1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
REGISTRATION NO. 333-52505
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
------------------
REPUBLIC SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 4953 65-0716904
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
------------------
110 S.E. SIXTH STREET
FORT LAUDERDALE, FLORIDA 33301
(954) 769-6000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------
H. WAYNE HUIZENGA
CHIEF EXECUTIVE OFFICER
REPUBLIC SERVICES, INC.
110 S.E. SIXTH STREET
FORT LAUDERDALE, FLORIDA 33301
(954) 769-6000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies to:
JONATHAN L. AWNER, ESQ. VALERIE FORD JACOB, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE S.E. THIRD AVENUE ONE NEW YORK PLAZA
MIAMI, FLORIDA 33131 NEW YORK, NEW YORK 10004
(305) 374-5600 (212) 859-8000
------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
2
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS TWO SEPARATE PROSPECTUSES. THE FIRST
PROSPECTUS RELATES TO A PUBLIC OFFERING OF SHARES OF CLASS A COMMON STOCK OF
REPUBLIC SERVICES, INC. IN THE UNITED STATES AND CANADA (THE "U.S. OFFERING").
THE SECOND PROSPECTUS RELATES TO A CONCURRENT OFFERING OF CLASS A COMMON STOCK
OUTSIDE THE UNITED STATES AND CANADA (THE "INTERNATIONAL OFFERING"). THE
PROSPECTUSES FOR THE U.S. OFFERING AND THE INTERNATIONAL OFFERING WILL BE
IDENTICAL IN ALL RESPECTS, OTHER THAN THE FRONT COVER PAGE, "UNDERWRITING"
SECTION AND THE BACK COVER PAGE RELATING TO THE INTERNATIONAL OFFERING. SUCH
ALTERNATE PAGES APPEAR IN THIS REGISTRATION STATEMENT IMMEDIATELY FOLLOWING THE
COMPLETE PROSPECTUS FOR THE U.S. OFFERING.
3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 29, 1998
PROSPECTUS
51,000,000 SHARES
REPUBLIC SERVICES, INC. (LOGO)
CLASS A COMMON STOCK
------------------------
All of the 51,000,000 shares of Class A Common Stock offered hereby are
being sold by Republic Services, Inc. (the "Company"). Of the 51,000,000 shares
of Class A Common Stock offered hereby, 40,800,000 shares are being offered for
sale initially in the United States and Canada by the U.S. Underwriters and
10,200,000 shares are being offered for sale initially in a concurrent offering
outside the United States and Canada by the International Managers. The initial
public offering price and the underwriting discount per share will be identical
for both Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
will be between $24.00 and $27.00 per share. For a discussion relating to
factors to be considered in determining the initial public offering price, see
"Underwriting."
The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "RSG," subject to official notice of issuance.
The Company is currently a wholly owned subsidiary of Republic Industries,
Inc. ("Parent"). Upon completion of the Offerings, the Company will have two
classes of authorized common stock consisting of Class A Common Stock, which is
being offered hereby, and Class B Common Stock. See "Description of Capital
Stock." Holders of Class A Common Stock will be entitled to one vote per share
and holders of Class B Common Stock will be entitled to five votes per share on
all matters submitted to a vote of stockholders. All of the outstanding shares
of Class B Common Stock will be owned by Parent. Upon completion of the
Offerings, Parent will own approximately 70.9% of the outstanding shares of
Common Stock (66.6% if the Underwriters exercise their over-allotment options in
full), which will represent approximately 91.2% of the combined voting power of
all of the outstanding shares of Class A Common Stock and Class B Common Stock
(89.9% if the Underwriters exercise their over-allotment options in full).
Parent has announced its intention, subject to satisfaction of certain
conditions, to divest its ownership interest in the Company in 1999 by means of
a tax-free distribution to its stockholders. See "Risk Factors," "Background of
the Offerings" and "Certain Transactions."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------------
Per Share................................. $ $ $
- ------------------------------------------------------------------------------------------------------------------------
Total(3).................................. $ $ $
========================================================================================================================
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $5,500,000.
(3) The Company has granted the U.S. Underwriters and the International Managers
options to purchase up to an additional 6,120,000 shares and 1,530,000
shares of Class A Common Stock, respectively, in each case exercisable
within 30 days after the date hereof, solely to cover over-allotments, if
any. If such options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
------------------------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Class A Common Stock will be made in New York, New
York on or about , 1998.
------------------------
MERRILL LYNCH & CO.
DEUTSCHE BANK SECURITIES
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
------------------------
The date of this Prospectus is , 1998.
4
REPUBLIC SERVICES, INC.
(Map of Continental United States highlighting the markets in which the
Company does business appears here)
Landfill
Transfer Station
Collection
Certain persons participating in the Offerings may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock. Such transactions may include stabilizing, the purchase of Class A Common
Stock to cover syndicate short positions and the imposition of penalty bids. For
a description of these activities, see "Underwriting."
2
5
(Photo of fleet of solid waste collection vehicles)
6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data and notes
thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained in this Prospectus assumes that the Underwriters' over-
allotment options are not exercised. See "Underwriting." Except where the
context otherwise requires, references to the terms "Republic Services, Inc."
and the "Company" include the historical operating results and activities of,
and assets and liabilities of, the solid waste services businesses and
operations of Parent which comprise Republic Services, Inc. and its subsidiaries
as of the date hereof. Except where the context otherwise requires, references
to the term "Parent" mean Republic Industries, Inc. and its subsidiaries other
than the Company.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements. Factors that might cause
differences include, but are not limited to, those discussed in "Risk Factors."
THE COMPANY
Republic Services, Inc. is a leading provider of non-hazardous solid waste
collection and disposal services in the United States. Based on revenue for the
year ended December 31, 1997, the Company is the fourth largest company in the
domestic non-hazardous solid waste management industry. The Company provides
solid waste collection services for commercial, industrial, municipal and
residential customers through 96 collection companies in 24 states. The Company
also owns or operates 54 transfer stations and 42 solid waste landfills.
The Company had revenue of $1,127.7 million and $953.3 million and
operating income of $201.3 million and $105.6 million for the years ended
December 31, 1997 and 1996, respectively. The $174.4 million (or 18.3%) increase
in revenue and the $95.7 million (or 90.6%) increase in operating income are
primarily attributable to the successful execution of the Company's growth and
operating strategies described below. In 1997, the Company's revenue was
generated primarily from its solid waste collection operations (73.8%), with the
remainder comprised of revenue from landfill disposal services (12.4%) and other
operations (13.8%).
Since 1995, the Company has acquired over 100 solid waste companies with an
aggregate of over $1.0 billion in annual revenue. The Company believes that it
is well positioned to continue to increase its revenue and operating income
through acquisitions and internal growth. The Company's acquisition growth
strategy is focused on the approximately $8.0 billion of revenue that was
generated by over 5,000 privately-held solid waste companies in 1997. The
Company believes that its ability to acquire many of these privately-held
companies is enhanced by increasing competition in the solid waste industry,
increasing capital requirements as a result of changes in solid waste regulatory
requirements and the limited number of exit strategies for such companies'
owners and principals. The Company's internal growth strategy is supported by
its presence in high-growth markets throughout the Sunbelt, including Florida,
Georgia, Nevada, Southern California and Texas, and other domestic markets that
have experienced higher than average population growth during the past several
years. The Company believes that its presence in such markets positions it to
experience growth at rates that are generally higher than the industry's overall
growth rate.
INDUSTRY OVERVIEW
Based on analyst reports and industry trade publications, the Company
believes that the United States non-hazardous solid waste services industry
generated revenue of approximately $35.0 billion in 1997, of which approximately
44% was generated by publicly-owned waste companies, 23% was generated by
privately-held waste companies and 33% was generated by municipal and other
local governmental authorities. The substantial majority of the publicly-owned
companies' total revenue of approximately $15.4 billion was generated by only
five companies, of which the Company was the fourth largest at year-end 1997.
However, according to industry data, the domestic non-hazardous waste industry
remains highly fragmented as the
3
7
privately-held companies' total revenue of approximately $8.0 billion was
generated by more than 5,000 companies.
GROWTH STRATEGY
- - ACQUISITION GROWTH. As a result of the highly fragmented nature of the solid
waste industry, the Company has been able to grow significantly through
acquisitions. Since 1995, the Company has acquired over 100 solid waste
companies with an aggregate of over $1.0 billion in annual revenue. The
Company's acquisition growth strategy is to (i) acquire companies positioned
for growth in existing and new markets, (ii) acquire well-managed companies
and retain local management, (iii) expand its operations in existing markets
by completing "tuck-in" acquisitions and (iv) acquire operations and
facilities from municipalities that are privatizing.
Acquire Companies Positioned for Growth. In making acquisitions, the
Company principally targets high quality businesses that will allow it to
be, or provide it favorable prospects of becoming, a leading provider of
integrated solid waste services in markets with favorable demographic
growth. The Company generally has acquired, and will continue to seek to
acquire, solid waste collection, transfer and disposal companies that (i)
have strong operating margins, (ii) are in growth markets, (iii) are among
the largest or have a significant presence in their local markets and (iv)
have long-term contracts or franchises with municipalities and other
customers. Although the Company continuously reviews possible acquisition
candidates and is in discussions from time to time with one or more of such
candidates, it currently has not entered into any agreements with respect
to any significant acquisitions.
Acquire Well-Managed Companies. The Company also seeks to acquire
businesses that have experienced management teams that are willing to work
for the Company. The Company generally retains the local management of the
larger acquired companies in order to capitalize on their local market
knowledge, community relations and name recognition, and to instill their
entrepreneurial drive at all levels of operations.
Expand Operations Through "Tuck-In" Acquisitions. Once it gains a
foothold in a particular market, the Company focuses on acquiring smaller
companies that also operate in that market and surrounding markets. By
acquiring smaller "tuck-in" companies that operate in markets already
serviced by the Company, the Company not only is able to grow its revenue
and increase its market share, but also is able to integrate operations and
consolidate duplicative facilities and functions to maximize cost
efficiencies and economies of scale.
Acquire Privatizing Municipal Operations. The Company also seeks to
acquire solid waste collection operations, transfer stations and landfills
that are being privatized by municipalities and other governmental
authorities.
- - INTERNAL GROWTH. The Company's internal growth strategy is to take advantage
of the higher than average population growth in the markets in which the
Company operates by obtaining long-term exclusive franchise agreements and
expanding its well-managed sales and marketing activities.
Obtain Long-Term Contracts. The Company seeks to obtain long-term
exclusive franchise agreements for the collection of solid waste in the
high-growth markets in which it operates. By obtaining such long-term
agreements, the Company has the opportunity to grow its contracted revenue
base at the same rate as the underlying population growth in such markets.
Expand Sales and Marketing Activities. The Company's well-managed
sales and marketing activities enable it to capitalize on its leading
positions in many of the markets in which it operates. The Company
currently has over 260 sales and marketing employees in the field, who are
incentivized by a commission structure to generate high levels of revenue.
4
8
OPERATING STRATEGY
- - LEAD WITH EXPERIENCED EXECUTIVE MANAGEMENT TEAM. The Company believes that it
has one of the most experienced executive management teams among
publicly-traded companies in the solid waste industry.
H. Wayne Huizenga, the Company's Chairman and Chief Executive Officer,
co-founded Waste Management, Inc. ("Waste Management") in 1971, and served in
various executive positions with Waste Management until 1984, which had by
then become the world's largest integrated solid waste services company. From
1987 until 1994, Mr. Huizenga served as Chairman and Chief Executive Officer
of Blockbuster Entertainment Corporation ("Blockbuster"), leading its growth
from 19 stores to the world's largest video rental company. In August 1995, he
became Chairman and Chief Executive Officer of Parent and, in less than three
years, Parent's Solid Waste Group acquired businesses with an aggregate of
over $1.0 billion in annual revenue.
Harris W. Hudson, the Company's Vice Chairman, worked closely with Mr.
Huizenga, from 1964 until 1982, at Waste Management and at the private waste
hauling firms they operated prior to the formation of Waste Management. In
1983, Mr. Hudson founded Hudson Management Corporation ("Hudson Management"),
a solid waste collection company in Florida, and served as its Chairman and
Chief Executive Officer until it merged with Parent in August 1995. By that
time, Hudson Management had grown to over $50.0 million in annual revenue,
becoming one of Florida's largest privately-held solid waste collection
companies based on revenue. Since August 1995, Mr. Hudson has served in
various executive officer positions for Parent, including President and Vice
Chairman.
James H. Cosman, the Company's President and Chief Operating Officer, has
served as President of Parent's Solid Waste Group since January 1997. Prior to
joining Parent, Mr. Cosman was employed by Browning-Ferris Industries, Inc.
("Browning-Ferris"), a leading national integrated solid waste management
company, for over 24 years. During that time, he served in various management
positions, including Regional Vice President -- Northern Region.
The other officers with responsibility for operational affairs of the
Company have an average of over 15 years of management experience in the solid
waste industry.
Prior to the Distribution, Mr. Huizenga intends to resign as Chief
Executive Officer of the Company as soon as the Company is able to appoint a
successor, although Mr. Huizenga intends to remain as Chairman of the Board.
It is currently anticipated that Messrs. Hudson and Cosman and such other
officers will devote substantially all of their time to the management of the
Company.
- - UTILIZE DECENTRALIZED MANAGEMENT STRUCTURE. The Company maintains a
relatively small corporate headquarters staff, relying on a decentralized
management structure to minimize administrative overhead costs and to manage
its day-to-day operations more efficiently. The Company's four Regional Vice
Presidents and 19 Area Presidents have extensive authority, responsibility and
autonomy for operations within their geographic markets. Compensation for
management within regions and areas is in large part based on the improvement
in operating income produced in each manager's geographic area of
responsibility. The Company also seeks to implement the best practices of its
various regions and areas throughout its operations to improve operating
margins.
- - INTERNALIZE WASTE DISPOSAL. The Company seeks to achieve a high rate of waste
internalization by controlling waste streams from the point of collection
through disposal. Through acquisitions and other market development
activities, the Company creates market specific, vertically integrated
operations typically consisting of one or more collection companies, transfer
stations and landfills. During the quarter ended March 31, 1998, approximately
41% of the total volume of waste collected by the Company was disposed of at
the Company's landfills. Because the Company does not have landfill facilities
for all markets in which it provides collection services, the Company believes
that through landfill and transfer station acquisitions and development it has
the opportunity to increase its waste internalization rate.
- - CAPITALIZE ON ECONOMIES OF SCALE AND COST EFFICIENCIES. To improve operating
margins, the Company's management is focused on achieving economies of scale
and cost efficiencies. The consolidation, or "tuck-
5
9
in," of smaller acquired businesses into larger existing operations reduces
costs by decreasing capital and expenses used in routing, personnel, equipment
and vehicle maintenance, inventories and back-office administration. The
Company has reduced its selling, general and administrative expenses from
17.1% of consolidated revenue in 1995 to 10.4% of consolidated revenue in
1997.
- - ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION. The Company complements its
operating strategy with a goal of maintaining high levels of customer
satisfaction. The Company's personalized sales process of periodically
contacting commercial, industrial and municipal customers is intended to
maintain relationships and ensure service is being properly provided.
The Company is currently a wholly owned subsidiary of Parent. The Company
is a Delaware corporation with its principal executive offices located at The
Republic Tower, 110 S.E. Sixth Street, Fort Lauderdale, Florida 33301, and its
telephone number at that address is (954) 769-6000.
BACKGROUND
Since 1995, Parent has acquired and developed numerous businesses in
several industries, which currently are operated in three broad business
segments, consisting of automotive retail, vehicle rental and solid waste
services. In May 1998, Parent announced its intention to separate the Company,
which constitutes the solid waste services businesses and operations of Parent,
and the associated assets and liabilities of such solid waste businesses and
operations, from Parent's other businesses and operations (the "Separation").
Parent also announced its intention to complete the Offerings (as defined
below), and to complete the Separation by the distribution to Parent's
stockholders in 1999, subject to certain conditions and consents, of all of
Parent's remaining interest in the Company (the "Distribution"). See "Background
of the Offerings -- Conditions to the Distribution." The Company and Parent have
entered into or will, on or prior to the consummation of the Offerings, enter
into certain agreements providing for the Separation and Distribution and
governing various interim and ongoing relationships between the companies after
completion of the Offerings and the Distribution, including an agreement between
the Company and Parent providing for the purchase by the Company of certain
services from Parent. See "Background of the Offerings" and "Certain
Transactions."
The Company's authorized and outstanding capital stock currently consists
of a single class of common stock, all of which is held by Parent. Prior to
consummation of the Offerings (the "Offerings Closing Date"), the Company will
amend and restate its Certificate of Incorporation, as amended to date (the
"Certificate"), to authorize two classes of common stock consisting of Class A
Common Stock, $.01 par value per share ("Class A Common Stock"), and Class B
Common Stock, $.01 par value per share ("Class B Common Stock," which together
with the Class A Common Stock is sometimes referred to herein as "Common
Stock"). The Class A Common Stock and Class B Common Stock will be identical in
all respects, except that holders of Class A Common Stock will be entitled to
one vote per share while holders of Class B Common Stock will be entitled to
five votes per share on all matters submitted to a vote of stockholders. Shares
of Class B Common Stock may convert into shares of Class A Common Stock in
certain circumstances. See "Description of Capital Stock." Prior to the
Offerings Closing Date, all outstanding shares of common stock of the Company
held by Parent will be converted into shares of Class B Common Stock, which will
constitute 100% of the outstanding shares of Class B Common Stock.
In order to achieve part of the overall business purpose of the
Distribution, which is to raise capital for Parent's future acquisitions of
automotive retail operations and other corporate purposes in the most cost
efficient manner, the Company declared and paid a $2.0 billion dividend in April
1998 in the form of a series of promissory notes payable by the Company to
Parent (the "Company Notes"). The amount of the dividend was determined based on
Parent's need for capital to fund future acquisitions and the Company's
borrowing capacity. The Company Notes bear interest at a rate of LIBOR plus 30
basis points per annum and mature April 12, 1999. In addition, the Company has
other obligations, consisting of amounts due to Parent (the "Affiliate Payable")
which equaled approximately $114.8 million as of March 31, 1998, and certain
intercompany borrowings payable to an affiliate of Parent, Republic Resources
Company, Inc. ("Resources"), which equaled approximately $130.9 million as of
March 31, 1998 net of an intercompany loan receivable from Resources due to the
Company (the "Resources Note Receivable") in the amount of approximately
6
10
$83.1 million as of March 31, 1998. Excluding the Resources Note Receivable as
an offset, amounts owed to Resources equaled approximately $214.0 million as of
March 31, 1998 (the "Resources Note Payable"). Prior to the Offerings Closing
Date, the Company will (a) prepay a portion of the Company Notes equal to the
outstanding amount of the Company Notes less the net proceeds of the Offerings
and less the net proceeds of the Underwriters' over-allotment options (assuming
such options are exercised in full), by use of certain assets to be received
from a dividend to be declared and paid by Resources to the Company (the
"Resources Dividend") and by use of the Resources Note Receivable, and (b) repay
in full the Affiliate Payable and the Resources Notes Payable through issuance
by the Company of the number of shares of Class A Common Stock equal to the
aggregate amount of the Affiliate Payable and the Resources Notes Payable
divided by the initial public offering price per share. All of the net proceeds
of the Offerings will immediately be used by the Company to prepay in part
certain outstanding amounts of the Company Notes payable to Parent. All
remaining outstanding amounts of the Company Notes will be prepaid in full
within 31 days after the Offerings Closing Date through the issuance by the
Company of shares of Class A Common Stock to Parent based on the initial public
offering price per share, to the extent that the net proceeds, if any, from the
exercise of the Underwriters' over-allotment options are not sufficient to
prepay all such remaining amounts. The Company has granted Parent certain
registration rights with respect to shares of Class A Common Stock and Class B
Common Stock to be held by Parent and its wholly owned subsidiaries following
the Offerings Closing Date. See "Certain Transactions -- Separation and
Distribution Agreement -- Registration Rights."
7
11
THE OFFERINGS
The offering of 40,800,000 shares of the Class A Common Stock, par value
$.01 per share, in the United States and Canada (the "U.S. Offering") and the
offering of 10,200,000 shares of the Class A Common Stock outside the United
States and Canada (the "International Offering") are collectively referred to
herein as the "Offerings."
Class A Common Stock offered by the Company................. 51,000,000 shares
Common Stock to be outstanding after the Offerings:
Class A Common Stock...................................... 73,953,775 shares(1)(2)
Class B Common Stock...................................... 101,046,225 shares(1)
Total..................................................... 175,000,000 shares(1)(2)
Use of Proceeds............................................. All of the net proceeds to be received
by the Company from the Offerings will
immediately be used to prepay in part
certain outstanding amounts of the
Company Notes payable to Parent. See
"Use of Proceeds."
Voting Rights; Conversion................................... The holders of Class A Common Stock and
Class B Common Stock have identical
rights, including as to dividends and
liquidation preferences, except that
holders of Class A Common Stock are
entitled to one vote per share and
holders of Class B Common Stock are
entitled to five votes per share.
Holders of Class A Common Stock and
Class B Common Stock generally vote
together as a single class, except as
otherwise required by Delaware law.
Under certain circumstances, Class B
Common Stock converts into Class A
Common Stock. See "Description of
Capital Stock."
New York Stock Exchange ("NYSE") Symbol for Class A Common
Stock..................................................... "RSG"
- ---------------
(1) Assumes that the aggregate amount of the outstanding Affiliate Payable and
Resources Notes Payable at the Offerings Closing Date will be equal to
approximately $400.0 million and that 15,686,275 shares of Class A Common
Stock will be issued prior to the Offerings Closing Date to satisfy such
outstanding amounts in full, based on an assumed initial public offering
price of $25.50 per share, which is the midpoint of the estimated range set
forth on the cover page of this Prospectus. Also assumes that the aggregate
remaining outstanding amount of the Company Notes at the Offerings Closing
Date, after the Resources Dividend and the application of the estimated net
proceeds to the Company from the Offerings and assuming that the
Underwriters' over-allotment options are not exercised, will be equal to
$185.3 million and that 7,267,500 shares of Class A Common Stock will be
issued within 31 days immediately following the Offerings Closing Date to
satisfy such outstanding amount in full, based on an assumed initial public
offering price of $25.50 per share, which is the midpoint of the estimated
range set forth on the cover page of the Prospectus. To the extent the
Company receives proceeds from the exercise of the Underwriters'
over-allotment options to purchase up to 7,650,000 shares of Class A Common
Footnotes continued on following page
8
12
Stock, the Company will use the net proceeds from the exercise to prepay
the balance of the Company Notes and the number of shares of Class A Common
Stock issued to Parent will be reduced accordingly. If the Underwriters'
over-allotment options are exercised in full, then the total number of
shares of Class A Common Stock and of Common Stock outstanding after the
Offerings will be 74,336,275 and 175,382,500, respectively. Also assumes
that prior to the Offerings Closing Date the Company's common stock will be
recapitalized into two classes of common stock, consisting of Class A
Common Stock and Class B Common Stock, and that the 100 shares of common
stock of the Company outstanding immediately prior to such recapitalization
will be converted into 101,046,225 shares of Class B Common Stock.
(2) Does not include shares of Class A Common Stock that will be issuable upon
the exercise of outstanding employee stock options, not all of which will
be immediately exercisable, and which will be issued at the time of the
Distribution under the Company's 1998 Stock Incentive Plan in substitution
for certain Parent stock options held by employees of the Company. See
"Management -- Stock Incentive Plan" and "Certain Transactions -- Employee
Benefits Agreement." The Company intends to reserve 20.0 million shares of
Class A Common Stock for issuance pursuant to options to be granted under
such plan.
RISK FACTORS
Purchasers of Class A Common Stock in the Offerings should carefully
consider the risk factors set forth under the caption "Risk Factors" and the
other information included in this Prospectus prior to making an investment
decision. See "Risk Factors."
9
13
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
Set forth below is summary historical and pro forma financial and operating
data of the Company for the periods indicated. The pro forma statement of
operations and balance sheet data give effect to the transactions and events
described in "Unaudited Condensed Consolidated Pro Forma Financial Statements."
The summary consolidated historical and pro forma financial data set forth below
should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus, "Unaudited
Condensed Consolidated Pro Forma Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." See
Notes 3, 7, 10, 11 and 13 of Notes to Consolidated Financial Statements for a
discussion of business combinations, investment by Parent, restructuring and
other charges, discontinued operations and subsequent events and their effect on
comparability of year-to-year data. The summary historical and pro forma
financial data set forth below is not necessarily indicative of the results of
operations or financial position which would have resulted had the Separation
and the Offerings occurred during the periods presented.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------- --------------------------------------------
PRO FORMA PRO FORMA
1998 1998 1997 1997 1997 1996 1995
--------- -------- --------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
-------------------------------
STATEMENT OF OPERATIONS DATA:
Revenue......................................... $ 300.8 $ 300.8 $ 263.2 $1,127.7 $1,127.7 $ 953.3 $ 805.0
Expenses:
Cost of operations............................. 209.7 209.7 190.3 809.1 809.1 703.6 570.1
Selling, general and administrative............ 32.1 32.1 31.9 117.3 117.3 135.3 137.7
Restructuring and other charges................ -- -- -- -- -- 8.8 3.3
-------- -------- --------- -------- -------- -------- --------
Operating income................................ 59.0 59.0 41.0 201.3 201.3 105.6 93.9
Interest expense................................ (0.6) (5.4) (7.6) (5.7) (25.9) (29.7) (19.1)
Interest and other income, net.................. 0.8 0.8 3.0 6.7 6.7 13.9 6.2
-------- -------- --------- -------- -------- -------- --------
Income from continuing operations before income
taxes.......................................... 59.2 54.4 36.4 202.3 182.1 89.8 81.0
Provision for income taxes...................... 21.4 19.6 13.2 73.4 65.9 38.0 31.6
-------- -------- --------- -------- -------- -------- --------
Income from continuing operations............... 37.8 34.8 23.2 128.9 116.2 51.8 49.4
Loss from discontinued operations............... -- -- -- -- -- -- (24.8)
-------- -------- --------- -------- -------- -------- --------
Net income...................................... $ 37.8 $ 34.8 $ 23.2 $ 128.9 $ 116.2 $ 51.8 $ 24.6
======== ======== ========= ======== ======== ======== ========
Pro forma net income per share basic and
diluted(a)..................................... $ 0.22 $ 0.74
======== ========
Pro forma weighted average shares
outstanding(b)................................. 175.0 175.0
======== ========
OTHER OPERATING DATA:
EBITDA(c)....................................... $ 82.8 $ 82.8 $ 60.0 $ 287.4 $ 287.4 $ 180.9 $ 156.9
EBITDA margin(d)................................ 27.5% 27.5% 22.8% 25.5% 25.5% 19.0% 19.5%
Depreciation and amortization................... $ 23.8 $ 23.8 $ 19.0 $ 86.1 $ 86.1 $ 75.3 $ 63.0
Capital expenditures............................ 29.0 29.0 35.2 165.3 165.3 146.9 147.9
Cash flows from operating activities............ 80.3 80.3 73.1 279.4 279.4 143.5 125.4
Cash flows from investing activities............ (21.2) (21.2) (39.0) (168.1) (168.1) (175.7) (110.7)
Cash flows from financing activities............ (59.1) (59.1) (12.5) (135.5) (135.5) 20.3 2.8
PRO FORMA DECEMBER 31,
MARCH 31, MARCH 31, ---------------------------------
1998 1998(E) 1997 1996 1995
--------- --------- -------- -------- -----------
(UNAUDITED) (UNAUDITED)
--------------------
BALANCE SHEET DATA:
Total assets................................................ $1,488.2 $1,488.2 $1,348.0 $1,090.3 $ 838.9
Due to affiliate............................................ -- 114.8 107.8 49.3 86.3
Notes payable to Resources.................................. -- 130.9 158.3 205.6 38.7
Total debt, net of current maturities....................... 61.4 61.4 64.3 109.5 124.8
Total shareholders' equity.................................. 1,133.0 887.3 750.8 494.5 372.2
- ---------------
(a) Historical net income per share has not been presented because it would not
be meaningful. Prior to the Offerings Closing Date, the Company had only 100
shares of common stock outstanding, all of which were owned by Parent.
Unaudited pro forma net income per common share is calculated based on net
income divided by the number of shares of Class A Common Stock and Class B
Common Stock to be outstanding after the Offerings Closing Date.
(b) Does not include outstanding options to purchase common stock of Parent held
by employees of the Company which may be converted into stock options
relating to the Company's Class A Common Stock at the Distribution Date. See
"Certain Transactions -- Employee Benefits Agreement" for a description of
the stock option substitution methodology.
(c) EBITDA represents operating income plus depreciation and amortization. While
EBITDA data should not be construed as a substitute for operating income, net
income or cash flows from operations in analyzing the Company's operating
performance, financial position and cash flows, the Company has included
EBITDA data (which is not a measure of financial performance under generally
accepted accounting principles ("GAAP")) because it believes that such data
is commonly used by certain investors to evaluate a company's performance in
the solid waste industry. Due to the fact that not all companies calculate
non-GAAP measures in the same manner, the EBITDA presentation herein may not
be comparable to similarly titled measures reported by other companies.
(d) EBITDA margin represents EBITDA divided by revenue.
(e) The pro forma effect of the $2.0 billion dividend declared in April 1998 on
the Company's March 31, 1998 financial position, assuming it occurred on
March 31, 1998, would have been to issue Company Notes payable to Parent in
the amount of $2.0 billion and to decrease shareholder's equity by $2.0
billion resulting in a shareholder's deficit of $1.1 billion.
10
14
RISK FACTORS
Prospective purchasers of the Class A Common Stock offered hereby should
consider carefully all of the information set forth in this Prospectus, and, in
particular, should evaluate the following risks in connection with an investment
in the Class A Common Stock.
RISK OF NONCOMPLETION OF THE DISTRIBUTION; FAILURE TO OBTAIN FAVORABLE LETTER
RULING
Parent has announced that, subject to certain conditions, following the
Offerings, Parent intends to distribute to its stockholders in 1999 all of the
Common Stock owned by Parent. See "Background of the Offerings -- Conditions to
the Distribution" and "Certain Transactions -- Separation and Distribution
Agreement." One of the conditions to the Distribution is that Parent obtains a
private letter ruling from the Internal Revenue Service ("IRS") to the effect
that, among other things, the Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code"), in form and substance
satisfactory to Parent (the "Letter Ruling"). Parent intends to apply for such a
Letter Ruling and to promptly take all necessary steps to complete such a
tax-free distribution within three months after satisfaction or waiver of all of
the conditions to the Distribution, including obtaining the Letter Ruling.
Parent does not plan to distribute its shares of Common Stock to Parent's
stockholders without such a favorable Letter Ruling, including a ruling
satisfactory to Parent that the general acquisition growth strategies of Parent
and the Company would not cause the Distribution to be taxable and that such
acquisition growth strategies would not be impeded by completing the
Distribution. Due to recent changes in the tax law and other factors, there is
no assurance that Parent will receive the Letter Ruling, or that it will receive
it within the time frame contemplated, and, consequently, there is no assurance
that the Distribution will occur or will occur within the time frame
contemplated. The Distribution also is subject to the condition that no events
or developments occur following the Offerings Closing Date that, in the sole
judgment of the Board of Directors of Parent (the "Parent Board"), would or
could result in the Distribution having a material adverse effect on Parent or
Parent's stockholders. In addition, as a condition to the Distribution, Parent
will be required to obtain certain consents from governmental authorities and
other third parties. There can be no assurance that any of such conditions, or
any other conditions to the Distribution, will be satisfied, or that the
Distribution will occur in the time frame contemplated or at all. The failure of
the Distribution to occur in the time frame contemplated or at all could
materially adversely affect the Company and the market price of the Class A
Common Stock. See "Background of the Offerings -- Separation and Distribution"
and "Certain Transactions -- Tax Indemnification and Allocation Agreement."
CONTROL OF THE COMPANY
Prior to the Offerings Closing Date, the Company has been a wholly owned
subsidiary of Parent. On the Offerings Closing Date, Parent will own
approximately 70.9% of the outstanding shares of Common Stock (66.6% if the
Underwriters exercise their over-allotment options in full), which will
represent approximately 91.2% of the combined voting power of all of the
outstanding shares of Class A Common Stock and Class B Common Stock (89.9% if
the Underwriters exercise their over-allotment options in full). As a result,
Parent will be able to control virtually all matters requiring approval of the
stockholders of the Company, including the election of all of the Company's
directors. The Company's Board of Directors (the "Board") currently consists of
two members, both of whom serve concurrently as members of the Parent Board.
Parent currently intends to maintain ownership of at least 80% of the combined
voting power of the Class A Common Stock and Class B Common Stock until the
Distribution can be completed. There can be no assurance that Parent will
complete the Distribution of the Common Stock held by it to Parent's
stockholders. If the Distribution is not effected, Parent could maintain a
controlling interest in the Company indefinitely, which may materially adversely
affect the Company and the market price of the Class A Common Stock. In
addition, for so long as Parent maintains a significant interest in the Company,
the market price of the Class A Common Stock may be adversely affected by events
relating to Parent which are unrelated to the Company.
11
15
POTENTIAL ADVERSE EFFECT FROM DISPARATE VOTING RIGHTS
The holders of Class A Common Stock and Class B Common Stock have identical
rights except that holders of Class A Common Stock are entitled to one vote per
share while holders of Class B Common Stock are entitled to five votes per share
on all matters submitted to a vote of the stockholders. The differential in the
voting rights could adversely affect the value of the Class A Common Stock to
the extent that investors or any potential future purchaser of the Company views
the superior voting rights of the Class B Common Stock to have value. The
existence of two separate classes of Common Stock could result in less liquidity
for either class of Common Stock than if there were only one class of Common
Stock.
DEPENDENCE OF THE COMPANY ON PARENT FOR CERTAIN SERVICES
The Company historically has been dependent upon Parent for various
services including accounting, auditing, cash management, corporate
communications, corporate development, financial and treasury, human resources
and benefit plan administration, insurance and risk management, legal,
purchasing and tax services. Prior to the Offerings Closing Date, the Company
and Parent intend to enter into an agreement under which Parent will continue to
provide these services to the Company in exchange for fees payable by the
Company to Parent, for an initial term expiring one year following the Offerings
Closing Date. After the initial term of such agreement, the Company will need to
extend the term of such agreement, engage others to perform such services or
perform such services internally. No assurance can be given that Parent will
continue to provide the Company with such services after the initial term of the
agreement, or that the cost of such services will not be significantly higher if
the Company purchases such services from unaffiliated providers or employs staff
to handle such functions internally. See "Certain Transactions -- Services
Agreement."
INTERCOMPANY AGREEMENTS NOT SUBJECT TO ARM'S LENGTH NEGOTIATIONS
Prior to the Offerings Closing Date, Parent and the Company intend to enter
into certain intercompany agreements, including agreements pursuant to which
Parent will provide various services to the Company that are material to the
conduct of the Company's business. Because the Company is a wholly owned
subsidiary of Parent, none of these agreements will result from arm's-length
negotiations and, therefore, there is no assurance that the terms and conditions
of such agreements will be as favorable to the Company as could be obtained by
the Company from unaffiliated third parties. See "Certain Transactions."
CONFLICTS OF INTEREST
After the Offerings Closing Date, three of the executive officers of Parent
will be executive officers of the Company and all of the members of the Board
will be members of the Parent Board. In addition, certain executive officers and
directors of the Company hold shares of common stock, par value $.01 per share,
of Parent ("Parent Common Stock"), and options and warrants to acquire shares of
Parent Common Stock. Accordingly, there is a potential that such individuals may
have conflicts of interest with respect to certain decisions which may arise in
the ordinary course of the business of Parent or the Company, including with
respect to relationships between Parent and the Company under intercompany
agreements and whether to complete the Distribution. See "Certain Transactions."
No formal procedures have been established to resolve any conflicts that may
confront the Company and such other persons, and the Company intends to resolve
such conflicts on a case-by-case basis.
LIMITED ABILITY TO ISSUE COMMON STOCK PRIOR TO DISTRIBUTION
In order for the Distribution to be tax-free to Parent and Parent's
stockholders, among various other requirements, Parent must distribute to
Parent's stockholders on the date of the Distribution (the "Distribution Date")
(a) stock of the Company possessing at least 80% of the total combined voting
power of all classes of voting stock of the Company, and (b) 80% of the total
number of shares of each class of non-voting stock of the Company (the "Required
Distribution Percentage"). If Parent were not able to distribute to its
stockholders shares of stock of the Company constituting the Required
Distribution Percentage, the Distribution would not be tax-free and would not
occur. Accordingly, the Company will agree in the Separation and Distribution
Agreement (as defined below) not to issue additional shares of Common Stock,
12
16
or any other class of stock including preferred stock, without the consent of
Parent if such issuance would, or could, dilute or otherwise reduce Parent's
ownership of Common Stock, or any other such class of stock, below the Required
Distribution Percentage or otherwise prevent the Distribution from receiving
tax-free status. The Separation and Distribution Agreement will terminate if the
Distribution does not occur on or prior to December 31, 1999, unless extended by
Parent and the Company. Prior to the Distribution Date, these restrictions may
impede the ability of the Company to issue equity securities, including Common
Stock, to raise necessary equity capital or to complete acquisitions using
equity securities, including Common Stock, as acquisition currency and thereby
prevent the Company from realizing its business and growth strategies prior to
the Distribution Date. See "Certain Transactions -- Separation and Distribution
Agreement."
TAX INDEMNIFICATION OBLIGATION
As a condition to Parent effecting the Distribution, the Company will be
required to indemnify Parent for any tax liability suffered by Parent arising
out of actions by the Company after the Distribution that would cause the
Distribution to lose its qualification as a tax-free distribution for federal
income tax purposes under Section 355 of the Code. For example, the Company may
be required to refrain from taking certain actions after the Distribution, such
as issuing an additional amount of its capital stock in a single transaction or
series of transactions related to the Distribution which, when combined with the
Class A Common Stock issued in the Offerings and any shares of Common Stock sold
by Parent prior to the Distribution, could cause a 50% or greater change in the
vote or value of the outstanding capital stock of the Company. In the event that
the Company is required to indemnify and reimburse Parent for any tax liability
incurred by Parent arising out of the Distribution, such indemnification and
reimbursement would have a material adverse effect on the business, financial
condition, results of operations and prospects of the Company. See "Certain
Transactions -- Tax Indemnification and Allocation Agreement."
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The financial information included herein may not necessarily reflect the
results of operations, financial position and cash flows of the Company in the
future or what the results of operations, financial position and cash flows
would have been had the Company been a separate, stand-alone entity during the
periods presented. The historical financial information included herein does not
reflect many significant changes that will occur in the funding and operations
of the Company as a result of the Separation, the Offerings, and the
Distribution. See "Certain Transactions," "Unaudited Condensed Consolidated Pro
Forma Financial Statements," including the discussion of the assumptions
reflected therein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FUTURE CAPITAL REQUIREMENTS; ABSENCE OF PARENT FUNDING
The Company's working capital requirements and cash flow provided by
operating activities can vary from quarter to quarter, depending on the timing
of capital expenditures, acquisitions and other factors. The Company is not
currently operated as a stand-alone company. In the past, the Company's needs
for working capital and general corporate purposes, including acquisitions, have
been satisfied pursuant to Parent's corporate-wide cash management policies.
However, immediately after the Offerings Closing Date, Parent will not be
required to provide funds to finance the Company's operations or acquisitions.
The Company expects that it will incur long-term debt as well as short-term
debt, and that it may not be able to obtain financing with interest rates or
repayment terms as favorable as those historically enjoyed by Parent, with the
result that the Company's cost of capital may be higher than that reflected in
its historical financial statements. The Company has obtained a commitment from
Bank of America National Trust and Savings Association, The Chase Manhattan
Bank, The First National Bank of Chicago and NationsBank, N.A., for an aggregate
of $525.0 million toward $1.0 billion of revolving credit facilities, and is in
the process of assembling a syndicate of lenders to commit to the balance of
such facilities. The closing of such revolving credit facilities is expected to
occur after the Offerings Closing Date, but there can be no assurance that such
financing will occur. If such financing does not occur, there can be no
assurance that the Company will be able to obtain other debt financing on terms
as favorable to the Company as currently proposed or as its existing
indebtedness. Parent's bank credit facilities restrict the ability of Parent and
its subsidiaries to incur
13
17
indebtedness, incur liens, consummate certain asset sales, make certain
investments, or enter into certain transactions with affiliates, subject in each
case to exceptions, and require Parent to maintain certain consolidated
financial ratios. While the Company remains a subsidiary of Parent, these
restrictive covenants and financial ratios could adversely affect the Company
and the market price of the Class A Common Stock. Parent has amended its credit
facilities to permit the Company to incur unsecured indebtedness in excess of
$1.0 billion. If the Company is unable to obtain financing in the amounts
desired and on acceptable terms, the Company may be required to reduce
significantly the scope of its presently anticipated acquisition growth
strategy, which could have a material adverse effect on the Company's growth
prospects and the market price of the Class A Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITIVE ENVIRONMENT
The Company's business operates in a highly competitive environment. In
addition, the solid waste industry is changing as a result of rapid
consolidation. The future success of the Company will be affected by such
changes, the nature of which cannot be forecast with certainty. There can be no
assurance that such developments will not create additional competitive
pressures on the Company's business. Certain of the Company's competitors have
significantly larger operations, and may have significantly greater financial
resources, than the Company. In addition to national and regional firms and
numerous local companies, the Company may compete with those municipalities that
maintain waste collection or disposal operations. These municipalities may have
a financial advantage relative to the Company due to the availability of tax
revenue and tax-exempt financing. In each market in which it owns or operates a
landfill, the Company competes for solid waste volume on the basis of disposal
fees (commonly known as "tipping fees"), geographical location and quality of
operations. The Company's ability to obtain solid waste volume may be limited by
the fact that some major collection companies also own or operate landfills to
which they send their waste. The Company competes for collection accounts
primarily on the basis of price and the quality of its services. From time to
time, competitors may reduce the price of their services in an effort to expand
market share or to win a competitively bid municipal contract. See
"Business -- Competition."
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The Company's ability to execute its growth strategy depends in large part
on its ability to identify and acquire desirable acquisition candidates. In
addition, the implementation of its growth strategy will depend on the Company's
ability to successfully integrate the acquired companies' operations and to
increase the market share of such businesses. The consolidation of operations of
acquired companies with those of the Company, the integration of systems,
procedures, personnel and facilities, the relocation of staff, and the
achievement of anticipated cost savings, economies of scale and other business
efficiencies present significant challenges to management, particularly if
several acquisitions proceed at the same time. There can be no assurance that
the Company will be able to continue to identify desirable acquisition
candidates, that any identified candidates will be acquired, that acquired
companies will be effectively integrated to fully realize expected cost savings,
economies of scale and business efficiencies, or that any such acquisitions will
prove to be profitable or accretive to the Company's earnings. The acquisition
of companies requires the expenditure of significant amounts of capital, and the
intense competition among companies, particularly publicly-owned competitors of
the Company, pursuing the same acquisition candidates may further increase such
capital requirements. In addition, the inability of the Company to account for
acquisitions under the pooling of interests method of accounting for a period
ending two years following the Distribution may impede its ability to complete
certain transactions. Furthermore, in order not to adversely impact the tax-free
status of the Distribution following the Distribution, the Company may be
required to refrain from issuing additional shares of its capital stock in a
single transaction or series of transactions related to the Distribution which,
when combined with the Class A Common Stock issued in the Offerings and any
shares of Common Stock sold by Parent prior to the Distribution, could cause a
50% or greater change in the vote or value of the outstanding capital stock of
the Company. In the event that acquisition candidates are not identifiable or to
the extent that acquisitions are prohibitively costly or dilutive to projected
earnings, the Company may be forced to alter its growth strategy.
14
18
As the Company continues to pursue its acquisition strategy in the future, its
financial condition, results of operations and prospects and the market price of
the Class A Common Stock may fluctuate significantly.
UNDISCLOSED LIABILITIES OF ACQUIRED BUSINESSES
There may be liabilities that the Company fails or is unable to discover in
the course of performing due diligence investigations on each company or
business it seeks to acquire, including liabilities arising from non-compliance
with certain federal, state or local environmental laws by prior owners and for
which the Company, as a successor owner, may be responsible. The Company
generally seeks to minimize its exposure to such liabilities by obtaining
indemnification from each seller of the acquired companies, which
indemnification obligation may be supported by deferring payment of a portion of
the purchase price. However, there can be no assurance that such
indemnifications, even if obtainable, will be enforceable, collectible or
sufficient in amount, scope or duration to fully offset the possible liabilities
arising from the acquisitions.
MANAGEMENT OF GROWTH
The Company's growth has placed, and execution of its growth strategy is
expected to continue to place, significant demands on its financial, operational
and management resources. In order to meet expected growth and to operate
independently of Parent as a stand-alone company, the Company will need to add
administrative and other personnel, and make additional investments in
operations and systems. There can be no assurance that the Company will be able
to find and train qualified personnel, or do so on a timely basis, or expand its
operations and systems to the extent and in the time required.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on certain key
executive officers. None of the Company's executive officers have employment
agreements and the Company does not maintain key man life insurance policies on
any of its executive officers. In addition, as a result of the Separation, the
Company will need to employ additional personnel for certain functions that were
previously performed by employees of Parent. Moveover, certain executive
officers of the Company intend to resign their positions with the Company prior
to the Distribution and new executives will need to be hired by the Company to
replace them. The loss of the services of key employees (whether such loss is
through resignation or other causes) or the inability to attract additional
qualified personnel could have a material adverse effect on the Company's
financial condition, results of operations and prospects and the market price of
the Class A Common Stock. See "Management."
ENVIRONMENTAL REGULATION
It may be necessary to expend considerable time, effort and capital to keep
the Company's existing and acquired facilities in compliance with applicable
federal, state and local requirements which regulate health, safety,
environment, zoning and land use. In addition, certain of the Company's waste
operations that traverse state boundaries could be adversely affected if the
federal government or the state or locality in which such operations are located
limits or prohibits, imposes discriminatory fees on or otherwise seeks to
discourage the transportation or disposal of solid waste. If environmental laws
become more stringent, the Company's environmental capital expenditures and
costs for environmental compliance may increase in the future. In addition, due
to the possibility of unanticipated events, including regulatory developments,
the amounts and timing of future environmental expenditures could vary
substantially from those currently anticipated. By virtue of the nature of its
operations, the Company has in the past and may in the future be named as a
potentially responsible party in connection with the investigation or
remediation of environmental conditions. There can be no assurance that the
resolution of such matters will not have a material adverse effect on the
financial condition, results of operations and prospects of the Company. The
Company currently provides for accrued environmental and landfill costs which
include landfill site closure and post-closure costs. At December 31, 1997,
assuming that all available landfill capacity is used, approximately $280.0
million of such costs are expected to be expensed over the remaining lives of
these facilities. There can be no assurance that the Company's reserves for
environmental and landfill costs will be adequate to cover requirements under
15
19
existing or new environmental regulations, future changes or interpretations of
existing regulations or the identification of adverse environmental conditions
previously unknown to the Company. See "Business -- Regulation" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental and Landfill Matters."
RISKS OF LEGAL PROCEEDINGS
The Company generally is and will continue to be involved in various
administrative and legal proceedings in the ordinary course of business. No
assurance can be given with respect to the outcome of these proceedings or the
effect such outcomes may have on the Company, or that the Company's insurance
coverages or reserves with respect thereto are adequate. Citizen's groups have
become increasingly active in challenging the grant or renewal of permits and
licenses for landfills and other waste facilities, and responding to such
challenges has further increased the costs and extended the time associated with
establishing new facilities or expanding existing facilities. A significant
judgment against the Company, the loss of significant permits or licenses, or
the imposition of a significant fine could have a material adverse effect on the
Company's financial condition, results of operations and prospects.
Except for routine litigation incidental to the business of the Company,
there are no pending material legal proceedings to which the Company is a party
or to which any of its property is subject. However, unfavorable resolution of
any proceedings to which the Company is a party could affect the consolidated
results of operations, or cash flows for the quarterly period in which they are
resolved.
SEASONALITY
The Company's operations can be adversely affected by periods of inclement
weather which could delay the collection and disposal of waste, reduce the
volume of waste generated or delay the construction or expansion of the
Company's landfill sites and other facilities.
SHARES ELIGIBLE FOR FUTURE SALE
Subject to applicable law and to the contractual restriction with the
Underwriters described below, Parent may sell any and all of the shares of
Common Stock it owns after completion of the Offerings. The Separation and
Distribution Agreement will provide that Parent will have the right in certain
circumstances to require the Company to use its best efforts to register for
resale shares of Common Stock held by Parent and its wholly owned subsidiaries.
See "Certain Transactions -- Separation and Distribution Agreement." Parent
intends to exercise its right to cause the Company to register for resale,
subject to the 180-day lock-up period described below, shares of Class A Common
Stock held by Parent and its wholly owned subsidiaries in order to sell such
shares for cash prior to the Distribution. In addition, prior to the
Distribution, Parent may acquire additional solid waste companies and contribute
them to the Company in exchange for additional shares of Common Stock and,
subject to the Company's lock-up described below, Parent may otherwise make
investments in the Company prior to the Distribution. The planned Distribution
would involve the distribution of an aggregate of approximately 101.0 million
shares of Class B Common Stock and approximately 23.0 million shares of Class A
Common Stock to the stockholders of Parent in 1999 (assuming that no shares of
Common Stock are disposed of or acquired by Parent between the Offerings Closing
Date and the Distribution Date). Shares of Class B Common Stock may convert into
shares of Class A Common Stock in certain circumstances. See "Description of
Capital Stock." Substantially all of the shares of Common Stock to be
distributed to Parent's stockholders in the Distribution will be eligible for
immediate resale in the public market. The Company is unable to predict whether
substantial amounts of Common Stock will be sold in the open market in
anticipation of, or following, the Distribution. Any sales of substantial
amounts of Common Stock in the public market, or the perception that such sales
might occur, whether as a result of the Distribution or otherwise, could
materially adversely affect the market price of the Class A Common Stock. The
Company and Parent have agreed, for a period of 90 days and 180 days,
respectively, after the date of this Prospectus, not to offer or sell any shares
of Common Stock, subject to certain exceptions (including the Distribution),
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") on behalf of the Underwriters; provided that the
Company may at any time and from time to time (i) issue shares of Class A Common
Stock to third parties as consideration for the Company's acquisition from such
16
20
third parties of non-hazardous solid waste businesses, (ii) grant options to
purchase shares of Common Stock under the Company's 1998 Stock Incentive Plan
and (iii) issue shares of Common Stock to Parent in connection with the
prepayment of the Affiliate Payable, the Resources Notes Payable and the
remaining amounts outstanding of the Company Notes and as consideration for the
Company's acquisition from Parent of a non-hazardous solid waste business, in
each case without the prior consent of Merrill Lynch. See "Shares Eligible for
Future Sale." Following the Offerings Closing Date, the Company may issue shares
of Class A Common Stock in connection with acquisitions, subject to the
Company's agreement with Parent not to issue any shares of capital stock that
would reduce Parent's ownership below the Required Distribution Percentage. See
"Certain Transactions -- The Separation and Distribution Agreement -- The
Distribution." In addition, the Company may also from time to time file
registration statements covering the issuance and/or resale of shares of Class A
Common Stock which may be issued in potential future acquisitions.
IMMEDIATE AND SUBSTANTIAL DILUTION
At an assumed initial public offering price of $25.50 per share, purchasers
of shares of Class A Common Stock in the Offerings will incur immediate and
substantial dilution of $21.69 per share in the net tangible book value of their
purchased shares of Class A Common Stock. See "Dilution." Investors may also
experience additional dilution as a result of shares of Common Stock being
issued in connection with future business acquisitions and as a result of the
issuance and exercise of employee stock options. See "Management -- Stock
Incentive Plan," "Certain Transactions -- Employee Benefit Agreement" and
"Shares Eligible for Future Sale."
NO DIVIDENDS
Following the Offerings Closing Date, the Company intends to retain all
earnings for the foreseeable future for use in the operation and expansion of
its business. Consequently, the Company does not anticipate paying any cash
dividends on its Common Stock to its stockholders for the foreseeable future. In
addition, it is probable that debt financing agreements to be entered into by
the Company will contain restrictions on the Company's ability to declare
dividends. See "Dividend Policy."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Class A
Common Stock. Although the Class A Common Stock has been approved for listing on
the NYSE, subject to official notice of issuance, there can be no assurance that
an active trading market for the Class A Common Stock will develop or be
sustained following the Offerings or that the market price of the Class A Common
Stock will not decline below the initial public offering price. The initial
public offering price will be determined by negotiation among the Company and
the Underwriters based upon several factors and may not be indicative of future
market prices or indicative of total shareholders' equity as reflected on its
balance sheet. The price at which the Class A Common Stock will trade will
depend upon a number of factors, including, but not limited to, the Company's
historical and anticipated operating results, announcements by the Company or
its competitors, and general market and economic conditions, some of which
factors are beyond the Company's control. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations. These broad
market fluctuations may adversely affect the market price of the Class A Common
Stock. See "Underwriting."
17
21
BACKGROUND OF THE OFFERINGS
SEPARATION AND DISTRIBUTION
Since 1995, Parent has acquired and developed numerous businesses in
several industries, which currently are operated in three broad business
segments, consisting of automotive retail, vehicle rental and solid waste
services. Parent has announced that, subject to certain conditions, Parent
intends to separate the Company, which owns and operates the Parent's solid
waste services business, from Parent's other operations and businesses, to
complete the Offerings, and to distribute to its stockholders in 1999 all of the
Common Stock then owned by Parent. See "Risk Factors -- Risk of Noncompletion of
the Distribution; Failure to Obtain Favorable Letter Ruling."
As a part of Parent, the solid waste companies that now comprise the
Company on a consolidated basis historically have operated as a group of
subsidiaries wholly owned, directly and indirectly, by the Company. The
Separation will establish the Company as a stand-alone entity with objectives
separate from those of Parent. The Company intends to focus its resources and
management emphasis on the operations and markets it views as critical to its
long-term success as a stand-alone entity.
Prior to the Offerings Closing Date and after effecting the Resources
Dividend, Parent will effect the Separation in part by causing all of the common
stock of Resources to be distributed by the Company to Parent. Resources is a
subsidiary of the Company and substantially all of its assets and liabilities
relate to Parent's automotive retail businesses, and do not relate to the
Company's solid waste services businesses. The Company's financial statements
exclude the accounts of Resources. In addition, prior to the Offerings Closing
Date, certain subsidiaries engaged in the solid waste services business and
wholly owned, directly and indirectly, by the Company will be reorganized
internally within the Company's consolidated group of subsidiaries. Prior to the
Distribution, certain subsidiaries engaged in automotive operations and wholly
owned, directly or indirectly, by Parent will be reorganized internally within
Parent's consolidated group of automotive subsidiaries, which will require
certain approvals from third parties. The Company and Parent intend to enter
into a Separation and Distribution Agreement (the "Separation and Distribution
Agreement") and certain other agreements providing for the Separation, the
Offering, the Distribution and the provision by Parent of certain interim
services to the Company, and addressing employee benefit arrangements, and tax
and other matters. See "Certain Transactions." Other than as discussed in
"Certain Transactions," the Company and Parent have no present plan or intention
to enter into any transactions or contracts with each other.
On the Offerings Closing Date, Parent will own approximately 70.9% of the
outstanding Common Stock (66.6% if the Underwriters exercise their
over-allotment options in full), which will represent approximately 91.2% of the
combined voting power of all of the outstanding shares of Class A Common Stock
and Class B Common Stock (89.9% if the Underwriters exercise their
over-allotment options in full). Following the Offerings Closing Date, Parent
and the Company will take all reasonable steps necessary and appropriate to
cause all conditions to the Distribution to be satisfied and to effect the
Distribution of the Common Stock held by Parent to Parent's stockholders. See
"Certain Transactions -- Separation and Distribution Agreement -- The
Distribution." Prior to the Distribution Date, Parent and its wholly owned
subsidiaries may sell, subject to its lock-up agreement with the Underwriters,
shares of Class A Common Stock to raise cash. In that regard, the Company has
granted to Parent and its wholly owned subsidiaries certain registration rights
with respect to shares of Common Stock held by Parent and its wholly owned
subsidiaries. Prior to the Distribution Date, Parent may convert shares of Class
B Common Stock into shares of Class A Common Stock in order to resell such
shares to raise cash. However, Parent currently intends to retain enough shares
of Common Stock such that the Distribution will qualify as a tax-free
distribution under Section 355 of the Code. Parent is required to retain at
least 80% of the total voting interest in the Company in order to meet one of
the conditions to obtaining a Letter Ruling and therefore Parent intends to
retain at least approximately 92.8 million shares of Class B Common Stock
(assuming a total of 175.0 million shares of Common Stock are issued and
outstanding following the Offerings Closing Date) until the Distribution is
completed. At the time of the Distribution, Parent intends to distribute all
shares of Common Stock then held by it, including any shares of Class A Common
Stock not sold prior to that time and any shares of Class B Common Stock not
previously converted into Class A Common Stock, so that Parent will own no
shares of Common Stock upon completion
18
22
of the Distribution. Following the Distribution, there are restrictions on the
conversion of Class B Common Stock into Class A Common Stock. See "Description
of Capital Stock -- Conversion."
Several business purposes underlie the proposed Distribution. Parent
desires to access the capital markets and has determined that raising funds
through the completion by the Company of the Offerings will maximize value to
Parent and its stockholders. The completion of the Offerings will allow the
Company to prepay a portion of the Company Notes payable to Parent. Parent
intends to use the funds received from the Company for Parent's future
acquisitions, particularly in its automotive retail operations, and for Parent's
other corporate purposes.
The Company and Parent believe that the foregoing arrangement provides the
most effective source of capital for both Parent and the Company and is part of
the initial capitalization of the Company as a stand-alone entity. Parent and
the Company believe that such arrangement provides each entity with the most
prudent capital structures to realize their respective growth strategies as
separate, stand-alone entities, based on the Company's and Parent's prospective
capitalization and financing requirements, acquisition strategies, working
capital requirements, projected cash flow from operations and desired credit
ratings, respectively.
In addition to raising capital for Parent, the Company and Parent believe
that the Distribution will enhance the Company's ability to implement its growth
and operating strategies. As part of Parent, cash flow generated by the Company
has been used to support growth in Parent's other business segments. The Company
desires to be able to devote all of its cash flow to support its own operations
and future growth. Following the Offerings Closing Date, the Company's cash flow
will be devoted solely to support the Company's operations and future growth. In
addition, the Company believes that its future growth would be enhanced if its
management were compensated on a separate basis from Parent. Similarly, Parent
believes that its future growth would be enhanced if management of its remaining
business segments were more focused on such segments without also being
responsible for the solid waste segment. Finally, upon completion of the
Distribution, holders of Parent Common Stock as of the record date for the
Distribution will be entitled to receive a dividend of Common Stock without the
payment of further consideration, although Parent expects the market value of
shares of Parent Common Stock to diminish upon effecting the Distribution to
reflect the value (per share of Parent Common Stock) of the shares of Common
Stock distributed by Parent.
The Company believes that its capitalization and cash flow from operations
and ability to obtain short-term and long-term debt financings will be
sufficient to satisfy its future working capital, capital expenditures,
acquisitions and debt service requirements. The Company also believes that it
will be able to procure bid and performance bonds, to arrange for revolving
lines of credit and other financing as necessary, and to engage in hedging
transactions, on commercially acceptable terms. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Pro Forma Financial
Condition" and "Risk Factors -- Future Capital Requirements; Absence of Parent
Funding."
CONDITIONS TO THE DISTRIBUTION
In accordance with the Separation and Distribution Agreement, completion of
the Distribution will be subject to the satisfaction, or waiver by the Parent
Board, in its sole discretion, of the following conditions: (i) a Letter Ruling
shall have been obtained and remain effective to the effect that, among other
things, the Distribution will qualify as a tax-free distribution for federal
income tax purposes under Section 355 of the Code, and will not result in
recognition of any gain or loss for federal income tax purposes to Parent, the
Company, or Parent's or the Company's respective stockholders, and such ruling
shall be in form and substance satisfactory to Parent, in its sole discretion;
(ii) any material Governmental Approvals and Consents (as such terms are defined
in the Separation and Distribution Agreement) necessary to consummate the
Distribution shall have been obtained and shall be in full force and effect;
(iii) no order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Distribution shall be in effect, and no other event outside the control
of Parent shall have occurred or failed to occur that prevents the consummation
of the Distribution; and (iv) no other events or developments shall have
occurred subsequent to the closing of the Offerings that, in the judgment of the
Parent Board, would result in the Distribution having a material adverse effect
on Parent or on the
19
23
stockholders of Parent. Parent intends to apply for a Letter Ruling promptly.
The Parent Board will have the sole discretion to fix the record date for the
Distribution and fix the Distribution Date, at any time within three months
following the satisfaction or waiver of all of the conditions to the
Distribution, including the receipt of the Letter Ruling. It is currently
contemplated that the Letter Ruling will not be received until sometime in 1999.
The record date to determine holders of Parent Common Stock entitled to receive
shares of Common Stock in the Distribution shall be fixed by the Parent Board in
accordance with the Delaware law and the Certificate of Incorporation and bylaws
of Parent. Under Delaware law, a record date for purposes of a distribution may
not be fixed more than 60 days prior to the date of such distribution, and
therefore Parent Board will not be able to fix or announce the record date for
the Distribution until after it receives the Letter Ruling sometime in 1999.
Only those persons who hold Parent Common Stock on the record date for the
Distribution will be entitled to receive shares of Common Stock in the
Distribution. Parent has agreed to consummate the Distribution, subject to the
satisfaction, or waiver by the Parent Board, in its sole discretion, of the
conditions set forth above. Parent may terminate the obligation to consummate
the Distribution if the Distribution has not occurred by December 31, 1999. In
addition, the Separation and Distribution Agreement may be amended or terminated
at any time prior to the Distribution Date by the Company and Parent. No rights
of appeal exist if a Letter Ruling is not obtained. If a Letter Ruling is not
obtained, then Parent does not plan to complete the Distribution. See "Risk
Factors -- Risk of Noncompletion of the Distribution; Failure to Obtain
Favorable Letter Ruling," "Risk Factors -- Control of Company" and "Certain
Transactions."
USE OF PROCEEDS
The net proceeds to the Company from the Offerings, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, are estimated to be $1,230.0 million ($1,415.3 million if the
Underwriters exercise their over-allotment options in full) at an assumed
initial public offering price of $25.50 per share, which is the midpoint of the
estimated range set forth on the cover page of this Prospectus. On the Offerings
Closing Date, all of the net proceeds to the Company will be used to prepay in
part certain outstanding amounts of the Company Notes payable to Parent. The
Company Notes were issued in April 1998 in payment of the $2.0 billion dividend
declared by the Company at that time. The Company Notes bear interest at a rate
of LIBOR plus 30 basis points per annum and mature April 12, 1999. Prior to the
Offerings Closing Date, approximately $83.1 million of the Company Notes will be
prepaid by the Company's transfer to Parent of the Resources Note Receivable.
The Resources Dividend will be in the amount of approximately $501.6 million,
based on the estimated $1,230.0 million of net proceeds from the Offerings as
described above, and the assets received by the Company from Resources (which
will be a subsidiary of Parent following the Offerings) will be applied to
prepay in part the Company Notes prior to the Offerings Closing Date. The
balance of the Company Notes remaining outstanding after the Offerings Closing
Date, which will be equal to approximately $185.3 million based on the estimated
$1,230.0 million of net proceeds from the Offerings, the approximately $83.1
million Resources Note Receivable and the estimated $501.6 million Resources
Dividend described above, will be prepaid in full within 31 days after the
Offerings Closing Date with the net proceeds, if any, from the exercise of the
Underwriters' over-allotment options and the issuance of shares of Class A
Common Stock valued at the initial public offering price per share. See "Certain
Transactions -- Dividend and Intercompany Debt Repayments."
DIVIDEND POLICY
After the Offerings Closing Date, the Company does not intend to pay cash
dividends on the Common Stock for the foreseeable future because it intends to
retain all earnings for use in the operation and expansion of the Company's
business. Furthermore, the Company's ability to declare or pay dividends may be
limited in the future by the terms of any then-existing credit facilities which
may contain covenants which restrict the payment of cash dividends. Holders of
Class A Common Stock and Class B Common Stock have identical rights as to cash
dividends, which if declared would be payable on a pro rata basis to all holders
of Common Stock. See "Description of Capital Stock -- Common
Stock -- Dividends."
20
24
CAPITALIZATION
(IN MILLIONS)
The following table sets forth as of March 31, 1998 the Company's (i) total
debt (including current maturities) and capitalization, (ii) total debt
(including current maturities) and capitalization on a pro forma basis after
giving effect to the issuance of the Company Notes in April 1998 and (iii) total
debt (including current maturities) and capitalization, as adjusted to give
effect to the application of the estimated net proceeds to the Company from the
Offerings and the other transactions and events described in "Unaudited
Condensed Consolidated Pro Forma Financial Statements." See "Description of
Capital Stock" and "Use of Proceeds." This table should be read in conjunction
with the Company's Consolidated Financial Statements and "Unaudited Condensed
Consolidated Pro Forma Financial Statements" included elsewhere in this
Prospectus.
MARCH 31, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
Current debt:
Due to affiliate........................................ $ 114.8 $ 114.8 $ --
Notes payable and current maturities of long-term
debt................................................. 11.7 11.7 11.7
Notes payable to Resources.............................. 130.9 130.9 --
Company Notes payable to Parent......................... -- 2,000.0 --
-------- -------- --------
Total current debt................................... 257.4 2,257.4 11.7
-------- -------- --------
Long-term debt, net of current maturities................. 61.4 61.4 61.4
-------- -------- --------
Total debt...................................... 318.8 2,318.8 73.1
-------- -------- --------
Shareholders' equity (deficit):
Investment by Parent.................................... 887.3 (1,112.7) --
Preferred stock......................................... -- -- --
Common stock:
Class A Common Stock................................. -- -- 0.7
Class B Common Stock................................. -- -- 1.0
Additional paid-in capital.............................. -- -- 1,131.3
-------- -------- --------
Total shareholders' equity (deficit)................. 887.3 (1,112.7) 1,133.0
-------- -------- --------
Total capitalization............................ $1,206.1 $1,206.1 $1,206.1
======== ======== ========
21
25
DILUTION
The Company's pro forma net tangible book value as of March 31, 1998 was a
deficit of $1,579.4 million (excluding intangible assets totaling $466.7
million) or $(15.22) per share of Common Stock. Pro forma net tangible book
value per share represents the amount of the Company's total tangible assets
less its total liabilities, divided by the total number of shares of Common
Stock outstanding after giving effect to (a) the issuance of the Company Notes
payable to Parent in the aggregate amount of $2.0 billion in connection with the
dividend to Parent in April 1998 and (b) the assumed recapitalization of the 100
shares of common stock of the Company which are currently outstanding into 103.8
million shares of Class B Common Stock as if these transactions and events
occurred on March 31, 1998.
After giving effect to the transactions and events described in "Unaudited
Condensed Consolidated Pro Forma Financial Statements," the pro forma net
tangible book value as of March 31, 1998 would have been approximately $666.3
million or $3.81 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $19.03 per share to the
existing stockholder and an immediate dilution in net tangible book value of
$21.69 per share to purchasers of Class A Common Stock in the Offerings, as
illustrated in the following table:
Assumed initial public offering price per share...................... $25.50
Pro forma net tangible book value per share at March
31, 1998.............................................. (15.22)
Increase per share attributable to the Resources
Dividend in the amount of $501.6 million.............. 4.83
Increase per share attributable to the issuance of 12.9
million shares of Class A Common Stock to repay in
full the Affiliate Payable and the Resources Notes
Payable in the aggregate amount of $328.8
million(a)............................................ 2.82
Increase per share attributable to the issuance of 7.3
million shares of Class A Common Stock to prepay all
remaining amounts outstanding of the Company Notes
payable to Parent in the amount of $185.3
million(b)............................................ 1.49
Increase per share attributable to new investors....... 9.89
Pro forma net tangible book value per share after the Offerings...... 3.81
------
Dilution in pro forma net tangible book value per share to new
investors.......................................................... $21.69
======
- ---------------
(a) The Company currently anticipates that the aggregate amount of the
outstanding Affiliate Payable and Resources Note Payable at the Offerings
Closing Date will be equal to approximately $400.0 million and that 15.7
million shares of Class A Common Stock will be issued prior to the Offerings
Closing Date to satisfy such outstanding amounts in full, based on an
assumed initial public offering price of $25.50 per share.
(b) Net proceeds, if any, received by the Company from the exercise of the
Underwriters' over-allotment options will be used to prepay amounts
outstanding under the Company Notes and, in such event, the number of shares
of Class A Common Stock issued to Parent will be reduced accordingly.
The following table sets forth, as of March 31, 1998, the difference
between the total consideration paid and the average price per share paid by
Parent and by purchasers of shares in the Offerings, before deduction of the
underwriting discounts and commissions and estimated offering expenses and after
giving effect to the transactions and events described in "Unaudited Condensed
Consolidated Pro Forma Financial Statements:"
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ------- ------------- ------- ---------
(IN MILLIONS) (IN MILLIONS)
Existing stockholder.......... 124.0 70.9% $ -- 0.0% $ --
New investors................. 51.0 29.1 1,300.5 100.0 25.50
----- ----- -------- ----- ------
Total............... 175.0 100.0% $1,300.5 100.0% $ 7.43
===== ===== ======== ===== ======
At the Offerings Closing Date, there will be no outstanding stock options
to purchase shares of Common Stock. Upon completion of the Distribution, the
Company intends to issue substitute options under the Company's 1998 Stock
Incentive Plan in substitution for stock option grants under Parent's stock
option plans held by employees of the Company as of the Distribution Date. Such
substitute options will provide for the
22
26
purchase of a number of shares of Class A Common Stock determined based on a
ratio of average trading prices of Parent Common Stock and Class A Common Stock
immediately prior to the Distribution. For a more detailed discussion of such
substitution methodology, see "Certain Transactions -- Employee Benefits
Agreement." As of June 12, 1998, there were outstanding stock options for
approximately 7.3 million shares of Parent Common Stock at a weighted average
exercise price of $19.71 per share held by employees of the Company
(approximately 2.4 million of which were exercisable as of June 12, 1998). If
substitute options to purchase Class A Common Stock were granted in respect of
these options to purchase Parent Common Stock based upon the closing price of
the Parent Common Stock on June 12, 1998 on the NYSE ($24.875 per share) and a
price of $25.50 per share of Class A Common Stock (the midpoint of the estimated
range set forth on the cover page of this Prospectus), the Company would grant
substitute stock options to purchase approximately 7.1 million shares of Class A
Common Stock at a weighted average exercise price of $20.21. However, it is not
possible to specify how many shares of Class A Common Stock will be subject to
such stock options at the time of the Distribution, as it is not known how many
stock options will remain unexercised and outstanding by the record date for the
Distribution. If these options are exercised, further dilution to new investors
will occur. The Company may also issue additional shares of Common Stock to
effect future business acquisitions or upon exercise of future stock option
grants or equity awards, which could also result in additional dilution to then
existing stockholders. See "Management -- Stock Incentive Plan" and "Certain
Transactions -- Separation and Distribution Agreement" and "-- Employee Benefits
Agreement."
23
27
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table presents selected consolidated statement of operations
and balance sheet data of the Company for the periods and the dates indicated.
The selected statement of operations data for each of the full fiscal years
1997, 1996 and 1995, and the selected balance sheet data at December 31, 1997
and 1996, presented below, were derived from the Company's Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent certified public accountants. The selected statement of operations
data of the Company for each of the full fiscal years 1994 and 1993, and the
selected balance sheet data at December 31, 1995, 1994 and 1993 presented below
were derived from the unaudited consolidated financial statements of the
Company, which in the opinion of management reflect all adjustments (consisting
of only normal recurring adjustments) necessary for a fair presentation of such
data. The selected statement of operations data for the three months ended March
31, 1998 and 1997 and the selected balance sheet data at March 31, 1998 were
derived from unaudited interim consolidated financial statements included
elsewhere in this Prospectus. The unaudited interim consolidated financial
statements include all material adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
its financial position and results of operations for these periods. Operating
results for the three months ended March 31, 1998 are not necessarily indicative
of the results that may be expected for a full year. The selected consolidated
financial data below should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto as of March 31, 1998
(unaudited) and December 31, 1997 and 1996 and for the three months ended March
31, 1998 and 1997 (unaudited) and for each of the three years in the period
ended December 31, 1997 included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." See
Notes 3, 7, 10, 11 and 13 of Notes to Consolidated Financial Statements for a
discussion of business combinations, investment by Parent, restructuring and
other charges, discontinued operations and subsequent events and their effect on
comparability of year-to-year data.
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenue............................................... $300.8 $263.2 $1,127.7 $ 953.3 $ 805.0 $ 610.1 $ 485.5
Expenses:
Cost of operations.................................. 209.7 190.3 809.1 703.6 570.1 434.0 388.9
Selling, general and administrative................. 32.1 31.9 117.3 135.3 137.7 115.0 69.8
Restructuring and other charges..................... -- -- -- 8.8 3.3 -- 10.0
------ ------ -------- -------- -------- -------- --------
Operating income...................................... 59.0 41.0 201.3 105.6 93.9 61.1 16.8
Interest expenses..................................... (5.4) (7.6) (25.9) (29.7) (19.1) (13.2) (6.6)
Interest and other income (expense), net.............. 0.8 3.0 6.7 13.9 6.2 (4.0) (3.8)
------ ------ -------- -------- -------- -------- --------
Income (loss) from continuing operations before income
taxes............................................... 54.4 36.4 182.1 89.8 81.0 43.9 6.4
Provision for income taxes............................ 19.6 13.2 65.9 38.0 31.6 17.0 3.9
------ ------ -------- -------- -------- -------- --------
Income (loss) from continuing operations.............. 34.8 23.2 116.2 51.8 49.4 26.9 2.5
Loss from discontinued operations..................... -- -- -- -- (24.8) (5.4) (10.9)
------ ------ -------- -------- -------- -------- --------
Net income (loss)(a).................................. $ 34.8 $ 23.2 $ 116.2 $ 51.8 $ 24.6 $ 21.5 $ (8.4)
====== ====== ======== ======== ======== ======== ========
DECEMBER 31,
MARCH 31, ----------------------------------------------------
1998(B) 1997 1996 1995 1994 1993
----------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
-------------------------
BALANCE SHEET DATA:
Total assets............................................. $1,488.2 $1,348.0 $1,090.3 $ 838.9 $ 681.1 $ 672.8
Due to affiliate......................................... 114.8 107.8 49.3 86.3 8.6 4.0
Notes payable to Resources............................... 130.9 158.3 205.6 38.7 18.8 15.6
Total debt, net of current maturities.................... 61.4 64.3 109.5 124.8 179.2 117.5
Total shareholder's equity............................... 887.3 750.8 494.5 372.2 272.4 230.3
(a) Historical net income per share has not been presented because it would not
be meaningful. Prior to the Offerings Closing Date, the Company had only 100
shares of common stock outstanding, all of which were owned by Parent.
(b) In April 1998, the Company declared a $2.0 billion dividend to Parent paid
through issuance of Company Notes payable to Parent. The pro forma effect of
this event on the Company's March 31, 1998 financial position, assuming it
occurred on March 31, 1998, would have been to issue Company Notes payable
to Parent in the amount of $2.0 billion and to decrease shareholder's equity
by $2.0 billion resulting in a shareholder's deficit of $1.1 billion.
24
28
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Condensed Consolidated Pro Forma Financial
Statements reflect the effects of adjustments to the historical financial
condition and results of operations of the Company. The Unaudited Condensed
Consolidated Pro Forma Financial Statements should be read in conjunction with
the Consolidated Financial Statements and other financial information elsewhere
in this Prospectus.
The following Unaudited Condensed Consolidated Pro Forma Statements of
Operations for the Three Months Ended March 31, 1998 and for the Year Ended
December 31, 1997 give effect to the following transactions and events as if
they occurred at the beginning of the periods presented: (i) the issuance of the
Company Notes payable to Parent in the aggregate amount of $2.0 billion in
connection with the dividend to Parent in April 1998; (ii) the prepayment of
$584.7 million of the Company Notes payable to Parent using certain assets to be
received from the Resources Dividend and the Resources Note Receivable; (iii)
the repayment in full of the Resources Notes Payable and the Affiliate Payable,
which equaled approximately $214.0 million and $114.8 million, respectively, as
of March 31, 1998, through the issuance by the Company of 12.9 million shares of
Class A Common Stock (at an assumed initial public offering price of $25.50 per
share, which is the midpoint of the estimated range set forth on the cover page
of this Prospectus); (iv) the sale and issuance of 51.0 million shares of Class
A Common Stock in the Offerings (at an assumed initial public offering price of
$25.50 per share, which is the midpoint of the estimated range set forth on the
cover page of this Prospectus) and the application of net proceeds therefrom to
prepay $1,230.0 million of the Company Notes payable to Parent; (v) the issuance
to Parent of 7.3 million shares of Class A Common Stock (at an assumed initial
public offering price of $25.50 per share, which is the midpoint of the
estimated range set forth on the cover page of this Prospectus) to prepay
approximately $185.3 million which will constitute all remaining amounts
outstanding of the Company Notes payable to Parent within 31 days following the
Offerings Closing Date, assuming that the Underwriters' over-allotment options
are not exercised; (vi) the reclassification of the investment by Parent to
103.8 million shares of Class B Common Stock and additional paid-in capital of
the Company; and (vii) the tax effect of the foregoing. The following Unaudited
Condensed Consolidated Pro Forma Balance Sheet gives effect to the transactions
and events described in clauses (i) through (vi) above as if they occurred on
March 31, 1998.
The historical results of operations of the Company reflect an allocation
of a portion of Parent's corporate general and administrative costs. Following
the Offerings Closing Date various corporate services will be provided by Parent
to the Company based upon fees payable by the Company to Parent under a services
agreement to be entered into between the Company and Parent. The annual fee
under the Services Agreement will be $15.0 million in 1998 and the corporate
general and administrative costs allocated to the 1997 historical financial
statements was $10.2 million. The methodology used to determine fees under the
Services Agreement and to allocate costs in the historical financial statements
is consistent. The increase is due to the actual and estimated growth of the
Company in 1998 and 1999. Accordingly, no pro forma adjustment has been made to
reflect such fees in lieu of the corporate general and administrative cost
allocation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview" and "-- Pro Forma Financial Condition."
Historical net income per share has not been presented because it would not
be meaningful. Prior to the Offerings Closing Date, the Company had only 100
shares of common stock outstanding, all of which were owned by Parent. Prior to
the Offerings Closing Date, the Company will amend and restate the Certificate
to authorize two classes of Common Stock consisting of Class A Common Stock and
Class B Common Stock. Prior to the Offerings Closing Date, all outstanding
shares of common stock of the Company held by Parent will be converted into
shares of Class B Common Stock, which will constitute 100% of the outstanding
shares of Class B Common Stock. Unaudited pro forma net income per common share
is calculated based on net income after giving effect to the transactions and
events described in clauses (i) through (vi) above, divided by the number of
shares of Class A Common Stock and Class B Common Stock to be outstanding after
the Offerings Closing Date.
Management believes that the assumptions used provide a reasonable basis on
which to present the unaudited condensed consolidated pro forma financial data.
The Unaudited Condensed Consolidated Pro Forma Financial Statements are provided
for informational purposes only and should not be construed to be indicative of
the Company's consolidated financial position or results of operations had the
transactions and events described above been consummated on the dates assumed
and do not project the Company's financial condition or results of operations
for any future date or period.
25
29
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
Revenue................................................... $ 300.8 $ $ 300.8
Expenses:
Cost of operations...................................... 209.7 209.7
Selling, general and administrative..................... 32.1 32.1
-------- -------- --------
Operating income.......................................... 59.0 59.0
Interest expense.......................................... (5.4) 4.8(a) (0.6)
Interest and other income................................. 0.8 0.8
-------- -------- --------
Income before income taxes................................ 54.4 4.8 59.2
Provision for income taxes................................ (19.6) (1.8)(b) (21.4)
-------- -------- --------
Net income................................................ $ 34.8 $ 3.0 $ 37.8
======== ======== ========
Pro forma net income per share............................ $ 0.22
========
Pro forma weighted average shares outstanding............. 175.0
========
The accompanying notes are an integral part of this statement.
26
30
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
Revenue................................................... $1,127.7 $ $1,127.7
Expenses:
Cost of operations...................................... 809.1 809.1
Selling, general and administrative..................... 117.3 117.3
-------- -------- --------
Operating income.......................................... 201.3 201.3
Interest expense.......................................... (25.9) 20.2(a) (5.7)
Interest and other income................................. 6.7 6.7
-------- -------- --------
Income before income taxes................................ 182.1 20.2 202.3
Provision for income taxes................................ (65.9) (7.5)(b) (73.4)
-------- -------- --------
Net income................................................ $ 116.2 $ 12.7 $ 128.9
======== ======== ========
Pro forma net income per share............................ $ 0.74
========
Pro forma weighted average shares outstanding............. 175.0
========
The accompanying notes are an integral part of this statement.
27
31
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
(IN MILLIONS)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
Current assets
Cash and cash equivalents............................... $ -- $ $ --
Accounts receivable, net................................ 139.0 139.0
Prepaid expenses and other current assets............... 45.2 45.2
-------- -------- --------
Total current assets............................ 184.2 184.2
Property and equipment, net............................. 826.5 826.5
Intangible and other assets, net........................ 477.5 477.5
-------- -------- --------
Total assets.................................... $1,488.2 $ $1,488.2
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities................ $ 112.1 $ $ 112.1
Due to affiliate........................................ 114.8 (114.8)(e) --
Notes payable and current maturities of long-term
debt................................................. 11.7 11.7
Notes payable to Resources.............................. 130.9 83.1(d) --
(214.0)(e)
Company Notes payable to Parent......................... -- 2,000.0(c) --
(584.7)(d)
(1,230.0)(f)
(185.3)(g)
Deferred revenue and other current liabilities.......... 60.7 60.7
-------- -------- --------
Total current liabilities....................... 430.2 (245.7) 184.5
Long-term debt, net of current maturities............... 61.4 61.4
Deferred income taxes and other liabilities............. 109.3 109.3
-------- -------- --------
Total liabilities............................... 600.9 (245.7) 355.2
-------- -------- --------
Shareholders' equity
Investment by Parent.................................... 887.3 (2,000.0)(c) --
501.6(d)
611.1(h)
Preferred stock......................................... -- --
Common stock
Class A Common Stock................................. -- 0.1(e) 0.7
0.5(f)
0.1(g)
Class B Common Stock................................. -- 1.0(h) 1.0
Additional paid-in capital.............................. -- 328.7(e) 1,131.3
1,229.5(f)
185.2(g)
(612.1)(h)
-------- -------- --------
Total shareholders' equity...................... 887.3 245.7 1,133.0
-------- -------- --------
Total liabilities and shareholders' equity...... $1,488.2 $ -- $1,488.2
======== ======== ========
The accompanying notes are an integral part of this statement.
28
32
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
The following is a summary of the pro forma adjustments reflected in the
Unaudited Condensed Consolidated Pro Forma Financial Statements:
(a) Adjust historical interest expense to eliminate interest expense on the
Resources Notes Payable assumed to have been repaid at the beginning of
the period presented.
(b) Recognize income taxes on the pro forma adjustment described above.
(c) The issuance of the Company Notes payable to Parent in the aggregate
amount of $2.0 billion in connection with the dividend by the Company in
April 1998 to the Parent.
(d) The prepayment of $584.7 million of the Company Notes payable to Parent
using certain assets to be received from the Resources Dividend in the
amount of approximately $501.6 and the Resources Note Receivable in the
amount of approximately $83.1 million.
(e) The repayment in full of the Resources Notes Payable and the Affiliate
Payable through the issuance by the Company of 12.9 million shares of
Class A Common Stock (at an assumed initial public offering price of
$25.50 per share, which is the midpoint of the estimated range set forth
on the cover page of this Prospectus). It is presently anticipated that
the aggregate amount of the outstanding Affiliate Payable and Resources
Notes Payable at the Offerings Closing Date will be equal to $400.0
million and that 15.7 million shares of Class A Common Stock will be
issued prior to the Offerings Closing Date to satisfy such outstanding
amounts in full, based on an assumed initial public offering price of
$25.50 per share, which is the midpoint of the estimated range set forth
on the cover page of this Prospectus.
(f) The sale and issuance of 51.0 million shares of Class A Common Stock in
the Offerings (at an assumed initial public offering price of $25.50 per
share, which is the midpoint of the estimated range set forth on the cover
page of this Prospectus) and the application of the net proceeds therefrom
to prepay $1,230.0 million of the Company Notes payable to Parent.
(g) The issuance to Parent of 7.3 million shares of Class A Common Stock (at
an assumed initial public offering price of $25.50 per share, which is the
midpoint of the estimated range set forth on the cover page of this
Prospectus) to prepay all remaining amounts outstanding of the Company
Notes payable to Parent within 31 days following the Offerings Closing
Date.
(h) The reclassification of the investment by Parent to 103.8 million shares
of Class B Common Stock and additional paid-in capital of the Company.
29
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto of the Company, a wholly
owned subsidiary of Parent, and the Unaudited Condensed Consolidated Pro Forma
Financial Statements of the Company both of which are included elsewhere herein.
OVERVIEW
Prior to the Offerings Closing Date, the Company has been a wholly owned
subsidiary of Parent. As a wholly owned subsidiary, the Company has received
services provided by Parent, including accounting, auditing, cash management,
corporate communications, corporate development, financial and treasury, human
resources and benefit plan administration, insurance and risk management, legal,
purchasing and tax services. Parent has also provided the Company with the
services of a number of its executives and employees. In consideration for these
services, Parent has allocated a portion of its overhead costs related to such
services to the Company. This allocation has historically been based on the
proportion of invested capital of the Company as a percentage of the
consolidated invested capital of Parent and its subsidiaries (including the
Company). Management of the Company believes that the amounts allocated to the
Company have been no less favorable to the Company than costs the Company would
have incurred to obtain such services on its own or from unaffiliated third
parties.
The historical consolidated financial information included in this
Prospectus does not necessarily reflect what the Company's financial position
and results of operations would have been had the Company been operated as a
separate, stand-alone entity during the periods presented.
GENERAL
The Company is a leading provider of non-hazardous solid waste collection
and disposal services in the United States. The Company provides solid waste
collection services for commercial, industrial, municipal and residential
customers through 96 collection companies in 24 states. The Company also owns or
operates 54 transfer stations and 42 solid waste landfills.
The Company's revenue is generated primarily from its solid waste
collection operations, with the remainder comprised of revenue from landfill
disposal services and other services including recycling and composting
operations. Collection, landfill disposal and other services accounted for
approximately 73.8%, 12.4% and 13.8% of consolidated revenue for the year ended
December 31, 1997, respectively.
Revenue from collection operations consists of fees from commercial,
industrial, municipal and residential customers. In 1997, the Company's revenue
from collection services was derived approximately one-third from services
provided to commercial customers, one-third from services provided to industrial
customers and one-third from services provided to municipal and residential
customers. Residential and commercial collection operations in certain markets
are performed under long-term contracts with municipalities. Industrial and
commercial collection operations generally are provided to individual customers
on a contractual basis with terms up to three years. Revenue from landfill
disposal operations consists of tipping fees charged to third parties. Recycling
operations are generally integrated with collection operations with revenue
derived through the sale of recyclable materials.
Cost of operations for the Company's collection operations is primarily
variable and includes disposal, labor, fuel and equipment maintenance costs. The
Company seeks to achieve a high rate of waste internalization by controlling
waste streams from the point of collection through disposal. During the quarter
ended March 31, 1998, approximately 41% of the total volume of waste collected
by the Company was disposed of at the Company's landfills. Landfill cost of
operations includes most daily operating expenses, the legal and administrative
costs of ongoing environmental compliance, costs of capital for cell development
and accruals for closure and post-closure costs. Certain direct landfill
development costs, such as engineering, upgrading, cell construction and
permitting costs, are capitalized and depleted based on consumed airspace. All
indirect landfill development costs are expensed as incurred.
30
34
BUSINESS COMBINATIONS
The Company and Parent make decisions to acquire or invest in businesses
based on financial and strategic considerations.
Parent has acquired various businesses operating in the solid waste
services industry using cash and shares of Parent Common Stock. These businesses
were contributed by Parent to the Company subsequent to their acquisition. The
Company has applied the same accounting method used by Parent in accounting for
business combinations.
Significant businesses acquired and accounted for under the pooling of
interests method of accounting have been included retroactively in the
Consolidated Financial Statements as if the companies had operated as one entity
since inception. Businesses acquired and accounted for under the purchase method
of accounting are included in the Consolidated Financial Statements from the
date of acquisition.
During the three months ended March 31, 1998, Parent acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Parent in transactions accounted for under the purchase
method of accounting was $101.7 million consisting of cash and 2.6 million
shares of Parent Common Stock. Cost in excess of the fair value of net assets
acquired in these acquisitions totaled $109.7 million. As of March 31, 1998, the
Company had intangible assets, net of accumulated amortization, of $466.7
million which consists primarily of the cost in excess of fair value of net
assets acquired. Cost in excess of the fair value of net assets acquired is
amortized over forty years on a straight-line basis. As of March 31, 1998,
amortization expense associated with these intangible assets on an annualized
basis is approximately $14.0 million. The Company believes the forty year life
assigned to the cost in excess of the fair value of net assets acquired is
reasonable as the businesses acquired are generally well established companies
which have been in existence for many years and have stable, long-term customer
relationships.
During the year ended December 31, 1997, Parent acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Parent in transactions accounted for under the purchase
method of accounting was $147.9 million, consisting of cash and 5.7 million
shares of Parent Common Stock. Cost in excess of the fair value of net assets
acquired in these acquisitions totaled $149.1 million. In addition, Parent
issued an aggregate of 34.1 million shares of Parent Common Stock in
transactions accounted for under the pooling of interests method of accounting.
Included in the shares of Parent Common Stock issued in acquisitions accounted
for under the pooling of interests method of accounting are approximately 0.3
million shares issued for acquisitions that were not material individually or in
the aggregate and, consequently, prior period financial statements were not
restated for such acquisitions.
During the year ended December 31, 1996, Parent acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Parent in transactions accounted for under the purchase
method of accounting was $87.6 million, consisting of cash and 6.6 million
shares of Parent Common Stock. Cost in excess of the fair value of net assets
acquired in these acquisitions totaled $73.6 million. In addition, Parent issued
an aggregate of 40.0 million shares of Parent Common Stock in transactions
accounted for under the pooling of interests method of accounting. Included in
the shares of Parent Common Stock issued in acquisitions accounted for under the
pooling of interests method of accounting are approximately 1.1 million shares
issued for acquisitions that were not material individually or in the aggregate
and, consequently, prior period financial statements were not restated for such
acquisitions.
During the year ended December 31, 1995, Parent acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Parent in transactions accounted for under the purchase
method of accounting was $76.5 million, consisting of cash and 16.0 million
shares of Parent Common Stock. Cost in excess of the fair value of net assets
acquired in these acquisitions totaled $83.4 million. In addition, Parent issued
an aggregate of approximately 30.9 million shares of Parent Common Stock in
transactions accounted for under the pooling of interests method of accounting.
See Note 3, Business Combinations, of Notes to Consolidated Financial
Statements, for further discussion of business combinations.
31
35
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
Net income was $34.8 million for the three months ended March 31, 1998 as
compared to $23.2 million for the three months ended March 31, 1997.
The following table sets forth revenue and cost of operations, selling,
general and administrative expenses, Parent overhead allocations and operating
income with percentages of revenue for the three months ended March 31, 1998 and
1997 (in millions):
1998 % 1997 %
------ ----- ------ -----
Revenue.................................................. $300.8 100.0% $263.2 100.0%
Cost of operations....................................... 209.7 69.7 190.3 72.3
Selling, general and administrative expenses............. 28.3 9.4 29.8 11.3
Parent overhead allocations.............................. 3.8 1.3 2.1 0.8
------ ----- ------ -----
Operating income......................................... $ 59.0 19.6% $ 41.0 15.6%
====== ===== ====== =====
Revenue. Revenue was $300.8 million and $263.2 million for the three
months ended March 31, 1998 and 1997, respectively, an increase of 14.3%.
Acquisitions accounted for 5.0% of the increase, volume accounted for 4.5% of
the increase and "tuck-in" acquisitions accounted for 4.8% of the increase,
respectively.
Cost of Operations. Cost of operations was $209.7 million and $190.3
million or, as a percentage of revenue, 69.7% and 72.3% for the three months
ended March 31, 1998 and 1997, respectively. The increase in aggregate dollars
is primarily due to acquisitions. The decrease in such costs as a percentage of
revenue is primarily a result of improvements in overall operating efficiency
achieved through reductions in operating costs of acquired businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $28.3 million and $29.8 million or, as a percentage
of revenue, 9.4% and 11.3% for the three months ended March 31, 1998 and 1997,
respectively. The decrease in selling, general and administrative expenses in
aggregate dollars and as a percentage of revenue is primarily due to the
reduction of administrative expenses of acquired businesses and cost savings
from centralizing administrative functions in certain regions.
Parent Overhead Allocations. Parent overhead allocations include
allocations of general and administrative costs not specifically attributable to
its operating subsidiaries. Such allocations are based upon the ratio of the
Company's invested capital to Parent's consolidated invested capital and were
$3.8 million and $2.1 million for the three months ended March 31, 1998 and
1997, respectively. These allocations approximate management's estimate of
Parent's corporate overhead required to support the Company's operations.
Management believes such allocations are reasonable.
Interest Expense. Interest expense was incurred on notes payable to
Resources and the debt assumed in acquisitions. Interest expense was $5.4
million and $7.6 million for the three months ended March 31, 1998 and 1997,
respectively, and includes interest expense on notes payable to Resources of
$4.8 million and $6.2 million for the three months ended March 31, 1998 and
1997, respectively.
Interest and Other Income. Interest and other income was $0.8 million and
$3.0 million for the three months ended March 31, 1998 and 1997, respectively.
The decrease is primarily due to fluctuations in cash balances on hand and
related interest income.
Income Taxes. The provision for income taxes was $19.6 million and $13.2
million for the three months ended March 31, 1998 and 1997, respectively. Income
taxes have been provided based upon the Company's anticipated annual effective
income tax rate.
32
36
Years Ended December 31, 1997, 1996 and 1995
Net income was $116.2 million for the year ended December 31, 1997 as
compared to $51.8 million in 1996 and $24.6 million in 1995. Operating results
for the years ended December 31, 1996 and 1995 include restructuring and other
charges further described below. Operating results for the year ended December
31, 1995 include a loss from discontinued operations described further below.
The following table sets forth revenue and cost of operations, selling,
general and administrative expenses, Parent overhead allocations, restructuring
and other charges and operating income with percentages of revenue for the years
ended December 31 (in millions):
1997 % 1996 % 1995 %
-------- ----- -------- ----- -------- -----
Revenue.............................. $1,127.7 100.0% $ 953.3 100.0% $ 805.0 100.0%
Cost of operations................... 809.1 71.7 703.6 73.8 570.1 70.8
Selling, general and administrative
expenses........................... 107.1 9.5 126.9 13.3 133.4 16.6
Parent overhead allocations.......... 10.2 0.9 8.4 .9 4.3 0.5
Restructuring and other charges...... -- -- 8.8 .9 3.3 0.4
-------- ----- -------- ----- -------- -----
Operating income..................... $ 201.3 17.9% $ 105.6 11.1% $ 93.9 11.7%
======== ===== ======== ===== ======== =====
Revenue. Revenue was $1,127.7 million, $953.3 million and $805.0 million
for the years ended December 31, 1997, 1996 and 1995, respectively. The increase
in 1997 over 1996 of $174.4 million, or 18.3%, is a result of significant
acquisitions (7.5%) as well as increases from volume (7.4%) and "tuck-in"
acquisitions (3.4%). The increase in 1996 over 1995 of $148.3 million, or 18.4%,
is a result of significant acquisitions (10.8%) as a well as increases from
volume (6.3%) and "tuck-in" acquisitions (1.3%).
Cost of Operations. Cost of operations was $809.1 million, $703.6 million
and $570.1 million or, as a percentage of revenue, 71.7%, 73.8% and 70.8% for
the years ended December 31, 1997, 1996 and 1995, respectively. The increases in
aggregate dollars are a result of the expansion of the Company's operations
through acquisitions and internal growth. The 1997 decrease in cost of
operations as a percentage of revenue is primarily a result of improvements in
overall operating efficiency achieved through reductions in operating costs of
acquired businesses. The 1996 increase in cost of operations as a percentage of
revenue is primarily a result of certain of the Company's acquired collection
companies that had higher levels of operating costs than the Company's
historical operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $107.1 million, $126.9 million and $133.4 million
or, as percentages of revenue, 9.5%, 13.3% and 16.6% for the years ended
December 31, 1997, 1996 and 1995, respectively. The decreases in selling,
general and administrative expenses in aggregate dollars and as percentages of
revenue in each of the years are primarily due to the reduction of
administrative expenses for acquired businesses and, in 1997, cost savings from
centralizing administrative functions in certain regions.
Parent Overhead Allocations. Parent overhead allocations include
allocations of general and administrative costs not specifically attributable to
its operating subsidiaries. Such allocations are based upon the ratio of the
Company's invested capital to Parent's consolidated invested capital and were
$10.2 million, $8.4 million and $4.3 million for the years ended December 31,
1997, 1996 and 1995, respectively. These allocations approximate management's
estimate of Parent's corporate overhead required to support the Company's
operations. Management believes such allocations are reasonable.
Restructuring and Other Charges. The Company recorded restructuring and
other charges of approximately $8.8 million and $3.3 million for the years ended
December 31, 1996 and 1995, respectively. The 1996 costs include costs to close
certain landfill operations, asset write-offs and merger expenses associated
with certain business combinations accounted for under the pooling of interests
method of accounting. The 1995 costs related to severance and other costs
associated with closing an administrative office.
33
37
Operating Income. Operating income was $201.3 million, $105.6 million and
$93.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Excluding restructuring and other charges, operating income would
have been $114.4 million and $97.2 million in 1996 and 1995, respectively.
Interest Expense. Interest expense was incurred on notes payable to
Resources and the debt assumed in acquisitions. Interest expense was $25.9
million, $29.7 million and $19.1 million for the years ended December 31, 1997,
1996 and 1995, respectively, and includes interest expense on notes payable to
Resources of $20.2 million, $18.8 million and $3.0 million for the years ended
December 31, 1997, 1996 and 1995, respectively. The 1996 increase in interest
expense is primarily due to higher average outstanding borrowings and debt
assumed in acquisitions.
Interest and Other Income. Interest and other income was $6.7 million,
$13.9 million and $6.2 million for the years ended December 31, 1997, 1996 and
1995, respectively. The variances during the periods are primarily due to
fluctuations in cash balances on hand and related interest income.
Income Taxes. The provision for income taxes was $65.9 million, $38.0
million and $31.6 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The effective income tax rate was 36.2%, 42.3% and 39.0% for the
years ended December 31, 1997, 1996 and 1995, respectively. The higher 1996 and
1995 effective income tax rates are primarily due to varying higher historical
effective income tax rates of acquired businesses.
Discontinued Operations. During the year ended December 31, 1995, the
Company disposed of its mining and citrus operations resulting in a loss from
discontinued operations of approximately $24.8 million, net of income taxes. The
mining and citrus businesses were former subsidiaries of a solid waste business
acquired by Parent in 1996 and accounted for under the pooling of interests
method of accounting. Operating results for the period prior to disposition have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements. See Note 11, Discontinued Operations, of Notes to
Consolidated Financial Statements, for further discussion of this transaction.
ENVIRONMENTAL AND LANDFILL MATTERS
The Company owns or operates 42 solid waste landfills with approximately
5,610 permitted acres and total available permitted disposal capacity of
approximately 1.1 billion in-place cubic yards as of March 31, 1998. As of
December 31, 1997 and 1996, cubic yards of available airspace at the Company's
landfills were 1,104.7 million and 1,092.5 million, respectively. Airspace
increased during 1997 by 12.2 million cubic yards as a result of landfills
acquired and internally developed totaling 22.2 million cubic yards, offset by
consumption of 10.0 million cubic yards during the year.
The Company provides for accrued environmental and landfill costs which
include landfill site closure and post-closure costs. Landfill site closure and
post-closure costs include estimated costs to be incurred for final closure of
the landfills and estimated costs for providing required post-closure monitoring
and maintenance of landfills. These costs are accrued based on consumed
airspace. The Company estimates its future cost requirements for closure and
post-closure monitoring and maintenance for its solid waste facilities based on
its interpretation of the technical standards of the Environmental Protection
Agency's Subtitle D regulations. These estimates do not take into account
discounts for the present value of such total estimated costs. Engineering
reviews of the future cost requirements for closure and post-closure monitoring
and maintenance for the Company's operating landfills are performed on an annual
basis. Such reviews provide the basis upon which the Company estimates future
costs and revises the related accruals. Changes in these estimates primarily
relate to permit modifications, inflation and changes in regulations, all of
which are taken into consideration annually. At December 31, 1997, assuming that
all available landfill capacity is used, approximately $280.0 million of such
costs are expected to be expensed over the remaining lives of these facilities.
As of December 31, 1997 and 1996, accrued closure and post-closure costs
associated with landfills were $47.3 million and $38.2 million, respectively.
The current and long-term portion of these costs are included in other current
liabilities and accrued environmental and landfill costs, respectively, in the
Company's
34
38
consolidated balance sheets. The increase in such accruals resulted from the
normal accrual of closure and post-closure costs based on airspace consumed plus
additional costs associated with new landfills acquired and internally developed
during the period.
Costs related to environmental remediation activities are accrued by the
Company through a charge to income in the period such liabilities become
probable and can be reasonably estimated.
LIQUIDITY AND CAPITAL RESOURCES
The major components of changes in cash flows for the three months ended
March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995
are discussed below.
Cash Flows from Operating Activities. Cash provided by operating
activities was $80.3 million and $73.1 million during the three months ended
March 31, 1998 and 1997, respectively and $279.4 million, $143.5 million and
$125.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The increases in cash provided by operating activities during the
periods are due to expansion of the Company's business.
Cash Flows from Investing Activities. Cash flows from investing activities
consist primarily of cash used for capital additions as further described below.
Capital additions were $29.0 million and $35.2 million during the three
months ended March 31, 1998 and 1997, respectively, and $165.3 million, $146.9
million and $147.9 million during the years ended December 31, 1997, 1996 and
1995, respectively. The Company believes capital expenditures for the full year
in 1998 will approximate the level of capital expenditures in 1997. The Company
believes capital expenditures may increase in 1999 and beyond due to acquisition
growth. The Company intends to finance capital expenditures and cash used in
business acquisitions through cash on hand, revolving credit facilities and
other financings.
Cash Flows from Financing Activities. Cash flows from financing activities
during the three months ended March 31, 1998 and 1997 and the years ended
December 31, 1997, 1996 and 1995 included commercial bank and affiliate
borrowings and repayments of debt.
Proceeds from bank and affiliate borrowings were used to fund capital
additions, to repay debt and to expand the Company's business during these
years.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market sensitive financial instruments as of March 31, 1998
consist primarily of variable rate debt that is not material to the Company's
consolidated financial position. Therefore, management believes the Company does
not have material exposure to market risk at March 31, 1998.
PRO FORMA FINANCIAL CONDITION
The Company is expected to have outstanding debt and total capital of
approximately $73.1 million and $1.1 billion, respectively, after giving effect
to: (i) the issuance of the Company Notes payable to Parent in the aggregate
amount of $2.0 billion in connection with the dividend from the Company to
Parent in April 1998; (ii) the prepayment of a portion of the outstanding
amounts of the Company Notes payable to Parent by use of certain assets received
by the Company from the Resources Dividend and the Resources Note Receivable;
(iii) the repayment in full of the Resources Notes Payable and the Affiliate
Payable, which equaled approximately $214.0 million and $114.8 million,
respectively, as of March 31, 1998, and which the Company expects to aggregate
approximately $400.0 million on the Offerings Closing Date, through the issuance
of shares of Class A Common Stock (at an assumed initial public offering price
of $25.50 per share, which is the midpoint of the estimated range set forth on
the cover page of this Prospectus); (iv) the sale and issuance of 51.0 million
shares of Class A Common Stock in the Offerings (at an assumed initial public
offering price of $25.50 per share, which is the midpoint of the estimated range
set forth on the cover of this Prospectus) and the application of net proceeds
therefrom to prepay certain amounts outstanding of the Company Notes
35
39
payable to Parent; and (v) the issuance of shares of Class A Common Stock (at an
assumed initial public offering price of $25.50 per share, which is the midpoint
of the estimated range set forth on the cover page of this Prospectus) to prepay
approximately $185.3 million which will constitute all remaining amounts
outstanding of the Company Notes payable to Parent within 31 days following the
Offerings Closing Date, assuming that the Underwriters' over-allotment options
are not exercised.
The Company historically has been dependent upon Parent for various
services including accounting, auditing, cash management, corporate
communications, corporate development, financial and treasury, human resources
and benefit plan administration, insurance and risk management, legal,
purchasing and tax services. Prior to the Offerings Closing Date, the Company
and Parent intend to enter into an agreement under which Parent will continue to
provide these services to the Company for a period of one year from the
Offerings Closing Date. In exchange for the provision of such services, fees
will be payable to Parent in the amount of $1.25 million per month, subject to
review and adjustment as the Company reduces the amount of services it obtains
from Parent from time to time. After the initial term of such agreement, the
Company will be required to extend the term of such agreement, engage others to
perform such services or perform such services internally. No assurance can be
given that Parent will continue to provide the Company such services after the
initial term of the agreement, or that the cost of such services will not be
higher if the Company purchases such services from unaffiliated providers or
employs staff to handle such functions internally.
The Company believes that its cash flow from operations and contemplated
short-term and long-term debt financings will be sufficient to satisfy its
future working capital, capital expenditure, acquisition and debt service
requirements. The Company intends to enter into revolving credit facilities in
the aggregate principal amount of $1.0 billion which will be available to be
borrowed from time to time by the Company to be used for its working capital
requirements and future acquisitions. The Company has obtained a commitment from
Bank of America National Trust and Savings Association, The Chase Manhattan
Bank, The First National Bank of Chicago and NationsBank, N.A., for an aggregate
of $525.0 million toward $1.0 billion of revolving credit facilities, and is in
the process of assembling a syndicate of lenders to commit to the balance of
such facilities. The closing of such revolving credit facilities is expected to
occur after the Offerings Closing Date, but there can be no assurance that such
financing will occur. If such financing does not occur, there can be no
assurance that the Company will be able to obtain other debt financing on terms
as favorable to the Company as currently proposed or as its existing
indebtedness. The Company also believes that it will be able to procure bid and
performance bonds, to arrange for revolving lines of credit and other financing
as necessary, and to engage in hedging transactions, on commercially acceptable
terms. Parent's bank credit facilities restrict the ability of Parent and its
subsidiaries to incur indebtedness, incur liens, consummate certain asset sales,
make certain investments, or enter into certain transactions with affiliates,
subject to exceptions, and require Parent to maintain certain consolidated
financial ratios. While the Company remains a subsidiary of Parent, the Company
will continue to be subject to these restrictive covenants and financial ratios.
Parent has amended its credit facilities to permit the Company to incur
unsecured indebtedness in excess of $1.0 billion.
SEASONALITY
The Company's operations can be adversely affected by periods of inclement
weather which could delay the collection and disposal of waste, reduce the
volume of waste generated or delay the construction or expansion of the
Company's landfill sites and other facilities.
YEAR 2000 SYSTEMS COSTS
The Company utilizes software and related technologies that may be affected
by the date change in the year 2000 ("Year 2000"). The Company is in the process
of evaluating the full scope and related costs to insure that the Company's
systems continue to meet its internal needs and those of its customers. The
majority of the Company's information systems are supported by third party
vendors who are responsible for system modifications to address the Year 2000
issue. Anticipated costs for system modifications will be expensed as incurred
and are not expected to have a material impact on the Company's consolidated
results of operations. However, the Company cannot measure the impact that the
Year 2000 issue will have on its vendors, suppliers, customers and other parties
with which it conducts business.
36
40
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board in June 1997. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The provisions of this
standard will not materially affect the Company's Consolidated Financial
Statements.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains certain statements that are "Forward Looking
Statements," which include, among other things, the discussions of the Company's
growth and operating strategies and expectations concerning market position,
future operations, margins, revenue, profitability, liquidity and capital
resources, as well as statements concerning the integration of the operations of
acquired businesses and achievement of financial benefits and operational
efficiencies in connection therewith. Forward Looking Statements are included in
"Prospectus Summary," "Selected Financial Data," "Unaudited Condensed
Consolidated Pro Forma Financial Statements," "Management's Discussions and
Analysis of Financial Condition and Results of Operation," "Business," and
elsewhere in this Prospectus. Although the Company believes that the
expectations reflected in Forward Looking Statements are reasonable, the Company
can give no assurance that such expectations will prove to have been correct.
Generally, these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of such plans or strategies, number
of acquisitions and projected or anticipated benefits from acquisitions made by
or to be made by the Company, or projections involving anticipated revenue,
expenses, earnings, levels of capital expenditures, liquidity or indebtedness or
operations of the Company and are subject to a number of uncertainties, risks
and other influences, many of which are outside the control of the Company and
any one of which, or a combination of which, could materially affect the results
of the Company's operations. Important factors that could cause actual results
to differ materially from the Company's expectations include, but are not
limited to, those that are disclosed in this section and under "Risk Factors" in
this Prospectus. The Company assumes no duty to update the Forward Looking
Statements.
37
41
BUSINESS
INTRODUCTION
The Company is a leading provider of non-hazardous solid waste collection
and disposal services in the United States. Based on revenue for the year ended
December 31, 1997, the Company is the fourth largest company in the domestic
non-hazardous solid waste management industry. The Company provides solid waste
collection services for commercial, industrial, municipal and residential
customers through 96 collection companies in 24 states. The Company also owns or
operates 54 transfer stations and 42 solid waste landfills.
The Company had revenue of $1,127.7 million and $953.3 million and
operating income of $201.3 million and $105.6 million for the years ended
December 31, 1997 and 1996, respectively. The $174.4 million (or 18.3%) increase
in revenue and the $95.7 million (or 90.6%) increase in operating income are
primarily attributable to the successful execution of the Company's growth and
operating strategies described below. In 1997, the Company's revenue was
generated primarily from its solid waste collection operations (73.8%), with the
remainder comprised of revenue from landfill disposal services (12.4%) and other
operations (13.8%).
Since 1995, the Company has acquired over 100 solid waste companies with an
aggregate of over $1.0 billion in annual revenue. The Company believes that it
is well positioned to continue to increase its revenue and operating income
through acquisitions and internal growth. The Company's acquisition growth
strategy is focused on the approximately $8.0 billion of revenue that was
generated by over 5,000 privately-held solid waste companies in 1997. The
Company believes that its ability to acquire many of these privately-held
companies is enhanced by increasing competition in the solid waste industry,
increasing capital requirements as a result of changes in solid waste regulatory
requirements and the limited number of exit strategies for such companies'
owners and principals. The Company's internal growth strategy is supported by
its presence in high growth markets throughout the Sunbelt, including Florida,
Georgia, Nevada, Southern California and Texas, and other domestic markets that
have experienced higher than average population growth during the past several
years. The Company believes that its presence in such markets positions it to
experience growth at rates that are generally higher than the industry's overall
growth rate.
INDUSTRY OVERVIEW
Based on analyst reports and industry trade publications, the Company
believes that the United States non-hazardous solid waste services industry
generated revenue of approximately $35.0 billion in 1997, of which approximately
44% was generated by publicly-owned waste companies, 23% was generated by
privately-held waste companies and 33% was generated by municipal and other
local governmental authorities. The substantial majority of the publicly-owned
companies' total revenue of approximately $15.4 billion was generated by only
five companies, of which the Company was the fourth largest at year-end 1997.
However, according to industry data, the domestic non-hazardous waste industry
remains highly fragmented as the privately-held companies' total revenue of
approximately $8.0 billion was generated by more than 5,000 companies.
The Company believes that in recent years there has been a trend towards
rapid consolidation in the solid waste collection industry, which has
historically been characterized by numerous small companies. The Company
believes that this trend will continue as a result of the following factors:
Subtitle D Regulation. Subtitle D ("Subtitle D") of the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and similar
state regulations have significantly increased the amount of capital,
technical expertise, operating costs and financial assurance obligations
required to own and operate a landfill and other solid waste facilities.
Many of the smaller industry participants have found these costs difficult,
if not impossible, to bear. Large publicly-owned companies, such as the
Company, have greater access to capital, and a lower cost of capital,
available to finance such increased capital expenditures and costs,
relative to many of the privately owned companies in the industry.
Additionally, the required permits for landfill development, expansion or
construction have become more difficult to acquire. Consequently, many
smaller, independent operators have decided to either close their
operations or sell them to larger operators with greater access to capital.
38
42
Integration of Solid Waste Businesses. Vertically integrated solid
waste companies gain further competitive advantage over non-integrated
operators by being able to control the waste stream in a market through the
collection, transfer and disposal process. The ability of the integrated
companies to internalize the disposal of collected solid waste, coupled
with access to significant capital resources to make acquisitions, has
created an environment in which large publicly-owned integrated companies
can operate more cost effectively and competitively than non-integrated
operators.
Municipal Privatization. The trend toward consolidation in the solid
waste services industry is further supported by the increasing tendency of
a number of municipalities to privatize their waste disposal operations.
Privatization of municipal waste operations is often an attractive
alternative to funding the changes required by Subtitle D.
These developments, as well as the fact that there are a limited number of
viable exit strategies for many of the owners and principals of numerous
privately-held companies in the industry, have contributed to the overall
consolidation trend in the solid waste industry.
GROWTH STRATEGY
The Company's growth strategy is to increase revenue, gain market share and
enhance stockholder value through acquisitions and internal growth. For certain
risks related to the Company's growth strategy, see "Risk Factors."
- - ACQUISITION GROWTH. As a result of the highly fragmented nature of the solid
waste industry, the Company has been able to grow significantly through
acquisitions. Since 1995, the Company has acquired over 100 solid waste
companies with an aggregate of over $1.0 billion in annual revenue. The
Company's acquisition growth strategy is to (i) acquire companies positioned
for growth in existing and new markets, (ii) acquire well-managed companies
and retain local management, (iii) expand its operations in existing markets
by completing "tuck-in" acquisitions and (iv) acquire operations and
facilities from municipalities that are privatizing. For certain risks
involved with the Company's growth strategy, see "Risk Factors."
Acquire Companies Positioned for Growth. In making acquisitions, the
Company principally targets high quality businesses that will allow it to
be, or provide it favorable prospects of becoming, a leading provider of
integrated solid waste services in markets with favorable demographic
growth. The Company generally has acquired, and will continue to seek to
acquire, solid waste collection, transfer and disposal companies that (i)
have strong operating margins, (ii) are in growth markets, (iii) are among
the largest or have a significant presence in their local markets and (iv)
have long-term contracts or franchises with municipalities and other
customers. The Company is not limited to the foregoing target criteria for
acquisitions, and may also acquire additional non-hazardous solid waste
operations as opportunities arise. Although the Company continuously
reviews possible acquisition candidates and is in discussions from time to
time with one or more of such candidates, it currently has not entered into
any agreements with respect to any significant acquisitions.
Acquire Well-Managed Companies. The Company also seeks to acquire
businesses that have experienced management teams that are willing to work
for the Company. The Company generally retains the local management of the
larger acquired companies in order to capitalize on their local market
knowledge, community relations and name recognition, and to instill their
entrepreneurial drive at all levels of operations. By furnishing the local
management of such acquired companies with the Company's financial and
marketing resources and technical expertise, such acquired companies are
better able to secure additional municipal franchises and other contracts.
This enables the Company to grow internally such acquired businesses at
faster rates than the industry average.
Expand Operations Through "Tuck-In" Acquisitions. Once it gains a
foothold in a particular market, the Company focuses on acquiring smaller
companies that also operate in that market and surrounding markets.
Management teams at acquired companies are well positioned to more
efficiently identify additional acquisition opportunities in their local
markets. The operations of such smaller companies, upon being acquired by
the Company, are "tucked-in" to the existing local subsidiary's
39
43
operations. By acquiring smaller "tuck-in" companies that operate in
markets already serviced by the Company, the Company not only is able to
grow its revenue and increase its market share, but also is able to
integrate operations and consolidate duplicative facilities and functions
to maximize cost efficiencies and economies of scale.
Acquire Privatizing Municipal Operations. The Company also seeks to
acquire solid waste collection operations, transfer stations and landfills
that are being privatized by municipalities and other governmental
authorities. Many municipalities are seeking to outsource or sell these
types of solid waste operations, as they lack the capital, technical
expertise and/or operational resources necessary to comply with
increasingly stringent regulatory standards and/or to compete effectively
with private-sector companies.
- - INTERNAL GROWTH. The Company's internal growth strategy is to take advantage
of the higher than average population growth in the markets in which the
Company operates by obtaining long-term exclusive franchise agreements and
expanding its well-managed sales and marketing activities.
Obtain Long-Term Contracts. The Company seeks to obtain long-term
exclusive franchise agreements for the collection of solid waste in the
high-growth markets in which it operates. By obtaining such long-term
agreements, the Company has the opportunity to grow its contracted revenue
base at the same rate as the underlying population growth in such markets.
For example, the Company has secured exclusive, long-term franchise
agreements in high-growth markets such as Orange County, California, Las
Vegas, Nevada, Arlington, Texas and many areas of Florida. The Company
believes that this positions it to experience internal growth rates that
are generally higher than the overall industry's growth rate. In addition,
the Company believes that by securing a base of long-term recurring revenue
in growth markets, the Company is better able to protect its market
position from competition and is less susceptible to downturns in economic
conditions.
Expand Sales and Marketing Activities. The Company's well-managed
sales and marketing activities enable it to capitalize on its leading
positions in many of the markets in which it operates. The Company
currently has over 260 sales and marketing employees in the field, who are
incentivized by a commission structure to generate high levels of revenue.
For the most part, such employees directly solicit business from existing
and prospective commercial, industrial, municipal and residential
customers. The Company trains new and existing sales personnel with an
emphasis on teaching sales personnel to understand the Company's rate and
cost structures.
OPERATING STRATEGY
The Company seeks to combine revenue growth with an increase in operating
margins in order to enhance stockholder value. The Company's operating strategy
to accomplish this goal is to (i) utilize the extensive industry knowledge and
experience of the Company's executive management, (ii) utilize a decentralized
management structure in overseeing day-to-day operations, (iii) internalize the
disposal of waste collected by the Company, (iv) improve operating margins
through economies of scale, cost efficiencies and asset utilization and (v)
achieve high levels of customer satisfaction. For certain risks related to the
Company's operating strategy, see "Risk Factors."
- - LEAD WITH EXPERIENCED EXECUTIVE MANAGEMENT TEAM. The Company believes that it
has one of the most experienced executive management teams among
publicly-traded companies in the solid waste industry.
H. Wayne Huizenga, the Company's Chairman and Chief Executive Officer,
after several years of owning and operating private waste hauling companies in
Florida, co-founded Waste Management in 1971. He served in various executive
capacities with Waste Management for approximately 14 years, including
President and Chief Operating Officer, from 1971 to 1984, which had by then
become the world's largest integrated solid waste services company. From 1987
to 1994, Mr. Huizenga served as Chairman and Chief Executive Officer of
Blockbuster, leading its growth from 19 stores to the world's largest video
rental company. In August 1995, he became Chairman and Chief Executive Officer
of Parent and in less than
40
44
three years, Parent's Solid Waste Group acquired businesses with an aggregate
of over $1.0 billion in annual revenue.
Harris W. Hudson, the Company's Vice Chairman, worked closely with Mr.
Huizenga, from 1964 until 1982, at Waste Management and at the private waste
hauling firms they operated prior to the formation of Waste Management. In
1982, Mr. Hudson retired as Vice President of Waste Management of Florida,
Inc., a subsidiary of Waste Management. In 1983, Mr. Hudson founded Hudson
Management, a solid waste collection company in Florida, and served as its
Chairman and Chief Executive Officer until it merged with Parent in August
1995. By that time, Hudson Management had grown to over $50.0 million in
annual revenue, becoming one of Florida's largest privately-held solid waste
collection companies based on revenue. Since August 1995, Mr. Hudson has
served in various executive officer positions for Parent, including President
and Vice Chairman.
James H. Cosman, the Company's President and Chief Operating Officer, has
served as President of Parent's Solid Waste Group since January 1997. Prior to
joining Parent, Mr. Cosman was employed by Browning-Ferris for over 24 years.
During that time, he served in various management positions, including
Regional Vice President -- Northern Region.
The other officers with responsibility for operational affairs of the
Company have an average of over 15 years of management experience in the solid
waste industry.
Prior to the Distribution, Mr. Huizenga intends to resign as Chief
Executive Officer of the Company as soon as the Company is able to appoint a
successor, although Mr. Huizenga intends to remain as Chairman of the Board.
It is currently anticipated that Messrs. Hudson and Cosman and such other
officers will devote substantially all of their time to the management of the
Company.
- - UTILIZE DECENTRALIZED MANAGEMENT STRUCTURE. The Company maintains a
relatively small corporate headquarters staff, relying on a decentralized
management structure to minimize administrative overhead costs and to manage
its day-to-day operations more efficiently. The Company's local management has
extensive industry experience in growing, operating and managing solid waste
companies, and substantial experience in their local geographic markets. The
Company's four Regional Vice Presidents have an average of 21 years of
experience in the industry, and the Company's 19 Area Presidents have an
average of 16 years of experience in the industry. The Regional Vice
Presidents and Area Presidents have extensive authority, responsibility and
autonomy for operations within their geographic markets. Compensation for
management within regions and areas is in large part based on the improvement
in operating income produced in each manager's geographic area of
responsibility. In addition, through long-term incentive programs, including
stock options, the Company believes that it has one of the lowest turnover
levels in the industry for its local management teams. As a result of
retaining experienced managers with extensive local knowledge, community
relations and name recognition, the Company is able to react rapidly to
changes in its markets. The Company also seeks to implement the best practices
of its various regions and areas throughout its operations to improve
operating margins.
- - INTERNALIZE WASTE DISPOSAL. The Company seeks to achieve a high rate of waste
internalization by controlling waste streams from the point of collection
through disposal. Through acquisitions and other market development
activities, the Company creates market specific, vertically integrated
operations typically consisting of one or more collection companies, transfer
stations and landfills. The Company considers acquiring companies which own or
operate landfills with significant permitted disposal capacity and appropriate
levels of waste volume. The Company also seeks to acquire solid waste
collection companies in markets in which its owns or operates landfills. In
addition, the Company generates internal growth in its disposal operations by
constructing new landfills and expanding its existing landfills from time to
time in markets in which it has significant collection operations or in
markets that it determines lack sufficient disposal capacity. During the
quarter ended March 31, 1998, approximately 41% of the total volume of waste
collected by the Company was disposed of at the Company's landfills. Because
the Company does not have landfill facilities for all markets in which it
provides collection services, the Company believes that through landfill and
transfer station acquisitions and development it has the opportunity to
increase its waste internalization rate.
41
45
- - CAPITALIZE ON ECONOMIES OF SCALE AND COST EFFICIENCIES. To improve operating
margins, the Company's management is focused on achieving economies of scale
and cost efficiencies. The consolidation, or "tuck-in," of smaller acquired
businesses into larger existing operations reduces costs by decreasing capital
and expenses used in routing, personnel, equipment and vehicle maintenance,
inventories and back-office administration. The Company is generally
consolidating its administrative centers to reduce its general and
administrative costs. In addition, the Company's size allows it to negotiate
volume discounts for certain purchases, including waste disposal rates at
landfills operated by third parties. The Company has reduced its selling,
general and administrative expenses from 17.1% of consolidated revenue in 1995
to 10.4% of consolidated revenue in 1997. Furthermore, the Company has taken
steps to increase its utilization of assets. For example, to reduce the number
of collection vehicles, drivers are paid incentive wages based upon the number
of customers they service on each route. In addition, routes are frequently
analyzed and rerouted to ensure that the highest number of customers are
efficiently serviced over the fewest possible miles. By using assets more
efficiently, operating expenses are lowered significantly.
- - ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION. The Company complements its
operating strategy with a goal of maintaining high levels of customer
satisfaction. The Company's personalized sales process of periodically
contacting commercial, industrial and municipal customers is intended to
maintain relationships and ensure service is being properly provided.
OPERATIONS
The Company's operations primarily consist of the collection and disposal
of non-hazardous solid waste. Collection, landfill disposal, and other services
accounted for approximately 73.8%, 12.4% and 13.8% of revenue, respectively, for
the year ended December 31, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Collection Services. The Company provides solid waste collection services
to commercial, industrial, municipal and residential customers in 24 states
through 96 collection companies. In 1997, the Company's revenue from collection
services was derived approximately one third from services provided to
commercial customers, one third from services provided to industrial customers,
and one-third from services provided to municipal and residential customers. The
Company's commercial and residential collection operations involve the curbside
collection of refuse from small containers into collection vehicles for
transport to transfer stations or directly to landfills. Commercial collection
services are generally performed under one-year to three-year service
agreements, and fees are determined by such considerations as market factors,
collection frequency, type of equipment furnished, the type and volume or weight
of the waste collected, the distance to the disposal facility and the cost of
disposal.
Residential solid waste collection services are typically performed under
contracts with municipalities, which are generally secured by competitive bid
and which give the Company exclusive rights to service all or a portion of the
homes in their respective jurisdictions. Such contracts or franchises usually
range in duration from one to five years, although some of the Company's
exclusive franchises are for as long as 20 years. Residential solid waste
collection services may also be performed on a subscription basis, in which
individual households contract directly with the Company. The fees received for
subscription residential collection are based primarily on market factors,
frequency and type of service, the distance to the disposal facility and cost of
disposal. In general, subscription residential collection fees are paid
quarterly in advance by the residential customers receiving the service.
In its industrial collection operations, the Company supplies its customers
with waste containers commonly known as "roll-off" containers. The Company also
rents compactors to large waste generators. Waste collection services are
provided to individual industrial and construction facilities on a contractual
basis with terms generally ranging from a single pickup to a one-year term. The
Company also rents waste roll-off containers to construction sites and provides
hauling services. The Company collects the roll-off containers or compacted
waste and transports them either to a landfill, where the waste is disposed of,
or to a transfer station.
42
46
The Company owns or operates 54 transfer stations. Waste is deposited at
these stations by the Company and other private haulers for compaction and
transfer to trailers for transport to landfills, incinerators, recycling
facilities or other disposal sites.
The Company also currently provides recycling services in certain markets
to meet customer demand. These services include the curbside collection of
residential recyclable waste and the provision of a variety of recycling
services to commercial and industrial customers.
Disposal Services. The Company owns or operates 42 solid waste landfills
with approximately 5,610 permitted acres and total available permitted disposal
capacity of approximately 1.1 billion in-place cubic yards as of March 31, 1998.
See "-- Properties." The in-place capacity of the Company's landfills is subject
to change based on engineering factors, requirements of regulatory authorities
and successful site expansions. Certain of the landfills accept non-hazardous
special waste, including utility ash, asbestos and contaminated soils.
Most of the Company's existing landfill sites have the potential for
expanded disposal capacity beyond the currently permitted acreage. The Company
monitors the availability of permitted disposal capacity at each of its
landfills and evaluates whether to pursue expansion at a given landfill based on
estimated future waste volumes and prices, remaining capacity and likelihood of
obtaining expansion. The Company believes that each of its landfills currently
has adequate permitted capacity. The Company is currently seeking to expand
permitted capacity at certain of its landfills in connection with favorable
design modifications.
Other Services. The Company has 24 materials recovery facilities or other
recycling operations primarily for the sorting of recyclable paper, aluminum,
glass and other materials. Most of these recyclable materials are internally
collected by the Company's residential collection operations. In certain areas,
the Company receives certain types of commercial and industrial solid waste that
is sorted at its facilities into recyclable materials and non-recyclable waste.
The recyclable materials are salvaged, repackaged and sold to third parties and
the non-recyclable waste is disposed of at landfills or incinerators. The
Company's strategy, wherever possible, is to reduce its exposure to fluctuations
in recyclable commodity prices by utilizing third parties' facilities, thereby
minimizing its recycling investment. Long-term contracts for the sale of
recycling materials are also used to mitigate the impact of commodity price
fluctuations. The Company also has composting operations at which yard waste is
composted, packaged and sold as mulch.
SALES AND MARKETING
The Company seeks to provide quality services that will enable it to
maintain high levels of customer satisfaction. The Company derives its business
from a broad customer base which the Company believes will enable it to
experience stable growth. Marketing efforts focus on continuing and expanding
business with existing customers as well as attracting new customers.
The Company has more than 260 sales and marketing employees. The Company's
sales and marketing strategy is to provide high-quality comprehensive solid
waste collection, recycling, transfer and disposal services to its customers at
competitive prices. The Company targets potential customers of all sizes, from
small quantity generators to large "Fortune 500" companies and municipalities.
All marketing activity by the Company is local in nature. The Company
generally does not change the tradenames of the local businesses that it
acquires, and therefore it does not operate nationally under any one mark or
tradename. Rather, the Company relies on the goodwill associated with the
acquired companies' local tradenames as used in each geographic market in which
it operates.
CUSTOMERS
The Company provides collection services to commercial, industrial,
municipal and residential customers. No one customer has individually accounted
for more than 10% of the consolidated revenue of the Company in any of the last
three years.
43
47
REGULATION
The Company's facilities and operations are subject to a variety of
federal, state and local requirements which regulate health, safety, the
environment, zoning and land use. Operating and other permits are generally
required for landfills, certain waste collection vehicles, fuel storage tanks
and other facilities owned or operated by the Company, and these permits are
subject to revocation, modification and renewal. Federal, state and local
regulations vary, but generally govern wastewater or stormwater discharges, air
emissions, the treatment, storage, transportation and disposal of hazardous and
non-hazardous wastes and the remediation of contamination associated with the
release of hazardous substances. Such regulations provide governmental
authorities with strict powers of enforcement, which include the ability to
obtain injunctions and/or impose fines or penalties in the case of violations,
including criminal penalties. These regulations are administered by the U.S.
Environmental Protection Agency ("EPA") and various other federal, state and
local environmental, health and safety agencies and authorities, including the
Occupational Safety and Health Administration of the U.S. Department of Labor
("OSHA").
The Company strives to conduct its operations in compliance with applicable
laws and regulations. However, in the existing climate of heightened
environmental concerns, the Company, from time to time, has been issued
citations or notices from governmental authorities which have resulted in the
need to expend funds for remedial work and related activities at various of the
Company's landfills and other facilities. The Company has established a reserve
which it believes, based on currently available information, will be adequate to
cover any potential regulatory costs. However, there can be no assurance that
actual costs will not exceed the Company's reserve.
Federal Regulation. The following summarizes the primary environmental and
safety-related federal statutes of the United States affecting the facilities
and operations of the Company:
(1) The Solid Waste Disposal Act ("SWDA") as amended by RCRA. SWDA
and its implementing regulations establish a framework for regulating the
handling, transportation, treatment, storage and disposal of hazardous and
non-hazardous solid wastes, and require states to develop programs to
ensure the safe disposal of solid wastes in sanitary landfills.
Subtitle D of RCRA establishes a framework for regulating the disposal
of municipal solid wastes. Regulations under Subtitle D currently include
minimum comprehensive solid waste management criteria and guidelines,
including location restrictions, facility design and operating criteria,
closure and post-closure requirements, financial assurance standards,
groundwater monitoring requirements and corrective action standards, many
of which have not commonly been in effect or enforced in the past in
connection with municipal solid waste landfills. Each state was required to
submit a permit program designed to implement Subtitle D regulations to the
EPA by April 9, 1993. These state permit programs may include landfill
requirements which are more stringent than those of Subtitle D. Some states
have not yet fully implemented permit programs pursuant to RCRA and
Subtitle D. Once a state has an approved permit program it is required to
review all existing landfill permits to ensure compliance with the new
regulations.
All of the Company's planned landfill expansions or new landfill
development projects have been engineered to meet or exceed Subtitle D
requirements. Operating and design criteria for existing operations have
been modified to comply with these new regulations. Compliance with the
Subtitle D regulations has resulted in increased costs and may in the
future require substantial additional expenditures in addition to other
costs normally associated with the Company's waste management activities.
(2) The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"). CERCLA, among other things,
provides for the cleanup of sites from which there is a release or
threatened release of a hazardous substance into the environment. CERCLA
may impose strict, joint and several liability for the costs of cleanup and
for damages to natural resources upon current owners and operators of the
site, parties who were owners or operators of the site at the time the
hazardous substances were disposed of, parties who transported the
hazardous substance to the site and
44
48
parties who arranged for disposal at the site. Under the authority of
CERCLA and its implementing regulations, detailed requirements apply to the
manner and degree of investigation and remediation of facilities and sites
where hazardous substances have been or are threatened to be released into
the environment. CERCLA liability is not dependent upon the existence or
disposal of "hazardous wastes" but can also be based upon the existence of
small quantities of more than 700 "substances" characterized by the EPA as
"hazardous," many of which may be found in common household waste.
Among other things, CERCLA authorizes the federal government to
investigate and remediate sites at which hazardous substances have been or
are threatened to be released into the environment, or to order (or offer
an opportunity to) persons potentially liable for the cleanup of the
hazardous substances to do so. In addition, CERCLA requires the EPA to
establish a National Priorities List ("NPL") of sites at which hazardous
substances have been or are threatened to be released and which require
investigation or cleanup.
Liability under CERCLA is not dependent upon the intentional disposal
of hazardous wastes. It can be founded upon the release or threatened
release, even as a result of unintentional, non-negligent or lawful action,
of thousands of hazardous substances, including very small quantities of
such substances. Thus, even if the Company's landfills have never received
hazardous wastes as such, it is possible that one or more hazardous
substances may have come to be located or "released" at its landfills or at
other properties which the Company may have owned or operated. The Company
could thus be liable under CERCLA for the cost of cleaning up such
hazardous substances at such sites and for damages to natural resources,
even if those substances were deposited at the Company's facilities before
the Company acquired or operated them. The costs of a CERCLA cleanup can be
very expensive. Given the difficulty of obtaining insurance for
environmental impairment liability, such liability could have a material
impact on the Company's business and financial condition. For a further
discussion, see "-- Liability Insurance and Bonding."
(3) The Federal Water Pollution Control Act of 1972 (the "Clean Water
Act"). The Clean Water Act regulates the discharge of pollutants from a
variety of sources, including solid waste disposal sites, into streams,
rivers and other waters. Point source runoff from the Company's landfills
and transfer stations that is discharged into surface waters must be
covered by discharge permits that generally require the Company to conduct
sampling and monitoring and, under certain circumstances, reduce the
quantity of pollutants in those discharges. Storm water discharge
regulations under the Clean Water Act require a permit for certain
construction activities, which may affect the Company's operations. If a
landfill or transfer station discharges wastewater through a sewage system
to a publicly-owned treatment works ("POTW"), the facility must comply with
discharge limits imposed by the POTW. In addition, states may adopt
groundwater protection programs under the Clean Water Act or Safe Drinking
Water Act that could affect solid waste landfills. Furthermore, development
which alters or affects "wetlands" must generally be permitted prior to
such development commencing, and certain mitigation requirements may be
required by the permitting agencies.
(4) The Clean Air Act. The Clean Air Act imposes limitations on
emissions from various sources, including landfills. On March 12, 1996, the
EPA enacted rules that require large municipal solid waste landfills to
install landfill gas monitoring systems. These EPA regulations apply to
landfills that have been operating since November 8, 1987, and that can
accommodate 2.5 million cubic meters or more of municipal solid waste. The
regulations apply whether the landfill is active or closed. The date by
which each affected landfill must have the required gas collection and
control system is dependent upon the adoption of state regulations and the
date the EPA approves the state program. Many state regulatory agencies
currently require monitoring systems for the collection and control of
landfill gas. Compliance with the new EPA regulations is not expected to
have a material effect on the Company.
(5) The Occupational Safety and Health Act of 1970 (the "OSH
Act"). The OSH Act authorizes OSHA to promulgate occupational safety and
health standards. Various of these standards, including standards for
notices of hazardous chemicals and the handling of asbestos, apply to the
Company's facilities and operations.
45
49
State Regulation. Each state in which the Company operates has its own
laws and regulations governing solid waste disposal, water and air pollution
and, in most cases, releases and cleanup of hazardous substances and liability
for such matters. States also have adopted regulations governing the design,
operation, maintenance and closure of landfills and transfer stations. The
Company's facilities and operations are likely to be subject to these types of
requirements. In addition, the Company's solid waste collection and landfill
operations may be affected by the trend in many states toward requiring the
development of waste reduction and recycling programs. For example, several
states have enacted laws that require counties or municipalities to adopt
comprehensive plans to reduce, through waste planning, composting, recycling or
other programs, the volume of solid waste deposited in landfills. Additionally,
laws and regulations restricting the disposal of certain wastes, including yard
waste, newspapers, beverage containers, unshredded tires, lead-acid batteries
and household appliances, in solid waste landfills have been promulgated in
several states and are being considered in others. Legislative and regulatory
measures to mandate or encourage waste reduction at the source and waste
recycling also are under consideration by Congress and the EPA.
In order to construct, expand and operate a landfill, one or more
construction or operating permits, as well as zoning approvals, must be
obtained. These are difficult and time-consuming to obtain, are often opposed by
neighboring landowners and citizens' groups, may be subject to periodic renewal
and are subject to modification and revocation by the issuing agency. In
connection with the Company's acquisition of existing landfills, it may be
necessary to expend considerable time, effort and money to bring the acquired
facilities into compliance with applicable requirements and to obtain the
permits and approvals necessary to increase their capacity.
Many of the Company's facilities own and operate underground storage tanks
("USTs") which are generally used to store petroleum-based products. USTs are
generally subject to federal, state and local laws and regulations that mandate
periodic testing, upgrading, closure and removal of USTs and that, in the event
of leaks from USTs, require that polluted groundwater and soils be remediated.
The Company has a number of USTs which, under federal regulations, will have to
be upgraded, removed or closed in place by December 22, 1998. The exact nature
and extent of associated costs cannot be assessed until the Company has
conducted soil or groundwater testing in connection with the upgrading, removal
and/or closure of the USTs. If USTs owned or operated by the Company leak, and
such leakage migrates onto the property of others, the Company could be liable
for response costs and other damages to third parties. Compliance with
regulations related to USTs is not expected to have a material adverse effect on
the Company.
Finally, with regard to its solid waste transportation operations, the
Company is subject to the jurisdiction of the Interstate Commerce Commission and
is regulated by the Federal Highway Administration, Office of Motor Carriers and
by regulatory agencies in each state. Various states have enacted, or are
considering enacting, laws and regulations that would restrict the interstate
transportation and processing of solid waste. In 1978, the United States Supreme
Court held similar laws and regulations unconstitutional; however, states have
attempted to distinguish proposed laws and regulations from the laws and
regulations involved in that ruling. In May 1994, the Supreme Court ruled that
state and local flow control laws and ordinances (which attempt to restrict
waste from leaving its place of generation) were an impermissible burden on
interstate commerce, and therefore, were unconstitutional. In response to these
Supreme Court rulings, Congress has considered passing legislation authorizing
states and local governments to restrict the free movement of solid waste in
interstate commerce. If federal legislation authorizing state and local
governments to restrict the free movement of solid waste in interstate commerce
is enacted, such legislation could adversely affect the Company's operations.
The Company has a reserve for environmental and landfill costs, which
includes landfill site closure and post-closure costs. The Company periodically
reassesses such costs based on various methods and assumptions regarding
landfill airspace and the technical requirements of Subtitle D of RCRA and
adjusts its accruals accordingly. Based on current information and regulatory
requirements, the Company believes that its reserve for such environmental
expenditures is adequate. However, environmental laws may change, and there can
be no assurance that the Company's reserves will be adequate to cover
requirements under existing or new environmental regulations, future changes or
interpretations of existing regulations or the identification of adverse
environmental conditions previously unknown to the Company. See "Management's
Discussion and
46
50
Analysis of Financial Condition and Results of Operation -- Environmental and
Landfill Matters" and "Risk Factors -- Environmental Regulation."
COMPETITION
The Company operates in a highly competitive industry, which is changing as
a result of rapid consolidation. Entry into the Company's business and the
ability to operate profitably in such industry requires substantial amounts of
capital and managerial experience.
Competition in the non-hazardous solid waste industry comes from a number
of large, national publicly-owned companies, including Waste Management,
Browning-Ferris, USA Waste Services, Inc. and Allied Waste Industries, Inc.,
numerous regional publicly- and privately-owned solid waste companies, and from
thousands of small privately-owned companies, in their respective markets. Some
of the Company's publicly-owned competitors also are engaging in aggressive
acquisition strategies. Certain of the Company's competitors have significantly
larger operations, and may have significantly greater financial resources, than
the Company. In addition to national and regional firms and numerous local
companies, the Company competes with those municipalities that maintain waste
collection or disposal operations. These municipalities may have financial
advantages due to the availability of tax revenues and tax-exempt financing.
The Company competes for collection accounts primarily on the basis of
price and the quality of its services. From time to time, competitors may reduce
the price of their services in an effort to expand market share or to win a
competitively bid municipal contract.
In each market in which it owns or operates a landfill, the Company
competes for landfill business on the basis of tipping fees, geographical
location and quality of operations. The Company's ability to obtain landfill
business may be limited by the fact that some major collection companies also
own or operate landfills to which they send their waste. There also has been an
increasing trend at the state and local levels to mandate waste reduction at the
source and to prohibit the disposal of certain types of wastes, such as yard
wastes, at landfills. This 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 and/or affect the prices that can
be charged for landfill disposal services. In addition, most of the states in
which the Company operates landfills have adopted plans or requirements that set
goals for specified percentages of certain solid waste items to be recycled.
LIABILITY INSURANCE AND BONDING
The nature of the Company's business exposes it to the risk of liabilities
arising out of its operations, including possible damages to the environment.
Such potential liabilities could involve, for example, claims for remediation
costs, personal injury, property damage, and damage to the environment in cases
where the Company may be held responsible for the escape of harmful materials;
claims of employees, customers or third parties for personal injury or property
damage occurring in the course of the Company's operations; or claims alleging
negligence or professional errors and omissions in the planning or performance
of work. The Company could also be subject to fines and civil and criminal
penalties in connection with alleged violations of regulatory requirements.
Because of the nature and scope of the possible environmental damages,
liabilities imposed in environmental litigation can be significant. The majority
of the Company's solid waste operations have third party environmental liability
insurance with limits in excess of those required by permit regulations, subject
to certain limitations and exclusions. However, there is no assurance that the
limits of such environmental liability insurance would be adequate in the event
of a major loss, nor is there assurance that the Company would continue to carry
environmental liability insurance should market conditions in the insurance
industry make such coverage costs prohibitive.
The Company participates in Parent's combined risk management programs for
general liability, vehicle liability, workers compensation and employer's
liability claims, as well as umbrella liability policies to provide excess
coverage over the underlying limits contained in these primary policies. The
Company also carries property insurance. Although the Company strives to operate
safely and prudently and has, subject to certain
47
51
limitations and exclusions, substantial liability insurance, no assurance can be
given that the Company will not be exposed to uninsured liabilities which could
have a material adverse effect on its financial condition.
In the normal course of business, the Company may be required to post a
performance bond or a bank letter of credit in connection with municipal
residential collection contracts, the operation, closure or post-closure of
landfills, certain remediation contracts, certain environmental permits, and
certain business licenses and permits. Bonds issued by surety companies operate
as a financial guarantee of the Company's performance. To date, the Company has
satisfied financial responsibility requirements by making cash deposits,
obtaining bank letters of credit or by obtaining surety bonds.
LEGAL PROCEEDINGS
The Company generally is and will continue to be involved in various
administrative and legal proceedings in the ordinary course of business. No
assurance can be given with respect to the outcome of these proceedings or the
effect such outcomes may have on the Company, or that the Company's insurance
coverages or reserves with respect thereto are adequate. Citizen's groups have
become increasingly active in challenging the grant or renewal of permits and
licenses for landfills and other waste facilities, and responding to such
challenges has further increased the costs and extended the time associated with
establishing new facilities or expanding existing facilities. A significant
judgment against the Company, the loss of significant permits or licenses, or
the imposition of a significant fine could have a material adverse effect on the
Company's financial condition, results of operations and prospects.
Except for routine litigation incidental to the business of the Company,
there are no pending material legal proceedings to which the Company is a party
or to which any of its property is subject. The Company believes that the
outcome of the proceedings to which it is currently a party will not have a
material adverse effect upon its financial condition, results of operations or
prospects. However, unfavorable resolution of any such proceedings could affect
the consolidated results of operations, or cash flows for the quarterly period
in which they are resolved.
EMPLOYEES
As of June 1998, the Company employed approximately 9,400 full-time
employees, approximately 2,100 of whom were covered by collective bargaining
agreements. The management of the Company believes that it has good relations
with its employees.
PROPERTIES
The Company's corporate headquarters are located in Ft. Lauderdale, Florida
in premises leased from Parent. See "Certain Transactions." As of April 1998,
the Company owned approximately 4,700 collection vehicles. Certain of the
property and equipment of the Company are subject to liens securing payment of
portions of the Company's indebtedness. The Company also leases certain of its
offices and equipment. The Company believes that all of its facilities are
sufficient for its current needs.
48
52
The following table provides certain information regarding the landfills
owned or operated by the Company as of March 31, 1998:
UNUSED
TOTAL PERMITTED PERMITTED
LANDFILL NAME LOCATION ACREAGE ACREAGE ACREAGE
------------- -------- ------- --------- ---------
Anderson............................. Anderson, California 1,200 150 103
Apex................................. Clark County, Nevada 2,340 1,233 1,153
Broadhurst Landfill(1)............... Jesup, Georgia 900 90 73
C&T Regional......................... Linn, Texas 194 94 40
Capital Waste & Recycling
Disposal........................... Rotterdam, New York 33 5 --
Charter Waste........................ Abilene, Texas 396 300 266
Cleveland Container.................. Shelby, North Carolina 183 34 --
CWI Florida (f/k/a Schofield)........ Winter Haven, Florida 80 60 12
Dozit Landfill....................... Morganfield, Kentucky 232 47 33
East Carolina Landfill............... Aulander, North Carolina 729 108 71
Epperson Landfill.................... Williamstown, Kentucky 704 100 58
Forest Lawn.......................... Three Oaks, Michigan 387 126 51
Green Valley Landfill................ Ashland, Kentucky 263 37 12
Holland Excavating................... DeLand, Florida 60 24 15
Laughlin(1).......................... Laughlin, Nevada 80 40 6
Los Mangos(2)........................ Alajuela, Costa Rica 41 24 8
National Serv-All.................... Fort Wayne, Indiana 519 204 35
Nine Mile Road....................... St. Augustine, Florida 154 19 --
Northeast Sanitary................... Eastover, South Carolina 73 42 15
Northwest Tennessee.................. Union City, Tennessee 600 120 99
Oak Grove............................ Winder, Georgia 202 60 39
Ohio County Balefill(1).............. Beaver Dam, Kentucky 908 179 143
Pepperhill........................... North Charleston, South 37 22 17
Carolina
Pine Ridge........................... Griffin, Georgia 850 101 91
Pinellas(1).......................... St. Petersburg, Florida 750 478 200
Presidio(1).......................... Presidio, Texas 10 10 6
Republic/Alpine(1)................... Alpine, Texas 96 85 63
Republic/CSC......................... Avalon, Texas 289 254 183
Republic/Imperial.................... Imperial, California 230 73 37
Republic/Maloy....................... Campbell, Texas 389 270 205
Safety Lights........................ Memphis, Tennessee 49 21 11
San Angelo(1)........................ San Angelo, Texas 283 283 155
Southern Illinois Regional........... DeSoto, Illinois 219 113 35
Springfield Environmental............ Mt. Vernon, Indiana 54 25 14
Swiftcreek Landfill.................. Macon, Georgia 792 73 41
Tay-Ban.............................. Birch Run, Michigan 138 43 10
Tri-K Landfill....................... Stanford, Kentucky 572 64 49
United Refuse........................ Fort Wayne, Indiana 305 84 22
Upper Piedmont Environmental......... Roxboro, North Carolina 614 70 62
Uwharrie Landfill(1)................. Mt. Gilead, North Carolina 905 119 75
Victory Environmental................ Terre Haute, Indiana 461 260 138
Wabash Valley........................ Wabash, Indiana 262 66 18
------ ----- -----
Total................................ 17,583 5,610 3,664
====== ===== =====
- ---------------
(1) Operated but not owned by the Company.
(2) The Company is currently in the process of selling this landfill to divest
itself of all foreign operations.
49
53
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS
The directors, executive officers and other officers of the Company are as
follows:
NAME AGE POSITION
- ---- --- --------
Chairman of the Board and Chief Executive
H. Wayne Huizenga.................... 60 Officer
Harris W. Hudson..................... 55 Vice Chairman and Director
James H. Cosman...................... 55 President and Chief Operating Officer
Senior Vice President and Chief Financial
Michael S. Karsner................... 39 Officer
Tod C. Holmes........................ 49 Vice President -- Finance
Matthew E. Davies.................... 40 Vice President -- Disposal
Thomas E. Miller..................... 43 Vice President -- Hauling Operations
Directors and Executive Officers
H. WAYNE HUIZENGA was named Chairman of the Board and Chief Executive
Officer of the Company effective May 1998. Mr. Huizenga has served as the
Chairman of the Board of Parent since August 1995 and as Co-Chief Executive
Officer of Parent since October 1996. From August 1995 until October 1996, Mr.
Huizenga served as Chief Executive Officer of Parent. Since September 1996, Mr.
Huizenga has served as the Chairman of the Board of Florida Panthers Holdings,
Inc. ("Panthers Holdings"), a sports, entertainment and leisure company that
owns and operates the Florida Panthers professional sports franchise and certain
luxury resort hotels and other facilities. Since January 1995, Mr. Huizenga also
has served as the Chairman of the Board of Extended Stay America, Inc., an
operator of extended stay lodging facilities. From September 1994 until October
1995, Mr. Huizenga served as the Vice Chairman of Viacom Inc. ("Viacom"), a
diversified entertainment and communications company. During such period, Mr.
Huizenga also served as the Chairman of the Board of Blockbuster Entertainment
Group, a division of Viacom. From April 1987 through September 1994, Mr.
Huizenga served as the Chairman of the Board and Chief Executive Officer of
Blockbuster, during which time he helped build Blockbuster from a 19-store chain
into the world's largest video rental company. In September 1994, Blockbuster
merged into Viacom. In 1971, Mr. Huizenga co-founded Waste Management, which he
helped build into the world's largest integrated solid waste services company,
and he served in various capacities, including President, Chief Operating
Officer and a director from its inception until 1984. Mr. Huizenga also owns or
controls the Miami Dolphins and Florida Marlins professional sports franchises,
as well as Pro Player Stadium, in South Florida.
HARRIS W. HUDSON was named Vice Chairman and a director of the Company
effective May 1998. Mr. Hudson has served as a director of Parent since August
1995 and as Vice Chairman of the Parent and Chairman of Parent's Solid Waste
Group since October 1996. From August 1995 until October 1996, Mr. Hudson served
as President of Parent. From May 1995 until August 1995, Mr. Hudson had served
as a consultant to Parent. From 1983 until August 1995, Mr. Hudson served as
Chairman of the Board, Chief Executive Officer and President of Hudson
Management Corporation, a solid waste collection company that he founded, which
was acquired by the Parent in August 1995. From 1964 to 1982, Mr. Hudson served
as Vice President of Waste Management of Florida, Inc., a subsidiary of Waste
Management and its predecessor. Mr. Hudson also serves as a director of Panthers
Holdings and is a limited partner of the Florida Marlins.
JAMES H. COSMAN was named President and Chief Operating Officer of the
Company effective May 1998. Mr. Cosman has served as President and Chief
Operating Officer of Parent's Solid Waste Group since January 1997. From 1972
until December 1996, Mr. Cosman served in various positions with Browning
Ferris, including Regional Vice President -- Northern Region from 1993 to 1996,
Regional Vice President -- Mid America Region from 1989 to 1993, Regional Vice
President -- South Central Region from 1979 to 1988 and District Manager from
1975 to 1979.
MICHAEL S. KARSNER was named Senior Vice President and Chief Financial
Officer of the Company effective May 1998. Mr. Karsner has served as Senior Vice
President and Chief Financial Officer of Parent
50
54
since October 1996. From May 1996 until September 1996, Mr. Karsner served as
Senior Vice President and Chief Financial Officer of Dole Food Company, Inc.
("Dole"), a multinational packaged food company, from February 1995 until May
1996 he served as Vice President, Chief Financial Officer and Treasurer of Dole,
and from January 1994 until February 1995 he served as Vice President and
Treasurer of Dole. From January 1990 through December 1993, Mr. Karsner served
as Vice President and Treasurer of the Black & Decker Corporation, a
multinational consumer products company.
TOD C. HOLMES was named Vice President -- Finance of the Company effective
June 1998. Mr. Holmes has served as Vice President of Finance of Parent's Solid
Waste Group since January 1998. From 1987 to 1996, Mr. Holmes served in various
positions with Browning Ferris, including Vice President, Investor Relations
from 1996 to 1998, Divisional Vice President, Collection Operations from 1995 to
1996, Divisional Vice President and Regional Controller (Northern Region) from
1993 to 1995 and Divisional Vice President and Assistant Corporate Controller
from 1991 to 1993.
Other Officers
MATTHEW E. DAVIES was named Vice President -- Disposal of the Company
effective June 1998. Mr. Davies has served as Vice President of Landfills &
Transfer Stations of Parent's Solid Waste Group since February 1997. Prior to
that, from 1985 to January 1997, Mr. Davies served in various positions with
Browning Ferris, including Divisional Vice President for Disposal Operations
from 1992 to January 1997, Regional Manager Landfill Operations from 1987 to
1992 and Corporate Project Manager from 1985 to 1987.
THOMAS E. MILLER was named Vice President -- Hauling Operations of the
Company effective June 1998. Mr. Miller has served as Vice President of
Operations of Parent's Solid Waste Group since February 1997. From 1990 to
February 1997, Mr. Miller served in various positions with Browning Ferris,
including District Vice President from 1996 to February 1997, Regional
Operations Manager (Northern Region) from 1993 to 1996 and Regional Medical
Waste and Recycling Manager from 1990 to 1995.
There is no family relationship between any of the executive officers and
directors of the Company, except that Mr. Huizenga is Mr. Hudson's
brother-in-law. The executive officers of the Company are selected by and serve
at the discretion of the Board. The directors of the Company hold office until
the next annual meeting of stockholders and until their successors have been
duly elected and qualified.
The Board expects to promptly identify a number of additional candidates,
some of whom may not be affiliated with the Company or Parent, for election as
directors and/or appointment as executive officers by the Board. Prior to the
Distribution, Mr. Huizenga intends to resign as Chief Executive Officer of the
Company as soon as the Company is able to appoint a successor, although Mr.
Huizenga intends to remain as Chairman of the Board. In addition, prior to the
Distribution, Mr. Karsner intends to resign as Senior Vice President and Chief
Financial Officer of the Company as soon as the Company is able to appoint a
successor.
The Board will develop the Company's business strategy, establish the
overall policies and standards for the Company and review the performance of
management in executing the business strategy and implementing the Company's
policies and standards. The directors will be kept informed of the Company's
operations at meetings of the Board and committees of the Board, through reports
and analyses presented to the Board, and by discussions with management.
Significant communications between the directors and management also are
expected to occur apart from meetings of the Board and committees of the Board.
COMMITTEES OF THE BOARD
The Board has established three committees: the Executive Committee, the
Audit Committee, and the Compensation Committee.
The Executive Committee has full authority to exercise all the powers of
the Board between meetings of the Board, except as reserved by the Board. The
Executive Committee does not have the power to elect or remove executive
officers, approve a merger of the Company, recommend a sale of substantially all
of the Company's assets, recommend a dissolution of the Company, amend the
Certificate or Bylaws, declare dividends on the Company's outstanding
securities, or, except as authorized by the Board, issue any Common
51
55
Stock or preferred stock. The Board has given the Executive Committee the
authority to approve acquisitions, borrowings, guarantees and other transactions
individually not involving more than $100 million in cash, securities (including
Common Stock to be issued by the Company) or other consideration. Effective upon
the Offerings Closing Date, Messrs. Huizenga and Hudson will be appointed as the
members of the Executive Committee.
The Audit Committee has the power to oversee the retention, performance and
compensation of the independent public accountants for the Company, and the
establishment and oversight of such systems of internal accounting and auditing
control as it deems appropriate. The Company intends to appoint at least two
independent directors as members of the Audit Committee.
The Compensation Committee reviews and approves the compensation of
executive officers of the Company, including payment of salaries, bonuses and
incentive compensation, determines the Company's compensation philosophy and
programs, and administers the Company's stock option plans. The Company intends
to appoint at least two independent directors as members of the Compensation
Committee.
EXECUTIVE COMPENSATION
Summary Compensation Information
Immediately following the Offerings Closing Date, the base salaries and
bonuses of the Named Officers (as defined below) will be at levels determined by
Parent. Subsequent to the Distribution, the base salaries and bonuses of all
executive officers of the Company will be determined by the Compensation
Committee of the Company. It is anticipated that the base salaries paid by the
Company to all executive officers compensated by the Company rather than Parent
will initially be comparable to present base salaries being paid by Parent,
subject to such adjustments as may be determined in the normal course of
business. Following the Offerings Closing Date, Messrs. Huizenga and Karsner
will not receive any compensation as executive officers directly from the
Company. A portion of the compensation paid by Parent to Mr. Karsner has been
allocated to the Company and is included in the fee payable by the Company to
Parent under the Services Agreement. See "Certain Transactions -- Services
Agreement."
The following tables set forth certain compensation information with
respect to the Company's Chief Executive Officer and the three other most highly
compensated executive officers of the Company based upon amounts paid or accrued
by Parent for services rendered to Parent and its subsidiaries in all capacities
with Parent during the year ended December 31, 1997 (collectively, the "Named
Officers"). The Company had no other executive officers whose salary and bonus
exceeded $100,000 in 1997.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION WITH PARENT YEAR SALARY BONUS COMPENSATION(1) OPTIONS(2) COMPENSATION
- --------------------------------------- ---- -------- -------- --------------- ------------ ------------
H. Wayne Huizenga....................... 1997 -- -- -- 1,524,017 --
(Chairman and Co-Chief 1996 -- -- -- 465,117 --
Executive Officer)(3) 1995 -- -- -- 3,000,000 --
Harris W. Hudson........................ 1997 $395,769 $100,000 -- 324,672 --
(Vice Chairman)(4) 1996 $286,501 -- -- 186,047 --
1995 $115,804 -- -- 802,020 --
Michael S. Karsner...................... 1997 $337,820 $ 81,250 -- 10,000 $234,507(6)
(Senior Vice President 1996 $104,167 $ 50,000 -- 250,000 --
and Chief Financial Officer)(5) 1995 -- -- -- -- --
James H. Cosman......................... 1997 $300,000 $ 75,000 -- 163,333 $ 33,775(8)
(President and Chief Operating 1996 -- -- -- --
Officer Solid Waste Group)(7) 1995 -- -- -- --
Footnotes on following page
52
56
- ---------------
(1) The aggregate total value of perquisites and other personal benefits,
securities or property did not equal $50,000 or ten percent of the annual
salary and bonus for any Named Officer during either 1995, 1996 or 1997.
(2) All options relate to shares of Parent Common Stock.
(3) Mr. Huizenga's employment with Parent began in August 1995. He is not paid
any cash salary or bonus.
(4) Mr. Hudson's employment with Parent began in August 1995.
(5) Mr. Karsner's employment with Parent began in October 1996.
(6) Includes $136,803 of relocation expenses for Mr. Karsner and $97,704
reimbursed by Parent for the payment of taxes by Mr. Karsner incurred
thereon.
(7) Mr. Cosman's employment with Parent began in January 1997.
(8) Consists of certain relocation expenses for Mr. Cosman.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1997
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE DATE(3) 0% 5% 10%
- ---- ---------- -------------- -------- ---------- ---------- ----------- -----------
H. Wayne Huizenga..... 1,524,017 9.3% $28.625 1/3/07 $2,000,272 $27,435,520 $69,526,994
Harris W. Hudson...... 324,672 2.0% 28.625 1/3/07 426,132 5,844,781 14,811,822
Michael S. Karsner.... 10,000 * 28.625 1/3/07 13,125 180,021 456,209
James H. Cosman....... 163,333 1.0% 30.00 1/2/07 -- 3,081,577 7,809,322
- ---------------
* Less than 1%
(1) All options relate to shares of Parent Common Stock.
(2) Calculated as a percent of total options of Parent Common Stock granted to
all Parent employees.
(3) Mr. Huizenga's option grant is immediately exercisable in full; the option
grants for the other Named Officers vest over a four-year period at the rate
of 25% per year commencing on the first anniversary of the date of grant.
YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1997(1) DECEMBER 31, 1997(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
H. Wayne Huizenga.................................. 4,989,134 -- $38,405,528 --
Harris W. Hudson................................... 297,522 815,217 7,354,617 $5,885,820
Michael S. Karsner................................. 62,500 197,500 -- --
James H. Cosman.................................... -- 163,333 -- --
- ---------------
(1) All options relate to shares of Parent Common Stock.
COMPENSATION OF DIRECTORS
Following the Offerings Closing Date, the Company may grant options to
purchase shares of Class A Common Stock to non-employee directors of the Company
under the 1998 Stock Incentive Plan. See "-- Stock Incentive Plan." Other than
as will be provided in such Plan and the reimbursement of reasonable expenses
incurred with attending Board and Committee meetings, the Company has not yet
adopted specific policies on directors' compensation and benefits following the
Offerings Closing Date.
SEVERANCE AGREEMENTS
Messrs. Cosman and Holmes entered into severance agreements with Parent
when hired by Parent. Pursuant to Mr. Cosman's severance agreement, if his
employment with Parent is terminated without cause during the first 36 months of
his employment, then Mr. Cosman is entitled to continue to receive severance pay
equal to $300,000 per annum for a period equal to the greater of the balance of
such 36-month period or 12 months. Such 36-month period expires on December 31,
1999. The Company will assume Parent's severance obligations under Mr. Cosman's
agreement prior to the Offerings Closing Date. Mr. Cosman will not be entitled
to any severance payments as a result of the Separation and Distribution.
Mr. Holmes' severance agreement provides that if his employment with Parent
is terminated without cause during the first 24 months of his employment, then
Mr. Holmes is entitled to continue to receive severance pay equal to $200,000
per annum for a period equal to the greater of the balance of such 24-month
53
57
period or 12 months. Mr. Holmes's severance agreement also provides that if his
employment with Parent is terminated without cause after the first 24 months of
his employment, then Mr. Holmes is entitled to continue to receive his base
monthly salary for a period of 12 months. All options granted under Parent's
stock option plans would continue to vest throughout the severance period. Mr.
Holmes will not be entitled to any severance payments as a result of the
Separation and Distribution.
STOCK INCENTIVE PLAN
The Company currently intends to adopt a 1998 Stock Incentive Plan ("Stock
Incentive Plan") prior to the Offerings Closing Date, to provide for the grant
of options to purchase shares of Class A Common Stock, stock appreciation rights
and stock grants to employees, non-employee directors and independent
contractors of the Company who are eligible to participate in the Stock
Incentive Plan. The Company intends to reserve 20,000,000 shares of Class A
Common Stock for issuance pursuant to options granted under the Stock Incentive
Plan and Substitute Options (as defined below). The Company has agreed that
prior to the Distribution Date it will not award options that, if exercised,
would cause Parent's ownership of the Common Stock to fall below the Required
Distribution Percentage or otherwise prevent the Distribution from qualifying as
a tax-free distribution under Section 355 of the Code. See "Certain
Transactions -- Separation and Distribution Agreement."
401(K) PLAN
The Company currently intends to adopt a 401(k) Savings and Retirement Plan
that is intended to qualify for preferential tax treatment under section 401(a)
of the Code ("401(k) Plan"). Although the Company has not yet adopted the
specific terms of the 401(k) Plan, the Company intends that most of the
employees of the Company will be eligible to participate in the 401(k) Plan upon
adoption.
OWNERSHIP OF PARENT COMMON STOCK BY THE COMPANY'S DIRECTORS AND EXECUTIVE
OFFICERS
No present or future officer or director currently owns any shares of
Common Stock, all of which are currently owned by Parent. Upon consummation of
the Distribution, such directors and officers will receive shares of Class B
Common Stock in respect of shares of Parent Common Stock held by them on the
record date for the Distribution. The following table sets forth the number of
shares of Parent Common Stock beneficially owned on June 12, 1998 by each of the
Company's directors and director nominees, the Named Officers and all directors
and executive officers of the Company as a group. Except as otherwise noted, the
individual director, director nominee or executive officer or their family
members had sole voting and investment power with respect to such securities.
Percentages of shares beneficially owned are based upon 455,804,071 shares of
Parent Common Stock outstanding at June 12, 1998, plus for each person named
below any shares of Parent Common Stock that may be acquired by such person
within 60 days of such date upon exercise of outstanding stock options or
warrants.
SHARES BENEFICIALLY
OWNED
--------------------
NAME NUMBER PERCENT
- ---- ---------- -------
H. Wayne Huizenga(1).................................... 31,801,912 6.8
Harris W. Hudson(2)..................................... 19,421,981 4.2
Michael S. Karsner(3)................................... 65,000 *
James H. Cosman(4)...................................... 48,834 *
Tod C. Holmes........................................... -- --
All directors and executive officers as a group (5
persons)(5)........................................... 51,337,727 10.9
- ---------------
* Less than 1 percent
(1) The aggregate amount of Parent Common Stock beneficially owned by Mr.
Huizenga consists of (a) 17,019,219 shares beneficially owned by Huizenga
Investment Limited Partnership, a Nevada limited partnership controlled by
Mr. Huizenga, (b) 1,043,559 shares owned indirectly by his wife, (c)
presently exercisable warrants owned by Huizenga Investment Limited
Partnership to purchase 8,000,000 shares, and (d) vested options to purchase
5,739,134 shares. Mr. Huizenga disclaims beneficial ownership of the shares
owned by his wife.
Footnotes continued on following page
54
58
(2) The aggregate amount of Parent Common Stock beneficially owned by Mr. Hudson
consists of (a) 17,296,779 shares beneficially owned by Harris W. Hudson
Limited Partnership, a Nevada limited partnership controlled by Mr. Hudson,
(b) presently exercisable warrants owned by Harris W. Hudson Limited
Partnership to purchase 1,200,000 shares and (c) options exercisable within
60 days to purchase 925,202 shares.
(3) The aggregate amount of Parent Common Stock beneficially owned by Mr.
Karsner consists of options exercisable within 60 days to purchase 65,000
shares.
(4) The aggregate amount of Parent Common Stock beneficially owned by Mr. Cosman
consists of (a) 8,000 shares owned by Mr. Cosman and his wife as joint
tenants, and (b) options exercisable within 60 days to purchase 40,834
shares.
(5) The aggregate amount of Parent Common Stock beneficially owned by all
directors and executive officers of the Company as a group consists of (a)
35,367,557 shares, (b) presently exercisable warrants to purchase 9,200,000
shares and (c) options which are exercisable within 60 days to purchase
6,770,170 shares.
55
59
CERTAIN TRANSACTIONS
The following includes brief summaries of the Separation and Distribution
Agreement, the Services Agreement, the Tax Indemnification and Allocation
Agreement, and the Employee Benefits Agreement between the Company and Parent.
The summaries of such agreements are qualified in their entirety by such
agreements, copies of which will be filed as exhibits to the Registration
Statement of which this Prospectus is a part.
HISTORICAL INTERCOMPANY RELATIONSHIPS
Prior to the Offerings Closing Date, the Company has been a wholly owned
subsidiary of Parent. As a wholly owned subsidiary, the Company has received
various services provided by Parent, including accounting, auditing, cash
management, corporate communications, corporate development, financial and
treasury, human resources and benefit plan administration, insurance and risk
management, legal, purchasing and tax services. Parent has also provided the
Company with the services of a number of its executives and employees. In
consideration for these services, Parent has historically allocated a portion of
its overhead costs related to such services to the Company. Management of the
Company believes that the amounts allocated to the Company have been no less
favorable to the Company than the expenses the Company would have incurred to
obtain such services on its own or from unaffiliated third parties.
From time to time, Parent has guaranteed certain obligations of the
Company. These guarantees will remain in place following the Offerings Closing
Date and may be called upon should there be a default with respect to such
obligations. In that event, the Company will be obligated to reimburse Parent
for all liabilities and costs incurred by Parent with respect to such
obligations. Within six months following the Distribution, the Company will be
required to cause all such guarantees by Parent to be released by the creditors
and other parties holding such guarantees.
DIVIDEND AND INTERCOMPANY DEBT REPAYMENTS
In April 1998, the Company declared a dividend to Parent in the amount of
$2.0 billion and paid the dividend to Parent by the issuance of the Company
Notes payable to Parent. Prior to the Offerings Closing Date, the Company will
prepay a portion of the Company Notes by (a) use of the Resources Note
Receivable and (b) use of assets received by the Company from the Resources
Dividend equal to the difference between the remaining outstanding amount of the
Company Notes less the net proceeds of the Offerings and less the net proceeds
of the Underwriters' over-allotment options (assuming such options are exercised
in full). On the Offerings Closing Date, the Company intends to use all of the
net proceeds of the Offerings to prepay certain amounts outstanding of the
Company Notes payable to Parent. Prior to the Offerings Closing Date, the
Company will issue shares of Class A Common Stock to repay in full the Affiliate
Payable and the Resources Notes Payable. Within 31 days after the Offerings
Closing Date, the Company will issue Class A Common Stock to Parent to prepay
any remaining outstanding amount of the Company Notes to the extent that the net
proceeds, if any, from the exercise of the Underwriters' over-allotment options
are not sufficient to prepay any such remaining amount. All such issuances of
Class A Common Stock will be based on the initial public offering price per
share. See "Background of the Offerings -- Separation and Distribution."
SEPARATION AND DISTRIBUTION AGREEMENT
Parent has announced that, subject to satisfaction of certain conditions,
Parent intends to distribute to its stockholders in 1999 all of the Common Stock
of the Company owned by Parent at that time. The Separation and Distribution
Agreement to be entered into between the Company and Parent will set forth
certain agreements among the Company and Parent, with respect to the principal
corporate transactions required to effect the Separation, the Offerings and the
Distribution, and certain other agreements governing the relationship among the
parties thereafter.
The Separation. The Separation and Distribution Agreement provides that,
prior to the Offerings Closing Date and after effecting the Resources Dividend,
all of the common stock of Resources will be distributed by the Company to
Parent. Resources is a subsidiary of the Company and substantially all of its
56
60
assets and liabilities relate to Parent's automotive retail businesses, and do
not relate to the Company's solid waste services businesses. The Company's
financial statements exclude the accounts of Resources. In addition, prior to
the Offerings, certain subsidiaries engaged in the solid waste services business
and wholly owned, directly and indirectly, by the Company will be reorganized
internally within the Company's consolidated group of subsidiaries.
The Offerings. The Separation and Distribution Agreement provides that,
subject to certain conditions, the Company shall consummate the Offerings. On
the Offerings Closing Date, Parent will own approximately 70.9% of the
outstanding shares of Common Stock (66.6% if the Underwriters exercise their
over-allotment options in full), which will represent approximately 91.2% of the
combined voting power of all the outstanding shares of Class A Common Stock and
Class B Common Stock (89.9% if the Underwriters exercise their over-allotment
options in full).
The Distribution. The Separation and Distribution Agreement provides that,
subject to the terms and conditions thereof, Parent and the Company will take
all reasonable steps necessary and appropriate to cause all conditions to the
Distribution to be satisfied and to effect the Distribution. The Parent Board
will have the sole discretion to set a record date for the Distribution and to
determine the Distribution Date at any time commencing after the Offerings
Closing Date and ending on or prior to such date as is three months following
the satisfaction or waiver of all of the conditions to the Distribution,
including receipt of the Letter Ruling. Parent has agreed to consummate the
Distribution no later than December 31, 1999, subject to the satisfaction or
waiver by the Parent Board, in its sole discretion, of the following conditions:
(i) the Letter Ruling shall have been obtained, and shall continue in
effect, to the effect that, among other things, the Distribution will qualify as
a tax-free distribution for federal income tax purposes under Section 355 of the
Code and the Distribution by Parent of Common Stock to stockholders of Parent
will not result in recognition of any income, gain or loss for federal income
tax purposes to Parent or Parent's stockholders, and such ruling shall be in
form and substance satisfactory to Parent, in its sole discretion;
(ii) any material governmental approvals and third party consents necessary
to consummate the Distribution shall have been obtained and be in full force and
effect;
(iii) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect, and no other event outside
the control of Parent shall have occurred or failed to occur that prevents the
consummation of the Distribution; and
(iv) no other events or developments shall have occurred subsequent to the
Offerings Closing Date that, in the sole judgment of the Parent Board, would
result in the Distribution having a material adverse effect on Parent or on the
stockholders of Parent.
The Company and Parent have agreed that, after the Offerings Closing Date,
none of the parties will take, or permit any of its affiliates to take, any
action which reasonably could be expected to prevent the Distribution from
qualifying as a tax-free distribution to Parent and Parent's stockholders
pursuant to Section 355 of the Code. The parties have also agreed to take any
reasonable actions necessary in order for the Distribution to qualify as a
tax-free distribution to Parent and Parent's stockholders pursuant to Section
355 of the Code. Without limiting the foregoing, after the Offerings Closing
Date and prior to the Distribution Date, the Company will not issue or grant,
directly or indirectly, any shares of its capital stock or any rights, warrants,
options or other securities to purchase or acquire (whether upon conversion,
exchange or otherwise) any shares of its capital stock (whether or not then
exercisable, convertible or exchangeable), without the prior consent of Parent
if such issuance or grant would reduce Parent's ownership of the Company's
capital stock below the Required Distribution Percentage.
Registration Rights. The Separation and Distribution Agreement will
provide that Parent and any of Parent's wholly owned subsidiaries that own
Common Stock will have the right in certain circumstances to require the Company
to use its best efforts to register for resale shares of Common Stock held by
Parent under the Securities Act of 1933, as amended ("1933 Act"), and applicable
state securities laws, subject to certain conditions, limitations and exceptions
(a "Demand Registration Statement"). The Company also will agree
57
61
with Parent that if the Company files a registration statement for the sale of
securities under the 1933 Act (an "Incidental Registration Statement"), then
Parent and its subsidiaries may, subject to certain conditions, limitations and
exceptions, include in such registration statement shares of Common Stock held
by Parent and its subsidiaries. Parent has agreed to pay all of the offering
expenses in connection with any Demand Registration Statement, provided that if
the Company registers any new shares of its Common Stock in the Demand
Registration Statement, then the Company will pay its pro rata portion of the
offering expenses. The Company has agreed to pay offering expenses in connection
with any Incidental Registration Statement; however, Parent will pay its pro
rata portion of the offering expenses if any shares of Common Stock held by
Parent and its subsidiaries are included in the Incidental Registration
Statement.
Releases and Indemnification. The Separation and Distribution Agreement
provides for a full and complete release and discharge as of the Offerings
Closing Date of all liabilities (including any contractual agreements or
arrangements existing or alleged to exist) existing or arising from all acts and
events occurring or failing to occur or alleged to have occurred or to have
failed to occur and all conditions existing or alleged to have existed on or
before the Offerings Closing Date, between the Company and Parent (including in
connection with the transactions and all other activities to implement any of
the Separation, the Offerings and the Distribution), except as expressly set
forth in the Separation and Distribution Agreement.
Except as provided in the Separation and Distribution Agreement, the
Company has agreed to indemnify, defend and hold harmless Parent and each of
Parent's directors, officers and employees from and against all liabilities
relating to, arising out of or resulting from (i) the failure of the Company or
any other Person to pay, perform or otherwise promptly discharge any liabilities
of the Company in accordance with their respective terms, and (ii) any breach by
the Company of the Separation and Distribution Agreement or any of the
\agreements entered into by the parties in connection with the Separation and
Distribution (the "Ancillary Agreements").
Except as provided in the Separation and Distribution Agreement, Parent has
agreed to indemnify, defend and hold harmless the Company and each of the
Company's directors, officers and employees from and against all liabilities
relating to, arising out of or resulting from (i) the failure of Parent or any
other Person to pay, perform or otherwise promptly discharge any liabilities of
Parent other than the liabilities of the Company, (ii) any breach by Parent of
the Separation and Distribution Agreement or any of the Ancillary Agreements and
(iii) any untrue statement of a material fact or omission to state a material
fact, or alleged untrue statements or omissions, with respect to certain
information relating to Parent contained in the Registration Statement, any
Demand Registration Statement or any Incidental Registration Statement.
The Separation and Distribution Agreement also specifies certain procedures
with respect to claims subject to indemnification and related matters.
Contingent Liabilities and Contingent Gains. The Separation and
Distribution Agreement provides for indemnification by the Company and Parent
with respect to contingent liabilities primarily relating to their respective
businesses or otherwise assigned to them ("Exclusive Contingent Liabilities").
The Separation and Distribution Agreement provides for the establishment of
a Contingent Claims Committee comprised of one representative designated from
time to time by each of Parent and the Company that will establish procedures
for resolving disagreements among the parties as to contingent gains and
contingent liabilities.
The Separation and Distribution Agreement provides for the sharing of
Shared Contingent Liabilities, which are defined as (i) any contingent
liabilities that are not Exclusive Contingent Liabilities of Parent or Exclusive
Contingent Liabilities of the Company and (ii) certain specifically identified
liabilities. With respect to any Shared Contingent Liability, the parties have
agreed to allocate responsibility for such Shared Contingent Liability based
upon their respective market capitalizations on the Offerings Closing Date or on
such other methodology to be established by a Contingent Claims Committee to be
appointed by the parties. Parent will assume the defense of, and may seek to
settle or compromise, any third party claim that is a Shared Contingent
Liability, and the costs and expenses thereof will be included in the amount to
be shared by the parties.
58
62
The Separation and Distribution Agreement provides that the Company and
Parent will have the exclusive right to any benefit received with respect to any
contingent gain that primarily relates to the business of, or that is expressly
assigned to, the Company or Parent, respectively (an "Exclusive Contingent
Gain"). Each of the Company and Parent will have sole and exclusive authority to
manage, control and otherwise determine all matters whatsoever with respect to
an Exclusive Contingent Gain that primarily relates to its respective business.
The parties have agreed to share any benefit that may be received from any
Contingent Gain based upon their respective market capitalizations on the
Offerings Closing Date or on such other methodology to be established by a
Contingent Claims Committee to be appointed by the parties. The parties have
agreed that Parent will have the sole and exclusive authority to manage, control
and otherwise determine all matters whatsoever with respect to any Shared
Contingent Gain. Pursuant to the Separation and Distribution Agreement, the
Company acknowledges that Parent may elect not to pursue any Shared Contingent
Gain for any reason whatsoever (including a different assessment of the merits
of any action, claim or right or any business reasons that are in the best
interests of Parent without regard to the best interests of the Company) and
that Parent will have no liability to any Person (including the Company) as a
result of any such determination.
Certain Business Transactions. Under the terms of the Separation and
Distribution Agreement, Parent has agreed that, for a period of five years after
the date of the Distribution, Parent will not directly or indirectly compete
with the Company in the solid waste services industry anywhere in North America,
and the Company has agreed that, for a period of five years after the date of
the Distribution, the Company will not directly or indirectly compete with the
Parent in the automotive retail or vehicle rental industries anywhere in North
America. The Separation and Distribution Agreement also provides for the
allocation of certain corporate opportunities following the Offerings Closing
Date and prior to the Distribution Date. During this period, neither the Company
nor Parent will have any duty to communicate or offer such opportunities to the
other and, subject to the foregoing non-competition covenants, may pursue or
acquire any such opportunity for itself or direct such opportunity to any other
Person; provided, however, (i) if the opportunity relates primarily to the
business of the other party, the party that acquires knowledge of the
opportunity will generally be required to communicate and offer the opportunity
to the other party and (ii) if the opportunity relates to both the business of
Parent and the Company, the party that acquires knowledge of the opportunity
shall use its reasonable best efforts to communicate and offer such opportunity
to the Company.
Insurance. Pursuant to the Separation and Distribution Agreement, Parent
has agreed to permit the Company to continue to participate in certain of its
insurance policies and Parent will continue to provide claims adjustment
services for automobile liability and general liability claims, for which the
Company will pay to Parent a monthly fee of $43,000 for insurance costs plus an
amount equal to five percent of incurred losses for claims adjustment services.
Additionally, Company plans to secure insurance policies independent of Parent.
Parent and the Company have agreed to cooperate in good faith to provide for an
orderly transition of insurance coverage. However, Parent will not be liable in
the event any of these policies are terminated or prove to be inadequate. See
"Business -- Liability and Insurance Bonding."
Warrants. Under the terms of certain outstanding warrants to purchase
Parent Common Stock, persons who hold such warrants and do not exercise them
prior to the record date for the Distribution will be entitled to receive upon
exercise of such warrants, in addition to shares of Parent Common Stock, a
number of shares of Common Stock, based on the same ratio used to determine the
number of shares of Common Stock to be distributed for each outstanding share of
Parent Common Stock on the record date for the Distribution. If necessary,
Parent will reserve shares of Common Stock held by it at the time of the
Distribution to be delivered to holders of warrants upon exercise of such
warrants following the record date for the Distribution Date. The Company will
not be required to issue any additional shares of Common Stock to such warrant
holders. It is not possible to specify how many shares of Common Stock will be
subject to such warrants, as it is not known how many warrants, if any, to
purchase Parent Common Stock will remain unexercised by the record date for the
Distribution.
Expenses. The Company has agreed to pay all third-party costs, fees and
expenses relating to the Offerings, all of the reimbursable expenses of the
Underwriters pursuant to the Underwriting Agreement (as defined below), all of
the costs of producing, printing, mailing and otherwise distributing this
Prospectus, as
59
63
well as the Underwriters' discount as provided in the Underwriting Agreement.
See "Underwriting." Except as set forth in an Ancillary Agreement, whether or
not the Distribution is consummated, the Separation and Distribution Agreement
treats certain specific third-party fees, costs and expenses paid or incurred in
connection with the Distribution in the same manner as Shared Contingent
Liabilities, and all other fees, costs and expenses in connection therewith will
be paid by Parent.
Termination. The Separation and Distribution Agreement may be terminated
at any time prior to the Distribution Date by the mutual consent of Parent and
the Company, or by Parent at any time prior to the Offerings Closing Date. In
addition, the Separation and Distribution Agreement will terminate if the
Distribution does not occur on or prior to December 31, 1999, unless extended by
Parent and the Company. If the Separation and Distribution Agreement is
terminated prior to the Offerings Closing Date, no party thereto (or any of its
respective directors or officers) will have any liability or further obligation
to any other party. In the event of any termination of the Separation and
Distribution Agreement on or after the Offerings Closing Date, only the
provisions of the Separation and Distribution Agreement that obligate the
parties to pursue the Distribution, or take, or refrain from taking, actions
which would or might prevent the Distribution from qualifying for tax-free
treatment under Section 355 of the Code, will terminate and the other provisions
of the Separation and Distribution Agreement and each Ancillary Agreement will
remain in full force and effect.
SERVICES AGREEMENT
Prior to the Offerings Closing Date, the Company and Parent intend to enter
into a services agreement (the "Services Agreement") pursuant to which Parent
will provide to the Company certain accounting, auditing, cash management,
corporate communications, corporate development, financial and treasury, human
resources and benefit plan administration, insurance and risk management, legal,
purchasing and tax services. In exchange for the provision of such services,
fees will be payable by the Company to Parent in the amount of $1.25 million per
month, subject to review and adjustment as the Company reduces the amount of
services it obtains from Parent from time to time. The fees will be payable
monthly in arrears, 15 days after the close of each month. Management of the
Company believes that the fees for services that will or may be provided under
the Services Agreement will be no less favorable to the Company than could have
been obtained by the Company internally or from unaffiliated third parties.
The Services Agreement will have an initial term expiring one year from the
Offerings Closing Date. Following the initial term, the Company may seek to
renew or extend the term, and modify the scope and fee of, the Services
Agreement on terms mutually acceptable to the Company and Parent.
Any services rendered to the Company by Parent beyond the services to be
provided under the terms of the Services Agreement, that Parent determines are
not covered by the fees provided for under the terms of the Services Agreement,
will be billed to the Company as described in the Services Agreement, or on such
other basis as the Company and Parent may agree, provided that the price payable
by the Company for non-covered services will be established on a negotiated
basis which is no less favorable to the Company than the charges for comparable
services from unaffiliated third parties.
TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
Prior to the Offerings Closing Date, the Company and Parent intend to enter
into a Tax Indemnification and Allocation Agreement, which will provide that if
any one of certain events occurs, and such event causes the Distribution not to
be a tax-free transaction to Parent under Section 355 of the Code, then the
Company will indemnify Parent for income taxes Parent may incur by reason of the
Distribution not so qualifying under the Code (the "Distribution Taxes"). Such
events include any breach of representations relating to the Company's
activities and ownership of its capital stock made to Parent or to the IRS in
connection with the solicitation of a Letter Ruling.
The Tax Indemnification and Allocation Agreement will also provide that
Parent will indemnify the Company for income taxes that the Company might incur
if certain internal restructuring transactions entered into in connection with
the Offerings fail to qualify as tax-free spin-offs, irrespective of whether
such taxes
60
64
arise as a result of the events referred to above, and for Distribution Taxes
for which the Company has no liability to Parent under the circumstances
described above.
In addition to the foregoing indemnities, the Tax Indemnification and
Allocation Agreement will provide for (i) the allocation and payment of taxes
for periods during which the Company and Parent are included in the same
consolidated group for federal income tax purposes or the same consolidated,
combined or unitary returns for state tax purposes, (ii) the allocation of
responsibility for the filing of tax returns, (iii) the conduct of tax audits
and the handling of tax controversies and (iv) various related matters.
For periods during which the Company is included in Parent's consolidated
federal income tax returns or state consolidated, combined, or unitary tax
returns (which will include the periods on or before the Offerings Closing
Date), the Company will be required to pay an amount of income tax equal to the
consolidated tax liability attributable to the Company. The Company will be
responsible for its own separate tax liabilities that are not determined on a
consolidated or combined basis. The Company will also be responsible in the
future for any increases to the consolidated tax liability of the Company and
Parent that is attributable to the Company, and will be entitled to refunds for
reductions of tax liabilities attributable to the Company for prior periods.
The Company and its subsidiaries will be included in Parent's consolidated
group for federal income tax purposes so long as Parent beneficially owns at
least 80% of the total voting power and value of the outstanding Common Stock.
Each corporation that is a member of a consolidated group during any portion of
the group's tax year is jointly and severally liable for the federal income tax
liability of the group for that year. The Company (and its subsidiaries) will
cease to be members of the Parent's consolidated group upon the Offerings
Closing Date. While the Tax Indemnification and Allocation Agreement allocates
tax liabilities between Company and Parent during the period on or prior to the
Offerings Closing Date in which the Company is included in Parent's consolidated
group, the Company could be liable in the event federal tax liability allocated
to Parent is incurred, but not paid, by Parent or any other member of Parent's
consolidated group for Parent's tax years that include such periods. In such
event, the Company would be entitled to seek indemnification from Parent
pursuant to the Tax Indemnification and Allocation Agreement.
In connection with the Distribution and the Letter Ruling, the Company will
likely make certain representations to the IRS regarding its intentions at the
time of the Distribution with respect to its business assets and acquisitions or
issuances of its capital stock. Parent will make similar representations to the
IRS with respect to Parent's assets and capital stock. The IRS may require a
representation that the Company has had no negotiations or discussions with any
possible acquisition target the acquisition of which, when combined with the
Class A Common Stock issued in the Offerings or any shares of Common Stock sold
by Parent prior to the Distribution, could cause a 50% or greater change in the
vote or value of the capital stock of the Company. If the Distribution occurs
and, as a result of the Company's breach of these representations, or certain
other representations of the Company, occurring after the Distribution, Parent
incurs Distribution Taxes, then the Company would be liable to the Parent under
the Tax Indemnification and Allocation Agreement, which would have a material
adverse effect on the business, financial condition, results of operations and
prospects of the Company. Parent does not plan to consummate the Distribution
unless the Letter Ruling is satisfactory to Parent that the general acquisition
growth strategies of Parent and the Company would not cause the Distribution to
be taxable and that such acquisition growth strategies would not be impeded by
completing the Distribution.
EMPLOYEE BENEFITS AGREEMENT
Prior to the Offerings Closing Date, the Company and Parent intend to enter
into an employee benefits agreement (the "Employee Benefits Agreement").
Pursuant to the Employee Benefits Agreement, the Company will assume and agree
to pay, perform, fulfill and discharge, in accordance with their respective
terms, all liabilities to, or relating to, former employees of Parent or its
affiliates who will be employed by the Company and its affiliates as of the
Distribution Date and certain former employees of Parent or its affiliates
(including retirees) who were employed in or provided services primarily for the
solid waste business of the Company for purposes of allocating employee benefit
obligations. Until the Distribution Date, such employees
61
65
and former employees will continue to participate in Parent's employee benefit
plans, although the Company will bear its allocable share of the costs of
benefits of such plans. Effective immediately after the Distribution, the
Company will establish its own employee benefit plans, which generally will be
similar to Parent's plans as in effect at that time. The Employee Benefits
Agreement will not preclude the Company from discontinuing or changing such
plans at any time thereafter, with certain exceptions noted below. The Company's
plans generally will assume all liabilities under Parent's plans to employees
and former employees assigned to the Company, and any assets funding such
liabilities will be transferred from funding vehicles associated with Parent's
plans to the corresponding funding vehicles associated with the Company's plans.
Parent Stock Options. Pursuant to the Employee Benefits Agreement,
following the Distribution, the Company intends to issue substitute options
under the Stock Incentive Plan (collectively "Substitute Options") in
substitution for grants under Parent's stock option plans as of the Distribution
Date (collectively, "Parent Stock Options") held by individuals employed by the
Company as of the Distribution Date (the "Company Employees"). With certain
exceptions, Parent Stock Options held by individuals employed by Parent as of
the Distribution Date and Parent Stock Options held by individuals who will not
continue their employment after the Distribution Date with any of Parent, the
Company or any of their subsidiaries, including individuals who have retired
prior to such date, will remain outstanding as Parent Stock Options, with an
appropriate antidilution adjustment to reflect the Distribution.
The Substitute Options will provide for the purchase of a number of shares
of the Class A Common Stock equal to the number of shares of Parent Common Stock
subject to such Parent Stock Options as of the Distribution Date, multiplied by
the Ratio (as defined below), rounded down to the nearest whole share. The per
share exercise price of the Substitute Options will equal the per share exercise
price of such Parent Stock Options as of the Distribution Date divided by the
Ratio. Solely for its convenience, the Company will pay the holders of the
Substitute Options cash in lieu of any fractional share. The other terms and
conditions of such Substitute Options will be the same as those of the
surrendered Parent Stock Options. The "Ratio" means the amount obtained by
dividing (i) the average of the daily high and low per share prices of the
Parent Common Stock as listed on the NYSE during each of the 30 trading days
immediately preceding the ex-dividend date for the Distribution by (ii) the
average of the daily high and low per share prices of the Class A Common Stock
as listed on the NYSE during each of the 30 trading days immediately preceding
the ex-dividend date for the Distribution.
Shares Subject to Substitute Options. It is not possible to specify how
many shares of Class A Common Stock will be subject to Substitute Options. It is
expected that some Parent Stock Options consisting of stock options held by the
Company Employees will be exercised and that some will be forfeited, and that
additional Parent Stock Options could be granted, prior to the Distribution
Date. In addition, the remaining balance of unexercised Parent Stock Options
will be converted into Substitute Options by reference to the Ratio, which will
not be known until the time of the Distribution. Stockholders of the Company
are, however, likely to experience some dilutive impact from the above-described
adjustments.
Outstanding Parent Stock Options Held by Company Employees. Pending the
Distribution, Parent Stock Options held by Company Employees will remain
outstanding as Parent Stock Options. As of June 12, 1998, there were
approximately 7.3 million shares of Parent Common Stock reserved by Parent for
possible issuance pursuant to outstanding, unexercised Parent Stock Options at a
weighted average exercise price of $19.71 per share (approximately 2.4 million
of which were exercisable as of June 12, 1998), held by Company Employees. If
the Ratio were determined using the closing price of the Parent Common Stock on
June 12, 1998 on the NYSE ($24.875 per share) and a price of $25.50 per share of
Class A Common Stock (the mid-point of the estimated range set forth on the
cover page of this Prospectus), the foregoing number of shares subject to Parent
Stock Options would be replaced by Substitute Options to purchase approximately
7.1 million shares of Class A Common Stock at a weighted average exercise price
of $20.21 per share.
LEASE
The Company intends to enter into a lease (the "Lease") with Parent
effective upon the Offerings Closing Date, pursuant to which Parent will lease
to the Company approximately 10,800 square feet of office
62
66
space at Parent's corporate headquarters in Fort Lauderdale, Florida at an
annual rate of $220,320 ($20.40 per square foot), plus certain common area
maintenance charges. The Lease will have an initial term of one year, will be
terminable by the Company on 90 days' prior written notice and will be
automatically renewable by the Company for an additional one year term. Included
in the rental rate will be utilities, security, parking, building maintenance
and cleaning services. Management of the Company believes that the Lease will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
OTHER RELATIONSHIPS WITH PARENT
On the Offerings Closing Date, Parent will own approximately 31.0% of the
Class A Common Stock (21.1% if the Underwriters exercise their over-allotment
options in full) and all of the outstanding shares of Class B Common Stock,
which together will represent approximately 70.9% of the outstanding shares of
Common Stock (66.6% if the Underwriters exercise their over-allotment options in
full), and approximately 91.2% of the combined voting power of all outstanding
shares of Class A Common Stock and Class B Common Stock (89.9% if the
Underwriters exercise their over-allotment options in full). In addition, the
following executive officers and/or directors of the Company also are executive
officers and/or directors of Parent:
Mr. Huizenga, the Chairman and Chief Executive Officer of the Company, also
is the Chairman and Co-Chief Executive Officer of Parent.
Mr. Hudson, the Vice Chairman of the Company, also is the Vice Chairman of
Parent.
Mr. Karsner, the Chief Financial Officer of the Company, also is Senior
Vice President and Chief Financial Officer of Parent.
During 1997, the Company collected solid waste from, and leased roll-off
containers to, certain automotive retail and vehicle rental subsidiaries of
Parent. All of such services were provided to such subsidiaries of Parent
pursuant to the Company's standard form contracts at standard rates. The Company
expects to continue to provide such services on the same terms in 1998.
During 1997, the Company from time to time rented vehicles from Parent's
Alamo Rent-A-Car and National Car Rental System subsidiaries, pursuant to
standard form vehicle rental agreements under which standard rates were charged
to the Company. The Company expects to continue from time to time to rent
vehicles from Parent on the same terms in 1998.
OTHER TRANSACTIONS WITH RELATED PARTIES
The following is a summary of certain other agreements and transactions
between or among the Company and certain related parties. It is the Company's
policy that transactions with related parties must be on terms that, on the
whole, are no less favorable than those that would be available from
unaffiliated parties. Based on the Company's experience in the industry in which
it operates and the terms of its transactions with unaffiliated parties, it is
the Company's belief that all of the transactions described below involving the
Company met that standard at the time such transactions were effected.
Pro Player Stadium (the "Stadium") is a professional sports stadium in
South Florida that is owned and controlled by Mr. Huizenga. Certain subsidiaries
of the Company collected solid waste from, and leased roll-off waste containers
to, the Stadium pursuant to standard agreements under which the Stadium paid an
aggregate of approximately $383,000 to such subsidiaries in 1997. The Company
expects to continue to provide such services on the same terms in 1998.
In 1997, the Company purchased Mr. Cosman's residence in Pennsylvania for
$770,000.
PRINCIPAL STOCKHOLDER
Prior to the Offerings Closing Date, the Company has been a wholly owned
subsidiary of Parent. On the Offerings Closing Date, Parent will own
approximately 31.0% of the Class A Common Stock (21.1% if the
63
67
Underwriters exercise their over-allotment options in full) and all of the
outstanding shares of Class B Common Stock, which together will represent
approximately 70.9% of the outstanding shares of Common Stock (66.6% if the
Underwriters exercise their over-allotment options in full), and approximately
91.2% of the combined voting power of all outstanding shares of Class A Common
Stock and Class B Common Stock (89.9% if the Underwriters exercise their
over-allotment options in full). Except for Parent, the Company is not aware of
any person or group that will beneficially own more than 5% of the outstanding
shares of Common Stock upon the Offerings Closing Date.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Prior to the Offerings Closing Date, the Certificate will be amended and
restated to authorize capital stock consisting of (a) 50,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), and (b)
750,000,000 shares of Common Stock, of which 250,000,000 shares will be
authorized as Class A Common Stock, 125,000,000 shares will be authorized as
Class B Common Stock, and 375,000,000 shares may be designated by the Board as
either Class A Common Stock or Class B Common Stock prior to issuance. Of the
250,000,000 shares of Common Stock designated as Class A Common Stock,
51,000,000 shares are being offered hereby, 15,686,275 shares will be issued to
Parent, 7,650,000 are reserved for issuance upon exercise of over-allotment
options or for issuance to Parent, 20,000,000 are reserved for issuance pursuant
to the Stock Incentive Plan and 101,046,225 shares are reserved for issuance
upon conversion of shares of Class B Common Stock into shares of Class A Common
Stock. The share numbers set forth herein are subject to the assumptions set
forth under the heading "The Offerings" in the Prospectus Summary. Immediately
following the Offerings Closing Date, 73,953,775 shares of Class A Common Stock
(74,336,275 shares if the Underwriters exercise their over-allotment options in
full) will be outstanding, 101,046,225 shares of Class B Common Stock will be
outstanding and held by Parent, and no shares of Preferred Stock will be
outstanding. All of the shares of Common Stock that will be outstanding
immediately following the Offerings Closing Date, including the shares of Class
A Common Stock sold in the Offerings, will be validly issued, fully paid and
nonassessable. The following summary description of the capital stock of the
Company is qualified by reference to the Certificate and bylaws of the Company,
copies of which will be filed as exhibits to Registration Statement of which
this Prospectus is a part.
COMMON STOCK
Voting. The Class A Common Stock and Class B Common Stock are identical in
all respects, except holders of Class A Common Stock are entitled to one vote
per share while holders of Class B Common Stock are entitled to five votes per
share on all matters submitted to a vote of the stockholders, including the
election of directors. Except as otherwise required by law or provided in any
resolution adopted by the Board with respect to any series of Preferred Stock,
the holders of Common Stock will possess all voting power. Generally, all
matters to be voted on by stockholders must be approved by a majority (or, in
the case of election of directors, by a plurality) of the votes entitled to be
cast by all shares of Class A Common Stock and Class B Common Stock that are
present in person or represented by proxy, voting together as a single class,
subject to any voting rights granted to holders of any Preferred Stock. Except
as otherwise provided by law, and subject to any voting rights granted holders
of any Preferred Stock, amendments to the Certificate generally must be approved
by a majority of the votes entitled to be cast by all outstanding shares of
Class A Common Stock and Class B Common Stock, voting together as a single
class. However, amendments to the Certificate that would alter or change the
powers, preferences or special rights of the Class A Common Stock or Class B
Common Stock so as to adversely affect them must also be approved by a majority
of the outstanding shares of the class that is adversely affected by such
amendment, voting as a separate class. The Certificate will not provide for
cumulative voting in the election of directors.
Conversion. Prior to the Distribution, Parent shall be entitled, at any
time or from time to time, to convert all or any portion of its shares of Class
B Common Stock into shares of Class A Common Stock on a one-for-one basis. Any
shares of Class B Common Stock transferred by Parent or any of its subsidiaries
to any
64
68
person, other than Parent or any of its subsidiaries, shall automatically
convert into shares of Class A Common Stock on a one-for-one basis, except for
the distribution of Class B Common Stock to stockholders of Parent as part of
the Distribution. All shares of Class B Common Stock shall automatically convert
into shares of Class A Common Stock on a one-for-one basis if the number of
outstanding shares of Class B Common Stock falls below 20% of the aggregate
number of outstanding shares of Common Stock. This automatic conversion feature
will prevent Parent from decreasing its economic interest in the Company to less
than 20% while still retaining control of approximately 55.6% of the combined
voting power of the shares of Class A Common Stock and Class B Common Stock,
assuming no additional shares of Common Stock are issued after the Offerings
Closing Date. This automatic conversion feature will ensure that, if the
Distribution does not occur, Parent will retain voting control of the Company
only if it retains a significant economic interest in the Company.
Following the Distribution, except as provided below, shares of Class B
Common Stock shall not be convertible into shares of Class A Common Stock at the
option of the holder thereof. Shares of Class B Common Stock shall automatically
convert into shares of Class A Common Stock on a one-for-one basis on the fifth
anniversary of the Distribution Date, unless prior to the Distribution Date,
Parent delivers to the Company an opinion of counsel reasonably satisfactory to
the Company to the effect that such automatic conversion would adversely affect
Parent's ability to obtain the Letter Ruling. If such opinion is received,
approval of such conversion shall be submitted to a vote of the holders of the
Common Stock as soon as practicable after the fifth anniversary of the
Distribution Date, unless Parent delivers to the Company an opinion of counsel
reasonably satisfactory to the Company prior to such fifth anniversary that such
vote would adversely affect the tax-free status of the Distribution. Approval of
such conversion will require the affirmative vote of the holders of a majority
of the shares of both the Class A Common Stock and Class B Common Stock present
in person or by proxy, voting together as a single class, with each share
entitled to one vote for such purpose. If such automatic conversion does not
occur, the Class B Common Stock may not be convertible into Class A Common
Stock. There is no assurance that any conversion will be consummated whether by
virtue of the above events or otherwise.
In addition, following the Distribution, shares of Class A Common Stock and
Class B Common Stock will be convertible, at the option of the holders thereof,
on a one-for-one basis, into shares of the other class if any person or group of
persons (other than Parent or any of its subsidiaries) makes an offer, which the
Board deems to be a bona fide offer, to purchase 20% or more of the other class
of Common Stock for cash or securities or other property without making a
similar offer for shares of such class of Common Stock, unless prior to the
Distribution Date, Parent delivers to the Company an opinion of counsel
reasonably satisfactory to the Company to the effect that such conversion right
would adversely affect Parent's ability to obtain the Letter Ruling. The shares
of Common Stock of a class may only be so converted during the period in which
such bona fide offer is in effect. Any share of Common Stock so converted and
not acquired by the offeror prior to the termination, rescission or completion
of the offer will automatically reconvert to a share of the class from which it
was converted upon such termination, rescission or completion. This automatic
conversion feature is to ensure that holders of Class A Common Stock and Class B
Common Stock may participate in any offer for a significant amount of the shares
of the other class of Common Stock that is not similarly offered for the shares
of such holder's class of Common Stock.
In addition, following the Distribution, if any person or persons acting
together as a group acquires 20% or more of the outstanding shares of Class B
Common Stock, all shares of Class B Common Stock held by such person or group
shall automatically be converted into shares of Class A Common Stock on a
one-for-one basis, unless prior to the Distribution Date, Parent delivers to the
Company an opinion of counsel reasonably satisfactory to the Company to the
effect that such automatic conversion would adversely affect Parent's ability to
obtain the Letter Ruling.
Dividends. Subject to any preferential rights of any outstanding series of
Preferred Stock created by the Board from time to time, the holders of shares of
Class A Common Stock and Class B Common Stock will be entitled to such cash
dividends as may be declared from time to time by the Board from funds available
therefor which dividends are not required to be declared on both classes,
provided that holders of shares of Class A Common Stock shall be entitled to
receive an equal pro rata share of any amounts received by holders
65
69
of shares of Class B Common Stock. See "Dividend Policy." In addition, in
connection with any stock dividend that may be declared by the Board from time
to time, holders of Class A Common Stock shall be entitled to receive such
dividend only in shares of Class A Common Stock while holders of Class B Common
Stock shall be entitled to receive such dividend either in shares of Class A
Common Stock or in shares of Class B Common Stock as may be determined by the
Board. Neither the shares of Class A Common Stock nor the shares of Class B
Common Stock may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and in the
same proportion for each class.
Liquidation. Subject to any preferential rights of any outstanding series
of Preferred Stock created from time to time by the Board, upon liquidation,
dissolution or winding up of the Company, the holders of shares of Class A
Common Stock and Class B Common Stock will be entitled to receive pro rata all
assets of the Company available for distribution to such holders.
Other Rights. In the event of any merger or consolidation of the Company
with or into another company in connection with which shares of Common Stock are
converted into or exchangeable for shares of stock, other securities or property
(including cash), all holders of Common Stock, regardless of class, will be
entitled to receive the same kind and amount of shares of stock and other
securities and property (including cash).
PREFERRED STOCK
The Certificate will authorize the Board to establish one or more series of
Preferred Stock and to determine, with respect to any series of Preferred Stock,
the terms and rights of such series, including (i) the designation of the
series, (ii) the number of shares of the series, which number the Board may
thereafter (except where otherwise provided in the applicable certificate of
designation) increase or decrease (but not below the number of shares thereof
then outstanding), (iii) whether dividends, if any, will be cumulative or
noncumulative, and, in the case of shares of any series having cumulative
dividend rights, the date or dates or method of determining the date or dates
from which dividends on the shares of such series shall be cumulative, (iv) the
rate of any dividends (or method of determining such dividends) payable to the
holders of the shares of such series, any conditions upon which such dividends
will be paid and the date or dates or the method for determining the date or
dates upon which such dividends will be payable, (v) the redemption rights and
price or prices, if any, for shares of the series, (vi) the terms and amounts of
any sinking fund provided for the purchase or redemption of shares of the
series, (vii) the amounts payable on and the preferences, if any, of shares of
the series in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, (viii) whether the shares of the
series will be convertible or exchangeable into shares of any other class or
series, or any other security, of the Company or any other corporation, and, if
so, the specification of such other class or series or such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares will be convertible or
exchangeable and all other terms and conditions upon which such conversion or
exchange may be made, (ix) restrictions on the issuance of shares of the same
series or of any other class or series, (x) the voting rights, if any, of the
holders of the shares of the series and (xi) any other relative rights,
preferences and limitations of such series.
The Company believes that the ability of the Board to issue one or more
series of Preferred Stock will provide the Company with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs that might arise. The authorized shares of Preferred Stock, as
well as shares of Common Stock, will be available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded. Subject to certain
exceptions, the NYSE currently requires stockholder approval as a prerequisite
to listing shares in several instances, including where the present or potential
issuance of shares could result in an increase in the number of shares of common
stock or voting securities outstanding by at least 20%. If the approval of the
Company's stockholders is not required for the issuance of shares of Preferred
Stock or Common Stock, the Board may determine not to seek stockholder approval.
66
70
Although the Board has no intention at the present time of doing so, it
could issue a series of Preferred Stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The Board will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its stockholders. The
Board, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt through which an acquirer may be able to
change the composition of the Board, including a tender offer or other
transaction that some, or a majority, of the Company's stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then current market price of such stock.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporation Law (the "DGCL") provides
that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation, with the corporation for a three-year period
following the date that such stockholder becomes an interested stockholder
unless (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an "interested
stockholder," the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Except as otherwise specified in Section 203 of the
DGCL ("Section 203"), an interested stockholder is defined to include (x) any
person that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the date of determination and (y)
the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. The Company has not
elected to be exempt from the restrictions imposed under Section 203. However,
Parent and its affiliates are excluded from the definition of "interested
stockholder" pursuant to the terms of Section 203. The provisions of Section 203
may encourage persons interested in acquiring the Company to negotiate in
advance with the Board, since the stockholder approval requirement would be
avoided if a majority of the directors then in office approves either the
business combination or the transaction which results in any such person
becoming an interested stockholder. Such provisions also may have the effect of
preventing changes in the management of the Company. It is possible that such
provisions could make it more difficult to accomplish transactions which the
Company's stockholders may otherwise deem to be in their best interests.
LIABILITY OF DIRECTORS; INDEMNIFICATION
The Certificate will provide that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for a
breach of his or her fiduciary duty as a director, except, if required by the
DGCL as amended from time to time, for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, which concerns unlawful
payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
Neither the amendment nor repeal of such provision will eliminate or reduce the
effect of such provision in respect of any matter occurring, or any cause of
action, suit or claim that, but for such provision, would accrue or arise prior
to such amendment or repeal.
While the Certificate will provide directors with protection from awards
for monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Certificate will have no effect on the availability
of equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care.
67
71
The Certificate will provide that each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, will be indemnified and held harmless by
the Company to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such right to indemnification
includes the right to have the Company pay the expenses incurred in defending
any such proceeding in advance of its final disposition, subject to the
provisions of the DGCL. Such rights are not exclusive of any other right which
any person may have or thereafter acquire under any statute, provision of the
Certificate, the Company's By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise. No repeal or modification of such
provision will in any way diminish or adversely affect the rights of any
director, officer, employee or agent of the Company thereunder in respect of any
occurrence or matter arising prior to any such repeal or modification. The
Certificate will also specifically authorize the Company to maintain insurance
and to grant similar indemnification rights to employees or agents of the
Company.
At present, there is no pending or threatened litigation or proceeding
involving any director or officer, employee or agent of the Company where such
indemnification will be required or permitted.
TRANSFER AGENT AND REGISTRAR
First Union National Bank will be the transfer agent and registrar for the
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 73,953,775 shares of Class A Common Stock to be outstanding on the
Offerings Closing Date (74,336,275 shares if the Underwriters exercise their
over-allotment options in full) the 51,000,000 shares of Class A Common Stock
sold in the Offerings (58,650,000 shares if the Underwriters exercise their
over-allotment options in full) will be freely tradable without restriction
under the 1933 Act, except for any such shares which be may acquired by an
affiliate of the Company (an "Affiliate"), as that term is defined in Rule 144
promulgated under the 1933 Act ("Rule 144"). On the Offerings Closing Date,
Parent will own 101,046,225 shares of Class B Common Stock which will constitute
100% of the outstanding shares of Class B Common Stock and, together with its
wholly owned subsidiaries, will own 22,953,775 shares of Class A Common Stock
which will constitute approximately 31.0% of the outstanding shares of Class A
Common Stock (15,686,275 shares and 21.1%, respectively, if the Underwriters
exercise their over-allotment options in full). The share numbers set forth
herein are subject to the assumptions set forth under the heading "The
Offerings" in the Prospectus Summary. Shares of Class B Common Stock may convert
into shares of Class A Common Stock in certain circumstances. See "Description
of Capital Stock." Parent has announced that, subject to certain conditions,
Parent intends to distribute to its stockholders in 1999 all of the Common Stock
held by Parent by means of the Distribution. Shares of Common Stock to be
distributed to Parent's stockholders in the Distribution generally will be
freely transferable, except for shares of Common Stock received by persons who
may be deemed to be Affiliates. Persons who may be deemed to be Affiliates
generally include individuals or entities that control, are controlled by, or
are under common control with, the Company and may include directors and certain
officers of the Company as well as significant stockholders of the Company, if
any. Persons who are Affiliates will be permitted to sell the shares of Common
Stock that are issued in the Offerings or that they receive in the Distribution
only pursuant to an effective registration statement under the 1933 Act or an
exemption from the registration requirements of the 1933 Act, including
exemptions provided by Rule 144.
68
72
The shares of Common Stock held by Parent are deemed "restricted
securities" as defined in Rule 144, and may not be sold other than through
registration under the 1933 Act or pursuant to an exemption from the regulations
thereunder, including exceptions provided by Rule 144. Subject to applicable law
and to the contractual restriction with the Underwriters described below, Parent
may sell any and all of the shares of Common Stock it owns after completion of
the Offerings. The Separation and Distribution Agreement will provide that
Parent will have the right in certain circumstances to require the Company to
use its best efforts to register for resale shares of Common Stock held by
Parent and its wholly owned subsidiaries. See "Certain
Transactions -- Separation and Distribution Agreement." Parent intends to
exercise its right to cause the Company to register for resale, subject to the
180-day lock-up, shares of Class A Common Stock held by Parent and its wholly
owned subsidiaries in order to sell shares for cash prior to the Distribution.
The Company and Parent have agreed, for a period of 90 days and 180 days,
respectively, after the date of this Prospectus, not to offer or sell any shares
of Common Stock, subject to certain exceptions (including the Distribution),
without the prior written consent of Merrill Lynch on behalf of the
Underwriters; provided that the Company may at any time and from time to time
(i) issue shares of Class A Common Stock to third parties as consideration for
the Company's acquisition from such third parties of non-hazardous solid waste
businesses, (ii) grant options to purchase shares of Common Stock under the
Company's 1998 Stock Incentive Plan and (iii) issue shares of Common Stock to
Parent in connection with the prepayment of the Affiliate Payable, the Resources
Notes Payable and the remaining amounts outstanding of the Company Notes and as
consideration for the Company's acquisition from Parent of a non-hazardous solid
waste business, in each case without the prior consent of Merrill Lynch. See
"Underwriting." In addition, after the Offerings Closing Date and prior to the
Distribution Date, the Company has agreed not to issue any shares of its capital
stock or any rights, warrants, or other securities to purchase or acquire any
shares of its capital stock, without the prior consent of Parent. See "Certain
Transactions -- Separation and Distribution Agreement." Subject to the foregoing
restrictions, the Company may issue additional shares of Class A Common Stock or
Class B Common Stock to raise equity or make acquisitions. The Company may also
issue additional shares of Class A Common Stock or Class B Common Stock to
Parent in exchange for additional investments of cash or other property by
Parent in the Company.
In addition, upon completion of the Distribution, certain stock options
exercisable for shares of Parent Common Stock will be converted into stock
options exercisable for shares of Class A Common Stock. See "Certain
Transactions -- Employee Benefits Agreement" for a description of the stock
option substitution methodology. In addition, subject to the prior consent of
Parent, the Company may grant options to purchase shares of Class A Common Stock
to employees, non-employee directors and independent contractors of the Company
pursuant to the Stock Incentive Plan. See "Management -- Stock Incentive Plan."
The Company currently expects to file in 1998 a registration statement under the
1933 Act to register shares reserved for issuance under the Stock Incentive
Plan. Shares issued pursuant to the Stock Incentive Plan after the effective
date of such registration statement (other than shares issued to Affiliates)
generally will be freely tradable without restriction or further registration
under the 1933 Act. In addition, the Company may also from time to time file
registration statements covering the issuance and/or resale of shares of Class A
Common Stock which may be issued in potential future acquisitions.
69
73
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Class A
Common Stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder" is
any holder of Class A Common Stock other than (i) a citizen or resident of the
United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state (other than
any partnership treated as foreign under U.S. Treasury regulations), (iii) an
estate, the income of which is includable in gross income for United States
federal income tax purposes regardless of its source or (iv) a trust if (a) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more United States persons have the
authority to control all substantial decisions of the trust. This discussion is
based on current law and is for general information only. This discussion does
not address aspects of United States federal taxation other than income and
estate taxation, and does not address all aspects of income and estate taxation
nor does it consider any specific facts or circumstances that may apply to a
particular Non-U.S. Holder (including certain U.S. expatriates). ACCORDINGLY,
OFFEREES OF COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). In addition to the
"substantial presence test" described in the immediately preceding sentence, an
alien may be treated as a resident alien if he or she (i) meets a lawful
permanent residence test (a so-called "green card" test) or (ii) elects to be
treated as a U.S. resident and meets the "substantial presence test" in the
immediately following year. Resident aliens are subject to U.S. federal tax as
if they were U.S. citizens.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the Non-U.S. Holder with the United
States, or (ii) attributable to a permanent establishment in the United States
maintained by the Non-U.S. Holder if certain income tax treaties apply.
Dividends effectively connected with such a United States trade or business or
attributable to such a United States permanent establishment generally will not
be subject to United States withholding tax if the Non-U.S. Holder files the
appropriate IRS form with the payor of the dividend (which form, under U.S.
Treasury regulations generally effective for payments made after December 31,
1999 ("Final Regulations"), will require such Non-U.S. Holder to provide a U.S.
taxpayer identification number) and generally will be subject to United States
federal income tax on a net income basis, in the same manner as if the Non-U.S.
Holder were a resident of the United States. A Non-U.S. Holder that is a
corporation may be subject to an additional branch profits tax at a rate of 30%
(or such lower rate as may be specified by an applicable treaty). To determine
the applicability of a tax treaty providing for a lower rate of withholding,
dividends paid to an address in a foreign country are presumed under currently
effective United States Treasury regulations (the "Current Regulations") to be
paid to a resident of that country absent knowledge to the contrary. Under the
Final Regulations, however, a Non-U.S. Holder of Class A Common Stock who wishes
to claim the benefit of an applicable treaty rate generally will be required to
satisfy applicable certification and other requirements. In addition under the
Final Regulations, in the case of Common Stock held by a foreign partnership,
(x) the certification requirement will generally be applied to the partners of
the partnership and (y) the partnership will be required to provide certain
information, including a United States taxpayer identification number. The Final
Regulations also provide look-through rules for tiered partnerships. The Final
Regulations generally would require Non-U.S. Holders to file an IRS Form W-8 to
obtain the
70
74
benefit of any applicable tax treaty providing for a lower rate of U.S.
withholding tax on dividends. A Non-U.S. Holder that is eligible for a reduced
rate of U.S. withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.
SALE OF CLASS A COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such holder's shares of
Class A Common Stock unless: (i) the gain is effectively connected with a trade
or business carried on by the Non-U.S. Holder within the United States or,
alternatively, if certain tax treaties apply, attributable to a permanent
establishment in the United States maintained by the Non-U.S. Holder (and in
either case, the branch profits tax discussed above may also apply if the
Non-U.S. Holder is a corporation); (ii) the Non-U.S. Holder is an individual who
holds shares of Class A Common Stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of disposition, and
either (a) such individual has a "tax home" (as defined for United States
federal income tax purposes) in the United States (unless the gain from the
disposition is attributable to an office or other fixed place of business
maintained by such Non-U.S. Holder in a foreign country and a foreign income tax
equal to at least 10% of the gain derived from such disposition is actually paid
with respect to such gain), or (b) the gain is attributable to an office or
other fixed place of business maintained by such individual in the United
States; or (iii) the Company is or has been a United States real property
holding corporation (a "USRPHC") for United States federal income tax purposes
(which the Company does not believe that it is or is likely to become) at any
time within the shorter of the five-year-period preceding such disposition or
such Non-U.S. Holder's holding period. If the Company were or were to become a
USRPHC at any time during this period, gains realized upon a disposition of
Class A Common Stock by a Non-U.S. Holder which did not directly or indirectly
own more than 5% of the Class A Common Stock during this period generally would
not be subject to United States federal income tax, provided that the Class A
Common Stock had been regularly traded on an established securities market.
ESTATE TAX
Class A Common Stock owned or treated as owned by an individual who is not
a citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includable in the individual's
gross estate for United States federal estate tax purposes (unless an applicable
estate tax treaty provides otherwise), and therefore may be subject to United
States federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
The Company must report annually to the IRS as to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of this information
also may be made available under the provisions of a specific treaty or
agreement with the tax authorities in the country in which the Non-U.S. Holder
resides or is established.
Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that fail
to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than those
discussed above) generally will not apply to dividends paid on Class A Common
Stock to a Non-U.S. Holder at an address outside of United States. Backup
withholding and information reporting generally will apply to dividends paid on
shares of Class A Common Stock to a Non-U.S. Holder at an address in the United
States, if such holder fails to establish an exemption or to provide certain
other information to the payor. Under the Final Regulations, however, a Non-U.S.
Holder of Class A Common Stock that fails to certify its Non-U.S. Holder status
in accordance with the requirements of the Final Regulations may be subject to
United States backup withholding on payments of dividends.
The payment of proceeds from the disposition of Class A Common Stock to or
through a United States office of a broker will be subject to information
reporting and backup withholding unless the owner, under
71
75
penalties of perjury, certifies, among other things, such owner's status as a
Non-U.S. Holder or otherwise establishes an exemption. The payment of proceeds
from the disposition of Class A Common Stock to or through a non-U.S. office of
a non-U.S. broker generally will not be subject to backup withholding and
information reporting, except as noted below. In the case of proceeds from a
disposition of Class A Common Stock paid to or through a non-U.S. office of a
broker that is (i) a United States person, (ii) a "controlled foreign
corporation" for United States federal income tax purposes, (iii) a foreign
person 50% or more of whose gross income from certain periods is effectively
connected with a United States trade or business, or (iv) for payments made
after December 31, 1999, a partnership with certain connections to the United
States, information reporting (but not backup withholding) will apply unless the
broker has documentary evidence in its files that the owner is a Non-U.S. Holder
(and the broker has no actual knowledge to the contrary).
Non-U.S. Holders should consult their own tax advisors regarding the
application of information reporting or back-up withholding in their particular
situation, including the availability of an exemption therefrom and the
procedures for obtaining an exemption and the effect of the Final Regulations.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
72
76
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Deutsche Bank Securities Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation are acting as representatives (the "U.S. Representatives") of each
of the Underwriters named below (the "U.S. Underwriters"). Subject to the terms
and conditions set forth in a U.S. purchase agreement (the "U.S. Purchase
Agreement") among the Company and the U.S. Underwriters, and concurrently with
the sale of 10,200,000 shares of Class A Common Stock to the International
Managers (as defined below), the Company has agreed to sell to the U.S.
Underwriters, and each of the U.S. Underwriters severally and not jointly has
agreed to purchase from the Company, the number of shares of Class A Common
Stock set forth opposite its name below.
NUMBER OF
U.S. UNDERWRITER SHARES
- ---------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................................
Deutsche Bank Securities Inc. ..............................
Donaldson, Lufkin & Jenrette Securities Corporation.........
----------
Total ......................................... 40,800,000
==========
The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the United
States and Canada (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters") for whom Merrill Lynch International, Deutsche
Bank AG London and Donaldson, Lufkin & Jenrette International are acting as lead
managers (the "Lead Managers"). Subject to the terms and conditions set forth in
the International Purchase Agreement, and concurrently with the sale of
40,800,000 shares of Class A Common Stock to the U.S. Underwriters pursuant to
the U.S. Purchase Agreement, the Company has agreed to sell to the International
Managers, and the International Managers severally have agreed to purchase from
the Company, an aggregate of 10,200,000 shares of Class A Common Stock. The
initial public offering price per share and the total underwriting discount per
share Class A of Common Stock are identical under the U.S. Purchase Agreement
and the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Class A Common Stock being sold
pursuant to each such agreement if any of the shares of Class A Common Stock
being sold pursuant to such agreement are purchased. Under certain
circumstances, under the U.S. Purchase Agreement and the International Purchase
Agreement, the commitments of non-defaulting Underwriters may be increased. The
closings with respect to the sale of shares of Class A Common Stock to be
purchased by the U.S. Underwriters and the International Managers are
conditioned upon one another.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Class A Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of Common Stock. The U.S. Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share
of Class A Common Stock on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The Company has granted options to the U.S. Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
6,120,000 additional shares of Class A Common Stock at the initial public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The U.S. Underwriters may exercise these options solely
to cover over-allotments, if any, made on the sale of the Class A Common Stock
offered hereby. To the extent that the U.S. Underwriters exercise these options,
each U.S. Underwriter will be obligated, subject to certain conditions, to
purchase a number of additional shares of Class A Common Stock proportionate to
such U.S. Underwriter's initial amount reflected in the foregoing table. The
Company also has granted options to the International Managers, exercisable for
30 days after the
73
77
date of this Prospectus, to purchase up to an aggregate of 1,530,000 additional
shares of Class A Common Stock to cover over-allotments, if any, on terms
similar to those granted to the U.S. Underwriters.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 2,550,000 of the shares offered hereby
to be sold to certain eligible employees and business associates of the Company.
The number of shares of Class A Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not orally confirmed for purchase within one day
of the pricing of the Offerings will be offered by the Underwriters to the
general public on the same terms as the other shares offered hereby.
The Company and Parent have agreed, for a period of 90 days and 180 days,
respectively, after the date of this Prospectus, subject to certain exceptions,
not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of or otherwise dispose of or
transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition, or
file a registration statement under the 1933 Act with respect to the foregoing
or (ii) enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of the Common Stock whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, without the prior written consent of Merrill
Lynch on behalf of the Underwriters; provided that the Company may at any time
and from time to time (i) issue shares of Class A Common Stock to third parties
as consideration for the Company's acquisition from such third parties of
non-hazardous solid waste businesses, (ii) grant options to purchase shares of
Common Stock under the Company's 1998 Stock Incentive Plan and (iii) issue
shares of Common Stock to Parent in connection with the prepayment of the
Affiliate Payable, the Resources Notes Payable and the remaining amounts
outstanding of the Company Notes and as consideration for the Company's
acquisition from Parent of a non-hazardous solid waste business, in each case
without the prior consent of Merrill Lynch. See "Shares Eligible for Future
Sale."
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares of
Class A Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer
to whom they sell shares of Class A Common Stock will not offer to sell or sell
shares of Class A Common Stock to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, and the International Managers and any dealer to whom
they sell shares of Class A Common Stock will not offer to sell or sell shares
of Class A Common Stock to U.S. persons or to Canadian persons or to persons
they believe intend to resell to U.S. or Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial public offering price of the Class A Common
Stock will be determined through negotiations between the Company, on the one
hand, and the U.S. Representatives and the Lead Managers, on the other hand. The
factors considered and analyzed by the Company, the U.S. Representatives and the
Lead Managers in determining the initial public offering price per share of
Class A Common Stock, in addition to prevailing market conditions, are price
earning ratios of publicly traded companies that the U.S. Representatives and
the Lead Managers believe to be comparable to the Company, certain financial
information of the Company, the history of, and the prospects for, the Company
and the industry in which it competes, and an assessment of the Company's
management, its past and present operations, the prospects for, and timing of,
future revenues of the Company, the present state of the Company's development,
the percentage interest of the Company being sold as compared to the valuation
for the entire Company and the above factors in relation to market values and
various valuation measures of other companies engaged in activities similar to
the Company. No appraisal of the assets of the Company was undertaken by the
Company, the U.S. Representatives or the Lead Managers in determining the
initial public offering price per share. There can be no assurance that an
active
74
78
trading market will develop for the Class A Common Stock or that the Class A
Common Stock will trade in the public market subsequent to the Offerings at or
above the initial public offering price.
The Class A Common Stock has been approved for listing on the NYSE, subject
to official notice of issuance, under the symbol "RSG." In order to meet the
requirements for listing of the Class A Common Stock on that exchange, the U.S.
Underwriters and the International Managers have undertaken to sell lots of 100
or more shares to a minimum of 2,000 beneficial owners.
The Underwriters do not expect sales of the Class A Common Stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the 1933 Act, or to contribute to payments the U.S.
Underwriters and International Managers may be required to make in respect
thereof.
Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission (the "Commission") may limit the ability
of the Underwriters and certain selling group members to bid for and purchase
the Class A Common Stock. As an exception to these rules, the U.S.
Representative is permitted to engage in certain transactions that stabilize the
price of the Class A Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Class A Common Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Offerings, i.e., if they sell more shares of Class A Common
Stock than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Class A Common
Stock in the open market. The U.S. Representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Class A Common Stock in the open market to
reduce the Underwriters' short position or to stabilize the price of the Class A
Common Stock, it may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Class A Common Stock to the extent
that it discourages resales of the Class A Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the U.S. Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
75
79
LEGAL MATTERS
Certain legal matters with respect to the validity of the Class A Common
Stock offered hereby will be passed upon for the Company by Akerman, Senterfitt
& Eidson, P.A., Miami, Florida. Certain attorneys employed by Akerman,
Senterfitt & Eidson, P.A. own shares of Parent Common Stock. Certain legal
matters relating to the Offerings will be passed upon for the Underwriters by
Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company for each
of the three years ended December 31, 1997, appearing in this Prospectus and
Registration Statement, have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the 1933 Act with respect to the Class A Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. For further information pertaining
to the Company and the Class A Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. Statements contained in
this Prospectus regarding the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
On the Offerings Closing Date, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such materials can also be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005 or on the Commission's
site on the Internet at http://www.sec.gov.
76
80
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets as of March 31, 1998 (Unaudited)
and December 31, 1997 and 1996............................ F-3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) and each of the
Three Years Ended December 31, 1997....................... F-4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) and each of the
Three Years Ended December 31, 1997....................... F-5
Notes to Consolidated Financial Statements.................. F-6
F-1
81
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Republic Services, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Services, Inc. (a Delaware corporation and wholly owned subsidiary of Republic
Industries, Inc.) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations and cash flows for each of the
years in the three-year 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 financial position of Republic Services, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 29, 1998.
F-2
82
REPUBLIC SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
PRO FORMA DECEMBER 31,
MARCH 31, MARCH 31, -------------------
1998 1998 1997 1996
----------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ -- $ -- $ -- $ 24.2
Restricted cash............................... 12.8 12.8 18.8 19.7
Accounts receivable, less allowance for
doubtful accounts of $13.6 and $8.3 at
December 31, 1997 and 1996, respectively... 139.0 139.0 131.0 110.8
Prepaid expenses.............................. 10.0 10.0 7.1 7.5
Other current assets.......................... 22.4 22.4 19.0 30.6
--------- --------- -------- --------
Total Current Assets.................. 184.2 184.2 175.9 192.8
PROPERTY AND EQUIPMENT, NET..................... 826.5 826.5 801.8 661.3
INTANGIBLE AND OTHER ASSETS, NET................ 477.5 477.5 370.3 236.2
--------- --------- -------- --------
$ 1,488.2 $ 1,488.2 $1,348.0 $1,090.3
========= ========= ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.............................. $ 38.3 $ 38.3 $ 40.2 $ 44.0
Accrued liabilities........................... 73.8 73.8 57.6 53.2
Deferred revenue.............................. 34.3 34.3 29.5 20.3
Due to affiliate.............................. 114.8 114.8 107.8 49.3
Notes payable and current maturities of
long-term debt............................. 11.7 11.7 10.8 33.2
Notes payable to Resources.................... 130.9 130.9 158.3 205.6
Company Notes payable to Parent............... 2,000.0 -- -- --
Other current liabilities..................... 26.4 26.4 31.9 17.1
--------- --------- -------- --------
Total Current Liabilities............. 2,430.2 430.2 436.1 422.7
LONG-TERM DEBT, NET OF CURRENT MATURITIES....... 61.4 61.4 64.3 109.5
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS........ 49.4 49.4 46.0 39.3
DEFERRED INCOME TAXES........................... 55.2 55.2 47.5 12.7
OTHER LIABILITIES............................... 4.7 4.7 3.3 11.6
COMMITMENTS AND CONTINGENCIES...................
SHAREHOLDER'S EQUITY (DEFICIT):
Investment by Parent.......................... (1,112.7) 887.3 750.8 494.5
--------- --------- -------- --------
$ 1,488.2 $ 1,488.2 $1,348.0 $1,090.3
========= ========= ======== ========
The accompanying notes are an integral part of these statements.
F-3
83
REPUBLIC SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS)
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
REVENUE........................................ $ 300.8 $ 263.2 $1,127.7 $ 953.3 $ 805.0
EXPENSES:
Cost of operations........................... 209.7 190.3 809.1 703.6 570.1
Selling, general and administrative.......... 32.1 31.9 117.3 135.3 137.7
Restructuring and other charges.............. -- -- -- 8.8 3.3
-------- -------- -------- -------- --------
OPERATING INCOME............................... 59.0 41.0 201.3 105.6 93.9
INTEREST EXPENSE............................... (5.4) (7.6) (25.9) (29.7) (19.1)
INTEREST AND OTHER INCOME...................... 0.8 3.0 6.7 13.9 6.2
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.......................... 54.4 36.4 182.1 89.8 81.0
PROVISION FOR INCOME TAXES..................... 19.6 13.2 65.9 38.0 31.6
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS.............. 34.8 23.2 116.2 51.8 49.4
-------- -------- -------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of
income taxes of $2.0...................... -- -- -- -- 5.7
Loss on disposal of segment, net of income
tax benefit of $10.0...................... -- -- -- -- (30.5)
-------- -------- -------- -------- --------
Loss from discontinued operations............ -- -- -- -- (24.8)
-------- -------- -------- -------- --------
NET INCOME..................................... $ 34.8 $ 23.2 $ 116.2 $ 51.8 $ 24.6
======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements.
F-4
84
REPUBLIC SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ---------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
(UNAUDITED)
CASH PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS:
Net income................................ $ 34.8 $ 23.2 $ 116.2 $ 51.8 $ 24.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
depletion of property and
equipment............................ 20.3 16.7 76.1 66.6 57.9
Amortization of intangible assets...... 3.5 2.3 10.0 8.7 5.1
Deferred tax provision................. 7.6 9.4 36.5 2.8 11.0
Loss from discontinued operations, net
of income taxes...................... -- -- -- -- 24.8
Changes in assets and liabilities, net
of effects from business
acquisitions:
Accounts receivable.................. (3.3) (4.4) (15.6) (16.4) (12.9)
Prepaid expenses and other assets.... (2.9) 17.2 17.4 7.0 (20.2)
Accounts payable and accrued
liabilities....................... (3.0) (2.9) (26.7) (32.0) 21.2
Other liabilities.................... 23.3 11.6 65.5 55.0 13.9
-------- -------- --------- --------- ---------
80.3 73.1 279.4 143.5 125.4
-------- -------- --------- --------- ---------
CASH USED IN DISCONTINUED OPERATIONS........ -- -- -- -- (20.6)
-------- -------- --------- --------- ---------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment....... (29.0) (35.2) (165.3) (146.9) (147.9)
Cash acquired through business
acquisitions........................... 1.8 1.2 2.7 1.2 1.0
Other..................................... 6.0 (5.0) (5.5) (30.0) 36.2
-------- -------- --------- --------- ---------
(21.2) (39.0) (168.1) (175.7) (110.7)
-------- -------- --------- --------- ---------
CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Proceeds from notes payable and long-term
debt................................... 0.5 3.5 5.2 44.5 66.3
Payments of notes payable and long-term
debt................................... (16.3) (38.2) (100.2) (91.4) (147.4)
Increase (decrease) in notes payable to
Resources.............................. (27.3) 1.3 (47.3) 166.9 19.9
Other..................................... (16.0) 20.9 6.8 (99.7) 64.0
-------- -------- --------- --------- ---------
(59.1) (12.5) (135.5) 20.3 2.8
-------- -------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... -- 21.6 (24.2) (11.9) (3.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................... -- 24.2 24.2 36.1 39.2
-------- -------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................... $ -- $ 45.8 $ -- $ 24.2 $ 36.1
======== ======== ========= ========= =========
The accompanying notes are an integral part of these statements.
F-5
85
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN MILLIONS)
(INFORMATION RELATED TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of
Republic Services, Inc. and its operating subsidiaries (the "Company"). The
Company is a wholly owned subsidiary of Republic Industries, Inc. ("Parent") and
provides non-hazardous solid waste collection and disposal services in the
United States. All material intercompany transactions have been eliminated.
The accompanying Consolidated Financial Statements exclude the accounts of
the Company's wholly owned subsidiary, Republic Resources Company, Inc.
("Resources"), all of the common stock of which will be distributed to Parent
prior to the Company's proposed initial public offering. See Note 13, Subsequent
Events, for further information regarding the Company's proposed initial public
offering. The Company and Resources are in dissimilar businesses, have been
managed and financed historically as if they were autonomous, have no more than
incidental common facilities and costs, will be operated and financed
autonomously after the distribution of Resources to Parent, and will not have
financial commitments, guarantees, or contingent liabilities to each other after
such distribution. Based on these facts, the accounts of Resources have been
excluded from the Company's consolidated financial statements as the Company has
elected to characterize the distribution of Resources as resulting in a change
in the reporting entity. As of December 31, 1997, Resources' total assets were
$1,758.9 million. For the year ended December 31, 1997, interest income,
interest expense and pre-tax income of Resources were $128.5 million, $16.5
million, and $111.7 million, respectively.
The accompanying Consolidated Financial Statements reflect the accounts of
the Company as a subsidiary of Parent subject to corporate general and
administrative expense allocations as described in Note 12, Related Party
Transactions. Such information does not necessarily reflect the financial
position or results of operations of the Company as a separate, stand-alone
entity.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
In the opinion of management, the Unaudited Consolidated Financial
Statements contain all material adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the consolidated financial position of
the Company at March 31, 1998 and the consolidated results of operations and
cash flows for the three months ended March 31, 1998 and 1997. Income taxes
during these interim periods have been provided for based upon the Company's
anticipated annual effective income tax rate. Operating results for these
interim periods are not necessarily indicative of the results that can be
expected for a full year.
The accompanying Unaudited Pro Forma Consolidated Balance Sheet presents
the Company's pro forma financial position as of March 31, 1998 as if the April
1998 dividend by the Company had occurred on March 31, 1998. See Note 13,
Subsequent Events, for further information regarding the dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESTRICTED CASH
Restricted cash consists of amounts held in trust as a financial guaranty
of the Company's performance as well as funds restricted for capital
expenditures under certain debt facilities.
F-6
86
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER CURRENT ASSETS
Other current assets consist primarily of inventories, short-term notes
receivable and marketable securities. Inventories totaled approximately $12.2
million at March 31, 1998 (unaudited) and $11.7 million and $6.1 million at
December 31, 1997 and 1996, respectively, and consist primarily of equipment
parts, compost materials and supplies that are valued under a method that
approximates the lower of cost (first-in, first-out) or market. Other current
assets at December 31, 1996 include approximately $14.5 million of marketable
securities classified as available for sale. The carrying amounts of marketable
securities approximate fair value at December 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while maintenance and repairs are
charged to expense as incurred. When property is retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in the Consolidated Statements of
Operations.
The Company revises the estimated useful lives of property and equipment
acquired through business acquisitions to conform with its policies regarding
property and equipment. Depreciation is provided over the estimated useful lives
of the assets involved using the straight-line method. The estimated useful
lives are: twenty to forty years for buildings and improvements, three to
fifteen years for trucks and equipment and five to ten years for furniture and
fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. All indirect landfill development costs are
expensed as incurred.
Interest costs are capitalized in connection with the construction of
landfill sites. Interest capitalized was $0.8 million, $1.8 million and $2.7
million for the years ended December 31, 1997, 1996 and 1995, respectively.
A summary of property and equipment is as follows:
DECEMBER 31,
MARCH 31, -------------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
Land, landfills and improvements....................... $ 428.5 $ 420.1 $ 313.3
Furniture, fixtures, trucks and equipment.............. 694.1 668.9 607.1
Buildings and improvements............................. 133.8 126.6 84.0
-------- -------- --------
1,256.4 1,215.6 1,004.4
Less: accumulated depreciation, amortization and
depletion............................................ (429.9) (413.8) (343.1)
-------- -------- --------
$ 826.5 $ 801.8 $ 661.3
======== ======== ========
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net assets acquired and other
intangible assets. The cost in excess of the fair value of net assets is
amortized over forty years on a straight-line basis. Other intangible assets
include values assigned to customer lists, long-term contracts and covenants not
to compete and are amortized generally over periods ranging from 5 to 25 years.
Accumulated amortization of intangible assets was $57.9 million and $46.0
million at December 31, 1997 and 1996, respectively.
F-7
87
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
measuring their recoverability.
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
A summary of accrued environmental and landfill costs is as follows:
DECEMBER 31,
-------------
1997 1996
----- -----
Accrued landfill site closure/post-closure costs............ $47.3 $38.2
Accrued environmental costs................................. 8.6 7.3
----- -----
55.9 45.5
Less: current portion (included in other current
liabilities).............................................. (9.9) (6.2)
----- -----
$46.0 $39.3
===== =====
Landfill site closure and post-closure costs include estimated costs to be
incurred for final closure of the landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. These costs are
accrued based on consumed airspace. Available airspace is generally based on
estimates of remaining permitted airspace developed by independent engineers
together with the Company's engineers and accounting personnel utilizing
information provided by aerial surveys of landfills which are generally
performed annually. These aerial surveys form the basis for the volume available
for disposal. Accruals for closure and post-closure costs totaled approximately
$7.9 million, $4.4 million and $4.2 million during the years ended December 31,
1997, 1996 and 1995, respectively. Estimated aggregate closure and post-closure
costs will be fully accrued for these landfills at the time that such facilities
cease to accept waste and are closed. At December 31, 1997, approximately $280.0
million of such costs are to be expensed over the remaining lives of these
facilities. The Company estimates its future cost requirements for closure and
post-closure monitoring and maintenance for its solid waste facilities based on
its interpretation of the technical standards of the United States Environmental
Protection Agency's Subtitle D regulations. These estimates do not take into
account discounts for the present value of such total estimated costs. The
Company periodically reassesses such costs based on various methods and
assumptions regarding landfill airspace and the technical requirements of the
Environmental Protection Agency's Subtitle D regulations and adjusts such
accruals accordingly.
In the normal course of business, the Company is subject to ongoing
environmental investigations by certain regulatory agencies, as well as other
claims and disputes that could result in litigation. Environmental costs are
accrued by the Company through a charge to income in the period such liabilities
become probable and can be reasonably estimated. No material amounts were
charged to expense during the years ended December 31, 1997, 1996 and 1995.
REVENUE RECOGNITION
Revenue consists primarily of collection fees from commercial, industrial,
residential and municipal customers and landfill disposal fees charged to third
parties. Advance billings are recorded as deferred revenue and revenue is
recognized over the period in which services are provided.
INCOME TAXES
The Company is included in the consolidated federal income tax return of
Parent. All tax amounts have been recorded as if the Company filed a separate
federal tax return. The Company accounts for income taxes
F-8
88
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in accordance with SFAS No. 109, "Accounting for Income Taxes." Accordingly,
deferred income taxes have been provided to show the effect of temporary
differences between the recognition of revenue and expenses for financial and
income tax reporting purposes and between the tax basis of assets and
liabilities and their reported amounts in the financial statements.
Certain businesses acquired and accounted for under the pooling of
interests method of accounting were subchapter S corporations for income tax
purposes. The subchapter S corporation status of these companies was terminated
effective with the closing date of the acquisitions. For purposes of these
Consolidated Financial Statements, federal and state income taxes have been
recorded as if these companies had filed subchapter C corporation tax returns
for the pre-acquisition periods, and the current income tax expense is reflected
in shareholder's equity. Pre-acquisition income taxes related to pooled S
corporations recorded in the consolidated financial statements were $0, $4.0
million and $12.6 million during the years ended December 31, 1997, 1996 and
1995, respectively.
NET INCOME PER SHARE
Historical net income per share has not been presented because it would not
be meaningful. The Company currently has 100 shares of common stock, par value
$.01 per share outstanding, all of which are owned by Parent. Immediately prior
to the proposed initial public offering (see Note 13), the Company will amend
and restate its certificate of incorporation to authorize two classes of common
stock consisting of Class A Common Stock and Class B Common Stock, which will be
identical in all respects except that holders of Class A Common Stock will be
entitled to one vote per share while holders of Class B Common Stock will be
entitled to five votes per share. Prior to the closing of the proposed initial
public offering, all outstanding shares of common stock of the Company held by
Parent will be converted into shares of Class B Common Stock, which will
constitute 100% of the outstanding shares of Class B Common Stock.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents. The effect of
non-cash transactions related to business combinations, as discussed in Note 3,
Business Combinations, and other non-cash transactions are excluded from the
accompanying Consolidated Statements of Cash Flows.
The Company made interest payments on notes payable and long-term debt of
approximately $25.1 million, $30.1 million and $14.2 million for the years ended
December 31, 1997, 1996 and 1995, respectively. The Company made income tax
payments of approximately $29.4 million, $31.7 million and $9.9 million for the
years ended December 31, 1997, 1996 and 1995 respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted cash,
receivables, and accounts payable and accrued liabilities approximate fair value
due to the short maturity of these instruments. The carrying amounts of notes
payable and long-term debt approximate fair value because interest rates
generally are variable and, accordingly, approximate current market rates.
CONCENTRATION OF CREDIT RISK
The Company provides services to commercial, industrial, municipal and
residential customers in the United States. Concentrations of credit risk with
respect to trade receivables are limited due to the wide variety of customers
and markets in which services are provided as well as their dispersion across
many geographic areas in the United States. The Company performs ongoing credit
evaluations of its customers, but does not require collateral to support
customer receivables. The Company establishes an allowance for
F-9
89
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
doubtful accounts based on factors surrounding the credit risk of specific
customers, historical trends and other information.
3. BUSINESS COMBINATIONS
Parent has acquired various businesses operating in the solid waste
services industry using cash and/or shares of its common stock ("Parent Common
Stock"). These businesses were contributed by Parent to the Company subsequent
to their acquisition. The Company has applied the same accounting method used by
Parent in accounting for business combinations.
Significant businesses acquired and accounted for under the pooling of
interests method of accounting have been included retroactively in the
Consolidated Financial Statements as if the companies had operated as one entity
since inception. Businesses acquired and accounted for under the purchase method
of accounting are included in the Consolidated Financial Statements from the
date of acquisition. The value of the Parent Common Stock issued to effect
business combinations accounted for under the purchase method of accounting is
based on the average market price of Parent Common Stock over a five day period
before and after the parties have reached agreement on the purchase price and
the proposed transaction has been publicly announced, if applicable.
During the three months ended March 31, 1998, Parent acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Parent in transactions accounted for under the purchase
method of accounting was $101.7 million consisting of $50.7 million in cash and
2.6 million shares of Parent Common Stock valued at $51.0 million.
During the year ended December 31, 1997, Parent acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Parent in transactions accounted for under the purchase
method of accounting was $147.9 million consisting of $11.5 million in cash and
5.7 million shares of Parent Common Stock valued at $136.4 million. In addition,
Parent issued an aggregate of 34.1 million shares of Parent Common Stock in
transactions accounted for under the pooling of interests method of accounting.
Included in the shares of Parent Common Stock issued in acquisitions accounted
for under the pooling of interests method of accounting are approximately 0.3
million shares issued for acquisitions that were not material individually or in
the aggregate and, consequently, prior period financial statements were not
restated for such acquisitions.
Details of the results of operations of the Company and significant
businesses acquired in 1997 and accounted for under the pooling of interests
method of accounting (the "Pooled Entities") for the periods before the pooling
of interests combinations were consummated for the years ended December 31 are
as follows:
1997 1996 1995
--------- -------- --------
Revenue:
The Company........................................... $ 992.3 $ 611.3 $ 457.7
Pooled Entities....................................... 135.4 342.0 347.3
--------- -------- --------
$ 1,127.7 $ 953.3 $ 805.0
========= ======== ========
Income from continuing operations:
The Company........................................... $ 98.6 $ 39.4 $ 30.8
Pooled Entities....................................... 17.6 12.4 18.6
--------- -------- --------
$ 116.2 $ 51.8 $ 49.4
========= ======== ========
During the year ended December 31, 1996, Parent acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Parent in transactions accounted for
F-10
90
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under the purchase method of accounting was $87.6 million, consisting of $16.9
million in cash and 6.6 million shares of Parent Common Stock valued at $70.7
million. In addition, Parent issued an aggregate of 40.0 million shares of
Parent Common Stock in transactions accounted for under the pooling of interests
method of accounting. Included in the shares of Parent Common Stock issued in
acquisitions accounted for under the pooling of interests method of accounting
are approximately 1.1 million shares issued for acquisitions that were not
material individually or in the aggregate and, consequently, prior period
financial statements were not restated for such acquisitions.
During the year ended December 31, 1995, Parent acquired various solid
waste services businesses which were contributed to the Company. The aggregate
purchase price paid by Parent in transactions accounted for under the purchase
method of accounting was $76.5 million consisting of $3.7 million in cash and
16.0 million shares of Parent Common Stock valued at $72.8 million. In addition,
Parent issued an aggregate of approximately 30.9 million shares of Parent Common
Stock in transactions accounted for under the pooling of interests method of
accounting.
The assets and liabilities contributed by Parent to the Company based upon
the preliminary purchase price allocations for business combinations accounted
for under the purchase method of accounting (including historical accounts of
immaterial acquisitions accounted for under the pooling of interests method of
accounting) were as follows:
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------- -------------------------
1998 1997 1997 1996 1995
------- ------ ------- ------ ------
(UNAUDITED)
Property and equipment...................... $ 13.2 $ 12.2 $ 36.8 $ 71.8 $ 24.8
Intangible assets........................... 109.7 56.2 149.2 74.0 83.4
Working capital deficit..................... (8.0) (6.4) (18.0) (20.3) (4.2)
Long-term debt assumed...................... (13.8) (11.6) (26.8) (27.1) (18.5)
Other assets (liabilities).................. (1.2) 2.9 4.5 (19.9) (10.0)
Investment by Parent........................ (101.7) (54.5) (148.4) (79.7) (76.5)
------- ------ ------- ------ ------
Cash acquired............................... $ (1.8) $ (1.2) $ (2.7) $ (1.2) $ (1.0)
======= ====== ======= ====== ======
The Company's unaudited pro forma consolidated results of operations
assuming acquisitions accounted for under the purchase method of accounting and
immaterial acquisitions accounted for under the pooling of interests method of
accounting had occurred at the beginning of the periods presented are as follows
for the years ended December 31:
1997 1996 1995
-------- -------- ------
Revenue................................................... $1,166.5 $1,060.0 $872.9
Income from continuing operations......................... 117.3 53.3 50.6
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated these businesses as of the beginning of the
periods presented.
F-11
91
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt are as follows:
DECEMBER 31,
------------------
1997 1996
------- -------
Bonds payable under loan agreements with California
Pollution Control Financing Authority; interest at
prevailing market rates (5.0% and 4.75% at December 31,
1997 and 1996, respectively).............................. $ 43.1 $ 44.0
Other notes; secured by real property, equipment and other
assets; interest rates ranging from 4% to 13%; maturing
through 2009.............................................. 32.0 98.7
------- -------
75.1 142.7
Less: current portion....................................... (10.8) (33.2)
------- -------
$ 64.3 $ 109.5
======= =======
At December 31, 1997, aggregate maturities of notes payable and long-term
debt were as follows:
1998........................................................ $10.8
1999........................................................ 9.2
2000........................................................ 6.9
2001........................................................ 4.5
2002........................................................ 3.7
Thereafter.................................................. 40.0
-----
$75.1
=====
The loan agreements with California Pollution Control Financing Authority
require the Company to maintain certain financial ratios and comply with certain
financial covenants. At December 31, 1997, the Company was in compliance with
the financial covenants under these agreements.
5. NOTES PAYABLE TO RESOURCES
Notes payable to Resources represent borrowings under revolving credit
facilities to fund the Company's operations and to repay debt assumed in
acquisitions. Borrowings under these facilities bear interest at prime plus 50
basis points and are payable on demand. The average balances outstanding under
these facilities for the years ended December 31, 1997, 1996 and 1995 were
$220.5 million, $224.0 million and $34.5 million, respectively. Interest expense
on notes payable to Resources was $4.8 million and $6.2 million for the three
months ended March 31, 1998 and 1997 (unaudited), respectively, and $20.2
million, $18.8 million and $3.0 million for the years ended December 31, 1997,
1996 and 1995, respectively.
6. INCOME TAXES
The components of the provision for income taxes related to continuing
operations for the years ended December 31 are as follows:
1997 1996 1995
------ ----- -----
Current:
Federal................................................... $ 20.9 $30.1 $16.3
State..................................................... 8.5 4.7 2.6
Federal and state deferred.................................. 36.5 2.4 12.7
Change in valuation allowance............................... -- 0.8 --
------ ----- -----
Provision for income taxes.................................. $ 65.9 $38.0 $31.6
====== ===== =====
F-12
92
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for continuing operations for the years ended December 31 is
shown below:
1997 1996 1995
---- ---- ----
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
Non-deductible expenses..................................... 1.5 2.6 0.9
State income taxes, net of federal benefit.................. 2.0 3.6 2.7
Other, net.................................................. (2.3) 1.1 0.4
---- ---- ----
Effective income tax rate................................... 36.2% 42.3% 39.0%
==== ==== ====
Components of the net deferred income tax liability in the accompanying
Consolidated Balance Sheets at December 31 are as follows:
1997 1996
------- -------
Deferred income tax liabilities:
Book basis in property over tax basis..................... $ 64.9 $ 34.5
Deferred income tax assets:
Net operating losses...................................... (4.0) (16.8)
Accruals not currently deductible......................... (23.0) (9.2)
Valuation allowance......................................... 9.6 4.2
------- -------
Net deferred income tax liability........................... $ 47.5 $ 12.7
======= =======
At December 31, 1997, the Company had available domestic net operating loss
carryforwards of approximately $11.4 million which expire in the year 2008. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The Company has provided a valuation allowance to offset a
portion of the deferred tax assets due to uncertainty surrounding the future
realization of such deferred tax assets. The Company adjusts the valuation
allowance in the period management determines it is more likely than not that
deferred tax assets will or will not be realized.
7. INVESTMENT BY PARENT
The changes in the investment by Parent are as follows:
THREE MONTHS ENDED YEARS ENDED DECEMBER 31,
------------------ ------------------------
MARCH 31, 1998 1997 1996 1995
------------------ ------ ------ ------
(UNAUDITED)
Balance at beginning of period..................... $750.8 $494.5 $372.2 $272.4
Net income......................................... 34.8 116.2 51.8 24.6
Business acquisitions contributed by Parent........ 101.7 148.4 79.7 76.5
Capital transactions by former owners of pooled
companies........................................ -- 11.7 (8.8) 12.2
Investment in Resources............................ -- (17.4) -- (14.7)
Other.............................................. -- (2.6) (0.4) 1.2
------ ------ ------ ------
Balance at end of period........................... $887.3 $750.8 $494.5 $372.2
====== ====== ====== ======
8. STOCK OPTIONS
The Parent has various stock option plans under which shares of Parent
Common Stock may be granted to key employees of the Company. Options granted
under the plans are non-qualified and are granted at a price equal to the fair
market value of the Parent Common Stock at the date of grant. Generally, options
granted will have a term of ten years from the date of grant, and will vest in
increments of 25% per year over a four year period on the yearly anniversary of
the grant date. As of December 31, 1997, approximately 6.1 million options held
by employees of the Company were outstanding, 1.5 million of which were
exercisable.
F-13
93
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock options
is deducted in determining net income. Had compensation cost for stock option
grants under the Parent's stock option plans been determined pursuant to SFAS
No. 123, "Accounting for Stock-Based Compensation", the Company's net income
would have decreased accordingly. Using the Black-Scholes option pricing model
for all options granted after December 31, 1994, the Company's pro forma net
income and pro forma weighted average fair value of options granted, with
related assumptions, are as follows for the years ended December 31:
1997 1996 1995
-------- -------- --------
Pro forma net income............................ $ 108.3 $ 47.6 $ 23.9
Pro forma weighted average fair value of options
granted....................................... 13.60 7.34 5.19
Risk free interest rates........................ 5.74% 5.98% 5.98%
Expected lives.................................. 5 years 5 years 5 years
Expected volatility............................. 40% 40% 40%
The Company currently intends to adopt a 1998 Stock Incentive Plan ("Stock
Incentive Plan") prior to the closing of the proposed initial public offering
(see Note 13, Subsequent Events) to provide for the grant of options to purchase
shares of Class A Common Stock to eligible individuals. The Company intends to
reserve 20.0 million shares of Class A Common Stock for issuance pursuant to
options granted under the Stock Incentive Plan.
Following the Distribution (as defined in Note 13, Subsequent Events) the
Company intends to issue substitute options under the Company's Stock Incentive
Plan (collectively "Substitute Options") in substitution for grants under
Parent's stock option plans as of the date of the Distribution (collectively,
"Parent Stock Options") held by individuals employed by the Company as of the
date of the Distribution (the "Company Employees"). Such Substitute Options will
provide for the purchase of a number of shares of Class A Common Stock
determined based on a ratio of average trading prices of Parent Common Stock and
Class A Common Stock immediately prior to the Distribution. It is not possible
to specify how many shares of Class A Common Stock will be subject to Substitute
Options. It is expected that some Parent Stock Options consisting of stock
options held by the Company Employees will be exercised and that some will be
forfeited, and that additional Parent Stock Options could be granted prior to
the date of the Distribution. In addition, the remaining balance of unexercised
Parent Stock Options will be converted into Substitute Options by reference to
the ratio described above, which will not be known until the time of the
Distribution.
9. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a party to various general legal proceedings which have
arisen in the ordinary course of business. While the results of these matters
cannot be predicted with certainty, the Company believes that losses, if any,
resulting from the ultimate resolution of these matters will not have a material
adverse effect on the Company's consolidated results of operations, cash flows
or financial position. However, unfavorable resolution could affect the
consolidated results of operations or cash flows for the quarterly periods in
which they are resolved.
LEASE COMMITMENTS
The Company and its subsidiaries lease real property, equipment and
software under various operating leases with terms from one to twenty-five
years.
F-14
94
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease obligations under noncancelable real property,
equipment and software leases with initial terms in excess of one year at
December 31, 1997 are as follows:
Year Ending December 31:
1998........................................................ $3.0
1999........................................................ 1.9
2000........................................................ 1.2
2001........................................................ 0.8
2002........................................................ 0.3
Thereafter.................................................. 1.0
----
$8.2
====
OTHER MATTERS
In the normal course of business, the Company is required to post
performance bonds, letters of credit, and/or cash deposits as a financial
guarantee of the Company's performance. To date, the Company has satisfied
financial responsibility requirements for regulatory agencies by making cash
deposits, obtaining bank letters of credit or by obtaining surety bonds. At
December 31, 1997, letters of credit and surety bonds totaling $194.3 million
expire through 2007.
The Company's business activities are conducted in the context of a
developing and changing statutory and regulatory framework. Governmental
regulation of the waste management industry requires the Company to obtain and
retain numerous governmental permits to conduct various aspects of its
operations. These permits are subject to revocation, modification or denial. The
costs and other capital expenditures which may be required to obtain or retain
the applicable permits or comply with applicable regulations could be
significant.
As a condition to Parent effecting the Distribution (as defined in Note 13,
Subsequent Events), the Company has agreed to indemnify Parent for any tax
liability suffered by Parent arising out of actions of the Company after the
Distribution that would cause the Distribution to lose its qualification as a
tax-free distribution for federal income tax purposes.
10. RESTRUCTURING AND OTHER CHARGES
During the year ended December 31, 1996, the Company recorded restructuring
and other charges of approximately $8.8 million. These costs included $5.3
million to close certain landfill operations, $1.0 million of asset write-offs
and $2.5 million of merger expenses associated with certain business
combinations accounted for under the pooling of interests method of accounting.
During the year ended December 31, 1995, the Company recorded restructuring
charges of approximately $3.3 million which primarily related to severance for
two former officers of a subsidiary. There are no remaining liabilities
associated with the 1996 and 1995 restructuring and other charges as of December
31, 1997.
11. DISCONTINUED OPERATIONS
During the year ended December 31, 1995, the Company disposed of its mining
and citrus operations resulting in a loss from discontinued operations of
approximately $24.8 million, net of income taxes. Included in the 1995 loss from
discontinued operations is a $30.5 million loss on disposal of the Company's
mining and citrus operations, net of income tax benefits of $10.0 million.
Revenue from the mining and citrus operations was $105.1 million in 1995 for the
period prior to disposition. The mining and citrus businesses were former
subsidiaries of a solid waste business acquired by Parent in 1996 and accounted
for under the pooling of
F-15
95
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interests method of accounting. Operating results for the period prior to
disposition have been classified as discontinued operations in the accompanying
Consolidated Financial Statements.
12. RELATED PARTY TRANSACTIONS
Due to affiliate includes allocations of various expenses from Parent
including general and administrative expenses, risk management premiums and
losses, income taxes and other costs. Such liabilities are non-interest bearing
and have no specified repayment terms. The following is an analysis of activity
in the due to affiliate account for the years ended December 31:
1997 1996 1995
------ ------ -----
Balance at beginning of period.............................. $ 49.3 $ 86.3 $ 8.6
Parent overhead allocations................................. 10.2 8.4 4.3
Insurance allocations....................................... 15.9 10.2 2.3
Self-insurance reserve allocations.......................... (7.3) (4.8) (0.5)
Intercompany purchases...................................... 13.8 12.0 27.5
Income taxes................................................ 28.7 23.4 1.4
Cash transfers.............................................. (2.8) (86.2) 42.7
------ ------ -----
Balance at end of period.................................... $107.8 $ 49.3 $86.3
====== ====== =====
Parent's corporate general and administrative costs not specifically
attributable to its operating subsidiaries have been allocated to the Company
based upon the ratio of the Company's invested capital to Parent's consolidated
invested capital. Such allocations are included in the Company's selling,
general and administrative costs and were approximately $3.8 million and $2.1
million for the three months ended March 31, 1998 and 1997 (unaudited),
respectively, and $10.2 million, $8.4 million and $4.3 million for the years
ended December 31, 1997, 1996 and 1995, respectively. These amounts approximate
management's estimate of Parent's corporate general and administrative costs
required to support the Company's operations. Management believes that the
amounts allocated to the Company are reasonable and are no less favorable to the
Company than the expenses the Company would incur to obtain such services on its
own or from unaffiliated third parties.
The Company participates in Parent's combined risk management programs for
property, casualty and general liability insurance. The Company was charged for
annual premiums and reported losses of $15.9 million, $10.2 million and $2.3
million during the years ended December 31, 1997, 1996 and 1995, respectively.
The Company's liability for unpaid and incurred but not reported claims under
the Parent's combined risk management programs was estimated to be approximately
$12.6 million and $5.3 million at December 31, 1997 and 1996, respectively, and
is included in other current liabilities in the accompanying Consolidated
Balance Sheets.
13. SUBSEQUENT EVENTS
In April 1998, the Company declared a $2.0 billion dividend to Parent that
it paid in the form of a series of one-year notes payable bearing interest at a
rate of LIBOR plus 30 basis points (the "Company Notes").
In May 1998, the Company filed a registration statement with the Securities
and Exchange Commission for the initial public offering of its Class A Common
Stock (the "Initial Public Offering"). The proceeds from the proposed Initial
Public Offering will be used to pay a portion of amounts due to Parent under the
Company Notes. Following the proposed Initial Public Offering, Parent will own
at least 80% of the combined voting power of Class A Common Stock and Class B
Common Stock.
In May 1998, Parent announced its intention to separate the solid waste
services businesses and operations that comprise the Company, and the associated
assets and liabilities of such businesses and
F-16
96
REPUBLIC SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations (the "Separation"). Parent also announced its intention to distribute
its remaining interest in the Company to Parent's shareholders in 1999, subject
to certain conditions and consents (the "Distribution"). The Company and Parent
have entered into or will, on or prior to the consummation of the Initial Public
Offering, enter into certain agreements providing for the Separation and
governing various interim and ongoing relationships between the companies,
including an agreement between the Company and Parent providing for the purchase
by the Company of certain services from Parent. The Distribution is contingent,
in part, on Parent obtaining a private letter ruling from the Internal Revenue
Service to the effect that, among other things, the Distribution will qualify as
a tax-free distribution for federal income tax purposes under Section 355 of the
Internal Revenue Code of 1986, as amended, in form and substance satisfactory to
Parent.
Reference is made to the discussion under "Certain Transactions" in the
registration statement referred to above for description of agreements related
to sharing of contingent liabilities, tax allocation and indemnification
matters, employee benefit arrangements and stock option grants arising out of
the Separation and Distribution.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The results of operations for the third and fourth quarters of 1996
included restructuring and other charges of approximately $7.6 million and $1.2
million, respectively, as described in Note 10, Restructuring and Other Charges.
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter for 1997 and 1996.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenue.............................................. 1997 $263.2 $283.7 $287.6 $293.2
1996 220.6 235.9 251.7 245.1
Operating income..................................... 1997 $ 41.0 $ 47.1 $ 56.3 $ 56.9
1996 27.8 33.8 17.3 26.7
Net income........................................... 1997 $ 23.2 $ 25.9 $ 32.5 $ 34.6
1996 16.2 16.1 5.4 14.1
F-17
97
(Photo of fleet of solid waste collection vehicles)
98
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CLASS A COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 3
Risk Factors.......................... 11
Background of the Offerings........... 18
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 24
Unaudited Condensed Consolidated Pro
Forma Financial Statements.......... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 38
Management............................ 50
Certain Transactions.................. 56
Principal Stockholder................. 63
Description of Capital Stock.......... 64
Shares Eligible for Future Sale....... 68
Certain United States Federal Tax
Consequences For Non-United States
Holders............................. 70
Underwriting.......................... 73
Legal Matters......................... 76
Experts............................... 76
Available Information................. 76
Index to Financial Statements......... F-1
UNTIL , 1998 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
51,000,000 SHARES
REPUBLIC SERVICES, INC. (LOGO)
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
DEUTSCHE BANK SECURITIES
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1998
======================================================
99
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 29, 1998
PROSPECTUS
51,000,000 SHARES
REPUBLIC SERVICES, INC. (LOGO)
CLASS A COMMON STOCK
------------------------
All of the 51,000,000 shares of Class A Common Stock offered hereby are
being sold by Republic Services, Inc. (the "Company"). Of the 51,000,000 shares
of Class A Common Stock offered hereby, 10,200,000 shares are being offered for
sale initially outside the United States and Canada by the International
Managers and 40,800,000 shares are being offered for sale initially in a
concurrent offering in the United States and Canada by the U.S. Underwriters.
The initial public offering price and the underwriting discount per share will
be identical for both Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
will be between $24.00 and $27.00 per share. For a discussion relating to
factors to be considered in determining the initial public offering price, see
"Underwriting."
The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "RSG," subject to official notice of issuance.
The Company is currently a wholly owned subsidiary of Republic Industries,
Inc. ("Parent"). Upon completion of the Offerings, the Company will have two
classes of authorized common stock consisting of Class A Common Stock, which is
being offered hereby, and Class B Common Stock. See "Description of Capital
Stock." Holders of Class A Common Stock will be entitled to one vote per share
and holders of Class B Common Stock will be entitled to five votes per share on
all matters submitted to a vote of stockholders. All of the outstanding shares
of Class B Common Stock will be owned by Parent. Upon completion of the
Offerings, Parent will own approximately 70.9% of the outstanding shares of
Common Stock (66.6% if the Underwriters exercise their over-allotment options in
full), which will represent approximately 91.2% of the combined voting power of
all outstanding shares of Class A Common Stock and Class B Common Stock (89.9%
if the Underwriters exercise their over-allotment options in full). Parent has
announced its intention, subject to satisfaction of certain conditions, to
divest its ownership interest in the Company in 1999 by means of a tax-free
distribution to its stockholders. See "Risk Factors," "Background of the
Offerings" and "Certain Transactions."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------------
Per Share................................. $ $ $
- ------------------------------------------------------------------------------------------------------------------------
Total(3).................................. $ $ $
========================================================================================================================
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $5,500,000.
(3) The Company has granted the International Managers and the U.S. Underwriters
options to purchase up to an additional 1,530,000 shares and 6,120,000
shares of Class A Common Stock, respectively, in each case exercisable
within 30 days after the date hereof, solely to cover over-allotments, if
any. If such options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Class A Common Stock will be made in New York, New
York on or about , 1998.
------------------------
MERRILL LYNCH INTERNATIONAL
DEUTSCHE BANK
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
------------------------
The date of this Prospectus is , 1998.
100
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Merrill Lynch International, Deutsche Bank AG London and Donaldson, Lufkin
& Jenrette International are acting as lead managers (the "Lead Managers") for
each of the International Managers named below (the "International Managers").
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company and the
International Managers, and concurrently with the sale of 40,800,000 shares of
Class A Common Stock to the U.S. Underwriters (as defined below), the Company
has agreed to sell to the International Managers, and each of the International
Managers severally and not jointly has agreed to purchase from the Company, the
number of shares of Class A Common Stock set forth opposite its name below.
NUMBER OF
INTERNATIONAL MANAGER SHARES
- --------------------- ----------
Merrill Lynch International.................................
Deutsche Bank AG London.....................................
Donaldson, Lufkin & Jenrette International..................
----------
Total............................................. 10,200,000
==========
The Company has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers, the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Deutsche Bank Securities Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation are acting as representatives (the "U.S.
Representatives"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of 10,200,000 shares of Class
A Common Stock to the International Managers pursuant to the International
Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and
the U.S. Underwriters severally have agreed to purchase from the Company, an
aggregate of 40,800,000 shares of Class A Common Stock. The initial public
offering price per share and the total underwriting discount per share of Class
A Common Stock are identical under the International Purchase Agreement and the
U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Class A Common Stock being sold
pursuant to each such agreement if any of the shares of Class A Common Stock
being sold pursuant to such agreement are purchased. Under certain
circumstances, under the International Purchase Agreement and the U.S. Purchase
Agreement, the commitments of non-defaulting Underwriters may be increased. The
closings with respect to the sale of shares of Class A Common Stock to be
purchased by the International Managers and the U.S. Underwriters are
conditioned upon one another.
The Lead Managers have advised the Company that the International Managers
propose initially to offer the shares of Class A Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Common Stock. The International Managers may allow,
and such dealers may reallow, a discount not in excess of $ per share
of Class A Common Stock on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The Company has granted options to the International Managers, exercisable
for 30 days after the date of this Prospectus, to purchase up to an aggregate of
1,530,000 additional shares of Class A Common Stock at the initial public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The International Managers may exercise these options
solely to cover over-allotments, if any, made on the sale of the Class A Common
Stock offered hereby. To the extent that the International Managers exercise
these options, each International Manager will be obligated, subject to certain
conditions, to purchase a number of additional shares of Class A Common Stock
proportionate to such International Manager's initial amount reflected in the
foregoing table. The Company also has granted options to the U.S. Underwriters,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of 6,120,000 additional
73
101
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
shares of Class A Common Stock to cover over-allotments, if any, on terms
similar to those granted to the International Managers.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 2,550,000 of the shares offered hereby
to be sold to certain eligible employees and business associates of the Company.
The number of shares of Class A Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not orally confirmed for purchase within one day
of the pricing of the Offerings will be offered by the Underwriters to the
general public on the same terms as the other shares offered hereby.
The Company and Parent have agreed, for a period of 90 days and 180 days,
respectively, after the date of this Prospectus, subject to certain exceptions,
not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of or otherwise dispose of or
transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition, or
file a registration statement under the 1933 Act with respect to the foregoing
or (ii) enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of the Common Stock whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, without the prior written consent of Merrill
Lynch on behalf of the Underwriters; provided that the Company may at any time
and from time to time (i) issue shares of Class A Common Stock to third parties
as consideration for the Company's acquisition from such third parties of
non-hazardous solid waste businesses, (ii) grant options to purchase shares of
Common Stock under the Company's Stock Incentive Plan and (iii) issue shares of
Common Stock to Parent in connection with the prepayment of the Affiliate
Payable, the Resources Notes Payable and the Company Notes and as consideration
for the Company's acquisition from Parent of a non-hazardous solid waste
business, in each case without the prior consent of Merrill Lynch. See "Shares
Eligible for Future Sale."
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell shares of
Class A Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer
to whom they sell shares of Class A Common Stock will not offer to sell or sell
shares of Class A Common Stock to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, and the International Managers and any dealer to whom
they sell shares of Class A Common Stock will not offer to sell or sell shares
of Class A Common Stock to U.S. persons or to Canadian persons or to persons
they believe intend to resell to U.S. or Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial public offering price of the Class A Common
Stock will be determined through negotiations between the Company, on the one
hand, and the U.S. Representatives and the Lead Managers, on the other hand. The
factors considered and analyzed by the Company, the U.S. Representatives and the
Lead Managers in determining the initial public offering price per share of
Class A Common Stock, in addition to prevailing market conditions, are
price-earnings ratios of publicly traded companies that the U.S. Representatives
and the Lead Managers believe to be comparable to the Company, certain financial
information of the Company, the history of, and the prospects for, the Company
and the industry in which it competes, and an assessment of the Company's
management, its past and present operations, the prospects for, and timing of,
future revenues of the Company, the present state of the Company's development,
the percentage interest of the Company being sold as compared to the valuation
for the entire Company and the above factors in relation to market values and
various valuation measures of other companies engaged in activities similar to
the Company. No appraisal of the assets of the Company was undertaken by the
Company, the U.S. Representatives or the Lead Managers in determining the
initial public offering price per share. There can be no assurance that an
active
74
102
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
trading market will develop for the Class A Common Stock or that the Class A
Common Stock will trade in the public market subsequent to the Offerings at or
above the initial public offering price.
The Class A Common Stock has been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under the symbol "RSG."
In order to meet the requirements for listing of the Class A Common Stock on
that exchange, the U.S. Underwriters and the International Managers have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
owners.
The Underwriters do not expect sales of the Class A Common Stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.
The Company has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including certain liabilities under
the 1933 Act, or to contribute to payments the U.S. Underwriters and the
International Managers may be required to make in respect thereof.
Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission (the "Commission") may limit the ability
of the Underwriters and certain selling group members to bid for and purchase
the Class A Common Stock. As an exception to these rules, the U.S.
Representative is permitted to engage in certain transactions that stabilize the
price of the Class A Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Class A Common Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Offerings, i.e., if they sell more shares of Class A Common
Stock than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Class A Common
Stock in the open market. The U.S. Representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Class A Common Stock in the open market to
reduce the Underwriters' short position or to stabilize the price of the Class A
Common Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Class A Common Stock to the extent
that it discourages resales of the Class A Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the U.S. Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Each International Manager has agreed that (i) it has not offered or sold
and, prior to the expiration of the period of six months from the Closing Date,
will not offer or sell any shares of Class A Common Stock to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Class A Common Stock in, from
or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of Class A Common Stock to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a
person to whom such document may otherwise lawfully be issued or passed on.
75
103
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Class A
Common Stock, or the possession, circulation or distribution of this Prospectus
or any other material relating to the Company or shares of Class A Common Stock
in any jurisdiction where action for that purpose is required. Accordingly, the
shares of Class A Common Stock may not be offered or sold, directly or
indirectly, and neither this Prospectus nor any other offering material or
advertisements in connection with the shares of Class A Common Stock may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or
jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Class A Common
Stock offered hereby will be passed upon for the Company by Akerman, Senterfitt
& Eidson, P.A., Miami, Florida. Certain attorneys employed by Akerman,
Senterfitt & Eidson, P.A. own shares of Parent Common Stock. Certain legal
matters relating to the Offerings will be passed upon for the Underwriters by
Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company for each
of the three years ended December 31, 1997, appearing in this Prospectus and
Registration Statement, have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the 1933 Act with respect to the Class A Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. For further information pertaining
to the Company and the Class A Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. Statements contained in
this Prospectus regarding the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
On the Offerings Closing Date, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such materials can also be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005 or on the Commission's
site on the Internet at http://www.sec.gov.
76
104
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CLASS A COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 3
Risk Factors.......................... 11
Background of the Offerings........... 18
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 24
Unaudited Condensed Consolidated Pro
Forma Financial Statements.......... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 38
Management............................ 50
Certain Transactions.................. 56
Principal Stockholder................. 63
Description of Capital Stock.......... 64
Shares Eligible for Future Sale....... 68
Certain United States Federal Tax
Consequences For Non-United States
Holders............................. 70
Underwriting.......................... 73
Legal Matters......................... 76
Experts............................... 76
Available Information................. 76
Index to Financial Statements......... F-1
============================================
======================================================
51,000,000 SHARES
REPUBLIC SERVICES, INC. (LOGO)
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH INTERNATIONAL
DEUTSCHE BANK
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
, 1998
======================================================
105
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission (the "Commission") registration fee, the
National Association of Securities Dealers, Inc. ("NASD") registration fee and
the New York Stock Exchange listing fee.
PAYABLE BY
THE
REGISTRANT
----------
SEC registration fee........................................ $ 457,250
NASD filing fee............................................. 30,500
New York Stock Exchange original listing fee................ 245,600
Accounting fees and expenses................................ 2,000,000
Legal fees and expenses..................................... 1,400,000
Printing and engraving expenses............................. 1,150,000
Miscellaneous fees and expenses............................. 216,650
----------
Total....................................................... $5,500,000*
==========
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation, a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, if they had no reasonable
cause to believe their conduct was unlawful. A similar standard is applicable in
the case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such actions, and the statute requires court approval before there
can be any indemnification where the person seeking indemnification has been
found liable to the corporation. The statute provides that it is not exclusive
of other indemnification that may be granted by a corporation's bylaws,
disinterested director vote, stockholder vote, agreement or otherwise.
The Certificate of the Company, will be further amended and restated to
provide that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person, or a person of whom such person is the legal representative, is or was a
director or officer of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, will be indemnified and held harmless by the Company to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than said law
permitted the Company to provide prior to such amendment), against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith. Such right to indemnification includes the right to have the Company
pay the expenses incurred in defending any such proceeding in advance of its
final disposition, subject to the
II-1
106
provisions of the DGCL. Such rights are not exclusive of any other right which
any person may have or thereafter acquire under any statute, provision of the
Certificate, bylaws, agreement, vote of stockholders or disinterested directors
or otherwise. No repeal or modification of such provision will in any way
diminish or adversely affect the rights of any director, officer, employee or
agent of the Company thereunder in respect of any occurrence or matter arising
prior to any such repeal or modification. The Certificate will also specifically
authorize the Company to maintain insurance and to grant similar indemnification
rights to employees or agents of the Company.
The DGCL permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) payments of unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
The Certificate will provide that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except, if required by the DGCL as
amended from time to time, for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. Neither the amendment
nor repeal of such provision will eliminate or reduce the effect of such
provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for such provision, would accrue or arise prior to such
amendment or repeal.
The Underwriting Agreements provide for indemnification by the Underwriters
of the registrant, its directors and officers, and by the registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
1933 Act, and affords certain rights of contribution with respect thereto.
The Separation and Distribution Agreement by and among the Company and
Parent will provide for indemnification by the Company of Parent and its
directors, officers and employees for certain liabilities, including liabilities
under the 1933 Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 -- Form of U.S. Purchase Agreement.
3.1 -- Form of Amended and Restated Certificate of Incorporation of
the Company.
3.2 -- Form of Amended and Restated Bylaws of the Company.
4.1 -- Form of the Company's Class A Common Stock Certificate.
5.1 -- Opinion of Akerman, Senterfitt & Eidson, P.A. re: legality
of shares being registered.
10.1 -- Form of Separation and Distribution Agreement by and between
the Company and Parent.
10.2 -- Form of Employee Benefits Agreement by and between the
Company and Parent.
10.3 -- Form of Services Agreement by and between the Company and
Parent.
10.4 -- Form of Tax Indemnification and Allocation Agreement by and
between the Company and Parent.
10.5 -- Form of Republic Services, Inc. 1998 Stock Incentive Plan.
II-2
107
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5.1).
27.1 -- Financial Data Schedule for the Three Months Ended March 31,
1998 (for SEC use only).
27.2 -- Financial Data Schedule for the Three Months Ended March 31,
1997 (for SEC use only).
27.3 -- Financial Data Schedule for the Year Ended December 31, 1997
(for SEC use only).
27.4 -- Financial Data Schedule for the Year Ended December 31, 1996
(for SEC use only).
27.5 -- Financial Data Schedule for the Year Ended December 31, 1995
(for SEC use only).
(b) Financial Statement Schedule. The following financial statement
schedule together with report of independent certified public accountants is
filed on pages S-1 and S-2 herewith:
Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves, for Each of the Three Years Ended December 31, 1997.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing of the Offerings specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Lauderdale, State of Florida, on June 29, 1998.
Republic Services, Inc.
By: /s/ H. WAYNE HUIZENGA
----------------------------------
H. Wayne Huizenga
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ H. WAYNE HUIZENGA Chairman of the Board and June 29, 1998
- ----------------------------------------------------- Chief Executive Officer
H. Wayne Huizenga (principal executive
officer)
* Vice Chairman and June 29, 1998
- ----------------------------------------------------- Director
Harris W. Hudson
* Chief Financial Officer June 29, 1998
- ----------------------------------------------------- (principal financial
Michael S. Karsner officer)
* Vice President -- Finance June 29, 1998
- ----------------------------------------------------- (principal accounting
Tod C. Holmes officer)
*By: /s/ H. WAYNE HUIZENGA
------------------------------------------------
H. Wayne Huizenga as
attorney-in-fact
II-4
109
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To Republic Services, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Republic Services, Inc. and
subsidiaries included in this registration statement and have issued our report
thereon dated June 29, 1998. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule
included under Item 16(b) is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 29, 1998.
S-1
110
REPUBLIC SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN MILLIONS)
BALANCE AT ADDITIONS ACCOUNTS BALANCE AT
BEGINNING CHARGED TO WRITTEN END
OF YEAR INCOME OFF OTHER(1) OF YEAR
---------- ---------- -------- -------- ----------
CLASSIFICATIONS
Allowance for doubtful accounts:
1997........................................ $8.3 $4.1 $(4.1) $5.3 $13.6
1996........................................ 7.2 2.6 (2.5) 1.0 8.3
1995........................................ 3.8 3.8 (1.0) 0.6 7.2
- ---------------
(1) Allowance of acquired businesses.
S-2
111
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of U.S. Purchase Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company.
3.2 Form of Amended and Restated Bylaws of the Company.
4.1 Form of the Company's Class A Common Stock Certificate.
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A. re: legality
of shares being registered.
10.1 Form of Separation and Distribution Agreement by and between
the Company and Parent.
10.2 Form of Employee Benefits Agreement by and between the
Company and Parent.
10.3 Form of Services Agreement by and between the Company and
Parent.
10.4 Form of Tax Indemnification and Allocation Agreement by and
between the Company and Parent.
10.5 Form of Republic Services, Inc. 1998 Stock Incentive Plan.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP
23.3 Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5.1).
27.1 Financial Data Schedule for the Three Months Ended March 31,
1998 (for SEC use only).
27.2 Financial Data Schedule for the Three Months Ended March 31,
1997 (for SEC use only).
27.3 Financial Data Schedule for the Year Ended December 31, 1997
(for SEC use only).
27.4 Financial Data Schedule for the Year Ended December 31, 1996
(for SEC use only).
27.5 Financial Data Schedule for the Year Ended December 31, 1995
(for SEC use only).
1
EXHIBIT 1.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REPUBLIC SERVICES, INC.
A Delaware corporation
51,000,000 Shares of Class A Common Stock
U.S. PURCHASE AGREEMENT
-----------------------
Dated: June ____, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2
TABLE OF CONTENTS
PAGE
----
SECTION 1. Representations and Warranties....................................................................3
(a) Representations and Warranties by the Company........................................................3
(i) Compliance with Registration Requirements.....................................................4
(ii) Independent Accountants......................................................................4
(iii) Financial Statements........................................................................5
(iv) No Material Adverse Change in Business.......................................................5
(v) Good Standing of the Company..................................................................5
(vi) Good Standing of Subsidiaries................................................................6
(vii) Capitalization..............................................................................6
(viii) Authorization of Agreement.................................................................6
(ix) Authorization and Description of Securities..................................................6
(x) Absence of Defaults and Conflicts.............................................................7
(xi) Absence of Labor Dispute.....................................................................7
(xii) Absence of Proceedings......................................................................8
(xiii) Accuracy of Exhibits.......................................................................8
(xiv) Possession of Intellectual Property.........................................................8
(xv) Absence of Further Requirements..............................................................8
(xvi) Possession of Licenses and Permits..........................................................9
(xvii) Title to Property..........................................................................9
(xviii) Compliance with Cuba Act..................................................................9
(xix) Investment Company Act......................................................................9
(xx) Environmental Laws..........................................................................10
(xxi) Registration Rights........................................................................10
(xxii) Income Taxes..............................................................................10
(xxiii) Internal Controls........................................................................11
(xxiv) Insurance.................................................................................11
(xxv) Offering Material..........................................................................11
(xxvi) Related Party Transactions................................................................11
(xxvii) Solvency.................................................................................11
(xxviii) Agreements Related to the Distribution..................................................11
(b) Representations and Warranties by Parent............................................................12
(i) Information in Registration Statement........................................................12
(ii) Absence of Defaults and Conflicts...........................................................12
(iii) Absence of Further Requirements............................................................13
(iv) Agreements Related to the Distribution......................................................13
(v) Dividends to Parent..........................................................................13
(vi) Absence of Taxable Distribution.............................................................13
(vii) Income Taxes...............................................................................13
(c) Officer's Certificates..............................................................................14
- i -
3
SECTION 2. Sale and Delivery to Underwriters; Closing......................................................14
(a) Initial Securities..................................................................................14
(b) Option Securities...................................................................................14
(c) Payment.............................................................................................15
(d) Denominations; Registration.........................................................................15
SECTION 3. Covenants of the Company.........................................................................16
(a) Compliance with Securities Regulations and Commission Requests......................................16
(b) Filing of Amendments................................................................................16
(c) Delivery of Registration Statements.................................................................16
(d) Delivery of Prospectus..............................................................................17
(e) Continued Compliance with Securities Laws...........................................................17
(f) Blue Sky Qualifications.............................................................................17
(g) Rule 158............................................................................................18
(h) Use of Proceeds.....................................................................................18
(i) Listing.............................................................................................18
(j) Restriction on Sale of Securities...................................................................18
(k) Reporting Requirements..............................................................................18
(l) Compliance with NASD Rules..........................................................................18
SECTION 4. Payment of Expenses..............................................................................19
(a) Expenses............................................................................................19
(b) Termination of Agreement............................................................................19
SECTION 5. Conditions of U.S. Underwriters' Obligations.....................................................20
(a) Effectiveness of Registration Statement.............................................................20
(b) Opinion of Counsel for Company......................................................................20
(c) Opinion of Counsel for U.S. Underwriters............................................................20
(d) Company Officers' Certificate.......................................................................21
(e) Parent Officers' Certificate........................................................................21
(f) Accountant's Comfort Letter.........................................................................21
(g) Bring-down Comfort Letter...........................................................................21
(h) Approval of Listing.................................................................................21
(i) No Objection........................................................................................21
(j) Lock-up Agreement...................................................................................22
(k) Certain Agreements.................................................................................22
(l) Purchase of Initial International Securities........................................................22
(m) Additional Documents...............................................................................22
(n) Conditions to Purchase of U.S. Option Securities....................................................22
(i) Company Officers' Certificate................................................................22
(ii) Parent Officers' Certificate................................................................22
(iii) Opinion of Counsel for Company.............................................................23
(iv) Opinion of Counsel for U.S. Underwriters....................................................23
(v) Bring-down Comfort Letter....................................................................23
(o) Termination of Agreement............................................................................23
SECTION 6. Indemnification..................................................................................23
- ii -
4
(a) Indemnification of U.S. Underwriters................................................................23
(b) Indemnification of Company, Directors and Officers..................................................24
(c) Actions against Parties; Notification...............................................................25
(d) Settlement without Consent if Failure to Reimburse..................................................25
(e) Indemnification for Reserved Securities.............................................................25
SECTION 7. Contribution.....................................................................................26
SECTION 8. Representations, Warranties and Agreements to Survive Delivery...................................27
SECTION 9. Termination Agreement............................................................................27
(a) Termination; General................................................................................27
(b) Liabilities.........................................................................................28
SECTION 10. Default by One or More of the U.S. Underwriters.................................................28
SECTION 11. Notices.........................................................................................28
SECTION 12. Parties.........................................................................................29
SECTION 13 Governing Law and Time...........................................................................29
SECTION 14 Effect of Headings...............................................................................29
SCHEDULES
SCHEDULE A - LIST OF UNDERWRITERS.........................................................SCH A-1
SCHEDULE B - PRICING INFORMATION..........................................................SCH B-1
EXHIBITS A-1
EXHIBIT A - FORM OF OPINION OF COMPANY'S COUNSEL.............................................A-1
EXHIBIT B - FORM OF LOCK-UP LETTER............................................................B-1
- iii -
5
REPUBLIC SERVICES, INC.
A Delaware corporation
Shares of Class A Common Stock
Par Value $0.01 Per Share
U.S. PURCHASE AGREEMENT
-----------------------
June ____, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Deutsche Bank Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Republic Services, Inc., a Delaware corporation (the "Company") and
Republic Industries, Inc., a Delaware corporation ("Parent"), confirm their
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other U.S. Underwriters named in
Schedule A hereto (collectively, the "U.S. Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Deutsche Bank Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation are acting as representatives (in such
capacity, the "U.S. Representatives"), with respect to (i) the issue and sale by
the Company and the purchase by the U.S Underwriters, acting severally and not
jointly, of the respective numbers of shares of Class A Common Stock, par value
$0.01 per share, of the Company ("Common Stock") set forth in Schedule A hereto,
and (ii) the grant by the Company to the U.S. Underwriters, acting severally and
not jointly, of the option described in Section 2(b) hereof to purchase all or
any part of 6,120,000 additional shares of Common Stock solely to cover
over-allotments, if any. The aforesaid 40,800,000 shares of Common Stock (the
"Initial U.S. Securities") to be purchased by
6
the U.S. Underwriters and all or any part of the 6,120,000 shares of Common
Stock subject to the option described in Section 2(b) hereof (the "U.S. Option
Securities") are hereinafter called, collectively, the "U.S. Securities."
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of 10,200,000 shares
of Common Stock (the "Initial International Securities") through arrangements
with certain underwriters outside the United States and Canada (the
"International Managers") for which Merrill Lynch International, Deutsche Bank
AG London and Donaldson, Lufkin & Jenrette International are acting as lead
managers (the "Lead Managers") and the grant by the Company to the International
Managers, acting severally and not jointly, of an option to purchase all or any
part of the International Managers' pro rata portion of up to 1,530,000
additional shares of Common Stock solely to cover over-allotments, if any (the
"International Option Securities" and, together with the U.S. Option Securities,
the "Option Securities"). The Initial International Securities and the
International Option Securities are hereinafter called the "International
Securities." It is understood that the Company is not obligated to sell and the
U.S. Underwriters are not obligated to purchase, any Initial U.S. Securities
unless all of the Initial International Securities are contemporaneously
purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities," and the U.S. Securities, and the International Securities
are hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch (in such capacity, the "Global
Coordinator").
The Company understands that the U.S. Underwriters propose to make a
public offering of the U.S. Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
The Company and the U.S. Underwriters agree that up to 2,550,000 shares
of the Initial U.S. Securities to be purchased by the U.S. Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to certain
eligible employees and persons having business relationships with the Company,
as part of the distribution of the Securities by the Underwriters, subject to
the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. (the
"NASD") and all other applicable laws, rules and regulations. To the extent that
such Reserved Securities are not orally confirmed for purchase by such eligible
employees and persons having business relationships with the Company by the end
of the first business day after the date of this Agreement, such Reserved
Securities may be offered to the public as part of the public offering
contemplated hereby.
- 2 -
7
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-52505) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of U.S. Prospectus is identical to the Form
of International Prospectus, except for their respective front cover pages,
"Underwriting" sections and back cover pages. The information included in any
such prospectus or in any such Term Sheet, as the case may be, that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became effective
(a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of U.S. Prospectus and Form of International
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus in the forms first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated June 15, 1998 and preliminary
International Prospectus dated June 15, 1998, respectively, each together with
the applicable Term Sheet and all references in this Agreement to the date of
such Prospectuses shall mean the date of the applicable Term Sheet. For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each U.S. Underwriter as of the date hereof, as of
the Closing Time referred to in
- 3 -
8
Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in
Section 2(b), hereof and agrees with each U.S. Underwriter, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
the Prospectuses, any preliminary prospectuses and any supplement
thereto or prospectus wrapper prepared in connection therewith, at
their respective times of issuance and at the Closing Time, complied
and will comply in all material respects with any applicable laws or
regulations of foreign jurisdictions in which the Prospectuses and such
preliminary prospectuses, as amended or supplemented, if applicable,
are distributed in connection with the offer and sale of Reserved
Securities. Neither the Prospectuses nor any amendments or supplements
thereto, at the time the Prospectuses or any amendments or supplements
thereto were issued and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectuses shall not be "materially
different," as such term is used in Rule 434, from the prospectuses
included in the Registration Statement at the time it became effective.
The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the U.S.
Representatives or the Lead Managers expressly for use in the
Registration Statement or the Prospectuses.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the
- 4 -
9
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The financial statements included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statement of operations and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved. The supporting schedules included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data
and the summary financial information included in the Prospectuses
present fairly the information shown therein and have been compiled on
a basis consistent with that of the audited financial statements
included in the Registration Statement. The pro forma financial
statements and the related notes thereto included in the Registration
Statement and the Prospectuses present fairly the information shown
therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have
been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses or as proposed to be
conducted and to enter into and perform its obligations under this
Agreement; and the
- 5 -
10
Company is duly qualified as a foreign corporation to transact business
and is in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(vi) GOOD STANDING OF SUBSIDIARIES. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each a "Subsidiary" and collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation or limited liability company, as the case may be, in good
standing under the laws of the jurisdiction of its organization, has
the corporate or limited liability company power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified as a foreign
corporation or limited liability company, as the case may be, to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock
or limited liability interests of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through Subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock or limited
liability interests of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
The only subsidiaries of the Company are (a) the subsidiaries listed on
Exhibit 21.1 to the Registration Statement and (b) certain other
subsidiaries which, considered in the aggregate as a single subsidiary,
do not constitute a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X.
(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses under
the caption "Description of Capital Stock" (except for subsequent
issuances, if any, pursuant to this Agreement or the International
Purchase Agreement, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses or pursuant to the
exercise of convertible securities, warrants or options referred to in
the Prospectuses). The shares of issued and outstanding capital stock
of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive
or other similar rights of any securityholder of the Company.
(viii) AUTHORIZATION OF AGREEMENT. This Agreement and the
International Purchase Agreement have been duly authorized, executed
and delivered by the Company.
(ix) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The
Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for
issuance and sale to the U.S. Underwriters pursuant to this
- 6 -
11
Agreement and the International Managers pursuant to the International
Purchase Agreement, respectively, and, when issued and delivered by the
Company pursuant to the Agreement and the International Purchase
Agreement, respectively, against payment of the consideration set forth
herein and in the International Purchase Agreement, respectively, will
be validly issued, fully paid and non-assessable; the Common Stock
conforms to all statements relating thereto contained in the
Prospectuses and such description conforms to the rights set forth in
the instruments defining the same; no holder of the Securities will be
subject to personal liability by reason of being such a holder; and the
issuance of the Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(x) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement, the International Purchase
Agreement, the Separation and Distribution Agreement between the
Company and Parent, dated as of ______, 1998 (the "Separation and
Distribution Agreement"), the Tax Indemnification and Allocation
Agreement between the Company and Parent, dated as of ______, 1998 (the
"Tax Indemnification and Allocation Agreement"), the Services Agreement
between the Company and Parent, dated as of ______, 1998 (the "Services
Agreement") and the Employee Benefits Agreement between the Company and
Parent, dated as of _____, 1998 (the "Employee Benefits Agreement")
(the Separation and Distribution Agreement, the Tax Indemnification and
Allocation Agreement, the Services Agreement and the Employee Benefits
Agreement being collectively referred to herein as the "Intercompany
Agreements") and the consummation of the transactions contemplated
thereby, and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use of
Proceeds") and compliance by the Company with its obligations under
this Agreement, the International Purchase Agreement and the
Intercompany Agreements have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their assets,
- 7 -
12
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company, Parent or any of
their respective subsidiaries.
(xi) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in any case, may reasonably be expected to result
in a Material Adverse Effect.
(xii) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company, Parent or any of their respective subsidiaries, which is
required to be disclosed in the Registration Statement (other than as
disclosed therein), or which might reasonably be expected to result in
a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement and the
International Purchase Agreement or the performance by the Company of
its obligations hereunder or thereunder; the aggregate of all pending
legal or governmental proceedings to which the Company or any
subsidiary is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
(xiii) ACCURACY OF EXHIBITS. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which
have not been so described and filed as required.
(xiv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
- 8 -
13
(xv) ABSENCE OF FURTHER REQUIREMENTS. No filing with,
or authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement and the International
Purchase Agreement or the consummation of the transactions contemplated
by this Agreement and the International Purchase Agreement or in
connection with the Intercompany Agreements, except (i) such as have
been already obtained or as may be required under the 1933 Act or the
1933 Act Regulations and foreign or state securities or blue sky laws
and (ii) such as have been obtained under the laws and regulations of
jurisdictions outside the United States in which the Reserved
Securities are offered.
(xvi) POSSESSION OF LICENSES AND PERMITS. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) TITLE TO PROPERTY. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectuses or (b) do
not, singly or in the aggregate, materially affect the value of such
property as currently used or intended to be used and do not interfere
with the use made and proposed to be made of such property by the
Company or any of its subsidiaries; and all of the leases and subleases
material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectuses, are in
full force and effect, and neither the Company nor any subsidiary has
any notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xviii) COMPLIANCE WITH CUBA ACT. The Company has complied
with, and is and will be in compliance with, the provisions of that
certain Florida act relating to disclosure
- 9 -
14
of doing business with Cuba, codified as Section 517.075 of the Florida
statutes, and the rules and regulations thereunder (collectively, the
"Cuba Act") or is exempt therefrom.
(xix) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectuses will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xx) ENVIRONMENTAL LAWS. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings pending or, to the best of the
Company's knowledge, threatened relating to any Environmental Law
against the Company or any of its subsidiaries and (D) to the best of
the Company's knowledge, there are no events or circumstances that
might reasonably be expected to form the basis of an order for clean-up
or remediation, or an action, suit or proceeding by any private party
or governmental body or agency, against or affecting the Company or any
of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xxi) REGISTRATION RIGHTS. Except as disclosed in the
Prospectuses, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement, or otherwise registered by the Company under
the 1933 Act.
(xxii) INCOME TAXES. All United States federal income tax
returns of the Company and its subsidiaries required by law to be filed
have been filed (taking into account extensions granted by the
applicable federal governmental agency) and all taxes shown by such
returns or otherwise assessed, which are due and payable, have been
paid, except for such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided. All other
corporate franchise and income tax returns of the Company and its
subsidiaries required to be filed pursuant to applicable
- 10 -
15
foreign, state or local law have been filed, except insofar as the
failure to file such returns would not individually or in the aggregate
have a Material Adverse Effect, and all taxes shown on such returns or
otherwise assessed which are due and payable have been paid, except for
such taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided. The charges, accruals and
reserves on the books of the Company in respect of any income and
corporation tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional
income tax for any years not finally determined, except to the extent
of any inadequacy that would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered
together as one enterprise.
(xxiii) INTERNAL CONTROLS. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with GAAP and to maintain accountability for assets; (C)
access to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any material
differences.
(xxiv) INSURANCE. The Company and its subsidiaries carry or
are entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts and covering such risks as is
generally maintained by companies of established repute engaged in the
same or similar business, and all such insurance is in full force and
effect.
(xxv) OFFERING MATERIAL. The Company has not distributed and,
prior to the later to occur of (i) the Closing Time and (ii) completion
of the distribution of the Securities, will not distribute any offering
material in connection with the offering and sale of the Securities
other than the Registration Statement, any preliminary prospectuses,
the Prospectuses or other materials, if any, permitted by the 1933 Act
and approved by the Global Coordinator.
(xxvi) RELATED PARTY TRANSACTIONS. There are no business
relationships or related party transactions of the nature described in
Item 404 of Regulation S-K involving the Company and any person
described in such Item that are required to be disclosed in the
Registration Statement and which have not been so disclosed.
(xxvii) SOLVENCY. Immediately prior to the Company's dividend
to Parent of all of the issued and outstanding capital stock of
Republic Resources Company, Inc. ("Resources") the Company was, and
immediately after the Closing Time the Company will be, Solvent. As
used herein, the term "Solvent" means, with respect to the Company on a
particular date, that on such date (A) the fair market value of the
assets of the Company is greater than the total amount of liabilities
(including contingent liabilities) of the Company, (B) the present fair
salable value of the assets of
- 11 -
16
the Company is greater than the amount that will be required to pay the
probable liabilities of the Company on its debts as they become
absolute and matured, (C) the Company is able to realize upon its
assets and pay its debts and other liabilities, including contingent
obligations, as they mature, and (D) the Company does not have
unreasonably small capital.
(xxviii) AGREEMENTS RELATED TO THE DISTRIBUTION. The Company
and its subsidiaries have all necessary corporate power and authority
to execute, deliver and perform their respective obligations under the
Intercompany Agreements; and such Intercompany Agreements have been
duly authorized by the Company and its subsidiaries, will be
substantially in the form heretofore delivered to you and, when
executed and delivered by the Company and its subsidiaries and assuming
due execution by Parent, will constitute a valid and binding obligation
of the Company and its subsidiaries, enforceable against the Company
and its subsidiaries in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting
enforcement of creditors' rights generally or by principles of equity;
and at the Closing Time, the Company and its subsidiaries shall have
duly executed and delivered such Agreements.
(b) REPRESENTATIONS AND WARRANTIES BY PARENT. Parent represents and
warrants to each U.S. Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b), hereof and agrees with each U.S. Underwriter as
follows:
(i) INFORMATION IN REGISTRATION STATEMENT. At the respective
times the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendments thereto became effective
and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements
thereto did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. Neither the
Prospectuses nor any amendments or supplements thereto, at the time the
Prospectuses or any amendments or supplements thereto were issued and
at the Closing Time (and, if any U.S. Option Securities are purchased,
at the Date of Delivery), included or will include an untrue statement
of a material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(ii) ABSENCE OF DEFAULTS AND CONFLICTS. Neither Parent nor any
of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which Parent or any of its subsidiaries is a party or
by which it or any of them may be bound, or to which any of the
property or assets of Parent or any subsidiary is subject
(collectively, "Parent Agreements and Instruments") except for such
- 12 -
17
defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement, the
International Purchase Agreement and the Intercompany Agreements and
the consummation of the transactions contemplated thereby, and in the
Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities
as described in the Prospectuses under the caption "Use of Proceeds")
and compliance by Parent with its obligations under this Agreement, the
International Purchase Agreement and the Intercompany Agreements have
been duly authorized by all necessary corporate action and do not and
will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default or
Repayment Event under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of Parent or
any subsidiary pursuant to, the Parent Agreements and Instruments
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse Effect), nor
will such action result in any violation of the provisions of the
charter or by-laws of Parent or any subsidiary or any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over Parent or any subsidiary or any of their
assets, properties or operations.
(iii) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by Parent of its
obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement and the International
Purchase Agreement or the consummation of the transactions contemplated
by this Agreement and the International Purchase Agreement or in
connection with the Intercompany Agreements, except (i) such as have
been already obtained or as may be required under the 1933 Act or the
1933 Act Regulations and foreign or state securities or blue sky laws
and (ii) such as have been obtained under the laws and regulations of
jurisdictions outside the United States in which the Reserved
Securities are offered.
(iv) AGREEMENTS RELATED TO THE DISTRIBUTION. Parent and its
subsidiaries, have all necessary corporate power and authority to
execute, deliver and perform their respective obligations under the
Intercompany Agreements; and such Intercompany Agreements have been
duly authorized by Parent and its subsidiaries, will be substantially
in the form heretofore delivered to you and, when executed and
delivered by Parent and its subsidiaries and assuming due execution by
the Company, will constitute a valid and binding obligation of Parent
and its subsidiaries, enforceable against Parent and its subsidiaries
in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting enforcement of creditors' rights generally or
by principles of equity; and at the Closing Time, Parent and its
subsidiaries shall have duly executed and delivered such Agreements.
- 13 -
18
(v) DIVIDENDS TO PARENT. The Company's dividends to Parent of
(a) all of the issued and outstanding capital stock of Resources and
(b) $2 billion paid by the issuance of unsecured promissory notes due
April 12, 1999, were each declared and paid by the Company out of the
Company's surplus or profits, as the case may be, in compliance with
Section 170 of the Delaware General Corporation Law.
(vi) ABSENCE OF TAXABLE DISTRIBUTION. Pursuant to Section 355
of the Internal Revenue Code of 1986, as amended, no gain or loss was
recognized to (and no amount was included in the income of) Parent or
any its subsidiaries, including, without limitation the Company and
Resources, upon the distribution of all of the issued and outstanding
capital stock of Resources to Parent.
(vii) INCOME TAXES. All United States federal income tax
returns of the affiliated group of which the Company and its
subsidiaries are members and Parent is the common parent (the
"Affiliated Group") required by law to be filed have been filed and all
taxes shown by such returns, or which are otherwise due and payable by
the Company and its subsidiaries, have been paid, except tax
assessments, if any, as are being contested in good faith and as to
which adequate reserves have been provided. Except as disclosed in the
Prospectuses, all other franchise and income tax returns of each member
of the Affiliated Group required to be filed pursuant to applicable
foreign, state or local law have been filed, except insofar as the
failure to file such returns would not have a Material Adverse Effect,
and all taxes shown on such returns or which otherwise are due and
payable have been paid, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. The charges, accruals and reserves on the books of the
Company and its subsidiaries in respect of any income and corporate
franchise tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional
income or corporate franchise tax for any years not finally determined,
except as disclosed in the Prospectuses and except to the extent of any
inadequacy that would not have a Material Adverse Effect. Neither the
Company nor any of its subsidiaries (i) has been a member of an
affiliated group filing consolidated federal income tax returns, other
than the Affiliated Group, or (ii) as of the Closing Time will be a
party to any tax sharing or similar agreement, other than the Tax
Indemnification and Allocation Agreement.
(c) OFFICER'S CERTIFICATES. Any certificate signed by any officer of
the Company, Parent or any of the Company's subsidiaries delivered to the Global
Coordinator, the U.S. Representatives, or to counsel for the U.S. Underwriters
shall be deemed a representation and warranty by the Company or Parent, as the
case may be, to each U.S. Underwriter as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each U.S. Underwriter, severally and not
- 14 -
19
jointly, and each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Company, at the price per share set forth in Schedule B, the
number of Initial U.S. Securities set forth in Schedule A opposite the name of
such U.S. Underwriter, plus any additional number of Initial U.S. Securities
which such U.S. Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the U.S. Underwriters,
severally and not jointly, to purchase up to an additional 6,120,000 shares of
Common Stock at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial U.S. Securities but not payable on the U.S. Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Company setting forth the number of U.S. Option Securities as
to which the several U.S. Underwriters are then exercising the option and the
time and date of payment and delivery for such U.S. Option Securities. Any such
time and date of delivery for the Option Securities (a "Date of Delivery") shall
be determined by the Global Coordinator, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the U.S. Option Securities, each of the U.S. Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
U.S. Option Securities then being purchased which the number of Initial U.S.
Securities set forth in Schedule A opposite the name of such U.S. Underwriter
bears to the total number of Initial U.S. Securities, subject in each case to
such adjustments as the Global Coordinator in its discretion shall make to
eliminate any sales or purchases of fractional shares.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Akerman, Senterfitt & Eidson, P.A., One Southeast Third Avenue, Miami, Florida,
33131-1704, or at such other place as shall be agreed upon by the Global
Coordinator and the Company, at 9:00 A.M. (Eastern time) on the third (fourth,
if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business
day after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Global Coordinator and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities
are purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representatives for
- 15 -
20
the respective accounts of the U.S. Underwriters of certificates for the U.S.
Securities to be purchased by them. It is understood that each U.S. Underwriter
has authorized the U.S. Representatives, for its account, to accept delivery of,
receipt for, and make payment of the purchase price for, the Initial U.S.
Securities and the U.S. Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the U.S.
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial U.S. Securities or the U.S. Option Securities, if any, to
be purchased by any U.S. Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such U.S. Underwriter from its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
U.S. Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator as soon as practicable, and confirm the notice
in writing, (i) when any post-effective amendment to the Registration
Statement shall become effective, or any supplement to the Prospectuses
or any amended Prospectuses shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectuses or for additional
information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities
for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Company
will promptly effect the filings necessary pursuant to Rule 424(b) and
will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule 424(b)
was received for filing by the Commission and, in the event that it was
not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement
- 16 -
21
(including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in
the Registration Statement at the time it became effective or to the
Prospectuses, will furnish the Global Coordinator with copies of any
such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the Global Coordinator or counsel for the U.S.
Underwriters shall reasonably object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has
furnished or will deliver to the U.S. Representatives and counsel for
the U.S. Underwriters, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates
of experts, and will also deliver to the U.S. Representatives, without
charge, a conformed copy of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) for each of the
U.S. Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the U.S. Underwriters will be identical
to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to
each U.S. Underwriter, without charge, as many copies of each
preliminary prospectus as such U.S. Underwriter reasonably requested,
and the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will furnish to each U.S.
Underwriter, without charge, during the period when the U.S. Prospectus
is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the
U.S. Prospectus (as amended or supplemented) as such U.S. Underwriter
may reasonably request. The U.S. Prospectus and any amendments or
supplements thereto furnished to the U.S. Underwriters will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement, the International Purchase Agreement
and in the Prospectuses. If at any time when a prospectus is required
by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result
of which it is necessary, in the opinion of counsel for the U.S.
Underwriters or for the Company, to amend the Registration Statement or
amend or supplement any Prospectus in order that the Prospectuses will
not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion
of such counsel, at any such time to amend the Registration Statement
or amend or supplement any Prospectus in order to comply with the
requirements of the 1933 Act or the 1933 Act Regulations, the Company
will promptly
- 17 -
22
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectuses
comply with such requirements, and the Company will furnish to the U.S.
Underwriters such number of copies of such amendment or supplement as
the U.S. Underwriters may reasonably request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best
efforts, in cooperation with the U.S. Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Global Coordinator may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds."
(i) LISTING. The Company will use its best efforts to effect
the listing of the Common Stock (including the Securities) on the New
York Stock Exchange (the "NYSE").
(j) RESTRICTION ON SALE OF SECURITIES. During a period of 90
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or
dispose of any share of Common Stock or the Company's Class B Common
Stock, par value $0.01 per share (the "Class B Common Stock") or any
securities convertible into or exercisable or exchangeable for Common
Stock and/or Class B Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock and/or the Class B Common
- 18 -
23
Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of such Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to (a) the Securities to be sold hereunder or under the
International Purchase Agreement, (b) shares of Common Stock issued to
a third party as consideration for the Company's acquisition from such
third party of a non-hazardous solid waste business, (c) options to
purchase shares of Common Stock granted under the Company's 1998 Stock
Option Plan or (d) shares of Common Stock and/or Class B Common Stock
issued and sold to Parent in connection with (A) the prepayment of the
Affiliate Payable, the Resources Notes Payable and the remaining
amounts outstanding of the Company Notes as described in the
Prospectuses or (B) shares of Common Stock issued to Parent as
consideration for the Company's acquisition from Parent of a
non-hazardous solid waste business.
(k) REPORTING REQUIREMENTS. The Company, during the period
when the Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
(l) COMPLIANCE WITH NASD RULES. The Company hereby agrees that
it will ensure that the Reserved Securities will be restricted as
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date
of this Agreement. The Underwriters will notify the Company as to which
persons will need to be so restricted. At the request of the
Underwriters, the Company will direct the transfer agent to place a
stop transfer restriction upon such securities for such period of time.
Should the Company release, or seek to release, from such restrictions
any of the Reserved Securities, the Company agrees to reimburse the
Underwriters for any reasonable expenses (including without limitation,
legal expenses) they incur in connection with such release.
- 19 -
24
SECTION 4. PAYMENT OF EXPENSES. (a) EXPENSES. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters and the
transfer of the Securities between the U.S. Underwriters and the International
Managers, (iv) the fees and disbursements of the Company's counsel, accountants
and other advisors, (v) the qualification of the Securities under securities
laws in accordance with the provisions of Section 3(f) hereof, including filing
fees and the reasonable fees and disbursements of counsel for the Underwriters
in connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities, (x) the
fees and expenses incurred in connection with the listing of the Securities on
the NYSE and (xi) all costs and expenses of the Underwriters, including the fees
and disbursements of counsel for the Underwriters, in connection with matters
related to the Reserved Securities which are designated by the Company for sale
to eligible employees and others having a business relationship with the
Company.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the U.S. Underwriters.
SECTION 5. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS. The
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any
subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder, and
to the following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the U.S. Underwriters. A prospectus
containing the Rule 430A Information shall have been filed
- 20 -
25
with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the U.S.
Representatives shall have received the opinion, dated as of Closing
Time, of Akerman, Senterfitt & Eidson, P.A., counsel for the Company,
in form and substance reasonably satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters to the effect set forth in
Exhibit A hereto and to such further effect as counsel to the U.S.
Underwriters may reasonably request, based upon events occurring or
information discovered after the date hereof.
(c) OPINION OF COUNSEL FOR U.S. UNDERWRITERS. At Closing Time,
the U.S. Representatives shall have received the favorable opinion,
dated as of Closing Time, of Fried, Frank, Harris, Shriver & Jacobson,
counsel for the U.S. Underwriters, together with signed or reproduced
copies of such letter for each of the other U.S. Underwriters with
respect to the matters pertaining to the Company set forth in clauses
(i), (ii), (v), (vi) (solely as to preemptive or other similar rights
arising by operation of law or under the charter or by-laws of the
Company), (viii) through (x), inclusive, (xi), (xiii) (solely as to the
information in the Prospectus under "Description of Capital
Stock--Common Stock") and the matters set forth in the penultimate
paragraph of Exhibit A hereto. In giving such opinion such counsel may
rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York and the federal law of the United
States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the U.S. Representatives which
may include counsel to the Company. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to
the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.
(d) COMPANY OFFICERS' CERTIFICATE. At Closing Time, there
shall not have been, since the date hereof or since the respective
dates as of which information is given in the Prospectuses, any
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business, and the U.S. Representatives shall
have received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same
force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of
the Registration Statement has been issued and
- 21 -
26
no proceedings for that purpose have been instituted or are pending or,
to the knowledge of such officers, are contemplated by the Commission.
(e) PARENT OFFICERS' CERTIFICATE. At Closing Time the U.S.
Representatives shall have received a certificate of the President or a
Vice President of Parent, dated as of Closing Time, to the effect that
(i) the representations and warranties in Section 1(b) hereof are true
and correct with the same force and effect as though expressly made at
and as of Closing Time, and (ii) Parent has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time.
(f) ACCOUNTANT'S COMFORT LETTER. At the time of the execution
of this Agreement, the U.S. Representatives shall have received from
Arthur Andersen LLP a letter dated such date, in form and substance
satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other U.S.
Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the
Prospectuses.
(g) BRING-DOWN COMFORT LETTER. At Closing Time, the U.S.
Representatives shall have received from Arthur Andersen LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (f) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(h) APPROVAL OF LISTING. At Closing Time, the Securities shall
have been approved for listing on the NYSE, subject only to official
notice of issuance.
(i) NO OBJECTION. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(j) LOCK-UP AGREEMENTS. At the date of this Agreement, the
U.S. Representatives shall have received an agreement substantially in
the form of Exhibit B hereto signed by Parent.
(k) CERTAIN AGREEMENTS. Each of the Separation and
Distribution Agreement, the Tax Indemnification and Allocation
Agreement, the Services Agreement and the Employee Benefits Agreement,
shall have been entered into by Parent and for the Company, as the case
may be, and shall be in full force and effect at Closing Time and each
condition in each of the Intercompany Agreements required to be
satisfied at or prior to Closing Time shall have been satisfied at or
prior to Closing Time.
(l) PURCHASE OF INITIAL INTERNATIONAL SECURITIES.
Contemporaneously with the purchase by the U.S. Underwriters of the
Initial U.S. Securities under this Agreement, the
- 22 -
27
International Managers shall have purchased the Initial International
Securities under the International Purchase Agreement.
(m) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company
in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the U.S.
Representatives and counsel for the U.S. Underwriters.
(n) CONDITIONS TO PURCHASE OF U.S. OPTION SECURITIES. In the
event that the U.S. Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the U.S. Option
Securities, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Company
or any subsidiary of the Company hereunder shall be true and correct as
of each Date of Delivery and, at the relevant Date of Delivery, the
U.S. Representatives shall have received:
(i) COMPANY OFFICERS' CERTIFICATE. A certificate, dated
such Date of Delivery, of the President or a Vice
President of the Company and of the chief financial
or chief accounting officer of the Company confirming
that the certificate delivered at the Closing Time
pursuant to Section 5(d) hereof remains true and
correct as of such Date of Delivery.
(ii) PARENT OFFICERS' CERTIFICATE. A certificate, dated
such Date of Delivery, of the President or a Vice
President of Parent confirming that the certificate
delivered at the Closing Time pursuant to Section
5(e) hereof remains true and correct as of such Date
of Delivery.
(ii) OPINION OF COUNSEL FOR COMPANY. The opinion of
Akerman, Senterfitt & Eidson, P.A., counsel for the
Company, in form and substance reasonably
satisfactory to counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iv) OPINION OF COUNSEL FOR U.S. UNDERWRITERS. The
favorable opinion of Fried, Frank, Harris, Shriver &
Jacobson, counsel for the U.S. Underwriters, dated
such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
- 23 -
28
(v) BRING-DOWN COMFORT LETTER. A letter from Arthur
Andersen LLP, in form and substance satisfactory to
the U.S. Representatives and dated such Date of
Delivery, substantially in the same form and
substance as the letter furnished to the U.S.
Representatives pursuant to Section 5(g) hereof,
except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date
not more than five days prior to such Date of
Delivery.
(o) TERMINATION OF AGREEMENT. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of U.S. Option Securities on a Date of Delivery which is after
the Closing Time, the obligations of the several U.S. Underwriters to
purchase the relevant Option Securities, may be terminated by the U.S.
Representatives by notice to the Company at any time at or prior to
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF U.S. UNDERWRITERS. The Company agrees to
indemnify and hold harmless each U.S. Underwriter and each person, if any, who
controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of
any applicable laws or regulations of foreign jurisdictions where
Reserved Securities have been offered and (B) any untrue statement or
alleged untrue statement of a material fact included in the supplement
or prospectus wrapper material distributed in Canada and the United
Kingdom in connection with the reservation and sale of the Reserved
Securities to eligible directors, officers, employees, business
associates and related persons of the Company or the omission or
alleged omission therefrom of a material fact necessary to make the
statements therein, when considered in conjunction with the
Prospectuses or preliminary prospectuses, not misleading.
- 24 -
29
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission or in
connection with any violation of the nature referred to in Section
6(a)(ii)(A) hereof; provided that (subject to Section 6(d) below) any
such settlement is effected with the written consent of the Company;
and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission or any such
alleged untrue statement or omission, or in connection with any
violation of the nature referred to in Section 6(a)(ii)(A) hereof, to
the extent that any such expense is not paid under (i), (ii) or (iii)
above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
U.S. Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the U.S. Prospectus (or any amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the
- 25 -
30
extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b)
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a) (iii) or (iv) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
(e) INDEMNIFICATION FOR RESERVED SECURITIES. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request, in writing to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of eligible directors, officers, employees,
business associates and related persons of the Company to pay for and accept
delivery of Reserved Securities which, by the end of the first business day
following the date of this Agreement, were subject to a properly confirmed
agreement to purchase.
- 26 -
31
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the U.S. Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the U.S
Underwriters on the other hand in connection with the statements or omissions,
or in connection with any violation of the nature referred to in Section
6(a)(ii)(A) hereof, which resulted in such losses, liabilities, claims, damages
or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
U.S. Underwriters on the other hand in connection with the offering of the U.S.
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the U.S.
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.
The relative fault of the Company on the one hand and the U.S.
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission or any violation of the nature referred to in Section
6(a)(ii)(A) hereof.
The Company and the U.S. Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the U.S. Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the
- 27 -
32
amount of any damages which such U.S. Underwriter has otherwise been required to
pay by reason of any such untrue or alleged untrue statement or omission or
alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The U.S.
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the U.S. Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The U.S. Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission, or the NYSE,
or if trading generally on the American Stock Exchange or the NYSE or in the
Nasdaq National Market has been suspended or materially limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York authorities.
- 28 -
33
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE U.S. UNDERWRITERS. If one or
more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of U.S. Securities to be purchased on such date, each of
the non-defaulting U.S. Underwriters shall be obligated, severally and
not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of U.S. Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the U.S. Underwriters to purchase and of the
Company to sell the Option Securities to be purchased and sold on such
Date of Delivery shall terminate without liability on the part of any
non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
U.S. Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term " U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section 10.
SECTION 11. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of [ ]; with a
copy to Valerie Ford Jacob, Esq., Fried, Frank, Harris, Shriver & Jacobson, One
New York Plaza, New York, New York 10004; and notices to the Company shall
- 29 -
34
be directed to it at Republic Services, Inc., 110 S.E. Sixth Street, Fort
Lauderdale, Florida 33301, attention of David A. Barclay, General Counsel; with
a copy to Jonathan L. Awner, Esq., Akerman, Senterfitt & Eidson, P.A., One S.E.
Third Avenue, Miami, Florida 33131.
SECTION 12. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the U.S. Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any U.S.
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
- 30 -
35
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the U.S. Underwriters, the Company and Parent in accordance with its
terms.
Very truly yours,
REPUBLIC INDUSTRIES, INC.
By
-----------------------------
Title:
REPUBLIC SERVICES, INC.
By
-----------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEUTSCHE BANK SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
--------------------------------------
Authorized Signatory
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A hereto
- 31 -
1
EXHIBIT 3.1
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
REPUBLIC SERVICES, INC.
The name of the Corporation (which is hereinafter referred to as the
"Corporation") is "Republic Services, Inc."
The original certificate of incorporation was filed with the Secretary
of State of the State of Delaware on December 20, 1996, under the name "Republic
Waste Companies Holding Co."
This Amended and Restated Certificate of Incorporation (the
"Certificate") has been duly proposed by resolutions adopted and declared
advisable by the Board of Directors of the Corporation, duly adopted by the sole
stockholder of the Corporation and duly executed and acknowledged by the
officers of the Corporation in accordance with Sections 103, 242 and 245 of the
General Corporation Law of the State of Delaware (the "DGCL").
The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated in its entirety to read as follows:
ARTICLE I
NAME
The name of the corporation is: "Republic Services, Inc."
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
DGCL.
2
ARTICLE IV
CAPITAL STOCK
SECTION 1. GENERAL.
(a) Immediately upon the effectiveness of this Certificate,
the total number of shares of stock which the Corporation shall have
authority to issue will be 800,000,000, consisting of 750,000,000
shares of Common Stock, par value $.01 per share (the "Common Stock"),
and 50,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"). The Common Stock of the Corporation shall be
divided into two classes, consisting of Class A Common Stock and Class
B Common Stock, which shall be designated by the Board as Class A
Common Stock or Class B Common Stock at the time of issuance in
accordance with Section 2(b) hereof. The Preferred Stock may be issued
in one or more series having such designations as may be fixed by the
Board of Directors (the "Board").
(b) Immediately upon the effectiveness of this Certificate,
each share of unclassified common stock of the Corporation, par value
$.01 per share, that is issued and outstanding immediately prior to
such effectiveness, shall automatically be changed into and
reclassified as [101,046,225] shares of Class B Common Stock.
SECTION 2. COMMON STOCK.
(a) ISSUANCE AND CONSIDERATION. Any unissued or treasury
shares of the Common Stock may be issued for such consideration as may
be fixed in accordance with applicable law from time to time by the
Board of Directors.
(b) DESIGNATION. Of the 750,000,000 authorized shares of
Common Stock of the Corporation, 250,000,000 shares are initially
designated as shares of Class A Common Stock, 125,000,000 shares are
initially designated as shares of Class B Common Stock and 375,000,000
shares are not yet designated. The number of shares designated as Class
A Common Stock or Class B Common Stock may be increased or decreased
from time to time by a resolution or resolutions adopted by the Board
or any duly authorized committee thereof and in accordance with
provisions herein below without the consent of the holders of any
outstanding shares of Common Stock or Preferred Stock. Except as
otherwise set forth below in this Article IV, the powers, preferences
and relative participating, optional or other special rights and
qualifications, limitations or restrictions of the Class A Common Stock
and Class B Common Stock shall be identical in all respects. Every
reference in this Certificate to a majority or other proportion of
shares of Common Stock, Class A Common Stock or Class B Common Stock
with respect to approval or voting, shall refer to such majority or
other proportion of the votes to which such shares of Common Stock,
Class A Common Stock or Class B Common Stock, as the case may be, are
entitled.
2
3
(c) CONVERSION PRIOR TO THE DISTRIBUTION. Prior to the
Distribution (as defined below), shares of Class B Common Stock shall
be convertible into shares of Class A Common Stock as follows:
(1) OPTIONAL CONVERSION. The Initial Holder (as
defined below) of shares of Class B Common Stock shall be
entitled, at any time or from time to time, to convert all or
any portion of its shares of Class B Common Stock into shares
of Class A Common Stock on a one-for-one basis. In this
Certificate, the term "Initial Holder" means Republic
Industries, Inc., a Delaware corporation.
(2) AUTOMATIC CONVERSION.
(i) Any shares of Class B Common Stock
transferred by the Initial Holder or any
of its subsidiaries to any person, other
than the Initial Holder or any of its
subsidiaries, shall automatically convert
into shares of Class A Common Stock on a
one-for-one basis, except for the
distribution of Class B Common Stock to
stockholders of the Initial Holder as part
of the Distribution. In this Certificate,
the term "Distribution" means the
distribution of all shares of Common Stock
held by the Initial Holder as a dividend
to the stockholders of the Initial Holder
on a tax-free basis under Section 355 of
the Internal Revenue Code of 1986, as
amended (the "Code"), pursuant to a
private letter ruling from the Internal
Revenue Service satisfactory to the
Initial Holder (the "Letter Ruling").
(ii) All shares of Class B Common Stock shall
also automatically convert into shares of
Class A Common Stock on a one-for-one
basis if the number of outstanding shares
of Class B Common Stock falls below 20% of
the aggregate number of outstanding shares
of Common Stock.
(d) CONVERSION FOLLOWING THE DISTRIBUTION. Following the
Distribution, shares of Class B Common Stock shall be convertible into
shares of Class A Common Stock and shares of Class A Common Stock shall
be convertible into shares of Class B Common Stock as follows:
(1) OPTIONAL CONVERSION. Following the Distribution,
(i) shares of Class A Common Stock will be convertible, at the
option of the holder thereof on a one-for-one basis into
shares of Class B Common Stock on the date on which any person
or group of persons other than the Initial Holder or any of
its subsidiaries (the "Offeror") makes an offer, which the
Board deems to be a bona fide offer, to the
3
4
holders of Class B Common Stock to purchase 20% or more of the
issued and outstanding shares of such Class B Common Stock for
cash or securities or other property without making a similar
offer for shares of the Class A Common Stock, unless prior to
the date of the Distribution (the "Distribution Date"), the
Initial Holder delivers to the Corporation an opinion of
counsel reasonably satisfactory to the Corporation to the
effect that such conversion right would adversely affect the
Initial Holder's ability to obtain the Letter Ruling and (ii)
shares of Class B Common Stock will be convertible, at the
option of the holder thereof on a one-for-one basis into
shares of Class A Common Stock on the date on which any person
or group of persons other than the Initial Holder or any of
its subsidiaries makes an offer, which the Board deems to be a
bona fide offer, to purchase 20% or more of the issued and
outstanding shares of such Class A Common Stock for cash or
securities or other property without making a similar offer
for shares of the Class B Common Stock, unless prior to the
Distribution Date, the Initial Holder delivers to the
Corporation an opinion of counsel reasonably satisfactory to
the Corporation to the effect that such conversion right would
adversely affect the Initial Holder's ability to obtain the
Letter Ruling. The Corporation will provide notice in writing
to all holders of Common Stock of any offer referred to in the
foregoing clauses (i) and (ii). Such notice shall be provided
by mailing notice of such offer, first class postage prepaid,
to each holder of the class of Common Stock then entitled to
be converted, at such holder's address as it appears on the
transfer books of the Corporation. The shares of Common Stock
of one class may only be so converted to the other class
during the period in which such bona fide offer is in effect.
Any shares of Common Stock so converted and not acquired by
the Offeror prior to the termination, rescission or completion
of the offer will automatically reconvert to shares of the
class from which it was converted upon such termination,
rescission or completion.
(2) AUTOMATIC CONVERSION.
(i) Shares of Class B Common Stock shall
automatically convert into shares of Class
A Common Stock on a one-for-one basis on
the fifth anniversary of the Distribution
Date, unless prior to the Distribution
Date, the Initial Holder delivers to the
Corporation an opinion of counsel
reasonably satisfactory to the Corporation
to the effect that such automatic
conversion would adversely affect the
Initial Holder's ability to obtain the
Letter Ruling. If such opinion is
received, approval of such conversion
shall be submitted to a vote of the
holders of the Common Stock as soon as
practicable after the fifth anniversary of
the Distribution Date, unless the Initial
Holder delivers to the Corporation an
opinion of counsel reasonably satisfactory
to the Corporation prior to such fifth
anniversary that such vote would adversely
affect the tax-free status of the
4
5
Distribution. Approval of such conversion
shall require the affirmative vote of the
holders of a majority of the shares of
both the Class A Common Stock and Class B
Common Stock present in person or by
proxy, voting together as a single class,
with each share entitled to one vote for
such purpose.
(ii) In addition, following the Distribution,
if any person or persons acting together
as a group acquires 20% or more of the
outstanding shares of Class B Common
Stock, all shares of Class B Common Stock
held by such person or group shall
automatically be converted into shares of
Class A Common Stock on a one-for-one
basis, unless prior to the Distribution
Date, Parent delivers to the Corporation
an opinion of counsel reasonably
satisfactory to the Corporation to the
effect that such automatic conversion
would adversely affect the Initial
Holder's ability to obtain the Letter
Ruling.
(e) CONVERSION PROCEDURES.
(1) RESERVATION OF SHARES. The Corporation shall at
all times reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued
Common Stock for the purpose of effecting any conversion of
the Common Stock pursuant to Sections 2(c) and 2(d), such
number of shares of Common Stock deliverable upon any such
conversion.
(2) NOTICE. The Corporation shall provide notice of
any automatic conversion of shares of Common Stock to holders
of record thereof not less than 30 nor more than 60 days prior
to the date fixed for such conversion; PROVIDED, HOWEVER, that
if the timing or nature of the effectiveness of an automatic
conversion makes it impracticable to provide at least 30 days'
notice, the Corporation shall provide such notice as soon as
practicable. Such notice shall be provided by mailing notice
of such conversion first class postage prepaid, to each holder
of record of the Common Stock, at such holder's address as it
appears on the transfer books of the Corporation; provided,
however, that no failure to give such notice nor any defect
therein shall affect the validity of the automatic conversion
of any such shares of Common Stock. Each such notice shall
state, as appropriate, the following:
(i) the automatic conversion date;
(ii) the number of outstanding shares of
Common Stock that are to be
converted automatically;
5
6
(iii) the place or places where
certificates for such shares are to
be surrendered for conversion; and
(iv) that upon conversion, no dividends
will be declared on the shares of
Common Stock so converted following
such conversion date.
(3) RIGHTS UPON CONVERSION. Immediately upon
conversion, the rights of the holders of shares of Class A
Common Stock or Class B Common Stock, as the case may be,
shall cease and such holders shall be treated for all purposes
as having become the record owners of such shares of the class
of Common Stock issuable upon such conversion; provided,
however, that such persons shall be entitled to receive when
paid any dividends declared on the Class A Common Stock or
Class B Common Stock, as the case may be, as of a record date
preceding the time of such conversion and unpaid as of the
time of such conversion.
(4) SURRENDER OF CERTIFICATES FOR CONVERSION. Any
conversion pursuant to Sections 2(c) and 2(d) hereof may be
effected at the office of the Corporation or any transfer
agent for the Common Stock and at such other place or places,
if any, as the Board may designate. Upon conversion pursuant
to Sections 2(c) and 2(d) hereof, the Corporation shall make
no payment or adjustment on account of dividends accrued or in
arrears on Common Stock surrendered for conversion or on
account of any dividends on Common Stock issuable on such
conversion. Before any holder of Common Stock shall be
entitled to convert the same into any other class of stock
pursuant to Sections 2(c) and 2(d) hereof, such holder shall
surrender the certificate or certificates for such Common
Stock at the office of said transfer agent (or other place as
provided above). Such certificate(s), if the Corporation shall
so request, shall be duly endorsed to the Corporation or in
blank or accompanied by proper instruments of transfer to the
Corporation or in blank (such endorsements or instruments of
transfer to be in form satisfactory to the Corporation).
In addition, if any holder elects to convert shares
of Common Stock pursuant to Section 2(c)(1) or 2(d)(1) hereof,
the certificates surrendered by such holder shall also be
accompanied by a written notice to the Corporation at said
office stating that such holder elects to convert all or a
specified number of the shares of the Common Stock represented
by such certificate(s) in accordance with such Section and
stating the name(s) in which such holder desires the
certificate(s) representing the stock to be issued. In the
case of an election to convert pursuant to Section 2(d)(1),
such written notice shall also state the name(s) of the
Offeror making the offer entitling such holder to convert such
Common Stock.
6
7
(5) DELIVERY OF CONVERTED STOCK CERTIFICATES. As
promptly as practicable after the time of conversion, upon the
delivery to the Corporation of certificates formerly
representing shares of Class A Common Stock or Class B Common
Stock, as the case may be, the Corporation shall deliver or
cause to be delivered, to or upon the written order of the
record holder of such surrendered certificates, a certificate
or certificates representing the number of fully paid and
nonassessable shares of the class into which such shares were
converted in accordance with the provisions of Sections 2(c)
and 2(d) hereof.
(6) RECONVERSION LEGEND. Any certificate of Common
Stock issued in connection with a conversion pursuant to
Section 2(d)(1) hereof shall bear a legend substantially to
the effect that any share of Common Stock so converted but not
acquired by the Offeror prior to the termination, rescission
or completion of the offer will automatically reconvert to a
share of the class from which it was so converted upon such
termination, rescission or completion.
(7) TAXES ON CONVERSION. The Corporation will pay any
and all documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of shares of one
class of Common Stock on the conversion of shares of the other
class of Common Stock pursuant to Sections 2(d)(1) and
2(d)(2); provided, however, that the Corporation shall not be
required to pay any tax which may be payable in respect of any
registration of transfer involved in the issue or delivery of
shares of one class of Common Stock in a name other than that
of the registered holder of the other class of Common Stock
converted, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to
the satisfaction of the Corporation, that such tax has been
paid.
(f) VOTING. Holders of Class A Common Stock shall be entitled
to one vote per share while holders of Class B Common Stock shall be
entitled to five votes per share on all matters submitted to a vote of
the stockholders, including the election of directors; provided,
however, that with respect to any proposed conversion of the shares of
Class B Common Stock into shares of Class A Common Stock that is
submitted to a vote of the holders of the Common Stock pursuant to
Section 2(d)(2)(i), every holder of a share of Common Stock,
irrespective of class, shall have one vote in person or by proxy for
each share of Common Stock standing in his or her name on the transfer
books of the Corporation. Except as otherwise required by law or this
Article IV, Section 2(f) or provided in any resolution adopted by the
Board with respect to any series of Preferred Stock, the holders of
Common Stock will possess all voting power and the holders of Class A
Common Stock and Class B Common Stock shall vote together as a single
class. Except as otherwise provided by law, and subject to any voting
rights granted holders of any Preferred Stock, amendments to the
Certificate must be approved by a majority of the votes entitled to be
cast by all outstanding shares of Class A Common Stock and Class B
Common Stock, voting together as a single
7
8
class, PROVIDED, HOWEVER, amendments to the Certificate that would
alter or change the powers, preferences or special rights of the Class
A Common Stock or Class B Common Stock so as to affect them adversely
must also be approved by a majority of the outstanding shares of the
class that is adversely affected by such amendment, voting as a
separate class.
(g) DIVIDENDS. Subject to any preferential rights of any
outstanding series of Preferred Stock created by the Board from time to
time, the holders of shares of Class A Common Stock and Class B Common
Stock shall be entitled to such cash dividends as may be declared from
time to time by the Board from funds available therefor which dividends
are not required to be declared on both classes, PROVIDED that holders
of shares of Class A Common Stock shall be entitled to receive an equal
pro rata share of any amounts received by holders of shares of Class B
Common Stock. In addition, in connection with any stock dividend that
may be declared by the Board from time to time, holders of Class A
Common Stock shall be entitled to receive such dividend only in shares
of Class A Common Stock while holders of Class B Common Stock shall be
entitled to receive such dividend either in shares of Class A Common
Stock or in shares of Class B Common Stock as may be determined by the
Board. Neither the shares of Class A Common Stock nor the shares of
Class B Common Stock may be reclassified, subdivided or combined unless
such reclassification, subdivision or combination occurs simultaneously
and in the same proportion for each class.
(h) LIQUIDATION. Subject to any preferential rights of any
outstanding series of Preferred Stock created from time to time by the
Board, upon liquidation, dissolution or winding up of the Corporation,
the holders of shares of Class A Common Stock and Class B Common Stock
shall be entitled to receive pro rata all assets of the Corporation
available for distribution to such holders.
(i) OTHER RIGHTS. In the event of any merger or consolidation
of the Corporation with or into another company in connection with the
which shares of Common Stock are converted into or exchangeable for
shares of stock, other securities or property (including cash), all
holders of Common Stock, regardless of class, will be entitled to
receive the same kind and amount of shares of stock and other
securities and property (including cash).
SECTION 3. PREFERRED STOCK. The Preferred Stock may be issued from time
to time in one or more series. The Board is hereby authorized to provide for the
issuance of shares of Preferred Stock in series and, by filing a certificate of
designations pursuant to the DGCL (hereinafter referred to as a "Preferred Stock
Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, privileges,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board with respect to
each series shall include, but not be limited to, determination of the
following:
8
9
(a) the designation of the series, which may be by
distinguishing number, letter or title;
(b) the number of shares of the series, which number the Board
may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares
thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or
noncumulative, and, in the case of shares of any series having
cumulative dividend rights, the date or dates or method of determining
the date or dates from which dividends on the shares of such series
shall be cumulative;
(d) the rate of any dividends (or method of determining such
dividends) payable to the holders of the shares of such series, any
conditions upon which such dividends shall be paid and the date or
dates or the method for determining the date or dates upon which such
dividends shall be payable;
(e) the price or prices (or method of determining such price
or prices) at which, the form of payment of such price or prices (which
may be cash, property or rights, including securities of the same or
another corporation or other entity) for which, the period or periods
within which and the terms and conditions upon which the shares of such
series may be redeemed, in whole or in part, at the option of the
Corporation or at the option of the holder or holders thereof or upon
the happening of a specified event or events, if any;
(f) the obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or otherwise
and the price or prices at which, the form of payment of such price or
prices (which may be cash, property or rights, including securities of
the same or another corporation or other entity) for which, the period
or periods within which and the terms and conditions upon which the
shares of such series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(g) the amount payable out of the assets of the Corporation to
the holders of shares of the series in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation;
(h) provisions, if any, for the conversion or exchange of the
shares of such series, at any time or times at the option of the holder
or holders thereof or at the option of the Corporation or upon the
happening of a specified event or events, into shares of any other
class or classes or any other series of the same or any other class or
classes of stock, or any other security, of the Corporation, or any
other corporation or other entity, and the price or prices or rate or
rates of conversion or exchange and any adjustments applicable thereto,
and all other terms and conditions upon which such conversion or
exchange may be made;
9
10
(i) restrictions on the issuance of shares of the same series
or of any other class or series, if any; and
(j) the voting rights, if any, of the holders of shares of the
series.
ARTICLE V
BOARD OF DIRECTORS
The Board of Directors shall consist of one or more members. The number
of directors shall be fixed by, or in the manner provided in, the Bylaws. At the
first annual meeting of stockholders and at each annual meeting of stockholders
thereafter, the respective terms of all of the directors then serving in office
shall expire at the meeting, and successors to the directors shall be elected to
hold office until the next succeeding annual meeting. Existing directors may be
nominated for election each year for a successive term, in the manner provided
in the Bylaws. Each director shall hold office for the term for which such
director is elected and qualified or until the successor of such director shall
have been elected and qualified or until his earlier resignation, removal from
office or death. Except as may otherwise be provided in this Certificate or in
the Bylaws of the Corporation, as the same may be amended from time to time, the
Board of Directors shall have all powers and authority which may be granted to a
board of directors of a corporation under the DGCL, including but not limited to
the following:
(a) to adopt, amend or repeal the Bylaws of the Corporation;
(b) to authorize and cause to be executed mortgages and liens
upon the real and personal property of the Corporation;
(c) to set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose
and to abolish any such reserve in the manner in which it was created;
(d) to designate one or more committees;
(e) to sell, lease or exchange all or substantially all of the
property and assets of the Corporation, including its goodwill and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money of
property including shares of stock in, and/or other securities of, any
other corporation or corporations, as the Board of Directors shall deem
expedient and for the best interest of the Corporation, when and as
authorized by the shareholders entitled to vote thereon;
(f) to provide indemnification for directors, officers,
employees, and/or agents of the Corporation to the fullest extent
permitted by law, subject however, to the rules against limitation on
liability of directors as set forth in the DGCL, as amended form time
to time; and
10
11
(g) to determine from time to time whether and to what extent,
and at what times and places and under what conditions and regulations,
the accounts and books of the Corporation or any of them, shall be
opened to the inspection of the stockholders, and no stockholder shall
have any right to inspect any account or book or document of the
Corporation, except as conferred by the DGCL or authorized by the Board
of Directors, or by a resolution of the stockholders.
ARTICLE VI
LIMITED LIABILITY; INDEMNIFICATION
SECTION 1. LIMITED LIABILITY OF DIRECTORS. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except, if required by the DGCL, as amended from time to time, for liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. Neither the amendment nor repeal of Section 1 of this
Article VI shall eliminate or reduce the effect of Section 1 of this Article VI
in respect of any matter occurring, or any cause of action, suit or claim that,
but for Section 1 of this Article VI would accrue or arise, prior to such
amendment or repeal.
SECTION 2. INDEMNIFICATION AND INSURANCE.
(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that
such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding
is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the DGCL, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss reasonably incurred or suffered by such
person in connection therewith.
(b) PAYMENT OF EXPENSES. The right to indemnification
conferred in this Section shall be a contract right and shall include
the right to have the Corporation pay the expenses incurred in
defending any such proceeding in advance of its final disposition; any
advance payments shall be paid by the Corporation within 20 calendar
days after the receipt by the
11
12
Corporation of a statement or statements from the claimant requesting
such advance or advances from time to time. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant
rights to indemnification, and rights to have the Corporation pay the
expenses incurred in defending any proceeding in advance of its final
disposition, to any employee or agent of the Corporation to the fullest
extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers
of the Corporation.
(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the payment of expenses incurred in defending a proceeding in
advance of its final disposition conferred in this Section shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of this Certificate, bylaw,
agreement, vote of stockholders or disinterested directors or
otherwise. No repeal or modification of this Article shall in any way
diminish or adversely affect the rights of any director, officer,
employee or agent of the Corporation hereunder in respect of any
occurrence or matter arising prior to any such repeal or modification.
(d) INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the DGCL.
(e) SEVERABILITY. If any provision or provisions of this
Article VI shall be held to be invalid, illegal or unenforceable for
any reason whatsoever: (1) the validity, legality and enforceability of
the remaining provisions of this Article VI (including, without
limitation, each portion of any paragraph of this Article VI containing
any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Article VI (including, without
limitation, each such portion of any paragraph of this Article VI
containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
12
13
IN WITNESS WHEREOF, said Republic Services, Inc. has caused this
Amended and Restated Certificate of Incorporation to be signed by
and attested by its
this day of ____________,1998.
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
ATTEST:
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
13
1
EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED
BYLAWS
OF
REPUBLIC SERVICES, INC.
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of Republic
Services, Inc., a Delaware corporation (the "Corporation"), shall be located at
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
SECTION 1.2 OFFICES. The Corporation may establish or discontinue, from
time to time, such other offices and places of business within or without the
State of Delaware as the Board of Directors deems proper for the conduct of the
Corporation's business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. An annual meeting of stockholders for the
purpose of electing directors and transacting such other business as may come
before it shall be held at such place, within or without the State of Delaware,
on such date and at such time as shall be designated by the Board of Directors
or the President.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of stockholders, unless
otherwise prescribed by statute, may be called by the Board of Directors or by
the President. Business transacted at any special meeting of the stockholders
shall be limited to the purposes stated in the notice.
SECTION 2.3 NOTICE OF MEETINGS. Written notice of each meeting of
stockholders shall be given to each stockholder of record entitled to vote at
the meeting at the stockholder's address as it appears on the stock books of the
Corporation. The notice shall state the time and the place of the
2
meeting and shall be given not less than ten (10) nor more than sixty (60) days
before the day of the meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. In
the case of a special meeting, the notice shall state the purpose or purposes
for which the meeting is being called. Whenever notice is required to be given
hereunder, a written waiver of notice signed by the stockholder entitled to
notice, whether before or after the time stated in the notice, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting except when a person attends for the express
purpose of objecting, at the beginning of the meeting, to the transaction or any
business because the meeting is not lawfully called or convened.
SECTION 2.4 QUORUM AND ADJOURNMENT. The presence, in person or by
proxy, of the holders of a majority of the voting power of the outstanding
shares of stock entitled to vote on every matter that is to be voted on, without
regard to class or series, shall constitute a quorum at all meetings of the
stockholders. In the absence of a quorum, the holders of a majority of the
voting power of such shares of stock present in person or by proxy may adjourn
such meeting, from time to time, without notice other than announcement at the
meeting (unless otherwise required by law), until a quorum shall attend. At any
meeting reconvened after such adjournment at which a quorum may be present, any
business may be transacted which might have been transacted at the meeting as
originally called, but only those stockholders entitled to vote at the meeting
as originally called shall be entitled to vote at any reconvened meeting, unless
a new record date for such meeting is fixed.
SECTION 2.5 OFFICERS AT STOCKHOLDERS' MEETINGS. The Chairman of the
Board of Directors shall preside at all meetings of stockholders. In his
absence, the chairman shall be elected as the first order of business by the
holders of a majority of the shares of stock in attendance and entitled to vote
at the meeting.
SECTION 2.6 LIST OF STOCKHOLDERS ENTITLED TO VOTE. At least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder, shall be prepared by or for the Secretary and shall be open to
the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
Such list shall be available for inspection at the meeting.
SECTION 2.7 FIXING DATE FOR STOCKHOLDERS OF RECORD. In order that the
Corporation may identify the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which
- 2 -
3
shall not be less than ten (10) days nor more than sixty (60) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice of the
meeting is given, or if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held. The record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business or any officer or agent of the Corporation
having custody of the minute books of the Corporation. The record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 2.8 VOTING AND PROXIES. Subject to the provisions for fixing
the date for stockholders of record:
(a) Except as otherwise specified in the Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation"), each
stockholder shall at every meeting of the stockholders be entitled to one vote
for each share of stock held by that stockholder having voting rights as to the
matter being voted upon.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for that
stockholder by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy expressly provides for a longer period.
(c) Each matter properly presented to any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the voting power of the shares of stock present in person or by
proxy and entitled to vote on the matter.
SECTION 2.9 INSPECTORS OF ELECTION. The Corporation shall, in advance
of any meeting of stockholders, appoint one or more inspectors of election, who
may be employees of the Corporation, to act at the meeting or any adjournment
thereof and to make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. In the event that no inspector so appointed or designated is able to act at
a meeting of stockholders, the person presiding at the meeting shall appoint one
or more inspectors to act at the meeting. Each inspector, before entering upon
the discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspector or inspectors so appointed or
designated shall (i) ascertain the number of shares of capital stock of the
Corporation outstanding and the voting power of each such share, (ii) determine
the shares of capital stock of the Corporation represented at the meeting
- 3 -
4
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares of capital stock of the Corporation
represented at the meeting and such inspectors' count of all votes and ballots.
Such certification and report shall specify such other information as may be
required by law. In determining the validity and counting of proxies and ballots
cast at any meeting of stockholders of the Corporation, the inspectors may
consider such information as is permitted by applicable law. No person who is a
candidate for an office at an election may serve as an inspector at such
election.
SECTION 2.10 CONDUCT OF MEETINGS. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors of the Corporation may adopt by resolution such
rules and regulations for the conduct of the meeting of stockholders as it shall
deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the Corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for commencement thereof; and (v) limitations on the time allotted to questions
or comments by participants. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
SECTION 2.11 CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action
that may be taken at any annual or special meeting of stockholders may be taken
without a meeting, without a prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the stockholders having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of such action without a
meeting by less than unanimous written consent shall be given to each
stockholder who did not consent thereto in writing.
ARTICLE III
DIRECTORS
SECTION 3.1 NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. The number of directors that
- 4 -
5
shall constitute the whole Board shall be fixed from time to time by resolution
of the stockholders or the Board of Directors and shall consist of not more than
twelve (12) members. At the first annual meeting of stockholders and at each
annual meeting of stockholders thereafter, the respective terms of all of the
directors then serving in office shall expire at the meeting, and successors to
the directors shall be elected to hold office until the next succeeding annual
meeting. Existing directors may be nominated for election each year for a
successive term, in the manner provided in these Amended and Restated Bylaws
(the "Bylaws"). Each director shall hold office for the term for which he is
elected and qualified or until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death. The
Board of Directors may from time to time establish minimum qualifications for
eligibility to become a director. Those qualifications may include, but shall
not be limited to, a prerequisite stock ownership in the Corporation.
SECTION 3.2 PLACE OF MEETINGS. Meetings of the Board of Directors may
be held at any place, within or without the State of Delaware, from time to time
as designated by the Chairman of the Board or by the body or person calling such
meeting.
SECTION 3.3 ANNUAL MEETINGS. As soon as practicable after each annual
meeting of stockholders and without further notice, the directors elected at
such meeting shall hold the annual meeting of the Board of Directors at the
place at which such meeting of stockholders took place, provided a majority of
the whole Board of Directors is present. If such a majority is not present, such
meeting may be held at any other time or place which may be specified in a
notice given in the manner provided for special meetings of the Board of
Directors or in a waiver of notice thereof.
SECTION 3.4 REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times as may be determined by the Board of
Directors. No notice shall be required for any regular meeting.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the Chief Executive
Officer or the President. Notice of any special meeting shall be mailed to each
director at that director's residence or usual place of business not later than
three (3) days before the day on which the meeting is to be held, or shall be
given to that director by telegraph, telecopier or other method of electronic
transmission, by overnight express mail service, personally, or by telephone,
not later than twenty-four (24) hours before the time of such meeting. Notice of
any meeting of the Board of Directors need not be given to any director if that
director signs a written waiver thereof either before or after the time stated
therein. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except when the director attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 3.6 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
such committee, as the case may be, consent thereto
- 5 -
6
in writing, and the writing or writings are filed with the minutes of the Board
of Directors or of such committee.
SECTION 3.7 PRESIDING OFFICER AND SECRETARY AT MEETINGS. Each meeting
of the Board of Directors shall be presided over by the Chairman of the Board of
Directors, or in his or her absence, by the Vice Chairman of the Board, the
Chief Executive Officer or the President, in that order, and if none is present,
then by such member of the Board of Directors as shall be chosen at the meeting.
SECTION 3.8 QUORUM. A majority of the total authorized number of
directors shall constitute a quorum for the transaction of business. In the
absence of a quorum, a majority of those present (or if only one be present,
then that one) may adjourn the meeting, without notice other than announcement
at the meeting, until such time as a quorum is present. The vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
SECTION 3.9 MEETING BY TELEPHONE. Members of the Board of Directors or
of any committee thereof may participate in a meeting of the Board of Directors
or of such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Such participation shall constitute presence in person at such
meeting.
SECTION 3.10 COMPENSATION. Directors shall receive such compensation
and expense reimbursements for their services as directors or as members of
committees as set by the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 3.11 RESIGNATIONS. Any director, member of a committee or
officer of the Corporation may resign at any time by giving written notice
thereof to the Chairman of the Board or the President. Such resignation shall be
effective at the time of its receipt, unless a date certain is specified for it
to take effect. Acceptance of any resignation shall not be necessary to make it
effective.
SECTION 3.12 REMOVAL OF DIRECTORS. No director may be removed without
cause before the expiration of his or her term of office except by vote of the
stockholders at a meeting called for such a purpose.
SECTION 3.13 FILLING OF VACANCIES. In case of a vacancy created by an
increase in the number of directors or any vacancy created by death, removal, or
resignation, the vacancy or vacancies may be filled either (a) by the Board of
Directors, or (b) by the stockholders. In the case of a director appointed to
fill a vacancy created by an increase in the number of directors, the director
so appointed shall hold office for the term to which his predecessor was elected
or until his successor is elected. In the case of a director appointed to fill a
vacancy created by the death, removal or
- 6 -
7
resignation of a director, the newly appointed director shall hold office for
the term to which his predecessor was elected or until his successor is elected.
ARTICLE IV
COMMITTEES
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each such committee
to consist of one or more directors of the Corporation. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in such resolution or
resolutions and to the extent permitted by law, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to the following
matter: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the General Corporation Law of the state
of Delaware to be submitted to stockholders for approval or (ii) adopting,
amending or repealing the Bylaws of the Corporation.
ARTICLE V
THE OFFICERS
SECTION 5.1 DESIGNATION. The Corporation shall have such officers with
such titles and duties as set forth in these Bylaws or in a resolution of the
Board of Directors adopted on or after the effective date of these Bylaws.
SECTION 5.2 ELECTION AND QUALIFICATION. The officers of the Corporation
shall be elected by the Board of Directors and, if specifically determined by
the Board of Directors, may consist of a Chairman of the Board, Vice Chairman of
the Board, Chief Executive Officer, President, Chief Operating Officer, Chief
Financial Officer, one or more Vice Presidents, a Secretary, a Treasurer, one or
more Assistant Secretaries and Assistant Treasurers, and such other officers and
agents as the Board of Directors may deem advisable. None of the officers of the
Corporation need be directors.
SECTION 5.3 TERM OF OFFICE. Officers shall be chosen in such manner and
shall hold their office for such term as determined by the Board of Directors.
Each officer shall hold office from the time of his or her election and
qualification to the time at which his or her successor is elected and
qualified, or until his or her earlier resignation, removal or death.
- 7 -
8
SECTION 5.4 RESIGNATION. Any officer of the Corporation may resign at
any time by giving written notice of such resignation to the Chairman of the
Board of Directors or to the President. Any such resignation shall take effect
at the time specified therein or, if no time be specified, upon receipt thereof
by the Chairman of the Board of Directors or the President. The acceptance of
such resignation shall not be necessary to make it effective.
SECTION 5.5 REMOVAL. Any officer may be removed at any time, with or
without cause, by the Board of Directors.
SECTION 5.6 COMPENSATION. The compensation of each officer shall be
determined by the Board of Directors.
SECTION 5.7 THE CHAIRMAN AND THE VICE CHAIRMAN OF THE BOARD OF
DIRECTORS. Unless otherwise specifically determined by resolution by the Board
of Directors, the Chairman of the Board and the Vice Chairman of the Board shall
be officers of the Corporation. The Chairman of the Board shall, subject to the
direction and oversight of the Board, oversee the business plans and policies of
the Corporation, and shall oversee the implementation of those business plans
and policies. The Chairman shall report to the Board, shall preside at meetings
of the Board of Directors and of its Executive Committee, and shall have general
authority to execute bonds, deeds and contracts in the name of and on behalf of
the Corporation. In the absence or disability of the Chairman, the Vice Chairman
shall be vested with and shall perform all powers and duties of the Chairman.
SECTION 5.8 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall,
subject to the direction of the Board, establish and implement the business
plans, policies and procedures of the Corporation. The Chief Executive Officer
shall report to the Chairman of the Board, shall preside over meetings of the
Board in the absence of the Chairman or Vice Chairman of the Board, and shall
have general authority to execute bonds, deeds and contracts in the name of and
on behalf of the Corporation and in general to exercise all the powers generally
appertaining to the Chief Executive Officer of a corporation.
SECTION 5.9 PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL
OFFICER. The President, the Chief Operating Officer and the Chief Financial
Officer shall have such duties as shall be assigned to each from time to time by
the Chairman of the Board, the Chief Executive Officer and by the Board. During
the absence of the Chairman of the Board of the Vice Chairman of the Board or
during their inability to act, the President shall exercise the powers and shall
perform the duties of the Chairman of the Board, subject to the direction of the
Board of Directors.
SECTION 5.10 VICE PRESIDENT. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him or her by the Board of
Directors.
- 8 -
9
SECTION 5.11 SECRETARY. The Secretary shall attend meetings of the
Board of Directors and stockholders and record votes and minutes of such
proceedings, subject to the direction of the Chairman; assist in issuing calls
for meetings of stockholders and directors; keep the seal of the Corporation and
affix it to such instruments as may be required from time to time; keep the
stock transfer books and other books and records of the Corporation; act as
stock transfer agent for the Corporation; attest the Corporation's execution of
instruments when requested and appropriate; make such reports to the Board of
Directors as are properly requested; and perform such other duties incident to
the office of Secretary and those that may be otherwise assigned to the
Secretary from time to time by the President or the Chairman of the Board of
Directors.
SECTION 5.12 TREASURER. The Treasurer shall have custody of all
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit or disburse all moneys and other property in the name and to the
credit of the Corporation as may be designated by the President or the Board of
Directors. The Treasurer shall render to the President and the Board of
Directors at the regular meetings of the Board of Directors, or whenever they
may request it, an account of all his or her transactions as Treasurer and of
the financial condition of the Corporation. The Treasurer shall perform other
duties incident to the office of Treasurer as the President or the Board of
Directors shall from time to time designate.
SECTION 5.13 OTHER OFFICERS. Each other officer of the Corporation
shall have such powers and shall perform such duties as shall be assigned to him
or her by the Board of Directors.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER OF STOCK
AND REGISTERED STOCKHOLDERS
SECTION 6.1 STOCK CERTIFICATES. The interest of each holder of stock of
the Corporation shall be evidenced by a certificate or certificates signed by or
in the name of the Corporation by the Chairman of the Board of Directors, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the secretary or an Assistant Secretary of the Corporation certifying the
number of shares owned by the holder thereof in the Corporation. Any of or all
of the signatures on the certificate may be a facsimile. If any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, the certificate may be issued by
the Corporation with the same effect as if he/she were such officer, transfer
agent or registrar at the date of issuance.
SECTION 6.2 CLASSES/SERIES OF STOCK. The Corporation may issue one or
more classes of stock or one or more series of stock within any class thereof,
as stated and expressed in the Certificate of Incorporation or of any amendment
thereto, any or all of which classes may be stock with par value or stock
without par value. The powers, designations, preferences and relative,
- 9 -
10
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, in accordance with the General Corporation Law
of the State of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 6.3 TRANSFER OF STOCK. Subject to the transfer restrictions
permitted by Section 202 of the General Corporation Law of the State of Delaware
and to stop transfer orders directed in good faith by the Corporation to any
transfer agent to prevent possible violations of federal or state securities
laws, rules or regulations, the shares of stock of the Corporation shall be
transferable upon its books by the holders thereof in person or by their duly
authorized attorneys or legal representatives, and upon such transfer the old
certificates shall be surrendered to the Corporation by the delivery thereof to
the person in charge of the stock and transfer books and ledgers, or to such
other persons as the directors may designate, by whom they shall be cancelled,
and new certificates shall be issued. A record shall be made of each transfer
and whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.
SECTION 6.4 HOLDERS OF RECORD. Prior to due presentment for
registration of transfer, the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice of the contrary.
SECTION 6.5 LOST, STOLEN, DESTROYED, OR MUTILATED CERTIFICATES. A new
certificate of stock may be issued to replace a certificate theretofore issued
by the Corporation, alleged to have been lost, stolen, destroyed or mutilated,
and the Board of Directors or the President may require the owner of the lost or
destroyed certificate or his or her legal representatives, to give such sum as
they may direct to indemnify the Corporation against any expense or loss it may
incur on account of the alleged loss of any such certificate.
SECTION 6.6 DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation and applicable law, the directors may, out of funds legally
available therefor at any annual, regular, or special meeting, declare dividends
upon the capital stock of the Corporation as and when they deem expedient.
Dividends may be paid in cash, in property, or in shares of stock of the
Corporation. Before declaring any dividends there may be set apart out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time in their discretion deem proper working capital to
serve as a reserve fund to meet contingencies or as equalizing dividends or for
such other purposes as the directors shall deem in the best interest of the
Corporation.
- 10 -
11
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 7.2 CORPORATE SEAL. The corporate seal shall be in such form as
the Board of Directors may from time to time prescribe and the same may be used
by causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
SECTION 7.3 SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of the
remaining provisions hereof.
ARTICLE VIII
AMENDMENT OF BYLAWS
These Bylaws may be made, altered, or repealed, or new bylaws may be
adopted by the stockholders or the Board of Directors.
- 11 -
1
EXHIBIT 4.1
FORM OF
CLASS A COMMON STOCK CERTIFICATE
NUMBER SHARES
RSG
CLASS A REPUBLIC SERVICES, INC. CLASS A
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE CUSIP 760759 10 0
IN CHARLOTTE, NC AND NEW YORK, NY
THIS CERTIFIES THAT
SEE REVERSE
FOR CERTAIN
DEFINITIONS
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A COMMON STOCK,
PAR VALUE $.01, OF
===============================================================================
REPUBLIC SERVICES, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon this Certificate properly endorsed. This Certificate and the
shares evidenced hereby are issued under and shall be subject to all provisions
of the Certificate of Incorporation of the Corporation and any amendments
thereto, copies of which are on file with the Corporation and the Transfer
Agent, to all of which the holder by acceptance hereof, assents. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signature of
its duly authorized officers.
Dated:
/s/ Harris W. Hudson [SEAL] /s/ H. Wayne Huizenga
VICE CHAIRMAN AND SECRETARY REPUBLIC SERVICES, INC. CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CORPORATE SEAL 1996 DELAWARE
Countersigned and Registered:
FIRST UNION NATIONAL BANK
(CHARLOTTE, NC)
Transfer Agent
and Registrar
By
Authorized Signature
2
REPUBLIC SERVICES, INC.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE COMPANY
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-______ Custodian______
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JT TEN - as joint tenants with Minors Act____________
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
For value received,________________,hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated______________________________
____________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17AD-15.
1
EXHIBIT 5.1
AKERMAN, SENTERFITT & EIDSON, P.A.
ONE SOUTHEAST THIRD AVENUE
MIAMI, FLORIDA 33131
(305) 374-5600
June 29, 1998
Republic Services, Inc.
110 S.E. Sixth Street
Ft. Lauderdale, FL 33301
Gentlemen:
Republic Services, Inc., a Delaware corporation (the "Company"), has filed
with the Securities and Exchange Commission a Registration Statement on Form
S-1, as amended (Registration No. 333-52505) (the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Act"). Such Registration
Statement relates to the sale by the Company of up to 51,000,000 shares (the
"Shares") of the Company's Class A Common Stock, $0.01 par value per share. We
have acted as counsel to the Company in connection with the preparation and
filing of the Registration Statement.
In connection with the Registration Statement, we have examined, considered
and relied upon copies of the following documents: (i) the Company's Amended and
Restated Certificate of Incorporation, and the Company's Amended and Restated
Bylaws; (ii) resolutions of the Company's Board of Directors authorizing the
offering and the issuance of the Shares to be sold by the Company and related
matters; (iii) the Registration Statement and schedules and exhibits thereto;
and (iv) such other documents and instruments that we have deemed necessary for
the expression of the opinions herein contained. In making the foregoing
examinations we have assumed, without investigation, the genuineness of all
signatures and the authenticity of all documents submitted to us as originals,
the conformity to authentic original documents of all documents submitted to us
as copies, and the veracity of the documents. As to various questions of fact
material to the opinion expressed below, we have relied solely upon the
representations or certificates of officers and/or directors of the Company and
upon documents, records and instruments furnished to us by the Company, without
independently verifying the accuracy of such certificates, documents, records or
instruments.
Based upon the foregoing examination, and subject to the qualifications set
forth below, we are of the opinion that the Shares have been duly and validly
authorized and, when issued, delivered and paid for in accordance with the terms
of the Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement, will be validly issued, fully paid and non-assessable.
2
Although we have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there may exist matters of a legal nature involving the Company in which we have
not been consulted and have not represented the Company. We express no opinion
as to the laws of any jurisdiction other than the General Corporation Law of the
State of Delaware and the laws of the States of Florida. The opinions expressed
herein concern only the effect of the General Corporation Law of the State of
Delaware and of the laws (excluding the principles of conflict of laws) of the
State of Florida and as currently in effect. This opinion letter is limited to
the matters stated herein and no opinions may be implied or inferred beyond the
matters expressly stated herein. The opinions expressed herein are given as of
this date, and we assume no obligation to update or supplement our opinions to
reflect any facts or circumstances that may come to our attention or any change
in law that may occur or become effective at a later date.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Sincerely,
AKERMAN, SENTERFITT & EIDSON, P.A.
/s/ Akerman, Senterfitt & Eidson, P.A.
1
EXHIBIT 10.1
FORM OF
SEPARATION AND DISTRIBUTION AGREEMENT
THIS SEPARATION AND DISTRIBUTION AGREEMENT (this "Agreement"), dated as
of June ___, 1998 is by and among REPUBLIC INDUSTRIES, INC., a Delaware
corporation ("Parent"), and REPUBLIC SERVICES, INC., a Delaware corporation and
wholly owned subsidiary of Parent (the "Company"). Capitalized terms used herein
and not otherwise defined shall have the respective meanings assigned to them in
Article I hereof.
WHEREAS, the Board of Directors of Parent has determined that it is in
the best interests of Parent and its stockholders, pursuant to one overall
integrated plan, (i) to separate the Company, which comprises the Parent's solid
waste services businesses and operations (the "Solid Waste Services Business"),
from Parent's other services and operations (the "Separation"), (ii) to cause
the Company to consummate an initial public offering (the "IPO") of the
Company's common stock, and (iii) in connection with the IPO, to distribute to
Parent's stockholders on a tax-free basis all of the outstanding shares of the
Company's common stock owned by Parent at the time of such distribution (the
"Distribution"); and
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the Separation, the IPO and the
Distribution and certain other agreements that will govern certain matters
relating to such transactions and the relationship of Parent and the Company
following the consummation of such transactions.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1 "Action" means any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state, local,
foreign or international Governmental Authority or any arbitration or mediation
tribunal.
1.2 "Affiliate" of any Person means a Person that controls, is
controlled by, or is under common control with such Person. As used herein,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such entity, whether
through ownership of voting securities or other interests, by contract or
otherwise.
2
1.3 "Ancillary Agreements" means the Employee Benefits Agreement, the
Services Agreement, the Tax Indemnification and Allocation Agreement, the Lease
and such additional agreements between Parent and the Company and other related
documents as may be necessary to complete the Separation, the IPO and the
Distribution.
1.4 "Applicable Deadline" has the meaning set forth in Section 11.3(b).
1.5 "Arbitration Act" means the United States Arbitration Act, 9 U.S.C.
Sections 1-14, as the same may be amended from time to time.
1.6 "Arbitration Demand Notice" has the meaning set forth in Section
11.3(a).
1.7 "Assets" means assets, properties and rights (including goodwill),
wherever located (including in the possession of vendors or other third parties
or elsewhere), whether real, personal or mixed, tangible, intangible or
contingent, in each case whether or not recorded or reflected or required to be
recorded or reflected on the books and records or financial statements of any
Person, including the following:
(a) all accounting and other books, records and files whether
in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any
other form;
(b) all apparatus, computers and other electronic data
processing equipment, fixtures, machinery, equipment, furniture, office
equipment, automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles
and other transportation equipment, special and general tools, test devices,
prototypes and models and other tangible personal property;
(c) all inventories of materials, parts, raw materials,
supplies, work-in-process and finished goods and products;
(d) all interests in real property of whatever nature,
including easements, whether as owner, mortgagee or holder of a Security
Interest in real property, lessor, sublessor, lessee, sublessee or otherwise;
(e) all interests in any capital stock or other equity
interests of any Subsidiary or any other Person, all bonds, notes, debentures or
other securities issued by any Subsidiary or any other Person, all loans,
advances or other extensions of credit or capital contributions to any
Subsidiary or any other Person and all other investments in securities of any
Person;
(f) all license agreements, leases of personal property, open
purchase orders for raw materials, supplies, parts or services, unfilled orders
for the manufacture and sale of products and other contracts, agreements or
commitments;
2
3
(g) all deposits, letters of credit and performance and surety
bonds;
(h) all written technical information, data, specifications,
research and development information, engineering drawings, operating and
maintenance manuals, and materials and analyses prepared by consultants and
other third parties;
(i) all domestic and foreign copyrights, trade names,
trademarks, service marks and registrations and applications for any of the
foregoing, trade secrets, other proprietary information and licenses from third
Persons granting the right to use any of the foregoing;
(j) all computer applications, programs and other software,
including operating software, network software, systems documentation and
instructions;
(k) all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists, customer and
vender data, correspondence and lists, product literature, artwork, design,
development and manufacturing files, vendor and customer drawings, formulations
and specifications, quality records and reports and other books, records,
studies, surveys, reports, plans and documents;
(l) all prepaid expenses, trade accounts and other accounts
and notes receivables;
(m) all rights under contracts or agreements, all claims or
rights against any Person arising from the ownership of any Asset, all rights in
connection with any bids or offers and all claims, choses in action or similar
rights, whether accrued or contingent;
(n) all rights under insurance policies and all rights in the
nature of insurance, indemnification or contribution;
(o) all licenses (including radio and similar licenses),
permits, approvals and authorizations which have been issued by any Governmental
Authority;
(p) all cash or cash equivalents, bank accounts, lock boxes
and other deposit arrangements; and
(q) all interest rate, currency, commodity or other swap,
collar, cap or other hedging or similar agreements or arrangements.
1.8 "Class A Common Stock" means the Class A Common Stock of the
Company, $.01 par value per share, entitled to one vote per share.
1.9 "Class B Common Stock" means the Class B Common Stock of the
Company, $.01 par value per share, entitled to five votes per share.
3
4
1.10 "Code" means the Internal Revenue Code of 1986, as amended,
together with the rules and regulations promulgated thereunder.
1.11 "Commission" means the Securities and Exchange Commission.
1.12 "Consents" means any consents, waivers or approvals from, or
notification requirements to, any third parties.
1.13 "Company Assets" has the meaning set forth in Section 2.3.
1.14 "Company Balance Sheet" means the consolidated balance sheet of
the Company, including the notes thereto, as of March 31, 1998.
1.15 "Company Business" means: (a) the Solid Waste Services Business,
including without limitation, the business and operations of Parent and the
Company or Affiliates consisting principally of the solid waste collection and
disposal service to municipal, residential, commercial and industrial customers,
and the ownership and operation of transfer stations, materials recycling
facilities and solid waste landfills; and (b) any terminated, divested or
discontinued businesses or operations that at the time of termination,
divestiture or discontinuation primarily related to the Solid Waste Service
Business as then conducted.
1.16 "Company Common Stock" means collectively the Class A Common Stock
and Class B Common Stock.
1.17 "Company Contracts" means the following contracts and agreements
relating to the Company Business to which Parent or any of its Affiliates is a
party or by which it or any of its Affiliates or any of their respective Assets
is bound, whether or not in writing, except for any such contract or agreement
that is contemplated to be retained by Parent or any member of the Parent Group
pursuant to any provision of this Agreement or any Ancillary Agreement:
(a) any supply or vendor or customer contracts or agreements
entered into in the name of, or expressly on behalf of, any division, business
unit or member of the Company Group;
(b) any federal, state and local government and other contract
and agreement and any other government contract or agreement entered into in the
name of, or expressly on behalf of, any division, business unit or member of the
Company Group that relates primarily to the Company Business;
(c) any contract or agreement representing capital or
operating equipment lease obligations reflected on the Company Balance Sheet,
including obligations as lessee;
4
5
(d) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement or any of the Ancillary Agreements to be
assigned to the Company or any member of the Company Group; and
(e) any guarantee, indemnity, representation, warranty or
other Liability of any member of the Company Group or the Parent Group in
respect of any other Company Contract, any Company Liability or the Company
Business (including guarantees of financing incurred by customers or other third
parties in connection with purchases of products or services from the Company
Business).
1.18 "Company Group" means the Company, each Subsidiary of the Company
and each other Person that is controlled directly or indirectly by the Company
immediately after the Offerings Closing Date.
1.19 "Company Indemnitees" has the meaning set forth in Section 6.3.
1.20 "Company Liabilities" has the meaning set forth in Section 2.4.
1.21 "Distribution Agent" means the distribution agent to be appointed
by Parent to effect the Distribution.
1.22 "Distribution Date" means the date determined pursuant to Section
4.1 on which the Distribution occurs.
1.23 "Distribution Time" means 5:00 p.m., Eastern Standard Time or
Eastern Daylight Time (whichever shall be then in effect), on the Distribution
Date.
1.24 "Effective Date" means the date on which the Registration
Statement is declared effective by the Commission.
1.25 "Employee Benefits Agreement" means the Employee Benefits
Agreement, dated as of the date hereof, by and between Parent and the Company.
1.26 "Environmental Law" means any federal, state, local, foreign or
international law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, common law (including tort and environmental
nuisance law), legal doctrine, order, judgment, decree, injunction, requirement
or agreement with any Governmental Authority, now or hereafter in effect
relating to health, safety, pollution or the environment (including ambient air,
surface water, groundwater, land surface or subsurface strata) or to emissions,
discharges, releases or threatened releases of any substance currently or at any
time hereafter listed, defined, designated or classified as hazardous, toxic,
waste, radioactive or dangerous, or otherwise regulated, under any of the
foregoing, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any such substances,
including the Comprehensive Environmental
5
6
Response, Compensation and Liability Act, the Superfund Amendments and
Reauthorization Act and the Resource Conservation and Recovery Act and
comparable provisions in state, local, foreign or international law.
1.27 "Environmental Liabilities" means all Liabilities relating to,
arising out of or resulting from any Environmental Law or contract or agreement
relating to environmental, health or safety matters (including all removal,
remediation or cleanup costs, investigatory costs, governmental response costs,
natural resources damages, property damages, personal injury damages, costs of
compliance with any settlement, judgment or other determination of Liability and
indemnity, contribution or similar obligations) and all costs and expenses
(including allocated costs of in-house counsel and other personnel), interest,
fines, penalties or other monetary sanctions in connection therewith.
1.28 "Escalation Notice" has the meaning set forth in Section 11.2.
1.29 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
1.30 "Excluded Assets" has the meaning set forth in Section 2.3(b).
1.31 "Excluded Liabilities" has the meaning set forth in Section
2.4(b).
1.32 "Governmental Approvals" means any notices, reports or other
filings to be made, or any consents, registrations, approvals, permits or
authorizations to be obtained from, any Governmental Authority.
1.33 "Governmental Authority" shall mean any federal, state, local,
foreign or international court, government, department, commission, board,
bureau, agency, official or other regulatory, administrative or governmental
authority.
1.34 "Group" means any of the Parent Group or the Company Group, as the
context requires.
1.35 "Indemnifying Party" has the meaning set forth in Section 6.4(a).
1.36 "Indemnitee" has the meaning set forth in Section 6.4(a).
1.37 "Indemnity Payment" has the meaning set forth in Section 6.4(a).
1.38 "Information" means information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow
6
7
charts, data, computer data, disks, diskettes, tapes, computer programs or other
software, marketing plans, customer names, communications by or to attorneys
(including attorney-client privileged communications), memos and other materials
prepared by attorneys or under their direction (including attorney work
product), and other technical, financial, employee or business information or
data.
1.39 "Insurance Policies" means the insurance policies written by
insurance carriers unaffiliated with Parent pursuant to which the Company or one
or more of its Subsidiaries (or their respective officers or directors) will be
insured parties after the Offerings Closing Date.
1.40 "Insurance Proceeds" means those monies:
(a) received by an insured from an insurance carrier;
(b) paid by an insurance carrier on behalf of the insured; or
(c) received (including by way of set off) from any third
party in the nature of insurance, contribution or indemnification in respect of
any Liability; in any such case net of any applicable premium adjustments
(including deductibles, reserves and retrospectively rated premium adjustments)
and net of any costs or expenses (including allocated costs of in-house counsel
and other personnel) paid by such insured or incurred by such insured in the
collection thereof.
1.41 "Letter Ruling" means a private letter ruling from the Internal
Revenue Service in form and substance satisfactory to Parent to the effect,
among other things, that the Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Code.
1.42 "Lease" means the lease, dated as of the date hereof, between a
Subsidiary of the Parent and the Company for certain space located at 110 S.E.
6th Street, Ft. Lauderdale, FL.
1.43 "Liabilities" means any and all liabilities, including
Environmental Liabilities, OFLs, losses, claims, charges, debts, demands,
actions, causes of action, suits, damages, obligations, payments, costs and
expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities
and similar obligations, exonerations, covenants, contracts, controversies,
agreements, promises, doings, omissions, variances, guarantees, make whole
agreements and similar obligations, and other liabilities, including all
contractual obligations, whether absolute or contingent, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising, and including those arising under any law, rule, regulation, Action,
threatened or contemplated Action (including the costs and expenses of demands,
assessments, judgments, settlements and compromises relating thereto and
attorneys' fees and any and all costs and expenses (including allocated costs of
in-house counsel and other personnel), whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or threatened or
contemplated Actions), order or consent decree of any Governmental Authority or
any award of any arbitrator or mediator of any kind, and those arising under any
contract, commitment or undertaking, including
7
8
those arising under this Agreement or any Ancillary Agreement, in each case,
whether or not recorded or reflected or required to be recorded or reflected on
the books and records or financial statements of any Person.
1.44 "Offerings Closing" means the receipt by the Company of the net
proceeds of the IPO in accordance with the terms of the Underwriting Agreement.
1.45 "Offerings Closing Date" means the first time at which any shares
of the Class A Common Stock are sold to the Underwriters pursuant to the IPO, in
accordance with the terms of the Underwriting Agreement.
1.46 "OFLs" mean operating financial liabilities, comprising all
liabilities of any Person of a financial nature with third parties existing on
the date hereof or entered into or established between the date hereof and the
Offerings Closing Date, including any of the following:
(a) foreign exchange contracts;
(b) letters of credit;
(c) guarantees of third party loans to customers;
(d) surety bonds (excluding surety for workers' compensation
self-insurance);
(e) interest support agreements on third party loans to
customers;
(f) performance bonds or guarantees issued by third parties;
(g) swaps or other derivatives contracts; and
(h) recourse arrangements on the sale of receivables or notes.
1.47 "Parent Business" means (a) the business and operations of the
Parent Group, excluding the Company Business; and (b) any terminated, divested
or discontinued businesses or operations that at the time of termination,
divestiture or discontinuation primarily related to the business and operations
set forth in clause (a) above, as then conducted.
1.48 "Parent Common Stock" means the Common Stock, $.01 par value per
share, of Parent.
1.49 "Parent Group" means Parent, each Subsidiary of Parent and each
other Person that is controlled directly or indirectly by Parent immediately
after the Offerings Closing Date, other than any member of the Company Group.
8
9
1.50 "Parent Indemnitees" has the meaning set forth in Section 6.2.
1.51 "Person" means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability entity, any other entity and any Governmental Authority.
1.52 "Prime Rate" means the rate which ______________ (or any successor
thereto or other major money center commercial bank agreed to by the parties
hereto) announces from time to time as its prime lending rate, as in effect from
time to time.
1.53 "Prospectus" means each preliminary, final or supplemental
prospectus forming a part of the Registration Statement.
1.54 "Record Date" means the close of business on the date to be
determined by the Parent Board of Directors as the record date for determining
stockholders of Parent entitled to receive shares of the Company Common Stock in
the Distribution.
1.55 "Registration Statement" means the registration statement on Form
S-1 filed under the Securities Act, pursuant to which the Class A Common Stock
to be issued in the IPO will be registered, together with all amendments
thereto.
1.56 "Required Distribution Percentage" means in accordance with
Section 368(c) of the Code, the stock of the Company (a) possessing at least 80%
of the total combined voting power of all classes of voting stock of the Company
and (b) equal to at least 80% of the total number of shares of each class of
non-voting stock of the Company.
1.57 "Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
1.58 "Security Interest" means any mortgage, security interest, pledge,
lien, charge, claim, option, right to acquire, voting or other restriction,
right-of-way, covenant, condition, easement, encroachment, restriction on
transfer, or other encumbrance of any nature whatsoever.
1.59 "Services Agreement" means the Services Agreement, dated as of the
date hereof, by and between Parent and the Company.
1.60 "Subsidiary" of any Person means any corporation or other
organization whether incorporated or unincorporated of which at least a majority
of the securities or interests having by the terms thereof ordinary voting power
to elect at least a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person or by any one or more
of its Subsidiaries, or by such Person and one or more of its Subsidiaries;
provided, however that no Person that is not directly
9
10
or indirectly wholly owned by any other Person shall be a Subsidiary of such
other Person unless such other Person controls, or has the right, power or
ability to control, that Person.
1.61 "Tax Indemnification and Allocation Agreement" means the Tax
Indemnification and Allocation Agreement, dated as of the date hereof, by and
between Parent and the Company.
1.62 "Taxes" has the meaning set forth in the Tax Indemnification and
Allocation Agreement.
1.63 "Third Party Claim" has the meaning set forth in Section 6.5(a).
1.64 "Underwriters" means the U.S. Underwriters named in Schedule A to
the U.S. Purchase Agreement and the International Managers named in Schedule A
to the International Purchase Agreement entered into in connection with the IPO.
1.65 "Underwriting Agreements" means the U.S. Purchase Agreement and
the International Purchase Agreement to be entered into among the Company,
Parent and the Underwriters with respect to the IPO.
ARTICLE II
THE SEPARATION
2.1 THE SEPARATION. Upon the terms and subject to the conditions
contained in this Agreement, Parent and Company shall effect the corporate
reorganization transactions set forth on SCHEDULE 2.1 attached hereto as part of
one overall integrated plan, the effect of which is intended to be (a) the
tax-free distribution pursuant to Section 355 of the Code by the Company to
Parent of Republic Resources Company, Inc., a Delaware corporation and indirect
wholly owned subsidiary of the Company ("Resources"), (b) the satisfaction of
the requirement that the Company and Parent each be engaged in the "active
conduct of a trade or business" (as defined in the Code) in order for the
Distribution to qualify as a tax-free distribution pursuant to Section 355 of
the Code, and (c) the tax-free distribution pursuant to Section 355 of the Code
by Parent to Parent's stockholders of all of the Company Common Stock owned by
Parent at the time of such distribution (the "Distribution").
2.2 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES.
(a) Effective on or before the Offerings Closing Date, Parent
hereby agrees to assign, transfer, convey and deliver to the Company, and agrees
to cause each member of the Parent Group to assign, transfer, convey and deliver
to the Company, and the Company hereby agrees to accept from Parent and each
member of the Parent Group, all of Parent's and Parent Group's respective right,
title and interest in all of the Company Assets.
10
11
(b) Effective on or before the Offerings Closing Date, the
Company hereby agrees to assume and agrees faithfully to perform and fulfill all
of the Company Liabilities, in accordance with their respective terms. The
Company shall thereafter be responsible for all of the Company Liabilities,
regardless of when or where such Liabilities arose or arise, or whether the
facts on which they are based occurred prior to or subsequent to the date
hereof, regardless of where or against whom such Liabilities are asserted or
determined (including any Company Liabilities arising out of claims made by
Parent's directors, officers, employees, agents, Subsidiaries or Affiliates
against any member of the Parent Group or the Company Group) or whether asserted
or determined prior to the date hereof, and regardless of whether arising from
or alleged to arise from negligence, recklessness, violation of law, fraud or
misrepresentation by any member of the Parent Group or the Company Group or any
of their respective directors, officers, employees, agents, Subsidiaries or
Affiliates.
(c) Effective on or before the Offerings Closing Date, Company
hereby agrees to assign, transfer, convey and deliver to the Parent and agrees
to cause each member of the Company Group to assign, transfer, convey and
deliver to the Parent, and the Parent hereby agrees to accept from Company and
each member of the Company Group, all of the Company's and the Company Group's
respective right, title and interest in all of the Excluded Assets.
(d) Effective on or before the Offerings Closing Date, Parent
hereby agrees to assume and agrees faithfully to perform and fulfill all of the
Excluded Liabilities, in accordance with their respective terms. Parent agrees
that it shall thereafter be solely responsible for all of the Excluded
Liabilities, regardless of when or where such Liabilities arose or arise, or
whether the facts on which they are based occurred prior to or subsequent to the
date hereof, regardless of where or against whom such Liabilities are asserted
or determined (including any Excluded Liabilities arising out of claims made by
the Company's directors, officers, employees, agents, Subsidiaries or Affiliates
against any member of the Company Group or the Parent Group) or whether asserted
or determined prior to the date hereof, and regardless of whether arising from
or alleged to arise from negligence, recklessness, violation of law, fraud or
misrepresentation by any member of the Company Group of the Parent Group or any
of their respective directors, officers, employees, agents, Subsidiaries or
Affiliates.
(e) In the event that at any time or from time to time
(whether prior to or after the Offerings Closing Date), any party hereto (or any
member of such party's respective Group), shall receive or otherwise possess any
Asset that is allocated to any other Person pursuant to this Agreement or any
Ancillary Agreement, such party shall promptly transfer, or cause to be
transferred, such Asset to the Person so entitled thereto. Prior to any such
transfer, the Person receiving or possessing such Asset shall hold such Asset in
trust for any such other Person.
2.3 COMPANY ASSETS AND EXCLUDED ASSETS.
(a) For purposes of this Agreement, "Company Assets" shall
mean (without duplication):
11
12
(i) any and all Assets that are expressly
contemplated by this Agreement or any Ancillary Agreement as Assets to be
transferred to the Company or any other member of the Company Group, including
without limitation those Assets set forth on SCHEDULE 2.3(A)(I) hereto;
(ii) except as otherwise expressly provided in this
Agreement or any Ancillary Agreement, all tenant improvements, fixtures,
furniture, office equipment, servers, artwork and other tangible property (other
than equipment subject to capital or operating equipment leases, which will be
transferred or retained based on whether the associated capital or operating
equipment lease is or is not a Company Contract) located as of the date hereof
on any real property that is covered by the Lease referred to in Section 2.7(d);
(iii) any and all Company Contracts;
(iv) all issued and outstanding shares of capital
stock of the Subsidiaries of Parent listed on SCHEDULE 2.3(A)(IV) hereto;
(v) any and all Assets reflected in the Company
Balance Sheet, subject to any dispositions of such Assets subsequent to the date
of the Company Balance Sheet;
(vi) any and all Assets owned or held immediately
prior to the Offerings Closing Date by Parent or any of its Subsidiaries that
are used primarily in the Company Business. The intention of this clause (vi) is
only to rectify any inadvertent omission of transfer or conveyance of any Assets
that, had the parties given specific consideration to such Asset as of the date
hereof, would have otherwise been classified as a Company Asset. No Asset shall
be deemed to be a Company Asset solely as a result of this clause (vi) if such
Asset is within the category or type of Asset expressly covered by the subject
matter of an Ancillary Agreement. In addition, no Asset shall be deemed a
Company Asset solely as a result of this clause (vi) unless a claim with respect
thereto is made by Company on or [prior to the first anniversary of] the
Offerings Closing Date.
Notwithstanding the foregoing, the Company Assets shall not in any event include
the Excluded Assets referred to in Section 2.3(b) below.
(b) For the purposes of this Agreement, "Excluded Assets"
shall mean any and all Assets that are expressly contemplated by this Agreement
or any Ancillary Agreement as Assets to be retained by Parent or any other
member of the Parent Group, including without limitation all of the capital
stock of Resources owned by the Company and those Assets set forth on SCHEDULE
2.3(B) hereto.
2.4 COMPANY LIABILITIES AND EXCLUDED LIABILITIES.
(a) For the purposes of this Agreement, "Company Liabilities"
shall mean (without duplication):
12
13
(i) any and all Liabilities that are expressly
contemplated by this Agreement or any Ancillary Agreement as Liabilities to be
assumed by the Company or any member of the Company Group, including without
limitation those Liabilities set forth on SCHEDULE 2.4(A)(I) hereto, and all
agreements, obligations and Liabilities of any member of the Company Group under
this Agreement or any of the Ancillary Agreements;
(ii) all Liabilities (other than Taxes dealt with in
the Tax Indemnification and Allocation Agreement), whether arising before, on or
after the Offerings Closing Date, including any employee-related Liabilities and
Environmental Liabilities, primarily relating to, arising out of or resulting
from:
(A) the operation of the Company Business,
as conducted at any time prior to, on or after the Offerings
Closing Date (including any Liability relating to, arising out
of or resulting from any act or failure to act by any
director, officer, employee, agent or representative (whether
or not such act or failure to act is or was within such
Person's authority));
(B) the operation of any business conducted
by any member of the Company Group at any time after the
Offerings Closing Date (including any Liability relating to,
arising out of or resulting from any act or failure to act by
any director, officer, employee, agent or representative
(whether or not such act or failure to act is or was within
such Person's authority)); or
(C) any Company Assets (including any
Company Contracts and any real property and leasehold
interests);
(iii) all Liabilities reflected as liabilities or
obligations of the Company in the Company Balance Sheet, subject to any
discharge of such Liabilities subsequent to the date of the Company Balance
Sheet.
Notwithstanding the foregoing, the Company Liabilities shall not include the
Excluded Liabilities referred to in Section 2.4(b) below.
(b) For the purposes of this Agreement, "Excluded Liabilities"
shall mean (i) any and all Liabilities that are expressly contemplated by this
Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as
Liabilities to be retained or assumed by Parent or any other member of the
Parent Group, including without limitation those Liabilities set forth on
SCHEDULE 2.4(B) hereto, (ii) all agreements and obligations of any member of the
Parent Group under this Agreement, any of the Ancillary Agreements or the
Underwriting Agreements and (iii) all Liabilities relating to, arising out of or
resulting from the Parent Business.
13
14
2.5 TERMINATION OF AGREEMENTS.
(a) Except as set forth in Section 2.5(b), in furtherance of
the releases and other provisions of Section 5.1 hereof, the Company and each
member of the Company Group, on the one hand, and Parent and each member of the
Parent Group, on the other hand, hereby agrees to terminate, any and all
agreements, arrangements, commitments or understandings, whether or not in
writing, between or among the Company and/or any member of the Company Group, on
the one hand, and Parent and/or any member of the Parent Group, on the other
hand, on or before the Offerings Closing Date; PROVIDED, HOWEVER, that to the
extent any such agreement, arrangement, commitment or understanding is
inconsistent with any Ancillary Agreement, such termination shall be effective
as of the date of effectiveness of the applicable Ancillary Agreement. No such
terminated agreement, arrangement, commitment or understanding (including any
provision thereof which purports to survive termination) shall be of any further
force or effect after the Offerings Closing Date (or, to the extent contemplated
by the proviso to the immediately preceding sentence, after the effective date
of the applicable Ancillary Agreement). Each party shall, at the reasonable
request of any other party, take, or cause to be taken, such other actions as
may be necessary to effect the foregoing.
(b) The provisions of Section 2.5(a) shall not apply to any of
the following agreements, arrangements, commitments or understandings (or to any
of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and
each other agreement or instrument expressly contemplated by this Agreement or
any Ancillary Agreement to be entered into by any of the parties hereto or any
of the members of their respective Groups); (ii) any agreements, arrangements,
commitments or understandings listed or described on SCHEDULE 2.5(B)(II); (iii)
any agreements, arrangements, commitments or understandings to which any Person
other than the parties hereto and their respective Affiliates is a party (it
being understood that to the extent that the rights and obligations of the
parties and the members of their respective Groups under any such agreements,
arrangements, commitments or understandings constitute Company Assets or Company
Liabilities, they shall be assigned pursuant to Section 2.2); (iv) any
intercompany accounts payable or accounts receivable accrued as of the Offerings
Closing Date that are reflected in the books and records of the parties or
otherwise documented in writing in accordance with past practices; and (v) any
other agreements, arrangements, commitments or understandings that this
Agreement or any Ancillary Agreement expressly contemplates will survive the
Offerings Closing Date.
2.6 DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND ASSUMPTION OF
LIABILITIES.
(a) COMPANY ASSETS AND COMPANY LIABILITIES. In furtherance of
the assignment, transfer and conveyance of the Company Assets and the assumption
of the Company Liabilities set forth in Section 2.2 (a) and (b), simultaneously
with the execution and delivery hereof or as promptly as practicable thereafter,
(i) Parent shall execute and deliver, and shall cause each member of the Parent
Group to execute and deliver, such bills of sale, stock powers, certificates of
title, assignments of contracts and other instruments of transfer, conveyance
and assignment as and to the extent necessary to evidence the transfer,
conveyance and assignment of all of Parent's, and Parent Group's
14
15
right, title and interest in and to Company Assets to the Company and (ii) the
Company shall execute and deliver, to Parent and Parent Group such bills of
sale, stock powers, certificates of title, assumptions of contracts and other
instruments of assumption as and to the extent necessary to evidence the valid
and effective assumption of Company Liabilities by the Company.
(b) EXCLUDED ASSETS AND EXCLUDED LIABILITIES. In furtherance
of the assignment, transfer and conveyance of the Excluded Assets and the
Excluded Liabilities set forth in Section 2.2 (c) and (d), simultaneously with
the execution and delivery hereof or as promptly as practicable thereafter, (i)
Company shall execute and deliver, and shall cause each member of the Company
Group to execute and deliver, such bills of sale, stock powers, certificates of
title, assignments of contracts and other instruments of transfer, conveyance
and assignment as and to the extent necessary to evidence the transfer,
conveyance and assignment of all of the Company's and the Company Group's right,
title and interest in and to the Excluded Assets to Parent and (ii) Parent shall
execute and deliver, to the Company and the Company Group such bills of sale,
stock powers, certificates of title, assumptions of contracts and other
instruments as and to the extent necessary to evidence the valid and effective
assumption of Excluded Liabilities by Parent.
2.7 OTHER ANCILLARY AGREEMENTS. Effective on or before the Offerings
Closing Date, each of Parent and the Company shall execute and deliver each of
the following Ancillary Agreements:
(a) the Services Agreement;
(b) the Employee Benefits Agreement;
(c) the Tax Indemnification and Allocation Agreement;
and
(d) the Lease.
2.8 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES.
(a) Each of Parent (on behalf of itself and each member of the
Parent Group) and the Company (on behalf of itself and each member of the
Company Group) understands and agrees that, except as expressly set forth herein
or in any Ancillary Agreement, no party to this Agreement, any Ancillary
Agreement or any other agreement or document contemplated by this Agreement, any
Ancillary Agreement or otherwise, is representing or warranting in any way as to
(i) the Assets, businesses or Liabilities transferred or assumed as contemplated
hereby or thereby, (ii) any consents or approvals required in connection
therewith, (iii) the value or freedom from any Security Interests of, or any
other matter concerning, any Assets of such party, or as to the absence of any
defenses or right of setoff or freedom from counterclaim with respect to any
claim or other Asset, including any accounts receivable, of any party, or (iv)
as to the legal sufficiency of any assignment, document or instrument delivered
hereunder to convey title to any Asset or thing of value upon the execution,
delivery and filing hereof or thereof. Except as may expressly be set forth
herein or in any Ancillary
15
16
Agreement, all such Assets are being transferred on an "as is," "where is" basis
(and, in the case of any real property, by means of a quitclaim or similar form
deed or conveyance) and the respective transferees shall bear the economic and
legal risks that any conveyance shall prove to be insufficient to vest in the
transferee good and marketable title, free and clear of any Security Interest.
2.9 GOVERNMENTAL APPROVALS AND CONSENTS.
(a) Each of Parent and the Company shall use their reasonable
best efforts to obtain the Governmental Approvals and Consents as set forth on
SCHEDULE 2.9(A) required to assign, transfer, convey and deliver the Company
Assets to the Company and the Excluded Assets to Parent.
(b) If and to the extent that the valid, complete and
perfected transfer or assignment (or novation of any federal government
contract) to the Company Group of any Company Assets (or from the Company Group
of any Excluded Assets) would be a violation of applicable laws or require any
Consent or Governmental Approval in connection with the Separation, the IPO or
the Distribution, then, unless Parent shall otherwise determine, the transfer or
assignment to or from the Company Group, as the case may be, of such Company
Assets or Excluded Assets, respectively, shall be automatically deemed deferred
and any such purported transfer or assignment shall remain pending until such
time as all legal impediments are removed and/or such Consents or Governmental
Approvals have been obtained. Notwithstanding the foregoing, such Asset shall be
deemed a Company Asset for purposes of determining whether any Liability is a
Company Liability.
(c) If the transfer or assignment of any Assets intended to be
transferred or assigned hereunder, is not consummated prior to or at the
Offerings Closing Date, whether as a result of the provisions of Section 2.9(b)
or for any other reason, then the Person retaining such Asset shall thereafter
hold such Asset for the use and benefit, insofar as reasonably possible, of the
Person entitled thereto (at the expense of the Person entitled thereto). In
addition, the Person retaining such Asset shall take such other actions as may
be reasonably requested by the Person to whom such Asset is to be transferred in
order to place such Person, insofar as reasonably possible, in the same position
as if such Asset had been transferred as contemplated hereby and so that all the
benefits and burdens relating to such Company Assets (or such Excluded Assets,
as the case may be), including possession, use, risk of loss, potential for
gain, and dominion, control and command over such Assets, are to inure from and
after the Offerings Closing Date to the Company Group (or the Parent Group, as
the case may be).
(d) If and when the Consents and/or Governmental Approvals,
the absence of which caused the deferral of transfer of any Asset pursuant to
Section 2.9(b), are obtained, the transfer of the applicable Asset shall be
effected in accordance with the terms of this Agreement and/or the applicable
Ancillary Agreement.
(e) The Person retaining an Asset due to the deferral of the
transfer of such Asset shall not be obligated, in connection with the foregoing,
to expend any money unless the necessary
16
17
funds are advanced by the Person entitled to the Asset, other than reasonable
out-of-pocket expenses, attorneys' fees and recording or similar fees, all of
which shall be promptly reimbursed by the Person entitled to such Asset.
2.10 NOVATION OF ASSUMED COMPANY LIABILITIES.
(a) Each of Parent and the Company, at the request of the
other, shall use its reasonable best efforts to obtain, or to cause to be
obtained, any Consent or Governmental Approval required to novate (including
with respect to any Governmental Authority contract) or assign all Company
Liabilities, or to obtain in writing the unconditional release of all parties to
such Company Liabilities other than any member of the Company Group, so that, in
any such case, the members of the Company Group will be solely responsible for
such Liabilities; PROVIDED, HOWEVER, that none of Parent or the Company shall be
obligated to pay any consideration therefor to any third party from whom such
Consents or Governmental Approvals, are requested other than filing and other
fees required by applicable law.
(b) If Parent and the Company are unable to obtain, or to
cause to be obtained, any such required Consent or Governmental Approval, the
applicable member of the Parent Group, as the case may be, shall continue to be
bound by such Company Liability and, unless not permitted by law or the terms
thereof, the Company shall, as agent or subcontractor for Parent, or such other
Person, as the case may be, pay, perform and discharge fully all the obligations
or other Liabilities of Parent, or such other Person, as the case may be,
thereunder from and after the date hereof, and the Company shall indemnify each
Parent Indemnitee and hold each of them harmless against any Liabilities arising
in connection therewith. Parent shall, without further consideration, pay and
remit, or cause to be paid or remitted, to the Company promptly all money,
rights and other consideration received by it or any member of Parent Group in
respect of such performance (unless any such consideration is an Excluded
Asset). If and when any such Consent or Governmental Approval shall be obtained
or such Liability shall otherwise become assignable or able to be novated,
Parent shall thereafter assign, or cause to be assigned, such Liability or any
rights or obligations of any member of Parent Group to the Company or to another
member of the Company Group specified by the Company without payment of further
consideration and the Company shall assume, or shall cause such other member of
the Company Group to assume, without the payment of any further consideration,
such Liability.
2.11 NOVATION OF ASSUMED LIABILITIES OTHER THAN COMPANY LIABILITIES.
(a) Each of Parent and the Company at the request of the
other, shall use their reasonable best efforts to obtain, or to cause to be
obtained, any Consent or Governmental Approval required to novate (including
with respect to any Governmental Authority Contract) or assign all Liabilities
of any nature whatsoever that do not constitute Company Liabilities, or to
obtain in writing the unconditional release of all parties to such Liabilities
other than any member of the Parent Group, so that, in any such case, the
members of the Parent Group will be solely responsible for such Liabilities;
provided, however, that none of Parent and the Company shall be obligated to
17
18
pay any consideration therefor to any third party from whom such consents,
approvals, substitutions and amendments are requested other than filing fees
required by applicable law.
(b) If Parent and the Company are unable to obtain, or to
cause to be obtained, any such required Consent or Governmental Approval, the
applicable member of the Company Group shall continue to be bound by such
Excluded Liability and, unless not permitted by law or the terms thereof, Parent
shall cause a member of the Parent Group, as agent or subcontractor for such
member of the Company Group, to pay, perform and discharge fully all the
obligations or other Liabilities of such member of the Company Group thereunder
from and after the date hereof, and Parent shall indemnify each Company
Indemnitee and hold each of them harmless against any Liabilities arising in
connection therewith. Company shall cause each member of the Company Group
without further consideration, to pay and remit, or cause to be paid or
remitted, to Parent or to another member of the Parent Group specified by Parent
promptly all money, rights and other consideration received by it or any member
of the Company Group in respect of such performance. If and when any such
Consent or Governmental Approval shall be obtained or such Liability shall
otherwise become assignable or able to be novated, the Company shall promptly
assign, or cause to be assigned, such Liability or any rights or obligations of
any member of the Company Group to Parent or to another member of the Parent
Group specified by Parent without payment of further consideration and Parent,
without the payment of any further consideration shall, or shall cause such
other member of the Parent Group to, assume such Liability.
ARTICLE III
THE IPO AND ACTIONS PENDING THE IPO
3.1 TRANSACTIONS PRIOR TO THE IPO. Subject to the conditions specified
in Section 3.3, Parent and the Company shall use their reasonable best efforts
to consummate the IPO of shares of Class A Common Stock, including without
limitation, taking the following actions:
(a) The Company shall file such amendments or supplements to
the Registration Statement, as may be necessary in order to cause the same to
become and remain effective as required by the Underwriters, the Underwriting
Agreements, the Commission or federal, state or foreign securities laws. Parent
and the Company shall also cooperate in preparing and filing with the Commission
and causing to become effective a registration statement registering the Class A
Common Stock under the Exchange Act, and any registration statements or
amendments thereof which are required to reflect the establishment of, or
amendments to, any employee benefit and other plans necessary or appropriate in
connection with the IPO, the Separation, the Distribution or the other
transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Parent and the Company shall enter into the Underwriting
Agreements, in form and substance reasonably satisfactory to the Company and
shall comply with their obligations thereunder.
18
19
(c) Parent and the Company shall consult with each other and
the Underwriters regarding the timing, pricing and other material matters with
respect to the IPO.
(d) The Company shall use its reasonable best efforts to take
all such action as may be necessary or appropriate under state securities and
blue sky laws of the United States (and any comparable laws under any foreign
jurisdictions) in connection with the IPO.
(e) The Company shall prepare, file and use reasonable best
efforts to seek to make effective, an application for listing of the Class A
Common Stock issued in the IPO on the New York Stock Exchange ("NYSE"), subject
to official notice of issuance.
(f) The Company shall participate in the preparation of
materials and presentations as the Underwriters shall deem necessary or
desirable.
(g) The Company shall pay all third party costs, fees and
expenses relating to the IPO, all of the reimbursable expenses of the
Underwriters pursuant to the Underwriting Agreements, all of the costs of
producing, printing, mailing and otherwise distributing the Prospectus, as well
as the Underwriters' discount as provided in the Underwriting Agreements.
(h) The Company shall repay outstanding amounts owed to
Resources and an Affiliate of Parent by issuing Class A Common Stock as payment
to such parties as set forth on SCHEDULE 2.1 hereto.
3.2 PROCEEDS OF THE IPO. All of the proceeds (net of the underwriting
discount) of the IPO received by the Company will be used to prepay to the
holders of such notes in part certain amounts outstanding under the Company's $2
billion in aggregate principle amount of unsecured promissory notes issued to
Parent in April 1998 (the "Company Notes"). In addition, all of the proceeds
(net of underwriting discount) from the exercise of the over allotment options
set forth in the Underwriting Agreements shall also be used to prepay the
Company Notes. In the event amounts remain outstanding under the Company Notes
after the exercise, if any, of the over-allotment options, the Company shall
prepay all such remaining amounts by issuing to each holder of Company Notes
that number of shares of Class A Common Stock determined by dividing (a) the
remaining amount owed to each such holder of Company Notes, by (b) the initial
public offering price of the Class A Common Stock.
3.3 CONDITIONS PRECEDENT TO CONSUMMATION OF THE IPO. As soon as
practicable after the date of this Agreement, the parties hereto shall use their
reasonable best efforts to satisfy the following conditions to the consummation
of the IPO. The obligations of Parent to consummate the IPO shall be conditioned
on the satisfaction, or waiver by Parent, of the following conditions:
(a) The Registration Statement shall have been filed and
declared effective by the Commission, and there shall be no stop-order in effect
with respect thereto.
19
20
(b) Parent and the Company shall have effected their corporate
reorganization transactions set forth on SCHEDULE 2.1 attached hereto.
(c) The actions and filings with regard to state securities
and blue sky laws of the United States (and any comparable laws under any
foreign jurisdictions) described in Section 3.1(d) shall have been taken and,
where applicable, have become effective or been accepted.
(d) The Class A Common Stock to be issued in the IPO shall
have been accepted for listing on the NYSE, subject to official notice of
issuance.
(e) Parent and the Company shall have executed the
Underwriting Agreements and all conditions to the obligations of Parent, the
Company and the Underwriters thereunder shall have been satisfied or waived by
the Underwriters.
(f) Parent shall be satisfied in its sole discretion that all
conditions to permit the Distribution to qualify as a tax-free distribution to
Parent, the Company and Parent's stockholders shall, to the extent determinable
as of the Offerings Closing Date, be satisfied and there shall be no event or
condition that is likely to cause any of such conditions not to be satisfied as
of the time of the Distribution or thereafter.
(g) No order, injunction or decree issued by any court or
agency of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Separation, the IPO or the Distribution or
any of the other transactions contemplated by this Agreement or any Ancillary
Agreement shall be in effect.
(h) Such other actions as the parties hereto may, based upon
the advice of counsel, reasonably request to be taken prior to the Separation
and the IPO in order to assure the successful completion of the Separation and
the IPO and the other transactions contemplated by this Agreement shall have
been taken.
(i) This Agreement shall not have been terminated.
20
21
ARTICLE IV
THE DISTRIBUTION
4.1 THE DISTRIBUTION.
(a) Subject to Section 4.3 hereof, Parent and the Company will
take all reasonable steps necessary and appropriate to cause all conditions to
the Distribution to be satisfied and to effect the Distribution. The Board of
Directors of Parent will have the sole discretion to determine the Distribution
Date at any time commencing after the Offerings Closing Date and ending on or
prior to such date as is three months following the receipt of the Letter
Ruling. Parent will consummate the Distribution no later than December 31, 1999,
subject to the satisfaction or waiver by the Parent's Board, in its sole
discretion, of the conditions set forth in Section 4.3.
(b) On or prior to the Distribution Date, Parent will deliver
to the Agent for the benefit of holders of record of Parent Common Stock on the
Record Date, stock certificates, endorsed by Parent in blank, representing all
of the outstanding shares of the Company Common Stock then owned by Parent or
any member of the Parent Group, and shall cause the transfer agent for the
shares of Parent Common Stock to instruct the Distribution Agent to distribute
on the Distribution Date the appropriate number of such shares of the Company
Common Stock to each such holder or designated transferee or transferees of such
holder.
(c) Subject to Section 4.4, each holder of Parent Common Stock
on the Record Date (or such holder's designated transferee or transferees) will
be entitled to receive in the Distribution a number of shares of such Company
Common Stock (rounded down to the nearest whole share) equal to the number of
shares of Parent Common Stock held by such holder on the Record Date multiplied
by a fraction the numerator of which is the number of shares of the Company
Common Stock beneficially owned by Parent or any other member of the Parent
Group on the Record Date and the denominator of which is the number of shares of
Parent Common Stock plus warrants outstanding on the Record Date.
(d) The Company and Parent, as the case may be, will provide
to the Distribution Agent all share certificates and any information required in
order to complete the Distribution on the basis specified above.
4.2 ACTIONS PRIOR TO THE DISTRIBUTION.
(a) The Company and Parent agree that, after the Offerings
Closing Date and prior to the Distribution Date, none of the parties will take,
or permit any of its Affiliates to take, any action which reasonably could be
expected to prevent the Distribution from qualifying as a tax-free distribution
to Parent and Parent's stockholders pursuant to Section 355 of the Code. The
parties will also take any reasonable actions necessary in order for the
Distribution to qualify as a tax-free distribution to Parent and Parent's
stockholders pursuant to Section 355 of the Code. Without limiting the
foregoing, after the Offerings Closing Date and prior to the Distribution Date,
the
21
22
Company will not issue or grant, directly or indirectly, any shares of its
capital stock or any rights, warrants, options or other securities to purchase
or acquire (whether upon conversion, exchange or otherwise) any shares of its
capital stock (whether or not then exercisable, convertible or exchangeable),
without the prior consent of Parent if such issuance or grant would either
reduce Parent's ownership of the Company's capital stock below the Required
Distribution Percentage or otherwise prevent the Distribution from qualifying as
a tax-free distribution to Parent and Parent's stockholders in accordance with
Section 355 of the Code.
(b) Parent and the Company shall prepare and mail, prior to
the Distribution Date, to the holders of Parent Common Stock, such information
concerning the Company, its business, operations and management, the
Distribution and such other matters as Parent shall reasonably determine and as
may be required by law. Parent and Company will prepare, and the Company will,
to the extent required under applicable law, file with the Commission any such
documentation that Parent determines is necessary or desirable to effectuate the
Distribution and Parent and the Company shall each use its reasonable best
efforts to obtain all necessary approvals from the Commission with respect
thereto as soon as practicable.
(c) Parent and the Company shall take all such action as may
be necessary or appropriate under the securities or blue sky laws of the United
States (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution.
(d) Parent and Company will cooperate and prepare and file
with the Internal Revenue Service the request for the Letter Ruling along with
any accompanying statements, financial data or other information deemed
necessary or advisable by Parent and the Company. Neither Parent nor the Company
may file any supplement or amendment to such request or, if such Letter Ruling
is issued, to such Letter Ruling without the consent of the other party, which
consent may not be unreasonably withheld.
(e) Parent and the Company shall take all reasonable steps
necessary and appropriate to cause the conditions set forth in Section 4.3
(subject to Section 4.3(d)) to be satisfied and to effect the Distribution on
the Distribution Date.
(f) The Company shall prepare and file, and shall use its
reasonable best efforts to have approved, an application for the listing of the
Company Common Stock to be distributed in the Distribution on the NYSE, subject
to official notice of distribution.
4.3 CONDITIONS TO DISTRIBUTION. Parent shall be obligated to consummate
the Distribution no later than December 31, 1999, subject to the satisfaction,
or waiver by the Parent's Board in its sole discretion, of the conditions set
forth below.
(a) the Letter Ruling shall have been obtained, and shall
continue in effect, to the effect that, among other things, the Distribution
will qualify as a tax-free distribution for federal income tax purposes under
Section 355 of the Code and the Distribution by Parent of Company
22
23
Common Stock to stockholders of Parent will not result in recognition of any
income, gain or loss for federal income tax purposes to Parent or Parent's
stockholders, and such ruling shall be in form and substance satisfactory to
Parent, in its sole discretion, including but not limited to the effect that the
general acquisition growth strategies of Parent and the Company would not cause
the Distribution to be taxable to Parent or its stockholder and that such growth
strategies would not be impeded by completing the Distribution;
(b) any material Governmental Approvals and Consents necessary
to consummate the Distribution shall have been obtained and be in full force and
effect;
(c) no order, injunction or decree issued by any court or
agency of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Distribution shall be in effect, and no other
event outside the control of Parent shall have occurred or failed to occur that
prevents the consummation of the Distribution; and
(d) no other events or developments shall have occurred
subsequent to the Offerings Closing Date that, in the judgment of the Parent's
Board, would result in the Distribution having a material adverse effect on
Parent or on the stockholders of Parent.
The foregoing conditions are for the sole benefit of Parent and shall not give
rise to or create any duty on the part of Parent or the Parent's Board of
Directors to waive or not waive any such condition.
4.4 FRACTIONAL SHARES. As soon as practicable after the Distribution
Date, Parent shall direct the Distribution Agent to determine the number of
whole shares and fractional shares of the Company Common Stock allocable to each
holder of record or beneficial owner of Parent Common Stock as of the Record
Date, to aggregate all such fractional shares and sell the whole shares obtained
thereby at the direction of Parent either to Parent, in open market transactions
or otherwise, in each case at then prevailing trading prices, and to cause to be
distributed to each such holder or for the benefit of each such beneficial
owner, in lieu of any fractional share, such holder's or owner's ratable share
of the proceeds of such sale, after making appropriate deductions of the amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes attributed
to such sale. Parent and the Agent shall use their reasonable best efforts to
aggregate the shares of Parent Common Stock that may be held by any beneficial
owner thereof through more than one account in determining the fractional share
allocable to such beneficial owner.
4.5 COMPANY BOARD OF DIRECTORS. Parent and the Company shall each take
all actions which may be required to elect or otherwise appoint as directors of
the Company, on or prior to the Distribution Date, persons to be designated by a
nominating committee of the Company's Board of Directors (which nominating
committee shall be comprised of individuals, if any, who are at such time not
officers of Parent or Company) as additional or substitute members of the Board
of Directors of the Company on the Distribution Date.
23
24
4.6 TERMINATION OF OBLIGATIONS UNDER THIS ARTICLE IV. Except as
provided in Article XIII, the obligations of the Company and Parent under this
Article IV, or under any other provision of this Agreement relating to the
Distribution or the Letter Ruling shall terminate on the earliest to occur of
the following events:
(a) The Distribution Date does not occur on or prior to
December 31, 1999, or such other date as determined by Parent and the Company;
(b) The Parent's ownership of shares of Company Common Stock
is less that the Required Distribution Percentage or otherwise prevents a
distribution of Company Common Stock from qualifying as a tax-free distribution
to Parent and Parent's stockholders under Section 355 of the Code; or
(c) The mutual consent of Parent and the Company.
If this Article IV is terminated in accordance with this Section 4.6, the other
provisions of this Agreement and any Ancillary Agreement not related to the
Distribution or Letter Ruling shall remain in full force and effect, but such
termination shall not affect the parties' obligations under Section 14.9.
ARTICLE V
REGISTRATION RIGHTS
5.1 DEMAND REGISTRATION.
(a) GENERAL. At any time commencing after the Offerings
Closing Date, upon the request of Parent made at any time after such date but
prior to December 31, 2002, the Company shall use its best efforts to file, as
promptly as practicable, a registration statement under the Securities Act (the
"Demand Registration Statement") including such shares of Company Common Stock
then held by Parent or any Subsidiary of Parent, as requested by Parent to be so
registered. Parent shall have the right to request up to [three] Demand
Registration Statements, provided that the Company shall have no obligation to
file any such Demand Registration Statement on or prior to a sixty (60) day
period following the filing of any other registration statement by the Company
(other than the Registration Statement or any other registration statements on
Form S-4 or Form S-8 or another form available for registration of securities
other than for sale to the public for cash). The Company shall use its best
efforts to cause each Demand Registration Statement to be declared effective by
the Commission as promptly as practicable. If a Demand Registration Statement
shall be withdrawn by the Company before effectiveness, it shall not be counted
against Parent's right to request three such registrations.
24
25
(b) LIMITATIONS OF DEMAND REGISTRATION RIGHTS. The Company
may, by written notice to Parent, for a period of up to forty-five (45) days
from the date of written notice, delay the filing or effectiveness of any of the
Demand Registration Statements in the event that (1) the Company is engaged in
any activity or transaction that the Company desires to keep confidential for
business reasons, (2) the Company's Board of Directors determines in good faith
that the disclosure of such information would be detrimental to the Company, and
(3) the Company's Board of Directors determines in good faith that the public
disclosure requirements imposed on the Company under the Securities Act in
connection with any Demand Registration Statement would require disclosure of
such activity or transaction. If the Company delays a Demand Registration
Statement, the Company shall, as promptly as practicable following the
termination of the circumstances which entitled the Company to do so, provide
notice to Parent of the termination of such circumstances and take such actions
as necessary to file or reinstate the effectiveness of a Demand Registration
Statement. If as a result thereof the prospectus included in a Demand
Registration Statement has been amended to comply with the requirements of the
Securities Act, the Company shall enclose such revised prospectus with the
notice to Parent given pursuant to this paragraph (b), and Parent shall make no
offers or sales of shares pursuant to a Demand Registration Statement other than
by means of such revised prospectus.
(c) DEMAND REGISTRATION PROCEDURES.
(i) In connection with the filing by the Company of a
Demand Registration Statement, the Company shall furnish to Parent as many
copies of the prospectus, including each preliminary prospectus, in conformity
with the requirements of the Securities act as Parent shall reasonably request
for the purpose of effecting the plan of distribution set forth therein.
(ii) The Company shall use its best efforts to
register or qualify the shares of Company Common Stock covered by a Demand
Registration Statement under the securities laws of such state as Parent shall
reasonably request; provided, however, that the Company shall not be required in
connection with this paragraph (c) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
(iii) If the Company has delivered preliminary or
final prospectuses to Parent and after having done so the prospectus is amended
to comply with the requirements of the Securities Act, the Company shall
promptly notify Parent and, if requested by the Company, Parent shall
immediately return all prospectuses to the Company. The Company shall promptly
provide Parent with revised prospectuses.
(iv) At the request of Parent, the Company shall sign
an underwriting agreement in customary for with a managing underwriter selected
by Parent and reasonably, satisfactory to the Company, and shall cooperate with
such managing underwriter in all reasonable respects to facilitate the
distribution contemplated by Parent, including without limitation making
available the books, records and personnel of the Company for the purpose of the
underwriter's "due diligence" and providing customary legal opinions and
auditors' comfort letters.
25
26
5.2 INCIDENTAL REGISTRATION. After the IPO, if the Company at any time
(other than on Forms S-4 or S-8 or any successors to such forms, pursuant to
Section 5.1 hereof) proposes to register any Company Common Stock under the
Securities Act for sale to the public (which, for this purpose shall include the
registration generally of securities under a universal shelf registration
statement), each such time it will give written notice to Parent of its
intention so to do. Upon the written request of Parent, received by the Company
within 15 days after the giving of any such notice by the Company, the Company
will use its best efforts to cause shares of Company Common Stock held by Parent
or any Subsidiary of Parent as to which registration shall have been so
requested to be included in the securities to be covered by such registration
statement (the "Incidental Registration Statement") proposed to be filed by the
Company. In the event that any registration pursuant to this Section 5.2 shall
be, in whole or in part, an underwritten public offering, the number of such
shares held by Parent to be included in such an underwriting may be reduced if
and to the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of those securities to be
sold by the Company therein. In the event other holders of shares of Company
Common Stock also have registration rights as a result of the filing of such
Incidental Registration Statement, any such reduction shall be done pro rata
with such other holders. Notwithstanding the foregoing provisions, the Company
may withdraw any Incidental Registration Statement referred to in this Section
without thereby incurring any liability to the Parent, if the Board of Directors
of the Company determines in good faith that it is in the Company's best
interest to do so.
5.3 REGISTRATION ON FORM S-3. If at any time (i) Parent requests that
the Company file a registration statement pursuant to Section 5.1 hereof on Form
S-3 (the "Form S-3 Registration Statement") or any successor form thereto for a
public offering of all or any portion of the shares of Company Common Stock then
held by Parent or a Subsidiary of Parent, and (ii) the Company is a registrant
entitled to use Form S-3 or any successor form thereto to register such shares,
then the Company shall use its best efforts to register under the Securities Act
on Form S-3 or any successor thereto, for public sale in accordance with the
method of disposition specified in such notice provided by Parent, the number of
shares of Company Common Stock of the Company specified therein. Whenever the
Company is required by this Section 5.3 to use its best efforts to effect a Form
S-3 Registration Statement, each of the limitations and procedures of Section
5.1 shall apply to such Registration, PROVIDED, HOWEVER, that there shall be no
limitation on the number of such registrations on Form S-3 which may be
requested and obtained under this Section 5.3.
5.4 EXPENSES. The offering expenses incurred in complying with Sections
5.1, 5.2 and 5.3 shall be paid as follows:
(a) Offering expenses in connection with a Demand Registration
Statement shall be paid by Parent; provided, that in the event of any other
shares of Company Common Stock are included in a Demand Registration Statement
in addition to the shares of Company Common Stock held by Parent, the Company
shall pay its pro rata portion of the offering expenses equal to the offering
expenses multiplied by a fraction, the numerator of which is the number of any
shares of
26
27
Company Common Stock included in the Demand Registration Statement other than
the shares held by Parent and a denominator of which is the total number of
shares of Company Common Stock included in the Demand Registration Statement;
and
(b) Offering expenses in connection with an Incidental
Registration Statement shall be paid by the Company; provided, that in the event
shares of Company Common Stock held by Parent are included in the Incidental
Registration Statement, Parent shall pay its pro rata portion of the offering
expenses equal to the offering expenses multiplied by a fraction, the numerator
of which is the number of such shares of Company Common Stock held by Parent and
included in the Incidental Registration Statement and the denominator of which
is the total number of shares of Company Common Stock included in such
Incidental Registration Statement.
5.5 REQUIREMENTS OF PARENT. The Company shall not be required to
include any share of Company Common Stock owned by Parent in a Demand
Registration Statement or an Incidental Registration Statement unless:
(a) Parent furnishes to the Company in writing such
information regarding the Parent as the Company may reasonably request in
writing in connection with such Demand Registration Statement or the Incidental
Registration Statement, as the case may be, or as shall be required in
connection therewith under applicable securities laws; and
(b) Parent shall have provided to the Company its written
agreement to report to the Company sales made pursuant to the Demand
Registration Statement or the Incidental Registration Statement, as the case may
be.
ARTICLE VI
MUTUAL RELEASES; INDEMNIFICATION
6.1 RELEASE OF PRE-CLOSING CLAIMS.
(a) Except as provided in Section 6.1(c), effective as of the
Offerings Closing Date, the Company does hereby, for itself and each other
member of the Company Group, their respective Affiliates (other than any member
of the Parent Group), successors and assigns, and all Persons who at any time
prior to the Offerings Closing Date have been stockholders, directors, officers,
agents or employees of any member of the Company Group (in each case, in their
respective capacities as such), remise, release and forever discharge Parent,
the members of the Parent Group its respective Affiliates (other than any member
of the Company Group), successors and assigns, and all Persons who at any time
prior to the Offerings Closing Date have been stockholders, directors, officers,
agents or employees of any member of the Parent Group (in each case, in their
respective capacities as such), and their respective heirs, executors,
administrators, successors and assigns, from any and all Liabilities whatsoever,
whether at law or in equity (including any right of contribution), whether
arising under any contract or agreement, by operation of law or otherwise,
existing or
27
28
arising from any acts or events occurring or failing to occur or alleged to have
occurred or to have failed to occur or any conditions existing or alleged to
have existed on or before the Offerings Closing Date, including in connection
with the transactions and all other activities to implement any of the
Separation, the IPO and the Distribution.
(b) Except as provided in Section 6.1(c), effective as of the
Offerings Closing Date, Parent does hereby, for itself and each other member of
the Parent Group its respective Affiliates (other than any member of the Company
Group), successors and assigns, and all Persons who at any time prior to the
Offerings Closing Date have been stockholders, directors, officers, agents or
employees of any member of the Parent Group (in each case, in their respective
capacities as such), remise, release and forever discharge the Company, the
respective members of the Company Group, their respective Affiliates (other than
any member of the Parent Group), successors and assigns, and all Persons who at
any time prior to the Offerings Closing Date have been stockholders, directors,
officers, agents or employees of any member of the Company Group (in each case,
in their respective capacities as such), and their respective heirs, executors,
administrators, successors and assigns, from any and all Liabilities whatsoever,
whether at law or in equity (including any right of contribution), whether
arising under any contract or agreement, by operation of law or otherwise,
existing or arising from any acts or events occurring or failing to occur or
alleged to have occurred or to have failed to occur or any conditions existing
or alleged to have existed on or before the Offerings Closing Date, including in
connection with the transactions and all other activities to implement any of
the Separation, the IPO and the Distribution.
(c) Nothing contained in Section 6.1(a) or (b) shall impair
any right of any Person to enforce this Agreement, any Ancillary Agreement or
any agreements, arrangements, commitments or understandings that are specified
in Section 2.5(b), in each case in accordance with its terms. In addition,
nothing contained in Section 6.1(a) or (b) shall release any Person from:
(i) any Liability provided in or resulting from any
agreement among any members of the Parent Group or the Company Group that is
specified in Section 2.5(b) or any other Liability specified in such Section
2.5(b);
(ii) any Liability, contingent or otherwise, assumed,
transferred, assigned or allocated to the Group of which such Person is a member
in accordance with, or any other Liability of any member of any Group under,
this Agreement or any Ancillary Agreement;
(iii) any Liability for the sale, lease, construction
or receipt of goods, property or services purchased, obtained or used in the
ordinary course of business by a member of one Group from a member of any other
Group prior to the Offerings Closing Date;
(iv) any Liability for unpaid amounts for products or
services or refunds owing on products or services due on a value-received basis
for work done by a member of one Group at the request or on behalf of a member
of another Group;
28
29
(v) any Liability that the parties may have with
respect to indemnification or contribution pursuant to this Agreement for claims
brought against the parties by third Persons, which Liability shall be governed
by the provisions of this Article VI and, if applicable, the appropriate
provisions of the Ancillary Agreements; or
(vi) any Liability the release of which would result
in the release of any Person other than a Person released pursuant to this
Section 6.1; provided that the parties agree not to bring suit or permit any of
their Subsidiaries to bring suit against any Person with respect to any
Liability to the extent that such Person would be released with respect to such
Liability by this Section 6.1 but for the provisions of this clause (vi).
(d) The Company shall not make, and shall not permit any
member of the Company Group to make, any claim or demand, or commence any Action
asserting any claim or demand, including any claim of contribution or any
indemnification, against Parent, or any member of the Parent Group or any other
Person released pursuant to Section 6.1(a), with respect to any Liabilities
released pursuant to Section 6.1(a). Parent shall not, and shall not permit any
member of the Parent Group, to make any claim or demand, or commence any Action
asserting any claim or demand, including any claim of contribution or any
indemnification, against the Company or any member of the Company Group, or any
other Person released pursuant to Section 6.1(b), with respect to any
Liabilities released pursuant to Section 6.1(b).
(e) It is the intent of each of Parent and the Company by
virtue of the provisions of this Section 6.1 to provide for a full and complete
release and discharge of all Liabilities existing or arising from all acts and
events occurring or failing to occur or alleged to have occurred or to have
failed to occur and all conditions existing or alleged to have existed on or
before the Offerings Closing Date, between or among the Company or any member of
the Company Group, on the one hand, and Parent, or any member of the Parent
Group, on the other hand (including any contractual agreements or arrangements
existing or alleged to exist between or among any such members on or before the
Offerings Closing Date), except as expressly set forth in Section 6.1(c). At any
time, at the request of any other party, each party shall cause each member of
its respective Group to execute and deliver releases reflecting the provisions
hereof.
6.2 INDEMNIFICATION BY COMPANY. Except as provided in Section 6.4, the
Company shall indemnify, defend and hold harmless Parent, each member of the
Parent Group and each of their respective directors, officers and employees, and
each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Parent Indemnitees"), from and against any and all
Liabilities of the Parent Indemnitees relating to, arising out of or resulting
from any of the following items (without duplication):
(a) the failure of the Company or any other member of the
Company Group or any other Person to pay, perform or otherwise promptly
discharge any Company Liabilities, or any of the Company Contract in accordance
with their respective terms, whether prior to or after the Offerings Closing
Date or the date hereof;
29
30
(b) the Company Business, any Company Liability, any Exclusive
Contingent Liability of the Company or any Company Contract; and
(c) any breach by the Company or any member of the Company
Group of this Agreement or any of the Ancillary Agreements.
6.3 INDEMNIFICATION BY PARENT. Except as provided in Section 6.4,
Parent shall indemnify, defend and hold harmless the Company, each member of the
Company Group and each of their respective directors, officers and employees,
and each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Company Indemnitees"), from and against any and all
Liabilities of the Company Indemnitees relating to, arising out of or resulting
from any of the following items (without duplication):
(a) the failure of Parent or any other member of the Parent
Group or any other Person to pay, perform or otherwise promptly discharge any
Excluded Liability or any Liabilities of the Parent Group other than the Company
Liabilities, whether prior to or after the Offerings Closing Date or the date
hereof;
(b) the Parent Business, any Excluded Liability, any Exclusive
Contingent Liability of Parent or any Liability of the Parent Group other than
the Company Liabilities;
(c) any breach by Parent or any member of the Parent Group of
this Agreement or any of the Ancillary Agreements; and
(d) any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein no misleading,
with respect to any information in any Registration Statement, any Demand
Registration Statement, Incidental Registration Statement or any prospectus
contained therein, or any amendment or supplement to such Registration
Statement, Demand Registration Statement, Incidental Registration Statement or
prospectus based upon or in conformity with information furnished in writing to
the Company by or on behalf of Parent which related to Parent, Parent's
business, its operations or its relationship with the Company.
6.4 INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND
OTHER AMOUNTS.
(a) The parties intend that any Liability subject to
indemnification or reimbursement pursuant to this Article VI or Article VII will
be net of Insurance Proceeds that actually reduce the amount of the Liability.
Accordingly, the amount which any party (an "Indemnifying Party") is required to
pay to any Person entitled to indemnification hereunder (an "Indemnitee") will
be reduced by any Insurance Proceeds theretofore actually recovered by or on
behalf of the Indemnitee in reduction of the related Liability. If an Indemnitee
receives a payment (an "Indemnity Payment") required by this Agreement from an
Indemnifying Party in respect of any
30
31
Liability and subsequently receives Insurance Proceeds, then the Indemnitee will
pay to the Indemnifying Party an amount equal to the excess of the Indemnity
Payment received over the amount of the Indemnity Payment that would have been
due if the Insurance Proceeds had been received, realized or recovered before
the Indemnity Payment was made.
(b) An insurer who would otherwise be obligated to pay any
claim shall not be relieved of the responsibility with respect thereto or,
solely by virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto, it being expressly understood and agreed that no
insurer or any other third party shall be entitled to a "windfall" (i.e., a
benefit they would not be entitled to receive in the absence of the
indemnification provisions) by virtue of the indemnification provisions hereof.
Nothing contained in this Agreement or any Ancillary Agreement shall obligate
any member of any Group to seek to collect or recover any Insurance Proceeds.
6.5 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS.
(a) If an Indemnitee shall receive notice or otherwise learn
of the assertion by a Person (including any Governmental Authority) who is not a
member of the Parent Group or the Company Group of any claim or of the
commencement by any such Person of any Action (collectively, a "Third Party
Claim") with respect to which an Indemnifying Party may be obligated to provide
indemnification to such Indemnitee pursuant to Section 6.2 or 6.3, or any other
Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give
such Indemnifying Party written notice thereof within 20 days after becoming
aware of such Third Party Claim. Any such notice shall describe the Third Party
Claim in reasonable detail. Notwithstanding the foregoing, the failure of any
Indemnitee to give notice as provided in this Section 6.5(a) shall not relieve
the Indemnifying Party of its obligations under this Article VI, except to the
extent that such Indemnifying Party is actually prejudiced by such failure to
give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after
the receipt of notice from an Indemnitee in accordance with Section 6.5(a) (or
sooner, if the nature of such Third Party Claim so requires), the Indemnifying
Party shall notify the Indemnitee of its election to assume responsibility for
defending such Third Party Claim, which election shall specify any reservations
or exceptions. After notice from an Indemnifying Party to an Indemnitee of its
election to assume the defense of a Third Party Claim, such Indemnitee shall
have the right to employ separate counsel and to participate reasonably in (but
not control) the defense, compromise, or settlement thereof, but the fees and
expenses of such counsel shall be the expense of such Indemnitee. With respect
to any such third party action assumed by the Indemnifying Party, the parties
agree to provide each other with all material information that they request
relating to the handling of such matter.
31
32
(c) If an Indemnifying Party elects not to assume
responsibility for defending a Third Party Claim, or fails to notify an
Indemnitee of its election as provided in Section 6.5(b), such Indemnitee may
defend such Third Party Claim at the cost and expense (including allocated costs
of in-house counsel and other personnel) of the Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the
defense of the Third Party Claim in accordance with the terms of this Agreement,
no Indemnitee may settle or compromise any Third Party Claim without the consent
of the Indemnifying Party.
(e) Notwithstanding anything to the contrary in this Section
6.5, the Indemnifying Party shall have no right to settle or compromise any
action for which it has assumed the defense of (i) to the extent the settlement
or compromise provides for any injunctive or other equitable relief against the
Indemnified Party or otherwise provides for any continuing obligations of any
nature against the Indemnified Party or loss of rights of the Indemnified Party,
and (ii) unless such settlement or compromise includes an unconditional release
of the Indemnified Party from all liability arising out of such action and does
not include a statement as to an admission of fault, culpability or failure to
act by or on behalf of the Indemnified Party.
(f) The provisions of this Section 6.5 and Section 6.6 shall
not apply to Taxes which are covered by the Tax Indemnification and Allocation
Agreement.
6.6 ADDITIONAL MATTERS.
(a) Any claim on account of a Liability which does not result
from a Third Party Claim shall be asserted by written notice given by an
Indemnitee to an Indemnifying Party. Such Indemnifying Party shall have a period
of 30 days after the receipt of such notice within which to respond thereto. If
such Indemnifying Party does not respond within such 30-day period, such
Indemnifying Party shall be deemed to have refused to accept responsibility to
make payment. If such Indemnifying Party does not respond within such 30-day
period or rejects such claim in whole or in part, such Indemnitee shall be free
to pursue such remedies as may be available to such party as contemplated by
this Agreement and the Ancillary Agreements.
(b) In the event of payment by or on behalf of any
Indemnifying Party to any Indemnitee in connection with any Third Party Claim,
such Indemnifying Party shall be subrogated to and shall stand in the place of
such Indemnitee as to any events or circumstances in respect of which such
Indemnitee may have any right, defense or claim relating to such Third Party
Claim against any claimant or plaintiff asserting such Third Party Claim or
against any other person. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense (including allocated
costs of in-house counsel and other personnel) of such Indemnifying Party, in
prosecuting any subrogated right, defense or claim.
(c) In the event of an Action in which the Indemnifying Party
is not a named defendant, if either the Indemnified Party or Indemnifying Party
shall so request, the parties shall
32
33
endeavor to substitute the Indemnifying Party for the named defendant. If such
substitution cannot be achieved for any reason or is not requested, the named
defendant shall allow the Indemnifying Party to manage the Action as set forth
in this Section and the Indemnifying Party shall fully indemnify the named
defendant against all costs of defending the Action (including court costs,
sanctions imposed by a court, attorneys' fees, experts' fees and all other
external expenses, and the allocated costs of in-house counsel and other
personnel), the costs of any judgment or settlement, and the cost of any
interest or penalties relating to any judgment or settlement.
6.7 REMEDIES CUMULATIVE. The remedies provided in this Article VI shall
be cumulative and, subject to the provisions of Article XI, shall not preclude
assertion by any Indemnitee of any other rights or the seeking of any and all
other remedies against any Indemnifying Party.
6.8 SURVIVAL OF INDEMNITIES. The rights and obligations of each of
Parent and the Company and their respective Indemnitee under this Article VI
shall survive the sale or other transfer by any party of any Assets or
businesses or the assignment by it of any Liabilities.
ARTICLE VII
CONTINGENT LIABILITIES AND CONTINGENT GAINS
7.1 CONTINGENT CLAIMS COMMITTEE. The Company and Parent shall establish
a Contingent Claims Committee, comprising one representative designated from
time to time by each of Parent and the Company, which Committee shall establish
procedures to resolve disagreements among the parties as to contingent gains and
contingent liabilities.
7.2 SHARED CONTINGENT LIABILITIES. The Company and Parent will have the
exclusive responsibility for any contingent liability that primarily relates to
the Company Business or the Parent Business, respectively, or is expressly
assigned to the Company or Parent, respectively (an "Exclusive Contingent
Liability"). The parties shall share responsibility for the following contingent
liabilities (the "Shared Contingent Liabilities"): (i) any contingent
liabilities that are not Exclusive Contingent Liabilities and (ii) those
liabilities as set forth on SCHEDULE 7.2 hereto. With respect to any Shared
Contingent Liability, the Company and Parent shall allocate responsibility
therefor based upon their respective market capitalizations (reduced in the case
of Parent to reflect Company Common Stock held by Parent) on the Offerings
Closing Date or on such other methodology to be established by the Contingent
Claims Committee. Parent will assume the defense of, and may seek to settle or
compromise, any third party claim that is a Shared Contingent Liability, and the
Company and Parent shall share the costs and expenses thereof.
7.3 CONTINGENT GAINS. The Company and Parent will have the exclusive
right to any benefit received with respect to any contingent gain that primarily
relates to the business of, or that is expressly assigned to, the Company or
Parent, respectively (an "Exclusive Contingent Gain"). Each of the Company and
Parent will have sole and exclusive authority to manage, control and otherwise
determine all matters whatsoever with respect to an Exclusive Contingent Gain
that
33
34
primarily relates to its respective business. The parties will share any benefit
that may be received from any contingent gain other than any Exclusive
Contingent Gain (a "Shared Contingent Gain") based upon their respective market
capitalizations on the Offerings Closing Date (reduced in the case of Parent to
reflect Company Common Stock held by Parent) or on such other methodology to be
established by a Contingent Claims Committee. Parent will have the sole and
exclusive authority to manage, control and otherwise determine all matters
whatsoever with respect to any Shared Contingent Gain. Parent may elect not to
pursue any Shared Contingent Gain for any reason whatsoever (including a
different assessment of the merits of any action, claim or right or any business
reasons that are in the best interest of Parent without regard to the best
interests of the Company) and Parent will have no liability to any Person
(including the Company) as a result of any such determination.
ARTICLE VIII
INSURANCE MATTERS
8.1 PAYMENTS; TRANSITION COVERAGE. The Company agrees that it will pay
to Parent $43,000 per month (prorated on a daily basis for any partial month) in
respect of the period from the date hereof until the Distribution Date, such
amount to be payable in arrears by the 10th day of the next succeeding month, in
respect of Insurance Policies under which the Company will continue to have
coverage following the date hereof. The Company further agrees to pay to Parent
an amount equal to five percent of incurred losses for claims adjustment
services to be rendered by Parent for automobile liability and general liability
claims. Parent and the Company agree to cooperate in good faith to provide for
an orderly transition of insurance coverage from the date hereof through the
Distribution Date and for the treatment of any Insurance Policies that will
remain in effect following the Offerings Closing Date on a mutually agreeable
basis. In no event shall Parent, any other member of the Parent Group or any
Parent Indemnitees have liability or obligation whatsoever to any member of the
Company Group in the event that any Insurance Policy or other contract or policy
of insurance shall be terminated or otherwise cease to be in effect for any
reason, shall be unavailable or inadequate to cover any Liability of any member
of the Company Group for any reason whatsoever or shall not be renewed or
extended beyond the current expiration date.
8.2 SUCCESSORS-IN-INTEREST RIGHTS.
(a) Except as otherwise provided in any Ancillary Agreement,
the parties intend by this Agreement that the Company and each other member of
the Company Group be successors-in-interest to all rights that any member of the
Company Group may have as of the Offerings Closing Date as a subsidiary,
affiliate, division or department of Parent prior to the Offerings Closing Date
under any policy of insurance issued to Parent by any insurance carrier
unaffiliated with Parent or under any agreements related to such policies
executed and delivered prior to the Offerings Closing Date, including any rights
such member of the Company Group may have, as an insured or additional named
insured, subsidiary, affiliate, division or department, to avail itself of any
such policy of insurance or any such agreements related to such policies as in
effect
34
35
prior to the Offerings Closing Date. At the request of the Company, Parent shall
take all reasonable steps, including the execution and delivery of any
instruments, to effect the foregoing; PROVIDED, HOWEVER, that Parent shall not
be required to pay any amounts, waive any rights or incur any Liabilities in
connection therewith.
(b) Except as otherwise contemplated by any Ancillary
Agreement, after the Offerings Closing Date, none of Parent or the Company or
any member of their respective Groups shall, without the consent of the other,
provide any such insurance carrier with a release, or amend, modify or waive any
rights under any such policy or agreement, if such release, amendment,
modification or waiver would adversely affect any rights or potential rights of
any member of the other Group thereunder; PROVIDED, HOWEVER, that the foregoing
shall not (A) preclude any member of any Group from presenting any claim or from
exhausting any policy limit, (B) require any member of any Group to pay any
premium or other amount or to incur any Liability, or (C) require any member of
any Group to renew, extend or continue any policy in force. Each of the Company
and Parent will share such information as is reasonably necessary in order to
permit the other to manage and conduct its insurance matters in an orderly
fashion.
8.3 NO ASSIGNMENT. This Agreement shall not be considered as an
attempted assignment of any policy of insurance or as a contract of insurance
and shall not be construed to waive any right or remedy of any member of the
Parent Group in respect of any Insurance Policy or any other contract or policy
of insurance.
8.4 NO LIABILITY. The Company does hereby, for itself and each other
member of the Company Group, agree that no member of the Parent Group or any
Parent Indemnitees shall have any Liability whatsoever as a result of the
insurance policies and practices of Parent and its Affiliates as in effect at
any time prior to the Offerings Closing Date, including as a result of the level
or scope of any such insurance, the creditworthiness of any insurance carrier,
the terms and conditions of any policy, the adequacy or timeliness of any notice
to any insurance carrier with respect to any claim or potential claim or
otherwise.
8.5 ADDITIONAL INSURANCE. Nothing in this Agreement shall be deemed to
restrict any member of the Company Group from acquiring at its own expense any
other insurance policy in respect of any Liabilities or covering any period.
ARTICLE IX
CERTAIN BUSINESS MATTERS
9.1 NON-COMPETE; BUSINESS OPPORTUNITIES.
(a) The Parent agrees that neither it or any Parent Subsidiary
will, directly or indirectly, compete with the Company in the Company Business
(as presently conducted) anywhere
35
36
in North America from the Distribution Date until five (5) years after the
Distribution Date or, if the Distribution does not occur, until January 1,
[2005].
(b) The Company agrees that neither it or any Company
Subsidiary will compete, directly or indirectly, with Parent in the Parent
Business (as presently conducted) anywhere in North America from the
Distribution Date until five (5) years after the Distribution Date or, if the
Distribution does not occur, until January 1, [2005].
(c) No member of either Group shall have any duty to refrain
from doing business with any potential or actual supplier or customer of any
member of any other Group.
(d) Each of Parent and the Company is aware that from time to
time certain business opportunities may arise which either Group may be
financially able to undertake, and which are, from their nature, in the line of
both Group business and are of practical advantage to both Groups. In connection
therewith, the parties agree that if prior to (but not following) the
Distribution Date, any of Parent or the Company acquires knowledge of an
opportunity that meets the foregoing standard with respect to both Groups, none
of Parent or the Company shall have any duty to communicate or offer such
opportunity to the other and may pursue or acquire such opportunity for itself,
or direct such opportunity to any other Person, unless (i) such opportunity
relates primarily to the Parent Business, or the Company Business, in which case
the party that acquires knowledge of such opportunity shall use its reasonable
best efforts to communicate and offer such opportunity to Parent or the Company,
respectively, or (ii) such opportunity relates both to the Parent Business and
the Company Business but not primarily to either one, in which case such party
shall use its reasonable best efforts to communicate and offer such opportunity
to the Company. Notwithstanding the foregoing, no party shall be required to so
communicate or offer any such opportunity if it would result in the breach of
any contract or agreement or violate any applicable law, rule or regulation of
any Governmental Authority, and no party shall have any obligation to finance
(or provide any other assistance whatsoever) to any other party in connection
with any such opportunity. In the event the foregoing clause (i) or (ii) is
applicable, no party, other than the party to whom the opportunity must be
offered in accordance with such clauses, shall pursue or acquire such
opportunity for itself, or direct such opportunity to any other Person, unless
the party to whom the opportunity is required to be offered does not within a
reasonable period of time begin to pursue, or does not thereafter continue to
pursue, such opportunity diligently and in good faith.
9.2 WARRANTS. Under the terms of certain outstanding warrants to
purchase Parent Common Stock, persons who hold such warrants and do not exercise
them prior to the record date for the Distribution will be entitled to receive
upon exercise of such warrants, in addition to shares of Parent Common Stock, a
number of shares of Company Common Stock, based on the same ratio used to
determine the number of shares of Company Common Stock to be distributed for
each outstanding share of Parent Common Stock on the record date for the
Distribution. If necessary, Parent will reserve shares of Company Common Stock
held by it at the time of the Distribution to be delivered to holders of
warrants upon exercise of such warrants following the record date for the
36
37
Distribution Date. The Company will not be required to issue any additional
shares of Company Common Stock to such warrant holders.
ARTICLE X
EXCHANGE OF INFORMATION; CONFIDENTIALITY
10.1 AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES.
(a) Each of Parent and the Company, on behalf of its
respective Group, agrees to provide, or cause to be provided, to the other
Group, at any time before or after the Distribution Date, as soon as reasonably
practicable after written request therefor, any Information in the possession or
under the control of such respective Group which the requesting party reasonably
needs (i) to comply with reporting, disclosure, filing or other requirements
imposed on the requesting party (including under applicable securities or tax
laws) by a Governmental Authority having jurisdiction over the requesting party,
(ii) for use in any other judicial, regulatory, administrative, tax or other
proceeding or in order to satisfy audit, accounting, claims, regulatory,
litigation, tax or other similar requirements, or (iii) to comply with its
obligations under this Agreement, any Ancillary Agreement or any Liability;
PROVIDED, HOWEVER, that in the event that any party determines that any such
provision of Information could be commercially detrimental, violate any law or
agreement, or waive any attorney-client privilege, the parties shall take all
reasonable measures to permit the compliance with such obligations in a manner
that avoids any such harm or consequence.
(b) After the Offerings Closing Date, the Company shall have
access during regular business hours (as in effect from time to time) to the
documents and objects of historic significance that relate to the Company
Business that are located in the Parent archives. The Company may obtain copies
(but not originals) of documents for bona fide business purposes and may obtain
objects for exhibition purposes for commercially reasonable periods of time if
required for bona fide business purposes, provided that the Company shall cause
any such objects to be returned promptly in the same condition in which they
were delivered to the Company and the Company shall comply with any rules,
procedures or other requirements, and shall be subject to any restrictions
(including prohibitions on removal of specified objects), that are then
applicable to Parent. The Company shall pay $125 per hour for archives research
services (subject to increase from time to time to reflect rates then in effect
for Parent generally). Nothing herein shall be deemed to restrict the access of
any member of the Parent Group to any such documents or objects or to impose any
liability on any member of the Parent Group if any such documents or objects are
not maintained or preserved by Parent.
(c) After the date hereof, (i) the Company shall maintain in
effect at its own cost and expense adequate systems and controls to the extent
necessary to enable the members of the Parent Group to satisfy their respective
reporting, accounting, audit and other obligations, and (ii) the Company shall
provide, or cause to be provided, to Parent in such form as Parent shall
request, at no charge to Parent, all financial and other data and information as
Parent determines necessary
37
38
or advisable in order to prepare Parent financial statements and reports or
filings with any Governmental Authority.
10.2 OWNERSHIP OF INFORMATION. Any Information owned by one Group that
is provided to a requesting party pursuant to Section 10.1 shall be deemed to
remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such Information.
10.3 COMPENSATION FOR PROVIDING INFORMATION. The party requesting such
Information agrees to reimburse the other party for the reasonable costs, if
any, of creating, gathering and copying such Information, to the extent that
such costs are incurred for the benefit of the requesting party. Except as may
be otherwise specifically provided elsewhere in this Agreement or in any other
agreement between the parties, such costs shall be computed in accordance with
the providing party's standard methodology and procedures.
10.4 RECORD RETENTION. To facilitate the possible exchange of
Information pursuant to this Article X and other provisions of this Agreement
after the Distribution Date, the parties agree to use their reasonable best
efforts to retain all Information in their respective possession or control on
the Distribution Date in accordance with the policies of Parent as in effect on
the Offerings Closing Date. No party will destroy, or permit any of its
Subsidiaries to destroy, any Information which the other party may have the
right to obtain pursuant to this Agreement prior to the third anniversary of the
date hereof without first using its reasonable best efforts to notify the other
party of the proposed destruction and giving the other party the opportunity to
take possession of such information prior to such destruction; PROVIDED,
HOWEVER, that in the case of any Information relating to Taxes or to
Environmental Liabilities, such period shall be extended to the expiration of
the applicable statute of limitations (giving effect to any extensions thereof).
10.5 LIMITATION OF LIABILITY. No party shall have any liability to any
other party in the event that any Information exchanged or provided pursuant to
this Agreement which is an estimate or forecast, or which is based on an
estimate or forecast, is found to be inaccurate, in the absence of willful
misconduct by the party providing such Information. No party shall have any
liability to any other party if any Information is destroyed after reasonable
best efforts by such party to comply with the provisions of Section 10.4.
10.6 OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights
and obligations granted under this Article X are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information set forth in any Ancillary Agreement.
10.7 PRODUCTION OF WITNESSES; RECORDS; COOPERATION.
(a) After the Offerings Closing Date, except in the case of an
adversarial Action by one party against another party (which shall be governed
by such discovery rules as may be
38
39
applicable under Article XI or otherwise), each party hereto shall use its
reasonable best efforts to make available to the other party, upon written
request, the former, current and future directors, officers, employees, other
personnel and agents of the members of its respective Group as witnesses and any
books, records or other documents within its control or which it otherwise has
the ability to make available, to the extent that any such person (giving
consideration to business demands of such directors, officers, employees, other
personnel and agents) or books, records or other documents may reasonably be
required in connection with any Action in which the requesting party may from
time to time be involved, regardless of whether such Action is a matter with
respect to which indemnification may be sought hereunder. The requesting party
shall bear all costs and expenses (including allocated costs of in-house counsel
and other personnel) in connection therewith.
(b) If an Indemnifying Party or Parent chooses to defend or to
seek to compromise or settle any Third Party Claim, or if any party chooses to
prosecute or otherwise evaluate or to pursue any Contingent Gain, the other
parties shall make available to such Indemnifying Party, Parent or such other
party, as the case may be, upon written request, the former, current and future
directors, officers, employees, other personnel and agents of the members of its
respective Group as witnesses and any books, records or other documents within
its control or which it otherwise has the ability to make available, to the
extent that any such person (giving consideration to business demands of such
directors, officers, employees, other personnel and agents) or books, records or
other documents may reasonably be required in connection with such defense,
settlement or compromise, or such prosecution, evaluation or pursuit, as the
case may be, and shall otherwise cooperate in such defense, settlement or
compromise, or such prosecution, evaluation or pursuit, as the case may be.
(c) Without limiting the foregoing, the parties shall
cooperate and consult to the extent reasonably necessary with respect to any
Actions, Contingent Liabilities and Contingent Gains.
(d) Without limiting any provision of this Section, each of
the parties agrees to cooperate, and to cause each member of its respective
Group to cooperate, with each other in the defense of any infringement or
similar claim with respect any intellectual property and shall not claim to
acknowledge, or permit any member of its respective Group to claim to
acknowledge, the validity or infringing use of any intellectual property of a
third Person in a manner that would hamper or undermine the defense of such
infringement or similar claim.
(e) The obligation of the parties to provide witnesses
pursuant to this Section 10.7 is intended to be interpreted in a manner so as to
facilitate cooperation and shall include the obligation to provide as witnesses
inventors and other officers without regard to whether the witness or the
employer of the witness could assert a possible business conflict (subject to
the exception set forth in the first sentence of Section 10.7(a)).
(f) In connection with any matter contemplated by this Section
10.7, the parties will enter into a mutually acceptable joint defense agreement
so as to maintain to the extent
39
40
practicable any applicable attorney-client privilege or work product immunity of
any member of any Group.
10.8 CONFIDENTIALITY.
(a) Subject to Section 10.9, each of Parent and the Company,
on behalf of itself and each member of its respective Group, agrees to hold, and
to cause its respective directors, officers, employees, agents, accountants,
counsel and other advisors and representatives to hold, in strict confidence,
with at least the same degree of care that applies to Parent's confidential and
proprietary information pursuant to policies in effect as of the Offerings
Closing Date, all Information concerning each such other Group that is either in
its possession (including Information in its possession prior to any of the date
hereof, the Offerings Closing Date or the Distribution Date) or furnished by any
such other Group or its respective directors, officers, employees, agents,
accountants, counsel and other advisors and representatives at any time pursuant
to this Agreement, any Ancillary Agreement or otherwise, and shall not use any
such Information other than for such purposes as shall be expressly permitted
hereunder or thereunder, except, in each case, to the extent that such
Information has been (i) in the public domain through no fault of such party or
any member of such Group or any of their respective directors, officers,
employees, agents, accountants, counsel and other advisors and representatives,
(ii) later lawfully acquired from other sources by such party (or any member of
such party's Group) which sources are not themselves bound by a confidentiality
obligation), or (iii) independently generated without reference to any
proprietary or confidential Information of the other party.
(b) Each party agrees not to release or disclose, or permit to
be released or disclosed, any such Information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such Information (who shall be advised of
their obligations hereunder with respect to such Information), except in
compliance with Section 10.9. Without limiting the foregoing, when any
Information is no longer needed for the purposes contemplated by this Agreement
or any Ancillary Agreement, each party will promptly after request of the other
party either return to the other party all Information in a tangible form
(including all copies thereof and all notes, extracts or summaries based
thereon) or certify to the other party that it has destroyed such Information
(and such copies thereof and such notes, extracts or summaries based thereon).
10.9 PROTECTIVE ARRANGEMENTS. In the event that any party or any member
of its Group either determines on the advice of its counsel that it is required
to disclose any Information pursuant to applicable law or receives any demand
under lawful process or from any Governmental Authority to disclose or provide
Information of any other party (or any member of any other party's Group) that
is subject to the confidentiality provisions hereof, such party shall notify the
other party prior to disclosing or providing such Information and shall
cooperate at the expense of the requesting party in seeking any reasonable
protective arrangements requested by such other party. Subject to the foregoing,
the Person that received such request may thereafter disclose or provide
Information to
40
41
the extent required by such law (as so advised by counsel) or by lawful process
or such Governmental Authority.
ARTICLE XI
ARBITRATION; DISPUTE RESOLUTION
11.1 AGREEMENT TO ARBITRATE; WAIVER OF JURY TRIAL. Except as otherwise
specifically provided in any Ancillary Agreement, the procedures for discussion,
negotiation and arbitration set forth in this Article XI shall apply to all
disputes, controversies or claims (whether sounding in contract, tort or
otherwise) that may arise out of or relate to, or arise under or in connection
with this Agreement or any Ancillary Agreement, or the transactions contemplated
hereby or thereby (including all actions taken in furtherance of the
transactions contemplated hereby or thereby on or prior to the date hereof), or
the commercial or economic relationship of the parties relating hereto or
thereto, between or among any member of the Parent Group and the Company Group.
Each party agrees on behalf of itself and each member of its respective Group
that the procedures set forth in this Article XI shall be the sole and exclusive
remedy in connection with any dispute, controversy or claim relating to any of
the foregoing matters and with respect thereto, hereby irrevocably waives any
right to commence any Action in or before any Governmental Authority as well as
any right to a trial by jury for any action, except as expressly provided in
Sections 11.7(b) and 11.8 and except to the extent provided under the
Arbitration Act in the case of judicial review of arbitration results or awards.
11.2 ESCALATION.
(a) It is the intent of the parties to use their respective
reasonable best efforts to resolve expeditiously any dispute, controversy or
claim between or among them with respect to the matters covered hereby that may
arise from time to time on a mutually acceptable negotiated basis. In
furtherance of the foregoing, any party involved in a dispute, controversy or
claim may deliver a notice (an "Escalation Notice") demanding an in person
meeting involving representatives of the parties at a senior level of management
of the parties (or if the parties agree, of the appropriate strategic business
unit or division within such entity). A copy of any such Escalation Notice shall
be given to the General Counsel, or like officer or official, of each party
involved in the dispute, controversy or claim (which copy shall state that it is
an Escalation Notice pursuant to this Agreement). Any agenda, location or
procedures for such discussions or negotiations between the parties may be
established by the parties from time to time; PROVIDED, HOWEVER, that the
parties shall use their reasonable best efforts to meet within 30 days of the
Escalation Notice.
(b) The parties may, by mutual consent, retain a mediator to
aid the parties in their discussions and negotiations by informally providing
advice to the parties. Any opinion expressed by the mediator shall be strictly
advisory and shall not be binding on the parties, nor shall any opinion
expressed by the mediator be admissible in any arbitration proceedings. The
mediator may be chosen from a list of mediators previously selected by the
parties or by other agreement of the
41
42
parties. Costs of the mediation shall be borne equally by the parties involved
in the matter, except that each party shall be responsible for its own expenses.
Mediation is not a prerequisite to a demand for arbitration under Section 11.3.
11.3 DEMAND FOR ARBITRATION.
(a) At any time after the first to occur of (i) the date of
the meeting actually held pursuant to the applicable Escalation Notice or (ii)
45 days after the delivery of an Escalation Notice, any party involved in the
dispute, controversy or claim (regardless of whether such party delivered the
Escalation Notice) may, unless the Applicable Deadline has occurred, make a
written demand (the "Arbitration Demand Notice") that the dispute be resolved by
binding arbitration, which Arbitration Demand Notice shall be given to the
parties to the dispute, controversy or claim in the manner set forth in Section
14.5. In the event that any party shall deliver an Arbitration Demand Notice to
another party, such other party may itself deliver an Arbitration Demand Notice
to such first party with respect to any related dispute, controversy or claim
with respect to which the Applicable Deadline has not passed without the
requirement of delivering an Escalation Notice. No party may assert that the
failure to resolve any matter during any discussions or negotiations, the course
of conduct during the discussions or negotiations or the failure to agree on a
mutually acceptable time, agenda, location or procedures for the meeting, in
each case, as contemplated by Article XI, is a prerequisite to a demand for
arbitration under this Section 11.3. In the event that any party delivers an
Arbitration Demand Notice with respect to any dispute, controversy or claim that
is the subject of any then pending arbitration proceeding or of a previously
delivered Arbitration Demand Notice, all such disputes, controversies and claims
shall be resolved in the arbitration proceeding for which an Arbitration Demand
Notice was first delivered unless the arbitrator in his or her sole discretion
determines that it is impracticable or otherwise inadvisable to do so.
(b) Except as may be expressly provided in any Ancillary
Agreement, any Arbitration Demand Notice may be given until one year and 45 days
after the later of the occurrence of the act or event giving rise to the
underlying claim or the date on which such act or event was, or should have
been, in the exercise of reasonable due diligence, discovered by the party
asserting the claim (as applicable and as it may in a particular case be
specifically extended by the parties in writing, the "Applicable Deadline"). Any
discussions, negotiations or mediations between the parties pursuant to this
Agreement or otherwise will not toll the Applicable Deadline unless expressly
agreed in writing by the parties. Each of the parties agrees on behalf of itself
and each member of its Group that if an Arbitration Demand Notice with respect
to a dispute, controversy or claim is not given prior to the expiration of the
Applicable Deadline, as between or among the parties and the members of their
Groups, such dispute, controversy or claim will be barred. Subject to Sections
11.7(d) and 11.8, upon delivery of an Arbitration Demand Notice pursuant to
Section 11.3(a) prior to the Applicable Deadline, the dispute, controversy or
claim shall be decided by a sole arbitrator in accordance with the rules set
forth in this Article XI.
42
43
11.4 ARBITRATORS.
(a) Within 15 days after a valid Arbitration Demand Notice is
given, the parties involved in the dispute, controversy or claim referenced
therein shall attempt to select a sole arbitrator satisfactory to all such
parties.
(b) In the event that such parties are not able jointly to
select a sole arbitrator within such 15-day period, such parties shall each
appoint an arbitrator within 30 days after delivery of the Arbitration Demand
Notice. If one party appoints an arbitrator within such time period and the
other party or parties fail to appoint an arbitrator within such time period,
the arbitrator appointed by the one party shall be the sole arbitrator of the
matter.
(c) In the event that a sole arbitrator is not selected
pursuant to paragraph (a) or (b) above and, instead, two arbitrators are
selected pursuant to paragraph (b) above, the two arbitrators will, within 30
days after the appointment of the later of them to be appointed, select an
additional arbitrator who shall act as the sole arbitrator of the dispute. After
selection of such sole arbitrator, the initial arbitrators shall have no further
role with respect to the dispute. In the event that the arbitrators so appointed
do not, within 30 days after the appointment of the later of them to be
appointed, agree on the selection of the sole arbitrator, any party involved in
such dispute may apply to the Center for Public Resources ("CPR") to select the
sole arbitrator, which selection shall be made by such organization within 30
days after such application. Any arbitrator selected pursuant to this paragraph
(c) shall be disinterested with respect to any of the parties and the matter and
shall be reasonably competent in the applicable subject matter.
(d) The sole arbitrator selected pursuant to paragraph (a),
(b) or (c) above will set a time for the hearing of the matter which will
commence no later than 90 days after the date of appointment of the sole
arbitrator pursuant to paragraph (a), (b) or (c) above and which hearing will be
no longer than 30 days (unless in the judgment of the arbitrator the matter is
unusually complex and sophisticated and thereby requires a longer time, in which
event such hearing shall be no longer than 90 days). The final decision of such
arbitrator will be rendered in writing to the parties not later than 60 days
after the last hearing date, unless otherwise agreed by the parties in writing.
(e) The place of any arbitration hereunder will be Fort
Lauderdale, Florida, unless otherwise agreed by the parties.
11.5 HEARINGS. Within the time period specified in Section 11.4(d), the
matter shall be presented to the arbitrator at a hearing by means of written
submissions of memoranda and verified witness statements, filed simultaneously,
and responses, if necessary in the judgment of the arbitrator or both the
parties. If the arbitrator deems it to be essential to a fair resolution of the
dispute, live cross-examination or direct examination may be permitted, but is
not generally contemplated to be necessary. The arbitrator shall actively manage
the arbitration with a view to achieving a just, speedy and cost-effective
resolution of the dispute, claim or controversy. The arbitrator may, in his or
her discretion, set time and other limits on the presentation of each party's
case, its memoranda
43
44
or other submissions, and refuse to receive any proffered evidence, which the
arbitrator, in his or her discretion, finds to be cumulative, unnecessary,
irrelevant or of low probative nature. Except as otherwise set forth herein, any
arbitration hereunder will be conducted in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes then prevailing (except that
the fee schedule of CPR will not apply). Except as expressly set forth in
Section 11.8(b), the decision of the arbitrator will be final and binding on the
parties, and judgment thereon may be had and will be enforceable in any court
having jurisdiction over the parties. Arbitration awards will bear interest at
an annual rate of the Prime Rate plus 2% per annum. To the extent that the
provisions of this Agreement and the prevailing rules of the CPR conflict, the
provisions of this Agreement shall govern.
11.6 DISCOVERY AND CERTAIN OTHER MATTERS.
(a) Any party involved in the applicable dispute may request
limited document production from the other party or parties of specific and
expressly relevant documents, with the reasonable expenses of the producing
party incurred in such production paid by the requesting party. Any such
discovery (which rights to documents shall be substantially less than document
discovery rights prevailing under the Federal Rules of Civil Procedure) shall be
conducted expeditiously and shall not cause the hearing provided for in Section
11.5 to be adjourned except upon consent of all parties involved in the
applicable dispute or upon an extraordinary showing of cause demonstrating that
such adjournment is necessary to permit discovery essential to a party to the
proceeding. Depositions, interrogatories or other forms of discovery (other than
the document production set forth above) shall not occur except by consent of
the parties involved in the applicable dispute. Disputes concerning the scope of
document production and enforcement of the document production requests will be
determined by written agreement of the parties involved in the applicable
dispute or, failing such agreement, will be referred to the arbitrator for
resolution. All discovery requests will be subject to the parties' rights to
claim any applicable privilege. The arbitrator will adopt procedures to protect
the proprietary rights of the parties and to maintain the confidential treatment
of the arbitration proceedings (except as may be required by law). Subject to
the foregoing, the arbitrator shall have the power to issue subpoenas to compel
the production of documents relevant to the dispute, controversy or claim.
(b) The arbitrator shall have full power and authority to
determine issues of arbitrability but shall otherwise be limited to interpreting
or construing the applicable provisions of this Agreement or any Ancillary
Agreement, and will have no authority or power to limit, expand, alter, amend,
modify, revoke or suspend any condition or provision of this Agreement or any
Ancillary Agreement; it being understood, however, that the arbitrator will have
full authority to implement the provisions of this Agreement or any Ancillary
Agreement, and to fashion appropriate remedies for breaches of this Agreement
(including interim or permanent injunctive relief); provided that the arbitrator
shall not have (i) any authority in excess of the authority a court having
jurisdiction over the parties and the controversy or dispute would have absent
these arbitration provisions or (ii) any right or power to award punitive or
treble damages. It is the intention of the parties that in rendering a decision
the arbitrator give effect to the applicable provisions of this
44
45
Agreement and
the Ancillary Agreements and follow applicable law (it being understood and
agreed that this sentence shall not give rise to a right of judicial review of
the arbitrator's award).
(c) If a party fails or refuses to appear at and participate
in an arbitration hearing after due notice, the arbitrator may hear and
determine the controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party
involved in the matter, except that each party will be responsible for its own
attorney's fees and other costs and expenses, including the costs of witnesses
selected by such party.
11.7 CERTAIN ADDITIONAL MATTERS.
(a) Any arbitration award shall be a bare award limited to a
holding for or against a party and shall be without findings as to facts, issues
or conclusions of law and shall be without a statement of the reasoning on which
the award rests, but must be in adequate form so that a judgment of a court may
be entered thereupon. Judgment upon any arbitration award hereunder may be
entered in any court having jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed
pursuant to Section 11.4, any party may seek one or more temporary restraining
orders in a court of competent jurisdiction if necessary in order to preserve
and protect the status quo. Neither the request for, or grant or denial of, any
such temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein and the arbitrator may dissolve, continue or
modify any such order. Any such temporary restraining order shall remain in
effect until the first to occur of the expiration of the order in accordance
with its terms or the dissolution thereof by the arbitrator.
(c) Except as required by law, the parties shall hold, and
shall cause their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of Article X, except
as may be required in order to enforce any award. Each of the parties shall
request that any mediator or arbitrator comply with such confidentiality
requirement.
(d) In the event that at any time the sole arbitrator shall
fail to serve as an arbitrator for any reason, the parties shall select a new
arbitrator who shall be disinterested as to the parties and the matter in
accordance with the procedures set forth herein for the selection of the initial
arbitrator. The extent, if any, to which testimony previously given shall be
repeated or as to which the replacement arbitrator elects to rely on the
stenographic record (if there is one) of such testimony shall be determined by
the replacement arbitrator.
45
46
11.8 LIMITED COURT ACTIONS.
(a) Notwithstanding anything herein to the contrary, in the
event that any party reasonably determines the amount in controversy in any
dispute, controversy or claim (or any series of related disputes, controversies
or claims) under this Agreement or any Ancillary Agreement is, or is reasonably
likely to be, in excess of $25 million and if such party desires to commence an
Action in lieu of complying with the arbitration provisions of this Article,
such party shall so state in its Arbitration Demand Notice or by notice given to
the other parties within 20 days after receipt of an Arbitration Demand Notice
with respect thereto. If the other parties to the arbitration do not agree
that the amount in controversy in such dispute, controversy or claim (or such
series of related disputes, controversies or claims) is, or is reasonably likely
to be, in excess of $25 million, the arbitrator selected pursuant to Section
11.4 hereof shall decide whether the amount in controversy in such dispute,
controversy or claim (or such series of related disputes, controversies or
claims) is, or is reasonably likely to be, in excess of $25 million. The
arbitrator shall set a date that is no later than ten days after the date of his
or her appointment for submissions by the parties with respect to such issue.
There shall not be any discovery in connection with such issue. The arbitrator
shall render his or her decision on such issue within five days of such date so
set by the arbitrator. In the event that the arbitrator determines that the
amount in controversy in such dispute, controversy or claim (or such series of
related disputes, controversies or claims) is or is reasonably likely to be in
excess of $25 million, the provisions of Sections 11.4(d) and (e), 11.5, 11.6,
11.7 and 11.10 hereof shall not apply and on or before (but, except as expressly
set forth in Section 11.8(b), not after) the tenth business day after the date
of such decision, any party to the arbitration may elect, in lieu of
arbitration, to commence an Action with respect to such dispute, controversy or
claim (or such series of related disputes, controversies or claims) in any court
of competent jurisdiction. If the arbitrator does not so determine, the
provisions of this Article (including with respect to time periods) shall apply
as if no determinations were sought or made pursuant to this Section 11.8(a).
(b) In the event that an arbitration award in excess of $25
million is issued in any arbitration proceeding commenced hereunder, any party
may, within 60 days after the date of such award, submit the dispute,
controversy or claim (or series of related disputes, controversies or claims)
giving rise thereto to a court of competent jurisdiction, regardless of whether
such party or any other party sought to commence an Action in lieu of proceeding
with arbitration in accordance with Section 11.8(a). In such event, the
applicable court may elect to rely on the record developed in the arbitration
or, if it determines that it would be advisable in connection with the matter,
allow the parties to seek additional discovery or to present additional
evidence. Each party shall be entitled to present arguments to the court with
respect to whether any such additional discovery or evidence shall be permitted
and with respect to all other matters relating to the applicable dispute,
controversy or claim (or series of related disputes, controversies or claims).
(c) No party shall raise as a defense the statute of
limitations if the applicable Arbitration Demand Notice was delivered on or
prior to the Applicable Deadline and, if applicable, if the matter is submitted
to a court of competent jurisdiction within the 10-day period or 60-day period
specified in Section 11.8(a) or Section 11.8(b), respectively.
46
47
11.9 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Article XI with respect
to all matters not subject to such dispute, controversy or claim.
11.10 LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the
provisions of this Article XI, only insofar as they relate to the agreement to
arbitrate and any procedures pursuant thereto, shall be governed by the
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section 14.2.
ARTICLE XII
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
12.1 FURTHER ASSURANCES.
(a) In addition to the actions specifically provided for
elsewhere in this Agreement, each of the parties hereto shall use its reasonable
best efforts, prior to, on and after the Offerings Closing Date, to take, or
cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make effective the transactions contemplated by
this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, prior to, on and after the
Offerings Closing Date, each party hereto shall cooperate with the other
parties, and without any further consideration, but at the expense of the
requesting party, to execute and deliver, or use its reasonable best efforts to
cause to be executed and delivered, all instruments, including instruments of
conveyance, assignment and transfer, and to make all filings with, and to obtain
all consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other instrument
(including any Consents or Governmental Approvals), and to take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement and the
Ancillary Agreements, in order to effectuate the provisions and purposes of this
Agreement and the Ancillary Agreements and the transfers of the Company Assets
and the assignment and assumption of the Company Liabilities, the transfers of
the Excluded Assets and the assignment and assumption of the Excluded
Liabilities, and the other transactions contemplated hereby and thereby. Without
limiting the foregoing, each party will, at the reasonable request, cost and
expense of any other party, take such other actions as may be reasonably
necessary to vest in such other party good and marketable title, free and clear
of any Security Interest, to Company Assets or Excluded Assets, or as the case
may be, if and to the extent it is practicable to do so.
47
48
(c) On or prior to the Offerings Closing Date, Parent and the
Company in their respective capacities as direct and indirect stockholders of
their respective Subsidiaries, shall each ratify any actions which are
reasonably necessary or desirable to be taken by Parent or the Company, or any
other Subsidiary of Parent, as the case may be, to effectuate the transactions
contemplated by this Agreement.
(d) Parent and the Company and each of the members of their
respective Groups, waive (and agree not to assert against any of the others) any
claim or demand that any of them may have against any of the others for any
Liabilities or other claims relating to or arising out of: (i) the failure of
the Company or any member of the Company Group, on the one hand, or of Parent,
or any member of the Parent Group, on the other hand, to provide any
notification or disclosure required under any state Environmental Law in
connection with the Separation or the other transactions contemplated by this
Agreement, including the transfer by any member of any Group to any member of
any other Group of ownership or operational control of any Assets not previously
owned or operated by such transferee; or (ii) any inadequate, incorrect or
incomplete notification or disclosure under any such state Environmental Law by
the applicable transferor. To the extent any Liability to any Governmental
Authority or any third Person arises out of any action or inaction described in
clause (i) or (ii) above, the transferee of the applicable Asset hereby assumes
and agrees to pay any such Liability.
(e) Prior to the Offerings Closing Date, if one or more of the
parties identifies any commercial or other service that is needed to assure a
smooth and orderly transition of the businesses in connection with the
consummation of the transactions contemplated hereby, and that is not otherwise
governed by the provisions of this Agreement or any Ancillary Agreement, the
parties will cooperate in determining whether there is a mutually acceptable
arm's-length basis on which one or more of the other parties will provide such
service.
ARTICLE XIII
TERMINATION
This Agreement may be terminated at any time prior to the Distribution
Date as provided in Section 4.6, or by Parent at any time prior to the Offerings
Closing Date. If this Agreement is terminated prior to the Offerings Closing
Date, no party hereto (or any of its respective directors or officers) will have
any liability or further obligation to any other party. In the event of any
termination of this Agreement on or after the Offerings Closing Date in
accordance with Section 4.6, only the provisions of this Agreement that obligate
the parties to pursue the Distribution, or take, or refrain from taking, actions
which would or might prevent the Distribution from qualifying for tax-free
treatment under Section 355 of the Code, will terminate and the other provisions
hereof and of each Ancillary Agreement will remain in full force and effect,
including, without limitation Section 14.9.
48
49
ARTICLE XIV
MISCELLANEOUS
14.1 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER.
(a) This Agreement and each Ancillary Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other party.
(b) This Agreement, and the Ancillary Agreements and the
Exhibits, Schedules and Appendices hereto and thereto contain the entire
agreement between the parties with respect to the subject matter hereof,
supersede all previous agreements, negotiations, discussions, writings,
understandings, commitments and conversations with respect to such subject
matter and there are no agreements or understandings between the parties other
than those set forth or referred to herein or therein.
(c) Parent represents on behalf of itself and each other
member of the Parent Group, the Company represents on behalf of itself and each
other member of the Company Group:
(i) each such Person has the requisite corporate or
other power and authority and has taken all corporate or other action necessary
in order to execute, deliver and perform each of this Agreement and each other
Ancillary Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby; and
(ii) this Agreement and each Ancillary Agreement to
which it is a party has been duly executed and delivered by it and constitutes a
valid and binding agreement of it enforceable in accordance with the terms
thereof.
(d) Each party hereto acknowledges that it and each other
party hereto is executing certain of the Ancillary Agreements by facsimile,
stamp or mechanical signature. Each party hereto expressly adopts and confirms
each such facsimile, stamp or mechanical signature made in its respective name
as if it were a manual signature, agrees that it will not assert that any such
signature is not adequate to bind such party to the same extent as if it were
signed manually and agrees that at the reasonable request of any other party
hereto at any time it will as promptly as reasonably practicable cause each such
Ancillary Agreement to be manually executed (any such execution to be as of the
date of the initial date thereof).
14.2 GOVERNING LAW. Except as set forth in Section 11.10, this
Agreement and, unless expressly provided therein, each Ancillary Agreement,
shall be governed by and construed and interpreted in accordance with the laws
of the State of Florida.
49
50
14.3 ASSIGNABILITY. Except as set forth in any Ancillary Agreement,
this Agreement and each Ancillary Agreement shall be binding upon and inure to
the benefit of the parties hereto and thereto, respectively, and their
respective successors and assigns; PROVIDED, HOWEVER, that no party hereto or
thereto may assign its respective rights or delegate its respective obligations
under this Agreement or any Ancillary Agreement without the express prior
written consent of the other parties hereto or thereto.
14.4 THIRD PARTY BENEFICIARIES. Except for the indemnification rights
under this Agreement of any Parent Indemnitee or Company Indemnitee in their
respective capacities as such, (a) the provisions of this Agreement and each
Ancillary Agreement are solely for the benefit of the parties and are not
intended to confer upon any Person except the parties any rights or remedies
hereunder, and (b) there are no third party beneficiaries of this Agreement or
any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement
shall provide any third person with any remedy, claim, liability, reimbursement,
claim of action or other right in excess of those existing without reference to
this Agreement or any Ancillary Agreement.
14.5 NOTICES. All notices or other communications under this Agreement
or any Ancillary Agreement shall be in writing and shall be deemed to be duly
given when (a) delivered in person or (b) deposited in the United States mail or
private express mail, postage prepaid, addressed to the principal executive
office of the other party to the attention of such party's chief executive
officer with a copy to such party's general counsel. Any party may, by notice to
the other party, change the address to which such notices are to be given.
14.6 SEVERABILITY. If any provision of this Agreement or any Ancillary
Agreement or the application thereof to any Person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof or thereof, or the application of such provision to
Persons or circumstances or in jurisdictions other than those as to which it has
been held invalid or unenforceable, shall remain in full force and effect and
shall in no way be affected, impaired or invalidated thereby, so long as the
economic or legal substance of the transactions contemplated hereby or thereby,
as the case may be, is not affected in any manner adverse to any party. Upon
such determination, the parties shall negotiate in good faith in an effort to
agree upon such a suitable and equitable provision to effect the original intent
of the parties.
14.7 FORCE MAJEURE. No party shall be deemed in default of this
Agreement or any Ancillary Agreement to the extent that any delay or failure in
the performance of its obligations under this Agreement or any Ancillary
Agreement results from any cause beyond its reasonable control and without its
fault or negligence, such as acts of God, acts of civil or military authority,
embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes,
floods, unusually severe weather conditions, labor problems or unavailability of
parts, or, in the case of computer systems, any failure in electrical or air
conditioning equipment. In the event of any such excused delay, the time for
performance shall be extended for a period equal to the time lost by reason of
the delay.
50
51
14.8 PUBLICITY. Prior to the Distribution, each of the Company and
Parent shall consult with each other prior to issuing any press releases or
otherwise making public statements with respect to the IPO, the Distribution or
any of the other transactions contemplated hereby and prior to making any
filings with any Governmental Authority with respect thereto.
14.9 EXPENSES. Except as expressly set forth in this Agreement
(including Section 3.1(g) and Section 5.4 hereof) or in any Ancillary Agreement,
whether or not the IPO or the Distribution is consummated, all third party fees,
costs and expenses paid or incurred in connection with the Distribution will be
paid by Parent. Parent and the Company shall share all of the fees, costs and
expenses in connection with the Letter Ruling as if such amounts were Shared
Contingent Liabilities subject to Section 7.2 hereof.
14.10 HEADINGS. The article, section and paragraph headings contained
in this Agreement and in the Ancillary Agreements are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement or any Ancillary Agreement.
14.11 SURVIVAL. Except as expressly set forth in any Ancillary
Agreement, the covenants, representations and warranties contained in this
Agreement and each Ancillary Agreement, and liability for the breach of any
obligations contained herein, shall survive each of the Separation, the IPO and
the Distribution.
14.12 WAIVERS OF DEFAULT. Waiver by any party of any default by the
other party of any provision of this Agreement or any Ancillary Agreement shall
not be deemed a waiver by the waiving party of any subsequent or other default,
nor shall it prejudice the rights of the other party.
14.13 SPECIFIC PERFORMANCE. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement or any Ancillary Agreement, the party or parties who are or are to be
thereby aggrieved shall have the right to specific performance and injunctive or
other equitable relief of its rights under this Agreement or such Ancillary
Agreement, in addition to any and all other rights and remedies at law or in
equity, and all such rights and remedies shall be cumulative. The parties agree
that the remedies at law for any breach or threatened breach, including monetary
damages, are inadequate compensation for any loss and that any defense in any
action for specific performance that a remedy at law would be adequate is
waived. Any requirements for the securing or posting of any bond with such
remedy are waived.
14.14 AMENDMENTS.
(a) No provisions of this Agreement or any Ancillary Agreement
shall be deemed waived, amended, supplemented or modified by any party, unless
such waiver, amendment, supplement or modification is in writing and signed by
the authorized representative of the party against whom it is sought to enforce
such waiver, amendment, supplement or modification.
51
52
(b) Without limiting the foregoing, the parties anticipate
that, prior to the Offerings Closing Date, some or all of the Schedules to this
Agreement may be amended or supplemented and, in such event, such amended or
supplemented Schedules shall be attached hereto in lieu of the original
Schedules.
14.15 INTERPRETATION. Words in the singular shall be held to include
the plural and vice versa and words of one gender shall be held to include the
other genders as the context requires. The terms "hereof," "herein," and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement (or the applicable Ancillary Agreement) as
a whole (including all of the Schedules, Exhibits and Appendices hereto and
thereto) and not to any particular provision of this Agreement (or such
Ancillary Agreement). Article, Section, Exhibit, Schedule and Appendix
references are to the Articles, Sections, Exhibits, Schedules and Appendices to
this Agreement (or the applicable Ancillary Agreement) unless otherwise
specified. The word "including" and words of similar import when used in this
Agreement (or the applicable Ancillary Agreement) shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified. The word "or" shall not be exclusive.
IN WITNESS WHEREOF, the parties have caused this Separation and
Distribution Agreement to be executed by their duly authorized representatives.
REPUBLIC INDUSTRIES, INC.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
REPUBLIC SERVICES, INC.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
52
53
LIST OF SCHEDULES
Schedule 2.1 Certain Corporate Reorganization Transactions
Schedule 2.3(a)(i) Certain Company Assets
Schedule 2.3(a)(iv) Subsidiaries of the Company
Schedule 2.3(b) Certain Excluded Assets
Schedule 2.4(a)(i) Certain Company Liabilities
Schedule 2.4(b) Certain Excluded Liabilities
Schedule 2.5(b)(ii) Non-Terminated Agreements
Schedule 2.9(a) Governmental Approvals and Consents
Schedule 7.2 Shared Contingent Liabilities
53
1
EXHIBIT 10.2
FORM OF
EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT (the "Agreement"), dated as of June
___, 1998, between Republic Industries, Inc., a Delaware corporation ("Parent"),
and Republic Services, Inc., a Delaware corporation and, as of the date hereof,
a wholly owned subsidiary of Parent ("Company").
WHEREAS, Parent and Company have entered into a Separation and
Distribution Agreement (the "Distribution Agreement") which contemplates (i) the
separation of Company, which comprises Parent's solid waste services businesses
and operations (the "Company Business"), from Parent's other businesses and
operations (the "Separation"), (ii) the consummation of an initial public
offering (the "IPO") of the Company's Class A common stock, and (iii) following
the IPO, the distribution by Parent of all shares of common stock of Company
owned by Parent to Parent's stockholders at the time of such distribution (the
"Distribution"); and
WHEREAS, the Distribution Agreement contemplates the execution and
delivery of this Agreement, the purpose of which is to set forth certain matters
regarding the treatment of employee benefits as a result of, and in connection
with, the Separation.
NOW, THEREFORE, in consideration of the mutual agreement, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, terms shall have the meaning set forth in
the Distribution Agreement, unless otherwise expressly provided herein. In
addition, the following terms shall have the following meanings:
"Company Employee" means (a) any individual who, on or
immediately prior to the Distribution Date, is employed by Parent or any Parent
Subsidiary or is on a leave of absence approved by Parent or any Parent
Subsidiary and who, immediately after the Distribution Date, is employed by
Company or any Company Subsidiary or who is continuing on a leave of absence
approved by Company or any Company Subsidiary, and (b) any individual whose
employment is transferred from Parent or any Parent Subsidiary to Company or any
Company Subsidiary within three hundred and sixty five days after the
Distribution Date.
2
"Company Subsidiary" means any corporation, partnership or other entity
directly or indirectly controlled by Company.
"Distribution Date" means the date upon which the Distribution is
consummated in accordance with the Distribution Agreement.
"Former Company Employee" means any individual who was an employee of
the Company or was engaged in Company Business with Parent but terminated such
employment prior to the Distribution Date.
"Parent Subsidiary" means any corporation, partnership or other entity
directly or indirectly controlled by Parent, other than Company and Company
Subsidiaries.
"Transfer Date" means, (i) with respect to any Company Employee
described in clause (a) of the definition of Company Employee, the Distribution
Date, and (ii) with respect to any Company Employee described in clause (b) of
the definition of Company Employee, the effective date on which such Company
Employee's employment is transferred from Parent or any Parent Subsidiary to
Company or any Company Subsidiary.
ARTICLE II
CERTAIN BENEFIT PLAN MATTERS
2.1 CERTAIN COMPANY PLANS; ASSUMPTIONS OF OBLIGATIONS BY COMPANY.
(a) Except as otherwise provided herein, Company hereby agrees
to establish as of the Distribution Date employee benefit plans (the "Company
Plans") having substantially the same terms and provisions as the employee
benefit plans of Parent listed on SCHEDULE 2.1 hereto (the "Parent Plans").
Except as otherwise provided herein, the Company agrees to assume and to pay,
perform, fulfill and discharge, in accordance with their respective terms, all
liabilities relating to each Company Employee and certain Former Company
Employees arising under such Parent Plans. The Company acknowledges and agrees
that Parent is making no representations or warranties hereunder or otherwise
that the costs to Company of providing benefits under the Company Plans
(including without limitation costs of premiums and other charges to third party
service providers) will be the same as the corresponding costs heretofore
incurred by Parent. Nothing in this Agreement shall be construed to prevent the
Company from altering or discontinuing any Company Plans established by it
pursuant to this Section 2.
(b) Until the Distribution Date, such Company Employees and
certain Former Company Employees are referenced in Section 2.1(a) above will
continue to participate in the Parent Plans, and the Company shall bear the
allocable share of the costs of benefits thereunder.
2
3
2.2 CERTAIN PAYMENTS BY PARENT. Parent hereby agrees to pay all
insurance premiums or similar plan payments attributable to each participant who
will become a Company Employee for the period ending on such participant's
Transfer Date (or the end of the month thereafter if insurance premiums or third
party administration deposits are paid on a monthly basis) under each Parent
Plan listed on Schedule 2.2 hereto.
2.3 CERTAIN MEDICAL CLAIMS. Parent hereby agrees to retain all medical
costs, including insurance premiums or the payment and reimbursement of claims,
of each Company Employee and his or her covered dependents for claims which
relate to conditions incurred on or prior to the Company Employee's Transfer
Date with respect to expenses for medical services rendered to such persons
during the period ending on such Transfer Date.
2.4 EMPLOYEES ON CERTAIN LEAVE. If any individual who becomes a Company
Employee is on a leave of absence approved by Parent or any Parent Subsidiary on
his or her Transfer Date, and continues on a leave approved by Company or any
Company Subsidiary after the Transfer Date, then such leave shall continue under
Company's leave policies; provided that the maximum aggregate amount and
duration of such benefits as well as the duration of the leave shall not exceed
such limits under the applicable Parent policy.
2.5 SAVINGS PLAN(S). The Company shall participate as a separate
employer in the 401(k) plan currently maintained by the Parent. All liabilities
associated with plans acquired via previous and current acquisition activity by
either Parent and/or the Company related to the Company Business will become the
liability of the Company as of the Distribution Date. Each Company Employee who
is participating in one of the Parent Savings Plans immediately prior to his or
her Transfer Date shall continue to participate in such Parent Savings Plan as
of such Transfer Date. Each Company Employee who makes salary reduction
contributions to a Parent Savings Plan during the calendar quarter in which his
or her Transfer Date occurs, with respect to compensation paid on or before such
Transfer Date, and who continues to be employed by Company or a Company
Subsidiary at the end of such calendar year, will have matching contributions
made to the Parent Savings Plans, by Parent and Company pro rata, with respect
to those contributions, as of the end of such calendar quarter.
2.7 INCENTIVE PLAN. Company shall assume certain employee stock
incentive obligations, pursuant to its 1998 Stock Inventive Plan (the "Stock
Incentive Plan") to be adopted prior to the Offerings Closing Date, a copy of
which is attached hereto as SCHEDULE 2.7.
(a) Following the Distribution, the Company intends to issue
substitute options under the Stock Incentive Plan (collectively "Substitute
Options") in substitution for grants of options to purchase Parent Common Stock
granted under Parent's stock option plans as of the Distribution Date
(collectively, "Parent Stock Options") which are held by Company Employees on
the Distribution Date. With certain exceptions, Parent Stock Options held by
individuals employed by Parent as of the Distribution Date and Parent Stock
Options held by individuals who will not continue their employment after the
Distribution Date with any of Parent, the Company or any of
3
4
their subsidiaries, including individuals who have retired prior to such date,
will remain outstanding as Parent Stock Options, with an appropriate
antidilution adjustment to reflect the Distribution.
(b) The Substitute Options will provide for the purchase of a
number of shares of the Class A Common Stock of the Company (the "Class A Common
Stock") equal to the number of shares of Parent Common Stock subject to such
Parent Stock Options as of the Distribution Date, multiplied by the Ratio (as
defined below), rounded down to the nearest whole share. The per share exercise
price of the Substitute Options will equal the per share exercise price of such
Parent Stock Options as of the Distribution Date divided by the Ratio. Solely
for its convenience, the Company will pay the holders of the Substitute Options
cash in lieu of any fractional share. The other terms and conditions of such
Substitute Options will be substantially the same as those of the surrendered
Parent Stock Options subject to the provisions of the Stock Incentive Plan. The
"Ratio" means the amount obtained by dividing (i) the average of the daily high
and low per share prices of the common stock of Parent as listed on the New York
Stock Exchange (the "NYSE") during each of the 30 trading days immediately
preceding the ex-dividend date for the Distribution by (ii) the average of the
daily high and low per share prices of the Class A Common Stock as listed on the
NYSE during each of the 30 trading days immediately preceding the ex-dividend
date for the Distribution.
(c) Parent agrees to indemnify, defend and hold harmless the
Company Indemnitees from and against any Liabilities relating to, arising out of
or resulting from options granted under any of the Parent's stock option plans.
ARTICLE III
MISCELLANEOUS
3.1 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provisions contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship set forth herein.
3.2 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
parties hereto and their respective subsidiaries and affiliates and shall not be
deemed to confer upon third parties any remedy, claim, liability, reimbursement,
claim of action or other right in excess of those existing without reference to
this Agreement.
3.3 GOVERNING LAW. To the extent not preempted by applicable federal
law, this Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of Florida, irrespective of the choice or
conflict of law rules or provisions of the State of Florida, as to all matters,
including matters of validity, construction, effect, performance and remedies.
4
5
3.4 INCORPORATION OF DISTRIBUTION AGREEMENT PROVISIONS. The following
provisions of the Distribution Agreement are hereby incorporated herein by
reference and, unless otherwise expressly specified herein, such provisions
shall apply as if set forth herein: Article VI (relating to Indemnification),
Article X (relating to exchange of information, confidentiality) and Section
14.5 (relating to notices).
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date and year first above written.
REPUBLIC INDUSTRIES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
REPUBLIC SERVICES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
5
1
EXHIBIT 10.3
FORM OF
SERVICES AGREEMENT
This SERVICES AGREEMENT (the "Agreement") is made as of June __, 1998
by and between Republic Industries, Inc., a Delaware corporation ("Parent") and
Republic Services, Inc., a Delaware corporation ("Company").
WHEREAS, the Board of Directors of Parent has determined that it is in
the best interests of Parent and its stockholders to separate the Company, which
comprises the Parent's solid waste services businesses and operations, from
Parent (the "Separation");
WHEREAS, in order to effectuate the Separation, Parent and Company have
entered into a Separation and Distribution Agreement, dated as of the date
hereof (the "Separation and Distribution Agreement"), which provides, among
other things, subject to the terms and conditions thereof, for the Separation,
the initial public offering of the common stock of the Company and the
distribution of all shares of common stock of the Company held by Parent to the
stockholders of Parent; and
WHEREAS, in order to ensure an orderly transition under the Separation
and Distribution Agreement it will be necessary for Parent to provide to Company
certain services described herein at various levels throughout the term of this
Agreement.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants contained herein, it is agreed by and between the parties as follows:
ARTICLE I
FEES AND TERM
1.1 PRICE/PAYMENT. As consideration for the services to be provided to
Company by Parent under the terms of this Agreement, Company shall initially pay
to Parent a fee (the "Services Fee") of One Million Two Hundred Fifty Thousand
Dollars ($1,250,000.00) per month. The Services Fee shall be payable by Company
to Parent in arrears 15 days after the close of each month (prorated for any
partial month) during the term of this Agreement. Any services provided by
Parent to Company beyond the services covered by the Services Fee shall be
billed to Company on a cost basis, or on such other basis as the parties may
agree from time to time. The Services Fee shall be reviewed and reduced from
time to time in accordance with Section 2.3.
1.2 TERM. The term of this Agreement (the "Term") shall commence on the
date hereof and shall expire one year after the closing of the initial public
offering of the Company.
2
ARTICLE II
SERVICES
2.1 SERVICES. Parent agrees to provide the following services (subject
to such modification or adjustment as may be mutually agreed upon by the
parties) to Company during the Term:
(a) CORPORATE COMMUNICATIONS DEPARTMENT: The corporate
communications department of Parent shall develop and
implement strategic internal and external communication
programs for Company, including investor assistance and
communications;
(b) CORPORATE DEVELOPMENT DEPARTMENT. The corporate development
department of Parent shall assist Company to develop,
negotiate and close on acquisition and disposition
opportunities.
(c) CORPORATE FINANCE DEPARTMENT: The corporate finance department
of Parent shall provide corporate accounting, financial
planning and financial reporting systems, processing of
Company accounts payable, processing of Company payroll, cash
management and treasury functions, and internal audit
supervision.
(d) HUMAN RESOURCES DEPARTMENT: The human resources department of
Parent shall provide and administer for certain employees, as
agreed upon by the parties, all benefit plans and a 401(k)
plan consistent with the current plans maintained by Parent,
provide salary administration, maintain affirmative
action/EEOC programs and compliance, assist in the recruiting
and selection of employees, and administer employee relations
programs.
(e) LEGAL DEPARTMENT: The legal department of Parent shall provide
all legal services requested by Company, including but not
limited to: advice and counsel on legal matters, governmental
affairs, employee termination issues, Fair Labor Standards Act
matters and Service Contract Act matters; preparation, review
and negotiation of acquisition agreements and other material
contracts; direction and coordination of labor relations and
worker's compensation cases and claims; performing corporate
secretary functions; preparation and filing of all
information, reports and registration statements with the
Securities and Exchange Commission and any exchange on which
the Company's common stock may be listed; and assisting in any
applicable licensing and intellectual property matters.
(f) PURCHASING DEPARTMENT: The purchasing department of Parent
shall provide central purchasing programs for Parent and
Company and shall provide Company assistance in negotiating
contracts with vendors.
2
3
(g) RISK MANAGEMENT DEPARTMENT: The risk management department of
Parent shall direct and coordinate all risk management
activities of the Company, including insurance and surety and
general risk management services such as insurance procurement
and claims administration.
(h) TAX DEPARTMENT: The tax department of Parent shall provide tax
compliance, reporting and planning services for federal, state
and local tax matters.
2.2 DETAILS OF PERFORMANCE. Reasonable details of Parent's performance
of services hereunder may be specified in one or more memoranda signed by the
parties and such memoranda shall be deemed incorporated in this Agreement by
reference as if recited herein in their entirety.
2.3 PHASE OUT OF SERVICES; REDUCTION OF SERVICES FEE. The parties
hereby acknowledge that Company will promptly take all steps to internalize the
services to be provided herein by acquiring its own staff or outsourcing to
third parties. The parties agree to periodically review the level of services
being utilized by the Company, and from time to time shall reduce the Service
Fee proportionately to account for reductions in the level of services being
provided hereunder.
ARTICLE III
MISCELLANEOUS
3.1 CONFIDENTIALITY. Parent shall not use or disclose to any other
person at any time, any confidential or proprietary information or trade secrets
of Company, including, without limitation, its customer lists, programs, pricing
and strategies except to those of its employees and those other persons who need
to know such information to fulfill Parent's obligations hereunder. Parent shall
provide to Company semi-annually upon Company's written request, a list of all
employees of Parent whose duties have required access to such information, and
any other employees who to the actual knowledge of Parent's officers have had
access to such information during the preceding six (6) month period, in each
case, designating whether such employees are in the employ of Parent as of the
date such list is provided. Parent agrees that all drawings, specifications,
data, memoranda, calculations, notes and other materials, including, without
limitation, any materials containing confidential or proprietary information or
trade secrets of Company, furnished by Company to Parent in connection with this
Agreement and any copies thereof are and shall remain the sole and exclusive
property of Company and shall be delivered to Company upon its request.
3.2 NO AGENCY. Parent shall perform its services under this Agreement
as an independent contractor. Each party acknowledges and agrees that it is not
granted any express or implied authority to assume or create any obligation or
responsibility on behalf of the other party, or to bind the other party with
regard to third parties in any manner.
3.3 NOTICES. Any notices required or permitted to be provided pursuant
to this Agreement shall be provided in writing and be deemed received upon
delivery by hand or five days after mailing
3
4
by certified mail, return receipt requested, addressed to the recipient party at
its address set forth above.
3.4 FORCE MAJEURE. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this Agreement
due to any act of God, fire, casualty, flood, war, strike, lock out, failure of
public utilities, injunction or any act, exercise, assertion or requirement of
governmental authority, epidemic, destruction of production facilities,
insurrection, inability to procure materials, labor, equipment, transportation
or energy sufficient to meet manufacturing needs, or any other cause beyond the
reasonable control of the party invoking this provision, and if such party shall
have used its best efforts to avoid such occurrence and minimize its duration
and has given prompt written notice to the other party, then the affected
party's performance for the period of delay or inability to perform due to such
occurrence shall be suspended. Should Parent fail to perform hereunder and shall
have provided proper notice to Company that it is unable to perform on account
of one or more reasons set forth in this section, Company may obtain replacement
services from a third party for the duration of such delay or inability to
perform, or for such longer period as Company shall be reasonably required to
commit to in order to obtain such replacement services and the Services Fee
shall be reduced accordingly.
ARTICLE IV
GENERAL PROVISIONS
4.1 ENTIRE AGREEMENT. Except as contemplated in Section 2.2, this
Agreement embodies the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof, and supersedes all prior agreements
and understandings relative to said subject matter.
4.2 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, Parent, Company and their respective successors and
assigns.
4.3 ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder shall be assignable by either party without the prior written consent
of the other party hereto, which consent shall not be unreasonably withheld.
4.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of Florida applicable to contracts to be
performed entirely in that State.
4.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
4.6 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
4
5
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first above written.
REPUBLIC INDUSTRIES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
REPUBLIC SERVICES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
5
1
EXHIBIT 10.4
FORM OF
TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
THIS TAX INDEMNIFICATION AND ALLOCATION AGREEMENT ("Agreement") is
entered into as of ___________, 1998 by and between REPUBLIC INDUSTRIES, INC., a
Delaware corporation ("Distributing Co.") and REPUBLIC SERVICES, INC., a
Delaware corporation ("Controlled Co.") (Distributing Co. and Controlled Co. are
sometimes collectively referred to herein as the "Companies"). Capitalized terms
used in this Agreement are defined in Section 1 below. Unless otherwise
indicated, all "Section" references in this Agreement are to sections of this
Agreement.
PRELIMINARY STATEMENTS
A. As of the date hereof, Distributing Co. is the common parent of an
affiliated group of corporations, including Controlled Co., which has elected to
file consolidated Federal income tax returns.
B. Incident to an initial public offering ("IPO") of Class A Common
Stock of Controlled Co. in connection with the separation and distribution of
Controlled Co. from Distributing Co. pursuant to one overall integrated plan,
the Companies have entered into a Separation and Distribution Agreement (the
"Distribution Agreement").
C. As a result of the IPO, Controlled Co. and its subsidiaries (as
constituted immediately after the consummation of the IPO) will cease to be
members of the affiliated group of which Distributing Co. is the common parent
(the "Offerings Closing Date").
D. The Distribution Agreement also sets forth certain transactions
whereby certain assets held by the Distributing Group will be transferred in
connection with the IPO and separation to Republic Resources and, prior to the
Offerings Closing Date, all of the capital stock of Republic Resources held by
Controlled Co. will be distributed to Distributing Co. in a transaction intended
to qualify as a tax-free distribution by Controlled Co. to Distributing Co.
under Section 355 of the Internal Revenue Code of 1986, as amended.
E. The Distribution Agreement also sets forth corporate transactions
pursuant to which Distributing Co. may sell capital stock of Controlled Co. and
will distribute, subject to the satisfaction of certain terms and conditions,
all of the capital stock of Controlled Co. held by Distributing Co. to
Distributing Co.'s shareholders in a transaction intended to qualify as a
tax-free distribution to Distributing Co. and its shareholders under Section 355
of the Internal Revenue Code of 1986, as amended.
2
F. The Companies desire to provide for and agree upon the allocation
between the parties of liabilities for Taxes arising prior to, as a result of,
and subsequent to the transactions contemplated by the Distribution Agreement,
and to provide for and agree upon other matters relating to Taxes.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the mutual covenants
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. DEFINITION OF TERMS. For purposes of this Agreement
(including the recitals hereof), the following terms have the following
meanings:
"Accounting Cutoff Date" means, with respect to Controlled
Co., any date as of the end of which there is a closing of the
financial accounting records for such entity.
"Accounting Firm" shall have the meaning provided in Section
15.
"Adjustment Request" means any formal or informal claim or
request filed with any Tax Authority, or with any administrative agency
or court, for the adjustment, refund, or credit of Taxes, including (a)
any amended Tax return claiming adjustment to the Taxes as reported on
the Tax Return or, if applicable, as previously adjusted, or (b) any
claim for refund or credit of Taxes previously paid.
"Affiliate" means any entity that directly or indirectly is
"controlled" by the person or entity in question. "Control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through
ownership of voting securities, by contract or otherwise. Except as
otherwise provided herein, the term Affiliate shall refer to Affiliates
of a person as determined immediately after the Distribution. The term
"Affiliate" includes a Subsidiary of an entity.
"Agreement" shall mean this Tax Indemnification and Allocation
Agreement.
"Allocated Federal Tax Liability" shall have the meaning
provided in Section 5.1(b)(i).
"Carryback" means any net operating loss, net capital loss,
excess tax credit, or other similar Tax item which may or must be
carried from one Tax Period to an earlier Tax Period under the Code or
other applicable Tax Law.
2
3
"Code" means the U.S. Internal Revenue Code of 1986, as
amended, or any successor law.
"Companies" means Distributing Co. and Controlled Co.,
collectively, and "Company" means any one of Distributing Co. and
Controlled Co.
"Consolidated or Combined Income Tax" means any Income Tax
computed by reference to the assets or activities of members of more
than one Group.
"Consolidated or Combined State Income Tax" means any State
Income Tax computed by reference to the assets or activities of members
of more than one Group.
"Consolidated Tax Liability" means, with respect to any
Distributing Co. Federal Consolidated Return, the tax liability of the
group as that term is used in Treasury Regulation Section
1.1552-1(a)(1) (including applicable interest, additions to the tax,
additional amounts, and penalties as provided in the Code), adjusted as
follows:
(i) such tax liability be treated as including any alternative
minimum tax liability under Code Section 55; and
(ii) in the case of the Tax Period which includes the
Offerings Closing Date, the Consolidated Tax Liability shall be
computed as if the Offerings Closing Date were the last day of the Tax
Period.
"Controlled Adjustment" means any proposed adjustment by a Tax
Authority or claim for refund asserted in a Tax Contest to the extent
Controlled Co. would be exclusively liable for any resulting Tax under
this Agreement and exclusively entitled to receive any resulting Tax
Benefit under this Agreement.
"Controlled Group" means Controlled Co. and its Subsidiaries
and wholly- owned limited liability companies as determined immediately
after the Offerings Closing Date.
"Controlled Group Disqualifying Event" means any event
involving the direct or indirect acquisition of shares of the capital
stock of any member of the Controlled Group after the Distribution
which has the effect of disqualifying the Distribution or any part
thereof from tax-free treatment under Code section 355, whether or not
such event is the result of direct actions of, or within the control
of, the Controlled Co. or its Subsidiaries, or which otherwise is
inconsistent with representations relating to Controlled Co. and the
ownership of its capital stock, as set forth in the Ruling Request.
3
4
"Controlled Group Prior Federal Tax Liability" shall have the
meaning provided in Section 2.2(b)(ii).
"Controlled Group Prior State Tax Liability" shall have the
meaning provided in Section 2.3(b)(ii)(B).
"Controlled Group Recomputed Federal Tax Liability" shall have
the meaning provided in Section 2.2(b)(i).
"Controlled Group Recomputed State Tax Liability" shall have
the meaning provided in Section 2.3(b)(ii)(A).
"Cumulative Federal Tax Payment" shall have the meaning
provided in Section 5.1(b)(ii).
"Distributing Adjustment" means any proposed adjustment by a
Tax Authority or claim for refund asserted in a Tax Contest to the
extent Distributing Co. would be exclusively liable for any resulting
Tax under this Agreement and exclusively entitled to receive any
resulting Tax Benefit under this Agreement.
"Distributing Co. Federal Consolidated Return" means any
United States Federal Tax Return for the affiliated group (as that term
is defined in Code Section 1504) that includes Distributing Co. as the
common parent and any member of the Controlled Group.
"Distributing Group" means Distributing Co. and its
Subsidiaries and wholly- owned limited liability companies, excluding
any entity that is a member of the Controlled Group.
"Distribution" means the distribution to Distributing Co.
shareholders on the Distribution Date of all of the outstanding capital
stock of Controlled Co. owned by Distributing Co.
"Distribution Agreement" means the Separation and Distribution
Agreement dated as of the date of this Agreement between the
Distributing Co. and the Controlled Co.
"Distribution Date" means the Distribution Date as that term
is defined in the Distribution Agreement.
"Distribution Tax" means the Taxes described in Section
2.5(a)(ii).
4
5
"Federal Allocation Method" shall have the meaning provided in
Section 2.2(a).
"Federal Income Tax" means any Tax imposed by Subtitle A or F
of the Code.
"Federal Tax Adjustment" shall have the meaning provided in
Section 2.2(b).
"Foreign Income Tax" means any Tax imposed by any foreign
country or any possession of the United States, or by any political
subdivision of any foreign country or United States possession, which
is an income tax as defined in Treasury Regulation Section 1.901-2.
"Group" means the Distributing Co. Group or the Controlled Co.
Group, as the context requires.
"Income Tax" means any Federal Income Tax, State Income Tax,
or Foreign Income Tax.
"Internal Restructuring" means the distribution of all of the
shares of capital stock of Republic Resources held by Controlled Co.
and/or its Subsidiaries to Distributing Co., all distributions,
transfers and exchanges of said capital stock within the Controlled
Group in connection with and prior to the distribution of said capital
stock by Controlled Co. to Distributing Co., and all transfers and
exchanges of assets by members of the Distributing Group or members of
the Controlled Group to Republic Resources or entities owned by
Republic Resources in connection with the distribution, transfer and
exchange of shares of capital stock of Republic Resources within the
Controlled Group and the distribution of such stock to the Distributing
Co.
"Joint Adjustment" means any proposed adjustment resulting
from a Tax Contest that is not a (i) Controlled Adjustment, (ii) a
Distributing Adjustment, or (iii) any other type of adjustment that
give rise to an indemnification payment by one Company to the other
Company pursuant to this Agreement.
"Payment Date" means (i) with respect to any Distributing Co.
Federal Consolidated Return, the due date for any required installment
of estimated taxes determined under Code Section 6655, the due date
(determined without regard to extensions) for filing the return
determined under Code Section 6072, and the date the return is filed,
and (ii) with respect to any Tax Return for any Consolidated or
Combined State Income Tax, the corresponding dates determined under the
applicable Tax Law.
5
6
"Post-IPO Period" means any Tax Period beginning after the
Offerings Closing Date, and, in the case of any Straddle Period, the
portion of such Straddle Period beginning the day after the Offerings
Closing Date.
"Pre-IPO Period" means any Tax Period ending on or before the
Offerings Closing Date, and, in the case of any Straddle Period, the
portion of such Straddle Period ending on the Offerings Closing Date.
"Prime Rate" means the base rate on corporate loans charged by
Citibank, N.A., New York, New York from time to time, compounded daily
on the basis of a year of 365 or 366 (as applicable) days and actual
days elapsed.
"Prohibited Action" shall have the meaning provided in Section
11.
"Republic Resources" means Republic Resources Company, Inc., a
Delaware corporation.
"Responsible Company" means, with respect to any Tax Return,
the Company having responsibility for preparing and filing such Tax
Return under this Agreement.
"Ruling Request" means the letter to be filed by Distributing
Co. with the Internal Revenue Service requesting a ruling from the
Internal Revenue Service regarding certain tax consequences of the
Distribution and Transactions (including all attachments, exhibits, and
other materials submitted with such ruling request letter) and any
amendment or supplement to such ruling request letter.
"Separate Company Tax" means any Tax computed by reference to
the assets and activities of a member or members of a single Group.
"Straddle Period" means any Tax Period that begins on or
before and ends after the Offerings Closing Date.
"State Income Tax" means any Tax imposed by any State of the
United States or by any political subdivision of any such State which
is imposed on or measured by net income, including state and local
franchise or similar Taxes measured by net income.
"Subsidiary" shall have the meaning set forth in Treasury
Regulations section 1.1502-1(c).
"Tax" or "Taxes" means any income, gross income, gross
receipts, profits, capital stock, franchise, withholding, payroll,
social security, workers compensation,
6
7
unemployment, disability, property, ad valorem, stamp, excise,
severance, occupation, service, sales, use, license, lease, transfer,
import, export, value added, alternative minimum, estimated or other
similar tax (including any fee, assessment, or other charge in the
nature of or in lieu of any tax) imposed by any governmental entity or
political subdivision thereof, and any interest, penalties, additions
to tax, or additional amounts in respect of the foregoing.
"Tax Authority" means, with respect to any Tax, the
governmental entity or political subdivision thereof that imposes such
Tax, and the agency (if any) charged with the collection of such Tax
for such entity or subdivision.
"Tax Benefit" means any refund, credit, or other reduction in
otherwise required Tax payments (including any reduction in estimated
tax payments).
"Tax Contest" means an audit, review, examination, or any
other administrative or judicial proceeding with the purpose or effect
of redetermining Taxes of any of the Companies or their Affiliates
(including any administrative or judicial review of any claim for
refund) for any Tax Period ending on or before the Offerings Closing
Date or any Straddle Period.
"Tax Contest Committee" shall have the meaning provided in
Section 9.2(b).
"Tax Item" means, with respect to any Income Tax, any item of
income, gain, loss, deduction, and credit.
"Tax Law" means the law of any governmental entity or
political subdivision thereof relating to any Tax.
"Tax Period" means, with respect to any Tax, the period for
which the Tax is reported as provided under the Code or other
applicable Tax Law.
"Tax Records" means Tax Returns, Tax Return workpapers,
documentation relating to any Tax Contests, and any other books of
account or records required to be maintained under the Code or other
applicable Tax Laws or under any record retention agreement with any
Tax Authority.
"Tax Return" means any report of Taxes due, any claims for
refund of Taxes paid, any information return with respect to Taxes, or
any other similar report, statement, declaration, or document required
to be filed under the Code or other Tax Law, including any attachments,
exhibits, or other materials submitted with any of the foregoing, and
including any amendments or supplements to any of the foregoing.
"Transactions" means the transactions relating to the Internal
Restructuring.
7
8
"Treasury Regulations" means the regulations promulgated from
time to time under the Code as in effect for the relevant Tax Period.
Section 2. ALLOCATION OF TAX LIABILITIES. The provisions of this
Section 2 are intended to determine each Company's liability for Taxes with
respect to Pre-IPO Periods. The provisions of Section 2.5(a)(ii) and (b) are
intended to determine each Company's liability for Distribution Taxes, if any,
even though such Taxes arise in a Post-IPO Period. Once the liability has been
determined under this Section 2, Section 5 determines the time when payment of
the liability is to be made, and whether the payment is to be made to the Tax
Authority directly or to the other Company.
2.1 GENERAL RULE
(a) DISTRIBUTING CO. LIABILITY. Distributing Co. shall be liable
for Taxes not specifically allocated to the Controlled Co. under this Section 2.
Distributing Co. shall indemnify and hold harmless the Controlled Group from and
against any liability for Taxes for which Distributing Co. is liable under this
Section 2.1(a).
(b) CONTROLLED CO. LIABILITY. Controlled Co. shall be liable for,
and shall indemnify and hold harmless the Distributing Group from and against
any liability for, Taxes which
are allocated to Controlled Co. under this Agreement.
2.2 ALLOCATION OF UNITED STATES FEDERAL INCOME TAX. Except as provided
in Section 2.5:
(a) ALLOCATION OF TAX RELATING TO FEDERAL CONSOLIDATED RETURNS.
With respect to any Distributing Co. Federal Consolidated Tax Return filed after
the Offerings Closing Date, the Consolidated Tax Liability shall be allocated
between the Groups in accordance with the method prescribed in Treasury
Regulation Section 1.1552-1(a)(1) (as in effect on the date hereof) determined
by aggregating the amounts allocable to the members of each respective Group
into a single amount for each Group (the "Federal Allocation Method"). For
purposes of such allocation, the excess, if any, of (i) Consolidated Tax
Liability over (ii) Consolidated Tax Liability determined without regard to any
alternative minimum tax liability under Code Section 55, shall be allocated
among the Groups in accordance with their respective amounts of alternative
minimum taxable income, and any corresponding alternative minimum tax credit
shall be allocated in accordance with the allocation of such alternative minimum
tax liability. Any amount so allocated to the Controlled Group shall be a
liability of Controlled Co. to Distributing Co. under this Section 2. Amounts
described in Code Section 1561 (relating to limitations on certain multiple
benefits) shall be divided equally among the Distributing Group and Controlled
Group to the extent permitted by the Code.
(b) ALLOCATION OF FEDERAL CONSOLIDATED RETURN TAX ADJUSTMENTS. If
there is any adjustment to the reported Tax liability with respect to any
Distributing Co. Federal Consolidated Return, or to such Tax liability as
previously adjusted, Controlled Co. shall be liable to Distributing Co. for the
excess (if any) of--
8
9
(i) the share of the Consolidated Tax Liability of
the Controlled Group computed in accordance with paragraph (a) based on the Tax
Items of members of the Controlled Group as so adjusted (the "Controlled Group
Recomputed Federal Tax Liability"); minus
(ii) the share of the Consolidated Tax Liability of
the Controlled Group computed in accordance with paragraph (a) based on the Tax
Items of such members as reported (or, if applicable, as previously adjusted)
(the "Controlled Group Prior Federal Tax Liability").
If the Controlled Group Prior Federal Tax Liability exceeds the Controlled Group
Recomputed Federal Tax Liability, Distributing Co. shall be liable to Controlled
Co. for such excess. For purposes of the preceding sentence, if the Controlled
Group has a net operating loss after taking into account the adjustments
allocable to such group, the Controlled Group Recomputed Federal Tax Liability
shall be less than zero to the extent such net operating loss produces a Tax
Benefit for the applicable taxable year, and the amount that Distributing Co.
shall be liable to Controlled Co. pursuant to the preceding sentence shall be
equal to the sum of the Controlled Group Prior Federal Tax Liability and the
amount of such Tax Benefit.
2.3 ALLOCATION OF STATE INCOME TAXES. Except as provided in Section
2.5, State Income Taxes shall be allocated as follows:
(a) SEPARATE COMPANY TAXES. In the case of any State Income Tax
which is a Separate Company Tax, Controlled Co. shall be liable for such Tax
imposed on any members of the Controlled Group.
(b) CONSOLIDATED OR COMBINED STATE INCOME TAXES. In the case of any
Consolidated or Combined State Income Tax, the liability of Controlled Co. with
respect to such Tax for any Tax Period shall be computed as follows:
(i) ALLOCATION OF TAX REPORTED ON TAX RETURNS. In the
case of any Consolidated or Combined State Income Tax reported on any Tax Return
to be filed after the Offerings Closing Date, Controlled Co. shall be liable to
Distributing Co. for the State Income Tax liability computed as if all members
of the Controlled Group included in the computation of such Tax had filed a
consolidated or combined Tax Return for such Controlled Group members based on
the income, apportionment factors, and other items of such members.
(ii) ALLOCATION OF COMBINED OR CONSOLIDATED STATE
INCOME TAX ADJUSTMENTS. If there is any adjustment to the amount of Consolidated
or Combined State Income Tax reported on any Tax Return (or as previously
adjusted), the liability of the Controlled Group shall be recomputed as provided
in this subparagraph. Controlled Co. shall be liable to Distributing Co. for the
excess (if any) of-
9
10
(A) the State Income Tax liability computed in
accordance with paragraph (b)(i) based on the income, apportionment factors, and
other items of such members as so adjusted (the "Controlled Group Recomputed
State Tax Liability"); minus
(B) the State Income Tax liability computed in
accordance with paragraph (b)(i) based on the income, apportionment factors, and
other items of such members as reported (or, if applicable, as previously
adjusted) (the "Controlled Group Prior State Tax Liability").
If the Controlled Group Prior State Tax Liability exceeds the Controlled Co.
Group Recomputed State Tax Liability, Distributing Co. shall be liable to
Controlled Co. for such excess. For purposes of the preceding sentence, if the
Controlled Group has a net operating loss after taking into account the
adjustments allocable to such group, the Controlled Group Recomputed State Tax
Liability shall be less than zero to the extent such net operating loss produces
a Tax Benefit in consolidation for the applicable taxable year, and the amount
that Distributing Co. shall be liable to Controlled Co. pursuant to the
preceding sentence shall be equal to the sum of the Controlled Group Prior State
Tax Liability and the amount of such Tax Benefit.
2.4 ALLOCATION OF OTHER TAXES. Except as provided in Section 2.5, all
Taxes other than those specifically allocated pursuant to Section 2.3 shall be
allocated based on the legal entity on which the legal incidence of the Tax is
imposed. As between the parties to this Agreement, Controlled Co. shall be
liable for all Taxes imposed on any member of the Controlled Group. The
Companies believe that there is no Tax not specifically allocated pursuant to
Section 2.3 which is legally imposed on more than one legal entity (e.g., joint
and several liability); however, if there is any such Tax, it shall be allocated
in accordance with past practices as reasonably determined by the affected
Companies, or in the absence of such practices, in accordance with any
allocation method agreed upon by the affected Companies.
2.5 TRANSACTION AND OTHER TAXES
(a) DISTRIBUTING CO. LIABILITY. Except as otherwise provided in
this Section 2.5, Distributing Co. shall be liable for, and shall indemnify and
hold harmless the Controlled Group from and against any liability for, all Taxes
resulting from the Distribution and the Transactions, including:
(i) Any sales and use, gross receipts, or other
similar transfer Taxes imposed on the transfers occurring pursuant to the
Transactions and the Distribution;
(ii) any Federal Income Tax or State Income Tax
resulting from any income or gain recognized by Distributing Co. as a result of
the Distribution or the distribution to Distributing Co. of all of the shares of
capital stock of Republic Resources held by Controlled Co. failing to qualify
for tax-free treatment pursuant to Section 355 of the Code and related
provisions;
(iii) any Tax resulting from the Internal
Restructuring.
10
11
(b) INDEMNITY FOR CERTAIN ACTS. Controlled Co. shall be liable for,
and shall indemnify and hold harmless the Distributing Group from and against
any liability for, any Distribution Tax (described in subparagraph (ii) above)
to the extent arising as a result after the Distribution Date of Controlled
Co.'s engaging in any Prohibited Action, the occurrence of a Controlled Group
Disqualifying Event, or a breach by Controlled Co. of its representations,
warranties and covenants set forth in Section 11.
Section 3. PRORATION OF TAXES FOR STRADDLE PERIODS
3.1 GENERAL METHOD OF PRORATION. In the case of any Straddle Period,
Tax Items shall be apportioned between Pre-IPO Periods and Post-IPO Periods in
accordance with the principles of Treasury Regulation Section 1.1502-76(b) as
reasonably interpreted and applied by the Companies.
3.2 TRANSACTION TREATED AS EXTRAORDINARY ITEM. In determining the
apportionment of Tax Items between Pre-IPO Periods and Post-IPO Periods, any Tax
Items relating to the Transactions shall be treated as extraordinary items
described in Treasury Regulation Section 1.1502-76(b)(2)(ii)(C) and shall be
allocated to Pre-IPO Periods].
Section 4. PREPARATION AND FILING OF TAX RETURNS
4.1 GENERAL. Except as otherwise provided in this Section 4, Tax
Returns shall be prepared and filed when due (including extensions) by the
person obligated to file such Tax Returns under the Code or applicable Tax Law.
The Companies shall provide, and shall cause their Affiliates to provide,
assistance and cooperate with one another in accordance with Section 7 with
respect to the preparation and filing of Tax Returns, including providing
information required to be provided in Section 7.
4.2 DISTRIBUTING CO.'S RESPONSIBILITY. Distributing Co. has the
exclusive obligation and right to prepare and file, or to cause to be prepared
and filed:
(a) Distributing Co. Federal Consolidated Returns for any Periods
ending on, before or after the Offerings Closing Date.
(b) Consolidated or Combined State Income Tax Returns for Tax
Periods ending on or before the Offerings Closing Date or for any Straddle
Period.
(c) Tax Returns for State Income Taxes (including Tax Returns with
respect to State Income Taxes that are Separate Company Taxes) for members of
the Distributing Group.
4.3 CONTROLLED CO. RESPONSIBILITY. Controlled Co. shall prepare and
file, or shall cause to be prepared and filed, all Tax Returns required to be
filed by or with respect to the Controlled Co.
11
12
or members of the Controlled Group other than those Tax Returns which
Distributing Co. is required to prepare and file under Section 4.2.
4.4 TAX ACCOUNTING PRACTICES
(a) GENERAL RULE. Except as otherwise provided in this Section 4.4,
any Tax Return for any Pre-IPO Period or any Straddle Period, and any Tax Return
for any Post-IPO Period to the extent items reported on such Tax Return might
reasonably affect items reported on any Tax Return for any Pre-IPO Period or any
Straddle Period, shall be prepared in accordance with past Tax accounting
practices used with respect to the Tax Returns in question (unless such past
practices are no longer permissible under the Code or other applicable Tax Law),
and to the extent any items are not covered by past practices (or in the event
such past practices are no longer permissible under the Code or other applicable
Tax Law), in accordance with reasonable Tax accounting practices selected by the
Responsible Company.
(b) REPORTING OF TRANSACTION TAX ITEMS. The tax treatment reported
on any Tax Return of Tax Items relating to the Transactions shall be consistent
with the treatment of such item in the IRS Ruling Letter (as such term is
defined in the Distribution Agreement) (unless such treatment is not permissible
under the Code). To the extent there is a Tax Item relating to the Transactions
which is not covered by the IRS Ruling Letter, the Companies shall agree on the
tax treatment of any such Tax Item reported on any Tax Return. For this purpose,
the tax treatment of such Tax Items on a Tax Return shall be determined by the
Responsible Company with respect to such Tax Return and shall be agreed to by
the other Company unless either (i) there is no reasonable basis as defined
under Section 6662 of the Code for such tax treatment, or (ii) such tax
treatment would have a material impact on the other Company or the Ruling
Request. Such Tax Return shall be submitted for review pursuant to Section
4.6(a), and any dispute regarding such proper tax treatment shall be referred
for resolution pursuant to Section 15, sufficiently in advance of the filing
date of such Tax Return (including extensions) to permit timely filing of the
return.
4.5 CONSOLIDATED OR COMBINED RETURNS. The Companies will elect and
join, and will cause their respective Affiliates to elect and join, in filing
consolidated, unitary, combined, or other similar joint Tax Returns, to the
extent each entity is eligible to join in such Tax Returns, if the Companies
reasonably determine that the filing of such Tax Returns is consistent with past
reporting practices, or in the absence of applicable past practices, will result
in the minimization of the net present value of the aggregate Tax to the
entities eligible to join in such Tax Returns.
4.6 RIGHT TO REVIEW TAX RETURNS
(a) GENERAL. The Responsible Company with respect to any Tax Return
shall make such Tax Return and related workpapers available for review by the
other Companies, if requested, to the extent (i) such Tax Return relates to
Taxes for which the requesting party may be liable, (ii) such Tax Return relates
to Taxes for which the requesting party may be liable in whole or in part or for
any additional Taxes owing as a result of adjustments to the amount of Taxes
12
13
reported on such Tax Return, (iii) such Tax Return relates to Taxes for which
the requesting party may have a claim for Tax Benefits under this Agreement, or
(iv) the requesting party reasonably determines that it must inspect such Tax
Return to confirm compliance with the terms of this Agreement. The Responsible
Company shall use its reasonable best efforts to make such Tax Return available
for review as required under this paragraph sufficiently in advance of the due
date for filing such Tax Returns to provide the requesting party with a
meaningful opportunity to analyze and comment on such Tax Returns and have such
Tax Returns modified before filing, taking into account the person responsible
for payment of the tax (if any) reported on such Tax Return and the materiality
of the amount of Tax liability with respect to such Tax Return. The Companies
shall attempt in good faith to resolve any issues arising out of the review of
such Tax Returns. Issues that cannot be resolved by the Companies shall be
resolved in the manner set forth in Section 15.
(b) EXECUTION OF RETURNS PREPARED BY OTHER PARTY. In the case of
any Tax Return which is required to be prepared and filed by one Company under
this Agreement and which is required by law to be signed by another Company (or
by its authorized representative), the Company which is legally required to sign
such Tax Return shall not be required to sign such Tax Return under this
Agreement if there is no reasonable basis for the tax treatment of any material
items reported on the Tax Return.
4.7 CLAIMS FOR REFUND, CARRYBACKS, AND SELF-AUDIT ADJUSTMENTS
("ADJUSTMENT REQUESTS")
(a) CONSENT REQUIRED FOR ADJUSTMENT REQUESTS RELATED TO
CONSOLIDATED OR COMBINED INCOME TAXES. Except as provided in paragraph (b)
below, each of the Companies hereby agrees that, unless each of the other
Companies consents in writing, which consent shall not be unreasonably withheld,
(i) no Adjustment Request with respect to any Consolidated or Combined Income
Tax for a Pre- IPO Period shall be filed, and (ii) any available elections to
waive the right to claim in any Pre-IPO Period with respect to any Consolidated
or Combined Income Tax any Carryback arising in a Post-IPO Period shall be made,
and no affirmative election shall be made to claim any such Carryback. Any
Adjustment Request which the Companies consent to make under this Section 4.7
shall be prepared and filed by the Responsible Company under Section 4.2 for the
Tax Return to be adjusted. The Company requesting the Adjustment Request shall
provide to the Responsible Company all information required for the preparation
and filing of such Adjustment Request in such form and detail as reasonably
requested by the Responsible Company. Notwithstanding anything to the contrary
in this paragraph (a), the consent of the Controlled Co. shall not be necessary
for any Carryback by Distributing Co. or any member of the Distributing Group
provided such Carryback constitutes a Distributing Adjustment in the year (or
years) such Carryback is absorbed.
(b) EXCEPTION FOR ADJUSTMENT REQUESTS RELATED TO AUDIT ADJUSTMENTS.
Controlled Co. shall be entitled, without the consent of Distributing Co., to
require Distributing Co. to file an Adjustment Request to take into account any
net operating loss, net capital loss, deduction, credit, or other adjustment
attributable to such Controlled Co. or any member of its Group corresponding
13
14
to any adjustment resulting from any audit by the Internal Revenue Service or
other Tax Authority with respect to Consolidated or Combined Income Taxes for
any Pre-IPO Tax Period. For example, if the Internal Revenue Service requires
Controlled Co. to capitalize an item deducted for the taxable year 1996,
Controlled Co. shall be entitled, without the consent of Distributing Co., to
require Distributing Co. to file an Adjustment Request for the taxable year 1997
(and later years) to take into account any depreciation or amortization
deductions in such years directly related to the item capitalized in 1996.
(c) OTHER ADJUSTMENT REQUESTS PERMITTED. Nothing in this Section
4.7 shall prevent any Company or its Affiliates from filing any Adjustment
Request with respect to Income Taxes which are not Consolidated or Combined
Income Taxes or with respect to any Taxes other than Income Taxes. Any refund or
credit obtained as a result of any such Adjustment Request (or otherwise) shall
be for the account of the person liable for the Tax under this Agreement.
(d) PAYMENT OF REFUNDS. Any refunds or other Tax Benefits received
by any Company (or any of its Affiliates) as a result of any Adjustment Request
which are for the account of another Company (or member of such other Company's
Group) shall be paid by the Company receiving (or whose Affiliate received) such
refund or Tax Benefit to such other Company in accordance with Section 6.
Section 5. TAX PAYMENTS AND INTERCOMPANY BILLINGS
5.1 PAYMENT OF TAXES WITH RESPECT TO DISTRIBUTING CO. FEDERAL
CONSOLIDATION RETURNS FILED AFTER THE OFFERINGS CLOSING DATE. In the case of any
Distributing Co. Federal Consolidated Return the due date for which (including
extensions) is after the Offerings Closing Date:
(a) COMPUTATION AND PAYMENT OF TAX DUE. At least three business
days prior to any Payment Date, Distributing Co. shall compute the amount of Tax
required to be paid to the Internal Revenue Service (taking into account the
requirements of Section 4.4 relating to consistent accounting practices) with
respect to such Tax Return on such Payment Date and shall pay such amount to the
Internal Revenue Service on or before such Payment Date.
(b) COMPUTATION AND PAYMENT OF CONTROLLED CO. LIABILITY WITH
RESPECT TO TAX DUE. Within 90 days following any Payment Date, Controlled Co.
will pay to Distributing Co. the excess (if any) of --
(i) the Consolidated Tax Liability determined as of
such Payment Date with respect to the applicable Tax Period allocable to the
members of the Controlled Group as determined by the Distributing Co. in a
manner consistent with the Section 2.2(a) (relating to allocation of the
Consolidated Tax Liability in accordance with the Federal Allocation Method)
(the "Allocated Federal Tax Liability"), over
14
15
(ii) the cumulative net payment with respect to such
Tax Return prior to such Payment Date by the members of the Controlled Group
(the "Cumulative Federal Tax Payment").
If the Controlled Group Cumulative Federal Tax Payment is greater than the
Controlled Group Allocated Federal Tax Liability as of any Payment Date, then
Distributing Co. shall pay such excess to Controlled Co. within 90 days of
Distributing Co.'s receipt of the corresponding Tax Benefit (i.e., through
either a reduction in Distributing Co.'s otherwise required Tax payment or a
credit or refund of prior tax payments).
(c) DEEMED CUMULATIVE FEDERAL TAX PAYMENTS; AMOUNT DUE FOR PRIOR
PERIODS. For purposes of Section 5.1(b)(ii) with respect to the Distributing Co.
Federal Consolidated Tax Return for the taxable year ending on the dates set
forth below, the Controlled Co. Group's Cumulative Federal Tax Payment through
the date of this Agreement is equal to the amounts set forth below:
Taxable Year Ending Controlled Group's Cumulative
December 31 Federal Tax Payment
----------- -------------------
1997 $
1998 $
Subject to adjustments as set forth in Sections 2.2(b) and 2.3(b)(ii),
no amounts are currently due and owing by the Controlled Co. to the Distributing
Co. with respect to any Consolidated or Combined Income Tax or Consolidated or
Combined State Income Tax for periods prior to the year ended on December 31,
1997.
(d) INTEREST ON INTERGROUP TAX ALLOCATION PAYMENTS. In the case of
any payments to Distributing Co. required under paragraph (b) of this subsection
5.1, Controlled Co. shall also pay to Distributing Co. an amount of interest
computed at the Prime Rate on the amount of the payment required based on the
number of days from the applicable Payment Date to the date of payment. In the
case of any payments by Distributing Co. required under paragraph (b) of this
subsection 5.1, Distributing Co. shall also pay to Controlled Co. an amount of
interest computed at the Prime Rate on the amount of the payment required based
on the number of days from the date of receipt of the Tax Benefit to the date of
payment of such amount to Controlled Co.
5.2 PAYMENT OF FEDERAL INCOME TAX RELATED TO ADJUSTMENTS
(a) ADJUSTMENTS RESULTING IN UNDERPAYMENTS. Distributing Co. shall
pay to the Internal Revenue Service when due any additional Federal Income Tax
required to be paid as a result of adjustment to the Tax liability with respect
to any Distributing Co. Federal Consolidated Return. The Distributing Co. shall
compute the amount attributable to the Controlled Group in accordance
15
16
with Section 2.2(b) and Controlled Co. shall pay to Distributing Co. any amount
due Distributing Co. under Section 2.2(b) within ninety (90) days from the later
of (i) the date the additional Tax was paid by Distributing Co. or (ii) the date
of receipt by Controlled Co. of a written notice and demand from Distributing
Co. for payment of the amount due, accompanied by evidence of payment and a
statement detailing the Taxes paid and describing in reasonable detail the
particulars relating thereto. Any payments required under this Section 5.2(a)
shall include interest computed at the Prime Rate based on the number of days
from the date the additional Tax was paid by Distributing Co. to the date of the
payment under this Section 5.2(a).
(b) ADJUSTMENTS RESULTING IN OVERPAYMENTS. Within ninety (90) days
of receipt by Distributing Co. of any Tax Benefit resulting from any adjustment
to the Consolidated Tax Liability with respect to any Distributing Co. Federal
Consolidated Return, Distributing Co. shall pay to Controlled Co., or Controlled
Co. shall pay to Distributing Co. (as the case may be), their respective amounts
due from or to Distributing Co. as determined by the Responsible Company in
accordance with Section 2.2(b). Any payments required under this Section 5.2(b)
shall include interest computed at the Prime Rate based on the number of days
from the date the Tax Benefit was received by Distributing Co. to the date of
payment to Controlled Co. under this Section 5.2(b).
5.3 PAYMENT OF STATE INCOME TAX WITH RESPECT TO RETURNS FILED AFTER THE
OFFERINGS CLOSING DATE
(a) COMPUTATION AND PAYMENT OF TAX DUE. At least three business
days prior to any Payment Date for any Tax Return with respect to any State
Income Tax, the Responsible Company shall compute the amount of Tax required to
be paid to the applicable Tax Authority (taking into account the requirements of
Section 4.4 relating to consistent accounting practices) with respect to such
Tax Return on such Payment Date and -
(i) If such Tax Return is with respect to a
Consolidated or Combined State Income Tax, the Responsible Company shall, if
Distributing Co. is not the Responsible Company with respect to such Tax Return,
notify Distributing Co. in writing of the amount of Tax required to be paid on
such Payment Date. Distributing Co. will pay such amount to such Tax Authority
on or before such Payment Date.
(ii) If such Tax Return is with respect to a Separate
Company Tax, the Responsible Company shall, if it is not the Company liable for
the Tax reported on such Tax Return, notify the Company liable for such Tax in
writing of the amount of Tax required to be paid on such Payment Date. The
Company liable for such Tax will pay such amount to such Tax Authority on or
before such Payment Date.
(b) COMPUTATION AND PAYMENT OF CONTROLLED CO. LIABILITY WITH
RESPECT TO TAX DUE. Within ninety (90) days following the due date (including
extensions) for filing any Tax Return for any Consolidated or Combined State
Income Tax (excluding any Tax Return with respect to payment of estimated Taxes
or Taxes due with a request for extension of time to file), (i) Controlled
16
17
Co. shall pay to Distributing Co. the tax liability allocable to the Controlled
Group as determined by the Responsible Company under the provisions of Section
2.3(b)(i), plus interest computed at the Prime Rate on the amount of the payment
based on the number of days from the due date (including extensions) to the date
of payment by Controlled Co. to Distributing Co., and (ii) the Responsible
Company shall notify Distributing Co. (if Distributing Co. is not the
Responsible Company with respect to such Tax Return).
5.4 PAYMENT OF STATE INCOME TAXES RELATED TO ADJUSTMENTS
(a) ADJUSTMENTS RESULTING IN UNDERPAYMENTS. Distributing Co. shall
pay to the applicable Tax Authority when due any additional State Income Tax
required to be paid as a result of any adjustment to the tax liability with
respect to any Tax Return for any Consolidated or Combined State Income Tax for
any Pre-IPO Period. Controlled Co. shall pay to Distributing Co. its respective
share of any such additional Tax payment determined by the Responsible Company
in accordance with Section 2.3(b)(ii) within ninety (90) days from the later of
(i) the date the additional Tax was paid by Distributing Co. or (ii) the date of
receipt by Controlled Co. of a written notice and demand from Distributing Co.
for payment of the amount due, accompanied by evidence of payment and a
statement detailing the Taxes paid and describing in reasonable detail the
particulars relating thereto. Controlled Co. shall also pay to Distributing Co.
interest on its respective share of such Tax computed at the Prime Rate based on
the number of days from the date the additional Tax was paid by Distributing Co.
to the date of its payment to Distributing Co. under this Section 5.4(a).
(b) ADJUSTMENTS RESULTING IN OVERPAYMENTS. Within ninety (90) days
of receipt by Distributing Co. of any Tax Benefit resulting from any adjustment
to the tax liability with respect to any Tax Return for any Consolidated or
Combined State Income Tax for any Pre-IPO Period, Distributing Co. shall pay to
Controlled Co. its respective share of any such Tax Benefit determined by the
Responsible Company in accordance with Section 2.3(b)(ii). Distributing Co.
shall also pay to Controlled Co. interest on its respective share of such Tax
Benefit computed at the Prime Rate based on the number of days from the date the
Tax Benefit was received by Distributing Co. to the date of payment to
Controlled Co. under this Section 5.4(b).
5.5 PAYMENT OF SEPARATE COMPANY TAXES. Each Company shall pay, or shall
cause to be paid, to the applicable Tax Authority when due all Separate Company
Taxes owed by such Company or a member of such Company's Group.
5.6 INDEMNIFICATION PAYMENTS. If any Company (the "payor") is required
to pay to a Tax Authority a Tax that is properly allocated to another Company
(the "responsible party") under this Agreement, the responsible party shall
reimburse the payor within ninety (90) days of delivery by the payor to the
responsible party of an invoice for the amount due, accompanied by evidence of
payment and a statement detailing the Taxes paid and describing in reasonable
detail the particulars relating thereto. The reimbursement shall include
interest on the Tax payment computed at the
17
18
Prime Rate based on the number of days from the date of the payment to the Tax
Authority to the date of reimbursement under this Section 5.6.
Section 6. TAX BENEFITS. If a member of one Group receives any Tax
Benefit with respect to any Taxes for which a member of another Group is liable
hereunder, the Company receiving such Tax Benefit shall make a payment to the
Company who is liable for such Taxes hereunder within ninety (90) days following
receipt of the Tax Benefit in an amount equal to the Tax Benefit (including any
Tax Benefit realized as a result of the payment), plus interest on such amount
computed at the Prime Rate based on the number of days from the date of receipt
of the Tax Benefit to the date of payment of such amount under this Section 6.
Section 7. ASSISTANCE AND COOPERATION
7.1 GENERAL. After the Offerings Closing Date, each of the Companies
shall cooperate (and cause their respective Affiliates to cooperate) with each
other and with each other's agents, including accounting firms and legal
counsel, in connection with Tax matters relating to the Companies and their
Affiliates including (i) preparation and filing of Tax Returns, (ii) determining
the liability for and amount of any Taxes due (including estimated Taxes) or the
right to and amount of any refund of Taxes, (iii) examinations of Tax Returns,
and (iv) any administrative or judicial proceeding in respect of Taxes assessed
or proposed to be assessed. Such cooperation shall include making all
information and documents in their possession relating to the other Company and
their Affiliates available to such other Company as provided in Section 8. Each
of the Companies shall also make available to each other, as reasonably
requested and available, personnel (including officers, directors, employees and
agents of the Companies or their respective Affiliates) responsible for
preparing, maintaining, and interpreting information and documents relevant to
Taxes, and personnel reasonably required as witnesses or for purposes of
providing information or documents in connection with any administrative or
judicial proceedings relating to Taxes. Any information or documents provided
under this Section 7 shall be kept confidential by the Company receiving the
information or documents, except as may otherwise be necessary in connection
with the filing of Tax Returns or in connection with any administrative or
judicial proceedings relating to Taxes.
7.2 INCOME TAX RETURN INFORMATION. Each Company will provide to the
other Company information and documents relating to their respective Groups
required by the other Company to prepare Tax Returns. The Responsible Company
shall determine a reasonable compliance schedule for such purpose in accordance
with Distributing Co.'s past practices. Any additional information or documents
the Responsible Company requires to prepare such Tax Returns will be provided in
accordance with past practices, if any, or as the Responsible Company reasonably
requests and in sufficient time for the Responsible Company to file such Tax
Returns on a timely basis.
Section 8. TAX RECORDS
8.1 RETENTION OF TAX RECORDS. Except as provided in Section 8.2, each
Company shall preserve and keep all Tax Records exclusively relating to the
assets and activities of its respective
18
19
Group for Pre-IPO Tax Periods, and Distributing Co. shall preserve and keep all
other Tax Records relating to Taxes of the Groups for Pre-IPO Tax Periods, for
so long as the contents thereof may become material in the administration of any
matter under the Code or other applicable Tax Law, but in any event until the
later of (i) the expiration of any applicable statutes of limitation, and (ii)
seven years after the Offerings Closing Date. If, prior to the expiration of the
applicable statute of limitation and such seven-year period, a Company
reasonably determines that any Tax Records which it is required to preserve and
keep under this Section 8 are no longer material in the administration of any
matter under the Code or other applicable Tax Law, such Company may dispose of
such records upon 90 days prior notice to the other Company. Such notice shall
include a list of the records to be disposed of describing in reasonable detail
each file, book, or other records being disposed. The notified Company shall
have the opportunity, at its cost and expense, to copy or remove, within such
90-day period, all or any part of such Tax Records.
8.2 STATE INCOME TAX RETURNS. Tax Returns with respect to State Income
Taxes and workpapers prepared in connection with preparing such Tax Returns
shall be preserved and kept, in accordance with the terms of Section 8.1, by the
Company having liability for the Tax.
8.3 ACCESS TO TAX RECORDS. The Companies and their respective
Affiliates shall make available to each other for inspection and copying during
normal business hours upon reasonable notice all Tax Records in their possession
to the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items under
this Agreement.
Section 9. TAX CONTESTS
9.1 NOTICE. Each of the Companies shall provide prompt notice to the
other Company of any pending or threatened Tax audit, assessment or proceeding
or other Tax Contest of which it becomes aware related to Taxes for Tax Periods
for which it is indemnified by the other Company hereunder. Such notice shall
contain factual information (to the extent known) describing any asserted Tax
liability in reasonable detail and shall be accompanied by copies of any notice
and other documents received from any Tax Authority in respect of any such
matters. If an indemnified party has knowledge of an asserted Tax liability with
respect to a matter for which it is to be indemnified hereunder and such party
fails to give the indemnifying party prompt notice of such asserted Tax
liability, then (i) if the indemnifying party is precluded from contesting the
asserted Tax liability in any forum as a result of the failure to give prompt
notice, the indemnifying party shall have no obligation to indemnify the
indemnified party for any Taxes arising out of such asserted Tax liability, and
(ii) if the indemnifying party is not precluded from contesting the asserted Tax
liability in any forum, but such failure to give prompt notice results in a
monetary detriment to the indemnifying party, then any amount which the
indemnifying party is otherwise required to pay the indemnified party pursuant
to this Agreement shall be reduced by the amount of such detriment.
9.2 CONTROL OF TAX CONTESTS
19
20
(a) SEPARATE COMPANY TAXES. In the case of any Tax Contest with
respect to any Separate Company Tax, the Company having liability for the Tax
shall have exclusive control over the Tax Contest, including exclusive authority
with respect to any settlement of such Tax liability.
(b) CONSOLIDATED OR COMBINED INCOME TAXES. In the case of any Tax
Contest with respect to any Consolidated or Combined Income Tax, (i)
Distributing Co. shall control the defense or prosecution of the portion of the
Tax Contest directly and exclusively related to any Distributing Adjustment,
including settlement of any such Distributing Adjustment and (ii) Controlled Co.
shall control the defense or prosecution of the portion of the Tax Contest
directly and exclusively related to any Controlled Adjustment, including
settlement of any such Controlled Adjustment, and (iii) the Tax Contest
Committee shall control the defense or prosecution of Joint Adjustments,
including settlement of any such Joint Adjustment, and any and all
administrative matters not directly and exclusively related to any Distributing
Adjustment or Controlled Adjustment. The Tax Contest Committee shall be
comprised of two persons, one person selected by Distributing Co. (as designated
in writing to Controlled Co.) and one person selected by Controlled Co. (as
designated in writing to Distributing Co.). Each person serving on the Tax
Contest Committee shall continue to serve unless and until he or she is replaced
by the party designating such person. Any and all matters to be decided by the
Tax Contest Committee shall require the approval of both persons serving on the
committee. In the event the Tax Contest Committee shall be deadlocked on any
matter, the provisions of Section 15 of this Agreement shall apply. A Company
shall not agree to any Tax liability for which another Company may be liable
under this Agreement, or compromise any claim for any Tax Benefit which another
Company may be entitled under this Agreement, without such other Company's
written consent (which consent may be given or withheld at the sole discretion
of the Company from which the consent would be required). The Distributing Co.,
in the case of any examination or audit of a Distributing Co. Federal
Consolidation Return, and the Responsible Company in the case of any examination
or audit of a Consolidated or Combined State Income Tax Return, shall be the
only parties representing the members of the Group before any Federal or State
Tax Authority in connection with the examination or audit. Notwithstanding the
representation by the Distributing Co. or Responsible Company before such Tax
Authority, the Distributing Co. or Responsible Company shall (a) provide the
Controlled Co. with all information reasonably requested relating to any
Controlled Adjustment or Joint Adjustment; (b) submit to such Tax Authority any
facts, legal arguments or other matters deemed advisable by Controlled Co. and
provided by it to Distributing Co. or the Responsible Company; (c) not have the
authority to settle or otherwise compromise a Controlled Adjustment; and (d) not
have the authority to settle or otherwise compromise a Joint Adjustment other
than through the Tax Contest Committee procedures set forth in this Section
9.2(b).
Section 10. EFFECTIVE DATE. This Agreement shall be effective on the
Offerings Closing Date.
Section 11. NO INCONSISTENT ACTIONS. Each of the Companies covenants
and agrees that it will not take any action, and it will cause its Affiliates to
refrain from taking any action, which is inconsistent with the Tax treatment of
the Distribution as contemplated in the Ruling Request (any
20
21
such action is referred to in this Section 11 as a "Prohibited Action"), unless
such Prohibited Action is required by law, or the person acting has obtained the
prior written consent of each of the other parties (which consent shall not be
unreasonably withheld). With respect to any Prohibited Action proposed by a
Company (the "Requesting Party"), the other party (the "Requested Party") shall
grant its consent to such Prohibited Action if the Requesting Party obtains a
ruling with respect to the Prohibited Action from the Internal Revenue Service
or other applicable Tax Authority that is reasonably satisfactory to the
Requested Party (except that the Requesting Party shall not submit any such
ruling request if a Requested Party determines in good faith that filing such
request might have a materially adverse effect upon such Requested Party).
Without limiting the foregoing:
(a) NO INCONSISTENT PLAN OR INTENT. Controlled Co. and Distributing
Co. each represents and warrants that neither it nor any of its Affiliates has
any plan or intent to take any action which is inconsistent with any factual
statements or representations in the Ruling Request. Regardless of any change in
circumstances, Controlled Co. and Distributing Co. each covenant and agree that
it will not take, and it will cause its Affiliates to refrain from taking, any
such inconsistent action on or before the last day of the calendar year ending
after the second anniversary of the Distribution Date other than as permitted in
this Section 11.
(b) AMENDED OR SUPPLEMENTAL RULINGS . Each of the Companies
covenants and agrees that it will not file, and it will cause its Affiliates to
refrain from filing, any amendment or supplement to the Ruling Request
subsequent to the Distribution Date without the consent of the other Company,
which consent shall not be unreasonably withheld.
Section 12. SURVIVAL OF OBLIGATIONS . The representations, warranties,
covenants and agreements set forth in this Agreement shall be unconditional and
absolute and shall remain in effect without limitation as to time.
Section 13. EMPLOYEE MATTERS . To the extent applicable, each of the
Companies agrees to utilize, or cause its Affiliates to utilize, the alternative
procedure set forth in Revenue Procedure 96-60, 1996-2 C.B. 399, with respect to
wage reporting.
Section 14. TREATMENT OF PAYMENTS; TAX GROSS UP
14.1 TREATMENT OF TAX INDEMNITY AND TAX BENEFIT PAYMENTS. In the
absence of any change in tax treatment under the Code or other applicable Tax
Law,
(a) any Tax indemnity payments made by a Company under Section 5
shall be reported for Tax purposes by the payor and the recipient as
distributions or capital contributions, as appropriate, occurring immediately
before the Offerings Closing Date, but only to the extent the payment does not
relate to a Tax allocated to the payor in accordance with Treasury Regulation
Section 1.1502-33(d) (or under corresponding principles of other applicable Tax
Laws), and
21
22
(b) any Tax Benefit payments made by a Company under Section 6,
shall be reported for Tax purposes by the payor and the recipient as
distributions or capital contributions, as appropriate, occurring immediately
before the Offerings Closing Date, but only to the extent the payment does not
relate to a Tax allocated to the payor in accordance with Treasury Regulation
Section 1.1502-33(d) (or under corresponding principles of other applicable Tax
Laws).
14.2 TAX GROSS UP. If notwithstanding the manner in which Tax indemnity
payments and Tax Benefit payments were reported, there is an adjustment to the
Tax liability of a Company as a result of its receipt of a payment pursuant to
this Agreement, such payment shall be appropriately adjusted so that the amount
of such payment, reduced by the amount of all Income Taxes payable with respect
to the receipt thereof (but taking into account all correlative Tax Benefits
resulting from the payment of such Income Taxes), shall equal the amount of the
payment which the Company receiving such payment would otherwise be entitled to
receive pursuant to this Agreement.
14.3 INTEREST UNDER THIS AGREEMENT. Anything herein to the contrary
notwithstanding, to the extent one Company ("indemnitor") makes a payment of
interest to another Company ("indemnitee") under this Agreement with respect to
the period from the date that the indemnitee made a payment of Tax to a Tax
Authority to the date that the indemnitor reimbursed the indemnitee for such Tax
payment, or with respect to the period from the date that the indemnitor
received a Tax Benefit to the date indemnitor paid the Tax Benefit to the
indemnitee, the interest payment shall be treated as interest expense to the
indemnitor (deductible to the extent provided by law) and as interest income by
the indemnitee (includible in income to the extent provided by law). The amount
of the payment shall not be adjusted under Section 14.2 to take into account any
associated Tax Benefit to the indemnitor or increase in Tax to the indemnitee.
Section 15. DISAGREEMENTS. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the matter
will be referred to a nationally recognized accounting firm acceptable to each
of the parties (the "Accounting Firm"). The Accounting Firm shall furnish
written notice to the parties of its resolution of any such disagreement as soon
as practical, but in any event no later than 45 days after its acceptance of the
matter for resolution. Any such resolution by the Accounting Firm will be
conclusive and binding on all parties to this Agreement. In accordance with
Section 17, each party shall pay its own fees and expenses (including the fees
and expenses of its representatives) incurred in connection with the referral of
the matter to the Accounting Firm. All fees and expenses of the Accounting Firm
in connection with such referral shall be shared equally by the parties affected
by the matter.
Section 16. LATE PAYMENTS . Any amount owed by one party to another
party under this Agreement which is not paid when due shall bear interest at the
Prime Rate plus two percent, compounded semiannually, from the due date of the
payment to the date paid. To the extent interest required to be paid under this
Section 16 duplicates interest required to be paid under any other provision of
this Agreement, interest shall be computed at the higher of the interest rate
provided under this Section 16 or the interest rate provided under such other
provision.
22
23
Section 17. EXPENSES. Except as provided in Section 15, each party and
its Affiliates shall bear their own expenses incurred in connection with
preparation of Tax Returns, Tax Contests, and other matters related to Taxes
under the provisions of this Agreement.
Section 18. GENERAL PROVISIONS
18.1 ADDRESSES AND NOTICES. Any notice, demand, request or report
required or permitted to be given or made to any party under this Agreement
shall be in writing and shall be deemed given or made when delivered in party or
when sent by first class mail or by other commercially reasonable means of
written communication (including delivery by an internationally recognized
courier service or by facsimile transmission) to the party at the party's
principal business address. A party may change the address for receiving notices
under this Agreement by providing written notice of the change of address to the
other parties.
18.2 BINDING EFFECT . This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns.
18.3 WAIVER. No failure by any party to insist upon the strict
performance of any obligation under this Agreement or to exercise any right or
remedy under this Agreement shall constitute waiver of any such obligation,
right, or remedy or any other obligation, rights, or remedies under this
Agreement.
18.4 INVALIDITY OF PROVISIONS. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein shall
not be affected thereby.
18.5 FURTHER ACTION. The parties shall execute and deliver all
documents, provide all information, and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this Agreement,
including the execution and delivery to the other parties and their Affiliates
and representatives of such powers of attorney or other authorizing
documentation as is reasonably necessary or appropriate in connection with Tax
Contests (or portions thereof) under the control of such other parties in
accordance with Section 9.
23
24
18.6 INTEGRATION. This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter of this Agreement and supersedes
all prior agreements and understandings pertaining thereto. In the event of any
inconsistency between this Agreement and the Distribution Agreement or any other
agreements relating to the transactions contemplated by the Distribution
Agreement, the provisions of this Agreement shall control.
18.7 CONSTRUCTION. The language in all parts of this Agreement shall in
all cases be construed according to its fair meaning and shall not be strictly
construed for or against any party.
18.8 NO DOUBLE RECOVERY; SUBROGATION. No provision of this Agreement
shall be construed to provide an indemnity or other recovery for any costs,
damages, or other amounts for which the damaged party has been fully compensated
under any other provision of this Agreement or under any other agreement or
action at law or equity. Unless expressly required in this Agreement, a party
shall not be required to exhaust all remedies available under other agreements
or at law or equity before recovering under the remedies provided in this
Agreement. Subject to any limitations provided in this Agreement (for example,
the limitation on filing claims for refund in Section 4.7), the indemnifying
party shall be subrogated to all rights of the indemnified party for recovery
from any third party.
18.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
18.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida applicable to contracts
executed in and to be performed in that State.
24
25
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers as of the date first written above.
REPUBLIC INDUSTRIES, INC.
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
REPUBLIC SERVICES, INC.
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
25
1
EXHIBIT 10.5
REPUBLIC SERVICES, INC.
FORM OF
1998 STOCK INCENTIVE PLAN
1. THE PLAN
This Republic Services, Inc. 1998 Stock Incentive Plan (the "Plan") is intended
to benefit the stockholders of Republic Services, Inc. (the "Company") by
providing a means to attract, retain and reward individuals who contribute to
the long term financial success of the Company. Further, the recipients of
stock-based awards under the Plan will identify their success with that of the
Company's stockholders and will be encouraged to increase their proprietary
interest in the Company.
ADMINISTRATION
a) COMMITTEE. The Plan shall be administered by a Committee (the "Committee"),
appointed by the Board of Directors of the Company (the "Board"), which shall
consist of no less than two of its members, all of whom qualify as "outside
directors" under Section 162(m) of the Internal Revenue Code of 1986 (the "IRC")
provided, however, that from time to time the Board may assume, at its sole
discretion, administration of the Plan and the Board reserves the power to make
adjustments for corporate transactions described in Section 3(d). Except with
regard to awards to employees subject to Section 16 of the Securities Exchange
Act of 1934, the Committee may delegate certain responsibilities and powers to
any executive officer or officers selected by it. Any such delegation may be
revoked by the Committee at any time.
b) POWERS AND AUTHORITY. The Committee's powers and authority include, but are
not limited to: selecting individuals, who are employees, consultants, or
non-employee directors of the Company and any subsidiary of the Company or other
entity in which the Company has a significant equity or other interest as
determined by the Committee, to receive awards; determining the types and terms
and conditions of all awards granted, including performance and other earnout
and/or vesting contingencies; permitting transferability of awards to eligible
third parties; interpreting the Plan's
2
provisions; and administering the Plan in a manner that is consistent with its
purpose. The Committee's decision in carrying out the Plan and its
interpretation and construction of any provisions of the Plan or any award
granted or agreement or other instrument executed under it shall be final and
binding upon all persons. No members of the Board shall be liable for any action
or determination made in good faith in administering the Plan.
c) AWARD PRICES. All awards will be denominated or made in shares of the
Company's Class A Common Stock par value $.01 (the "Stock") which price shall
equal no less than 100% of the fair market value which shall mean either the
closing price of the Stock on the business day prior to the applicable date or
at a price otherwise fixed by the Committee in good faith as 100% of the fair
market value of the Stock. The applicable date shall be the day on which the
award is granted (or other Plan transaction occurs), except that the Committee
may provide that the applicable date may be, in the case of a stock option or
stock appreciation right granted retroactively in tandem with or as a
substitution for another previously granted stock option or stock appreciation
right, the applicable date for such prior award. Except as provided for in
Section 3(d), the per share exercise price of any stock option or stock
appreciation right may not be decreased after the grant of the award, and a
stock option or stock appreciation right may not be surrendered as consideration
in exchange for the grant of a new award with a lower exercise price per share
of Stock.
d) AWARD AGREEMENTS AND VESTING. All awards shall be evidenced by a signed award
agreement. These agreements shall specify the terms of the awards including
their vesting schedule and any other criteria, such as performance criteria,
which will be required for vesting or early vesting of the award. The minimum
vesting period for all awards shall be one year, except for awards made in lieu
of cash compensation which may vest immediately.
3. SHARES OF STOCK SUBJECT TO THE PLAN AND ADJUSTMENTS
a) MAXIMUM SHARES OF STOCK AVAILABLE FOR DELIVERY. Subject to Section 3(d), the
maximum number of shares of Stock that may be delivered to participants and
their beneficiaries under the Plan shall be 20,000,000 shares of Stock. Any
Stock granted under the Plan which are forfeited back to the
2
3
Company because of the failure to meet an award contingency or condition shall
again be available for delivery pursuant to new awards granted under the Plan.
Any Stock covered by an award (or portion of an award) granted under the Plan,
which is forfeited or canceled, expires or is settled in cash, including the
settlement of tax withholding obligations using Stock, shall be deemed not to
have been delivered for purposes of determining the maximum number of shares of
Stock available for delivery under the Plan. Likewise, if any stock option is
exercised by tendering shares of Stock, either actually or by attestation, to
the Company as full or partial payment for such exercise under this Plan or any
prior plan of the Company, only the number of shares issued net of the shares
tendered shall be deemed delivered for purposes of determining the maximum
number of shares of Stock available for delivery under the Plan. Further, Stock
issued under the Plan through the settlement, assumption or substitution of
outstanding awards or obligations to grant future awards as a condition of the
Company acquiring another entity shall not reduce the maximum number of shares
of Stock available for delivery under the Plan.
b) OTHER PLAN LIMITS. Subject to Section 3(d), the following additional maximums
are imposed under the Plan. The maximum number of shares of Stock that may be
issued in connection with stock options intended to comply with Section 422 or
any other similar provision of the IRC shall be 20,000,000. The maximum
aggregate number of shares of Stock that may be covered by awards granted to any
one individual pursuant to Sections 4(b) and 4(c) shall not exceed 5,000,000.
The maximum number of shares of Stock that may be issued to all participants in
conjunction with awards granted pursuant to Section 4(d) shall be 5,000,000. The
maximum number of shares of Stock or equivalent cash payment that can be earned
each year for awards granted to any one individual pursuant to Section 4(d)
shall be 1,000,000, and shall be cumulative over the life of the Plan.
c) PAYMENT SHARES OF STOCK. Subject to the overall limitation on the number of
shares of Stock that may be delivered under the Plan, the Committee may, in
addition to granting awards under Section 4, use available Stock as the form of
payment for compensation, grants or rights earned or
3
4
due under any other compensation plans or arrangements of the Company, including
those of any entity acquired by the Company.
d) ADJUSTMENTS FOR CORPORATE TRANSACTIONS.
(I) The Board may determine that a corporate transaction has affected the price
of the Stock such that an adjustment or adjustments to outstanding awards are
required to preserve (or prevent enlargement of) the benefits or potential
benefits intended at time of grant. For this purpose a corporate transaction may
include, but is not limited to, any stock dividend, stock split, extraordinary
cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination or exchange of shares of Stock, or other similar
occurrence. In the event of such a corporate transaction, the Board may, in such
manner as the Board deems equitable, adjust (i) the number and kind shares of
Stock which may be delivered under the Plan pursuant to Sections 3(a) and 3(b);
(ii) the number and kind of shares of Stock subject to outstanding awards; and
(iii) the exercise price of outstanding stock options and stock appreciation
rights.
(II) In the event that the Company is not the surviving company of a merger,
consolidation or amalgamation with another company, or in the event of a
liquidation or reorganization of the Company, and in the absence of the
surviving corporation's assumption of outstanding awards made under the Plan,
the Board may provide for appropriate adjustments and/or settlements of such
grants either at the time of grant or at a subsequent date. The Board may also
provide for adjustments and/or settlements of outstanding awards as it deems
appropriate and consistent with the Plan's purpose in the event of any other
change-in-control of the Company.
4. TYPES OF AWARDS
a) GENERAL. An award may be granted singularly, in combination with another
award(s) or in tandem whereby exercise or vesting of one award held by a
participant cancels another award held by the participant. Subject to Section
2(c), an award may be granted as an alternative to or replacement of an existing
award under the Plan or under any other compensation plans or arrangements of
the Company, including the plan of any entity acquired by the Company. The
4
5
Company's non-employee directors are only eligible for the awards described in
Section 4(b) subject to the grant schedule described in Section 4(e). The types
of awards that may be granted under the Plan include:
b) STOCK OPTION. A stock option represents a right to purchase a specified
number of shares of Stock during a specified period at a price per share which
is no less than 100% of the per share amount stipulated by Section 2(c). The
longest term during which a stock option may be outstanding shall be ten years.
A stock option may be in the form of an incentive stock option as defined in
Section 422 of the IRC or in another form which may or may not qualify for
favorable federal income tax treatment. The Stock covered by a stock option may
be purchased by means of a cash payment or such other means as the Committee may
from time-to-time permit, including (i) tendering (either actually or by
attestation) shares of Stock valued using the market price at the time of
exercise, (ii) authorizing a third party to sell Stock (or a sufficient portion
thereof) acquired upon exercise of a stock option and to remit to the Company a
sufficient portion of the sale proceeds to pay for all the shares of Stock
acquired through such exercise and any tax withholding obligations resulting
from such exercise; or (iii) any combination of the above.
c) STOCK APPRECIATION RIGHT. A stock appreciation right is a right to receive a
payment in cash, Stock or a combination, equal to the excess of the aggregate
market price at time of exercise of a specified number of shares of Stock over
the aggregate exercise price of the stock appreciation right being exercised.
The longest term a stock appreciation right may be outstanding shall be ten
years. Such exercise price shall be based on 100% of the per share amount
stipulated by Section 2(c).
d) STOCK AWARD. A stock award is a grant of Stock or of a right to receive Stock
(or their cash equivalent or a combination of both) in the future. Except in
cases of certain terminations of employment or an extraordinary event, each
Stock award shall be earned and vest over at least one year and shall be
governed by such conditions, restrictions and contingencies as the Committee
shall determine. These may include continuous service and/or the achievement of
performance goals.
5
6
The performance goals that may be used by the Committee for such awards to
executive officers covered by IRC Section 162 (m) shall consist of:
Revenue Return on Equity
Net Income Stockholder Return
Earnings Per Share
Further, performance criteria may reflect absolute entity performance or a
relative comparison of entity performance to the performance of a peer group of
entities or other external measure of the selected performance criteria. Profit,
earnings and revenues used for any performance goal measurement shall exclude:
gains or losses on operating asset sales or dispositions; asset write-downs;
litigation or claim judgments or settlements; accruals for historic
environmental obligations; effect of changes in tax law or rate on deferred tax
liabilities; accruals for reorganization and restructuring programs; uninsured
catastrophic property losses; the cumulative effect of changes in accounting
principles; and any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management's discussion and analysis
of financial condition and results of operation appearing in the Company's
annual report to stockholders for the applicable year.
e) DIRECTORS STOCK OPTIONS. Non-employee directors shall receive award of stock
options which are not intended to be treated as incentive stock options under
Section 422 of the IRC. These awards shall consist of one grant of 50,000 shares
of Stock upon appointment to the Board and subsequent annual grants of 20,000
shares of Stock on the first business day of each calendar year at an exercise
price equal to the closing price of the Stock on the last business day of the
prior year. Each option granted under this (e) shall be immediately exercisable.
6
7
5. AWARD SETTLEMENTS AND PAYMENTS
a) DIVIDENDS AND DIVIDEND EQUIVALENTS. An award may contain the right to receive
dividends or dividend equivalent payments which may be paid either currently or
credited to a participant's account. Any such crediting of dividends or dividend
equivalents or reinvestment in shares of Stock may be subject to such
conditions, restrictions and contingencies as the Committee shall establish,
including the reinvestment of such credited amounts in share equivalents.
b) PAYMENTS. Awards may be settled through cash payments, the delivery of Stock,
the granting of awards or combination thereof as the Committee shall determine.
Any award settlement, including payment deferrals, may be subject to such
conditions, restrictions and contingencies, as the Committee shall determine.
The Committee may permit or require the deferral of any award payment, subject
to such rules and procedures as it may establish, which may include provisions
for the payment or crediting of interest, or dividend equivalents, including
converting such credits into deferred share equivalents. Subject to the
aggregate limitation on the number of shares of Stock that may be issued under
the Plan as set forth in Section 3(a), the Committee may, in addition to
granting awards under Section 4, use available Stock as the form of payment for
other compensation plans or arrangements of the Company, including those of any
entity acquired by the Company.
6. PLAN AMENDMENT AND TERMINATION
a) AMENDMENTS. The Board may amend this Plan as it deems necessary and
appropriate to better achieve the Plan's purpose provided, however, that: (i)
the share limitations set forth in Sections 3(a) and 3(b) cannot be increased
and (ii) the minimum stock option and stock appreciation right exercise prices
set forth in Sections 2(c) and 4(b) and (c) cannot be changed unless such a Plan
amendment is properly approved by the Company's stockholders.
b) PLAN SUSPENSION AND TERMINATION. The Board may suspend or terminate this Plan
at any time. Any such suspension or termination shall not of itself impair any
outstanding award granted under the Plan or the applicable participant's rights
regarding such award.
7
8
7. MISCELLANEOUS
(a) NO INDIVIDUAL RIGHTS. No person shall have any claim or right to be granted
an award under the Plan. Neither the Plan nor any action taken hereunder shall
be construed as giving any employee or other person any right to continue to be
employed by or to perform services for the Company, any subsidiary or related
entity. The right to terminate the employment of or performance of services by
any Plan participant at any time and for any reason is specifically reserved to
the employing entity.
b) UNFUNDED PLAN. The Plan shall be unfunded and shall not create (or be
construed to create) a trust or a separate fund or funds. The Plan shall not
establish any fiduciary relationship between the Company and any participant or
beneficiary of a participant. To the extent any person holds any obligation of
the Company by virtue of an award granted under the Plan, such obligation shall
merely constitute a general unsecured liability of the Company and accordingly
shall not confer upon such person any right, title or interest in any assets of
the Company.
c) OTHER BENEFIT AND COMPENSATION PROGRAMS. Unless otherwise specifically
determined by the Committee, settlements of awards received by participants
under the Plan shall not be deemed a part of a participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit plan or severance program. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate.
d) NO FRACTIONAL SHARES OF STOCK. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any award, and the Committee shall
determine whether cash shall be paid or transferred in lieu of any fractional
shares of Stock, or whether such fractional shares of Stock or any rights
thereto shall be canceled.
e) GOVERNING LAW. The validity, construction and effect of the Plan and any
award, agreement or other instrument issued under it shall be determined in
accordance with the laws of the state of Delaware without reference to
principles of conflict of law.
8
1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
STATE OF
NAME D/B/A NAMES ORGANIZATION
---- ----------- ------------
AAA Commercial, Inc. VA
AAA Disposal Service, Inc. VA
AAA Disposal of Tennessee, TN
Inc.
AAA Land and Building Co., VA
Inc.
AAA Maintenance, Inc. VA
AAA Recycling, Inc. VA
A.G. Disposal Service, Inc. NY
A.J. Panzarella & Co., Inc. Larry O'Connor Sanitation FL
Service
Addington Resources, Inc. DE
Addington Holding DE
Company, Inc.
Addington Environmental, KY
Inc.
All Refuse Services, Inc. NY
All Service Refuse Company, FL
Inc.
Alpco Waste Systems, Inc. NY
Anderson Refuse Co., Inc. IN
Anderson Solid Waste, Inc. CA
Antler Park, Inc. IN
2
Arlington Disposal TX
Company, Inc.
Area Container Services, Inc. VA
ASCO Sanitation, Inc. MS
Astro Waste Services, Inc. ME
Barker Brothers, Inc. TN
Barker Brothers Waste TN
Incorporated
Beran Cleaning Corporation Beran Services NJ
Berrien County Landfill, Inc. MI
Bluegrass Recycling & KY
Transfer Company
Bontona Aviation, Inc. FL
Broadhurst Environmental, KY
Inc.
Burgess' Refuse Removal NC
Service, Inc.
CDS Environmental, Inc. of FL
Florida
CDS Environmental of GA
Atlanta, Inc.
CJM Trucking & Soils TX
Company, Inc.
C.S.C. Disposal and Landfill, TX
Inc.
Capital Waste & Recycling, NY
Inc.
Cascade Pacific Engineering, OR
Inc.
Cate's Rubbish Removal NH
Services, Inc.
3
Charleston Disposal Systems, SC
Inc.
Charter Waste, Inc. TX
Cleveland Container Service, NC
Inc.
Collection Services, Inc. M & M Sanitation, Inc., KY
Epperson Collection
Services, CSI of Northern
Kentucky, B & J Sanitation,
Pennyrile Sanitation,
Bluegrass Waste Alliance &
Trik-K Hauling
Commercial Waste Disposal, CWI of Kentucky KY
Inc.
Compactor Rental Systems of DE
Delaware, Inc.
Continental Waste Industries, DE
Inc.
Continental Waste Industries NJ
Arizona, Inc.
Continental Waste Industries IN
- - Gary, Inc.
Covington Waste, Inc. TN
CWI of Illinois, Inc. IL
CWI of Florida, Inc. Southland Waste Systems FL
CWI of Missouri, Inc. MO
CWI of NJ, Inc. NJ
CWI of Northwest Indiana, IN
Inc.
D&L Waste, Inc. NC
Disposal Services, Inc. Upstate Disposal Service & NY
R & R Refuse
Dozit Company, Inc. KY
4
Duncan Disposal, Inc. TX
ECO Services of S.C., Inc. SC
EETL I, Inc. TX
East Bay Sanitation Service, FL
Inc.
East Carolina Environmental, KY
Inc.
El Centro Sanitation Service, CA
Co.
Elliot's Agri-Service, Inc. TX
Enviro-Comp Services, Inc. FL
Envirocycle, Inc. FL
Environmental Specialists, MO
Inc.
Epperson Waste Disposal, KY
Inc.
Fennell Container Co., Inc. SC
Fennell Waste Systems, Inc. SC
Fenn-Vac, Inc. SC
Fisk Sanitation Service, Inc. IN
Fisk Environmental Services, IN
Inc.
FLL, Inc. MI
Florida Refuse Service, Inc. FL
Garbage Disposal Service, NC
Inc.
G.E.M. Environmental DE
Management, Inc.
GF/WFF, Inc. SC
Gilliam Transfer, Inc. MO
5
Grand Prairie Disposal TX
Company, Inc.
Green Disposal, Inc. UT
Greenfield Environmental DE
Development Corp.
Green Valley Environmental KY
Corp.
Gulf Coast Waste Service, FL
Inc.
Hank's Disposal, Inc. IN
Helper's Hand of America, IN
Inc.
Holland Excavating, Inc. FL
Houston Organics, Inc. TX
Hudson Management FL
Corporation
Hyder Waste Container, Inc. NC
Imperial Sanitation Services, CA
Inc.
Indiana Recycling LLC IN
JMN, Inc. NC
Jamax Corporation IN
Karat Corp. NJ
L.R. Stuart and Son, Inc. VA
LSW Environmental, Inc. GA
Laughlin Environmental, Inc. TX
Living Earth Technology DE
Company
6
Los Angeles LLC CA
M.C.C. Recycling, Inc. NJ
Medical Waste Services, Inc. FL
Meyer Waste Systems, Inc. IN
Meyer Mechanical Services, IN
Inc.
Meyer Transportation, LLC IN
Middlesex Carting Co., Inc. Midco Waste Systems NJ
Mid-East Waste Services, NC
Inc.
Mid-State Environmental KY
Midwest Material IN
Management, Inc.
Monarch Environmental, Inc. KY
National Serv-All, Inc. IN
Nine Mile Road, Inc. FL
Northwest Florida Sanitation, FL
Inc.
Northwest Tennessee TN
Disposal Corp.
NRL, Inc. (New River Line, KY
Inc.)
Ohio County Balefill, Inc. KY
Orange County, LLC CA
Pantego 1, Inc. TX
Pepperhill Development Co., SC
Inc.
Pine Ridge Recycling, Inc. GA
Pinellas Environmental, Inc. KY
Prichard Landfill Corp. WV
7
PSI Waste Systems, Inc. ID
RCLJ Construction, Inc. TX
RITM, Inc. DE
Rainbow Industries, Inc. VA
Raritan Valley Disposal NJ
Service Co., Inc.
Raritan Valley Recycling, NJ
Inc.
Recycling Concepts, Inc. NC
Recycling Industries, Inc. NJ
Reliable Disposal, Inc. MI
Reliable Sanitation, Inc. FL
R.E. Wolfe Enterprises of TX
Edinburg, Inc.
Republic Acquisition DE
Company
Republic Dumpco, Inc. NV
Republic Environmental Republic Environmental NV
Technologies, Inc. Technologies of Nevada &
Apex Aggregates Company
Republic Imperial OK
Acquisition Corp.
Republic/Maloy Landfill & TX
Sanitation, Inc.
Republic Silver State Republic Silver State NV
Disposal, Inc. Disposal Services
Republic Wabash Company DE
Republic Waste Companies DE
Holding Co.
Republic Waste Management DE
Company
8
Republic Waste Management GA
1 Limited Partnership
Robert A. Moor, Jr. Disposal Area Container PA
Services, Inc.
Rochester Dismantling and NY
Roll-Off, Inc.
Safety Lights, Inc. TN
Sandy Hollow Landfill Corp. WV
Sanifill, Inc. TN
Savannah Regional Industrial GA
Landfill, Inc.
Schofield Corporation of Southland Waste Systems FL
Orlando
Seaboard Waste Systems, FL
Inc.
Smithton Sanitation Service, NC
Inc.
Southern Illinois Regional IL
Landfill, Inc.
Southland Environmental Southland Environmental FL
Services, Inc. Systems, Inc.
Southland Maintenance FL
Services, Inc.
Southland Recycling FL
Services, Inc.
Southland Waste Systems, FL
Inc.
Southland Waste Systems of GA
Georgia, Inc.
Southland Waste Systems of FL
Jax, Inc.
Southland Waste Systems of GA
Ware Co., Inc.
9
South Trans, Inc. NJ
Space Coast Sanitation, Inc. FL
Specialized Waste, Inc. CA
Springfield Environmental, DE
Inc.
Statewide Environmental NJ
Contractors, Inc.
Sullivan Environmental GA
Services, Inc.
Suburban Disposal Service, SC
Inc.
SunBurst Sanitation FL
Corporation
Sunrise Disposal, Inc. IN
Swift Creek Environmental, GA
Inc.
Taormina, LLC CA
Tay-Ban Corporation Taymouth Landfill MI
Terre Haute Recycling, Inc. IN
Tos-It Service Company, Inc. TX
Town & Country Disposal, NY
Inc.
Trashaway Services, Inc. TX
Treasure Coast Refuse Corp. FL
Tri-K Landfill, Inc. KY
Tri-County Refuse Service, MI
Inc.
Tri-State Ltd. IN
10
Triple C Disposal Service, TX
Inc.
Triple G Landfills, Inc. IN
United Refuse Co., Inc. IN
United Waste Service, Inc. GA
Upper Peidmont KY
Environmental, Inc.
Uwharrie Environmental, Inc. KY
Ventura County, LLC CA
Victory Environmental DE
Services, Inc.
Victory Waste Incorporated CA
W.R. Lalevee Realty NJ
Company, Inc.
Wabash Valley Landfill PA
Company, Ltd.
Wabash Valley Refuse IN
Removal Company, L.P.
Waste Collection Services, Seaside Sanitation FL
Corp.
Waste Handling Systems, NC
Inc.
Westchester Investments, Inc. IN
Wes Tex Waste Services, Inc. TX
White Stone of Warren, Inc. KY
Wilshire Disposal Service Wilshire Rubbish Serv, CA
Zakaroff Rubbish Co.,
Mike's Rubbish, Mike's
Rubbish Serv
Wood River Rubbish ID
Company, Inc.
WPP Services, Inc. OH
11
WPP Continental de Costa Costa Rica
Rica, S.A.
York Waste Disposal, Inc. PA
Zakaroff Services Zakaroff Recycling Services, CA
West, Hollywood Recycling
Services, Inc. and L.A. Waste
Disposal
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 29, 1998.
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
12,800
0
154,600
15,600
12,200
184,200
1,256,400
429,900
1,488,200
430,200
61,400
0
0
0
887,300
1,488,200
0
300,800
0
209,700
0
0
5,400
54,400
19,600
34,800
0
0
0
34,800
0
0
5
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
263,200
0
190,300
0
0
7,600
36,400
13,200
23,200
0
0
0
23,200
0
0
5
1,000
YEAR
DEC-31-1997
JAN-01-1997
DEC-31-1997
18,800
0
144,600
13,600
11,700
175,900
1,215,600
413,800
1,348,000
436,100
64,300
0
0
0
750,800
1,348,000
0
1,127,700
0
809,100
0
0
25,900
182,100
65,900
116,200
0
0
0
116,200
0
0
5
1,000
YEAR
DEC-31-1996
JAN-01-1996
DEC-31-1996
43,900
14,500
119,100
8,300
6,100
192,800
1,004,400
343,100
1,090,300
422,700
109,500
0
0
0
494,500
1,090,300
0
953,300
0
703,600
8,800
0
29,700
89,800
38,000
51,800
0
0
0
51,800
0
0
5
1,000
YEAR
DEC-31-1995
JAN-01-1995
DEC-31-1995
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
805,000
0
570,100
3,300
0
19,100
81,000
31,600
49,400
(24,800)
0
0
24,600
0
0
