FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-80063
PROSPECTUS SUPPLEMENT
(To Prospectus Dated February 14, 2000)
$400,000,000
[WASTE MANAGEMENT, INC. LOGO]
6 1/2% Senior Notes due 2008
The notes will mature on November 15, 2008. Interest will accrue from November
20, 2001 and will be payable on May 15 and November 15 of each year beginning on
May 15, 2002. The notes will be our senior obligations and will rank equally
with all of our other unsecured senior indebtedness. We may redeem the notes in
whole or in part at any time at the redemption prices described beginning on
page S-10. The notes will be issued in denominations of $1,000 and integral
multiples of $1,000.
SEE "RISK FACTORS" BEGINNING ON PAGE S-3 OF THIS PROSPECTUS SUPPLEMENT AND
BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN
RISKS THAT YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or determined that this
prospectus supplement or the accompanying prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
PRICE TO UNDERWRITING PROCEEDS
PUBLIC(1) DISCOUNTS TO US
------------------- ------------------- ------------
Per Note..................................... 99.609% 0.625% 98.984%
Total........................................ $398,436,000 $2,500,000 $395,936,000
(1) Plus accrued interest from November 20, 2001 if delivery occurs after that
date.
The notes will not be listed on any securities exchange. Currently, there is no
public market for the notes.
The underwriters expect to deliver the notes to investors through the book-entry
system of The Depository Trust Company on or about November 20, 2001.
Joint Book-Running and Joint Lead Managers
BANC OF AMERICA SECURITIES LLC JPMORGAN SALOMON SMITH BARNEY
---------------------
ABN AMRO INCORPORATED
CREDIT SUISSE FIRST BOSTON
FLEET SECURITIES, INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY
PNC CAPITAL MARKETS, INC.
November 15, 2001
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS SUPPLEMENT OR THAT THE
INFORMATION WE PREVIOUSLY FILED WITH THE SEC AND INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE OF THE DOCUMENT INCORPORATED BY REFERENCE.
As used in this prospectus supplement, the terms "Waste Management," "we,"
"us" or "our" refer to Waste Management, Inc. and its subsidiaries, unless the
context otherwise requires.
---------------
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Our Company................................................. S-3
Risk Factors................................................ S-3
Use of Proceeds............................................. S-8
Description of Notes........................................ S-9
Underwriting................................................ S-15
Legal Matters............................................... S-16
Experts..................................................... S-17
Forward-Looking Statements.................................. S-17
PROSPECTUS
Where To Find More Information.............................. 2
Our Company................................................. 4
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 10
Use of Proceeds............................................. 11
Ratio of Earnings to Fixed Charges.......................... 11
Description of Debt Securities.............................. 12
Description of Capital Stock................................ 36
Plan of Distribution........................................ 38
Validity of Securities...................................... 38
Experts..................................................... 39
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OUR COMPANY
Waste Management, Inc. is its industry's leading provider of integrated
waste services in North America. Through our subsidiaries, we provide
collection, transfer, recycling and resource recovery, and disposal services. We
are also a leading developer, operator and owner of waste-to-energy facilities
in the United States.
In the past, our primary growth strategy was to purchase revenue through
acquisitions. However, we are now working on becoming a company of operational
excellence by focusing on (1) providing excellent customer service, (2)
improving the way we operate, (3) increasing cash flow and (4) generating higher
profit margins. To that end, we established four major company-wide initiatives
for 2001, which are as follows:
- converting our existing financial systems to PeopleSoft enterprise
financial systems;
- implementing a procurement strategy;
- conducting in-depth studies of our markets to determine the dynamics of
different markets, the way we serve our markets and the most profitable
way to operate in our markets; and
- implementing a strategy to improve customer focus and the way we service
our customers.
We continue to progress with these initiatives in accordance with the
timelines that we have established for the company.
We plan to continue focusing on internal growth and profits as opposed to
external growth, or growth through acquisitions. We believe that there remain
opportunities to expand our services through acquisitions of businesses and
operations that can be effectively integrated with our operations, and will
pursue those opportunities when available. However, our goal is to refocus on
our core business of North American solid waste management and build a stronger
company by continuing to find new ways to increase efficiency, improve
productivity and achieve greater profitability.
RISK FACTORS
WE FACE UNCERTAINTIES RELATING TO PENDING LITIGATION AND INVESTIGATIONS
On three different occasions during July and August 1999, we lowered our
expected earnings per share for the three months ended June 30, 1999. More than
30 lawsuits that claim to be based on our 1999 announcements have been filed
against us and some of our current and former officers and directors. These
lawsuits, which have been consolidated into one action, assert various claims
under the federal securities laws, including claims that (i) the projections we
made about our June 30, 1999 earnings were false and misleading, (ii) we failed
to disclose information about our earnings projections that would have been
important to purchasers of our stock, (iii) we made further misrepresentations
after July 29, 1999 about our operations and finances, resulting in our company
taking a pre-tax charge of $1.76 billion in the third quarter of 1999, and (iv)
we made false or misleading representations in the registration statement and
prospectus filed with the SEC in connection with our July 1998 acquisition of
Waste Management Holdings Inc. ("WM Holdings"). The plaintiffs also claim that
certain of our current and former officers and directors sold their common stock
during times when they knew the price was artificially inflated by the alleged
misstatements and omissions.
On November 7, 2001, we announced that we had reached a settlement
agreement with the plaintiffs in this case, resolving all claims against us and
the other defendants arising from or related to the allegations in the
litigation. Under the settlement agreement, which is subject
S-3
to additional confirmatory discovery by the plaintiffs and approval by the
court, we will pay $457 million to certain purchasers or acquirers of our
securities during the period from June 11, 1998 through November 9, 1999 and
will present and recommend to our shareholders a binding resolution to
declassify our board of directors and require that all of our directors are
elected annually.
Other lawsuits relating to the facts described above and the February 1998
restatements by WM Holdings of its prior-period financial statements, including
purported class actions, have been filed against WM Holdings and us. These
include lawsuits brought by individuals who purchased our stock or stock of WM
Holdings, sold businesses or assets to us or WM Holdings, or held their stock
allegedly in reliance on statements we made. For a more detailed discussion of
our current litigation, see "Commitments and Contingencies" in the notes to our
Condensed Consolidated Financial Statements in our Quarterly Report on Form 10-Q
for the period ended September 30, 2001 incorporated by reference herein. We and
our subsidiaries are also currently involved in other civil litigation and
governmental proceedings related to the conduct of our business.
We do not believe it is feasible to predict or determine the outcome or
resolution of any of these proceedings. In addition, the timing of the final
resolutions to these matters is uncertain. The possible outcomes or resolutions
to these matters or any new litigation or governmental proceedings could include
judgments against us or settlements and could require substantial payments by
us. We believe that adverse outcomes or any other resolution, such as
settlements, could have a material adverse effect on our financial condition,
results of operations and cash flows.
WE COULD BE LIABLE FOR ENVIRONMENTAL DAMAGES RESULTING FROM OUR OPERATIONS
We could be liable if our operations cause environmental damage to our
properties or to nearby landowners, particularly as a result of the
contamination of drinking water sources or soil. Under current law, we could
even be held liable for damage caused by conditions that existed before we
acquired the assets or operations involved. Also, we could be liable if we
arrange for the transportation, disposal or treatment of hazardous substances
that cause environmental contamination, or if a predecessor owner made such
arrangements and under applicable law we are treated as a successor to the prior
owner. Any substantial liability for environmental damage could have a material
adverse effect on our financial condition, results of operations and cash flows.
In the ordinary course of our business, we have in the past, and may in the
future, become involved in a variety of legal and administrative proceedings
relating to land use and environmental laws and regulations. These include
proceedings in which:
- agencies of federal, state, local or foreign governments seek to impose
liability on us under applicable statutes, sometimes involving civil or
criminal penalties for violations, or to revoke or deny renewal of a
permit we need, and
- citizen groups, adjacent landowners or governmental agencies oppose the
issuance of a permit or approval we need, allege violations of the
permits under which we operate or laws or regulations to which we are
subject, or seek to impose liability on us for environmental damage.
The adverse outcome of one or more of these proceedings could have a
material adverse effect on our financial condition, results of operations and
cash flows.
From time to time, we have received citations or notices from governmental
authorities that our operations are not in compliance with our permits or
certain applicable environmental or land use laws and regulations. In the future
we may receive additional citations or notices.
S-4
We generally seek to work with the authorities to resolve the issues raised by
such citations or notices. However, we cannot guarantee that we will always be
successful in this regard. Where we are not successful, we may incur fines,
penalties or other sanctions that could have a material adverse effect on our
financial condition, results of operations and cash flows.
Our insurance for environmental liability meets or exceeds statutory
requirements. However, because we believe that the cost for such insurance is
high relative to the coverage it would provide, our coverages are generally
maintained at statutorily required levels. Due to the limited nature of our
insurance coverage for environmental liability, if we were to incur liability
for environmental damage, such liability could have a material adverse effect on
our financial condition, results of operations and cash flows.
In addition, to fulfill our financial assurance obligations with respect to
environmental closure and post-closure liabilities, we generally obtain letters
of credit or surety bonds, or rely on insurance, including captive insurance. We
currently have in place all necessary financial assurance instruments, and we do
not anticipate any difficulties obtaining financial assurance instruments in the
future. However, in the event in the future we are unable to obtain sufficient
surety bonding, letters of credit or third-party insurance coverage at
reasonable cost, or one or more states cease to view captive insurance as
adequate coverage, we would need to rely on other forms of financial assurance.
These types of financial assurance could be more expensive to obtain, which
could negatively impact our liquidity and capital resources.
GOVERNMENTAL REGULATIONS MAY RESTRICT OUR OPERATIONS OR INCREASE OUR COSTS OF
OPERATIONS
Stringent government regulations at the federal, state and local level in
the United States and Canada have a substantial impact on our business. A large
number of complex laws, rules, orders and interpretations govern environmental
protection, health, safety, land use, zoning, transportation and related
matters. Among other things, they may restrict our operations and adversely
affect our financial condition, results of operations and cash flows by imposing
conditions such as:
- limitations on the siting and construction of new waste disposal,
transfer or processing facilities or the expansion of existing
facilities;
- limitations and regulations on collection and disposal prices, rates and
volumes;
- limitations or bans on disposal or transportation of out-of-state waste
or certain categories of waste; or
- mandates regarding the disposal of solid waste.
Regulations also affect the siting, design and closure of landfills and
could require us to undertake investigatory or remedial activities, curtail
operations or close a landfill temporarily or permanently. Future changes in
these regulations may require us to modify, supplement or replace equipment or
facilities. The costs of complying with these regulations could be substantial.
In order to develop, expand or operate a landfill or other waste management
facility, we must have various facility permits and other governmental
approvals, including those relating to zoning, environmental protection and land
use.
S-5
OUR ACCOUNTING POLICIES CONCERNING UNAMORTIZED CAPITALIZED EXPENDITURES COULD
RESULT IN A MATERIAL CHARGE AGAINST OUR EARNINGS
In accordance with generally accepted accounting principles, we capitalize
certain expenditures and advances relating to acquisitions, pending
acquisitions, and disposal site development and expansion projects. We expense
indirect acquisition costs, such as executive salaries, general corporate
overhead, public affairs and other corporate services, as incurred. Our policy
is to charge against earnings any unamortized capitalized expenditures and
advances relating to any facility or operation that is permanently shut down,
any pending acquisition that is not consummated, and any disposal site
development or expansion project that is not completed. The charge against
earnings is reduced by any portion of the capitalized expenditure and advances
that we estimate will be recoverable, through sale or otherwise. In future
periods, we may be required to incur charges against earnings in accordance with
our policy. Depending on the magnitude, any such charges could have a material
adverse effect on our results of operations.
THE DEVELOPMENT AND ACCEPTANCE OF ALTERNATIVES TO LANDFILL DISPOSAL AND
WASTE-TO-ENERGY FACILITIES COULD REDUCE OUR ABILITY TO OPERATE AT FULL CAPACITY
Our customers are increasingly using alternatives to landfill disposal,
such as recycling and composting. In addition, state and local governments are
increasingly mandating recycling and waste reduction at the source and
prohibiting the disposal of certain types of wastes, such as yard wastes, at
landfills or waste-to-energy facilities. These developments could reduce the
volume of waste going to landfills and waste-to-energy facilities in certain
areas, which may affect our ability to operate our landfills and waste-to-energy
facilities at full capacity, as well as the prices that we can charge for
landfill disposal and waste-to-energy services.
OUR BUSINESS IS SEASONAL IN NATURE AND OUR REVENUES AND RESULTS VARY FROM
QUARTER TO QUARTER
Our operating revenues are usually lower in the winter months, primarily
because the volume of waste relating to construction and demolition activities
usually increases in the spring and summer months, and the volume of industrial
and residential waste in certain regions where we operate usually decreases
during the winter months. Our first and fourth quarter results of operations
typically reflect this seasonality. In addition, particularly harsh weather
conditions may result in the temporary suspension of certain of our operations.
FLUCTUATIONS IN THE PRICE OF RECYCLABLE MATERIALS AFFECT OUR OPERATING REVENUES
Recyclable materials that we process for sale include paper, plastics,
aluminum and other commodities which are subject to significant price
fluctuations. These fluctuations will affect our future operating revenues and
income.
S-6
INTENSE COMPETITION COULD REDUCE OUR PROFITABILITY
We encounter intense competition from governmental, quasi-governmental and
private sources in all aspects of our operations. In North America, the industry
consists of several large national waste management companies, and local and
regional companies of varying sizes and financial resources. We compete with
numerous waste management companies as well as with counties and municipalities
that maintain their own waste collection and disposal operations. These counties
and municipalities may have financial competitive advantages because tax
revenues and tax-exempt financing are available to them. In addition,
competitors may reduce their prices to expand sales volume or to win
competitively bid municipal contracts.
WE FACE POTENTIAL DIFFICULTIES MANAGING OUR RECENT GROWTH
In recent years, we have made a number of acquisitions, some of them
substantial. Our future financial results and prospects depend in part on our
ability to successfully manage and improve the operating efficiencies and
productivity of these acquired operations. In particular, whether the
anticipated benefits of our acquired operations are ultimately achieved will
depend on a number of factors, including our ability to achieve administrative
cost savings, rationalization of collection routes, insurance and bonding cost
reductions, general economies of scale, and our ability, generally, to
capitalize on our asset base and strategic position. Moreover, our ability to
operate successfully will depend on a number of factors, including competition
from other waste management companies, availability of working capital, ability
to maintain margins on existing or acquired operations, and the management of
costs in a changing regulatory environment.
Our past acquisitions involve certain other potential risks, including:
- our failure to accurately assess all of the pre-existing liabilities of
acquired companies;
- unexpected difficulties in successfully integrating the operations of
acquired companies with our existing operations; and
- the businesses we acquire not proving profitable.
WE MAY NEED ADDITIONAL CAPITAL IF OUR CASH FLOW IS LESS THAN EXPECTED
We currently expect to generate sufficient cash flow from operations to
cover our anticipated cash needs for capital expenditures, acquisitions and
other cash expenditures. If our cash flow from operations is less than currently
expected, or our capital requirements increase, either due to strategic
decisions or otherwise, we may elect to incur further indebtedness or issue
equity securities to cover any additional capital needs. However, we cannot
guarantee that we will be successful in obtaining additional capital on
acceptable terms.
Our credit facilities require us to comply with certain financial ratios.
If our cash flows are less than expected or our capital requirements are more
than expected, we may not be in compliance with the ratios. This would result in
a default under our credit agreements. If there were a default, we may not be
able to get waivers or amendments to our credit facilities, and the lenders
could choose to declare all outstanding borrowings due and payable. If that
happened, there can be no assurances that we could fully repay the amounts due.
Since we are partially dependent on our credit facilities to fund borrowing
needs, any default would have a material adverse effect on our consolidated
financial condition and results of operation.
S-7
EFFORTS BY LABOR UNIONS TO ORGANIZE OUR EMPLOYEES COULD DIVERT MANAGEMENT
ATTENTION AND INCREASE OUR OPERATING EXPENSES
In the past, labor unions have made attempts to organize our employees, and
these efforts may continue in the future. Certain groups of our employees have
chosen to be represented by unions, and we have negotiated collective bargaining
agreements with some of the groups. We cannot predict which, if any, groups of
employees may seek union representation in the future or the outcome of
collective bargaining. The negotiation of these agreements could divert
management attention and result in increased operating expenses and lower net
income. If we are unable to negotiate acceptable collective bargaining
agreements, we might have to wait through "cooling off" periods, which are often
followed by union-initiated work stoppages, including strikes. Depending on the
type and duration of such work stoppage, our operating expenses could increase
significantly.
FLUCTUATIONS IN FUEL COSTS COULD AFFECT OUR OPERATING EXPENSES AND RESULTS
The price and supply of fuel is unpredictable and fluctuates based on
events outside our control, including geopolitical developments, supply and
demand for oil and gas, actions by OPEC and other oil and gas producers, war and
unrest in oil producing countries, regional production patterns and
environmental concerns. Because fuel is needed to run our fleet of trucks, price
escalations or reductions in the supply of fuel could increase our operating
expenses and have a negative impact on our consolidated financial condition and
results of operations. In the past, we have implemented a fuel surcharge to
offset fuel increase costs. However, we are not always able to pass through the
increased fuel costs due to the terms of certain customers' contracts.
WE FACE RISKS RELATING TO GENERAL ECONOMIC CONDITIONS
We face risks related to general economic and market conditions, including
the potential impact of the current domestic economic slowdown, as well as any
resulting recession, interest rate fluctuation or other adverse external
economic conditions. Negative general economic conditions could materially
adversely affect our financial condition, results of operation and cash flows.
WE MAY ENCOUNTER DIFFICULTIES DEPLOYING OUR ENTERPRISE SOFTWARE
We are currently in the process of deploying enterprise-wide software
systems that will replace our current financial, human resources and payroll
systems. These systems may initially contain errors or cause other problems that
could adversely affect, or even temporarily disrupt, all or a portion of our
operations until resolved.
USE OF PROCEEDS
We expect the net proceeds from the offering of the notes to be
approximately $395.7 million, after deducting discounts to the underwriters and
estimated expenses of the offering. We intend to use the net proceeds, together
with cash on hand, to retire all $535 million principal amount of our
outstanding 4% convertible subordinated notes due February 1, 2002. Pending
application of the proceeds as described, we will temporarily invest the
proceeds in short-term investments.
S-8
DESCRIPTION OF NOTES
The notes are a new series of debt securities described in the accompanying
prospectus that will be issued under an Indenture dated as of September 10, 1997
(the "Indenture"), between us and JPMorgan Chase Bank (the successor to The
Chase Manhattan Bank), as trustee (the "Trustee"). We will issue the notes
pursuant to a resolution of our Board of Directors and accompanying officers'
certificate setting forth the specific terms applicable to the notes.
This Description of Notes is intended to be an overview of the material
provisions of the notes and is intended to supplement, and to the extent of any
inconsistency replace, the description of the general terms and provisions of
the debt securities set forth in the accompanying prospectus, to which we refer
you. Since this Description of Notes is only a summary, you should refer to the
Indenture and the notes, forms of which are available from us, for a complete
description of our obligations and your rights.
GENERAL
The Notes. The notes:
- are our general unsecured, senior obligations;
- constitute a new series of debt securities issued under the Indenture and
will be initially limited to an aggregate principal amount of $400
million;
- mature on November 15, 2008;
- will not be entitled to the benefit of any sinking fund;
- will be issued in denominations of $1,000 and integral multiples of
$1,000; and
- will be issued only in book-entry form represented by one or more global
notes registered initially in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"), or such other name as may be requested
by an authorized representative of DTC, and deposited with DTC.
Interest. Interest on the notes will:
- accrue at the rate of 6 1/2% per annum;
- accrue from November 20, 2001 or the most recent interest payment date;
- be payable in cash semi-annually in arrears on May 15 and November 15 of
each year, commencing on May 15, 2002;
- be payable to holders of record on the May 1 and November 1 immediately
preceding the related interest payment dates; and
- be computed on the basis of a 360-day year consisting of twelve 30-day
months.
Payment and Transfer.
Beneficial interests in notes in global form will be shown on, and
transfers of interests in notes in global form will be made only through,
records maintained by DTC and its participants. Notes in definitive form, if
any, may be registered, exchanged or transferred at the office or agency
maintained by us for such purpose (which initially will be the corporate trust
office of the Trustee located at 55 Water Street, Room 234, New York, New York
10041).
Payment of principal of, premium, if any, and interest on notes in global
form registered in the name of or held by DTC or its nominee will be made in
immediately available funds to DTC or its nominee, as the case may be, as the
registered holder of such global note. If any of the notes are no longer
represented by global notes, payment of interest on the notes in definitive
S-9
form may, at our option, be made at the corporate trust office of the Trustee or
by check mailed directly to registered holders at their registered addresses or
by wire transfer to an account designated by a registered holder.
No service charge will be made for any registration of transfer or exchange
of notes, but we may require payment of a sum sufficient to cover any transfer
tax or other similar governmental charge payable in connection therewith. We are
not required to transfer or exchange any note selected for redemption for a
period of 15 days before selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
OPTIONAL REDEMPTION
The notes will be redeemable, at our option, at any time in whole, or from
time to time in part, at a price equal to the greater of:
- 100% of the principal amount of the notes to be redeemed; or
- the sum of the present values of the remaining scheduled payments of
principal and interest (at the rate in effect on the date of calculation
of the redemption price) on the notes (exclusive of interest accrued to
the date of redemption) discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the applicable Treasury Yield plus 25 basis points;
plus, in either case, accrued interest to the date of redemption.
Notes called for redemption become due on the date fixed for redemption.
Notices of redemption will be mailed at least 30 but not more than 60 days
before the redemption date to each holder of record of the notes to be redeemed
at its registered address. The notice of redemption for the notes will state,
among other things, the amount of notes to be redeemed, the redemption date, the
redemption price and the place(s) that payment will be made upon presentation
and surrender of notes to be redeemed. Unless we default in payment of the
redemption price, interest will cease to accrue on any notes that have been
called for redemption at the redemption date. If less than all the notes are
redeemed at any time, the Trustee will select the notes to be redeemed on a pro
rata basis or by any other method the Trustee deems fair and appropriate.
For purposes of determining the optional redemption price, the following
definitions are applicable:
"Treasury Yield" means, with respect to any redemption date applicable
to the notes, the rate per annum equal to the semi-annual equivalent yield
to maturity (computed as of the third business day immediately preceding
the redemption date) of the Comparable Treasury Issue, assuming a price for
the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the applicable Comparable Treasury Price for the
redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity
comparable to the remaining term of the notes that would be utilized, at
the time of selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable maturity
to the remaining terms of the notes.
"Independent Investment Banker" means any of Banc of America
Securities LLC, J.P. Morgan Securities Inc. or Salomon Smith Barney Inc.
(and their respective successors), or, if all of such firms are unwilling
or unable to select the applicable Comparable Treasury Issue,
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an independent investment banking institution of national standing
appointed by the Trustee and reasonably acceptable to us.
"Comparable Treasury Price" means, with respect to any redemption
date, (a) the bid price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) at 4:00 p.m. on the third business day
preceding the redemption date, as set forth on "Telerate Page 500" (or such
other page as may replace Telerate Page 500), or (b) if such page (or any
successor page) is not displayed or does not contain such bid prices at
such time (i) the average of the Reference Treasury Dealer Quotations
obtained by the Trustee for the redemption date, after excluding the
highest and lowest of all Reference Treasury Dealer Quotations obtained, or
(ii) if the Trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all Reference Treasury Dealer Quotations
obtained by the Trustee.
"Reference Treasury Dealer" means (i) each of Banc of America
Securities LLC, J.P. Morgan Securities Inc. and Salomon Smith Barney Inc.
and their respective successors, unless any of them ceases to be a primary
U.S. government securities dealers in New York City (a "Primary Treasury
Dealer"), in which case we will substitute therefor another Primary
Treasury Dealer, and (ii) any other Primary Treasury Dealer selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date for the notes, an
average, as determined by the Trustee, of the bid and asked prices for the
Comparable Treasury Issue for the notes (expressed in each case as a
percentage of its principal amount) quoted in writing to the Trustee by the
Reference Treasury Dealer at 5:00 p.m., New York City time, on the third
business day preceding such redemption date.
Except as set forth above, the notes will not be redeemable by us prior to
maturity and will not be entitled to the benefit of any sinking fund.
DEFEASANCE
The notes will be subject to defeasance and discharge and to covenant
defeasance as provided under "Description of Debt Securities -- Provisions
Applicable to Both Senior and Subordinated Debt Securities -- Defeasance and
Discharge" in the accompanying prospectus.
RANKING
The notes will be our unsecured and unsubordinated obligations and will
rank equally with all of our other existing and future unsecured and
unsubordinated indebtedness.
We currently conduct substantially all our operations through our
subsidiaries, and our subsidiaries generate substantially all our operating
income and cash flow. As a result, distributions or advances from our
subsidiaries are the principal source of funds necessary to meet our debt
service obligations. Contractual provisions or laws, as well as our
subsidiaries' financial condition and operating requirements, may limit our
ability to obtain cash from our subsidiaries that we require to pay our debt
service obligations, including payments on the notes. The notes will be
structurally subordinated to all obligations of our subsidiaries, including
claims of trade payables. This means that holders of the notes will have a
junior position to the claims of creditors of our subsidiaries on their assets
and earnings. The notes will also be effectively subordinated to any secured
debt we may incur, to the extent of the value of the assets securing that debt.
The Indenture does not limit the amount of debt our subsidiaries can incur, and
it permits us to incur some secured debt.
As of September 30, 2001, our subsidiaries had approximately $4.1 billion
of indebtedness, excluding intercompany loans. As of September 30, 2001, as
adjusted to give effect to the
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issuance of the notes and pending the application of the net proceeds from the
issuance, we would have had an aggregate of $8.3 billion of consolidated
indebtedness.
CERTAIN COVENANTS
Certain covenants in the Indenture limit our ability and the ability of our
subsidiaries to:
- create or permit to exist liens; and
- enter into sale and leaseback transactions.
For a description of these covenants, see "Description of Debt
Securities -- Provisions Applicable Solely to Senior Debt Securities" in the
accompanying prospectus.
FURTHER ISSUANCES
We may from time to time, without notice or the consent of the registered
holders of the notes, create and issue further notes ranking equally and ratably
with the notes in all respects (or in all respects except for the payment of
interest accruing prior to the issue date of such further notes), so that such
further notes shall be consolidated and form a single series with the notes and
shall have the same terms as to status, redemption or otherwise as the notes.
BOOK-ENTRY SYSTEM
We will issue the notes in the form of one or more global notes in fully
registered form initially in the name of Cede & Co., as nominee of DTC, or such
other name as may be requested by an authorized representative of DTC. The
global notes will be deposited with DTC and may not be transferred except as a
whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any nominee to a successor of DTC or a nominee of
such successor.
DTC has advised us and the underwriters as follows:
- DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
- DTC holds securities that its participants deposit with DTC and
facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities,
through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical
movement of securities certificates.
- Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations.
- DTC is owned by a number of its direct participants and by the New York
Stock Exchange, Inc., the American Stock Exchange LLC and the National
Association of Securities Dealers, Inc.
- Access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a direct participant, either
directly or indirectly.
- The rules applicable to DTC and its direct and indirect participants are
on file with the Securities and Exchange Commission.
S-12
Purchases of notes under the DTC system must be made by or through direct
participants, which will receive a credit for the notes on DTC's records. The
ownership interest of each actual purchaser of notes is in turn to be recorded
on the direct and indirect participants' records. Beneficial owners of the notes
will not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
or indirect participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests in the notes are to be
accomplished by entries made on the books of direct and indirect participants
acting on behalf of beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in the notes, except in the
event that use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by direct
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of notes with DTC and their registration in
the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the notes; DTC's records reflect only the identity of the direct participants to
whose accounts such notes are credited, which may or may not be the beneficial
owners. The direct and indirect participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or
vote with respect to the global notes. Under its usual procedures, DTC mails an
omnibus proxy to the issuer as soon as possible after the record date. The
omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts the notes are credited on the record date
(identified in the listing attached to the omnibus proxy).
All payments on the global notes will be made to Cede & Co., or such other
nominee as may be requested by an authorized representative of DTC. DTC's
practice is to credit direct participants' accounts upon DTC's receipt of funds
and corresponding detail information from us or the Trustee on payment dates in
accordance with their respective holdings shown on DTC's records. Payments by
participants to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participant and not of DTC, us or the Trustee, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to Cede & Co. (or such other nominee as may be
requested by an authorized representative of DTC) shall be the responsibility of
us or the Trustee. Disbursement of such payments to direct participants shall be
the responsibility of DTC, and disbursement of such payments to the beneficial
owners shall be the responsibility of direct and indirect participants.
DTC may discontinue providing its service as securities depositary with
respect to the notes at any time by giving reasonable notice to us or the
Trustee. In addition, we may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depositary). Under
such circumstances, in the event that a successor securities depositary is not
obtained, note certificates in fully registered form are required to be printed
and delivered to beneficial owners of the global notes representing such notes.
S-13
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable (including DTC),
but we take no responsibility for its accuracy.
Neither we, the Trustee nor the underwriters will have any responsibility
or obligation to direct participants, or the persons for whom they act as
nominees, with respect to the accuracy of the records of DTC, its nominee or any
direct participant with respect to any ownership interest in the notes, or
payments to, or the providing of notice to direct participants or beneficial
owners.
So long as the notes are in DTC's book-entry system, secondary market
trading activity in the notes will settle in immediately available funds. All
applicable payments on the notes issued as global notes will be made by us in
immediately available funds.
S-14
UNDERWRITING
Banc of America Securities LLC ("Banc of America Securities"), J.P. Morgan
Securities Inc. ("JPMorgan") and Salomon Smith Barney Inc. are acting as joint
book-running and joint lead managers of the offering and as representatives of
the underwriters named below.
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, each underwriter named below has
agreed to purchase, and we have agreed to sell to that underwriter, the
principal amount of notes set forth opposite the underwriter's name.
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
Banc of America Securities LLC.............................. $106,668,000
J.P. Morgan Securities Inc. ................................ 106,666,000
Salomon Smith Barney Inc. .................................. 106,666,000
ABN AMRO Incorporated....................................... 10,000,000
Credit Suisse First Boston Corporation...................... 10,000,000
Fleet Securities, Inc. ..................................... 10,000,000
Goldman, Sachs & Co. ....................................... 10,000,000
Lehman Brothers Inc. ....................................... 10,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 10,000,000
Morgan Stanley & Co. Incorporated........................... 10,000,000
PNC Capital Markets, Inc. .................................. 10,000,000
------------
Total............................................. $400,000,000
============
The underwriting agreement provides that the obligations of the
underwriters to purchase the notes included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the notes if they purchase any of the notes.
The underwriters propose to offer some of the notes directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the notes to dealers at the public offering price less a
concession not to exceed 0.375% of the principal amount of the notes. The
underwriters may allow, and dealers may reallow, a concession not to exceed
0.250% of the principal amount of the notes on sales to other dealers. After the
initial offering of the notes to the public, the representatives may change the
public offering price and concessions.
The following table shows the underwriting discounts and commissions that
we are to pay to the underwriters in connection with this offering (expressed as
a percentage of the principal amount of the notes).
PAID BY WASTE MANAGEMENT
------------------------
Per note............................................ 0.625%
In connection with the offering, the representatives, on behalf of the
underwriters, may purchase and sell notes in the open market. These transactions
may include over-allotment, syndicate covering transactions and stabilizing
transactions. Over-allotment involves syndicate sales of notes in excess of the
principal amount of notes to be purchased by the underwriters in the offering,
which creates a syndicate short position. Syndicate covering transactions
involve purchases of the notes in the open market after the distribution has
been completed in order to cover syndicate short positions. Stabilizing
transactions consist of certain bids or purchases of
S-15
notes made for the purpose of preventing or retarding a decline in the market
price of the notes while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
representatives, in covering syndicate short positions or making stabilizing
purchases, repurchase notes originally sold by that syndicate member.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the notes. They may also cause the price of the
notes to be higher than the price that otherwise would exist in the open market
in the absence of these transactions. The underwriters may conduct these
transactions in the over-the-counter market or otherwise. If the underwriters
commence any of these transactions, they may discontinue them at any time.
We estimate that our total expenses for this offering will be $200,000.
We have agreed that we will not offer to sell any of our debt securities
(other than the notes, bank borrowings and commercial paper) for a period of 30
days after the date of this prospectus supplement without the prior written
consent of the representatives.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make because of any of those
liabilities.
Certain of the underwriters or their affiliates have performed investment
banking and advisory services for us from time to time for which they have
received customary fees and expenses. The Trustee with respect to the notes is
an affiliate of JPMorgan. The underwriters may, from time to time, engage in
transactions with and perform services for us in the ordinary course of their
business.
Banc of America Securities and JPMorgan will make the securities available
for distribution on the Internet through a proprietary web site and/or
third-party system operated by Market Axess Inc., an Internet-based
communications technology provider. Market Axess Inc. is providing the system as
a conduit for communications between Banc of America Securities and JPMorgan and
their respective customers, and is not a party to any transactions. Market Axess
Inc., a registered broker-dealer, will receive compensation from Banc of America
Securities and JPMorgan based on transactions they conduct through the system.
Banc of America Securities and JPMorgan will make the securities available to
their respective customers through the Internet distributions, whether made
through a proprietary or third-party system, on the same terms as distributions
made through other channels.
LEGAL MATTERS
Certain legal matters in connection with the notes offered hereby will be
passed upon for us by Baker Botts L.L.P., Houston, Texas, and for the
underwriters by Vinson & Elkins L.L.P., Houston, Texas. Vinson & Elkins L.L.P.
represents us from time to time in matters unrelated to this offering.
S-16
EXPERTS
The audited consolidated financial statements of Waste Management, Inc. as
of December 31, 2000, 1999 and 1998 and for each of the years in the three-year
period ended December 31, 2000 incorporated by reference in this prospectus
supplement and the accompanying prospectus have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their reports. The audited
consolidated financial statements of Waste Management, Inc. as of December 31,
2000, 1999 and 1998 and for each of the years in the three-year period ended
December 31, 2000 are included herein in reliance upon the authority of Arthur
Andersen LLP as experts in giving said reports.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus, including the
information incorporated by reference, contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our
current views on future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in "Risk Factors" in this prospectus supplement and the accompanying
prospectus and other factors set forth in the documents incorporated by
reference, as well as the following:
- the outcome of litigation or investigations;
- possible changes in our estimates of site remediation requirements, final
closure and post-closure issues, compliance and other audits and
regulatory developments;
- the possible impact of regulation on our business, including the cost to
comply with regulatory requirements and the potential liabilities
associated with disposal operations, as well as our ability to obtain and
maintain permits needed to operate our facilities;
- the effect of limitations or bans on disposal or transportation of
out-of-state waste or certain categories of waste;
- our ability to improve the productivity of acquired operations and use
our asset base and strategic position to operate more efficiently;
- our ability to accurately assess all of the pre-existing liabilities of
companies we have acquired and to successfully integrate the operations
of acquired companies with our existing operations;
- possible charges against earnings for certain shutdown operations and
uncompleted acquisitions or development or expansion projects;
- possible charges to asset impairments or further impairments to
long-lived assets resulting from changes in circumstances or future
business events or decisions;
- the effects that trends towards requiring recycling, waste reduction at
the source and prohibiting the disposal of certain types of wastes could
have on volumes of waste going to landfills and waste-to-energy
facilities;
- the effect the weather has on our quarter-to-quarter results, as well as
the effect of extremely harsh weather on our operations;
- the effect of price fluctuations of recyclable materials processed by us;
- the effect competition in our industry could have on our ability to
maintain margins, including uncertainty relating to competition with
governmental sources that enjoy competitive advantages from tax-exempt
financing and tax revenue subsidies;
S-17
- possible defaults under our credit agreements if we are not able to
satisfy certain financial ratios and covenants, and the possibility that
we can not obtain additional capital on acceptable terms if needed;
- possible diversions of management's attention and increases in operating
expenses due to efforts by labor unions to organize our employees;
- possible increases in operating expenses due to fuel price increases or
fuel supply shortages;
- the effects of general economic conditions;
- the ability of insurers to fully or timely meet their contractual
commitments and the effect that litigation against insurance companies
and any settlements of such litigation may have on our ability to meet
our past and future liabilities;
- our ability to successfully deploy our new enterprise-wide software
systems;
- the outcome of the hearing that the court will hold regarding whether the
class action settlement we announced on November 7, 2001 is reasonable,
fair and adequate;
- whether, if the class action settlement is approved, there is an appeal
of that approval and the outcome of any such appeal;
- the outcome of any confirmatory discovery upon which the class action is
contingent;
- the number of class members who will request to be excluded from the
class and whether that number is large enough to trigger a provision in
the class action settlement agreement that will allow termination of the
agreement;
- the number of objectors to the class action settlement;
- the outcome of the hearing that the court will hold regarding whether the
derivative lawsuit settlement we announced on November 7, 2001 is fair,
reasonable and adequate;
- whether, if the derivative lawsuit settlement is approved, there is an
appeal of that approval and the outcome of any such appeal;
- the outcome of the confirmatory discovery upon which the derivative
lawsuit settlement agreement is contingent; and
- the number of objectors to the derivative lawsuit settlement.
These risks and uncertainties could cause actual results or events to
differ materially from historical results or those anticipated. You can identify
forward-looking statements by the use of words such as "expect," "estimate,"
"intend," "project," "budget," "forecast," "anticipate," "plan" and similar
expressions. Forward-looking statements include all statements regarding our
expected financial position, results of operations, cash flows, dividends,
financing plans, business strategies, operating efficiencies or synergies,
budgets, capital and other expenditures, competitive positions, growth
opportunities for existing products, plans and objectives of management, and
markets for stock. We caution you not to place undue reliance on these
forward-looking statements, which speak only as of their dates. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
S-18
PROSPECTUS
$3,000,000,000
WASTE MANAGEMENT, INC.
DEBT SECURITIES
COMMON STOCK
We may offer from time to time
- Debt securities
- Shares of our common stock
Our shares of common stock are listed on the New York Stock Exchange under the
symbol "WMI."
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4.
We will provide a prospectus supplement each time we issue the securities
covered by this prospectus. The prospectus supplement will provide specific
information about the terms of that offering and also may add, update or change
information contained in this prospectus.
You should read this prospectus and the related prospectus supplement
carefully before you invest in our securities. This prospectus may not be used
to offer and sell our securities unless accompanied by a prospectus supplement.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 14, 2000
TABLE OF CONTENTS
Where To Find More Information.............................. 2
Our Company................................................. 4
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 10
Use of Proceeds............................................. 11
Ratios of Earnings to Fixed Charges......................... 11
Description of Debt Securities.............................. 12
Description of Capital Stock................................ 36
Plan of Distribution........................................ 38
Validity of Securities...................................... 38
Experts..................................................... 39
WHERE TO FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 (Reg. No. 333-80063) with respect to the securities we are
offering. This prospectus does not contain all the information contained in the
registration statement, including its exhibits and schedules. You should refer
to the registration statement, including the exhibits and schedules, for further
information about us and the securities we are offering. Statements we make in
this prospectus about certain contracts or other documents are not necessarily
complete. When we make such statements, we refer you to the copies of the
contracts or documents that are filed as exhibits to the registration statement,
because those statements are qualified in all respects by reference to those
exhibits. The registration statement, including exhibits and schedules, is on
file at the offices of the SEC and may be inspected without charge. We file
annual, quarterly and current reports, proxy statements and other information
with the Commission. Our Commission filings, including the registration
statement, are available to the public over the Internet at the Commission's web
site at http://www.sec.gov. You can also read and copy any document we file at:
- the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and
- the regional offices of the Commission.
Please call the Commission at 1-800-SEC-0330 for more information about the
public reference facilities.
You can also inspect material filed by us at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005, on which shares of
our common stock are listed.
We are incorporating by reference in this prospectus some information we
file with the Commission. This means that we are disclosing important
information to you by referring you to those documents.
2
Specifically, we incorporate by reference the documents set forth below that we
have previously filed with the Commission:
COMMISSION FILINGS (FILE NO. 1-12154) PERIOD/DATE
------------------------------------- -----------
- Annual Report on Form 10-K Year ended December 31, 1998
- Quarterly Report on Form 10-Q Quarter ended March 31, 1999
(certain items in financial
statements were revised in
June 30, 1999 Form 10-Q)
- Quarterly Report on Form 10-Q Quarter ended June 30, 1999
- Quarterly Report on Form 10-Q (as amended on Form Quarter ended September 30,
10-Q/A) 1999
- Current Report on Form 8-K August 13, 1999
- Current Report on Form 8-K September 16, 1999
- Proxy Statement for the 1999 Annual Meeting of April 5, 1999
Stockholders
We also incorporate by reference the information contained in any future
filings made with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act until we sell all of the securities covered by this
prospectus, which information will be deemed to automatically update and
supersede this information.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Waste Management, Inc.
1001 Fannin Street, Suite 4000
Houston, Texas 77002
(713) 512-6200
Attn: Secretary
3
OUR COMPANY
We are a global leader in providing integrated waste management services.
In North America, where we have our principal operations, we provide solid
waste collection, transfer, recycling, resource recovery and disposal services.
We also are a leading operator and owner of waste-to-energy and waste-fuel
powered independent power facilities in the United States. We conduct other
operations in North America, including landfill disposal of hazardous wastes,
additional hazardous waste management services and low-level and other
radioactive waste services.
Outside of North America, we operate in Europe, the Pacific Rim, South
America and other select international markets, where we provide collection and
transportation services for solid, hazardous and medical wastes and collection,
treatment and disposal services for recyclable materials. We also operate solid
and hazardous waste landfills, municipal and hazardous waste incinerators, waste
and wastewater treatment facilities and hazardous waste treatment facilities, as
well as construct waste treatment or disposal facilities for third parties.
Our diversified customer base includes commercial, industrial, municipal
and residential customers, other waste management companies, governmental
entities and independent power markets.
On July 16, 1998, we changed our name to "Waste Management, Inc.," from
"USA Waste Services, Inc." On that date, we acquired all of the shares of Waste
Management Holdings, Inc., which at the time was the largest publicly traded
waste management services company in North America and which operated under the
"Waste Management" name.
Our executive offices are located at 1001 Fannin Street, Suite 4000,
Houston, Texas 77002, and our telephone number is (713) 512-6200.
RISK FACTORS
In addition to the information set forth in this prospectus, you should
carefully consider the risks described below before making an investment in the
securities offered. The risks described below are not the only ones facing us.
There may be additional risks not presently known to us or that we currently
deem immaterial which may also impair our business operations.
ACCOUNTING CHARGES HAVE NEGATIVELY IMPACTED REPORTED FINANCIAL RESULTS, RESULTED
IN THE IMPAIRMENT OF THE VALUE OF CERTAIN ASSETS AND MAY DECREASE OUR FUTURE
CASH FLOWS
During the third quarter of 1999, we initiated a comprehensive review of
our accounting records, systems, processes and controls at the direction of our
Board of Directors, which was completed in November 1999. As a result of this
review, we recorded certain charges and adjustments in the quarter ended
September 30, 1999 totaling $1.23 billion after tax. Because of the size of the
charges, generally accepted accounting principles require us to attempt to
determine whether portions of the charges apply to prior periods. While we
believe that certain of these charges may relate to prior periods, we do not
currently have sufficient information to identify all specific charges
attributable to prior periods. Producing the information required to identify
these charges would be cost prohibitive and disruptive to our operations.
Some of the charges and adjustments we recorded in the third quarter 1999,
such as certain increases in insurance reserves, environmental reserves, loss
contract provisions and adjustments resulting from completing account
reconciliations, are recurring in nature, and should therefore be expected to
occur in future periods. Additionally, certain of these charges and adjustments,
including receivables-related adjustments and insurance reserves, could have an
impact on our future cash flows.
Because some of the charges discussed above affect account balances
applicable to periods prior to the quarter ended September 30, 1999, we
concluded, after consultation with our independent public accountants, that our
internal controls for the preparation of interim financial information did not
provide
4
an adequate basis for them to complete reviews of the quarterly data for the
quarters in the nine months ended September 30, 1999. The review was completed
in November 1999, and we do not anticipate any additional material adjustments
to our financial statements based on the review. However, we may not be able to
successfully stabilize our accounting systems and procedures, and close our
accounting records and report our 1999 annual results in accordance with year
end audit procedures. Any failure to stabilize our accounting systems could
result in additional material charges and adjustments in the future.
WE MAY ENCOUNTER DIFFICULTIES IN IMPLEMENTING OUR PROPOSED STRATEGIC INITIATIVE
Our ability to successfully implement our proposed strategic initiative may
be affected by the willingness of prospective purchasers to purchase the assets
we identify as divestiture candidates on terms we find acceptable, the timing
and terms on which such assets may be sold, uncertainties relating to regulatory
approvals and other factors affecting the ability of prospective purchasers to
consummate such transactions. The success of our strategic initiative could also
be affected by the availability of financing, and uncertainties relating to the
impact of the proposed strategic initiative on our credit ratings and,
consequently, the availability and cost of debt and equity financing to us.
WE ARE UNDERGOING CHANGES IN MANAGEMENT
Our business may be affected by our ability to attract and retain qualified
individuals to serve in senior management positions.
WE FACE UNCERTAINTIES RELATING TO PENDING LITIGATION AND INVESTIGATIONS
We face uncertainties relating to pending litigation and investigations. We
are unable to predict the outcome or impact of these matters and there can be no
assurance that they will not have a material adverse effect on us and our
business.
WE FACE POTENTIAL DIFFICULTIES IN CONTINUING TO EXPAND AND MANAGE OUR GROWTH
We have grown rapidly, primarily through acquisitions. We cannot guarantee
that we will be able to continue to expand and successfully manage our growth.
We also cannot guarantee that our existing or acquired operations will not be
adversely affected by the pace of our growth. Improving the productivity of our
acquired operations and using our asset base and strategic position to operate
more efficiently is very important to our financial results and prospects. In
particular, whether we will ultimately achieve the anticipated benefits of
acquired operations will depend on a number of factors, including our ability to
effect:
- administrative costs savings;
- rationalization of collection routes;
- insurance and bonding cost reductions; and
- general economies of scale.
Moreover, our ability to continue to grow will depend on a number of
factors, including:
- competition from other waste management companies;
- the availability of attractive acquisition opportunities;
- our ability to mitigate antitrust concerns related to acquisitions in
several markets;
- the availability of working capital;
- our ability to maintain margins on existing or acquired operations; and
- our ability to manage costs in a changing regulatory environment.
5
OUR ACQUISITION STRATEGY INVOLVES POTENTIAL RISKS
We regularly pursue opportunities to expand by acquiring additional waste
management businesses and operations that can be effectively integrated with our
existing operations. In addition, we regularly pursue mergers and acquisition
transactions, some of which are significant, in new markets where we believe
that we can successfully become a provider of integrated waste management
services. As one of the leading industry consolidators, we could announce
transactions with either publicly or privately owned businesses at any time.
Our acquisition strategy involves potential risks. These risks include:
- our failure to accurately assess all of the pre-existing liabilities of
acquired companies;
- unexpected difficulties in successfully integrating the operations of
acquired companies with our existing operations;
- a lack of attractive acquisition opportunities;
- our inability to obtain the capital required to finance potential
acquisitions on satisfactory terms;
- the businesses we acquire not proving profitable; and
- our incurring additional indebtedness or issuing additional equity
securities as a result of future acquisitions.
WE MAY NEED ADDITIONAL CAPITAL IF OUR CASH FLOW IS LESS THAN EXPECTED
We expect to generate sufficient cash flow from our operations in 1999 to
cover our anticipated cash needs for capital expenditures and acquisitions. If
our cash flow from operations during 1999 is less than currently expected, or
our capital requirements increase, either due to strategic decisions or
otherwise, we may elect to incur indebtedness or issue equity securities to
cover any additional capital needs. However, we cannot guarantee that we will be
successful in obtaining additional capital in this manner on acceptable terms.
We also cannot guarantee that we will be successful in renewing our
existing credit facilities, or that we will be able to renew the credit
facilities on terms acceptable to us. If we are unable to renew our existing
credit facilities, or to obtain other financing sources, our business and
operating results could be affected adversely to a material extent.
FLUCTUATING INTEREST RATES COULD AFFECT US
In the past, we have used variable rate debt under revolving bank credit
arrangements as one method of financing our rapid growth. Although our recent
financings have reduced the amount of variable rate debt as a percentage of
total indebtedness outstanding, issuing variable rate debt will continue to be
an alternative for us. Fluctuations in variable interest rates, which may occur
as general interest rates change, could have a material adverse effect on us.
INTENSE COMPETITION COULD REDUCE OUR PROFITABILITY
We encounter intense competition from governmental, quasi-governmental and
private sources in all aspects of our operations.
In North America, the waste management services industry consists of large
national companies and local and regional companies of varying sizes and
financial resources. We compete with numerous waste management companies as well
as with counties and municipalities that maintain their own waste collection and
disposal operations. These counties and municipalities may have financial
competitive advantages because tax revenues and tax-exempt financing are
available to them. In addition, competitors may reduce their prices to expand
sales volume or to win competitively bid municipal contracts.
6
Profitability may decline because of the national emphasis on recycling,
composting, and other waste reduction programs that could reduce the volume of
solid waste collected or deposited in disposal facilities.
Outside of North America, the waste management services industry is very
decentralized and highly fragmented. In some markets, however, we compete with
substantial companies that hold significant market shares, particularly in
Finland, Germany, the Netherlands, Sweden and the United Kingdom. Some of our
international competitors may have greater financial resources and greater
technical resources than we do with respect to specific matters. Especially in
the case of larger contracts, we may be required to commit substantial resources
over a long period of time during the proposal phase without any assurance that
the contract will be awarded to us. Examples include contracts for city-cleaning
services, contracts or bids with respect to the construction or development of
water and wastewater facilities, or permitting and development of a new
treatment facility, waste-to-energy facility, incinerator or landfill.
OUR ACCOUNTING POLICIES CONCERNING UNAMORTIZED CAPITALIZED EXPENDITURES COULD
RESULT IN A MATERIAL CHARGE AGAINST OUR EARNINGS
In accordance with generally accepted accounting principles, we capitalize
certain expenditures and advances relating to acquisitions, pending
acquisitions, and disposal site development and expansion projects. We expense
indirect acquisition costs, such as executive salaries, general corporate
overhead, public affairs and other corporate services, as incurred. Our policy
is to charge against earnings any unamortized capitalized expenditures and
advances relating to any facility or operation that is permanently shut down,
any pending acquisition that is not consummated, and any disposal site
development or expansion project that is not completed. The charge against
earnings is reduced by any portion of the capitalized expenditure and advances
that we estimate will be recoverable, through sale or otherwise. In future
periods, we may be required to incur a charge against earnings in accordance
with our policy. Depending on its magnitude, any such charge could have a
material adverse effect on our consolidated financial statements.
GOVERNMENTAL REGULATIONS MAY RESTRICT OUR OPERATIONS OR INCREASE THE LEVEL OF
COSTS OF OUR OPERATIONS
Stringent government regulations at the federal, state and local level in
the United States and in other countries have a substantial impact on our
operations. A large number of complex laws, rules, orders and interpretations
govern environmental protection, health and safety, land use, zoning and related
matters. Among other things, they may restrict our operations and adversely
affect our operating results and financial condition by imposing conditions such
as:
- limitations on the siting and construction of new waste disposal,
transfer or processing facilities or the expansion of existing
facilities;
- limitations or bans on disposal of out-of-state waste or certain
categories of waste; or
- mandates regarding the disposal of solid waste.
Regulations also affect the siting, design and closure of landfills and
could require us to undertake investigatory or remedial activities, curtail
operations or close a landfill temporarily or permanently. Future changes in
these regulations may require us to modify, supplement or replace equipment or
facilities. The costs of complying with these regulations could be substantial.
In order to develop, expand or operate a landfill or other waste management
facility, we must have various facility permits and other governmental
approvals, including those relating to zoning, environmental protection and land
use. These permits and approvals are difficult, time consuming and costly to
obtain, in part because of possible opposition by governmental officials or
citizens. In addition, these permits and approvals may contain conditions that
limit operations and our ability to change the facility or are otherwise
difficult to comply with. We cannot guarantee that we will be successful in
obtaining and maintaining in effect permits and approvals required for the
successful operation and growth of our
7
business, including permits and approvals for the development of additional
disposal capacity needed to replace existing capacity that is exhausted.
Courts in the United States, basing their decisions on constitutional law,
have ruled that state and local governments may not use regulatory flow control
laws to restrict the free movement of waste in interstate commerce. We cannot
predict what impact, if any, these decisions will have on our disposal
facilities.
WE COULD BE LIABLE FOR ENVIRONMENTAL DAMAGES RESULTING FROM OUR DISPOSAL
FACILITIES AND COLLECTION OPERATIONS
We could be liable if our disposal facilities or collection operations
cause environmental damage to our properties or to nearby landowners,
particularly as a result of the contamination of drinking water sources or soil.
Under current law, we could even be held liable for damage caused by conditions
that existed before we acquired the assets or operations involved. Also, we
could be liable if we arrange for the transportation, disposal or treatment of
hazardous substances that cause environmental contamination, or if a predecessor
owner made such arrangements and under applicable law we are treated as a
successor to the prior owner. Any substantial liability for environmental damage
could have a material adverse effect on our operating results and financial
condition.
In the ordinary course of our business, we may become involved in a variety
of legal and administrative proceedings relating to land use and environmental
laws and regulations. These may include proceedings in which:
- agencies of federal, state, local or foreign governments seek to impose
liability on us under applicable statutes, sometimes involving civil or
criminal penalties for violations, or to revoke or deny renewal of a
permit we need; and
- citizen groups, adjacent landowners or governmental agencies oppose the
issuance of a permit or approval we need, allege violations of the
permits under which we operate or laws or regulations to which we are
subject, or seek to impose liability on us for environmental damage that
we may be responsible for.
The adverse outcome of one or more of these proceedings could have a
material adverse effect on our financial position, results of operations or cash
flows.
From time to time we have received citations or notices from governmental
authorities that our operations are not in compliance with our permits or
certain applicable environmental or land use laws and regulations. In the future
we may receive additional citations or notices. We generally seek to work with
the authorities to resolve the issues raised by such citations or notices.
However, we cannot guarantee that we will always be successful in this regard.
Where we are not, we may incur fines, penalties or other sanctions that could
have a material adverse effect on our financial position, results of operations
or cash flows.
Our insurance for environmental liability meets or exceeds statutory
requirements. However, because we believe that the cost for such insurance is
high relative to the coverage it would provide, our coverages are generally
maintained at statutorily required levels. Due to the limited nature of such
insurance coverage for environmental liability, if we were to incur liability
for environmental damage, such liability could have a material adverse effect on
our financial position, results of operations or cash flows.
THE DEVELOPMENT AND ACCEPTANCE OF ALTERNATIVES TO LANDFILL DISPOSAL AND
WASTE-TO-ENERGY FACILITIES COULD REDUCE OUR ABILITY TO OPERATE AT FULL CAPACITY
Our customers are increasingly using alternatives to landfill disposal,
such as recycling and composting. In addition, state and local governments are
increasingly mandating recycling and waste reduction at the source and
prohibiting the disposal of certain types of wastes, such as yard wastes, at
landfills or waste-to-energy facilities. These developments could reduce the
volume of waste going to
8
landfills and waste-to-energy facilities in certain areas, which may affect our
ability to operate our landfills and waste-to-energy facilities at full capacity
as well as the prices that we can charge for landfill disposal and
waste-to-energy services.
FLUCTUATIONS IN THE PRICE OF RECYCLABLE MATERIALS AFFECT OUR OPERATING REVENUES
Recyclable materials that we process for sale, including paper, plastics,
aluminum and other commodities, are subject to significant price fluctuations.
These fluctuations will affect our future operating revenues and income.
THE COMMISSION IS INVESTIGATING THE ACCOUNTING PRACTICES OF WASTE MANAGEMENT
HOLDINGS
The Commission has commenced a formal investigation with respect to the
previously filed financial statements (which were subsequently restated) and the
related accounting policies, procedures and system of internal controls of Waste
Management Holdings, Inc., or "WM Holdings," which we acquired through a merger
in July 1998. Several lawsuits and claims have been filed against WM Holdings
and some of its former officers and directors in connection with the restatement
of WM Holdings' financial statements. We are unable to predict the outcome or
impact of the investigation or any previously filed or future lawsuits or claims
arising out of the restatement. However, it is reasonably possible that they
could have a material adverse impact on our financial condition or results of
operations in one or more future periods.
OUR INTERNATIONAL OPERATIONS ENCOUNTER SOCIAL, POLITICAL AND ECONOMIC RISKS
Our operations in foreign countries generally are subject to a number of
risks inherent in any business operating in foreign countries, all of which are
beyond our control. These risks include:
- political, social and economic instability;
- inflation;
- general strikes;
- nationalization of assets;
- currency restrictions and exchange rate fluctuations;
- nullification, modification or renegotiation of contracts; and
- governmental regulation.
We can make no prediction as to how existing or future foreign governmental
regulations in any jurisdiction may affect us in particular or the waste
management industry in general.
OUR BUSINESS IS SEASONAL IN NATURE AND OUR REVENUES AND RESULTS VARY FROM
QUARTER TO QUARTER
Our operating revenues are usually lower in the winter months, primarily
because the volume of waste relating to construction and demolition activities
usually increases in the spring and summer months and the volume of industrial
and residential waste in certain regions where we operate usually decreases
during the winter months. Our first and fourth quarter results of operations
typically reflect this seasonality.
POTENTIAL EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of our Restated Certificate of Incorporation and Bylaws
may make it more difficult for a third party to acquire us in a transaction that
is not approved by our Board of Directors. For example, our Board of Directors
has the power to issue up to 10,000,000 shares of our preferred stock in one or
more series, and to fix the rights and preferences of any series, without
further authorization by the holders of our common stock. In addition, our Board
of Directors is divided into three classes, and each class serves for a
staggered three-year term. This makes it more difficult for a third party to
gain control of our Board of Directors. Generally, these provisions are designed
to permit us to develop our businesses and
9
foster our long-term growth without the disruption caused by the threat of a
takeover that our Board of Directors does not think is in our best interests or
in the best interests of our stockholders. Also, these provisions may discourage
a third party from making a tender offer or otherwise attempting to gain control
of us even though the attempt might be beneficial economically to us and our
stockholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In the normal course of our business, we, in an effort to help keep our
stockholders and the public informed about our operations, may from time to time
issue or make certain statements, either in writing or orally, that are or
contain "forward-looking statements," as that term is defined in the U.S.
federal securities laws. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits or other consequences of such
plans or strategies, projected or anticipated benefits from acquisitions made by
or to be made by us, or projections involving anticipated revenues, earnings, or
other aspects of operating results. Certain statements contained in this
prospectus or in the accompanying prospectus supplement and in the reports and
filings with the Commission that we incorporated by reference may be
forward-looking statements. The words "may," "expect," "believe," "anticipate,"
"project," "estimate," their opposites and similar expressions are intended to
identify forward-looking statements. We caution readers that such statements are
not guarantees of future performance or events and are subject to a number of
factors that may tend to influence the accuracy of the statements and the
projections upon which the statements are based, including, but not limited to,
those discussed above under "Risk Factors." All phases of our operations are
subject to a number of uncertainties, risks, and other influences, many of which
are outside our control, and any one of which, or a combination of which, could
materially affect our consolidated financial statements and operations and
whether forward-looking statements made by us ultimately prove to be accurate.
These factors are discussed more completely in our filings with the
Commission, including our annual report on Form 10-K for the year ended December
31, 1998, and our quarterly reports on Form 10-Q for the quarters ended March
31, 1999, June 30, 1999 and September 30, 1999, which are incorporated by
reference into this prospectus.
10
USE OF PROCEEDS
Except as otherwise described in any prospectus supplement, we will use the
net proceeds from the sale of our debt securities or common stock for general
corporate purposes. We will determine any specific allocation of the net
proceeds of an offering to a specific purpose at the time of such offering and
will describe the specific allocation in the related prospectus supplement.
We may also issue shares of our common stock to settle litigation and other
claims or to satisfy judgments or arbitration awards. We will not receive any
cash proceeds from these issuances but will eliminate an actual or potential
liability.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratios of earnings to fixed
charges for the periods as shown:
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- -------------
Actual.......................................... 2.7x 2.6x 2.1x N/A(1) N/A(2) NA(3)
---------------
(1) Earnings were insufficient to cover fixed charges in 1997. Additional
earnings of $660.4 million were necessary to cover fixed charges for this
period. The earnings available for fixed charges were negatively impacted by
merger costs of $112.7 million (primarily related to our merger with United
Waste Systems, Inc. in August 1997), and asset impairments and unusual items
of $1.8 billion. The asset impairments and unusual items primarily related
to a comprehensive review performed by Waste Management Holdings of its
operating assets and investments.
(2) Earnings were insufficient to fund fixed charges in 1998. Additional
earnings of $720.4 million were necessary to cover fixed charges for this
period. The earnings available for fixed charges were negatively impacted by
merger costs of $1.8 billion and asset impairments and unusual items of
$864.1 million related primarily to the mergers between Waste Management,
Inc. and Waste Management Holdings in July 1998, and Waste Management, Inc.
and Eastern Environmental Services, Inc. in December 1998.
(3) Earnings were insufficient to fund fixed charges for the nine months ended
September 30, 1999. Additional earnings of $155.0 million were necessary to
cover fixed charges for this period. The earnings available for fixed
charges were negatively impacted by merger costs of $111.3 million related
to the merger between Waste Management, Inc. and Waste Management Holdings,
Inc. in July 1998 and $700.0 million related to the comprehensive review we
performed of our operating assets and investments.
We computed our consolidated ratios of earnings to fixed charges by
dividing earnings available for fixed charges by fixed charges. For this
purpose, earnings available for fixed charges are the sum of income available
for fixed charges before income taxes, undistributed earnings from affiliated
companies' minority interests, cumulative effect of accounting changes, and
fixed charges, excluding capitalized interest. Fixed charges are interest,
whether expensed or capitalized, amortization of debt expense and discount on
premium relating to indebtedness, and such portion of rental expense that can be
demonstrated to be representative of the interest factor in the particular case.
11
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either our senior debt, or "Senior Debt
Securities," or our subordinated debt, or "Subordinated Debt Securities." Debt
Securities may be issued from time to time under one or more indentures, each
dated as of a date on or prior to the issuance of the Debt Securities to which
it relates. Senior Debt Securities and Subordinated Debt Securities may be
issued pursuant to separate indentures, respectively, a "Senior Debt Indenture"
and a "Subordinated Debt Indenture," in each case between us and Texas Commerce
Bank National Association, now known as Chase Bank of Texas, National
Association, or "Chase Bank," and in the form filed as an exhibit to the
Registration Statement of which this prospectus is a part, subject to such
amendments or supplements as may be adopted from time to time.
We have previously entered into a Senior Indenture dated as of September
10, 1997 with Chase Bank in the form filed as an exhibit to our Current Report
on Form 8-K (file no. 1-12154) filed with the Commission on September 24, 1997.
We have previously entered into a Subordinated Indenture dated as of February 1,
1997 with Chase Bank in the form filed as an exhibit to our Current Report on
Form 8-K (file no. 1-12154) filed with the Commission on February 7, 1997. The
Senior Debt Indenture and the Subordinated Debt Indenture, as amended or
supplemented from time to time, are sometimes hereinafter referred to
individually as an "Indenture" and collectively as the "Indentures." Chase Bank
(and any successors thereto as trustees under the respective Indentures) is
hereafter referred to as the "Trustee." The following summaries of actual or
anticipated provisions of the Indentures and the Debt Securities do not purport
to be complete and such summaries are subject to the detailed provisions of the
applicable Indenture to which reference is hereby made for a full description of
such provisions, including the definition of certain terms used herein. Section
references in parentheses below are to sections in both Indentures unless
otherwise indicated. Wherever particular sections or defined terms of the
applicable Indenture are referred to, such sections or defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference. The Indentures are
substantially identical, except for certain of our covenants and provisions
relating to subordination and conversion.
The Debt Securities may be issued from time to time in one or more series.
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities of all series. The particular terms
of each series of Debt Securities offered by any prospectus supplement will be
described therein.
PROVISIONS APPLICABLE TO BOTH SENIOR AND SUBORDINATED DEBT SECURITIES
General. The Debt Securities will be our unsecured senior or subordinated
obligations and may be issued from time to time in one or more series. The
Indentures do not limit the amount of Debt Securities, debentures, notes or
other types of indebtedness that we may issue or that any of our subsidiaries
may issue. The Indentures do not, other than as may be set forth in any
prospectus supplement, restrict transactions between us and our affiliates or
the payment of dividends or other distributions by us to our stockholders. The
rights of our creditors, including holders of Debt Securities, will be limited
to our assets and will not be an obligation of any of our Subsidiaries. In
addition, other than as may be set forth in any prospectus supplement, the
Indentures do not and the Debt Securities will not contain any covenants or
other provisions that are intended to afford holders of the Debt Securities
special protection in the event we experience either a change of control or a
highly leveraged transaction.
Reference is made to the prospectus supplement for the following terms of
and information relating to the Debt Securities (to the extent such terms are
applicable to such Debt Securities):
- the title of the Debt Securities;
- classification as either Senior Debt Securities or Subordinated Debt
Securities;
- whether the Debt Securities that constitute Subordinated Debt Securities
are convertible into common stock and, if so, the terms and conditions
upon which such conversion will be effected,
12
including the initial conversion price or conversion rate and any
adjustments thereto in addition to or different from those described
herein, the conversion period and other conversion provisions in addition
to or in lieu of those described herein;
- any limit on the aggregate principal amount of the Debt Securities;
- whether the Debt Securities are to be issuable as Registered Securities
or Bearer Securities or both, whether any of the Debt Securities are to
be issuable initially in temporary global form and whether any of the
Debt Securities are to be in permanent global form;
- the price or prices (expressed as a percentage of the aggregate principal
amount thereof) at which the Debt Securities will be issued;
- the date or dates on which the Debt Securities will mature;
- the rate or rates per annum (or the method by which such will be
determined) at which the Debt Securities will bear interest, if any, and
the date from which any such interest will accrue;
- the Interest Payment Dates on which any such interest on the Debt
Securities will be payable, the date on which payment of such interest,
if any, will commence and the Regular Record Dates for any interest
payable on any Debt Securities which are Registered Securities on any
Interest Payment Date and the extent to which, or the manner in which,
any interest payable on a temporary global Debt Security on an Interest
Payment Date will be paid;
- any mandatory or optional sinking fund or analogous provisions;
- each office or agency where, subject to the terms of the Indentures as
described below under "Payment and Paying Agents," the principal of and
any premium and interest on the Debt Securities will be payable and each
office or agency where, subject to the terms of the Indentures as
described below under "Form, Exchange, Registration and Transfer," the
Debt Securities may be presented for registration of transfer or
exchange;
- our right, if any, or our obligation, if any, to redeem the Debt
Securities and the period or periods, if any, within which and the price
or prices at which the Debt Securities may, pursuant to any optional or
mandatory redemption provisions, be redeemed, in whole or in part, and
the other detailed terms and provisions of any such optional or mandatory
redemption;
- the denominations in which any Debt Securities which are Registered
Securities will be issuable, if other than denominations of $1,000 and
any integral multiple thereof, and the denomination or denominations in
which any Debt Securities which are Bearer Securities will be issuable,
if other than the denomination of $5,000;
- the currency or currencies (including composite currencies) in which
payment of principal of and any premium and interest on the Debt
Securities is payable if other than United States dollars;
- any index used to determine the amount of payments of principal of and
any premium and interest on the Debt Securities;
- information with respect to book-entry procedures, if any;
- any deletions from, modification of or additions to the Events of Default
or our covenants with respect to such Debt Securities; and
- any other terms of the Debt Securities not inconsistent with the
provisions of the Indentures. (Section 301) Any prospectus supplement
will also describe any special provisions for the payment of additional
amounts with respect to the Debt Securities.
Debt Securities may be issued as Original Issue Discount Securities. An
Original Issue Discount Security is a Debt Security, including any zero-coupon
security, which is issued at a price lower than the amount payable upon the
Stated Maturity thereof and which provides that upon redemption or
13
acceleration of the maturity thereof an amount less than the amount payable upon
the Stated Maturity thereof and determined in accordance with the terms of such
Debt Security shall become due and payable. We will set forth any special United
States federal income tax considerations applicable to Debt Securities issued at
an original issue discount, including Original Issue Discount Securities, and
special United States tax considerations and other terms and restrictions
applicable to any Debt Securities which are issued in bearer form, offered
exclusively to United States Aliens or denominated in other than United States
dollars, in a prospectus supplement.
Form, Exchange, Registration and Transfer. Debt Securities of a series may
be issuable in definitive form solely as Registered Securities, solely as Bearer
Securities or as both Registered Securities and Bearer Securities. Unless
otherwise indicated in an applicable prospectus supplement, Bearer Securities
will have interest coupons attached. The Indentures also provide that Debt
Securities of a series may be issuable in temporary or permanent global form.
(Section 201)
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of any authorized denominations and of
a like aggregate principal amount and tenor. In addition, if Debt Securities of
any series are issuable as both Registered Securities and Bearer Securities, at
the option of the Holder, and subject to the terms of the applicable Indenture,
Bearer Securities (with all unmatured coupons, except as provided below, and all
matured coupons in default) of such series will be exchangeable for Registered
Securities of the same series of any authorized denominations and of a like
aggregate principal amount and tenor. Bearer Securities surrendered in exchange
for Registered Securities between a Regular Record Date or a Special Record Date
and the relevant date for payment of interest shall be surrendered without the
coupon relating to such date for payment of interest, and interest accrued as of
such date for payment of interest will not be payable in respect of the
Registered Security issued in exchange for such Bearer Security, but will be
payable only to the Holder of such coupon when due in accordance with the terms
of the applicable Indenture. Bearer Securities will not be issued in exchange
for Registered Securities. (Section 305)
Debt Securities may be presented for exchange as provided above, and
Registered Securities may be presented for registration of transfer (with the
form of transfer endorsed thereon duly executed), at the office of the Security
Registrar or at the office of any transfer agent designated by us for such
purpose with respect to any series of Debt Securities and referred to in an
applicable prospectus supplement, without service charge and upon payment of any
taxes and other governmental charges as described in the Indentures. Such
transfer or exchange will be effected upon the Security Registrar or such
transfer agent, as the case may be, being satisfied with the documents of title
and identity of the person making the request. Unless otherwise indicated in any
prospectus supplement, the Trustee for the series of Debt Securities will serve
as Security Registrar. (Section 305) If a prospectus supplement refers to any
transfer agents (in addition to the Security Registrar) initially designated by
us with respect to any series of Debt Securities, we may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that, if Debt Securities of a
series are issuable solely as Registered Securities, we will be required to
maintain a transfer agent in each Place of Payment for such series and, if Debt
Securities of a series are also issuable as Bearer Securities, we will be
required to maintain (in addition to the Security Registrar) a transfer agent in
a Place of Payment for such series located outside the United States. We may at
any time designate additional transfer agents with respect to any series of Debt
Securities. (Section 1002)
Title to any Bearer Securities (including Bearer Securities in permanent
global form) and any coupons appertaining thereto will pass by delivery. We, the
Trustee, our agents and the agents of the Trustee may treat the bearer of any
Bearer Security and the bearer of any coupon and the registered holder of any
Registered Security as the owner thereof (whether or not such Debt Security or
coupon shall be overdue and notwithstanding any notice to the contrary) for the
purpose of making payment and for all other purposes. (Section 308)
14
In the event of any redemption in part, we shall not be required to:
- issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days prior to the
selection of Debt Securities of that series for redemption and ending on
the close of business on:
-- if Debt Securities of the series are issuable only as Registered
Securities, the day of mailing of the relevant notice of redemption;
and
-- if Debt Securities of the series are issuable as Bearer Securities, the
date of the first publication of the relevant notice of redemption or,
if Securities of the series are also issuable as Registered Securities
and there is no publication, the mailing of the relevant notice of
redemption;
- register the transfer of or exchange any Registered Security, or portion
thereof, called for redemption, except the unredeemed portion of any
Registered Security being redeemed in part; or
- exchange any Bearer Security called for redemption, except to exchange
such Bearer Security for a Registered Security of that series and like
tenor which is immediately surrendered for redemption. (Section 305)
Replacement of Securities and Coupons. We will replace any mutilated Debt
Security or any Debt Security with a mutilated coupon at the expense of the
Holder upon surrender of the Debt Security to the Trustee. We will replace Debt
Securities or coupons that become destroyed, stolen or lost at the expense of
the Holder upon delivery to the Trustee of the Debt Security and coupons or
evidence of destruction, loss or theft thereof satisfactory to us and the
Trustee; in the case of any coupon which becomes destroyed, stolen or lost, such
coupon will be replaced by issuance of a new Debt Security in exchange for the
Debt Security to which such coupon appertains. In the case of a destroyed, lost
or stolen Debt Security or coupon, an indemnity satisfactory to the Trustee and
to us may be required at the expense of the Holder of such Debt Security or
coupon before a replacement Debt Security will be issued. (Section 306)
Payment and Paying Agents. Unless otherwise indicated in an applicable
prospectus supplement, payment of principal of and any premium and interest on
Bearer Securities will be payable, subject to any applicable laws and
regulations, at the offices of such Paying Agents outside the United States as
we may designate from time to time, in the manner indicated in such prospectus
supplement. (Section 1002) Unless otherwise indicated in an applicable
prospectus supplement, payment of interest on Bearer Securities on any Interest
Payment Date will be made only against surrender to the Paying Agent of the
coupon relating to such Interest Payment Date. (Section 1001) No payment with
respect to any Bearer Security will be made at any of our offices or agencies in
the United States or by check mailed to any address in the United States or by
transfer to any account maintained with a bank located in the United States.
Notwithstanding the foregoing, payments of principal of and any premium and
interest on Bearer Securities denominated and payable in U.S. dollars will be
made at the office of our Paying Agent in the Borough of Manhattan, the City of
New York, if (but only if) payment of the full amount thereof in U.S. dollars at
all offices or agencies outside the United States is illegal or effectively
precluded by exchange controls or other similar restrictions. (Section 1002)
Unless otherwise indicated in an applicable prospectus supplement, payment
of principal of and any premium and interest on Registered Securities will be
made at the office of the Paying Agent or Paying Agents as we may designate from
time to time, except that at our option, payment of any interest may be made by
check mailed on or before the due date to the address of the Person entitled
thereto as such address shall appear in the Security Register. (Rule 307, 1002)
Unless otherwise indicated in an applicable prospectus supplement, payment of
any installment of interest on Registered Securities will be made to the Person
in whose name such Registered Security is registered at the close of business on
the Regular Record Date for such interest. (Section 307)
Unless otherwise indicated in an applicable prospectus supplement, the
Trustee for the series of Debt Securities will act as our Paying Agent for
payments with respect to Debt Securities which are issuable
15
solely as Registered Securities and we will maintain a Paying Agent outside the
United States for payments with respect to Debt Securities (subject to
limitations described above in the case of Bearer Securities) which are issuable
solely as Bearer Securities or as both Registered Securities and Bearer
Securities. Any Paying Agents outside the United States and any other Paying
Agents in the United States that we initially designate for the Debt Securities
will be named in an applicable prospectus supplement. We may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent or approve a change in the office through which any Paying Agent acts,
except that, if Debt Securities of a series are issuable solely as Registered
Securities, we will be required to maintain a Paying Agent in each Place of
Payment for such series and, if Debt Securities of a series are issuable as
Bearer Securities, we will be required to maintain (i) a Paying Agent in the
Borough of Manhattan, The City of New York for principal payments with respect
to any Registered Securities of the series (and for payments with respect to
Bearer Securities of the series in the circumstances described above, but not
otherwise), and (ii) a Paying Agent in a Place of Payment located outside the
United States where Debt Securities of such series and any coupons appertaining
thereto may be presented and surrendered for payment. (Section 1002)
All moneys paid by us to a Paying Agent for the payment of principal of and
any premium or interest on any Debt Security which remain unclaimed at the end
of two years after such principal, premium or interest shall have become due and
payable will (subject to applicable escheat laws) be repaid to us, and the
Holder of such Debt Security or any coupon will thereafter look only to us for
payment thereof. (Section 1003)
Global Debt Securities. Debt Securities of a series may be issued in whole
or in part in the form of one or more global Debt Securities that will be
deposited with, or on behalf of, a depository identified in the prospectus
supplement relating to such series. Global Debt Securities may be issued only in
fully registered form and in either temporary or permanent form. (Section 203)
Unless and until it is exchanged in whole or in part for the individual Debt
Securities represented thereby, a global Debt Security may not be transferred
except as a whole by the depository for such global Debt Security to a nominee
of such depository or by a nominee of such depository to such depository or
another nominee of such depository or by the depository or any nominee to a
successor depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to a series
of Debt Securities in the form of one or more global Debt Securities will be
described in the prospectus supplement relating to that series.
Satisfaction and Discharge of Indenture. Each Indenture provides that we
may discharge the Indenture (except as to any surviving rights of registration
of transfer or exchange of Debt Securities and any right to receive additional
amounts) with respect to all Debt Securities issued under the Indenture, which
Debt Securities have not already been delivered to the Trustee for cancellation
and which either have become due and payable or are by their terms due and
payable within one year (or are to be called for redemption within one year) by
depositing with the Trustee as trust funds an amount sufficient to pay when due
the principal of and premium, if any, and interest, if any, on all outstanding
Debt Securities when due. (Section 401)
Defeasance and Discharge. Each Indenture provides that, if we so elect by
Board Resolution with respect to the Debt Securities of any series issued under
such Indenture (other than convertible Subordinated Debt Securities), we will be
discharged from any and all obligations in respect of the Debt Securities of
such series (except for certain obligations relating to temporary Debt
Securities and exchange of Debt Securities, registration of transfer or exchange
of Debt Securities of such series, replacement of stolen, lost or mutilated Debt
Securities of such series, maintenance of paying agencies to hold moneys for
payment in trust and payment of additional amounts, if any, required in
consequence of United States withholding taxes imposed on payments to non-United
States persons) upon the deposit with the Trustee, in trust, of money and/or
U.S. Government Obligations which through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any), and each
installment of interest on, the Debt Securities of
16
such series on the Stated Maturity of such payments in accordance with the terms
of such Indenture and the Debt Securities of such series. (Sections 1302, 1304)
Such a trust may only be established if, among other things, we have delivered
to the Trustee an Opinion of Counsel to the effect that (i) we have received
from, or there has been published by, the Internal Revenue Service a ruling, or
(ii) since the date of such Indenture there has been a change in applicable
federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of such series will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge, and will be subject to federal income
tax on the same amounts and in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not occurred.
(Section 1304) In the event of any such defeasance and discharge of Debt
Securities of such series, Holders of such series would be entitled to look only
to such trust fund for payment of principal of and any premium and any interest
on their Debt Securities until Maturity.
Covenant Defeasance. Each Indenture also provides that, if we so elect by
Board Resolution with respect to the Debt Securities of any series issued
thereunder, we may omit to comply with certain restrictive covenants, including
(in the case of the Senior Debt Indenture) the covenants described under
"-- Provisions Applicable Solely to Senior Debt Securities -- Limitation on
Liens" and "-- Limitations on Sale and Leaseback Transactions," but excluding
(in the case of the Subordinated Debt Indenture) any of our applicable
obligations respecting the conversion of Debt Securities of such series into
common stock, and any such omission shall not be an Event of Default with
respect to the Debt Securities of such series, upon the deposit with the
Trustee, in trust, of money and/or U.S. Government Obligations which through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of (and
premium, if any), and each installment of interest on, the Debt Securities of
such series on the Stated Maturity of such payments in accordance with the terms
of such Indenture and the Debt Securities of such series. Our obligations under
such Indenture and the Debt Securities of such series other than with respect to
such covenants shall remain in full force and effect. (Section 1303) Such a
trust may be established only if, among other things, we have delivered to the
Trustee an Opinion of Counsel to the effect that the Holders of such series will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance of certain obligations and will be subject to
federal income tax on the same amounts and in the same manner and at the same
time as would have been the case if such deposit and defeasance had not
occurred. (Section 1304)
Although the amount of money and U.S. Government Obligations on deposit
with the Trustee would be intended to be sufficient to pay amounts due on the
Debt Securities of such series at the time of their Stated Maturity, in the
event we exercise our option to omit compliance with the covenants defeased with
respect to the Debt Securities of any series as described above, and the Debt
Securities of such series are declared due and payable because of the occurrence
of any Event of Default, such amount may not be sufficient to pay amounts due on
the Debt Securities of such series at the time of the acceleration resulting
from such Event of Default. We shall in any event remain liable for such
payments as provided in the applicable Indenture.
Federal Income Tax Consequences. Under current United States federal income
tax law, defeasance and discharge would likely be treated as a taxable exchange
of Debt Securities to be defeased for an interest in the defeasance trust. As a
consequence, a holder would recognize gain or loss equal to the difference
between the holder's cost or other tax basis for such Debt Securities and the
value of the holder's interest in the defeasance trust, and thereafter would be
required to include in income the holder's share of the income, gain or loss of
the defeasance trust. Under current United States federal income tax law,
covenant defeasance would ordinarily not be treated as a taxable exchange of
such Debt Securities.
Meetings, Modification and Waiver. We and the Trustee may modify and amend
either Indenture with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Securities
17
of each series affected by such modification or amendment; provided, however,
that no such modification or amendment may, without the consent of the Holder of
each Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Debt Security;
(b) change the Redemption Date with respect to any Debt Security;
(c) reduce the principal amount of, or premium or interest on, any
Debt Security;
(d) change our obligation, if any, to pay additional amounts;
(e) reduce the amount of principal of an Original Issue Discount
Security payable upon acceleration of the Maturity thereof;
(f) change the coin or currency in which any Debt Security or any
premium or interest thereon is payable;
(g) change the redemption right of any Holder;
(h) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security or any conversion right
with respect thereto;
(i) reduce the percentage in principal amount of Outstanding
Securities of any series, the consent of whose Holders is required for
modification or amendment of such Indenture or for waiver of compliance
with certain provisions of such Indenture or for waiver of certain
defaults;
(j) reduce the requirements contained in such Indenture for quorum or
voting;
(k) change our obligation, if any, to maintain an office or agency in
the places and for the purposes required by such Indenture;
(1) adversely affect the right to convert Subordinated Debt
Securities, if applicable; or
(m) modify any of the above provisions. (Section 902)
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Subordinated Debt Securities without the
consent of each holder of Senior Indebtedness (as defined below under
"-- Provisions Applicable Solely to Subordinated Debt Securities") then
outstanding that would be adversely affected thereby. (Section 907 of the
Subordinated Debt Indenture)
The Holders of a majority in aggregate principal amount of the Outstanding
Securities of each series may, on behalf of all Holders of that series, waive,
insofar as that series is concerned, our compliance with certain restrictive
provisions of the Indenture under which such series has been issued. (Section
1007 of the Senior Debt Indenture; Section 1008 of the Subordinated Debt
Indenture) The Holders of a majority in aggregate principal amount of the
Outstanding Securities, of each series may, on behalf of all Holders of that
series, waive any past default under the applicable Indenture with respect to
any Debt Securities of that series, except a default (a) in the payment of
principal of, or premium, if any, or any interest on any Debt Security of such
series or (b) in respect of a covenant or provision of such Indenture which
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected. (Section 513)
Each Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver thereunder or are
present at a meeting of the Holders for quorum purposes, (i) the principal
amount of an Original Issue Discount Security that is deemed to be Outstanding
will be the amount of the principal that would be due and payable as of the date
of such determination upon acceleration of the Maturity thereof, and (ii) the
principal amount of a Debt Security denominated in a foreign currency or
currency units will be the U.S. dollar equivalent, determined on the date of
original issuance of such Debt Security, of the principal amount of such Debt
Security or, in the case of an Original Issue Discount
18
Security, the U.S. dollar equivalent, determined on the date of original
issuance of such Security, of the amount determined as provided in (i) above.
(Section 101)
Each Indenture contains provisions for convening meetings of the Holders of
a series if Debt Securities of that series are issuable as Bearer Securities.
(Section 1401) A meeting may be called at any time by the Trustee, and also,
upon request, by us or the Holders of at least 10% in aggregate principal amount
of the Outstanding Securities of such series, in any such case upon notice given
in accordance with "Notices" below. (Section 1402) Except for any consent which
must be given by the Holder of each Outstanding Security affected thereby, as
described above, any resolution presented at a meeting (or adjourned meeting at
which a quorum is present) may be adopted by the affirmative vote of the Holders
of a majority in aggregate principal amount of the Outstanding Securities of
that series; provided, however, that any resolution with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action which
may be made, given or taken by the Holders of a specified percentage, which is
less than a majority, in aggregate principal amount of the Outstanding
Securities of a series may be adopted at a meeting (or adjourned meeting duly
reconvened at which a quorum is present) by the affirmative vote of the Holders
of such specified percentage in aggregate principal amount of the Outstanding
Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of any series duly held in accordance with the applicable
Indenture will be binding on all Holders of that series and related coupons. The
quorum at any meeting, and at an reconvened meeting, will be Persons holding or
representing a majority in aggregate principal amount of the Outstanding
Securities of a series. (Section 1404)
Notices. Except as otherwise provided in an applicable prospectus
supplement, notices to Holders of Bearer Securities will be given by publication
at least twice in a daily newspaper in the City of New York and in such other
city or cities as may be specified in such Bearer Securities. Notices to Holders
of Registered Securities will be given by first-class mail to the addresses of
such Holders as they appear in the Security Register. (Section 106)
Governing Law. The Indentures, the Debt Securities and coupons will be
governed by, and construed in accordance with, the laws of the State of New
York. (Section 113)
Regarding the Trustee. The Trustee appointed and serving as trustee
pursuant to each of the Senior Debt Indenture and the Subordinated Debt
Indenture is Chase Bank.
Each Indenture contains certain limitations on the right of the Trustee,
should it become our creditor, to obtain payment of claims in certain cases, or
to realize for its own account on certain property received in respect of any
such claim as security or otherwise. (Section 613) The Trustee is permitted to
engage in certain other transactions; however, if it acquires any conflicting
interest (as described in the Indentures), it must eliminate such conflict or
resign. (Section 608)
The holders of a majority in principal amount of all outstanding Debt
Securities of a series (or if more than one series is affected thereby, all
series so affected, voting as a single class) will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy or
power available to the Trustee for such series or all such series so affected.
In case an Event of Default shall occur (and shall not be cured) under any
Indenture relating to a series of Debt Securities and is known to the Trustee
for such series, such Trustee shall exercise such of the rights and powers
vested in it by such Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of his own affairs. Subject to such provisions, no Trustee will be
under any obligation to exercise any of its rights or powers under the
applicable Indenture at the request of any of the holders of Debt Securities
unless they shall have offered to such Trustee security and indemnity
satisfactory to it.
Pursuant to the Trust Indenture Act, a trustee under an indenture may be
deemed to have a conflicting interest, and may, under certain circumstances set
forth in the Trust Indenture Act, be required to resign as trustee under such
indenture, if the securities under such indenture are in default (as such term
is defined in such indenture) and the trustee is the trustee under another
indenture under which any other securities of the same obligor are outstanding,
subject to certain exceptions set forth in the Trust
19
Indenture Act. In such event, the obligor must take prompt steps to have a
successor trustee appointed in the manner provided in the indenture from which
the trustee has resigned. Accordingly, Chase Bank, as trustee under the Senior
Debt Indenture and the Subordinated Debt Indenture, could be required to resign
as trustee under one of such Indentures should a default occur under one of such
Indentures. In such event, we would be required to take prompt steps to have a
successor trustee or successor trustees appointed in the manner provided in the
applicable Indenture.
Chase Bank, as the trustee under the Senior Debt Indenture and the
Subordinated Debt Indenture, may be a depositary for funds of, may make loans to
and may perform other routine banking services for us and certain of our
affiliates in the normal course of business.
PROVISIONS APPLICABLE SOLELY TO SENIOR DEBT SECURITIES
General. Senior Debt Securities will be issued under the Senior Debt
Indenture, and each series will rank pari passu as to the right of payment of
principal and any premium and interest with each other series issued thereunder
and will rank senior to all series of Subordinated Debt Securities issued and
outstanding and that may be issued from time to time.
Certain Definitions. For purposes of the following discussion, the
following definitions are applicable (Section 1008 and 1009 of the Senior Debt
Indenture).
"Attributable Debt" shall mean, as of any particular time, the present
value, discounted at a rate per annum equal to (i) the implied lease rate of or
(ii) if the implied lease rate is not known to us, then the weighted average
interest rate of all Senior Debt Securities outstanding at the time under the
Senior Debt Indenture compounded semi-annually, in either case, of the
obligation of a lessee for rental payments during the remaining term of any
lease (including any period for which such lease has been extended or may, at
the option of the lessor, be extended); the net amount of rent required to be
paid for any such period shall be the total amount of the rent payable by the
lessee with respect to such period, but may exclude amounts required to be paid
on account of maintenance and repairs, insurance, taxes, assessments, water
rates and similar charges; and, in the case of any lease which is terminable by
the lessee upon the payment of a penalty, such net amount shall also include the
amount of such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated.
"Consolidated Net Tangible Assets" shall mean, at any date of
determination, the total amount of our assets after deducting therefrom: (i) all
the current liabilities (excluding (a) any current liabilities that by their
terms are extendible or renewable at the option of the obligor thereon to a time
more than 12 months after the time as of which the amount thereof is being
computed, and (b) current maturities of long term debt) and (ii) the value (net
of any applicable reserves) of all intangible assets such as excess of cost over
net assets of acquired businesses, customer lists, covenants not to compete,
licenses, and permits, all as set forth on our and our consolidated
subsidiaries' consolidated balance sheet for our most recently completed fiscal
quarter, prepared in accordance with United States generally accepted accounting
principles.
"Guaranty" shall mean any agreement, undertaking or arrangement by which
any Person guarantees, endorses or otherwise becomes or is contingently liable
upon (by direct or indirect agreement, contingent or otherwise, to provide funds
for payment, to supply funds to, or otherwise to invest in, a debtor, or
otherwise to assure a creditor against loss) the debt, obligation or other
liability of any other Person (other than by endorsements of instruments in the
course of collection), or guarantees the payment of dividends or other
distributions upon the shares of any other Person. The amount of the obligor's
obligation under any Guaranty shall (subject to any limitation set forth
therein) be deemed to be the amount of such other Person's debt, obligation or
other liability or the amount of such dividends or other distributions
guaranteed.
"Indebtedness" of any Person shall mean
(a) all obligations of such Person for borrowed money (including,
without limitation, all notes payable and drafts accepted representing
extension of credit and all obligations evidenced by bonds,
20
debentures, notes or other similar instruments) or on which interest
charges are customarily paid, all as shown on a balance sheet of such
Person as of the date at which Indebtedness is to be determined;
(b) all other items which, in accordance with generally accepted
accounting principles, would be included as liabilities on the liability
side of a balance sheet of such Person as of the date at which Indebtedness
is to be determined; and
(c) whether or not so included as liabilities in accordance with
generally accepted accounting principles,
(i) all indebtedness (excluding, however, prepaid interest thereon)
secured by a Security Interest in property owned or being purchased by
such Person (including, without limitation, indebtedness arising under
conditional sales or other title retention agreements) whether or not
such indebtedness shall have been assumed by such Person, and
(ii) all Guaranties of such Person.
"Principal Property" shall mean any waste processing, waste disposal or
resource recovery plant or similar facility located within the United States
(other than its territories and possessions and Puerto Rico) or Canada and owned
by, or leased to, us or any Restricted Subsidiary, except (a) any such plant or
facility (i) owned or leased jointly or in common with one or more persons other
than us and any Restricted Subsidiaries in which our and our Restricted
Subsidiaries' interest does not exceed 50%, or (ii) which the Board of Directors
determines in good faith is not of material importance to our and our
subsidiaries', as an entity, total business conducted, or assets owned, or (b)
any portion of such plant or facility which the Board of Directors determines in
good faith not to be of material importance to the use or operation thereof.
"Restricted Subsidiary" shall mean any Subsidiary (other than any
Subsidiary of which we own directly or indirectly less than all of the
outstanding Voting Stock) (a) principally engaged in, or whose principal assets
consist of property used by us or any Restricted Subsidiary in, the storage,
collection, transfer, interim processing or disposal of waste within the United
States or Canada, or (b) which we shall designate as a Restricted Subsidiary in
an Officers' Certificate delivered to the Trustee.
"Security Instrument" shall mean any security agreement, chattel mortgage,
assignment, financing or similar statement or notice, continuation statement,
other agreement or instrument, or amendment or supplement to any thereof,
providing for, evidencing or perfecting any Security Interest or lien.
"Security Interest" shall mean any interest in any real or personal
property or fixture which secures payment or performance of an obligation and
shall include any mortgage, lien, encumbrance, charge or other security interest
of any kind, whether arising under a Security Instrument or as a matter of law,
judicial process or otherwise.
Consolidation, Merger, Sale. The Senior Debt Indenture provides that we may
not consolidate with or merge into any other Person or convey, transfer or lease
our properties and assets substantially as an entirety to any Person, unless (1)
the Person formed by such consolidation or into which we are merged or the
Person which acquires by conveyance or transfer, or which leases, our properties
and assets substantially as an entirety shall be a corporation, partnership or
trust which shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of and any premium and interest (including all
additional amounts, if any, payable pursuant to the Senior Debt Indenture) on
all the Senior Debt Securities and the performance or observance of every other
covenant of the Senior Debt Indenture to be performed or observed on our part;
and (2) immediately after giving effect to such transaction and treating any
indebtedness which becomes our or our Subsidiary's obligation as a result of
such transaction as having been incurred by us or our Subsidiary at the time of
such transaction, no Event of Default, and no event which, after notice or lapse
of time or both, would become an Event of Default, shall have happened and be
continuing. Upon any consolidation of us with, or merger of us into, any other
Person or any, conveyance, transfer or lease of our properties and assets
substantially as an entirety, the successor Person
21
formed by such consolidation or into which we are merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise our every right and power under the Senior Debt Indenture with
the same effect as if such successor Person had been named as us herein, and
thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under the Senior Debt Indenture and
the Senior Debt Securities and coupons and may liquidate and dissolve. (Sections
801, 802 of the Senior Debt Indenture)
Limitation on Liens. Unless provided otherwise in the applicable prospectus
supplement, the provisions of this covenant shall apply to each series of Senior
Debt Securities issued under the Senior Debt Indenture:
(a) We will not, and we will not permit any of our Restricted
Subsidiaries to, create, incur, assume or suffer to exist, directly or
indirectly, any Indebtedness secured by a Security Interest upon any
Principal Property of us or of a Restricted Subsidiary, whether owned as of
the date of this Indenture or hereafter acquired, without making effective
provision (and we hereby covenant that in any such case we shall make or
cause to be made effective provision) whereby the Senior Debt Securities of
that series then outstanding and any other Indebtedness of us or any
Restricted Subsidiary then entitled thereto shall be secured by such
Security Interest equally and ratably with (or, in the case of the Senior
Debt Securities of that series and if we shall so determine, prior to) any
and all other Indebtedness of us or any Restricted Subsidiary thereby
secured for so long as any such other Indebtedness of us or any Restricted
Subsidiary shall be so secured; provided, that nothing in the Senior Debt
Indenture shall prevent, restrict or apply to Indebtedness secured by:
(1) (a) Any Security Interest upon property or assets which is
created prior to or contemporaneously with, or within 360 days after,
(i) in the case of the acquisition of such property or assets, the
completion of such acquisition and (ii) in the case of the construction,
development or improvement of such property or assets, the later to
occur of the completion of such construction, development or improvement
or the commencement of operation or use of the property or assets, which
Security Interest secures or provides for the payment, financing or
refinancing, directly or indirectly, of all or any part of the
acquisition cost of such property or assets or the cost of construction,
development or improvement thereof; or (b) any Security Interest upon
property or assets existing at the time of the acquisition thereof,
which Security Interest secures obligations assumed by us or any
Restricted Subsidiary; or (c) any conditional sales agreement or other
title retention agreement with respect to any property or assets
acquired by us or any Restricted Subsidiary, or (d) any Security
Interest existing on the property or assets or shares of stock of a
corporation or firm at the time such corporation or firm is merged into
or consolidated with us or any Restricted Subsidiary or at the time of a
sale, lease or other disposition of the property or assets of such
corporation or firm as an entirety or substantially as an entirety to us
or any Restricted Subsidiary or at the time such corporation becomes a
Restricted Subsidiary; or (e) any Security Interest existing on the
property, assets or shares of stock of any successor which shall have
become us in accordance with the provisions of the covenant described in
"-- Provisions Applicable Solely to Senior Debt
Securities -- Consolidation, Merger and Sale of Assets"; provided, in
each case, that any such Security Interest described in the foregoing
clauses (b), (c), (d) or (e) does not attach to or affect property or
assets owned by us or any Restricted Subsidiary prior to the event
referred to in such clauses; or
(2) Mechanics', materialmen's, carriers' or other like liens
arising in the ordinary course of business (including construction of
facilities) in respect of obligations which are not due or which are
being contested in good faith; or
(3) Any Security Interest arising by reason of deposits with, or
the giving of any form of security to, any governmental agency or any
body created or approved by law or governmental regulation, which is
required by law or governmental regulation as a condition to the
transaction of any business or the exercise of any privilege, franchise
or license (including, without limitation, any Security Interest arising
by reason of one or more letters of credit in connection with any
22
international waste management contract to be performed by us or any of
our Subsidiaries or our or their respective affiliates); or
(4) Security Interests for taxes, assessments or governmental
charges or levies not yet delinquent or Security Interests for taxes,
assessments or governmental charges or levies already delinquent but the
validity of which is being contested in good faith; or
(5) Security Interests (including judgment liens) arising in
connection with legal proceedings so long as such proceedings are being
contested in good faith and, in the case of judgment liens, execution
thereon is stayed; or
(6) Landlords' liens on fixtures located on premises leased by us
or any Restricted Subsidiary in the ordinary course of business; or
(7) Any Security Interest in favor of any governmental authority in
connection with the financing of the cost of construction or acquisition
of property; or
(8) Any Security Interest arising by reason of deposits to qualify
us or any Restricted Subsidiary to conduct business, to maintain
self-insurance, or to obtain the benefit of, or comply with, laws; or
(9) Any Security Interest that secures any Indebtedness of a
Restricted Subsidiary owing to us or another Restricted Subsidiary or by
us to a Restricted Subsidiary, or
(10) Any Security Interest incurred in connection with pollution
control, sewage or solid waste disposal, industrial revenue or similar
financing; or
(11) Any Security Interest created by any program providing for the
financing, sale or other disposition of trade or other receivables
qualified as current assets in accordance with United States generally
accepted accounting principles entered into by us or by any Restricted
Subsidiary, provided that such program is on terms comparable for
similar transactions, or any document executed by us or any Restricted
Subsidiary in connection therewith, and provided that such Security
Interest is limited to the trade or other receivables in respect of
which such program is created or exists and the proceeds thereof, or
(12) Any extension, renewal or refunding (or successive extensions,
renewals or refundings) in whole or in part of any Indebtedness secured
by any Security Interest referred to in the foregoing clauses (1)
through (11), inclusive, provided that the Security Interest securing
such Indebtedness shall be limited to the property or assets which,
immediately prior to such extension, renewal or refunding, secured such
Indebtedness and additions to such property or assets.
Notwithstanding the foregoing provisions, we or any of our Restricted
Subsidiaries may create, incur, assume or suffer to exist any Indebtedness
secured by a Security Interest without so securing the Senior Debt
Securities of that series if, at the time such Security Interest becomes a
Security Interest upon any of our or our Restricted Subsidiaries' Principal
Property and after giving effect thereto, the aggregate outstanding
principal amount of all Indebtedness of us and our Restricted Subsidiaries
secured by Security Interests permitted by this sentence (excluding
Indebtedness secured by a Security Interest existing as of the date of the
Senior Debt Indenture, but including the Attributable Debt in respect of
Sale and Leaseback Transactions, other than Sale and Leaseback Transactions
which, if the Attributable Debt in respect thereof had been Indebtedness
secured by a Security Interest, would have been permitted by clause (1)(a)
above, other Sale and Leaseback Transactions the proceeds of which have
been applied or committed to be applied in accordance with the covenant
described in "-- Provisions Applicable Solely to Senior Debt
Securities -- Limitations on Sale and Leaseback Transactions" and other
than Sale and Leaseback Transactions between us and any Restricted
Subsidiary) does not exceed 15% of Consolidated Net Tangible Assets.
(Section 1008 of the Senior Debt Indenture)
23
(b) If, upon any consolidation or merger of any Restricted Subsidiary
with or into any other corporation, or upon any consolidation or merger of
any other corporation with or into us or any Restricted Subsidiary or upon
any sale or conveyance of the Principal Property of any Restricted
Subsidiary as an entirety or substantially as an entirety to any other
Person, or upon any acquisition by us or any Restricted Subsidiary by
purchase or otherwise of all or any part of the Principal Property of any
other Person, any Principal Property theretofore owned by us or such
Restricted Subsidiary would thereupon become subject to any Security
Interest not permitted by the terms of the foregoing covenant, we, prior to
such consolidation, merger, sale or conveyance, or acquisition, will, or
will cause such Restricted Subsidiary to, secure payment of the principal
of and interest, if any, on the Senior Debt Securities of that series
(equally and ratably with or prior to any other Indebtedness of us or such
Restricted Subsidiary then entitled thereto) by a direct lien on all such
Principal Property prior to all liens other than any liens theretofore
existing thereon by a supplemental indenture or otherwise. (Section 1008 of
the Senior Debt Indenture)
Limitations on Sale and Leaseback Transactions. Unless provided otherwise
in the applicable prospectus supplement, the provisions of this covenant shall
apply to each series of Senior Debt Securities issued under the Senior Debt
Indenture:
We will not, and will not permit a Restricted Subsidiary to, enter into any
arrangement with any Person (other than with any Restricted Subsidiary)
providing for the leasing to us or any Restricted Subsidiary of any Principal
Property owned or hereafter acquired by us or such Restricted Subsidiary (except
for temporary leases for a term, including any renewal thereof, of not more than
three years and except for leases between us and a Restricted Subsidiary or
between Restricted Subsidiaries), which Principal Property has been or is to be
sold or transferred by us or such Restricted Subsidiary to such person (a "Sale
and Leaseback Transaction") unless (a) we or such Restricted Subsidiary would be
entitled, pursuant to the covenant described in "-- Provisions Applicable Solely
to Senior Debt Securities -- Limitation on Liens," to incur Indebtedness secured
by a Security Interest on the property to be leased without equally and ratably
securing the Senior Debt Securities of that series, or (b) we shall, and in any
such case we covenant that we will, within 180 days after the effective date of
any such arrangement, apply an amount equal to the fair value (as determined by
the Board of Directors) of such property to the redemption of Senior Debt
Securities that, by their terms, are subject to redemption, or to the purchase
and retirement of Senior Debt Securities, or to the payment or other retirement
of funded debt for money borrowed, incurred or assumed by us which ranks senior
to or pari passu with the Senior Debt Securities of that series or of funded
debt for money borrowed, incurred or assumed by any Restricted Subsidiary (other
than, in either case, funded debt owed by us or any Restricted Subsidiary), or
(c) we shall within 180 days after entering into the Sale and Leaseback
Transaction, enter into a bona fide commitment or commitments to expend for the
acquisition or capital improvement of a Principal Property an amount at least
equal to the fair value (as determined by the Board of Directors) of such
property. (Section 1009 of the Senior Debt Indenture)
Notwithstanding the foregoing, we may, and may permit any Restricted
Subsidiary to, effect any Sale and Leaseback Transaction that is not acceptable
pursuant to clauses (a) through (c), inclusive, of the foregoing covenant,
provided that the Attributable Debt associated with such Sale and Leaseback
Transaction, together with the aggregate principal amount of outstanding debt
secured by Security Interests upon Principal Property not acceptable pursuant to
clauses (1) through (12) of the covenant described in "-- Provisions Applicable
Solely to Senior Debt Securities -- Limitation on Liens," inclusive, do not
exceed 15% of Consolidated Net Tangible Assets. (Section 1009 of the Senior Debt
Indenture)
Events of Default. Unless otherwise specified in the applicable prospectus
supplement, an Event of Default is defined under the Senior Debt Indenture with
respect to the Senior Debt Securities of any series issued under such Senior
Debt Indenture as being one or more of the following events:
(1) default in the payment of any interest upon any Senior Debt
Security of that series when it becomes due and payable, and continuance of
such default for a period of 30 days; or
24
(2) default in the payment of the principal of (or premium, if any,
on) any Senior Debt Security of that series as and when the same becomes
due and payable whether at Stated Maturity, by declaration of acceleration,
call for redemption or otherwise; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of a Senior Debt Security of that series; or
(4) default in the performance, or breach, of any of our other
covenants or warranties in the Senior Debt Indenture (other than a covenant
or warranty a default in whose performance or whose breach is elsewhere in
Section 501 of the Senior Debt Indenture specifically dealt with or which
has expressly been included in the Senior Debt Indenture solely for the
benefit of a series of Senior Debt Securities other than that series), and
continuance of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to us by the Trustee or to
us and the Trustee by the Holders of at least 25% in principal amount of
the Outstanding Senior Debt Securities of that series a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the Senior Debt
Indenture; or
(5) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of us in an involuntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging us a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
us under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of us or of any substantial part of our property, or ordering the
winding up or liquidation of our affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 90 consecutive days; or
(6) the commencement by us of a voluntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt
or insolvent, or the consent by it to the entry of a decree or order for
relief in respect of us in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any applicable Federal or
State law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of us or of any
substantial part of our property, or the making by us of an assignment for
the benefit of creditors, or the admission by us in writing of our
inability to pay our debts generally as they become due, or the taking of
corporate action by us in furtherance of any such action; or
(7) any other Event of Default provided with respect to Senior Debt
Securities of that series. (Section 501 of the Senior Debt Indenture)
Remedies. If an Event of Default with respect to Senior Debt Securities of
any series at the time Outstanding occurs and is continuing, then in every such
case, either the Trustee or the Holders of not less than 25% in principal amount
of the Outstanding Senior Debt Securities of that series may declare the
principal amount (or, if any of the Senior Debt Securities of that series are
Original Issue Discount Securities, such portion of the principal amount of such
Senior Debt Securities as may be specified in the terms thereof) of all of the
Senior Debt Securities of that series to be due and payable immediately, by a
notice in writing to us (and to the Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount) shall become
immediately due and payable. At any time after such a declaration of
acceleration with respect to the Senior Debt Securities of any series has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee, the
25
Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of that series, by written notice to us and the Trustee, may rescind
and annul such declaration and its consequences if:
(1) we have paid or deposited with the Trustee a sum sufficient to
pay:
(A) all overdue interest on all Senior Debt Securities of that
series;
(B) the principal of (and premium, if any, on) any Senior Debt
Securities of that series which has become due otherwise than by such
declaration of acceleration and any interest thereon at the rate or
rates prescribed therefor in such Senior Debt Securities;
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate or rates prescribed therefor in such
Senior Debt Securities; and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Senior Debt Securities of
that series, other than the non-payment of the principal of Senior Debt
Securities of that series which has become due solely by such declaration
of acceleration, have been cured or waived as provided in the Senior Debt
Indenture.
No such rescission shall affect any subsequent default or impair any right
consequent thereon. (Section 502 of the Senior Debt Indenture) If the Trustee or
any Holder of a Senior Debt Security or coupon has instituted any proceeding to
enforce any right or remedy under the Senior Debt Indenture and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case, subject
to any determination in such proceeding, we, the Trustee and the Holders of
Senior Debt Securities and coupons shall be restored severally and respectively
to their former positions under the Senior Debt Indenture and the Senior Debt
Securities and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted. (Section 509 of
the Senior Debt Indenture)
The Senior Debt Indenture provides that, subject to the duty of the Trustee
during default to act with the required standard of care, the Trustee is under
no obligation to exercise any of its rights or powers under such Indenture at
the request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. (Sections 601, 603 of the Senior
Debt Indenture) No Holder of any Senior Debt Security of any series or any
related coupons shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Senior Debt Indenture, or for the appointment of
a receiver or trustee, or for any other remedy thereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Senior Debt Securities of
that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Senior Debt Securities of that series shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee under the Senior Debt Indenture;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Senior Debt Securities of that series.
(Section 507 of the Senior Debt Indenture)
Notwithstanding any other provisions in the Senior Debt Indenture, the right of
any Holder of any Senior Debt Security or coupon to receive payment of the
principal of and any premium and any interest on such Senior Debt Security or
payment of such coupon on the Stated Maturity or Maturities expressed in such
26
Senior Debt Security or coupon, or to institute suit for the enforcement of any
such payment on or after such respective dates shall not be impaired or affected
without the consent of such Holder. (Sections 508, 902 of the Senior Debt
Indenture)
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of any series shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee, with respect to the
Senior Debt Securities of such series, provided that (1) such direction shall
not be in conflict with any rule of law or with the Senior Debt Indenture; (2)
the Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction; and (3) the Trustee shall not be obligated to
take any action unduly prejudicial to Holders not joining in such direction or
involving the Trustee in personal liability. (Section 512 of the Senior Debt
Indenture) The Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of any series may on behalf of the Holders of all the
Senior Debt Securities of such series waive any past default under the Senior
Debt Indenture with respect to the Senior Debt Securities of such series and its
consequences, except a default in the payment of the principal of or any premium
or interest on any Senior Debt Security of such series or in respect of a
covenant or provision of the Senior Debt Indenture which, pursuant to the Senior
Debt Indenture, cannot be modified or amended without the consent of the Holder
of each Outstanding Senior Debt Security of such series affected. Upon any such
waiver, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of the Senior
Debt Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon. (Sections 513, 902 of the Senior
Debt Indenture)
If a default occurs under the Senior Debt Indenture with respect to Senior
Debt Securities of any series, the Trustee shall give the Holders of Senior Debt
Securities of such series notice of such default as and to the extent provided
by the Trust Indenture Act; provided, however. that in the case of any default
or breach of certain covenants or warranties with respect to Senior Debt
Securities of such series, no such notice to Holders shall be given until at
least 30 days after the occurrence thereof (the term "default" for purposes of
these provisions being defined as any event which is, or after notice or lapse
of time or both would become, an Event of Default with respect to the Senior
Debt Securities of such series). (Section 602 of the Senior Debt Indenture)
In any case in which Senior Debt Securities are Outstanding that are
denominated in more than one currency and the Trustee is directed to make
ratable payments under the Senior Debt Indenture to Holders of such Senior Debt
Securities, unless otherwise provided with respect to any series of Senior Debt
Securities, the Trustee shall calculate the amount of such payments as follows:
(i) as of the day the Trustee collects an amount under the Senior Debt
Indenture, the Trustee shall, as to each Holder of a Senior Debt Security
to whom an amount is due and payable under the Senior Debt Indenture that
is denominated in a foreign currency, determine that amount in Dollars that
would be obtained for the amount owing such Holder, using the rate of
exchange at which in accordance with normal banking procedures the Trustee
could purchase in the City of New York Dollars with such amount owing;
(ii) calculate the sum of all Dollar amounts determined under (i) and
add thereto any amounts due and payable in Dollars; and
(iii) using the individual amounts determined in (i) or any individual
amounts due and payable in Dollars, as the case may be, as a numerator, and
the sum calculated in (ii) as a denominator, calculate as to each Holder of
a Senior Debt Security to whom an amount is owed under the Senior Debt
Indenture the fraction of the amount collected under the Senior Debt
Indenture payable to such Holder.
Any expenses incurred by the Trustee in actually converting amounts owing
Holders of Senior Debt Securities denominated in a currency other than that in
which any amount is collected under the Senior Debt Indenture shall be likewise
(in accordance with the foregoing) borne ratably by all Holders of Senior
27
Debt Securities to whom amounts are payable under the Senior Debt Indenture.
(Sections 506, 902 of the Senior Debt Indenture)
To the fullest extent allowed under applicable law, if for the purpose of
obtaining judgment against us in any court it is necessary to convert the sum
due in respect of the principal of, or premium, if any, or interest on, the
Senior Debt Securities of any series (the "Required Currency") into a currency
in which a judgment will be rendered (the "Judgment Currency"), the rate of
exchange used shall be the rate at which in accordance with normal banking
procedures the Trustee could purchase in the City of New York the Required
Currency with the Judgment Currency on the Business Day in the City of New York
next preceding that on which final judgment is given. Neither we nor the Trustee
shall be liable for any shortfall nor shall either of them benefit from any
windfall in payments to Holders of Senior Debt Securities under this provision
of the Senior Debt Indenture caused by a change in exchange rates between the
time the amount of a judgment against us is calculated as above and the time the
Trustee converts the Judgment Currency into the Required Currency to make
payments under the foregoing provisions of the Senior Debt Indenture to Holders
of Senior Debt Securities, but payment of such judgment shall discharge all
amounts owed by us on the claim or claims underlying such judgment. (Section 506
of the Senior Debt Indenture)
We are required to furnish to the Trustee annually a statement as to our
compliance with all conditions and covenants under the Senior Debt Indenture.
(Section 1006)
PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES
Consolidation, Merger, Sale. The Subordinated Debt Indenture provides that
we may not consolidate with or merge into any other Person or convey, transfer
or lease its properties and assets substantially as an entirety to any Person,
unless (1) the Person formed by such consolidation or into which we merge or the
Person which acquires by conveyance or transfer, or which leases, our properties
and assets substantially as an entirety shall be a corporation, partnership or
trust, organized and validly existing under the laws of the United States, any
State thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of
and any premium and interest (including all additional amounts, if any, payable
pursuant to the Subordinated Debt Indenture) on all the Subordinated Debt
Securities and the performance or observance of every other covenant of the
Subordinated Debt Indenture to be performed or observed on our part; and (2)
immediately after giving effect to such transaction and treating any
indebtedness which becomes our or our subsidiaries' obligation as a result of
such transaction as having been incurred by us or such Subsidiary at the time of
such transaction, no Event of Default, and no event which, after notice or lapse
of time or both, would become an Event of Default, shall have happened and be
continuing. Upon any consolidation of us with, or merger of us into, any other
Person or any conveyance, transfer or lease of our properties and assets
substantially as an entirety, the successor Person formed by such consolidation
or into which we are merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise our every right
and power under the Subordinated Debt Indenture with the same effect as if such
successor Person had been named as us herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under the Subordinated Debt Indenture and the Subordinated Debt
Securities and coupons and may liquidate and dissolve. (Sections 801, 802 of the
Subordinated Debt Indenture)
Events of Default. Unless otherwise specified in the applicable prospectus
supplement, an Event of Default is defined under the Subordinated Debt Indenture
with respect to the Subordinated Debt Securities of any series issued under such
Subordinated Debt Indenture as being one or more of the following events:
(1) default in the payment of any interest upon any Subordinated Debt
Security of that series when it becomes due and payable, and continuance of
such default for a period of 30 days; or
28
(2) default in the payment of the principal of (or premium, if any,
on) any Subordinated Debt Security of that series as and when the same
becomes due and payable, whether at Stated Maturity or by declaration of
acceleration, call for redemption or otherwise; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of a Subordinated Debt Security of that series; or
(4) default in the performance, or breach, of any of our other
covenants or warranties in the Subordinated Debt Indenture (other than a
covenant or warranty a default in whose performance or whose breach is
elsewhere in Section 501 of the Subordinated Debt Indenture specifically
dealt with or which has expressly been included in the Subordinated Debt
Indenture solely for the benefit of a series of Subordinated Debt
Securities other than that series), and continuance of such default or
breach for a period of 90 days after there has been given, by registered or
certified mail, to us by the Trustee or to us and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Subordinated
Debt Securities of that series a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the Subordinated Debt Indenture; or
(5) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of us in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging us a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
us under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of us or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 90 consecutive days; or
(6) the commencement by us of a voluntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt
or insolvent, or the consent by us to the entry of a decree or order for
relief in respect of us in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or the commencement of any bankruptcy or insolvency case or
proceeding against us, or the filing by us of a petition or answer or
consent seeking reorganization or relief under any applicable Federal or
State law, or the consent by us to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of us or of any
substantial part of our property, or the making by us of an assignment for
the benefit of creditors, or the admission by us in writing of our
inability to pay our debts generally as they become due, or the taking of
corporate action by us in furtherance of any such action; or
(7) any other Event of Default provided with respect to Subordinated
Debt Securities of that series. (Section 501 of the Subordinated Debt
Indenture)
Remedies. If an Event of Default with respect to Subordinated Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every such case, the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Subordinated Debt Securities of that series may
declare the principal amount (or, if any of the Subordinated Debt Securities of
that series are Original Issue Discount Securities, such portion of the
principal amount of such Subordinated Debt Securities as may be specified in the
terms thereof) of all of the Subordinated Debt Securities of that series to be
due and payable immediately, by a notice in writing to us (and to the Trustee if
given by Holders), and upon any such declaration such principal amount (or
specified amount) shall become immediately due and payable. At any time after
such a declaration of acceleration with respect to the Subordinated Debt
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee, the Holders of a
majority in principal amount of the Outstanding Subordinated
29
Debt Securities of that series, by written notice to us and the Trustee, may
rescind and annul such declaration and its consequences if:
(1) we have paid or deposited with the Trustee a sum sufficient to
pay:
(A) all overdue interest on all Subordinated Debt Securities of
that series;
(B) the principal of (and premium, if any, on) any Subordinated
Debt Securities of that series which has become due otherwise than by
such declaration of acceleration and any interest thereon at the rate or
rates prescribed therefor in such Subordinated Debt Securities;
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate or rates prescribed therefor in such
Subordinated Debt Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Subordinated Debt Securities
of that series, other than the non-payment of the principal of Subordinated
Debt Securities of that series which has become due solely by such
declaration of acceleration, have been cured or waived as provided in the
Subordinated Debt Indenture.
No such rescission shall affect any subsequent default or impair any right
consequent thereon. (Section 502 of the Subordinated Debt Indenture) If the
Trustee or any Holder of a Subordinated Debt Security or coupon has instituted
any proceeding to enforce any right or remedy under the Subordinated Debt
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then and in
every such case, subject to any determination in such proceeding, we, the
Trustee and the Holders of Subordinated Debt Securities and coupons shall be
restored severally and respectively to their former positions under the
Subordinated Debt Indenture and the Subordinated Debt Securities and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted. (Section 509 of the Subordinated Debt
Indenture)
The Subordinated Debt Indenture provides that, subject to the duty of the
Trustee during default to act with the required standard of care, the Trustee is
under no obligation to exercise any of its rights or powers under such Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable indemnity. (Sections 601, 603 of the
Subordinated Debt Indenture) No Holder of any Subordinated Debt Security of any
series or any related coupons shall have any right to institute any proceeding,
judicial or otherwise, with respect to the Subordinated Debt Indenture, or for
the appointment of a receiver or trustee, or for any other remedy thereunder,
unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Subordinated Debt
Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Subordinated Debt Securities of that series shall have made
written request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee under the Subordinated Debt
Indenture;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Subordinated Debt Securities of that
series. (Section 507 of the Subordinated Debt Indenture)
30
Notwithstanding any other provisions in the Subordinated Debt Indenture, but
subject to the subordination provisions of the Subordinated Debt Indenture, the
right of any Holder of any Subordinated Debt Security or coupon to receive
payment of the principal of and any premium and any interest on such
Subordinated Debt Security or payment of such coupon on the Stated Maturity or
Maturities expressed in such Subordinated Debt Security or coupon and, if
applicable, to convert such Subordinated Debt Security as provided in the
conversion provisions of the Subordinated Debt Indenture and to institute suit
for the enforcement of any such payment or conversion right shall not be
impaired without the consent of such Holder. (Sections 508, 902 of the
Subordinated Debt Indenture)
The Holders of a majority in principal amount of the Outstanding
Subordinated Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Subordinated Debt Securities of such series, provided that (1)
such direction shall not be in conflict with any rule of law or with the
Subordinated Debt Indenture; (2) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction; and (3) the
Trustee shall not be obligated to take any action unduly prejudicial to Holders
not joining in such direction or involving the Trustee in personal liability.
(Section 512 of the Subordinated Debt Indenture) The Holders of a majority in
principal amount of the Outstanding Subordinated Debt Securities of any series
may on behalf of the Holders of all the Subordinated Debt Securities of such
series waive any past default under the Subordinated Debt Indenture with respect
to the Subordinated Debt Securities of such series and its consequences, except
a default in the payment of the principal of or any premium or interest on any
Subordinated Debt Security of such series or in respect of a covenant or
provision of the Subordinated Debt Indenture which, pursuant to the Subordinated
Debt Indenture, cannot be modified or amended without the consent of the Holder
of each Outstanding Subordinated Debt Security of such series affected. Upon any
such waiver, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of the
Subordinated Debt Indenture; but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon. (Sections 902, 513 of
the Subordinated Debt Indenture)
If a default occurs under the Subordinated Debt Indenture with respect to
Subordinated Debt Securities of any series, the Trustee shall give the Holders
of Subordinated Debt Securities of such series notice of such default as and to
the extent provided by the Trust Indenture Act; provided, however, that in the
case of any default or breach of certain covenants or warranties with respect to
Subordinated Debt Securities of such series, no such notice to Holders shall be
given until at least 30 days after the occurrence thereof (the term "default"
for purposes of these provisions being defined as any event which is, or after
notice or lapse of time or both would become, an Event of Default with respect
to the Subordinated Debt Securities of such series). (Section 602 of the
Subordinated Debt Indenture)
In any case in which Subordinated Debt Securities are Outstanding that are
denominated in more than one currency and the Trustee is directed to make
ratable payments under the Subordinated Debt Indenture to Holders of such
Subordinated Debt Securities, unless otherwise provided with respect to any
series of Subordinated Debt Securities, the Trustee shall calculate the amount
of such payments as follows:
(i) as of the day the Trustee collects an amount under the
Subordinated Debt Indenture, the Trustee shall, as to each Holder of a
Subordinated Debt Security to whom an amount is due and payable under the
Subordinated Debt Indenture that is denominated in a foreign currency,
determine that amount in Dollars that would be obtained for the amount
owing such Holder, using the rate of exchange at which in accordance with
normal banking procedures the Trustee could purchase in the City of New
York Dollars with such amount owing;
(ii) calculate the sum of all Dollar amounts determined under (i) and
add thereto any amounts due and payable in Dollars; and
(iii) using the individual amounts determined in (i) or any individual
amounts due and payable in Dollars, as the case may be, as a numerator, and
the sum calculated in (ii) as a denominator,
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calculate as to each Holder of a Subordinated Debt Security to whom an
amount is owed under the Subordinated Debt Indenture the fraction of the
amount collected under the Subordinated Debt Indenture payable to such
Holder.
Any expenses incurred by the Trustee in actually converting amounts owing
Holders of Subordinated Debt Securities denominated in a currency other than
that in which any amount is collected under the Subordinated Debt Indenture
shall be likewise (in accordance with the foregoing) borne ratably by all
Holders of Subordinated Debt Securities to whom amounts are payable under the
Subordinated Debt Indenture. (Section 506 of the Subordinated Debt Indenture)
To the fullest extent allowed under applicable law, if for the purpose of
obtaining judgment against us in any court it is necessary to convert the sum
due in respect of the principal of, or premium, if any, or interest on, the
Subordinated Debt Securities of any series (the "Required Currency") into a
currency in which a judgment will be rendered (the "Judgment Currency"), the
rate of exchange used shall be the rate at which in accordance with normal
banking procedures the Trustee could purchase in the City of New York the
Required Currency with the Judgment Currency on the Business Day in the City of
New York next preceding that on which final judgment is given. Neither we nor
the Trustee shall be liable for any shortfall nor shall we benefit from any
windfall in payments to Holders of Subordinated Debt Securities under the
Subordinated Debt Indenture caused by a change in exchange rates between the
time the amount of a judgment against us is calculated as above and the time the
Trustee converts the Judgment Currency into the Required Currency to make
payments under the foregoing provisions of the Subordinated Debt Indenture to
Holders of Subordinated Debt Securities, but payment of such judgment shall
discharge all amounts owed by us on the claim or claims underlying such
judgment. (Section 506 of the Subordinated Debt Indenture)
We are required to furnish to the Trustee annually a statement as to our
compliance with all conditions and covenants under the Subordinated Debt
Indenture. (Section 1007 of the Subordinated Debt Indenture)
Subordination. The Subordinated Debt Securities will be subordinate and
junior in right of payment, to the extent set forth in the Subordinated Debt
Indenture, to all our Senior Indebtedness (as defined below). If we should
default in the payment of any principal of or premium or interest on any Senior
Indebtedness when the same become due and payable, whether at maturity or a date
fixed for prepayment or by declaration of acceleration or otherwise, then, upon
written notice of such default to us by the holders of such Senior Indebtedness
or any trustee therefor and subject to certain of our rights to dispute such
default and subject to proper notification of the Trustee, unless and until such
default has been cured or waived or ceases to exist, no direct or indirect
payment (in cash, property, securities, by set-off or otherwise) will be made or
agreed to be made for principal or premium, if any, or interest, if any, on the
Subordinated Debt Securities, or in respect of any redemption, retirement,
purchase or other acquisition of the Subordinated Debt Securities other than
those made in our capital stock (or cash in lieu of fractional shares thereof)
pursuant to any conversion right of the Subordinated Debt Securities or
otherwise made in our capital stock. (Sections 1601, 1604 and 1605 of the
Subordinated Debt Indenture)
"Senior Indebtedness" is defined in Section 101 of the Subordinated Debt
Indenture as our Indebtedness (as defined below) outstanding at any time except:
(a) any Indebtedness as to which, by the terms of the instrument
creating or evidencing the same, it is provided that such Indebtedness is
not senior in right of payment to the Subordinated Debt Securities;
(b) the Subordinated Debt Securities;
(c) any of our Indebtedness to any wholly-owned Subsidiary;
(d) interest accruing after the filing of a petition initiating
certain bankruptcy or insolvency proceedings unless such interest is an
allowed claim enforceable against us in a proceeding under federal or state
bankruptcy laws;
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(e) obligations under performance guarantees, support agreements and
other agreements in the nature thereof relating to the obligations of any
Subsidiary, and
(f) trade accounts payable.
"Indebtedness" is defined in Section 101 of the Subordinated Debt Indenture
as, with respect to any Person:
(a) (i) the principal of and interest and premium, if any, on
indebtedness for money borrowed of such Person evidenced by bonds, notes,
debentures or similar obligations, including any guaranty by such Person of
any indebtedness for money borrowed of any other Person, whether any such
indebtedness or guaranty is outstanding on the date of the Subordinated
Debt Indenture or is thereafter created, assumed or incurred;
(ii) the principal of and premium and interest, if any, on
indebtedness for money borrowed, incurred, assumed or guaranteed by such
Person in connection with the acquisition by it or any of its subsidiaries
of any other businesses properties or other assets; and
(iii) lease obligations which such Person capitalizes in accordance
with Statement of Financial Accounting Standards No. 13 promulgated by the
Financial Accounting Standards Board or such other generally accepted
accounting principles as may be from time to time in effect,
(b) any other indebtedness of such Person, including any indebtedness
representing the balance deferred and unpaid of the purchase price of any
property or interest therein, including any such balance that constitutes a
trade account payable, and any guaranty, endorsement or other contingent
obligation of such Person in respect of any indebtedness of another, which
is outstanding on the date of the Subordinated Debt Indenture or is
thereafter created, assumed or incurred by such Person; and
(c) any amendments, modifications, refundings, renewals or extensions
of any indebtedness or obligation described as Indebtedness in clause (a)
or (b) above.
If (i) without our consent a court having jurisdiction shall enter (A) an
order for relief with respect to us under the United States federal bankruptcy
laws, (B) a judgment, order or decree adjudging us a bankrupt or insolvent, or
(C) an order for relief for reorganization, arrangement, adjustment or
composition of or in respect of us under the United States federal bankruptcy
laws or state insolvency laws or (ii) we shall institute proceedings for the
entry of an order for relief with respect to us under the United States federal
bankruptcy laws or for an adjudication of insolvency, or shall consent to the
institution of bankruptcy or insolvency proceedings against us, or shall file a
petition seeking, or seek or consent to reorganization, arrangement, composition
or similar relief under the United States federal bankruptcy laws or any
applicable state law, or shall consent to the filing of such petition or to the
appointment of a receiver, custodian, liquidator, assignee, trustee,
sequestrator or similar official in respect of us or of substantially all of our
property, or we shall make a general assignment for the benefit of creditors as
recognized under the United States federal bankruptcy laws, then all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) will first be paid in full before any payment or
distribution, whether in cash, securities or other property, may be made to any
Holder of Subordinated Debt Securities on account thereof. In such event, any
payment or distribution, whether in cash, securities or other property (other
than our securities or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in the subordination provisions with respect to the
Subordinated Debt Securities, to the payment of all Senior Indebtedness then
outstanding and to any securities issued in respect thereof under any such plan
of reorganization or readjustment), which would otherwise (but for the
subordination provisions) be payable or deliverable in respect of Subordinated
Debt Securities of any series will be paid or delivered directly to the holders
of Senior Indebtedness in accordance with the priorities then existing among
such holders until all Senior Indebtedness (including any interest thereon
accruing after the commencement of any such proceedings) has been paid in full.
If any payment or distribution of any character, whether in cash, securities or
other property (other than our securities or any
33
other corporation provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided in the
subordination provisions with respect to the Subordinated Debt Securities, to
the payment of all Senior Indebtedness then outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment), shall be received by the Trustee or any holder of any
Subordinated Debt Securities in contravention of any of the terms of the
Subordinated Debt Indenture, such payment or distribution will be received in
trust for the benefit of, and will be paid over or delivered and transferred to,
the holders of the Senior Indebtedness then outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
such Senior Indebtedness in full. In the event of the failure of the Trustee or
any holder to endorse or assign any such payment, distribution or security, each
Holder of Senior Indebtedness is irrevocably authorized to endorse or assign the
same. In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Subordinated Debt
Securities, together with the holders of any of our other obligations ranking on
a parity with the Subordinated Debt Securities, will be entitled to be repaid
from our remaining assets the amounts at that time due and owing on account of
unpaid principal of and any premium and interest on the Subordinated Debt
Securities and such other obligations before any payment or other distribution,
whether in cash, property or otherwise, shall be made on account of any of our
capital stock or obligations ranking junior to the Subordinated Debt Securities
and such other obligations. (Section 1601 of the Subordinated Debt Indenture)
The Subordinated Debt Indenture provides that Senior Indebtedness shall not
be deemed to have been paid in full unless the holders thereof shall have
received cash, securities or other property equal to the amount of such Senior
Indebtedness then outstanding. Upon the payment in full of all Senior
Indebtedness, the holders of Subordinated Debt Securities of each series shall
be subrogated to all rights of any holders of Senior Indebtedness to receive any
further payments or distributions applicable to such Senior Indebtedness until
the indebtedness evidenced by the Subordinated Debt Securities of such series
shall have been paid in full, and such payments or distributions received by
such Holders, by reason of such subrogation, of cash, securities or other
property that otherwise would be paid or distributed to the holders of Senior
Indebtedness, shall, as between us and our creditors other than the holders of
such Senior Indebtedness, on the one hand, and such Holders, on the other hand,
be deemed to be a payment by us on account of such Senior Indebtedness, and not
on account of the Subordinated Debt Securities of such series. (Section 1601 of
the Subordinated Debt Indenture)
The prospectus supplement respecting any series of Subordinated Debt
Securities will set forth any subordination provisions applicable to such series
in addition to or different from those described above.
By reason of such subordination, in the event of a liquidation, bankruptcy,
reorganization, insolvency, receivership or similar proceeding involving us or
an assignment for the benefit of creditors of us or any of our Subsidiaries or a
marshaling of assets or liabilities of us and our Subsidiaries, holders of
Senior Indebtedness and holders of our other obligations that are not
subordinated to Senior Indebtedness may receive more, ratably, than holders of
the Subordinated Debt Securities. Such subordination will not prevent the
occurrence of any Default or Event of Default or limit the rights of the Trustee
or any Holder, subject to the other provisions of the Subordinated Debt
indenture, to pursue any other rights or remedies with respect to the
Subordinated Debt Securities.
Conversion. The Subordinated Debt Indenture may provide for a right of
conversion of Subordinated Debt Securities into common stock (or cash in lieu
thereof). (Sections 301 and 1501 of the Subordinated Debt Indenture) The
following provisions will apply to Debt Securities that are convertible
Subordinated Debt Securities unless otherwise provided in the applicable
prospectus supplement for such Debt Securities.
The holder of any convertible Subordinated Debt Securities will have the
right exercisable at any time prior to maturity, unless previously redeemed or
otherwise purchased by us, to convert such Subordinated Debt Securities into
shares of common stock at the conversion price or conversion rate set forth in
the applicable prospectus supplement, subject to adjustment. (Section 1502 of
the Subordinated Debt
34
Indenture) The holder of convertible Subordinated Debt Securities may convert
any portion thereof which is $1,000 in principal amount or any integral multiple
thereof. (Section 1502 of the Subordinated Debt Indenture)
In certain events, the conversion price or conversion rate will be subject
to adjustment as set forth in the Subordinated Debt Indenture. Such events
include the issuance of shares of our common stock as a dividend or distribution
on the common stock; subdivisions, combinations and reclassifications of the
common stock; the issuance to all holders of common stock of rights or warrants
entitling the holders thereof (for a period not exceeding 45 days) to subscribe
for or purchase shares of common stock at a price per share less than the then
current market price per share of common stock (as determined pursuant to the
Subordinated Debt Indenture); and the distribution to substantially all holders
of common stock of evidences of indebtedness, equity securities (including
equity interests in our Subsidiaries) other than common stock, or other assets
(excluding cash dividends paid from surplus) or rights or warrants to subscribe
for securities (other than those referred to above). No adjustment of the
conversion price or conversion rate will be required unless an adjustment would
require a cumulative increase or decrease of at least 1% in such price or rate.
(Section 1504 of the Subordinated Debt Indenture) We have been advised by our
counsel that certain adjustments in the conversion price or conversion rate in
accordance with the foregoing provisions may result in constructive
distributions to either holders of the Subordinated Debt Securities or holders
of common stock which would be taxable pursuant to Treasury Regulations issued
under Section 305 of the Internal Revenue Code of 1986, as amended. The amount
of any such taxable constructive distribution would be the fair market value of
the common stock which is treated as having been constructively received, such
value being determined as of the time the adjustment resulting in the
constructive distribution is made.
Fractional shares of common stock will not be issued upon conversion, but,
in lieu thereof, we will pay a cash adjustment based on the then current market
price for the common stock. (Section 1503 of the Subordinated Debt Indenture)
Upon conversion, no adjustments will be made for accrued interest or dividends,
and therefore convertible Subordinated Debt Securities surrendered for
conversion between an Interest Payment Date and on or prior to the record date
pertaining to the subsequent Interest Payment Date will not be considered
Outstanding and no interest will be paid on the related Interest Payment Date.
Convertible Subordinated Debt Securities (except convertible Subordinated Debt
Securities called for redemption on a redemption date during such period)
surrendered for conversion during the period between the close of business on
any record date for an Interest Payment Date for such convertible Subordinated
Debt Security and the opening of business on the related Interest Payment Date
shall be considered Outstanding for purposes of payment of interest, and,
therefore, must be accompanied by payment of an amount equal to the interest
payable thereon on such Interest Payment Date. (Sections 1504 and 1502 of the
Subordinated Debt Indenture)
In the case of any consolidation or merger of us (with certain exceptions)
or any conveyance, transfer or lease of our properties and assets substantially
as an entirety to any Person, each holder of convertible Subordinated Debt
Securities, after the consolidation, merger, conveyance, transfer or lease, will
have the right to convert such convertible Subordinated Debt Securities only
into the kind and amount of securities, cash and other property which the holder
would have been entitled to receive upon or in connection with such
consolidation, merger, conveyance, transfer or lease, if the holder had held the
common stock issuable upon conversion of such convertible Subordinated Debt
Securities immediately prior to such consolidation, merger, conveyance, transfer
or lease. (Section 1505 of the Subordinated Debt Indenture)
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DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 1,500,000,000 shares of common stock, of which
627,807,809 shares were outstanding at January 4, 2000. We are also authorized
to issue 10,000,000 shares of preferred stock, none of which were outstanding on
that date.
COMMON STOCK
Dividends. Holders of common stock are entitled to receive dividends when
declared by our Board of Directors. In certain cases, common stockholders may
not receive dividends until we satisfy our obligations to any preferred
stockholders.
Voting Rights. Each share of common stock is entitled to one vote in the
election of directors and in each other matter we may ask stockholders to vote
on. Common stockholders do not have cumulative voting rights. Accordingly, the
holders of a majority of shares voting for the election of directors can elect
all of the directors standing for election. Because members of our Board of
Directors serve staggered three-year terms, only about one third of our
directors are elected each year.
Fully Paid Status. All outstanding shares of our common stock are validly
issued, fully paid and non-assessable. The shares offered hereby will also be,
upon issuance and sale, validly issued, fully paid and non-assessable.
Liquidation or Dissolution. If we liquidate, dissolve or wind up our
business, whether or not voluntarily, common stockholders will share ratably in
the assets remaining after we pay our creditors and any preferred stockholders.
Listing. Our common stock is listed on the New York Stock Exchange under
the trading symbol "WMI."
Transfer Agent and Registrar. The transfer agent and registrar for the
common stock is Harris Trust and Savings Bank, Chicago, Illinois.
PREFERRED STOCK
The Board of Directors is authorized, without obtaining stockholder
approval, to issue one or more series of preferred stock. The Board's authority
includes determining the number of shares of each series and the rights,
preferences and limitations of each series, including voting rights, dividend
rights, conversion rights, redemption rights and any liquidation preferences. In
this regard, the Board may issue preferred stock with voting and conversion
rights that could adversely affect the voting power of the holders of common
stock, and dividend or liquidation preferences that would restrict common stock
dividends or adversely affect the assets available for distribution to holders
of shares of common stock in the event of our dissolution.
AUTHORIZED BUT UNISSUED SHARES
Authorized but unissued shares of common stock or preferred stock can be
reserved for issuance by the Board of Directors from time to time, without
stockholder action, for stock dividends or stock splits, to raise equity capital
and to structure future corporate transactions, including acquisitions, as well
as for other proper corporate purposes. Stockholders have no preemptive rights.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION
We are a Delaware corporation and are governed by the Delaware General
Corporation Law, in addition to our Restated Certificate of Incorporation and
Bylaws, certain provisions of which are summarized below. You should read the
actual provisions of these documents.
36
Section 203 of the Delaware law provides that an "Interested Stockholder,"
which is generally defined to mean any beneficial owner of 15% to 85% of the
corporation's voting stock, may not engage in any "business combination" with
the corporation for a period of three years after the date on which the person
became an Interested Stockholder, unless:
- prior to such date, the corporation's board of directors approved either
the business combination or the transaction in which the stockholder
became an Interested Stockholder; or
- subsequent to such date, the business combination is approved by the
corporation's board of directors and authorized at a stockholders'
meeting by a vote of at least two-thirds of the corporation's outstanding
voting stock not owned by the Interested Stockholder.
Section 203 defines the term "business combination" to include mergers,
asset sales and other transactions resulting in a financial benefit to the
Interested Stockholder.
The provisions of Section 203, combined with the Board of Directors'
authority to issue preferred stock without further stockholder action, could
delay or frustrate a change in control or discourage, impede or prevent a
merger, tender offer or proxy contest involving us, even if such an event would
be favorable to the interests of our stockholders. Our stockholders, by adopting
an amendment to the Restated Certificate of Incorporation, may elect not to be
governed by Section 203. Such an election would be effective 12 months after its
adoption.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Restated Certificate of Incorporation provides that our directors are
not liable for monetary damages for breaches of their fiduciary duty as
directors, unless they violated their duty of loyalty to us or our stockholders,
acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper personal benefit from
their action as directors.
In addition, our Bylaws provide for indemnification of each officer and
director to the fullest extent permitted by Delaware law. Section 145 of the
Delaware General Corporation Law grants us the power to indemnify each officer
and director against liabilities and expenses incurred by reason of the fact
that he is or was an officer or director if the individual (1) acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the company, and (2) with respect to any criminal action or
proceeding, he had no reasonable cause to believe his conduct was unlawful.
We have also purchased directors' and officers' liability insurance.
Section 145 of the Delaware General Corporation Law allows us to purchase such
insurance whether or not we would have the power to indemnify an officer or
director under the provisions of Section 145.
We also have entered into contracts with certain of our directors and
executive officers to pay the reasonable fees and expenses of his or her
counsel, as well as any judgments, fines, penalties, excise taxes, amounts paid
in settlement and other liabilities, which the individual may incur in any claim
or proceeding (including an action on our behalf) by reason of having served us
as a director, officer, agent or fiduciary. These agreements also provide for us
to pay the individual's defense costs before the proceeding is over, so long as
the director or officer undertakes to repay us should a court later determine
that the director or officer was not entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers or controlling persons
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
37
PLAN OF DISTRIBUTION
We may sell the securities to or through underwriters or dealers, and we
also may sell the securities directly to other purchasers or through agents. We
may also issue shares of our common stock directly to certain persons in order
to settle litigation and other claims or to satisfy judgments or arbitration
awards.
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
In connection with the sale of the securities, underwriters may receive
compensation from us, or purchasers of securities for whom they may act as
agents in the form of discounts, concessions or commissions. Underwriters,
dealers and agents that participate in the distribution of securities may be
deemed to be underwriters, and any discounts or commissions they receive from us
or the purchasers of securities, and any profit on their resale of securities
may be deemed to be underwriting discounts and commissions under the Securities
Act. We will identify any person deemed to be an underwriter and will describe
the compensation they receive from us in a prospectus supplement.
Debt securities, when first issued, will have no established trading
market. If we sell debt securities to or through any underwriters or agents for
public offering and sale, they may make a market in those debt securities.
However, the underwriters or agents will not be obligated to do so and may
discontinue any market making at any time without notice. There can be no
assurance as to the liquidity of any market that may develop for the debt
securities.
We may enter into agreements with underwriters, dealers and agents who
participate in the distribution of securities that could entitle them to
indemnification by us against or contribution from us toward certain
liabilities, including liabilities under the Securities Act.
DELAYED DELIVERY ARRANGEMENT
If so indicated in a prospectus supplement, we will authorize underwriters
or other persons acting as our agents to solicit offers by certain institutions
to purchase debt securities from us pursuant to contracts providing for payment
and delivery on a future date. Institutions with which such contracts may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and others, but in
all cases will be subject to our approval. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the debt securities shall not at the time of delivery be prohibited under the
laws of any jurisdiction to which such purchaser is subject. The underwriters
and such agents will not be responsible for the validity or performance of those
contracts.
VALIDITY OF SECURITIES
The validity of the securities has been passed upon for us by Locke Liddell
& Sapp LLP, and certain legal matters will be passed upon for any agents,
dealers or underwrites, by counsel named in the applicable prospectus
supplement.
38
EXPERTS
The audited consolidated financial statements for the year ended December
31, 1998 appearing in Waste Management's Current Report on Form 8-K dated
September 16, 1999 incorporated by reference in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their report. In their report, that firm states that, with respect to USA Waste
Services, Inc. and its Subsidiaries as of December 31, 1997 and for each of the
years in the two-year period then ended, its opinion is based on reports of
other auditors, namely PricewaterhouseCoopers LLP. The financial statements of
Waste Management referred to above have been included herein in reliance upon
the authority of those firms as experts in giving said reports.
During the quarter ended September 30, 1999, the Company conducted a review
of its accounting records, systems, processes and controls. Based on that
review, the Company has concluded that its internal controls for the preparation
of interim financial information did not provide its independent public
accountants an adequate basis to complete reviews of the quarterly data for the
quarters in the nine-month period ended September 30, 1999. Our independent
public accountants have advised the Company that their report on the December
31, 1999 financial statements will include the following paragraph:
"The selected quarterly financial data included in the Company's
financial statements contain information that we did not audit, and
accordingly, we do not express an opinion on that data. We attempted, but
were unable to, review that quarterly data in accordance with standards
established by the American Institute of Certified Public Accountants
because we believe that the Company's internal controls for the preparation
of interim financial information do not provide an adequate basis to enable
us to complete such a review."
The audited consolidated financial statements of USA Waste Services, Inc.
as of December 31, 1997 and for the years ended December 31, 1997 and 1996, not
separately incorporated by reference in this prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon is
incorporated by reference herein. Such financial statements, to the extent they
have been included in the financial statements of Waste Management, Inc., have
been so included in reliance on the report of such independent accountants given
on the authority of said firm as experts in auditing and accounting.
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[WASTE MANAGEMENT, INC. LOGO]