or amendment or supplement to the Prospectus unless the Company has furnished the Representatives a copy for its review prior to filing and shall not file any such proposed amendment or supplement to which the Representatives reasonably object. The Company shall use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. (b) If, at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act and the Rules, any event occurs as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend or supplement the Prospectus to comply with the Securities Act or the Rules, the Company promptly shall prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 6(A), an amendment or supplement which shall correct such statement or omission or an amendment which shall effect such compliance. (c) The Company shall make generally available to its security holders and to the Representatives as soon as practicable, but not later than 45 days after the end of the 12-month period beginning at the end of the fiscal quarter of the Company during which the Effective Date occurs (or 90 days if such 12-month period coincides with the Company's fiscal year), an earnings statement (which need not be audited) of the Company, covering such 12-month period, which shall satisfy the provisions of Section 11(a) of the Securities Act or Rule 158 of the Rules. (d) The Company shall furnish to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement (including all exhibits thereto and amendments thereof) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and all amendments thereof and, so long - 22 - as delivery of a prospectus by an Underwriter or dealer may be required by the Securities Act or the Rules, as many copies of any preliminary prospectus and the Prospectus and any amendments thereof and supplements thereto as the Representatives may reasonably request. (e) The Company shall cooperate with the Representatives and their counsel in endeavoring to qualify the Shares for offer and sale under the laws of such jurisdictions as the Representatives may designate and shall maintain such qualifications in effect so long as required for the distribution of the Shares; provided, however, that the Company shall not be required in connection therewith, as a condition thereof, to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject itself to taxation as doing business in any jurisdiction. (f) For a period of five years after the date of this Agreement, the Company shall supply to the Representatives, and to each other Underwriter who may so request in writing, copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock and to furnish to the Representatives a copy of each annual or other report it shall be required to file with the Commission. (g) Without the prior written consent of the Representatives, for a period of 180 days after the date of this Agreement, the Company shall not issue, sell or register with the Commission, or otherwise encumber or dispose of, directly or indirectly, any equity securities of the Company (or any securities convertible into or exercisable or exchangeable for equity securities of the Company), except for (i) the issuance of the Shares pursuant to the Registration Statement and (ii) the issuance of shares pursuant to the exercise of outstanding options under the Company's existing stock option plans. (h) On or before completion of this offering, the Company shall make all filings required under applicable securities laws and by the Nasdaq National Market (including any required registration under the Exchange Act). (B) The Company agrees to pay, or reimburse if paid by the Representatives, whether or not the transactions contemplated hereby are consummated or this Agreement is terminated, all costs and expenses of the Company incident to the public offering of the Shares and the performance of the obligations of the Company under this Agreement including those - 23 - relating to (i) the preparation, printing, filing and distribution of the Registration Statement including all exhibits thereto, each preliminary prospectus, the Prospectus, all amendments and supplements to the Registration Statement and the Prospectus, and the printing, filing and distribution of this Agreement; (ii) the preparation and delivery of certificates for the Shares to the Underwriters; (iii) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the various jurisdictions referred to in Section 6(A)(e), including the fees and disbursements of counsel for the Underwriters in connection with such registration and qualification and the preparation, printing, distribution and shipment of preliminary and supplementary Blue Sky memoranda; (iv) the furnishing (including costs of shipping and mailing) to the Representatives and to the Underwriters of copies of each preliminary prospectus, the Prospectus and all amendments or supplements to the Prospectus, and of the several documents required by this Section to be so furnished, as may be reasonably requested for use in connection with the offering and sale of the Shares by the Underwriters or by dealers to whom Shares may be sold; (v) the filing fees of the National Association of Securities Dealers, Inc. in connection with its review of the terms of the public offering; (vi) the furnishing (including costs of shipping and mailing) to the Representatives and to the Underwriters of copies of all reports and information required by Section 6(A)(f); and (vii) inclusion of the Shares for quotation on the Nasdaq National Market. 7. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages and liabilities, joint or several (including any reasonable investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment thereof or supplement thereto, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that such indemnity shall not inure to the benefit of any Underwriter (or any person - 24 - controlling such Underwriter) on account of any losses, claims, damages or liabilities arising from the sale of the Shares to any person by such Underwriter if such untrue statement or omission or alleged untrue statement or omission was made in such preliminary prospectus, the Registration Statement or the Prospectus, or such amendment or supplement, in reliance upon and in conformity with information furnished in writing to the Company by the Representatives on behalf of any Underwriter specifically for use therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each director of the Company, and each officer of the Company who signs the Registration Statement, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which was made in any preliminary prospectus, the Registration Statement or the Prospectus, or any amendment thereof or supplement thereto, contained in the last paragraph of the cover page, in the paragraph relating to stabilization or the paragraph relating to affiliate transactions on the inside front cover page of the Prospectus and the statements with respect to the public offering of the Shares under the caption "Underwriting" in the Prospectus; provided, however, that the obligation of each Underwriter to indemnify the Company (including any controlling person, director or officer thereof) shall be limited to the net proceeds received by the Company from such Underwriter. (c) Any party that proposes to assert the right to be indemnified under this Section will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section, notify each such indemnifying party of the commencement of such action, suit or proceeding, enclosing a copy of all papers served. No indemnification provided for in Section 7(a) or 7(b) shall be available to any party who shall fail to give notice as provided in this Section 7(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice but the omission so to notify such indemnifying party of any such action, suit or proceeding - 25 - shall not relieve it from any liability that it may have to any indemnified party for contribution or otherwise than under this Section. In case any such action, suit or proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and the approval by the indemnified party of such counsel, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses, except as provided below and except for the reasonable costs of investigation subsequently incurred by such indemnified party in connection with the defense thereof. The indemnified party shall have the right to employ its counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of counsel by such indemnified party has been authorized in writing by the indemnifying parties, (ii) the indemnified party shall have reasonably concluded that there may be a conflict of interest between the indemnifying parties and the indemnified party in the conduct of the defense of such action (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party) or (iii) the indemnifying parties shall not have employed counsel to assume the defense of such action within a reasonable time after notice of the commencement thereof, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying parties. An indemnifying party shall not be liable for any settlement of any action, suit, proceeding or claim effected without its written consent. 8. CONTRIBUTION. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 7(a) is due in accordance with its terms but for any reason is held to be unavailable from the Company, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting any contribution received by the Company from persons other than the Underwriters, such as persons who control the Company within the meaning of the Securities Act, officers of the Company who signed the Registration Statement and directors of the Company, who may also be liable for contribution) to which - 26 - the Company and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 7 hereof, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts but before deducting expenses) received by the Company, as set forth in the table on the cover page of the Prospectus, bear to (y) the underwriting discounts received by the Underwriters, as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact related to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 8, (i) in no case shall any Underwriter (except as may be provided in the Agreement Among Underwriters) be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder, and (ii) the Company shall be liable and responsible for any amount in excess of such underwriting discount; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of the Section 15 of the Securities Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) in the immediately preceding sentence of this Section 8. - 27 - Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section, notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this Section. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its written consent. The Underwriter's obligations to contribute pursuant to this Section 8 are several in proportion to their respective underwriting commitments and not joint. TERMINATION. This Agreement may be terminated with respect to the Shares to be purchased on a Closing Date by the Representatives by notifying the Company at any time (a) in the absolute discretion of the Representatives at or before any Closing Date: (i) if on or prior to such date, any domestic or international event or act or occurrence has materially disrupted, or in the opinion of the Representatives will in the future materially disrupt, the securities markets; (ii) if there has occurred any new outbreak or material escalation of hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it, in the judgment of the Representatives, inadvisable to proceed with the offering; (iii) if there shall be such a material adverse change in general financial, political or economic conditions or the effect of international conditions on the financial markets in the United States is such as to make it, in the judgment of the Representatives, inadvisable or impracticable to market the Shares; (iv) if trading in the Shares has been suspended by the Commission or trading generally on the New York Stock Exchange, Inc. or on the American Stock Exchange, Inc. has been suspended or limited, or minimum or maximum ranges for prices for securities shall have been fixed, or maximum ranges for prices for securities have been required, by said exchanges or by order of the Commission, the National Association of Securities Dealers, Inc., or any other governmental or regulatory authority; or (v) if a banking moratorium has been declared by any state or federal authority, or (b) at or before any Closing Date, that any of the conditions specified in Section 5 shall not have been fulfilled when and as required by this Agreement. - 28 - If this Agreement is terminated pursuant to any of its provisions, the Company shall not be under any liability to any Underwriter, and no Underwriter shall be under any liability to the Company, except that (y) if this Agreement is terminated by the Representatives or the Underwriters because of any failure, refusal or inability on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, the Company will reimburse the Underwriters for all out-of-pocket expenses (including the fees and disbursements of their counsel) incurred by them in connection with the proposed purchase and sale of the Shares or in contemplation of performing their obligations hereunder and (z) no Underwriter who shall have failed or refused to purchase the Shares agreed to be purchased by it under this Agreement, without some reason sufficient hereunder to justify cancellation or termination of its obligations under this Agreement, shall be relieved of liability to the Company or to the other Underwriters for damages occasioned by its failure or refusal. 10. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters shall fail (other than for a reason sufficient to justify the cancellation or termination of this Agreement under Section 9) to purchase on any Closing Date the Shares agreed to be purchased on such Closing Date by such Underwriter or Underwriters, the Representatives may find one or more substitute underwriters to purchase such Shares or make such other arrangements as the Representatives may deem advisable or one or more of the remaining Underwriters may agree to purchase such Shares in such proportions as may be approved by the Representatives, in each case upon the terms set forth in this Agreement. If no such arrangements have been made by the close of business on the business day following such Closing Date, (a) if the number of Shares to be purchased by the defaulting Underwriters on such Closing Date shall not exceed 10% of the Shares that all the Underwriters are obligated to purchase on such Closing Date, then each of the nondefaulting Underwriters shall be obligated to purchase such Shares on the terms herein set forth in proportion to their respective obligations hereunder; provided, that in no event shall the maximum number of Shares that any Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 10 by more than one-ninth of such number of Shares without the written consent of such Underwriter, or (b) if the number of Shares to be purchased by the defaulting Underwriters on such Closing Date shall exceed 10% of the Shares that all the Underwriters are obligated to purchase on such Closing Date, then the Company shall be entitled to an additional business day within which it may, but is not obligated to, find one or more substitute - 29 - underwriters reasonably satisfactory to the Representatives to purchase such Shares upon the terms set forth in this Agreement. In any such case, either the Representatives or the Company shall have the right to postpone the applicable Closing Date for a period of not more than five business days in order that necessary changes and arrangements (including any necessary amendments or supplements to the Registration Statement or Prospectus) may be effected by the Representatives and the Company. If the number of Shares to be purchased on such Closing Date by such defaulting Underwriter or Underwriters shall exceed 10% of the Shares that all the Underwriters are obligated to purchase on such Closing Date, and none of the nondefaulting Underwriters or the Company shall make arrangements pursuant to this Section within the period stated for the purchase of the Shares that the defaulting Underwriters agreed to purchase, this Agreement shall terminate with respect to the Shares to be purchased on such Closing Date without liability on the part of any nondefaulting Underwriter to the Company and without liability on the part of the Company, except in both cases as provided in Sections 6(B), 7, 8 and 9. The provisions of this Section shall not in any way affect the liability of any defaulting Underwriter to the Company or the nondefaulting Underwriters arising out of such default. A substitute underwriter hereunder shall become an Underwriter for all purposes of this Agreement. 11. MISCELLANEOUS. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Underwriters set forth in or made pursuant to this Agreement shall remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of the officers, directors or controlling persons referred to in Sections 7 and 8 hereof, and shall survive delivery of and payment for the Shares. The provisions of Sections 6(B), 7, 8 and 9 shall survive the termination or cancellation of this Agreement. This Agreement has been and is made for the benefit of the Underwriters and the Company and their respective successors and assigns, and, to the extent expressed herein, for the benefit of persons controlling any of the Underwriters, or the Company, and directors and officers of the Company, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser of Shares from any Underwriter merely because of such purchase. All notices and communications hereunder shall be in writing and mailed or delivered or by telephone or telegraph if subsequently confirmed in writing, (a) if to the Representatives, - 30 - c/o Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281 Attention: Marshall A. Heinberg, and (b) if to the Company, to its agent for service as such agent's address appears on the cover page of the Registration Statement. - 31 - This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Please confirm that the foregoing correctly sets forth the agreement among us. Very truly yours, AMERICAN DISPOSAL SERVICES, INC. By ----------------------------- Title: Confirmed: OPPENHEIMER & CO., INC. CS FIRST BOSTON Acting severally on behalf of itself and as representative of the several Underwriters named in Schedule I annexed hereto. By Oppenheimer & Co., Inc. By ---------------------------- Title: Managing Director - 32 - SCHEDULE I Number of Firm Shares to Name Be Purchased ---- -------------- Oppenheimer & Co., Inc. CS First Boston TOTAL --------- - i - SCHEDULE II Subsidiary State of Incorporation ---------- ---------------------- - ii - EX-4.1 3 EXHIBIT 4.1 EXHIBIT 4.1 COMMON STOCK [LOGO] COMMON STOCK NUMBER AMERICAN SHARES ADC DISPOSAL SERVICES, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE $.01 PAR VALUE CUSIP 025389 10 7 PER SHARE SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFIES that is the owner of FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER SHARE, OF AMERICAN DISPOSAL SERVICES, INC. transferable on the books of the Corporation in person or by duly authorized Attorney, upon surrender of this Certificate, properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: [SIGNATURE BLOCK] [SEAL] [SIGNATURE BLOCK] Chairman Secretary Countersigned: CONTINENTAL STOCK TRANSFER & TRUST COMPANY Transfer Agent By Authorized Signature AMERICAN DISPOSAL SERVICE, INC. THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO EACH STOCKHOLDER WHO SO REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UGMA - Custodian ------------------------------------------------------------ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------------- (State) Additional abbreviations may also be used though not in the above list. PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS AND ZIP CODE OF ASSIGNEE BELOW. For value received, hereby sell, assign and transfer unto - -------------------------------------------------------------------------------- PLEASE INSERT SOCIAL SECURITY OR TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE Name / / - -------------------------------------------------------------------------------- Name - -------------------------------------------------------------------------------- Name - -------------------------------------------------------------------------------- Name - -------------------------------------------------------------------------------- Street - -------------------------------------------------------------------------------- City, State and Zip Code - -------------------------------------------------------------------------------- ____________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint________________________________ Attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises. - ------------------------------------------------------------ Dated - -------------------------------------------------------------------------------- Signature of stockholder - -------------------------------------------------------------------------------- Signature of stockholder - -------------------------------------------------------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate in every particular, without alteration or enlargement, or any change whatever. MEDALLION SIGNATURE GUARANTEED EX-5.1 4 EXHIBIT 5.1 July 11, 1996 American Disposal Services, Inc. 745 McClintock Drive Burr Ridge, Illinois 60521 Re: Registration Statement on Form S-1 File No. 333-4889 ----------------------------------- Gentlemen: You have requested our opinion in connection with the above-referenced registration statement, as amended (the "Registration Statement"), filed by American Disposal Services, Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission under the Securities Act of 1933, as amended, relating to 2,750,000 shares of the Company's common stock, par value $.01 per share (the "Common Stock"), to be sold to the underwriters by the Company (the "Firm Shares"), and up to 412,500 additional shares of Common Stock to cover over-allotment options granted to the underwriters (together with the Firm Shares, the "Shares"), for sale to the public pursuant to an underwritten public offering. As counsel to the Company, we have examined such corporate records, other documents and questions of law as we have considered necessary or appropriate for the purpose of this opinion, including the Certificate of Incorporation, as amended, and the By-Laws of the Company, the Registration Statement and the exhibits thereto, including the form of underwriting agreement relating to the Shares filed as Exhibit 1.1 to the Registration Statement (the "Underwriting Agreement"), and we have made such investigations of law as we have deemed necessary in order to render the opinion hereinafter set forth. In such examinations, we have assumed the genuineness of signatures and the conformity to original documents of the documents supplied to us as copies. As to relevant questions of fact material to our opinion, we have relied upon statements and certificates of officers and representatives of the Company. In giving this opinion, we have assumed that the certificates for the Shares, when issued, will have been duly executed on behalf of the Company by the Company's transfer agent and registered by the Company's registrar, and will conform, except as to denominations, to specimens we have examined. Based upon and subject to the foregoing, we are of the opinion that: 1. The Shares have been duly authorized; and 2. The Shares, when sold in accordance with the Underwriting Agreement, will be validly issued, fully paid and non-assessable. We hereby consent to the references to our firm under the caption "Legal Matters" in the Registration Statement and to the use of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities and Exchange Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, PROSKAUER ROSE GOETZ & MENDELSOHN LLP EX-10.1 5 EXHIBIT 10.1 EXHIBIT 10.1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CREDIT AGREEMENT DATED AS OF MAY 30, 1996 AMONG AMERICAN DISPOSAL SERVICES, INC., INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, AS ADMINISTRATIVE AGENT MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS DOCUMENTATION AGENT AND THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . 1 1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Interpretive Provisions. . . . . . . . . . . . . . . . . . . 25 1.3 Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE II THE CREDITS . . . . . . . . . . . . . . . 27 2.1 The Credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.2 The Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.3 Lenders Not Permitted or Required to Make Loans. . . . . . . . . . 28 2.4 Procedure for Borrowing. . . . . . . . . . . . . . . . . . . . . . 29 2.5 Conversion and Continuation Elections. . . . . . . . . . . . . . . 30 2.6 Voluntary Termination or Reduction of Commitments. . . . . . . . . 31 2.7 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . 31 2.8 Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . . 32 2.9 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.10 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.11 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 2.12 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.13 Computation of Fees and Interest. . . . . . . . . . . . . . . . . 38 2.14 Payments by the Company . . . . . . . . . . . . . . . . . . . . . 38 2.15 Payments by the Lenders to the Agent. . . . . . . . . . . . . . . 39 2.16 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . .39 ARTICLE III THE LETTERS OF CREDIT. . . . . . . . . . . . . 40 3.1 The Letter of Credit Subfacility.. . . . . . . . . . . . . . . . . 40 3.2 Issuance, Amendment and Renewal of Letters of Credit . . . . . . . 41 3.3 Risk Participations, Drawings and Reimbursements . . . . . . . . . 43 3.4 Repayment of Participations. . . . . . . . . . . . . . . . . . . . 45 3.5 Role of the Issuing Lender . . . . . . . . . . . . . . . . . . . . 45 3.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . 46 3.7 Cash Collateral Pledge . . . . . . . . . . . . . . . . . . . . . . 47 3.8 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . 47 3.9 Uniform Customs and Practice . . . . . . . . . . . . . . . . . . . 48 Section Page - ------- ---- ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY. . . . . . . . . 48 4.1 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.3 Increased Costs and Reduction of Return. . . . . . . . . . . . . . 50 4.4 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . 51 4.5 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . 51 4.6 Certificates of Lenders. . . . . . . . . . . . . . . . . . . . . . 52 4.7 Substitution of Lenders. . . . . . . . . . . . . . . . . . . . . . 52 4.8 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE V CONDITIONS PRECEDENT . . . . . . . . . . . . . 52 5.1 Conditions of Initial credit extensions. . . . . . . . . . . . . . 52 (a) Credit Agreement and Notes . . . . . . . . . . . . . . . . . . . . 52 (b) Resolutions; Incumbency. . . . . . . . . . . . . . . . . . . . . . 52 (c) Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (d) Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (e) Payment of Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 53 (f) Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (g) Security Agreement, etc. . . . . . . . . . . . . . . . . . . . . . 54 (h) Pledge Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 54 (i) Real Estate Documents. . . . . . . . . . . . . . . . . . . . . . . 54 (j) Key-Man Life Policy. . . . . . . . . . . . . . . . . . . . . . . . 55 (k) Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . 55 (l) Other Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 55 5.2 Additional Conditions to Expansion Loans . . . . . . . . . . . . . 55 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 56 (b) Positive EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . 56 (c) Maximum Total Consideration Payable. . . . . . . . . . . . . . . . 56 (d) Consent of Majority Lenders. . . . . . . . . . . . . . . . . . . . 56 (e) Certificate of Senior Financial Officer. . . . . . . . . . . . . . 56 (f) Perfected Security Interest. . . . . . . . . . . . . . . . . . . . 57 (g) Environmental Audit and/or Review. . . . . . . . . . . . . . . . . 57 (h) No Material Litigation; Satisfactory Legal Form. . . . . . . . . . 57 5.3 Conditions to All Credit Extensions. . . . . . . . . . . . . . . . 57 (a) Notice, Application. . . . . . . . . . . . . . . . . . . . . . . . 57 (b) Continuation of Representations and Warranties . . . . . . . . . . 58 (c) No Existing Default. . . . . . . . . . . . . . . . . . . . . . . . 58 -ii- Section Page - ------- ---- ARTICLE VI REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 58 6.1 Corporate Existence and Power. . . . . . . . . . . . . . . . . . . 58 6.2 Corporate Authorization; No Contravention. . . . . . . . . . . . . 59 6.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . 59 6.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 59 6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 6.6 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 6.7 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 60 6.8 Use of Proceeds; Margin Regulations. . . . . . . . . . . . . . . . 60 6.9 Title to Properties. . . . . . . . . . . . . . . . . . . . . . . . 60 6.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 6.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . 61 6.12 Environmental Compliance. . . . . . . . . . . . . . . . . . . . . 61 (a) No Violations . . . . . . . . . . . . . . . . . . . 61 (b) Notices . . . . . . . . . . . . . . . . . . . . . . 61 (c) Handling of Hazardous Substances. . . . . . . . . . 62 (d) Clean-Ups . . . . . . . . . . . . . . . . . . . . . 62 (e) Permits and Governmental Authority. . . . . . . . . 63 (f) Investigations. . . . . . . . . . . . . . . . . . . 63 6.13 Regulated Entities. . . . . . . . . . . . . . . . . . . . . . . . 63 6.14 No Burdensome Restrictions. . . . . . . . . . . . . . . . . . . . 63 6.15 Copyrights, Patents, Trademarks and Licenses, etc.. . . . . . . . 63 6.16 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 63 6.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 63 6.18 Solvency, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 64 6.19 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 64 6.20 Equity Rights, etc. . . . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE VII AFFIRMATIVE COVENANTS. . . . . . . . . . . . . 64 7.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 65 7.2 Certificates; Other Information. . . . . . . . . . . . . . . . . . 66 7.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 7.4 Preservation of Corporate Existence, Etc . . . . . . . . . . . . . 68 7.5 Maintenance of Property. . . . . . . . . . . . . . . . . . . . . . 69 7.6 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 7.7 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . 69 7.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 69 7.9 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . 69 -iii- Section Page - ------- ---- 7.10 Inspection of Property and Books and Records. . . . . . . . . . . 70 7.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . 70 7.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 71 7.13 Key-Man Life Policy . . . . . . . . . . . . . . . . . . . . . . . 71 7.14 Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . 71 7.15 Additional Collateral . . . . . . . . . . . . . . . . . . . . . . 71 7.16 Future Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 72 7.17 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 73 ARTICLE VIII NEGATIVE COVENANTS. . . . . . . . . . . . . . 73 8.1 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . 73 8.2 Disposition of Assets. . . . . . . . . . . . . . . . . . . . . . . 75 8.3 Consolidations and Mergers . . . . . . . . . . . . . . . . . . . . 76 8.4 Loans and Investments. . . . . . . . . . . . . . . . . . . . . . . 76 8.5 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . 77 8.6 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . 77 8.7 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 77 8.8 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . 77 8.9 Lease Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 78 8.10 Minimum Interest Coverage Ratio . . . . . . . . . . . . . . . . . 78 8.11 Maximum Indebtedness to Capitalization Ratio. . . . . . . . . . . 79 8.12 Minimum Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . 80 8.13 Maximum Capital Expenditures. . . . . . . . . . . . . . . . . . . 82 8.14 Maximum Total Indebtedness to EBITDA. . . . . . . . . . . . . . . 82 8.15 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . 83 8.16 Landfill Development. . . . . . . . . . . . . . . . . . . . . . . 84 8.17 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 8.18 Change in Business. . . . . . . . . . . . . . . . . . . . . . . . 84 8.19 Accounting Changes. . . . . . . . . . . . . . . . . . . . . . . . 84 ARTICLE IX EVENTS OF DEFAULT. . . . . . . . . . . . . . 84 9.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . 84 (a) Non-Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 (b) Representation or Warranty . . . . . . . . . . . . . . . . . . . . 84 (c) Specific Defaults. . . . . . . . . . . . . . . . . . . . . . . . . 85 (d) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 85 (e) Cross-Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 85 (f) Insolvency; Voluntary Proceedings. . . . . . . . . . . . . . . . . 85 -iv- Section Page - ------- ---- (g) Involuntary Proceedings. . . . . . . . . . . . . . . . . . . . . . 85 (h) ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 (i) Monetary Judgments . . . . . . . . . . . . . . . . . . . . . . . . 86 (j) Non-Monetary Judgments . . . . . . . . . . . . . . . . . . . . . . 86 (k) Change of Control or Management. . . . . . . . . . . . . . . . . . 86 (l) Guarantor Defaults . . . . . . . . . . . . . . . . . . . . . . . . 86 (m) Security Agreement, etc. . . . . . . . . . . . . . . . . . . . . . 87 (n) Pledge Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 87 (o) Material Environmental Events. . . . . . . . . . . . . . . . . . . 87 9.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 9.3 Rights Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . 88 ARTICLE X THE AGENT. . . . . . . . . . . . . . . . 88 10.1 Appointment and Authorization . . . . . . . . . . . . . . . . . . 88 10.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . 88 10.3 Liability of Agent. . . . . . . . . . . . . . . . . . . . . . . . 89 10.4 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . 89 10.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . 90 10.6 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . 90 10.7 Indemnification of Agent. . . . . . . . . . . . . . . . . . . . . 90 10.8 Agent in Individual Capacity. . . . . . . . . . . . . . . . . . . 91 10.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . 91 10.10 Withholding Tax. . . . . . . . . . . . . . . . . . . . . . . . . 92 ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . 94 11.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . 94 11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 11.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . 95 11.4 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . 95 11.5 Company Indemnification . . . . . . . . . . . . . . . . . . . . . 96 11.6 Payments Set Aside. . . . . . . . . . . . . . . . . . . . . . . . 96 11.7 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 97 11.8 Assignments, Participations, etc. . . . . . . . . . . . . . . . . 97 11.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 98 11.10 Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 11.11 Notification of Addresses, Lending Offices, Etc. . . . . . . . . 99 11.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 99 11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 99 -v- Section Page - ------- ---- 11.14 No Third Parties Benefited . . . . . . . . . . . . . . . . . . . 99 11.15 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . 100 11.16 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . 100 11.17 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 101 -vi- Section Page - ------- ---- SCHEDULES Schedule 1.1 Commitments and Pro Rata Shares Schedule 5.2 Expansion Loans to Refinance CDI Acquisition Loans Schedule 6.12 Environmental Matters Schedule 6.16 Subsidiaries and Minority Interests Schedule 6.17 Insurance Matters Schedule 6.20 Equity Rights Schedule 8.1 Liens Schedule 8.5 Indebtedness Schedule 8.8 Contingent Obligations Schedule 11.2 Lending Offices; Addresses for Notices EXHIBITS Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D-1 Form of Opinion of Counsel to the Company and the Guarantors Exhibit D-2 Form of Pennsylvania Local Counsel Opinion to the Company and the Guarantors Exhibit D-3 Form of Ohio Local Counsel Opinion to the Company and the Guarantors Exhibit D-4 Form of Illinois Local Counsel Opinion to the Company and the Guarantors Exhibit D-5 Form of Missouri Local Counsel Opinion to the Company and the Guarantors Exhibit D-6 Form of Arkansas Local Counsel Opinion to the Company and the Guarantors Exhibit D-7 Form of Oklahoma Local Counsel Opinion to the Company and the Guarantors Exhibit D-8 Form of Kansas Local Counsel Opinion to the Company and the Guarantors Exhibit E Form of Guaranty Exhibit F Form of Security Agreement Exhibit G-1 Form of Company Pledge Agreement Exhibit G-2 Form of Subsidiary Pledge Agreement Exhibit H Form of Assignment and Acceptance Exhibit I-1 Form of Term Loan Note Exhibit I-2 Form of Revolving Note Exhibit J Form of Eligible Acquisition Certificate -vii- CREDIT AGREEMENT This CREDIT AGREEMENT is entered into as of May 30, 1996, among AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "COMPANY"), the several financial institutions from time to time party to this Agreement (collectively the "LENDERS"; individually each a "LENDER"), and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as agent for the Lenders. WHEREAS, the Company is engaged through its various Subsidiaries in the business of collection, transfer/recycling and disposal of non-hazardous, non- toxic solid wastes; WHEREAS, the Company desires to obtain Commitments from the Lenders pursuant to which Loans (as defined herein) and Letters of Credit (as defined herein), in a maximum aggregate principal or face amount at any one time outstanding not to exceed $87,000,000, will be made or issued, as the case may be, from time to time prior to the applicable Commitment termination dates for such Commitments; and WHEREAS, the Lenders are willing, on the terms and subject to the conditions hereinafter set forth, to extend such Commitments, make such Loans and issue such Letters of Credit; NOW, THEREFORE, in consideration of the mutual agreements contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.1 CERTAIN DEFINED TERMS. The following terms have the following meanings: "AFFECTED LENDER" has the meaning set forth in SECTION 4.7. "AFFILIATE" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities or membership interests, by contract, or otherwise; PROVIDED, that, in any event, any Person (including a member of the immediate family of such Person) which is an officer or director or that owns directly or indirectly securities having 10% or more of the voting power for the election of directors or other governing body of the Company will be deemed to be an Affiliate of the Company. "AGENT" means ING in its capacity as agent for the Lenders hereunder, and any successor agent arising under SECTION 10.9. "AGENT-RELATED PERSONS" means ING and any successor agent arising under SECTION 10.9, together with their respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "AGENT'S PAYMENT OFFICE" means the address for payments set forth on SCHEDULE 11.2 in relation to the Agent, or such other address as the Agent may from time to time specify. "AGREEMENT" means this Credit Agreement. "APPLICABLE MARGIN" means, with respect to each Loan, the percentage per annum set forth below: APPLICABLE MARGIN (% P.A.) ---------------------------------------- LOAN BASE RATE LOANS LIBOR LOANS ------------------ -------------------- -------------- Term Loan A 1.25 2.75 Term Loan B 1.75 3.25 Revolving Loan 1.00 2.50 Expansion Loan 1.50 3.00 "ASSET SALE" means any sale, transfer or disposition of any asset of the Company or any of its Subsidiaries, excluding (a) inventory and equipment sold, transferred or disposed of, in the ordinary course of business of the Company or such Subsidiary, as the case may be, and (b) equipment sold, transferred or disposed of, in order to purchase replacement equipment. "ASSIGNEE" has the meaning set forth in SUBSECTION 11.8(a). "ASSIGNMENT AND ACCEPTANCE" has the meaning set forth in SECTION 11.8(a). "ATTORNEY COSTS" means and includes all reasonable fees and disbursements of any law firm or other external counsel and all reasonable disbursements of internal counsel. -2- "BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, ET SEQ.). "BASE RATE" shall mean, for any day, a rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "BASE RATE LOAN" means a Loan that bears interest based on the Base Rate. "BORROWING" means a borrowing hereunder consisting of Revolving Loans or Term Loans of the same Type made to the Company on the same day by the Lenders under ARTICLE II, and, other than in the case of Base Rate Loans, having the same Interest Period. "BORROWING DATE" means any date on which a Borrowing occurs under SECTION 2.4. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close and, if the applicable Business Day relates to a LIBOR Loan, means such a day on which dealings are carried on in the applicable London dollar interbank market. "CAPITAL ADEQUACY REGULATION" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case regarding capital adequacy of any bank or of any corporation controlling a bank. "CAPITAL LEASE LIABILITIES" means all monetary obligations of the Company or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "CAPEX ALLOCATION" has the meaning set forth in SECTION 8.12. "CASH COLLATERALIZE" means to pledge and deposit with or deliver to the Agent, for the benefit of the Agent, the Issuing Lenders and the Lenders, as additional collateral for the L/C Obligations, cash or deposit account balances pursuant to -3- documentation in form and substance satisfactory to the Agent and the Issuing Lenders (which documents are hereby consented to by the Lenders). Derivatives of such term shall have corresponding meaning. The Company hereby grants the Agent, for the benefit of the Agent, the Issuing Lender and the Lenders, a security interest in all such cash and deposit account balances. Cash collateral shall be maintained in blocked, interest bearing deposit accounts at a bank designated by ING. "CERCLA" has the meaning set forth in SUBSECTION 6.12(a). "CLOSING DATE" means the date on which all conditions precedent set forth in SECTION 5.1 are satisfied or waived by all Lenders (or, in the case of SUBSECTION 5.1(e), waived by the Person entitled to receive such payment). "CODE" means the Internal Revenue Code of 1986. "COMMITMENTS" means the Term Loan Commitments and the Revolving Commitments. "COMPANY PLEDGE AGREEMENT" has the meaning set forth in SUBSECTION 5.1(h). "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of EXHIBIT C. "COMPUTATION PERIOD" means each period of four consecutive fiscal quarters ending on the last day of a fiscal quarter, beginning with the period ending June 30, 1996. "CONSOLIDATED NET INCOME" means, with respect to the Company and its Subsidiaries for any period, the net income (or loss) of the Company and its Subsidiaries for such period, excluding any extraordinary or non- recurring gains during such period. "CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect liability of such Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "PRIMARY OBLIGATION") of another Person (the "PRIMARY OBLIGOR"), including any obligation of such Person (i) to purchase, repurchase or otherwise acquire such primary obligation or any security therefor, (ii) to advance or provide funds for the payment or discharge of any primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any primary obligation of the ability of the primary -4- obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any primary obligation against loss in respect thereof (each, a "GUARANTY OBLIGATION"); (b) with respect to any Surety Instrument (other than any Letter of Credit) issued for the account of such Person or as to which such Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations, shall be equal to the maximum reasonably anticipated liability in respect thereof. "CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "CONVERSION/CONTINUATION DATE" means any date on which, under SECTION 2.5, the Company (a) converts Loans of one Type to the other Type or (b) continues as LIBOR Loans, but with a new Interest Period, LIBOR Loans having Interest Periods expiring on such date. "CREDIT EXTENSION" means and includes (a) the making of any Loan hereunder and (b) the Issuance of any Letter of Credit hereunder. "DEBT TO BE REPAID" means debt of American Disposal Services, Inc. (an Oklahoma corporation) ("OLD ADS") under the Credit Agreement, dated as of March 28, 1995, among old ADS and Internationale Nederlanden (U.S.) Capital Corporation and certain commercial lending institutions, debt of County Disposal, Inc. and its Subsidiaries under the Credit Agreement, dated as of September 21, 1995, among County Disposal, Inc., Bank of America National Trust and Savings Association, Bank of America Illinois, and the other financial institutions party thereto, debt of the Company under a promissory note in favor of Charterhouse Equity Partners II, L.P., in an amount not to exceed $12,500,000, plus accrued interest with respect thereto, plus any other Indebtedness required to be prepaid to bring the Company into compliance with the covenants set forth herein. "DOLLARS" and "$" mean lawful money of the United States. -5- "EBITDA" means, for any Computation Period (or such shorter period specified in SUBSECTIONS 8.10(a), 8.12(a) and 8.14(a)), the amount obtained from the following calculation of the following amounts (without duplication) for such Computation Period (or, as the case may be, such shorter period): (a) Net Income LESS to the extent included in determining Net Income, all extraordinary gains, PLUS to the extent deducted in determining Net Income, all extraordinary losses, PLUS (b) Interest Expense, PLUS (c) to the extent deducted in determining Net Income, provisions for federal, state, local and foreign income taxes (other than taxes on extraordinary gains), whether paid or deferred, PLUS (d) to the extent deducted in determining Net Income, depreciation and amortization expense of assets of the Company and its Subsidiaries, on a consolidated basis, PLUS (e) to the extent deducted in determining Net Income, the aggregate amount of any write-off of expenses arising in connection with (a) the Loans or (b) prior issuances of debt or equity, PLUS (f) the aggregate amount of non-cash expense associated with the closure and post-closure reserves of a plant or facility owned by the Company or a Subsidiary of the Company, PLUS (g) the aggregate amount of all other non-cash expenses of the Company and its Subsidiaries not specifically listed above; PROVIDED, HOWEVER, that (x) for the purpose of determining compliance with SECTIONS 8.10, 8.12 and 8.14 with respect to any period in which an Eligible Acquisition has occurred, EBITDA shall be calculated without giving effect to such Eligible Acquisition during the fiscal quarter in which it occurred (but shall be calculated after giving effect to such Eligible Acquisition for each fiscal quarter thereafter) unless such Eligible Acquisition occurred on the first day of a fiscal quarter during such period, and (y) for the purpose of determining compliance with SECTION 8.14 with respect to a period in which an Eligible Acquisition has occurred, if -6- (i) pursuant to CLAUSE(x), EBITDA is calculated after giving effect to such Eligible Acquisition, and (ii) the number of fiscal quarters applicable to such calculation exceeds the number of full fiscal quarters since such Eligible Acquisition, then EBITDA attributable to such Eligible Acquisition shall be multiplied by a number, such that the number of full fiscal quarters since the applicable Eligible Acquisition, multiplied by such number, is equal to the number of fiscal quarters applicable to such calculation. For illustrative purposes only, if an Eligible Acquisition occurs on September 15, 1996, and EBITDA is being calculated pursuant to SUBSECTION 8.14(b) for the Computation Period ending December 31, 1996, then EBITDA attributable to such Eligible Acquisition shall be such EBITDA calculated for the period beginning on October 1, 1996 and ending on December 31, 1996 multiplied by 4. "EFFECTIVE AMOUNT" means, with respect to any outstanding L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letter of Credit or any reduction in the maximum amount available for drawing under Letters of Credit taking effect on such date. "ELIGIBLE ACQUISITION" means any acquisition by the Company or any of its Subsidiaries (regardless of the structure of the transaction) of the capital stock of, or all or substantially all of the assets of, any Person (or of a line of business or business segment of any Person) that was, immediately prior to such acquisition, engaged primarily in the business of solid waste collection, recycling, hauling and disposal or owning and operating landfills or transfer stations (or such related activities as the Company or its Subsidiaries are then engaged in), in each case, where the assets of such Person are located in the Company's existing market area, in a contiguous or proximate area or such other areas consented to by the Lenders, or any other acquisition approved by the Majority Lenders. "ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "ENVIRONMENTAL LAWS" means all federal, state or local laws (including RCRA, CERCLA, SARA, the Federal Clean Water Act, the Federal Clean Air Act and the Toxic Substances Control Act), statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any -7- Governmental Authority, in each case relating to environmental, health, safety or land use matters. "EQUITY RIGHTS" means, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA EVENT" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a substantial cessation of operations which is treated as such a withdrawal; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "EVENT OF DEFAULT" means any of the events or circumstances specified in SECTION 9.1. "EXCESS CASH FLOW" means, for any fiscal year, the excess (if any) of: (a) the sum (without duplication) of the amounts for such fiscal year of: (i) Operating Cash Flow, PLUS -8- (ii) the absolute value of the net decrease (if any) in working capital of the Company and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP, PLUS (iii) the aggregate amount of all tax refunds received by the Company or any of its Subsidiaries, OVER (b) the sum (without duplication) of the amounts for such fiscal year of: (i) the net increase (if any) in working capital of the Company and its Subsidiaries, on a consolidated basis, determined in accordance with GAAP, PLUS (ii) the aggregate amount of interest on the Loans paid by the Company and the aggregate principal amount of Term Loans and (only to the extent that the Revolving Commitment shall have been permanently reduced by the amount of such payment) Revolving Loans repaid by the Company in such fiscal year and the aggregate amount of principal and interest paid by the Company with respect to Subordinated Indebtedness, PLUS (iii) the aggregate amount of payments made by the Company and its Subsidiaries on Capital Lease Liabilities in such fiscal year, IT BEING UNDERSTOOD that the amount of the Retained Excess Cash Flow for the immediately preceding fiscal year shall be excluded from the calculation of Excess Cash Flow for such fiscal year. "EXPANSION LOAN" shall mean the loans provided for by SUBSECTION 2.2(c) hereof, which may be Base Rate Loans and/or LIBOR Loans. "EXPANSION LOAN COMMITMENT" shall mean, for each Term Loan Lender, the obligation of such Lender to make one or more Expansion Loans in an aggregate amount up to but not exceeding the amount set forth opposite the name of such Lender on SCHEDULE 1.1 under the caption "Expansion Loan Commitment" (as the same may be reduced from time in accordance with this Agreement). The original aggregate principal amount of the Expansion Loan Commitments is $17,000,000. "EXPANSION LOAN COMMITMENT TERMINATION DATE" means the earliest of (a) June 30, 1998; or -9- (b) the date on which Expansion Loans in an aggregate principal amount equal to aggregate principal amount of the Expansion Loan Commitments are outstanding; and (c) the date on which the aggregate principal amount of the Expansion Loan Commitments are terminated in full or reduced to zero in accordance with this Agreement. "EXPANSION LOAN NOTES" shall mean the promissory notes provided for by SUBSECTION 2.2(e) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, PROVIDED that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. -10- "GUARANTOR" means each Subsidiary of the Company. "GUARANTY" has the meaning set forth in SUBSECTION 5.1(f). "GUARANTY OBLIGATION" has the meaning set forth in the definition of Contingent Obligation. "HAZARDOUS SUBSTANCES" has the meaning set forth in SUBSECTION 6.12(b). "HONOR DATE" has the meaning set forth in SUBSECTION 3.3(b). "IMMATERIAL LAW" means any provision of any Environmental Law the violation of which will not (a) violate any judgment, decree or order which is binding upon the Company or any Subsidiary, (b) result in or threaten (either immediately or with the passage of time) any injury to public health or the environment or any material damage to the property of any Person or (c) result in any liability or expense (other than any DE MINIMIS liability or expense) for the Company or any Subsidiary (either immediately or with the passage of time); PROVIDED that no provision of any Environmental Law shall be an Immaterial Law if the Agent has notified the Company that the Required Lenders have determined in good faith that such provision is material. "IMMATERIAL NOTICE" means a notice from or allegation by a Person which is not a Governmental Authority or agency (or a representative thereof) regarding any event or condition relating to the environment for which the Company or any Subsidiary may have any liability or any breach by the Company or any Subsidiary of any Environmental Law, which notice or allegation (a) has not given rise to any judicial or regulatory case or proceeding and (b) in the reasonable judgment the Company, is not likely to result in any liability or expense (other than any DE MINIMIS liability or expense) for the Company or the applicable Subsidiary. "INDEBTEDNESS" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money; (b) all obligations issued, undertaken or assumed by such Person as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations by such Person with respect to Surety Instruments (excluding the obligations of the Company with respect to any Post-Closure Surety Bonds); (d) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations of such Person -11- with respect to capital leases; (g) all net obligations of such Person with respect to Swap Contracts; (h) all indebtedness of such Person referred to in CLAUSES (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (i) all Guaranty Obligations of such Person in respect of indebtedness or obligations of others of the kinds referred to in CLAUSES (a) through (g) above; PROVIDED, HOWEVER, that for the purpose of determining compliance with SECTION 8.14 with respect to any period, the amount of Indebtedness incurred in connection with an Eligible Acquisition that has occurred during such period shall not be included in the computation of Indebtedness during the fiscal quarter in which such Eligible Acquisition has occurred (but shall be included in such computation for each fiscal quarter thereafter) unless such Eligible Acquisition occurred on the first day of a fiscal quarter during such period. "INDEMNIFIED LIABILITIES" has the meaning set forth in SECTION 11.5. "INDEMNIFIED PERSON" has the meaning set forth in SECTION 11.5. "INDEPENDENT AUDITOR" has the meaning set forth in SUBSECTION 7.1(a). "ING" means Internationale Nederlanden (U.S.) Capital Corporation (which shall include any successor or assignee thereof). "INITIAL DATE" has the meaning set forth in SUBSECTION 4.1(e). "INSOLVENCY PROCEEDING" means, without respect to any Person, (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors (including any proceeding under the Bankruptcy Code) or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other similar arrangement in respect of such Person's creditors generally or any substantial portion of such creditors. "INTEREST EXPENSE" means, for any period, the aggregate amount of cash interest expense of the Company and its Subsidiaries for such period which, in accordance with GAAP, would be included on the consolidated financial statements of the Company, including the portion of any rent paid in respect of Capital Lease Liabilities which is allocable to interest expense in accordance with GAAP; PROVIDED, HOWEVER, that for the purpose of determining compliance with SECTIONS 8.10 and 8.12 with respect to any period, the amount of Interest Expense attributable to an Eligible -12- Acquisition that has occurred during such period shall not be included in the computation of Interest Expense during the fiscal quarter in which such Eligible Acquisition has occurred (but shall be included in such computation for each fiscal quarter thereafter) unless such Eligible Acquisition occurred on the first day of a fiscal quarter during such period. "INTEREST PERIOD" means, as to any LIBOR Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as a LIBOR Loan, and ending on the date one, two, three or six months thereafter, as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; PROVIDED that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period that begins 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 Interest Period) shall end on the last Business Day of the appropriate subsequent calendar month; (iii) no Interest Period for any Revolving Loan shall extend beyond the scheduled Revolving Termination Date; and (iv) no Interest Period applicable to a Term Loan or portion thereof shall extend beyond any date upon which is due any scheduled principal payment in respect of the Term Loans unless the aggregate principal amount of Term Loans represented by Base Rate Loans, or by LIBOR Loans having Interest Periods that will expire on or before such date, equals or exceeds the amount of such principal payment. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "ISSUANCE DATE" has the meaning set forth in SUBSECTION 3.1(a). "ISSUE" means, with respect to any Letter of Credit, to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "ISSUED," "ISSUING" and "ISSUANCE" have corresponding meanings. -13- "ISSUING LENDER" means ING in its capacity as issuer of one or more Letters of Credit hereunder, together with any replacement letter of credit issuer arising under SECTION 10.1(b) or SECTION 10.9; PROVIDED, if the Agent, with respect to any Letter of Credit, requests that any other Lender issue such Letter of Credit, then, subject to the agreement of such other Lender, the Issuing Lender with respect to such Letter of Credit shall be such other Lender in such capacity. "JOINT VENTURE" means a single-purpose corporation, partnership, limited liability company, joint venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Company or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person (provided that the term Joint Venture shall not include any Subsidiary). "L/C ADVANCE" means each Lender's participation in any L/C Borrowing in accordance with its Pro Rata Share. "L/C AMENDMENT APPLICATION" means an application form for amendment of an outstanding standby letter of credit as shall at any time be in use at the Issuing Lender, as the Issuing Lender shall request. "L/C APPLICATION" means an application form for issuance of a standby letter of credit as shall at any time be in use by the Issuing Lender, as the Issuing Lender shall request. "L/C BORROWING" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made nor converted into a Borrowing of Revolving Loans under SUBSECTION 3.3(c). "L/C COMMITMENT" means the commitment of the Issuing Lenders to Issue, and the commitment of the Revolving Lenders severally to participate in, Letters of Credit from time to time Issued under ARTICLE III, in an aggregate amount not to exceed on any date $3,000,000; IT BEING UNDERSTOOD that the L/C Commitment is a part of the Revolving Commitment, rather than a separate, independent commitment. "L/C FEE RATE" means 2.25%. "L/C OBLIGATIONS" means at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding, PLUS (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. -14- "L/C-RELATED DOCUMENTS" means the Letters of Credit, the L/C Applications, the L/C Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Lender's standard form documents for letter of credit issuances. "LENDER" has the meaning set forth in the PREAMBLE. References to the "Lenders" shall include the Issuing Lender in its capacity as such; for purposes of clarification only, to the extent that the Issuing Lender may have any rights or obligations in addition to those of the other Lenders due to its status as Issuing Lender, its status as such will be specifically referenced. "LENDING OFFICE" means, as to any Lender, the office or offices of such Lender specified as its "Lending Office" on SCHEDULE 11.2, or such other office or offices as such Lender may from time to time specify to the Company and the Agent. "LETTER OF CREDIT" means any standby letter of credit Issued by the Issuing Lender pursuant to ARTICLE III. "LIBO RATE" means, with respect to any LIBOR Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient of (a) the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%), reported, at 11:00 a.m. (London time) on the date two Business Days prior to the first day of such Interest Period, on Telerate Access Service Page 3750 (British Bankers Association Settlement Rate) as the London interbank offered rate for Dollar deposits having a term comparable to the duration of such Interest Period and in an amount equal to or greater than $1,000,000, DIVIDED BY (b) 1 minus the Reserve Requirement (if any) for such Loan for such Interest Period. "LIBOR LOAN" means a Loan that bears interest based on the LIBO Rate. "LIEN" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, or any financing lease having substantially the same economic effect as any of the foregoing, but not including the interest of a lessor under an operating lease). "LOAN" means an extension of credit by a Lender to the Company under ARTICLE II or ARTICLE III in the form of a Revolving Loan, Term Loan or L/C -15- Advance. Each Revolving Loan may be, and each Term Loan may be divided into tranches which may be, a Base Rate Loan or a LIBOR Loan. "LOAN DOCUMENTS" means this Agreement, any Note, the L/C-Related Documents, the Security Agreement, each Guaranty, the Pledge Agreements and all other documents (including any mortgage, leasehold mortgage or dead of trust) delivered to the Agent or any Lender in connection herewith. "MAJORITY LENDERS" means Lenders having at least 51% of the sum of (a) the aggregate unpaid principal amount of the Loans PLUS (b) the aggregate amount of all L/C Obligations PLUS (c) the aggregate amount of the unused Expansion Loan Commitments (to the extent such Commitments have not terminated) PLUS (d) the aggregate amount of the unused Revolving Commitments (to the extent such Commitments have not terminated). "MARGIN STOCK" means "margin stock" as such term is defined in Regulation G, T, U or X of the FRB. "MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole; or (b) a material adverse effect upon the legality, validity, binding effect or enforceability of any Loan Document. "MONTHLY PAYMENT DATE" means (i) as to any LIBOR Loan, the last day of each month of each Interest Period applicable to such Loan and (ii) as to any Base Rate Loan and any other amounts payable hereunder (including any fees), the last Business Day of each calendar month. "MORTGAGE" means a mortgage, deed of trust, leasehold mortgage or similar instrument granting the Agent a Lien on Real Property of the Company or any Subsidiary. "MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, with respect to which the Company or any ERISA Affiliate may have any liability. "NET DEBT PROCEEDS" means, with respect to the sale or issuance by the Company or any of its Subsidiaries of any Indebtedness of a type described in clause (a) or (d) of the definition of Indebtedness, the excess of: (a) the gross cash proceeds received by the Company or such Subsidiary, as the case may be, from such sale or issuance, OVER -16- (b) all related underwriting, broker, sales or placement agent commissions, and all out-of-pocket related fees and expenses paid by the Company or such Subsidiary, as the case may be, in connection therewith. "NET DISPOSITION PROCEEDS" means with respect to any Asset Sale, the excess of: (a) the gross proceeds (cash and non-cash) received by the Company or any of its Subsidiaries from such Asset Sale, OVER (b) the sum of: (i) the aggregate outstanding amount (if any) of Indebtedness (other than any Loans) that was incurred or assumed by the Company or any of its Subsidiaries to acquire the asset subject to such Asset Sale, PLUS (ii) all expenses and fees incurred by the Company or such Subsidiary, as the case may be, in connection therewith; PROVIDED, HOWEVER, that if any of such expenses and fees are payable to any Affiliate of the Company or of any of its Subsidiaries, then only to the extent they were incurred in good faith and in arm's length transactions, PLUS (iii) all foreign, federal, state and local taxes payable by the Company or such Subsidiary, as the case may be, as a direct consequence of any such Asset Sale (including in the case such Asset Sale was consummated by a Subsidiary of the Company, taxes payable by such Subsidiary on any dividend or distribution by it of cash to the Company or to any Subsidiary of the Company, as estimated in good faith by the Company), PLUS (iv) appropriate amounts, in an amount reasonably determined by Company or such Subsidiary, as the case may be, in accordance with GAAP to be provided by the Company or such Subsidiary, as the case may be, as a reserve against any liabilities retained by it associated with such assets after such Asset Sale, including any indemnification, pension and other post-employment benefit liabilities, workers compensation liabilities, liabilities associated with retiree benefits, and liabilities relating to environmental matters; PROVIDED, HOWEVER, that in the event that the taxes actually paid in respect of any such Asset Sale are less than the amounts specified in CLAUSE (iii), or any of the reserves specified in CLAUSE (iv) are determined by the Company or such Subsidiary to no longer be required, "Net Disposition Proceeds" shall be deemed to include such -17- difference on the date of the payment of such taxes or on the date the amount of the non-required reserves is so determined, respectively. "NET EQUITY PROCEEDS" means, with respect to the sale or issuance by the Company or any of its Subsidiaries to any Person (other than (i) employees, officers and consultants and former employees, officers and consultants pursuant to any stock option plan and (ii) other options and warrants outstanding on the Closing Date) of any stock or other equity interests, warrants or options or the exercise of any such warrants or options in respect thereof, the EXCESS of: (a) the gross proceeds received by the Company or such Subsidiary, as the case may be, from such sale, issuance or exercise, OVER (b) all related underwriting, broker, sales or placement agent commissions, and all out-of-pocket related fees and expenses paid by the Company or such Subsidiary, as the case may be, in connection therewith. "NET INCOME" means, for any period, the net income of the Company and its Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP. "NOTE" means the Term Loan Notes, the Revolving Loan Notes and the Expansion Loan Notes. "NOTICE OF BORROWING" means a notice in substantially the form of EXHIBIT A. "NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially the form of EXHIBIT B. "OBLIGATIONS" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company to any Lender, the Agent, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, or now existing or hereafter arising. "OPERATING CASH FLOW" has the meaning set forth in SECTION 8.12. "ORGANIZATION DOCUMENTS" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. -18- "OTHER TAXES" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document. "PARTICIPANT" has the meaning set forth in SUBSECTION 11.8(c). "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "PENSION PLAN" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA with respect to which the Company or any ERISA Affiliate may have any liability. "PERMITTED LIENS" has the meaning set forth in SECTION 8.1. "PERSON" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "PLAN" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company or any of its Subsidiaries sponsors or maintains or to which the Company or any of its Subsidiaries makes, is making, or is obligated to make contributions and includes any Pension Plan. "PLEDGE AGREEMENTS" means the Company Pledge Agreement and each Subsidiary Pledge Agreement. "POST-CLOSURE SURETY BOND" means a surety bond issued for the account of the Company or one of its Subsidiaries in the ordinary course of business in connection with a landfill operated by the Company, which surety bond is issued for the purpose of ensuring the payment of costs associated with the closing of such landfill. "PRIME RATE" means the arithmetic average of the rates of interest publicly announced by The Chase Manhattan Bank (National Association), Citibank, N.A. and Morgan Guaranty Trust Company of New York (or their respective successors) as their respective prime commercial lending rates (or, as to any such bank that does not announce such a rate, such bank's "base" or other rate determined by the Agent to be the equivalent rate announced by such bank), except that, if any such bank shall, for any period, cease to announce publicly its prime commercial lending (or equivalent) rate, the Agent shall, during such period, determine the "Prime Rate" based upon the arithmetic average of the prime commercial lending (or equivalent) rates announced publicly by the other such banks. -19- "PRO RATA SHARE" means, as to any Lender of any Class at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Lender's Commitment with respect to such Class of Loans (whether funded or unfunded) divided by the combined Commitments (whether funded or unfunded) of all Lenders of such Class. The initial Pro Rata Share of each Lender for each class is set forth on SCHEDULE 1.1. "QUARTERLY DATE" means each the last Business day of each March, June, September and December of each year. "RCRA" has the meaning set forth in SUBSECTION 6.12(a). "REAL PROPERTY" means all real property heretofore, now or hereafter owned, operated or leased by the Company or any Subsidiary. "RELEASE" has the meaning specified in CERCLA and the term "DISPOSAL" (or "DISPOSED") shall have the meaning specified in RCRA and regulations promulgated thereunder; PROVIDED that in the event either CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply as of the effective date of such amendment; and PROVIDED FURTHER, to the extent that the laws of a state wherein the affected property lies establish a meaning for "RELEASE" or "DISPOSAL" which is broader than is specified in either CERCLA or RCRA, such broader meaning shall apply. "REPLACEMENT LENDER" has the meaning set forth in SECTION 4.7. "REPORTABLE EVENT" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "REQUIRED LENDERS" means Lenders having at least 66-2/3% of the sum of (a) the aggregate unpaid principal amount of the Loans PLUS (b) the aggregate amount of all L/C Obligations PLUS (c) the aggregate amount of the unused Expansion Loan Commitments (to the extent such Commitments have not terminated) PLUS (d) the aggregate amount of the unused Revolving Commitments (to the extent such Commitments have not terminated). "REQUIREMENT OF LAW" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a 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. -20- "RESERVE REQUIREMENT" shall mean, for any Interest Period for any LIBOR Loan, the average maximum rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any regulatory change with respect to (i) any category of liabilities that includes deposits by reference to which the LIBO Rate is to be determined as provided in the definition of "LIBO Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets that includes LIBOR Loans. "RESPONSIBLE OFFICER" means the chief executive officer, the chief financial officer, the chief accounting officer or the president of the Company, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of the Company, or any other officer having substantially the same authority and responsibility. "RESTRICTED PAYMENT" has the meaning set forth in SECTION 8.15. "RETAINED EXCESS CASH FLOW" means for any fiscal year, 25% of the Excess Cash Flow for such fiscal year. "REVOLVING COMMITMENT" shall mean, for each Revolving Lender, the obligation of such Lender to make Revolving Loans in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set forth opposite the name of such Lender on SCHEDULE 1.1 under the caption "Revolving Commitment" (as the same may be reduced from time to time in accordance with this Agreement). The original aggregate principal amount of the Revolving Commitments is $7,000,000. "REVOLVING LENDERS" shall mean (a) on the date hereof, the Lenders having Revolving Commitments on SCHEDULE 1.1 and (b) thereafter, the Lenders from time to time holding Revolving Loans and Revolving Commitments after giving effect to any assignments thereof permitted by SECTION 11.8 hereof. "REVOLVING LOANS" shall mean the loans provided for by SECTION 2.2 hereof, which may be Base Rate Loans and/or LIBOR Loans. "REVOLVING NOTES" shall mean the promissory notes provided for by subsection 2.2(e) hereof and all promissory notes delivered in substitution or exchange -21- therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "REVOLVING TERMINATION DATE" means the earlier to occur of: (a) June 30, 2001; and (b) the date on which the Revolving Commitment is terminated in full or reduced to zero in accordance with this Agreement. "SARA" has the meaning set forth in SUBSECTION 6.12(a). "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "SECURITY AGREEMENT" has the meaning set forth in SUBSECTION 5.1(g). "SUBORDINATED INDEBTEDNESS" means unsecured Indebtedness of the Company for money borrowed which is subordinated in form and substance to the monetary Obligations, and has subordination provisions, terms of payment, interest rates, covenants, remedies, defaults and other material terms, in each case, reasonably satisfactory in form and substance to the Agent and the Majority Lenders. "SUBSIDIARY" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests is owned or controlled directly or indirectly by such Person, or by one or more of the Subsidiaries of such Person, or by a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "SUBSIDIARY PLEDGE AGREEMENT" has the meaning set forth in SUBSECTION 5.1(h). "SUBSIDIARY X" has the meaning set forth in SECTION 7.16. "SURETY INSTRUMENTS" means all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, surety bonds and similar instruments. "SWAP CONTRACT" means any agreement (including any master agreement and any agreement, whether or not in writing, relating to any single transaction) that is an interest rate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, forward foreign exchange agreement, rate cap, collar or floor agreement, -22- currency swap agreement, cross-currency rate swap agreement, swaption, currency option or other similar agreement (including any option to enter into any of the foregoing). "TARGET CO." means any Person whose assets or equity securities shall be subject to a prospective or actual Eligible Acquisition. "TAXES" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by such Lender's or the Agent's, as the case may be, net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender or the Agent, as the case may be, is organized or maintains a lending office. "TERM A COMMITMENT" shall mean, for each Term Loan Lender, the obligation of such Lender to make a single Term Loan A Loan in an aggregate amount up to but not exceeding the amount set forth opposite the name of such Lender on SCHEDULE 1.1 under the caption "Term A Commitment" (as the same may be reduced from time to time in accordance with this Agreement). The original aggregate principal amount of the Term A Commitments is $38,000,000. "TERM A COMMITMENT TERMINATION DATE" means the earliest of (a) June 30, 1996; and (b) the date on which the Term A Commitment is terminated or reduced to zero in accordance with this Agreement. "TERM B COMMITMENT" shall mean, for each Term Loan Lender, the obligation of such Lender to make a single Term Loan B Loan in an aggregate amount up to but not exceeding the amount set forth opposite the name of such Lender on SCHEDULE 1.1 under the caption "Term B Commitment" (as the same may be reduced from time to time in accordance with this Agreement). The original aggregate principal amount of the Term B Commitments is $25,000,000. "TERM B COMMITMENT TERMINATION DATE" means the earliest of (a) June 30, 1996; and (b) the date on which the Term B Commitment is terminated or reduced to zero in accordance with this Agreement. -23- "TERM LOAN A" shall mean the loans provided for under the Term Loan A Commitment and as provided for by SECTION 2.2 hereof, which may be Base Rate Loans and/or LIBOR Loans. "TERM LOAN A NOTES" shall mean the promissory notes provided for by SUBSECTION 2.2(e) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "TERM LOAN B" shall mean the loans provided for under the Term Loan B Commitment and as provided for by SECTION 2.2 hereof, which may be Base Rate Loans and/or LIBOR Loans. "TERM LOAN B NOTES" shall mean the promissory notes provided for by SUBSECTION 2.2(e) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "TERM LOAN COMMITMENTS" shall mean, for each Term Loan Lender, such Lender's Term A Commitment, Term B Commitment and Expansion Loan Commitment. "TERM LOAN LENDERS" shall mean (a) on the date hereof, the Lenders having Term Loan Commitments on the signature pages hereof and (b) thereafter, the Lenders from time to time holding Term Loans and Term Loan Commitments after giving effect to any assignments thereof permitted by SECTION 11.8 hereof. "TERM LOAN NOTES" shall mean the Term Loan A Notes, the Term Loan B Notes and the Expansion Notes. "TERM LOANS" shall mean Term Loan A, Term Loan B and the Expansion Loan. "TOTAL CONSIDERATION PAYABLE" means with respect to any Eligible Acquisition, the sum of: (a) total cash consideration that is payable by the Company to the applicable seller in connection with such Eligible Acquisition (including the aggregate amount of broker's fees, finder's fees and origination fees arising in connection with such Eligible Acquisition), PLUS (b) the good faith estimated capital expenditures to be incurred by the Company during the twelve months immediately succeeding such Eligible Acquisition -24- (as certified by the Company to the Agent) that are specifically associated with the operation of the acquired assets, PLUS (c) the amount which represents the deferred purchase price with respect to such Eligible Acquisition. "TOTAL INDEBTEDNESS" means all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis, excluding Indebtedness described in, and Guaranty Obligations in respect of Indebtedness described in, CLAUSE (g) of the definition of Indebtedness. "UNFUNDED PENSION LIABILITY" means the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of such Pension Plan's assets, determined in accordance with the assumptions used for funding such Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "UNITED STATES" and "U.S." each means the United States of America. "UNMATURED EVENT OF DEFAULT" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "WHOLLY-OWNED SUBSIDIARY" means any corporation in which (other than directors' qualifying shares required by law) 100% of the capital stock of each class having ordinary voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more other Wholly-Owned Subsidiaries, or by a combination thereof. 1.2 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and SUBSECTION, SECTION, SCHEDULE and EXHIBIT references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. -25- (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding"; and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Lenders or the Agent merely because of the Lenders' or the Agent's involvement in their preparation. (h) Loans hereunder are distinguished by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a Loan) refers to whether such Loan is a Revolving Loan or a Term Loan, each of which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a LIBOR Loan, each of which constitutes a Type. Loans may be identified by both Class and Type. 1.3 ACCOUNTING PRINCIPLES. (a) Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder (including under SECTION 7.1) shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance -26- with, those generally accepted accounting principles ("GAAP") applied in the preparation of the financial statements referred to in SECTION 6.11. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. ARTICLE II THE CREDITS 2.1 THE CREDITS. On the terms and subject to the conditions of this Agreement, (a) each Lender severally agrees to make Loans pursuant to the Commitments described in SECTION 2.2; and (b) the Issuing Lender severally agrees that it will issue Letters of Credit pursuant to SECTION 3.2, and each Revolving Lender severally agrees that it will purchase participation interests in Letters of Credit pursuant to SECTION 3.3. 2.2 THE COMMITMENTS. (a) TERM LOAN A COMMITMENT. Each Lender holding a Term A Commitment severally agrees, on the terms and conditions of this Agreement, to make a single term loan to the Company in Dollars on or before the Term A Commitment Termination Date in a principal amount up to but not exceeding the amount of the Term A Commitment of such Lender. No amounts paid or prepaid with respect to Term Loan A Loans may be reborrowed. (b) TERM LOAN B COMMITMENT. Each Lender holding a Term B Commitment severally agrees, on the terms and conditions of this Agreement, to make a single term loan to the Company in Dollars on or before the Term B Commitment Termination Date in a principal amount up to but not exceeding the amount of the Term B Commitment of such Lender. No amounts paid or prepaid with respect to Term Loan B Loans may be reborrowed. (c) EXPANSION LOAN COMMITMENT. Each Lender holding an Expansion Loan Commitment severally agrees, on the terms and conditions of this Agreement, to make loans to the Company in Dollars during the period from and including the Closing Date to but not including the Expansion Loan Commitment Termination Date in an aggregate principal amount up to but not exceeding the amount of the Expansion Loan Commitment of such Lender. No amounts paid or prepaid with respect to Expansion Loans may be reborrowed as Expansion Loans. -27- (d) REVOLVING LOAN COMMITMENT. Each Revolving Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Company in Dollars during the period from and including the Closing Date to but not including the Revolving Commitment Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of the Revolving Commitment of such Lender as in effect from time to time, PROVIDED that in no event shall the aggregate principal amount of all Revolving Loans, together with the aggregate amount of all L/C Obligations, exceed the aggregate amount of the Revolving Commitments as in effect from time to time. (e) THE NOTES. Each Lender's Loans under a Commitment shall be evidenced by a Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Pro Rata Share of the original applicable Commitment. The Company hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, INTER ALIA, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall be conclusive and binding on the Company absent demonstrable error; PROVIDED, HOWEVER, that the failure of any Lender to make any such notations shall not limit or otherwise affect any obligations of the Company or any Guarantor. 2.3 LENDERS NOT PERMITTED OR REQUIRED TO MAKE LOANS. No Lender shall be permitted or required to make (a) any Term Loan A Loan if, after giving effect thereto, the aggregate principal amount of all the Term Loan A Loans (i) of all Lenders made since the Closing Date would exceed the aggregate original principal amount of the Term A Commitments; or (ii) of such Lender made since the Closing Date would exceed such Lender's Pro Rata Share of the aggregate original principal amount of the Term A Commitment; (b) any Term Loan B Loan if, after giving effect thereto, the aggregate principal amount of all the Term Loan B Loans (i) of all Lenders made since the Closing Date would exceed the aggregate original principal amount of the Term B Commitments; or (ii) of such Lender made since the Closing Date would exceed such Lender's Pro Rata Share of the aggregate original principal amount of the Term B Commitment; -28- (c) any Expansion Loan if after giving effect thereto, the aggregate principal amount of all the Expansion Loans (i) of all Lenders made since the Closing Date would exceed the aggregate original principal amount of the Expansion Loan Commitment; or (ii) of such Lender made since the Closing Date would exceed such Lender's Pro Rata Share of aggregate original principal amount of the Expansion Loan Commitment; or (d) any Revolving Loan if, after giving effect thereto, the aggregate outstanding principal amount of all the Revolving Loans (i) of all the Lenders, together with all L/C Obligations, would exceed the aggregate original principal amount of the Revolving Commitments; or (ii) of such Lender, together with such Lender's Pro Rata Share of all L/C Obligations, would exceed such Lender's Pro Rata Share of the aggregate original principal amount of the Revolving Commitments. 2.4 PROCEDURE FOR BORROWING. (a) Each Borrowing of Revolving Loans or Term Loans shall be made upon the Company's irrevocable written notice delivered to the Agent in the form of a Notice of Borrowing (which notice must be received by the Agent prior to 11:00 a.m. (New York time) (i) three Business Days prior to the requested Borrowing Date, in the case of LIBOR Loans; and (ii) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans), specifying: (A) the amount of the Borrowing, which shall be (x) in the case of LIBOR Loans, in an amount of $500,000 or a higher integral multiple of $100,000 and (y) in the case of Base Rate Loans, in an aggregate amount of $100,000 or a higher integral multiple thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing; and (D) in the case of LIBOR Loans, the duration of the Interest Period therefor. (b) The Agent will promptly notify each applicable Lender of its receipt of any Notice of Borrowing and of the amount of such Lender's Pro Rata Share of such Borrowing. -29- (c) Each Lender will make the amount of its Pro Rata Share of each Borrowing available to the Agent for the account of the Company to an account of the Agent specified to the Lenders for such purpose by 12:00 noon (New York time) on the Borrowing Date requested by the Company in immediately available funds. The proceeds of all Loans will then be made available to the Company by the Agent by transfer of the aggregate of the amounts made available to the Agent by the Lenders and in like funds as received by the Agent to an account of the Company specified for such purpose in the Notice of Borrowing. (d) After giving effect to any Borrowing, there may not be more than eight different Interest Periods in effect. 2.5 CONVERSION AND CONTINUATION ELECTIONS. (a) The Company may, upon irrevocable written notice to the Agent in accordance with SUBSECTION 2.5(b): (i) elect to convert, on any Business Day, any Base Rate Loans (in an aggregate amount of $100,000 or a higher integral multiple thereof) into LIBOR Loans; (ii) elect to convert, on the last day of the applicable Interest Period, any LIBOR Loans (or any part thereof in an aggregate amount of $100,000 or a higher integral multiple thereof) into Base Rate Loans; or (iii) elect to continue, as of the last day of the applicable Interest Period, any LIBOR Loans having Interest Periods expiring on such day (or any part thereof in an aggregate amount of $500,000 or a higher integral multiple of $100,000); PROVIDED that if at any time the aggregate amount of LIBOR Loans in respect of any Borrowing shall have been reduced, by payment, prepayment, or conversion of part thereof, to be less than $500,000, such LIBOR Loans shall automatically convert into Base Rate Loans. (b) The Company shall deliver a Notice of Conversion/Continuation to be received by the Agent not later than 11:00 a.m. (New York time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as LIBOR Loans; and (ii) one Business Day prior to the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (i) the proposed Conversion/Continuation Date; (ii) the aggregate amount of Loans to be converted or continued; -30- (iii) the Type of Loans resulting from the proposed conversion or continuation; and (iv) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to LIBOR Loans, the Company has failed to select timely a new Interest Period to be applicable to such LIBOR Loans, the Company shall be deemed to have elected to convert such LIBOR Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Agent will promptly notify each Lender of its receipt of a Notice of Conversion/Continuation or, if no timely notice is provided by the Company, the Agent will promptly notify each Lender of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Lender. (e) Unless the Required Lenders otherwise agree, during the existence of an Event of Default or Unmatured Event of Default, the Company may not elect to have a Loan converted into or continued as a LIBOR Loan. (f) After giving effect to any conversion or continuation of Loans, there may not be more than eight different Interest Periods in effect. 2.6 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. The Company may, upon not less than five Business Days' prior notice to the Agent, terminate the Revolving Commitment or (prior to the funding of any Term Loan) the Term Loan Commitment for any Class, or permanently reduce the Revolving Commitment or (prior to the funding of any Term Loan) the Term Loan Commitment for any Class, by an aggregate amount of $1,000,000 or a higher integral multiple thereof; UNLESS, in the case of the Revolving Commitment, after giving effect thereto and to any prepayment of Revolving Loans made on the effective date thereof, the aggregate principal amount of all Revolving Loans plus the Effective Amount of all L/C Obligations would exceed the amount of the Revolving Commitment then in effect. Once reduced in accordance with this Section, neither the Revolving Commitment nor the applicable Term Loan Commitment may be increased. Any reduction of the Revolving Commitment or the Term Loan Commitment shall be applied to each Lender according to its Pro Rata Share. 2.7 OPTIONAL PREPAYMENTS. Subject to SECTION 4.4, the Company may, at any time or from time to time, upon not less than one Business Day's irrevocable notice to the Agent, ratably prepay any Loans in whole or in part, in the case of LIBOR Loans, in an amount of $500,000 or a higher integral multiple of $100,000 and in the case of Base Rate Loans, in an aggregate amount of $100,000 or a higher integral multiple thereof. Any prepayment of -31- Loans shall be applied in accordance with SECTION 2.9. The Agent will promptly notify each applicable Lender of its receipt of any such notice and of such Lender's Pro Rata Share of such prepayment. If any such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with, in the case of LIBOR Loans, accrued interest to such date on the amount prepaid and any amounts required pursuant to SECTION 4.4. 2.8 MANDATORY PREPAYMENTS. The Company shall, (a) on each date when any reduction in the Revolving Commitment shall become effective, including pursuant to SECTION 2.6, make a mandatory prepayment of all Revolving Loans equal to the excess, if any, of (x) the sum of the aggregate, outstanding principal amount of all Revolving Loans and the L/C Obligations over (y) the Revolving Commitment Amount as so reduced; (b) within 90 days after the end of each fiscal year, make a mandatory prepayment of the Loans, in an amount equal to 75% of the Excess Cash Flow for such fiscal year; (c) no later than the third Business Day after each receipt by the Company or any of its Subsidiaries of any Net Disposition Proceeds, make a mandatory prepayment of the Loans in the amount of the Net Disposition Proceeds; PROVIDED, HOWEVER, that in the event that the Company or any of its Subsidiaries shall have received non-cash Net Disposition Proceeds, such prepayment shall be required only to the extent that such non-cash Net Disposition Proceeds are converted into cash or cash is received in respect thereof; (d) no later than the third Business Day after each receipt by the Company or any of its Subsidiaries of any Net Equity Proceeds, make a mandatory prepayment of the Loans in the amount of 50% of such Net Equity Proceeds; PROVIDED, HOWEVER, that in the event that the Company or any of its Subsidiaries shall have received non-cash Net Equity Proceeds, such prepayment shall be required only to the extent of the non-cash Net Equity Proceeds as they are converted into cash or cash is received in respect thereof; (e) no later than the third Business Day after each incurrence or issuance of any Indebtedness of a type described in clause (a) or (d) of the definition of Indebtedness by the Company or any Subsidiary of the Company, make a mandatory prepayment of the Loans in the amount of the Net Debt Proceeds from such incurrence or issuance; (f) immediately upon any acceleration of the maturity date of the Loans pursuant to SECTION 9.2, repay all Loans. -32- 2.9 APPLICATION. Each prepayment of the principal of the Loans shall be applied, to the extent of such prepayment as follows: (i) FIRST, the amount of the prepayment shall be applied ratably to the Term Loan A, Term Loan B and, with respect to prepayments made after the Expansion Loan Commitment Termination Date, the Expansion Loan then outstanding and, with respect to each such Term Loan, in the inverse order of the maturities of the installments thereof; PROVIDED, that, for so long as any amounts under Term Loan A or the Expansion Loan are outstanding, any Lender holding a Term Loan B Loan may waive its right to such Lender's portion of any optional or mandatory prepayment made pursuant to SECTIONS 2.7, 2.8(b), (c), (d) and (e), in which case such amounts that would have been paid to such Lender will be applied ratably to Term Loan A Loans, Term Loan B Loans that are not the subject of such waiver and, as the case may be, Expansion Loans and to the installments of such Term Loans in the inverse order of their maturities; and (ii) SECOND, the Revolving Commitments shall be automatically reduced in an amount equal to any excess of the amount of such prepayments over the amount referred to in the foregoing CLAUSE (i) (and, to the extent that, after giving effect to such reduction, the aggregate principal amount of Revolving Loans, together with the aggregate amount of all L/C Obligations, would exceed the Revolving Commitments, such excess shall, FIRST, be applied to prepay Revolving Loans and SECOND, be applied to Cash Collateralize such L/C Obligations. 2.10 REPAYMENT. (a) THE REVOLVING LOANS. The Company shall repay all Revolving Loans on the Revolving Termination Date. (b) THE TERM LOANS. The Company shall repay the Term Loans in installments on the dates set forth below: TERM LOAN A Payment Date - the Remaining last day of the Amount Outstanding following months: Due ($) Balance ----------------- ------ ------------ December, 1996 $750,000 $37,250,000 March, 1997 $750,000 $36,500,000 June, 1997 $1,000,000 $35,500,000 September, 1997 $1,000,000 $34,500,000 -33- December, 1997 $1,500,000 $33,000,000 March, 1998 $1,700,000 $31,300,000 June, 1998 $1,700,000 $29,600,000 September, 1998 $1,800,000 $27,800,000 December, 1998 $1,800,000 $26,000,000 March, 1999 $2,375,000 $23,625,000 June, 1999 $2,375,000 $21,250,000 September, 1999 $2,375,000 $18,875,000 December, 1999 $2,375,000 $16,500,000 March, 2000 $2,625,000 $13,875,000 June, 2000 $2,625,000 $11,250,000 September, 2000 $2,625,000 $8,625,000 December, 2000 $2,625,000 $6,000,000 March, 2001 $3,000,000 $3,000,000 June, 2001 $3,000,000 $0 TERM LOAN B Payment Date - the Remaining last day of the Amount Outstanding following months: Due ($) Balance ----------------- ------ ------------ December, 1996 $100,000 $24,900,000 December, 1997 $100,000 $24,800,000 December, 1998 $100,000 $24,700,000 December, 1999 $100,000 $24,600,000 December, 2000 $100,000 $24,500,000 September, 2001 $3,000,000 $21,500,000 December, 2001 $3,000,000 $18,500,000 March, 2002 $3,000,000 $15,500,000 -34- June, 2002 $3,000,000 $12,500,000 September, 2002 $3,000,000 $9,500,000 December, 2002 $3,000,000 $6,500,000 March, 2003 $3,250,000 $3,250,000 June, 2003 $3,250,000 $0 EXPANSION LOAN Payment Date - the Amount Due (as a last day of the percentage of the total following months: amount borrowed) ----------------- ----------------------- September, 1998 6.25% December, 1998 6.25% March, 1999 6.25% June, 1999 6.25% September, 1999 6.25% December, 1999 6.25% March, 2000 6.25% June, 2000 6.25% September, 2000 12.5% December, 2000 12.5% March, 2001 12.5% June, 2001 12.5% 2.11 INTEREST. (a) The Company hereby promises to pay to the Agent for account of each Lender interest on the unpaid principal amount of each Loan made by such Lender for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (i) during such periods that such Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) PLUS the Applicable Margin; and (ii) during such periods that such Loan is a LIBOR Loan, for each Interest Period relating thereto, the LIBO Rate for such Loan for such Interest Period PLUS the Applicable Margin. -35- (b) Notwithstanding SUBSECTION (a) of this Section, the Company hereby promises to pay to the Agent for account of each Lender, (i) with regard to Base Rate Loans, upon the occurrence and during the continuance of an Unmatured Event of Default or an Event of Default, interest at the Base Rate PLUS the Applicable Margin PLUS 2%; (ii) with regard to LIBOR Loans, upon the occurrence and during the continuance of an Unmatured Event of Default or an Event of Default, interest at the LIBO Rate PLUS the Applicable Margin PLUS 2%; and (iii) with respect to any unreimbursed drawings under all Letters of Credit and any interest, fees or any other amount payable by the Company hereunder or under the Notes held by such Lender to or for account of such Lender, upon the occurrence and during the continuance of an Unmatured Event of Default or an Event of Default, interest at the Base Rate PLUS the Applicable Margin for Revolving Loans PLUS 2%. (c) Accrued interest on each Loan shall be payable (i) on the Monthly Payment Dates, and (ii) upon the payment or prepayment thereof or the conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid or converted), except that interest payable pursuant to the foregoing SUBSECTION (b) shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice thereof to the Lenders to which such interest is payable and to the Company. (d) Anything herein to the contrary notwithstanding, the obligations of the Company to any Lender hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder to the extent (but only to the extent) that contracting for or receiving such payment by such Lender would be contrary to the provisions of any law applicable to such Lender limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Lender, and in such event the Company shall pay such Lender interest at the highest rate permitted by applicable law. 2.12 FEES. In addition to certain fees described in SECTION 3.8: (a) AGENCY FEES. The Company shall pay an annual agency fee pursuant to a fee letter between the Company and the Agent dated May 9, 1996. (b) COMMITMENT FEES. (i) The Company shall pay to the Agent for the account of each applicable Lender a commitment fee at the rate of 1/2 of 1% per annum on the average daily unused portion of such Lender's Pro Rata Share of the Revolving -36- Commitment, computed on a quarterly basis in arrears on each Quarterly Date (or, if earlier, the Revolving Termination Date) based upon the daily utilization for such quarter as calculated by the Agent. For purposes of calculating utilization under this subsection, the Revolving Commitment shall be deemed used to the extent of the aggregate principal amount of all Revolving Loans then outstanding plus the Effective Amount of all L/C Obligations then outstanding. Such commitment fee shall accrue from the Closing Date to the Revolving Termination Date and shall be due and payable quarterly in arrears on each Quarterly Date, with the final payment to be made on the Revolving Termination Date. (ii) The Company shall pay to the Agent for the account of each applicable Lender a commitment fee at the rate of 1/2 of 1% per annum on the average daily amount of such Lender's Pro Rata Share of the unused Expansion Loan Commitment, computed on a quarterly basis in arrears on each Quarterly Date (or, if earlier, the Expansion Loan Commitment Termination Date). Such commitment fee shall accrue from the Closing Date to the Expansion Loan Commitment Termination Date and shall be due and payable in arrears on each Quarterly Date, with the final payment to be made on the Expansion Loan Term Commitment Termination Date. (iii) The commitment fees provided in this subsection shall accrue at all times after the Closing Date, including at any time during which one or more conditions in ARTICLE V are not met. 2.13 COMPUTATION OF FEES AND INTEREST. (a) All computations of interest and fees shall be made on the basis of a 360-day year and actual days elapsed. Interest and fees shall accrue during each period during which interest or fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Agent shall be conclusive and binding on the Company and the Lenders in the absence of manifest error. The Agent will, at the request of the Company or any Lender, deliver to the Company or such Lender, as the case may be, a statement showing the quotations used by the Agent in determining any interest rate and the resulting interest rate. 2.14 PAYMENTS BY THE COMPANY. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Agent for the account of the Lenders to an account of the Agent specified to the Company for such purpose, and shall be made in dollars and in immediately available funds, no later than 12:00 noon (New York time) on the date specified herein. The Agent will promptly distribute to each applicable Lender its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Any payment received by the Agent later than 12:00 noon (New York time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. -37- (b) Whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day (unless, in the case of a payment with respect to a LIBOR Loan, the following Business Day is the first Business Day of a calendar month, in which case such payment shall be due on the preceding Business Day), and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Agent receives notice from the Company prior to the date on which any payment is due to the Lenders that the Company will not make such payment in full as and when required, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Company has not made such payment in full to the Agent, each applicable Lender shall repay to the Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. 2.15 PAYMENTS BY THE LENDERS TO THE AGENT. (a) Unless the Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to the Agent for the account of the Company the amount of such Lender's Pro Rata Share of such Borrowing, the Agent may assume that each applicable Lender has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Company such amount, such Lender shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Agent submitted to any Lender with respect to amounts owing under this SUBSECTION (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Lender's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent will notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at the Applicable Margin. (b) The failure of any Lender to make any Loan on any Borrowing Date shall not relieve any other Lender of any obligation hereunder to make a Loan on such -38- Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on any Borrowing Date. 2.16 SHARING OF PAYMENTS, ETC. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share, such Lender shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Lenders such participations in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment pro rata with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's ratable share (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Company agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to SECTION 11.10) with respect to such participation as fully as if such Lender were the direct creditor of the Company in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Lenders following any such purchases or repayments. ARTICLE III THE LETTERS OF CREDIT 3.1 THE LETTER OF CREDIT SUBFACILITY. (a) On the terms and conditions set forth herein: (i) the Issuing Lender agrees, (A) from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date to issue Letters of Credit for the account of the Company, and to amend or renew Letters of Credit previously issued by it, in accordance with SUBSECTIONS 3.2(c) and 3.2(d), and (B) to honor properly drawn drafts under the Letters of Credit issued by it; and (ii) the Lenders severally agree to participate in Letters of Credit Issued for the account of the Company; PROVIDED that the Issuing Lender shall not be obligated to Issue, and no Lender shall be obligated to participate in, any Letter of Credit if as of the date of Issuance of such Letter of Credit (the "ISSUANCE DATE") the Effective Amount of all L/C Obligations plus the aggregate amount of all Revolving Loans -39- exceeds the Revolving Commitment. Within the foregoing limit, and subject to the other terms and conditions hereof, the Company's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Issuing Lender shall not be under any obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Lender from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuing Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Lender with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Lender in good faith deems material to it; (ii) the Issuing Lender has received written notice from any Lender, the Agent or the Company, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in ARTICLE V is not then satisfied; (iii) the expiry date of any requested Letter of Credit is after the Revolving Termination Date, unless all of the Lenders have approved such expiry date in writing; (iv) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Issuing Lender, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Lender; (v) such Letter of Credit is to support obligations of the Company or any Subsidiary with respect to workmen's compensation or similar obligations; (vi) such Letter of Credit is denominated in a currency other than Dollars; or (vii) such Letter of Credit is not a standby letter of credit. -40- 3.2 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. (a) Each Letter of Credit shall be issued upon the irrevocable written request of the Company received by the Issuing Lender (with a copy sent by the Company to the Agent) at least five days (or such shorter time as the Issuing Lender and the Agent may agree in a particular instance in their sole discretion) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to the Issuing Lender: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Issuing Lender may require. (b) At least two Business Days prior to the Issuance of any Letter of Credit, the Issuing Lender will confirm with the Agent (by telephone or in writing) that the Agent has received a copy of the L/C Application or L/C Amendment Application from the Company and, if not, the Issuing Lender will provide the Agent with a copy thereof. Unless the Issuing Lender has received, on or before the Business Day immediately preceding the date on which the Issuing Lender is to issue a requested Letter of Credit, (A) notice from the Agent directing the Issuing Lender not to issue such Letter of Credit because such issuance is not then permitted under SUBSECTION 3.1(a) as a result of the limitations set forth therein or (B) a notice described in SUBSECTION 3.1(b)(ii), then, subject to the terms and conditions hereof, the Issuing Lender shall, on the requested date, issue a Letter of Credit for the account of the Company in accordance with the Issuing Lender's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, the Issuing Lender will, upon the written request of the Company received by the Issuing Lender (with a copy sent by the Company to the Agent) at least five days (or such shorter time as the Issuing Lender and the Agent may agree in a particular instance in their sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Issuing Lender: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of such Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Issuing Lender may require. The Issuing Lender shall not have any obligation to amend any Letter of Credit if: (A) the Issuing Lender would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit. The Agent will promptly notify the Lenders of the receipt by it of any L/C Application or L/C Amendment Application. -41- (d) The Issuing Lender and the Lenders agree that, while a Letter of Credit is outstanding and prior to the Revolving Termination Date, at the option of the Company and upon the written request of the Company received by the Issuing Lender (with a copy sent by the Company to the Agent) at least five days (or such shorter time as the Issuing Lender and the Agent may agree in a particular instance in their sole discretion) prior to the proposed date of notification of renewal, the Issuing Lender shall be entitled to authorize the automatic renewal of any Letter of Credit. Each such request for renewal of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, in the form of an L/C Amendment Application, and shall specify in form and detail satisfactory to the Issuing Lender: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of such Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of such Letter of Credit (which, unless all Lenders otherwise consent, shall be prior to the Revolving Termination Date); and (iv) such other matters as the Issuing Lender may require. The Issuing Lender shall not be under any obligation to renew any Letter of Credit if: (A) the Issuing Lender would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of such Letter of Credit does not accept the proposed renewal of such Letter of Credit. If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Lender that such Letter of Credit shall not be renewed, and if at the time of renewal the Issuing Lender would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this SUBSECTION 3.2(e) upon the request of the Company but such Issuing Lender shall not have received any L/C Amendment Application from the Company with respect to such renewal or other written direction by the Company with respect thereto, the Issuing Lender shall nonetheless be permitted to allow such Letter of Credit to renew, and the Company and the Lenders hereby authorize such renewal, and, accordingly, the Issuing Lender shall be deemed to have received an L/C Amendment Application from the Company requesting such renewal. (e) The Issuing Lender may, at its election (or as required by the Agent at the direction of the Required Lenders), deliver any notice of termination or other communication to any Letter of Credit beneficiary or transferee, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of any Letter of Credit to be a date not later than the Revolving Termination Date. (f) This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit). (g) The Issuing Lender will deliver to the Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. -42- 3.3 RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS. (a) Immediately upon the Issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Lender a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) such Lender's Pro Rata Share times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. (b) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Lender will promptly notify the Company and the Agent. The Company shall reimburse the Issuing Lender prior to 12:00 noon (New York time), on each date that any amount is paid by the Issuing Lender under any Letter of Credit (each such date, an "HONOR DATE"), in an amount equal to the amount so paid by the Issuing Lender. If the Company fails to reimburse the Issuing Lender for the full amount of any drawing under any Letter of Credit by 12:00 noon (New York time) on the Honor Date, the Issuing Lender will promptly notify the Agent and the Agent will promptly notify each Lender thereof, and the Company shall be deemed to have requested that Base Rate Loans be made by the Lenders to be disbursed on the Honor Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Commitment and subject to the conditions set forth in SECTION 5.3. Any notice given by the Issuing Lender or the Agent pursuant to this SUBSECTION 3.3(b) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (c) Each Lender shall upon any notice pursuant to SUBSECTION 3.3(b) make available to the Agent for the account of the Issuing Lender an amount in Dollars and in immediately available funds equal to its Pro Rata Share of the amount of the drawing, whereupon the participating Lenders shall (subject to SUBSECTION 3.3(d)) each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to the Company in such amount. If any Lender so notified fails to make available to the Agent for the account of the Issuing Lender the amount of such Lender's Pro Rata Share of the amount of such drawing by no later than 2:00 p.m. (New York time) on the Honor Date, then interest shall accrue on such Lender's obligation to make such payment, from the Honor Date to the date such Lender makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Agent will promptly give notice of the occurrence of the Honor Date, but failure of the Agent to give any such notice on the Honor Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligations under this SECTION 3.3. (d) With respect to any unreimbursed drawing that is not converted into Revolving Loans consisting of Base Rate Loans in whole or in part, because of the Company's failure to satisfy the conditions set forth in SECTION 5.3 or for any other reason, the Company shall be deemed to have incurred from the Issuing Lender an L/C Borrowing in the amount of such drawing, which L/C Borrowing shall be due and payable on demand -43- (together with interest) and shall bear interest at a rate per annum equal to the Base Rate PLUS the Applicable Margin for Base Rate Loans PLUS 2% per annum, and each Lender's payment to the Issuing Lender pursuant to SUBSECTION 3.3(c) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this SECTION 3.3. (e) Each Lender's obligation in accordance with this Agreement to make Revolving Loans or L/C Advances, as contemplated by this SECTION 3.3, as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Lender and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Lender, the Company or any other Person for any reason whatsoever; (ii) the existence of an Event of Default, an Unmatured Event of Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; PROVIDED that each Lender's obligation to make Revolving Loans under this SECTION 3.3 is subject to the conditions set forth in SECTION 5.3. 3.4 REPAYMENT OF PARTICIPATIONS. (a) Upon (and only upon) receipt by the Agent for the account of the Issuing Lender of immediately available funds from the Company (i) in reimbursement of any payment made by the Issuing Lender under a Letter of Credit with respect to which any Lender has paid the Agent for the account of the Issuing Lender for such Lender's participation in such Letter of Credit pursuant to SECTION 3.3 or (ii) in payment of interest thereon, the Agent will pay to each Lender, in the same funds as those received by the Agent for the account of the Issuing Lender, the amount of such Lender's Pro Rata Share of such funds, and the Issuing Lender shall receive the amount of the Pro Rata Share of such funds of any Lender that did not so pay the Agent for the account of the Issuing Lender. (b) If the Agent or the Issuing Lender is required at any time to return to the Company, or to a trustee, receiver, liquidator or custodian, or to any official in any Insolvency Proceeding, any portion of any payment made by the Company to the Agent for the account of the Issuing Lender pursuant to SUBSECTION 3.4(a) in reimbursement of a payment made under a Letter of Credit or interest or fee thereon, each Lender shall, on demand of the Agent, forthwith return to the Agent or the Issuing Lender the amount of its Pro Rata Share of any amount so returned by the Agent or the Issuing Lender plus interest thereon from the date such demand is made to the date such amount is returned by such Lender to the Agent or the Issuing Lender, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.5 ROLE OF THE ISSUING LENDER. (a) Each Lender and the Company agree that, in paying any drawing under a Letter of Credit, the Issuing Lender shall not have any responsibility to obtain any document (other than any sight draft and certificate expressly required by such Letter of Credit) or to ascertain or inquire as to the validity or accuracy of -44- any such document or the authority of the Person executing or delivering any such document. (b) Neither the Issuing Lender nor any of its correspondents, participants or assignees shall be liable to any Lender for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders (including the Required Lenders, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any L/C- Related Document. (c) The Company hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; PROVIDED that this assumption is not intended to, and shall not, preclude the Company's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. Neither the Issuing Lender nor any of its correspondents, participants or assignees shall be liable or responsible for any of the matters described in CLAUSES (i) through (vii) of SECTION 3.6; PROVIDED that, anything in such clauses to the contrary notwithstanding, the Company may have a claim against the Issuing Lender, and the Issuing Lender may be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by the Issuing Lender's willful misconduct or gross negligence or the Issuing Lender's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) the Issuing Lender shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.6 OBLIGATIONS ABSOLUTE. The obligations of the Company under this Agreement and any L/C-Related Document to reimburse the Issuing Lender for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any L/C-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company in respect of any Letter of -45- Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Company may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Lender or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuing Lender under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the Issuing Lender under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guarantee, for all or any of the obligations of the Company in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company or a guarantor. 3.7 CASH COLLATERAL PLEDGE. If any Letter of Credit remains outstanding and partially or wholly undrawn as of the Revolving Termination Date, then the Company shall immediately Cash Collateralize the L/C Obligations in an amount equal to the maximum amount then available to be drawn under all Letters of Credit. 3.8 LETTER OF CREDIT FEES. (a) The Company shall pay to the Agent for the account of each Lender a letter of credit fee with respect to each Letter of Credit equal to the L/C Fee Rate per annum of the average daily maximum amount available to be drawn on such Letter of Credit, computed on a monthly basis in arrears on each Monthly Payment Date. -46- (b) The Company shall pay to the Issuing Lender a letter of credit fronting fee for each Letter of Credit equal to 0.25% per annum of the average daily maximum amount available to be drawn on such Letter of Credit, computed on a monthly basis in arrears on each Monthly Payment Date and on the Revolving Termination Date (or such later date on which such Letter of Credit shall expire or be fully drawn). (c) The letter of credit fees payable under SUBSECTION 3.8(a) and the fronting fees payable under SUBSECTION 3.8(b) shall be due and payable monthly in arrears on the last Business Day of each calendar month during which Letters of Credit are outstanding, commencing on the first such Monthly Payment Date to occur after the Closing Date, through the Revolving Termination Date (or such later date upon which all outstanding Letters of Credit shall expire or be fully drawn), with the final payment to be made on the Revolving Termination Date (or such later date). (d) The Company shall pay to the Issuing Lender from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Lender relating to letters of credit as from time to time in effect. 3.9 UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in such Letter of Credit) apply to each Letter of Credit. ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY 4.1 TAXES. (a) Any and all payments by the Company to each Lender or the Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes. (b) The Company agrees to indemnify and hold harmless each Lender and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Lender or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Lender or the Agent makes written demand therefor. -47- (c) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Lender or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; and (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law. (d) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish the Agent the original or a copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (e) The Company shall not be required to pay an additional amount to, or indemnify, any Lender or the Agent pursuant to this SECTION 4.1 to the extent that (i) the obligation to withhold or pay such amount existed on the Initial Date (as hereinafter defined) or (ii) the obligation to withhold or pay such amount would not have arisen but for the failure of the Agent or such Lender to comply with the provisions of SECTION 10.10 of this Agreement. For purposes of this SUBSECTION 4.1(e), "INITIAL DATE" shall mean (a) in the case of the Agent and any Lender that is a signatory hereto, the date of this Agreement, (b) in the case of any Person which subsequently becomes a Lender hereunder, the date of the applicable Assignment and Acceptance, and (c) in the case of any Participant, the date on which it becomes a Participant. (f) If the Company is required to pay additional amounts to any Lender or the Agent pursuant to SUBSECTION (c) of this Section, then such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the judgment of such Lender is not otherwise disadvantageous to such Lender. 4.2 ILLEGALITY. (a) If any Lender determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for such Lender or its applicable Lending Office to make LIBOR Loans, then, on notice thereof by the Lender to the Company through the Agent, any obligation of such Lender to make LIBOR Loans shall -48- be suspended until such Lender notifies the Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Lender determines that it is unlawful to maintain any LIBOR Loan, the Company shall, upon its receipt of notice of such fact and demand from such Lender (with a copy to the Agent), prepay in full such LIBOR Loan, together with interest accrued thereon and amounts required under SECTION 4.4, either on the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such LIBOR Loan to such day, or on such earlier date on which such Lender may no longer lawfully continue to maintain such LIBOR Loan (as determined by such Lender). If the Company is required to so prepay any LIBOR Loan, then concurrently with such prepayment, the Company shall borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan. (c) If the obligation of any Lender to make or maintain LIBOR Loans has been terminated or suspended pursuant to SUBSECTION (a) or (b) above, all Loans which would otherwise be made by such Lender as LIBOR Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Agent under this Section, the affected Lender shall designate a different Lending Office with respect to its LIBOR Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of such Lender, be illegal or otherwise disadvantageous to such Lender. 4.3 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Lender determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBO Rate) in or in the interpretation of any law or regulation or (ii) compliance by such Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any LIBOR Loan or participating in Letters of Credit or, in the case of any Issuing Lender, any increase in the cost to such Issuing Lender of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs. (b) If any Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by such Lender (or its Lending Office) or any corporation controlling such Lender with any Capital Adequacy Regulation, affects or would -49- affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Lender to the Company through the Agent, the Company shall pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for such increase. 4.4 FUNDING LOSSES. The Company shall reimburse each Lender and hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any LIBOR Loan; (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under SECTION 2.7; (d) the prepayment (including pursuant to SECTION 2.7) or other payment (including after acceleration thereof) of a LIBOR Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under SECTION 2.5 of any LIBOR Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Company to the Lenders under this Section and under SUBSECTION 4.3(a), each LIBOR Loan made by a Lender (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBO Rate for such LIBOR Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBOR Loan is in fact so funded. 4.5 INABILITY TO DETERMINE RATES. If the Agent determines that for any reason adequate and reasonable means do not exist for determining the LIBO Rate for any requested Interest Period with respect to a proposed LIBOR Loan, or the Required Lenders determine (and notify the Agent) that the LIBO Rate applicable pursuant to SUBSECTION 2.11(a) for any requested Interest Period with respect to a proposed LIBOR Loan does not adequately and -50- fairly reflect the cost to such Lenders of funding such Loan, the Agent will promptly so notify the Company and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Loans hereunder shall be suspended until the Agent or the Required Lenders, as the case may be, revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Lenders shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of LIBOR Loan. 4.6 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement or compensation under this ARTICLE IV shall deliver to the Company (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to such Lender hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 4.7 SUBSTITUTION OF LENDERS. Upon the receipt by the Company from any Lender (an "AFFECTED LENDER") of a claim for compensation under SECTION 4.1 or 4.3 or a notice of the type described in SUBSECTION 4.2(a) or (b), the Company may: (i) request the Affected Lender to use its best efforts to obtain a replacement bank or financial institution satisfactory to the Company to acquire and assume all or a ratable part of all of such Affected Lender's Loans and Commitment (a "REPLACEMENT LENDER"); (ii) request one more of the other Lenders to acquire and assume all or part of such Affected Lender's Loans and Commitment; or (iii) designate a Replacement Lender. Any such designation of a Replacement Lender under CLAUSE (i) or (iii) shall be subject to the prior written consent of the Agent and each Issuing Lender. 4.8 SURVIVAL. The agreements and obligations of the Company in this ARTICLE IV shall survive the payment of all other Obligations. ARTICLE V CONDITIONS PRECEDENT 5.1 CONDITIONS OF INITIAL CREDIT EXTENSIONS. The obligation of each Lender to make its initial Credit Extension is subject to the conditions that the Agent shall have received (a) evidence reasonably satisfactory to the Agent that all Debt to be Repaid has been (or concurrently with the initial Credit Extensions will be) paid in full, and (b) all of the following documents, in form and substance satisfactory to the Agent and each Lender, and in sufficient copies for the Agent and each Lender: (a) CREDIT AGREEMENT AND NOTES. This Agreement and the Notes executed by each party thereto. -51- (b) RESOLUTIONS; INCUMBENCY. (i) Copies of the resolutions of the board of directors of each of the Company and each Guarantor authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of such entity; and (ii) A certificate of the Secretary or an Assistant Secretary of each of the Company and each Guarantor certifying the names and true signatures of the officers of such entity authorized to execute, deliver and perform the Loan Documents to be delivered by such entity hereunder. (c) CERTIFICATE. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (i) the representations and warranties contained in ARTICLE VI are true and correct on and as of such date, as though made on and as of such date; (ii) no Event of Default or Unmatured Event of Default exists or will result from the initial Credit Extensions; and (iii) no event or circumstance has occurred since March 31, 1996 that has resulted or could reasonably be expected to result in a Material Adverse Effect. (d) LEGAL OPINIONS. Opinions of (i) Proskauer Rose Goetz & Mendelsohn, New York counsel to the Company and the Guarantors, substantially in the form of EXHIBIT D-1; (ii) Klett, Lieber, Rooney & Schorling, Pennsylvania local counsel to the Company and the Guarantors, substantially in the form of EXHIBIT D-2; (iii) Porter, Wright, Morns & Arthur, Ohio local counsel to the Company and the Guarantors, substantially, in the form of EXHIBIT D-3 (iv) Zernik, Horton, Guibard & McGovern, Illinois local counsel to the Company and the Guarantors, substantially, substantially in the form of EXHIBIT D-4; (v) Smithyman & Zakoura, Missouri local counsel to the Company and the Guarantors, substantially, substantially in the form of EXHIBIT D-5; (vi) Chisenhall, Nestrud & Julian, P.E., Arkansas local counsel to the Company and the Guarantors substantially, substantially in the form of EXHIBIT D-6 (vii) McAfee & Taft, Oklahoma local counsel to the Company and the Guarantors, substantially in the form of EXHIBIT D-7; and (viii) Smithyman & Zakoura, Kansas local counsel to the Company and the Guarantors, substantially in the form of EXHIBIT D-8. (e) PAYMENT OF FEES. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date, together with Attorney Costs of the Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute the Agent's reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing -52- proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Company and the Agent). (f) GUARANTY. A guaranty, substantially in the form of EXHIBIT E (the "GUARANTY"), executed by each Guarantor. (g) SECURITY AGREEMENT, ETC. A security agreement, substantially in the form of EXHIBIT F (the "SECURITY AGREEMENT"), issued by the Company and each Guarantor, together with evidence, reasonably satisfactory to the Agent, that all instruments and documents (including financing statements, leasehold assignments and landlord's waivers) necessary or desirable to perfect and protect the Agent's Lien on the collateral granted under the Security Agreement have been signed and delivered to the Agent in appropriate form for filing or recording (if necessary). (h) PLEDGE AGREEMENTS. A pledge agreement, substantially in the form of EXHIBIT G-1 (the "COMPANY PLEDGE AGREEMENT"), issued by the Company, and, with respect to each Subsidiary, a pledge agreement, substantially in the form of EXHIBIT G-2 (each a "SUBSIDIARY PLEDGE AGREEMENT"), issued by each Subsidiary which owns capital stock of any other Person, in each case together with all certificates representing the stock pledged thereunder and appropriate stock powers executed in blank. (i) REAL ESTATE DOCUMENTS. With respect to each parcel of Real Property owned or leased by the Company or any Subsidiary, a duly executed Mortgage providing for a fully perfected Lien, in favor of the Agent for the benefit of the Agent and the Lenders, in all right, title and interest of the Company and such Subsidiary to such Real Property, superior in right to any Lien, existing or future, which the Company or any Subsidiary or any creditor thereof or purchaser therefrom, or any other Person, may have against such Real Property, together with: (i) an ALTA Loan Title Insurance Policy, issued by an insurer acceptable to the Agent, insuring the Agent's Lien on such Real Property and containing such endorsements as the Agent may reasonably require (it being understood that the amount of coverage, exceptions to coverage and status of title set forth in such policy shall be reasonably acceptable to the Agent); (ii) copies of all documents of record concerning such Real Property as shown on the commitment for the ALTA Loan Title Insurance Policy referred to above; (iii) original or certified copies of all insurance policies required to be maintained with respect to such Real Property by this Agreement, any Mortgage or any other Loan Document; -53- (iv) copies of all permits and governmental authorizations required for the siting, construction and operation of all landfills and transfer structure operated, or proposed to be operated, by the Company or the applicable Subsidiary on such Real Property, all in such form and detail as shall be acceptable to the Required Lenders; (v) a survey certified to the Agent meeting such standards as the Required Lenders may reasonably establish and otherwise reasonably satisfactory to the Required Lenders; and (vi) an environmental survey or any assessment prepared by Pilko & Associates or another firm of licensed engineers (familiar with the identification of toxic and hazardous substances) in form and substance satisfactory to each Lender, such environmental survey and assessment to be based upon physical on-site inspections by such firm of each of the existing sites and facilities owned, operated or leased by the Company and its Subsidiaries, as well as an historical review of the uses of such sites and facilities and of the business and operations of the Company and its Subsidiaries (including any former Subsidiaries of the Company or any of its Subsidiaries that have been disposed of prior to the date of such survey and assessment and with respect to which the Company or any of its Subsidiaries may have retained liability for Environmental Claims). (j) KEY-MAN LIFE POLICY. A copy of the Key-Man Insurance Policy (naming the Agent as loss payee and additional insured) covering Richard DeYoung. (k) EXCHANGE OF SHARES. The exchange of substantially all of (i) the Class A Common Stock, the Class B Common Stock and any options or warrants with respect to such common stock of ADS, Inc., an Oklahoma corporation, and (ii) the Common Stock and any options or warrants with respect to such common stock of County Disposal, Inc., a Delaware corporation, for shares of common stock, options or warrants of the Company shall have occurred pursuant to the Agreement and Plan of Exchange, dated as of January 1, 1996. (l) OTHER DOCUMENTS. Such other approvals, opinions, documents or materials as the Agent or any Lender may request. 5.2 ADDITIONAL CONDITIONS TO EXPANSION LOANS. The obligation of each Lender to fund any Expansion Loan on the occasion of any Borrowing (including the initial Borrowing) shall, in addition to the satisfaction of all conditions set forth in SECTIONS 5.1 AND 5.3, be subject to the satisfaction of each of the conditions precedent that the Agent shall have received all of the following documents, in form and substance satisfactory to the Agent and each Lender, and in sufficient copies for the Agent and each Lender (PROVIDED, that Expansion Loans in an aggregate amount not exceeding $2,350,000 (and as set forth in SCHEDULE 5.2 hereto) the proceeds of which will refinance certain existing indebtedness of -54- County Disposal, Inc. under that certain Credit Agreement, dated as of September 21, 1995, between County Disposal, Inc., Bank of America National Trust and Savings Association, Bank of America Illinois and the other financial institutions party thereto will not be subject to the conditions precedent set forth in this SECTION 5.2): (a) PURCHASE AGREEMENT. A true and complete copy of the fully executed purchase agreement relating to the Eligible Acquisition, the terms of which shall be reasonably satisfactory to the Agent. (b) POSITIVE EBITDA. Financial information that demonstrates that Target Co. (or in the case of an asset purchase, the applicable line of business or business segment of the Target Co.) has generated positive earnings before interest, taxes, depreciation and amortization (based on actual results, or on pro forma results based on reasonable adjustments for non-recurring or extraordinary operating expenses), for the 12 consecutive months immediately prior to the proposed Eligible Acquisition. (c) MAXIMUM TOTAL CONSIDERATION PAYABLE. The maximum Total Consideration Payable with respect to Target Co. (or in the case of an asset purchase, the applicable line of business or business segment of the Target Co.) shall not be greater than a multiple of 6.0 times earnings before interest, taxes, depreciation and amortization (based on actual results, or on pro forma results based on reasonable adjustments for non-recurring or extraordinary operating expenses), for the 12 consecutive months immediately prior to the proposed Eligible Acquisition. (d) CONSENT OF MAJORITY LENDERS. Any proposed Eligible Acquisition having a Total Consideration Payable in excess of $4,000,000 shall require the consent of the Majority Lenders. (e) CERTIFICATE OF SENIOR FINANCIAL OFFICER. The Agent shall have received a certificate of a senior financial officer of the Company in form attached as Exhibit J hereto, and otherwise in form and substance satisfactory to the Agent setting forth: (i) calculations in reasonable detail setting forth: (A) the combined PRO FORMA effect of the Eligible Acquisition on the Company's consolidated statements of income and cash flow and balance sheet on both an historical and a projected basis; (B) that on a PRO FORMA basis after giving effect to the proposed Eligible Acquisition, no Unmatured Event of Default or Event of Default has occurred and is continuing or would result therefrom; (ii) projections demonstrating or showing the following: -55- (A) the sources and uses of funds relating to the Eligible Acquisition; (B) that, after giving effect to all Indebtedness to be incurred in connection with the applicable Eligible Acquisition (based on reasonable adjustments for non-recurring expenses, extraordinary items and expected operating efficiencies), the Company will be in compliance with SECTIONS 8.10, 8.11, 8.12, 8.13, and 8.14, respectively; (C) financial projections of the Company, which financial projections shall demonstrate likely future compliance with the Sections referred to in CLAUSE (B) above, for the four succeeding fiscal quarters after the Eligible Acquisition; and (D) the amount of good faith estimated capital expenditures that will be incurred over the remaining term of this Agreement that are specifically attributable to the Eligible Acquisition, in such detail (including the amount of such capital expenditures to be expended in each fiscal year remaining over the term of this Agreement) as the Agent may reasonably request. (f) PERFECTED SECURITY INTEREST. Compliance by the Company with the provisions of SECTIONS 7.15 and 7.16. (g) ENVIRONMENTAL AUDIT AND/OR REVIEW. An environmental audit and/or review of Target Co. with the results and methodology thereof reasonably satisfactory to the Agent performed by an engineer acceptable to the Agent with respect to all acquisitions of real property. If requested by the Agent, in the case of any acquisition of personal property, the Agent shall have received an audit and/or review of continuing operations with the results thereof satisfactory to the Agent and completed by consultants satisfactory to the Agent. If requested by the Company, the Agent shall provide the Company an opportunity to review and comment on such audit or review. (h) NO MATERIAL LITIGATION; SATISFACTORY LEGAL FORM. Evidence of the absence of any material litigation, administrative or regulatory proceedings with respect to or affecting Target Co. or the properties of Target Co. that are the subject of the Eligible Acquisition. All documents executed or submitted pursuant hereto by or on behalf of the Company or any of its Subsidiaries or any other obligors shall be reasonably satisfactory in form and substance to the Agent and its counsel; the Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Agent or its counsel may reasonably request. 5.3 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of each Lender to make any Loan to be made by it and the obligation of the Issuing Lender to Issue any Letter of Credit -56- is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or Issuance Date: (a) NOTICE, APPLICATION. In the case of any Loan, the Agent shall have received a Notice of Borrowing; and in the case of any Issuance of any Letter of Credit, the Issuing Lender and the Agent shall have received an L/C Application or L/C Amendment Application, as required under SECTION 3.2. (b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The representations and warranties in ARTICLE VI shall be true and correct on and as of such Borrowing Date or Issuance Date with the same effect as if made on and as of such Borrowing Date or Issuance Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date). (c) NO EXISTING DEFAULT. No Event of Default or Unmatured Event of Default shall exist or shall result from such Borrowing or Issuance. Each Notice of Borrowing and L/C Application or L/C Amendment Application submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of such notice and as of the applicable Borrowing Date or Issuance Date, that the conditions in this SECTION 5.3 are satisfied. ARTICLE VI REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Agent and each Lender that: 6.1 CORPORATE EXISTENCE AND POWER. The Company and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals (i) to own its assets and to carry on its business and (ii) to execute, deliver and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and -57- (d) is in compliance with all Requirements of Law; except, in each case referred to in CLAUSE (b)(i), (c) or (d), to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Company of this Agreement and each other Loan Document to which the Company is party, and the execution, delivery and performance by each Guarantor of the Guaranty and each other Loan Document to which such Guarantor is a party, have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of the Company's or any Guarantor's Organization Documents; (b) conflict with or result in a breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company or any Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or any Guarantor or any of their respective assets is subject; or (c) violate any Requirement of Law. 6.3 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company or any Guarantor of any Loan Document. 6.4 BINDING EFFECT. Each Loan Document to which the Company or any Guarantor is a party constitutes the legal, valid and binding obligation of the Company or such Guarantor, enforceable against the Company or such Guarantor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 6.5 LITIGATION. There are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company or any Subsidiary or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or other order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or -58- performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 6.6 NO DEFAULT. No Event of Default or Unmatured Event of Default exists or would result from the incurring of any Obligations by the Company. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under SUBSECTION 9.1(e). 6.7 ERISA COMPLIANCE. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no contribution failure has occurred with respect to a Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; (iii) no Pension Plan has any Unfunded Pension Liability; (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (v) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (vi) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) or ERISA. 6.8 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by SECTIONS 7.12 and 8.7. Neither the -59- Company nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 6.9 TITLE TO PROPERTIES. Each of the Company and each Subsidiary has good record and marketable title in fee simple to, or a valid leasehold interest in, all real property necessary or used in the ordinary conduct of its businesses, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the property of the Company and its Subsidiaries is subject to no Liens, other than Permitted Liens. 6.10 TAXES. The Company and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. 6.11 FINANCIAL CONDITION. (a) The Company's audited consolidated financial statements as at December 31, 1995, and the related statements of earnings and cash flow of the Company and each of its Subsidiaries and the unaudited balance sheets of the Company and its Subsidiaries as at March 31, 1996 and the related statements of income, retained earnings and cash flow of the Company and its Subsidiaries for the three-month period ended on such date, copies of which have been furnished to the Agent and each Lender, have been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of the corporations covered thereby as at the dates thereof and the results of their operations for the periods then ended, except as otherwise indicated in the notes thereto, and, subject, in the case of interim financials, to normal year-end audit adjustments. (b) Since March 31, 1996 there has been no Material Adverse Effect. 6.12 ENVIRONMENTAL COMPLIANCE. (a) NO VIOLATIONS. Except as set forth in PART (a) of SCHEDULE 6.12, neither the Company nor any Subsidiary, nor any operator of the Company's or any Subsidiary's properties, is in violation, or alleged violation, of any judgment, decree, order, law, permit, license, rule or regulation pertaining to environmental matters, including those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA") or any other Environmental Law which (i) in any single case, requires expenditures in any three-year period of $250,000 or more by the Company and its Subsidiaries in penalties and/or for investigative, removal or remedial -60- actions or (ii) individually or in the aggregate otherwise might reasonably be expected to have a Material Adverse Effect. (b) NOTICES. Except as set forth in PART (b) of SCHEDULE 6.12, neither the Company nor any Subsidiary has received notice (other than, in the case of CLAUSE (c) below, an Immaterial Notice) from any third party, including any Federal, state or local governmental authority: (a) that any one of them has been identified by the U.S. Environmental Protection Agency as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (b) that any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous substance as defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic substance, oil or hazardous material or other chemical or substance regulated by any Environmental Law, excluding household hazardous waste (all of the foregoing, "HAZARDOUS SUBSTANCES"), which any one of them has generated, transported or disposed of has been found at any site at which a Federal, state or local agency or other third party has conducted a remedial investigation, removal or other response action pursuant to any Environmental Law; (c) that the Company or any Subsidiary must conduct a remedial investigation, removal, response action or other activity pursuant to any Environmental Law; or (d) of any material Environmental Claim. (c) HANDLING OF HAZARDOUS SUBSTANCES. Except as set forth in PART (c) of SCHEDULE 6.12: (a) no portion of the Real Property or other assets of the Company or any Subsidiary has been used for the handling, processing, storage or disposal of Hazardous Substances except in accordance in all material respects with applicable Environmental Laws (other than any Immaterial Law); and no underground tank or other underground storage receptacle for Hazardous Substances is located on such properties; (b) in the course of any activities conducted by the Company, any Subsidiary or the operators of any Real Property, no Hazardous Substances have been generated or are being used on such properties except in accordance in all material respects with applicable Environmental Laws (other than any Immaterial Law); (c) there have been no Releases or threatened Releases of Hazardous Substances on, upon, into or from any Real Property or other assets of the Company or any Subsidiary, which Releases singly or in the aggregate might reasonably be expected to have a material adverse effect on the value of such Real Property or assets; (d) to the best of the Company's knowledge, there have been no Releases on, upon, from or into any real property in the vicinity of the Real Property or other assets of the Company or any Subsidiary which, through soil or groundwater contamination, may have come to be located on, and which might reasonably be expected to have a material adverse effect on the value of, the Real Property or other assets of the Company or any Subsidiary; and (e) any Hazardous Substances generated by the Company and its Subsidiaries have been transported offsite only by properly licensed carriers and delivered only to treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are, to the best of the Company's knowledge, operating in compliance with such permits and applicable Environmental Laws. -61- (d) CLEAN-UPS. Except as set forth in PART (d) of SCHEDULE 6.12, none of the Real Property or other assets of the Company or any Subsidiary is or will be subject to any applicable environmental clean-up responsibility law or environmental restrictive transfer law or regulation, by virtue of the transactions set forth herein and contemplated hereby. (e) PERMITS AND GOVERNMENTAL AUTHORITY. All permits or other governmental authorizations required for the siting, construction and operation of all landfills and transfer stations currently owned or operated by the Company and its Subsidiaries have been obtained and remain in full force and effect and are not subject to any appeals or further proceedings or to any unsatisfied conditions that may allow material modification or revocation. The Company and its Subsidiaries are not in violation of any such permits. (f) INVESTIGATIONS. The Company and its Subsidiaries have taken all reasonable steps to investigate the past and present condition and usage of the Real Properties and the operations conducted by the Company and its Subsidiaries. 6.13 REGULATED ENTITIES. None of the Company, any Person controlling the Company, or any Subsidiary is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 6.14 NO BURDENSOME RESTRICTIONS. Neither the Company nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 6.15 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Company and its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Company, threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 6.16 SUBSIDIARIES. As of the Closing Date, the Company has no Subsidiaries other than those specifically disclosed in PART (a) of SCHEDULE 6.16 hereto and has no equity -62- investments in any other corporation or entity other than those specifically disclosed in PART (b) of SCHEDULE 6.16. 6.17 INSURANCE. Set forth in SCHEDULE 6.17 is a complete and accurate summary of the property and casualty insurance program carried by the Company and its Subsidiaries on the Closing Date, including the names of insurers, policy numbers, expiration dates, amounts to coverage, types of coverage, the annual premiums, Best's policyholder's and financial size ratings of the insurers, exclusions, deductibles and self-insured retention and the details any retrospective rating plan, fronting arrangement or any other self-insurance or risk assumption agreed to by Borrower or any Subsidiary or imposed upon Borrower or any Subsidiary by any such insurer. Such summary also includes any self- insurance program that is in effect. 6.18 SOLVENCY, ETC. On the Closing Date (or, in the case of any Person which becomes a Guarantor after the Closing Date, on the date such Person becomes a Guarantor), and immediately prior to and after giving effect to the Issuance of each Letter of Credit and each Borrowing hereunder and the use of the proceeds thereof, (a) each of the Company's and each Guarantor's assets will exceed its liabilities and (b) each of the Company and each Guarantor will be solvent, will be able to pay its debts as they mature, will own property with fair saleable value greater than the amount required to pay its debts and will have capital sufficient to carry on its business as then constituted. 6.19 FULL DISCLOSURE. None of the representations or warranties made by the Company or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Lenders prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. 6.20 EQUITY RIGHTS, ETC. Except as set forth in SCHEDULE 6.20 hereto, there are no outstanding Equity Rights with respect to the Company and, except as set forth in SCHEDULE 6.20 hereto, there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of the Company nor are there any outstanding obligations of the Company or any of its Subsidiaries to make payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market value or equity value of the Company or any of its Subsidiaries. -63- ARTICLE VII AFFIRMATIVE COVENANTS So long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Required Lenders waive compliance in writing: 7.1 FINANCIAL STATEMENTS. The Company shall deliver to the Agent and each Lender, in form and detail satisfactory to the Agent and the Required Lenders: (a) as soon as available, but not later than 90 days after the end of each fiscal year, (i) a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Ernst & Young LLP or another nationally-recognized independent public accounting firm ("INDEPENDENT AUDITOR"), which report (x) shall state that such consolidated financial statements present fairly the consolidated financial position of the Company and its Subsidiaries for the periods indicated in conformity with GAAP applied on a basis consistent with prior years and (y) shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records; and (ii) a copy of the audited consolidating balance sheets of the Company and its Subsidiaries as at the end of such year and consolidating statements of income and cash flows for the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of an Independent Auditor which report (x) shall state that such financial statements present fairly the financial position of the Company and its Subsidiaries for the periods indicated in conformity with GAAP applied on a basis consistent with prior years and (y) shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records. (b) as soon as available, but not later than 45 days after the end of each fiscal quarter (except the last fiscal quarter of each fiscal year), (i) consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal quarter, together with consolidated and consolidating statements of income and a consolidated statement of cash flows for such fiscal quarter and for the period beginning with the first day of such fiscal year and ending on the last day of such fiscal quarter, certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to normal year-end audit adjustments) the financial position and results of operation for the periods covered thereby; and (ii) an operating report for such fiscal quarter in form and detail reasonably satisfactory to the Required Lenders; and -64- (c) as soon as available, but not later than 30 days after the end of each month, (i) a consolidated balance sheet of the Company and its Subsidiaries as of the end of such month and the related consolidated statements of income and cash flows for the period commencing on the first day and ending on the last day of such month, certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to normal year-end audit adjustments), the financial position and the results of operations of the Company and its Subsidiaries; and (ii) an operating report for such month in form and detail reasonably satisfactory to the Required Lenders. 7.2 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to each Lender: (a) concurrently with the delivery of the financial statements referred to in SUBSECTION 7.1(a), a certificate of the Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Event of Default or Unmatured Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in SUBSECTIONS 7.1(a) and (b), a Compliance Certificate, each executed by a Responsible Officer; (c) promptly, copies of all financial statements and reports that the Company sends to its shareholders, and copies of all financial statements and regular, periodic or special reports (including Forms 10K, 10Q and 8K) that the Company or any Subsidiary may make to, or file with, the SEC; (d) promptly upon the request of the Agent or any Lender, copies of all detailed financial and management reports submitted to the Company by the Independent Auditor in connection with each annual or interim audit made of the books of the Company and its Subsidiaries; (e) as soon as practicable and in any event not later than 15 days prior to the commencement of each fiscal year, (i) the business plan for the Company and its Subsidiaries for such fiscal year prepared in a manner consistent with the projections delivered by the Company to the Lenders prior to the Closing Date or otherwise in a manner satisfactory to the Required Lenders; and (ii) a complete and accurate summary of the property, casualty and liability insurance carried by the Company and it Subsidiaries, including the information described in SECTION 6.17; and (f) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary as the Agent, at the request of any Lender, may from time to time request. 7.3 NOTICES. The Company shall promptly notify the Agent and each Lender of: -65- (a) the occurrence of any Event of Default or Unmatured Event of Default; (b) any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) any breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary, including pursuant to any applicable Environmental Laws; (c) the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event, PROVIDED that the Company shall notify the Agent and each Lender not less than ten days before the occurrence of any event described in CLAUSE (ii) below), and deliver to the Agent and each Lender a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a contribution failure with respect to a Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; (iii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iv) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate; or (v) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability; or (d) any cancellation of or material change in any insurance maintained by the Company or any Subsidiary; (e) any violation of any Environmental Law relating to any Real Property or the Company's or any Subsidiary's operations which violation might reasonably be expected to have a material adverse effect on such Real Property or on the Company's or any Subsidiary's operations; (f) any potential or known Release, or threat of Release, of any Hazardous Substance at, from or into any Real Property which the Company or any Subsidiary reports -66- in writing, or is required to report in writing, to any Governmental Authority and which is material in amount or nature or which could materially affect the value of any Real Property; (g) the Company's or any Subsidiary's receipt of any notice (other than an Immaterial Notice) of violation of any Environmental Law or of any Release or threatened Release of a Hazardous Substance, including a notice or claim of liability or potential responsibility from any third party (including any official of any Governmental Authority) and including notice of any formal inquiry, proceeding, demand, investigation or other action with regard to (i) the Company's or any Subsidiary's or any Person's operation of any Real Property, (ii) contamination on, from or into any Real Property or (iii) investigation or remediation of offsite locations at which the Company, any Subsidiary or any of their respective predecessors are alleged to have directly or indirectly Disposed of Hazardous Substances; (h) the Company's or any Subsidiary's receipt of any notice (other than an Immaterial Notice) of the incurrence by any third party (including any Governmental Authority) of any expense or loss in connection with the assessment, containment, removal or remediation of any Hazardous Substances with respect to which the Company or any Subsidiary may be liable or for which a Lien may be imposed on any Real Property; or (i) any Environmental Claim which has resulted or could reasonably be expected to result in a Lien on any assets of the Company or any Subsidiary; (j) any material change in accounting policies or financial reporting practices by the Company or any of its consolidated Subsidiaries. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under SUBSECTION 7.3(a) shall describe with particularity any and all clauses or provisions of this Agreement or any other Loan Document that have been breached or violated. 7.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company shall, and shall cause each Subsidiary to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except in connection with transactions permitted by SECTION 8.3 and sales of assets permitted by SECTION 8.2; -67- (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 7.5 MAINTENANCE OF PROPERTY. The Company shall, and shall cause each Subsidiary to, maintain and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted. 7.6 INSURANCE. (a) The Company shall, and shall cause each Subsidiary to, maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons; PROVIDED, that in any case (x) the Company shall (unless the Agent shall have otherwise agreed) maintain insurance coverage with respect to the respective risks and in the respective amounts as set forth on SCHEDULE 6.17 hereto (as in effect on the date hereof) and (y) the Company shall maintain Key-Man Life Insurance with respect to Richard DeYoung in an amount not less than $2,000,000 as of the Closing Date. (b) The Company shall deliver a certificate of a Responsible Officer of the Company which certificate shall update the information set forth in SCHEDULE 6.17, after the Closing Date and together with the financial statements delivered pursuant to SUBSECTION 7.1(a). 7.7 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets; and (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; unless, in each case, the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary. 7.8 COMPLIANCE WITH LAWS. The Company shall, and shall cause each Subsidiary to, comply in all material respects with all Requirements of Law of any Governmental Authority -68- having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 7.9 COMPLIANCE WITH ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. 7.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company shall, and shall cause each Subsidiary to, maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall, and shall cause each Subsidiary to, permit representatives and independent contractors of the Agent or any Lender to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and to make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at the expense of the Company and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; PROVIDED, HOWEVER, that when an Event of Default exists, the Agent or any Lender may do any of the foregoing without advance notice. 7.11 ENVIRONMENTAL MATTERS. (a) If any material Release or Disposal of Hazardous Substances shall occur or shall have occurred on any Real Property or any other assets of the Company or any Subsidiary, the Company shall, or shall cause the applicable Subsidiary to, cause the prompt containment and removal of such Hazardous Substances and the remediation of such Real Property or other assets as necessary to comply in all material respects with all Environmental Laws and to preserve the value of such Real Property or other assets. Without limiting the generality of the foregoing, the Company shall, and shall cause each Subsidiary to, comply in a reasonable and cost-effective manner with any valid Federal or state judicial or administrative order requiring the performance at any Real Property of activities in response to the Release or threatened Release of a Hazardous Substance except for the period of time that the Company or such Subsidiary is diligently and in good faith contesting such order. (b) To the extent that the transportation of "hazardous waste" as defined by RCRA is permitted by this Agreement, the Company shall, and shall cause its Subsidiaries to, dispose of such hazardous waste only at licensed disposal facilities operating, to the best of the Company's or such Subsidiary's knowledge after reasonable inquiry, in compliance with Environmental Laws. -69- (c) The Company shall, and shall cause each Subsidiary to, adequately accrue, in accordance with GAAP and as required by applicable Environmental Laws, all closure and post closure liabilities with respect to the landfill and transfer station operations conducted by the Company and its Subsidiaries. (d) Prior to the acquisition of any landfill or similar property by the Company or any Subsidiary, the Company shall deliver to the Agent and each Lender copies of the environmental reports and other information relied upon by the Company or such Subsidiary in conducting its environmental due diligence with respect to such property. (e) The Company shall deliver a certificate of a Responsible Officer of the Company which certificate shall set forth events or circumstances occurring, or discovered by the Company, with respect to the information set forth in SCHEDULE 6.12, after the Closing Date or, as the case may be, the delivery of the most recent certificate pursuant to this SUBSECTION. Such certificate shall accompany the financial statements delivered pursuant to SUBSECTION 7.1(a) or, at any time at the request of the Agent, within 30 days of such request. 7.12 USE OF PROCEEDS. The Company shall use the proceeds of the Loans to repay Debt to be Repaid, to redeem certain preferred stock of a Subsidiary of the Company in an amount not to exceed $1,950,000 plus accrued dividends with respect thereto, for working capital and for other general corporate purposes (including capital expenditures and Eligible Acquisitions) not in contravention of any Requirement of Law or of any Loan Document. 7.13 KEY-MAN LIFE POLICY. Within 60 days after the appointment or election of any successor to Richard DeYoung (or any successor), the Company shall deliver to the Agent a Key-Man Insurance Policy (naming the Agent as loss payee and additional insured) covering each such successor. 7.14 RATE PROTECTION. The Company shall no later than October 31, 1996 and at all times thereafter maintain in full force and effect one or more Swap Contracts with one or more of the Lenders (and/or with a bank or other financial institution having capital, surplus and undivided profits of at least $500,000,000), that effectively enables the Company (in a manner satisfactory to the Agent), as at any date, to protect itself against three-month London interbank offered rates exceeding a per annum percentage acceptable to the Agent as to a notional principal amount at least equal to 50% of the amounts outstanding on such date under Term Loan A and Term Loan B on which such Swap Contract is entered into for a period of at least 2 years with respect to Term Loan A, and 3 years with respect to Term Loan B, and otherwise on such terms as are acceptable to the Agent. 7.15 ADDITIONAL COLLATERAL. The Company shall, and shall cause each of its Subsidiaries to cause the Agent and the Lenders to have at all times a first priority perfected security interest in all of the assets of the Company and such Subsidiaries (subject to the Liens permitted to exist pursuant to SECTION 8.1). The Company shall, and shall cause each -70- of its Subsidiaries to, cause the Agent and the Lenders to have at all times a first priority perfected security interest in all of the issued and outstanding shares of capital stock of the Subsidiaries of the Company that are owned by either the Company or any Subsidiary of the Company. Without limiting the generality of the foregoing, the Company shall, and shall cause each of its Subsidiaries to deliver to the Agent all of its respective assets, for which possession by the Agent is required for perfection of such security interest, and shall, and shall cause each such Subsidiary to, execute, deliver and/or file (as applicable) or cause to be executed, delivered and/or filed (as applicable), the pledge agreement(s), the security agreement(s), Uniform Commercial Code (Form UCC-1) financing statements, Uniform Commercial Code (Form UCC-3) termination statements, and other documentation necessary to grant and perfect such security interest, in each case in form and substance satisfactory to the Agent. The Company shall deliver to the Agent all shares of capital stock of the Subsidiaries of the Company, whether held of record by the Company or any Subsidiary of the Company. The Company shall, prior to the acquisition or the leasing of any Real Property, provide to the Agent an environmental survey any assessment prepared by a firm of licensed engineers (familiar with the identification of toxic and hazardous substances) in form and substance satisfactory to each Lender, such environmental survey and assessment to be based upon physical on-site inspections by such firm of each of the existing sites and facilities to be acquired, operated or leased by the Company, as well as an historical review of the uses of such sites and facilities and of the business and operations of the seller or lessor thereof. 7.16 FUTURE SUBSIDIARIES. Upon the acquisition or creation by the Company (directly or through any of its Subsidiaries) of any new Subsidiary: (a) the Company shall cause each newly created or acquired Subsidiary to execute and deliver to the Agent, with counterparts for each Lender, a Guaranty of all Obligations, a Security Agreement, and a Mortgage on such Subsidiary's real properties, in each case to the fullest extent permitted by applicable law; (b) the Company shall (or, if such newly created or acquired Subsidiary is to be a Subsidiary of another Subsidiary of the Company, the Company shall cause such Subsidiary ("SUBSIDIARY X") to), execute and deliver a Subsidiary Pledge Agreement ((if it has not already done so) and shall cause Subsidiary X to) pledge pursuant to the applicable Subsidiary Pledge Agreement, to the Agent, for its benefit and that of the Lenders, all of the outstanding shares of such capital stock of or other equity interests in, such newly created or acquired Subsidiary owned or held by the Company or Subsidiary X, as the case may be, along with undated stock powers for such certificates, executed in blank (or, if any such shares of capital stock are uncertificated, confirmation and evidence satisfactory to the Agent that the security interest in such uncertificated securities has been transferred to and perfected by the Agent, for its benefit and that of the Lenders, in accordance with Section 8-313 and -71- Section 8-321 of the Uniform Commercial Code, as in effect in the State of New York, or any similar law which may be applicable); and (c) acknowledgment agreements, amendments to the applicable Subsidiary Pledge Agreement or such other agreement or instrument as the Agent shall reasonably request to reflect the pledge of such stock or equity interest pursuant to the terms of such Subsidiary Pledge Agreement; together, in each case, with such opinions of legal counsel, in form and substance satisfactory to the Agent and the Lenders, and Uniform Commercial Code financing statements or similar instruments as the Agent may reasonably require. 7.17 FURTHER ASSURANCES. The Company shall, and shall cause each Subsidiary to, take such actions as the Agent may reasonably request from time to time (including the execution and delivery of guaranties, security agreements, pledge agreements, mortgages, stock powers, financing statements and other documents, the filing or recording of any of the foregoing, and the delivery of stock certificates and other collateral with respect to which perfection is obtained by possession) to ensure that (a) the obligations of the Company hereunder and under the other Loan Documents are secured by substantially all assets of the Company and guaranteed by all Subsidiaries (including, promptly upon the acquisition or creation thereof, any Subsidiary created or acquired after the date hereof) and (b) the obligations of each Subsidiary under any guaranty issued pursuant to CLAUSE (a) are secured by substantially all of the assets of such Subsidiary. ARTICLE VIII NEGATIVE COVENANTS So long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Required Lenders waive compliance in writing: 8.1 LIMITATION ON LIENS. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("PERMITTED LIENS"): (a) any Lien existing on property of the Company or any Subsidiary on the Closing Date and set forth in SCHEDULE 8.1 securing Indebtedness outstanding on such date; (b) any Lien created under any Loan Document; -72- (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by SECTION 7.7, PROVIDED that no notice of lien has been filed or recorded under the Code; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens on property of the Company or any Subsidiary securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business, PROVIDED that all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect; (g) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Company and its Subsidiaries do not exceed $250,000; (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Company and its Subsidiaries; (i) purchase money security interests on any property acquired by the Company or any Subsidiary in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; PROVIDED that (a) any such Lien attaches to such property concurrently with or within 20 days after the acquisition thereof, (b) such Lien attaches solely to the property so acquired in such transaction, (c) the principal amount of the Indebtedness secured thereby shall not exceed 100% of the cost of such property, and (d) the principal amount of the Indebtedness secured by all such purchase money security interests plus the aggregate amount of all Indebtedness arising under capital leases (other than obligations in respect of capital leases assumed in connection with an Eligible Acquisition) shall not at any time exceed $2,750,000; -73- (j) Liens securing obligations in respect of capital leases on assets subject to such leases, PROVIDED that the aggregate amount of all Indebtedness arising under such capital leases (other than obligations in respect of capital leases assumed in connection with an Eligible Acquisition) plus the aggregate amount of all Indebtedness secured by purchase money security interests shall not at any time exceed $2,750,000; (k) cash collateral pledged to secure obligations of the Company or any Subsidiary in respect of performance, closure and post-closure liabilities relating to landfills or similar operations of the Company and such Subsidiary (including amounts deposited in trust accounts or escrow accounts for such purpose) or obligations of the Company or any Subsidiary in respect of bonds related directly to such liabilities, PROVIDED that (i) the aggregate amount of all cash collateral pledged in respect of such obligations shall not at any time exceed $3,250,000 at any time during 1996, $4,350,000 at any time during 1997, $5,450,000 at any time during 1998 and $6,550,000 at any time thereafter; and (ii) any liabilities of the Company and its Subsidiaries in connection with any such bonds (other than in respect of such cash collateral) shall be subordinated to the obligations of the Company hereunder in a manner approved in writing by the Required Lenders; and (l) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; PROVIDED that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the FRB, (ii) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution and (iii) the aggregate amount of all such deposits with all depository institutions which are not Lenders shall not at any time exceed $500,000. 8.2 DISPOSITION OF ASSETS. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; and -74- (c) dispositions not otherwise permitted hereunder which are made for fair market value; PROVIDED that (i) at the time of any disposition, no Event of Default or Unmatured Event of Default shall exist or will result from such disposition, (ii) the aggregate sales price from such disposition shall be paid in cash, and (iii) the aggregate value of all assets so sold by the Company and its Subsidiaries in any fiscal year shall not exceed $500,000. 8.3 CONSOLIDATIONS AND MERGERS. The Company shall not, and shall not permit any Subsidiary to, merge or consolidate with or into any other Person, except that any Subsidiary may merge with the Company, provided that the Company shall be the continuing or surviving corporation, or with any one or more Subsidiaries, provided that if any transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation. Nothing contained herein shall prohibit an Eligible Acquisition in the form of a merger with a Subsidiary of the Company, provided that the Company shall cause such Subsidiary and the surviving entity of such a merger to comply with the provisions of SECTION 7.16. 8.4 LOANS AND INVESTMENTS. The Company shall not, and shall not permit any Subsidiary to, purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or other obligations or securities of, or any interest in, any other Person, or make or commit to make any acquisition, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any other Person, except for: (a) investments in cash equivalents issued by any Lender; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (c) loans and advances to employees in the ordinary course of business (such as travel advances) in an aggregate amount not at any time exceeding $250,000; (d) investments in money market mutual funds sponsored by any Lender; (e) investments by the Company or any Subsidiary in, or loans and advances by the Company or any Subsidiary to, any Person which is a Subsidiary of the Company or such Subsidiary (prior to, in the case of an investment, the making of such investment); (f) Eligible Acquisitions (i) directly funded (in whole or in part) with the proceeds of Expansion Loans or (ii) of 100% of the equity interests of other Persons, the purchase price of which is solely shares of capital stock of the Company or of any of its -75- Subsidiaries PROVIDED, that in each case, prior to such Eligible Acquisition, the Company shall have complied with SECTION 5.3 (as if such Eligible Acquisition were being funded with the proceeds of Expansion Loans) and SECTION 7.16; (g) loans and advances by any Subsidiary to the Company; and (h) other investments (including investments in Joint Ventures) in an aggregate amount not exceeding $500,000 during the term of this Agreement. 8.5 LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; (b) Indebtedness consisting of Contingent Obligations permitted pursuant to SECTION 8.8; (c) Indebtedness existing on the Closing Date and set forth in SCHEDULE 8.5; (d) Indebtedness secured by Liens permitted by SUBSECTIONS 8.1(i) and (j) (which shall include Liens incurred pursuant to capital leases permitted pursuant to SUBSECTION 8.9(b)); and (e) Subordinated Indebtedness of the Company in an aggregate principal amount outstanding not to exceed $ 2,000,000 at any time. 8.6 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any Subsidiary to, enter into any transaction with any Affiliate of the Company (other than a Subsidiary), except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company. Without limiting the foregoing, the Company shall not, and shall not permit any Subsidiary to, pay any management or similar fees to any Affiliate, except that, so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, the Company may pay management fees to Charterhouse Environmental Capital Group, Inc. in an aggregate amount not exceeding $650,000 in any fiscal year. 8.7 USE OF PROCEEDS. The Company shall not, and shall not permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the -76- purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Securities Exchange Act of 1934. 8.8 CONTINGENT OBLIGATIONS. The Company shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligation except: (a) endorsements for collection or deposit in the ordinary course of business; (b) Swap Contracts entered into in the ordinary course of business as bona fide hedging transactions; (c) Contingent Obligations of the Company and its Subsidiaries existing as of the Closing Date and listed in SCHEDULE 8.8; (d) Contingent Obligations arising under the Loan Documents; (e) Contingent Obligations in respect of surety bonds to the extent permitted by SECTION 8.1(k); and (f) Contingent Obligations of the Company with respect to direct obligations of its Subsidiaries or Contingent Obligations of Subsidiaries with respect to direct obligations of the Company. 8.9 LEASE OBLIGATIONS. The Company shall not, and shall not permit any Subsidiary to, create or suffer to exist any obligations for the payment of rent for any property under lease except for: (a) operating leases entered into by the Company or any Subsidiary in the ordinary course of business; and (b) capital leases to the extent permitted by SECTION 8.1(j). 8.10 MINIMUM INTEREST COVERAGE RATIO. (a) The Company shall not permit the ratio of (A) EBITDA for the respective periods shown below to (B) Interest Expense for such period to be less than the applicable ratio shown below: (i) for the fiscal quarter beginning April 1, 1996 and ending June 30, 1996: 2.75 to 1; (ii) for the two consecutive fiscal quarters beginning April 1, 1996 and ending September 30, 1996: 3.00 to 1; -77- (iii) for the three consecutive fiscal quarters beginning April 1, 1996 and ending December 31, 1996: 3.00 to 1. (b) The Company shall not permit the ratio of (A) EBITDA for the Computation Periods ending on the last day of any fiscal quarter occurring during any of the periods shown below to (B) Interest Expense for such Computation Period to be less than the applicable ratio shown below: PERIOD RATIO From January 1, 1997 to and including September 29, 1997 3.25 to 1 From September 30, 1997 to and including March 30, 1998 3.50 to 1 From March 31, 1998 to and including September 29, 1998 3.75 to 1 From September 30, 1998 to and including June 30, 2003 4.00 to 1 8.11 MAXIMUM INDEBTEDNESS TO CAPITALIZATION RATIO. The Company shall not at any date, permit the ratio of (A) Total Indebtedness at such date to (B) the SUM of Total Indebtedness, PLUS (i) the par amounts, determined on a consolidated basis, in the capital stock account of the Company or its Subsidiaries, on a consolidated basis, determined in accordance with GAAP (net of the value of treasury stock in such capital stock account), PLUS (ii) the additional paid-in capital and, PLUS (or MINUS, in the case of a deficit) (iii) cumulative retained earnings of the Company and its Subsidiaries from and after June 30, 1996, on a consolidated basis, determined in accordance with GAAP, to be greater than .665 to 1. 8.12 MINIMUM FIXED CHARGE COVERAGE RATIO. (a) The Company shall not permit the ratio (A) of Operating Cash Flow for the respective periods set forth below, MINUS, with respect to the fourth fiscal quarter and without duplication, cash payments made by the Company during such fiscal year in respect of costs incurred in connection with the closing of landfills, net of any amounts returned to the Company during such fiscal year in respect of such closings to (B) Interest Expense plus payments of principal in respect of Indebtedness for such period to be less than the applicable ratio shown below: (i) for the fiscal quarter beginning April 1, 1996 and ending June 30, 1996: 1.00 to 1; -78- (ii) for the two consecutive fiscal quarters beginning April 1, 1996 and ending September 30, 1996: 1.10 to 1; (iii) for the three consecutive fiscal quarters beginning April 1, 1996 and ending December 31, 1996: 1.10 to 1. "OPERATING CASH FLOW" shall mean, with respect to any period, the excess (if any) of (i) EBITDA for such period, OVER (ii) the SUM of (x) the aggregate amount of capital expenditures actually expended during such period, LESS (y) the CapEx Allocation for such period, PLUS (z) the aggregate amount of taxes actually paid by the Company or any of its Subsidiaries during such period. "CAPEX ALLOCATION" shall mean, with respect to: (1) CLAUSE (i) above: $1,750,000; (2) CLAUSE (ii) above: $2,750,000; and (3) CLAUSE (iii) above: $3,000,000. (b) The Company shall not permit the ratio of (A) Operating Cash Flow for the Compuation Periods ending on the last day of any fiscal quarter occurring during any of the periods shown below MINUS, with respect to the fourth fiscal quarter and without duplication, cash payments made by the Company during such fiscal year in respect of costs incurred in connection with the closing of landfills, net of any amounts returned to the Company during such fiscal year in respect of such closings to (B) Interest Expense plus payments of principal in respect of Indebtedness for such Computation Period to be less than the applicable ratio shown below: PERIOD RATIO From January 1, 1997 to and including June 29, 1997 1.10 to 1 From June 30, 1997 to and including September 29, 1997 1.15 to 1 From September 30, 1997 to and including March 30, 1998 1.20 to 1 From March 31, 1998 to and including June 30, 2003 1.25 to 1 "CAPEX ALLOCATION" shall mean, with respect to: (1) the period ending March 31, 1997: $3,000,000; (2) the period ending June 30, 1997: $1,250,000; (3) the period ending September 30, 1997: $250,000; and (4) any period ending on or after December 31, 1997, $0.00. -79- 8.13 MAXIMUM CAPITAL EXPENDITURES. The Company shall not permit the aggregate amount of all capital expenditures made by the Company and its Subsidiaries in any fiscal year to be greater than (i) $11,000,000 during the fiscal year ending on December 31, 1996, (ii) $9,500,000 during each fiscal year thereafter, PLUS, in each case, capital expenditures with respect to each Eligible Acquisition financed with the proceeds of the Expansion Loans and set forth in the related certificate delivered pursuant to SUBSECTION 5.2(e)(ii)(D). For purposes of this Section 8.13 and Section 8.12, "capital expenditures" shall not include $3,000,000 in capital expenditures during the fiscal year ending on December 31, 1996. 8.14 MAXIMUM TOTAL INDEBTEDNESS TO EBITDA. (a) The Company shall not permit the ratio of (A) Total Indebtedness as of the last day of the respective periods shown below to (B) EBITDA for such period multiplied by the Multiple (with respect to each period, as defined below) to be greater than the applicable ratio shown below: (i) for the fiscal quarter beginning April 1, 1996 and ending June 30, 1996: 4.00 to 1; (ii) for the two consecutive fiscal quarters beginning April 1, 1996 and ending September 30, 1996: 3.75 to 1; "MULTIPLE" shall mean, with respect to: (1) CLAUSE (i) above: 4; and (2) CLAUSE (ii) above: 2. (b) The Company shall not permit the ratio of (A) Total Indebtedness for the Computation Periods ending on the last day of any fiscal quarter occurring during any of the periods shown below to (B) EBITDA for such Computation Period to be greater than the applicable ratio shown below: PERIOD RATIO From October 1, 1996 to and including March 30, 1997 3.75 to 1 From March 31, 1997 to and including September 29, 1997 3.50 to 1 From September 30, 1997 to and including March 30, 1998 3.30 to 1 From March 31, 1998 to and including September 29, 1998 3.00 to 1 From September 30, 1998 to and including June 30, 2003 2.50 to 1 -80- 8.15 RESTRICTED PAYMENTS. The Company shall not, and shall not permit any Subsidiary to, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding (all of the foregoing being collectively called "RESTRICTED PAYMENTS"), except that (i) any Subsidiary may declare and pay dividends to the Company and (ii) the Company may: (a) declare and make dividend payments or other distributions payable solely in its common stock; and (b) purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares with the proceeds received from the substantially concurrent issue of new shares of its common stock. 8.16 LANDFILL DEVELOPMENT. The Company shall not permit the aggregate amount expended by the Company and its Subsidiaries in connection with all greenfield landfill development projects (excluding any landfill development project which is contiguous to, or an expansion of, an existing landfill site) for which all applicable permits to construct or improve such projects have not been obtained to exceed $500,000 in any fiscal year or $1,000,000 in the aggregate during the term of this Agreement. 8.17 ERISA. The Company shall not, and shall not permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in liability of the Company in an aggregate amount in excess of $50,000; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 8.18 CHANGE IN BUSINESS. The Company shall not, and shall not permit any Subsidiary to, engage in any line of business other than the businesses engaged in by the Company and its Subsidiaries as of the date hereof and businesses reasonably related thereto (but excluding the transportation, storage or other handling of Hazardous Substances except where permitted in connection with and incidental to the normal transportation, storage and other handling of non- hazardous waste). 8.19 ACCOUNTING CHANGES. The Company shall not, and shall not permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company or of any Subsidiary. -81- ARTICLE IX EVENTS OF DEFAULT 9.1 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT OF DEFAULT": (a) NON-PAYMENT. The Company fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii) within two Business Days after the same becomes due, any interest, fee or other amount payable hereunder or under any other Loan Document. (b) REPRESENTATION OR WARRANTY. Any representation or warranty by the Company or any Subsidiary made or deemed made herein or in any other Loan Document, or which is contained in any certificate, document or financial or other statement by the Company, any Subsidiary or any Responsible Officer furnished at any time under this Agreement or any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made. (c) SPECIFIC DEFAULTS. The Company fails to perform or observe any term, covenant or agreement contained in any of SUBSECTION 7.3(a) or SECTIONS 8.1 through 8.5, 8.7, 8.8, 8.16, 8.17 or 8.18. (d) OTHER DEFAULTS. The Company or any Subsidiary party thereto fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 15 days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Company by the Agent or any Lender. (e) CROSS-DEFAULT. The Company or any Subsidiary (i) fails to make any payment in respect of any Indebtedness or Contingent Obligation having an aggregate principal amount (including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $500,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition shall exist, under any agreement or instrument relating to any Indebtedness or Contingent Obligation having an aggregate principal amount (including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $500,000, if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation to become payable, or cash collateral in respect thereof to be demanded. -82- (f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company or any Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing. (g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary, or any writ, judgment, warrant of attachment, warrant of execution or similar process is issued or levied against a substantial part of the Company's or any Subsidiary's properties, and such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, warrant of execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor) or other similar Person for itself or a substantial portion of its property or business. (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $250,000; (ii) a contribution failure shall have occurred with respect to a Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; (iii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $250,000; or (iv) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $50,000. (i) MONETARY JUDGMENTS. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage), as to any single or related series of transactions, incidents or conditions, of $250,000 or more, and the same shall remain unvacated and unstayed pending appeal for a period of 30 days after the entry thereof. (j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or decree is entered against the Company or any Subsidiary which has or would reasonably be expected to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. -83- (k) CHANGE OF CONTROL OR MANAGEMENT. (i) Charterhouse Group International, Inc. and its Affiliates shall cease to directly or indirectly own at least 40% of the voting stock of the Company, or (ii) any Person that (or any two or more Persons that are deemed to be a "person" under Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934) is not an Affiliate of Charterhouse Group International, Inc. shall directly or indirectly own in excess of 20% of the voting stock of the Company. (l) GUARANTOR DEFAULTS. Any Guarantor fails in any material respect to perform or observe any term, covenant or agreement in the Guaranty; or the Guaranty is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect; or any Guarantor, or any other Person by, through or on behalf of any Guarantor, contests in any manner the validity or enforceability of the Guaranty or denies that such Guarantor has any further liability or obligation thereunder. (m) SECURITY AGREEMENT, ETC. The Security Agreement shall cease to be in full force and effect; or the Company, or any Person by, through or on behalf of the Company, shall contest the validity or enforceability of the Security Agreement. (n) PLEDGE AGREEMENTS. Any Pledge Agreement shall cease to be in full force and effect; or the Company or the applicable Subsidiary, or any Person by, through or on behalf of the Company or the applicable Subsidiary, shall contest the validity or enforceability of any Pledge Agreement. (o) MATERIAL ENVIRONMENTAL EVENTS. There shall occur or exist (a) one or more circumstances or events of a type or types referred to in SECTION 6.12 or 7.11 that is not disclosed in SCHEDULE 6.12, in the form attached hereto on the Closing Date, and/or (b) adverse developments with respect to one or more of the matters disclosed in SCHEDULE 6.12, in the form attached hereto on the Closing Date that, singly or in the aggregate, has resulted or could reasonably be expected to result in expenditures by the Company and its Subsidiaries (on account of fines, investigations, removal or remediation) in excess of $500,000 in any fiscal year or $2,000,000 during the period from the Closing Date to the scheduled Revolving Termination Date or that otherwise has resulted or could reasonably be expected to result in a Material Adverse Effect. 9.2 REMEDIES. If any Event of Default occurs, the Agent shall, at the request of, or may, with the consent of, the Required Lenders do any or all of the following: -84- (a) declare the commitment of each Lender to make Loans and any obligation of the Issuing Lender to Issue Letters of Credit to be terminated, whereupon such commitments and obligations shall be terminated; (b) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letter of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letter of Credit) to be immediately due and payable, and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; PROVIDED, HOWEVER, that upon the occurrence of any Event of Default specified in SUBSECTION 9.1(f) or (g), the obligation of each Lender to make Loans and the obligation of the Issuing Lender to Issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent, the Issuing Lender or any other Lender. 9.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE X THE AGENT 10.1 APPOINTMENT AND AUTHORIZATION. (a) Each Lender hereby irrevocably (subject to SECTION 10.9) appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, -85- functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. (b) The Issuing Lender shall act on behalf of the Lenders with respect to the Letters of Credit and the documents associated therewith until such time and except for so long as the Agent may agree at the request of the Required Lenders to act for the Issuing Lender with respect thereto; PROVIDED, HOWEVER, that the Issuing Lender shall have all of the benefits and immunities (i) provided to the Agent in this ARTICLE X with respect to any acts taken or omissions suffered by the Issuing Lender in connection with Letters of Credit Issued by it or proposed to be Issued by it and the applications and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Agent", as used in this ARTICLE X, included the Issuing Lender with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Lender. 10.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 10.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 10.4 RELIANCE BY AGENT. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it 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 counsel to the Company), independent accountants and other experts selected by the Agent. -86- The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders 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 Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in SECTIONS 5.1 and 5.2, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter either sent by the Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender. 10.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Unmatured Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Lenders, unless the Agent shall have received written notice from a Lender or the Company referring to this Agreement, describing such Event of Default or Unmatured Event of Default and stating that such notice is a "notice of default". The Agent will notify the Lenders of its receipt of any such notice. The Agent shall take such action with respect to such Event of Default or Unmatured Event of Default as may be requested by the Required Lenders in accordance with ARTICLE IX; PROVIDED, HOWEVER, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Unmatured Event of Default as it shall deem advisable or in the best interest of the Lenders. 10.6 CREDIT DECISION. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon any Agent- Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such -87- documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 10.7 INDEMNIFICATION OF AGENT. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all Indemnified Liabilities; PROVIDED, HOWEVER, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of the Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 10.8 AGENT IN INDIVIDUAL CAPACITY. ING and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though ING were not the Agent hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, ING or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to their respective Loans (if any), ING and any Affiliate thereof shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though ING were not the Agent. 10.9 SUCCESSOR AGENT. The Agent may, and at the request of the Required Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If the Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent -88- for the Lenders. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Lenders and the Company, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this ARTICLE X and SECTIONS 11.4 and 11.5 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. Notwithstanding the foregoing, however, ING may not be removed as the Agent at the request of the Required Lenders unless ING or any Affiliate thereof acting as the Issuing Lender hereunder shall also simultaneously be replaced as Issuing Lender pursuant to documentation in form and substance reasonably satisfactory to ING and (and, if applicable, such Affiliate). 10.10 WITHHOLDING TAX. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Code and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Section 1441 or 1442 of the Code, such Lender shall deliver to the Agent and the Company: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Each such Lender agrees to promptly notify the Agent and the Company of any change in circumstances which would modify or render invalid any claimed exemption or reduction. -89- (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Lender, such Lender agrees to notify the Agent and the Company of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Lender. To the extent of such percentage amount, the Agent and the Company will treat such Lender's IRS Form 1001 as no longer valid. (c) If any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent and the Company sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, the Agent or the Company may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by SUBSECTION (a) of this Section are not delivered to the Agent and the Company, then the Agent or the Company may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent or the Company did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or was not properly executed, or because such Lender failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Agent and the Company fully for all amounts paid, directly or indirectly, by the Agent or the Company as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent or the Company under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. 10.11 COLLATERAL MATTERS. (a) The Agent is authorized on behalf of all the Lenders, without the necessity of any notice to or further consent from any Lender, from time to time to take any action with respect to any collateral or the Loan Documents which may be necessary to perfect and maintain perfected the security interest in and Liens upon the collateral granted pursuant to the Loan Documents. -90- (b) The Lenders irrevocably authorize the Agent, at its option and in its discretion, to release any security interest or Lien granted to or held by the Agent upon any collateral (i) upon termination of the Commitments and payment in full of all Loans and all other obligations known to the Agent and payable under this Agreement and the other Loan Documents; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; (iii) constituting property in which the Company or any Subsidiary owned no interest at the time such security interest or Lien was granted or at any time thereafter; (iv) constituting property leased to the Company or any Subsidiary under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Company or such Subsidiary to be, renewed or extended; (v) consisting of an instrument evidencing Indebtedness or other debt instrument, if the indebtedness thereby has been paid in full; or (vi) if approved, authorized or ratified in writing by all the Lenders. Upon request by the Agent at any time, the Lenders will confirm in writing the Agent's authority to release particular types or items of collateral pursuant to this SUBSECTION 10.11(b). ARTICLE XI MISCELLANEOUS 11.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent at the written request of the Required Lenders) and the Company and acknowledged by the Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED that no such waiver, amendment or consent shall, unless in writing and signed by all Lenders and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Lender (or reinstate any Commitment terminated pursuant to SECTION 9.2); (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on, any Loan or (subject to CLAUSE (iii) below) reduce any fees or other amounts payable hereunder or under any other Loan Document; -91- (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Lenders or any of them to take any action hereunder; (e) release all or substantially all of the collateral granted under the Loan Documents or release any Guarantor from its Guarantee; or (f) amend this Section, or SECTION 2.16, or any provision herein providing for consent or other action by all Lenders; and PROVIDED, FURTHER, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Issuing Lender in addition to the Required Lenders or all Lenders, as the case may be, affect the rights or duties of the Issuing Lender under this Agreement or any L/C-Related Document, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Required Lenders or all Lenders, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document, and (iii) the fees payable to the Agent pursuant to SUBSECTION 2.12(a) may be changed pursuant to a writing executed by the Company and the Agent. 11.2 NOTICES. (a) All notices, requests and other communications hereunder shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on SCHEDULE 11.2, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered to the address or facsimile number specified for notices on SCHEDULE 11.2; or, as directed to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail; except that notices to the Agent pursuant to ARTICLE II, III or X shall not be effective until actually received by the Agent, and notices pursuant to ARTICLE III to the Issuing Lender shall not be effective until actually received by the Issuing Lender at the address specified for the "Issuing Lender" on SCHEDULE 11.2. (c) Any agreement of the Agent and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Agent and the Lenders shall not have any liability to the Company or other Person on -92- account of any action taken or not taken by the Agent or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans and L/C Obligations shall not be affected in any way or to any extent by any failure of the Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Lenders of a confirmation which is at variance with the terms understood by the Agent and the Lenders to be contained in the telephonic or facsimile notice. 11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, 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. 11.4 COSTS AND EXPENSES. The Company shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse ING within five Business Days after demand (subject to SUBSECTION 5.1(e)) for all costs and expenses incurred by ING in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other document prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including Attorney Costs incurred by ING with respect thereto; and (b) pay or reimburse the Agent and each Lender within five Business Days after demand (subject to SUBSECTION 5.1(e)) for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any right or remedy under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 11.5 COMPANY INDEMNIFICATION. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify and hold the Agent-Related Persons and each Lender and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each an "INDEMNIFIED PERSON") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans, the termination of the Letters of Credit and the termination, resignation or replacement of the Agent or replacement of any Lender) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document -93- contemplated by or referred to herein, or the transactions contemplated hereby or thereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or Letters of Credit or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 11.6 PAYMENTS SET ASIDE. To the extent that the Company makes a payment to the Agent or the Lenders, or the Agent or the Lenders exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Lender in its discretion) to be repaid to a trustee or receiver, or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred and (b) each Lender severally agrees to pay to the Agent upon demand its pro rata share of any amount so recovered from or repaid by the Agent. 11.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Lender. 11.8 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Lender may, with the written consent of the Agent (with respect to Term Loans and Revolving Loans, which consent of the Agent shall not be unreasonably withheld) and the Issuing Lender (with respect to Revolving Loans), at any time assign and delegate to one or more Persons (each an "ASSIGNEE") all, or any part of the Loans, the Commitment, the L/C Obligations and the other rights and obligations of such Lender hereunder, in a minimum amount of $5,000,000 (or, if less, all of such Lender's remaining rights and obligations hereunder); PROVIDED, HOWEVER, that the Company, the Agent and the Issuing Lender may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Lender and the Assignee; (ii) such Lender and the Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of EXHIBIT H ("ASSIGNMENT AND ACCEPTANCE") together with any Note subject to such assignment -94- and (iii) the assignor Lender or the Assignee has paid to the Agent a processing fee in the amount of $3,500. (b) From and after the date that the Agent notifies the assignor Lender that it has provided its consent, and received the consent of the Issuing Lender, with respect to an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Any Lender may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "PARTICIPANT") participating interests in any Loan, the Commitment of such Lender and the other interests of such Lender (the "originating Lender") hereunder and under the other Loan Documents; PROVIDED, HOWEVER, that (i) the originating Lender's obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Company, the Issuing Lender and the Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Lenders as described in the first PROVISO to SECTION 11.1. In the case of any such participation, the Participant shall be entitled to the benefit of SECTIONS 4.1, 4.3 and 11.5 as though it were also a Lender hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, the Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (d) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and any Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 11.9 CONFIDENTIALITY. Each Lender agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all -95- information identified as "confidential" or "secret" by the Company and provided to it by the Company or any Subsidiary, or by the Agent on the Company's or any Subsidiary's behalf, under this Agreement or any other Loan Document, and neither such Lender nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Company or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by such Lender, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company or any Subsidiary known to such Lender; PROVIDED, HOWEVER, that any Lender may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which such Lender is subject or in connection with an examination of such Lender by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent or any Lender or any of their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Lender's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Lenders hereunder; (H) as to any Lender or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any Subsidiary is party or is deemed party with such Lender or such Affiliate; and (I) to its Affiliates. 11.10 SET-OFF. In addition to any right or remedy of the Lenders provided by law, if an Event of Default exists, or the Loans have been accelerated, each Lender is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company 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 by, and other indebtedness at any time owing by, such Lender to or for the credit or the account of the Company against any and all Obligations owing to such Lender, now or hereafter existing, irrespective of whether or not the Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly to notify the Company and the Agent after any such set-off and application made by such Lender; PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. 11.11 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Lender shall notify the Agent in writing of any change in the address to which notices to such Lender should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. -96- 11.12 COUNTERPARTS. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of which taken together shall constitute but one and the same instrument. 11.13 SEVERABILITY. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or such instrument or agreement. 11.14 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Lenders, the Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other Loan Document. 11.15 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND ANY NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE COMPANY, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE LENDERS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. 11.16 WAIVER OF JURY TRIAL. THE COMPANY, THE LENDERS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE -97- PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENT, RENEWAL, SUPPLEMENT OR MODIFICATION TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 11.17 ENTIRE AGREEMENT. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Company, the Lenders and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. -98- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. AMERICAN DISPOSAL SERVICES, INC. By: /s/ Scott H. Flamm --------------------------------- Title: Vice President INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as Agent By: /s/ David P. Scopelleti ---------------------------------- Title: Vice President INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, as Lender By: /s/ David P. Scopelleti -------------------------------- Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Lender By: /s/ Michael J. Gibbons ------------------------------- Title: Managing Director EX-10.2 6 EXHIBIT 10.2 EXHIBIT 10.2 REGISTRATION RIGHTS AGREEMENT AMONG AMERICAN DISPOSAL SERVICES, INC. AND THE INVESTORS DATED AS OF JANUARY 1, 1996 TABLE OF CONTENTS Page 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. Required Registration . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . 3 4. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6. Indemnification and Contribution. . . . . . . . . . . . . . . . . . . . 6 7. Market Stand-Off Agreement. . . . . . . . . . . . . . . . . . . . . . . 9 8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 REGISTRATION RIGHTS AGREEMENT Registration Rights Agreement, dated as of JANUARY 1, 1996, among AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "COMPANY"), and the Investors (as defined below). W I T N E S S E T H: In consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "AGREEMENT" means this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative. "COMMON STOCK" means shares of the Company's Common Stock, par value $.01 per share. "INVESTORS" means those persons and entities executing this Agreement under the heading "Investors." "NASD" means the National Association of Securities Dealers, Inc., or any successor corporation thereto. "REGISTERING SECURITY HOLDER" has the meaning given to it in Section 3. "REGISTRABLE SECURITIES" means, collectively, the shares of Common Stock owned by Investors at the time of a Registration Request; PROVIDED, HOWEVER, that any such securities shall cease to be Registrable Securities when (i) such securities shall have been transferred, if new certificates or other evidences of ownership for them not bearing a legend restricting further transfer and not subject to any stop transfer order or other restrictions on transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any state securities law then in force, (ii) such securities shall cease to be outstanding or (iii) such securities shall be eligible for sale pursuant to Rule 144(k) under the Securities Act or any successor rule which permits resale of such securities without restriction. "REGISTRATION REQUEST" has the meaning given to it in Section 2. 2. REQUIRED REGISTRATION. Commencing 180 days after the closing of the Company's first underwritten public offering of its capital stock, after receipt of a written request (a "REGISTRATION REQUEST") from Investors collectively holding a majority of the Registrable Securities then held by the Investors at the time of such request requesting that the Company effect the registration of Registrable Securities under the Securities Act and specifying the intended method or methods of disposition thereof, the Company shall promptly notify all holders of Registrable Securities in writing of the receipt of such request and each such holder may elect (by written notice sent to the Company within ten days from the date of such holder's receipt of the aforementioned Company's notice) to have all or any part of its Registrable Securities included in such registration thereof pursuant to this Section 2. Thereupon the Company shall, as expeditiously as is possible and subject to the last sentence of this paragraph, use its best efforts to effect the registration under the Securities Act of all shares of Registrable Securities which the Company has been so requested to register by such holders for sale, all to the extent required to permit the disposition (in accordance with the intended method or methods thereof, as aforesaid) of the Registrable Securities so registered; PROVIDED, HOWEVER, that, subject to the provisions of the immediately following sentence, the Company shall not be required to effect more than two registrations of Registrable Securities pursuant to this Section 2. In order to count as an "effected" registration statement, such registration statement shall not have been withdrawn and all shares registered pursuant to it (excluding any overallotment shares) shall have been sold. The Company shall have the right to defer the filing of any registration statement requested pursuant to this Section 2 for a period not to exceed one hundred twenty (120) days if in the good faith determination of the Board of Directors of the Company the filing of such registration statement would be seriously detrimental to the Company. If the managing underwriter of a proposed public offering of Registrable Securities under this Section 2 shall advise the Company and the security holders seeking to register such securities in writing that, in its opinion, the distribution of all the Registrable Securities requested to be included in the registration by such security holders would not be practicable, then all security holders shall reduce the amount of securities each intended to distribute through such offering on a pro rata basis. 3. INCIDENTAL REGISTRATION. If the Company at any time after the closing of its first underwritten public offering of its capital stock proposes to file on its behalf and/or on behalf of any of its security holders (the "REGISTERING SECURITY HOLDERS") a Registration Statement under the Securities Act on any form (other than a Registration Statement on Form S-4 or S-8 2 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of the Company pursuant to any employee benefit plan, respectively) for the general registration of securities to be sold for cash with respect to any class of equity security (as defined in Section 3(a)(11) of the Securities Exchange Act) of the Company, it will give written notice to all holders of Registrable Securities at least 30 days before the initial filing with the Commission of such Registration Statement, which notice shall set forth the intended method of disposition of the securities proposed to be registered by the Company. The notice shall offer to include in such filing the aggregate number of shares of Registrable Securities as such holders may request. Each holder of any such Registrable Securities desiring to have Registrable Securities registered under this Section 3 shall advise the Company in writing within 10 days after the date of receipt of such offer from the Company, setting forth the amount of such Registrable Securities for which registration is requested. The Company shall thereupon include in such filing the number of shares of Registrable Securities for which registration is so requested, subject to the next sentence, and shall use its best efforts to effect registration under the Securities Act of such shares. If the managing underwriter of a proposed public offering shall advise the Company in writing that, in its opinion, the distribution of the Registrable Securities requested to be included in the registration concurrently with the securities being registered by the Company or such registering security holder would materially and adversely affect the distribution of such securities by the Company or such registering security holder, then all holders of Registrable Securities shall reduce the amount of securities each intended to distribute through such offering on a pro rata basis. 4. REGISTRATION PROCEDURES. If the Company is required by the provisions of Section 2 or 3 to use its best efforts to effect the registration of any of its securities under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a Registration Statement with respect to such securities and use its best efforts to cause such Registration Statement to become and remain effective for a period of time required for the disposition of such securities by the holders thereof, but not to exceed 180 days; (b) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale or 3 other disposition of all securities covered by such Registration Statement until the earlier of such time as all of such securities have been disposed of in a public offering or the expiration of 180 days; (c) furnish to such selling security holders such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such selling security holders may reasonably request; (d) use its best efforts to register or qualify the securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as each holder of such securities shall request (PROVIDED, HOWEVER, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service of process), and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such Registration Statement; (e) furnish, in connection with any registration of Registrable Securities, on the date that such shares of Registrable Securities are delivered to the underwriters for sale pursuant to such registration or, if such Registrable Securities are not being sold through underwriters, on the date that the Registration Statement with respect to such shares of Registrable Securities becomes effective, (1) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the holders making such request, in customary form and covering matters of the type customarily covered in such legal opinions; and (2) a comfort letter dated such date, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the holder(s) of Registrable Securities being registered and, if such accountants refuse to deliver such letter to such holder(s), then to the Company in a customary form and covering matters of the type customarily covered by such comfort letters and as the underwriters or such holder(s) shall reasonably request. Such opinion of counsel shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as such holder(s) of Registrable Securities may reasonably request consistent with opinions customarily provided in similar transactions. Such letter from the independent certified public accountants shall additionally cover such other financial matters (including information as to the period ending not more than 5 business days prior to the date 4 of such letter) with respect to the registration in respect of which such letter is being given as such holders of the Registrable Securities being so registered may reasonably request consistent with comfort letters customarily provided in similar transactions; (a) enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; and (b) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, but not later than 18 months after the effective date of the Registration Statement, an earnings statement covering the period of at least 12 months beginning with the first full month after the effective date of such Registration Statement, which earnings statements shall satisfy the provisions of Section 11(a) of the Securities Act. It shall be a condition precedent to the obligation of the Company to take any action pursuant to this Agreement in respect of the securities which are to be registered at the request of any holder of Registrable Securities that (i) such holder shall furnish to the Company such information regarding the securities held by such holder and the intended method of disposition thereof as the Company shall reasonably request and as shall be required under the Securities Act in connection with the action taken by the Company and (ii) that such holder shall deliver and perform under such underwriting and selling shareholder agreements as may be reasonably requested by the underwriters. 5. EXPENSES. All expenses incurred in complying with this Agreement, including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD), printing expenses, fees and disbursements of counsel for the Company, expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to Section 4(d), shall be paid by the Company, except that: (a) The Company shall not be liable for any fees, discounts or commissions to any underwriter in respect of the securities sold by such holder of Registrable Securities; and (b) The Company shall not be liable for any fees or expenses of any separate counsel to the selling security holders. 6. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of any registration of any Registrable Securities under the 5 Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless the holder of such Registrable Securities, such holder's directors and officers, and each other Person (including each underwriter) who participated in the offering of such Registrable Securities and each other Person, if any, who controls such holder or such participating Person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or participating Person or controlling Person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any alleged untrue statement of any material fact contained in any Registration Statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such holder or such director, officer or participating Person or controlling Person for any legal or any other expenses reasonably incurred by such holder or such director, officer or participating Person or controlling Person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such holder specifically for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or such director, officer or participating Person or controlling Person, and shall survive the transfer of such securities by such holder. (b) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, each holder of Registrable Securities selling in connection with such registration shall severally and not jointly indemnify and hold harmless the Company, its directors and officers, and each other Person (including each underwriter) who participated in the offering of such Registrable Securities and each other Person, if any, who controls the Company or such participating Person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director or officer or participating Person or controlling Person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any alleged untrue statement of any material fact contained in any 6 Registration Statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, where such statement is in conformity with written information provided by such holder expressly for use therein, and shall reimburse the Company or such director, officer or participating Person or controlling Person for any legal or any other expenses reasonably incurred by the Company or such director, officer or participating Person or controlling Person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that such holder shall not be liable for any amounts in excess of the net proceeds received by such holder for the sale of its shares. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or such director, officer or participating Person or controlling Person, and shall survive the transfer of such securities by such holder. (c) If the indemnification provided for in this Section 6 is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not also guilty of such fraudulent misrepresentation. 7 7. MARKET STAND-OFF AGREEMENT. If requested by an underwriter of securities of the Company each holder of Registrable Securities shall not sell or otherwise transfer or dispose of any securities held by such holder during the one hundred twenty (120) day period following the effective date of a Registration Statement. 8. MISCELLANEOUS. (a) CHANGES IN REGISTRABLE SECURITIES. If, and as often as, there are any changes in Registrable Securities by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or by any other means, appropriate adjustment shall be made in the provisions of this Agreement so that the rights and privileges granted hereby shall continue with respect to the Registrable Securities as so changed. Without limiting the generality of the foregoing, the Company will require any successor by merger or consolidation to assume and agree to be bound by the terms of this Agreement as a condition to any such merger or consolidation. (b) NO INCONSISTENT AGREEMENTS. This agreement supersedes all prior agreements regarding registration rights between the Company and any of the parties hereto and all such prior agreements are deemed terminated hereby. (c) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departure from the provisions hereof may not be given unless Company has approved the same in writing and obtained the written consent of Investors then holding a majority of the Registrable Securities. (d) NOTICES. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Agreement shall be sufficiently given or made if in writing and (i) delivered in person with receipt acknowledged, (ii) sent by registered or certified mail, return receipt requested, postage prepaid, (iii) sent by overnight courier with guaranteed next-day delivery, or (iv) sent by telex or telecopier, in each case addressed as follows: (i) If to the Investors, to them at their most current address on the Company's records. 8 (ii) If to the Company, to it at: American Disposal Services, Inc. 745 McClintock Drive, Suite 305 Burr Ridge, Illinois 60521 Attention: General Counsel Fax: (708) 655-1455 with a copy to: Proskauer Rose Goetz & Mendelsohn LLP 1585 Broadway New York, New York 10036 Attention: Stephen W. Rubin, Esq. Fax: (212) 969-2900 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been deposited in the United States mail, one business day after sent by overnight courier or on the day telexed or telecopied. (e) NO ASSIGNMENT. This Agreement and the rights hereunder may not be assigned by any party hereto. (f) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York (i.e., without regard to its conflicts of law rules). (h) SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (i) ENTIRE AGREEMENT. This Agreement represents the complete agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof. 9 IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first above written. Company: AMERICAN DISPOSAL SERVICES, INC. By: /s/ Scott H. Flamm ------------------------------------------ Title: Senior Vice President Investors: CDI EQUITY, LLC By: Aetna Life Insurance Company, a Member By: /s/ Timothy A. Holt ------------------------------------------ Timothy A. Holt Vice President Portfolio Management Group By: CDI Equity, Inc., a Member By: /s/ Thomas W. Hallagan ------------------------------------------- Thomas W. Hallagan President CHARTERHOUSE EQUITY PARTNERS II, L.P. By: CHUSA Equity Investors II, L.P., general partner By: Charterhouse Equity II, Inc., general partner By: /s/ Richard T. Henshaw, III ------------------------------------- Title: Senior Vice President CHEF NOMINEES LIMITED By: Charterhouse Group International, Inc., Attorney-in-Fact By: /s/ Richard T. Henshaw, III -------------------------------------- Title: Senior Vice President 10 [signature pages for other Investors to be provided] 11 EX-10.3 7 EXHIBIT 10.3 EXHIBIT 10.3 AMERICAN DISPOSAL SERVICES, INC. 745 MCCLINTOCK DRIVE SUITE 305 BURR RIDGE, IL 60521 As of May 31, 1996 Mr. Richard DeYoung 11434 Plattner Drive Mokena, IL 60448 Dear Mr. DeYoung: American Disposal Services, Inc. a Delaware corporation (the "Corporation"), agrees to employ you and you agree to accept such employment under the following terms and conditions (the "Agreement"): 1. TERM OF EMPLOYMENT. Except for earlier termination as provided in Section 7 below, your employment under this Agreement shall be for a term commencing on the date of the closing of the Corporation's initial public offering of shares of its Common Stock (the "Effective Date") and continuing until the third anniversary of the Effective Date (the "Term"). If the Effective Date has not occurred by the close of business on September 30, 1996, this Agreement shall thereupon terminate, and be of no further force or effect. 2. COMPENSATION. You shall be compensated for all services rendered by you under this Agreement at the rate of $300,000 per annum (the "Salary"), payable in such manner as is consistent with the Corporation's payroll practices for executive employees. 3. DUTIES. During the term of your employment hereunder, you agree to serve as the President of the Corporation subject to the control of the Board of Directors. Your principal office shall be located within 35 miles of Burr Ridge, Illinois. You shall be provided with such working facilities and support services as are suitable to your position and appropriate for the performance of your duties. You shall devote your full business time, energies and attention to the business and affairs of the Corporation and its subsidiaries. 4. BENEFITS. You shall be entitled to such benefits as are generally provided by the Corporation to its senior executive employees including, without limitation, personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. You also shall have the benefit of any life and health insurance plans, pensions, stock option plans and other similar plans as the Corporation may have or may establish from time to time for its senior executive employees. The foregoing, however, shall not be construed to require the Corporation to establish any such plans or to prevent the Corporation from modifying or terminating any such plans, and no such action or failure thereof shall affect this Agreement; PROVIDED, HOWEVER, that the Corporation shall, at all times during the Term, provide you with term life insurance with death benefits in an amount of at least $600,000 payable to a beneficiary designated by you. The Corporation will make available to you an 2 automobile of a make and model consistent with past practice and shall pay all operating expenses associated with such automobile. 5. EXPENSES. The Corporation will reimburse you for reasonable expenses, including travel expenses, incurred by you in connection with the business of the Corporation upon the presentation by you of appropriate substantiation for such expenses. 6. CONFIDENTIALITY, NON-INTERFERENCE. In the course of your employment by the Corporation, you will have and have had access to confidential or proprietary data or information of the Corporation and its operations. You will not at any time divulge or communicate to any person nor shall you direct any Corporation employee to divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing your duties hereunder) or use to the detriment of the Corporation or for the benefit of any other person, any of such data or information. The provisions of this section 6 shall survive your employment hereunder, whether by the normal expiration thereof or otherwise. The term "confidential or proprietary data or information" as used in this Agreement shall mean information not generally available to the public or to senior executives of other companies in the waste services industry, including, without limitation, personnel information, financial information, customer lists, supplier lists, trade secrets, information regarding operations, systems, services, 3 knowhow, computer and any other processed or collated data, computer programs, pricing, marketing and advertising data. You further agree that you will not, for a period of one year after the termination of your employment hereunder, for your own account or for the account of any other person, interfere with the Corporation's relationship with any of its key employees. With respect to the covenants contained in this Section 6, you agree that any remedy at law for any breach of said covenants may be inadequate and that the Corporation shall be entitled to specific performance or any other mode of injunctive and/or other equitable relief to enforce its rights hereunder or any other relief a court might award. 7. EARLIER TERMINATION. (a) Your employment hereunder shall terminate prior to the expiration of the Term on the following terms and conditions: (i) This Agreement shall terminate automatically on the date of your death. (ii) This Agreement shall be terminated at the option of the Corporation if you are unable to perform your duties hereunder for 180 days (whether or not continuous) during any period of 365 consecutive days by reason of physical or mental 4 disability. The disability shall be deemed to have occurred on the one hundred eightieth (180th) day of your absence or lack of adequate performance. (iii) The Corporation shall have the right to terminate this Agreement at any time for "Just Cause" given by you. "Just Cause" shall mean your commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Corporation or a subsidiary, any other act involving dishonesty or fraud with respect to the Corporation or a subsidiary, a material breach of a directive which is not cured within a specified reasonable time after written notice of such breach, or repeated failure after written notice to follow the directives of the Board of Directors of the Corporation. (b) Upon termination of your employment pursuant to Section 7(a) above, or upon your voluntary termination of this Agreement, except as specifically provided in Section 7(c) below, the Corporation's obligations hereunder shall cease; PROVIDED, HOWEVER, that the Corporation's obligations to pay your Salary 5 pursuant to Section 2 above and to reimburse you for expenses pursuant to Section 5 above, in each case accrued prior to the date of termination, shall survive such termination. (c) You shall have the right to terminate this Agreement on five days' written notice given to the Corporation on the following terms and conditions: (i) Within 60 days after the occurrence of a Change of Control (as hereinafter defined). In such event, the Corporation shall pay you, in a lump sum (and in lieu of any other payments under this Agreement), within ten days following the effective date of such termination, the sum of Six Hundred Thousand ($600,000.00) Dollars, less applicable tax withholding. (ii) Within 60 days after the occurrence of events or circumstances which constitute Good Reason (as hereinafter defined). In such event, the Corporation shall pay you, in twelve equal monthly installments beginning on the first business day of the month following the month in which the date of such termination occurred (and in lieu of any other payments under 6 this Agreement), an amount equal to the greater of (x) Seven Hundred Fifty Thousand ($750,000.00) Dollars or (y) the remaining aggregate amount of Salary which would otherwise have been payable to you under this Agreement during the period from the date of termination through the last day of the Term less, in any case, applicable tax withholding. (d) For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred if: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof)), excluding Charterhouse Group International, Inc. or any affiliate thereof, the Corporation or any employee benefit plan sponsored or maintained by the Corporation (including any trustee of any such plan acting in his capacity as trustee), but including a "group" as defined in Section 13(d)(3) of the Exchange Act, becomes the beneficial owner of shares of the Corporation having at least a majority of the total number of votes that may be cast for the election of directors of the Corporation; or (ii) the Corporation consummates any merger or other business combination, sale of all or substantially all of the Corporation's assets or combination of the foregoing transactions (a "Transaction"), other than (x) a 7 Transaction involving only the Corporation and one or more of its subsidiaries, or (y) a Transaction immediately following which the shareholders of the Corporation immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity. (e) For purposes of this Agreement, events or circumstances which constitute "Good Reason" shall be deemed to have occurred if: (i) the Corporation employs an officer in a capacity that is senior to you (except that the Corporation shall be entitled to employ a Chairman of the Board in a capacity that is senior to you so long as such Chairman of the Board is not the Chief Executive Officer of the Corporation); or (ii) the Board of Directors of the Corporation materially diminishes your position, duties or responsibilities under this Agreement or assigns to you duties or responsibilities that are materially inconsistent with your position as President of the Corporation. The events or circumstances set forth in clauses (i) and (ii) of this Section 7(e) shall not constitute Good Reason to the extent they occur in connection with the termination of your employment pursuant to Section 7(a)(i), 7(a)(ii) or 7(a)(iii) above. (f) Notwithstanding anything herein to the contrary, you shall not be entitled to receive payment under more than one provision of Section 7(c) above. 8 (g) In the event of the termination of this Agreement pursuant to Section 7(c) above, all unvested stock options then held by you (excluding options theretofore exercised or expired) shall immediately vest and become fully exercisable, notwithstanding any provisions of any applicable stock option agreement to the contrary. 8. ARBITRATION. Either you or the Corporation may give written notice of a dispute arising under this Agreement. In the event the parties are unable to resolve any dispute arising under this Agreement within thirty (30) days of receipt of written notice, (the "Resolution Period"), then such dispute shall be resolved by a committee of three arbitrators (one appointed by you, one appointed by the Corporation and one appointed by the other two so appointed), which shall be appointed within 60 days after the expiration of the Resolution Period. The arbitrators shall abide by the rules of the American Arbitration Association and their decision shall be made within 45 days and shall be final and binding on all parties. 9. ENTIRE AGREEMENT; MODIFICATION; CONSTRUCTION. This Agreement constitutes the full and complete understanding of the parties, and will, on the Effective Date, supersede all prior agreements and understandings, oral or written, with respect to the subject matter hereof, including any agreements you may have with the Corporation's subsidiaries. Each party to this Agreement acknowledges that no representations, inducements, promises or 9 agreements, oral or otherwise, have been made by either party, or anyone acting on behalf of either party, which are not embodied herein and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended except by an instrument in writing signed by the party against which enforcement thereof may be sought. 10. SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. 11. WAIVER OF BREACH. The waiver by either party of a breach or any provision of this Agreement, which waiver must be in writing to be effective, shall not operate as or be construed as a waiver of any subsequent breach. 12. NOTICES. All notices hereunder shall be in writing and shall be hand delivered or sent by prepaid express mail or other overnight prepaid courier or by certified or registered mail, postage prepaid, return receipt requested, if to you, to your residence as listed in the Corporation's records, and if to the Corporation, to the address set forth at the head of this 10 Agreement, Attention: Chief Financial Officer, with copies to Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036, Attention: Stephen W. Rubin, Esq. 13. ASSIGNABILITY; BINDING EFFECT. This Agreement shall not be assignable by you. This Agreement shall be binding upon and inure to the benefit of you, your legal representatives, heirs and distributees, and shall be binding upon and inure to the benefit of the Corporation, its successors and assigns. 14. GOVERNING LAW. All questions pertaining to the validity, construction, execution and performance of this Agreement shall be construed and governed in accordance with the laws of the State of Illinois, without regard to the conflicts or choice of law provisions thereof. 15. HEADINGS. The headings of this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 16. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17. REVIEW OF THIS AGREEMENT. You acknowledge that you have (a) carefully read this Agreement, (b) had an opportunity to 11 consult with independent counsel with respect to this Agreement and (c) entered into this Agreement of your own free will. If this letter correctly sets forth our understanding, please sign the duplicate original in the space provided below and return it to the Corporation, whereupon this shall constitute the employment agreement between you and the Corporation effective on the Effective Date and for the Term stated herein. AMERICAN DISPOSAL SERVICES, INC. By: /s/ David C. Stoller _________________________ Chairman Agreed as of the date first above written: /s/ Richard DeYoung _________________________ Richard DeYoung 12 EX-10.8 8 EXHIBIT 10.8 EXHIBIT 10.8 AMERICAN DISPOSAL SERVICES, INC. 745 MCCLINTOCK DRIVE SUITE 305 BURR RIDGE, IL 60521 As of May 31, 1996 Mr. David C. Stoller 535 Madison Avenue New York, NY 10022 Dear Mr. Stoller: American Disposal Services, Inc. a Delaware corporation (the "Corporation"), agrees to employ you and you agree to accept such employment under the following terms and conditions (the "Agreement"): 1. TERM OF EMPLOYMENT. Except for earlier termination as provided in Section 7 below, your employment under this Agreement shall be for an initial term commencing on the date of the closing of the Corporation's initial public offering of shares of its Common Stock (the "Effective Date") and continuing until the first anniversary of the Effective Date (the "Initial Term"). If the Effective Date has not occurred by the close of business on September 30, 1996, this Agreement shall thereupon terminate, and be of no further force or effect. After the Initial Term, this Agreement shall be automatically renewed for successive terms of one year each, unless prior to the end of the Initial Term or any one-year renewal term either party shall have given to the other party at least 180 days' prior written notice of termination of this Agreement. 2. COMPENSATION. You shall be compensated for all services rendered by you under this Agreement at the rate of $300,000 per annum (the "Salary"), payable in such manner as is consistent with the Corporation's payroll practices for executive employees. 3. DUTIES. During the term of your employment hereunder, you agree to serve as the Chairman of the Corporation subject to the control of the Board of Directors. You shall be provided with such working facilities and support services as are suitable to your position and appropriate for the performance of your duties. 4. BENEFITS. You shall be entitled to such benefits as are generally provided by the Corporation to its senior executive employees including, without limitation, personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. You also shall have the benefit of any life and health insurance plans, pensions, 401(k), stock option plans and other similar plans as the Corporation may have or may establish from time to time for its senior executive employees. The foregoing, however, shall not be construed to require the Corporation to establish any such plans or to prevent the Corporation from modifying or terminating any such plans, and no such action or failure thereof shall affect this Agreement; PROVIDED, HOWEVER that the Corporation shall, at all times during the Term, provide you with term life insurance with death benefits in an amount of at least $600,000 payable to a beneficiary designated by you. 2 5. EXPENSES. The Corporation will reimburse you for reasonable expenses, including travel expenses, incurred by you in connection with the business of the Corporation upon the presentation by you of appropriate substantiation for such expenses. 6. CONFIDENTIALITY, NON-INTERFERENCE. In the course of your employment by the Corporation, you will have and have had access to confidential or proprietary data or information of the Corporation and its operations. You will not at any time divulge or communicate to any person nor shall you direct any Corporation employee to divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing your duties hereunder) or use to the detriment of the Corporation or for the benefit of any other person, any of such data or information. The provisions of this section 6 shall survive your employment hereunder, whether by the normal expiration thereof or otherwise. The term "confidential or proprietary data or information" as used in this Agreement shall mean information not generally available to the public, including, without limitation, personnel information, financial information, customer lists, supplier lists, trade secrets, information regarding operations, systems, services, knowhow, computer and any other processed or collated data, computer programs, pricing, marketing and advertising data. You further agree that you will not, for a period of one year after the termination of your employment hereunder, for your own account or for the account of any other person, interfere with the Corporation's relationship with any of its key employees. With respect to the covenants contained in this Section 6, you agree that any remedy at law for any breach of said covenants may be inadequate and that the Corporation shall be entitled to specific performance or any other mode of injunctive and/or other equitable relief to enforce its rights hereunder or any other relief a court might award. 3 7. EARLIER TERMINATION. (a) Your employment hereunder shall terminate prior to the expiration of the Initial Term (or any renewal term in the event of renewal) on the following terms and conditions: (i) This Agreement shall terminate automatically on the date of your death. (ii) This Agreement shall be terminated at the option of the Corporation if you are unable to perform your duties hereunder for 180 days (whether or not continuous) during any period of 365 consecutive days by reason of physical or mental disability. The disability shall be deemed to have occurred on the one hundred eightieth (180th) day of your absence or lack of adequate performance. 4 (iii) The Corporation shall have the right to terminate this Agreement at any time for "Just Cause" given by you. "Just Cause" shall mean your commission of a felony, a crime involving moral turpitude, embezzlement, mis- appropriation of property of the Corporation or a subsidiary, any other act involving dishonesty or fraud with respect to the Corporation or a subsidiary, a material breach of a directive which is not cured within a specified reasonable time after written notice of such breach, or repeated failure after written notice to follow the directives of the Board of Directors of the Corporation. (b) Upon termination of your employment pursuant to Section 7(a), the Corporation's obligations hereunder shall cease; PROVIDED, HOWEVER, that the Corporation's obligations to pay your Salary pursuant to Section 2 above and to reimburse you for expenses pursuant to Section 5 above, in each case accrued prior to the date of termination, shall survive such termination. 5 (c) You shall have the right to terminate this Agreement on five days' written notice given to the Corporation within 60 days after the occurrence of a Change of Control (as hereinafter defined). In such event, the Corporation shall pay you, in a lump sum (and in lieu of any other payments under this Agreement), within ten days following the effective date of such termination, the sum of Six Hundred Thousand ($600,000.00) Dollars, less applicable tax withholding. (d) For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred if: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof)), excluding Charterhouse Group International, Inc. or any affiliate thereof, the Corporation or any employee benefit plan sponsored or maintained by the Corporation (including any trustee of any such plan acting in his capacity as trustee), but including a "group" as defined in Section 13(d)(3) of the Exchange Act, becomes the beneficial owner of shares of the Corporation having at least a majority of the total number of votes that may be cast for the election of directors of the Corporation; or (ii) the Corporation consummates any merger or other business combination, sale of all or substantially all of the Corporation's assets or combination of the foregoing transactions (a "Transaction"), other than (x) a Transaction involving only the Corporation and one or more of its subsidiaries, or (y) a Transaction immediately following which the shareholders of the Corporation immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity. 6 8. ENTIRE AGREEMENT; MODIFICATION; CONSTRUCTION. This Agreement constitutes the full and complete understanding of the parties, and will, on the Effective Date, supersede all prior agreements and understandings, oral or written, with respect to the subject matter hereof, including any agreements you may have with Charterhouse Environmental Capital Group, Inc. or with any of the Corporation's subsidiaries. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by either party, or anyone acting on behalf of either party, which are not embodied herein and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended except by an instrument in writing signed by the party against which enforcement thereof may be sought. 9. SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. 7 10. WAIVER OF BREACH. The waiver by either party of a breach or any provision of this Agreement, which waiver must be in writing to be effective, shall not operate as or be construed as a waiver of any subsequent breach. 11. NOTICES. All notices hereunder shall be in writing and shall be hand delivered or sent by prepaid express mail or other overnight prepaid courier or by certified or registered mail, postage prepaid, return receipt requested, if to you, to your residence as listed in the Corporation's records, and if to the Corporation, to the address set forth at the head of this Agreement, Attention: Chief Financial Officer, with copies to Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036, Attention: Stephen W. Rubin, Esq. 12. ASSIGNABILITY; BINDING EFFECT. This Agreement shall not be assignable by you. This Agreement shall be binding upon and inure to the benefit of you, your legal representatives, heirs and distributees, and shall be binding upon and inure to the benefit of the Corporation, its successors and assigns. 13. GOVERNING LAW. All questions pertaining to the validity, construction, execution and performance of this Agreement shall be construed and governed in accordance with the laws of the State of Delaware, without regard to the conflicts or choice of law provisions thereof. 8 14. HEADINGS. The headings of this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 15. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 16. REVIEW OF THIS AGREEMENT. You acknowledge that you have (a) carefully read this Agreement, (b) had an opportunity to consult with independent counsel with respect to this Agreement and (c) entered into this Agreement of your own free will. If this letter correctly sets forth our understanding, please sign the duplicate original in the space provided below and return it to the Corporation, whereupon this shall constitute the employment agreement between you and the Corporation effective on the Effective Date. AMERICAN DISPOSAL SERVICES, INC. By: /s/ Richard De Young --------------------------- President Agreed as of the date first above written: /s/ David C. Stoller - --------------------- David C. Stoller 9 EX-10.9 9 EXHIBIT 10.9 EXHIBIT 10.9 - ------------------------------------------------------------------------------- AMERICAN DISPOSAL SERVICES, INC. 1996 STOCK OPTION PLAN - ------------------------------------------------------------------------------- Table of Contents ----------------- Page ---- I. Purposes of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . 1 II. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 III. Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 IV. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (A) Duties of the Committee. . . . . . . . . . . . . . . . . . . . . 4 (B) Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (C) Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 5 (D) Meetings of the Committee. . . . . . . . . . . . . . . . . . . . 5 (E) Determinations . . . . . . . . . . . . . . . . . . . . . . . . . 5 V. Shares; Adjustment Upon Certain Events. . . . . . . . . . . . . . . . 6 (A) Shares to be Delivered; Fractional Shares. . . . . . . . . . . . 6 (B) Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . 6 (C) Adjustments; Recapitalization, etc.. . . . . . . . . . . . . . . 6 (D) Extraordinary Transactions . . . . . . . . . . . . . . . . . . . 7 VI. Awards and Terms of Options . . . . . . . . . . . . . . . . . . . . . 7 (A) Grant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (B) Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . 8 (C) Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . 8 (D) Exercisability . . . . . . . . . . . . . . . . . . . . . . . . . 8 (E) Exercise of Options. . . . . . . . . . . . . . . . . . . . . . . 8 (F) Incentive Stock Option Limitations . . . . . . . . . . . . . . . 9 (G) Other Terms and Conditions . . . . . . . . . . . . . . . . . . . 10 VII. Effect of Termination of Employment . . . . . . . . . . . . . . . . . 10 (A) Death, Disability, Retirement, etc.. . . . . . . . . . . . . . . 10 (B) Cause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (C) Cancellation of Options. . . . . . . . . . . . . . . . . . . . . 11 VIII. Nontransferability of Options . . . . . . . . . . . . . . . . . . . . 11 IX. Rights as a Stockholder . . . . . . . . . . . . . . . . . . . . . . . 11 X. Termination, Amendment and Modification . . . . . . . . . . . . . . . 12 XI. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 i Page ---- XII. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . 13 (A) Right to Terminate Employment or Consulting Arrangements . . . . 13 (B) Purchase for Investment. . . . . . . . . . . . . . . . . . . . . 13 (C) Trusts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (D) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (E) Severability of Provisions . . . . . . . . . . . . . . . . . . . 14 (F) Payment to Minors, Etc.. . . . . . . . . . . . . . . . . . . . . 14 (G) Headings and Captions. . . . . . . . . . . . . . . . . . . . . . 14 (H) Controlling Law. . . . . . . . . . . . . . . . . . . . . . . . . 14 (I) Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 14 (J) Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 (K) Section 162(m) Deduction Limitation. . . . . . . . . . . . . . . 14 (L) Section 16(b) of the Exchange Act. . . . . . . . . . . . . . . . 14 XIII. Issuance of Stock Certificates; Legends; Payment of Expenses. . . . . . . . . . . . . . . . . . . . . 15 (A) Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . 15 (B) Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 (C) Payment of Expenses. . . . . . . . . . . . . . . . . . . . . . . 15 XIV. Listing of Shares and Related Matters . . . . . . . . . . . . . . . . 15 XV. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ii AMERICAN DISPOSAL SERVICES, INC. 1996 STOCK OPTION PLAN I. PURPOSES OF THE PLAN The purposes of this 1996 Stock Option Plan (the "Plan") are to enable American Disposal Services, Inc. (the "Company") and Designated Subsidiaries (as defined herein) to attract, retain and motivate certain key employees and certain consultants who are important to the success and growth of the business of the Company and Designated Subsidiaries and to create a long- term mutuality of interest between such persons and the stockholders of the Company by granting the options to purchase Common Stock (as defined herein). II. DEFINITIONS In addition to the terms defined elsewhere herein, for purposes of this Plan, the following terms will have the following meanings when used herein with initial capital letters: (A) "Board" means the Board of Directors of the Company. (B) "Cause" means, with respect to a Participant's Termination of Employment, (i) in the case where there is no employment or consulting agreement between the Company and the Participant, or where there is an employment or consulting agreement, but such agreement does not define cause (or words of like import), commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Company or a Subsidiary, any other act involving dishonesty or fraud with respect to the Company or a Subsidiary, a material breach of a directive which is not cured within a specified time after written notice of such breach, or repeated failure after written notice to follow the directives of an appropriate officer or the Board, or (ii) in the case where there is an employment or consulting agreement between the Company or a Subsidiary and the Participant, termination that is or would be deemed to be for cause (or words of like import) as defined under such employment or consulting agreement. (C) "Code" means the Internal Revenue Code of 1986, as amended. (D) "Committee" means a committee of the Board appointed from time to time by the Board consisting of two or more non-employee directors, each of whom shall be an "outside director" as defined in Section 162(m) of the Code to the extent then required and a "disinterested person" as defined in Rule 16b-3 promulgated under 1 Section 16(b) of the Exchange Act, except that if and to the extent that no Committee exists which has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board. (E) "Common Stock" means the common stock of the Company, par value $.01 per share, any common stock into which the Common Stock may be converted and any common stock resulting from any reclassification of the Common Stock. (F) "Company" means American Disposal Services, Inc., a Delaware corporation. (G) "Designated Subsidiary" means any Subsidiary which has been designated from time to time by the Board. An entity shall be deemed a Designated Subsidiary only for such periods as the requisite ownership relationship is maintained. (H) "Disability" means a permanent and total disability, rendering a Participant unable to perform the duties performed by the Participant for the Company or Designated Subsidiaries by reason of physical or mental disability for a period of more than an aggregate of one hundred eighty days in any twelve month period. A Disability shall only be deemed to occur at the time of the determination by the Committee of the Disability. (I) "Eligible Consultants" means the consultants of the Company and Designated Subsidiaries who are eligible to participate in the Plan (including but not limited to employees of entities providing consulting services), as determined by the Committee in its sole discretion. (J) "Exchange Act" means the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder. (K) "Fair Market Value" means, for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date, the last sales prices reported for the Common Stock on the applicable date, (i) as reported by the principal national securities exchange in the United States on which it is then traded, or (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, or if the sale of the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted. If the Common Stock is not readily tradable on a national securities exchange or any system sponsored by the National Association of Securities Dealers, its Fair Market Value shall be set by the Committee based upon its assessment of the cash price that would be paid between a fully informed buyer and seller under no compulsion to buy or sell (without giving effect to 2 any discount for a minority interest or any restrictions on transferability or any lack of liquidity of the stock). (L) "Incentive Stock Option" means any Option awarded under this Plan intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code. (M) "Key Employee" means any person who is an officer or other valuable employee of the Company or a Designated Subsidiary, as determined by the Committee in its sole discretion. A Key Employee may, but need not, be an officer of the Company or a Designated Subsidiary. (N) "Non-Qualified Stock Option" means any Option awarded under this Plan that is not an Incentive Stock Option. (O) "Option" means the right to purchase one Share at a prescribed purchase price on the terms specified in the Plan. (P) "Participant" means an Eligible Consultant or Key Employee who is granted Options under the Plan which Options have not expired; provided, however, that any Eligible Consultant of the Company or a Designated Subsidiary shall be a Participant for purposes of the Plan solely with respect to grants of Non-Qualified Stock Options and shall be ineligible for Incentive Stock Options. (Q) "Person" means any individual or entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person as the context may require. (R) "Retirement" means a Termination of Employment without cause from the Company and/or a Subsidiary by a Participant who is at least age 65 or, with the consent of the Committee, such earlier date before age 65 but after age 55. (S) "Securities Act" means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder. (T) "Share" means a share of Common Stock. (U) "Subsidiary" means any corporation that is defined as a subsidiary corporation in Section 424(f) of the Code. (V) "Ten Percent Shareholder" means a person owning Common Stock of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company as defined in Section 422 of the Code. 3 (W) "Termination of Employment" with respect to an individual means that individual is no longer actively employed by the Company or a Subsidiary on a full-time basis, irrespective of whether or not such employee is receiving salary continuance pay, is continuing to participate in other employee benefit programs or is otherwise receiving severance type payments. In the event an entity shall cease to be a Subsidiary, there shall be deemed a Termination of Employment of any individual who is not otherwise an employee of the Company or another Subsidiary at the time the entity ceases to be a Subsidiary. A Termination of Employment shall not include a leave of absence approved for purposes of the Plan by the Committee. For purposes of this plan, a full-time employee is a person who is scheduled to work at least thirty (30) hours per week. With respect to an Eligible Consultant, a Termination of Employment shall occur upon the termination of the consulting contract or the termination of the performance of consulting services, as determined by the Committee in its sole discretion. (X) "Withholding Election" means the election set forth in Article XV. III. EFFECTIVE DATE The Plan shall become effective as of January 1, 1996 (the "Effective Date"). Grants of Options by the Committee under the Plan may be made as of or after the Effective Date of the Plan, including retroactively, provided that, if the Plan is not approved by the majority of the Common Stock (at the time of approval), all Options which have been granted by the Committee shall be null and void. No Options may be exercised prior to the approval of the Plan by the majority of the Common Stock (at the time of approval). IV. ADMINISTRATION (A) DUTIES OF THE COMMITTEE. The Plan shall be administered and interpreted by the Committee. The Committee shall have full authority to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan; to establish, amend and rescind rules for carrying out the Plan; to administer the Plan, subject to its provisions; to select Participants in, and grant Options under, the Plan; to determine the terms, vesting requirements, exercise price and form of exercise payment for each Option granted under the Plan; to determine the consideration to be received by the Company in exchange for the grant of the Options; to determine whether and to what extent Incentive Stock Options and Non-Qualified Stock Options, or any combination thereof, are to be granted hereunder to one or more Key Employees and whether and to what extent Non-Qualified Stock Options are to be granted hereunder to one or more Eligible Consultants; to prescribe the form or forms of instruments evidencing Options and any other instruments required under the Plan (which need not be 4 uniform) and to change such forms from time to time; to determine whether, to what extent and under what circumstances to permit reloads, such that to the extent that Options are settled with Common Stock, that Non-Qualified Stock Options may be granted for the same number of shares of the same or different types, based on such terms as the Committee may determine, in its sole discretion; and to make all other determinations and to take all such steps in connection with the Plan and the Options as the Committee, in its sole discretion, deems necessary or desirable. The Committee shall not be bound to any standards of uniformity or similarity of action, interpretation or conduct in the discharge of its duties hereunder, regardless of the apparent similarity of the matters coming before it. Any determination, action or conclusion of the Committee shall be final, conclusive and binding on all parties. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Stock Option under such Section 422. (B) ADVISORS. The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan, and may rely upon any advice or opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company. (C) INDEMNIFICATION. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. To the maximum extent permitted by applicable law or the Certificate of Incorporation or By-Laws of the Company and to the extent not covered by insurance, each officer and member or former member of the Committee or of the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the Plan, except to the extent arising out of such officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, members or former members may have as directors under applicable law or under the Certificate of Incorporation or By-Laws of the Company or Designated Subsidiary. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Options granted to him or her under this Plan. 5 (D) MEETINGS OF THE COMMITTEE. The Committee shall adopt such rules and regulations as it shall deem appropriate concerning the holding of its meetings and the transaction of its business. Any member of the Committee may be removed from the Committee at any time either with or without cause by resolution adopted by the Board, and any vacancy on the Committee may at any time be filled by resolution adopted by the Board. All determinations by the Committee shall be made by the affirmative vote of a majority of its members. Any such determination may be made at a meeting duly called and held at which a majority of the members of the Committee are in attendance in person or through telephonic communication. Any determination set forth in writing and signed by all the members of the Committee shall be as fully effective as if it had been made by a majority vote of the members at a meeting duly called and held. (E) DETERMINATIONS. Each determination, interpretation or other action made or taken pursuant to the provisions of this Plan by the Committee shall be final, conclusive and binding for all purposes and upon all persons, including, without limitation, the Participants, the Company and Subsidiaries, directors, officers and other employees of the Company and Subsidiaries, and the respective heirs, executors, administrators, personal representatives and other successors in interest of each of the foregoing. V. SHARES; ADJUSTMENT UPON CERTAIN EVENTS (A) SHARES TO BE DELIVERED; FRACTIONAL SHARES. Shares to be issued under the Plan shall be made available, at the sole discretion of the Board, either from authorized but unissued Shares or from issued Shares reacquired by the Company and held in treasury. No fractional Shares will be issued or transferred upon the exercise of any Option. In lieu thereof, the Company shall pay a cash adjustment equal to the same fraction of the Fair Market Value of one Share on the date of exercise. (B) NUMBER OF SHARES. Subject to adjustment as provided in this Article V, the maximum aggregate number of Shares that may be issued under the Plan shall be One Million One Hundred Thousand (1,100,000). If Options are for any reason canceled, or expire or terminate unexercised, the Shares covered by such Options shall again be available for the grant of Options, subject to the foregoing limit. (C) ADJUSTMENTS; RECAPITALIZATION, ETC. The existence of the Plan and the Options granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting Common Stock, the dissolution or liquidation of the Company or Designated Subsidiaries, any sale or 6 transfer of all or part of its assets or business or any other corporate act or proceeding. The Committee may make or provide for such adjustments in the maximum number of Shares specified in Article V(B), in the number of Shares covered by outstanding Options granted hereunder, and/or in the Purchase Price (as hereinafter defined) applicable to such Options or such other adjustments in the number and kind of securities received upon the exercise of Options, as the Committee in its sole discretion may determine is equitably required to prevent dilution or enlargement of the rights of Participants or to otherwise recognize the effect that otherwise would result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, merger, consolidation, spin-off, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase securities or any other corporate transaction or event having an effect similar to any of the foregoing. Except as herein expressly provided, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor or upon conversion of shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number and class of shares and/or other securities or property subject to Options theretofore granted or the Purchase Price. (D) EXTRAORDINARY TRANSACTIONS. (i) In the event the Company shall, pursuant to action by its Board of Directors, at any time propose to merge with or into, consolidate with, or sell or otherwise transfer all or substantially all of its assets to another entity or in the event of the acquisition of all or substantially all of the Company's outstanding Common Stock by a single person or entity and/or group of entities acting in concert (each, an "Extraordinary Transaction"), the Company shall cause written notice of the proposed Extraordinary Transaction to be given to the Participant not less than 30 days prior to the anticipated effective date of the proposed Extraordinary Transaction (the "Extraordinary Transaction Effective Date"). (ii) On a date which the Company shall specify in such notice (the "Early Vesting Date"), which date shall not be less than 20 days prior to the Extraordinary Transaction Effective Date, the Options shall become fully vested, except as otherwise expressly provided in any Option Agreement with respect to the Options granted thereunder. (iii) If the Extraordinary Transaction is consummated, the Options, to the extent not previously exercised prior to the Extraordinary Transaction Effective Date, shall terminate on the Extraordinary Transaction Effective Date. If the Extraordinary Transaction is abandoned or otherwise not consummated then, to the extent that the portion of the Options not exercised prior to such abandonment or termination shall have vested solely by operation of Article V(D)(ii) and the relevant Option agreements, such vesting shall be annulled and be of no further force or effect, 7 and the vesting provisions set forth in the relevant Option agreements shall be reinstituted, as of the date of such abandonment or termination. VI. AWARDS AND TERMS OF OPTIONS (A) GRANT. The Committee may grant Non-Qualified Stock Options or Incentive Stock Options, or any combination thereof to Key Employees, and Non- Qualified Stock Options to Eligible Consultants, provided that the maximum number of Shares with respect to which Options may be granted to any Key Employee or any Eligible Consultant during any calendar year may not exceed Two Hundred Fifty Thousand (250,000), subject to adjustment as provided in Article V(C). To the extent that the maximum number of Shares with respect to which Options may be granted are not granted in a particular calendar year to a Participant (beginning with the year in which the Participant receives his or her first grant of Options hereunder), such ungranted Options for any year shall increase the maximum number of Shares with respect to which Options may be granted to such Participant in subsequent calendar years during the term of the Plan until used. Notwithstanding the foregoing, in order to comply with Section 162(m) of the Code, the Committee shall take into account that (1) if an Option is cancelled, the cancelled Option continues to be counted against the maximum number of shares for which Options may be granted to the Key Employee or Consultant under the Plan and (2) for purposes of Section 162(m) of the Code, if after the grant of an Option, the Committee or the Board reduces the exercise price or Purchase Price (as defined below), the transaction is treated a cancellation of the Option and a grant of a new Option, and in such case, both the Option that is deemed to be cancelled and the Option that is deemed to be granted reduce the maximum number of shares for which Options may be granted to the Key Employee or Consultant under the Plan. To the extent that any Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Option or the portion thereof which does not qualify, shall constitute a separate Non-Qualified Stock Option. Each Option shall be evidenced by an Option agreement (the "Option Agreement") in such form as the Committee shall approve from time to time. (B) EXERCISE PRICE. The purchase price per Share (the "Purchase Price") deliverable upon the exercise of a Non-Qualified Stock Option shall be determined by the Committee and set forth in a Participant's Option Agreement, provided that the Purchase Price shall not be less than the par value of a Share. Notwithstanding the foregoing, to the extent the Committee grants an Incentive Stock Option or grants an option which is intended to be "performance based" for purposes of Section 162(m) of the Code, the Purchase Price deliverable upon the exercise of any such option shall be determined by the Committee and set forth in a Participant's Option Agreement but shall be not less than 100% of the Fair Market Value of a Share at the time of grant; provided, however, if an Incentive Stock Option is granted to a Ten Percent 8 Shareholder, the Purchase Price shall be no less than 110% of the Fair Market Value of a Share. (C) NUMBER OF SHARES. The Option Agreement shall specify the number of Options granted to the Participant, as determined by the Committee in its sole discretion. (D) EXERCISABILITY. At the time of grant, the Committee shall specify when and on what terms (including any vesting requirements) the Options granted shall be exercisable. In the case of Options not immediately exercisable in full, the Committee may at any time accelerate the time at which all or any part of the Options may be exercised and may waive any other conditions to exercise. No Option shall be exercisable after the expiration of ten years from the date of grant; provided, however, the term of an Incentive Stock Option granted to a Ten Percent Shareholder may not exceed five years. Each Option shall be subject to earlier termination as provided in Article VII below. (E) EXERCISE OF OPTIONS. (i) A Participant may elect to exercise one or more Options then exercisable by giving written notice to the Company of such election and of the number of Options such Participant has elected to exercise, accompanied by payment in full of the aggregate Purchase Price for the number of Shares for which the Options are being exercised. (ii) Shares purchased pursuant to the exercise of Options shall be paid for at the time of exercise as follows: (a) in cash or by check, bank draft or money order payable to the order of Company; (b) in the form shares of Common Stock owned by the Participant (and for which the Participant has good title free and clear of any liens and encumbrances); (c) by agreeing to surrender then exercisable Options equivalent in value; (d) if the Shares are traded on a national securities exchange, through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Purchase Price plus all required tax withholding by payment through a cash or margin arrangement with a broker; 9 (e) in shares otherwise issuable upon exercise of the Option; or (f) on such other terms and conditions as may be acceptable to the Committee (which may include payment in full or in part by the transfer of Shares which have been owned by the Participant for at least 6 months or the surrender of Options owned by the Participant) and in accordance with applicable law. No shares shall be issued until payment, as provided herein, has been made or provided for. (iii) Upon receipt of payment, the Company shall deliver to the Participant as soon as practicable a certificate or certificates for the Shares then purchased. (F) INCENTIVE STOCK OPTION LIMITATIONS. To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year under the Plan and/or any other stock option plan of the Company or any subsidiary or parent corporation (within the meaning of Section 424 of the Code) exceeds $100,000, such Options shall be treated as Options which are not Incentive Stock Options. To the extent permitted under Section 422 of the Code, or the applicable regulations thereunder or any applicable Internal Revenue Service pronouncement, if (i) a Participant's employment with the Company or Designated Subsidiary is terminated by reason of death, Disability, Retirement or termination without Cause, and (ii) the portion of any Incentive Stock Option that would be exercisable during the post-termination period specified under Article VII but for the $100,000 limitation currently contained in Section 422(d) of the Code, is greater than the portion of such Stock Option that is immediately exercisable as an `incentive stock option' during such post- termination period under Section 422, such excess shall be treated as a Non- Qualified Stock Option. If the exercise of an Incentive Stock Option is accelerated for any reason, any portion of such Option that is not exercisable as an Incentive Stock Option by reason of the $100,000 limitation contained in Section 422(d) of the Code shall be treated as a Non-Qualified Stock Option. Should any of the foregoing provisions not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may amend the Plan accordingly, without the necessity of obtaining the approval of the shareholders of the Company, except as otherwise required by law. 10 (G) OTHER TERMS AND CONDITIONS. Options may contain such other provisions, which shall not be inconsistent with any of the foregoing terms of the Plan, as the Committee shall deem appropriate including, without limitation, provisions permitting the use of shares of Common Stock to exercise and settle a Stock Option ("Stock Swaps") or permitting "reloads" such that in the case of Stock Swaps, the same number of Non-Qualified Stock Options are granted as the number of shares of Common Stock swapped ("Reloads"). With respect to Stock Swaps, shares of Common Stock shall be valued at Fair Market Value on the date of exercise and shall have the same remaining time period as the shares of Common Stock that were swapped. With respect to Reloads, the exercise price of the new Non-Qualified Stock Option shall be the Fair Market Value on the date granted and the term of the Non-Qualified Stock Option shall be the same as the remaining term of the Options that are exercised. VII. EFFECT OF TERMINATION OF EMPLOYMENT (A) DEATH, DISABILITY, RETIREMENT, ETC. Except as otherwise provided in the Participant's Option Agreement, upon Termination of Employment, all outstanding Options then exercisable and not exercised by the Participant prior to such Termination of Employment (and any Options not previously exercisable but made exercisable by the Committee at or after the Termination of Employment) shall remain exercisable by the Participant to the extent not exercised for the following time periods, or, if earlier, the prior expiration of the Option in accordance with the terms of the Plan and grant: (i) In the event of the Participant's death, Retirement or Disability, such Options shall remain exercisable by the Participant (or by the Participant's estate or by the person given authority to exercise such Options by the Participant's will or by operation of law) for a period of one year from the date of the Participant's death, Retirement or Disability, provided that the Committee, in its sole discretion, may at any time extend such time period. (ii) In the event the Participant's employment is terminated by the Company or a Designated Subsidiary without Cause, such Options shall remain exercisable for 90 days from the date of the Participant's Termination of Employment, provided that the Committee, in its sole discretion, may at any time extend such time period. Unless the Committee otherwise determines, there shall be no effect on the exercisability of Options held by a Participant if (i) the Participant's employment or consultancy is transferred from the Company to a Designated Subsidiary, from a Designated Subsidiary to the Company or from one Designated Subsidiary to another or (ii) the Participant is a Key Employee who becomes an Eligible Consultant or an Eligible Consultant who becomes a Key Employee. 11 (B) CAUSE. Upon the Termination of Employment of a Participant for Cause, or if the Company or a Designated Subsidiary obtains or discovers information after Termination of Employment that such Participant had engaged in conduct that would have justified a Termination of Employment for Cause during employment, all outstanding Options of such Participant shall, unless the Committee in its sole discretion determines otherwise, terminate and be null and void. (C) CANCELLATION OF OPTIONS. Except as otherwise provided in Article V(D), no Options that were not exercisable during the period of employment shall thereafter become exercisable upon a Termination of Employment for any reason or no reason whatsoever, and such options shall terminate and become null and void upon a Termination of Employment, unless the Committee determines in its sole discretion that such Options shall be exercisable. VIII. NONTRANSFERABILITY OF OPTIONS No Option shall be transferable by the Participant otherwise than by will or under applicable laws of descent and distribution, and during the lifetime of the Participant may be exercised only by the Participant or his or her guardian or legal representative. In addition, except as provided in the immediately preceding sentence, no Option shall be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and no Option shall be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in the event of any levy upon any Option by reason of any execution, attachment or similar process contrary to the provisions hereof, such Option shall immediately terminate and become null and void. IX. RIGHTS AS A STOCKHOLDER A Participant (or a permitted transferee of an Option) shall have no rights as a stockholder with respect to any Shares covered by such Participant's Option until such Participant (or permitted transferee) shall have become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property or distributions or other rights in respect to any such Shares, except as otherwise specifically provided in this Plan. X. TERMINATION, AMENDMENT AND MODIFICATION The Plan shall terminate at the close of business on the tenth anniversary of the Effective Date (the "Termination Date"), unless terminated sooner as hereinafter provided, and no Option shall be granted under the Plan on or after that date. The termination of the Plan shall not terminate any outstanding Options that by their 12 terms continue beyond the Termination Date. At any time prior to the Termination Date, the Committee may amend or terminate the Plan or suspend the Plan in whole or in part. The Committee may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirements referred to in Article XII), or suspend or terminate it entirely, retroactively or otherwise; PROVIDED, HOWEVER, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Options granted prior to such amendment, suspension or termination, may not, be materially impaired without the consent of such Participant and, provided further, without the approval of the stockholders of the Company entitled to vote, no amendment may be made (except by operation of Article V(C) with respect to clauses (i), (ii) and (iii) below), which would (i) increase the aggregate number of shares of Common Stock that may be issued under this Plan; (ii) decrease the minimum Purchase Price of any Option; (iii) increase the individual limitation set forth in Article VI(A) of the Plan; (iv) extend the maximum option period; or (v) effect any other change that would require stockholder approval under Section 162(m) of the Code. The Committee may amend the terms of any Option granted, prospectively or retroactively, but, subject to Article VI above or as otherwise provided herein, no such amendment or other action by the Committee shall materially impair the rights of any Participant without the Participant's consent. No modification of an Option shall adversely affect the status of an Incentive Stock Option as an incentive stock option under Section 422 of the Code. Notwithstanding the foregoing, however, no such amendment may, without the approval of the stockholders of the Company, effect any change that would require stockholder approval under applicable law. XI. USE OF PROCEEDS The proceeds of the sale of Shares subject to Options under the Plan are to be added to the general funds of Company and used for its general corporate purposes as the Board shall determine. XII. GENERAL PROVISIONS (A) RIGHT TO TERMINATE EMPLOYMENT OR CONSULTING ARRANGEMENTS. Neither the adoption of the Plan nor the grant of Options shall impose any obligation on the Company or Designated Subsidiaries to continue the employment of any Participant or the consulting arrangement with any Eligible Consultant, nor shall it impose any obligation on the part of any Participant to remain in the employ of the Company or Designated Subsidiaries or to remain as a consultant of the Company or its Designated Subsidiaries. 13 (B) PURCHASE FOR INVESTMENT. If the Board or the Committee determines that the law so requires, the holder of an Option granted hereunder shall, upon any exercise or conversion thereof, execute and deliver to the Company a written statement, in form satisfactory to the Company, representing and warranting that such Participant is purchasing or accepting the Shares then acquired for such Participant's own account and not with a view to the resale or distribution thereof, that any subsequent offer for sale or sale of any such Shares shall be made either pursuant to (i) a Registration Statement on an appropriate form under the Securities Act, which Registration Statement shall have become effective and shall be current with respect to the Shares being offered and sold, or (ii) a specific exemption from the registration requirements of the Securities Act, and that in claiming such exemption the holder will, prior to any offer for sale or sale of such Shares, obtain a favorable written opinion, satisfactory in form and substance to the Company, from counsel acceptable to the Company as to the availability of such exception. (C) TRUSTS, ETC. Nothing contained in the Plan and no action taken pursuant to the Plan (including, without limitation, the grant of any Option thereunder) shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant or the executor, administrator or other personal representative or designated beneficiary of such Participant, or any other persons. Any reserves that may be established by the Company in connection with the Plan shall continue to be part of the general funds of the Company, and no individual or entity other than the Company shall have any interest in such funds until paid to a Participant. If and to the extent that any Participant or such Participant's executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. (D) NOTICES. Any notice to the Company required by or in respect of this Plan will be addressed to the Company, American Disposal Services, Inc., 745 McClintock Dr., Ste. 305, Burr Ridge, IL 60521, Attention: Chief Financial Officer, or such other place of business as shall become the Company's principal executive offices from time to time. Each Participant shall be responsible for furnishing the Company with the current and proper address for the mailing to such Participant of notices and the delivery to such Participant of agreements, Shares and payments. Any such notice to the Participant will, if the Company has received notice that the Participant is then deceased, be given to the Participant's personal representative if such representative has previously informed the Company of his status and address (and has provided such reasonable substantiating information as the Company may request) by written notice under this Section. Any notice required by or in respect of this Plan will be deemed to have been duly given when delivered in person or when dispatched by telegram or one business day after having been dispatched by a nationally recognized overnight courier service or three business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid. The 14 Company assumes no responsibility or obligation to deliver any item mailed to such address that is returned as undeliverable to the addressee and any further mailings will be suspended until the Participant furnishes the proper address. (E) SEVERABILITY OF PROVISIONS. If any provisions of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provisions had not been included. (F) PAYMENT TO MINORS, ETC. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and their employees, agents and representatives with respect thereto. (G) HEADINGS AND CAPTIONS. The headings and captions herein are provided for reference and convenience only. They shall not be considered part of the Plan and shall not be employed in the construction of the Plan. (H) CONTROLLING LAW. The Plan shall be construed and enforced according to the laws of the State of Delaware. (I) OTHER BENEFITS. No payment under this Plan shall be considered compensation for purposes of computing benefits under any retirement plan of the Company or a Designated Subsidiary nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability of benefits is related to the level of compensation. (J) COSTS. The Company shall bear all expenses included in administering this Plan, including expenses of issuing Common Stock pursuant to any Options hereunder. (K) SECTION 162(M) DEDUCTION LIMITATION. The Committee at any time may in its sole discretion limit the number of Options that can be exercised in any taxable year of the Company, to the extent necessary to prevent the application of Section 162(m) of the Code (or any similar or successor provision), provided that the Committee may not postpone the earliest date on which Options can be exercised beyond the last day of the stated term of such Options. (L) SECTION 16(B) OF THE EXCHANGE ACT. All elections and transactions under the Plan by persons subject to Section 16 of the Exchange Act involving shares of Common Stock are intended to comply with all exemptive conditions under Rule 16b-3. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may 15 deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder. XIII. ISSUANCE OF STOCK CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES (A) STOCK CERTIFICATES. Upon any exercise of an Option and payment of the exercise price as provided in such Option, a certificate or certificates for the Shares as to which such Option has been exercised shall be issued by the Company in the name of the person or persons exercising such Option and shall be delivered to or upon the order of such person or persons. (B) LEGENDS. Certificates for Shares issued upon exercise of an Option shall bear such legend or legends as the Committee, in its sole discretion, determines to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or to implement the provisions of any agreements between Company and the Participant with respect to such Shares. (C) PAYMENT OF EXPENSES. The Company shall pay all issue or transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer and with the administration of the Plan. XIV. LISTING OF SHARES AND RELATED MATTERS If at any time the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the grant of Options or the award or sale of Shares under the Plan, no Option grant shall be effective and no Shares will be delivered, as the case may be, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board. 16 XV. WITHHOLDING TAXES The Company shall have the right to require prior to the issuance or delivery of any shares of Common Stock payment by the Participant of any Federal, state or local taxes required by law to be withheld. The Committee may permit any such withholding obligation to be satisfied by reducing the number of shares of Common Stock otherwise deliverable. A person required to file reports under Section 16(a) of the Exchange Act with respect to securities of the Company may elect to have a sufficient number of shares of Common Stock withheld to fulfill such tax obligations (hereinafter a "Withholding Election") only if the election complies with such conditions as are necessary to prevent the withholding of such shares from being subject to Section 16(b) of the Exchange Act. To the extent necessary under then current law, such conditions shall include the following: (x) the Withholding Election shall be subject to the approval of the Committee and (y) the Withholding Election is made (i) during the period beginning on the third business day following the date of release for publication of the quarterly or annual summary statements of sales and earnings of the Company and ending on the twelfth business day following such date or is made in advance but takes effect during such period, (ii) six (6) months before the stock award becomes taxable, or (iii) during any other period in which a Withholding Election may be made under the provisions of Rule 16b-3 promulgated pursuant to the Exchange Act. Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant. 17 EX-10.10 10 EXHIBIT 10.10 EXHIBIT 10.10 INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT, dated as of January 1, 1996, between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation ("CORPORATION"), and [NAME OF DIRECTOR] ("DIRECTOR"). WHEREAS, Director is a director of Corporation and in such capacity is performing a valuable service for Corporation; and WHEREAS, the Certificate of Incorporation and By-Laws of Corporation (collectively, the "CHARTER") provide for the indemnification of the officers, directors, agents and employees of Corporation to the maximum extent authorized by the Delaware General Corporation Law (the "STATE STATUTE"); and WHEREAS, such Charter and the State Statute specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between Corporation and its directors with respect to indemnification of such directors; and WHEREAS, to induce Director to serve as a director of Corporation, Corporation has determined and agreed to enter into this contract with Director; NOW, THEREFORE, in consideration of Director's continued service as a director of Corporation after the date hereof the parties hereto agree as follows: 1. INDEMNITY OF DIRECTOR. Corporation shall hold harmless and indemnify Director to the full extent authorized or permitted by the provisions of the State Statute, or by any amendment thereof or other statutory provisions authorizing or permitting such indemnification which is adopted after the date hereof. All amounts incurred by Director for which the Corporation is obligated to indemnify Director shall be paid directly by the Corporation to the obligee thereof prior to its due date, assuming the Corporation is timely notified of such obligations. In the event the Corporation cannot pay the obligation when due, the Corporation shall notify Director and Director may either obtain an extension of the obligation or pay the obligation. In any event, the Corporation shall reimburse Director for any and all amounts which the Corporation is obligated to indemnify Director pursuant to this Agreement within thirty (30) days after Director has paid such amounts and submitted evidence of such payment to the Corporation. 2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in SECTION 3 hereof, Corporation shall hold harmless and indemnify Director: 2.1. Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which Director is, was or at any time becomes a party or is threatened to be made a party, by reason of the fact that Director is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and 2.2. Otherwise to the fullest extent as may be provided to Director by Corporation under the non-exclusivity provisions of the Charter and the State Statute. Notwithstanding anything contained herein to the contrary, Corporation shall advance legal fees and expenses as and when incurred by Director in connection with any matter that is the subject of indemnification under this Agreement. 3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to SECTION 2 hereof shall be paid by Corporation: 3.1. In respect of remuneration paid to Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; or 3.2. On account of any suit in which judgment is rendered against Director for an accounting of profits made from the purchase or sale by Director of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or 3.3. On account of Director's conduct which is finally judicially determined to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct; or 3.4. If a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. 4. CONTINUATION OF INDEMNITY. All agreements and obligations of Corporation contained herein shall continue during the period Director is a director, officer, employee or agent of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Director shall be subject to any 2 possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Director was a director of Corporation or serving in any other capacity referred to herein. 5. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by Director of notice of the commencement of any action, suit or proceeding, Director shall, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation shall not relieve it from any liability which it may have to Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Director notifies Corporation of the commencement thereof: 5.1. Corporation shall be entitled to participate therein at its own expense; and 5.2. Except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified shall be entitled to assume the defense thereof, with counsel satisfactory to the Director. After notice from Corporation to Director of its election so to assume the defense thereof, Corporation will not be liable to Director under this Agreement for any legal or other expenses subsequently incurred by Director in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Director shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Director unless (i) the employment of counsel by Director has been authorized by Corporation, (ii) Director shall have reasonably concluded that there may be a conflict of interest between Corporation and Director in the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Director shall have made the conclusion provided for in (ii) above. 5.3. Corporation shall not be liable to indemnify Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Director without Director's written consent. Neither Corporation nor Director shall unreasonably withhold their consent to any proposed settlement. 3 6. REPAYMENT OF EXPENSES. Director shall reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Director in the event and only to the extent that it shall be finally judicially determined that Director is not entitled to be indemnified by Corporation for such expenses under the provisions of the State Statute, the Charter, this Agreement or otherwise. 7. ENFORCEMENT. 7.1. Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce Director to serve as an officer of Corporation, and acknowledges that Director is relying upon this Agreement in serving in such capacity. 7.2. In the event Director is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, Corporation shall reimburse Director for all of Director's reasonable fees and expenses in bringing and pursuing such action. 8. SEPARABILITY. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be valid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 9. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION. 9.1. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 9.2. This Agreement shall be binding upon Director and upon Corporation, its successors and assigns, and shall inure to the benefit of Director, his heirs, personal representatives and assigns and to the benefit of Corporation, its successors and assigns. 9.3. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AMERICAN DISPOSAL SERVICES, INC. By________________________________ Title: ___________________________________ [NAME OF DIRECTOR], Director 5 EX-10.11 11 EXHIBIT 10.11 EXHIBIT 10.11 INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT, dated as of January 1, 1996, between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation ("CORPORATION"), and [NAME OF OFFICER] ("OFFICER"). WHEREAS, Officer is a an officer of Corporation and in such capacity is performing a valuable service for Corporation; and WHEREAS, the Certificate of Incorporation and By-Laws of Corporation (collectively, the "CHARTER") provide for the indemnification of the officers, directors, agents and employees of Corporation to the maximum extent authorized by the Delaware General Corporation Law (the "STATE STATUTE"); and WHEREAS, such Charter and the State Statute specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between Corporation and its officers with respect to indemnification of such officers; and WHEREAS, to induce Officer to serve as an officer of Corporation, Corporation has determined and agreed to enter into this contract with Officer; NOW, THEREFORE, in consideration of Officer's continued service as an officer of Corporation after the date hereof the parties hereto agree as follows: 1. INDEMNITY OF OFFICER. Corporation shall hold harmless and indemnify Officer to the full extent authorized or permitted by the provisions of the State Statute, or by any amendment thereof or other statutory provisions authorizing or permitting such indemnification which is adopted after the date hereof. All amounts incurred by Officer for which the Corporation is obligated to indemnify Officer shall be paid directly by the Corporation to the obligee thereof prior to its due date, assuming the Corporation is timely notified of such obligations. In the event the Corporation cannot pay the obligation when due, the Corporation shall notify Officer and Officer may either obtain an extension of the obligation or pay the obligation. In any event, the Corporation shall reimburse Officer for any and all amounts which the Corporation is obligated to indemnify Officer pursuant to this Agreement within thirty (30) days after Officer has paid such amounts and submitted evidence of such payment to the Corporation. 2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in SECTION 3 hereof, Corporation shall hold harmless and indemnify Officer: 2.1. Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Officer in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which Officer is, was or at any time becomes a party or is threatened to be made a party, by reason of the fact that Officer is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and 2.2. Otherwise to the fullest extent as may be provided to Officer by Corporation under the non-exclusivity provisions of the Charter and the State Statute. Notwithstanding anything contained herein to the contrary, Corporation shall advance legal fees and expenses as and when incurred by Officer in connection with any matter that is the subject of indemnification under this Agreement. 3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to SECTION 2 hereof shall be paid by Corporation: 3.1. In respect of remuneration paid to Officer if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; or 3.2. On account of any suit in which judgment is rendered against Officer for an accounting of profits made from the purchase or sale by Officer of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or 3.3. On account of Officer's conduct which is finally judicially determined to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct; or 3.4. If a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. 4. CONTINUATION OF INDEMNITY. All agreements and obligations of Corporation contained herein shall continue during the period Officer is a director, officer, employee or agent of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Officer shall be subject to any 2 possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Officer was an officer of Corporation or serving in any other capacity referred to herein. 5. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by Officer of notice of the commencement of any action, suit or proceeding, Officer shall, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation shall not relieve it from any liability which it may have to Officer otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Officer notifies Corporation of the commencement thereof: 5.1. Corporation shall be entitled to participate therein at its own expense; and 5.2. Except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified shall be entitled to assume the defense thereof, with counsel satisfactory to the Officer. After notice from Corporation to Officer of its election so to assume the defense thereof, Corporation will not be liable to Officer under this Agreement for any legal or other expenses subsequently incurred by Officer in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Officer shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Officer unless (i) the employment of counsel by Officer has been authorized by Corporation, (ii) Officer shall have reasonably concluded that there may be a conflict of interest between Corporation and Officer in the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Officer shall have made the conclusion provided for in (ii) above. 5.3. Corporation shall not be liable to indemnify Officer under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Officer without Officer's written consent. Neither Corporation nor Officer shall unreasonably withhold their consent to any proposed settlement. 6. REPAYMENT OF EXPENSES. Officer shall reimburse Corporation for all reasonable expenses paid by Corporation in 3 defending any civil or criminal action, suit or proceeding against Officer in the event and only to the extent that it shall be finally judicially determined that Officer is not entitled to be indemnified by Corporation for such expenses under the provisions of the State Statute, the Charter, this Agreement or otherwise. 7. ENFORCEMENT. 7.1. Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce Officer to serve as an officer of Corporation, and acknowledges that Officer is relying upon this Agreement in serving in such capacity. 7.2. In the event Officer is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, Corporation shall reimburse Officer for all of Officer's reasonable fees and expenses in bringing and pursuing such action. 8. SEPARABILITY. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be valid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 9. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION. 9.1. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 9.2. This Agreement shall be binding upon Officer and upon Corporation, its successors and assigns, and shall inure to the benefit of Officer, his heirs, personal representatives and assigns and to the benefit of Corporation, its successors and assigns. 9.3. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AMERICAN DISPOSAL SERVICES, INC. By________________________________ Title: ___________________________________ [NAME OF OFFICER], Officer 5 EX-10.12 12 EXHIBIT 10.12 EXHIBIT 10.12 INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT, dated as of January 1, 1996, between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation ("CORPORATION"), and [Name of Director and Executive Officer] ("________"). WHEREAS, __________ is a director and officer of Corporation and in such capacity is performing a valuable service for Corporation; and WHEREAS, the Certificate of Incorporation and By-Laws of Corporation (collectively, the "CHARTER") provide for the indemnification of the officers, directors, agents and employees of Corporation to the maximum extent authorized by the Delaware General Corporation Law (the "STATE STATUTE"); and WHEREAS, such Charter and the State Statute specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between Corporation and its directors with respect to indemnification of such directors; and WHEREAS, to induce __________ to serve as a director and officer of Corporation, Corporation has determined and agreed to enter into this contract with __________; NOW, THEREFORE, in consideration of __________'s continued service as a director and officer of Corporation after the date hereof the parties hereto agree as follows: 1. INDEMNITY OF __________. Corporation shall hold harmless and indemnify __________ to the full extent authorized or permitted by the provisions of the State Statute, or by any amendment thereof or other statutory provisions authorizing or permitting such indemnification which is adopted after the date hereof. All amounts incurred by __________ for which the Corporation is obligated to indemnify __________ shall be paid directly by the Corporation to the obligee thereof prior to its due date, assuming the Corporation is timely notified of such obligations. In the event the Corporation cannot pay the obligation when due, the Corporation shall notify __________ and __________ may either obtain an extension of the obligation or pay the obligation. In any event, the Corporation shall reimburse __________ for any and all amounts which the Corporation is obligated to indemnify __________ pursuant to this Agreement within thirty (30) days after __________ has paid such amounts and submitted evidence of such payment to the Corporation. 2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in SECTION 3 hereof, Corporation shall hold harmless and indemnify __________: 2.1. Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by __________ in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which __________ is, was or at any time becomes a party or is threatened to be made a party, by reason of the fact that __________ is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and 2.2. Otherwise to the fullest extent as may be provided to __________ by Corporation under the non-exclusivity provisions of the Charter and the State Statute. Notwithstanding anything contained herein to the contrary, Corporation shall advance legal fees and expenses as and when incurred by __________ in connection with any matter that is the subject of indemnification under this Agreement. 3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to SECTION 2 hereof shall be paid by Corporation: 3.1. In respect of remuneration paid to __________ if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; or 3.2. On account of any suit in which judgment is rendered against __________ for an accounting of profits made from the purchase or sale by __________ of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or 3.3. On account of __________'s conduct which is finally judicially determined to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct; or 3.4. If a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. 4. CONTINUATION OF INDEMNITY. All agreements and obligations of Corporation contained herein shall continue during the period __________ is a director, officer, employee or agent of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other 2 enterprise) and shall continue thereafter so long as __________ shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that __________ was a director or officer of Corporation or serving in any other capacity referred to herein. 5. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by __________ of notice of the commencement of any action, suit or proceeding, __________ shall, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation shall not relieve it from any liability which it may have to __________ otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which __________ notifies Corporation of the commencement thereof: 5.1. Corporation shall be entitled to participate therein at its own expense; and 5.2. Except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified shall be entitled to assume the defense thereof, with counsel satisfactory to __________. After notice from Corporation to __________ of its election so to assume the defense thereof, Corporation will not be liable to __________ under this Agreement for any legal or other expenses subsequently incurred by __________ in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. __________ shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of __________ unless (i) the employment of counsel by __________ has been authorized by Corporation, (ii) __________ shall have reasonably concluded that there may be a conflict of interest between Corporation and __________ in the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which __________ shall have made the conclusion provided for in (ii) above. 5.3. Corporation shall not be liable to indemnify __________ under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on __________ without __________'s written consent. Neither Corporation nor 3 __________ shall unreasonably withhold their consent to any proposed settlement. 6. REPAYMENT OF EXPENSES. __________ shall reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against __________ in the event and only to the extent that it shall be finally judicially determined that __________ is not entitled to be indemnified by Corporation for such expenses under the provisions of the State Statute, the Charter, this Agreement or otherwise. 7. ENFORCEMENT. 7.1. Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce __________ to serve as a director and officer of Corporation, and acknowledges that __________ is relying upon this Agreement in serving in such capacity. 7.2. In the event __________ is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, Corporation shall reimburse __________ for all of __________'s reasonable fees and expenses in bringing and pursuing such action. 8. SEPARABILITY. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be valid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 9. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION. 9.1. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 9.2. This Agreement shall be binding upon __________ and upon Corporation, its successors and assigns, and shall inure to the benefit of __________, his heirs, personal representatives and assigns and to the benefit of Corporation, its successors and assigns. 9.3. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AMERICAN DISPOSAL SERVICES, INC. By________________________________ Title: ___________________________________ [NAME OF DIRECTOR AND EXECUTIVE OFFICER] 5 EX-10.13 13 EXHIBIT 10.13 EXHIBIT 10.13 American Disposal Services, Inc. As of January 1, 1996 [Name] Dear [Name]: We refer to the Nonqualified Stock Option Agreement (the "OPTION AGREEMENT"), dated as of January 1, 1996, between American Disposal Services, Inc., a Delaware corporation (the "COMPANY"), and you. With respect to each year in which you exercise stock options granted pursuant to the Option Agreement ("OPTIONS"), the Company will pay to you, within ten days after it files its federal income return with respect to such year, an amount equal to the lesser of (i) your Additional Tax (as hereinafter defined) on the exercise of the Options for such year and (ii) your Proportionate Share (as hereinafter defined) of the Tax Savings (as hereinafter defined) for such year, if any. You will not be entitled to additional payments and the Company will not be entitled to any refund under this letter if there is a change in the amount of the Tax Savings as a result of events occurring in subsequent years. For purposes of this letter, the following terms shall have the meanings set forth below: "ADDITIONAL TAX" means an amount equal to the difference between (i) the federal income tax actually paid by you as a result of your exercise of your Options and (ii) the federal income tax that would have actually been paid by you as a result of your exercise of your Options had such exercise been taxed at capital gains rates. "OPERATING MANAGEMENT OPTIONEES" means Richard De Young, John McDonnell, Richard Kogler, Lawrence Conrath and Ann Straw. "OTHER OPTIONS" means options granted to Operating Management Optionees and other Stollerco Optionees pursuant to Nonqualified Option Agreements dated as of January 1, 1996. "PROPORTIONATE SHARE" means, with respect to any year, the ratio of (x) the total number of Options exercised by you during such year to (y) the sum of (i) the total number of Options exercised by you during such year and (ii) the total number of Other Options exercised by the Operating Management Optionees and Stollerco Optionees during such year. "STOLLERCO OPTIONEES" means Scott H. Flamm and Michael S. Pfeffer. "TAX SAVINGS" means, with respect to any year, the amount of federal income taxes, if any, actually saved by the Company as a result of deductions attributable to the exercise of Options and Other Options in that year, assuming that the Company first utilizes all of the following to the extent then available to it: (i) losses, (ii) deductions other than those described above and (iii) credits. If you are in agreement with the foregoing, please so indicate by signing in the space provided below. Very truly yours, AMERICAN DISPOSAL SERVICES, INC. By:______________________ Title: Agreed to and accepted as of the date first above written: ____________________ [Name] 2 EX-21 14 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Name State of Incorporation - ---- ---------------------- ADS, Inc. Oklahoma County Disposal, Inc. Delaware American Disposal Services of Kansas, Inc. Kansas* American Disposal Services of Missouri, Inc. Missouri* Tate's Transfer Systems, Inc. Oklahoma* Pittsburg County Landfill, Inc. Delaware* County Disposal (Illinois), Inc. Delaware* County Disposal (Ohio), Inc. Delaware** County Landfill, Inc. Delaware** Southwest Waste, Inc. Missouri* * Indirect Ownership through ADS, Inc. ** Indirect Ownership through County Disposal, Inc. EX-23.1 15 EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 22, 1996, except Note 10, as to which the date is May 30, 1996, included in the Registration Statement on Form S-1 and the related Prospectus of American Disposal Services, Inc. for the registration of up to 3,162,500 shares of its common stock. ERNST & YOUNG LLP Chicago, Illinois July 11, 1996 EX-23.2 16 EXHIBIT 23.2 Exhibit 23.2 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated November 8, 1995 and February 9, 1996, with respect to the financial statements of the MSG Facilities of Envirite Corporation, included in the Registration Statement on Form S-1 and the related Prospectus of American Disposal Services, Inc. for the registration of up to 3,162,500 shares of its commonn stock. ERNST & YOUNG LLP Philadelphia, Pennsylvania July 11, 1996 EX-23.3 17 EXHIBIT 23.3 Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma July 11, 1996 -----END PRIVACY-ENHANCED MESSAGE-----