-----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, T4Ykbq/H7/2opG8OhjG3Wqzh14A7TxQBinTX8KrbNbQKVtuEybeY7GEUI1zdkes4 TVWGjUV5QHEDbHzILfT8AA== 0001012975-98-000105.txt : 19980401 0001012975-98-000105.hdr.sgml : 19980401 ACCESSION NUMBER: 0001012975-98-000105 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD 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: 10-K SEC ACT: SEC FILE NUMBER: 000-28652 FILM NUMBER: 98583087 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 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File No. 0-28652 AMERICAN DISPOSAL SERVICES, INC. (Exact name of registrant as specified in its charter) Delaware 13-3858494 (State or other jurisdiction (I.R.S. Employer Identification) of incorporation or organization) 745 McClintock Drive Suite 230 Burr Ridge, Illinois 60521 (Address of principal executive offices) (Zip Code) (630) 655-1105 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Aggregate market value of voting stock held by non-affiliates of registrant as of March 25, 1998: $641,167,625 Number of shares of Common Stock outstanding as of March 25, 1998: 20,627,544 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement pursuant to Regulation 14A, which statement will be filed not later than 120 days after the end of the fiscal year covered by this Report, are incorporated by reference in Part III hereof. AMERICAN DISPOSAL SERVICES, INC. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS Item No. Page PART I 3 1. BUSINESS 3 2. PROPERTIES 20 3. LEGAL PROCEEDINGS 20 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20 PART II 21 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 21 6. SELECTED CONSOLIDATED FINANCIAL DATA 22 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 28 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 28 PART III 29 PART IV 30 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K 30 SIGNATURES 31 EXHIBIT INDEX 32 PART I ITEM 1. BUSINESS General American Disposal Services, Inc. (the "Company") is a regional, integrated, non-hazardous solid waste services company that provides solid waste collection, transfer and disposal services primarily in the Midwest and in the Northeast. The Company began its operations in the Midwest and currently has operations in the following 12 states: Arkansas, Connecticut, Illinois, Indiana, Kansas, Kentucky, Massachusetts, Missouri, Ohio, Oklahoma, Pennsylvania and Rhode Island. The Company owns nine solid waste landfills and owns, operates or has exclusive contracts to receive waste from 20 transfer stations. The Company's operations cover six primary operating regions and its landfills and transfer stations are supported by 17 collection divisions, which currently serve over 400,000 residential, commercial and industrial customers. The Company has adopted an acquisition-based growth strategy and intends to continue its expansion, generally in its existing and proximate markets. Since January 1993, the Company has acquired 70 solid waste businesses, including eight solid waste landfills and 66 solid waste collection companies. The Company's operating program generally involves a four-step process: (i) acquiring solid waste landfills in markets that are within approximately 125 miles of significant metropolitan centers; (ii) securing captive waste streams for its landfills through the acquisition or development of transfer stations serving those markets, through acquisitions of collection companies and by entering into long-term contracts directly with customers or collection companies; (iii) making "tuck-in" acquisitions of collection companies to further penetrate its target markets; and (iv) integrating these businesses into the Company's operations to achieve operating efficiencies and economies of scale. As part of its acquisition program, the Company has, and in the future may, as specific opportunities arise, evaluate and pursue acquisitions in the solid waste collection and disposal industry that do not strictly conform to the Company's four-step operating program. The Company's operating strategy emphasizes the integration of its solid waste collection and disposal operations and the internalization of waste collected. One of the Company's goals is to maximize the captive waste streams (which includes waste from the Company's collection operations and third-party haulers operating under long-term collection contracts) disposed of at each of its landfills. During the year ended December 31, 1997, the Company's captive waste constituted an average of approximately 73% of the solid waste disposed of at Company-owned landfills. In addition, approximately 81% of the total tonnage collected by the Company during such period was disposed of at Company-owned landfills. The Company plans to continue to pursue its acquisition-based growth strategy to maximize the internalization of waste collected and expand its presence in its existing and proximate markets. Recent Developments Since the Company's offering of Common Stock consummated in October 1997 (the "October Offering"), the Company has expanded and strengthened its market presence in its six operating regions through the acquisition of 15 solid waste businesses, which collectively included one landfill, 15 collection companies, three transfer stations and a contract to operate a fourth transfer station. In the New England Region, which the Company entered in September 1996, the Company continued to expand its presence through five "tuck-in" acquisitions of collection operations. In the Illinois Region, the Company acquired selected assets from John Sexton Contractors, Inc. (the "Sexton Acquisition"). The Sexton Acquisition added a collection operation, two transfer stations and one landfill to the Company's operations in the Illinois Region. In addition, the Company has completed two collection company acquisitions in the Illinois Region, one as a "tuck-in" to the Sexton Acquisition and one as a "tuck-in" to the Company's existing Chicago operations. In January 1998, the Company completed the acquisition of the R.C. Miller companies (the "R.C. Miller Acquisition"), which provide solid waste collection, transfer and recycling services in Canton, Ohio and surrounding counties. The R.C. Miller Acquisition further expands the Company's presence in the Ohio Region and provides a geographical link between the Company's Ohio and Western Pennsylvania Regions. Subsequent to the R.C. Miller Acquisition, the Company completed three "tuck-in" acquisitions in the Ohio Region. In October 1997, the Company repaid its $60 million term loan with a portion of the proceeds from the October Offering and currently has a $140 million revolving credit facility (the "Credit Facility"). At March 1, 1998, the outstanding debt under the Credit Facility was $34.4 million, up from $19.7 million at December 31, 1997, primarily as a result of recent acquisitions. Unless otherwise noted, all descriptions of the Company's business in this Annual Report on Form 10-K are as of March 15, 1998. Forward Looking Statements Certain information contained in this Annual Report on Form 10-K, including, without limitation, information appearing under Item 1, "Business," and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Factors set forth under Item 1, "Business - - Risk Factors," together with other factors that appear with the forward-looking statements, or in the Company's other Securities and Exchange Commission filings, could affect the Company's actual results and could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company in this Annual Report on Form 10-K. Industry Background In the United States, landfilling is at present the most common means of disposing of non-hazardous municipal solid waste ("MSW"), which consists primarily of refuse and garbage from households and commercial establishments. The Company believes that in recent years there has been a trend towards consolidation of landfill ownership and that a similar trend is emerging in the solid waste collection industry, which historically has been characterized by numerous small companies. The Company believes that these trends will continue and are the result of several factors: (i) environmental regulations, including Subtitle D Regulations and related state regulations and programs have significantly increased the amount of capital and the technical expertise required in order to own and operate a landfill; (ii) a number of municipalities are electing to privatize the operations of their municipal landfills as an alternative to funding the changes to these landfills that are required in order to comply with the Subtitle D Regulations and related state regulations and programs; (iii) as a result of heightened sensitivity to environmental concerns by many communities, it is becoming increasingly desirable in many markets for collection companies to provide waste reuse and reduction programs, such as recycling and composting, in addition to conventional waste collection services. Due in part to these trends, the Company believes that significant opportunities exist to expand and further integrate its operations in each of its existing markets, as well as in new markets that meet the Company's acquisition criteria. Strategy The Company's objective is to build a large, profitable, fully-integrated solid waste services company with an established market presence in secondary markets. The Company's strategy for achieving this objective is to establish a market presence generally anchored by its landfills; to increase volume in its markets through "tuck-in" acquisitions of collection companies and marketing to new customers; to provide a high level of customer service; to implement selective price increases; and to continue to implement strict cost controls and reduce corporate overhead as a percentage of revenues. The Company believes that this strategy of building an integrated entity should provide it with competitive cost advantages in its targeted regional markets. The Company's ability to implement its strategy is enhanced by the experience of its senior managers and their knowledge of the solid waste industry. There can be no assurance, however, that the Company will be successful in the execution of its strategy. The Company targets acquisitions in geographic areas characterized by one or more of the following criteria: (i) the availability of permitted and underutilized landfill capacity located outside of, but within 125 miles of, a significant metropolitan center; (ii) the absence of a dominant competitor in the area which would preclude the Company from implementing its business strategy; (iii) anticipated economic and population growth; and (iv) near- or medium- term scheduled closures of competing landfills. The Company has adopted the following four-step operating program in executing its business strategy: 1. Landfill Acquisitions. Once the Company identifies an area that qualifies under its target market criteria, the Company seeks to establish a market presence, generally by acquiring one or more landfills in that area that can be accessed economically from the metropolitan center or from the regional market area, either through direct hauling or through strategically located transfer stations. In evaluating a landfill acquisition, the Company considers, among others, the following factors: (i) current disposal costs together with transportation costs to the targeted landfill relative to transportation and disposal costs of potential competitors; (ii) expected landfill life; (iii) opportunities for landfill expansion; and (iv) projected short-term ability to secure a minimum of 500 tons per day of disposal volume. 2. Secure Captive Waste Volumes. After the Company has acquired a landfill, it seeks to build a market presence and increase the utilization of the landfill by securing captive waste streams, which includes developing and acquiring transfer stations, entering into waste collection contracts and acquiring waste collection companies. Generally, the Company pursues the acquisition of collection companies that: (i) have well-established residential or commercial collection routes and accounts; (ii) own and operate transfer stations; or (iii) do not own landfills and are vulnerable to volatile disposal pricing, which the Company believes it can minimize through landfill ownership. 3. "Tuck-in" Acquisitions. The Company acquires service rights, obligations, machinery and equipment in "tuck-in" acquisitions of collection companies to: (i) increase the waste stream directed to its landfills; (ii) maximize its market presence; and (iii) take advantage of economies of scale which should increase earnings and return on capital. 4. Integration and Expansion of Operations. Immediately upon closing any acquisition, the Company integrates the acquired company into its operations by: (i) instituting strict cost control procedures; (ii) consolidating and rationalizing collection routes and pricing; (iii) implementing Company operating policies and procedures (including programs designed to improve employee productivity and equipment utilization); (iv) establishing a sales and marketing force; and (v) converting the acquired company to the Company's accounting, data processing and management reporting systems. During the transition period following acquisitions, the Company retains the management of certain companies it acquires in order to benefit from management's local operating knowledge and the goodwill it has developed. Additionally, on a selective basis, the Company seeks to expand the capacity of its landfills to accommodate increasing waste volumes and improve profitability. In addition, the Company may, as specific opportunities arise, evaluate and pursue acquisitions in the solid waste collection and disposal industry that do not strictly conform to the Company's four-step operating program. Acquisition Program The Company has assembled an experienced acquisition team comprised of operations, environmental, engineering, legal, financial and accounting personnel, each engaged in identifying and evaluating acquisition opportunities in order to execute its operating program. The Company has established pre-acquisition review procedures for acquisition candidates, including legal, financial, engineering, operational and environmental reviews. The environmental review includes, where appropriate, investigation of geologic, hydrogeologic and other site conditions, past and current operations (including types of waste deposited), design and construction records, permits, regulatory compliance history, regulatory agency records and available soil sampling, groundwater and air monitoring results. The Company uses regional managers to assist in the acquisition process by identifying suitable candidates and performing pre-acquisition review and evaluation tasks. In considering whether to proceed with an acquisition, in addition to determining whether the candidate meets the Company's criteria described above, the Company evaluates a number of factors, including: (i) the acquisition candidate's historical and projected financial results; (ii) any expected synergies with one or more of the Company's existing operations; (iii) the proposed purchase price and the Company's expected resultant internal rate of return on investment and the expected impact on the Company's earnings per share; (iv) whether the candidate will enhance the Company's ability to effect other acquisitions in the vicinity; (v) the candidate's customer service reputation and relationships with the local communities; (vi) the composition and size of the candidate's customer base; (vii) the types of services provided by the candidate; and (viii) whether the candidate has definable and controllable liabilities, including potential environmental liabilities. The Company believes that significant opportunities exist to acquire new landfills and to develop its existing markets, and reviews acquisition opportunities on an ongoing basis. Completed Acquisitions The Company has completed 70 acquisitions of solid waste companies in 12 states since January 1993, which are summarized in the table below. Company Business Principal Location Date Acquired MISSOURI REGION: Wheatland Landfill Scammon, KS January 1993 Pittsburg Sanitation Collection Pittsburg, KS January 1993 Ozark Sanitation Collection Carthage, MO January 1993 Trashmaster Collection Joplin, MO January 1993 A-1 Trash Service Collection Verona/Aurora, MO April 1993 Tate's Transfer Transfer Verona/Aurora, MO April 1993 Station Renfro Sanitation Collection Branson, MO June 1993 B&B Trash Collection Pittsburg, KS July 1993 B&B Refuse Collection Neosho, MO December 1993 Apex Sanita- Collection Grove, OK and tion Green Forest, AR December 1993 Epps Sanitation Collection Branson, MO December 1993 Cummings Sanitation Collection Nixa, MO May 1994 Light Hauling Collection Branson, MO August 1994 Poole's Sanitation Collection Bentonville, AR August 1994 Southwest Waste Collection Springfield, MO July 1996 Nesvold Sanitation Collection Seneca, MO December 1996 Sparky's Waste Control Collection Springfield, MO January 1997 Cupp Disposal Collection Joplin, MO June 1997 Sunset Landfill Disposal/ Collection Coffeyville, KS August 1997 Resource and Recovery L. B. Smith Collection Springfield, MO August 1997 Supreme Sanitation Collection Pittsburg, KS August 1997 Packman Collection Coffeyville, KS January 1998 Freeman Waste Management Collection Eureka Springs, AR February 1998 ILLINOIS REGION: Livingston Landfill Pontiac, IL November 1995 Barbara Companies Landfill, Chicago, IL September 1997 Collection, Morris, IL MRF and Transfer Station Sexton Companies Landfill, Bloomington, IL Collection Chicago, IL November 1997 and Transfer Stations Harrell & Daughters Collection Bloomington, IL December 1997 Yellow Recycling & Disposal Collection Lemont, IL December 1997 SOUTHWESTERN INDIANA REGION: WMX-Evansville Landfill, Evansville, IN April 1997 Collection and Transfer Station Action Trash & Disposal Collection Vincennes, IN July 1997 T&G Container Collection and Transfer Station Washington, IN July 1997 Mother Earth Collection, Louisville, KY August 1997 Beneficial Reuse and Transfer Station Earth First of Kentuckiana Collection New Albany, IN January 1998 OHIO REGION: Wyandot Landfill Upper Sandusky, OH August 1995 Environmental Transportation and Management Collection Findlay, OH May 1996 R&R Waste Disposal Collection Findlay, OH May 1996 Jerry's Rubbish Collection Findlay, OH June 1996 Seneca Disposal Collection Tiffin, OH June 1996 Ross Bros. Waste & Collection and Recycling Transfer Station Mt. Vernon, OH September 1996 D&L Hauling Collection Findlay, OH October 1996 Rutledge Trucking Collection Delaware, OH November 1996 Morrow Sanitary Company Collection Mt. Gilead, OH November 1996 Bowers-Phase II Collection and Transfer Station Vickery, OH December 1996 Cargo Services Collection Mt. Gilead, OH December 1996 Rumpke Waste (routes) Collection Fostoria, OH December 1996 Christiansen's Collection Sandusky, OH May 1997 D&R Refuse Collection Kenton, OH July 1997 Geyer Sanitation Collection Galion, OH July 1997 Didions' Garbage & Refuse Collection Bellevue, OH January 1998 R.C. Miller Collection Canton, OH January 1998 Enterprises and Transfer Station McFarland Disposal Collection Ravenna, OH February 1998 Owens Rubbish Service Collection Akron, OH February 1998 WESTERN PENNSYLVANIA REGION: Clarion Landfill and Collection Leeper, PA June 1995 Mauthe Sanitation Collection Strattan- March 1996 ville, PA Allied Waste Systems Collection Youngstown, OH February 1997 Horodyski Collection Warren, OH April 1997 Township Garbage Collection Warren, OH July 1997 NEW ENGLAND REGION: T&J Trucking Collection Johnston, RI September 1996 American Disposal Services/N.E.E.D Collection Johnston, RI September 1996 A-1 Container Collection Rehoboth, MA January 1997 BFI-Derby District Collection Seymour, CT May 1997 and Transfer Station Liberty Disposal Collection Providence, RI May 1997 A. Macera Collection Johnston, RI August 1997 Macera Bros Collection Cranston, RI August 1997 and Transfer Station R.D. Compactor Collection Providence, RI September 1997 Wasteline Rubbish Disposal Collection Johnston, RI October 1997 Bonollo Rubbish Collection Wrentham, MA November 1997 One Way Waste Systems Collection N. Attleboro, December 1997 MA South County Companies Collection N. Kingston, RI January 1998 and Transfer Station Page Hauling Collection Warwick, RI February 1998 Missouri Region. The Company established a market presence in the Missouri Region in January 1993 with the acquisition of its Wheatland landfill. Since purchasing the Wheatland landfill, the Company has acquired one transfer station and independently developed three transfer stations. The Company also has exclusive contracts to accept waste from two other transfer stations. Additionally, the Company acquired 21 collection companies, including the three operations purchased simultaneously with the Wheatland landfill. The collection operations and transfer stations have been consolidated into three divisions. The Company has integrated acquired companies by consolidating and rationalizing routes and pricing, reducing overhead through consolidating an acquired company's operations, implementing the Company's cost controls and operating procedures, converting acquired companies to the Company's management reporting systems and implementing a sales and marketing team. Since the acquisition of its Wheatland landfill, the Company has increased the waste volume at its landfill by approximately 1,000 tons per day. Since the October Offering, the Company has acquired two collection companies and developed one transfer station within the region. Such activity has expanded the service area of the Company's operations in the Missouri Region. Illinois Region. The Company established a market presence in north-central Illinois in November 1995 with the acquisition of its Livingston landfill, which is located approximately 90 miles from downtown Chicago. The acquisition of the Livingston landfill was particularly attractive to the Company's management because of the expected closing of two competing landfills that accepted an aggregate of approximately 15,000 tons per day and the management team's experience with the Chicago market. Since the acquisition of the Livingston landfill, one of the competing landfills in the Chicago metropolitan area has closed and the other is expected to close in 1998. Since the acquisition of the Livingston landfill, the Company has increased the waste volume at this landfill by approximately 4,000 tons per day through intensified sales and marketing efforts. Approximately 71% of the waste volume at the Livingston landfill is captive waste. Since the October Offering, the Company has acquired three collection operations, two transfer stations and a landfill in the Illinois Region. Southwestern Indiana Region. In April 1997, the Company acquired the Blackfoot landfill, two collection companies, an exclusive transfer station contract and a permit to develop a new transfer station, all located in the southwestern Indiana Region (which includes western Kentucky). These acquisitions provided the Company with the opportunity to enter the southwestern Indiana Region and to secure a significant market share position in that region through the acquisition of a single, fully integrated solid waste management operation. Since the October Offering, the Company completed the acquisition of one collection company within the Southwestern Indiana Region. Ohio Region. The Company established a market presence in north-central Ohio in August 1995 with the acquisition of its Wyandot landfill, which is located within approximately 125 miles of Cleveland, Ohio and within approximately 75 miles of Toledo and Columbus, Ohio. The Company has acquired 18 collection companies and has acquired, developed or secured exclusive contracts with five transfer stations in the Ohio Region. Since the acquisition of the Wyandot landfill, the Company has increased the waste volume at this landfill by approximately 300 tons per day, primarily through the acquisition of collection companies, new operating contracts with two transfer stations and implementation of a new sales focus. To further expand its operations, the Company is seeking to increase capacity at the Wyandot landfill. In January 1998, the Company completed the R.C. Miller Acquisition, which provides the Company with solid waste collection, transfer and recycling services in Canton, Ohio and the surrounding counties. In connection with the R.C. Miller Acquisition, the Company acquired a construction and demolition landfill, which the Company is in the process of closing. The R.C. Miller Acquisition expands the Company's presence in the Ohio Region and provides a geographical link between the Company's Ohio and Western Pennsylvania Regions. Furthermore, since the October Offering, the Company has acquired three additional collection companies in the region. Western Pennsylvania Region. The Company entered the western Pennsylvania Region in June 1995 with the acquisition of its Clarion landfill and an affiliated collection company. The Clarion landfill is located within 80 miles of both Pittsburgh and Erie, Pennsylvania. Since the acquisition of the Clarion landfill, the Company has increased volumes to this landfill by approximately 300 tons per day to the maximum daily limit, primarily through the acquisition of collection companies. New England Region. The Company began operating in the New England Region in September 1996 with the acquisition of two collection companies in Rhode Island. The Company was attracted to the New England Region because it was largely an unconsolidated market where no existing operator had a competitive advantage since the State of Rhode Island owns and operates the sole landfill in the state. As a result, the Company has focused its acquisition strategy on collection companies. Since the October Offering, the Company has acquired five collection companies and a contract to operate one transfer station in the region. The Company believes that as a result of its acquisitions in the region, it currently owns and operates the largest collection operation in Rhode Island and has strategically positioned itself to expand its market share in the New England Region. Operations The Company's waste management operations include the ownership and operation of solid waste landfills, transfer stations and waste collection services. The Company believes that all of its landfills and transfer stations comply with or exceed the requirements mandated by the Subtitle D Regulations and the applicable state regulations. The Company regularly monitors incoming waste at its landfills to determine if such wastes are in compliance with its permits. Landfills The Company currently owns nine landfill operations permitted to receive solid waste. These landfill operations are located in Illinois, Indiana, Ohio, Pennsylvania, Kansas and Oklahoma. Each of the Company's landfill operations is located on land owned by the Company. The permitted waste streams at each of these landfills include both MSW and certain special waste (the type of special waste varying from landfill to landfill). During the year ended December 31, 1997, the Company's captive waste (including the Company's collection operations and third party haulers operating under long-term contracts) constituted an average of approximately 73% of the solid waste disposed of at its landfills. The table and landfill descriptions below provide certain additional information, as of December 31, 1997 regarding the nine landfills that the Company owns and operates. Approximate Unused Permitted Approximate Acreage Airspace(2) Landfills Location Total Permitted(1) (in millions of cubic yards) Wheatland Scammon, KS 68 55 0.9 Resource Recovery Cherryvale, KS 282 37 2.2 Pittsburg County McAlester, OK 76 30 1.4 Livingston Pontiac, IL 556 255 27.9 Environtech Morris, IL 326 78 5.9 McLean Bloomington, IL 55 33 1.0 Blackfoot Evansville, IN 379 166 17.8 Wyandot(3) Upper Sandusky, OH 344 87 5.7 Clarion Leeper, PA 606 60 3.9 Total 2,692 801 66.7 (1) Permitted acreage, as used in this table and in this Annual Report on Form 10-K, represents the portion of the total acreage on which disposal cells and supporting facilities have been constructed (including any that may have been filled or capped) or may be constructed based upon an approval issued by the state generally authorizing the development or siting of a landfill on the acreage. Prior to actually constructing and/or operating each new disposal cell on the permitted acreage, it may be necessary, depending upon the regulatory requirements of the particular state, for the Company to obtain additional authorizations with respect to such cell. The portion of total acreage that is not currently permitted acreage is not currently available for waste disposal. (2) Unused permitted airspace represents in cubic yards the estimated portion of the permitted acreage that has not yet been used for waste disposal but may be available for waste disposal after certain approvals are secured and, in some instances, new disposal cells are constructed. Prior to actually constructing and/or operating a new disposal area or cell on permitted acreage, it may be necessary, depending upon the regulatory requirements of the particular state or locality, for the Company to obtain additional authorizations. (3) The Company has applied for a permit to increase the permitted acreage and permitted cubic airspace at the Wyandot landfill by approximately 98 acres and approximately 19.1 million cubic yards, respectively. The Company monitors the available permitted in-place disposal capacity at each of its landfills on an ongoing basis and evaluates whether to seek to expand this capacity. In making this evaluation, the Company considers various factors, including the volume of waste projected to be disposed of at the landfill, the size of the unpermitted acreage included in the landfill, the likelihood that the Company will be successful in obtaining the necessary approvals and permits required for the expansion and the costs that would be involved in developing the expanded capacity. The Company also considers on an ongoing basis the extent to which it is advisable, in light of changing market conditions and/or regulatory requirements, to seek to expand or change the permitted waste streams at a particular landfill or to seek other permit modifications. Set forth below is certain information concerning certain of the new permits, permit modifications and approvals that the Company is currently seeking to enable it to expand its disposal capacity. There can be no assurance that the Company will succeed in obtaining any of such permits, permit modifications or approvals, or that additional permits, permit modifications or approvals will not be required or that additional requirements will not be imposed by regulatory agencies. Wheatland. The Wheatland landfill consists of approximately 68 acres. Approximately 55 of the owned acres are permitted acres and there are approximately 0.9 million cubic yards of unused permitted airspace. The Company anticipates that after a planned expansion, the Wheatland landfill would have approximately four years of total site life at current average disposal levels (approximately 2.5 years if such expansion is not approved by the Cherokee County Board of Commissioners). In addition, the Company has an option to purchase an undeveloped parcel in Missouri, which has been granted a permit to develop a landfill. Resource Recovery. The Resource Recovery landfill consists of approximately 282 acres, of which approximately 37 are permitted. There are approximately 2.2 million cubic yards of unused permitted airspace. The Resource Recovery landfill has approximately 14 years of total site life at current average disposal levels. Pittsburg County. The Pittsburg County landfill consists of approximately 76 acres, of which approximately 30 are permitted acres. There are approximately 1.4 million cubic yards of unused permitted airspace. The Pittsburg County landfill would have approximately 40 years of total site life at current average disposal levels. Livingston. The Livingston landfill consists of approximately 556 acres, of which approximately 255 are permitted acres. There are approximately 27.9 million cubic yards of unused permitted airspace. Previously, cells developed at the Livingston landfill have been constructed with double composite liner systems. In September 1996, the Livingston landfill received a permit to construct cells using a single liner composite system. The Livingston landfill has approximately 12.5 years of total site life at current average disposal levels, which have increased substantially since its acquisition by the Company. Environtech. The Environtech landfill consists of approximately 326 acres of which 78 acres have received local siting approval and state permitting. There are approximately 5.9 million cubic yards of unused airspace. Environtech has approximately 24 years of total site life at current average disposal levels. McLean. The McLean County landfill is located in Bloomington, Illinois. The landfill consists of approximately 55 acres, of which approximately 33 acres are approved for waste disposal. The current waste receipts are minimal due to this landfill's proximity to the Livingston landfill. Blackfoot. The Blackfoot landfill in Evansville, Indiana consists of approximately 379 acres, of which approximately 166 are permitted acres. The site has available capacity of approximately 17.8 million cubic yards of airspace. This includes 0.5 million cubic yards of airspace which will be approved as a minor modification to the existing permit, pursuant to the applicable state regulations. The Blackfoot landfill has approximately 55 years of total site life at current average disposal levels. Wyandot. The Wyandot landfill consists of approximately 344 acres in three proximate locations, and the Company has an option to purchase up to approximately 94 adjacent additional acres in the vicinity. Approximately 87 of the owned acres are permitted, and there are approximately 5.7 million cubic yards of unused permitted airspace. Cells developed to date at the Wyandot landfill have been constructed with double composite liner systems. The Company has applied for a permit from applicable regulatory authorities to use a single composite liner in constructing new cells, which the Company believes should reduce cell development costs. In addition, the Company has applied for a permit from the Ohio Environmental Protection Agency to expand its landfill capacity by using the valley between two of the hills that are currently permitted for waste disposal, as well as the option acreage. The Company anticipates that if it exercised its option, obtained the required permits and constructed the additional landfill areas, the Wyandot landfill would have approximately 46 years of total site life at current disposal levels. Currently, however, the Wyandot landfill has approximately 10 years of total site life at current average disposal levels. Clarion. The Clarion landfill consists of approximately 606 acres, of which approximately 60 are permitted acres. There are approximately 3.9 million cubic yards of unused permitted airspace. Cells developed at the Clarion landfill have been, and due to regulatory requirements will continue to be, constructed with double liner systems. The Clarion landfill has approximately 10 years of total site life at current average disposal levels. Transfer Stations The Company has an active program to acquire, develop, own, operate and contract to receive waste volumes from transfer stations in markets which are proximate to its operations. The use of transfer stations reduces the Company's costs associated with the transportation of its collected waste and also increases the market area served by the Company's landfills. Presently, the Company owns, operates or has exclusive contracts to receive waste from a total of 20 transfer stations, including six in the Missouri Region, three in the Illinois Region, three in the southwestern Indiana Region, five in the Ohio Region and three in the New England Region. Typically, the Company acquires transfer stations that will service its Company-owned landfills and expand its geographic service area. Collection Operations The Company collects solid waste from over 400,000 residential, commercial and industrial customers through its own collection operations and through brokerage arrangements with other haulers. The Company's collection operations are conducted generally within a 50-mile radius of either its transfer stations or landfills, which allows the Company to serve a geographic area within a radius of approximately 125 miles from its landfills. The Company also contracts with local generators of solid waste and directs the waste to either its own landfill or to a third-party landfill or for additional handling at one of its transfer stations. During the year ended December 31, 1997, the Company's captive waste constituted an average of approximately 73% of the solid waste disposed of at Company-owned landfills. In addition, approximately 81% of the total tonnage collected by the Company was disposed of at Company-owned landfills. Fees for the Company's commercial and industrial collection services are determined by such factors as collection frequency, type of equipment and containers furnished, the type, volume and weight of the waste collected, the distance to the disposal or processing facility and the cost of disposal or processing. A majority of the Company's commercial and industrial waste collection services are performed under contracts. Substantially all of the Company's municipal solid waste collection services are performed under contracts with municipalities. These contracts grant the Company exclusive rights to service all or a portion of the residential homes in a specified community or provide a central repository for residential waste drop-off. The Company also provides subscription residential collection services directly to households. Sales and Marketing The Company has a coordinated marketing strategy which is formulated at the corporate level and implemented at the regional level. In addition to competitive pricing, the Company's marketing strategy emphasizes quality service particularly with respect to rapid turnaround time at its landfills. Each manager implements the Company's marketing strategy, which is overseen by senior management. Depending upon the size of the region and its customer mix, each manager may focus on commercial, industrial, residential or municipal accounts to a varying degree. The Company maintains periodic contact with all of its accounts to increase customer retention. Company salespersons call on prospective customers in a specified geographic territory. Since the Company acquires its waste collection operations primarily from entrepreneurs who generally do not have independent sales forces, the Company often retains these entrepreneurs during the transition period following the acquisition of such operations to acquaint the Company's sales force with the acquired companies' customer base. The Company has a diverse customer base, with no single customer accounting for more than 10% of the Company's revenues during the year ended December 31, 1997. The Company does not believe that the loss of any single customer would have a material adverse effect on the Company's results of operations. Competition The solid waste collection and disposal business is highly competitive and requires substantial amounts of capital. The Company competes with numerous local and regional companies and, in selected areas, with the large national waste management companies. The industry is led by several national waste management companies, such as Waste Management, Inc., Browning-Ferris Industries, Inc., USA Waste Services, Inc., Republic Industries, Inc. and Allied Waste Industries, Inc., and includes numerous local and regional companies of varying sizes and competitive resources such as Casella Waste Systems, Inc., Eastern Environmental Services, Inc., Superior Services, Inc. and Waste Industries, Inc. The large national companies, as well as a number of the regional companies, are significantly larger and have greater financial resources than the Company. The Company also competes with those counties and municipalities that maintain their own waste collection and disposal operations. These counties and municipalities may have financial advantages due to the availability to them of tax revenues and tax exempt financing. The Company competes primarily by charging competitive prices and offering quality service. Competitors may reduce the price of their services in an effort to expand market share or to win competitively bid municipal contracts. The solid waste collection and disposal industry is currently undergoing significant consolidation, and the Company encounters competition in its efforts to acquire landfills and collection operations. Accordingly, it may become uneconomical for the Company to make further acquisitions or the Company may be unable to locate or acquire suitable acquisition candidates at price levels and on terms and conditions that the Company considers appropriate, particularly in markets the Company does not already serve. Competition in the disposal industry may also be affected by the increasing national emphasis on recycling and other waste reduction programs, which may reduce the volume of waste deposited in landfills. Liability Insurance and Bonding The Company carries a broad range of insurance for the protection of its assets and operations that it believes is customary to the waste management industry, including pollution liability coverage. Specifically, each of the Company's landfills has pollution liability coverage of $10 million per occurrence or $10 million in the aggregate subject to a $10,000 deductible. Nevertheless, if the Company were to incur liability for environmental damage which exceeds coverage limits or is not covered by insurance, its business, financial condition and results of operations could be materially adversely affected. The Company is required to post a performance bond or a bank letter of credit or to provide other forms of financial assurance in connection with closure and post-closure obligations with respect to landfills and its other solid waste management operations and may be required to provide such financial assurance in connection with municipal residential collection contracts. As of December 31, 1997, the Company had outstanding approximately $38.1 million of performance bonds. If the Company were unable to obtain surety bonds or letters of credit in sufficient amounts, or to provide other required forms of financial assurance, it would be unable to remain in compliance with the Subtitle D Regulations or comparable state requirements and, among other things, might be precluded from entering into certain municipal collection contracts and obtaining or holding landfill operating permits. Employees At March 15, 1998, the Company employed approximately 1,314 employees, 78 of whom were managers or professionals, 1,045 of whom were hourly paid employees involved in collection, transfer and disposal operations, and 191 of whom were sales, clerical, data processing or other administrative employees. Certain of the Company's employees at its Environtech and Livingston landfills are represented by the International Brotherhood of Operating Engineers and one of the Company's employees at its City transfer station is represented by the International Brotherhood of Teamsters. The Company has no knowledge of any other organizational efforts among its employees. The Company believes that its relations with its employees are good. Risk Factors Availability of Additional Acquisition Targets The Company's ongoing acquisition program is a key element of its acquisition-based growth strategy for expanding its solid waste management services. Consequently, the future growth of the Company depends in large part upon the successful continuation of this acquisition program. The Company may encounter substantial competition in its efforts to acquire landfills, transfer stations and collection companies. There can be no assurance that the Company will succeed in locating or acquiring appropriate acquisition candidates at price levels and on terms and conditions that the Company considers appropriate. Integration of Acquisitions The financial position and results of operations of the Company will depend to a large extent on the Company's ability to integrate effectively the operations of the companies it has acquired to date, and expects to acquire in the future, and to realize expected efficiencies and economies of scale from such acquisitions. There can be no assurance that the Company's efforts to integrate these operations will be effective, that expected efficiencies and economies of scale will be realized or that the Company will be able to successfully consolidate its operations. The failure to achieve any of these results could have a material adverse effect on the Company's business, financial condition and results of operations. Ability to Manage Growth The Company's goal is to increase the scale of its operations significantly through the acquisition of other solid waste businesses and through internal growth. Consequently, the Company may experience periods of rapid growth with significantly increased staffing level requirements. Such growth could place a significant strain on the Company's management and on its operational, financial and other resources. The Company's ability to maintain and manage its growth effectively will require it to expand its management information systems capabilities and improve its operational and financial systems and controls. Moreover, the Company will need to attract, train, motivate, retain and manage its senior managers, technical professionals and other employees. Any failure to expand its management information system capabilities, to implement and improve its operational and financial systems and controls or to recruit appropriate additional personnel in an efficient manner at a pace consistent with the Company's business growth could have a material adverse effect on the Company's business, financial condition and results of operations. Highly Competitive Industry The solid waste collection and disposal business is highly competitive and requires substantial amounts of capital. The Company competes with numerous solid waste management companies, many of which are significantly larger and have greater financial resources than the Company. The Company also competes with those counties, municipalities and solid waste districts that maintain their own waste collection and disposal operations. These counties, municipalities and solid waste districts may have financial advantages due to the availability to them of user fees, charges or tax revenues and the greater availability to them of tax-exempt financing. In addition, competitors may reduce the price of their services in an effort to expand market share or to win competitively bid municipal contracts. There can be no assurance that the Company will be able to compete successfully. Funding of Future Capital Requirements; Prior Losses and Working Capital Deficits The Company's acquisition-based growth strategy has resulted in a steady increase in its capital requirements, and such increase may continue in the future as the Company pursues its strategy. The Company recorded net losses to common stockholders of approximately $3.7 million and $370,000 during the fiscal years ended December 31, 1995 and 1996, respectively. In addition, the Company has incurred working capital deficits in the past, and there can be no assurance that its available working capital will be sufficient in the future as it pursues its growth strategy. Furthermore, in connection with a completed acquisition, the Company may be obligated to make contingent cash payments of up to approximately $37.5 million over the next nine years if certain business development projects are achieved as a result of that acquisition. To the extent that internally generated cash and cash available under the Credit Facility are not sufficient to provide the cash required for future operations, capital expenditures, acquisitions, earn-out and contingent payments, debt repayment obligations and financial assurance obligations, the Company will require additional equity or debt financing in order to provide such cash. There can be no assurance, however, that such financing will be available or, if available, will be on terms satisfactory to the Company. Where appropriate, the Company may seek to minimize the use of cash to finance its acquisitions by using capital stock, assumption of indebtedness or notes. However, there can be no assurance the owners of the businesses the Company may wish to acquire will be willing to accept non-cash consideration in whole or in part. Use of Leverage Historically, the Company has incurred significant debt obligations in connection with financing its acquisitions and business growth. The Company has a $140 million Credit Facility with a bank group led by ING (U.S.) Capital Corporation, as administrative agent, Morgan Guaranty Trust Company of New York, as syndication agent, Union Bank of California, N.A., as documentation agent, BHF-Bank Aktiengesellschaft, as co-agent, and Bank of America Illinois, as co-agent. As of December 31, 1997, the Company's consolidated indebtedness was $23.1 million, its consolidated total assets were $373.0 million and its stockholders' equity was $297.4 million. At March 1, 1998, the Company's consolidated indebtedness had increased to approximately $39.7 million. The Company anticipates incurring significant indebtedness in the future in order to fund all or a portion of the purchase price of future acquisitions. The Company's ability to meet its debt service obligations will depend upon its future performance, which, in turn, will be subject to general economic conditions and to financial, business and other factors affecting the operations of the Company, many of which are beyond the Company's control. If the Company fails to generate sufficient cash flow to repay its debt, the Company may be required to refinance all or a portion of its existing debt or to obtain additional financing. There can be no assurance that such refinancing or any additional financing could be obtained on terms favorable to the Company or at all. Potential Liabilities Associated with Acquisitions The businesses acquired by the Company may have liabilities that the Company did not discover or may have been unable to discover during its pre-acquisition investigations, including liabilities arising from environmental contamination or non-compliance by prior owners with environmental laws or regulatory requirements, and for which the Company, as a successor owner or operator, may be responsible. Any indemnities or warranties, due to their limited scope, amount, or duration, the financial limitations of the indemnitor or warrantor or other reasons, may not fully cover such liabilities. Dependence on Senior Management The Company is highly dependent on its senior management team. The loss of the services of any member of senior management may have a material adverse effect on the Company's business, financial condition and results of operations. In an effort to minimize this risk, the Company has entered into employment contracts with certain members of senior management. The Company does not maintain "key man" life insurance with respect to members of senior management except for a $2.0 million policy maintained on the Company's President and Chief Executive Officer. Limitations on Internal Expansion The Company's operating program depends on its ability to expand and develop its landfills, transfer stations and collection operations. The process of obtaining required permits and approvals to operate or expand solid waste management facilities, including landfills and transfer stations, has become increasingly difficult and expensive, often taking several years, requiring numerous hearings and compliance with zoning, environmental and other regulatory requirements, and often being subject to resistance from citizen or other groups. There can be no assurance that the Company will be successful in obtaining the permits it requires or that such permits will not contain onerous terms and conditions. An inability to receive such permits and approvals could have a material adverse effect on the Company's business, financial condition and results of operations. See "- Extensive Environmental and Land Use Laws and Regulations." In some areas, suitable land may be unavailable for new landfill sites. There can be no assurance that the Company will be successful in obtaining new landfill sites or expanding the permitted capacity of its current landfills once its landfill capacity has been consumed. In such event, the Company could be forced to dispose of collected waste at landfills operated by its competitors, which could have a material adverse effect on the Company's landfill revenues and collection expenses. Dependence on Third Party Collection Operations A portion of the solid waste delivered to the Company's landfills is delivered by third party collection companies under informal arrangements or without long-term contracts. If these third parties discontinued their arrangements with the Company and if the Company were unable to replace these third party arrangements, the Company's business, financial condition and results of operations might be materially adversely affected. Extensive Environmental and Land Use Laws and Regulations The Company is subject to extensive and evolving environmental and land use laws and regulations, which have become increasingly stringent in recent years as a result of greater public interest in protecting and cleaning up the environment. These laws and regulations affect the Company's business in many ways, including as set forth below. Extensive Permitting Requirements. In order to develop and operate a landfill or other solid waste management facility, it is necessary to obtain and maintain in effect one or more facility permits and other governmental approvals, including those related to zoning, environmental and land use. In addition, the Company may be required to obtain similar permits and approvals in order to expand its existing landfill and solid waste management operations. These permits and approvals are difficult and time consuming to obtain and are frequently subject to community opposition, opposition by various local elected officials or citizens and other uncertainties. In addition, after an operating permit for a landfill or other facility is obtained, the permit may be subject to modification or revocation by the issuing agency, and it may be necessary to obtain periodically a renewal of the permit, which may reopen opportunities for opposition to the permit. Moreover, from time to time, regulatory agencies may delay the review or grant of these required permits or approvals or may modify the procedures or increase the stringency of the standards applicable to its review or grant of such permits or approvals. In addition, the Company may not be able to ensure that its landfill operations are included and remain in the solid waste management plan of the state or county in which such operations are conducted. The Company may also have difficulty obtaining host agreements with counties or local communities, or existing host communities may demand modifications of existing host agreements in connection with planned expansions, either of which could adversely affect the Company's operations and increase the Company's costs and reduce its margins. There can be no assurance that the Company will be successful in obtaining and maintaining in effect the permits and approvals required for the successful operation and growth of its business, including permits or approvals required for planned landfill expansions, and the failure by the Company to obtain or maintain in effect a permit significant to its business could materially adversely affect the Company's business, financial condition and results of operations. Design, Operation and Closure Requirements. The design, operation and closure of landfills are subject to extensive regulations. These regulations include, among others, the regulations (the "Subtitle D Regulations") establishing minimum federal requirements adopted by the United States Environmental Protection Agency (the "EPA") in October 1991 under Subtitle D of the Resource Conservation and Recovery Act of 1976 ("RCRA"). The Subtitle D Regulations generally became effective on October 9, 1993 (except for more stringent financial assurance requirements, which became effective April 9, 1997). The Subtitle D Regulations require all states to adopt regulations regarding landfill design, operation and closure requirements that are as stringent as, or more stringent than, the Subtitle D Regulations. All states in which the Company's landfills are located have in place extensive landfill regulations consistent with the Subtitle D requirements. These federal and state regulations require the Company to design the landfill in accordance with stringent technical requirements, monitor groundwater, post financial assurances, and fulfill landfill closure and post-closure obligations. These regulations could also require the Company to undertake investigatory, remedial and monitoring activities, to curtail operations or to close a landfill temporarily or permanently. Furthermore, future changes in these regulations may require the Company to modify, supplement, or replace equipment or facilities at costs which may be substantial. Legal and Administrative Proceedings. In the ordinary course of its business, the Company may become involved in a variety of legal and administrative proceedings relating to land use and environmental laws and regulations. These may include proceedings by federal, state or local agencies seeking to impose flow control requirements, civil or criminal penalties on the Company for violations of such laws and regulations, or to impose liability on the Company under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") or comparable state statutes, or to revoke or deny renewal of a permit; actions brought by citizens' groups, adjacent landowners or governmental entities opposing the issuance of a permit or approval to the Company or alleging violations of the permits pursuant to which the Company operates or laws or regulations to which the Company is subject; and actions seeking to impose liability on the Company for any environmental damage at its landfill sites or that its landfills or other properties may have caused to adjacent landowners or others, or at sites to which it transported waste, including groundwater or soil contamination. The Company could incur substantial legal expenses during the course of the aforementioned proceedings, and the adverse outcome of one or more of these proceedings could materially adversely affect the Company's business, financial condition and results of operations. During the ordinary course of its operations, the Company has from time to time received, and expects that it may in the future receive, citations or notices from governmental authorities that its operations are not in compliance with its permits or certain applicable environmental or land use laws and regulations. The Company generally seeks to work with the authorities to resolve the issues raised by such citations or notices. There can be no assurance, however, that the Company will always be successful in this regard, and the failure to resolve a significant issue could result in one or more of the adverse consequences to the Company described below under "Potential Liabilities." Potential Liabilities. There may be various adverse consequences to the Company in the event that a facility owned or operated by the Company (or a predecessor owner or operator whose liabilities the Company may have acquired expressly or under successor liability theories) causes environmental damage, in the event that waste transported by the Company (or a predecessor) causes environmental damage at another site, in the event that the Company fails (or a predecessor failed) to comply with applicable environmental and land use laws and regulations or the terms of a permit or outstanding consent order or in the event the Company's owned or operated facility or the soil or groundwater thereunder is or becomes contaminated. These may include the imposition of substantial monetary penalties on the Company; the issuance of an order requiring the curtailment or termination of the operations involved or affected; the revocation or denial of permits or other approvals necessary for continued operation or landfill expansion; the imposition of liability on the Company in respect of any environmental damage (including groundwater or soil contamination) at its landfill sites or that its landfills or other facilities or other Company-owned or operated facilities caused to adjacent landowners or others or environmental damage at another site associated with waste transported by the Company; the imposition of liability on the Company under CERCLA or under comparable state laws; and criminal liability for the Company or its officers. Any of the foregoing could materially adversely affect the Company's business, financial condition and results of operations. CERCLA and analogous state laws impose retroactive strict joint and several liability on various parties that are, or have been, associated with a site from which there has been, or is threatened, a release of any hazardous substance (as defined by CERCLA) into the environment. Liability under RCRA, CERCLA and analogous state laws may include responsibility for costs of site investigations, site cleanup, site monitoring, natural resources damages and property damages. Liabilities under RCRA, CERCLA and analogous state laws can be very substantial and, if imposed upon the Company, could materially adversely affect the Company's business, financial condition and results of operations. In the ordinary course of its landfill and waste management operations and in connection with its review of landfill and other operations to be acquired, the Company has discovered at one landfill, and may in the future discover at other landfills or waste management facilities, indications of groundwater contamination. In such events, the Company would seek or be required to determine the magnitude and source of the problem and, if appropriate or required by applicable regulations, to design and implement measures to remedy, or halt the spread of, the contamination. There can be no assurance, however, that contamination discovered at a landfill or at other Company sites will not result in one or more of the adverse consequences to the Company described above. Type, Quantity and Source Limitations. Certain permits and approvals may limit the types of waste that may be accepted at a landfill or the quantity of waste that may be accepted at a landfill during a given time period. In addition, certain permits and approvals, as well as certain state and local regulations, may limit a landfill to accepting waste that originates from specified geographic areas or seek to restrict the importation of out-of-state waste or otherwise discriminate against out-of-state waste. Generally, restrictions on the importation of out-of-state waste have not withstood judicial challenge. However, from time to time federal legislation is proposed which would allow individual states to prohibit the disposal of out-of-state waste or to limit the amount of out-of-state waste that could be imported for disposal and would require states, under certain circumstances, to reduce the amounts of waste exported to other states. Although such legislation has not yet been adopted by Congress, if this or similar legislation is enacted, states in which the Company operates landfills could act to limit or prohibit the importation of out-of-state waste. Such state actions could materially adversely affect landfills within those states that receive a significant portion of waste originating from out-of-state. In addition, certain states and localities may for economic or other reasons restrict the exportation of waste from their jurisdiction or require that a specified amount of waste be disposed of at facilities within their jurisdiction. In 1994, the United States Supreme Court held unconstitutional, and therefore invalid, a local ordinance that sought to impose flow controls on taking waste out of the locality. However, certain state and local jurisdictions continue to seek to enforce such restrictions and, in certain cases, the Company may elect not to challenge such restrictions based upon various considerations. In addition, the aforementioned proposed federal legislation, if adopted, could allow states and localities to impose certain flow control restrictions. These restrictions could result in the volume of waste going to landfills being reduced in certain areas, which may materially adversely affect the Company's ability to operate its landfills at their full capacity and/or affect the prices that can be charged for landfill disposal services. These restrictions may also result in higher disposal costs for the Company's collection operations. If the Company were unable to pass such higher costs through to its customers, the Company's business, financial condition and results of operations could be materially adversely affected. Limits on Insurance Coverage There can be no assurance that the Company's pollution liability insurance will provide sufficient coverage in the event an environmental claim were made against the Company or that the Company will be able to maintain in place such insurance at reasonable costs. An uninsured or underinsured claim of sufficient magnitude could have a material adverse effect on the Company's business, financial condition and results of operations. Incurrence of Charges Related to Capitalized Expenditures In accordance with generally accepted accounting principles, the Company capitalizes certain expenditures and advances relating to acquisitions, pending acquisitions and landfill development and expansion projects. Indirect acquisition costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. The Company's policy is to charge against earnings any unamortized capitalized expenditures and advances (net of any portion thereof that the Company estimates will be recoverable, through sale or otherwise) relating to any operation that is permanently shut down, any pending acquisition that is not consummated, and any landfill development or expansion project that is not or not expected to be successfully completed. Therefore, the Company may be required to incur a charge against earnings in future periods, which charge, depending upon the magnitude thereof, could materially adversely affect the Company's business, financial condition and results of operations. Use of Alternatives to Landfill Disposal Alternatives to landfill disposal, such as recycling and composting, are increasingly being used. In addition, incineration is an alternative to landfill disposal in certain of the Company's markets. There also has been an increasing trend at the state and local levels to mandate recycling and waste reduction at the source and to prohibit the disposal of certain type of wastes, such as yard wastes, at landfills. These developments may result in the volume of waste going to landfills being reduced in certain areas, which may affect the Company's ability to operate its landfills at their full capacity or affect the prices that can be charged for landfill disposal services. For example, Illinois, Ohio and Pennsylvania, states in which the Company operates landfills, have adopted bans on the disposal of yard waste or leaves in landfills located in those states, and all of the states in which the Company operates landfills have adopted rules restricting or limiting disposal of tires at landfills. In addition, each of the states in which the Company operates landfills has adopted plans or requirements which set goals for specified percentages of certain solid waste items to be recycled. These recycling goals are being phased in over the next few years. These alternatives, if and when adopted and implemented, may have a material adverse effect on the business, financial condition and results of operations of the Company. Ability to Meet Financial Assurance Obligations The Company is required to post a performance bond or a bank letter of credit or to provide other forms of financial assurance in connection with closure and post-closure obligations with respect to landfills or its other solid waste management operations and may be required to provide such financial assurance in connection with municipal residential collection contracts. If the Company were unable to obtain surety bonds in sufficient amounts, or to provide other required forms of financial assurance, it would be unable to remain in compliance with the Subtitle D Regulations or comparable state requirements and, among other things, might be precluded from entering into certain municipal collection contracts and obtaining or holding landfill operating permits. Seasonality The Company's revenues tend to be somewhat lower in the winter months. This is primarily attributable to the fact that: (i) the volume of waste relating to construction and demolition activities tends to increase in the spring and summer months; and (ii) the volume of industrial and residential waste in the regions where the Company operates tends to decrease during the winter months. In addition, particularly harsh weather conditions may delay the development of landfill capacity and otherwise result in the temporary suspension of certain of the Company's operations and could materially adversely affect the Company's overall business, financial condition and results of operations. Anti-Takeover Provisions The Board of Directors may issue up to 5,000,000 shares of Preferred Stock in the future without stockholder approval upon such terms as the Board of Directors may determine. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying or preventing a change in control of the Company without further action by the stockholders. The Company has no present plans to issue any shares of Preferred Stock. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 also could have the effect of delaying or preventing a change of control of the Company. Absence of Dividends The Company has never declared or paid dividends on its Common Stock and does not anticipate paying dividends in the foreseeable future. ITEM 2. PROPERTIES The principal fixed assets used by the Company in connection with its landfill operations are its landfills which are described under Item 1. "Business-Operations-Landfills." The nine landfills currently owned by the Company are situated on sites owned by the Company. The principal fixed assets used by the Company in its collection operations and transfer stations are approximately 232 acres of land used for transfer stations and other facilities related to collection operations (of which approximately 202 acres are owned and 30 acres are leased). The Company's corporate headquarters are located in Burr Ridge, Illinois, where it leases approximately 8,000 square feet of space. ITEM 3. LEGAL PROCEEDINGS In the normal course of its business and as a result of the extensive governmental regulation of the waste industry, the Company may periodically become subject to various judicial and administrative proceedings involving federal, state or local agencies. In these proceedings, an agency may seek to impose fines on the Company to revoke, or to deny renewal of, an operating permit held by the Company. From time to time, the Company also may be subject to actions brought by citizens' groups or adjacent landowners in connection with the permitting and licensing of its landfills or transfer stations, or alleging environmental damage or violations of the permits and licensees pursuant to which the Company operates. In addition, the Company is or may become party to various claims and suits pending for alleged damages to persons and property, alleged violation of certain laws and for alleged liabilities arising out of matters occurring during the normal operation of the waste management business. In the opinion of management, the liability, if any, under these claims and suits would not materially adversely affect the business, financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock of the Company has been quoted on the Nasdaq National Market under the symbol ("ADSI") since July 26, 1996, the date of the commencement of the Company's initial public offering. The following table sets forth, for the periods indicated, the high and low closing prices of the Common Stock as reported on the Nasdaq National Market: High Low 1996 3rd Quarter. . . . . . . . . . . . . . . . . . . $18.25 $ 9.00 4th Quarter. . . . . . . . . . . . . . . . . . . $18.50 $15.50 1997 1st Quarter. . . . . . . . . . . . . . . . . . . $18.00 $16.50 2nd Quarter. . . . . . . . . . . . . . . . . . . $25.06 $16.38 3rd Quarter. . . . . . . . . . . . . . . . . . . $33.75 $21.00 4th Quarter. . . . . . . . . . . . . . . . . . . $37.50 $29.00 On March 25, 1998, there were approximately 1,950 beneficial owners of the Common Stock. The Company has never declared or paid any dividends on its Common Stock, and neither ADS nor CDI has declared or paid any dividends on its common stock. The Company and its Board of Directors currently intend to retain any earnings for use in the operation and expansion of the Company's business and do not anticipate paying any dividends on the Common Stock for the foreseeable future. The Credit Facility prohibits the payment of cash dividends without prior bank approval. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table presents selected consolidated statement of operations, balance sheet and other data of the Company for the periods presented. See the Notes to the Consolidated Financial Statements included elsewhere herein for information concerning the basis of presentation. The following selected consolidated financial data as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 have been derived from the audited consolidated financial statements of the Company included elsewhere in this Annual Report on Form 10-K and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected consolidated financial data as of December 1993, 1994 and 1995 and for the years ended December 31, 1993 and 1994 are derived from audited consolidated financial statements that are not included herein. Years Ended December 31, 1993 1994 1995 1996 1997 (Dollars in thousands, except per share amount) Statement of Operations Data: Revenues. . $ 7,730 $18,517 $ 30,004 $56,804 $121,363 Cost of operations. 5,750 12,647 17,286 30,376 65,947 Selling, general and administra- tive expense 1,646 4,910 5,882 8,328 16,821 Depreciation and amorti- zation expense. . . 1,166 3,226 6,308 12,334 21,975 ----- ----- ----- ------ ------ Operating income. . . . (832) (2,266) 528 5,766 16,620 Interest expense. . . (417) (1,497) (3,030) (5,745) (6,223) Interest income. . . . 35 2 189 260 201 Other income. . - - - 179 274 ----- ------ ------ ------ ------ Income (loss) before income taxes and extra- ordinary item. . . . (1,214) (3,761) (2,313) 460 10,872 Income tax benefit (expense). . . 391 1,372 (332) (245) 3,531 ------ ----- ------ ----- ------ Income (loss) before extra- ordinary item. . . . ..(832) (2,389) (2,645) 215 7,341 Extraordinary item-gain (loss) on early retire- ment of debt. . 74 - (908) (476) - ---- ------ ------ ----- ------ Net income (loss). . . . (749) (2,389) (3,553) (261) 7,341 Preferred stock dividend requirement. - - (190) (109) - ----- ------ ------ ----- ----- Net income (loss) appli- cable to common stock- holders. . . $(749) $(2,389) $(3,743) $ (370) $ 7,341 ====== ======== ======== ======= ======== Basic earnings per common share: (1) Income (loss) before extra- ordinary item . . . . $(.67) $ (1.07) $ (.85) (.02) $ .56 Extraordinary item . . . . .06 - (.27) (.07) - ------ -------- -------- ------- -------- Net income (loss) . . . $(.61) $ (1.07) $ (1.12) $(.05) $ .56 ====== ======== ======== ======= ======== Weighted average common stock outstand- ing . . 1,219,042 2,224,205 3,340,512 7,063,928 13,177,346 ========= ========= ========== ========== ========== Diluted earnings per common share: Income (loss) before extra- ordinary item. . . . $(.67) $ (1.07) $ (.85) $ .01 $ .53 Extraordinary item . . . . .06 --- (.27) (.06) --- ------ -------- ------- ------ ------ Net income (loss) . . . (.61) $ (1.07) $ (1.12) $(.05) $ .53 ======= ======== ======= ====== ====== Weighted average common stock and common stock equivalent shares out- stand- ing . . 1,219,042 2,224,205 3,340,512 7,465,050 13,822,337 December 31, 1993 1994 1995 1996 1997 (in thousands) Balance Sheet Data: Cash and cash equivalents . . . . . $ 2,134 $ 548 $ 6,383 $ 2,301 $ 2,426 Working capital (deficit). . . . . . . 788 (2,237) (8,819) 1,219 721 Property and equipment, net. . . . . . . . . . 15,156 17,062 81,250 93,692 174,340 Total assets. . . . . . 35,512 37,557 114,693 144,986 373,024 Long-term obligations, net of current portion 16,073 18,487 48,789 65,445 20,788 Redeemable preferred stock of subsidiary. --- --- 1,908 --- --- Total stockholders' equity. . . . . . . 12,531 12,132 33,855 58,097 297,375 (1) The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, during the fourth quarter of 1997. SFAS No. 128 replaced the calculation of primary and fully diluted earnings per common share with basic and diluted earnings per common share. Earnings (loss) per common share amounts have been restated, where appropriate. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the "Selected Consolidated Financial Data," the Company's Consolidated Financial Statements and the notes thereto included elsewhere herein. General Revenues. The Company's revenues are attributable primarily to fees charged to customers for waste collection, transfer and disposal services. The Company's collection services are generally provided under direct agreements with its customers or pursuant to contracts with municipalities. Commercial and municipal contract terms, where used, generally range from one to five years and commonly have automatic renewal options. A relatively small portion of such agreements also provide for the prepayment of certain fees, which fees are reflected as deferred revenues. The table below shows, for the periods indicated, the percentage of the Company's total revenues attributable to services provided. The Company's revenue derived from landfill operations increased substantially with the acquisition of the Clarion, Wyandot and Livingston landfills in separate closings in June, August, and November 1995 (collectively, the "CDI Acquisition"). Since the CDI Acquisition, the Company has acquired proportionately more collection operations than landfill operations, resulting in a decreasing overall percentage of revenues attributable to landfill operations. Years Ended December 31, 1995 1996 1997 Collection (1) . . . . . 55.3% 47.5% 55.6% Transfer . . . . . . . . 5.0 2.1 5.8 Landfill (1) . . . . . . 39.0 49.9 37.9 Other. . . . . . . . . . 0.7 0.5 0.7 ------ ------ ------ Total Revenues. . . . 100.0% 100.0% 100.0% ====== ====== ====== _______________ (1) The portion of collection revenues attributable to disposal charges for waste collected by the Company and disposed of at the Company's landfills has been excluded from collection revenues and included in landfill revenues. A component of the Company's business strategy is to maximize internalization of waste it collects and thereby realize higher margins from its operations. By disposing of waste at Company-owned landfills, the Company retains the margin generated through disposal operations that would otherwise be earned by third-party landfills. During the year ended December 31, 1997, the Company's captive waste (which includes waste from the Company's collection operations and third-party haulers operating under long-term collection contracts) constituted an average of approximately 73% of the solid waste disposed of at its landfills. In addition, approximately 81% of the total tonnage collected by the Company was disposed of at Company-owned landfills. Expenses. Cost of operations include labor, maintenance and repairs, equipment and facility rent, utilities and taxes, the costs of ongoing environmental compliance, safety and insurance, disposal costs and costs of independent haulers transporting Company waste to disposal sites. Disposal costs include certain landfill taxes, host community fees, landfill site maintenance, fuel and other equipment operating expenses and provision for post-closure expenses, consisting of cap maintenance, groundwater monitoring, methane gas control and recovery and leachate treatment/disposal, anticipated to be incurred in the future. Selling, general and administrative ("SG&A") expenses include management, clerical and administrative compensation, overhead, sales costs, community relations expenses, provisions for estimated uncollectible accounts receivable and unrealizable acquisition costs and management fees paid to the Company's principal stockholder (which terminated upon closing of the Company's initial public offering in July 1996). Depreciation and amortization expense includes depreciation of fixed assets, closure costs and amortization of landfill airspace, goodwill, other intangibles and loan origination fees. The amount of landfill amortization expense related to airspace consumption can vary materially from landfill to landfill depending upon the purchase price, landfill configuration and cell development costs. Certain landfill development costs, such as engineering, upgrading, construction, interest and permitting costs, are capitalized and amortized based on airspace consumed. All of the Company's capitalized expenditures relating to cell development and landfill expansion work are in connection with cells for which the Company holds a permit for development. The Company believes that the costs associated with engineering, owning and operating landfills will increase in the future as a result of federal, state and local regulations and a growing community awareness of the landfill permitting process. Although there can be no assurance, the Company believes that it will be able to implement price increases sufficient to offset these increased expenses. All indirect landfill development costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. The Company capitalizes engineering, legal, accounting and other direct costs incurred in connection with potential acquisitions, accounted for using the purchase method for business combinations. The Company, however, routinely evaluates such capitalized costs and expenses those costs related to acquisitions not likely to occur. Indirect acquisition costs, such as executive salaries, general corporate overhead and other corporate services, are expensed as incurred. Accrued closure and post-closure costs represent an estimate of the current value of the future obligations associated with closure and post-closure monitoring of non-hazardous solid waste landfills currently owned by the Company. Site specific closure and post-closure engineering cost estimates are prepared annually for landfills owned by the Company. Estimated costs are accrued based on accepted tonnage as landfill airspace is consumed. The Company periodically updates its estimates of future closure and post-closure costs. These changes are accounted for on a prospective basis. The Company expects its closure and post-closure costs per ton to decrease as it expands landfill capacity and as such costs are amortized over greater airspace. The Company has estimated that, as of December 31, 1997, closure costs expected to occur during the operating lives of these facilities and expensed over these facilities' useful lives will approximate $17.3 million. In addition, the Company has estimated that, as of December 31, 1997, total costs for post-closure activities, including cap maintenance, groundwater monitoring, methane gas control and recovery and leachate treatment/disposal for up to 30 years after closure in certain cases, will be approximately $54.4 million. The accruals reflect relatively young landfills with estimated remaining lives, based on current waste flows, that range from approximately three to 50 years, and an estimated average remaining life of greater than 20 years. The Company is in the process of conducting a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 issue and believes that the Year 2000 issue should not pose any significant operational problems for the Company. The Company does not expect that the expenditures related to the Year 2000 issue will have a material effect on its financial position or results of operations in any year. Results of Operations The following table sets forth items in the Company's consolidated statement of operations as a percentage of revenues for the periods indicated. Years Ended December 31, 1995 1996 1997 Revenues . . . . . . . . . 100.0% 100.0% 100.0% Cost of operations . . . . 57.6 53.5 54.3 Selling, general and administrative expenses 19.6 14.6 13.9 Depreciation and amortization expense . . 21.0 21.7 18.1 ------ ------ ------ Operating income . . . . . 1.8 10.2 13.7 Interest expense, net. . . (9.5) (9.7) (5.0) Other income . . . . . . . - 0.3 0.2 Income tax expense . . . . (1.1) (0.5) (2.9) Extraordinary loss, net of income tax . . . . . (3.0) (0.8) - ----- ----- ---- Net income (loss) . . (11.8)% (0.5)% 6.0% ======= ====== ==== EBITDA margin(1) . . . . . 22.8% 31.9% 31.8% (1) EBITDA margin represents EBITDA expressed as a percentage of revenues. Years Ended December 31, 1997 and 1996 Revenues. Revenues in 1997 increased $64.6 million to $121.4 million from $56.8 million in 1996. Approximately $55.8 million of the increase is attributable to the effects of companies acquired during 1996 and 1997. Approximately $8.8 million is attributable to increases in revenues in operations owned more than twelve months. Cost of Operations. Cost of operations in 1997 was $65.9 million compared to $30.4 million in 1996. As a percentage of revenues, cost of operations was 54.3% in 1997 compared to 53.5% in 1996. The increase in cost of operations as a percentage of revenues is due to the impact of an increased number of collection operations versus landfill operations in 1997 compared to 1996. Collection operations generally have higher operating costs than landfill operations. Selling, General, and Administrative Expense. SG&A expenses increased to $16.8 million in 1997 compared to $8.3 million in 1996. As a percentage of revenues, SG&A expenses decreased to 13.9% in 1997 from 14.6% in 1996. The decreases in SG&A expenses as a percentage of revenues is due primarily to a significant increase in revenue producing assets, while corporate and other related administrative expenses increased moderately. Depreciation and Amortization Expense. Depreciation and amortization expense was $22.0 million in 1997 compared to $12.3 million in 1996. The increase in depreciation and amortization expense is due primarily to the Company's growth through acquisitions. As a percentage of revenues, depreciation and amortization expense was 18.1% and 21.7% for 1997 and 1996, respectively. The decline in depreciation and amortization expense as a percentage of revenues from 1996 to 1997 is due primarily to the reduction in the relative concentration of landfill assets, which typically have higher depreciation and amortization expense than collection operations. Net Interest Expense. Net interest expense was $6.0 million in 1997 compared to $5.5 million in 1996, which reflects the additional debt incurred to complete certain 1997 acquisitions. Income Taxes. The Company recorded an income tax provision of $3.5 million in 1997 compared to $245,000 in 1996, reflecting the increased taxable income generated, partially offset by utilization of net operating loss carryforwards. Years Ended December 31, 1996 and 1995 Revenues. Revenues in 1996 were $56.8 million compared to $30.0 million in 1995. Approximately $17.1 million of the increase was attributable to the impact of the full year contribution from the CDI Acquisition. In addition, the Company completed 16 acquisitions in 1996, which accounted for approximately $6.3 million of the increase in revenues. Cost of Operations. Cost of operations in 1996 was $30.4 million compared to $17.3 million in 1995, an increase corresponding primarily to the Company's revenue growth described above. As a percentage of revenues, cost of operations declined to 53.5% in 1996 from 57.6% in 1995, due primarily to the following factors. The Company's proportion of landfill operations, which generally have lower operating costs than collection operations, has increased as a result of the full year contribution of the CDI Acquisition. In addition, operating cost savings occurred as a result of the consolidation of the acquired Missouri collection operations and the full year impact of the new transfer stations opened in the Missouri region. Selling, General, and Administrative Expenses. SG&A expenses were $8.3 million in 1996 compared to $5.9 million in 1995. The increase in the SG&A expenses resulted from the full year impact of the CDI Acquisition as well as increased expenses from the 16 acquisitions completed in 1996. As a percentage of revenues, SG&A expenses declined to 14.6% in 1996 from 19.6% in 1995. The decrease in SG&A expense as a percentage of revenues was due primarily to a significant increase in revenue, while corporate and other related administrative expenses increased moderately. In 1996, the Company terminated a management agreement with an affiliate of its principal shareholder, pursuant to which a management fee of $466,000 was paid in 1996. Depreciation and Amortization Expense. Depreciation and amortization expense for 1996 was $12.3 million compared to $6.3 million in 1995. The increase is due primarily to the CDI Acquisition which significantly increased landfill airspace amortization and provision for closure costs, and to a lesser extent, the capital expenditures and goodwill associated with acquisitions consummated in 1996. As a percentage of revenues, depreciation and amortization expense was 21.7% during 1996 versus 21.0% in 1995. The relatively high percentages are primarily due to the configuration of the Wheatland landfill in 1995 and the high concentration of the Company's assets in landfills following the CDI Acquisition in 1996. Depreciation and amortization expense is expected to decline as a percentage of revenues in future periods as the concentration of the Company's assets in landfills diminishes due to the full year impact of the 1996 collection company acquisitions and as the Company reduces future cell development cost. Net fixed assets increased to $93.7 million in 1996 from $81.3 million in 1995 and goodwill, net of accumulated amortization expense, increased to $31.2 million in 1996 from $15.7 million in 1995. Net Interest Expense. Net interest expense was $5.5 million in 1996 compared to $2.8 million in 1995. This increase is attributable to the full year impact of additional debt incurred to complete the CDI Acquisition and the 16 acquisitions completed in 1996. Income Taxes. The Company recorded an income tax provision of $245,000 and $332,000 for 1996 and 1995, respectively. The 1996 provision reflects the Company having consolidated taxable income of $460,000. Although the Company recorded a net loss in 1995, the Company recorded an income tax provision because the Company's subsidiaries were not then consolidated and CDI reported a profit. Extraordinary Loss. In 1996, the Company recognized an extraordinary loss of $476,000, representing the write-off of unamortized debt issuance costs in connection with the refinancing of its prior credit facility. Liquidity and Capital Resources Due to the capital intensive nature of the solid waste industry and the Company's focus on an acquisition-based growth strategy, the Company has used, and expects to continue using, substantially all cash generated from operations to fund acquisitions, capital expenditures and landfill development. Historically, the Company has satisfied its acquisition, capital expenditure and working capital needs primarily through equity and bank financings. There can be no assurance that such financing will continue to be available. Net cash provided by operating activities for 1997 increased to $31.1 million compared to $10.3 million for the same period in 1996. The increase was primarily due to acquisition related activities which resulted in an improvement in net income to $7.3 million in 1997 compared to a net loss of $0.3 million in the prior year, an increase in depreciation and amortization of $9.6 million over the prior period, an increase in other long term liabilities of $6.0 million, offset by an increase in accounts receivable of $8.6 million. Net cash used in investing activities increased to $177.4 million in 1997 from $37.7 million in the prior year. The increase was due primarily to payments for acquisitions of $153.0 million completed in 1997 and an increase of $10.3 million in capital expenditures for 1997 compared to 1996. The Company's capital expenditure requirements have increased significantly, reflecting the Company's rapid growth by acquisition and development of additional revenue producing assets, and will increase further as the Company continues to pursue its acquisition-based growth strategy. During 1997, the Company spent $24.3 million in capital expenditures, of which $10.3 million was for cell development. In fiscal year 1998, the Company expects to spend approximately $29 million for capital expenditures on operations owned as of December 31, 1997, of which approximately $9 million is anticipated to be used for cell development. Net cash provided by financing activities totaled $146.4 million for 1997, compared to $23.2 million for 1996 reflecting borrowings of $141.2 million in 1997 under the Company's then existing term and revolving credit facilities to fund acquisitions. Repayments under the Company's Credit Facility totaled $188.6 million, funded primarily by the net proceeds of $194.0 million from offerings of Common Stock in May 1997 and in October 1997. The Credit Facility provides the Company with a revolving line of credit of $140 million to be used for acquisitions (of which $20 million may be used for working capital and letter of credit purposes). The Credit Facility bears interest at rates per annum equal to, at the Company's discretion, either: (i) the higher of (a) the federal funds rate plus 0.5% and (b) the prime rate, plus an applicable margin or (ii) the London Interbank Offered Rate ("LIBOR"), plus an applicable margin, and matures in 2002. As of March 1, 1998, the Company had borrowed $34.4 million under the Credit Facility. As of such date, the interest rates on the various loans under the Credit Facility ranged from 6.63% to 8.50% and the total unused availability under the Credit Facility was approximately $105.6 million. Inflation and Prevailing Economic Conditions To date, inflation has not had a significant impact on the Company's operations. Consistent with industry practice, most of the Company's contracts provide for a pass through of certain costs, including increases in landfill tipping fees and, in some cases, fuel costs. The Company therefore believes it should be able to implement price increases sufficient to offset most cost increases resulting from inflation. However, competitive factors may require the Company to absorb at least a portion of these cost increases, particularly during periods of high inflation. The Company is unable to determine the future impact of a sustained economic slowdown. Seasonality The Company's revenues tend to be somewhat lower in the winter months. This is primarily attributable to the fact that: (i) the volume of waste relating to construction and demolition activities tends to increase in the spring and summer months; and (ii) the volume of industrial and residential waste in the regions where the Company operates tends to decrease during the winter months. In addition, particularly harsh weather conditions may delay the development of landfill capacity and otherwise result in the temporary suspension of certain of the Company's operations and could materially adversely affect the Company's overall business, financial condition and results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 14 of Part IV of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information required by Part III (Items 10 through 13) is incorporated by reference to the captions "Principal Stockholders," "Election of Directors," "Management" and "Certain Transactions" in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year covered by this Report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K (a) See Index to Financial Statements immediately following Exhibit Index. There are no schedules related to this item to which references made in applicable regulations of the Securities and Exchange Commission are required or are applicable, and therefore all such schedules are omitted. (b) No reports on Form 8-K have been filed during the last quarter of the Company's fiscal year ended December 31, 1997. (c) See Exhibit Index immediately following signature pages. SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. American Disposal Services, Inc. By: /s/ Richard De Young Richard DeYoung Date: March 25, 1998 President Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ David C. Stoller David C. Stoller Chairman and Director (principal executive officer) March 25, 1998 /s/ Richard De Young Richard De Young President and Director March 25, 1998 /s/ Stephen P. Lavey Stephen P. Lavey Chief Financial Officer (principal financial officer) March 25, 1998 /s/ Lawrence R. Conrath, Sr. Lawrence R. Conrath, Sr. Vice President and Controller (principal accounting officer) March 25, 1998 /s/ Merril M. Halpern Merril M. Halpern Director March 25, 1998 /s/ A. Lawrence Fagan A. Lawrence Fagan Director March 25, 1998 /s/ Richard T. Henshaw, III Richard T. Henshaw, III Director March 25, 1998 /s/ G. T. Blankenship G. T. Blankenship Director March 25, 1998 /s/ Norman Steisel Norman Steisel Director March 25, 1998 EXHIBIT INDEX Exhibit No. Description of Exhibits 3.1 Restated Certificate of Incorporation of the Company (1) 3.2 Amendment to Restated Certificate of Incorporation dated May 30, 1996 (1) 3.3 Amendment to Restated Certificate of Incorporation dated October 7, 1997 3.4 By-laws of the Company (1) 10.1 Second Amended and Restated Credit Agreement dated as of May 22, 1997 among the Company, ING (U.S.) Capital Corporation, as administrative agent, Morgan Guaranty Trust Company of New York, as syndication agent, and the other financial institutions party thereto (2) 10.2 Registration Rights Agreement dated as of January 1, 1997 among the Company and certain of its stockholders(1) 10.3 Employment Agreement dated as of January 1, 1998 between the Company and Richard De Young 10.4 Employment Agreement dated as of January 1, 1998 between the Company and John J. McDonnell 10.5 Employment Agreement dated as of January 1, 1998 between the Company and Richard T. Kogler 10.6 Employment Agreement dated as of January 1, 1998 between the Company and Ann L. Straw 10.7 Employment Agreement dated as of January 1, 1998 between the Company and Lawrence R. Conrath, Sr. 10.8 Employment Agreement dated as of January 1, 1998 between the Company and Mary T. Ryan 10.9 Employment Agreement dated as of January 1, 1998 between the Company and Stephen P. Lavey 10.10 American Disposal Services, Inc. 1996 Stock Option Plan (1) 10.11 Form of Indemnification Agreement between the Company and its directors (1) 10.12 Form of Indemnification Agreement between the Company and its executive officers (1) 10.13 Form of Indemnification Agreement between the Company and its directors and executive officers (1) 10.14 Form of Tax-Sharing Agreement between the Company and its executive officers (1) 10.15 Agreement dated as of September 9, 1997 among the Company and the Stockholders of Illinois Bulk Handlers, Inc., Shred-All Recycling Systems, Inc., Fred B. Barbara Trucking Co., Inc. and Environtech, Inc. 21.1 Subsidiaries of the Company 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule _________________________ (1) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (333-4889). (2) Previously filed as an exhibit to the Company's Current Report on Form 8-K, dated May 15, 1997. INDEX TO FINANCIAL STATEMENTS Page American Disposal Services, Inc. and Subsidiaries: Consolidated Financial Statements Report of Independent Auditors . . . . . . . . . . . F-2 Consolidated Balance Sheets at December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 . . . . . . F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 . . F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . F-7 REPORT OF INDEPENDENT AUDITORS The Board of Directors American Disposal Services, Inc. We have audited the accompanying consolidated balance sheets of American Disposal Services, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Disposal Services, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Ernst & Young LLP Chicago, Illinois February 24, 1998 AMERICAN DISPOSAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) December 31, 1997 1996 ASSETS Current assets: Cash and cash equivalents. . . . . . . . $ 2,426 $ 2,301 Restricted cash held in escrow . . . . . 337 - Trade receivables-net of allowance of $1,326 and $473. . . . . . . . . . 23,052 9,741 Prepaid expenses . . . . . . . . . . . . 1,348 1,248 Other current assets . . . . . . . . . . 1,347 354 ------- ------ Total current assets. . . . . . . . . 28,510 13,664 Property and equipment, net. . . . . . . . 174,340 93,692 Other assets: Cost over fair value of net assets of acquired businesses, net of accumulated amortization of $3,635 and $1,374. . . . . . . . . . . . . . 157,304 31,237 Other intangible assets, net of accumulated amortization of $631 and $439. . . . . . . . . . . . . . . 2,045 1,610 Debt issuance costs, net of accumulated amortization of $696 and $204. . . . . 2,922 2,392 Other. . . . . . . . . . . . . . . . . . 7,903 2,411 -------- -------- $373,024 $144,986 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . $ 6,361 $ 3,359 Accrued liabilities: Consideration held back for certain acquisitions. . . . . . . . . . . . 4,910 1,369 Wages, salaries, and other compensation . . . . . . . . . . . 2,665 240 Other accrued liabilities . . . . . . 5,708 2,640 Deferred revenues. . . . . . . . . . . . 5,785 2,245 Current portion of long-term debt and capital lease obligations. . . . . . . 2,360 2,572 ------ ------ Total current liabilities . . . . 27,789 12,425 Long-term debt and capital lease obligations, net of current portion . . 20,788 65,445 Accrued environmental and landfill costs . . . . . . . . . . . . . . . . . 12,450 7,603 Deferred income taxes. . . . . . . . . . . 2,577 1,416 Other long-term liabilities. . . . . . . . 12,045 - Stockholders' equity: Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued and outstanding in 1997 and 1996. . . . . . . . . . . . . . . . . . - - Common stock, $0.01 par value; 60,000,000 shares authorized; shares issued and outstanding 1997-19,323, 100 and 1996-8,872,381. . . . . . . . . . 193 89 Warrants outstanding . . . . . . . . . . . . - 107 Additional paid-in capital . . . . . . . . . 298,110 66,170 Accumulated deficit. . . . . . . . . . . . . (928) (8,269) ------- ------ 297,375 58,097 ------- ------ $373,024 $144,986 ======== ======== See accompanying notes. AMERICAN DISPOSAL SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except per Share Data) Years Ended December 31, 1997 1996 1995 Revenues $121,363 $56,804 $30,004 Cost of operations . . . . . . . 65,947 30,376 17,286 Selling, general, and administrative expenses. . . . 16,821 8,328 5,882 Depreciation and amortization. . 21,975 12,334 6,308 ------- ------- ------ Operating income . . . . . . . . 16,620 5,766 528 Interest expense . . . . . . . . . (6,223) (5,745) (3,030) Interest income. . . . . . . . . . 201 260 189 Other income . . . . . . . . . . . 274 179 - Income (loss) before income taxes ------ ------ ------ and extraordinary item . . . . . 10,872 460 (2,313) Income tax expense . . . . . . . . 3,531 245 332 ------ ------ ------ Income (loss) before extraordinary item. . . . . . . . 7,341 215 (2,645) Extraordinary item-loss on early retirement of debt. . . . - (476) (908) ------- ------ ------- Net income (loss). . . . . . . . . 7,341 (261) (3,553) Preferred stock dividend . . . . . - (109) (190) ------- ------- ------ Net income (loss) applicable to common stockholders. . . . . $ 7,341 $ (370) $ (3,743) ======= ======= ======== Basic earnings per common share: Income (loss) before extraordinary item . . . . . $ 0.56 $ 0.02 $ (0.85) Extraordinary item. . . . . . . - (0.07) (0.27) ------- ------- ------ Net income (loss) . . . . . . . $ 0.56 $ (0.05) $ (1.12) ======= ======= ======== Diluted earnings per common share: Income (loss) before extraordinary item . . . . . $ 0.53 $ 0.01 $ (0.85) Extraordinary item. . . . . . . - (0.06) (0.27) ------- ------- ------ Net income (loss) . . . . . . . $ 0.53 $ (0.05) $ (1.12) ======= ======= ======== See accompanying notes. AMERICAN DISPOSAL SERVICES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in Thousands) Addi- Total tional Accu- Stock Warrants Paid-in mulated holder's Common Stock Outstanding Capital Deficit Equity Shares Amount Balance at Decem- ber 31, 1994 2,382,345 $ 24 $ 107 $16,157 $(4,156) $12,132 Issuance of common stock, net of issuance costs 3,280,520 33 - 25,433 - 25,466 Divi- dends on prefer- red stock - - - - (190) (190) Net loss - - - - (3553) (3553) --------- ----- ------ ------ ------- ------- Balance at De- cember 31, 1995 5,662,865 57 107 41,590 (7,899) 33,855 Issuance of common stock, net of issuance costs 3,162,500 32 - 24,573 - 24,605 Exercise of common stock warrants and options 47,016 - - 7 - 7 Dividends on pre- ferred stock - - - - (109) (109) Net loss - - - - (261) (261) ------- ------ ----- ------ ------- ------ Balance at December 31, 1996 8,872,381 89 107 66,170 (8,269) 58,097 Issuance of common stock, net of issuance costs 8,925,000 89 - 193,870 - 193,959 Stock issued for ac- quisi- tions 1,416,912 14 - 37,067 - 37,081 Exercise of common stock, warrants and options 108,807 1 (107) 647 - 541 Tax benefit from exercise of stock options - - - 356 - 356 Net income - - - - 7,341 7,341 ------- ----- ----- ----- ------ ------ Balance at December 31, 1997 19,323,100 $ 193 $ - $298,110 $(928) $297,375 ========== ===== ====== ======== ======= ======== See accompanying notes AMERICAN DISPOSAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Years Ended December 31, 1997 1996 1995 Operating activities Net income (loss) $7,341 $(261) $(3,553) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary item, net - 476 908 Depreciation and amortization 21,975 12,334 6,308 Provision for environmental and landfill costs 597 571 292 Deferred income taxes 600 176 47 Gain on sale of fixed assets (212) (98) - Changes in operating assets and liabilities, net of effects from acquisitions: Trade receivables (8,630) (2,600) (340) Prepaid expenses and other assets (6,187) (1,071) (161) Accounts payable, accrued liabilities and accrued environmental and landfill costs 7,287 153 1,846 Deferred revenue 2,310 656 254 Other long-term liabilities 6,045 - - ------- ------ ------- Net cash provided by operating activities 31,126 10,336 5,601 Investing activities Capital expenditures (24,320) (14,003) (6,173) Cost of acquisitions (153,048) (23,660) (62,201) -------- -------- -------- Net cash used in investing activities (177,368) (37,663) (68,374) Financing activities Net proceeds from issuances of common stock 193,959 24,605 25,466 Exercise of common stock options 541 7 - Tax benefit associated with stock options 356 - - Proceeds from issuances from long-term debt 141,177 66,950 32,568 Debt issuance costs (1,022) (2,596) (946) Repayments of indebtedness (188,644) (51,162) (2,698) Redemption of preferred stock - (1,950) - Net proceeds from issuance of preferred stock - - 1,908 Preferred stock dividend - (109) (190) Proceeds from (payment of) note payable to stockholders - (12,500) 12,500 -------- -------- ------- Net cash provided by financing activities 146,367 23,245 68,608 -------- -------- ------- Net increase (decrease) in cash and cash equivalents 125 (4,082) 5,835 Cash and cash equivalents, at beginning of year 2,301 6,383 548 -------- --------- -------- Cash and cash equivalents, at $2,426 $2,301 $6,383 end of year ======== ======== ======= Noncash activities Issuance of common stock for certain acquisitions $37,081 $ - $ - Issuance of notes payable for certain acquisitions 2,598 - - Consideration held back or held in escrow for certain acquisitions 10,910 1,369 - Supplemental cash flow information Cash paid for interest $ 6,814 $6,222 $2,515 Cash (refunds) paid for income taxes 2,260 (159) 478 See accompanying notes AMERICAN DISPOSAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 1. Formation and Basis of Presentation ADS, Inc. (ADS) was organized January 15, 1991, to acquire, develop, and operate non-hazardous municipal solid waste disposal, collection, and transfer operations and provide non-hazardous solid waste disposal management services to commercial, industrial, and residential customers. During 1993, an affiliate of Charterhouse Equity Partners, L.P. (CEP) purchased a controlling interest in ADS. County Disposal, Inc. (County) was incorporated by Charterhouse Equity Partners II, L.P. (CEPII) on April 27, 1995, for the purpose of acquiring certain net assets of Envirite Corporation (Envirite). On April 28, 1995 Envirite and County entered into an Asset Purchase Agreement whereby County agreed to purchase from Envirite certain landfill facilities and waste transportation and collection equipment located in Livingston County, Illinois, and Wyandot County, Ohio; all of the issued and outstanding capital stock of County Environmental Services, Inc., a wholly-owned subsidiary of Envirite, which owned and operated a landfill facility and waste transportation and collection equipment located in Clarion County, Pennsylvania; and certain related assets and assumption of certain liabilities. Effective January 1, 1996, the stockholders of ADS and County exchanged their shares for shares of a newly created holding company by the name of American Disposal Services, Inc. (the Company). This share exchange (the Exchange) qualifies as a transfer of companies under common control as affiliates of Charterhouse Group International, Inc. are the general partners and in control of CEP and CEPII and, accordingly, the transaction has been accounted for at historical cost in a manner similar to pooling of interests accounting. The financial statements have been prepared as if this Exchange had occurred as of December 31, 1994. In July 1996, the Company issued 3,162,500 shares of common stock at $9.00 per share in its initial public offering. Proceeds from the offering, net of underwriting commissions and related expenses, were $24.6 million. In April 1997, the Company issued 4,600,000 shares of common stock at $16.50 per share in a public offering. Proceeds from the offering, net of underwriting commissions and related expenses, were $70.1 million. The proceeds from each of these offerings were used to finance acquisitions and pay down a portion of the debt facility. In October 1997, the Company completed a public offering of 6,837,000 shares of common stock at $30.50 per share. Of the 6,837,000 shares, 4,325,000 shares were issued and sold by the Company and 2,512,000 shares were sold by selling stockholders. Proceeds to the Company from the offering, net of underwriting commissions and related expenses, were $123.8 million. Immediately following the offering, the Company had 19,129,542 shares of common stock issued and outstanding. The offering proceeds were used to finance acquisitions and pay down a portion of the debt facility. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risks consist primarily of trade receivables. Credit risk on trade receivables is minimized as a result of the large and diverse nature of the Company's customer base. No single group or customer represents greater than 10% of total accounts receivable. The Company maintains an allowance for losses based on the expected collectibility of accounts receivable. Credit losses have been within managements expectations. Fair Value of Financial Instruments Trade receivables, trade payables, and debt obligations are carried at cost which approximates fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to prior year's financial statements to conform with the 1997 presentation. Cash and Cash Equivalents Cash and cash equivalents represent cash in banks and liquid investments with original maturities of three months or less. Restricted Cash Held in Escrow Cash held in escrow represents cash held in banks restricted to fund obligations incurred in acquiring businesses. These obligations are expected to be funded in 1998. Property and Equipment Property and equipment are recorded at cost. Depreciation of equipment, which includes amortization of equipment capitalized under lease obligations, is computed using the straight-line method over the estimated useful lives of the respective assets assuming no salvage values as follows: Vehicles and equipment . . . . . . 3 to 12 years Buildings. . . . . . . . . . . . . 25 to 30 years Expenditures for major renewals are capitalized, and expenditures for routine maintenance and repairs are charged to expense as incurred. Capitalized landfill costs include expenditures for land and related airspace, permitting costs, preparation costs, and capitalized interest. Landfill permitting and preparation costs represent only direct costs related to these activities, including legal, engineering, construction of landfill improvements, cell development costs, and the direct costs of Company personnel dedicated for these purposes. Preparation costs for individual secure land disposal cells are recorded in property and equipment and amortized as the airspace is filled. Amortization rates are based on accounting estimates by management determined primarily from the results of engineering studies of the total estimated preparation cost expected to be incurred over the life of the related landfill. Landfill costs capitalized in 1997, 1996 and 1995 include capitalized interest of approximately $639,000, $481,000, and $0, respectively. Intangible Assets The cost over fair value of net assets of acquired businesses represents long-lived intangible assets including routes, tradenames and goodwill and is amortized on a straight-line method over periods not exceeding 40 years. Other intangible assets, substantially all of which are covenants not to compete and customer lists, are amortized on the straight-line method over their estimated lives, typically no more than 8 years. Amortization expense for fiscal years 1997, 1996, and 1995 related to intangible assets was approximately $3.0 million, $1.0 million, and $1.4 million, respectively. In 1995, the Company determined not to enforce certain covenants not to compete which arose from 1993 transactions. The net book value of such covenants of $505,000 was fully written-off and included in 1995 amortization expense. The Company continually evaluates the value and future benefits of its intangibles. The Company assesses recoverability from future operations using income from operations of the related acquired business as a measure. Under this approach, the carrying value would be reduced if it becomes probable that the Company's best estimate for expected future cash flows of the related business would be less than the carrying amount of the intangible over the remaining amortization period. For the three year period ended December 31, 1997, there were no adjustments to the carrying amounts of intangibles resulting from these evaluations. Deferred Acquisition Costs The Company capitalizes engineering, legal, accounting, and other direct costs paid to outside parties that are incurred in connection with potential acquisitions. The Company, however, routinely evaluates such capitalized costs and charges to expense those relating to abandoned acquisition candidates. Indirect acquisition costs, such as executive salaries, general corporate overhead, and other corporate services are expensed as incurred. Net deferred acquisition costs, included in other intangible assets, were approximately $478,000 and $545,000 at December 31, 1997 and 1996, respectively. Accrued Environmental and Landfill Costs Accrued environmental and landfill costs represent landfill accruals which are provided for environmental compliance costs and closure and post-closure costs. These accruals are based on accounting estimates by management determined primarily from the results of engineering studies and reviews and on interpretation of the technical standards of the Environmental Protection Agency's Subtitle D regulations, or the approved state counterpart, and recently promulgated air emissions standards under the Clean Air Act, as they apply on a state-by-state basis. The Company typically provides accruals for these costs as permitted airspace of such facilities is consumed. Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes. Certain of these accrued environmental and landfill costs, principally capping, leachate collection and removal, and methane gas control and recovery, are operating and maintenance costs to be incurred during the 30-year period after the facility closes, but are accrued during the operating life of the site in accordance with the landfill operation requirements of Subtitle D and the EPA's recently promulgated air emissions standards. An environmental and landfill cost accrual is provided as a liability assumed for purchased landfill operations based on permitted airspace consumed prior to the acquisition date and is included in the purchase price allocation (see Note 3). The Company has estimated that, as of December 31, 1997, post-closure expenses, including cap maintenance, groundwater monitoring, methane gas control and recovery and leachate treatment/disposal for up to 30 years after closure in certain cases, will approximate $17.3 million. In addition, the Company has estimated that, as of December 31, 1997, closure costs expected to occur during the operating lives of these facilities will approximate $54.4 million. These accruals are reviewed by management periodically and revised prospectively for any significant changes in future cost estimates. Income Taxes Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Revenue Recognition Landfill revenues are recorded at the date of actual waste disposal. Revenues billed prior to the performance of services are deferred and recorded as income in the period in which the related services are rendered, generally over a three-month period. Advertising Costs Advertising costs are expensed as incurred. Advertising costs for fiscal years 1997, 1996 and 1995 were approximately $438,000, $181,000 and $84,000, respectively. Earnings Per Share In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which replaced the calculation of primary and fully diluted earnings per common share with basic and diluted earnings per common share. Unlike primary earnings per common share, basic earnings per common share excludes any dilutive effects of options, warrants and convertible securities. All earnings (loss) per common share amounts for all periods have been presented, and where appropriate, restated to conform to the SFAS 128 requirements (see Note 12). In restating earnings (loss) per common share to comply with the SFAS 128 requirements, the Company applied the recently issued Staff Accounting Bulletin No. 98 (SAB 98). As a result of applying the provisions of SAB 98, the Company has restated 1995 loss per common share to exclude the anti-dilutive effect of options and warrants granted within one year of the Company's initial public offering and with exercise prices below the initial public offering price of $9.00 per common share. Employee Stock Options The Company typically grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for such stock option grants in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Options Issued to Employees" (APB 25), and, accordingly, typically recognizes no compensation expense for these stock option grants. Impact of Recently Issued Accounting Standards In October 1996, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities." The SOP is effective for fiscal years beginning after December 15, 1996, and provides that environmental remediation liabilities should be accrued when the criteria of FAS 5, "Accounting for Contingencies," are met. Included in the SOP are benchmarks to aid in the determination of when such criteria are met and environmental liabilities should be recognized. The adoption of SOP 96-1 did not have a material effect on the Company's consolidated financial position, results of operation, or cash flows. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 130 will have no impact on the Company's consolidated financial position, results of operations, or cash flows. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997. The Company has evaluated the disclosure requirements of SFAS No. 131 and believes that its adoption will have no material impact on its future disclosure requirements. 3. Acquisitions The acquisitions below have been accounted for using the purchase method of accounting and, accordingly, the results of their operations have been included in the Company's results of operations from their respective acquisition dates. The purchase prices have been allocated to the assets acquired and liabilities assumed based on their fair values at their respective acquisition dates with the residual allocated to cost over fair value of net assets acquired. During 1997 the Company acquired 28 non-hazardous solid waste businesses, consisting of 28 collection operations, seven transfer stations, four landfills, and two beneficial reuse facilities. During 1996, the Company acquired sixteen non-hazardous solid waste businesses, consisting of 16 collection operations and two transfer stations. As described in Note 1, the Company acquired three non-hazardous solid waste landfills and a solid waste collection operation (the Envirite Acquisition) during 1995. The Company has not completed its valuation of certain of its 1997 purchases and the purchase price allocations are subject to change when additional information concerning asset and liability valuations is completed. The purchase prices allocated to the net assets acquired are as follows (in thousands): December 31, 1997 1996 1995 Property and equipment $74,472 $8,425 $62,288 Accounts receivable and inventory 4,781 810 3,363 Other assets 1,480 785 1,664 Cost over fair value of net assets acquired. . . 128,328 15,642 3,060 Total liabilities assumed (5,424) (633) (8,174) ------- -------- ------- Total purchase price $203,637 $25,029 $62,201 ======= ======= ======= The Company has entered into certain acquisition agreements that include consideration that is issuable upon the resolution of certain contingent incentives available to the former owners of the acquired businesses. These contingencies are not recorded as liabilities or shown as outstanding securities unless the outcome of the contingency is determinable beyond reasonable doubt. The resolution of these contingencies could result in additional payments in cash or shares of Company common stock (see Note 12) through September 10, 2006. The additional cash payments are not expected to exceed $37,500,000. The pro forma unaudited results of operations for the years ended December 31, 1997 and 1996, assuming each acquisition above and the public offerings (see Note 1) had occurred on January 1, 1996, are as follows (in thousands, except per share data): Years Ended December 31, 1997 1996 Revenues $160,869 $142,380 Operating income 24,424 18,269 Income before extraordinary item 15,272 11,319 Net income applicable to common stockholders 15,272 10,843 Pro forma basic earnings per common share: Income before extraordinary item $ 0.80 $ 0.64 Extraordinary item - (0.03) -------- -------- Net income $ 0.80 $ 0.61 ======== ======== Pro forma weighted average common stock outstanding 19,188,674 17,653,952 ========== ========== Pro forma diluted earnings per common share: Income before extraordinary item 0.77 $ 0.63 Extraordinary item - (0.03) ------- --------- Net income $ 0.77 $ 0.60 ======= ========= Pro forma weighted average common stock and common stock equivalent shares outstanding 19,833,665 18,021,839 ========== ========== The pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on January 1, 1996 nor are they necessarily indicative of future operating results. 4. Property and Equipment Property and equipment are summarized as follows (in thousands): December 31, 1997 1996 Land . . . . . . . . . . . . . . . .$ 18,229 $ 5,417 Landfills. . . . . . . . . . . . . . 120,949 78,547 Buildings. . . . . . . . . . . . . . 16,014 3,285 Vehicles and equipment . . . . . . . 52,903 23,977 ------- ------- 208,095 111,226 Less: Accumulated depreciation and amortization. . . . . . . (33,755) (17,534) ------- -------- $ 174,340 $ 93,692 ======== ======== 5. Obligations December 31, 1997 1996 Long-term debt: Acquisition loan, ING Capital Corporation $ 19,666 $ 41,506 Term loan, ING Capital Corporation - 24,750 Other borrowings, with interest rates ranging from 6.0% to 11.0% 3,171 1,101 Capital lease obligations: Capital lease obligations with interest and principal due monthly through 1999, at various interest rates ranging from 9.50% to 9.75%, secured by equipment 311 660 --------- -------- 23,148 68,017 Less: Current portion 2,360 2,572 --------- -------- Long-term obligations, net of current portion $ 20,788 $ 65,445 ========= ======== In May 1997, the Company increased the amount of its revolving credit and term loan facility (the "Credit Facility") with ING (U.S.) Capital Corporation from $125 million to $200 million. At that time, the Credit Facility provided the Company with a term loan of $60 million and a revolving credit facility of $140 million to be used for acquisitions (of which $20 million could be used for working capital and letter of credit purposes). In October 1997, the Company repaid its $60 million term loan with the proceeds of a public offering, and at December 31, 1997 maintains its $140 million revolving credit facility. The various loans and lines of credit under the Credit Facility bear interest at rates per annum equal to, at the Company's discretion, either: (i) the prime rate, plus an applicable margin; or (ii) the London Interbank Offered Rate ("LIBOR"), plus an applicable margin, and mature in 2002. As of December 31, 1997, the interest rates on the acquisition loan under the Credit Facility ranged from 7.00% to 8.50%. The Credit Facility is secured by substantially all of the assets of the Company. The Company's ability to use the acquisition facility is based upon a number of covenants, including the maintenance of specified debt to equity and fixed charge coverage ratios. At December 31, 1997 the Company was in compliance with the terms of these covenants. In connection with refinancings during 1996 and 1995, the Company recognized an extraordinary loss, net of income tax benefit, of $476,000 and $908,000, respectively, representing unamortized deferred debt issuance costs related to refinanced obligations. At December 31, 1997, maturities of obligations (excluding capital lease obligations) are as follows (in thousands): 1998 . . . . . . . . . . . . . . . . . . . . . . . . $ 2,160 1999 . . . . . . . . . . . . . . . . . . . . . . . . 601 2000 . . . . . . . . . . . . . . . . . . . . . . . . 180 2001 . . . . . . . . . . . . . . . . . . . . . . . . 191 2002 and thereafter. . . . . . . . . . . . . . . . . 19,705 ------ $22,837 ======= 6. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows (in thousands): December 31, 1997 1996 Deferred tax assets arising from: Net operating loss carryforwards $ 3,999 $ 2,938 Closure and post-closure costs . . . 240 421 Amortization of intangibles. . . . . 1,059 881 Other. . . . . . . . . . . . . . . . 561 26 -------- -------- Total deferred tax assets. . . . . . . . 5,859 4,266 Valuation allowance. . . . . . . . . . . (1,776) (2,280) -------- -------- Net deferred tax assets. . . . . . . . $ 4,083 $ 1,986 ======== ======== Deferred tax liabilities arising from: Property and equipment . . . . . . . . $ 4,414 $ 2,855 Amortization of intangibles and landfill 1,184 472 Other. . . . . . . . . . . . . . . . . . 501 75 -------- -------- Total deferred tax liabilities . . . . $ 6,099 $ 3,402 ======== ======== Net deferred tax liability . . . . . . $ 2,016 $ 1,416 ======== ======== At December 31, 1997, the Company had net operating loss (NOL) carryforwards of approximately $10.5 million for federal income tax purposes that expire in years 2006 to 2011. The utilization of the NOL carryforwards is limited by future taxable earnings generated at the subsidiary level. The Company recorded a valuation allowance to reflect uncertainty as to the utilization of such NOL carryforwards for financial reporting purposes. The maximum annual utilization of such NOL carryforwards are limited under the Internal Revenue Code as a result of changes in ownership that have occurred. Significant components of income tax expense were as follows (in thousands): Years Ended December 31, 1997 1996 1995 Current: Federal . . . . . . . . . . . . . .$2,793 $ 99 $ 141 State . . . . . . . . . . . . . . . 138 (30) 144 ------ ------ ------ 2,931 69 285 Deferred: Federal . . . . . . . . . . . . . . 553 146 38 State . . . . . . . . . . . . . . . 47 30 9 ------ ------ ------ 600 176 47 ------ ------ ------- Total provision. . . . . . . . . . $3,531 $245 $332 ====== ====== ======= A reconciliation from the statutory income tax rate to the effective income tax rate was as follows: Years Ended December 31, 1997 1996 1995 Federal statutory income tax rate. . . 35.0% 34.0% (34.0)% Effect of: State taxes, net of federal tax effect 1.1 - 3.1 Nondeductible goodwill. . . . . . . . 1.9 15.5 - Net operating loss with no benefit. . - - 39.6 Utilization of net operating loss carryforward. . . . . (5.0) - - Other, net. . . . . . . . . . . . . . (0.5) 3.8 1.6 ----- ----- ----- Effective tax rate . . . . . . . . . . 32.5% 53.3% 10.3% ===== ===== ===== 7. Related Party Transactions The Company had entered into a management agreement with a stockholder for certain services to be rendered to the Company in exchange for annual management fees. The management agreement was terminated in connection with the initial public offering during July 1996. Management fees of approximately $466,000 and $659,000 were incurred in 1996 and 1995, respectively. At December 31, 1995, the Company had a $12,500,000 unsecured note payable outstanding to a stockholder, which was issued on November 16, 1995 and was due November 16, 1996, bearing an annual interest rate of prime plus 3%. The Company repaid the note payable to the stockholder in May 1996. Interest expense relating to this note payable was approximately $621,000 and $180,000 in 1996 and 1995, respectively. 8. Commitments and Contingencies Environmental and Regulatory Requirements The business and activities of the Company are, and may become more, extensively regulated by, among others, the federal Environmental Protection Agency, the Department of Transportation, the Interstate Commerce Commission, and various state and local environmental and transportation regulatory authorities. The Company is subject to various statutes and regulations which include, but are not limited to, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, and numerous state and local laws and regulations. The full impact of these laws and regulations and the possible adoption of new statutes and regulations with respect to the Company's facilities and operations is uncertain and could have material adverse effects on the Company's business, results of operations, and financial condition in that the Company: (i) could be required to incur additional expenses in compliance efforts, (ii) might be unable to comply, forcing the Company to cease operations, and (iii) could incur additional liability for past operation(s) of acquired assets. These regulations may also impose restrictions on the Company's operations, such as limiting the expansion of disposal facilities, limiting or banning the disposal of out-of-state waste or certain other categories of waste, or mandating the disposal of local refuse. Although the Company believes it is in substantial compliance with current regulatory requirements, because of heightened political and public concern over environmental issues, companies in the waste disposal industry, including the Company, may become subject to judicial and administrative proceedings involving federal, state, or local agencies in the normal course of business. The Company has obtained some levels of pollution liability insurance covering certain claims for sudden or gradual onset environmental damage at its landfill sites. The Company carries a comprehensive general liability insurance policy which management considers adequate to protect its assets and operations from other risks. The Company also may be subject to claims for personal injury or property damage arising out of motor vehicle accidents involving its trucks. The Company currently carries insurance with policy limits which management believes to be sufficient to cover these risks. If the Company were to incur liabilities outside of or in excess of its insurance limits, its financial condition could be adversely affected. In connection with the Company's existing landfills, the Company has obtained financial assurance bonds for approximately $26.9 million at December 31, 1997, from a financial institution to provide financial assurance that closure and postclosure expenses will be met in the event that the Company is not able to fulfill its closure and postclosure obligations. Contingent Payments Related to Acquisitions The Company has entered into certain acquisition agreements that include consideration that is issuable upon the resolution of certain contingent incentives available to the former owners of the acquired businesses. See Note 3 and Note 12 for further discussion. Future Minimum Lease Payments At December 31, 1997, future minimum lease payments under noncancelable lease obligations are as follows (in thousands): Capital Operating Leases Leases 1998 . . . . . . . . . . . . . . . . . $ 224 $ 2,012 1999 . . . . . . . . . . . . . . . . . 111 1,521 2000 . . . . . . . . . . . . . . . . . - 1,335 2001 . . . . . . . . . . . . . . . . . - 1,295 2002 and thereafter. . . . . . . . . . - 6,262 ----- ------- Total minimum payments . . . . . . . . 335 $12,425 ======= Less: Amount representing interest . . 24 ----- Present value of net minimum lease payments. . . . . . . . . $ 311 ====== Rental expense in 1997, 1996, and 1995 was approximately $1.8 million, $1.3 million and $793,000, respectively. 9. Retirement Plan Effective January 1, 1996, the Company established a defined contribution retirement savings plan covering substantially all employees of the Company. Each participant may elect to defer a portion of annual compensation subject to certain limitations. The Company matches up to 50% of the first $1,000 of participant contributions to the plan. The Company's contributions for the years ended December 31, 1997 and 1996 were approximately $129,000 and $94,000, respectively. 10. Redeemable Preferred Stock On March 28, 1995, the Company issued 1,950 of its Series A Preferred Stock and 46,550 warrants to purchase shares of common stock of the Company, for $1,950,000. The holder of the warrants had the right to purchase one common share for each warrant held at the exercise price of $.10 per share on or before December 31, 2002. The Company redeemed the outstanding preferred stock in May 1996, and paid any accrued dividends related to the preferred stock. The warrants were exercised in 1996. 11. Stockholders' Equity Stock Options The Company's Board of Directors adopted the American Disposal Services, Inc. 1996 Stock Option Plan effective January 1, 1996. The plan permits grants of options up to an aggregate of 1,600,000 shares of common stock to employees and certain consultants of the Company, on such terms as the Company's compensation committee (or a stock option subcommittee thereof) determines. During 1997, the Company's stockholders approved an increase in the aggregate number of shares available for grant under the plan from 1,100,000 shares to 1,600,000 shares. Options granted under the plan as of January 1, 1996 replaced existing stock options granted by ADS and County in connection with the Exchange. The stock options vest over three and five year periods and are exercisable over a ten year period from the original grant dates. All vesting is subject to acceleration under specified circumstances. Options to purchase an aggregate of 63,601 shares were granted outside the plan to a former employee and were fully vested as of January 1, 1996. Such shares have an exercise price of $7.17 per share, increasing at 25% per annum from the date of original grant of the ADS stock options they replace. A summary of stock option information follows: 1997 1996 1995 ------- ------- ------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price Outstanding at beginning of year 934,914 $ 7.47 869,617 $ 7.36 186,444 $ 7.17 Granted 476,735 21.29 68,270 9.00 683,173 7.41 Exercised (49,793) 10.86 (467) 7.17 0 - Forfeited (9,286) 12.98 (2,506) 7.64 0 - -------- ------ ------- ------- ------- ------- Outstanding 1,352,570 $12.58 934,914 $ 7.47 869,617 $ 7.36 at end of ========= ====== ======= ====== ======= ======= year Exercisable at end of year 620,585 434,553 105,223 Available future grant 260,771 228,220 293,984 Weighted average value of options granted during the year $10.75 $ 4.33 $ 1.88 Options outstanding and exercisable as of December 31, 1997 by price range: Outstanding Exercisable --------------------- ---------------- Weighted Weighted Weighted Average Average Average Remaining Exercise Exercise Shares Life in Years Price Shares Price Range of Exercise Prices $ 7.17-$ 9.00 858,205 7.4 $ 7.48 596,653 $ 7.42 $17.25-$17.50 282,431 9.2 $17.36 - - $21.67-$29.63 211,934 9.2 $26.84 23,932 $22.97 The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), requires use of option valuation models that were not developed for use in valuing stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Disclosure of pro forma information regarding net income (loss) and net income (loss) per common share is required by SFAS 123, and has been determined as if the Company had accounted for its stock options granted in 1997, 1996, and 1995 using SFAS 123. The options granted in 1997 and 1996 were valued using the Black-Scholes option pricing model. The options granted in 1995, as a non-public company, were valued using the minimum value method. The Black-Scholes option valuation model requires the input of highly subjective assumptions and, because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the model cannot necessarily provide a single measure of the fair value of its stock options. The following assumptions were utilized in the valuation: December 31, 1997 1996 1995 Risk-free interest rate: 6.31% 6.65% 5.85% Expected dividend yield. 0% 0% 0% Expected stock price volatility 48.9% 44.4% n/a Expected life of options 5 years 5 years 5 years Had compensation cost for the Company' stock options granted in 1997 and 1996 been determined based on the fair value at the dates of grants, the Company's net income (loss) and net income (loss) per common share would have been as follows on a pro forma basis (in thousands, except per share data): Years Ended December 31, 1997 1996 1995 Net income (loss) applicable to common stockholders As reported $7,341 $(370) $(3,743) Pro Forma 5,998 (687) (3,807) Basic earnings (loss)per common share As reported 0.56 (0.05) (1.12) Pro Forma 0.46 (0.10) (1.14) Diluted earnings (loss) per common share As reported 0.53 (0.05) (1.12) Pro Forma 0.43 (0.09) (1.14) The pro forma effect for 1997, 1996, and 1995 is not representative of the pro forma effect in future years as the pro forma disclosures reflect only the fair value of stock options granted in 1997, 1996, and 1995 and do not reflect the fair value of outstanding options granted prior to 1995. Stock Warrants In connection with obtaining various credit agreements, the Company issued warrants to purchase 168,905 shares of common stock with exercise prices ranging from $4.72 to $7.41 per share. The Company recorded the fair value of the warrants as a component of equity and recognized debt issuance cost of $106,666. The warrants expire 10 years from date of issuance. On November 13, 1997 warrant certificates representing 26,137 shares with an exercise price of $7.17 per share and 45,193 shares with an exercise price of $4.72 per share were exercised on a cashless basis. On January 9, 1998 warrant certificates representing 48,787 shares with an exercise price of $7.41 per share were exercised on a cashless basis. Preferred Stock In connection with the Exchange, 5,000,000 shares of new preferred stock of the Company were authorized with none issued at December 31, 1997 and 1996. 12. Earnings Per Share The following table sets forth the computation of earnings (loss) per common share (in thousands, except per share data): Years Ended December 31, 1997 1996 1995 Numerator: Net income (loss) applicable to common stockholders $ 7,341 $ (370) $ (3,743) ======== ========= ========= Denominator: Denominator for basic earnings per common share-weighted-average shares 13,177,346 7,063,928 3,340,512 Effect of dilutive securities: Stock options and warrants 644,991 401,122 - ---------- --------- -------- Denominator for diluted earnings per common share-adjusted weighted-average shares and assumed conversions 13,822,337 7,465,050 3,340,512 ---------- --------- --------- Basic earnings per common share $ 0.56 $ ( 0.05) $ (1.12) Diluted earnings per common share 0.53 (0.05) (1.12) Options to purchase 171,500, 13,502, and 3,000 shares of common stock at $27.13, $29.63, and $29.00, respectively, were outstanding during 1997, but were not included in the computation of diluted earnings per common share because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Under one of the Company's acquisition agreements, if certain revenue goals are met by the former owner of the acquired business, the Company is obligated to deliver up to 115,000 additional shares of common stock to the former owner. No portion of the 115,000 additional shares are included in the computation of diluted earnings per common share in 1997 because none of the revenue goals have been met as of December 31, 1997. Under another acquisition agreement, if certain contracts are obtained or waste volume goals are met by the former owner of the acquired business, the Company is obligated to deliver additional shares of stock to the former owner. As the amount of shares are to be determined using a future share price, it is not possible to estimate the amount of shares that could be delivered by the Company. The value of additional shares to be issued is not expected to exceed $12,500,000. No additional shares are included in the computation of diluted earnings per common share in 1997 because the contracts have not been obtained and waste volume goals have not been met as of December 31, 1997. Subsequent to December 31, 1997, the Company has issued 1,304,444 additional shares of common stock in conjunction with subsequent acquisitions and the exercise of warrants and stock options. 13. Subsequent Events Subsequent to December 31, 1997, the Company has acquired twelve solid waste companies. On January 5, 1998, the Company acquired all of the outstanding stock of R.C. Miller Enterprises, Inc. (R.C. Miller). The Company's acquisition of R.C. Miller represents the substantial majority of the net assets of companies acquired subsequent to December 31, 1997. Selected quarterly financial data for 1997 and 1996 is as follows (in thousands, except per share data): First Second Third Fourth Quarter Quarter Quarter Quarter Total 1997 Net Sales $18,511 $27,763 $35,373 $39,716 21,363 Gross Profit 8,619 12,575 16,039 18,183 55,416 Net income 446 1,236 2,515 3,144 7,341 Basic earnings per common share 0.05 0.11 0.18 0.17 0.56 Diluted earnings per common share 0.05 0.10 0.17 0.17 0.53 1996 Net Sales $11,724 $13,453 $15,122 $16,505 $56,804 Gross Profit 5,616 6,391 7,022 7,399 26,428 Net income (loss) before extraordinary item (479) (199) 227 557 106 Net income (loss) applicable to common stockholders (479) (675) 227 557 (370) Basic earnings (loss) per common share before extraordinary item (0.08) (0.04) 0.03 0.06 0.02 Diluted earnings (loss) per common share before extraordinary item (0.08) (0.04) 0.03 0.06 0.01 Basic and diluted earnings (loss) per common share (0.08) (0.12) 0.03 0.06 (0.05) Note: Earnings per common share have been restated to comply with SFAS No. 128. The earnings per common share computation for the year is a separate, annual calculation. Accordingly, the sum of the quarterly earnings per common share amounts do not necessarily equal the earnings per common share amounts for the year. EX-99 2 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT NAME STATE OF INCORPORATION American Disposal Services of Kansas, Inc. Kansas Tate's Transfer Systems, Inc. Missouri Pittsburgh County Landfill, Inc. Oklahoma American Disposal Services of Missouri, Inc. Oklahoma County Disposal, Inc. Delaware ADS of Illinois, Inc. Illinois County Disposal (Ohio), Inc. Delaware County Landfill, Inc. Delaware ADS, Inc. Oklahoma Ross Bros. Waste & Recycling Co., Inc. Ohio Bowers - Phase II, Inc. Ohio Allied Waste Systems, Inc. Ohio Packman, Inc. Kansas R.C. Miller Refuse Service, Inc. Ohio Stark Recycling, Inc. Ohio Nimishillen Industrial Park, Inc. Ohio Resource Recovery, Inc. Kansas Oklahoma Refuse, Inc. Oklahoma Southwest Waste, Inc. Missouri Shred-All Recycling, Inc. Illinois American Disposal Services of Illinois, Inc. Delaware Environtech, Inc. Illinois T&G Container Co., Inc. Indiana Sunset Disposal, Inc. Kansas Fred Barbara Trucking Co., Inc. Illinois Illinois Bulk Handlers, Inc. Illinois R.C. Miller Enterprises, Inc. Ohio Tri-State Equipment Sales & Service, Inc. Ohio EX-99.1 3 EXHIBIT 3.3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF AMERICAN DISPOSAL SERVICES, INC. The undersigned corporation, in order to amend its Restated Certificate of Incorporation, hereby certifies as follows: FIRST: The name of the corporation (the "Corporation") is: AMERICAN DISPOSAL SERVICES, INC. SECOND: The Corporation hereby amends its Restated Certificate of Incorporation as follows: The first paragraph of Article FOURTH is hereby amended in its entirety to read as follows: "FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is sixty-five million (65,000,000) shares, consisting of sixty million (60,000,000) shares of common stock, par value one cent ($0.01) per share ("Common Stock"), and five million (5,000,000) shares of preferred stock, par value one cent ($0.01) per share ("Preferred Stock")." THIRD: The amendment to the Corporation's Certificate of Incorporation was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, AMERICAN DISPOSAL SERVICES, INC. has caused this certificate to be signed and attested by its duly authorized officer, this 7th day of October, 1997. AMERICAN DISPOSAL SERVICES, INC. By: /s/ Ann L. Straw Ann L. Straw Vice President ATTEST: /s/ Stephen W. Rubin Stephen W. Rubin Assistant Secretary Stephen W. Rubin EX-99.2 4 EXHIBIT 10.3 _________________________________________________________________ EXECUTIVE EMPLOYMENT AGREEMENT by and between AMERICAN DISPOSAL SERVICES, INC. a Delaware corporation, and RICHARD L. DeYOUNG an individual _________________________________________________________________ TABLE OF CONTENTS PAGE 1. Position and Duties; Location . . . . . . . . . . . . . . 1 2. Term of Employment. . . . . . . . . . . . . . . . . . . . 2 3. Compensation, Benefits and Reimbursement. . . . . . . . . 2 3.1 Base Salary. . . . . . . . . . . . . . . . . . . . . 2 3.2 Increases in Base Salary . . . . . . . . . . . . . . 2 3.3 Bonus. . . . . . . . . . . . . . . . . . . . . . . . 3 (a) Target Bonus . . . . . . . . . . . . . . . . . 3 (b) Determination of Bonus . . . . . . . . . . . . 3 3.4 Additional Benefits. . . . . . . . . . . . . . . . . 3 (a) Officer Benefits. . . . . . . . . . . . . . . . 3 (b) Vacation . . . . . . . . . . . . . . . . . . . 3 (c) Life Insurance. . . . . . . . . . . . . . . . . 4 (d) Automobile. . . . . . . . . . . . . . . . . . . 4 (e) Reimbursement for Expenses. . . . . . . . . . . 4 (f) Withholding . . . . . . . . . . . . . . . . . . 4 4. Termination of the Agreement. . . . . . . . . . . . . . . 4 4.1 Termination by Company Defined . . . . . . . . . . . 4 (a) Termination Without Cause . . . . . . . . . . . 4 (b) Termination For Cause . . . . . . . . . . . . . 5 (c) Termination by Reason of Death or Disability. . 5 4.2 Termination by Officer Defined . . . . . . . . . . . 6 (a) Termination Other Than For Good Reason . . . . 6 (b) Termination For Good Reason . . . . . . . . . . 6 (c) Good Reason Following a Change in Control . . . 6 4.3 Effect of Termination. . . . . . . . . . . . . . . . 8 (a) Termination by Company. . . . . . . . . . . . . 9 (i) Termination Without Cause . . . . . . . . 9 (ii) Termination For Cause . . . . . . . . . . 9 (iii) Termination Due to Death or Permanent Disability . . . . . . . . . . 9 (b) Termination by Officer . . . . . . . . . . . . . 10 (i) Termination Other Than For Good Reason. . 10 (ii) Termination For Good Reason . . . . . . . 10 4.4 Severance Payment. . . . . . . . . . . . . . . . . . 10 (a) Definition of "Severance Payment" . . . . . . . 10 (b) Payment of Severance Payment . . . . . . . . . 11 (c) Other Severance Benefits. . . . . . . . . . . . 11 (d) Full Settlement of All Obligations. . . . . . . 12 (e) Change in Control . . . . . . . . . . . . . . . 12 4.5 Gross-Up . . . . . . . . . . . . . . . . . . . . . . 14 4.6 Offset . . . . . . . . . . . . . . . . . . . . . . . 14 5. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . . 15 5.1 Payment Obligations. . . . . . . . . . . . . . . . . 15 5.2 Confidentiality. . . . . . . . . . . . . . . . . . . 15 5.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . 15 5.4 Entire Agreement; Modifications. . . . . . . . . . . 15 5.5 Notices. . . . . . . . . . . . . . . . . . . . . . . 16 5.6 Headings . . . . . . . . . . . . . . . . . . . . . . 16 5.7 Governing Law. . . . . . . . . . . . . . . . . . . . 16 5.8 Arbitration. . . . . . . . . . . . . . . . . . . . . 16 5.9 Severability . . . . . . . . . . . . . . . . . . . . 17 5.10 Survival of Company's Obligations. . . . . . . . . . 17 5.11 Survival of Certain Rights and Obligations . . . . . 17 5.12 Counterparts . . . . . . . . . . . . . . . . . . . . 17 EXECUTIVE EMPLOYMENT AGREEMENT THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the first day of January, 1998, (the "Effective Date"), by and between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "Company") and RICHARD L. DeYOUNG, an individual (the "Officer"). RECITAL WHEREAS, the Officer has been employed by and currently serves as the Company's President-Chief Executive Officer; WHEREAS, the Company recognizes Officer's substantial contribution to the growth and success of the Company; and desires to provide for continued employment of Officer in order to reinforce and encourage his continued attention and dedication to the Company as a member of the Company's senior management; WHEREAS, Company desires to continue to employ Officer as President-Chief Executive Officer, and Officer is willing to continue to accept such employment by Company, on the terms and subject to the conditions set forth in the Agreement; NOW, THEREFORE, in consideration of the foregoing mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Position and Duties; Location. During the Term (as defined in Paragraph 2 below) of the Agreement, Officer agrees to be employed by and to serve the Company as its President-Chief Executive Officer subject to the control of the Board of Directors (the "Board"), and the Company agrees to employ and retain Officer in such capacities. During the Term (as defined in Paragraph 2 below) Officer agrees to devote substantially all of his working time, energy, efforts and abilities to the business affairs of the Company and its subsidiaries. Officer's principal place of business will be located within 25 miles of Burr Ridge, Illinois. The Company shall provide Officer with working facilities and support services as are suitable to his position and appropriate for the performance of his duties. 2. Term of Employment. The Term (the "Term") of the Agreement shall be for the period commencing on the Effective Date and ending on the last day of the thirty-sixth (36th) month following the Effective Date (the "Termination Date"), unless terminated earlier pursuant to the Agreement (the "Early Termination Date"); provided, however, that commencing on the last day of the twelfth (12th) month following the Effective Date and each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of the Agreement. References herein to the Term of the Agreement shall refer to both the initial Term and any such extended Term. 3. Compensation, Benefits and Reimbursement. 3.1 Base Salary. During the Term of the Agreement and subject to the terms and conditions set forth herein, Company agrees to pay to Officer an annual "Base Salary" equal to Three Hundred Thousand Dollars ($300,000), or such higher amount as may from time-to-time be determined by the Board. Unless otherwise agreed in writing by Officer and Company, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Company in existence from time-to-time. 3.2 Increases in Base Salary. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer may be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of the Agreement) to an amount determined by the Board (or a committee of the Board). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Company hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 Bonus. During the Term of the Agreement, Officer shall be eligible for the following bonus: (a) Target Bonus. Officer shall be eligible to receive as an annual bonus an amount not less than fifty percent (50%) of his Base Salary for each fiscal year of the Company (or portion thereof) during the Term of the Agreement as determined below. Any such bonus shall be payable within seventy-five (75) days after the end of Company's fiscal year to which such bonus relates; provided, however, that the payment of such bonus may be deferred upon mutual agreement by Officer and the Company. (b) Determination of Bonus. With respect to each fiscal year during the Term, the actual amount of the bonus payable pursuant to Subparagraph (a) shall be determined on the basis of criteria with respect to the performance of Officer and/or Company established by the Board (or a committee of the Board) prior to the commencement of the fiscal year and such other factors and conditions as the Board may deem relevant; provided, however, that the criteria for the bonus for 1998 shall be established in the first quarter of 1998. 3.4 Additional Benefits. During the Term of the Agreement, Officer shall be entitled to the following additional benefits: (a) Officer Benefits. Officer shall be entitled to such benefits as are generally provided by the Company to its senior executive employees including, without limitation, (i) Company stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any, and (ii) personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. Officer is also entitled to the benefit of any life and health insurance plans, pension, stock option plans and other similar plans as the Company may have or may establish from time- to-time for its senior executive employees. (b) Vacation. Officer shall be entitled to a minimum of four (4) weeks of vacation during each year during the Term of the Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; provided, that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) Life Insurance. During Term of the Agreement, Company shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum three (3) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of Two Million Five Hundred Thousand Dollars ($2,500,000); provided, however, in no event shall the premiums for such insurance policy exceed three times normal and customary rates for a normal healthy male of similar age. Such policy shall be owned by Officer or by a member of his immediate family. The Company shall have no incidents of ownership therein. (d) Automobile. During the Term of the Agreement, the Company will also make available to Officer an automobile of a make and model consistent with past practices and shall pay all operating expenses associated with such automobile. (e) Reimbursement for Expenses. During the Term of the Agreement, Company shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to the Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with Company's policies. (f) Withholding. Compensation and benefits paid to Officer under the Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4. Termination of the Agreement. 4.1 Termination by Company Defined. (a) Termination Without Cause. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Company other than termination for "Cause" (as defined in Paragraph 4.1(b) below). (b) Termination For Cause. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, the Company shall have the right to terminate the Agreement for "Cause"; provided, however, that Officer shall not be deemed to have been terminated for Cause without (i) reasonable written notice to Officer setting forth the reasons for the Company's intention to terminate for "Cause", (ii) an opportunity for the Officer, together with his counsel, to be heard before the Board, and (iii) delivery to the Officer of a written notice of termination (which date of delivery of such notice shall be the Early Termination Date), as defined herein, from the Board finding that in the good faith opinion of the Board, Officer was guilty of conduct set forth therein, and specifying the particulars thereof in detail. For purposes of the Agreement, "Cause" shall mean the following: A commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Company or a subsidiary, any other act involving dishonesty or fraud with respect to the Company or a subsidiary; a material breach of a directive of the Board which has not been cured within a specified reasonable time after written notice of breach; or a repeated failure after written notice to follow the reasonable directives of the Board. (c) Termination by Reason of Death or Disability. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Company shall have the right to terminate the Agreement by reason of Officer's death or Permanent Disability. For purposes of the Agreement, "Permanent Disability" shall mean the following: The Officer is unable to perform his duties hereunder for 180 days during any 365 consecutive days by reason of physical or mental disability. The disability will be deemed to have occurred on the one hundred and eightieth (180th) day of Officer's absence or lack of adequate performance. 4.2 Termination by Officer Defined. (a) Termination Other Than For Good Reason. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate the Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Company thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) Termination For Good Reason. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate the Agreement prior to the Termination Date in the event of the material breach of the Agreement by Company, if such breach is not cured by Company within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of the Agreement, termination of the Agreement by Officer in the event of Company's material breach of the Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) Good Reason Following a Change in Control. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of the Agreement by Company, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company: (i) the assignment to Officer of any duties inconsistent with the position in Company that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change, or Company employs an officer in a capacity that is senior to Officer (except that Company shall be entitled to employ a Chairman of the Board so long as such Chairman is not the Chief Executive Officer); (ii) a substantial change in the nature of the business operations of Company; (iii) a reduction by Company in Officer's annual Base salary as in effect on the date hereof or as the same may be increased from time to time; (iv) the relocation of Company's principal executive offices to a location more than 25 miles from Burr Ridge, Illinois (or, if different, the town in which such offices are located immediately prior to the Change in Control), or Company's requiring Officer to be based anywhere other than Company's principal executive offices except for required travel on Company's business to an extent substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (v) the failure by Company to pay Officer any portion of his current compensation except pursuant to an across-the-board compensation deferral similarly affecting all officers of Company and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Company or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Company, within seven (7) days of the date such compensation is due; (vi) the failure by Company to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Company to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vii) the failure by Company to continue to provide Officer with benefits substantially similar to those under any of Company's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Company to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Company in accordance with Company's normal vacation policy in effect at the time of the Change in Control or pursuant to Officer's existing employment agreement, if any; or (viii) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement. Notwithstanding the above, during the one year period immediately following the occurrence of a Change in Control, "Good Reason" shall mean termination of employment by the Executive for any reason other than death or Permanent Disability. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 Effect of Termination. In the event that the Agreement is terminated by Company or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of the Agreement which shall survive termination of the Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; provided, however, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) Termination by Company. (i) Termination Without Cause. In the event that Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) Termination For Cause. In the event that Company terminates the Agreement for Cause pursuant to Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Following delivery to Officer of the notice described in Paragraph 4.1(b)(i), the Company may suspend Officer from further duties with full pay and benefits as provided hereunder as if Officer continued to be employed until the delivery of the notice of termination described in Paragraph 4.1(b)(iii). Officer shall not be entitled to any future annual bonus or Severance Payment. (iii) Termination Due to Death or Permanent Disability. In the event that the Company terminates the Agreement by reason of Officer's death or Permanent Disability pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) all outstanding options (whether or not exercisable at the Early Termination Date) shall become fully and immediately vested and may be exercised for one year following such termination. (b) Termination by Officer. (i) Termination Other Than For Good Reason. In the event that Officer terminates the Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) Termination For Good Reason. In the event that Officer terminates the Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). The term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer, together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 4.4 Severance Payment. (a) Definition of "Severance Payment." For purposes of the Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of the Agreement not occurred ("Severance Period") and (ii) for each full or partial year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"); provided, however, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), the Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above or Officer terminates the Agreement for Good Reason pursuant to Paragraph 4.2(c) above, the term "Severance Payment" shall mean an amount equal to no less than three (3) times the sum of the Base Salary then in effect and the Average Bonus (which Average Bonus shall not be less than 50% of Base Salary). (b) Payment of Severance Payment. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Company's employment for the Severance Period; provided, however, that in the event of a Termination Following a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) Other Severance Benefits. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to: (i) the full and immediate vesting of any awards granted to Officer under the Company's stock option and incentive compensation plans; and (ii) to the extent elected by Officer within five days of the Early Termination Date, in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the payment referred to below), a lump sum payment, in cash, equal to the product of (a) the excess of (x) in the case of ISOs granted after the date hereof, the closing price of shares of Company common stock as reported on the NASDAQ National Market on or nearest the Early Termination Date (or, if not listed on such exchange, on the nationally recognized exchange or quotation system on which trading volume in shares of Company common stock is highest), or in the case of all other options, the higher of such closing price or the highest per share price for shares of common stock of the Company actually paid in connection with any Change in Control, over (y) the per share exercise price of such option held by Officer (whether or not then fully exercisable), and (b) the number of shares of common stock of the Company covered by each such option as elected by Officer; provided, however, that if the Company is prevented by the terms of its debt instruments from making the payment described herein, Officer shall immediately execute a cashless exercise of all options for which such Officer elected to receive cash (whether or not fully exercisable at the Early Termination Date) and shall dispose of the common stock underlying such options as soon as practicable and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent that such shares cannot be sold for any reason, the Company will repurchase such shares at the price determined under (x) above; provided, however, that notwithstanding the foregoing, the following shall apply with respect to a Termination without Cause pursuant to Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer within five days of the Early Termination Date elects to receive cash in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the exercises referred to below), Officer shall immediately complete a cashless exercise of all options for which Officer elects to receive cash (whether or not fully exercisable at the Early Termination Date) and shall attempt to dispose of the common stock underlying such options within three weeks of such exercise and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent such shares cannot be sold within the three week period for any reason, the Company will repurchase such shares at the price determined under (x) above; and (iii) continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Company shall arrange to provide Officer with substantially similar benefits. (d) Full Settlement of All Obligations. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Company under the Agreement. (e) Change in Control. For purposes of the Agreement, "Termination Following a Change in Control" shall mean a termination of Officer's employment with Company following a "Change in Control" by Officer for Good Reason or by Company other than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company and is entitled to file on Schedule 13G or any successor form with respect to such securities) becomes the Beneficial Owner of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 4.5 Gross-Up. In the event Officer is required pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code") to pay (through withholding or otherwise) an excise tax on "excess parachute payments" (as defined in Section 280G(b) of the Code) made by the Company pursuant to the Agreement or otherwise, Company shall pay Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (a "Gross-Up Payment") as is necessary to place Officer in the same after-tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. The Gross-Up Payment shall be determined pursuant to the procedures set forth in Annex A hereto. 4.6 Offset. Officer shall not be required to mitigate the amount of any payment provided for under the Agreement by seeking other employment or otherwise, nor will any payments provided to him under the Agreement be subject to offset in respect of any claims which the Company may have against Officer other than with respect to loans by Officer from the Company which are the subject of an executed note between Officer and the Company, nor shall any payment provided hereunder be reduced by any compensation earned by Officer as the result of employment by another employer or by retirement benefits. 5. Miscellaneous. 5. Payment Obligations. Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Company may have against Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Officer obtains other employment. Company agrees to pay promptly upon receipt of proper invoices, to the fullest extent permitted by law, all legal fees and expenses which Officer may reasonably incur as a result of any contest by Company, Officer or others of the validity, interpretation or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest initiated by Officer about the amount of any payment due pursuant to this Agreement); provided, however, that in the event that it is finally determined by arbitration pursuant to Paragraph 5.8 that Officer was terminated for Cause or that, in the case of termination of this Agreement by Officer, Good Reason did not exist, then Officer shall be obligated to repay to Company the full amount of all such legal fees and expenses paid for Officer by Company in connection with that contest. 5.2 Confidentiality. Officer agrees that all confidential and proprietary information relating to the business of Company shall be kept and treated as confidential both during and after the Term of the Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of the Agreement. 5.3 Waiver. The waiver of the breach of any provision of the Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 5.4 Entire Agreement; Modifications. Except as otherwise provided herein and the letter attached hereto as Exhibit 1, the Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and the Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Company. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 5.5 Notices. All notices and other communications under the Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Company: American Disposal Services, Inc. 745 McClintock Drive Suite 230 Burr Ridge, Illinois 60521 If to Officer: Richard L. DeYoung 11434 Plattner Drive Mokena, Illinois 60448 Any party may change such party's address for notices by notice duly given pursuant hereto. 5.6 Headings. The paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of the Agreement. 5.7 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its principles of conflict of laws. 5.8 Arbitration. Any controversy or claim arising out of or relating to the Agreement or the breach of the Agreement that cannot be resolved by Officer on the one hand or the Company on the other, including any dispute as to the calculation of Officer's benefits or any payment hereunder, shall be submitted to arbitration in the City of Chicago, in accordance with Illinois state law and the procedures of the American Arbitration Association. The determination of the arbitrator shall be conclusive and binding on the Company and Officer, and judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.9 Severability. Should a court or other body of competent jurisdiction determine that any provision of the Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, all other provisions of the Agreement shall be deemed valid and enforceable to the extent possible. 5.10 Survival of Company's Obligations. Company's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Company. The Agreement shall not be terminated by any merger or consolidation or other reorganization of Company. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of the Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. The Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, the Agreement shall not be assignable either by Company (except to an affiliate of the Company, in which event Company shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 5.11 Survival of Certain Rights and Obligations. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13 hereof shall survive the termination of the Agreement. 5.12 Counterparts. The Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 5.13 Indemnification. In addition to any rights to indemnification to which Officer is entitled under the Company's Articles of Incorporation and By-Laws or under the agreement between Company and Officer attached hereto as Exhibit 2, Company shall indemnify Officer at all times during and after the Term of the Agreement to the maximum extent permitted under applicable law of the State of Illinois or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. IN WITNESS WHEREOF, the parties hereto have executed the Agreement. COMPANY: AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation By: _______________________________ Name Title Date: _____________________________ OFFICER: By: _______________________________ Name Title Date: _____________________________ ANNEX A The Gross-Up Payment shall be equal to the excess of the Total Payments over the payment provided for by this paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of the Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. EX-99.3 5 EXHIBIT 10.4 EXECUTIVE EMPLOYMENT AGREEMENT by and between AMERICAN DISPOSAL SERVICES, INC. Delaware corporation, and JOHN J. McDONNELL an individual TABLE OF CONTENTS PAGE 1. Position and Duties; Location 1 2. Term of Employment 2 3. Compensation, Benefits and Reimbursement 2 3.1 Base Salary 2 3.2 Increases in Base Salary 2 3.3 Bonus 3 (a) Target Bonus 3 (b) Determination of Bonus 3 3.4 Additional Benefits 3 (a) Officer Benefits 3 (b) Vacation 3 (c) Life Insurance 4 (d) Reimbursement for Expenses 4 (e) Automobile 4 (f) Withholding 4 4. Termination of the Agreement 4 4.1 Termination by Company Defined 4 (a) Termination Without Cause 4 (b) Termination For Cause 5 (c) Termination by Reason of Death or Disability 5 4.2 Termination by Officer Defined 6 (a) Termination Other Than For Good Reason 6 (b) Termination For Good Reason 6 (c) Good Reason Following a Change in Control 6 4.3 Effect of Termination 8 (a) Termination by Company 9 (i) Termination Without Cause 9 (ii) Termination For Cause 9 (iii) Termination Due to Death or Permanent Disability 9 (b) Termination by Officer 10 (i) Termination Other Than For Good Reason 10 (ii) Termination For Good Reason 10 4.4 Severance Payment 10 (a) Definition of "Severance Payment" 10 (b) Payment of Severance Payment 11 (c) Other Severance Benefits 11 (d) Full Settlement of All Obligations 12 (e) Change in Control 12 4.5 Gross-Up 14 4.6 Off set 14 5. Miscellaneous 15 5.1 Payment Obligations 15 5.2 Confidentiality 15 5.3 Waiver 15 5.4 Entire Agreement; Modifications 15 5.5 Notices 16 5.6 Headings 16 5.7 Governing Law 16 5.8 Arbitration 16 5.9 Severability 17 5.10 Survival of Company's Obligations 17 5.11 Survival of Certain Rights and Obligations 17 5.12 Counterparts 17 5.13 Indemnification 18 EXECUTIVE EMPLOYMENT AGREEMENT THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the first day of January, 1 998, (the "Effective Date"), by and between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "Company") and JOHN J. McDONNELL, an individual (the "Officer"). RECITAL WHEREAS, the Officer has been employed by and currently serves as the Company's Vice President-Engineering; WHEREAS, the Company recognizes Officer's substantial contribution to the growth and success of the Company; and desires to provide for continued employment of Officer in order to reinforce and encourage his continued attention and dedication to the Company as a member of the Company's senior management; WHEREAS, Company desires to continue to employ Officer as Vice President-Engineering, and Officer is willing to continue to accept such employment by Company, on the terms and subject to the conditions set forth in the Agreement; NOW, THEREFORE, in consideration of the foregoing mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1 . Position and Duties; Location. During the Term (as defined in Paragraph 2 below) of the Agreement, Officer agrees to be employed by and to serve the Company as its Vice President Engineering subject to the control of the Board of Directors (the "Board"), and the Company agrees to employ and retain Officer in such capacities. During the Term (as defined in Paragraph 2 below) Officer agrees to devote substantially all of his working time, energy, efforts and abilities to the business affairs of the Company and its subsidiaries. Officer's principal place of business will be located within 25 miles of Burr Ridge, Illinois. The Company shall provide Officer with working facilities and support services as are suitable to his position and appropriate for the performance of his duties. 2. Term of Employment. The Term (the "Term") of the Agreement shall be for the period commencing on the Effective Date and ending on the last day of the eighteenth (1 8th) month following the Effective Date (the "Termination Date"), unless terminated earlier pursuant to the Agreement (the "Early Termination Date"); provided, however, that commencing on the last day of the twelfth (12th) month following the Effective Date and each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of the Agreement. References herein to the Term of the Agreement shall refer to both the initial Term and any such extended Term. 3. Compensation, Benefits and Reimbursement. 3.1 Base Salary. During the Term of the Agreement and subject to the terms and conditions set forth herein, Company agrees to pay to Officer an annual "Base Salary" equal to Thousand Dollars ($ ), or such higher amount as may from time-to-time be determined by the Board. Unless otherwise agreed in writing by Officer and Company, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Company in existence from time-to-time. 3.2 Increases in Base Salary. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer may be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of the Agreement) to an amount determined by the Board (or a committee of the Board). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Company hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 Bonus. During the Term of the Agreement, Officer shall be eligible for the following bonus: (a) Target Bonus. Officer shall be eligible to receive an annual bonus for each fiscal year of the Company (or portion thereof) during the Term of the Agreement as determined below. Any such bonus shall be payable within seventy-five (75) days after the end of Company's fiscal year to which such bonus relates; provided, however, that the Chief Executive Officer of the Company may defer payment of such bonus for a period not to exceed one year if such officer determines that deferral is in the best interests of the Company. (b) Determination of Bonus. With respect to each fiscal year during the Term, the actual amount of the bonus payable pursuant to Subparagraph (a) shall be determined on the basis of criteria with respect to the performance of Officer and/or Company established by the Board (or a committee of the Board) in consultation with the Chief Executive Officer of the Company prior to the commencement of the fiscal year and such other factors and conditions as the Board may deem relevant; provided, however, that the criteria for the bonus for 1 998 shall be established in the first quarter of 1 998. 3.4 Additional Benefits. During the Term of the Agreement, Officer shall be entitled to the following additional benefits: (a) Officer Benefits. Officer shall be entitled to such benefits as are generally provided by the Company to its senior executive employees including, without limitation, (i) Company stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any, and (ii) personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. Officer is also entitled to the benefit of any life and health insurance plans, pension, stock option plans and other similar plans as the Company may have or may establish from time- to-time for its senior executive employees. (b) Vacation. Officer shall be entitled to a minimum of four (4) weeks of vacation during each year during the Term of the Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; provided, that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) Life Insurance. During Term of the Agreement, Company shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum two (2) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000); provided, however, in no event shall the premiums for such insurance policy exceed three times normal and customary rates for a normal healthy male of similar age. Such policy shall be owned by Officer or by a member of his immediate family. The Company shall have no incidents of ownership therein. (d) Reimbursement for Expenses. During the Term of the Agreement, Company shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to the Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with Company's policies. (e) Automobile. During the Term of the Agreement, the Company will also make available to Officer an automobile of a value and model consistent with past practices and shall pay all operating expenses associated with such automobile. (f) Withholding. Compensation and benefits paid to Officer under the Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4. Termination of the Agreement. 4.1 Termination by Company Defined. (a) Termination Without Cause. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Company other than termination for "Cause" (as defined in Paragraph 4.1 (b) below). (b) Termination For Cause. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, the Company shall have the right to terminate the Agreement for "Cause"; provided, however, that Officer shall not be deemed to have been terminated for Cause without (i) reasonable written notice to Officer setting forth the reasons for the Company's intention to terminate for "Cause", (ii) an opportunity for the Officer, together with his counsel, to be heard before the Board, and (iii) delivery to the Officer of a written notice of termination (which date of delivery of such notice shall be the Early Termination Date), as defined herein, from the Board finding that in the good faith opinion of the Board, Officer was guilty of conduct set forth therein, and specifying the particulars thereof in detail. For purposes of the Agreement, "Cause" shall mean the following: A commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Company or a subsidiary, any other act involving dishonesty or fraud with respect to the Company or a subsidiary; a material breach of a directive of the Board which has not been cured within a specified reasonable time after written notice of breach; or a repeated failure after written notice to follow the reasonable directives of the Board. (c) Termination by Reason of Death or Disability. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Company shall have the right to terminate the Agreement by reason of Officer's death or Permanent Disability. For purposes of the Agreement, "Permanent Disability" shall mean the following: The Officer is unable to perform his duties hereunder for 1 80 days during any 365 consecutive days by reason of physical or mental disability. The disability will be deemed to have occurred on the one hundred and eightieth (1 80th) day of Officer's absence or lack of adequate performance. 4.2 Termination by Officer Defined. (a) Termination Other Than For Good Reason. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate the Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Company thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) Termination For Good Reason. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate the Agreement prior to the Termination Date in the event of the material breach of the Agreement by Company, if such breach is not cured by Company within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of the Agreement, termination of the Agreement by Officer in the event of Company's material breach of the Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) Good Reason Following a Change in Control. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of the Agreement by Company, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company: (i) the assignment to Officer of any duties inconsistent with the position in Company that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (ii) a substantial change in the nature of the business operations of Company; (iii) a reduction by Company in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iv) the relocation of Company's principal execu- tive offices to a location more than 25 miles from Burr Ridge, Illinois (or, if different, the town in which such offices are located immediately prior to the Change in Control), or Company's requiring Officer to be based anywhere other than Company's principal executive offices except for required travel on Company's business to an extent substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (v) the failure by Company to pay Officer any portion of his current compensation except pursuant to an across-the board compensation deferral similarly affecting all officers of Company and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Company or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Company, within seven (7) days of the date such compensation is due; (vi) the failure by Company to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Company to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vii) the failure by Company to continue to provide Officer with benefits substantially similar to those under any of Company's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Company to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Company in accordance with Company's normal vacation policy in effect at the time of the Change in Control or pursuant to Officer's existing employment agreement, if any; or (viii) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement. Notwithstanding the above, during the one year period immediately following the occurrence of a Change in Control, "Good Reason" shall mean termination of employment by the Executive for any reason other than death or Permanent Disability. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 -Effect of Termination. In the event that the Agreement is terminated by Company or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of the Agreement which shall survive termination of the Agreement as provided in Paragraph 6.1 1 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; provided, however, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) Termination by Company. (i) Termination Without Cause. In the event that Company terminates the Agreement without Cause pursuant to Paragraph 4.1 (a) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) Termination For Cause. In the event that Company terminates the Agreement for Cause pursuant to Paragraph 4.1 (b) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Following delivery to Officer of the notice described in Paragraph 4.1 (b)(i), the Company may suspend Officer from further duties with full pay and benefits as provided hereunder as if Officer continued to be employed until the delivery of the notice of termination described in Paragraph 4.1 (b)(iii). Officer shall not be entitled to any future annual bonus or Severance Payment. (iii) Termination Due to Death or Permanent Disability. In the event that the Company terminates the Agreement by reason of Officer's death or Permanent Disability pursuant to Paragraph 4.1 (c) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) all outstanding options (whether or not exercisable at the Early Termination Date) shall become fully and immediately vested and may be exercised for one year following such termination. (b) Termination by Officer. (i) Termination Other Than For Good Reason. In the event that Officer terminates the Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) Termination For Good Reason. In the event that Officer terminates the Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). The term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer, together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 4.4 Severance Payment. (a) Definition of "Severance Payment." For purposes of the Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of the Agreement not occurred ("Severance Period") and (ii) for each full or partial year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"); provided, however, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), the Company terminates the Agreement without Cause pursuant to Paragraph 4.1 (a) above or Officer terminates the Agreement for Good Reason pursuant to Paragraph 4.2(c) above, the term "Severance Payment" shall mean an amount equal to no less than three (3) times the sum of the Base Salary then in effect and the Average Bonus which Average Bonus shall not be less than 50% of Base Salary). (b) Payment of Severance Payment. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Company's employment for the Severance Period; provided, however, that in the event of a Termination Following a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (1 0) days following such termination. (c) Other Severance Benefits. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to: (i) the full and immediate vesting of any awards granted to Officer under the Company's stock option and incentive compensation plans; and (ii) to the extent elected by Officer within five days of the Early Termination Date, in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the payment referred to below), a lump sum payment, in cash, equal to the product of (a) the excess of (x) in the case of ISOs granted after the date hereof, the closing price of shares of Company common stock as reported on the NASDAQ National Market on or nearest the Early Termination Date (or, if not listed on such exchange, on the nationally recognized exchange or quotation system on which trading volume in shares of Company common stock is highest), or in the case of all other options, the higher of such closing price or the highest per share price for shares of common stock of the Company actually paid in connection with any Change in Control, over (y) the per share exercise price of such option held by Officer (whether or not then fully exercisable), and (b) the number of shares of common stock of the Company covered by each such option as elected by Officer; provided, however, that if the Company is prevented by the terms of its debt instruments from making the payment described herein, Officer shall immediately execute a cashless exercise of all options for which such Officer elected to receive cash (whether or not fully exercisable at the Early Termination Date) and shall dispose of the common stock underlying such options as soon as practicable and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent that such shares cannot be sold for any reason, the Company will repurchase such shares at the price determined under (x) above; provided, however, that notwithstanding the foregoing, the following shall apply with respect to a Termination without Cause pursuant to Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer within five days of the Early Termination Date elects to receive cash in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the exercises referred to below), Officer shall immediately complete a cashless exercise of all options for which Officer elects to receive cash (whether or not fully exercisable at the Early Termination Date) and shall attempt to dispose of the common stock underlying such options within three weeks of such exercise and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent such shares cannot be sold within the three week period for any reason, the Company will repurchase such shares at the price determined under (x) above; and (iii) continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Company shall arrange to provide Officer with substantially similar benefits. (d) Full Settlement of All Obligations. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Company under the Agreement. (e) Change in Control. For purposes of the Agreement, "Termination Following a Change in Control" shall mean a termination of Officer's employment with Company following a "Change in Control" by Officer for Good Reason or by Company other than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1 934 as amended from time to time (the "Exchange Act"), as modified and used in sections 1 3(d) and 14(d) thereof, (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (E) a person or group as used in Rule 1 3d-1 (b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 1 3d-3 under the Exchange Act, directly or indirectly, of securities of the Company and is entitled to file on Schedule 13-G or any successor form with respect to such securities) becomes the Beneficial Owner of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty- five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 4.5 Gross-UP. In the event Officer is required pursuant to Section 4999 of the Internal Revenue Code of 1 986, as amended, and the regulations promulgated thereunder (the "Code") to pay (through withholding or otherwise) an excise tax on "excess parachute payments" (as defined in Section 280G(b) of the Code) made by the Company pursuant to the Agreement or otherwise, Company shall pay Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (a "Gross-Up Payment") as is necessary to place Officer in the same after-tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. The Gross-Up Payment shall be determined pursuant to the procedures set forth in Annex A hereto. 4.6 Offset. Officer shall not be required to mitigate the amount of any payment provided for under the Agreement by seeking other employment or otherwise, nor will any payments provided to him under the Agreement be subject to offset in respect of any claims which the Company may have against Officer other than with respect to loans by Officer from the Company which are the subject of an executed note between Officer and the Company, nor shall any payment provided hereunder be reduced by any compensation earned by Officer as the result of employment by another employer or by retirement benefits. 5. Miscellaneous. 5.1 Payment Obligations. Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Company may have against Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Officer obtains other employment. Company agrees to pay promptly upon receipt of proper invoices, to the fullest extent permitted by law, all legal fees and expenses which Officer may reasonably incur as a result of any contest by Company, Officer or others of the validity, interpretation or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest initiated by Officer about the amount of any payment due pursuant to this Agreement); provided, however, that in the event that it is finally determined by arbitration pursuant to Paragraph 5.8 that Officer was terminated for Cause or that, in the case of termination of this Agreement by Officer, Good Reason did not exist, then Officer shall be obligated to repay to Company the full amount of all such legal fees and expenses paid for Officer by Company in connection with that contest. 5.2 Confidentiality. Officer agrees that all confidential and proprietary information relating to the business of Company shall be kept and treated as confidential both during and after the Term of the Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of the Agreement. 5.3 Waiver. The waiver of the breach of any provision of the Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 5.4 Entire Agreement: Modifications. Except as otherwise provided herein and the letter attached hereto as Exhibit 1, the Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and the Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Company. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 5.5 Notices. All notices and other communications under the Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Company: American Disposal Services, Inc. 745 McClintock Drive Suite 230 Burr Ridge, Illinois 60521 If to Officer: John J. McDonnell 2325 Carroll Parkway Flossmoor, Illinois 60422 Any party may change such party's address for notices by notice duly given pursuant hereto. 5.6 Headings. The paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of the Agreement. 5.7 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its principles of conflict of laws. 5.8 Arbitration. Any controversy or claim arising out of or relating to the Agreement or the breach of the Agreement that cannot be resolved by Officer on the one hand or the Company on the other, including any dispute as to the calculation of Officer's benefits or any payment hereunder, shall be submitted to arbitration in the City of Chicago, in accordance with Illinois state law and the procedures of the American Arbitration Association. The determination of the arbitrator shall be conclusive and binding on the Company and Officer, and judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.9 Severability-. Should a court or other body of competent jurisdiction determine that any provision of the Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, all other provisions of the Agreement shall be deemed valid and enforceable to the extent possible. 5.10 Survival of Company's Obligations. Company's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Company. The Agreement shall not be terminated by any merger or consolidation or other reorganization of Company. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of the Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. The Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, the Agreement shall not be assignable either by Company (except to an affiliate of the Company, in which event Company shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 5.1 Survival of Certain Rights and Obligations. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.1 0, 5.1 1 and 5.1 3 hereof shall survive the termination of the Agreement. 5.12 Counterparts. The Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 5.13 lndemnification. In addition to any rights to indemnification to which Officer is entitled under the Company's Articles of Incorporation and By-Laws or under the agreement between Company and Officer attached hereto as Exhibit 2, Company shall indemnify Officer at all times during and after the Term of the Agreement to the maximum extent permitted under applicable law of the State of Illinois or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. IN WITNESS WHEREOF, the parties hereto have executed the Agreement. Company: AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation By: Name Title Date: OFFICER: Name Date: ANNEX A The Gross-Up Payment shall be equal to the excess of the Total Payments over the payment provided for by this paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of the Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1 504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280 G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. EX-99.4 6 EXHIBIT 10.5 EXECUTIVE EMPLOYMENT AGREEMENT by and between AMERICAN DISPOSAL SERVICES, INC. a Delaware corporation, and RICHARD T. KOGLER an individual TABLE OF CONTENTS PAGE 1. Position and Duties; Location 1 2. Term of Employment 2 3. Compensation, Benefits and Reimbursement 2 3.1 Base Salary 2 3.2 Increases in Base Salary 2 3.3 Bonus 3 (a) Target Bonus 3 (b) Determination of Bonus 3 3.4 Additional Benefits 3 (a) Officer Benefits 3 (b) Vacation 3 (c) Life Insurance 4 (d) Reimbursement for Expenses 4 (e) Automobile 4 (f) Withholding 4 4. Termination of the Agreement 4 4.1 Termination by Company Defined 4 (a) Termination Without Cause 4 (b) Termination For Cause 5 (c) Termination by Reason of Death or Disability 5 4.2 Termination by Officer Defined 6 (a) Termination Other Than For Good Reason 6 (b) Termination For Good Reason 6 (c) Good Reason Following a Change in Control 6 4.3 Effect of Termination 8 (a) Termination by Company 8 (i) Termination Without Cause 8 (ii) Termination For Cause 9 (iii)Termination Due to Death or Permanent Disability 9 (b) Termination by Officer 9 (i) Termination Other Than For Good Reason 9 (ii) Termination For Good Reason 10 4.4 Severance Payment 10 (a) Definition of "Severance Payment" 10 (b) Payment of Severance Payment 11 (c) Other Severance Benefits 11 (d) Full Settlement of All Obligations 12 (e) Change in Control 12 4.5 Gross-Up 14 4.6 Offset 14 5. Miscellaneous 14 5.1 Payment Obligations 14 5.2 Confidentiality 15 5.3 Waiver 15 5.4 Entire Agreement; Modifications 15 5.5 Notices 15 5.6 Headings 16 5.7 Governing Law 16 5.8 Arbitration 16 5.9 Severability 16 5.10 Survival of Company's Obligations 17 5.11 Survival of Certain Rights and Obligations 17 5.12 Counterparts 17 5.13 Indemnification 17 EXECUTIVE EMPLOYMENT AGREEMENT THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the first day of January, 1998, (the "Effective Date"), by and between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "Company") and RICHARD T. KOGLER, an individual (the "Officer"). RECITAL WHEREAS, the Officer has been employed by and currently serves as the Company's Vice President, Chief Operating Officer; WHEREAS, the Company recognizes Officer's substantial contribution to the growth and success of the Company; and desires to provide for continued employment of Officer in order to reinforce and encourage his continued attention and dedication to the Company as a member of the Company's senior management; WHEREAS, Company desires to continue to employ Officer as Vice President, Chief Operating Officer, and Officer is willing to continue to accept such employment by Company, on the terms and subject to the conditions set forth in the Agreement; NOW, THEREFORE, in consideration of the foregoing mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Position and Duties; Location. During the Term (as defined in Paragraph 2 below) of the Agreement, Officer agrees to be employed by and to serve the Company as its Vice President, Chief Operating Officer subject to the control of the Board of Directors (the "Board"), and the Company agrees to employ and retain Officer in such capacities. During the Term (as defined in Paragraph 2 below) Officer agrees to devote substantially all of his working time, energy, efforts and abilities to the business affairs of the Company and its subsidiaries. Officer's principal place of business will be located within 25 miles of Burr Ridge, Illinois. The Company shall provide Officer with working facilities and support services as are suitable to his position and appropriate for the performance of his duties. 2. Term of Employment. The Term (the "Term") of the Agreement shall be for the period commencing on the Effective Date and ending on the last day of the eighteenth (18th) month following the Effective Date (the "Termination Date"), unless terminated earlier pursuant to the Agreement (the "Early Termination Date"); provided, however, that commencing on the last day of the twelfth (12th) month following the Effective Date and each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of the Agreement. References herein to the Term of the Agreement shall refer to both the initial Term and any such extended Term. 3. Compensation, Benefits and Reimbursement. 3.1 Base Salary. During the Term of the Agreement and subject to the terms and conditions set forth herein, Company agrees to pay to Officer an annual "Base Salary" equal to _______________ Thousand Dollars ($____________), or such higher amount as may from time-to-time be determined by the Board. Unless otherwise agreed in writing by Officer and Company, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Company in existence from time-to-time. 3.2 Increases in Base Salary. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer may be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of the Agreement) to an amount determined by the Board (or a committee of the Board). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Company hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 Bonus. During the Term of the Agreement, Officer shall be eligible for the following bonus: (a) Target Bonus. Officer shall be eligible to receive an annual bonus for each fiscal year of the Company (or portion thereof) during the Term of the Agreement as determined below. Any such bonus shall be payable within seventy-five (75) days after the end of Company's fiscal year to which such bonus relates; provided, however, that the Chief Executive Officer of the Company may defer payment of such bonus for a period not to exceed one year if such officer determines that deferral is in the best interests of the Company. (b) Determination of Bonus. With respect to each fiscal year during the Term, the actual amount of the bonus payable pursuant to Subparagraph (a) shall be determined on the basis of criteria with respect to the performance of Officer and/or Company established by the Board (or a committee of the Board) in consultation with the Chief Executive Officer of the Company prior to the commencement of the fiscal year and such other factors and conditions as the Board may deem relevant; provided, however, that the criteria for the bonus for 1998 shall be established in the first quarter of 1998. 3.4 Additional Benefits. During the Term of the Agreement, Officer shall be entitled to the following additional benefits: (a) Officer Benefits. Officer shall be entitled to such benefits as are generally provided by the Company to its senior executive employees including, without limitation, (i) Company stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any, and (ii) personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. Officer is also entitled to the benefit of any life and health insurance plans, pension, stock option plans and other similar plans as the Company may have or may establish from time- to-time for its senior executive employees. (b) Vacation. Officer shall be entitled to a minimum of four (4) weeks of vacation during each year during the Term of the Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; provided, that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) Life Insurance. During Term of the Agreement, Company shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum two (2) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000); provided, however, in no event shall the premiums for such insurance policy exceed three times normal and customary rates for a normal healthy male of similar age. Such policy shall be owned by Officer or by a member of his immediate family. The Company shall have no incidents of ownership therein. (d) Reimbursement for Expenses. During the Term of the Agreement, Company shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to the Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with Company's policies. (e) Automobile. During the Term of the Agreement, the Company will also make available to Officer an automobile of a make and model consistent with past practices and shall pay all operating expenses associated with such automobile. (f) Withholding. Compensation and benefits paid to Officer under the Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4. Termination of the Agreement. 4.1 Termination by Company Defined. (a) Termination Without Cause. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Company other than termination for "Cause" (as defined in Paragraph 4.1(b) below). (b) Termination For Cause. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, the Company shall have the right to terminate the Agreement for "Cause"; provided, however, that Officer shall not be deemed to have been terminated for Cause without (i) reasonable written notice to Officer setting forth the reasons for the Company's intention to terminate for "Cause", (ii) an opportunity for the Officer, together with his counsel, to be heard before the Board, and (iii) delivery to the Officer of a written notice of termination (which date of delivery of such notice shall be the Early Termination Date), as defined herein, from the Board finding that in the good faith opinion of the Board, Officer was guilty of conduct set forth therein, and specifying the particulars thereof in detail. For purposes of the Agreement, "Cause" shall mean the following: A commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Company or a subsidiary, any other act involving dishonesty or fraud with respect to the Company or a subsidiary; a material breach of a directive of the Board which has not been cured within a specified reasonable time after written notice of breach; or a repeated failure after written notice to follow the reasonable directives of the Board. (c) Termination by Reason of Death or Disability. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Company shall have the right to terminate the Agreement by reason of Officer's death or Permanent Disability. For purposes of the Agreement, "Permanent Disability" shall mean the following: The Officer is unable to perform his duties hereunder for 180 days during any 365 consecutive days by reason of physical or mental disability. The disability will be deemed to have occurred on the one hundred and eightieth (180th) day of Officer's absence or lack of adequate performance. 4.2 Termination by Officer Defined. (a) Termination Other Than For Good Reason. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate the Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Company thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) Termination For Good Reason. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate the Agreement prior to the Termination Date in the event of the material breach of the Agreement by Company, if such breach is not cured by Company within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of the Agreement, termination of the Agreement by Officer in the event of Company's material breach of the Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) Good Reason Following a Change in Control. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of the Agreement by Company, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company: (i) the assignment to Officer of any duties inconsistent with the position in Company that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (ii) a substantial change in the nature of the business operations of Company; (iii) a reduction by Company in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iv) the relocation of Company's principal executive offices to a location more than 25 miles from Burr Ridge, Illinois (or, if different, the town in which such offices are located immediately prior to the Change in Control), or Company's requiring Officer to be based anywhere other than Company's principal executive offices except for required travel on Company's business to an extent substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (v) the failure by Company to pay Officer any portion of his current compensation except pursuant to an across-the-board compensation deferral similarly affecting all officers of Company and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Company or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Company, within seven (7) days of the date such compensation is due; (vi) the failure by Company to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Company to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vii) the failure by Company to continue to provide Officer with benefits substantially similar to those under any of Company's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Company to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Company in accordance with Company's normal vacation policy in effect at the time of the Change in Control or pursuant to Officer's existing employment agreement, if any; or (viii) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement. Notwithstanding the above, during the one year period immediately following the occurrence of a Change in Control, "Good Reason" shall mean termination of employment by the Executive for any reason other than death or Permanent Disability. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 Effect of Termination. In the event that the Agreement is terminated by Company or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of the Agreement which shall survive termination of the Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; provided, however, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) Termination by Company. (i) Termination Without Cause. In the event that Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) Termination For Cause. In the event that Company terminates the Agreement for Cause pursuant to Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Following delivery to Officer of the notice described in Paragraph 4.1(b)(i), the Company may suspend Officer from further duties with full pay and benefits as provided hereunder as if Officer continued to be employed until the delivery of the notice of termination described in Paragraph 4.1(b)(iii). Officer shall not be entitled to any future annual bonus or Severance Payment. (iii) Termination Due to Death or Permanent Disability. In the event that the Company terminates the Agreement by reason of Officer's death or Permanent Disability pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) all outstanding options (whether or not exercisable at the Early Termination Date) shall become fully and immediately vested and may be exercised for one year following such termination. (b) Termination by Officer. (i) Termination Other Than For Good Reason. In the event that Officer terminates the Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) Termination For Good Reason. In the event that Officer terminates the Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). The term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer, together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 4.4 Severance Payment. (a) Definition of "Severance Payment." For purposes of the Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of the Agreement not occurred ("Severance Period") and (ii) for each full or partial year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"); provided, however, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), the Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above or Officer terminates the Agreement for Good Reason pursuant to Paragraph 4.2(c) above, the term "Severance Payment" shall mean an amount equal to no less than three (3) times the sum of the Base Salary then in effect and the Average Bonus which Average Bonus shall not be less than 50% of Base Salary). (b) Payment of Severance Payment. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Company's employment for the Severance Period; provided, however, that in the event of a Termination Following a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) Other Severance Benefits. In the event that Officer is entitled to any Severance Payment pursuant to Para graph 4.3 above, he shall also be entitled to: (i) the full and immediate vesting of any awards granted to Officer under the Company's stock option and incentive compensation plans; and (ii) to the extent elected by Officer within five days of the Early Termination Date, in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be canceled upon the making of the payment referred to below), a lump sum payment, in cash, equal to the product of (a) the excess of (x) in the case of ISOs granted after the date hereof, the closing price of shares of Company common stock as reported on the NASDAQ National Market on or nearest the Early Termination Date (or, if not listed on such exchange, on the nationally recognized exchange or quotation system on which trading volume in shares of Company common stock is highest), or in the case of all other options, the higher of such closing price or the highest per share price for shares of common stock of the Company actually paid in connection with any Change in Control, over (y) the per share exercise price of such option held by Officer (whether or not then fully exercisable), and (b) the number of shares of common stock of the Company covered by each such option as elected by Officer; provided, however, that if the Company is prevented by the terms of its debt instruments from making the payment described herein, Officer shall immediately execute a cashes exercise of all options for which such Officer elected to receive cash (whether or not fully exercisable at the Early Termination Date) and shall dispose of the common stock underlying such options as soon as practicable and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent that such shares cannot be sold for any reason, the Company will repurchase such shares at the price determined under (x) above provided, however, that notwithstanding the foregoing, the following shall apply with respect to a Termination without Cause pursuant to Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer within five days of the Early Termination Date elects to receive cash in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be canceled upon the making of the exercises referred to below), Officer shall immediately complete a cashes exercise of all options for which Officer elects to receive cash (whether or not fully exercisable at the Early Termination Date) and shall attempt to dispose of the common stock underlying such options within three weeks of such exercise and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent such shares cannot be sold within the three week period for any reason, the Company will repurchase such shares at the price determined under (x) above; and (iii) continued participation throughout the Severance Period in all employee welfare and pension benefit plans, pro grams or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Company shall arrange to provide Officer with substantially similar benefits. (d) Full Settlement of All Obligations. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Company under the Agreement. (e) Change in Control. For purposes of the Agreement, "Termination Following a Change in Control" shall mean a termination of Officer's employment with Company following a "Change in Control" by Officer for Good Reason or by Company other than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their owner ship of stock of the Company, or (E) a person or group as used in Rule 13G-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13G-3 under the Exchange Act, directly or indirectly, of securities of the Company and is entitled to file on Schedule 13G or any successor form with respect to such securities) becomes the Beneficial Owner of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommend ed by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of secure ties of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 4.5 Gross-Up. In the event Officer is required pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code") to pay (through withholding or otherwise) an excise tax on "excess parachute payments" (as defined in Section 280G(b) of the Code) made by the Company pursuant to the Agreement or otherwise, Company shall pay Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (a "Gross-Up Payment") as is necessary to place Officer in the same after-tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. The Gross-Up Payment shall be determined pursuant to the procedures set forth in Annex A hereto. 4.6 Offset. Officer shall not be required to mitigate the amount of any payment provided for under the Agreement by seeking other employment or otherwise, nor will any payments provided to him under the Agreement be subject to offset in respect of any claims which the Company may have against Officer other than with respect to loans by Officer from the Company which are the subject of an executed note between Officer and the Company, nor shall any payment provided hereunder be reduced by any compensation earned by Officer as the result of employment by another employer or by retirement benefits. 5. Miscellaneous. 5.1 Payment Obligations. Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Company may have against Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Officer obtains other employment. Company agrees to pay promptly upon receipt of proper invoices, to the fullest extent permitted by law, all legal fees and expenses which Officer may reasonably incur as a result of any contest by Company, Officer or others of the validity, interpretation or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest initiated by Officer about the amount of any payment due pursuant to this Agreement); provided, however, that in the event that it is finally determined by arbitration pursuant to Paragraph 5.8 that Officer was terminated for Cause or that, in the case of termination of this Agreement by Officer, Good Reason did not exist, then Officer shall be obligated to repay to Company the full amount of all such legal fees and expenses paid for Officer by Company in connection with that contest. 5.2 Confidentiality. Officer agrees that all confidential and proprietary information relating to the business of Company shall be kept and treated as confidential both during and after the Term of the Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of the Agreement. 5.3 Waiver. The waiver of the breach of any provision of the Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 5.4 Entire Agreement; Modifications. Except as otherwise provided herein and the letter attached hereto as Exhibit 1, the Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and the Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Company. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 5.5 Notices. All notices and other communications under the Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Company: American Disposal Services, Inc. 745 McClintock Drive Suite 230 Burr Ridge, Illinois 60521 If to Officer: Richard T. Kogler 741 Woodlawn Avenue LaGrange Park, Illinois 60525 Any party may change such party's address for notices by notice duly given pursuant hereto. 5.6 Headings. The paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of the Agreement. 5.7 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its principles of conflict of laws. 5.8 Arbitration. Any controversy or claim arising out of or relating to the Agreement or the breach of the Agreement that cannot be resolved by Officer on the one hand or the Company on the other, including any dispute as to the calculation of Officer's benefits or any payment hereunder, shall be submitted to arbitration in the City of Chicago, in accordance with Illinois state law and the procedures of the American Arbitration Association. The determination of the arbitrator shall be conclusive and binding on the Company and Officer, and judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.9 Severability. Should a court or other body of competent jurisdiction determine that any provision of the Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, all other provisions of the Agreement shall be deemed valid and enforceable to the extent possible. 5.10 Survival of Company's Obligations. Company's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Company. The Agreement shall not be terminated by any merger or consolidation or other reorganization of Company. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of the Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. The Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, the Agreement shall not be assignable either by Company (except to an affiliate of the Company, in which event Company shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 5.11 Survival of Certain Rights and Obligations. The rights and obligations of the parties hereto pursuant to Para graphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13 hereof shall survive the termination of the Agreement. 5.12 Counterparts. The Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 5.13 Indemnification. In addition to any rights to indemnification to which Officer is entitled under the Company's Articles of Incorporation and By-Laws or under the agreement between Company and Officer attached hereto as Exhibit 2, Company shall indemnify Officer at all times during and after the Term of the Agreement to the maximum extent permitted under applicable law of the State of Illinois or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. IN WITNESS WHEREOF, the parties hereto have executed the Agreement. COMPANY: AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation By: Name Title Date: OFFICER: Name Date: ANNEX A The Gross-Up Payment shall be equal to the excess of the Total Payments over the payment provided for by this paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of the Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. EX-99.5 7 EXHIBIT 10.6 EXECUTIVE EMPLOYMENT AGREEMENT by and between AMERICAN DISPOSAL SERVICES, INC. a Delaware corporation, and ANN L. STRAW an individual TABLE OF CONTENTS PAGE 1. Position and Duties; Location 1 2. Term of Employment 2 3. Compensation, Benefits and Reimbursement 2 3.1 Base Salary 2 3.2 Increases in Base Salary 2 3.3 Bonus 3 (a) Target Bonus 3 (b) Determination of Bonus 3 3.4 Additional Benefits 3 (a) Officer Benefits 3 (b) Vacation 3 (c) Life Insurance 4 (d) Reimbursement for Expenses 4 (e) Withholding 4 4. Termination of the Agreement 4 4.1 Termination by Company Defined 4 (a) Termination Without Cause 4 (b) Termination For Cause 4 (c) Termination by Reason of Death or Disability 5 4.2 Termination by Officer Defined 5 (a) Termination Other Than For Good Reason 5 (b) Termination For Good Reason 6 (c) Good Reason Following a Change in Control 6 4.3 Effect of Termination 8 (a) Termination by Company 8 (i) Termination Without Cause 8 (ii) Termination For Cause 8 (iii) Termination Due to Death or Permanent Disability 9 (b) Termination by Officer 9 (i) Termination Other Than For Good Reason 9 (ii) Termination For Good Reason 9 4.4 Severance Payment 10 (a) Definition of "Severance Payment" 10 (b) Payment of Severance Payment 10 (c) Other Severance Benefits 11 (d) Full Settlement of All Obligations 12 (e) Change in Control 12 4.5 Gross-Up 14 4.6 Offset 14 5. Miscellaneous. 14 5.1 Payment Obligations 14 5.2 Confidentiality 15 5.3 Waiver 15 5.4 Entire Agreement; Modifications 15 5.5 Notices 15 5.6 Headings 16 5.7 Governing Law 16 5.8 Arbitration 16 5.9 Severability 16 5.10 Survival of Company's Obligations 17 5.11 Survival of Certain Rights and Obligations 17 5.12 Counterparts 17 5.13 Indemnification 17 EXECUTIVE EMPLOYMENT AGREEMENT THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the first day of January, 1998, (the "Effective Date"), by and between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "Company") and ANN L. STRAW, an individual (the "Officer"). RECITAL WHEREAS, the Officer has been employed by and currently serves as the Company's Vice-President, Secretary and General Counsel; WHEREAS, the Company recognizes Officer's substantial contribution to the growth and success of the Company; and desires to provide for continued employment of Officer in order to reinforce and encourage his continued attention and dedication to the Company as a member of the Company's senior management; WHEREAS, Company desires to continue to employ Officer as Vice-President, Secretary and General Counsel, and Officer is willing to continue to accept such employment by Company, on the terms and subject to the conditions set forth in the Agreement; NOW, THEREFORE, in consideration of the foregoing mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Position and Duties; Location. During the Term (as defined in Paragraph 2 below) of the Agreement, Officer agrees to be employed by and to serve the Company as its Vice-President, Secretary and General Counsel subject to the control of the Board of Directors (the "Board"), and the Company agrees to employ and retain Officer in such capacities. During the Term (as defined in Paragraph 2 below) Officer agrees to devote substantially all of his working time, energy, efforts and abilities to the business affairs of the Company and its subsidiaries. Officer's principal place of business will be located within 25 miles of Burr Ridge, Illinois. The Company shall provide Officer with working facilities and support services as are suitable to his position and appropriate for the performance of his duties. 2. Term of Employment. The Term (the "Term") of the Agreement shall be for the period commencing on the Effective Date and ending on the last day of the eighteenth (18th) month following the Effective Date (the "Termination Date"), unless terminated earlier pursuant to the Agreement (the "Early Termination Date"); provided, however, that commencing on the last day of the twelfth (12th) month following the Effective Date and each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of the Agreement. References herein to the Term of the Agreement shall refer to both the initial Term and any such extended Term. 3. Compensation, Benefits and Reimbursement. 3.1 Base Salary. During the Term of the Agreement and subject to the terms and conditions set forth herein, Company agrees to pay to Officer an annual "Base Salary" equal to _______________ Thousand Dollars ($____________), or such higher amount as may from time-to-time be determined by the Board. Unless otherwise agreed in writing by Officer and Company, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Company in existence from time-to-time. 3.2 Increases in Base Salary. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer may be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of the Agreement) to an amount determined by the Board (or a committee of the Board). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Company hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 Bonus. During the Term of the Agreement, Officer shall be eligible for the following bonus: (a) Target Bonus. Officer shall be eligible to receive an annual bonus for each fiscal year of the Company (or portion thereof) during the Term of the Agreement as determined below. Any such bonus shall be payable within seventy-five (75) days after the end of Company's fiscal year to which such bonus relates; provided, however, that the Chief Executive Officer of the Company may defer payment of such bonus for a period not to exceed one year if such officer determines that deferral is in the best interests of the Company. (b) Determination of Bonus. With respect to each fiscal year during the Term, the actual amount of the bonus payable pursuant to Subparagraph (a) shall be determined on the basis of criteria with respect to the performance of Officer and/or Company established by the Board (or a committee of the Board) in consultation with the Chief Executive Officer of the Company prior to the commencement of the fiscal year and such other factors and conditions as the Board may deem relevant; provided, however, that the criteria for the bonus for 1998 shall be established in the first quarter of 1998. 3.4 Additional Benefits. During the Term of the Agreement, Officer shall be entitled to the following additional benefits: (a) Officer Benefits. Officer shall be entitled to such benefits as are generally provided by the Company to its senior executive employees including, without limitation, (i) Company stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any, and (ii) personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. Officer is also entitled to the benefit of any life and health insurance plans, pension, stock option plans and other similar plans as the Company may have or may establish from time-to-time for its senior executive employees. (b) Vacation. Officer shall be entitled to a minimum of four (4) weeks of vacation during each year during the Term of the Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; provided, that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) Life Insurance. During Term of the Agreement, Company shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum two (2) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000); provided, however, in no event shall the premiums for such insurance policy exceed three times normal and customary rates for a normal healthy male of similar age. Such policy shall be owned by Officer or by a member of his immediate family. The Company shall have no incidents of ownership therein. (d) Reimbursement for Expenses. During the Term of the Agreement, Company shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to the Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to the Company of vouchers or other statements itemizing such expenses in reason able detail consistent with Company's policies. (e) Withholding. Compensation and benefits paid to Officer under the Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4. Termination of the Agreement. 4.1 Termination by Company Defined. (a) Termination Without Cause. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Company other than termination for "Cause" (as defined in Para graph 4.1(b) below). (b) Termination For Cause. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, the Company shall have the right to terminate the Agreement for "Cause"; provided, however, that Officer shall not be deemed to have been terminated for Cause without (i) reasonable written notice to Officer setting forth the reasons for the Company's intention to terminate for "Cause", (ii) an opportunity for the Officer, together with his counsel, to be heard before the Board, and (iii) delivery to the Officer of a written notice of termination (which date of delivery of such notice shall be the Early Termination Date), as defined herein, from the Board finding that in the good faith opinion of the Board, Officer was guilty of conduct set forth therein, and specifying the particulars thereof in detail. For purposes of the Agreement, "Cause" shall mean the following: A commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Company or a subsidiary, any other act involving dishonesty or fraud with respect to the Company or a subsidiary; a material breach of a directive of the Board which has not been cured within a specified reasonable time after written notice of breach; or a repeated failure after written notice to follow the reasonable directives of the Board. (c) Termination by Reason of Death or Disability. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Company shall have the right to terminate the Agreement by reason of Officer's death or Permanent Disability. For purposes of the Agreement, "Permanent Disability" shall mean the following: The Officer is unable to perform his duties hereunder for 180 days during any 365 consecutive days by reason of physical or mental disability. The disability will be deemed to have occurred on the one hundred and eightieth (180th) day of Officer's absence or lack of adequate performance. 4.2 Termination by Officer Defined. (a) Termination Other Than For Good Reason. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate the Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Company thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) Termination For Good Reason. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate the Agreement prior to the Termination Date in the event of the material breach of the Agreement by Company, if such breach is not cured by Company within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of the Agreement, termination of the Agreement by Officer in the event of Company's material breach of the Agreement in accordance with the provisions of this Para graph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) Good Reason Following a Change in Control. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of the Agreement by Company, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company: (i) the assignment to Officer of any duties inconsistent with the position in Company that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (ii) a substantial change in the nature of the business operations of Company; (iii) a reduction by Company in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iv) the relocation of Company's principal executive offices to a location more than 25 miles from Burr Ridge, Illinois (or, if different, the town in which such offices are located immediately prior to the Change in Control), or Company's requiring Officer to be based anywhere other than Company's principal executive offices except for required travel on Company's business to an extent substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (v) the failure by Company to pay Officer any portion of his current compensation except pursuant to an across-the- board compensation deferral similarly affecting all officers of Company and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Company or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Company, within seven (7) days of the date such compensation is due; (vi) the failure by Company to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Company to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vii) the failure by Company to continue to provide Officer with benefits substantially similar to those under any of Company's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Company to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Company in accordance with Company's normal vacation policy in effect at the time of the Change in Control or pursuant to Officer's existing employment agreement, if any; or (viii) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement. Notwithstanding the above, during the one year period immediately following the occurrence of a Change in Control, "Good Reason" shall mean termination of employment by the Executive for any reason other than death or Permanent Disability. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 Effect of Termination. In the event that the Agreement is terminated by Company or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of the Agreement which shall survive termination of the Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; provided, however, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) Termination by Company. (i) Termination Without Cause. In the event that Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) Termination For Cause. In the event that Company terminates the Agreement for Cause pursuant to Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Following delivery to Officer of the notice described in Paragraph 4.1(b)(i), the Company may suspend Officer from further duties with full pay and benefits as provided hereunder as if Officer continued to be employed until the delivery of the notice of termination described in Paragraph 4.1(b)(iii). Officer shall not be entitled to any future annual bonus or Severance Payment. (iii) Termination Due to Death or Permanent Disability. In the event that the Company terminates the Agreement by reason of Officer's death or Permanent Disability pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) all outstanding options (whether or not exercisable at the Early Termination Date) shall become fully and immediately vested and may be exercised for one year following such termination. (b) Termination by Officer. (i) Termination Other Than For Good Reason. In the event that Officer terminates the Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) Termination For Good Reason. In the event that Officer terminates the Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). The term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer, together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 4.4 Severance Payment. (a) Definition of "Severance Payment." For purposes of the Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of the Agreement not occurred ("Severance Period") and (ii) for each full or partial year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"); provided, however, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), the Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above or Officer terminates the Agreement for Good Reason pursuant to Paragraph 4.2(c) above, the term "Severance Payment" shall mean an amount equal to no less than three (3) times the sum of the Base Salary then in effect and the Average Bonus which Average Bonus shall not be less than 50% of Base Salary). (b) Payment of Severance Payment. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Company's employment for the Severance Period; provided, however, that in the event of a Termination Following a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) Other Severance Benefits. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to: (i) the full and immediate vesting of any awards granted to Officer under the Company's stock option and incentive compensation plans; and (ii) to the extent elected by Officer within five days of the Early Termination Date, in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the payment referred to below), a lump sum payment, in cash, equal to the product of (a) the excess of (x) in the case of ISOs granted after the date hereof, the closing price of shares of Company common stock as reported on the NASDAQ National Market on or nearest the Early Termination Date (or, if not listed on such exchange, on the nationally recognized exchange or quotation system on which trading volume in shares of Company common stock is highest), or in the case of all other options, the higher of such closing price or the highest per share price for shares of common stock of the Company actually paid in connection with any Change in Control, over (y) the per share exercise price of such option held by Officer (whether or not then fully exercisable), and (b) the number of shares of common stock of the Company covered by each such option as elected by Officer; provided, however, that if the Company is prevented by the terms of its debt instruments from making the payment described herein, Officer shall immediately execute a cashless exercise of all options for which such Officer elected to receive cash (whether or not fully exercisable at the Early Termination Date) and shall dispose of the common stock underlying such options as soon as practicable and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent that such shares cannot be sold for any reason, the Company will repurchase such shares at the price determined under (x) above; provided, however, that notwithstanding the foregoing, the following shall apply with respect to a Termination without Cause pursuant to Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer within five days of the Early Termination Date elects to receive cash in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the exercises referred to below), Officer shall immediately complete a cashless exercise of all options for which Officer elects to receive cash (whether or not fully exercisable at the Early Termination Date) and shall attempt to dispose of the common stock underlying such options within three weeks of such exercise and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent such shares cannot be sold within the three week period for any reason, the Company will repurchase such shares at the price determined under (x) above; and (iii) continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Company shall arrange to provide Officer with substantially similar benefits. (d) Full Settlement of All Obligations. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Company under the Agreement. (e) Change in Control. For purposes of the Agreement, "Termination Following a Change in Control" shall mean a termination of Officer's employment with Company following a "Change in Control" by Officer for Good Reason or by Company other than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Ex change Act, directly or indirectly, of securities of the Company and is entitled to file on Schedule 13G or any successor form with respect to such securities) becomes the Beneficial Owner of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their owner ship of the Company immediately prior to such sale. 4.5 Gross-Up. In the event Officer is required pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code") to pay (through withholding or otherwise) an excise tax on "excess parachute payments" (as defined in Section 280G(b) of the Code) made by the Company pursuant to the Agreement or otherwise, Company shall pay Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (a "Gross-Up Payment") as is necessary to place Officer in the same after-tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. The Gross-Up Payment shall be determined pursuant to the procedures set forth in Annex A hereto. 4.6 Offset. Officer shall not be required to mitigate the amount of any payment provided for under the Agreement by seeking other employment or otherwise, nor will any payments provided to him under the Agreement be subject to offset in respect of any claims which the Company may have against Officer other than with respect to loans by Officer from the Company which are the subject of an executed note between Officer and the Company, nor shall any payment provided hereunder be reduced by any compensation earned by Officer as the result of employment by another employer or by retirement benefits. 5. Miscellaneous. 5.1 Payment Obligations. Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Company may have against Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Officer obtains other employment. Company agrees to pay promptly upon receipt of proper invoices, to the fullest extent permitted by law, all legal fees and expenses which Officer may reasonably incur as a result of any contest by Company, Officer or others of the validity, interpretation or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest initiated by Officer about the amount of any payment due pursuant to this Agreement); provided, however, that in the event that it is finally determined by arbitration pursuant to Paragraph 5.8 that Officer was terminated for Cause or that, in the case of termination of this Agreement by Officer, Good Reason did not exist, then Officer shall be obligated to repay to Company the full amount of all such legal fees and expenses paid for Officer by Company in connection with that contest. 5.2 Confidentiality. Officer agrees that all confidential and proprietary information relating to the business of Company shall be kept and treated as confidential both during and after the Term of the Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of the Agreement. 5.3 Waiver. The waiver of the breach of any provision of the Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 5.4 Entire Agreement; Modifications. Except as otherwise provided herein and the letter attached hereto as Exhibit 1, the Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and the Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Company. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 5.5 Notices. All notices and other communications under the Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Company: American Disposal Services, Inc. 745 McClintock Drive Suite 230 Burr Ridge, Illinois 60521 If to Officer: Ann L. Straw 547 North Linden Avenue Oak Park, Illinois 60302 Any party may change such party's address for notices by notice duly given pursuant hereto. 5.6 Headings. The paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of the Agreement. 5.7 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its principles of conflict of laws. 5.8 Arbitration. Any controversy or claim arising out of or relating to the Agreement or the breach of the Agreement that cannot be resolved by Officer on the one hand or the Company on the other, including any dispute as to the calculation of Officer's benefits or any payment hereunder, shall be submitted to arbitration in the City of Chicago, in accordance with Illinois state law and the procedures of the American Arbitration Association. The determination of the arbitrator shall be conclusive and binding on the Company and Officer, and judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.9 Severability. Should a court or other body of competent jurisdiction determine that any provision of the Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, all other provisions of the Agreement shall be deemed valid and enforceable to the extent possible. 5.10 Survival of Company's Obligations. Company's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Company. The Agreement shall not be terminated by any merger or consolidation or other reorganization of Company. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of the Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. The Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, the Agreement shall not be assignable either by Company (except to an affiliate of the Company, in which event Company shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 5.11 Survival of Certain Rights and Obligations. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13 hereof shall survive the termination of the Agreement. 5.12 Counterparts. The Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 5.13 Indemnification. In addition to any rights to indemnification to which Officer is entitled under the Company's Articles of Incorporation and By- Laws or under the agreement between Company and Officer attached hereto as Exhibit 2, Company shall indemnify Officer at all times during and after the Term of the Agreement to the maximum extent permitted under applicable law of the State of Illinois or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. IN WITNESS WHEREOF, the parties hereto have executed the Agreement. COMPANY: AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation By: Name Title Date: OFFICER: Name Date: ANNEX A The Gross-Up Payment shall be equal to the excess of the Total Payments over the payment provided for by this paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of the Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. EX-99.6 8 EXHIBIT 10.7 _________________________________________________________________ EXECUTIVE EMPLOYMENT AGREEMENT by and between AMERICAN DISPOSAL SERVICES, INC. a Delaware corporation, and LAWRENCE R. CONRATH an individual _________________________________________________________________ TABLE OF CONTENTS PAGE ---- 1. Position and Duties; Location........................... 1 2. Term of Employment...................................... 2 3. Compensation, Benefits and Reimbursement................ 2 3.1 Base Salary........................................ 2 3.2 Increases in Base Salary........................... 2 3.3 Bonus.............................................. 3 (a) Target Bonus.................................. 3 (b) Determination of Bonus........................ 3 3.4 Additional Benefits................................ 3 (a) Officer Benefits.............................. 3 (b) Vacation...................................... 3 (c) Life Insurance................................ 4 (d) Reimbursement for Expenses.................... 4 (e) Withholding................................... 4 4. Termination of the Agreement............................ 4 4.1 Termination by Company Defined..................... 4 (a) Termination Without Cause..................... 4 (b) Termination For Cause......................... 4 (c) Termination by Reason of Death or Disability.. 5 4.2 Termination by Officer Defined..................... 5 (a) Termination Other Than For Good Reason........ 5 (b) Termination For Good Reason................... 6 (c) Good Reason Following a Change in Control..... 6 4.3 Effect of Termination.............................. 8 (a) Termination by Company........................ 8 (i) Termination Without Cause................ 8 (ii) Termination For Cause ................... 8 (iii)Termination Due to Death or Permanent Disability.............................. 9 (b) Termination by Officer........................ 9 (i) Termination Other Than For Good Reason... 9 (ii) Termination For Good Reason.............. 9 4.4 Severance Payment.................................. 10 (a) Definition of "Severance Payment"............. 10 (b) Payment of Severance Payment.................. 10 (c) Other Severance Benefits...................... 11 (d) Full Settlement of All Obligations............ 12 (e) Change in Control............................. 12 4.5 Gross-Up........................................... 14 4.6 Offset............................................. 14 5. Miscellaneous........................................... 14 5.1 Payment Obligations................................ 14 5.2 Confidentiality.................................... 15 5.3 Waiver............................................. 15 5.4 Entire Agreement; Modifications.................... 15 5.5 Notices............................................ 15 5.6 Headings........................................... 16 5.7 Governing Law...................................... 16 5.8 Arbitration........................................ 16 5.9 Severability....................................... 16 5.10 Survival of Company's Obligations.................. 16 5.11 Survival of Certain Rights and Obligations......... 17 5.12 Counterparts....................................... 17 5.13 Indemnification.................................... 17 EXECUTIVE EMPLOYMENT AGREEMENT THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the first day of January, 1998, (the "Effective Date"), by and between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "Company") and LAWRENCE R. CONRATH, an individual (the "Officer"). RECITAL -------- WHEREAS, the Officer has been employed by and currently serves as the Company's Vice President-Controller; WHEREAS, the Company recognizes Officer's substantial contribution to the growth and success of the Company; and desires to provide for continued employment of Officer in order to reinforce and encourage his continued attention and dedication to the Company as a member of the Company's senior management; WHEREAS, Company desires to continue to employ Officer as Vice President-Controller, and Officer is willing to continue to accept such employment by Company, on the terms and subject to the conditions set forth in the Agreement; NOW, THEREFORE, in consideration of the foregoing mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Position and Duties; Location. ----------------------------- During the Term (as defined in Paragraph 2 below) of the Agreement, Officer agrees to be employed by and to serve the Company as its Vice President- Controller subject to the control of the Board of Directors (the "Board"), and the Company agrees to employ and retain Officer in such capacities. During the Term (as defined in Paragraph 2 below) Officer agrees to devote substantially all of his working time, energy, efforts and abilities to the business affairs of the Company and its subsidiaries. Officer's principal place of business will be located within 25 miles of Burr Ridge, Illinois. The Company shall provide Officer with working facilities and support services as are suitable to his position and appropriate for the performance of his duties. 2. Term of Employment. The Term (the "Term") of the Agreement shall be for the period commencing on the Effective Date and ending on the last day of the eighteenth (18th) month following the Effective Date (the "Termination Date"), unless terminated earlier pursuant to the Agreement (the "Early Termination Date"); provided, however, that commencing on the last day of the twelfth (12th) month following the Effective Date and each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of the Agreement. References herein to the Term of the Agreement shall refer to both the initial Term and any such extended Term. 3. Compensation, Benefits and Reimbursement. 3.1 Base Salary. During the Term of the Agreement and subject to the terms and conditions set forth herein, Company agrees to pay to Officer an annual "Base Salary" equal to _______________ Thousand Dollars ($____________), or such higher amount as may from time-to-time be determined by the Board. Unless otherwise agreed in writing by Officer and Company, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Company in existence from time-to-time. 3.2 Increases in Base Salary. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer may be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of the Agreement) to an amount determined by the Board (or a committee of the Board). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Company hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 Bonus. During the Term of the Agreement, Officer shall be eligible for the following bonus: (a) Target Bonus. Officer shall be eligible to receive an annual bonus for each fiscal year of the Company (or portion thereof) during the Term of the Agreement as determined below. Any such bonus shall be payable within seventy-five (75) days after the end of Company's fiscal year to which such bonus relates; provided, however, that the Chief Executive Officer of the Company may defer payment of such bonus for a period not to exceed one year if such officer determines that deferral is in the best interests of the Company. (b) Determination of Bonus. With respect to each fiscal year during the Term, the actual amount of the bonus payable pursuant to Subparagraph (a) shall be determined on the basis of criteria with respect to the performance of Officer and/or Company established by the Board (or a committee of the Board) in consultation with the Chief Executive Officer of the Company prior to the commencement of the fiscal year and such other factors and conditions as the Board may deem relevant; provided, however, that the criteria for the bonus for 1998 shall be established in the first quarter of 1998. 3.4 Additional Benefits. During the Term of the Agreement, Officer shall be entitled to the following additional benefits: (a) Officer Benefits. Officer shall be entitled to such benefits as are generally provided by the Company to its senior executive employees including, without limitation, (i) Company stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any, and (ii) personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. Officer is also entitled to the benefit of any life and health insurance plans, pension, stock option plans and other similar plans as the Company may have or may establish from time-to-time for its senior executive employees. (b) Vacation. Officer shall be entitled to a minimum of four (4) weeks of vacation during each year during the Term of the Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; provided, that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) Life Insurance. During Term of the Agreement, Company shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum two (2) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000); provided, however, in no event shall the premiums for such insurance policy exceed three times normal and customary rates for a normal healthy male of similar age. Such policy shall be owned by Officer or by a member of his immediate family. The Company shall have no incidents of ownership therein. (d) Reimbursement for Expenses. During the Term of the Agreement, Company shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to the Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to the Company of vouchers or other statements itemizing such expenses in reason able detail consistent with Company's policies. (e) Withholding. Compensation and benefits paid to Officer under the Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4. Termination of the Agreement. 4.1 Termination by Company Defined. (a) Termination Without Cause. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Company other than termination for "Cause" (as defined in Para graph 4.1(b) below). (b) Termination For Cause. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, the Company shall have the right to terminate the Agreement for "Cause"; provided, however, that Officer shall not be deemed to have been terminated for Cause without (i) reasonable written notice to Officer setting forth the reasons for the Company's intention to terminate for "Cause", (ii) an opportunity for the Officer, together with his counsel, to be heard before the Board, and (iii) delivery to the Officer of a written notice of termination (which date of delivery of such notice shall be the Early Termination Date), as defined herein, from the Board finding that in the good faith opinion of the Board, Officer was guilty of conduct set forth therein, and specifying the particulars thereof in detail. For purposes of the Agreement, "Cause" shall mean the following: A commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Company or a subsidiary, any other act involving dishonesty or fraud with respect to the Company or a subsidiary; a material breach of a directive of the Board which has not been cured within a specified reasonable time after written notice of breach; or a repeated failure after written notice to follow the reasonable directives of the Board. (c) Termination by Reason of Death or Disability. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Company shall have the right to terminate the Agreement by reason of Officer's death or Permanent Disability. For purposes of the Agreement, "Permanent Disability" shall mean the following: The Officer is unable to perform his duties hereunder for 180 days during any 365 consecutive days by reason of physical or mental disability. The disability will be deemed to have occurred on the one hundred and eightieth (180th) day of Officer's absence or lack of adequate performance. 4.2 Termination by Officer Defined. (a) Termination Other Than For Good Reason. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate the Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Company thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) Termination For Good Reason. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate the Agreement prior to the Termination Date in the event of the material breach of the Agreement by Company, if such breach is not cured by Company within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of the Agreement, termination of the Agreement by Officer in the event of Company's material breach of the Agreement in accordance with the provisions of this Para graph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) Good Reason Following a Change in Control. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of the Agreement by Company, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company: (i) the assignment to Officer of any duties inconsistent with the position in Company that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (ii) a substantial change in the nature of the business operations of Company; (iii) a reduction by Company in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iv) the relocation of Company's principal executive offices to a location more than 25 miles from Burr Ridge, Illinois (or, if different, the town in which such offices are located immediately prior to the Change in Control), or Company's requiring Officer to be based anywhere other than Company's principal executive offices except for required travel on Company's business to an extent substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (v) the failure by Company to pay Officer any portion of his current compensation except pursuant to an across-the- board compensation deferral similarly affecting all officers of Company and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Company or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Company, within seven (7) days of the date such compensation is due; (vi) the failure by Company to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Company to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vii) the failure by Company to continue to provide Officer with benefits substantially similar to those under any of Company's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Company to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Company in accordance with Company's normal vacation policy in effect at the time of the Change in Control or pursuant to Officer's existing employment agreement, if any; or (viii) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement. Notwithstanding the above, during the one year period immediately following the occurrence of a Change in Control, "Good Reason" shall mean termination of employment by the Executive for any reason other than death or Permanent Disability. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 Effect of Termination. In the event that the Agreement is terminated by Company or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of the Agreement which shall survive termination of the Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; provided, however, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) Termination by Company. (i) Termination Without Cause. In the event that Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) Termination For Cause. In the event that Company terminates the Agreement for Cause pursuant to Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Following delivery to Officer of the notice described in Paragraph 4.1(b)(i), the Company may suspend Officer from further duties with full pay and benefits as provided hereunder as if Officer continued to be employed until the delivery of the notice of termination described in Paragraph 4.1(b)(iii). Officer shall not be entitled to any future annual bonus or Severance Payment. (iii) Termination Due to Death or Permanent Disability. In the event that the Company terminates the Agreement by reason of Officer's death or Permanent Disability pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) all outstanding options (whether or not exercisable at the Early Termination Date) shall become fully and immediately vested and may be exercised for one year following such termination. (b) Termination by Officer. (i) Termination Other Than For Good Reason. In the event that Officer terminates the Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) Termination For Good Reason. In the event that Officer terminates the Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). The term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer, together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 4.4 Severance Payment. (a) Definition of "Severance Payment." For purposes of the Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of the Agreement not occurred ("Severance Period") and (ii) for each full or partial year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"); provided, however, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), the Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above or Officer terminates the Agreement for Good Reason pursuant to Paragraph 4.2(c) above, the term "Severance Payment" shall mean an amount equal to no less than three (3) times the sum of the Base Salary then in effect and the Average Bonus which Average Bonus shall not be less than 50% of Base Salary). (b) Payment of Severance Payment. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Company's employment for the Severance Period; provided, however, that in the event of a Termination Following a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) Other Severance Benefits. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to: (i) the full and immediate vesting of any awards granted to Officer under the Company's stock option and incentive compensation plans; and (ii) to the extent elected by Officer within five days of the Early Termination Date, in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be canceled upon the making of the payment referred to below), a lump sum payment, in cash, equal to the product of (a) the excess of (x) in the case of ISOs granted after the date hereof, the closing price of shares of Company common stock as reported on the NASDAQ National Market on or nearest the Early Termination Date (or, if not listed on such exchange, on the nationally recognized exchange or quotation system on which trading volume in shares of Company common stock is highest), or in the case of all other options, the higher of such closing price or the highest per share price for shares of common stock of the Company actually paid in connection with any Change in Control, over (y) the per share exercise price of such option held by Officer (whether or not then fully exercisable), and (b) the number of shares of common stock of the Company covered by each such option as elected by Officer; provided, however, that if the Company is prevented by the terms of its debt instruments from making the payment described herein, Officer shall immediately execute a cashless exercise of all options for which such Officer elected to receive cash (whether or not fully exercisable at the Early Termination Date) and shall dispose of the common stock underlying such options as soon as practicable and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent that such shares cannot be sold for any reason, the Company will repurchase such shares at the price determined under (x) above; provided, however, that notwithstanding the foregoing, the following shall apply with respect to a Termination without Cause pursuant to Paragraph 4.3(a)(i) or a Termination For Good Reason prior to Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer within five days of the Early Termination Date elects to receive cash in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be canceled upon the making of the exercises referred to below), Officer shall immediately complete a cashless exercise of all options for which Officer elects to receive cash (whether or not fully exercisable at the Early Termination Date) and shall attempt to dispose of the common stock underlying such options within three weeks of such exercise and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent such shares cannot be sold within the three week period for any reason, the Company will repurchase such shares at the price determined under (x) above; and (iii) continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Company shall arrange to provide Officer with substantially similar benefits. (d) Full Settlement of All Obligations. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Company under the Agreement. (e) Change in Control. For purposes of the Agreement, "Termination Following a Change in Control" shall mean a termination of Officer's employment with Company following a "Change in Control" by Officer for Good Reason or by Company other than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company and is entitled to file on Schedule 13G or any successor form with respect to such securities) becomes the Beneficial Owner of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 4.5 Gross-Up. In the event Officer is required pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code") to pay (through withholding or otherwise) an excise tax on "excess parachute payments" (as defined in Section 280G(b) of the Code) made by the Company pursuant to the Agreement or otherwise, Company shall pay Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (a "Gross-Up Payment") as is necessary to place Officer in the same after-tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. The Gross-Up Payment shall be determined pursuant to the procedures set forth in Annex A hereto. 4.6 Offset. Officer shall not be required to mitigate the amount of any payment provided for under the Agreement by seeking other employment or otherwise, nor will any payments provided to him under the Agreement be subject to offset in respect of any claims which the Company may have against Officer other than with respect to loans by Officer from the Company which are the subject of an executed note between Officer and the Company, nor shall any payment provided hereunder be reduced by any compensation earned by Officer as the result of employment by another employer or by retirement benefits. 5. Miscellaneous. 5.1 Payment Obligations. Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Company may have against Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Officer obtains other employment. Company agrees to pay promptly upon receipt of proper invoices, to the fullest extent permitted by law, all legal fees and expenses which Officer may reasonably incur as a result of any contest by Company, Officer or others of the validity, interpretation or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest initiated by Officer about the amount of any payment due pursuant to this Agreement); provided, however, that in the event that it is finally determined by arbitration pursuant to Paragraph 5.8 that Officer was terminated for Cause or that, in the case of termination of this Agreement by Officer, Good Reason did not exist, then Officer shall be obligated to repay to Company the full amount of all such legal fees and expenses paid for Officer by Company in connection with that contest. 5.2 Confidentiality. Officer agrees that all confidential and proprietary information relating to the business of Company shall be kept and treated as confidential both during and after the Term of the Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of the Agreement. 5.3 Waiver. The waiver of the breach of any provision of the Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 5.4 Entire Agreement; Modifications. Except as otherwise provided herein and the letter attached hereto as Exhibit 1, the Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and the Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Company. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 5.5 Notices. All notices and other communications under the Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Company: American Disposal Services, Inc. 745 McClintock Drive Suite 230 Burr Ridge, Illinois 60521 If to Officer: Lawrence R. Conrath 13345 Oakwood Drive Lockport, Illinois 60441 Any party may change such party's address for notices by notice duly given pursuant hereto. 5.6 Headings. The paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of the Agreement. 5.7 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its principles of conflict of laws. 5.8 Arbitration. Any controversy or claim arising out of or relating to the Agreement or the breach of the Agreement that cannot be resolved by Officer on the one hand or the Company on the other, including any dispute as to the calculation of Officer's benefits or any payment hereunder, shall be submitted to arbitration in the City of Chicago, in accordance with Illinois state law and the procedures of the American Arbitration Association. The determination of the arbitrator shall be conclusive and binding on the Company and Officer, and judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.9 Severability. Should a court or other body of competent jurisdiction determine that any provision of the Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, all other provisions of the Agreement shall be deemed valid and enforceable to the extent possible. 5.10 Survival of Company's Obligations. Company's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Company. The Agreement shall not be terminated by any merger or consolidation or other reorganization of Company. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of the Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. The Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, the Agreement shall not be assignable either by Company (except to an affiliate of the Company, in which event Company shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 5.11 Survival of Certain Rights and Obligations. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13 hereof shall survive the termination of the Agreement. 5.12 Counterparts. The Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 5.13 Indemnification. In addition to any rights to indemnification to which Officer is entitled under the Company's Articles of Incorporation and By-Laws or under the agreement between Company and Officer attached hereto as Exhibit 2, Company shall indemnify Officer at all times during and after the Term of the Agreement to the maximum extent permitted under applicable law of the State of Illinois or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. IN WITNESS WHEREOF, the parties hereto have executed the Agreement. COMPANY: AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation By: ____________________________ Name Title Date: OFFICER: _________________________________ Name Date:____________________________ ANNEX A The Gross-Up Payment shall be equal to the excess of the Total Payments over the payment provided for by this paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of the Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. EX-99.7 9 EXHIBIT 10.8 EXECUTIVE EMPLOYMENT AGREEMENT by and between AMERICAN DISPOSAL SERVICES, INC. a Delaware corporation, and MARY T. RYAN an individual TABLE OF CONTENTS PAGE 1. Position and Duties; Location 1 2. Term of Employment 2 3. Compensation, Benefits and Reimbursement 3.1 Base Salary 2 3.2 Increases in Base Salary 2 3.3 Bonus 3 (a) Target Bonus 3 (b) Determination of Bonus 3 3.4 Additional Benefits 3 (a) Officer Benefits 3 (b) Vacation 3 (c) Life Insurance 4 (d) Reimbursement for Expenses 4 (e) Withholding 4 4. Termination of the Agreement 4 4.1 Termination by Company Defined 4 (a) Termination Without Cause 4 (b) Termination For Cause 4 (c) Termination by Reason of Death or Disability 5 4.2 Termination by Officer Defined 5 (a) Termination Other Than For Good Reason 5 (b) Termination For Good Reason 6 (c) Good Reason Following a Change in Control 6 4.3 Effect of Termination 8 (a) Termination by Company 8 (i) Termination Without Cause 8 (ii) Termination For Cause 8 (iii) Termination Due to Death or Permanent Disability 9 (b) Termination by Officer 9 (i) Termination Other Than For Good Reason 9 (ii) Termination For Good Reason 9 4.4 Severance Payment 10 (a) Definition of "Severance Payment" 10 (b) Payment of Severance Payment 10 (c) Other Severance Benefits 11 (d) Full Settlement of All Obligations 12 (e) Change in Control 12 4.5 Gross-Up 14 4.6 Offset 14 5. Miscellaneous. 14 5.1 Payment Obligations 14 5.2 Confidentiality 15 5.3 Waiver 15 5.4 Entire Agreement; Modifications 15 5.5 Notices 15 5.6 Headings 16 5.7 Governing Law 16 5.8 Arbitration 16 5.9 Severability 16 5.10 Survival of Company's Obligations 17 5.11 Survival of Certain Rights and Obligations 17 5.12 Counterparts 17 5.13 Indemnification 17 EXECUTIVE EMPLOYMENT AGREEMENT THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the first day of January, 1998, (the "Effective Date"), by and between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "Company") and MARY T. RYAN, an individual (the "Officer"). RECITAL WHEREAS, the Officer has been employed by and currently serves as the Company's Vice President-Corporate Affairs; WHEREAS, the Company recognizes Officer's substantial contribution to the growth and success of the Company; and desires to provide for continued employment of Officer in order to reinforce and encourage his continued attention and dedication to the Company as a member of the Company's senior management; WHEREAS, Company desires to continue to employ Officer as Vice President-Corporate Affairs, and Officer is willing to continue to accept such employment by Company, on the terms and subject to the conditions set forth in the Agreement; NOW, THEREFORE, in consideration of the foregoing mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Position and Duties; Location. During the Term (as defined in Paragraph 2 below) of the Agreement, Officer agrees to be employed by and to serve the Company as its Vice President- Corporate Affairs subject to the control of the Board of Directors (the "Board"), and the Company agrees to employ and retain Officer in such capacities. During the Term (as defined in Paragraph 2 below) Officer agrees to devote substantially all of his working time, energy, efforts and abilities to the business affairs of the Company and its subsidiaries. Officer's principal place of business will be located within 25 miles of Burr Ridge, Illinois. The Company shall provide Officer with working facilities and support services as are suitable to his position and appropriate for the performance of his duties. 2. Term of Employment. The Term (the "Term") of the Agreement shall be for the period commencing on the Effective Date and ending on the last day of the eighteenth (18th) month following the Effective Date (the "Termination Date"), unless terminated earlier pursuant to the Agreement (the "Early Termination Date"); provided, however, that commencing on the last day of the twelfth (12th) month following the Effective Date and each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of the Agreement. References herein to the Term of the Agreement shall refer to both the initial Term and any such extended Term. 3. Compensation, Benefits and Reimbursement. 3.1 Base Salary. During the Term of the Agreement and subject to the terms and conditions set forth herein, Company agrees to pay to Officer an annual "Base Salary" equal to _______________ Thousand Dollars ($____________), or such higher amount as may from time-to-time be determined by the Board. Unless otherwise agreed in writing by Officer and Company, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Company in existence from time-to-time. 3.2 Increases in Base Salary. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer may be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of the Agreement) to an amount determined by the Board (or a committee of the Board). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Company hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 Bonus. During the Term of the Agreement, Officer shall be eligible for the following bonus: (a) Target Bonus. Officer shall be eligible to receive an annual bonus for each fiscal year of the Company (or portion thereof) during the Term of the Agreement as determined below. Any such bonus shall be payable within seventy-five (75) days after the end of Company's fiscal year to which such bonus relates; provided, however, that the Chief Executive Officer of the Company may defer payment of such bonus for a period not to exceed one year if such officer determines that deferral is in the best interests of the Company. (b) Determination of Bonus. With respect to each fiscal year during the Term, the actual amount of the bonus payable pursuant to Subparagraph (a) shall be determined on the basis of criteria with respect to the performance of Officer and/or Company established by the Board (or a committee of the Board) in consultation with the Chief Executive Officer of the Company prior to the commencement of the fiscal year and such other factors and conditions as the Board may deem relevant; provided, however, that the criteria for the bonus for 1998 shall be established in the first quarter of 1998. 3.4 Additional Benefits. During the Term of the Agreement, Officer shall be entitled to the following additional benefits: (a) Officer Benefits. Officer shall be entitled to such benefits as are generally provided by the Company to its senior executive employees including, without limitation, (i) Company stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any, and (ii) personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. Officer is also entitled to the benefit of any life and health insurance plans, pension, stock option plans and other similar plans as the Company may have or may establish from time-to-time for its senior executive employees. (b) Vacation. Officer shall be entitled to a minimum of four (4) weeks of vacation during each year during the Term of the Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; provided, that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) Life Insurance. During Term of the Agreement, Company shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum two (2) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000); provided, however, in no event shall the premiums for such insurance policy exceed three times normal and customary rates for a normal healthy male of similar age. Such policy shall be owned by Officer or by a member of his immediate family. The Company shall have no incidents of ownership therein. (d) Reimbursement for Expenses. During the Term of the Agreement, Company shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to the Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to the Company of vouchers or other statements itemizing such expenses in reason able detail consistent with Company's policies. (e) Withholding. Compensation and benefits paid to Officer under the Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4. Termination of the Agreement. 4.1 Termination by Company Defined. (a) Termination Without Cause. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Company other than termination for "Cause" (as defined in Para graph 4.1(b) below). (b) Termination For Cause. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, the Company shall have the right to terminate the Agreement for "Cause"; provided, however, that Officer shall not be deemed to have been terminated for Cause without (i) reasonable written notice to Officer setting forth the reasons for the Company's intention to terminate for "Cause", (ii) an opportunity for the Officer, together with his counsel, to be heard before the Board, and (iii) delivery to the Officer of a written notice of termination (which date of delivery of such notice shall be the Early Termination Date), as defined herein, from the Board finding that in the good faith opinion of the Board, Officer was guilty of conduct set forth therein, and specifying the particulars thereof in detail. For purposes of the Agreement, "Cause" shall mean the following: A commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Company or a subsidiary, any other act involving dishonesty or fraud with respect to the Company or a subsidiary; a material breach of a directive of the Board which has not been cured within a specified reasonable time after written notice of breach; or a repeated failure after written notice to follow the reasonable directives of the Board. (c) Termination by Reason of Death or Disability. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Company shall have the right to terminate the Agreement by reason of Officer's death or Permanent Disability. For purposes of the Agreement, "Permanent Disability" shall mean the following: The Officer is unable to perform his duties hereunder for 180 days during any 365 consecutive days by reason of physical or mental disability. The disability will be deemed to have occurred on the one hundred and eightieth (180th) day of Officer's absence or lack of adequate performance. 4.2 Termination by Officer Defined. (a) Termination Other Than For Good Reason. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate the Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Company thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) Termination For Good Reason. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate the Agreement prior to the Termination Date in the event of the material breach of the Agreement by Company, if such breach is not cured by Company within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of the Agreement, termination of the Agreement by Officer in the event of Company's material breach of the Agreement in accordance with the provisions of this Para graph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) Good Reason Following a Change in Control. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of the Agreement by Company, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company: (i) the assignment to Officer of any duties inconsistent with the position in Company that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (ii) a substantial change in the nature of the business operations of Company; (iii) a reduction by Company in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iv) the relocation of Company's principal executive offices to a location more than 25 miles from Burr Ridge, Illinois (or, if different, the town in which such offices are located immediately prior to the Change in Control), or Company's requiring Officer to be based anywhere other than Company's principal executive offices except for required travel on Company's business to an extent substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (v) the failure by Company to pay Officer any portion of his current compensation except pursuant to an across-the- board compensation deferral similarly affecting all officers of Company and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Company or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Company, within seven (7) days of the date such compensation is due; (vi) the failure by Company to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Company to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vii) the failure by Company to continue to provide Officer with benefits substantially similar to those under any of Company's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Company to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Company in accordance with Company's normal vacation policy in effect at the time of the Change in Control or pursuant to Officer's existing employment agreement, if any; or (viii) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement. Notwithstanding the above, during the one year period immediately following the occurrence of a Change in Control, "Good Reason" shall mean termination of employment by the Executive for any reason other than death or Permanent Disability. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 Effect of Termination. In the event that the Agreement is terminated by Company or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of the Agreement which shall survive termination of the Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; provided, however, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) Termination by Company. (i) Termination Without Cause. In the event that Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below); (ii) Termination For Cause. In the event that Company terminates the Agreement for Cause pursuant to Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Following delivery to Officer of the notice described in Paragraph 4.1(b)(i), the Company may suspend Officer from further duties with full pay and benefits as provided hereunder as if Officer continued to be employed until the delivery of the notice of termination described in Paragraph 4.1(b)(iii). Officer shall not be entitled to any future annual bonus or Severance Payment. (iii) Termination Due to Death or Permanent Disability. In the event that the Company terminates the Agreement by reason of Officer's death or Permanent Disability pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) all outstanding options (whether or not exercisable at the Early Termination Date) shall become fully and immediately vested and may be exercised for one year following such termination. (b) Termination by Officer. (i) Termination Other Than For Good Reason. In the event that Officer terminates the Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) Termination For Good Reason. In the event that Officer terminates the Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). The term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer, together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 4.4 Severance Payment. (a) Definition of "Severance Payment." For purposes of the Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of the Agreement not occurred ("Severance Period") and (ii) for each full or partial year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"); provided, however, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), the Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above or Officer terminates the Agreement for Good Reason pursuant to Paragraph 4.2(c) above, the term "Severance Payment" shall mean an amount equal to no less than three (3) times the sum of the Base Salary then in effect and the Average Bonus which Average Bonus shall not be less than 50% of Base Salary). (b) Payment of Severance Payment. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Company's employment for the Severance Period; provided, however, that in the event of a Termination Following a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) Other Severance Benefits. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to: (i) the full and immediate vesting of any awards granted to Officer under the Company's stock option and incentive compensation plans; and (ii) to the extent elected by Officer within five days of the Early Termination Date, in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the payment referred to below), a lump sum payment, in cash, equal to the product of (a) the excess of (x) in the case of ISOs granted after the date hereof, the closing price of shares of Company common stock as reported on the NASDAQ National Market on or nearest the Early Termination Date (or, if not listed on such exchange, on the nationally recognized exchange or quotation system on which trading volume in shares of Company common stock is highest), or in the case of all other options, the higher of such closing price or the highest per share price for shares of common stock of the Company actually paid in connection with any Change in Control, over (y) the per share exercise price of such option held by Officer (whether or not then fully exercisable), and (b) the number of shares of common stock of the Company covered by each such option as elected by Officer; provided, however, that if the Company is prevented by the terms of its debt instruments from making the payment described herein, Officer shall immediately execute a cashless exercise of all options for which such Officer elected to receive cash (whether or not fully exercisable at the Early Termination Date) and shall dispose of the common stock underlying such options as soon as practicable and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent that such shares cannot be sold for any reason, the Company will repurchase such shares at the price determined under (x) above; provided, however, that notwithstanding the foregoing, the following shall apply with respect to a Termination without Cause pursuant to Paragraph 4.3(a)(i) or a Termination for Good Reason prior to a Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer within five days of the Early Termination Date elects to receive cash in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the exercises referred to below), Officer shall immediately complete a cashless exercise of all options for which Officer elects to receive cash (whether or not fully exercisable at the Early Termination Date) and shall attempt to dispose of the common stock underlying such options within three weeks of such exercise and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent such shares cannot be sold within the three week period for any reason, the Company will repurchase such shares at the price determined under (x) above; and (iii) continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Company shall arrange to provide Officer with substantially similar benefits. (d) Full Settlement of All Obligations. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Company under the Agreement. (e) Change in Control. For purposes of the Agreement, "Termination Following a Change in Control" shall mean a termination of Officer's employment with Company following a "Change in Control" by Officer for Good Reason or by Company other than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Ex change Act, directly or indirectly, of securities of the Company and is entitled to file on Schedule 13G or any successor form with respect to such securities) becomes the Beneficial Owner of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by re maining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their owner ship of the Company immediately prior to such sale. 4.5 Gross-Up. In the event Officer is required pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code") to pay (through withholding or otherwise) an excise tax on "excess parachute payments" (as defined in Section 280G(b) of the Code) made by the Company pursuant to the Agreement or otherwise, Company shall pay Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (a "Gross-Up Payment") as is necessary to place Officer in the same after-tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. The Gross-Up Payment shall be determined pursuant to the procedures set forth in Annex A hereto. 4.6 Offset. Officer shall not be required to mitigate the amount of any payment provided for under the Agreement by seeking other employment or otherwise, nor will any payments provided to him under the Agreement be subject to offset in respect of any claims which the Company may have against Officer other than with respect to loans by Officer from the Company which are the subject of an executed note between Officer and the Company, nor shall any payment provided hereunder be reduced by any compensation earned by Officer as the result of employment by another employer or by retirement benefits. 5. Miscellaneous. 5.1 Payment Obligations. Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Company may have against Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Officer obtains other employment. Company agrees to pay promptly upon receipt of proper invoices, to the fullest extent permitted by law, all legal fees and expenses which Officer may reasonably incur as a result of any contest by Company, Officer or others of the validity, interpretation or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest initiated by Officer about the amount of any payment due pursuant to this Agreement); provided, however, that in the event that it is finally determined by arbitration pursuant to Paragraph 5.8 that Officer was terminated for Cause or that, in the case of termination of this Agreement by Officer, Good Reason did not exist, then Officer shall be obligated to repay to Company the full amount of all such legal fees and expenses paid for Officer by Company in connection with that contest. 5.2 Confidentiality. Officer agrees that all confidential and proprietary information relating to the business of Company shall be kept and treated as confidential both during and after the Term of the Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of the Agreement. 5.3 Waiver. The waiver of the breach of any provision of the Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 5.4 Entire Agreement; Modifications. Except as otherwise provided herein and the letter attached hereto as Exhibit 1, the Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and the Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Company. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 5.5 Notices. All notices and other communications under the Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Company: American Disposal Services, Inc. 745 McClintock Drive Suite 230 Burr Ridge, Illinois 60521 If to Officer: Mary T. Ryan 9060 Turnberry Drive Burr Ridge, Illinois 60521 Any party may change such party's address for notices by notice duly given pursuant hereto. 5.6 Headings. The paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of the Agreement. 5.7 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its principles of conflict of laws. 5.8 Arbitration. Any controversy or claim arising out of or relating to the Agreement or the breach of the Agreement that cannot be resolved by Officer on the one hand or the Company on the other, including any dispute as to the calculation of Officer's benefits or any payment hereunder, shall be submitted to arbitration in the City of Chicago, in accordance with Illinois state law and the procedures of the American Arbitration Association. The determination of the arbitrator shall be conclusive and binding on the Company and Officer, and judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.9 Severability. Should a court or other body of competent jurisdiction determine that any provision of the Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, all other provisions of the Agreement shall be deemed valid and enforceable to the extent possible. 5.10 Survival of Company's Obligations. Company's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Company. The Agreement shall not be terminated by any merger or consolidation or other reorganization of Company. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of the Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. The Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, the Agreement shall not be assignable either by Company (except to an affiliate of the Company, in which event Company shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 5.11 Survival of Certain Rights and Obligations. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13 hereof shall survive the termination of the Agreement. 5.12 Counterparts. The Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 5.13 Indemnification. In addition to any rights to indemnification to which Officer is entitled under the Company's Articles of Incorporation and By-Laws or under the agreement between Company and Officer attached hereto as Exhibit 2, Company shall indemnify Officer at all times during and after the Term of the Agreement to the maximum extent permitted under applicable law of the State of Illinois or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. IN WITNESS WHEREOF, the parties hereto have executed the Agreement. COMPANY: AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation By: __________________________________ Name Title Date: ________________________________ OFFICER: ______________________________________ Name Date: ________________________________ ANNEX A The Gross-Up Payment shall be equal to the excess of the Total Payments over the payment provided for by this paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of the Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. EX-99.8 10 EXHIBIT 10.9 ________________________________________________________________ EXECUTIVE EMPLOYMENT AGREEMENT by and between AMERICAN DISPOSAL SERVICES, INC. a Delaware corporation, and STEPHEN P. LAVEY an individual ________________________________________________________________ TABLE OF CONTENTS PAGE 1. Position and Duties; Location . . . . . . . . . . . . . 1 2. Term of Employment. . . . . . . . . . . . . . . . . . . 2 3. Compensation, Benefits and Reimbursement. . . . . . . . 2 3.1 Base Salary . . . . . . . . . . . . . . . . . . . 2 3.2 Increases in Base Salary . . . . . . . . . . . . . 2 3.3 Bonus . . . . . . . . . . . . . . . . . . . . . . 3 (a) Target Bonus . . . . . . . . . . . . . . . . 3 (b) Determination of Bonus . . . . . . . . . . . 3 3.4 Additional Benefits . . . . . . . . . . . . . . . 3 (a) Officer Benefits. . . . . . . . . . . . . . . 3 (b) Vacation . . . . . . . . . . . . . . . . . . 3 (c) Life Insurance . . . . . . . . . . . . . . . 4 (d) Reimbursement for Expenses . . . . . . . . . 4 (e) Withholding . . . . . . . . . . . . . . . . . 4 4. Termination of the Agreement. . . . . . . . . . . . . . 4 4.1 Termination by Company Defined . . . . . . . . . . 4 (a) Termination Without Cause . . . . . . . . . . 4 (b) Termination For Cause . . . . . . . . . . . . 4 (c) Termination by Reason of Death or Disability. 5 4.2 Termination by Officer Defined . . . . . . . . . . 5 (a) Termination Other Than For Good Reason. . . . 5 (b) Termination For Good Reason . . . . . . . . . 6 (c) Good Reason Following a Change in Control . . . . . . . . . . . . . . . . . . . 6 4.3 Effect of Termination . . . . . . . . . . . . . . 8 (a) Termination by Company . . . . . . . . . . . 8 (i) Termination Without Cause. . . . . . . . 8 (ii) Termination For Cause . . . . . . . . . 8 (iii) Termination Due to Death or Permanent Disability. . . . . . . . . . . . . . . 9 (b) Termination by Officer . . . . . . . . . . . 9 (i) Termination Other Than For Good Reason . . . . . . . . . . . . . . . . . 9 (ii) Termination For Good Reason. . . . . . . 9 4.4 Severance Payment. . . . . . . . . . . . . . . . . 10 (a) Definition of "Severance Payment" . . . . . . 10 (b) Payment of Severance Payment. . . . . . . . . 10 (c) Other Severance Benefits. . . . . . . . . . . 11 (d) Full Settlement of All Obligations. . . . . . 12 (e) Change in Control . . . . . . . . . . . . . . 12 4.5 Gross-Up . . . . . . . . . . . . . . . . . . . . . 14 4.6 Offset . . . . . . . . . . . . . . . . . . . . . . 14 5. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . 14 5.1 Payment Obligations. . . . . . . . . . . . . . . . 14 5.2 Confidentiality. . . . . . . . . . . . . . . . . . 15 5.3 Waiver . . . . . . . . . . . . . . . . . . . . . . 15 5.4 Entire Agreement; Modifications. . . . . . . . . . 15 5.5 Notices. . . . . . . . . . . . . . . . . . . . . . 15 5.6 Headings . . . . . . . . . . . . . . . . . . . . . 16 5.7 Governing Law. . . . . . . . . . . . . . . . . . . 16 5.8 Arbitration. . . . . . . . . . . . . . . . . . . . 16 5.9 Severability . . . . . . . . . . . . . . . . . . . 16 5.10 Survival of Company's Obligations. . . . . . . . . 16 5.11 Survival of Certain Rights and Obligations . . . . 17 5.12 Counterparts . . . . . . . . . . . . . . . . . . . 17 5.13 Indemnification. . . . . . . . . . . . . . . . . . 17 EXECUTIVE EMPLOYMENT AGREEMENT THE EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the first day of January, 1998, (the "Effective Date"), by and between AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "Company") and STEPHEN P. LAVEY, an individual (the "Officer"). RECITAL WHEREAS, the Officer has been employed by and currently serves as the Company's Vice President and Chief Financial Officer; WHEREAS, the Company recognizes Officer's substantial contribution to the growth and success of the Company; and desires to provide for continued employment of Officer in order to reinforce and encourage his continued attention and dedication to the Company as a member of the Company's senior management; WHEREAS, Company desires to continue to employ Officer as Vice President and Chief Financial Officer, and Officer is willing to continue to accept such employment by Company, on the terms and subject to the conditions set forth in the Agreement; NOW, THEREFORE, in consideration of the foregoing mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Position and Duties; Location. During the Term (as defined in Paragraph 2 below) of the Agreement, Officer agrees to be employed by and to serve the Company as its Vice President and Chief Financial Officer subject to the control of the Board of Directors (the "Board"), and the Company agrees to employ and retain Officer in such capacities. During the Term (as defined in Paragraph 2 below) Officer agrees to devote substantially all of his working time, energy, efforts and abilities to the business affairs of the Company and its subsidiaries. Officer's principal place of business will be located within 25 miles of Burr Ridge, Illinois. The Company shall provide Officer with working facilities and support services as are suitable to his position and appropriate for the performance of his duties. 2. Term of Employment. The Term (the "Term") of the Agreement shall be for the period commencing on the Effective Date and ending on the last day of the eighteenth (18th) month following the Effective Date (the "Termination Date"), unless terminated earlier pursuant to the Agreement (the "Early Termination Date"); provided, however, that commencing on the last day of the twelfth (12th) month following the Effective Date and each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of the Agreement. References herein to the Term of the Agreement shall refer to both the initial Term and any such extended Term. 3. Compensation, Benefits and Reimbursement. 3.1 Base Salary. During the Term of the Agreement and subject to the terms and conditions set forth herein, Company agrees to pay to Officer an annual "Base Salary" equal to _______________ Thousand Dollars ($____________), or such higher amount as may from time-to-time be determined by the Board. Unless otherwise agreed in writing by Officer and Company, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Company in existence from time-to-time. 3.2 Increases in Base Salary. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer may be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of the Agreement) to an amount determined by the Board (or a committee of the Board). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Company hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 Bonus. During the Term of the Agreement, Officer shall be eligible for the following bonus: (a) Target Bonus. Officer shall be eligible to receive an annual bonus for each fiscal year of the Company (or portion thereof) during the Term of the Agreement as determined below. Any such bonus shall be payable within seventy-five (75) days after the end of Company's fiscal year to which such bonus relates; provided, however, that the Chief Executive Officer of the Company may defer payment of such bonus for a period not to exceed one year if such officer determines that deferral is in the best interests of the Company. (b) Determination of Bonus. With respect to each fiscal year during the Term, the actual amount of the bonus payable pursuant to Subparagraph (a) shall be determined on the basis of criteria with respect to the performance of Officer and/or Company established by the Board (or a committee of the Board) in consultation with the Chief Executive Officer of the Company prior to the commencement of the fiscal year and such other factors and conditions as the Board may deem relevant; provided, however, that the criteria for the bonus for 1998 shall be established in the first quarter of 1998. 3.4 Additional Benefits. During the Term of the Agreement, Officer shall be entitled to the following additional benefits: (a) Officer Benefits. Officer shall be entitled to such benefits as are generally provided by the Company to its senior executive employees including, without limitation, (i) Company stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any, and (ii) personal leave, sick leave and vacation leave to the extent such leaves are provided to all senior executive employees. Officer is also entitled to the benefit of any life and health insurance plans, pension, stock option plans and other similar plans as the Company may have or may establish from time-to-time for its senior executive employees. (b) Vacation. Officer shall be entitled to a minimum of four (4) weeks of vacation during each year during the Term of the Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; provided, that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) Life Insurance. During Term of the Agreement, Company shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum two (2) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000); provided, however, in no event shall the premiums for such insurance policy exceed three times normal and customary rates for a normal healthy male of similar age. Such policy shall be owned by Officer or by a member of his immediate family. The Company shall have no incidents of ownership therein. (d) Reimbursement for Expenses. During the Term of the Agreement, Company shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to the Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with Company's policies. (e) Withholding. Compensation and benefits paid to Officer under the Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4. Termination of the Agreement. 4.1 Termination by Company Defined. (a) Termination Without Cause. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Company other than termination for "Cause" (as defined in Paragraph 4.1(b) below). (b) Termination For Cause. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, the Company shall have the right to terminate the Agreement for "Cause"; provided, however, that Officer shall not be deemed to have been terminated for Cause without (i) reasonable written notice to Officer setting forth the reasons for the Company's intention to terminate for "Cause", (ii) an opportunity for the Officer, together with his counsel, to be heard before the Board, and (iii) delivery to the Officer of a written notice of termination (which date of delivery of such notice shall be the Early Termination Date), as defined herein, from the Board finding that in the good faith opinion of the Board, Officer was guilty of conduct set forth therein, and specifying the particulars thereof in detail. For purposes of the Agreement, "Cause" shall mean the following: A commission of a felony, a crime involving moral turpitude, embezzlement, misappropriation of property of the Company or a subsidiary, any other act involving dishonesty or fraud with respect to the Company or a subsidiary; a material breach of a directive of the Board which has not been cured within a specified reasonable time after written notice of breach; or a repeated failure after written notice to follow the reasonable directives of the Board. (c) Termination by Reason of Death or Disability. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Company shall have the right to terminate the Agreement by reason of Officer's death or Permanent Disability. For purposes of the Agreement, "Permanent Disability" shall mean the following: The Officer is unable to perform his duties hereunder for 180 days during any 365 consecutive days by reason of physical or mental disability. The disability will be deemed to have occurred on the one hundred and eightieth (180th) day of Officer's absence or lack of adequate performance. 4.2 Termination by Officer Defined. (a) Termination Other Than For Good Reason. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate the Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Company thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) Termination For Good Reason. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate the Agreement prior to the Termination Date in the event of the material breach of the Agreement by Company, if such breach is not cured by Company within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of the Agreement, termination of the Agreement by Officer in the event of Company's material breach of the Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) Good Reason Following a Change in Control. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of the Agreement by Company, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Company: (i) the assignment to Officer of any duties inconsistent with the position in Company that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (ii) a substantial change in the nature of the business operations of Company; (iii) a reduction by Company in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iv) the relocation of Company's principal executive offices to a location more than 25 miles from Burr Ridge, Illinois (or, if different, the town in which such offices are located immediately prior to the Change in Control), or Company's requiring Officer to be based anywhere other than Company's principal executive offices except for required travel on Company's business to an extent substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (v) the failure by Company to pay Officer any portion of his current compensation except pursuant to an across-the-board compensation deferral similarly affecting all officers of Company and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Company or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Company, within seven (7) days of the date such compensation is due; (vi) the failure by Company to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Company to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vii) the failure by Company to continue to provide Officer with benefits substantially similar to those under any of Company's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Company which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Company to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Company in accordance with Company's normal vacation policy in effect at the time of the Change in Control or pursuant to Officer's existing employment agreement, if any; or (viii) the failure of Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement. Notwithstanding the above, during the one year period immediately following the occurrence of a Change in Control, "Good Reason" shall mean termination of employment by the Executive for any reason other than death or Permanent Disability. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 Effect of Termination. In the event that the Agreement is terminated by Company or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of the Agreement which shall survive termination of the Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; provided, however, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) Termination by Company. (i) Termination Without Cause. In the event that Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) Termination For Cause. In the event that Company terminates the Agreement for Cause pursuant to Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Following delivery to Officer of the notice described in Paragraph 4.1(b)(i), the Company may suspend Officer from further duties with full pay and benefits as provided hereunder as if Officer continued to be employed until the delivery of the notice of termination described in Paragraph 4.1(b)(iii). Officer shall not be entitled to any future annual bonus or Severance Payment. (iii) Termination Due to Death or Permanent Disability. In the event that the Company terminates the Agreement by reason of Officer's death or Permanent Disability pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary (as defined below); (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) all outstanding options (whether or not exercisable at the Early Termination Date) shall become fully and immediately vested and may be exercised for one year following such termination. (b) Termination by Officer. (i) Termination Other Than For Good Reason. In the event that Officer terminates the Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) Termination For Good Reason. In the event that Officer terminates the Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of the Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). The term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer, together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 4.4 Severance Payment. (a) Definition of "Severance Payment." For purposes of the Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of the Agreement not occurred ("Severance Period") and (ii) for each full or partial year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"); provided, however, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), the Company terminates the Agreement without Cause pursuant to Paragraph 4.1(a) above or Officer terminates the Agreement for Good Reason pursuant to Paragraph 4.2(c) above, the term "Severance Payment" shall mean an amount equal to no less than three (3) times the sum of the Base Salary then in effect and the Average Bonus which Average Bonus shall not be less than 50% of Base Salary). (b) Payment of Severance Payment. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Company's employment for the Severance Period; provided, however, that in the event of a Termination Following a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) Other Severance Benefits. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to: (i) the full and immediate vesting of any awards granted to Officer under the Company's stock option and incentive compensation plans; and (ii) to the extent elected by Officer within five days of the Early Termination Date, in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the payment referred to below), a lump sum payment, in cash, equal to the product of (a) the excess of (x) in the case of ISOs granted after the date hereof, the closing price of shares of Company common stock as reported on the NASDAQ National Market on or nearest the Early Termination Date (or, if not listed on such exchange, on the nationally recognized exchange or quotation system on which trading volume in shares of Company common stock is highest), or in the case of all other options, the higher of such closing price or the highest per share price for shares of common stock of the Company actually paid in connection with any Change in Control, over (y) the per share exercise price of such option held by Officer (whether or not then fully exercisable), and (b) the number of shares of common stock of the Company covered by each such option as elected by Officer; provided, however, that if the Company is prevented by the terms of its debt instruments from making the payment described herein, Officer shall immediately execute a cashless exercise of all options for which such Officer elected to receive cash (whether or not fully exercisable at the Early Termination Date) and shall dispose of the common stock underlying such options as soon as practicable and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent that such shares cannot be sold for any reason, the Company will repurchase such shares at the price determined under (x) above; provided, however, that notwithstanding the foregoing, the following shall apply with respect to a Termination without Cause pursuant to Paragraph 4.3(a)(i) or a Termination For Good Reason prior to a Change in Control pursuant to Paragraph 4.3(b)(ii); to the extent Officer within five days of the Early Termination Date elects to receive cash in lieu of shares of Company common stock issuable upon exercise of outstanding options (which options shall be cancelled upon the making of the exercises referred to below), Officer shall immediately complete a cashless exercise of all options for which Officer elects to receive cash (whether or not fully exercisable at the Early Termination Date) and shall attempt to dispose of the common stock underlying such options within three weeks of such exercise and the Company will pay Officer the aggregate difference between the price of the common stock at the time such shares are sold and the price determined under (x) above; provided further, that in the event and to the extent such shares cannot be sold within the three week period for any reason, the Company will repurchase such shares at the price determined under (x) above; and (iii) continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Company shall arrange to provide Officer with substantially similar benefits. (d) Full Settlement of All Obligations. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Company under the Agreement. (e) Change in Control. For purposes of the Agreement, "Termination Following a Change in Control" shall mean a termination of Officer's employment with Company following a "Change in Control" by Officer for Good Reason or by Company other than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company and is entitled to file on Schedule 13G or any successor form with respect to such securities) becomes the Beneficial Owner of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 4.5 Gross-Up. In the event Officer is required pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code") to pay (through withholding or otherwise) an excise tax on "excess parachute payments" (as defined in Section 280G(b) of the Code) made by the Company pursuant to the Agreement or otherwise, Company shall pay Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (a "Gross-Up Payment") as is necessary to place Officer in the same after-tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. The Gross-Up Payment shall be determined pursuant to the procedures set forth in Annex A hereto. 4.6 Offset. Officer shall not be required to mitigate the amount of any payment provided for under the Agreement by seeking other employment or otherwise, nor will any payments provided to him under the Agreement be subject to offset in respect of any claims which the Company may have against Officer other than with respect to loans by Officer from the Company which are the subject of an executed note between Officer and the Company, nor shall any payment provided hereunder be reduced by any compensation earned by Officer as the result of employment by another employer or by retirement benefits. 5. Miscellaneous. 5.1 Payment Obligations. Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Company may have against Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Officer obtains other employment. Company agrees to pay promptly upon receipt of proper invoices, to the fullest extent permitted by law, all legal fees and expenses which Officer may reasonably incur as a result of any contest by Company, Officer or others of the validity, interpretation or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest initiated by Officer about the amount of any payment due pursuant to this Agreement); provided, however, that in the event that it is finally determined by arbitration pursuant to Paragraph 5.8 that Officer was terminated for Cause or that, in the case of termination of this Agreement by Officer, Good Reason did not exist, then Officer shall be obligated to repay to Company the full amount of all such legal fees and expenses paid for Officer by Company in connection with that contest. 5.2 Confidentiality. Officer agrees that all confidential and proprietary information relating to the business of Company shall be kept and treated as confidential both during and after the Term of the Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of the Agreement. 5.3 Waiver. The waiver of the breach of any provision of the Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 5.4 Entire Agreement; Modifications. Except as otherwise provided herein and the letter attached hereto as Exhibit 1, the Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and the Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Company. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 5.5 Notices. All notices and other communications under the Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Company: American Disposal Services, Inc. 745 McClintock Drive Suite 230 Burr Ridge, Illinois 60521 If to Officer: Stephen P. Lavey 4322 North Kildare Avenue Chicago, Illinois 60641 Any party may change such party's address for notices by notice duly given pursuant hereto. 5.6 Headings. The paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of the Agreement. 5.7 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to its principles of conflict of laws. 5.8 Arbitration. Any controversy or claim arising out of or relating to the Agreement or the breach of the Agreement that cannot be resolved by Officer on the one hand or the Company on the other, including any dispute as to the calculation of Officer's benefits or any payment hereunder, shall be submitted to arbitration in the City of Chicago, in accordance with Illinois state law and the procedures of the American Arbitration Association. The determination of the arbitrator shall be conclusive and binding on the Company and Officer, and judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.9 Severability. Should a court or other body of competent jurisdiction determine that any provision of the Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, all other provisions of the Agreement shall be deemed valid and enforceable to the extent possible. 5.10 Survival of Company's Obligations. Company's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Company. The Agreement shall not be terminated by any merger or consolidation or other reorganization of Company. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of the Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. The Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; provided, however, that except as herein expressly provided, the Agreement shall not be assignable either by Company (except to an affiliate of the Company, in which event Company shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 5.11 Survival of Certain Rights and Obligations. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.8, 5.10, 5.11 and 5.13 hereof shall survive the termination of the Agreement. 5.12 Counterparts. The Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 5.13 Indemnification. In addition to any rights to indemnification to which Officer is entitled under the Company's Articles of Incorporation and By-Laws or under the agreement between Company and Officer attached hereto as Exhibit 2, Company shall indemnify Officer at all times during and after the Term of the Agreement to the maximum extent permitted under applicable law of the State of Illinois or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. IN WITNESS WHEREOF, the parties hereto have executed the Agreement. COMPANY: AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation By: ________________________________ Name Title Date: ______________________________ OFFICER: ____________________________________ Name Date: ______________________________ ANNEX A The Gross-Up Payment shall be equal to the excess of the Total Payments over the payment provided for by this paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of the Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. EX-99.9 11 EXHIBIT 10.15 _________________________________________________________________ PURCHASE AGREEMENT by and among the STOCKHOLDERS of ILLINOIS BULK HANDLERS, INC., SHRED-ALL RECYCLING SYSTEMS, INC., FRED B. BARBARA TRUCKING CO., INC., ENVIRONTECH, INC. and AMERICAN DISPOSAL SERVICES, INC. dated as of September 9, 1997 _________________________________________________________________ TABLE OF CONTENTS ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . 2 ARTICLE II SALE AND PURCHASE OF STOCK. . . . . . . . . . . . 15 2.1 Stock Purchase . . . . . . . . . . . . . . . . . . 15 2.2 Purchase Price . . . . . . . . . . . . . . . . . . 16 ARTICLE III CLOSING. . . . . . . . . . . . . . . . . . . . . 26 3.1 The Closing. . . . . . . . . . . . . . . . . . . . 26 3.2 Obligations of Sellers . . . . . . . . . . . . . . 26 3.3 Obligations of Buyer . . . . . . . . . . . . . . . 27 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDER. . . . . . . . . . . . . . . . . . 27 4.1 Organization and Qualification . . . . . . . . . . 27 4.2 Authority; No Breach . . . . . . . . . . . . . . . 28 4.3 Securities and Ownership . . . . . . . . . . . . . 30 4.4 [Intentionally Omitted]. . . . . . . . . . . . . . 31 4.5 Financial Statements. . . . . . . . . . . . . . . 31 4.6 Interests of Related Persons . . . . . . . . . . . 32 4.7 Absence of Undisclosed Liabilities . . . . . . . . 32 4.8 Absence of Certain Changes or Events . . . . . . . 33 4.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . 34 4.10 Assets . . . . . . . . . . . . . . . . . . . . . . 35 4.11 Intellectual Property. . . . . . . . . . . . . . . 38 4.12 [Intentionally Omitted]. . . . . . . . . . . . . . 38 4.13 [Intentionally Omitted]. . . . . . . . . . . . . . 38 4.14 Contracts. . . . . . . . . . . . . . . . . . . . . 38 4.15 Customers and Suppliers. . . . . . . . . . . . . . 39 4.16 Insurance. . . . . . . . . . . . . . . . . . . . . 39 4.17 Litigation, Etc. . . . . . . . . . . . . . . . . . 40 4.18 Compliance with Law; Necessary Authorizations . . . . . . . . . . . . . . . . . . 41 4.19 Environmental Matters . . . . . . . . . . . . . . 41 4.20 Labor Difficulties . . . . . . . . . . . . . . . . 42 4.21 Employee Benefit Plans . . . . . . . . . . . . . . 44 4.22 [Intentionally Omitted]. . . . . . . . . . . . . . 46 4.23 Questionable Payments .. . . . . . . . . . . . . . 46 4.24 Finders. . . . . . . . . . . . . . . . . . . . . . 46 4.25 Disclosure . . . . . . . . . . . . . . . . . . . . 47 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . 47 5.1 Organization and Qualification . . . . . . . . . . 47 5.2 Authority. . . . . . . . . . . . . . . . . . . . . 47 5.3 Capital Stock . . . . . . . . . . . . . . . . . . 48 5.4 No Breach. . . . . . . . . . . . . . . . . . . . . 48 5.5 Finders. . . . . . . . . . . . . . . . . . . . . . 49 5.6 Investment Purpose. . . . . . . . . . . . . . . . 49 5.7 No Knowledge of Breach. . . . . . . . . . . . . . 49 5.8 SEC Reports and Financial Statements. . . . . . . 49 5.9 Absence of Certain Changes. . . . . . . . . . . . 51 5.10 ADS Common Stock Issuable to the Sellers. . . . . 51 ARTICLE VI COVENANTS. . . . . . . . . . . . . . . . . . . . 51 6.1 Conduct of Business of the Operating Companies. . . . . . . . . . . . . . . . 51 6.2 Company Records. . . . . . . . . . . . . . . . . . 52 6.3 Filings and Authorizations . . . . . . . . . . . . 53 6.4 Publicity. . . . . . . . . . . . . . . . . . . . . 54 6.5 Distribution of Net Cash Balances and Distributed Assets to Sellers. . . . . . . . . 54 6.6 Discussions with Others. . . . . . . . . . . . . . 57 6.7 Supplements to Disclosure Schedule . . . . . . . . 57 6.8 Covenant to Satisfy Conditions . . . . . . . . . . 58 6.9 Further Assurances . . . . . . . . . . . . . . . . 58 6.10 Delivery of Periodic Reports . . . . . . . . . . . 58 6.11 Nasdaq . . . . . . . . . . . . . . . . . . . . . . 58 6.12 Tax Matters. . . . . . . . . . . . . . . . . . . . 59 ARTICLE VII [INTENTIONALLY OMITTED]. . . . . . . . . . . . . 64 ARTICLE VIII CONDITIONS TO CLOSING . . . . . . . . . . . . . 64 8.1 Conditions Precedent to Obligations of Buyer . . . 64 (a) Representations and Warranties Accurate . . . 64 (b) Performance by Sellers . . . . . . . . .. . . 65 (c) [Intentionally Omitted] . . . . . . . . . . . 65 (d) Consents. . . . . . . . . . . . . . . . . . . 65 (e) No Legal Prohibition. . . . . . . . . . . . . 65 (f) Certificate. . . . . . . . . . . . . . . . . 66 (g) Opinion of Counsel for Sellers. . . . . . . . 66 (h) HSR Act . . . . . . . . . . . . . . . . . . . 66 (i) Repayment of Indebtedness . . . . . . . . . . 66 (j) Small Business Set Asides . . . . . . . . . . 66 (k) Material Adverse Change . . . . . . . . . . . 66 (l) Releases. . . . . . . . . . . . . . . . . . . 67 (m) Resale Agreement. . . . . . . . . . . . . . . 67 (n) Non-Competition Agreement . . . . . . . . . . 67 (o) Employment Agreements . . . . . . . . . . . . 67 (p) Barbara Agreement . . . . . . . . . . . . . . 67 (q) Facility Lease. . . . . . . . . . . . . . . . 67 (r) Additional Documents, Etc. . . . . . . . . . . 68 8.2 Conditions Precedent To Obligations Of Sellers. . . . . . . . . . . . . . . . . . . . . 68 (a) Representations and Warranties Accurate. . . . 68 (b) Performance by Buyer . . . . . . . . . . . . . 68 (c) Consents. . . . . . . . . . . . . . . . . . . 68 (d) No Legal Prohibition . . . . . . . . . . . . . 69 (e) Certificate. . . . . . . . . . . . . . . . . . 69 (f) Opinion of Counsel for Buyer . . . . . . . . . 69 (g) HSR Act. . . . . . . . . . . . . . . . . . . . 69 (h) Material Adverse Change. . . . . . . . . . . . 70 (i) Nasdaq . . . . . . . . . . . . . . . . . . . . 70 (j) [Intentionally Omitted]. . . . . . . . . . . . 70 (k) Effective Registration Statement . . . . . . . 70 (l) Employment Agreements. . . . . . . . . . . . . 70 (m) Barbara Agreement. . . . . . . . . . . . . . . 70 (n) Facility Lease . . . . . . . . . . . . . . . . 70 (o) Additional Documents, Etc. . . . . . . . . . 70 ARTICLE IX INDEMNIFICATION . . . . .. . . . . . . . . . . . . 71 9.1 Survival of Representations and Warranties. . . . . 71 9.2 Indemnification by Sellers. . . . . . . . . . . . . 71 9.3 Indemnification by Buyer. . . . . . . . . . . . . . 73 9.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . 74 9.5 Terms and Conditions of Indemnification . . . . . . 75 9.6 Treatment of Payments . . . . . . . . . . . . . . . 77 ARTICLE X ESCROW. . . . . . . . . . . . . . . . . . . . . . . 77 10.1 Establishment of Escrow Account . . . . . . . . . . 77 10.2 Funding of and Withdrawals From Escrow Account. . . . . . . . . . . . . . . . . . . 77 ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 78 11.1 Termination; Liquidated Damages. . . . . . . . . . 78 11.2 Expense. . . . . . . . . . . . . . . . . . . . . . 79 11.3 Amendment. . . . . . . . . . . . . . . . . . . . . 79 11.4 Entire Agreement . . . . . . . . . . . . . . . . . 80 11.5 Waivers. . . . . . . . . . . . . . . . . . . . . . 80 11.6 Notices. . . . . . . . . . . . . . . . . . . . . . 80 11.7 Counterparts . . . . . . . . . . . . . . . . . . . 81 11.8 Governing Law. . . . . . . . . . . . . . . . . . . 81 11.9 Binding Effect; Third Party Beneficiaries; Assignment . . . . . . . . . . . . . . . . . . . . 82 11.10 Severability. . . . . . . . . . . . . . . .. . . . 82 11.11 Headings . . . . . . . . . . . . . . . . . . . . . 83 11.12 No Agency. . . . . . . . . . . . . . . . . . . . . 83 PURCHASE AGREEMENT PURCHASE AGREEMENT, dated as of September 9, 1997 by and among the stockholders of ILLINOIS BULK HANDLERS, INC., an Illinois corporation ("Handlers"), SHRED-ALL RECYCLING SYSTEMS, INC., an Illinois corporation ("Recycling"), FRED B. BARBARA TRUCKING CO., INC., an Illinois corporation ("Trucking"), and ENVIRONTECH, INC., a Delaware corporation ("Environtech") (Handlers, Recycling, Trucking and Environtech are hereinafter collectively referred to as the "Operating Companies"), set forth on the signature page hereto (collectively, the "Sellers"), and AMERICAN DISPOSAL SERVICES, INC., a Delaware corporation (the "Buyer"). W I T N E S S E T H: WHEREAS, the Sellers own all of the issued and outstanding shares of capital stock (the "Stock") of the Operating Companies; and WHEREAS, the Sellers desire to sell and transfer, and the Buyer desires to purchase and acquire, all of the Stock of the Operating Companies, upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, OF THE REPRESENTATIONS, WARRANTIES, COVENANTS AND MUTUAL AGREEMENTS HEREINAFTER CONTAINED AND OF OTHER GOOD AND VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS: ARTICLE I DEFINITIONS The terms defined in this Article I, whenever used herein (including without limitation the Exhibits and Schedules hereto), shall have the following meanings for all purposes of this Agreement: "ADS Common Stock" means the Common Stock, par value $.01 per share, of Buyer. "Affiliate" of a Person means any other Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person. "Agreement" means this agreement among the parties set forth on the first page hereof, including without limitation all Exhibits and Schedules hereto. "Average Daily Tonnage" means the total volume of waste received divided by the number of days, other than a Saturday, Sunday or holiday for employees of the City of Chicago, on which waste was received. "Balance Sheet Date" means June 30, 1997. "Barbara Agreement" has the meaning given to it in Section 8.1(p) of this Agreement. "Business" means the solid waste collection, transportation, processing, hauling, transfer and disposal business conducted by the Operating Companies. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or Chicago, Illinois are required or authorized by law to be closed. "Buyer" has the meaning given to it in the caption hereof. "Buyer Claimant" has the meaning given to it in Section 9.2 of this Agreement. "Buyer Shares" means any shares of ADS Common Stock to be delivered to the Sellers pursuant to this Agreement. "Claimant" means the party seeking indemnification under Article IX of this Agreement. "Closing" means the closing of the transactions contemplated by this Agreement which shall occur on the Closing Date. "Closing Date" means September 10, 1997, or such other date as the parties may mutually agree. "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. "Covenant Not to Compete" means the obligations of the Principal Stockholder under the Non-Competition Agreement. "Consent" means any consent, approval, authorization, license or order of, registration, declaration or filing with, or notice to, or waiver from, any federal, state, local, foreign or other Governmental Entity or any Person, including, without limitation, any security holder or creditor which is necessary to be obtained, made or given by any of the Sellers or the Operating Companies in connection with the execution and delivery by the Sellers of this Agreement, the performance by the Sellers of their obligations hereunder and the consummation of the transactions contemplated hereby. "Disclosure Schedule" means the disclosure schedule attached to this Agreement as Exhibit 4.0, and includes but is not limited to each of the Schedules expressly referred to in Article IV. "Distributed Assets" has the meaning given to it in Section 6.5 of this Agreement. "Employee Benefit Plan" means any bonus, deferred compensation, pension, profit-sharing, retirement, stock purchase, stock option, stock appreciation, other forms of incentive compensation, excess benefit, supplemental pension insurance, disability, medical, supplemental unemployment, vacation benefits, severance, or post-retirement insurance, compensation or benefit, welfare or any other employee benefit plans, arrangements or practices, whether written or oral. "Employment Agreements" has the meaning given to it in Section 8.1(o) of this Agreement. "Encumbrance" means any security interests, liens, pledges, charges, encumbrances, options, rights of first refusal, mortgages, indentures, security agreements or other similar agreements or agreements restricting voting or transfer. "Environmental Action" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, proceeding, judgment, letter or other written communication from any Federal, state, local or municipal agency, department, bureau, office or other authority or any third party involving a Hazardous Discharge or any violation of any Permit or Environmental Laws. "Environment" means any surface or subsurface physical medium or natural resource, including, air, land, soil, surface waters, ground waters, stream and river sediments. "Environmental Laws" means any federal, state, local or common law, rule, regulation, ordinance, code, order or judgment relating to the injury to, or the pollution or protection of human health and safety or the Environment. "Environmental Liabilities" means any claims, judgments, damages (including punitive damages), losses, penalties, fines, liabilities, encumbrances, liens, violations, costs and expenses (including attorneys and consultants fees) of investigation, assessment, remediation or defense of any matter relating to human health, safety or the Environment of whatever kind or nature by any Person or Governmental Entity, which are incurred as a result of (i) the existence of Hazardous Substances in, on, under, at or emanating from any Real Property, (ii) the offsite transportation, treatment, storage or disposal of Hazardous Substances generated by any of the Operating Companies or (iii) the violation of any Environmental Laws by any of the Operating Companies. "Environtech" has the meaning given to it in the caption hereof. "Environtech Landfill" means the solid waste disposal facility located in Morris, Illinois and owned by Environtech. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. "Escrow Account" means the trust account established and maintained with the Escrow Agent pursuant to the Escrow Agreement. "Escrow Agent" means Lakeside Bank, 2141 S. Indiana, Chicago, Illinois 60616. "Escrow Agreement" means an Escrow Agreement with the Escrow Agent in substantially the form annexed hereto as Exhibit 1A. "Escrow Amount" has the meaning given to it in Section 2.2(b) of this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Facility Lease" has the meaning given to it in Section 8.1(q) of this Agreement. "Financial Statements" means (i) the combined balance sheets as of December 31, 1994, December 31, 1995 and December 31, 1996 and the related combined statements of operations, stockholder's equity and cash flows of the Operating Companies for the fiscal years then ended, in each case audited by Ernst & Young, L.L.P., and including in each case the related notes thereto, and (ii) the combined balance sheets as of June 30, 1997, and the related combined statements of operations, stockholder's equity and cash flows of the Operating Companies for the six-month period then ended, in each case audited by Ernst & Young, L.L.P., and including in each case, the related notes thereto. "GAAP" means United States generally accepted accounting principles, applied on a consistent basis which assumes the continuation of each of the Operating Companies as a going concern. "Governmental Entity" means any federal, state, local or foreign government, political subdivision, legislature, court, agency, department, bureau, commission or other governmental regulatory authority, body or instrumentality to which any of the Operating Companies is subject. "Handlers" has the meaning given to it in the caption hereof. "Hazardous Discharge" means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping of Hazardous Substances, whether on or off the premises of any of the Operating Companies. "Hazardous Substance" means petroleum, petroleum products, petroleum-derived substances, radioactive materials, hazardous wastes, polychlorinated biphenyls, lead based paint, radon, urea formaldehyde, asbestos or any materials containing asbestos, and any materials or substances regulated or defined as or included in the definition of "hazardous substances," "hazardous materials," "hazardous constituents," "toxic substances," "pollutants," "contaminants" or any similar denomination intended to classify or regulate substances by reason of toxicity, carcinogenicity, ignitability, corrosivity or reactivity under any Environmental Law. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indemnitor" means the party against whom indemnification is sought under Article IX of this Agreement. "Intellectual Property" means patents and pending patent applications, registered and unregistered trademarks, service marks, logos, and copyrights, trade names and pending registrations and applications to register or renew the registration of any of the foregoing, computer software and other similar intellectual property rights material to the Operating Companies considered as a single enterprise in connection with the conduct of their respective businesses. "Material Adverse Effect" means any material adverse effect on the business, results of operations or financial condition of the Operating Companies considered as a single enterprise. "MRF Contract" has the meaning given to it in Section 2.2(c) of this Agreement. "Net Cash Balances" has the meaning given to it in Section 6.5 of this Agreement. "Non-Competition Agreement" has the meaning given to it in Section 8.1(n) of this Agreement. "Operating Companies" means, collectively, Handlers, Recycling, Trucking, and Environtech. "Pension Plan" means any "employee pension benefit plan" within the meanings of Section 3(2) of ERISA maintained or contributed to by or on behalf of any of the Operating Companies. "Person" means an individual, corporation, partnership, limited liability company, firm, joint venture, association, joint stock company, trust, unincorporated organization or other entity, or any governmental or quasi-governmental body or regulatory authority. "Permits" means all licenses, certificates of authority, permits, orders, consents, approvals, registrations, local siting approvals, authorizations, qualifications and filings under any federal, state or local laws or with any Governmental Entities. "Permitted Encumbrances" means (i) exceptions to title as set forth in Section 4.10(a) of the Disclosure Schedule; (ii) liens for Taxes not yet payable or any Taxes being contested in good faith (and which are reflected in Section 4.9 of the Disclosure Schedule); (iii) liens arising as a matter of law in the ordinary course of business, provided that the obligations secured by such liens are not delinquent or are being contested in good faith; and (iv) such imperfections of title and encumbrances, if any, as do not, in the aggregate, materially interfere with the present use of any of the properties and assets of the Operating Companies subject thereto. "Principal Stockholder" means Fred B. Barbara. "Property" means any Real Property and any personal or mixed property, whether tangible or intangible. "Purchase Price" means the purchase price for the Stock as set forth in Section 2.2 of this Agreement. "Real Property" means any real property presently or formerly owned, used, leased, occupied, managed or operated by any of the Operating Companies. "Recycling" has the meaning given to it in the caption hereof. "Related Person" has the meaning given to it in Section 4.6 hereof. "Resale Agreement" has the meaning given to it in Section 8.1(m) of this Agreement. "Section 338 Forms" shall mean all returns, documents, statements, and other forms that are required to be submitted to any federal, state, county, or other local taxing authority in connection with a Section 338(h)(10) Election. Section 338 Forms shall include, without limitation, any "statement of section 338 election" and United States Internal Revenue Service Form 8023 (together with any schedules or attachments thereto) that are required pursuant to applicable Treasury Regulations. "Section 338(h)(10) Election" means an election described in Section 338(h)(10) of the Code with respect to the sale of the Stock of the Operating Companies to Buyer pursuant to this Agreement. "Section 338(h)(10) Election" shall also include any substantially similar election under a state or local taxing statute. "Securities Act" means the Securities Act of 1933, as amended. "Sellers" has the meaning given to it in the caption hereof. "Seller Claimant" has the meaning given to it in Section 9.3 hereof. "Stock" has the meaning given to it in the recitals hereto. "Subsidiary" with respect to any party, means any corporation, partnership, joint venture or other organization, whether incorporated or unincorporated, of which (i) such party or any other Subsidiary of such party is a general partner; (ii) voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation, partnership, joint venture or other organization is held by such party and/or one or more of its Subsidiaries; or (iii) at least 50% of the equity, other securities or other interests is, directly or indirectly, owned or controlled by such party and/or by one or more of its Subsidiaries. "Tax Return" means each and every report, return, declaration, information return, statement or other information required to be supplied to a taxing or governmental authority with respect to any Tax or Taxes, including without limitation any combined or consolidated return for any group of entities including any of the Operating Companies. "Taxes" (or "Tax" where the context requires) shall mean all federal, state, county, provincial, local, foreign and other taxes (including, without limitation, income, profits, premium, estimated, excise, sales, use, local host fees, land fill taxes, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, withholding, employment and payroll related and property taxes and other governmental charges and assessments), whether attributable to statutory or nonstatutory rules and whether or not measured in whole or in part by net income, and including without limitation interest, additions to tax or interest, charges and penalties with respect thereto and all costs of defending any Tax proceedings. "Transaction Documents" means, collectively, this Agreement, the Escrow Agreement, the Barbara Agreement, the Employment Agreements, the Non-Competition Agreement, the Resale Agreement and the Facility Lease. "Trucking" has the meaning given to it in the caption hereof. "Valuation Termination Date" means the first to occur of (i) the Date of Termination (as defined in the Barbara Agreement); provided, however, that in no event shall the Valuation Termination Date occur earlier than the fifth anniversary of the Closing Date unless the Barbara Agreement is terminated pursuant to Section 6(c) or Section 6(d)(i)(B) thereof, and (ii) the ninth anniversary of the Closing Date. "Welfare Plans" has the meaning given to it in Section 4.22 hereof. ARTICLE II SALE AND PURCHASE OF STOCK 2.1 Stock Purchase. Upon the terms and subject to the conditions hereof, and upon the basis of the agreements, representations and warranties contained in this Agreement, Sellers shall sell, transfer, assign, convey, set over and deliver to Buyer, and Buyer shall purchase and acquire from Sellers, on the Closing Date, all of the Stock, free and clear of any and all Encumbrances other than any applicable restrictions on the further transfer of the Stock that may be imposed by Federal and state securities laws. 2.2 Purchase Price. (a) The aggregate initial Purchase Price for the Stock and the Covenant Not to Compete shall be equal to Fifty-Eight Million, Five Hundred Thousand Dollars ($58,500,000) subject to adjustment as provided in Sections 2.2(c),(d),(e),(f),(g),(h) and (i) below. The initial Purchase Price shall be allocated as set forth on Exhibit 2.2(a) hereto. (b) The initial Purchase Price shall be paid to Sellers on the Closing Date as follows: (i) $37,875,000 in immediately available funds by wire transfer to a bank account or accounts specified by the Principal Stockholder in a written notice delivered to Buyer not later than two (2) Business Days prior to the Closing Date; (ii) $6,000,000 (the "Escrow Amount") in immediately available funds by wire transfer to an Escrow Account specified by the Escrow Agent in accordance with Article X hereof; and (iii) Certificates representing 539,917 Buyer Shares registered in the names and in the denominations specified by the Principal Stockholder in a written notice delivered to the Buyer not later than two (2) Business Days prior to the Closing Date. (c) If during the period commencing on the Closing Date and ending on the Valuation Termination Date, Buyer or any of its Subsidiaries enters into a contract with the City of Chicago to operate a materials recycling facility ("MRF") currently being operated in the City of Chicago at 43rd Street and Racine Avenue by Recycling having an initial term of at least seven years and on other terms and conditions that are no less favorable to the Buyer than those set forth on Exhibit 2.2(c) hereto (the "MRF Contract"), Buyer will make the payments set forth in Clauses (i), (ii), (iii) and (iv) below to the Principal Stockholder for the benefit of the former stockholders of Recycling (and such adjustment to the Purchase Price shall be allocated as set forth on Exhibit 2.2(a) hereto to the purchase of the stock of Recycling). If the MRF Contract is for an initial term of at least five years but less than six years, Buyer will make 5/7ths of the payments set forth in Clauses (i), (ii), (iii) and (iv) below to the Principal Stockholder for the benefit of the former stockholders of Recycling. Upon each of the first two one-year renewals of the MRF Contract, if any, beyond the initial five-year term, Buyer will make 1/7th of the payments set forth in Clauses (i), (ii), (iii) and (iv) below to the Principal Stockholder for the benefit of the former stockholders of Recycling. If the MRF Contract is for an initial term of at least six years but less than seven years, Buyer will make 6/7ths of the payments set forth in Clauses (i), (ii), (iii) and (iv) below to the Principal Stockholder for the benefit of the former stockholders of Recycling. Upon a one-year renewal of the MRF Contract, if any, beyond the initial six-year term, Buyer will make 1/7th of the payments set forth in Clauses (i), (ii), (iii) and (iv) below to the Principal Stockholder for the benefit of the former stockholders of Recycling. (i) Upon receipt of the MRF Contract and the commencement of the delivery of municipal solid waste to the Buyer's or any of its Subsidiary's, as the case may be, MRF pursuant to such contract, the sum of $5,000,000; (ii) Six months following the satisfaction of the conditions set forth in Clause (i) above, an amount equal to the product of (A) $50,000 and (B) the Average Daily Tonnage of municipal solid waste generated by the MRF Contract during such six-month period; provided, however, that in no event shall the payment to be made pursuant to this Clause (ii) exceed $15,000,000; (iii) Eighteen months following the satisfaction of the conditions set forth in Clause (i) above, an amount equal to the difference between (A) the product of (1) $50,000 and (2) the Average Daily Tonnage of municipal solid waste generated by the MRF Contract during such eighteen-month period and (B) the aggregate payments theretofore made pursuant to Clauses (i) and (ii) above; provided, however, that in no event shall the payment to be made pursuant to this Clause (iii) exceed $10,000,000; (iv) eighteen months following the satisfaction of the conditions set forth in Clause (i) above, an amount equal to the product of (A) $20,000 and (B) the Average Daily Tonnage of municipal solid waste generated by the MRF Contract during such eighteen-month period which exceeds 700 tons; and (v) an amount equal to $250,000 for each one-year renewal of the MRF Contract, if any, beyond seven years obtained (on terms at least as favorable to Buyer as those contained in such contract during the initial term), whether any such renewal occurs prior to or after the Valuation Termination Date. In no event shall the aggregate payments to be made pursuant to Clauses (i), (ii) and (iii) of this Section 2.2(c) exceed $30,000,000. Any payment required to be made pursuant to Clauses (i), (ii), (iii) or (iv) above shall be made by Buyer not later than twenty (20) Business Days following the satisfaction of the applicable conditions and shall be payable 75% in cash by wire transfer of immediately available funds to an account or accounts designated by the Principal Stockholder to Buyer in the manner specified herein for delivery of notices and 25% by delivery to the Principal Stockholder of Buyer Shares. The number of Buyer Shares to be delivered in each case shall be determined by dividing the dollar value of the Buyer Shares to be delivered to the Principal Stockholder by the average of the last reported prices of ADS Common Stock on the Nasdaq National Market for the 20 consecutive trading days ending on the trading day immediately preceding the day on which the applicable conditions were satisfied. Any payment required to be made pursuant to Clause (v) above shall be made by Buyer not later than twenty (20) Business Days following such renewal and shall be payable in cash by wire transfer of immediately available funds to an account or accounts designated by the Principal Stockholder to Buyer in the manner specified herein for delivery of notices. (d) If during the period commencing on the Closing Date and ending on the Valuation Termination Date, Environtech receives (i) final, non-appealable local siting approval from the local authority with jurisdiction over siting to increase the airspace available for disposal of the Environtech Landfill by at least 2,000,000 cubic yards over the original sited airspace available for disposal of 6,119,318 cubic yards, and (ii) the local host agreement between Environtech and the City of Morris and the local host agreement between Environtech and the County of Grundy are amended to permit the disposal of a minimum of 2,500 tons of solid waste per day at the Environtech Landfill (with such amendments being final and binding), Buyer will pay to the Principal Stockholder for the benefit of the former stockholders of Environtech an amount equal to the product of (A) $1.00 and (B) the difference between the number of cubic yards in the new sited capacity and 6,119,318 cubic yards; provided, however, that in no event shall the payment to be made pursuant to this Section 2.2(d) exceed $10,000,000 (and such adjustment to the Purchase Price shall be allocated as set forth on Exhibit 2.2(a) hereto to the purchase of the stock of Environtech). Any such payment shall be made by the Buyer not later than twenty (20) Business Days following the satisfaction of the foregoing conditions and shall be payable 75% in cash by wire transfer of immediately available funds to an account or accounts designated by the Principal Stockholder to Buyer in the manner specified herein for delivery of notices and 25% by delivery to the Principal Stockholder of that number of Buyer Shares (rounded up to the nearest whole number) determined by dividing the dollar value of the Buyer Shares to be delivered to the Principal Stockholder by the average of the last reported sale prices of the ADS Common Stock on the Nasdaq National Market for the 20 consecutive trading days ending on the trading day immediately preceding the day on which the applicable conditions were satisfied. (e) If during the period commencing on the Closing Date and ending on the Valuation Termination Date, Buyer or any of its Subsidiaries receives a final non-appealable S.B. 172 siting approval from the applicable local jurisdictional authority to site and develop a transfer station of at least 350 tons per day in DuPage County, Illinois, Buyer will pay to the Principal Stockholder for the benefit of the former stockholders of Recycling the sum of five hundred thousand dollars ($500,000.00); provided, however, that if the Buyer or any of its Subsidiaries receives a final non-appealable permit from the Illinois Environmental Protection Agency to operate the transfer station at the rate of at least 350 tons per day, Buyer will pay to the Principal Stockholder for the benefit of the former stockholders of Recycling an additional amount equal to $3,000,000 plus the product of (A) $500,000 and (B) the number of full 50 ton per day increments covered by the permit in excess of 350 tons per day (and such adjustment to the Purchase Price shall be allocated as set forth on Exhibit 2.2(a) hereto to the purchase of the stock of Recycling). In no event shall the aggregate payments to be made pursuant to this Section 2.2(e) exceed $5,000,000. Any such payment shall be made by the Buyer not later than twenty (20) Business Days following the satisfaction of the foregoing conditions and shall be payable 75% in cash by wire transfer of immediately available funds to an account or accounts designated by the Principal Stockholder to Buyer in the manner specified herein for delivery of notices and 25% by delivery to the Principal Stockholder of that number of Buyer Shares (rounded up to the nearest whole number) determined by dividing the dollar value of the Buyer Shares to be delivered to the Principal Stockholder by the average of the last reported sale prices of the ADS Common Stock on the Nasdaq National Market for the 20 consecutive trading days ending on the trading day immediately preceding the day on which the applicable conditions were satisfied. (f) If during the period commencing on the Closing Date and ending on the Valuation Termination Date, Buyer or any of its Subsidiaries receives a contract from the City of Chicago to operate a MRF currently being operated by a third party in the City of Chicago on terms at least as favorable to the Buyer or such Subsidiary, as the case may be, as those contained in the MRF Contract (other than with respect to the term of such contract), and provided that the MRF Contract is still in effect, Buyer will make the following payments to the Principal Stockholder for the benefit of the former stockholders of Recycling: (i) upon receipt of such contract an amount equal to the product of (A) $1,000,000 and (B) the number of full years in the initial term of such contract; provided, however, that in no event shall the aggregate payment to be made pursuant to clause (i) of this Section 2.2(f) exceed $5,000,000 and (ii) an amount equal to $250,000 for each one-year renewal of such contract obtained (on terms at least as favorable to Buyer as those contained in such contract during the initial term), whether any such renewal occurs prior to or after the Valuation Termination Date (and such adjustment to the Purchase Price shall be allocated as set forth on Exhibit 2.2(a) hereto to the purchase of the stock of Recycling). Any payment required to be made pursuant to clause(i) of this Section 2.2(f) shall be made by Buyer not later than twenty (20) Business Days following the satisfaction of the applicable conditions and shall be payable 75% in cash by wire transfer of immediately available funds to an account or accounts designated by the Principal Stockholder to Buyer in the manner specified herein for delivery of notices and 25% by delivery to the Principal Stockholder of that number of Buyer Shares (rounded up to the nearest whole number) determined by dividing the dollar value of the Buyer Shares to be delivered to the Principal Stockholder by the average of the last reported sale prices of the ADS Common Stock on the Nasdaq National Market for the 20 consecutive trading days ending on the trading day immediately preceding the day on which the applicable conditions were satisfied. Any payment required to be made pursuant to clause (ii) above shall be made by Buyer not later than twenty (20) Business Days following any such renewal and shall be payable in cash by wire transfer of immediately available funds to an account or accounts designated by the Principal Stockholder to Buyer in the manner specified herein for delivery of notices. (g) For each full calendar month during the period commencing on the Closing Date and ending on the Valuation Termination Date, in which the tonnage of municipal solid waste hauled by the Buyer and its Subsidiaries during such month in Illinois on behalf of Browning-Ferris Industries, Inc. exceeds 30,000 tons, Buyer shall remit to the Principal Stockholder for the benefit of the former stockholders of Trucking an amount equal to the product of (i) one dollar ($1) and (ii) the difference between (A) the tonnage actually hauled on behalf of Browning-Ferris Industries, Inc. during such month and (B) 30,000 tons (and such adjustment to the Purchase Price shall be allocated as set forth on Exhibit 2.2(a) hereto to the purchase of the stock of Trucking). Any such payment shall be made by the Buyer not later than ten (10) Business Days following the end of such month, by wire transfer of immediately available funds to an account or accounts designated by the Principal Stockholder to Buyer in the manner specified hereinafter or delivery of notices. (h) For each full calendar month during the period commencing on the Closing Date and ending on the Valuation Termination Date in which the aggregate tonnage of municipal solid waste delivered during such month to Recycling's transfer station located at 43rd Street and Racine in the City of Chicago pursuant to Recycling's Bulk Contract with the City of Chicago annexed hereto as Exhibit 2.2(h)(i) and Recycling's C and D Contract with the City of Chicago annexed hereto as Exhibit 2.2(h)(ii) exceeds 13,000, Buyer shall remit to the Principal Stockholder for the benefit of the former stockholders of Recycling an amount equal to the product of (i) two dollars ($2) and (ii) the difference between (A) the aggregate tonnage of waste actually delivered as provided above during such month and (B)13,000 tons (and such adjustment to the Purchase Price shall be allocated as set forth on Exhibit 2.2(a) hereto to the purchase of the stock of Recycling). Any such payment shall be made by the Buyer not later than ten (10) Business Days following the end of such month, by wire transfer of immediately available funds to an account or accounts designated by the Principal Stockholder to Buyer in the manner specified herein for delivery of notices. (i) The payment to be made pursuant to Section 2.2(b)(i) above shall be increased by an amount equal to the cost of all capital expenditures made by the Operating Companies during the period from April 1, 1997 through the Closing Date (and such adjustment to the Purchase Price shall be allocated as set forth on Exhibit 2.2(a) hereto); provided, however, that in no event shall the increase in the payment to be made pursuant to this Section 2.2(i) exceed $750,000. ARTICLE III CLOSING 3.1 The Closing. The Closing shall take place at 9:00 a.m, local time, on the Closing Date, at the offices of Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive, Chicago, Illinois, or at such other time, date or place as the parties may mutually agree, subject to the satisfaction or waiver of all of the conditions to Closing set forth in Article VIII hereof. 3.2 Obligations of Sellers. At or prior to the Closing, Sellers shall deliver or cause to be delivered to Buyer the following: (a) Certificates representing the Stock, duly endorsed in blank for transfer or accompanied by stock powers duly endorsed in blank. (b) The certificates, legal opinion and other documents required by Section 8.1 hereof. (c) Appropriate receipts. (d) All other documents, instruments and writings required to be delivered by Sellers at or prior to the Closing Date pursuant to this Agreement. 3.3 Obligations of Buyer. At or prior to the Closing, Buyer shall deliver or cause to be delivered to Sellers the following: (a) The initial Purchase Price in the manner provided by Section 2.2(b) of this Agreement. (b) The certificates, legal opinion and other documents required by Section 8.2 hereof. (c) Appropriate receipts. (d) All other documents, instruments and writings, required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDER The Principal Stockholder hereby represents and warrants to Buyer as follows (all such representations and warranties are qualified by the Disclosure Schedule attached to this Agreement as Exhibit 4.0): 4.1 Organization and Qualification. Each of the Operating Companies is a corporation duly organized, validly existing and good standing under the laws of the State of its organization, with corporate power and authority to own, lease and operate its assets and properties and carry on its business as presently owned or conducted. Each of the Operating Companies is licensed or qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which, because of its business conducted there or the nature of its assets or properties there, it would be required to be so licensed or qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. Each such jurisdiction is set forth in Schedule 4.1 of the Disclosure Schedule. The copies of the certificate or articles of incorporation (or other charter or organization documents), including all amendments thereto, and by-laws of each of the Operating Companies delivered to Buyer are complete and accurate copies of such instruments as currently in effect. 4.2 Authority; No Breach. (a) Each of the Sellers has all requisite power and authority to execute and deliver this Agreement and to perform his or her obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of each of the Sellers. This Agreement has been duly executed and delivered by each of the Sellers and constitutes the legal, valid and binding obligation of each of the Sellers, enforceable against such Seller in accordance with its terms except that (i) the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (b) Except as set forth in Schedule 4.2 of the Disclosure Schedule, neither the execution and delivery of this Agreement by any of the Sellers nor the consummation of the transactions contemplated herein, nor the full performance by the Sellers, of their obligations hereunder do or will: (i) violate any provision of the certificate or articles of incorporation (or other charter or organization documents), as the case may be, or by-laws, if applicable, of any of the Operating Companies; (ii) conflict with, result in a breach or violation of, or constitute a default under (or an event which, with or without notice, lapse of time or both, would constitute a default) or result in the invalidity of, or accelerate the performance required by or cause or give rise to any right of acceleration or termination of any right or obligation pursuant to any agreement or contract to which any of the Sellers or the Operating Companies is a party or by which any of them (or any of their respective assets or properties) is subject or bound; (iii) result in the creation of, or with the passage of time result in the creation of, any Encumbrance upon the Stock or any assets or properties of the Operating Companies; (iv) violate any writ, injunction, statute, law, ordinance, rule, regulation, judgment, award, Permit, decree, order, or process of any Governmental Entity; or (v) require any of the Sellers or the Operating Companies to obtain any Consent, except as may be required under the HSR Act, which, in the cases of clauses (ii), (iii), (iv) or (v) above, would have a Material Adverse Effect. 4.3 Securities and Ownership. (a) The total number of shares of capital stock, and the classes and par values thereof, which each of the Operating Companies is authorized to issue, the designation, par value and number of such shares which are issued and outstanding and the identity and number of such outstanding shares owned (of record and beneficially) by each holder thereof are as set forth in Schedule 4.3 of the Disclosure Schedule and no other shares of any other class or series of capital stock are issued and outstanding. (b) None of the Operating Companies has issued any securities in violation of any preemptive or similar rights and there are no outstanding (i) securities convertible into or exchangeable for any shares of capital stock or other securities of any of the Operating Companies; (ii) subscriptions, options, warrants, calls, commitments, preemptive rights or other rights of any kind (absolute, contingent or otherwise) entitling any third party to acquire or otherwise receive from any of the Operating Companies any shares of capital stock or other securities; (iii) contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance of any capital stock of any of the Operating Companies, any such convertible or exchangeable securities, or any such subscriptions, options, warrants or rights. There are no shares of stock or other securities of any of the Operating Companies reserved for issuance for any purpose. (c) The Stock has been duly authorized, validly issued and is fully paid and nonassessable. (d) The Sellers own and upon the consummation of the transactions contemplated hereby Buyer will acquire at the Closing good and valid title to the Stock free and clear of any and all Encumbrances other than any applicable restrictions on the further transfer of the Stock that may be imposed by Federal and state securities laws and Encumbrances arising as a result of any action taken by the Buyer or any Affiliate of the Buyer. (e) None of the Operating Companies owns, directly or indirectly, any economic, voting or other ownership interest in any other Person. 4.4 [Intentionally Omitted] 4.5 Financial Statements. The Financial Statements have been prepared from the books and records of the Operating Companies, and present fairly (i) the combined financial position of the Operating Companies at the dates thereof and (ii) the combined results of operations for the respective periods then ended, in each case in accordance with GAAP. The books and records of the Operating Companies are accurate and complete in all material respects. 4.6 Interests of Related Persons. Except as set forth in Schedule 4.6 of the Disclosure Schedule or as otherwise contemplated by the terms of this Agreement, none of the Sellers nor any officer, director, relative, significant other, or Affiliate of any of the Sellers or the Operating Companies (collectively, the "Related Persons"): (a) owns any interest in any Person which is a competitor, supplier or customer of any of the Operating Companies; (b) owns, in whole or in part, any property, asset or right, used in connection with the business of any of the Operating Companies; (c) has an interest in any contract or agreement pertaining to the business of any of the Operating Companies; or (d) has any contractual arrangements with any of the Operating Companies. 4.7 Absence of Undisclosed Liabilities. Except as set forth in Schedule 4.7 of the Disclosure Schedule, none of the Operating Companies has any direct or indirect material liabilities, losses or obligations of any nature, whether absolute, accrued, contingent or otherwise, that would be required to be reflected on a balance sheet or the notes thereto prepared in accordance with GAAP other than (i) liabilities reflected, accrued or reserved for in the Financial Statements, (ii) liabilities disclosed in the Disclosure Schedule, (iii) liabilities incurred in the ordinary course of business subsequent to the Balance Sheet Date and not inconsistent with past practice, (iv) liabilities or performance obligations arising in the ordinary course of business (and not as a result of a breach or default by any of the Operating Companies) out of or under agreements, contracts, leases, arrangements or commitments to which any of the Operating Companies is a party or (v) liabilities under this Agreement. 4.8 Absence of Certain Changes or Events. Except as set forth in Schedule 4.8 of the Disclosure Schedule or as otherwise provided herein, since the Balance Sheet Date the business of each of the Operating Companies has been conducted only in the ordinary course and consistent with past practice. Except as set forth in Schedule 4.8 of the Disclosure Schedule or as otherwise provided herein, since the Balance Sheet Date none of the Operating Companies has: (a) suffered any material adverse change in the business, results of operations or financial condition of the Operating Companies considered as a single enterprise; (b) suffered any material damage, destruction or casualty loss (whether or not covered by insurance); (c) authorized, declared, set aside or paid any dividend or other distribution other than distributions consistent with past practice; (d) directly or indirectly redeemed, purchased or otherwise acquired any of its shares of capital stock; (e) paid, discharged or satisfied any material claim, liability or obligation other than the payment, discharge or satisfaction of liabilities and obligations incurred in the ordinary course of business and consistent with past practice; (f) canceled any debts or waived any material claims or rights other than in the ordinary course of business; (g) sold, transferred, or otherwise disposed of any of its properties or assets which are material to the Operating Companies considered as a single enterprise, except in the ordinary course of business and consistent with past practice; or (h) agreed, whether in writing or otherwise, to take any action described in this Section 4.8. 4.9 Taxes. (a) Each of the Operating Companies is an S corporation within the meaning of Section 1361 of the Code, the "S" election made by each such company has not been revoked or terminated and none of such companies or any shareholder thereof has taken any action which would cause the termination of such "S" election. Each of the Operating Companies has duly, timely and properly filed when due, all federal, state, local and other Income Tax Returns and all other material Tax Returns required to be filed by it with respect to its sales, income, business or operations (including without limitation any consolidated or combined Tax Returns in which it is included) and, as of the Closing Date, such Tax Returns, as amended prior to the date hereof, will be true, complete and accurate in all material respects. As of the Closing Date, each of the Operating Companies will have duly paid (or made provision for in the Balance Sheet) all Taxes due from them. True and complete copies of all of such Tax Returns for the past three fiscal years have been previously provided to Buyer. (b) All amounts required to be withheld by the Operating Companies from or on behalf of employees for income, social security and unemployment insurance taxes have been collected or withheld and either paid to the appropriate governmental agency or set aside and, to the extent required by law, held in accounts for such purpose. 4.10 Assets. (a) As of the Closing Date, each of the Operating Companies will have good and valid title to all the personal property assets (tangible and intangible) which such company purports to own on the date hereof (in each case other than the Net Cash Balances, Distributed Assets and assets disposed of in the ordinary course of business) free and clear of all Encumbrances (other than Permitted Encumbrances). (b) Schedule 4.10(b) of the Disclosure Schedule contains a complete and correct list of all Real Property to be owned by any of the Operating Companies as of the Closing Date as well as a list of any options to acquire any Real Property held by any of the Operating Companies. As of the Closing Date, the Operating Companies will have good and valid title to all such owned Real Property, free and clear of all Encumbrances (other than Permitted Encumbrances). (c) Schedule 4.10(c) of the Disclosure Schedule contains a complete and correct list of all Real Property leased by any of the Operating Companies. Each of the Operating Companies enjoys peaceful possession of all such property. Sellers have previously delivered to Buyer true, complete and correct copies of all lease documents relating to such property. To the knowledge of the Principal Stockholder, all lease documents are valid, binding and enforceable in accordance with their terms and are in full force and effect. All material work required to be done by any of the Operating Companies as a tenant on such Real Property has been duly performed. No event has occurred which constitutes or, with the passing of time or giving of notice, or both, would constitute, a material default by any of the Operating Companies under any such lease document. (d) No Real Property owned or leased by any of the Operating Companies is subject to any rights of way, building use restrictions, easements, reservations or limitations which would materially restrict any of the Operating Companies or the Buyer from conducting the Business after the Closing. Neither the whole nor any portion of the Real Property, leaseholds or any other assets of any of the Operating Companies is subject to any governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor to the knowledge of the Principal Stockholder, has any such condemnation, expropriation or taking been proposed. (e) Schedule 4.10(e) sets forth with respect to any Real Property which is listed on Schedule 4.10(b) or (c) and is a sanitary landfill, the estimated remaining landfill airspace which has been sited pursuant to applicable local siting procedures under S.B. 172 (which is defined to be available airspace from the bottom of the final cap to the top of the liner) and the estimated remaining landfill airspace for which there is a development permit from the Illinois Environmental Protection Agency, in each case as of the date of this Agreement. (f) Schedule 4.10(f) contains a true and complete list with respect to each of the Operating Companies of: (i) the number and size of containers, stationary compactors and other similar equipment which is owned or leased by the Operating Companies; and (ii) the number of vehicles used in the business of the Operating Companies together with information as to the make, description of body and chassis, model and serial number, and year of each such vehicle. 4.11 Intellectual Property. Schedule 4.11 of the Disclosure Schedule contains an accurate and complete summary of (a) all Intellectual Property owned by any of the Operating Companies and (b) all licenses of Intellectual Property to or from the Operating Companies and contracts or agreements pertaining to such licenses. The Operating Companies' rights in and to such Intellectual Property and licenses are sufficient to permit the Operating Companies to conduct their respective businesses in all material respects as presently conducted. 4.12 [Intentionally Omitted] 4.13 [Intentionally Omitted] 4.14 Contracts. Schedule 4.14 of the Disclosure Schedule lists all contracts, agreements and amendments thereto, to which any of the Operating Companies is a party or by which any of its assets or properties may be bound, which are material to the operation of the businesses of the Operating Companies considered as a single enterprise. To the knowledge of the Principal Stockholder, except as set forth in Section 4.14 of the Disclosure Schedule, (i) each of such material contracts, agreements and understandings is in full force and effect, except where the failure to be in full force and effect would not have a Material Adverse Effect and (ii) there are no existing defaults by any party thereunder, which default would result in a Material Adverse Effect. Accurate and complete copies of each contract and agreement referred to in Schedule 4.14, together with all amendments thereto, have been heretofore made available to Buyer for review. 4.15 Customers and Suppliers. Except as set forth on Schedule 4.15 of the Disclosure Schedule: (i) To the knowledge of the Principal Stockholder, the business relationship of the Operating Companies with each material customer or supplier is a good commercial working relationship and no material customer or supplier has canceled or otherwise terminated such relationship. (ii) None of the Operating Companies is engaged in any material disputes with any material customers or suppliers and the Principal Stockholder does not know of any facts which lead him to conclude that any material customer or supplier intends to discontinue or otherwise materially modify its relationship with the Operating Companies after the Closing Date. 4.16 Insurance. Schedule 4.16 of the Disclosure Schedule contains a true and complete list of all insurance policies covering any of the Operating Companies or otherwise held by or on behalf of them, or any aspect of their assets or business, indicating the type of coverage, name of insured, the insurer, the amount of coverage, the deductibles, the premium and the expiration date thereof and the aggregate amounts paid thereunder. Schedule 4.16 of the Disclosure Schedule contains a list of any pending claims under any of the foregoing. The Principal Stockholder knows of no reason why any of such insurance policies would be terminated, suspended, modified or amended, or not renewed on substantially identical terms (including without limitation premium costs), or would require alteration of any equipment or any improvements to Real Property occupied by or leased to or by the Operating Companies, or the purchase of additional equipment, or the modification of any of the methods of doing business. 4.17 Litigation, Etc. Except as set forth on Schedule 4.17 of the Disclosure Schedule, there has not been in the twenty-four months prior to the date hereof, nor is there as of the date hereof, any claim, action, suit, proceeding or investigation of any kind or nature whatsoever, by or before any court or governmental or other regulatory or administrative agency or commission or tribunal pending or, to the knowledge of the Principal Stockholder, threatened against the Operating Companies or their business, Properties, officers or directors, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the Sellers pursuant to this Agreement or in connection with the transactions contemplated hereby which would have a Material Adverse Effect or a material adverse effect on the Sellers' ability to consummate the transactions contemplated hereby. None of the Operating Companies is subject to any judgment, order or decree which may have a Material Adverse Effect that has not been satisfied or complied with. 4.18 Compliance with Law; Necessary Authorizations. Except as set forth on Schedule 4.18 of the Disclosure Schedule, each of the Operating Companies is in compliance in respect of its business, operations and properties, with all applicable laws, rules, regulations, orders, building and other codes, zoning and other ordinances, Permits, authorizations, judgments and decrees of all Governmental Entities, except where the failure to be in such compliance would not be reasonably likely to have a Material Adverse Effect. 4.19 Environmental Matters. Except as set forth on Schedule 4.19 of the Disclosure Schedule, all of the operations of the Operating Companies are in compliance with all applicable Environmental Laws except where the failure to be in such compliance would not be reasonably likely to have a Material Adverse Effect and none of the Operating Companies is subject to any Environmental Liabilities which would be reasonably likely to have a Material Adverse Effect. (a) None of the Operating Companies has in the past engaged in activities that (i) were in violation of any Environmental Law and (ii) after the Closing Date, would be reasonably likely to have a Material Adverse Effect; (b) There is no pending or, to the knowledge of the Principal Stockholder, threatened claim, lawsuit or administrative proceeding against the Operating Companies under any Environmental Law which would be reasonably likely to have a Material Adverse Effect. None of the Operating Companies has received written notice from any person, including but not limited to any federal, state, or local governmental agency, alleging that the Operating Companies are in violation of any applicable Environmental Law or otherwise may be liable under any applicable Environmental Law, which violation or liability would be reasonably likely to have a Material Adverse Effect; (c) There have been no Releases, spills or discharges of Hazardous Substances on or underneath any of the Real Property that would be reasonably likely to have a Material Adverse Effect. For purposes of this subsection, the term "Releases" shall have the meaning given to it in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and the Resource Conservation Recovery Act, as amended. 4.20 Labor Difficulties. To the knowledge of the Principal Stockholder, except to the extent set forth in Schedule 4.20 of the Disclosure Schedule: (a) there is no labor strike, or dispute, grievance, arbitration proceeding, slowdown or stoppage, or charge of unfair labor practice actually pending, threatened against or affecting the Operating Companies; (b) none of the Operating Companies has, during the twelve (12) month period prior to the date hereof, experienced any work stoppage or other labor dispute including, without limitation, the filing of an unfair labor practice complaint with the National Labor Relations Board or any other Governmental Entity against it; (c) there are no charges or complaints of discrimination pending before the Equal Employment Opportunity Commission or any state or local agency with respect to the Operating Companies; (d) no union or collective bargaining agreement which is binding on the Operating Companies restricts it from relocating or closing any of its operations; and (e) no unions or other collective bargaining units have been certified or recognized by the Operating Companies as representing any of its employees and there are no existing union organizing efforts or representation questions with respect to any of the employees of the Operating Companies. 4.21 Employee Benefit Plans. Except as set forth in Schedule 4.21 of the Disclosure Schedule, there are no Employee Benefit Plans maintained or sponsored by the Operating Companies applicable to employees or former employees of the Operating Companies or with respect to which any of the Operating Companies has any liability. Accurate and complete copies of each written Employee Benefit Plan and an accurate summary of each material oral Employee Benefit Plan have been heretofore made available to Buyer. None of the Operating Companies has any formal commitment to create any additional Plan or arrangement that would affect any employee or former employee of the Operating Companies. (a) Included in Schedule 4.21 of the Disclosure Schedule is a list of each Pension Plan maintained by or on behalf of the Operating Companies. No Pension Plan is a "multiemployer pension plan" within the meaning of Section 3(37) of ERISA. Neither the Operating Companies, nor any of the ERISA Plans, has engaged in a "prohibited transaction," within the meaning of (i) Section 4975 of the Code, or (ii) Section 406 of ERISA, with respect to any Pension Plan which might subject any such plan or related trust, or any trustee or administrator thereof, or the Operating Companies to a material tax or penalty imposed by Section 4975 of the Code or to a material civil penalty imposed by Section 502 of ERISA. Except as set forth in Schedule 4.21 of the Disclosure Schedule, each of the Pension Plans has been operated and administered in all material respects in accordance with the applicable provisions of ERISA and the Code. Except as set forth in Schedule 4.21 of the Disclosure Schedule, none of the Pension Plans subject to Title IV of ERISA has, since September 2, 1974, been completely or partially terminated, nor has there been any "reportable event," as such term is defined in Section 4043(b) of ERISA, with respect to any such plan since the effective date of said Section 4043(b). None of the Pension Plans or related trusts incurred any "accumulated funding deficiency," as such term is defined in Section 412 of the Code, whether or not waived, since the effective date of said Section 412. (b) Included in Schedule 4.21 of the Disclosure Schedule is a list of all material "employee welfare benefit plans," within the meaning of Section 3(1) of ERISA, whether or not insured, maintained by or on behalf of the Operating Companies ("Welfare Plans"). Except as set forth in Schedule 4.21 of the Disclosure Schedule, each Welfare Plan is and has been in material compliance with the applicable provisions of ERISA and the Code. Except as set forth on Schedule 4.21 of the Disclosure Schedule or otherwise required by applicable law, none of the Operating Companies participate in or make contributions to any Welfare Plan that provides post-employment or post- retirement benefits to retired or former employees of the Operating Companies. Each of the Operating Companies has complied in all material respects with all of its obligations, including without limitation the making of all required contributions, under each of the Welfare Plans. (c) Except as set forth in Schedule 4.21 of the Disclosure Schedule, there is no Pension Plan or Welfare Plan maintained in connection with any trust described in Section 501(c)(9) of the Code. 4.22 [Intentionally Omitted] 4.23 Questionable Payments. None of the Operating Companies, or any director, officer, agent, employee, or any other Person acting on behalf of the Operating Companies, or any of the Sellers has, directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses; made any unlawful payment to government officials or employees or to political parties or campaigns; established or maintained any unlawful fund of corporate monies or other assets; made or received any bribe, or any unlawful rebate, payoff, influence payment, kickback or other unlawful payment to any governmental or non-governmental Person. 4.24 Finders. Neither Sellers nor the Operating Companies nor any of their respective directors or officers, has taken any action that, directly or indirectly, would obligate Buyer or, after the Closing Date, the Operating Companies, to anyone acting as broker, finder, financial advisor or in any similar capacity in connection with this Agreement or any of the transactions contemplated hereby. 4.25 Disclosure. No representation or warranty by Sellers in this Agreement, in any documents or papers furnished to Buyer or its representatives by or on behalf of any of the Sellers pursuant to this Agreement or any statement contained in the Disclosure Schedule or any certificates delivered hereunder contains or will contain any untrue statement of material fact or omits or will omit to state a material fact necessary to make the statements in this Agreement or therein in light of the circumstances under which they were made, not misleading, other than untrue statements and omissions which would not have a Material Adverse Effect. All copies of contracts, agreements and other documents made available to Buyer or any of its representatives pursuant hereto are true and complete. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants as follows: 5.1 Organization and Qualification. Buyer is a corporation duly organized, validly existing and in good standing in its jurisdiction of incorporation. 5.2 Authority. Buyer has all requisite corporate power and authority to execute and deliver this Agreement and the other Transaction Documents to be executed and delivered by Buyer at the Closing and to perform, carry out and consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the other Transaction Documents have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes, and each of the other Transaction Documents when duly executed and delivered by Buyer at the Closing, will constitute, the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. 5.3 Capital Stock. The authorized capital stock of Buyer consists of 20,000,000 shares of Common Stock, par value $.01 per share, of which 14,375,339 shares are issued and outstanding as of the date hereof, and 5,000,000 shares of Preferred Stock, par value $.01 per share, of which no shares are issued and outstanding as of the date hereof. 5.4 No Breach. Neither the execution and delivery of this Agreement and the other Transaction Documents by Buyer nor the consummation of the transactions contemplated herein and therein and the full performance by Buyer of its obligations hereunder and thereunder do or will: (i) violate any provision of the certificate of incorporation or by-laws of Buyer; (ii) conflict with, violate, result in a breach of or constitute a default under any writ, injunction, statute, law, ordinance, rule, regulation, judgment, award, decree, order, or process of any Governmental Entity; (iii) require Buyer to obtain any Consent, except as may be required under the HSR Act. 5.5 Finders. Neither Buyer nor any of its directors or officers, has taken any action that, directly or indirectly, would obligate any of the Sellers to pay a fee to anyone acting as a broker, finder, financial advisor or in any similar capacity in connection with this Agreement or any of the transactions contemplated hereby. 5.6 Investment Purpose. Buyer is acquiring the Stock for investment only and not with a view to resale in connection with any distribution of the Stock, except in compliance with the Securities Act, and all other applicable securities laws. 5.7 No Knowledge of Breach. As of the date hereof, the Buyer has no knowledge of any material breach of any of the representations and warranties of the Principal Stockholder contained herein. 5.8 SEC Reports and Financial Statements. (a) Since December 31, 1996, Buyer has filed all required forms, reports and documents with the SEC required to be filed by it pursuant to the Securities Act and the Exchange Act, all of which have complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act. Buyer has made available to the Sellers copies of all such forms, reports and documents (hereinafter collectively referred to as the "Buyer Reports"). None of the Buyer Reports, including, without limitation, any financial statements or schedules included therein, as of the time filed, contained any untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent information contained in any of the Buyer Reports, including without limitation any financial statements or schedules included therein, has been revised, corrected or superseded by a later- filed form, report or document, none of the Buyer Reports, including, without limitation, any financial statements or schedules included therein, presently contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and changes in financial position (including the related notes thereto) of Buyer included in the financial statements contained in Buyer's Annual Report on Form 10-K for the year ended December 31, 1996 and in Buyer's Quarterly Report on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, present fairly the consolidated financial position of Buyer as of their respective dates, and the consolidated results of operations and changes in consolidated financial position for the period then ended, all in conformity with generally accepted accounting principles applied on a consistent basis, subject in the case of unaudited interim financial statements to normal year-end audit adjustments. 5.9 Absence of Certain Changes. Since June 30, 1997 and through the date hereof (a) the business of Buyer has been conducted only in the ordinary course and consistent with past practice in all material respects and (b) there has been no material adverse change in the financial condition, results of operations, or business of Buyer and its Subsidiaries considered as a single enterprise. 5.10 ADS Common Stock Issuable to the Sellers. The Buyer Shares, when delivered as herein provided, will be validly issued, fully paid and nonassessable, and will not be subject to preemptive rights. The Buyer Shares shall be of a class registered under the Exchange Act, shall have been issued pursuant to an effective Registration Statement under the Securities Act and, at the time of their issuance, duly included for quotation on the Nasdaq National Market System. ARTICLE VI COVENANTS 6.1 Conduct of Business of the Operating Companies. Sellers covenant that from the date hereof and until the Closing Date, except as contemplated by this Agreement, as disclosed in the Disclosure Schedule or expressly consented to by an instrument in writing signed by Buyer, the Sellers will cause each of the Operating Companies to: (i) conduct its business and operations only in the ordinary course, consistent with past practice, and (ii) not declare or pay any dividend or make any distribution in respect of its capital other than distributions consistent with past practice. 6.2 Company Records. (a) Prior to the Closing Date, during normal business hours and with reasonable advance notice to the Principal Stockholder and without material disruption to the business and operations of any of the Operating Companies, the Principal Stockholder shall cause the Operating Companies to afford Buyer, its attorneys, accountants and representatives, reasonable access to the Operating Companies and their business, books, records and employees, and shall provide to and cause the Operating Companies to provide to Buyer and its representatives such additional financial and operating data and other information as the Buyer shall from time to time reasonably request. (b) Except as otherwise provided in Section 6.12, the Principal Stockholder and the Buyer agree that from the date hereof and until such time as the statute of limitations with respect to all tax matters which are the subject of Section 6.12 has expired, during normal business hours, each such party will permit, at no charge, cost or expense to such party and without disruption of such party's business, the other party and his or its respective auditors and other representatives to have reasonable access to the properties, auditors and officers of the Operating Companies and to all books and records relating to the Operating Companies and to examine and take copies thereof. Each such party agrees not to destroy at any time any files or records which are subject to this Section 6.2(b) without giving reasonable notice to the other party, and within 30 days of receipt of such notice, such other party may cause to be delivered to him or it the records intended to be destroyed, at such other party's expense. 6.3 Filings and Authorizations. Each of the Sellers and Buyer, as promptly as practicable, (i) shall make, or cause to be made, all such filings and submissions under laws, rules and regulations applicable to it or its Affiliates, as may be required to consummate the transfer of the Stock in accordance with the terms of this Agreement, and (ii) shall use all commercially reasonable efforts to obtain, or cause to be obtained, all Consents from all governmental and non-governmental Persons necessary to be obtained by it or its Affiliates, in order to consummate such transfer. The Operating Companies, Sellers and Buyer shall coordinate and cooperate with one another in exchanging such information and supplying such reasonable assistance as may be reasonably requested by each in connection with the foregoing. 6.4 Publicity. From the date hereof to the Closing Date, neither Sellers nor Buyer shall issue or make, or cause, or in the case of Sellers permit any of the Operating Companies to have issued or made, the publication or dissemination of any press release or other announcement to divulge the existence of this Agreement or with respect to the transactions contemplated hereby except (i) as required by law or (ii) after consultation with and prior approval of the other parties hereto, which approval shall not be unreasonably withheld. 6.5 Distribution of Net Cash Balances and Distributed Assets to Sellers. (a) Prior to the Closing, the Operating Companies shall distribute to the Sellers all of the Net Cash Balances as of the close of business on the day immediately prior to the Closing. "Net Cash Balances" shall mean all of the cash of the Operating Companies less the sum of (i) the then aggregate amount of customer prepayments and (ii) the amount, if any, by which the then aggregate accounts payable of the Operating Companies exceed the then aggregate accounts receivable of the Operating Companies, in each case as of the close of business on the day immediately prior to the Closing. Prior to the Closing, the Operating Companies shall distribute to the Sellers those assets of the Operating Companies set forth in Schedule 6.5(a) of the Disclosure Schedule (the "Distributed Assets"). (b) As soon as practicable, but in no event later than 90 days following the Closing Date, the Principal Stockholder shall prepare and deliver to the Buyer a Statement of Net Cash Balances of the Operating Companies as of the close of business on the day immediately prior to the Closing (the "Closing Date Statement") together with the workpapers used in the preparation thereof. The Buyer shall have 10 days to review the Closing Date Statement after receipt thereof. Unless the Buyer delivers written notice to the Principal Stockholder on or prior to the 10th day after the Buyer's receipt of the Closing Date Statement of the Buyer's objection to the Closing Date Statement and specifying in reasonable detail all disputed items and the basis therefor, the Buyer shall be deemed to have accepted and agreed to the Closing Date Statement. If the Buyer so notifies the Principal Stockholder of its objection to the Closing Date Statement, the Buyer and the Principal Stockholder shall, within 30 days following such notice (the "Resolution Period"), attempt to resolve their differences and any resolution by them as to any disputed amounts shall be final, binding and conclusive. If following resolution of any disputed amount there do not remain in dispute amounts the aggregate net effect of which exceeds $250,000, then all amounts remaining in dispute shall be deemed to have been resolved in favor of the Closing Date Statement delivered by the Principal Stockholder to the Buyer. (c) If, at the conclusion of the Resolution Period, the aggregate net effect of all amounts remaining in dispute exceeds $250,000, then all amounts remaining in dispute shall be submitted to Arthur Andersen LLP (the "Neutral Auditors"). All fees and expenses relating to the work, if any, to be performed by the Neutral Auditors shall be borne equally by the Principal Stockholder and the Buyer. The Neutral Auditors shall act as an arbitrator to determine, based solely on presentations by the Principal Stockholder and the Buyer, and not by independent review, only those issues still in dispute. The Neutral Auditors' determination shall be made within 30 days of their selection, whether or not such presentations by the Principal Stockholder and the Buyer have been made within such period, and shall be set forth in a written statement delivered to the Principal Stockholder and the Buyer and shall be final, binding and conclusive. The term "Adjusted Closing Date Statement," as hereinafter used, shall mean the definitive Closing Date Statement agreed to by the Principal Stockholder and the Buyer in accordance with Section 6.5(b) or the definitive Closing Date Statement resulting from the determinations made by the Neutral Auditors in accordance with this Section 6.5(c) (in addition to those items theretofore agreed to by the Principal Stockholder and the Buyer). (d) Net Cash Balances shall be increased or decreased, as the case may be, dollar for dollar, to the extent the Net Cash Balances reflected in the Adjusted Closing Date Statement is greater than or less than, respectively, the Net Cash Balances distributed to the Sellers prior to the Closing. The amount of any increase to or reduction of Net Cash Balances pursuant to this Section 6.5 shall be paid by wire transfer in immediately available funds to the account specified by the Principal Stockholder or the Buyer, as the case may be, within five business days after the Adjusted Closing Date Statement is agreed to or any remaining disputed items are ultimately determined by the Neutral Auditors. 6.6 Discussions with Others. From the date hereof until the Closing Date Sellers will not and will not permit the Operating Companies, nor shall the Sellers authorize or knowingly permit any officer, director, employee or representative of Sellers or the Operating Companies, to solicit or enter into negotiations with any party, other than Buyer, with regard to a purchase and sale of any portion of the capital stock of the Operating Companies, any material portion of the assets of the Operating Companies or any merger or consolidation of the Operating Companies with any third party. 6.7 Supplements to Disclosure Schedule. From time to time prior to the Closing, the Principal Stockholder and Buyer will promptly supplement or amend the sections of the Disclosure Schedule relating to their respective representations and warranties in this Agreement with respect to any matter, condition or occurrence hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in their respective sections of the Disclosure Schedule. Except with respect to a supplement or amendment not objected to in writing by the other party within five business days after receipt thereof, no supplement or amendment by either party shall have any effect for the purpose of (i) determining satisfaction by Sellers of the conditions set forth in Sections 8.1(a) and 8.2(b) hereof or the compliance by Sellers with the covenant set forth in Section 6.1 hereof or (ii) determining satisfaction by Buyer of the conditions set forth in Sections 8.2(a) and 8.2(b) hereof. 6.8 Covenant to Satisfy Conditions. Each party agrees to use all reasonable efforts to ensure that the conditions set forth in Article VIII hereof are satisfied, insofar as such matters are within the control of such party. 6.9 Further Assurances. The parties hereto shall from time to time after the Closing Date execute and deliver such additional instruments and documents, as any party hereto may reasonably request to consummate the transfers and other transactions contemplated hereby. 6.10 Delivery of Periodic Reports. From and after the date hereof and prior to the Closing Date, Buyer shall deliver to the Sellers, copies of all registration statements and regular periodic reports, if any, which Buyer shall file with the Securities and Exchange Commission. 6.11 Nasdaq. Buyer shall use its best efforts to have the Buyer Shares authorized for inclusion on the Nasdaq National Market System, upon official notice of issuance, as promptly as practicable. 6.12 Tax Matters. (a) Liability of the Sellers for Taxable Periods Ending on or Before Closing Date. The Principal Stockholder shall be liable for, and shall indemnify, defend, and hold the Buyer and its Affiliates harmless against, any and all Taxes of, or payable by, the Operating Companies for any taxable year or taxable period ending on or before the Closing Date, including, but not limited to, the Illinois Replacement Tax and any other income or franchise Tax imposed with respect to the built-in gain in the assets of the Operating Companies as of the Closing Date, whether such Tax is imposed (with respect to the taxable year that includes the Closing Date or, on account of any payments pursuant to Sections 2.2(c) through (i). The Sellers shall timely file or cause to be filed all Tax Returns relating to the Operating Companies for any taxable year ending on or before the Closing Date. The Sellers shall determine the amount of taxable income of the Operating Companies on the basis of its permanent records and consistent with the past income tax accounting methods utilized in preparing its prior income tax returns, except as otherwise required by law. (b) Liability of the Buyer and the Sellers for Taxable Periods Commencing Before and Ending After the Closing Date. The Buyer shall cause each Operating Company to pay all Taxes due from such Operating Company for any taxable year or taxable period commencing before and ending after the Closing Date (the "Split Tax Period"). Upon timely notice from the Buyer, the Sellers shall pay to such Operating Company prior to the due date for such Taxes an amount equal to the amount of such Taxes that have not been paid as of the Closing Date and would have been due from such Operating Company if the Split Tax Period had ended on the Closing Date. (c) Liability of the Buyer for Taxable Periods Commencing After Closing Date. The Buyer and the Operating Companies shall be liable for, and shall indemnify and hold the Sellers and any of their respective Affiliates harmless against, (i) any and all Taxes of, or payable by, the Operating Companies for any taxable year or taxable period commencing after the Closing Date and (ii) any Taxes relating to operations, acts or omissions of the Buyer or the Operating Companies that occur after the Closing on the Closing Date. (d) Refunds or Credits. Any refunds or credits attributable to Taxes for which the Sellers are liable pursuant to Section 6.12(a) or (b) shall be solely for the account of the Sellers, and, to the extent that such refunds or credits are attributable to Taxes for which the Buyer is liable pursuant to Section 6.12(b) or (c), such refunds or credits shall be solely for the account of the Buyer. The Buyer shall cause the Operating Companies promptly to forward to the Sellers or to reimburse the Sellers for any such refunds or credits due the Sellers after receipt thereof by either the Buyer or the Operating Companies, and the Sellers shall promptly forward to the Operating Companies or reimburse the Operating Companies for any refunds or credits due the Operating Companies after receipt thereof by the Sellers of such refunds or credits that are for the account of the Operating Companies hereunder. (e) Mutual Cooperation. As soon as practicable, but in any event within 30 days after the Sellers' or the Buyer's request, as the case may be, the Buyer shall or shall cause the Operating Companies to deliver to the Sellers, or the Sellers shall deliver to the Buyer, such information and other data in the possession of the Sellers, the Buyer or the Operating Companies, as the case may be, relating to the Tax Returns and Taxes of, or with respect to, the Operating Companies, including such information and other data customarily required by the Sellers or the Buyer, as the case may be, to cause the payment of all Taxes or to permit the preparation of any Tax Returns for which it has responsibility or liability or to respond to audits by any taxing authorities with respect to any Tax Returns or Taxes for which it has any responsibility or liability under this Agreement or otherwise or to otherwise enable the Sellers or the Buyer, as the case may be, to satisfy its accounting or Tax requirements. For a period of seven years after the Closing, and, if at the expiration thereof any Tax audit or judicial proceeding is in progress or the applicable statute of limitations has been extended, for such longer period as such audit or judicial proceeding is in progress or such statutory period is extended, each party shall maintain and make available to the other, on reasonable request, copies of any and all information, books and records referred to in this Section 6.12(e). After such period, any party may dispose of such information, books and records, provided that prior to such disposition such party shall give the other a reasonable opportunity to take possession of such information, books and records. (f) Contests. Whenever any taxing authority asserts a claim, makes an assessment or otherwise disputes or affects the Tax reporting position of the Operating Companies for periods ending on or prior to the Closing Date or the amount of Taxes for which the Sellers are or may be liable under this Agreement, the Buyer shall, promptly upon receipt by the Buyer or the Operating Companies of notice thereof, inform the Sellers, and the Sellers shall have the right to control any resulting proceedings and to determine whether and when to settle any such claim, assessment or dispute, but only to the extent such proceedings or determinations affect the Tax reporting position of the Operating Companies for periods ending on or prior to the Closing Date or the amount of Taxes for which the Sellers are liable under this Agreement, and not in a manner that binds the Operating Companies' Tax reporting position for taxable periods following the Closing Date, without the consent of the Buyer, which shall not be unreasonably withheld. Whenever any taxing authority asserts a claim, makes an assessment or otherwise disputes the amount of Taxes for which the Buyer is liable under this Agreement, the Sellers shall, promptly upon receiving notice thereof, inform the Buyer. The Buyer shall have the right to control any resulting proceedings and to determine whether and when to settle any such claim, assessment or dispute; provided that neither the Sellers nor the Buyer or any of its Affiliates shall take any position on any Tax Return or in any contest or proceedings that is inconsistent with this Agreement. (g) Section 338(h)(10) Elections and Forms. (i) With respect to the Buyer's acquisition of the Stock hereunder, the Buyer and the Sellers shall jointly make all available Section 338(h)(10) Elections with respect to the Operating Companies in accordance with applicable tax laws on a timely basis and as set forth herein. The Buyer and the Sellers will supply in advance to one another copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) to be sent or made by the Buyer and the Sellers or their respective representatives to or with the Internal Revenue Service relating to any Section 338(h)(10) Elections. The Buyer and the Sellers agree to report the transfers under this Agreement consistent with any Section 338(h)(10) Elections, and shall take no position contrary thereto unless required to do so by applicable tax laws pursuant to a "determination" (as described in Section 1313 of the Code). (ii) The Buyer shall be responsible for the preparation and filing of all Section 338 Forms in accordance with applicable tax laws and the terms of this Agreement, and the Buyer shall deliver such forms and related documents to the Sellers at least forty (40) days prior to the date such Section 338 Forms are required to be filed under applicable tax laws. The Sellers shall execute and deliver to the Buyer such documents or forms as are reasonably requested by the Buyer and are required by any tax laws to properly complete the Section 338 Forms, no more than twenty (20) days after the date such documents or forms are requested by the Buyer. (iii) The Buyer and the Sellers will allocate the "Modified Agreement Deemed Sale Price," as computed under applicable Treasury Regulations (or similar state law provisions), among the assets of the Operating Companies for tax purposes in accordance with the intended allocations set forth in Schedule 6.12 hereto. ARTICLE VII [INTENTIONALLY OMITTED] ARTICLE VIII CONDITIONS TO CLOSING 8.1 Conditions Precedent to Obligations of Buyer. The obligation of Buyer under this Agreement to consummate the purchase of the Stock on the Closing Date shall be subject to the satisfaction, at or prior to the Closing Date, of all of the following conditions, any one or more of which may be waived by Buyer: (a) Representations and Warranties Accurate. The representations and warranties of the Sellers contained in this Agreement shall be true and correct in all material respects on the Closing Date with the same force and effect as though made on and as of the Closing Date, except for changes permitted or contemplated by the terms of this Agreement. (b) Performance by Sellers. Each of the Sellers shall have performed and complied in all material respects with all covenants and agreements required to be performed or complied with by such parties hereunder on or prior to the Closing Date. (c) [Intentionally Omitted] (d) Consents. All Consents required in connection with the purchase and sale of the Stock and the consummation of the Closing (including those set forth on Exhibit 8.1(d) hereto) shall have been duly obtained, made or given and shall be in full force and effect, without the imposition upon Buyer, or any of the Operating Companies, of any material condition, restriction or required undertaking. (e) No Legal Prohibition. No suit, action, investigation, inquiry or other proceeding by any Governmental Entity or other Person shall have been instituted or threatened which arises out of or relates to this Agreement or the transactions contemplated hereby and no injunction, order, decree or judgment shall have been issued and be in effect or threatened to be issued by any Governmental Entity of competent jurisdiction, and no statute, rule or regulation shall have been enacted or promulgated by any Governmental Entity and be in effect, which in each case restrains or prohibits the consummation of the purchase and sale of the Stock. (f) Certificate. Buyer shall have received a certificate, dated the Closing Date, signed by the Principal Stockholder, to the effect that the conditions set forth in Sections 8.1(a) and 8.1(b) have been satisfied. (g) Opinion of Counsel for Sellers. Buyer shall have received an opinion, dated the Closing Date, from Skadden, Arps, Slate, Meagher & Flom (Illinois), special counsel to the Principal Stockholder, in form reasonably acceptable to Buyer. (h) HSR Act. The required waiting period under the HSR Act shall have expired or been earlier terminated. (i) Repayment of Indebtedness. All indebtedness of the Operating Companies (other than trade accounts payable incurred in the ordinary course of business and equipment leases) shall have been repaid in full and evidence of such repayment, reasonably satisfactory to Buyer, shall have been delivered to Buyer. (j) Small Business Set Asides None of the customer accounts of any of the Operating Companies shall have been designated by the appropriate Governmental Entity as "small business set-aside" contracts. (k) Material Adverse Change. No material adverse change shall have occurred in the business of the Operating Companies and no other event, loss, damage, condition or state of facts of any character shall exist which has a Material Adverse Effect. (l) [Intentionally Omitted] (m) Resale Agreement. Sellers shall have executed and delivered to Buyer the Resale Agreement in substantially the form annexed hereto as Exhibit 8.1(m) (the "Resale Agreement"). (n) Non-Competition Agreement. The Principal Stockholder shall have executed and delivered to Buyer the Non- Competition Agreement in substantially the form annexed hereto as Exhibit 8.1(n) (the "Non-Competition Agreement"). (o) Employment Agreements. The persons set forth on Exhibit 8.1(o) shall have each executed and delivered the Employment Agreement in substantially the form set forth on Exhibit 8.1(o) (collectively, the "Employment Agreements"). (p) Barbara Agreement. The Principal Stockholder shall have executed and delivered the Barbara Agreement in substantially the form annexed hereto as Exhibit 8.1(p) (the "Barbara Agreement"). (q) Facility Lease. The Principal Stockholder shall have executed and delivered the lease for the premises located in Chicago, Illinois in substantially the form annexed hereto as Exhibit 8.1(q) (the "Facility Lease"). (r) Additional Documents, Etc. Sellers shall have delivered to Buyer such other documents, instruments and certificates as shall be reasonably requested by Buyer or Buyer's counsel for the purpose of effecting the transactions provided for and contemplated by this Agreement. 8.2 Conditions Precedent To Obligations Of Sellers. The obligations of the Sellers under this Agreement to consummate the sale of the Stock on the Closing Date shall be subject to the satisfaction, at or prior to the Closing Date, of all of the following conditions, any one or more of which may be waived by Sellers: (a) Representations and Warranties Accurate. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on the Closing Date with the same force and effect as though made on and as of the Closing Date. (b) Performance by Buyer. Buyer shall have performed and complied in all material respect with all covenants and agreements required to be performed or complied with by the Buyer hereunder on or prior to the Closing Date. (c) Consents. All Consents required in connection with the purchase and sale of the Stock and the consummation of the Closing shall have been duly obtained, made or given and shall be in full force and effect, without the imposition upon the Sellers of any material condition, restriction or required undertaking. (d) No Legal Prohibition. No suit, action, investigation, inquiry or other proceeding by any Governmental Entity or other Person shall have been instituted or threatened which arises out of or relates to this Agreement, or the transactions contemplated hereby and no injunction, order, decree or judgment shall have been issued and be in effect or threatened to be issued by any Governmental Entity of competent jurisdiction, and no statute, rule or regulation shall have been enacted or promulgated by any Governmental Entity and be in effect, which in each case restrains or prohibits the consummation of the purchase and sale of the Stock. (e) Certificate. The Sellers shall have received a certificate, dated the Closing Date, signed on behalf of Buyer by a principal corporate officer of Buyer, to the effect that the conditions set forth in Sections 8.2(a) and 8.2(b) have been satisfied. (f) Opinion of Counsel for Buyer. The Sellers shall have received an opinion from Proskauer Rose LLP, special counsel to the Buyer, dated the Closing Date, in form reasonably acceptable to Sellers. (g) HSR Act. The required waiting period under the HSR Act shall have expired or been earlier terminated. (h) Material Adverse Change. No material adverse change shall have occurred in the business of the Buyer and no other event, loss, damage, condition or state of facts of any character shall exist which has a material adverse effect on the business, results of operations or financial condition of Buyer and its Subsidiaries considered as a single enterprise. (i) Nasdaq The Buyer Shares to be delivered to the Sellers at the Closing shall have been authorized for inclusion on the Nasdaq National Market System, upon official notice of issuance. (j) [Intentionally Omitted] (k) Effective Registration Statement. The issuance of the Buyer Shares pursuant to Section 2.2(a) above shall have been effected pursuant to an effective Registration Statement under the Securities Act. (l) Employment Agreements. Buyer shall have executed and delivered the Employment Agreements. (m) Barbara Agreement. The Barbara Agreement shall have been executed and delivered by the parties thereto. (n) Facility Lease. The Principal Stockholder shall have executed and delivered the Facility Lease. (o) Additional Documents, Etc. Buyer shall have delivered to Sellers such other documents, instruments and certificates as shall be reasonably requested by Sellers or Sellers' counsel for the purpose of effecting the transactions provided for and contemplated by this Agreement. ARTICLE IX INDEMNIFICATION 9.1 Survival of Representations and Warranties. All representations and warranties contained in Articles IV and V shall survive the Closing and shall remain in full force and effect through the last day of the 18th calendar month following the calendar month in which the Closing Date occurred; provided, however, that the representations and warranties contained in Sections 4.3(c), 4.3(d) and 5.10 shall remain in full force and effect indefinitely and the representations and warranties contained in Section 4.9 shall remain in full force and effect until the expiration of the applicable statute of limitations. 9.2 Indemnification by Sellers. Subject to the limits set forth in this Article IX, from and after the Closing, Sellers shall jointly and severally indemnify and save Buyer, its Affiliates and their respective directors, officers and agents, (collectively "Buyer Claimants" and individually "Buyer Claimant") harmless from and defend each of them from and against any and all demands, claims, actions, liabilities, losses, costs, damages or reasonable expenses whatsoever (including without limitation reasonable attorneys' fees and expenses) (collectively, "Claims") incurred by the Buyer Claimants resulting from or arising out of (i) any inaccuracy or breach of any representation or warranty of the Principal Stockholder contained herein; and (ii) any breach of any covenant or obligation of Sellers contained herein; provided, however, that if the Closing occurs, all written amendments or supplements to the Disclosure Schedule made prior to the Closing shall be deemed to have been made a part of the Disclosure Schedule as of the date hereof. Notwithstanding anything contained herein to the contrary, (a) Sellers shall not be required to indemnify a Buyer Claimant hereunder unless the aggregate cumulative sum of all amounts for which indemnity would otherwise be due hereunder to any and all Buyer Claimants exceeds $250,000, in which case Sellers shall only be responsible for the excess; (b) the aggregate liability of the Sellers under this Article IX shall not exceed an amount equal to $6,000,000; (c) any indemnification liability arising hereunder shall be limited to the amount of actual damages sustained by any Buyer Claimant by reason of such breach, net of any insurance proceeds with respect thereto payable to or for the benefit of the Buyer Claimant; and (d) Buyer Claimants' indemnification for any Claims pursuant to this Section 9.2 shall be calculated net of any net (giving effect to the payment of any additional taxes that may be incurred by Buyer Claimants from the treatment of such indemnification payments as taxable income or gain to Buyer Claimants) tax benefit to Buyer Claimants (utilized by Buyer Claimants against income of Buyer Claimants in the year that Buyer Claimants deducts such liability, loss, claim, cost or expense in its income tax returns, regardless of whether Buyer Claimants receives any tax benefits in any other year by reason of any net operating loss or other available income tax carryforwards or carrybacks), resulting from such Claims. The provisions of this Section 9.2 shall not apply to the Sellers' obligations under Section 6.12 hereof. 9.3 Indemnification by Buyer. Subject to the limits set forth in this Article IX from and after the Closing, Buyer shall indemnify and save Sellers, their Affiliates and their respective directors, officers and agents, (collectively "Seller Claimants" and individually "Seller Claimant") harmless from and defend each of them from and against any and all Claims incurred by the Seller Claimants resulting from or arising out of (i) any inaccuracy or breach of any representation or warranty of Buyer contained herein, and (ii) any breach of any covenant or obligation of Buyer contained herein; provided, however, that Buyer shall not be required to indemnify a Seller Claimant hereunder unless the aggregate cumulative sum of all amounts for which indemnity would otherwise be due hereunder to any and all Seller Claimants exceeds $250,000, in which case Buyer shall only be responsible for the excess; and provided, further, that the aggregate liability of the Buyer under this Article IX shall not exceed the sum of $6,000,000. Notwithstanding anything contained herein to the contrary, (a) any indemnification liability arising hereunder shall be limited to the amount of actual damages sustained by any Seller Claimant by reason of such breach, net of any insurance proceeds with respect thereto payable to or for the benefit of the Seller Claimant; and (b) Seller Claimants' indemnification for any Claims pursuant to this Section 9.3 shall be calculated net of any net (giving effect to the payment of any additional taxes that may be incurred by Seller Claimants from treatment of such indemnification payments as taxable income or gain to Seller Claimants) tax benefit to Seller Claimants (utilized by Seller Claimants against income of Seller Claimants in the year that Seller Claimants deducts such liability, loss, claim, cost or expense in its income tax returns, regardless of whether Seller Claimants receives any tax benefits in any other year by reason of any net operating loss or other available income tax carryforwards or carrybacks), resulting from such Claims. 9.4 Exclusive Remedy. Any indemnity obligations of the Sellers pursuant to Section 9.2 hereof (other than indemnity obligations arising from a breach of Sections 4.3(c) or 4.3(d) hereof after the last day of the 18th calendar month following the calendar month in which the Closing Date occurred), shall be satisfied solely by payment from the Escrow Account, upon the terms and subject to the conditions set forth in Section 9.2 hereof and in the Escrow Agreement, and the extent of any such payments shall be the Buyer Claimants' sole and exclusive remedy in the event of any Claims for indemnification under such Section 9.2. The provisions of Section 9.2 and section 9.3 hereof shall not apply to the claims, obligations, liabilities, covenants and representations regarding Taxes, which shall be governed solely by the terms of Section 6.12 hereof. The parties acknowledge and agree that the remedies provided in this Agreement are their exclusive remedies with respect to actions, occurrences or events that took place on or prior the Closing Date, whether or not an equitable, legal or administrative action has been commenced as of the Closing Date with respect to such actions, occurrences or events. 9.5 Terms and Conditions of Indemnification. The respective obligations and liabilities of Sellers and of Buyer to indemnify pursuant to this Article IX shall be subject to the following terms and conditions: (a) The party seeking indemnification (the "Claimant") must give the other party or parties, as the case may be (the "Indemnitor"), written notice of any such claim promptly. The Claimant's failure to give prompt notice, however, shall not serve to eliminate or limit the Claimant's right to indemnification hereunder except to the extent such failure prejudices the rights of the Indemnitor. (b) The respective obligations and liabilities of Sellers and of Buyer to indemnify pursuant to this Article IX in respect of any Claim by a third party shall be subject to the following additional terms and conditions: (i) The Indemnitor shall have the right to undertake, by counsel or other representatives of its own choosing reasonably satisfactory to Claimant, the defense, compromise, and settlement of such Claim. (ii) In the event that the Indemnitor shall elect not to undertake such defense, or within a reasonable time after notice of any such claim from the Claimant shall fail to defend, the Claimant (upon further written notice to the Indemnitor) shall have the right to undertake the defense, compromise or settlement of such claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the Indemnitor. (iii) Notwithstanding anything in this Section 9.4 to the contrary, (A) if there is a reasonable probability that a Claim may materially and adversely affect the Claimant other than as a result of money damages or other money payments, the Claimant shall have the right, at its own cost and expense, to participate in the defense, compromise or settlement of the Claim, (B) the Indemnitor shall not, without the Claimant's written consent, settle or compromise any Claim or consent to entry of any judgment which does not include as an unconditional term thereof the giving by the claiming party or the plaintiff to the Claimant of a release from all liability in respect of such claim, and (C) in the event that the Indemnitor undertakes defense of any Claim, the Claimant by counsel or other representative of its own choosing and at its sole cost and expense, shall have the right to consult with the Indemnitor and its counsel or other representatives concerning such claim and the Indemnitor and the Claimant and their respective counsel or other representatives shall cooperate with respect to such claim, subject to the execution and delivery of a mutually satisfactory joint defense agreement. 9.6 Treatment of Payments. The Buyer and the Sellers agree to treat all payments pursuant to Sections 2.2, 9.2 and 9.3 as adjustments (i.e., reductions or increases, as the case may be) of the Purchase Price for income tax purposes and file all income Tax Returns in a manner consistent with such treatment, unless (i) otherwise required by a court of competent jurisdiction or (ii) such party receives a written opinion from a nationally recognized law firm (which opinion and law firm shall be reasonably acceptable to the other party) that there is no substantial authority (within the meaning of Section 6662(d)(2)(B)(i) of the Code) for such position. ARTICLE X ESCROW 10.1 Establishment of Escrow Account. The Principal Stockholder and the Buyer shall, on or prior to the Closing Date, establish the Escrow Account. 10.2 Funding of and Withdrawals From Escrow Account. At the Closing, Buyer shall cause the cash comprising the Escrow Amount to be deposited into the Escrow Account. Withdrawals of amounts from the Escrow Account may only be made by Buyer to indemnify any of the Buyer Claimants for any Claims asserted against, imposed upon or incurred by such Buyer Claimants in accordance with the terms and conditions set forth in Section 9.2 hereof and the Escrow Agreement. Any cash remaining in the Escrow Account on the last day of the 18th calendar month following the calendar month in which the Closing Date occurred for which claims have not theretofore been made by Buyer shall be remitted to the Principal Stockholder in accordance with the terms and conditions set forth in the Escrow Agreement. ARTICLE XI MISCELLANEOUS 11.1 Termination; Liquidated Damages. (a) This Agreement may be terminated and abandoned by Buyer or Sellers, by written notice to the other party, if the transactions contemplated by this Agreement have not been consummated by October 1, 1997, unless the failure of such consummation shall be due to the failure of the party seeking to terminate this Agreement to comply in all material respects with the agreements and covenants contained herein to be performed by such party on or before such date. This Agreement may be terminated by mutual consent of the parties at any time. (b) Buyer understands that the damages which may be suffered by Sellers if Buyer fails to complete the Closing in a timely fashion as a result of its breach of this Agreement shall be difficult to ascertain and the parties therefore agree that the Sellers shall be entitled (in addition to the expenses to be paid by Buyer pursuant to Section 11.2 below) (i)to liquidated damages in an amount equal to that number of Buyer Shares determined by dividing (A) $2,000,000 by (B) the average last reported sale price ADS Common Stock for the twenty trading days immediately preceding the date of breach and (ii) a certified copy of the Financial Statements. Under the circumstances described in this Section, Buyer will issue such Buyer Shares to Seller. The liquidated damages and Financial Statements referred to in this Section 11.1(b) shall be Sellers' only remedy in the event of Buyer's failure to complete the Closing in a timely manner as a result of Buyer's breach of this Agreement and Sellers hereby waive any further rights in connection therewith. 11.2 Expense. Except for sales, transfer and other similar taxes, levies and charges that may be imposed, levied or assessed in connection with the consummation of the transactions contemplated hereby, which will be paid 1/2 by Buyer and 1/2 by Sellers, and the fees and expenses incurred in connection with the preparation of the Financial Statements, which will be paid by Buyer, each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. 11.3 Amendment. This Agreement may not be modified, amended, altered or supplemented except by a written agreement executed by Buyer and Sellers. 11.4 Entire Agreement. This Agreement, together with the Exhibits and Schedules hereto, the other Transaction Documents and the instruments and other documents delivered pursuant to this Agreement and the other Transaction Documents, contain the entire agreement of the parties relating to the subject matter hereof, and supersede all prior agreements, understandings, representations, warranties and covenants of any kind between the parties. All others are specifically waived. 11.5 Waivers. Waiver by any party of any breach of or failure to comply with any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement. No waiver of any such breach or failure or of any term or condition of this Agreement shall be effective unless in a written notice signed by the waiving party and delivered, in the manner required for notices generally, to each affected party. 11.6 Notices. All notices and other communications hereunder shall be validly given or made if in writing, when delivered personally (by courier service or otherwise), when sent by telecopy with confirmation by postage-prepaid first class mail, or when actually received when mailed by first-class certified or registered United States mail, postage-prepaid and return receipt requested, and all legal process with regard hereto shall be validly served when served in accordance with applicable law, in each case to the address of the party to receive such notice or other communication set forth below, or at such other address as any party hereto may from time to time advise the other parties pursuant to this Subsection: If to Sellers: c/o Fred B. Barbara 4400 South Racine Chicago, IL 60609 Telecopier: (773) 847-2773 with a copy to: Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, IL 60606 Telecopier: (312) 407-0411 Attention: William R. Kunkel, Esq. If to Buyer: American Disposal Services, Inc. 745 McClintock Drive Suite 230 Burr Ridge, IL 60521 Telecopier: (630) 655-1455 Attention: General Counsel 11.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same document. 11.8 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Illinois (i.e., without regard to its conflicts of law rules). 11.9 Binding Effect; Third Party Beneficiaries; Assignment. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective legal representatives, successors, heirs, distributees, devisees, legatees and permitted assigns. Except as expressly set forth herein, nothing expressed or referred to in this Agreement is intended or shall by construed to give any Person other than the parties to this Agreement, or their respective legal representatives, successors, heirs, distributees, devisees, legatees and permitted assigns, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. Neither party may assign this Agreement nor any of its rights hereunder, other than any right to payment of a liquidated sum, nor delegate any of its obligations hereunder, without the prior written consent of the other, except that (i) Buyer may, at the Closing, assign title to the Stock to one or more of its Subsidiaries and (ii) Buyer may assign its rights to receive payments under this Agreement to any Affiliate or to any Person providing financing to Buyer. 11.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and any such provision, to the extent invalid or unenforceable, shall be replaced by a valid and enforceable provision which comes closest to the intention of the parties underlying such invalid or unenforceable provision. 11.11 Headings. The headings contained in this Agreement are for reference purposes only and shall not modify define, limit, expand or otherwise affect in any way the meaning or interpretation of this Agreement. 11.12 No Agency. No party hereto shall be deemed hereunder to be an agent of, or partner or joint venturer with, any other party hereto. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. Sellers: __________________________________ FRED B. BARBARA __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ Buyer: AMERICAN DISPOSAL SERVICES, INC. By:______________________________ EX-99.10 12 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-13719) pertaining to the American Disposal Services, Inc. 1996 Stock Option Plan of our report dated February 24, 1998, with respect to the consolidated financial statements of American Disposal Services, Inc. included in the 1997 Annual Report (Form 10-K) for the year ended December 31, 1997. Chicago, Illinois March 27, 1998 EX-27 13 3-MOS FOR PERIOD ENDING 3/31/97
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1,966 0 12,898 0 0 18,058 117,471 0 186,517 17,286 100,511 0 0 0 58,543 186,517 0 18,511 9,892 16,361 0 0 1,552 619 173 446 0 0 0 446 0.05 0.05
EX-27.1 14 6-MOS FOR PERIOD ENDING 6/30/97
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 5,066 0 18,217 0 0 25,696 128,035 0 224,573 20,352 63,817 0 0 0 129,872 224,573 0 46,274 25,080 40,493 0 0 3,458 2,432 750 1,682 0 0 0 1,682 0.16 0.16
EX-27.2 15 9-MOS FOR PERIOD ENDING 9/30/97
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 9,781 0 21,076 0 0 32,783 156,258 0 337,424 32,478 122,301 0 0 0 169,674 337,424 0 81,647 44,414 70,409 0 0 5,198 6,185 1,988 4,197 0 0 0 4,197 0.36 0.35
EX-27.3 16 12-MOS FOR PERIOD ENDING 12/31/97
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 2,763 0 23,052 1,326 0 28,510 174,340 0 373,024 27,789 20,788 0 0 193 297,182 373,024 0 121,363 65,947 104,743 0 0 6,223 10,872 3,531 7,341 0 0 0 7,341 0.56 0.53
EX-27.4 17 6-MOS FOR PERIOD ENDING 6/30/96
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 2,010 0 7,623 0 0 10,487 83,230 0 118,778 9,775 68,108 0 0 0 32,602 118,778 0 25,177 13,170 22,881 0 0 3,057 (724) (155) (569) 0 (476) 0 (1,045) (0.20) (0.20)
EX-27.5 18 9-MOS FOR PERIOD ENDING 9/30/96
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 5,046 0 8,575 0 0 14,847 89,189 0 137,291 12,843 58,207 0 0 0 57,787 137,291 0 40,299 21,270 36,339 0 0 4,431 (404) (62) (342) 0 (476) 0 (818) (0.14) (0.14)
EX-27.6 19 12-MOS FOR PERIOD ENDING 12/31/96
5 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 2,301 0 9,741 473 0 13,644 93,692 0 144,986 12,425 65,445 0 0 89 58,008 144,986 0 56,804 30,376 51,038 0 0 5,745 460 245 215 0 (476) 0 (261) (0.05) (0.05)
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