Exhibit 10.70
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
USA WASTE SERVICES, INC.,
C&S OHIO CORP.
AND
AMERICAN WASTE SERVICES, INC.
TABLE OF CONTENTS
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ARTICLE I
THE MERGER...................................................................... 2
Section 1.1 The Merger...................................................... 2
Section 1.2 Effective Time of the Merger.................................... 2
ARTICLE II
THE SURVIVING CORPORATION AND USA WASTE......................................... 2
Section 2.1 Articles of Incorporation....................................... 2
Section 2.2 Regulations..................................................... 2
Section 2.3 Directors....................................................... 2
Section 2.4 Officers........................................................ 3
ARTICLE III
CONVERSION OF SHARES............................................................ 3
Section 3.1 Conversion of AWS Shares in the Merger.......................... 3
Section 3.2 Conversion of Mergerco Shares................................... 3
Section 3.3 Delivery of Merger Consideration................................ 3
Section 3.4 Dissenting Shares............................................... 5
Section 3.5 Closing......................................................... 5
Section 3.6 Pre-Closing Financial Transactions.............................. 6
Section 3.7 Final Balance Sheet............................................. 9
Section 3.8 Distribution Tax................................................ 10
ARTICLE IV
CERTAIN PRE-MERGER TRANSACTIONS................................................. 10
Section 4.1 Ancillary Agreements............................................ 10
Section 4.2 Contribution of Assets and Assumption of Liabilities............ 10
Section 4.3 Distribution.................................................... 10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF USA WASTE AND MERGERCO
Section 5.1 Organization and Qualification.................................. 11
Section 5.2 Authority; Non-Contravention; Approvals......................... 11
Section 5.3 Litigation...................................................... 12
Section 5.4 Proxy Statement................................................. 12
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF AWS........................................... 13
Section 6.1 Organization and Qualification.................................. 13
Section 6.2 Capitalization.................................................. 13
Section 6.3 Subsidiaries.................................................... 14
Section 6.4 Authority; Non-Contravention; Approvals......................... 14
Section 6.5 Reports and Financial Statements................................ 16
Section 6.6 Absence of Undisclosed Liabilities.............................. 16
Section 6.7 Absence of Certain Changes or Events............................ 17
Section 6.8 Litigation...................................................... 17
Section 6.9 Proxy Statement................................................. 17
Section 6.10 No Violation of Law............................................ 18
Section 6.11 Compliance with Agreements..................................... 18
Section 6.12 Taxes.......................................................... 19
Section 6.13 Employee Benefit Plans; ERISA.................................. 20
Section 6.14 Labor Controversies............................................ 21
Section 6.15 Environmental Matters.......................................... 21
Section 6.16 Non-Competition Agreements..................................... 22
Section 6.17 Title to Assets................................................ 23
Section 6.18 Retained Business.............................................. 23
Section 6.19 Certain Payments............................................... 24
Section 6.20 AWS Stockholders' Approval..................................... 24
Section 6.21 Brokers and Finders............................................ 25
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER.......................................... 25
Section 7.1 Conduct of Business by AWS Pending the Merger................... 25
Section 7.2 Control of AWS's Operations..................................... 27
Section 7.3 Acquisition Transactions........................................ 27
ARTICLE VIII
ADDITIONAL AGREEMENTS........................................................... 28
Section 8.1 Access to Information........................................... 28
Section 8.2 Proxy Statement................................................. 29
Section 8.3 Stockholders' Approvals......................................... 29
Section 8.4 Expenses and Fees............................................... 29
Section 8.5 Agreement to Cooperate.......................................... 30
Section 8.6 Public Statements............................................... 31
Section 8.7 Option Plans.................................................... 31
Section 8.8 Notification of Certain Matters................................. 31
Section 8.9 Directors' and Officers' Indemnification........................ 32
Section 8.10 Corrections to the Proxy Statement............................. 33
Section 8.11 Credit Facility................................................ 33
Section 8.12 Board Approval of Distribution................................. 33
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ARTICLE IX
CONDITIONS...................................................................... 34
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger...... 34
Section 9.2 Conditions to Obligation of AWS to Effect the Merger............ 34
Section 9.3 Conditions to Obligations of USA Waste and Mergerco to
Effect the Merger.......................................... 35
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER............................................... 36
Section 10.1 Termination.................................................... 36
Section 10.2 Effect of Termination.......................................... 38
Section 10.3 Amendment...................................................... 38
Section 10.4 Waiver......................................................... 38
ARTICLE XI
GENERAL PROVISIONS.............................................................. 38
Section 11.1 Non-Survival of Representations and Warranties................. 38
Section 11.2 Notices........................................................ 38
Section 11.3 Interpretation................................................. 40
Section 11.4 Miscellaneous.................................................. 40
Section 11.5 Counterparts................................................... 40
Section 11.6 Parties in Interest............................................ 40
Exhibit A Contribution and Distribution Agreement
Exhibit B Tax Allocation Agreement
Exhibit C Voting Agreement and Irrevocable Proxy
Exhibit D Legal Opinion of Outside Counsel for AWS
Exhibit E Non-Competition Agreement
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 6, 1998 (the
"Agreement"), by and among USA Waste Services, Inc., a Delaware corporation
("USA Waste"), C&S Ohio Corp., an Ohio corporation and a wholly owned subsidiary
of USA Waste ("Mergerco"), and American Waste Services, Inc., an Ohio
corporation ("AWS").
W I T N E S S E T H:
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WHEREAS, the respective Boards of Directors of USA Waste, Mergerco and AWS
deem it advisable and in the best interests of their respective stockholders
that USA Waste indirectly acquire the non-hazardous solid waste landfills owned
or operated, the refuse collection services provided, and the landfill gas
collection and sales business conducted (collectively, the "Retained Business")
by certain of AWS's subsidiaries (the "Retained Subsidiaries"), pursuant to the
terms and conditions set forth in this Agreement; and
WHEREAS, as set forth in Section 4.1, USA Waste, AWS and a company to be
formed by AWS ("Avalon") will enter into a contribution and distribution
agreement substantially in the form of Exhibit A hereto (the "Distribution
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Agreement"), pursuant to which AWS's assets, other than those used primarily in
the Retained Business, will be contributed to and certain related liabilities
will be assumed by Avalon (the "Contribution"), and all outstanding shares of
capital stock of Avalon will be distributed (the "Distribution") to the
stockholders of AWS as provided in the Distribution Agreement, in order to
divest AWS of the businesses and operations that USA Waste is unwilling to
acquire; and
WHEREAS, as set forth in Section 4.1, USA Waste, AWS and Avalon will enter
into a tax allocation agreement substantially in the form of Exhibit B hereto
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(the "Tax Allocation Agreement" and, together with the Distribution Agreement,
the "Ancillary Agreements"); and
WHEREAS, the respective Boards of Directors of USA Waste, Mergerco and AWS
have determined that, following the Distribution, the merger of Mergerco with
and into AWS (the "Merger"), with AWS surviving as a wholly owned subsidiary of
USA Waste, pursuant to the terms and conditions set forth in this Agreement,
would be in the best interests of their respective stockholders; and
WHEREAS, in connection with the Merger and as an inducement to USA Waste to
enter into this Agreement, USA Waste, AWS and certain stockholders of AWS have
executed as of the date hereof voting agreements and irrevocable proxies,
substantially in the form of Exhibit C hereto (each, a "Voting Agreement"), in
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favor of USA Waste with respect to the voting of shares of capital stock of AWS
held or to be held by such stockholders for approval and adoption of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2), in accordance
with the Ohio General Corporation Law (the "OGCL"), Mergerco shall be merged
with and into AWS and the separate existence of Mergerco shall thereupon cease.
AWS shall be the surviving corporation in the Merger and is hereinafter
sometimes referred to as the "Surviving Corporation."
Section 1.2 Effective Time of the Merger. The Merger shall become effective
at such time (the "Effective Time") as shall be stated in a certified copy of
the agreement, in a form mutually acceptable to USA Waste and AWS, to be filed
with the Secretary of State of the State of Ohio in accordance with the OGCL
(the "Merger Filing"). The Merger Filing shall be made simultaneously with or as
soon as practicable after the closing of the transactions contemplated by this
Agreement in accordance with Section 3.5. The parties acknowledge that it is
their mutual desire and intent to consummate the Merger as soon as practicable
after the date hereof, subject to the terms and conditions hereof. Accordingly,
the parties shall, subject to the provisions hereof, use commercially reasonable
efforts to consummate, as soon as practicable, the transactions contemplated by
this Agreement in accordance with Section 3.5.
ARTICLE II
THE SURVIVING CORPORATION AND USA WASTE
Section 2.1 Articles of Incorporation. The Articles of Incorporation of AWS
as in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation after the Effective Time, and
thereafter may be amended in accordance with their terms and as provided by the
OGCL.
Section 2.2 Regulations. The Regulations of AWS as in effect
immediately prior to the Effective Time shall be the Regulations of the
Surviving Corporation after the Effective Time, and thereafter may be amended in
accordance with their terms and as provided by the Articles of Incorporation of
the Surviving Corporation and the OGCL.
Section 2.3 Directors. The directors of the Surviving Corporation
shall be as designated in Schedule 2.3, and such directors shall serve in
accordance with the Regulations of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified.
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Section 2.4 Officers. The officers of the Surviving Corporation shall
be as designated in Schedule 2.4, and such officers shall serve in accordance
with the Regulations of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Conversion of AWS Shares in the Merger. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of AWS:
(a) each outstanding share of AWS's Class A Common Stock, no par
value ("Class A Common Stock"), and each outstanding share of AWS's Class B
Common Stock, no par value ("Class B Common Stock" and, together with the Class
A Common Stock, "AWS Common Stock"), shall, subject to Sections 3.1(b), 3.3 and
3.4, be converted into the right to receive, without interest, cash in an amount
equal to Four Dollars ($4.00) per share (the "Merger Consideration"); and
(b) each share of capital stock of AWS, if any, held in treasury by
AWS or held by any subsidiary of AWS immediately prior to the Effective Time
shall be canceled and shall cease to exist from and after the Effective Time
without any payment being made therefor ("Canceled Shares").
Section 3.2 Conversion of Mergerco Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of USA Waste as the sole
stockholder of Mergerco, each issued and outstanding share of common stock, par
value $.01 per share, of Mergerco ("Mergerco Common Stock") shall be converted
into one share of common stock, no par value, of the Surviving Corporation.
Section 3.3 Delivery of Merger Consideration.
(a) Prior to the Effective Time, USA Waste shall select a bank or
trust company reasonably acceptable to AWS to act as the paying agent for the
Merger (the "Paying Agent"). At or prior to the Effective Time, USA Waste shall
deposit or cause to be deposited in trust with the Paying Agent an amount equal
to the Merger Consideration multiplied by the number of outstanding shares of
AWS Common Stock (excluding Canceled Shares) (the "Payment Fund"). Out of the
Payment Fund, the Paying Agent shall make the payments referred to in Section
3.3(c). The Payment Fund shall not be used for any other purpose. The Payment
Fund may be invested by the Paying Agent, as directed by the Surviving
Corporation, in (i) obligations of or guaranteed by the United States, (ii)
commercial paper rated A-1, P-1, A-2 or P-2, (iii) certificates of deposit, bank
repurchase agreements and bankers' acceptances of any bank or trust company
organized under federal law or under any law of any state of the United
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States or of the District of Columbia which has capital, surplus and undivided
profits of at least One Billion Dollars ($1,000,000,000) and (iv) money market
funds that are invested solely in any such securities. Any net earnings with
respect thereto shall first be used to pay the fees and expenses of the Paying
Agent. To the extent that such net earnings are not so used, then such remaining
amount, determined at the end of each month until the remainder of the Payment
Fund is paid to the Surviving Corporation in accordance with Section 3.3(f),
shall be paid within 10 days of the end of each such month to the Surviving
Corporation and Avalon in equal portions. After the remainder of the Payment
Fund has been paid to the Surviving Corporation in accordance with the terms of
Section 3.3(f), Avalon shall not be entitled to subsequent earnings thereon.
(b) As soon as reasonably practicable after the Effective Time, the
Paying Agent shall mail to each holder of record of AWS Common Stock as of the
Effective Time a letter of transmittal for return to the Paying Agent (the
"Paying Agent Letter"): (i) notifying of the effectiveness of the Merger; (ii)
providing instructions for effecting the surrender and exchange of the
certificates representing AWS Common Stock (the "Certificates") for the Merger
Consideration; (iii) specifying that delivery shall be effected, and risk of
loss of the Certificates shall pass, only upon delivery of Certificates to the
Paying Agent; and (iv) including such other provisions as USA Waste and AWS
agree on prior to the Effective Time.
(c) USA Waste and the Surviving Corporation shall cause the Paying
Agent to pay to the holder of any Certificate as soon as is practicable after
receipt of such Certificate, or in lieu of such Certificate an affidavit of lost
share certificate (including a customary indemnity against loss) in form and
substance reasonably satisfactory to USA Waste, together with the Paying Agent
Letter, duly executed, and any other item specified by the Paying Agent Letter,
an amount equal to the product of (i) the number of shares of AWS Common Stock
represented by the Certificate so surrendered multiplied by (ii) the Merger
Consideration, less any applicable withholding taxes. No interest shall accrue
or be paid on any cash payable upon the surrender of any Certificate. Each
Certificate surrendered in accordance with the provisions of this Section 3.3(c)
shall be canceled forthwith.
(d) In the event of any transfer of ownership of shares of AWS Common
Stock which is not registered in the transfer records of AWS, the Merger
Consideration may be paid to the transferee only if (i) the Certificate
representing such shares of AWS Common Stock is surrendered to the Paying Agent
in accordance with Section 3.3(c), properly endorsed for transfer or accompanied
by appropriate and properly endorsed stock powers, and is otherwise in proper
form to effect such transfer, (ii) the person requesting such transfer pays to
the Paying Agent any transfer or other taxes payable by reason of such transfer
or establishes to the satisfaction of the Paying Agent that such taxes have been
paid or are not required to be paid, and (iii) such person establishes to the
satisfaction of USA Waste that such transfer would not violate any applicable
federal or state securities laws.
(e) At and after the Effective Time, each holder of a Certificate
that represented issued and outstanding shares of AWS Common Stock immediately
prior to the
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Effective Time shall cease to have any rights as a stockholder of AWS, except
for the right to surrender his or her Certificate in exchange for the Merger
Consideration and except as otherwise provided by applicable law, and no
transfer of shares of AWS Common Stock shall be made on the stock transfer books
of the Surviving Corporation.
(f) Any portion of the Payment Fund that remains unclaimed as of the
end of the month in which the first anniversary of the Effective Time occurs
shall be paid to the Surviving Corporation upon demand, except as provided in
the next to last sentence of Section 3.3(a). Any holders of Certificates who
have not theretofore complied with this Section 3.3 shall thereafter look only
to the Surviving Corporation and USA Waste for payment (subject to applicable
abandoned property, escheat and similar laws) of their claim for the Merger
Consideration, without interest thereon. Notwithstanding the foregoing, neither
USA Waste, the Surviving Corporation nor the Paying Agent shall be liable to a
holder of a Certificate for any Merger Consideration properly delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 3.4 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of AWS Common Stock ("Dissenting Shares") that
are held by stockholders who shall not have voted such shares in favor of
approval and adoption of the Merger and this Agreement and who, not later than
10 days after the date on which the vote of the stockholders on the approval and
adoption of the Merger and this Agreement is taken, shall have delivered to AWS
or the Surviving Corporation a written demand for payment of the fair cash value
of such shares in the manner provided in Section 1701.85 of the OGCL ("Section
1701.85") shall not be converted into the right to receive the Merger
Consideration, and the holders thereof shall be entitled to payment of the fair
cash value of such Dissenting Shares in accordance with the provisions of
Section 1701.85; provided, however, that (i) if any holder of Dissenting Shares
does not comply with Section 1701.85 (unless the Surviving Corporation waives
such failure); (ii) if any holder of Dissenting Shares subsequently withdraws
such holder's demand for payment of the fair cash value of such Dissenting
Shares (with the consent of the Surviving Corporation), or (iii) if the
Surviving Corporation and the holders of Dissenting Shares have not come to an
agreement as to the fair cash value per share, and neither any holder of
Dissenting Shares nor the Surviving Corporation has filed or joined in a
complaint under division (B) of Section 1701.85 within the period provided in
that division, then the right and obligation of the holder or holders (as the
case may be) of Dissenting Shares to receive the fair cash value of the
Dissenting Shares as to which the holder or holders seek relief under Section
1701.85, and the right and obligation of the Surviving Corporation to purchase
such Dissenting Shares and to pay fair cash value for such Dissenting Shares,
shall terminate, and such Dissenting Shares shall thereupon be deemed to have
been converted into the right to receive the Merger Consideration as provided in
Section 3.1 and shall have only such rights as provided under this Agreement and
the OGCL.
Section 3.5 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at a location mutually agreeable
to USA Waste and AWS as soon as practicable (and in any event within 15 business
days) following the date on which the last of
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the conditions set forth in Article IX is fulfilled or waived, or at such other
time and place as USA Waste and AWS shall agree. The date on which the Closing
occurs is referred to in this Agreement as the "Closing Date."
Section 3.6 Pre-Closing Financial Transactions.
(a) General Procedure. Attached hereto as Schedule 3.6 is a
spreadsheet that, among other things, includes the pro forma balance sheet of
AWS and the Retained Subsidiaries as of October 31, 1997 and illustrates the
procedure for determining (i) the amount of the Contributed Net Intercompany
Receivables (as defined in Section 3.6(c)(iii)); (ii) the amount of the primary
(and, if necessary, the secondary) loan to be made by USA Waste to AWS (as
described in Sections 3.6(c) and 3.6(e)); (iii) the Net Working Capital (as
defined in Section 3.6(e)) adjustment; and (iv) the types and amounts of pre-
Distribution payments contemplated by this Agreement. In illustrating such
procedure, Schedule 3.6 reflects estimated amounts for the Transaction
Liabilities (as defined in Section 3.6(c)), an estimate of the Distribution Tax
(as defined in Section 3.8) and an estimate of the Net Intercompany Receivables
(as defined in Section 3.6(c)(iii)).
(b) Final Balance Sheet. Prior to the Distribution Date (as defined
in the Distribution Agreement), the Final Balance Sheet (as defined in Section
3.7) will be substituted for the pro forma balance sheet of AWS and the Retained
Subsidiaries as of October 31, 1997 in the spreadsheet on Schedule 3.6, and the
final amounts for previously estimated items (labeled as Items (B) through (Q)
on Schedule 3.6) will be determined. Any reference to any capital letter in
parenthesis, as in the immediately preceding sentence, in this Section 3.6 is a
reference to an item on Schedule 3.6.
(c) Primary USA Loan. Subject to the limitations set forth in
Section 3.6(g), USA Waste shall, immediately prior to the Contribution, lend to
AWS, pursuant to a promissory note in a form to be agreed upon by AWS and USA
Waste (a "Promissory Note"), an amount (C) (the "Primary USA Loan") equal to (A)
$150,000,000 minus (B) the product of the Merger Consideration multiplied by the
number of shares of AWS Common Stock outstanding as of such time (excluding all
Canceled Shares). AWS shall use the funds from the Primary USA Loan solely as
illustrated on Schedule 3.6, and solely as more fully described as follows:
(i) First, AWS shall use those funds to pay or cause to be paid
the following obligations (collectively, the "Transaction Liabilities") of
AWS and the Retained Subsidiaries determined as of the Distribution Date:
(x) The (D) transaction costs incurred by AWS in connection
with the Merger, the Contribution and the Distribution (the
"Transaction Costs"), including legal, accounting and
valuation fees, the fees and costs payable to the Investment
Banker (as defined in Section 3.8), the costs of printing
and mailing the Proxy Statement (as defined in Section 5.4)
and any other documents
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distributed to AWS's stockholders in connection with this
Agreement, and any filing or registration fees associated
therewith;
(y) The amount required to redeem (E) outstanding options
to purchase AWS Common Stock in accordance with Section 8.7;
and
(z) The amount (F) outstanding under AWS's existing
revolving credit facility (the "Credit Facility") as of
December 31, 1997, plus any amounts (G) borrowed thereunder
since December 31, 1997, the proceeds of which are not used
for a purpose primarily attributable to any Retained
Subsidiary, plus (H) accrued but unpaid interest thereon
from December 31, 1997.
(ii) Second, after having made the above payments, AWS shall
reserve an amount (J) to pay the Distribution Tax when due, which amount is
to be determined as set forth in Section 3.8.
(iii) Third, AWS shall calculate the remaining funds available
from the Primary USA Loan (K) (the "Remaining Funds") and then shall
calculate the sum of the obligations owed by any Retained Subsidiary to AWS
(which shall be treated as positive numbers) and the intercompany
obligations owed by AWS to any Retained Subsidiary (which shall be treated
as negative numbers), all of which shall be listed in the row entitled "Net
Intercompany Balances" on Schedule 3.6. Such sum is the "Net Intercompany
Receivables."
(x) If the Remaining Funds are greater than or equal to the
sum of the Net Intercompany Receivables, the long-term debt
owed by Mahoning Landfill Inc. to AWS (the "MLI Debt"), and
any Retained Stock Option Liability (as hereinafter defined)
(which shall be treated as a positive number), then an
amount equal to the Net Intercompany Receivables shall be
deemed contributed to Avalon under the Distribution
Agreement as "Contributed Net Intercompany Receivables" for
purposes of Section 3.6(e).
(y) If the Remaining Funds are less than the sum of the
Net Intercompany Receivables, the MLI Debt, and any Retained
Stock Option Liability (which shall be treated as a positive
number), then only such amount of such intercompany
obligations owed to AWS equal to the excess of the Remaining
Funds over the MLI Debt and any Retained Stock Option
Liability shall be deemed contributed to Avalon under the
Distribution Agreement as "Contributed Net Intercompany
Receivables" for purposes of Section 3.6(e).
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(d) Contribution. Subject to the restrictions set forth in Section
3.6(g), following the final determination of Contributed Net Intercompany
Receivables pursuant to Sections 3.6(c) and 3.6(e) and following the payment of
the Transaction Liabilities by AWS pursuant to Section 3.6(c)(i) and the
reservation for any Distribution Tax as contemplated by Section 3.6(c)(ii), AWS
shall contribute the Contributed Net Intercompany Receivables and the MLI Debt
to Avalon and shall contribute sufficient amounts of Remaining Funds to the
appropriate Retained Subsidiaries for and shall cause such Retained Subsidiaries
to pay Avalon for (L) the Contributed Net Intercompany Receivables and (M) the
MLI Debt.
(e) Net Working Capital Adjustment. Following all the above
adjustments to the Final Balance Sheet, a determination of (Q) the net working
capital of AWS and its Retained Subsidiaries (the "Net Working Capital") is to
be made as follows: a pro forma consolidated balance sheet (see column 17 of
Schedule 3.6) is to be generated taking into account all such adjustments and
the Net Working Capital is to be calculated by subtracting (P) the current
liabilities (which shall include the water-line liability of Mahoning Landfill
Inc., which is deemed to be equal to $750,000.00) from (O) the current assets on
such balance sheet. For purposes of the foregoing calculation, the full amount
of the Primary USA Loan shall be deemed to be a long-term liability.
(i) If the Net Working Capital so calculated is a positive
number, then USA Waste will make a "Secondary USA Loan" upon delivery of a
second Promissory Note from AWS in an amount sufficient for AWS to make and
AWS shall make an additional cash contribution to Avalon in an amount equal
to the Net Working Capital as part of the Contribution.
(ii) If the Net Working Capital so calculated is a negative
number, then the amount (L) of Contributed Net Intercompany Receivables to
be contributed by AWS to Avalon pursuant to Section 3.6(d) will be reduced
by such number (the "Net Working Capital Deficiency").
To the extent that the net working capital of the Retained Subsidiaries
increases after December 31, 1997, the Surviving Corporation shall have the
benefit of such increase, and to the extent the net working capital of the
Retained Subsidiaries decreases after December 31, 1997, the Surviving
Corporation shall bear such decrease.
(f) Retained Stock Option Adjustment. To the extent that outstanding
stock options exercisable for shares of AWS Common Stock have not been redeemed
by AWS or converted into Avalon Employee Options (as hereinafter defined) in
accordance with Section 8.7 ("Retained Stock Options"), then an aggregate amount
equal to the sum of (i) the difference between the Merger Consideration and the
exercise price of each such Retained Stock Option, (ii) multiplied by the number
of shares of AWS Common Stock for which such Retained Stock Option is
exercisable ("Retained Stock Option Liability") shall be applied as provided in
Section 3.6(c)(iii). Notwithstanding the foregoing, if the exercise price of
any Retained Stock Option exceeds the Merger Consideration then the Retained
Stock Option Liability with respect to such
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option shall equal the product of $1.00 and the number of shares of AWS Common
Stock for which such Retained Stock Option is exercisable.
(g) Limitations. Notwithstanding anything herein to the contrary, if
the sum of the Transaction Liabilities, the Distribution Tax, the Net Working
Capital Deficiency and the Retained Stock Option Liability is greater than the
amount of the Primary USA Loan, then USA Waste shall not be obligated to
consummate the Merger and shall be entitled to terminate this Agreement and if
USA Waste terminates this Agreement, it shall have no obligation to make the
Primary USA Loan or the Secondary USA Loan. For purposes of assisting USA Waste
in determining the applicability of this limitation, the Distribution Tax and
Net Working Capital Deficiency shall be calculated as provided herein, and at
least fifteen (15) days prior to the Distribution, AWS shall provide USA Waste
with a good faith estimate of the Transaction Liabilities and the aggregate
Retained Stock Option Liability along with reasonable supporting documentation.
Section 3.7 Final Balance Sheet.
(a) Within 60 days after December 31, 1997, AWS will provide USA
Waste with the unaudited consolidated balance sheet of AWS and the Retained
Subsidiaries as of such date, prepared in accordance with generally accepted
accounting principles applied on a consistent basis and then adjusted as
described below (the "Final Balance Sheet"). The Final Balance Sheet shall be
prepared using the same methods and criteria employed by AWS in connection with
the preparation of the AWS Financial Statements (as defined in Section 6.5)
except as described below, and shall not reflect any revaluation of any assets
or liabilities. In order to prepare the Final Balance Sheet, the unaudited
consolidated balance sheet of AWS as of December 31, 1997 shall be adjusted in
the same manner as the pro forma balance sheet of AWS as of October 31, 1997 is
adjusted in columns (1) through (10) of Schedule 3.6. AWS shall provide USA
Waste and its accountants, attorneys and advisors with reasonable access to the
books and records of AWS (including all work papers) to the extent necessary to
verify the Final Balance Sheet. USA Waste shall have 30 days after receipt of
the Final Balance Sheet to review it and make any good faith objections in
writing to AWS. If such objections are made to AWS within such period, USA
Waste and AWS shall attempt to resolve the matter or matters in dispute. If no
objections are made within the time period provided above, the Final Balance
Sheet shall be deemed accepted by USA Waste and shall be final and binding.
(b) If disputes with respect to the Final Balance Sheet cannot be
resolved by USA Waste and AWS within 30 days after receipt of USA Waste's
written objections thereto, then the specific matters in dispute shall be
submitted to the Pittsburgh office of Arthur Andersen LLP ("Arthur Andersen"),
which shall render its opinion as to such matters. Arthur Andersen shall send
to USA Waste and AWS its determination of the specific matters in dispute and
the Final Balance Sheet, adjusted to the extent necessary to be consistent with
that determination, which determination and revised Final Balance Sheet shall be
final and binding on the parties. The fees and expenses of Arthur Andersen
pursuant to this Section 3.7 shall be shared equally by USA Waste and AWS and
AWS's portion thereof shall be part of the Transaction Costs.
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Section 3.8 Distribution Tax. Prior to the Effective Time, the parties
shall calculate the federal, state and local income, sales, transfer and other
taxes (the "Distribution Tax") which may be incurred by AWS on the taxable gain,
if any, recognized on the Distribution. In calculating the Distribution Tax, USA
Waste and AWS agree to abide by the opinion (the "Valuation") of Houlihan,
Lokey, Howard & Zukin, Inc., an investment banking firm selected by USA Waste
and AWS (the "Investment Banker"), as to the fair market value of Avalon as of
the Distribution Date. After the Investment Banker has delivered the Valuation
to USA Waste and AWS, AWS shall calculate the taxable gain, if any, to AWS
resulting from the Distribution and the resulting federal, state and local
income, sales, transfer and other taxes thereon, using AWS's adjusted tax basis
in its Avalon stock as of the Distribution Date. USA Waste, its counsel and its
independent public accountants shall then have the opportunity to review and
confirm such calculation of the Distribution Tax and, in so doing, shall be
given access to all work papers, books, records and other information in the
possession of AWS and its independent public accountants relevant in the
reasonable judgment of USA Waste to such calculation. Should USA Waste disagree
as to the amount of the Distribution Tax calculated by AWS, then USA Waste and
AWS shall appoint Arthur Andersen to calculate the Distribution Tax based upon
the Valuation, AWS's adjusted tax basis in its Avalon stock and other relevant
information. The calculation by Arthur Andersen of the Distribution Tax shall be
final and binding on USA Waste and AWS. The fees and expenses of Arthur Andersen
in calculating the Distribution Tax shall be shared equally by USA Waste and AWS
and AWS's portion thereof shall be part of the Transaction Costs.
ARTICLE IV
CERTAIN PRE-MERGER TRANSACTIONS
Section 4.1 Ancillary Agreements. Prior to the Distribution, AWS will
(a) execute and deliver the Distribution Agreement and the Tax Allocation
Agreement and (b) cause Avalon to execute and deliver the Distribution Agreement
and the Tax Allocation Agreement.
Section 4.2 Contribution of Assets and Assumption of Liabilities.
Immediately prior to the Distribution and pursuant to the terms of the
Distribution Agreement, AWS and Avalon will consummate the Contribution.
Section 4.3 Distribution. At least one day prior to the Closing Date,
pursuant to the terms of the Distribution Agreement, AWS will cause the
Contribution to be consummated and effect the Distribution if all other
conditions to the Closing have been satisfied or waived and certificates to that
effect shall have been delivered (i) to AWS from USA Waste in which USA Waste
has unconditionally agreed to consummate the Merger as of the opening of
business on the next business day, and (ii) to USA Waste from AWS in which AWS
has unconditionally agreed to consummate the Merger as of the opening of
business on the next business day.
10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
USA WASTE AND MERGERCO
USA Waste and Mergerco each represent and warrant to AWS that, except as
set forth in the disclosure schedule dated as of the date hereof and signed by
an authorized officer of USA Waste (the "USA Waste Disclosure Schedule"), it
being agreed that disclosure of any item on the USA Waste Disclosure Schedule
shall be deemed to be with respect to all Sections of this Agreement if the
relevance of such item is reasonably apparent from the face of the USA Waste
Disclosure Schedule:
Section 5.1 Organization and Qualification. Each of USA Waste and
Mergerco is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation and has the requisite corporate
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. Each of USA Waste and
Mergerco is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not, when
taken together with all other such failures, have a material adverse effect on
the business, operations, properties, assets, condition (financial or other) or
results of operations of USA Waste and its subsidiaries, taken as a whole.
Section 5.2 Authority; Non-Contravention; Approvals.
(a) USA Waste and Mergerco each have full corporate power and
authority to enter into this Agreement and, subject to making or obtaining the
USA Waste Required Statutory Approvals (as defined in Section 5.2(c)), to
consummate the transactions contemplated hereby. This Agreement has been
approved by the Boards of Directors of USA Waste and Mergerco, and no other
corporate proceedings on the part of USA Waste or Mergerco are necessary to
authorize the execution and delivery of this Agreement or the consummation by
USA Waste and Mergerco of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by each of USA Waste and Mergerco, and,
assuming the due authorization, execution and delivery hereof by AWS,
constitutes a valid and legally binding agreement of each of USA Waste and
Mergerco enforceable against each of them in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by each of USA Waste
and Mergerco do not violate, conflict with, result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse of time or
both would constitute a default) under, and will not result in the termination
of, accelerate the performance required by, result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance (collectively, "Liens") upon any of the properties or
assets of USA Waste or any
11
of its subsidiaries under, any of the terms, conditions or provisions of (i) the
respective charters or bylaws of USA Waste or any of its subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to USA
Waste or any of its subsidiaries or any of their respective properties or assets
(including without limitation Environmental Laws, as defined in Section 6.15) or
(iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which USA Waste or any of its subsidiaries is a party or by which
USA Waste or any of its subsidiaries or any of their respective properties or
assets may be bound or affected. The consummation by USA Waste and Mergerco of
the transactions contemplated hereby will not result in any violation, conflict,
breach, default, termination, acceleration or creation of Liens under any of the
terms, conditions or provisions described in clauses (i) through (iii) of the
preceding sentence, subject in the case of the terms, conditions and provisions
described in clause (ii) to making or obtaining (prior to the Effective Time)
the USA Waste Required Statutory Approvals. Excluded from the foregoing
sentences of this paragraph (b), insofar as they apply to the terms, conditions
and provisions described in clauses (ii) and (iii) of the first sentence of this
paragraph (b), are such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of Liens that would not, in the aggregate, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of USA Waste and its
subsidiaries, taken as a whole.
(c) Except for (i) the filings by USA Waste and AWS required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the making of the Merger Filing with the Secretary of State of the
State of Ohio in connection with the Merger, and (iii) any required filings with
or approvals from applicable state environmental authorities, public service
commissions and public utility commissions (the filings and approvals referred
to in clauses (i) through (iii) are collectively referred to as the "USA Waste
Required Statutory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of this
Agreement by USA Waste or Mergerco or the consummation by USA Waste or Mergerco
of the transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents and approvals, which, if not
made or obtained, as the case may be, would not, in the aggregate, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of USA Waste and its
subsidiaries, taken as a whole.
Section 5.3 Litigation. There are no claims, suits, actions or
proceedings ("Proceedings") pending or, to the knowledge of USA Waste,
threatened against, relating to or affecting USA Waste or any of its
subsidiaries before any court, governmental department, commission, agency,
instrumentality or authority, or arbitrator that seek to restrain or enjoin the
consummation of the Merger.
Section 5.4 Proxy Statement. None of the information to be supplied by
USA Waste or its subsidiaries for inclusion in the proxy statement (and any
amendments thereof or
12
supplements thereto) to be distributed in connection with AWS's meeting of its
stockholders to vote upon this Agreement and the transactions contemplated
hereby (the "Proxy Statement") will, at the time of the mailing of the Proxy
Statement (and any amendments thereof or supplements thereto), and at the time
of the meeting of stockholders of AWS to be held in connection with the
transactions contemplated by this Agreement, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF AWS
AWS represents and warrants to USA Waste and Mergerco that, except as set
forth in the disclosure schedule dated as of the date hereof and signed by an
authorized officer of AWS (the "AWS Disclosure Schedule"), it being agreed that
disclosure of any item on the AWS Disclosure Schedule shall be deemed to be with
respect to all Sections of this Agreement if the relevance of such item is
reasonably apparent from the face of the AWS Disclosure Schedule:
Section 6.1 Organization and Qualification. AWS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. AWS is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not, when
taken together with all other such failures, have a material adverse effect on
the business, operations, properties, assets, condition (financial or other) or
results of operations of AWS and its subsidiaries, taken as a whole. True,
accurate and complete copies of AWS's Amended and Restated Articles of
Incorporation and Amended and Restated Code of Regulations, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to USA Waste.
Section 6.2 Capitalization.
(a) The authorized capital stock of AWS consists of 70,000,000 shares
of Class A Common Stock, 30,000,000 shares of Class B Common Stock and 2,000,000
shares of preferred stock. As of December 31, 1997, 25,300,278 shares of Class
A Common Stock, 5,124,888 shares of Class B Common Stock and no shares of such
preferred stock were issued and outstanding. All of such issued and outstanding
shares are validly issued and are fully paid, nonassessable and free of
preemptive rights. No subsidiary of AWS holds any shares of the capital stock
of AWS.
(b) Except as disclosed in the AWS SEC Reports (as defined in Section
6.5), as of the date hereof there are no outstanding subscriptions, options,
calls, contracts,
13
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other anti-
takeover agreement, obligating AWS or any subsidiary of AWS to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of its capital
stock or obligating AWS or any subsidiary of AWS to grant, extend or enter into
any such agreement or commitment. Each outstanding option or warrant to purchase
AWS Common Stock is listed on the AWS Disclosure Schedule, which sets forth (i)
the name of the holder, (ii) which entity employs the holder, if applicable,
(iii) the number of shares of AWS Common Stock for which such option or warrant
is exercisable and (iv) the exercise price of such option or warrant. There are
no voting trusts, proxies or other agreements or understandings to which AWS or
any subsidiary of AWS is a party or is bound with respect to the voting of any
shares of capital stock of AWS other than the Voting Agreements executed in
connection with this Agreement.
Section 6.3 Subsidiaries. Each direct and indirect corporate
subsidiary of AWS is duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the requisite corporate
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. Each subsidiary of AWS is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not, when taken together with all
such other failures, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
AWS and its subsidiaries, taken as a whole. All of the outstanding shares of
capital stock of each corporate subsidiary of AWS are validly issued, fully
paid, nonassessable and free of preemptive rights and are owned directly or
indirectly by AWS free and clear of any Liens. There are no outstanding
subscriptions, options, calls, warrants, rights, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer or ownership of, or other
rights with respect to, any shares of capital stock of any corporate subsidiary
of AWS, including any right of conversion or exchange under any outstanding
security, instrument or agreement. Each subsidiary of AWS is listed on Section
6.3 of the AWS Disclosure Schedule. AWS is not the record or beneficial owner of
any interests in any entity other than the subsidiaries so listed.
Section 6.4 Authority; Non-Contravention; Approvals.
(a) AWS has full corporate power and authority to enter into this
Agreement and, subject to obtaining the AWS Stockholders' Approval (as defined
in Section 8.3) and making or obtaining the AWS Required Statutory Approvals (as
defined in Section 6.4(c)), to consummate the transactions contemplated hereby.
This Agreement has been approved by the Board of Directors of AWS, and no other
corporate proceedings on the part of AWS are necessary to authorize the
execution and delivery of this Agreement or, except for the AWS Stockholders'
Approval and the approval of the Contribution and the declaration of the
Distribution by the Board of Directors of AWS, the consummation by AWS of the
transactions
14
contemplated hereby. The forms of the Ancillary Agreements have been approved by
the Board of Directors of AWS. This Agreement has been duly executed and
delivered by AWS, and, assuming the due authorization, execution and delivery
hereof by USA Waste and Mergerco, constitutes a valid and legally binding
agreement of AWS enforceable against AWS in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (b) general equitable principles.
Without limitation of the foregoing, each of the covenants and obligations of
AWS set forth in Sections 7.1, 8.1, 8.2, 8.3, 8.5, 8.6, 8.7, 8.8, 8.9 and 8.10
is valid, legally binding and enforceable notwithstanding the absence of the AWS
Stockholders' Approval except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by AWS do not
violate, conflict with, result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both would constitute
a default) under, and will not result in the termination of, accelerate the
performance required by, result in a right of termination or acceleration under,
or result in the creation of any Lien upon any of the properties or assets of
AWS or any of its subsidiaries under, any of the terms, conditions or provisions
of (i) the respective charters or bylaws of AWS or any of its subsidiaries, (ii)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to AWS or any of its subsidiaries or any of their respective
properties or assets (including without limitation Environmental Laws), or (iii)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which AWS or any of its subsidiaries is a party or by which AWS or any
of its subsidiaries or any of their respective properties or assets may be bound
or affected. The consummation by AWS of the transactions contemplated hereby
will not result in any violation, conflict, breach, default, termination,
acceleration or creation of Liens under any of the terms, conditions or
provisions described in clauses (i) through (iii) of the preceding sentence,
subject (x) in the case of the terms, conditions and provisions described in
clause (ii) to making or obtaining (prior to the Effective Time) the AWS
Required Statutory Approvals and the AWS Stockholders' Approval, and (y) in the
case of the terms, conditions and provisions described in clause (iii) to
obtaining (prior to the Effective Time) consents required from commercial
lenders, lessors or other third parties. All consents required from commercial
lenders, lessors and third parties are set forth in Section 6.4 of the AWS
Disclosure Schedule. Excluded from the foregoing sentences of this paragraph
(b), insofar as they apply to the terms, conditions and provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph (b), are such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of Liens that would not, in the aggregate, have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other) or results of operations of AWS and its subsidiaries, taken as a whole.
(c) Except for (i) the filings by USA Waste and AWS required by the
HSR Act, (ii) the filing of the Proxy Statement with the Securities and Exchange
Commission (the
15
"SEC") pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iii) the making of the Merger Filing with the Secretary of
State of the State of Ohio in connection with the Merger, (iv) the filings and
approvals required to effect the Contribution and the Distribution, and (v) any
required filings with or approvals from applicable state environmental
authorities, public service commissions and public utility commissions (the
filings and approvals referred to in clauses (i) through (v) are collectively
referred to as the "AWS Required Statutory Approvals"), no declaration, filing
or registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority is necessary for the execution
and delivery of this Agreement by AWS or the consummation by AWS of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents and approvals which, if not
made or obtained, as the case may be, would not, in the aggregate, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of AWS and its
subsidiaries, taken as a whole.
Section 6.5 Reports and Financial Statements. Since December 31, 1994,
AWS has filed with the SEC all material forms, statements, reports and documents
(including all exhibits, amendments and supplements) required to be filed by it
under each of the Securities Act of 1933, as amended (the "Securities Act"), the
Exchange Act, and the respective rules and regulations thereunder, all of which,
as amended if applicable, complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
AWS has previously delivered to USA Waste copies of its (a) Annual Reports on
Form 10-K for the fiscal year ended December 31, 1996 and for each of the two
immediately preceding fiscal years, as filed with the SEC, (b) proxy and
information statements relating to (i) all meetings of its stockholders (whether
annual or special) held, and (ii) all actions by written consent in lieu of a
stockholders' meeting taken, since December 31, 1994 and prior to the date
hereof, and (c) all other reports, including quarterly reports, or registration
statements filed by AWS with the SEC since December 31, 1994 and prior to the
date hereof (other than registration statements filed on Form S-8) (the
documents referred to in clauses (a), (b) and (c) are collectively referred to
as the "AWS SEC Reports"). As of their respective dates, the AWS SEC Reports did
not contain any 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,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements of AWS included in such reports (collectively, the "AWS
Financial Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
AWS and its subsidiaries as of the dates thereof and the results of their
operations and cash flows for the periods then ended, subject, in the case of
the unaudited interim financial statements, to normal year-end audit adjustments
and any other adjustments described therein.
Section 6.6 Absence of Undisclosed Liabilities. Except as disclosed in
the AWS SEC Reports, neither AWS nor any of its subsidiaries had at September
30, 1997, or has incurred since that date, any liabilities or obligations
(whether absolute, accrued, contingent or otherwise)
16
of any nature, except (a) liabilities, obligations or contingencies (i) which
are accrued or reserved against on the AWS Financial Statements or reflected in
the notes thereto or (ii) which were incurred after September 30, 1997, and were
incurred in the ordinary course of business and consistent with past practices,
(b) liabilities, obligations or contingencies which (i) would not, in the
aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
AWS and its subsidiaries, taken as a whole or (ii) will have been discharged or
paid in full prior to the Closing Date, and (c) liabilities and obligations
which are of a nature not required to be reflected in the consolidated financial
statements of AWS and its subsidiaries prepared in accordance with generally
accepted accounting principles consistently applied and which were incurred in
the ordinary course of business.
Section 6.7 Absence of Certain Changes or Events. Since the date of the
most recent AWS SEC Report that contains consolidated financial statements of
AWS, except as disclosed in the AWS SEC Reports, there has not been any material
adverse change in the business, operations, properties, assets, liabilities,
condition (financial or other) or results of operations of AWS and its
subsidiaries, taken as a whole, except for changes that affect the industries in
which AWS and its subsidiaries operate generally or volume reductions to the
extent arising from business decisions made by existing or potential customers.
Section 6.8 Litigation. Except as disclosed in the AWS SEC Reports,
there are no Proceedings pending or, to the knowledge of AWS, threatened
against, relating to or affecting AWS or any of its subsidiaries before any
court, governmental department, commission, agency, instrumentality or
authority, or arbitrator that seek to restrain or enjoin the consummation of the
Merger or that could reasonably be expected, either alone or in the aggregate
with all such Proceedings, to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of AWS and its subsidiaries, taken as a whole. All such Proceedings
pending or threatened against, relating to or affecting AWS or any of its
subsidiaries are set forth in Section 6.8 of the AWS Disclosure Schedule. Except
as referred to in the AWS SEC Reports or disclosed in the AWS Disclosure
Schedule, neither AWS nor any of its subsidiaries is subject to any judgment,
decree, injunction or order of any court, governmental department, commission,
agency, instrumentality or authority, or arbitrator that prohibits or restricts
the consummation of the transactions contemplated hereby or would have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of AWS and its
subsidiaries, taken as a whole.
Section 6.9 Proxy Statement. None of the information to be supplied by
AWS or its subsidiaries for inclusion in the Proxy Statement will, at the time
of the mailing of the Proxy Statement (and any amendments thereof or supplements
thereto), and at the time of the meeting of stockholders of AWS to be held in
connection with the transactions contemplated by this Agreement, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement will comply, as of its mailing date, as to form in all material
respects with all applicable laws, including the
17
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation or warranty is made by AWS with
respect to information supplied by USA Waste or Mergerco for inclusion therein.
Section 6.10 No Violation of Law. Except as disclosed in the AWS SEC
Reports, neither AWS nor any of its subsidiaries is in violation of or has been
given notice of or been charged with any violation of any law, statute, order,
rule, regulation, ordinance or judgment (including, without limitation, any
applicable Environmental Law) of any governmental or regulatory body or
authority, except for violations which, in the aggregate, could not reasonably
be expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
AWS and its subsidiaries, taken as a whole. Except as disclosed in the AWS SEC
Reports, as of the date of this Agreement, to the knowledge of AWS and its
subsidiaries, no investigation or review by any governmental or regulatory body
or authority is pending or threatened nor has any governmental or regulatory
body or authority indicated an intention to conduct the same, other than, in
each case, those the outcome of which, as far as reasonably can be foreseen,
will not have a material adverse effect on the business, operations, properties,
assets, condition (financial or other) or results of operations of AWS and its
subsidiaries taken as a whole. AWS and its Retained Subsidiaries have all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted, except for permits, licenses, franchises,
variances, exemptions, orders, authorizations, consents and approvals the
absence of which, alone or in the aggregate, would not have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other) or results of operations of AWS and its subsidiaries, taken as a whole
(collectively, the "AWS Permits"). All of the AWS Permits are listed in Section
6.10 of the AWS Disclosure Schedule. AWS and its Retained Subsidiaries are not
in violation of the terms of any AWS Permit, except for violations which, alone
or in the aggregate, would not have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations of AWS and its subsidiaries, taken as a whole.
Section 6.11 Compliance with Agreements. Except as disclosed in the
AWS SEC Reports, AWS and each of its Retained Subsidiaries are not in breach,
violation, or default in the performance or observance of any term or provision,
of and no event has occurred which with lapse of time or action by a third party
could result in a default under (a) the respective charters, bylaws or similar
organizational instruments of AWS or any of its Retained Subsidiaries or (b) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which AWS or any of its
Retained Subsidiaries is a party or by which any of them is bound or to which
any of their property is subject, which breaches, violations and defaults, in
the case of clause (b) above, would have, in the aggregate, a material adverse
effect on the business, operations, properties, assets, condition (financial or
other) or results of operations of AWS and its subsidiaries, taken as a whole.
18
Section 6.12 Taxes.
(a) AWS and its subsidiaries have duly filed (or there has been filed
on their behalf) with the appropriate taxing authority all Tax Returns (as
hereinafter defined) required to be filed by them on or prior to the date hereof
other than any Tax Returns, the failure to file which would not, individually or
in the aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
AWS and its subsidiaries, taken as a whole. The Tax Returns filed by or on
behalf of AWS and its subsidiaries are true, correct and complete in all
material respects and all Taxes shown thereon have been duly paid in full or
adequate provision has been made therefor in accordance with generally accepted
accounting principles for the payment of Taxes for all past and current periods.
The liabilities and reserves for Taxes (as hereinafter defined) reflected in the
balance sheet included in the latest AWS SEC Report to cover all Taxes for all
periods ending at or prior to the date of such balance sheet have been
determined in accordance with generally accepted accounting principles, and
there is no material liability for Taxes for any period beginning after such
date other than Taxes arising in the ordinary course of business. There are no
Liens for Taxes upon any property or assets of AWS or any Retained Subsidiary
thereof, except for Liens for Taxes not yet due or Taxes being contested in good
faith and adequately reserved against in accordance with generally accepted
accounting principles. There are no unresolved issues of law or fact arising out
of a notice of deficiency, proposed deficiency or assessment from the Internal
Revenue Service ("IRS") or any other governmental taxing authority with respect
to Taxes of AWS or any of its subsidiaries which, singly or in the aggregate,
would reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of AWS and its subsidiaries, taken as a whole. Neither AWS nor its
subsidiaries have waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency
other than waivers and extensions of time which are no longer in effect. Neither
AWS nor any of its subsidiaries is a party to any agreement providing for the
allocation or sharing of Taxes with any entity that is not, directly or
indirectly, a wholly owned corporate subsidiary of AWS. Neither AWS nor any of
its corporate subsidiaries has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application of
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code").
(b) "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts,
excise, real or personal property, sales, social security, occupation, use,
service, license, net worth, payroll, franchise, transfer and recording taxes,
and fees and charges imposed by federal, state or local agencies on the
transport, handling or disposal of hazardous waste or the IRS or any other
taxing authority (whether domestic or foreign, including, without limitation,
any state, county, local or foreign government or any subdivision or taxing
agency thereof (including a United States possession)), whether computed on a
separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest whether paid or received, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments.
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(c) Tax Return" shall mean any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns and documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document declaration
or other information.
Section 6.13 Employee Benefit Plans; ERISA.
(a) Except as disclosed in the AWS SEC Reports, at the date hereof,
AWS and its subsidiaries do not maintain or contribute to any material employee
benefit plans, programs, arrangements and practices (such plans, programs,
arrangements and practices of AWS and its subsidiaries being referred to as the
"AWS Plans"), including employee benefit plans within the meaning set forth in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or other similar material arrangements for the provision of benefits
(excluding any "Multi-employer Plan" within the meaning of Section 3(37) of
ERISA or a "Multiple Employer Plan" within the meaning of Section 413(c) of the
Code). Neither AWS nor any of its subsidiaries contributes to, has ever
contributed to or has ever had an obligation to contribute to, any Multi-
employer Plan or any Multiple Employer Plan. Neither AWS nor any of its
subsidiaries maintains or contributes to or has ever maintained or contributed
to any plan subject to Title IV of ERISA. Neither AWS nor any of its
subsidiaries has any obligation to create any additional material employee
benefit plan, program, arrangement or practice or to amend any AWS Plan so as to
increase benefits thereunder, except as required under the terms of the AWS
Plans, under existing collective bargaining agreements or to comply with
applicable law.
(b) Except as disclosed in the AWS SEC Reports, (i) there have been
no prohibited transactions within the meaning of Section 406 or 407 of ERISA or
Section 4975 of the Code with respect to any of the AWS Plans that could result
in penalties, taxes or liabilities which, singly or in the aggregate, would have
a material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of AWS and its
subsidiaries, taken as a whole, (ii) each of the AWS Plans has been operated and
administered in all material respects in accordance with all applicable laws,
rules and regulations during the period of time covered by the applicable
statute of limitations, (iii) each of the AWS Plans which is intended to be
"qualified" within the meaning of Section 401(a) of the Code has been determined
by the IRS to be so qualified and such determination, to the knowledge of AWS
and its subsidiaries, has not been modified, revoked or limited by failure to
satisfy any condition thereof or by a subsequent amendment thereto or a failure
to amend, except that it may be necessary to make additional amendments
retroactively to maintain the "qualified" status of such AWS Plans and the
period for making any such retroactive amendment has not expired, and (iv) to
the knowledge of AWS and its subsidiaries, there are no material pending,
threatened or anticipated claims involving any of the AWS Plans or any fiduciary
thereunder, other than claims for benefits in the ordinary course, which,
individually or in the aggregate, would reasonably be
20
expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
AWS and its subsidiaries, taken as a whole.
(c) The AWS SEC Reports contain a true and complete summary or list
of or otherwise describe all material contracts with employees and other
employee benefit arrangements that extend rights to employees of AWS or any of
its subsidiaries that are triggered by a change in the equity ownership of AWS
or other significant event involving AWS's equity ownership or similar
provisions and all severance agreements with any employee of AWS or any
subsidiary.
(d) There are no agreements which will or may provide payments to any
officer, employee, stockholder or highly compensated individual which will be
"parachute payments" under Code Section 280G that are nondeductible to AWS or
subject to tax under Code Section 4999 for which AWS or any subsidiary would
have withholding liability.
Section 6.14 Labor Controversies. Except as disclosed in the AWS SEC
Reports, (a) there are no significant controversies pending or, to the knowledge
of AWS and its Retained Subsidiaries, threatened between AWS or any of its
Retained Subsidiaries and any representatives of any of their employees and (b)
to the knowledge of AWS and its Retained Subsidiaries, there are no material
organizational efforts presently being made involving any of the presently
unorganized employees of AWS or any of its Retained Subsidiaries, except for
such controversies and organizational efforts, which, individually or in the
aggregate, could not reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, condition (financial or other) or
results of operations of AWS and its Retained Subsidiaries, taken as a whole.
All collective bargaining agreements to which AWS or any of its subsidiaries is
a party are listed in Section 6.14 of the AWS Disclosure Schedule.
Section 6.15 Environmental Matters.
(a) Except as disclosed in the AWS SEC Reports, (i) AWS and its
subsidiaries have conducted their respective businesses in compliance with all
applicable Environmental Laws, including, without limitation, having all
permits, licenses and other approvals and authorizations necessary for the
operation of their respective businesses as presently conducted, (ii) none of
the properties owned by AWS or any of its subsidiaries contain any Hazardous
Substance (as defined below) as a result of any activity of AWS or any of its
subsidiaries in amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) since January 1, 1995, neither AWS nor any of its
subsidiaries has received any notices, demand letters or requests for
information from any federal, state, local or foreign governmental entity
indicating that AWS or any of its subsidiaries may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
its business, (iv) there are no civil, criminal or administrative Proceedings
pending or, to the knowledge of AWS, threatened against AWS or any of its
subsidiaries relating to any violation, or alleged violation, of any
Environmental Law, (v) no Hazardous Substance has been disposed of, released or
21
transported in violation of any applicable Environmental Law from any properties
owned by AWS or any of its subsidiaries as a result of any activity of AWS or
any of its subsidiaries during the time such properties were owned, leased or
operated by AWS or any of its subsidiaries, and (vi) neither AWS, its
subsidiaries nor any of their respective properties are subject to any
liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law, except for any
violations of the foregoing clauses (i) through (vi) that, individually or in
the aggregate, would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other) or results of operations of AWS and its subsidiaries, taken as a whole.
(b) As used herein, "Environmental Law" means any federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure to,
or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term "Environmental Law" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal Act, the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Occupational Safety and Health Act of 1970,
each as amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any Environmental
Law. "Hazardous Substance" includes any substance to which exposure is
regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
Section 6.16 Non-Competition Agreements. Neither AWS nor any subsidiary
is a party to any agreement which purports to restrict or prohibit in any
material respect any of them from, directly or indirectly, engaging in any
business involving the collection, interim storage,
22
transfer, recovery, processing, recycling, marketing or disposal of rubbish,
garbage, paper, textile wastes, chemical or hazardous wastes, liquid and other
wastes or any other material business currently engaged in by USA Waste or AWS
or any of their subsidiaries. None of AWS's officers, directors or key employees
is a party to any agreement which, by virtue of such person's relationship with
AWS, restricts in any material respect AWS or any subsidiary of AWS from
directly or indirectly, engaging in any of the businesses described above.
Section 6.17 Title to Assets. AWS and each of its Retained
Subsidiaries has good and marketable title in fee simple to all real property
owned by it and good title to all its leasehold interests and other properties,
as reflected in the most recent balance sheet included in the AWS Financial
Statements, except for properties that have been disposed of in the ordinary
course of business since the date of such balance sheet, free and clear of all
Liens of any nature whatsoever, except (i) the Lien for current Taxes, payments
of which are not yet delinquent, (ii) such imperfections in title and easements
and encumbrances, if any, are not substantial in character, amount or extent and
do not materially detract from the value or interfere with the present use of
the property subject thereto or affected thereby, or otherwise materially impair
AWS's business operations (in the manner presently carried on by AWS), or (iii)
as disclosed in the AWS SEC Reports, and except for such matters which,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of AWS and its
subsidiaries, taken as a whole. All leases under which AWS leases any real or
personal property are in good standing, valid and effective in accordance with
their respective terms and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than defaults under such leases which in the aggregate will not
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of AWS and its
subsidiaries, taken as a whole. All real property owned or leased by AWS or any
of the Retained Subsidiaries is listed in Section 6.17 of the AWS Disclosure
Schedule, and all items of personal property valued in excess of $5,000 owned by
AWS or any of its Retained Subsidiaries not reflected on the fixed asset list
previously provided to USA Waste are listed in Section 6.17 of the AWS
Disclosure Schedule. The assets owned or leased by the Retained Subsidiaries at
the Effective Time, together with the rights of AWS and the Retained
Subsidiaries under the Distribution Agreement and the rights that the parties
currently anticipate that AWS will have under the Transitional Services
Agreement (as defined in the Distribution Agreement) to be entered into between
AWS and Avalon, will enable AWS to operate the Retained Business in a manner
consistent with past practice.
Section 6.18 Retained Business.
(a) Attached hereto as Section 6.18 of the AWS Disclosure Schedule is
an unaudited pro forma consolidated balance sheet of the Retained Business at
October 31, 1997 (the "Retained Business Balance Sheet"). The Retained Business
Balance Sheet has been prepared on a pro forma basis giving effect to the
Distribution in accordance with generally accepted accounting principles (except
as expressly stated therein) on a basis consistent with the
23
AWS Financial Statements, and fairly presents in all material respects (subject
to the absence of footnotes and normal, recurring audit adjustments) the assets
and liabilities of the Retained Business as at the date thereof after giving
effect to the Distribution (assuming the Distribution occurred on October 31,
1997).
(b) AWS or one of the Retained Subsidiaries directly or indirectly
owns or has a valid leasehold interest in the assets reflected on the Retained
Business Balance Sheet, free and clear of any Liens, except (i) as may be
reflected in the Retained Business Balance Sheet, (ii) Liens for Taxes, payments
of which were not delinquent as of October 31, 1997, (iii) such imperfections in
title and easements and encumbrances, if any, as are not substantial in
character, amount or extent and do not materially detract from the value or
interfere with the present use of the property subject thereto or affected
thereby or otherwise materially impair the operation of the Retained Business
(in the manner it is presently conducted), or (iv) as disclosed in the AWS SEC
Reports, and except for such matters which, individually or in the aggregate,
could not reasonably be expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other) or
results of operations of the Retained Business, taken as a whole. All of the
buildings and material tangible personal property owned or leased by AWS and its
Retained Subsidiaries that are included in the Retained Business are in good
working condition (normal wear and tear excepted) and are suitable in all
material respects for the purposes for which they are being used. AWS has
reasonable relationships with its customers, employees and others having
business dealings with the Retained Business.
Section 6.19 Certain Payments. Neither AWS, any of its subsidiaries,
nor any director, officer, employee, agent, representative or other person
acting for or on behalf of AWS or any subsidiary, has directly or indirectly
made any contribution, gift, bribe, kickback or other payment (including any
political contribution with corporate funds, any payment from corporate funds
not recorded on the books and records of AWS, any payment from corporate funds
that was falsely recorded on the books and records of AWS, any payment from
corporate funds to government officials for improper purposes or any payment
from corporate funds to obtain or retain business) to any person or entity,
whether in money, property or services, (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business secured,
(iii) to obtain special concessions or for special concessions already obtained
for or in respect of AWS or any affiliate of AWS, or (iv) in any other manner or
for any other purpose, which, in any such case, violates applicable legal
requirements.
Section 6.20 AWS Stockholders' Approval. The affirmative vote of
stockholders of AWS having the power to vote outstanding shares of Class A
Common Stock that have at least two-thirds of the voting power of all
outstanding shares of Class A Common Stock and the affirmative vote of
stockholders of AWS having the power to vote outstanding shares of Class B
Common Stock that have at least two-thirds of the voting power of all
outstanding shares of Class B Common Stock, voting as two separate classes, and
the affirmative vote of stockholders of AWS having the power to vote outstanding
shares of AWS Common Stock that have a majority of the voting power of all
outstanding shares of AWS Common Stock, excluding the
24
voting power of interested shares (as defined in Section 1701.01(CC) of the
OGCL) are required for approval and adoption of this Agreement and the Merger.
Section 6.21 Brokers and Finders. AWS has not entered into any
contract, arrangement or understanding with any person or firm (other than the
Investment Banker) which may result in the obligation of AWS to pay any finder's
fees, brokerage or agent commissions or other like payments in connection with
the transactions contemplated hereby. There is no claim for payment by AWS of
any investment banking fees, finder's fees, brokerage or agent commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby other than
for the fees and expenses of the Investment Banker.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business by AWS Pending the Merger. Except as
otherwise contemplated by this Agreement or disclosed in Section 7.1 of the AWS
Disclosure Schedule and except for the transactions contemplated by the
Distribution Agreement, after the date hereof and prior to the Closing Date or
earlier termination of this Agreement, unless USA Waste shall otherwise agree in
writing, which shall not be unreasonably withheld, AWS shall, and shall cause
each of its subsidiaries to (other than with respect to Sections 7.1(g), (h),
(i) and (j), for which AWS shall cause only each of its Retained Subsidiaries
to):
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice, including, without
limitation, cash management;
(b) not (i) amend or propose to amend their respective charters or
bylaws, (ii) split, combine or reclassify their outstanding capital stock or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by any wholly owned subsidiary of AWS in the ordinary and usual
course of business and consistent with past practice;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional share of its capital stock of any class or
any options, warrants or rights of any kind to acquire any share of its capital
stock of any class or any debt or equity securities convertible into or
exchangeable for its capital stock, except that AWS may issue shares upon
exercise of options outstanding on the date hereof;
(d) not (i) incur or become contingently liable for any additional
long-term debt other than borrowings under the Credit Facility in the ordinary
course of business; provided, however, that the maximum amount outstanding at
any time under the Credit Facility shall not exceed $18,000,000, including
letters of credit issued thereunder, (ii) incur or become contingently liable
with respect to any other indebtedness for borrowed money other than short-
25
term borrowing in the ordinary course of business or borrowing to refinance
existing indebtedness on terms reasonably acceptable to USA Waste, (iii) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or any options, warrants or rights to acquire any shares of its capital
stock or any security convertible into or exchangeable for shares of its capital
stock, (iv) make any acquisition of any assets or businesses other than
expenditures for fixed or capital assets to be used in the ordinary course of
business and consistent with Section 7.1(g) below, (v) sell, pledge, dispose of
or encumber any assets or businesses other than sales in the ordinary course of
business, or (vi) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing;
(e) not (i) make any intercompany loans among AWS and its
subsidiaries, or (ii) enter into any intercompany transactions among AWS and its
subsidiaries, in any such case, outside the ordinary course of business or
inconsistent with past practice;
(f) use commercially reasonable efforts to preserve intact their
respective business organizations and good will, keep available the services of
their respective present officers and key employees, and preserve the good will
of and business relationships with customers and others having business
relations with them;
(g) not make expenditures for fixed or capital assets, individually
in excess of $150,000 or in the aggregate in excess of $500,000, and not enter
into any contract or commitment with respect to the same;
(h) subject to restrictions imposed by applicable law, confer on a
regular and frequent basis with one or more representatives of USA Waste to
report operational matters of materiality and the general status of ongoing
operations;
(i) not enter into or amend any employment, severance or special pay
arrangement with respect to termination of employment or other similar
arrangement or agreement with any director, officer or key employee, except in
the ordinary course and consistent with past practice; provided, however, that
AWS and its Retained Subsidiaries shall in no event enter into any written
employment agreement;
(j) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;
(k) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are consistent
with past practice;
(l) not make, change or revoke any material Tax election or make any
material agreement or settlement regarding Taxes with any taxing authority;
26
(m) give prompt written notice to USA Waste of the commencement of
any Proceeding relating to any alleged breach or violation of an Environmental
Law or non-routine inspection by any governmental authority with responsibility
for enforcing or implementing any applicable Environmental Law, and provide to
USA Waste such information as USA Waste may reasonably request regarding such
Proceeding or inspection, any developments in connection therewith, and, as
applicable, AWS's or its Retained Subsidiary's anticipated or actual response
thereto;
(n) no later than 45 days after the date of this Agreement, provide
or make available to USA Waste copies of all (x) environmental permits of
Retained Subsidiaries and (y) reports or results of all inspections, audits,
assessments and analytical data and such other information as USA Waste may
reasonably request in the possession or control of AWS or any of its Retained
Subsidiaries regarding any of their respective business facilities and relating
to (i) compliance with applicable requirements of Environmental Laws, or (ii)
exposure to or the presence or release of or any aspect of management, handling
or use of Hazardous Substances; and
(o) use commercially reasonable efforts to assist in the transfer of
environmental permits (on the same terms and conditions) to USA Waste or
Mergerco as may be necessary under applicable Environmental Laws in connection
with the consummation of the transactions under this Agreement to allow USA
Waste or the Surviving Corporation to conduct the business of AWS and its
Retained Subsidiaries as currently conducted.
Section 7.2 Control of AWS's Operations. Nothing contained in this
Agreement shall give to USA Waste, directly or indirectly, any right to control
or direct AWS's or any subsidiary's operations prior to the Effective Time.
Prior to the Effective Time, AWS shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of such
operations.
Section 7.3 Acquisition Transactions.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, AWS shall not, and shall not permit any of its
subsidiaries to, initiate, solicit, negotiate, encourage or provide confidential
information to facilitate, and AWS shall, and shall cause each of its
subsidiaries to, cause any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent retained by it,
not to initiate, solicit, negotiate, encourage or provide non-public or
confidential information to facilitate, any proposal or offer to acquire all or
any substantial part of the business and properties of AWS or any capital stock
of AWS, whether by merger, purchase of assets, tender offer or otherwise,
whether for cash, securities or any other consideration or combination thereof
(such transactions being referred to herein as "Acquisition Transactions").
27
(b) Notwithstanding the provisions of paragraph (a) above and without
being a breach or violation thereof: (i) AWS may, in response to an unsolicited
written offer or proposal with respect to a potential or proposed Acquisition
Transaction ("Acquisition Proposal"), furnish (subject to the execution of a
confidentiality agreement substantially similar to the confidentiality
provisions of the Confidentiality Agreement, executed by USA Waste in connection
herewith) confidential or non-public information concerning its business,
properties or assets to a financially capable corporation, partnership, person
or other entity or group (a "Potential Acquiror") and negotiate with such
Potential Acquiror if (x) the Board of Directors of AWS in good faith determines
that such Acquisition Proposal (if consummated pursuant to its terms) would
result in a transaction more favorable to AWS's stockholders than the Merger and
(y) based upon advice of its outside legal counsel, its Board of Directors
determines in good faith that the failure to provide such confidential or non-
public information to such Potential Acquiror would be reasonably likely to
constitute a breach of its fiduciary duty to its stockholders (any such
Acquisition Proposal meeting the conditions of clauses (x) and (y) being
referred to as a "Superior Proposal"). (ii) AWS's Board of Directors may take
and disclose to AWS's stockholders a position with respect to a tender offer by
a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or may make such other disclosures to AWS's stockholders which, as
advised by outside counsel, is required under applicable law.
(c) AWS shall immediately notify USA Waste after receipt of any
Acquisition Proposal or any request for non-public information relating to AWS
or its subsidiaries in connection with an Acquisition Proposal or for access to
the properties, books or records of AWS or any subsidiary by any person or
entity that informs the Board of Directors of AWS or such subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such notice to USA
Waste shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access to Information.
(a) AWS and its subsidiaries shall afford to USA Waste and Mergerco
and their accountants, counsel, financial advisors and other representatives
(the "USA Waste Representatives") full access during normal business hours
throughout the period prior to the Effective Time to all of their respective
properties (but not to conduct soil, groundwater, ambient air or other
environmental testing or analyses), books, contracts, personnel, representatives
of or contacts with governmental or regulatory authorities, agencies or bodies,
and records (including, but not limited to, Tax Returns and any and all records
or documents which are within the possession of governmental or regulatory
authorities, agencies or bodies and the disclosure of which AWS and its
subsidiaries can facilitate or control) with respect to the Retained Business
and any Liabilities of AWS and, during such period, shall furnish promptly to
USA Waste (i) a copy of each report, schedule or other document filed or
received by any of them pursuant to the
28
requirements of federal or state securities laws or filed by any of them with
the SEC in connection with the transactions contemplated by this Agreement or
which may have a material effect on their businesses, properties or personnel,
(ii) a copy of any financial statements of AWS and its subsidiaries when
prepared, and (iii) such other information concerning their businesses,
properties and personnel as USA Waste or Mergerco, as the case may be, shall
reasonably request. USA Waste and its subsidiaries shall hold, and shall use
their reasonable best efforts to cause the USA Waste Representatives to hold, in
strict confidence all non-public documents and information furnished to USA
Waste and Mergerco in connection with the transactions contemplated by this
Agreement, except that (i) USA Waste and Mergerco may disclose such information
as may be necessary in connection with seeking the USA Waste Required Statutory
Approvals, and (ii) each of USA Waste and Mergerco may disclose any information
that it is required by law or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated in accordance with
its terms, USA Waste and Mergerco shall promptly redeliver to AWS all non-public
material provided pursuant to this Section 8.1 and shall not retain any copies,
extracts or other reproductions in whole or in part of such written material.
In such event, all documents, memoranda, notes and other writings prepared by
USA Waste based on the information in such material shall be destroyed (and USA
Waste shall use commercially reasonable efforts to cause all USA Waste
Representatives to similarly destroy their documents, memoranda and notes), and
such destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
Section 8.2 Proxy Statement. AWS shall file with the SEC as soon as
is reasonably practicable after the date hereof the Proxy Statement.
Section 8.3 Stockholders' Approvals. Subject to the fiduciary duties
of the Board of Directors of AWS under applicable law, AWS shall, as promptly
as practicable, submit this Agreement and the transactions contemplated hereby
for the approval and adoption of its stockholders at a meeting of stockholders
(the "AWS Stockholders' Approval"). Subject to the fiduciary duties of the Board
of Directors of AWS under applicable law, such meeting of stockholders shall be
held as soon as practicable. Subject to the fiduciary duties of the Board of
Directors of AWS under applicable law, AWS shall, through its Board of
Directors, recommend to its stockholders approval of the transactions
contemplated by this Agreement.
Section 8.4 Expenses and Fees.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses.
(b) AWS agrees to pay to USA Waste a fee equal to Seven Million Five
Hundred Thousand Dollars ($7,500,000) if (i) AWS terminates this Agreement
pursuant to clause (vi) or (vii) of Section 10.1(a); (ii) USA Waste terminates
this Agreement pursuant to clause (iv) of Section 10.1(b); or (iii) AWS
terminates this Agreement pursuant to
29
Section 10.1(a)(iv) or USA Waste terminates this Agreement pursuant to Section
10.1(b)(v) and within seven months of such termination AWS enters into an
agreement for, or a letter of intent with respect to, an Acquisition Transaction
with a per share consideration for the AWS Common Stock greater than the sum of
$4.00 plus the per share value of the Distribution (as calculated from the
Valuation); provided, however, that the payment of the fee payable pursuant to
clause (iii) need not be made unless and until the consummation of such
Acquisition Transaction. For purposes of clause (iii) of the preceding sentence,
the per share consideration for an Acquisition Transaction shall be equal to the
sum of the cash amount per share payable pursuant thereto and the fair market
value per share (as agreed to in good faith by AWS and USA Waste or, absent such
agreement, as determined by the Investment Banker) of any non-cash consideration
payable pursuant thereto. This provision shall, to the extent applicable,
survive the termination of this Agreement.
Section 8.5 Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided and subject
to the fiduciary duties of the respective boards of directors of AWS and USA
Waste, each of the parties hereto shall use commercially reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its reasonable efforts to obtain all necessary or appropriate
waivers, consents or approvals of third parties required in order to preserve
material contractual relationships of AWS and its Retained Subsidiaries, all
necessary or appropriate waivers, consents and approvals and SEC "no-action"
letters to effect all necessary registrations, filings and submissions and to
lift any injunction or other legal bar to the Merger (and, in such case, to
proceed with the Merger as expeditiously as possible).
(b) Without limitation of the foregoing, each of USA Waste and AWS
undertakes and agrees to file as soon as practicable, and in any event prior to
30 days after the date hereof, a Notification and Report Form under the HSR Act
with the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division"). Each of USA Waste and AWS
shall (i) respond as promptly as practicable to any inquiries received from the
FTC or the Antitrust Division for additional information or documentation and to
all inquiries and requests received from any State Attorney General or other
governmental authority in connection with antitrust matters and (ii) not extend
any waiting period under the HSR Act or enter into any agreement with the FTC or
the Antitrust Division not to consummate the transactions contemplated by this
Agreement, except with the prior written consent of the other parties hereto.
(c) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, including an
Acquisition Transaction, USA Waste shall have the right, at its own expense, to
participate therein, and AWS will not settle any such litigation without the
consent of USA Waste, which consent will not be unreasonably withheld.
30
Section 8.6 Public Statements. The parties shall consult with each
other prior to issuing any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any such press release or written public statement prior to such
consultation.
Section 8.7 Option Plans.
(a) Prior to the Effective Time, AWS shall use its reasonable best
efforts to redeem all unexpired and unexercised "in the money" stock options for
an amount of cash equal to at least the difference between the exercise price of
such stock options and the Merger Consideration (with no adjustment to reflect
the Distribution). Furthermore, prior to the Effective Time, AWS shall use its
reasonable best efforts to redeem all other unexpired and unexercised stock
options. Each such option to purchase AWS Common Stock is referred to herein as
an "AWS Option."
(b) With respect only to any AWS Options that would be held by Avalon
Employees (as defined in the Distribution Agreement) after the Effective Time
("Avalon Employee Options"), to the extent that any such Avalon Employee Options
have not been redeemed in accordance with Section 8.7(a) prior to the Effective
Time, AWS and USA Waste shall take such action as may be legally permissible to
cause each such Avalon Employee Option to be automatically converted at the
Effective Time into an option (each, an "Avalon Option") to purchase shares of
Avalon common stock. From the Effective Time, all references in the stock
option agreements for such Avalon Employee Options to AWS shall be deemed to
refer to Avalon. Avalon shall assume all of AWS's obligations with respect to
such Avalon Employee Options as so amended and shall, from and after the
Effective Time, make available for issuance upon exercise of any Avalon Options
the shares of Avalon common stock covered thereby and shall file a registration
statement on Form S-8 to cover the shares of Avalon common stock subject to
those Avalon Options.
(c) At the Effective Time, each Retained Stock Option (as defined
under Section 3.6), whether or not then exercisable, shall be automatically
converted by virtue of the Merger into an option to purchase shares of USA Waste
common stock.
(d) AWS hereby represents to USA Waste that the terms of its stock
option plans governing the AWS Options permit the transactions contemplated by
this Section 8.7.
Section 8.8 Notification of Certain Matters. Each of AWS, USA Waste
and Mergerco agrees to give prompt notice to each other of, and to use
commercially reasonable efforts to remedy, (i) the occurrence or failure to
occur of any event which occurrence or failure to occur would be likely to cause
any of its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at the Effective Time and (ii) any material
failure on its part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this
31
Section 8.8 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
Section 8.9 Directors' and Officers' Indemnification.
(a) The indemnification provisions of the Articles of Incorporation
of the Surviving Corporation as in effect at the Effective Time shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time were directors, officers, employees or
agents of AWS, unless such modification is required by law.
(b) Without limiting Section 8.9(a), after the Effective Time, each
of USA Waste and the Surviving Corporation shall, to the fullest extent
permitted under applicable law, indemnify and hold harmless each present and
former director, officer, employee and agent of AWS or any of its subsidiaries
(each, together with such person's heirs, executors or administrators, an
"Indemnified Party" and collectively, the "Indemnified Parties") against any
costs or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
actual or threatened claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of, relating to,
or in connection with any action or omission occurring or alleged to occur prior
to the Effective Time (including, without limitation, acts or omissions in
connection with any such person serving as an officer, director or other
fiduciary in any entity if such service was at the request or for the benefit of
AWS) or arising out of or pertaining to the transactions contemplated by this
Agreement or the Distribution Agreement. In the event of any such actual or
threatened claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) AWS or USA Waste and the Surviving
Corporation, as the case may be, shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to USA Waste and the Surviving Corporation, promptly after
statements therefor are received and shall pay all other reasonable expenses in
advance of the final disposition of such claim, action, suit, proceeding or
investigation, (ii) USA Waste and the Surviving Corporation will cooperate and
use all reasonable efforts to assist in the vigorous defense of any such matter,
and (iii) to the extent any determination is required to be made with respect to
whether an Indemnified Party's conduct complies with the standards set forth
under the OGCL and USA Waste's or the Surviving Corporation's respective
charters or by-laws, such determination shall be made by independent legal
counsel acceptable to USA Waste or the Surviving Corporation, as the case may
be, and the applicable Indemnified Party; provided, however, that neither USA
Waste nor the Surviving Corporation shall be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld);
and, provided, further, that if USA Waste or the Surviving Corporation advances
or pays any amount to any person under this paragraph (b) and if it shall
thereafter be finally determined by a court of competent jurisdiction that such
person was not entitled to be indemnified hereunder for all or any portion of
such amount, to the extent required by law, such person shall repay such amount
or such portion thereof, as the case may be, to USA Waste or the Surviving
Corporation, as the case may be. The Indemnified Parties as a group may not
retain
32
more than one law firm to represent them with respect to each matter unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
(c) In the event the Surviving Corporation or USA Waste or any of
their successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation or USA Waste shall assume the obligations set forth in this Section
8.9.
(d) USA Waste and the Surviving Corporation shall not cancel or
terminate any policies of directors' and officers' liability insurance covering
Indemnified Parties that does not extend coverage for more than one year after
the Effective Time.
(e) USA Waste shall pay all reasonable expenses, including reasonable
attorneys' fees, that may be incurred by any Indemnified Party in enforcing the
indemnity and other obligations provided in this Section 8.9. The rights of
each Indemnified Party hereunder shall be in addition to, and not in limitation
of, any other rights such Indemnified Party may have. The provisions of this
Section 8.9 shall survive the consummation of the Merger and expressly are
intended to benefit the Indemnified Parties.
Section 8.10 Corrections to the Proxy Statement. Prior to the date of
approval of the Merger by AWS's stockholders, USA Waste or AWS shall correct
promptly any information provided by it to be used specifically in the Proxy
Statement that shall have become false or misleading in any material respect,
and AWS shall take all steps necessary to file with the SEC any amendment or
supplement to the Proxy Statement so as to correct the same and to cause the
Proxy Statement as so corrected to be disseminated to the stockholders of AWS,
in each case to the extent required by applicable law.
Section 8.11 Credit Facility. Immediately after the Effective Time,
USA Waste shall cause the Surviving Corporation to pay any amounts still
outstanding under the Credit Facility after the payment made by AWS pursuant to
Section 3.6. USA Waste shall, and shall cause the Surviving Corporation to, use
commercially reasonable efforts to have the lender or lenders under the Credit
Facility release and terminate any guarantees or indemnities provided by any
Contributed Subsidiaries (as defined in the Distribution Agreement) with respect
to the Credit Facility promptly after such payment.
Section 8.12 Board Approval of Distribution. The Board of Directors of
AWS will approve the Contribution and the declaration of the Distribution as
promptly as practicable (but no later than twenty (20) days) after delivery of
the Valuation to AWS unless the Board of Directors of AWS reasonably determines
that the Contribution or the Distribution violates Section 1701.33 of the OGCL.
A breach of this covenant shall constitute a willful and intentional breach of
this Agreement.
33
ARTICLE IX
CONDITIONS
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
(a) this Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite votes of AWS's stockholders;
(b) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated;
(c) the Contribution and the Distribution shall have occurred in
accordance with the Distribution Agreement;
(d) the Distribution Tax shall have been determined in accordance
with Section 3.8;
(e) no preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use
commercially reasonable efforts to have any such injunction, order or decree
lifted); and
(f) no statute, rule or regulation shall have been enacted by any
state or federal government or governmental agency in the United States which
would prevent the consummation of the Merger or make the consummation of the
Merger illegal.
Section 9.2 Conditions to Obligation of AWS to Effect the Merger.
Unless waived by AWS, the obligation of AWS to effect the Merger shall be
subject to the fulfillment on or prior to the Closing Date of the following
additional conditions:
(a) USA Waste and Mergerco shall have performed their agreements
contained in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of USA Waste and Mergerco contained
in this Agreement shall be true and correct on and as of the date made and
(except to the extent that such representations and warranties speak as of an
earlier date) on and as of the Closing Date as if made at and as of such date
except for such failures to perform or to be true and correct that would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of USA Waste and its subsidiaries considered as a whole, and AWS
shall have received a certificate of the Chairman of the Board
34
and Chief Executive Officer, the President or a Vice President of USA Waste and
of the President and Chief Executive Officer or a Vice President of Mergerco to
that effect.
Section 9.3 Conditions to Obligations of USA Waste and Mergerco to Effect
the Merger. Unless waived by USA Waste and Mergerco, the obligations of USA
Waste and Mergerco to effect the Merger shall be subject to the fulfillment on
or prior to the Closing Date of the additional following conditions:
(a) AWS shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of AWS contained in this Agreement shall be true
and correct on and as of the date made and (except to the extent that such
representations and warranties speak as of an earlier date) on and as of the
Closing Date as if made at and as of such date except for such failures to
perform or to be true and correct that would not reasonably be expected to have
a material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of AWS and its
subsidiaries considered taken as a whole, and USA Waste shall have received a
Certificate of the President and Chief Executive Officer or of a Vice President
of AWS to that effect;
(b) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute, a material adverse change in the business, operations, properties,
assets, liabilities, condition (financial or other) or results of operations of
AWS and its Retained Subsidiaries, taken as a whole, except for changes that
affect the industries in which AWS and its Retained Subsidiaries operate
generally or volume reductions to the extent arising from business decisions
made by existing or potential customers;
(c) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect on the Closing Date, except
where the failure to obtain the same would not be reasonably likely,
individually or in the aggregate, to have a material adverse effect on the
business, operations, properties, assets, liabilities, condition (financial or
other) or results of operations of AWS and its subsidiaries, taken as a whole;
(d) USA Waste shall have received the legal opinions of outside
counsel for AWS with respect to the matters set forth on Exhibit D;
---------
(e) no more than ten percent (10%) of the outstanding shares of AWS
Common Stock shall be Dissenting Shares;
(f) the sum of the Transaction Liabilities, Distribution Tax, the
Net Working Capital Deficiency and the Retained Stock Option Liability shall not
exceed the Primary USA Loan to AWS; and
35
(g) USA Waste shall have entered into non-competition agreements, in
the form attached hereto as Exhibit E, with Ronald E. Klingle and Darrell D.
---------
Wilson.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval and adoption by the
stockholders of AWS as follows:
(a) AWS shall have the right to terminate this Agreement:
(i) if any of the representations and warranties of USA Waste or
Mergerco shall fail to be true and correct and such failure will cause the
conditions set forth in Section 9.2(a) to be incapable of being satisfied
by July 31, 1998 (the "Termination Date") and such failure has not been
cured in all material respects within 30 days after notice of such breach
is given to USA Waste by AWS;
(ii) if the Merger is not completed by the Termination Date;
provided, that the right to terminate this Agreement pursuant to this
Section 10.1(a)(ii) shall not be available to AWS (A) if the failure of AWS
to fulfill any obligation to USA Waste under or in connection with this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date or (B) if AWS is at such time exercising its
rights under Section 7.3(b);
(iii) if the Merger is enjoined by a final, unappealable court
order;
(iv) if the requisite votes of the stockholders of AWS shall not
have been obtained at the AWS Stockholders' Meeting;
(v) if USA Waste (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after notice of such
default is given to USA Waste by AWS;
(vi) if (A) AWS receives a Superior Proposal from any third
party (excluding any affiliate of AWS or any group of which any affiliate
of AWS is a member), (B) AWS's Board of Directors resolves to accept such
Superior Proposal, and (C) AWS shall have given USA Waste two days' prior
written notice of its intention to terminate this Agreement pursuant to
this provision; provided, that such termination shall not be effective
until such time as the payment required by Section 8.4(b) shall have been
received by USA Waste;
36
(vii) if (A) a tender or exchange offer is commenced by a third
party (excluding any affiliate of AWS or any group of which any affiliate
of AWS is a member) for all outstanding shares of AWS Common Stock, (B)
AWS's Board of Directors determines in good faith that such offer
constitutes a Superior Proposal and resolves to accept such Superior
Proposal or recommend to the stockholders that they tender their shares in
such tender or exchange offer, and (C) AWS shall have given USA Waste two
days' prior written notice of its intention to terminate this Agreement
pursuant to this provision; provided, that such termination shall not be
effective until such time as the payment required by Section 8.4(b) shall
have been received by USA Waste; or
(viii) if any of the Ancillary Agreements have been terminated
in accordance with their respective terms.
(b) USA Waste shall have the right to terminate this Agreement;
(i) if any of the representations and warranties of AWS shall
fail to be true and correct and such failure will cause the conditions set
forth in Section 9.3(a) to be incapable of being satisfied by the
Termination Date and such failure has not been cured in all material
respects within 30 days after notice of such breach is given to AWS by USA
Waste;
(ii) if the Merger is not completed by the Termination Date;
provided, that the right to terminate this Agreement pursuant to this
Section 10.1(b)(ii) shall not be available to USA Waste if the failure of
USA Waste or Mergerco to fulfill any obligation to AWS under or in
connection with this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date;
(iii) if AWS (A) fails to perform in any material respect any
of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of
such default is given to AWS by USA Waste;
(iv) if the Board of Directors of AWS shall have resolved to
accept a Superior Proposal or shall have recommended to the stockholders of
AWS that they tender their shares in a tender or exchange offer commenced
by a third party (excluding any affiliate of USA Waste or any group of
which any affiliate of USA Waste is a member);
(v) if the requisite votes of the stockholders of AWS shall not
have been obtained at the AWS Stockholders' Meeting;
(vi) if the Merger is enjoined by a final, unappealable court
order; or
37
(vii) if any of the Ancillary Agreements have been terminated
in accordance with their respective terms.
Section 10.2 Effect of Termination. In the event of termination of this
Agreement by either USA Waste or AWS pursuant to the provisions of Section
10.1, this Agreement shall forthwith become void and there shall be no further
obligations on the part of AWS, USA Waste, Mergerco or their respective officers
or directors (except for the obligations set forth in this Section 10.2 and in
the second sentence in Section 8.1(a) and in Sections 8.1(b), 8.4 and 11.4 and
the Confidentiality Agreement, all of which shall survive the termination).
Nothing in this Section 10.2 shall relieve any party from liability for any
willful or intentional breach of this Agreement.
Section 10.3 Amendment. This Agreement may not be amended except by
action taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law.
Section 10.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any document delivered
pursuant hereto shall not survive the Merger and, after the effectiveness of the
Merger, neither AWS, USA Waste, Mergerco, Avalon nor their respective officers
or directors shall have any further obligation with respect thereto. Only those
agreements and covenants in this Agreement that survive the consummation of the
Merger in accordance with their terms shall so survive.
Section 11.2 Notices. All notices, consents and other communications
given under this Agreement shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand or by Federal Express or a similar
overnight courier to, (b) five days after being deposited in any United States
Post Office enclosed in a postage prepaid registered or certified envelope
addressed to, or (c) when successfully transmitted by telecopier (with a
confirming copy of such communication sent as provided in clause (a) or (b)
above) to, the party for whom intended, at the address or telecopier number for
such party set forth below, or to such other address or telecopier number as may
be furnished by such party by notice in the manner provided
38
in this Section 11.2; provided, however, that any notice of change of address or
telecopier number shall be effective only upon receipt.
If to USA Waste or Mergerco, to:
USA Waste Services, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Chief Executive Officer
Telecopy: (713) 209-9711
with a copy to:
Gregory T. Sangalis
1001 Fannin, Suite 4000
Houston, Texas 77002
Telecopy: (713) 209-9711
and:
Marcus A. Watts
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Chase Tower
600 Travis
Houston, Texas 77002
Telecopy: (713) 223-3717
If to AWS, to:
American Waste Services, Inc.
One American Way
Warren, Ohio 44484
Attention: Ronald E. Klingle
Telecopy: (330) 856-8483
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attention: Sanford B. Ferguson
Telecopy: (412) 355-6501
39
Section 11.3 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
Section 11.4 Miscellaneous. This Agreement (including the documents
and instruments referred to herein) and that certain Agreement dated October 2,
1997 by and between AWS and USA Waste concerning confidentiality and related
matters (the "Confidentiality Agreement") (a) constitute the entire agreement
and supersede all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter
hereof, (b) are not intended to confer upon any other person any rights or
remedies hereunder, except as expressly set forth herein or in the Distribution
Agreement, and (c) shall not be assigned by operation of law or otherwise,
except that Mergerco may assign this Agreement to any other wholly owned
subsidiary of USA Waste. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF
DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE, EXCEPT THAT THE PROVISIONS OF THIS AGREEMENT RELATING TO THE MERGER WILL
ALSO BE GOVERNED BY THE OGCL. THE EXCLUSIVE VENUE FOR THE ADJUDICATION OF ANY
DISPUTE OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE PERFORMANCE THEREOF
SHALL BE THE COURTS LOCATED IN THE STATE OF DELAWARE AND THE PARTIES HERETO AND
THEIR AFFILIATES EACH CONSENTS TO AND HEREBY SUBMITS TO THE JURISDICTION OF ANY
COURT LOCATED IN THE STATE OF DELAWARE.
Section 11.5 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 11.6 Parties in Interest. This Agreement shall be binding upon
and inure to the benefit of each party hereto, and, except as expressly set
forth herein, nothing in this Agreement express or implied is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
[The remainder of this page intentionally left blank.]
40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers and attested to as of the date first written
above.
Attest: USA WASTE SERVICES, INC.
- ---------------------------------- By:
Secretary -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Attest: C&S OHIO CORP.
- ---------------------------------- By:
Secretary -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Attest: AMERICAN WASTE SERVICES, INC.
- ---------------------------------- By:
Secretary -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
41
CONTRIBUTION
AND
DISTRIBUTION AGREEMENT
BY AND BETWEEN
AMERICAN WASTE SERVICES, INC.
AND
AVALON HOLDINGS CORPORATION
Dated as of _____________, 1998
TABLE OF CONTENTS
Page
----
I. CONTRIBUTION; ASSUMPTION................................................... 2
1.1 Contribution of Assets..................................................... 2
1.2 The Retained Assets........................................................ 3
1.3 Assumption of Liabilities.................................................. 3
1.4 Retained Liabilities....................................................... 4
1.5 Issuance of Shares......................................................... 4
1.6 Passage of Title........................................................... 4
1.7 Unemployment Compensation and Workers Compensation Insurance Ratings....... 4
1.8 Valuation.................................................................. 5
II. EMPLOYEES AND EMPLOYEE BENEFIT PLANS....................................... 5
2.1 Employment................................................................. 5
III. CLOSING.................................................................... 6
3.1 Closing and Distribution Date.............................................. 6
3.2 AWS Deliveries............................................................. 6
3.3 Avalon Deliveries.......................................................... 7
IV. THE DISTRIBUTION........................................................... 8
4.1 Cooperation Prior to the Distribution...................................... 8
4.2 Securities Filings......................................................... 8
4.3 Record Date; Distribution.................................................. 8
V. COVENANTS.................................................................. 9
5.1 AWS Approval of Certain Avalon Actions..................................... 9
5.2 Licenses and Permits....................................................... 9
5.3 Acts and Instruments....................................................... 10
5.4 Correspondence............................................................. 10
5.5 Further Assistance......................................................... 11
5.6 Settlement for Cash Collections and Disbursements.......................... 11
5.7 Insurance.................................................................. 11
5.8 Covenant Not to Compete.................................................... 11
5.9 Access to Information...................................................... 13
Page
----
5.10 Certain Transaction Costs................................................. 14
5.11 Certain Agreements........................................................ 15
5.12 Transitional Services Agreement........................................... 15
5.13 Proration of Expenses..................................................... 15
5.14 Consent to Use of Corporate Names......................................... 15
5.15 Transfer of Envirco Property.............................................. 16
5.16 Mutual Releases........................................................... 16
VI. CONDITIONS............................................................... 16
6.1 General Condition......................................................... 16
6.2 Conditions to the Obligations of AWS...................................... 16
6.3 Conditions to the Obligations of Avalon................................... 16
VII. INDEMNIFICATION........................................................... 16
7.1 Indemnification by Avalon................................................. 16
7.2 Indemnification by AWS.................................................... 17
7.3 Notice and Defense of Third-Party Claims.................................. 17
7.4 Limitations............................................................... 18
7.5 Payment; Interest......................................................... 18
7.6 Definitions............................................................... 18
VIII. MISCELLANEOUS............................................................. 18
8.1 Termination............................................................... 18
8.2 Entire Agreement.......................................................... 18
8.3 Third-Party Rights........................................................ 19
8.4 Amendments................................................................ 19
8.5 Communications............................................................ 19
8.6 Successors and Assigns.................................................... 21
8.7 Governing Law; Jurisdiction............................................... 21
8.8 Savings Clause............................................................ 21
8.9 Counterparts.............................................................. 21
8.10 Construction.............................................................. 21
ii
CONTRIBUTION AND DISTRIBUTION AGREEMENT
CONTRIBUTION AND DISTRIBUTION AGREEMENT, dated as of ____________, 1998
(the "Agreement"), by and between American Waste Services, Inc., an Ohio
corporation ("AWS") and Avalon Holdings Corporation, [an Ohio] corporation and a
wholly owned subsidiary of AWS ("Avalon").
W I T N E S S E T H:
-------------------
WHEREAS, AWS through its subsidiaries owns and operates nonhazardous solid
waste landfills; transports hazardous and nonhazardous waste; provides
transportation and disposal brokerage and management services; provides refuse
collection services; provides environmental engineering, site assessment,
analytical laboratory and remediation services; is a common carrier of general
and bulk commodities; and operates a golf course through its subsidiaries
(collectively, the "Businesses"); and
WHEREAS, AWS, USA Waste Services, Inc., a Delaware corporation ("USA
Waste"), and C&S Ohio Corp., an Ohio corporation and a wholly owned subsidiary
of USA Waste ("Mergerco"), are parties to an Agreement and Plan of Merger, dated
as of February 6, 1998 (the "Merger Agreement"), providing for, among other
things, the merger of Mergerco with and into AWS (the "Merger"), pursuant to
which AWS will become a wholly owned subsidiary of USA Waste; and
WHEREAS, AWS and USA Waste have agreed that, at the Effective Time (as
defined in the Merger Agreement), the only Businesses that AWS will have will be
the non-hazardous solid waste landfills it owns and operates, the refuse
collection services it provides and its landfill gas collection and sales
business (the "Retained Businesses"); and
WHEREAS, AWS has agreed with USA Waste to dispose of all of its other
Businesses (the "Contributed Businesses") and all of its other assets,
properties and rights that USA Waste does not need in order to operate the
Retained Businesses (the "Nonessential Assets") prior to the Effective Time; and
WHEREAS, the Board of Directors of AWS has determined that it is in the
best interests of AWS's shareholders that AWS contribute (as defined below) all
of the assets, properties and rights of the Contributed Businesses and all the
Nonessential Assets (collectively, the "Contributed Assets") to Avalon and that
Avalon assume the Assumed Liabilities (as defined below); and
WHEREAS, it is a condition precedent to the consummation of the Merger, and
the Board of Directors of AWS has determined that it is in the best interests of
AWS's shareholders, that following the contribution of the Contributed Assets to
and the assumption of the Assumed
Liabilities by Avalon, AWS distribute all of the shares of capital stock of
Avalon to AWS's shareholders prior to the Effective Time (the "Distribution");
and
WHEREAS, it is also contemplated in the Merger Agreement that, on or before
the Distribution, AWS will cause all of its subsidiaries that it will continue
to own after the Distribution to pay certain obligations of those entities to
Avalon as set forth herein; and
WHEREAS, AWS and Avalon desire to more fully describe the Contributed
Assets, the Assumed Liabilities, the obligations of AWS and its subsidiaries to
Avalon and its subsidiaries, and the obligations of Avalon and its subsidiaries
to AWS and its subsidiaries after the Distribution.
NOW, THEREFORE, in consideration of the agreements and covenants contained
herein and in the other agreements and instruments executed in connection with
this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
I. CONTRIBUTION; ASSUMPTION
1.1 Contribution of Assets.
(a) Upon the terms and subject to the conditions of this Agreement,
on or before the Distribution Date (as defined below), AWS shall convey, assign,
transfer and deliver (collectively, "contribute") to Avalon as a contribution to
capital, all of the right, title and interest of AWS in and to all of the
Contributed Assets, wherever such assets are located and whether real, personal
or mixed and whether tangible or intangible. Without limiting the generality of
the foregoing, the Contributed Assets shall include the following:
(i) all assets, properties and rights owned by AWS listed on
Schedule 1.1A hereto; and
(ii) all outstanding shares of capital stock and other
securities (as defined in the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of the subsidiaries of AWS listed on Schedule 1.1 B
hereto (the "Contributed Subsidiaries").
(b) If AWS disposes of any Contributed Asset prior to the
Distribution Date, AWS shall have no obligation to purchase or otherwise acquire
any substitute or replacement asset, property or right.
(c) No contract, agreement, permit or franchise which is not
assignable by its terms or by law without the consent of any party thereto other
than AWS or any of its subsidiaries shall be deemed assigned pursuant to this
Agreement unless and until such consent or a waiver therefrom is given. AWS
shall use commercially reasonable efforts (not involving the payment of
consideration) to obtain prior to the Distribution Date all such consents,
waivers and assignments. If any such consent, waiver or assignment is not
obtained prior to the
2
Distribution Date and the Distribution is nevertheless consummated, AWS shall
continue to use commercially reasonable efforts to obtain all such consents,
waivers or assignments as have not been obtained prior to such date. In order to
provide Avalon with the full value and benefit of every contract, agreement,
permit and franchise that has not been assigned as provided in this Section 1.1
(c), AWS shall cooperate with Avalon after the Distribution Date in any
reasonable arrangement (such as subcontracting, sublicensing or subleasing)
designed to provide to Avalon and its subsidiaries, on terms at least as
favorable as those to which AWS and its subsidiaries are entitled, the full
value and benefit, as well as the obligations and liabilities, under the
applicable contract, agreement, permit or franchise, including, without
limitation, enforcement, at the cost and for the benefit of Avalon and its
subsidiaries, of any and all rights of AWS and its subsidiaries against any
other party thereto arising out of the breach or cancellation thereof by such
party. Avalon and AWS, as applicable, shall maintain insurance in an amount
sufficient to comply with any insurance requirements of such contracts.
1.2 The Retained Assets. AWS shall retain and the Contributed Assets
-------------------
shall not include the following;
(a) the assets, properties and rights owned by AWS listed on Schedule
1.2 A hereto (the "Retained Assets"); and
(b) all outstanding shares of capital stock and other securities of
the subsidiaries of AWS listed on Schedule 1.2 B hereto (the "Retained
Subsidiaries").
1.3 Assumption of Liabilities.
-------------------------
(a) Upon the terms and subject to the conditions of this Agreement,
on the Distribution Date, Avalon shall, pursuant to an agreement of assumption
in form and substance reasonably satisfactory to USA Waste and Avalon (the
"Assumption Agreement"), assume and agree to perform, pay, satisfy or discharge,
when due, to the extent not theretofore performed, paid, satisfied or
discharged, (i) the Liabilities (as defined below) of AWS arising out of or
related to the Contributed Assets, (ii) the Liabilities of AWS, if any, arising
out of or related to the action entitled "Werbowski vs. American Waste Services,
Inc., et al.," (iii) contractual obligations related to sponsorship of the LPGA
Golf Tournament at Avalon Lakes Golf Course, and (iv) other Liabilities
specified herein as being assumed by Avalon (for example, in Section 2.1(i))
(collectively, the "Assumed Liabilities").
(b) Notwithstanding anything to the contrary set forth herein, (i)
any Liability of Avalon and its subsidiaries for any taxes incurred or accrued
prior to the Distribution Date shall be governed solely by the express terms of
the Tax Allocation Agreement, dated as of the date hereof (the "Tax Allocation
Agreement"), by and among USA Waste, AWS and Avalon, and (ii) any Liability of
Avalon and its subsidiaries from and after the Distribution Date with respect to
any employees of AWS and its subsidiaries shall be governed solely by the
express provisions of Article II hereof.
3
(c) AWS and Avalon shall each use commercially reasonable efforts, on
or prior to the Distribution Date, to have (i) AWS or any Retained Subsidiary
removed as a guarantor of or obligor for any Assumed Liability and (ii) to
substitute Avalon or a Contributed Subsidiary as such guarantor or obligor
thereof. If any such removal and substitution is not obtained prior to the
Distribution Date and the Distribution is nevertheless consummated, Avalon shall
continue to use commercially reasonable efforts to obtain all such removals and
substitutions.
(d) With respect to any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, governmental regulatory or
administrative agency or commission or arbitration tribunal (any "Action") now
pending or commenced prior to, on or after the Distribution Date to the extent
that such Action arises out of or relates solely to any Contributed Assets or
Terminated Employee or Avalon Employee (both as defined below), AWS and Avalon
shall use commercially reasonable efforts to have AWS or the applicable Retained
Subsidiary removed as a party to such Action following the Distribution Date.
(e) For purposes of this Agreement, "Liabilities" shall mean all
debts, obligations, liabilities and commitments of any nature, whether absolute
or contingent, monetary or non-monetary, direct or indirect, known or unknown,
matured or unmatured.
1.4 Retained Liabilities Except for the Assumed Liabilities, Avalon
--------------------
does not hereby, and shall not, assume or in any way undertake to pay, perform,
satisfy or discharge any other Liability of AWS or any Retained Subsidiary and
AWS or the applicable Retained Subsidiary shall perform, pay, satisfy and
discharge all such Liabilities other than the Assumed Liabilities (collectively,
the "Retained Liabilities").
1.5 Issuance of Shares. In exchange for the contribution of the
------------------
Contributed Assets and the assumption of the Assumed Liabilities, on or before
the Distribution Date, Avalon shall issue to AWS ____ shares of its Class A
Common Stock, no par value ("Avalon Class A Stock"), and ____ shares of its
Class B Common Stock, no par value ("Avalon Class B Stock," which, together with
the Avalon Class A Stock, is sometimes collectively referred to herein as the
"Avalon Common Stock"). Those shares of Avalon Class A Stock and Avalon Class B
Stock shall initially be represented by one stock certificate each. All shares
of Avalon capital stock to be issued pursuant to this Section 1.5 shall be
validly issued, fully paid and nonassessable.
1.6 Passage of Title. Title to all Contributed Assets shall pass from
----------------
AWS to Avalon at the Closing (as defined below). If any Contributed Asset is
lost or damaged due to some casualty or accident prior to the Distribution Date,
on the Distribution Date, AWS shall, as part of the Contributed Assets, assign
to Avalon all rights of action, including insurance claims, with respect to such
Contributed Asset. This constitutes AWS's sole obligation with respect to such
lost or damaged Contributed Asset.
1.7 Unemployment Compensation and Workers Compensation Insurance Ratings.
--------------------------------------------------------------------
Following the Closing, AWS and the Retained Subsidiaries shall, if requested by
Avalon and at Avalon's expense, take all steps commercially reasonably necessary
or permitted to allow
4
Avalon and/or the Contributed Subsidiaries to be assigned the experience rating
of AWS and/or the Retained Subsidiaries with respect to workers compensation
insurance and/or unemployment compensation insurance.
1.8 Valuation. The aggregate value of Avalon after the contribution
---------
of the Contributed Assets and the assumption of the Assumed Liabilities shall be
determined by Houlihan, Lokey, Howard & Zukin, Inc. ("HLHZ") which has been
retained for that purpose. On or before the Distribution Date, AWS shall cause
HLHZ to deliver to Avalon and USA Waste its final report (the "HLHZ Report")
setting forth such valuation. AWS, USA Waste and Avalon shall report the
federal, state and local income and other tax consequences of the Distribution
(including reporting requirements on Form 1099) contemplated hereby in a manner
consistent with such determination and shall not take any position inconsistent
therewith upon examination of any tax return, in any refund claim or in any
Action.
II. EMPLOYEES AND EMPLOYEE BENEFIT PLANS
2.1 Employment.
----------
(a) No later than 15 days after execution of this Agreement, Avalon
shall deliver to USA Waste a list of all employees of AWS and the Retained
Subsidiaries to whom Avalon wishes to extend offers of employment which are
conditioned upon the occurrence of the Closing (the "Employee List").
(b) Within 30 days of receipt of the Employee List, USA Waste shall
deliver to Avalon a list of the individuals disclosed on the Employee List whom
USA Waste wishes to retain as employees of AWS or the Retained Subsidiaries, as
applicable (the "Overlap Employees").
(c) Avalon shall be free to negotiate terms of employment with
persons on the Employee List who are not Overlap Employees and each of Avalon
and USA Waste shall be free to make offers to and negotiate with Overlap
Employees, it being understood and agreed that the final decision as to which
offer to accept shall rest with the individual person.
(d) As soon as practicable, but in no event later than 30 days prior
to the scheduled date of the meeting of stockholders of AWS to consider the
Merger, USA Waste shall deliver to AWS and Avalon a list of all employees of AWS
and the Retained Subsidiaries (i) whose employment USA Waste will cause AWS or
the applicable Retained Subsidiary to terminate within two business days after
the Closing Date or (ii) whom USA Waste will cause AWS or the applicable
Retained Subsidiary to terminate within 60 days after the Closing Date (each
such person described in (i) and (ii) above is hereinafter referred to as a
"Terminated Employee.")
(e) Every employee of any Contributed Subsidiary and each individual
who accepts employment with Avalon is hereinafter referred to as an "Avalon
Employee."
5
(f) Every employee of AWS and the Retained Subsidiaries who is not an
Avalon Employee or a Terminated Employee is hereinafter referred to as a
"Retained Employee."
(g) Any person who would be both a Terminated Employee and an Avalon
Employee under the above definitions shall be treated solely as an Avalon
Employee and not as a Terminated Employee for purposes of this Agreement.
(h) Avalon or any Contributed Subsidiary may, but shall not be
obligated to, offer employment to any Terminated Employee.
(i) From and after the Closing Date, Avalon shall assume and shall
pay, satisfy and discharge any Liability (i) arising out of workers'
compensation claims by Avalon Employees and Terminated Employees unless the
claim relates to a Terminated Employee and is based solely on an occurrence
after the Closing Date (as defined in the Merger Agreement); or (ii) arising out
of or related to the termination of employment of any Avalon Employee or
Terminated Employee; provided, however, that Avalon shall not assume and shall
not pay, satisfy and discharge any Liability arising out of or related to the
termination of employment of any Terminated Employee who immediately prior to
the Distribution Date was an employee of American Landfill, Inc., American
Landfill Gas Company, East Liverpool Landfill, Inc., Mahoning Landfill, Inc. or
SLF Development, Inc., to the extent that such Liability arises out of any
allegation that such termination was in violation of applicable law (as opposed
to being in breach of any agreement). From and after the Closing Date, AWS and
the Retained Subsidiaries shall pay, satisfy and discharge any Liability arising
out of or related to the employment relations between any of them and any
Retained Employee or any former employee of any Retained Subsidiary or AWS who
is not a Terminated Employee and not an Avalon Employee.
(j) From and after the Closing Date, Avalon and the Contributed
Subsidiaries shall pay, satisfy and discharge any Liability arising out of or
relating to the employment relations between each of them and their respective
employees.
III. CLOSING
3.1 Closing and Distribution Date. Upon satisfaction or waiver of all
-----------------------------
the conditions precedent set forth in Article VI, the consummation of the
transactions contemplated by Article I of this Agreement (the "Closing") shall
take place at such place and time and on such date (the "Distribution Date") as
shall be agreed upon by the parties.
3.2 AWS Deliveries. At the Closing, AWS shall deliver or cause to be
--------------
delivered to Avalon:
(a) One or more general warranty bills of sale and instruments of
assignment, in form reasonably acceptable to Avalon and USA Waste, duly executed
by AWS with respect to the Contributed Assets.
6
(b) General warranty deeds, in form reasonably acceptable to Avalon
and USA Waste, duly executed and acknowledged by AWS, with respect to such of
the Contributed Realty (as defined in Schedule 1.1A) as is owned in fee by AWS.
(c) Assignments of any Intellectual Property (as defined in Schedule
1.1A) being contributed to Avalon, in form reasonably acceptable to Avalon and
USA Waste, duly executed by AWS.
(d) Assignments of the Assigned Instruments (as defined in Schedule
1.1A), in form reasonably acceptable to Avalon and USA Waste, duly executed by
AWS.
(e) A distribution agency agreement (the "Distribution Agency
Agreement") among AWS, Avalon and AWS's transfer agent (the "Distribution
Agent") relating to the Distribution, in form reasonably acceptable to the
parties thereto, duly executed by AWS and such transfer agent.
(f) An assignment in favor of Avalon and consented to by USA Waste,
duly executed by AWS, of the following rights of AWS under the Confidentiality
Agreement dated October 2, 1997 (the "Confidentiality Agreement") between AWS
and USA Waste: (i) the confidentiality obligations of USA Waste thereunder
insofar as they relate to any evaluation material that does not pertain
primarily to the Retained Business, (ii) the agreement by USA Waste that no
representation has been made regarding the Evaluation Material and that no
liability shall be asserted based on the use thereof, and (iii) any provisions
of general applicability to the extent relevant to the foregoing.
(g) Certificates representing all outstanding shares of capital stock
and other securities of the Contributed Subsidiaries, in negotiable form with
stock powers duly executed in blank and all requisite stock transfer tax stamps
attached.
(h) The Transitional Services Agreement (as defined below), duly
executed by AWS.
(i) All such other instruments of conveyance, deeds, assignments,
confirmations, powers of attorney and other instruments, duly executed by AWS,
as Avalon shall reasonably determine are necessary, expedient or proper in order
to effectuate the contribution of the Contributed Assets as contemplated hereby.
3.3 Avalon Deliveries. At the Closing, Avalon shall deliver to AWS:
-----------------
(a) The Assumption Agreement, duly executed by Avalon.
(b) Certificates representing the number of shares of Avalon Class A
Stock and Avalon Class B Stock determined pursuant to Section 4.3 for delivery
to the Distribution Agent for distribution pursuant to the Distribution Agency
Agreement.
7
(c) The Transitional Services Agreement, duly executed by Avalon.
(d) All such other instruments of assignment, assumption and other
instruments, duly executed by Avalon, as AWS shall reasonably determine are
necessary, expedient or proper in order to effectuate the assumption of the
Assumed Liabilities by Avalon.
IV. THE DISTRIBUTION
4.1 Cooperation Prior to the Distribution. Commencing as promptly as
-------------------------------------
practicable after the date hereof and until the Distribution Date, subject to
the provisions of Article VI hereof, AWS and Avalon shall take all such actions
as may be necessary or appropriate to effect the Distribution, including,
without limitation, the specific actions set forth in Sections 4.2 and 4.3.
4.2 Securities Filings.
------------------
(a) AWS and Avalon shall prepare and Avalon shall file with the
Securities and Exchange Commission (the "SEC") a registration statement on Form
10 (the "Form 10") to effect the registration of the Avalon Class A Stock
pursuant to the Exchange Act. AWS and Avalon shall use commercially reasonable
efforts to cause the Form 10 to be declared effective under the Exchange Act as
promptly as practicable. If AWS reasonably determines that the Distribution may
not be effected without registering the shares of Avalon Class A Stock to be
distributed pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), AWS and Avalon shall prepare and Avalon shall file with the SEC a
registration statement on Form S-1 (the "Form S-1") to effect such registration
pursuant to the Securities Act. AWS and Avalon shall use commercially
reasonable efforts to cause the Form S-1 to be declared effective under the
Securities Act as promptly as practicable.
(b) AWS and Avalon shall take all such actions as may be necessary or
appropriate under any applicable state securities or blue sky laws to effect the
Distribution.
(c) Avalon shall comply in all respects with all applicable federal,
state and other securities or blue sky laws relating to the Distribution,
including without limitation with respect to the preparation of the Form 10, the
Form S-1 and any other securities filings relating to the Distribution.
4.3 Record Date; Distribution.
-------------------------
(a) The Board of Directors of AWS (or any duly appointed committee
thereof) shall in its sole discretion establish the record date for the
Distribution (the "Distribution Record Date"), the Distribution Date and any
appropriate procedures in connection with the Distribution (subject in each case
to the provisions of applicable law); provided, however, that, in no event will
the Distribution occur prior to such time as (i) the Form 10 and the Form S-1,
if necessary, shall have been declared effective by the SEC and (ii) the Closing
shall have occurred.
8
(b) In the Distribution, AWS shall distribute (i) to each holder of
record on the Distribution Record Date of shares of Class A Common Stock, no par
value ("AWS Class A Stock"), of AWS one share of Avalon Class A Stock for every
_____ share[s] of AWS Class A Stock so held, and (ii) to each holder of record
on the Distribution Record Date of shares of Class B Common Stock, no par value
("AWS Class B Stock"), of AWS one share of Avalon Class B Stock for every _____
share[s] of AWS Class B Stock so held, subject in each case to adjustment for
fractional shares as set forth below.
(c) On the Distribution Date, AWS shall deliver to the Distribution
Agent one or more stock certificates representing all the outstanding shares of
Avalon Common Stock and shall instruct the Distribution Agent to effect the
Distribution. Avalon shall provide all stock certificates that the Distribution
Agent may require in order to effect the Distribution.
(d) Notwithstanding any provision of this Agreement to the contrary,
no fractional shares of Avalon Common Stock shall be distributed in the
Distribution. Any such fractional share that would otherwise be distributed
shall be repurchased by Avalon as of the Distribution Date at a price determined
by the Board of Directors of Avalon based upon the HLHZ Report. Such cash shall
be distributed in the Distribution to the record holder of AWS Class A Stock or
AWS Class B Stock who would otherwise have been entitled to receive such
fractional share.
(e) Notwithstanding any provision of this Agreement to the contrary,
none of AWS, Avalon, USA Waste nor the Distribution Agent shall be liable to any
person for any amount or any shares of Avalon capital stock delivered to a
public official upon his or her request pursuant to applicable abandoned
property, escheat or similar laws.
V. COVENANTS
5.1 AWS Approval of Certain Avalon Actions. AWS shall cooperate with
--------------------------------------
Avalon in effecting, and if so requested by Avalon, AWS shall as the sole
shareholder of Avalon approve, confirm and ratify any actions that are
reasonably necessary or desirable to be taken by Avalon to effectuate, prior to
the Distribution Date the transactions contemplated by this Agreement in a
manner consistent with the terms of this Agreement, including, without
limitation, the following: (a) the election or appointment of directors and
officers of Avalon to serve in such capacities commencing on the Distribution
Date; (b) the adoption, preparation and implementation of employee benefit plans
on the Distribution Date; (c) the adoption, preparation and implementation of
salary, bonus, long-term incentive, stock-based and other similar plans,
agreements and arrangements for Avalon Employees and Avalon non-employee
directors; and (d) the registration under applicable securities laws of any
securities of Avalon to be distributed pursuant to this Agreement.
5.2 Licenses and Permits. Each party hereto shall prepare and file
--------------------
with the appropriate licensing and permitting authorities for the transfer or
issuance, as may be necessary or advisable in connection with the Contribution
and the Distribution, of all governmental
9
licenses and permits required in order for each of AWS and Avalon to operate the
Retained Businesses and the Contributed Businesses, respectively, following the
Contribution and the Distribution; provided that any associated costs and
expenses shall be borne by the party that is the beneficiary of such license or
permit.
5.3 Acts and Instruments.
--------------------
(a) Whenever reasonably requested to do so by the other party after
the Distribution Date, AWS and Avalon, respectively, shall do, execute,
acknowledge and deliver all such acts, bills of sale, assignments,
confirmations, consents and other instruments and documents, in form reasonably
satisfactory to such other party, as shall be necessary or advisable to carry
out the intent of this Agreement and to (i) vest in Avalon all the right, title
and interest of AWS in and to the Contributed Assets and (ii) effectuate the
assumption of the Assumed Liabilities by Avalon. AWS and Avalon shall take such
steps as may be required to put Avalon and AWS, respectively, in actual
possession and control of the Contributed Assets and the Retained Assets,
respectively, as of the time of Closing.
(b) Without limiting in any respect the right, title and interest in
and to the Contributed Assets to be acquired by Avalon hereunder, effective upon
the Closing, AWS hereby irrevocably authorizes Avalon and its successors and
assigns: to demand and receive, from time to time, any and all of the
Contributed Assets, to give receipts and releases for or in respect of the same,
to collect, assert or enforce any claim, right or title of any kind therein or
thereto and, for such purpose, from time to time, to institute and prosecute in
the name of AWS, or otherwise, any and all proceedings at law, in equity or
otherwise, which Avalon shall deem expedient or desirable. Likewise, Avalon
hereby irrevocably authorizes AWS and its successors and assigns to take all
actions reasonably necessary to effectuate the assumption of the Assumed
Liabilities by Avalon. Avalon shall retain for its own account any amounts
collected pursuant to the foregoing authorization, and AWS shall pay to Avalon,
if and when received (but subject to Section 5.6), any amounts that shall be
received by AWS after the Distribution Date in respect of any of the Contributed
Assets. Avalon shall pay to AWS, if and when received (but subject to Section
5.6), any amounts that shall be received by Avalon after the Distribution Date
in respect of the Retained Businesses.
5.4 Correspondence. AWS hereby authorizes Avalon, on and after the
--------------
Distribution Date, to receive and open mail addressed to AWS and to deal with
the contents thereof in a responsible manner; provided, that such mail relates
(or reasonably appears to relate) to the Contributed Businesses, the Contributed
Assets or the Assumed Liabilities. Avalon shall promptly deliver to AWS any mail
that relates (or reasonably appears to relate) to the Retained Businesses or the
Retained Liabilities addressed to AWS which is delivered to and received by it.
Avalon hereby authorizes AWS, on and after the Distribution Date, to receive and
open mail addressed to Avalon and to deal with the contents thereof in a
responsible manner; provided, that such mail relates (or reasonably appears to
relate) to the Retained Businesses or the Retained Liabilities. AWS shall
promptly deliver to Avalon any mail that relates (or reasonably appears to
relate) to the Contributed Businesses, the Contributed Assets or the Assumed
Liabilities addressed to Avalon which is delivered to and received by it.
10
5.5 Further Assistance. In addition to the actions specifically
------------------
provided for elsewhere in this Agreement, each of the parties hereto shall use
commercially reasonable efforts 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, including,
without limitation, using commercially reasonable efforts to obtain the consents
and approvals to enter into any amendatory agreements and to make the filings
and applications necessary or desirable to have been obtained, entered into or
made in order to consummate the transactions contemplated by this Agreement.
5.6 Settlement for Cash Collections and Disbursements. For each
-------------------------------------------------
calendar month, commencing with the month in which the Closing occurs and
continuing until determined by the parties no longer to be necessary, Avalon and
AWS shall cause all cash collections and cash disbursements received by Avalon
and its subsidiaries for the benefit of AWS and its subsidiaries, or by AWS and
its subsidiaries for the benefit of Avalon and its subsidiaries, during the
relevant month to be remitted to the party entitled to the benefit thereof as
promptly as reasonably possible after the receipt thereof.
5.7 Insurance. On or before the Distribution Date, AWS shall transfer
---------
and assign to Avalon all of AWS's insurance policies, other than the directors'
and officers' indemnification insurance. If any such policy by its terms may not
be assigned, it is the intent of the parties that Avalon receive the benefit of
any coverage under any insurance policy. AWS, at Avalon's expense, shall keep
such policy in effect during the remaining term of the policy and refrain from
taking any actions (other than making a claim) which may affect Avalon's
entitlement to the benefits of, or coverage under, such policy. With respect to
any such policies, AWS shall seek to have Avalon and its subsidiaries named as
insureds with respect to occurrences prior to the Distribution Date, at Avalon's
expense, if requested to do so by Avalon. Notwithstanding the foregoing, AWS
shall receive, to the extent such benefits may be available, the benefit of all
insurance policies of AWS existing prior to the Closing to the extent such
insurance covers Retained Liabilities, and the parties will enter into
commercially reasonable arrangements to effect the provisions of this sentence.
5.8 Covenant Not to Compete.
-----------------------
(a) During the period of time that begins on the Closing Date (as
defined in the Merger Agreement) and ends on the third anniversary thereof (the
"Covenant Period"), Avalon agrees that it will not, directly or indirectly,
(i) carry on or be engaged in (whether for its own account or
for the account of any other person, other than AWS or USA Waste), the
collection of refuse or garbage, or the disposal of non-hazardous solid
waste, from any source located within a 100-mile radius of American
Landfill, Mahoning Landfill or East Liverpool Landfill; or
(ii) share in the earnings of, beneficially own or hold any
security issued by, or otherwise own or hold any interest in, any person
who or which owns or
11
operates a landfill within a 100-mile radius American Landfill, Mahoning
Landfill, or East Liverpool Landfill.
(b) Without limiting the generality of the provisions of this Section
5.8, Avalon shall be deemed to be engaged in a particular business if it
(whether alone or in association with one or more other persons) is an owner,
partner, stockholder, independent contractor or joint venturer of, or a lender
to, or an investor in, any person who or which is directly engaged in any such
business.
(c) Notwithstanding the foregoing provisions of this Section 5.8, (i)
Avalon may own, directly or indirectly, solely as an investment, securities if
Avalon is not an affiliate of the issuer of such securities and does not,
directly or indirectly, beneficially own more than 5% of the class of which such
securities are a part, (ii) Avalon may, directly or indirectly, engage in the
provision of technical and engineering services, transportation, and equipment
sales and leasing, (iii) Avalon may, directly or indirectly, engage in the
management or operation of captive landfills, such as the management of the
landfill in Ashtabula, Ohio, and (iv) Avalon may, directly or indirectly, engage
in the disposal and brokerage of disposal of non-hazardous solid waste which is
generated within (or is deposited at a transfer station owned or operated by
Avalon or its subsidiaries within) such 100-mile radius, so long as Avalon shall
provide AWS or USA Waste the right to make a proposal for disposal of any such
waste and Avalon shall be obligated to accept such proposal if the disposal rate
quoted by AWS for such waste plus the bona fide costs to be incurred by Avalon
in transporting such waste to the applicable landfill of AWS is less than or
equal to the total of the lowest bona fide disposal rate quoted by a third party
for such waste plus the bona fide costs to be incurred by Avalon in transporting
such waste to the applicable landfill of such third party. For purposes of this
Section 5.8, a captive landfill includes a landfill that was a captive landfill
on the date Avalon or its subsidiary commences management or operation thereof,
but that subsequently accepts waste from third parties so long as Avalon or its
subsidiary does not directly or indirectly solicit, sell or market disposal of
waste from any third party.
(d) Avalon acknowledges that if it violates or threatens to violate
any of the provisions of this Section 5.8, AWS and USA Waste may have no
adequate remedy at law. In that event, AWS and USA Waste shall have the right,
in addition to any other rights that may be available to them, to obtain in any
court of competent jurisdiction injunctive relief (without the necessity of
posting bond) to restrain any violation or threatened violation by Avalon of any
provision of this Section 5.8 or to compel specific performance by Avalon of one
or more of its obligations under this Section 5.8. The seeking or obtaining by
AWS or USA Waste of such injunctive relief shall not foreclose or in any way
limit the right of AWS or USA Waste to obtain a money judgment against Avalon
for any damage to AWS or USA Waste that may result from any breach by Avalon of
any provision of this Section 5.8.
(e) Avalon acknowledges that the covenants contained in this Section
5.8 are reasonable in geographical and temporal scope and in all other respects.
If any court determines that any of such covenants, or any part thereof, are
unenforceable, then (i) the remainder of such covenants shall not be affected by
such determination and (ii) those of such covenants that are
12
determined to be unenforceable because of the duration or scope thereof may be
reformed by the court to reduce their duration or scope so as to render the same
enforceable against Avalon.
5.9 Access to Information.
---------------------
(a) Each of AWS and Avalon shall use commercially reasonable efforts
to arrange, as soon as practicable following the Distribution Date, for the
delivery to the other party of the relevant portions of all corporate books and
records. AWS shall retain in its possession all relevant portions of the
corporate books and records relating directly and primarily to the Retained
Businesses, Retained Employees or Retained Liabilities, including all active
agreements, files and government filings and licenses, and all AWS general
corporate books and records. From and after the Distribution Date, all such
books, records and copies shall be the property of AWS. Avalon shall retain in
its possession all relevant portions of all books and records of AWS relating
directly and primarily to the Contributed Businesses, Avalon Employees,
Terminated Employees, Contributed Assets and Assumed Liabilities, including all
active agreements, files and government filings and licenses. From and after
the Distribution Date, all such books, records and copies referred to in the
preceding sentence shall be the property of Avalon. Any material containing
incidental information relating to the Retained Businesses, but relating
primarily to the Contributed Businesses, shall be retained by Avalon. Any
material containing incidental information relating to the Contributed
Businesses, but relating primarily to the Retained Businesses, shall be retained
by AWS.
(b) From and after the Distribution Date, each of AWS and Avalon
shall afford to the other and its authorized accountants, counsel and other
designated representatives reasonable access during normal business hours,
subject to appropriate restrictions for confidential information, to the
personnel, properties, books and records of such party and its subsidiaries
insofar as such access is reasonably required by the other party. Each of AWS
and Avalon also shall afford each other the right to have access to any of their
respective employees who may be relevant in connection with the conduct of their
respective businesses, including without limitation with respect to financial
and accounting requirements, employee benefit plan and ERISA matters, tax
requirements (including with respect to the preparation of any tax returns), and
requirements of applicable securities laws. Each of AWS and Avalon shall
preserve until the 10th anniversary of the Distribution Date all of the
foregoing records; provided, however, that such records may be destroyed by a
party if such party sends to the other party written notice of its intent to
destroy records, specifying with particularity the contents of the records to be
destroyed. Such records may then be destroyed after the 30th day after such
notice is given unless the other party objects to the destruction, in which case
the party seeking to destroy the records shall deliver such records to the
objecting party, subject to appropriate restrictions for confidential
information by the other party, and the right (subject to appropriate
restrictions for confidential information) to make copies of books and records
of such party.
(c) At all times from and after the Distribution Date, AWS or Avalon,
as applicable, shall use commercially reasonable efforts to make available to
the other upon written request its and its subsidiaries' officers, directors,
employees and agents as witnesses, subject to appropriate restrictions for
confidential information, to the extent that such persons may
13
reasonably be required in connection with any Actions in which the requesting
party may from time to time be involved (without reimbursement for such persons'
salaries).
(d) At all times from and after the Distribution Date, AWS or Avalon,
as applicable, shall use commercially reasonable efforts to make available to
the other upon written request, subject to appropriate restrictions for
confidential information, its and its subsidiaries' records, books, contracts,
instruments, computer data and other data which may reasonably be required in
connection with any Actions in which the requesting party may from time to time
be involved.
(e) AWS and its subsidiaries shall hold, and shall cause its
employees, agents, consultants and advisors to hold, in strict confidence, using
the same efforts it uses protecting its own confidential and proprietary
information, all confidential or proprietary information concerning the
Contributed Businesses in its possession (except to the extent that such
information (i) is in the public domain or becomes publicly known through no
wrongful act of AWS, USA Waste or any of their respective subsidiaries or any of
its employees, agents, consultants or advisors, (ii) is received from a party
who is under no confidentiality or secrecy obligation with respect thereto, or
(iii) is disclosed pursuant to governmental or judicial requirements). Avalon
and its subsidiaries shall hold, and shall cause its employees, agents,
consultants and advisors to hold, in strict confidence, using the same efforts
it uses protecting its own confidential and proprietary information, all
confidential or proprietary information concerning the Retained Businesses in
its possession (except to the extent that such information (i) is in the public
domain or becomes publicly known through no wrongful act of Avalon or any of its
subsidiaries or any of its employees, agents, consultants or advisors, (ii) is
received from a party who is under no confidentiality or secrecy obligation with
respect thereto, or (iii) is disclosed pursuant to governmental or judicial
requirements).
(f) Each of AWS and Avalon shall provide the other party with such
cooperation and information, including, without limitation, all records, books,
contracts, instruments, computer data and other data, as may be reasonably
requested by the other in connection with the preparation or filing of any
government report or other government filing contemplated by this Agreement or
in conducting any other government proceeding relating to pre-Distribution
events. Such cooperation and information shall include, without limitation,
promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any governmental authority to the
appropriate party. Each party shall make its employees and facilities available
during normal business hours and on reasonable prior notice to provide
explanation of any documents or information provided hereunder.
5.10 Certain Transaction Costs. Avalon shall pay all taxes and other
-------------------------
governmental assessments, charges or levies, costs of title insurance and other
conveyance costs which arise or are incurred in connection with the contribution
of the Contributed Assets to Avalon, including, without limitation, all sales,
value-added, registration, transfer (including documentary and stamp) or similar
taxes, whether domestic or foreign, but excluding any taxes based upon AWS's
income.
14
5.11 Certain Agreements. Set forth on Schedule 5.11 is a list of all
------------------
contracts and agreements (and outstanding bids and quotations, which if
accepted, would fall within this sentence) pursuant to which (i) one of the
Retained Subsidiaries or AWS is a party and under which one of the Contributed
Subsidiaries directly or indirectly (e.g., by rendering services or providing
products to a Retained Subsidiary or AWS which are then used by such Retained
Subsidiary or AWS to render services or provide products or disposal space to
the third party) renders services or provides products or disposal space to the
third party who is a party thereto or (ii) one of the Contributed Subsidiaries
is a party and under which one of the Retained Subsidiaries or AWS directly or
indirectly (e.g., by rendering services or providing products or disposal space
to a Contributed Subsidiary which are then used by such Contributed Subsidiary
to render services or provide products or disposal space to the third party)
renders services or provides products or disposal space to the third party who
is a party thereto (which contracts, agreements, bids and quotations, together
with contracts, agreements, bids and quotations entered into or made in the
ordinary course of business after the date of this Agreement and prior to the
Closing and which would fall within the foregoing categories shall be referred
to herein as the "Subcontract Agreements"). After the Distribution Date, the
Retained Subsidiary, AWS or the Contributed Subsidiary, as the case may be, that
is a party to any such Subcontract Agreement shall not agree to any amendment of
any of the terms thereof that would affect adversely the Contributed Subsidiary,
AWS or the Retained Subsidiary providing goods or disposal space or rendering
services thereunder without the prior written consent of such entity. After the
Distribution Date, the Retained Subsidiary, AWS, or the Contributed Subsidiary,
as the case may be, that is providing goods or disposal space or rendering
services under any such Subcontract Agreement on the date of this Agreement
shall continue to provide such goods or disposal space or render such services
on substantially the same terms as they are being provided or rendered on the
date of this Agreement, and shall otherwise reasonably cooperate in the
performance of each applicable Subcontract Agreement, for the remainder of the
term of the applicable Subcontract Agreement and payments shall be made in
accordance with the terms of such Subcontract Agreements.
5.12 Transitional Services Agreement. On the Distribution Date, AWS
-------------------------------
and Avalon shall, if requested by AWS, enter into an agreement that shall
provide that Avalon will provide certain reasonable administrative, record
keeping, billing, accounting and similar services, including use of facilities
owned by Dart America, Inc. for certain specified purposes, to AWS and the
Retained Subsidiaries under terms and conditions mutually acceptable to Avalon
and AWS, and approved by USA Waste (the "Transitional Services Agreement").
5.13 Proration of Expenses. Real property taxes and utilities with
---------------------
respect to the Contributed Realty, and prepaid insurance, deposits and premiums
and other prepaid expenses and deferred charges, shall be prorated as of the
date of the Closing.
5.14 Consent to Use of Corporate Names. The parties acknowledge and
---------------------------------
agree that each Contributed Subsidiary owns its corporate name and the good will
of its business associated therewith and, following the Closing, USA Waste and
its affiliates shall not object to or challenge the continued use of the current
corporate name of any Contributed Subsidiary.
15
5.15 Transfer of Envirco Property. On or before the Closing, AWS
----------------------------
shall cause Envirco Transportation Management, Inc. ("Envirco") to convey to AWS
as a dividend the real property located in Waynesburg, Ohio owned by Envirco,
and AWS will convey such property to American Landfill, Inc. as a capital
contribution.
5.16 Mutual Releases. On the Distribution Date, each of AWS and
---------------
Avalon will release (and will cause their respective subsidiaries to release)
any and all claims that such party (and its subsidiaries) may have against the
other party (and its subsidiaries) as of the Distribution Date, other than
claims (a) arising from this Agreement and the transactions contemplated hereby,
(b) arising under the Subcontract Agreements after the date hereof, and (c)
intercompany payables reflected on their respective financial statements and
those thereafter incurred in the ordinary course of business.
VI. CONDITIONS
6.1 General Condition. The respective obligations of each party
-----------------
hereto to consummate the Closing and to perform all other obligations set forth
herein are subject to (a) the satisfaction or waiver (as provided for therein)
of all of the conditions set forth in Sections 9.1, 9.2 and 9.3 of the Merger
Agreement and (b) the obtaining, filing or occurrence of all authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations of waiting periods imposed by, any governmental entity or other
public or private entity if the failure of any such event to occur would have a
material adverse effect on Avalon or AWS.
6.2 Conditions to the Obligations of AWS. The obligations of AWS to
------------------------------------
consummate the Closing and to perform all other obligations set forth herein are
subject to the satisfaction or waiver of the condition that Avalon shall have
fulfilled all of its covenants set forth herein.
6.3 Conditions to the Obligations of Avalon. The obligations of Avalon
---------------------------------------
to consummate the Closing and to perform all other obligations set forth herein
are subject to the satisfaction or waiver of the condition that AWS shall have
fulfilled all of its covenants set forth herein.
VII. INDEMNIFICATION
7.1 Indemnification by Avalon. Avalon shall defend, indemnify and
-------------------------
hold harmless USA Waste and AWS and each of their subsidiaries and their
respective officers, directors, employees, agents, successors and assigns
(collectively, the "AWS Indemnified Persons") from and against, and shall
reimburse the AWS Indemnified Persons for, each and every Loss (as defined
below) relating to, resulting from, or arising out of (i) any Assumed Liability,
or (ii) the breach of any covenant or agreement of Avalon pursuant to this
Agreement. With respect to matters not involving Actions brought or asserted by
third parties, within five days after notification from AWS Indemnified Persons
supported by reasonable documentation setting forth the nature of the
circumstances entitling AWS Indemnified Persons to indemnity hereunder,
16
Avalon, at no cost or expense to AWS Indemnified Persons, shall diligently
commence resolution of such matters in a manner reasonably acceptable to AWS
Indemnified Persons and shall diligently and timely prosecute such resolution to
completion; provided, however, that with respect to those claims that may be
satisfied by payment of a liquidated sum of money, Avalon shall promptly pay the
amount so claimed to the extent supported by reasonable documentation. If any
Action is commenced or threatened, the provisions of Section 7.3 shall control.
7.2 Indemnification by AWS. AWS shall defend, indemnify and hold
----------------------
harmless Avalon and each of its subsidiaries and their respective officers,
directors, employees, agents, successors and assigns (collectively, the "Avalon
Indemnified Persons") from and against, and shall reimburse the Avalon
Indemnified Persons for, each and every Loss relating to, resulting from, or
arising out of (i) any Retained Liability or (ii) the breach of any covenant or
agreement of AWS or USA Waste pursuant to this Agreement. With respect to
matters not involving Actions brought or asserted by third parties, within five
days after notification from the Avalon Indeminified Persons supported by
reasonable documentation setting forth the nature of the circumstances entitling
the Avalon Indemnified Persons to indemnity hereunder, AWS, at no cost or
expense to the Avalon Indemnified Persons, shall diligently commence resolution
of such matters in a manner reasonably acceptable to the Avalon Indemnified
Persons and shall diligently and timely prosecute such resolution to completion;
provided, however, that with respect to those claims that may be satisfied by
payment of a liquidated sum of money, AWS shall promptly pay the amount so
claimed to the extent supported by reasonable documentation. If any Action is
commenced or threatened, the provisions of Section 7.3 shall control.
Notwithstanding the foregoing, AWS shall have no obligations under this Section
7.2 with respect to any Losses arising from a breach by AWS of any of its
representations, warranties or covenants in the Merger Agreement without regard
to any materiality limitation thereunder.
7.3 Notice and Defense of Third-Party Claims. If any Action shall be
----------------------------------------
brought or asserted under this Article VII against an indemnified party or any
successor thereto (the "Indemnified Person") in respect of which indemnity may
be sought under this Article VII from an indemnifying person or any successor
thereto (the "Indemnifying Person"), the Indemnified Person shall give prompt
written notice of such Action to the Indemnifying Person who shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Person and the payment of all expenses; provided, that any delay
or failure so to notify the Indemnifying Person shall relieve the Indemnifying
Person of its obligations hereunder only to the extent, if at all, that it is
prejudiced by reason of such delay or failure. The Indemnified Person shall have
the right to employ separate counsel in any Action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Indemnified Person unless the Indemnified Person shall in good
faith determine that there exist actual or potential conflicts of interest which
make representation by counsel for the Indemnifying Person inappropriate. The
Indemnified Person's right to participate in the defense or response to any
Action shall not be deemed to limit or otherwise modify its rights under this
Article VII. In the event that the Indemnifying Person, within five days after
notice of any such Action, fails in writing to assume the defense thereof, the
Indemnified Person shall have the right to undertake the defense, compromise or
settlement of such Action for the account
17
of the Indemnifying Person, subject to the right of the Indemnifying Person to
assume the defense of such Proceeding with counsel reasonably satisfactory to
the Indemnified Person at any time prior to the settlement, compromise or final
determination thereof. Anything in this Article VII to the contrary
notwithstanding, the Indemnifying Person shall not, without the Indemnified
Person's prior written consent, settle or compromise any Action or consent to
the entry of any judgment with respect to any Action for anything other than
money damages paid by the Indemnifying Person. The Indemnifying Person may,
without the Indemnified Person's prior written consent, settle or compromise any
such Action or consent to entry of any judgment with respect to any such Action
that requires solely the payment of money damages by the Indemnifying Person and
that includes as an unconditional term thereof the release by the claimant or
the plaintiff of the Indemnified Person from all liability in respect of such
Action.
7.4 Limitations. Avalon shall have no liability under this Article VII
-----------
unless notice of a claim for indemnity with respect to an indemnifiable Loss in
any way related to a Terminated Employee shall have been given within two years
after the Distribution Date.
7.5 Payment; Interest. The Indemnifying Party shall make any payment
-----------------
required to be made under this Article VII in cash and on demand. Any Losses or
other payments required to be paid by an Indemnifying Party under this Article
VII that are not paid within five business days of receipt by the Indemnifying
Party of the Indemnified Party's demand therefor shall thereafter be deemed
delinquent, and the Indemnifying Party shall pay to the Indemnified Party
immediately upon demand interest at a rate equal to the prime rate as quoted in
the Wall Street Journal, as such rate may change from time to time during the
period as to which such interest is calculated, plus 3%, from the date such
payment becomes delinquent to the date of payment of such delinquent sum.
7.6 Definitions. For purposes of this Article VII and subject to the
-----------
provisions of Section 1.3(b) hereof, "Loss" means any loss, damage, injury,
harm, detriment, decline in value, Liability, exposure, claim, demand,
Proceeding, settlement, judgment, award, punitive damage award, fine, penalty,
fee, charge, cost or expense (including, without limitation, reasonable costs of
attempting to avoid or in opposing the imposition thereof, interest, penalties,
costs of preparation and investigation, and the reasonable fees, disbursements
and expenses of attorneys, accountants and other professional advisors), as well
as, with respect to compliance with the requirements of environmental laws,
expenses of remediation and any other remedial, removal, response, abatement,
cleanup, investigative, monitoring, or record keeping costs and expenses.
VIII. MISCELLANEOUS
8.1 Termination. This Agreement (a) may be terminated at any time
-----------
prior to the Distribution Date by mutual written consent of AWS and USA Waste,
or (b) shall terminate upon termination of the Merger Agreement prior to the
Merger.
8.2 Entire Agreement. This Agreement, together with the schedules and
----------------
exhibits hereto and the Confidentiality Agreement, the Tax Allocation Agreement
and the Transitional
18
Services Agreement (if any), sets forth the entire understanding of the parties
with respect to its subject matter, and merges and supersedes all prior
understandings of the parties hereto with respect to its subject matter.
8.3 Third-Party Rights. USA Waste shall be a third-party beneficiary
------------------
of this Agreement, with the right to enforce the obligations of any party
hereto. Other than USA Waste, no person or entity other than the parties hereto,
including, without limitation, any former or present employee of Avalon or AWS
or any of their subsidiaries (including any assignee or beneficiary thereof),
shall have any rights with respect to any obligations of any entity under this
Agreement, the Confidentiality Agreement, the Tax Allocation Agreement or the
Transitional Services Agreement (including the documents and instruments
referred to herein and therein), and nothing in this Agreement, the
Confidentiality Agreement, the Tax Allocation Agreement or the Transitional
Services Agreement (including the documents and instruments referred to herein
and therein), expressed or implied, is intended to confer on any such person any
rights or remedies.
8.4 Amendments. This Agreement (including the schedules hereto) may
----------
be amended by the parties hereto at any time prior to the Distribution Date,
with the prior written consent of USA Waste. Any such amendment shall be in
writing signed on behalf of the party or parties to be charged. Any time prior
to the Distribution Date, any party hereto may waive compliance by the other
party or parties with any of the agreements or conditions contained in this
Agreement, with the prior written consent of USA Waste. Any agreement on the
part of a party to any such waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to assert any of its rights under or to enforce any provision of this Agreement
shall not constitute a waiver of its rights under such provision or any other
provision.
8.5 Communications. All notices, consents and other communications
--------------
given under this Agreement shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand or by Federal Express or a similar
overnight courier to, (b) five days after being deposited in any United States
Post Office enclosed in a postage prepaid registered or certified envelope
addressed to, or (c) when successfully transmitted by telecopier (with a
confirming copy of such communication to be sent as provided in clauses (a) or
(b) above) to, the party for whom intended, at the address or telecopier number
for such party set forth below, or to such other address or telecopier number as
may be furnished by such party by notice in the manner provided in this Section
8.5; provided, however, that any notice of change of address or telecopier
number shall be effective only upon receipt.
If to AWS prior to the Closing Date:
American Waste Services, Inc.
One American Way
Warren, OH 44484
Attention: Ronald E. Klingle
(330) 856-8483 (Facsimile)
19
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Attention: Sanford B. Ferguson
(412) 355-6501 (Facsimile)
If to USA Waste at any time or AWS after the Closing Date:
USA Waste Services, Inc.
1001 Fannin, Suite 4000
Houston, TX 77002
Attention: Chief Executive Officer
(713) 209-9711 (Facsimile)
with a copy to:
Gregory T. Sangalis
1001 Fannin, Suite 4000
Houston, TX 77002
(713) 209-9711 (Facsimile)
and
Marcus A. Watts
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
600 Travis
Houston, TX 77002
(713) 223-3717 (Facsimile)
If to Avalon at any time:
Avalon Holdings Corporation
One American Way
Warren, OH 44484
Attention: Ronald E. Klingle
(330) 856-8433 (Facsimile)
20
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Attention: Sanford B. Ferguson
(412) 355-6501 (Facsimile)
Prior to the Closing Date, USA Waste shall receive copies of all notices given
hereunder by any party at the address set forth above.
8.6 Successors and Assigns. This Agreement shall be binding on,
----------------------
enforceable against and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither party may assign its rights
or delegate its obligations under this Agreement without the express written
consent of the other party.
8.7 Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED IN
---------------------------
ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE. THE EXCLUSIVE VENUE FOR THE ADJUDICATION OF ANY DISPUTE OR
PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE PERFORMANCE THEREOF SHALL BE THE
COURTS LOCATED IN THE STATE OF DELAWARE AND THE PARTIES HERETO AND THEIR
AFFILIATES EACH CONSENT TO AND HEREBY SUBMIT TO THE JURISDICTION OF ANY COURT
LOCATED IN SUCH STATE.
8.8 Savings Clause. If any provision of this Agreement is held to be
--------------
invalid or unenforceable by any court or tribunal of competent jurisdiction,
the remainder of this Agreement shall not be affected thereby, and such
provision shall be carried out as nearly as possible according to its original
terms and intent to eliminate such invalidity or unenforceability.
8.9 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.10 Construction. Headings contained in this Agreement are for
------------
convenience only and shall not be used in the interpretation of this Agreement.
References herein to the Agreement shall be deemed to include all Schedules
hereto, and references herein to Articles, Sections, and Schedules are to the
articles, sections and schedules of this Agreement. As used herein, the singular
includes the plural, and the masculine, feminine and neuter gender each includes
the others where the context so indicates.
[The remainder of this page intentionally left blank.]
21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AMERICAN WASTE SERVICES, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
AVALON HOLDINGS CORPORATION
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
22
SCHEDULE 1.1 A: CONTRIBUTED ASSETS
All real property (including, without limitation, land, land improvements,
fixtures, buildings and improvements) owned in fee in Warren, Ohio and
Bridgeport, West Virginia (the "Contributed Realty").
All cash on the balance sheet of AWS as of the Distribution Date (excluding
cash held by Retained Subsidiaries) but prior to the occurrence of the
transactions set forth in Section 3.6 of the Merger Agreement (other than cash
proceeds of the Primary USA Loan).
All communication equipment, office furniture and equipment, fixtures,
computer equipment and software owned or leased by AWS.
All contracts, agreements, equipment leases, software licenses, licenses
and other instruments of or relating to the Contributed Businesses or the
Nonessential Assets (the "Assigned Instruments").
All United States and foreign patents, patent applications, patent
disclosures, industrial designs, and inventions (whether or not patentable and
whether or not reduced to practice); all United States and foreign registered
and unregistered trademarks, service marks, domain names, licenses, logos, sales
materials and trade names; all registrations, applications and renewals of any
of the foregoing; all trade secrets, confidential information, know-how,
customer lists, software, formulae, manufacturing and production processes and
techniques, mask works, research and development information, product
designations, quality standards, investigations, drawings, specifications,
designs, plans, improvements, proposals, technical and computer data; all
license agreements and sublicense agreements to and from third parties relating
to any of the foregoing; and all other proprietary rights (collectively,
"Intellectual Property") of AWS or any of the Contributed Businesses other than
(with respect to all of the foregoing) that which is currently used by any of
the Retained Subsidiaries.
Golf course memberships.
Rights relating to sponsorship of the LPGA Golf Tournament at Avalon Lakes
Golf Course.
Originals or true and complete copies of all books and records, including
customer and supplier lists, employee records and tax records relating to the
Contributed Businesses
All assets of any kind related to the hazardous waste transportation
business.
To the extent transferable, all governmental licenses, permits,
authorizations, consents and approvals required to carry on the Contributed
Businesses.
All prepaid expenses and deferred charges, prepaid insurance deposits and
insurance premiums relating to the Contributed Businesses.
All insurance policies of AWS as provided in Section 5.7 hereof.
All Contributed Net Intercompany Receivables (as defined in the Merger
Agreement).
Originals or true and correct copies of all proprietary or confidential
business or technical information, records and policy statements of AWS, that
relate to the Contributed Businesses, including accounting procedures,
instructions, organizational manuals, strategic plans and other documents or
materials of a general nature. Avalon and AWS will enter into appropriate
confidentiality restrictions with respect to same.
All other property and assets of AWS not included within the definition of
Retained Assets or Retained Subsidiaries.
Any cash to be contributed in accordance with Section 3.6(e) of the Merger
Agreement.
SCHEDULE 1.1 B: CONTRIBUTED SUBSIDIARIES
American Landfill Management, Inc.
American Waste Management Services, Inc.
Antech Ltd.
Avalon Lakes Golf, Inc. and its direct and indirect wholly owned subsidiaries
AWMS, Inc.
AWS Remediation, Inc.
Clean Fill, Inc.
DartAmerica, Inc. and its direct and indirect wholly owned subsidiaries
Eagle Fidelity Insurance Company
Earth Sciences Consultants, Inc. and its direct and indirect wholly owned
subsidiaries
Envirco Transportation, Inc.
Envirco Transportation Management, Inc.
SCHEDULE 1.2 A: RETAINED ASSETS
The name "American Waste Services, Inc." and all associated good will.
Originals or true and complete copies of all books and records, including
customer and supplier lists, employee records and tax records relating to the
Retained Businesses.
All insurance policies of AWS relating to director and officer liability.
All accounts receivable held by AWS where the debtor is a Retained Subsidiary to
the extent that such accounts receivable do not constitute Contributed Net
Intercompany Receivables, including all accrued interest owed to AWS on account
of the intercompany payables owed by any Retained Subsidiary.
All contracts, agreements, equipment leases, software licenses, licenses and
other instruments other than the Assigned Instruments.
All governmental licenses, permits, authorizations, consents and approvals
required to carry out the Retained Businesses.
Originals or true and correct copies of all proprietary or confidential business
or technical information, records and policy statements of AWS, that relate to
the Retained Businesses, including accounting procedures, instructions,
organizational manuals, strategic plans and other documents or materials of a
general nature. AWS and Avalon will enter into appropriate confidentiality
restrictions with respect to same.
Any cash that is not included as a Contributed Asset and is proceeds of the
Primary USA Loan after the contributions contemplated by Section 3.6 of the
Merger Agreement, including any amounts that may be reserved to pay the
Distribution Tax.
SCHEDULE 1.2 B: RETAINED SUBSIDIARIES
American Landfill, Inc.
American Landfill Gas Company
American Waste, Inc. (and its wholly owned subsidiaries, American Waste of
Mahoning Valley, Inc., American Waste of Cleveland, Inc., and American Waste of
Northeast Ohio, Inc.)
East Liverpool Landfill, Inc.
Mahoning Landfill, Inc. (and its wholly owned subsidiary, SLF Development, Inc.)
SCHEDULE 5.11: CERTAIN AGREEMENTS
1. See attached Exhibit 5.11.
2. Other bids, quotations and agreements of the type defined in Section
5.11 which were issued or entered into in the ordinary course of
business by AWS, one or more Contributed Subsidiaries and/or one or
more Retained Subsidiaries (whether before or after the date of the
Contribution and Distribution Agreement, but in all events prior to
the Distribution)
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (this "Agreement"), dated as of __________,
1998 among American Waste Services, Inc., an Ohio corporation (the "AWS"),
Avalon Holdings Corporation, a Delaware corporation and a wholly owned
subsidiary of AWS ("Avalon"), and USA Waste Services, Inc., a Delaware
corporation ("USA").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, AWS, USA, and C&S Ohio Corp., an Ohio corporation and a wholly
owned subsidiary of USA ("Sub") have entered into an Agreement and Plan of
Merger dated as of February 6, 1998 (the "Merger Agreement"), providing for the
Merger (as defined in the Merger Agreement) of Sub with and into AWS;
WHEREAS, the Board of Directors of AWS has approved a Contribution and
Distribution Agreement in the form attached to the Merger Agreement (the
"Distribution Agreement");
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Merger Agreement to
consummate the Merger;
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Distribution Agreement
to consummate the Contribution and Distribution (as defined in the Distribution
Agreement); and
WHEREAS, USA and AWS, on behalf of each of them and the AWS Group (as
defined herein) and Avalon, on behalf of itself and the Avalon Group (as defined
herein), wish to provide for the allocation between the AWS Group and the Avalon
Group of all responsibilities, liabilities and benefits relating to or affecting
Taxes (as defined herein) paid or payable by either of them for all taxable
periods, whether beginning before, on or after the Distribution Date (as defined
herein) and to provide for certain other matters.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used in this Agreement and
not otherwise defined herein shall have the meanings assigned to such terms in
the Merger Agreement or the Distribution Agreement, as the case may be. As used
in this Agreement, the following terms shall have the following respective
meanings:
1
"Actually Realized" or "Actually Realizes" means, for purposes of
determining the timing of any Taxes (or related Tax cost or benefit) relating to
any Payment, transaction, occurrence or event (including the receipt of any Tax
Refund), the time at which the amount of Taxes payable by such person is
increased above or reduced below, as the case may be, the amount of Taxes that
such person would be required to pay but for such payment, transaction,
occurrence or event.
"Affiliate" means with respect to each of the parties hereto, (i) a
corporation, partnership, limited liability company, trust, joint venture or
other business entity in which 50% or more of the outstanding equity or voting
power is owned (directly or indirectly) by such party, and (ii) a partnership in
which a general partner interest is owned by such party. For purposes of this
Agreement, in no event shall AWS or Avalon be treated as an Affiliate of the
other.
"Affiliated Group" means the affiliated group of corporations within the
meaning of Section 1504 of the Code of which AWS is the common parent.
"Code" means the Internal Revenue Code of 1986, as amended, and shall
include corresponding provisions of any subsequently enacted Federal Tax laws.
"The AWS Group" means, solely for purposes of this Agreement, AWS and its
Affiliates, other than Avalon and its Affiliates (determined after giving effect
to the Contribution and Distribution) and, for Post-Tax Indemnification Periods,
shall include USA and its Affiliates.
"AWS Tax Difference" has the meaning set forth in Section 4.1(b).
"AWS Tax Item" means a Tax Item that is attributable to the AWS Group and
is not a Avalon Tax Item.
"Consolidated Federal Tax Returns" are the Federal Tax Returns for the
Affiliated Group filed on a consolidated basis pursuant to Section 1501 of the
Code for any Pre-Distribution Taxable Period.
"Consolidated State Tax Returns" are the state Tax Returns for the
Affiliated Group filed on a consolidated, unitary or combined basis pursuant to
the laws of any state Taxing Authority for any Pre-Distribution Taxable Period.
"Distribution Date" means the date on which the Distribution occurs or is
deemed to occur for Federal Income Tax purposes and shall be deemed effective as
of the close of business on such date.
"Group" means either the AWS Group or the Avalon Group, as the context
provides.
"Income Tax Benefit" means for any taxable period the excess of (i) the
Income Tax liability of the taxpayer for the taxable period calculated as if the
Timing Difference or Reverse
2
Timing Difference, as the case may be, had not occurred but with all other facts
unchanged, over (ii) the Income Tax liability of the taxpayer for the taxable
period, calculated taking into account the Timing Difference or Reverse Timing
Difference, as the case may be (treating an Income Tax Refund as a negative
Income Tax liability for purposes of such calculation).
"Income Tax Detriment" means for any taxable period the excess of (i) the
Income tax liability of the taxpayer for the taxable period, calculated taking
into account the Timing Difference or Reverse Timing Difference, as the case may
be, over (ii) the Income Tax liability of the taxpayer for the taxable period,
calculated as if the Timing Difference or Reverse Timing Difference, as the case
may be, had not occurred but with all other facts unchanged (treating an Income
Tax Refund as a negative Income Tax liability for purposes of such calculation).
"Income Taxes" means any Tax based upon, measured by, or calculated with
respect to (i) net income or profits (including, but not limited to, any capital
gains, alternative minimum Tax and any Tax on items of Tax preference, but not
including sales, use, real property gains, real or personal property, gross or
net receipts, transfer or similar Taxes) or (ii) multiple bases (including, but
not limited to, corporate franchise, doing business or occupation Taxes) if one
or more of the bases upon which such Tax may be based, measured by, or
calculated with respect to, is described in clause (i) above.
"Indemnitee" has the meaning set forth in Section 5.2.
"Indemnitor" has the meaning set forth in Section 5.2.
"Indemnity Issue" has the meaning set forth in Section 5.2.
"IRS" means the Internal Revenue Service.
"Loss Group" has the meaning set forth in Section 4.1(a)(ii).
"Post-Distribution Taxable Period" means a taxable period beginning after
the Distribution Date.
"Post-Tax Indemnification Period" means any Post-Distribution Taxable
Period and that portion of any Straddle Period that begins on the day after the
Distribution Date.
"Pre-Distribution Taxable Period" means a taxable period ending on or
before the Distribution Date.
"Pro Forma Tax Returns" has the meaning set forth in Section 2.1(c).
"Reverse Timing Difference" means an increase in income, gain or recapture,
or a decrease in deduction, loss or credit, as calculated for Income Tax
purposes, of the taxpayer for
3
any Tax Indemnification Period coupled with an increase in deduction, loss or
credit, or a decrease in income, gain or recapture, of the taxpayer for any
Post-Tax Indemnification Period.
"Avalon Group" means Avalon and its Affiliates, determined immediately
after the Contribution and Distribution.
"Avalon Tax Difference" has the meaning set forth in Section 4.1(c).
"Avalon Tax Item" means a Tax Item solely attributable to the Avalon Group.
"Straddle Period" means a taxable period that begins before and includes
but does not end on the Distribution Date.
"Tax" or "Taxes" means all forms of taxation, whenever created or imposed,
and whether imposed by a local, municipal, governmental, state, foreign, federal
or other body, and without limiting the generality of the foregoing, shall
include income, sales, use, ad valorem, gross receipts, license, value added,
franchise, transfer, recording, withholding, payroll, wage withholding,
employment, excise, occupation, unemployment insurance, social security,
business license, business organization, stamp, environmental, premium and
property taxes, together with any related interest (including the actual
interest that would have accrued if there were no netting of Taxes), penalties
and additions to any such tax, or additional amounts imposed by any Taxing
Authority (domestic or foreign) upon the AWS Group, the Avalon Group, the USA or
any of their Affiliates.
"Tax Audit Proceeding" means any audit or other examination, judicial or
administrative proceeding relating to liability for, or refunds or adjustments
with respect to, Taxes.
"Tax Contest" has the meaning set forth in Section 5.2.
"Tax Deficiency" means a net increase in Taxes payable as a result of a Tax
Audit Proceeding or an amendment of a Tax Return or an event having a similar
effect.
"Tax Indemnification Period" means any Pre-Distribution Taxable Period and
that portion of any Straddle Period that ends on and includes the Distribution
Date.
"Tax Item" means any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credits or any other item which is taken
into account in determining taxable income or is otherwise taken into account in
determining Taxes paid or payable, including an adjustment under Section 481 of
the Code resulting from a change in accounting method, and amounts of property,
payroll, sales or other items that are relevant to the apportionment, allocation
and determination of Taxes for purposes of determining Tax liabilities other
than Federal Income Tax liability.
"Tax Records" has the meaning set forth in Section 6.2
4
"Tax Refund" means a refund of Taxes (including a reduction in Taxes as a
result of the utilization of any credit or any offset against Taxes or Tax
Items) reduced (but not below zero) by any net increase in Taxes Actually
Realized by the recipient (or its Affiliate) thereof as a result of the receipt
thereof.
"Tax Return" means any return, filing, questionnaire, information return or
other document required to be filed, including requests for extensions of time,
filings made with respect to estimated tax payments, claims for refund and
amended returns that may be filed, for any period with any Taxing Authority
(whether domestic or foreign) in connection with any Tax or Taxes (whether or
not a payment is required to be made with respect to such filing).
"Taxing Authority" means any governmental or quasi-governmental body
exercising any Taxing authority or Tax regulatory authority.
"Timing Difference" means an increase in income, gain or recapture, or a
decrease in deduction, loss or credit, as calculated for Income Tax purposes, of
the taxpayer for any Post-Tax Indemnification Period coupled with an increase in
deduction, loss or credit, or a decrease in income, gain or recapture, of the
taxpayer for any Tax Indemnification Period.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
Section 2.1. Preparation of Tax Returns.
(a) Consistent with Agreements. Each of the parties to this Agreement
agrees to, and to cause each of its relevant Affiliates to, report the
Contribution, the Distribution and the Merger consistent with the provisions of
the Merger Agreement and the Distribution Agreement.
(b) Consistent with Past Practice. Except for any accounting method
changes pursuant to applications that are approved by the IRS and reflected in
Schedule 6.12 of the Merger Agreement and any accounting method elections and
changes that may be effective as of the day after the Distribution Date and are
applicable only to the Avalon Group (or otherwise have no adverse effect on the
AWS Group, as determined by the AWS Group in its reasonable discretion), all Tax
Returns described in Sections 2.2(a), (b), (c) and (d) filed after the date of
this Agreement, in the absence of a controlling change in law or circumstance,
shall be prepared on a basis consistent with the elections, accounting methods,
conventions and principles of taxation used for the most recent taxable periods
for which Tax Returns involving similar Tax Items have been filed. Subject to
the provisions of this Agreement, all decisions relating to the preparation of
Tax Returns shall be made in the sole discretion of the party responsible under
this Agreement for such preparation.
5
(c) Avalon Obligations. Avalon agrees to cooperate in good faith with
AWS to determine the appropriate amount of Tax Items, if any, attributable to
the AWS Group to be reflected on any Tax Returns for Pre-Distribution Taxable
Periods and Straddle Periods to be prepared by Avalon in accordance with Section
2.2 (b) and (c). With respect to each of the 1997 taxable year and the taxable
year ending on and including the Distribution Date, Avalon (i) will deliver to
AWS at least 45 days prior to the due date for filing of the Tax Returns (giving
effect to applicable extensions) for such taxable year, pro forma Federal and
state Income Tax Returns (the "Pro Forma Tax Returns") for such taxable years
and (ii) will consult with AWS with respect to the application of the Tax Items
shown on the Pro Forma Tax Returns to the Tax Items to be shown on the Tax
Returns. The computations made with respect to the Pro Forma Tax Returns shall
be made, where applicable, on a basis consistent with the principles of Treasury
Regulation Section 1.1502-76(b)(2). Avalon will inform and consult with AWS
regarding any Tax Audit Proceedings or any other adjustments which would
materially affect any of the Tax Items shown on the Pro Forma Tax Returns.
Avalon will provide AWS with copies of all Tax Returns prepared by Avalon in
accordance with Section 2.2(b) and (c) promptly after filing.
(d) AWS Obligations. AWS shall provide Avalon with comments and/or
objections to the Pro Forma Tax Returns at least 21 days prior to the due date
for filing such Tax Returns (giving effect to applicable extensions). AWS
agrees to cooperate in good faith with Avalon to determine the appropriate
amount of Tax Items attributable to the Avalon Group to be reflected on any Tax
Returns for Straddle Periods to be prepared and filed by AWS in accordance with
Section 2.2(d). AWS further agrees to provide Avalon with a copy of each such
Tax Return at least 30 days before it is filed and to follow the procedures in
Section 4.2 relating to the calculation of Taxes and to not file any such Tax
Returns without the prior written consent of Avalon, which consent shall not be
unreasonably withheld. If such consent is withheld, Avalon shall so notify AWS
at least 10 days prior to the due date for filing such Tax Returns (giving
effect to applicable extensions). AWS will provide Avalon with copies of all
Tax Returns prepared by AWS in accordance with Section 2.2(d) promptly after
filing.
Section 2.2. Filing of Tax Returns.
(a) Consolidated Federal Tax Returns and Consolidated State Tax
Returns. The Consolidated Federal Tax Returns and the Consolidated State Tax
Returns required to be filed after the date hereof shall be prepared or caused
to be prepared by Avalon and delivered to AWS at least 30 days prior to the due
date thereof (giving effect to applicable extensions). AWS shall review the
returns prepared pursuant to this Section 2.2(a) and shall, to the extent
necessary or required, sign such returns and see to the timely filing thereof.
(b) Pre-Distribution Taxable Period Tax Returns. All Tax Returns
other than those described in Section 2.2(a) which include a member of the
Avalon Group that are required to be filed for any Pre-Distribution Taxable
Period shall be prepared and timely filed or caused to be prepared and timely
filed by Avalon. All Tax Returns other than those described in Section 2.2(a)
which include a member of the AWS Group that are required to be filed for any
Pre-Distribution Taxable Period shall be prepared or caused to be prepared by
Avalon and delivered
6
to AWS at least 30 days prior to the due date thereof (giving effect to
applicable extensions). AWS shall review any such return that includes a member
of the AWS Group and shall, to the extent necessary or required, sign such
returns and see to the timely filing thereof.
(c) Avalon Straddle Period Tax Returns. All Tax Returns other than
those described in Section 2.2(a) which are required to be filed by any member
of the Avalon Group for any Straddle Period (including Ohio Forms FT-1120C and
FT-1120, insofar as such Forms FT-1120 are for members of the Avalon Group)
shall be prepared and timely filed or caused to be prepared and timely filed by
Avalon.
(d) AWS Straddle Period Tax Returns. All Tax Returns other than those
described in Section 2.2(a) which are required to be filed by any member of the
AWS Group for any Straddle Period (including Ohio Forms FT-1120 for members of
the AWS Group) shall be prepared and timely filed or caused to be prepared and
timely filed by AWS.
(e) Post-Distribution Taxable Period Tax Returns. The filing of all
Tax Returns for all Post-Distribution Taxable Periods shall be the
responsibility of the Avalon Group if such Tax Returns relate to a member or
members of the Avalon Group or their respective assets or businesses, or shall
be the responsibility of the AWS Group if such Tax Returns relate to a member or
members of the AWS Group or their respective assets or businesses.
Section 2.3. Procedures for Filing Tax Returns.
(a) Designation. AWS hereby irrevocably designates, and agrees to
cause each of its Affiliates to so designate, Avalon as its agent to take any
and all actions necessary or incidental to (i) the preparation (but not filing)
of the Tax Returns described in Section 2.2(a) and (b) and (ii) the preparation
and filing of the Tax Returns described in Section 2.2(c). Avalon hereby
irrevocably designates, and agrees to cause each of its Affiliates to so
designate, AWS as its agent to take any and all actions necessary or incidental
to the preparation and filing of the Tax Returns described in Section 2.2(d).
(b) Closing of Straddle Period. To the extent permitted by law or
administrative practice, the taxable year of any member of the AWS Group which
includes the Distribution Date shall be treated as closing on (and including)
the Distribution Date. AWS, USA, Avalon and their respective Affiliates agree
to treat, on all Tax Returns and in all Tax Audit Proceedings, the Affiliated
Group as terminating for Federal Income Tax purposes as a result of and on the
date of the Merger.
ARTICLE III
PAYMENT OF TAXES
Section 3.1. Payment of Tax Liabilities.
7
(a) Consolidated and Pre-Distribution Tax Liabilities.
(i) Avalon Liability. Except as otherwise provided in this
Agreement, Avalon or a member of the Avalon Group shall pay or cause to be
paid, directly to, or at the direction of, AWS (such direction may specify
payment by direct wire transfer), at least two days prior to the date
payment (including estimated payment) thereof is due, all Taxes due with
respect to the Tax Returns described in Sections 2.2(a) and 2.2(b) that are
attributable to any member or members of the Avalon Group, the respective
assets or businesses of any member or members of the Avalon Group and any
Avalon Tax Item.
(ii) AWS Liability. Except as otherwise provided in this
Agreement, AWS or a member of the AWS Group shall pay or cause to be paid,
on a timely basis, all Taxes due with respect to the Tax Returns described
in Sections 2.2(a) and 2.2(b) that are attributable to any member or
members of the AWS Group, the respective assets or businesses of any member
or members of the AWS Group and any AWS Tax Item.
(b) Separate Straddle Period Tax Liabilities.
(i) Avalon Liability. Except as otherwise provided in this
Agreement, Avalon or a member of the Avalon Group shall pay or cause to be
paid, on a timely basis, all Taxes due with respect to the Tax Returns
described in Section 2.2(c); provided, however, that AWS shall pay directly
to, or at the direction of, Avalon (such direction may specify payment by
direct wire transfer), at least two days prior to the date payment
(including estimated payment) thereof is due, that portion of those Taxes
due that are attributable to any member or members of the AWS Group, the
respective assets or businesses of any member or members of the AWS Group
or any AWS Tax Item.
(ii) AWS Liability. Except as otherwise provided in this
Agreement, AWS or a member of the AWS Group shall pay or cause to be paid,
on a timely basis, all Taxes due with respect to the Tax Returns described
in Section 2.2(d); provided, however, that Avalon shall pay directly to, or
at the direction of, AWS (such direction may specify payment by direct wire
transfer), at least two days prior to the date payment (including estimated
payment) thereof is due, that portion of those Taxes due that are
attributable to any member or members of the Avalon Group, the respective
assets or businesses of any member or members of the Avalon Group or any
Avalon Tax Item.
(c) Post-Distribution Taxable Period Tax Liabilities. Except as
otherwise provided in this Agreement, all Taxes for all Post-Distribution
Taxable Periods shall be paid or caused to be paid by the party responsible
under this Agreement for filing the Tax Return pursuant to which such Taxes are
due or, if no such Tax Returns are due, by the party liable for such Taxes.
Section 3.2. Tax Refunds and Carrybacks.
8
(a) Consent. Without the prior consent of AWS (such consent not to be
unreasonably withheld), no member of the Avalon Group shall carry back any net
operating loss or other Tax Item from a Post-Tax Indemnification Period to a Tax
Indemnification Period; and, without the prior consent of Avalon (such consent
not to be unreasonably withheld), no member of the AWS Group shall carry back
any net operating loss or other Tax Item from a Post-Tax Indemnification Period
to a Tax Indemnification Period.
(b) Retention and Payment of Tax Refunds. Except as otherwise
provided in this Agreement, Avalon shall be entitled to retain, and to receive
within 10 days after Actually Realized by the AWS Group, the portion of all Tax
Refunds of Taxes for which the Avalon Group is liable pursuant to Section 3.1 or
Section 5.1(a), and AWS shall be entitled to retain, and to receive within 10
days after Actually Realized by the Avalon Group, the portion of all Tax Refunds
of Taxes for which the AWS Group is liable pursuant to Section 3.1 or Section
5.1(b). Notwithstanding the foregoing, (i) all Tax Refunds resulting from the
carryback of any AWS Tax Item arising in a Post-Tax Indemnification Period to a
Tax Indemnification Period shall be for the account and benefit of the AWS Group
and, if and to the extent Actually Realized by Avalon, Avalon shall pay over to
AWS any such Tax Refund within 10 days after it is Actually Realized by Avalon
or any member of the Avalon Group, (ii) all Tax Refunds resulting from the
carryback of any Avalon Tax Item arising in a Post-Tax Indemnification Period to
a Tax Indemnification Period shall be for the account of Avalon and, if and to
the extent Actually Realized by AWS, AWS shall pay over to Avalon any such Tax
Refund within 10 days after it is Actually Realized by AWS or any member of the
AWS Group, (iii) all Tax Refunds resulting from the utilization of any Tax Items
(such as the utilization of a minimum or foreign tax credit or Section 481(a)
adjustments which reduces current year Taxes) attributable to the Avalon Group
or the respective assets or businesses of any member or members of the Avalon
Group arising in a Tax Indemnification Period shall be for the account of Avalon
and, if and to the extent Actually Realized by AWS, AWS shall pay over to Avalon
any such Tax Refund within 10 days after it is Actually Realized by AWS or any
member of the AWS Group and (iv) all Tax Refunds resulting from the utilization
of any Tax Items (such as the utilization of a minimum or foreign tax credit or
Section 481(a) adjustments which reduces current year Taxes) attributable to the
AWS Group or the respective assets or businesses of any member or members of AWS
Group arising in a Tax Indemnification Period shall be for the account of AWS
and, if and to the extent Actually Realized by Avalon, Avalon shall pay over to
AWS any such Tax Refund within 10 days after it is Actually Realized by Avalon
or any member of the Avalon Group. In computing the amount of any Tax Refunds
described in (i), (ii), (iii) or (iv) above, the party paying over such Tax
Refunds shall be deemed to recognize all other items of income, gain, loss,
deduction or credit for that taxable period together with the utilization of any
Tax Item causing a Tax Refund described in this Section 3.2(b). Avalon, USA,
AWS and their respective Affiliates will use commercially reasonable efforts to
claim and utilize the Tax Items referred to in (i), (ii), (iii) or (iv) in a
manner which is designed to maximize (on a present value basis) the Tax Refunds
described therein.
(c) Refund Claims. Avalon shall be permitted to file at Avalon's sole
expense, and AWS shall reasonably cooperate with Avalon in connection with, any
claims for
9
Tax Refunds to which Avalon is entitled pursuant to this Section 3.2
or any other provision of this Agreement. Avalon shall reimburse AWS for any
reasonable out-of-pocket costs and expenses incurred by any member of the AWS
Group in connection with such cooperation. AWS shall be permitted to file at
AWS's sole expense, and Avalon shall reasonably cooperate with AWS in connection
with, any claims for Tax Refund to which AWS is entitled pursuant to this
Section 3.2 or any other provision of this Agreement. AWS shall reimburse
Avalon for any reasonable out-of-pocket costs and expenses incurred by any
member of the Avalon Group in connection with such cooperation. Any claim for a
Tax Refund under this Section 3.2 to which Avalon is entitled and which relates
to a Tax Return for which AWS is required to file under Section 2.2 shall be
subject to the AWS Group's consent (such consent not to be unreasonably
withheld). Any claim for a Tax Refund under this Section 3.2 to which the AWS
Group is entitled shall be subject to the Avalon Group's consent (such consent
not to be unreasonably withheld). A copy of a claim for any Tax Refund to which
either party is entitled to file under this Section 3.2 shall be provided to the
other party no later than 30 days prior to the filing of such Tax Refund claim.
In the event that Avalon and AWS are each entitled to file a Tax Refund claim
pursuant to this Section 3.2 for the same period, such Tax Refunds of AWS and
Avalon shall be allocated in a manner corresponding to the allocation and
calculation of Taxes for such periods under Article IV.
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
Section 4.1. Allocations.
(a) (i) In the case of any Consolidated Federal Tax Return described
in Section 2.2(a), the AWS Group and the Avalon Group will each be allocated the
portion of such Taxes due with respect to such Tax Returns attributable to each
Group, the respective assets or businesses of any member or members of each
Group and any Tax Item of each Group. This allocation shall be made in
accordance with the principles set forth in Treasury Regulation Section 1.1552-
1(a)(2) on the basis of the percentage of the total Tax liability for each
Group, if computed on a separate consolidated federal income tax return of each
Group, would bear to the aggregate amount of such Tax liability of the AWS Group
and the Avalon Group so computed.
(ii) The principles of Treasury Regulation Section 1.1502-33(d)(3)
also shall apply to the allocation set forth in Section 4.1(a)(i). If the
amount of the Affiliated Group's consolidated federal income tax liability is
less than the sum of the aggregate separate return tax liabilities of the Avalon
Group and the AWS Group (as computed pursuant to Section 4.1(a)(i) above) due to
losses or tax credits of one Group (including losses or tax credits carried over
from prior years), the decrease in tax liability resulting therefrom shall be
allocated 100 percent to that Group. A Group thus may have a "negative" income
tax liability as a result of such an allocation (a "Loss Group"). If a Loss
Group exists, the other Group shall pay to the Loss Group an amount equal to
such "negative" income tax liability. In other words, if Tax attributes (e.g.,
losses or tax credits) of one Group are utilized by the other Group to reduce
taxable income or
10
Tax, as the case may be, the Group utilizing such Tax attributes shall pay to
the other Group, with respect to losses, an amount equal to such reduction in
taxable income resulting from the utilization of such losses multiplied by the
top marginal federal corporate income Tax rate actually used by the Group
utilizing the losses in calculating its deemed Tax liability (prior to the
application of Tax credits against such liability) under this Section 4.1(a) for
the taxable period during which such losses are utilized and, with respect to
Tax credits, an amount equal to the actual amount by which the deemed Tax
liability calculated pursuant to this Section 4.1(a) is reduced by such Tax
credits for the taxable period during which such Tax credits are utilized. Any
such payments shall be consistent with the procedures and timing set forth in
Section 3.1(b) hereof.
(b) In the case of any Tax Return described in Section 2.2(b) to be
prepared by Avalon or any Consolidated State Tax Returns described in Section
2.2(a) or any Tax returns described in Section 2.2(c), the Avalon Group will be
allocated all of the Taxes due with respect to each such Tax Return; provided,
however, if a AWS Tax Item is included in any such Tax Return, the Taxes that
would be due with respect to such Tax Return, calculated as if AWS Tax Item had
not been included but with all other Tax Items unchanged, shall be subtracted
from the Taxes due with respect to such Tax Return taking into account AWS Tax
Item (the "AWS Tax Difference"). If AWS Tax Difference is a positive amount,
the AWS Group shall be allocated an amount of Taxes due on such Tax Return equal
to AWS Tax Difference. If AWS Tax Difference is a negative amount, the Avalon
Group shall pay to the AWS Group an amount equal to AWS Tax Difference
consistent with the procedures and timing set forth in Section 3.1(b) hereof.
(c) In the case of any Tax Return described in Section 2.2(b) to be
filed by AWS or in Section 2.2(d), the AWS Group will be allocated all the Taxes
due with respect to each such Tax Return; provided, however, if a Avalon Tax
Item is included in any such Tax Return, the Taxes that would be due with
respect to such Tax Return, calculated as if the Avalon Tax Item had not been
included with all other Tax Items unchanged, shall be subtracted from the Taxes
due with respect to such Tax Return taking into account the Avalon Item (the
"Avalon Tax Difference"). If the Avalon Tax Difference is a positive amount,
the Avalon Group shall be allocated an amount of Taxes due on such Tax Return
equal to the Avalon Tax Difference. If the Avalon Tax Difference is a negative
amount, the AWS Group shall pay to the Avalon Group an amount equal to the
Avalon Tax Difference consistent with the procedures and timing set forth in
Section 3.1(b) hereof.
(d) In the case of any Tax Return described in Section 2.2(e) to be
filed by Avalon, the Avalon Group will be allocated all the Taxes due with
respect to each such Tax Return if the Avalon Group is responsible for filing
such Tax Return under this Agreement.
(e) In the case of any Tax Return described in Section 2.2(e) to be
filed by AWS, the AWS Group will be allocated all the Taxes due with respect to
each such Tax Return if the AWS Group is responsible for filing of such Tax
Return under this Agreement.
11
(f) The allocations under this Section 4.1 shall be determined in a
manner consistent with the principles set forth in Section 4.3.
Section 4.2. Calculations and Determinations. All calculations and
determinations required to be made pursuant to this Agreement (including the
calculation in Section 4.1) shall be made in good faith by the party making such
calculations or determinations. Except for any accounting method changes
pursuant to applications for accounting method changes filed prior to the date
hereof and any accounting method elections and changes that may be effective as
of the day after the Distribution Date, all calculations and determinations
required to be made pursuant to this Agreement (including the calculation in
Section 4.1), shall be made, in the absence of a controlling change in law or
circumstance, on a basis consistent with the elections, accounting
methods, conventions and principles of taxation used for the most recent taxable
periods for which Tax Returns involving similar Tax Items have been filed.
Section 4.3. Principles of Determination. In implementing this Agreement,
except as otherwise specifically provided, the parties shall make any
adjustments that are necessary to ensure that, with respect to Taxes for
Straddle Periods or Pre-Distribution Taxable Periods, payments and
reimbursements between the parties reflect the principles that (i) Avalon is to
bear responsibility only for that portion of Taxes for Straddle Periods and Pre-
Distribution Taxable Periods that are attributable to the Avalon Group, the
respective assets or businesses of any member or members of the Avalon Group and
any Avalon Tax Item, (ii) AWS is to bear responsibility for all other Taxes for
Straddle Periods and Pre-Distribution Taxable Periods, (iii) AWS is responsible
for all Taxes for Post-Distribution Taxable Periods (calculated by treating the
day after the Distribution Date as the first day of any Post-Distribution
Taxable Period) reflected on the Tax Returns, the responsibility for the filing
thereof is imposed on AWS pursuant to this Agreement, (iv) Avalon is responsible
for all Taxes for Post-Distribution Taxable Periods (calculated by treating the
day after the Distribution Date as the first day of any Post-Distribution
Taxable Period) reflected on the Tax Returns, the responsibility for the filing
thereof is imposed on Avalon pursuant to this Agreement, (v) AWS will be
entitled to any Tax Refunds relating to Tax Items attributable to the AWS Group,
the respective assets or businesses of any member or members of the AWS Group or
any AWS Tax Item arising in a Tax Indemnification Period and (vi) Avalon will be
entitled to any Tax Refunds relating to Tax Items attributable to the Avalon
Group or the respective assets or businesses of any member or members of the
Avalon Group or any Avalon Tax Item arising in a Tax Indemnification Period.
ARTICLE V
TAX INDEMNIFICATION; TAX CONTESTS
Section 5.1. Indemnification.
(a) Avalon Indemnification. Except as otherwise provided in Section
5.1(b), Avalon and the Avalon Group shall be liable for and shall indemnify,
defend and hold harmless the members of the AWS Group and USA and each of their
respective Affiliates and
12
representatives from and against (A) all Taxes attributable to the Avalon
Group, the respective assets or businesses of any member or members of the
Avalon Group and any Avalon Tax Item for Pre-Distribution Taxable Periods, (B)
all Taxes attributable to the Avalon Group, the respective assets or businesses
of any member or members of the Avalon Group and any Avalon Tax Item for the
portion of any Straddle Period ending on and including the Distribution Date,
(C) all Taxes attributable to the Avalon Group, the respective assets or
businesses of any member or members of the Avalon Group and any Avalon Tax Item
for the portion of any Straddle Period beginning on the day after the
Distribution Date (calculated by treating the day after the Distribution Date as
the first day of a taxable period), (D) all Taxes of the Avalon Group for Post-
Distribution Taxable Periods, (E) all liability (as a result of Treasury
Regulation Section 1.1502-6(a) or a comparable state, local or foreign law) for
Income Taxes of any person (other than a member of the AWS Group or the Avalon
Group) which is or has ever been affiliated with any member of the Avalon Group
or with which any member of the Avalon Group joins or has ever joined (or is or
has ever been required to join) in filing any consolidated, combined or unitary
Tax Return for any Pre-Distribution Taxable Period or Straddle Period; provided,
however, if any member of the AWS Group also is or ever has been affiliated with
or files or has ever filed (or is or has ever joined in the filing of) any such
consolidated, combined or unitary Tax Return for the same Pre-Distribution
Period or Straddle Period with any such person, then the amount of the liability
under this provision shall be allocated between such member or members of the
AWS Group and the Avalon Group in accordance with the principles described in
Section 4.1(a), (F) all Taxes for any taxable period (whether beginning before,
on or after the Distribution Date) that would not have been payable but for the
breach by any member of the Avalon Group of any representation, warranty or
obligation under this Agreement or the Merger Agreement, and (G) all liability
for any reasonable legal, accounting, appraisal, consulting or similar fees and
expenses relating to the foregoing.
(b) AWS and USA Indemnification. Except as otherwise provided in
Section 5.1(a), AWS and USA shall be liable for and shall indemnify, defend and
hold harmless the Avalon Group from and against (A) all Taxes attributable to
the AWS Group, the respective assets or businesses of any member or members of
the AWS Group and any AWS Tax Item for Pre-Distribution Taxable Periods, (B) all
Taxes attributable to the AWS Group, the respective assets or businesses of any
member or members of the AWS Group and any AWS Tax Item for the portion of any
Straddle Period ending on and including the Distribution Date, (C) all Taxes
attributable to the AWS Group, the respective assets or businesses of any member
or members of the AWS Group and any AWS Tax Item for the portion of any Straddle
Period beginning on the day after the Distribution Date (calculated by treating
the day after the Distribution Date as the first day of a taxable period), (D)
all Taxes of the AWS Group for Post-Distribution Taxable Periods, (E) all
liability (as a result of Treasury Regulation Section 1.1502-6(a) or a
comparable state, local or foreign law) for Income Taxes of any person (other
than a member of the AWS Group or the Avalon Group) which is or has ever been
affiliated with any member of the AWS Group or with which any member of the AWS
Group joins or has ever joined (or is or has ever been required to join) in
filing any consolidated, combined or unitary Tax Return for any Pre-Distribution
Taxable Period or Straddle Period; provided, however, if any member of the
Avalon Group also is or ever has been affiliated with or files or has ever filed
(or is or has ever joined in
13
the filing of) any such consolidated, combined or unitary Tax Return for the
same Pre-Distribution Period or Straddle Period with any such person, then the
amount of the liability under this provision shall be allocated between such
member or members of the AWS Group and the Avalon Group in accordance with the
principles described in Section 4.1(a), (F) all Taxes for any taxable period
(whether beginning before, on or after the Distribution Date) that would not
have been payable but for the breach by any member of the AWS Group of any
representation, warranty or obligation under this Agreement or the Merger
Agreement, and (G) all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to the foregoing; --
provided, however, the indemnification obligation of AWS and USA under this
Section 5.1(b) shall not include any Taxes resulting from a breach of any
representation and warranty made to USA in the Merger Agreement without regard
to any materiality limitation thereunder.
(c) Payments. Subject to Section 5.5(b), any indemnity payment
required to be made pursuant to this Section 5.1 shall be paid within 30 days
after the indemnified party makes written demand upon the indemnifying party,
but in no case earlier than five business days prior to the date on which the
relevant Taxes are required to be paid (or would be required to be paid if no
such Taxes are due) to the relevant Taxing Authority.
Section 5.2. Notice of Indemnity. Whenever any member of the AWS Group or
the Avalon Group, as the case may be, (hereinafter an "Indemnitee") receives
written notice from any Tax Authority or otherwise of any pending or threatened
Tax examination, audit or other administrative or judicial proceeding
(hereinafter a "Tax Contest") which could reasonably be expected to result in a
determination that would increase the liability for any Tax of such member or
any other member of its Group for any Tax Indemnification Period or for any
Post-Tax Indemnification Period or require a payment hereunder to the other
party (hereinafter an "Indemnity Issue"), the Indemnitee shall notify the other
Group (hereinafter the "Indemnitor") of such Indemnity Issue within 30 days of
receipt of such notice. The failure of any Indemnitee to give (or any delay in
giving) such notice shall not relieve any Indemnitor of its obligations under
this Agreement except to the extent that such failure to give (or such delay in
giving) such notice shall have adversely affected the Indemnitor's ability to
defend against, settle, or satisfy any action, suit or proceeding against
Indemnitor, or any damage, loss, claim, or demand for which Indemnitee is
entitled to indemnification from Indemnitor under this Agreement.
Section 5.3. Tax Contests. To the extent that a Tax Contest relates to
any Taxes for which a member of the Avalon Group is directly liable or has
indemnification obligations hereunder, Avalon shall at its own expense control
the defense and settlement of that portion of such Tax Contest. To the extent
that a Tax Contest relates to any Taxes for which a member of the AWS Group is
directly liable hereunder, AWS shall at its own expense control the defense and
settlement of that portion of such Tax Contest. Provided, however, that the
party in control of the Tax Contest shall in no event take any position in any
such proceeding that would subject the party not in control of the defense to
any civil fraud or any civil or criminal penalty, and provided, further, that
the party in control of the Tax Contest shall not consent, without the prior
written consent of the party not in control of the defense, which prior written
consent shall not be
14
unreasonably withheld, to any change in the treatment of any Tax Item that in
any material respect adversely affects the Tax liability of the party not in
control of the defense for a period for which that party is directly or
indirectly liable under this Agreement.
Section 5.4. Timing Adjustments.
(a) Timing Differences. If a Tax Audit Proceeding or an amendment of a
Tax Return results in a Timing Difference, and such Timing Difference results in
a decrease in an indemnity obligation AWS or Avalon has, or otherwise would have
had, under Section 5.1 and/or an increase in the amount of a Tax Refund to which
AWS or Avalon is entitled under Section 3.2, then in each Post-Tax
Indemnification Period in which the AWS Group or the Avalon Group Actually
Realizes an Income Tax Detriment, either AWS or Avalon, as the case may be,
shall pay to the other an amount equal to such Income Tax Detriment; provided,
however, that the aggregate payments required to be made under this Section
5.4(a) with respect to any Timing Difference shall not exceed the aggregate
amount of the Income Tax Benefits realized by the Group from which such payment
is made for all taxable periods and the Group receiving such payment for all Tax
Indemnification Periods as a result of such Timing Difference. All such payments
shall be made within 10 days after the relevant Income Tax Detriment has been
Actually Realized and the Group Actually Realizing such Income Tax Detriment
notifies the other Group, as the case may be.
(b) Reverse Timing Differences. If a Tax Audit Proceeding or an
amendment of a Tax Return results in a Reverse Timing Difference, and such
Reverse Timing Difference results in an increase in an indemnity obligation of
AWS or Avalon under Section 5.1 and/or a decrease in the amount of a Tax Refund
to which AWS or Avalon is or would otherwise be entitled to under Section 3.2,
then in each Post-Tax Indemnification Period in which the AWS Group or the
Avalon Group Actually Realizes an Income Tax Benefit, AWS or Avalon, as the case
may be, shall pay to the other an amount equal to such Income Tax Benefit;
provided, however, that the aggregate payments required to be made under this
Section 5.4(b) with respect to any Reverse Timing Difference shall not exceed
the aggregate amount of the Income Tax Detriments realized by the Group from
which such payment is made for all taxable periods and the Group receiving such
payment for all Tax Indemnification Periods as a result of such Reverse Timing
Difference. All such payments shall be made within ten days after the relevant
Income Tax Benefit has been Actually Realized.
Section 5.5. Payments Net of Taxes.
(a) Gross Up and Characterization. The amount of any payment under
this Agreement shall be (i) increased to take account of any net Tax cost
incurred by the recipient thereof as a result of the receipt or accrual of
payments hereunder (grossed-up for such increase) and (ii) reduced to take
account of any net Tax benefit realized by the recipient arising from the
incurrence or payment of any such payment, other than any such net Tax benefit
that the recipient is specifically entitled to retain pursuant to this
Agreement. In computing the amount of any such Tax cost or Tax benefit, the
recipient shall be deemed to recognize all other items of
15
income, gain, loss, deduction or credit before recognizing any item arising from
the receipt or accrual of any payment hereunder. Except as provided in Section
5.5(b), or unless the parties otherwise agree to an alternative method for
determining the present value of any such anticipated Tax benefit or Tax cost,
any payment hereunder shall initially be made without regard to this Section and
shall be increased or reduced to reflect any such net Tax cost (including gross-
up) or net Tax benefit only after the recipient has Actually Realized such cost
or benefit. It is the intention of the parties that payments made pursuant to
this Agreement are to be treated as relating back to the Contribution and
Distribution as an adjustment to the assets and liabilities contributed
thereunder, and the parties shall not take any position inconsistent with such
intention before any Taxing Authority, except to the extent that a final
determination (as defined in Section 1313 of the Code) with respect to the
recipient party causes any such payment not to be so treated.
(b) Time for Payment. Notwithstanding any other provision of this
Agreement, to simplify the administration of this Agreement, the payment of any
amount less than $25,000 required to be made pursuant to this Agreement by one
party hereto to another party hereto need not be made to such other party prior
to 30 days following the later of (i) the close of the calendar quarter during
which such payment obligation arose and (ii) the day during such calendar
quarter when the aggregate amount of all such less than $25,000 payment
obligations arising during such calendar quarter exceeds $150,000. Unless
otherwise specified by the recipient for items exceeding $100,000, any such
payment may be made on a net Tax basis (i.e., reduced to take account of any net
Tax benefit to be realized by the recipient (computed at an effective Tax rate
to be agreed upon from time-to-time by the parties)) to the extent such
recipient is entitled to a corresponding deduction.
(c) Right to Offset. Any party making a payment under this Agreement
shall have the right to reduce any such payment by any amounts owed to it by the
other party to this Agreement.
ARTICLE VI
COOPERATION AND EXCHANGE OF INFORMATION
Section 6.1. Cooperation and Exchange of Information. Each party hereto,
on behalf of itself and its Affiliates, agrees to provide the other parties
hereto with such cooperation and information as such other parties shall
reasonably request, and as promptly as practicable, in connection with the
preparation or filing of any Tax Return or claim for or allocation of a Tax
Refund not inconsistent with this Agreement or in conducting any Tax Audit
Proceedings or other proceeding in respect to Taxes or to carry out the
provisions of this Agreement. To the extent necessary to carry out the purposes
of this Agreement and subject to the other provisions of this Agreement, such
cooperation and information shall include without limitation the non-exclusive
designation of an officer of Avalon as an officer of AWS and USA and each of
their respective Affiliates solely for the purpose of pursuing refund claims,
dealing with Taxing Authorities and defending Tax Audit Proceedings, in each
case if such actions relate to Tax
16
matters pertaining to or arising in the Tax Indemnification Period, as well as
promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any Taxing Authority which relate to the
Tax Items on the Pro Forma Tax Returns and providing copies of all relevant Tax
Returns for the Tax Indemnification Period, together with accompanying schedules
and related workpapers, documents relating to rulings or other determinations by
Taxing Authorities, and records concerning the ownership and Tax basis of
property, which either party may possess and which relate to the Tax Items on
the Pro Forma Tax Returns. Subject to the rights of the AWS Group under the
other provisions of this Agreement, such officer shall have the authority to
execute powers of attorney (including Form 2848) on behalf of each member of the
AWS Group with respect to Tax Returns and Taxes for the Tax Indemnification
Period. Each party to this Agreement shall make, or shall cause its Affiliates
to make, their employees and facilities available on a mutually convenient basis
to provide an explanation of any documents or information provided hereunder.
Section 6.2. Record Retention. AWS and Avalon agree to (i) retain all Tax
Returns, related schedules and workpapers, and all material records and other
documents as required under Section 6001 of the Code and the regulations
promulgated thereunder relating thereto ("Tax Records") existing on the
Distribution Date or created through the Distribution Date, for 10 years from
the Distribution Date and (ii) allow the other parties to this Agreement and
their representatives (and representatives of any of its Affiliates), at times
and dates reasonably acceptable to the retaining party, to inspect, review and
make copies of such records, and have access to such employees, as AWS and
Avalon may reasonably deem necessary or appropriate from time to time, such
activities to be conducted during normal business hours and without disruption
to the respective business of either party. At the end of the 10-year period
described in clause (i) AWS or Avalon, as the case may be, shall transfer such
records (or cause such records to be transferred) to the other party (at such
other party's sole expense), unless such other party notifies AWS or Avalon, as
the case may be, within 90 days prior to the expiration of the 10-year period,
that such other party does not desire to receive such Tax Records, in which case
AWS or Avalon, as the case may be, may destroy or otherwise dispose of such
undesired documents.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Entire Agreement. This Tax Allocation Agreement constitutes
the entire agreement, and supersedes all other prior agreements, understandings,
representations and warranties, both written and oral, among the parties, with
respect to the subject matter hereof and thereof.
Section 7.2. AWS Representation. AWS represents that (i) it will become a
member of the USA's "consolidated group," as such term is defined in Treasury
Regulation Section 1.1502-1(h), on the date of the Merger, and (ii) all of its
income and other Tax Items will be included in USA's consolidated Federal Tax
Returns from and after the date of the Merger.
17
Section 7.3. Modification or Amendment. The parties hereto may modify or
amend this Agreement only by written agreement executed and delivered by duly
authorized officers of the respective parties. Anything in this Agreement or
the Merger Agreement to the contrary notwithstanding, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the Merger Agreement, the provisions of this Agreement shall control.
Section 7.4. Resolution of Disputes. Any disputes between the parties
with respect to this Agreement that cannot be resolved by good faith effort by
the parties shall be submitted to the Pittsburgh office of Arthur Andersen LLP
("Arthur Andersen"), which shall render its opinion as to such matters. Arthur
Andersen's determination shall be final and binding on all parties and Arthur
Andersen's fees and expenses shall be shared by each of Avalon and AWS in
accordance with the final allocation of the Tax liability in dispute.
Section 7.5. Notices. Any notice, request, instruction or other
communication to be given hereunder by any party to any other party shall be in
writing and shall be deemed to have been duly given (i) on the date of delivery
if delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (ii) on the first business day following the date of dispatch if
delivered by Federal Express or other nationally reputable next-day courier
service, or (iii) on the third business day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) If to Avalon:
Avalon Holdings Corporation
One American Way
Warren, Ohio 44484
Attention: Ronald E. Klingle
Telecopy No: (330) 856-8483
with copies to:
Kirkpatrick & Lockhart, LLP
1500 Oliver Building
Pittsburgh, PA 15222
Attention: Sanford B. Ferguson
Telecopy No: (412) 355-6501
18
(b) if to USA or AWS:
USA Waste Services, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Chief Executive Officer
Telecopy No: (713) 209-9711
with copies to:
Gregory T. Sangalis
1001 Fannin, Suite 4000
Houston, Texas 77002
Telecopy No.: (713) 209-9711
and
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3500 Texas Commerce Tower
Houston, Texas 77002
Attention: Marcus A. Watts
Telecopy No: (713) 223-3717
Section 7.6. No Third Party Beneficiaries. Except as otherwise expressly
provided herein, nothing contained in this Agreement is intended to confer upon
any person or entity other than the parties hereto and their respective
successors and permitted assigns, any benefit, right or remedies under or by
reason of this Agreement.
Section 7.7. Assignment. No party to this Agreement shall convey, assign
or otherwise transfer any of its rights or obligations under this Agreement
without the express written consent of the other parties hereto in their sole
and absolute discretion. Any such conveyance, assignment or transfer without
the express written consent of the other parties shall be void ab initio. No
assignment of this Agreement shall relieve the assigning party of its
obligations hereunder.
Section 7.8. Term. This Agreement shall commence on the date of execution
indicated below and shall continue in effect until otherwise agreed to in
writing by Avalon and AWS, or their successors.
Section 7.9. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
19
Section 7.10. Severability. If any provision of this 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 the application of such provision to persons or
circumstances 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 is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
Section 7.11. 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, the party or parties who are or are to be thereby aggrieved
shall have the right of specific performance and injunctive relief giving effect
to its or their rights under this 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.
Section 7.12. Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
Section 7.13. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
Section 7.14. Agent. Any consent rights of members of the Avalon Group
under this Agreement shall be exercised by Avalon on behalf of the Avalon Group,
and any notices given by the AWS Group to Avalon shall be deemed to be given to
each member of the Avalon Group. Any consent rights of the AWS Group under this
Agreement shall be exercised by USA on behalf of the AWS Group, and any notices
given by Avalon to USA shall be deemed to be given to each member of the AWS
Group.
[the remainder of this page intentionally left blank]
20
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
AMERICAN WASTE SERVICES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AVALON HOLDINGS CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
USA WASTE SERVICES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
21
VOTING AGREEMENT
AND IRREVOCABLE PROXY
This Voting Agreement and Irrevocable Proxy (this "Agreement") dated as of
February 6, 1998 is executed by USA Waste Services, Inc., a Delaware corporation
("USA Waste"), American Waste Services, Inc., an Ohio corporation ("AWS"), and
Ronald E. Klingle ("Shareholder").
WHEREAS, USA Waste, C&S Ohio Corp., an Ohio corporation ("Mergerco"), and
AWS have executed that certain Agreement and Plan of Merger dated as of February
6, 1998 (the "Merger Agreement") whereby, among other things, Mergerco will be
merged with and into AWS (the "Merger"); and
WHEREAS, USA Waste and AWS are relying on those irrevocable proxies of
certain persons, including Shareholder, in incurring expenses in reviewing AWS's
business, in preparing a proxy statement, in proceeding with the filing of
applications for regulatory approvals, and in undertaking other actions
necessary for the consummation of the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
1. Shareholder hereby represents and warrants to USA Waste and AWS that he
is the registered holder of and has the exclusive right to vote the shares of
common stock, no par value ("Stock"), of AWS set forth below his name on the
signature page hereto. Shareholder hereby agrees to vote at the shareholders'
meeting referred to in Section 8.3 of the Merger Agreement (the "Meeting") the
shares of Stock set forth below his name on the signature page hereto and all
other shares of Stock that such Shareholder has the exclusive right to vote at
the Meeting (the "Shares") in favor of the approval of the Merger and the
approval and adoption of the Merger Agreement and in favor of the approval of
the Distribution (as defined in the Merger Agreement).
2. In order better to effect the provisions of Section 1, Shareholder
hereby revokes any previously executed proxies and hereby constitutes and
appoints USA Waste (the "Proxy Holder"), with full power of substitution, his
true and lawful proxy and attorney-in-fact to vote at the Meeting all of the
Shares in favor of the approval of the Merger and the approval and adoption of
the Merger Agreement, with such modifications to the Merger Agreement as the
parties thereto may make, and in favor of the approval of the Distribution in
the event that Shareholder does not vote in favor of the approval of the Merger
and the approval and adoption of the Merger Agreement and in favor of the
approval of the Distribution.
3. Shareholder hereby covenants and agrees that until this Agreement is
terminated, Shareholder will not, and will not agree to, without the consent of
USA Waste, directly or indirectly, sell, transfer, assign, pledge, hypothecate,
cause to be redeemed or otherwise dispose of any of the Shares or grant any
proxy with respect to any of the Shares or deposit any of the Shares into a
voting trust or enter into another voting agreement or arrangement with respect
to
any of the Shares except as contemplated by this Agreement, unless Shareholder
causes the transferee of any such Shares to deliver to USA Waste an amendment to
this Agreement whereby such transferee becomes bound by the terms of this
Agreement.
4. The agreement to vote and proxy granted hereby shall be limited
strictly and solely to voting the Shares in favor of approving the Merger and
approving and adopting the Merger Agreement and in favor of the approval of the
Distribution at the Meeting and shall not extend to any other matters.
5. Shareholder acknowledges that USA Waste and AWS are relying on this
Agreement in incurring expenses in reviewing AWS's business, in preparing a
proxy statement, in proceeding with the filing of applications for regulatory
approvals, and in undertaking other actions necessary for the consummation of
the Merger and the Distribution and that the proxy granted hereby is coupled
with an interest and is irrevocable to the full extent permitted by applicable
law, including Section 1701.48 of the Ohio General Corporation Law. Shareholder
and AWS acknowledge that the performance of this Agreement is intended to
benefit USA Waste.
6. The irrevocable proxy granted pursuant hereto shall continue in effect
until the earlier to occur of (i) the termination of the Merger Agreement, as it
may be amended or extended from time to time, or (ii) the consummation of the
Merger.
7. The vote of the Proxy Holder shall control in any conflict between its
vote of the Shares and a vote by Shareholder of the Shares, and AWS shall
recognize the vote of the Proxy Holder instead of the vote of Shareholder in the
event Shareholder does not vote in favor of the approval of the Merger and
approval and adoption of the Merger Agreement and in favor of the approval of
the Distribution as set forth in Section 1.
8. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement by USA Waste, AWS
and Shareholder.
9. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
10. This Agreement embodies the entire agreement and understanding of the
parties hereto in respect to the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings among the parties with
respect to such subject matter.
11. All notices, requests, demands and other communications required or
permitted hereby shall be in writing and shall be deemed to have been duly given
if delivered by hand or mail, certified or registered mail (return receipt
requested) with postage prepaid, to the addresses of the parties hereto set
forth in the Merger Agreement, with the exception of Shareholder, whose address
shall be as set forth below his signature on the signature page hereof or to
such other address as any party may have furnished to the others in writing in
accordance herewith.
-2-
This Agreement and the relations among the parties hereto arising from this
Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio.
-3-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
USA WASTE SERVICES, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
AMERICAN WASTE SERVICES, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
SHAREHOLDER:
--------------------------------------------
Printed Name: Ronald E. Klingle
Address: 345 Hunters Hollow
Warren, OH 44484
0 Shares of Class A Common Stock
---------
2,538,102 Shares of Class B Common Stock
---------
(if applicable)
Pledgee:
-------------------------------------
Address:
-------------------------------------
-------------------------------------
Loan No.:
------------------------------------
-4-
VOTING AGREEMENT
AND IRREVOCABLE PROXY
This Voting Agreement and Irrevocable Proxy (this "Agreement") dated as of
February 6, 1998 is executed by USA Waste Services, Inc., a Delaware corporation
("USA Waste"), American Waste Services, Inc., an Ohio corporation ("AWS"), and
Darrell D. Wilson ("Shareholder").
WHEREAS, USA Waste, C&S Ohio Corp., an Ohio corporation ("Mergerco"), and
AWS have executed that certain Agreement and Plan of Merger dated as of February
6, 1998 (the "Merger Agreement") whereby, among other things, Mergerco will be
merged with and into AWS (the "Merger"); and
WHEREAS, USA Waste and AWS are relying on those irrevocable proxies of
certain persons, including Shareholder, in incurring expenses in reviewing AWS's
business, in preparing a proxy statement, in proceeding with the filing of
applications for regulatory approvals, and in undertaking other actions
necessary for the consummation of the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
1. Shareholder hereby represents and warrants to USA Waste and AWS that he
is the registered holder of and has the exclusive right to vote the shares of
common stock, no par value ("Stock"), of AWS set forth below his name on the
signature page hereto. Shareholder hereby agrees to vote at the shareholders'
meeting referred to in Section 8.3 of the Merger Agreement (the "Meeting") the
shares of Stock set forth below his name on the signature page hereto and all
other shares of Stock that such Shareholder has the exclusive right to vote at
the Meeting (the "Shares") in favor of the approval of the Merger and the
approval and adoption of the Merger Agreement and in favor of the approval of
the Distribution (as defined in the Merger Agreement).
2. In order better to effect the provisions of Section 1, Shareholder
hereby revokes any previously executed proxies and hereby constitutes and
appoints USA Waste (the "Proxy Holder"), with full power of substitution, his
true and lawful proxy and attorney-in-fact to vote at the Meeting all of the
Shares in favor of the approval of the Merger and the approval and adoption of
the Merger Agreement, with such modifications to the Merger Agreement as the
parties thereto may make, and in favor of the approval of the Distribution in
the event that Shareholder does not vote in favor of the approval of the Merger
and the approval and adoption of the Merger Agreement and in favor of the
approval of the Distribution.
3. Shareholder hereby covenants and agrees that until this Agreement is
terminated, Shareholder will not, and will not agree to, without the consent of
USA Waste, directly or indirectly, sell, transfer, assign, pledge, hypothecate,
cause to be redeemed or otherwise dispose of any of the Shares or grant any
proxy with respect to any of the Shares or deposit any of the Shares into a
voting trust or enter into another voting agreement or arrangement with respect
to
any of the Shares except as contemplated by this Agreement, unless Shareholder
causes the transferee of any such Shares to deliver to USA Waste an amendment to
this Agreement whereby such transferee becomes bound by the terms of this
Agreement.
4. The agreement to vote and proxy granted hereby shall be limited
strictly and solely to voting the Shares in favor of approving the Merger and
approving and adopting the Merger Agreement and in favor of the approval of the
Distribution at the Meeting and shall not extend to any other matters.
5. Shareholder acknowledges that USA Waste and AWS are relying on this
Agreement in incurring expenses in reviewing AWS's business, in preparing a
proxy statement, in proceeding with the filing of applications for regulatory
approvals, and in undertaking other actions necessary for the consummation of
the Merger and the Distribution and that the proxy granted hereby is coupled
with an interest and is irrevocable to the full extent permitted by applicable
law, including Section 1701.48 of the Ohio General Corporation Law. Shareholder
and AWS acknowledge that the performance of this Agreement is intended to
benefit USA Waste.
6. The irrevocable proxy granted pursuant hereto shall continue in effect
until the earlier to occur of (i) the termination of the Merger Agreement, as it
may be amended or extended from time to time, or (ii) the consummation of the
Merger.
7. The vote of the Proxy Holder shall control in any conflict between its
vote of the Shares and a vote by Shareholder of the Shares, and AWS shall
recognize the vote of the Proxy Holder instead of the vote of Shareholder in the
event Shareholder does not vote in favor of the approval of the Merger and
approval and adoption of the Merger Agreement and in favor of the approval of
the Distribution as set forth in Section 1.
8. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement by USA Waste, AWS
and Shareholder.
9. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
10. This Agreement embodies the entire agreement and understanding of the
parties hereto in respect to the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings among the parties with
respect to such subject matter.
11. All notices, requests, demands and other communications required or
permitted hereby shall be in writing and shall be deemed to have been duly given
if delivered by hand or mail, certified or registered mail (return receipt
requested) with postage prepaid, to the addresses of the parties hereto set
forth in the Merger Agreement, with the exception of Shareholder, whose address
shall be as set forth below his signature on the signature page hereof or to
such other address as any party may have furnished to the others in writing in
accordance herewith.
-2-
This Agreement and the relations among the parties hereto arising from this
Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio.
-3-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
USA WASTE SERVICES, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
AMERICAN WASTE SERVICES, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
SHAREHOLDER:
-------------------------------------------------
Printed Name: Darrell D. Wilson
Address: 215 Hunters Hollow
Warren, OH 44484
0 Shares of Class A Common Stock
---------
2,236,602 Shares of Class B Common Stock
---------
(if applicable)
Pledgee:
------------------------------------------
Address:
------------------------------------------
------------------------------------------
Loan No.:
-----------------------------------------
-4-
Legal Opinion of Outside Counsel for AWS/1/
1. Each of AWS, Avalon and the Retained Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of their
respective states of incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its businesses as it is now being conducted.
2. AWS has full corporate power and authority to enter into the Transaction
Agreements and to consummate the transactions contemplated thereby. The
Transaction Agreements have been duly authorized by all necessary corporate and
stockholder action on the part of AWS, and no other corporate proceedings on the
part of AWS are necessary to authorize the execution and delivery of the
Transaction Agreements or the consummation by AWS of the transactions
contemplated thereby. Avalon has full corporate power and authority to enter
into the Contribution and Distribution Agreement and to consummate the
transactions contemplated thereby. The Contribution and Distribution Agreement
has been duly authorized by all necessary corporate action on the part of
Avalon, and no other corporate proceedings on the part of Avalon are necessary
to authorize the execution and delivery of the Contribution and Distribution
Agreement or the consummation by Avalon of the transactions contemplated
thereby.
3. The Transaction Agreements have been duly executed and delivered by AWS
and Avalon, as applicable, and, assuming the due authorization, execution and
delivery hereof by USA Waste and Mergerco, constitutes the valid and legally
binding agreements of AWS and Avalon, as applicable, enforceable against AWS or
Avalon in accordance with their terms, except that such enforcement may be
subject to (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights generally
and (b) general equitable principles.
4. With the exception of AWS Required Statutory Approvals that have already
been obtained, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of the Transaction
Agreements by AWS or Avalon, as applicable, or the consummation by AWS or
Avalon, as applicable, of the transactions contemplated thereby, other than such
declarations, filings, registrations, notices, authorizations, consents and
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
AWS and the Retained Subsidiaries, taken as a whole.
- ---------------------
/1/Capitalized terms not defined herein shall have the same meanings ascribed to
them in the Agreement and Plan of Merger. The term "Transaction Agreements"
shall include (i) the Agreement and Plan of Merger, (ii) the Contribution and
Distribution Agreement, (iii) the Tax Allocation Agreement, (iv) the Voting
Agreement and Irrevocable Proxy, (v) the Non-Competition Agreement, (vi) the
Promissory Note, and (vii) any other agreements executed in connection with
the Merger, Contribution and Distribution.
5. The execution and delivery of the Transaction Agreements by AWS and
Avalon, as applicable, and the consummation of the transactions thereby, do not
violate, conflict with, result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both would constitute
a default) under, and will not result in the termination of, accelerate the
performance required by, result in a right of termination or acceleration under,
or resulting the creation of any Lien upon any of the properties or assets of
AWS or any of its subsidiaries under, any of the terms, conditions or provisions
of (a) the respective charters or bylaws of AWS or any of its subsidiaries, (b)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to AWS or any of its subsidiaries or any of their respective
properties or assets (including without limitation Environmental Laws), or (c)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which AWS or any of its subsidiaries is a party or by which AWS or any
of its subsidiaries or any of their respective properties or assets may be bound
or affect. Excluded from the foregoing sentence of this opinion, insofar as they
apply to the terms, conditions and provisions described in clauses (b) and (c)
hereof, are such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of Liens that would not, in the aggregate, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of AWS and its
subsidiaries, taken as a whole.
6. The authorized capital stock of AWS consists of 70,000,000 shares of
Class A Common Stock, 30,000,000 shares of Class B Common Stock and 2,000,000
shares of preferred stock. As of the record date for the special meeting of the
stockholders of AWS, _________ shares of Class A Common Stock, ____________
shares of Class B Common Stock and no shares of such preferred stock were issued
and outstanding. All of such issued and outstanding shares are validly issued
and are fully paid, nonassessable and free of preemptive rights. No subsidiary
of AWS holds any share of the capital stock of AWS.
NON-COMPETITION AGREEMENT
This Non-Competition Agreement dated as of _________________, 1998 (this
"Agreement") is by and among USA Waste Services, Inc., a Delaware corporation
("USA Waste"), American Waste Services, Inc., an Ohio corporation ("AWS"), and
_________________ ("Executive").
W I T N E S S E T H:
--------------------
WHEREAS, Executive is a substantial shareholder of AWS;
WHEREAS, USA Waste has entered into an Agreement and Plan of Merger (the
"Merger Agreement") dated as of February 6, 1998 with AWS pursuant to which USA
Waste intends, subject to the conditions thereof, to merge (the "Merger") a
wholly owned subsidiary of USA Waste with and into AWS with AWS surviving as a
wholly owned subsidiary of USA Waste;
WHEREAS, USA Waste has required as a condition to entering into the Merger
Agreement that Executive enter into this Agreement;
WHEREAS, USA Waste wishes to secure from Executive his agreement not to
compete with AWS in certain respects as herein provided and not to disclose
certain information belonging to AWS in order to enable AWS to successfully
continue its business;
WHEREAS, the parties acknowledge that this Agreement forms an integral part
of the Merger Agreement and that without this Agreement USA Waste would not have
entered into the Merger Agreement; and
WHEREAS, Executive will receive a substantial benefit if the Merger is
consummated and desires to enter into this Agreement and acknowledges that the
covenants set forth in this Agreement are reasonable in scope.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Acknowledgments and Agreements by Executive. Executive hereby
-------------------------------------------
acknowledges and agrees that:
(a) USA Waste would not have entered into the Merger Agreement if
Executive had not executed and delivered this Agreement to USA Waste; and
(b) Executive has had access to information that is confidential to
AWS and USA Waste, that constitutes a valuable, special and unique asset of
AWS, and with respect to which AWS and USA Waste are entitled to the
protections afforded by this Agreement and to the remedies for enforcement
of this Agreement provided by law or in
equity (including, without limitation, those remedies the availability of
which may be within the discretion of the court in which any action for
enforcement of this Agreement is brought).
2. Non-Competition Covenants.
-------------------------
(a) During the period of time that begins on the Closing Date (as
defined in the Merger Agreement) and ends on the third anniversary thereof
(the "Covenant Period"), Executive agrees that he will not, directly or
indirectly,
i. carry on or be engaged in (whether for his own account or for
the account of any other person, other than AWS or USA Waste), the
collection of refuse or garbage, or the disposal of non-hazardous
solid waste, from any source located within a 100-mile radius of
American Landfill, Mahoning Landfill or East Liverpool Landfill; or
ii. share in the earnings of, beneficially own or hold any
security issued by, or otherwise own or hold any interest in, any
person who or which owns or operates a landfill within a 100-mile
radius of American Landfill, Mahoning Landfill, or East Liverpool
Landfill.
(b) Without limiting the generality of the provisions of this Section
2, Executive shall be deemed to be engaged in a particular business if he
(whether alone or in association with one or more other persons) is an
owner, partner, stockholder, independent contractor or joint venturer of,
or a lender to, or an investor in, any person who or which is directly
engaged in any such business.
(c) Notwithstanding the foregoing provisions of this Section 2, (i)
Executive may own, directly or indirectly, solely as an investment,
securities if Executive is not an affiliate of the issuer of such
securities and does not, directly or indirectly, beneficially own more than
5% of the class of which such securities are a part, (ii) Executive may
engage in and have an interest in any person engaging in, directly or
indirectly, the provision of technical and engineering services,
transportation, and equipment sales and leasing, (iii) Executive may,
directly or indirectly, engage in the management or operation of captive
landfills, such as the management of the landfill in Ashtabula, Ohio, (iv)
Executive may engage in, or have an interest in a person engaging in,
directly or indirectly, the disposal or brokerage of disposal of non-
hazardous solid waste which is generated within (or is deposited at a
transfer station owned or operated by Executive or such person, as
applicable, within) such 100-mile radius, so long as Executive or such
person, as applicable, shall provide AWS or USA Waste the right to make a
proposal for disposal of any such waste and Executive or such person, as
applicable, shall be obligated to accept such proposal if the disposal rate
quoted by AWS for such waste plus the costs to be incurred by Executive or
such person, as applicable, in transporting such waste to the applicable
landfill of AWS is less than or equal to the total of the lowest bona fide
disposal rate quoted by a third party for such waste plus the costs to be
incurred by
-2-
Executive or such person, as applicable, in transporting such waste to the
applicable landfill of such third party, and (v) Executive may own,
directly or indirectly, securities of Avalon Holdings Corporation. For
purposes of this Section 2, a captive landfill shall include a landfill
that was a captive landfill on the date Executive, or a person in which
Executive has an interest, directly or indirectly commences management or
operation thereof, but that subsequently accepts waste from third parties
so long as Executive or such entity does not directly or indirectly
solicit, sell or market disposal of waste from any third party.
3. Confidential Information. During the Covenant Period and thereafter,
------------------------
Executive shall hold in strict confidence, and shall not disclose to any person
(other than officers, directors, employees, agents and consultants of AWS, USA
Waste or Avalon Holdings Corporation) any confidential information of AWS. For
purposes of this Section 3, the term "confidential information" shall include,
without limitation, chemical formulas, trade secrets, client lists, client or
consultant contracts and the details thereof, pricing policies, operational
methods, marketing plans or strategies, business acquisition plans, personnel
acquisition plans and all other information pertaining to the business of AWS
and USA Waste as it exists immediately following the Merger that is not publicly
available.
4. Property of AWS and USA Waste. Promptly upon the termination of the
-----------------------------
employment of Executive with AWS, Executive shall surrender to AWS all books and
records of AWS that relate primarily to the Retained Businesses (as defined in
the form of Contribution and Distribution Agreement attached to the Merger
Agreement between AWS and Avalon Holdings Corporation) that are at the time in
his possession or control and that pertain primarily to the business or affairs
of AWS as it will exist immediately following the Merger and USA Waste.
5. Remedies. Executive acknowledges that if he violates or threatens to
--------
violate any of the provisions of this Agreement, AWS and USA Waste may have no
adequate remedy at law. In that event, AWS and USA Waste shall have the right,
in addition to any other rights that may be available to them, to obtain in any
court of competent jurisdiction injunctive relief to restrain any violation or
threatened violation by Executive of any provision of this Agreement or to
compel specific performance by Executive of one or more of his obligations under
this Agreement. The seeking or obtaining by AWS or USA Waste of such injunctive
relief shall not foreclose or in any way limit the right of AWS or USA Waste to
obtain a money judgment against Executive for any damage to AWS or USA Waste
that may result from any breach by Executive of any provision of this Agreement.
6. Reformation of Covenants. Executive acknowledges that the covenants
------------------------
contained in Sections 2 and 3 are reasonable in geographical and temporal scope
and in all other respects. If any court determines that any of such covenants,
or any part thereof, are unenforceable, then (a) the remainder of such covenants
shall not be affected by such determination and (b) those of such covenants that
are determined to be unenforceable because of the duration or scope thereof may
be reformed by the court to reduce their duration or scope so as to render the
same enforceable against Executive.
-3-
7. Miscellaneous.
-------------
(a) Severability. The unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(b) Waivers. No delay or omission by AWS or USA Waste in exercising
any right of AWS or USA Waste under this Agreement shall operate as a
waiver of that or any other right. A waiver by AWS or USA Waste on any one
occasion of any particular right shall be effective only in that particular
instance and shall not be construed as a waiver of that or any other right
on any other occasion.
(c) Amendment of this Agreement. This Agreement may be amended only
by an amendment hereto in writing that is executed by AWS, USA Waste and
Executive.
(d) Headings for Convenience Only. The headings contained in this
Agreement are intended solely for the convenience of the parties to this
Agreement and shall not affect their rights.
(e) Communications. All notices, consents and other communications
given under this Agreement shall be in writing and shall be deemed to have
been duly given (a) when delivered by hand or by Federal Express or a
similar overnight courier to, (b) five days after being deposited in any
United States Post Office enclosed in a postage prepaid registered or
certified envelope addressed to, or (c) when successfully transmitted by
telecopier (with a confirming copy of such communication to be sent as
provided in clauses (a) or (b) above) to, the party for whom intended, at
the address or telecopier number for such party set forth below, or to such
other address or telecopier number as may be furnished by such party by
notice in the manner provided in this Section 7(e); provided, however, that
any notice of change of address or telecopier number shall be effective
only upon receipt.
i. If to AWS prior to the Closing Date (as defined in the Merger
Agreement):
American Waste Services, Inc.
One American Way
Warren, Ohio 44484
(330) 856-8483 (Facsimile)
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attention: Sanford B. Ferguson
(412) 355-6501 (Facsimile)
-4-
ii. If to USA Waste at any time or AWS after the Closing Date:
USA Waste Services, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Chief Executive Officer
(713) 209-9711 (Facsimile)
with a copy to:
Gregory T. Sangalis
1001 Fannin, Suite 4000
Houston, Texas 77002
(713) 209-9711 (Facsimile)
and
Marcus A. Watts
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
600 Travis
Houston, Texas 77002
(713) 223-3717 (Facsimile)
iii. If to Executive, at the address set forth below his name on
the signature page hereto.
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attention: Sanford B. Ferguson
(412) 355-6501 (Facsimile)
Prior to the Closing Date, USA Waste shall receive copies of all notices
given hereunder by any party at the address set forth above.
(f) Assignments. The rights and obligations under this Agreement of
Executive, USA Waste and AWS may not be assigned, except that USA Waste
may, at its option, assign one or more of the rights or obligations under
this Agreement to any of its subsidiaries or affiliates; provided, however,
that any such assignment shall not relieve USA Waste of any liability under
this Agreement.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Ohio.
-5-
(h) Termination. This Agreement shall terminate and be of no further
force or effect upon the termination of the Merger Agreement.
[The remainder of this page intentionally left blank]
-6-
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
USA WASTE SERVICES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
AMERICAN WASTE SERVICES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXECUTIVE
----------------------------------------
Address:
--------------------------------
--------------------------------
(Facsimile)
---------------------
-7-