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SCHEDULE 14C
(Rule 14 3-:1.03.)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box;
(X) Preliminary Information Statement
( ) Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
( ) Definitive Information Statement
COMPOST AMERICA HOLDING COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box);
( ) No fee required.
(X) Fee computed on table below per Exchange Act Rules 14-c5(g) and 0-11
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth in the amount on
which the filing fee is calculated and stating how it was
determined): $37,500,000
4) Proposed maximum aggregate value of transaction: $37,500,000
5) Total fee paid: $7,500 (1/50 of 1% of $37,500,000)
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
COMPOST AMERICA HOLDING COMPANY, INC.
One Gateway Center, 25th Floor
Newark, New Jersey 07102
May ___, 2000
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
One Gateway Center - 25th Floor
Newark, New Jersey 07102
INFORMATION STATEMENT
This Information Statement is being mailed to the stockholders of
Compost America Holding Company, Inc., a New Jersey corporation (the "Company")
commencing on or about May ___, 2000, in connection with the previous approval
of the corporate action referred to below by a majority of the stockholders of
the Company. Accordingly, all necessary corporate approvals in connection with
the matters referred to herein have been obtained, and this Information
Statement is furnished solely for the purpose of informing stockholders, in the
manner required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of the corporate action before it takes effect, and of the
Dissenter's Rights, as set forth herein, of non-consenting stockholders. The
record date for determining stockholders entitled to receive this Information
Statement has been established as the close of business on March 9, 2000.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Action Taken
As of March 23, 2000, the Company had outstanding 58,665,228 shares of
common stock, no par value (the "Common Stock"). As of that date, nine
stockholders of the Company (the "Majority Stockholders"), set forth on Exhibit
1 attached hereto, held 32,099,218 shares of Common Stock, or 54.72% of the
total shares of Common Stock outstanding. On March 23, 2000, the Majority
Stockholders consented in writing without a meeting to the matters described
herein (the "Transactions", as defined and described in further detail
hereinafter), all of which are related to the Company's sale of its wholly-owned
subsidiary, Environmental Protection & Improvement Company, Inc. ("EPIC"), a New
Jersey corporation. As a result, the corporate actions were approved by a
majority of the shares of Common Stock without a meeting, prior notice or a vote
of all shareholders, pursuant to Section 14A:5-6(2) of the New Jersey Business
Corporation Act ("NJBCA"), and no further votes will be needed. The Majority
Stockholders consents with respect to the matters described herein were received
and tabulated on March 23, 2000 and will take effect 20 days after the mailing
of this Information Statement or on such other date as may be specified by the
Board of Directors of the Company ("Effective Date"). Assuming a mailing date of
May ___, 2000, the Effective Date will be June ___, 2000. The corporate actions
were approved by the Board of Directors of the Company (the "Directors"),
including, in each case, a majority of any disinterested directors, on March 6,
2000 and March 23, 2000.
EPIC, which is one of the Company's two operating subsidiaries, is in
the business of transporting waste materials by truck/intermodal rail to land
application sites for beneficial use or to landfill sites. On November 3, 1997,
the Company acquired all of the outstanding shares of EPIC (then named R. J.
Longo Construction Co., Inc.) from Robert J. Longo ("Longo") and The Robert J.
and Andrea Longo Charitable Trust, for approximately $33,000,000, consisting of
$20,000,000 cash, the issuance to Longo of 3,447,182 shares Common Stock, 39,000
shares of the Company's Class A Preferred Stock ("A Preferred") and 21,000
shares of the Company's Class C Preferred Stock ("C Preferred") valued in total
at $6,000,000, and the assumption by the Company of approximately $7,000,000 of
EPIC's debt.
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The Company has outstanding a total of 169,000 shares of A Preferred
and 91,000 shares of C Preferred. The remaining 130,000 shares of A Preferred
and 70,000 shares of C Preferred not owned by Longo are owned of record by
Wasteco Ventures Ltd. and beneficially by Wafra Acquisition Fund, L.P. (together
"Wasteco") and were issued and acquired for cash simultaneously with the
Company's 1997 acquisition of EPIC.
Interest Of Certain Persons in the Matters to be Acted Upon
As a result of the sale of EPIC to Synagro Technologies, Inc. ("Synagro"), Longo
and Wasteco will receive repayments of loans and reimbursement for legal fees
and will be granted liens on certain Company assets. In addition, Longo will
receive a settlement of his current employment agreement with EPIC and a new
employment contract with EPIC effective upon Synagro's acquisition of EPIC and
will have been released from certain personal guarantees, secured in part by
cash collateral. Peter Petrillo and John T. Shea, Directors of the Company, are
employees of WAFRA Investment Advisory Group ("WAFRA"), an entity related to
Wasteco, and Longo is a Director of the Company. Christopher Smith, also a
Director of the Company, is a former employee of WAFRA. Churchill Capital, Inc.,
a company in which Charles R. Carson, a Director of the Company, is a principal,
was instrumental in arranging for the EPIC Sale Transaction (as defined below),
and will be paid a fee for its services. G. Chris Andersen, a Director of the
Company, is a member of AW Compost Partners LLC ("AW Compost"), which is
expected to receive payment from a portion of the proceeds of the sale of EPIC
upon the Company's exercise of its option to repurchase membership interests in
American Marine Rail LLC ("AMR").
The Transactions
The Majority Stockholders and the Directors have approved the following
transactions.
I. The EPIC Sale Transaction. The Company is selling to Synagro all of
the shares of EPIC for a cash purchase price of $37,500,000 (the "Cash Purchase
Price"), plus or minus certain adjustments described below (the "Adjustment
Amount"), plus amounts, as described hereinafter, earned pursuant to an Earn Out
Agreement between the Company and Synagro, all pursuant to a Stock Purchase
Agreement dated March 31, 2000 (the "Stock Purchase Agreement"), between the
Company and Synagro (the "EPIC Sale Transaction"). The obligation of Synagro to
complete the EPIC Sale Transaction and purchase all of the stock of EPIC in
accordance with the Stock Purchase Agreement (the "Closing") was subject to
Synagro's receipt of a financing commitment on or before April 14, 2000, which
financing commitment has been confirmed by Synagro. The Stock Purchase Agreement
is subject to other Closing conditions, as specified therein, each of which the
Company expects to satisfy. The Stock Purchase Agreement had a stated
termination date of May 31, 2000, by which time all Closing conditions were
required to be satisfied. The Company and Synagro have agreed to extend the
termination date to June 30, 2000. A copy of the text of the Stock Purchase
Agreement, including Exhibits A and B and most but not all schedules thereto, is
included herewith as Exhibit 2. A copy of the Earn Out Agreement (which is also
a separate exhibit to the Stock Purchase Agreement) is included herewith as
Exhibit 3.
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On March 6, 2000, the Board of Directors first approved the sale of
EPIC at a cash purchase price (with adjustments) of $40,000,000 plus payments by
Synagro pursuant to an adjustable promissory note in the maximum principal
amount of $5,000,000. As a result of further negotiations between the Company
and Synagro, the transaction was reapproved on March 23, 2000 at the Cash
Purchase Price with the adjustments and earn out provisions described herein.
The Adjustment Amount, as defined in the Stock Purchase Agreement means
the sum of (1) EPIC's aggregate long-term indebtedness and other long-term
liabilities (including any premiums or fees resulting from the prepayment of
such obligations) determined in accordance with GAAP and (2) the amount, if any,
by which EPIC's Net Working Capital (i.e., the aggregate current assets of EPIC
less the aggregate current liabilities of EPIC determined in accordance with
GAAP and adjusted for certain excluded items) is less than $1,450,000. The
Adjustment Amount may be a negative number, which will result in an increase of
the purchase price. The Earn Out Agreement provides for the payment of Earn Out
Advances (as defined in the Earn Out Agreement) equal to $100,000 per calendar
quarter (pro-rated during the first quarter) payable on June 30, 2000 and on
each September 30, December 31, March 31 and June 30 thereafter until March 31,
2002. The Earn Out Amount, defined and calculated as provided in the Earn Out
Agreement, shall, with respect to any Undisputed Amount, be paid on May 15,
2003, and with respect to any Disputed Amount, the date ten (10) business days
following agreement on or delivery of the final binding and conclusive
calculation by the Neutral Auditor of the Three Year EBITDA, as each such term
is defined in the Earn Out Agreement. The Earn Out Amount payable on May 15,
2003 shall equal $5,412,000 unless EPIC's Three Year Average EBITDA (as defined
in the Earn Out Agreement) for the thirty-six (36) month period beginning April
1, 2000 is less than $7,500,000, in which case, depending upon the actual amount
of the Three Year Average EBITDA, the Earn Out Amount must be reduced and, in
certain cases, the Earn Out Advances are required to be refunded, all as set
forth in the Earn Out Agreement. See Exhibit 3 hereto.
In connection with the Stock Purchase Agreement, the Company and
Synagro will execute and deliver a Covenant Not to Compete Agreement (the
"Covenant Not to Compete Agreement"). The Covenant Not to Compete Agreement, a
copy of which is included herewith as Exhibit 4, and which also is a separate
exhibit to the Stock Purchase Agreement, restricts the operations of the Company
in the Transportation Business (as defined therein) within certain areas of New
York, New Jersey and Connecticut and, to the extent competitive with Synagro, in
the Biosolids Business (as defined in the Covenant Not to Compete Agreement).
See Exhibit 4 hereto.
The Stock Purchase Agreement provides that Longo, the former
controlling shareholder of EPIC and its current President and a Director and
significant shareholder of the Company, will remain with EPIC pursuant to an
employment agreement. The Company will pay Longo from proceeds of the sale an
amount to settle his existing employment contract with EPIC. Longo's personal
guarantees with respect to certain performance bonds for EPIC also will be
satisfied and released (or Synagro will provide a financial guaranty bond
providing for direct payment of such obligations).
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Neither the Earn Out Agreement nor the Covenant Not to Compete
Agreement will be executed until the Closing, which will take place on or after
the Effective Date.
II. The Sharing Agreement Transaction. The provisions of the Company's
Certificate of Incorporation relating to the A Preferred and the C Preferred
grant to Wasteco and Longo, as owners of the A Preferred and C Preferred, an
option under certain circumstances to exchange (i) all of the outstanding A
Preferred and C Preferred plus (ii) the Common Stock issued to Wasteco and Longo
in connection with their preferred stock purchase, for all of the issued and
outstanding shares of EPIC (the "Exchange Option"). Pursuant to a Sharing
Agreement by and among Wasteco, Longo and the Company, a copy of which is
included herewith as Exhibit 5 and which also is a separate exhibit to the Stock
Purchase Agreement (the "Sharing Agreement"),Wasteco and Longo, effective upon
the closing of the sale of the EPIC stock to Synagro and in consideration of the
payments and liens described below (collectively, the "Sharing Agreement
Transaction"), will waive the Exchange Option, thereby facilitating and
permitting the consummation of the sale of the EPIC stock to Synagro. The
parties to the Sharing Agreement have extended to June 30, 2000 the date for
waiver of the Exchange Option, thereby coinciding with the extended termination
date of the Stock Purchase Agreement. In consideration of the foregoing waiver,
Wasteco and Longo shall be entitled to the following pursuant to the Sharing
Agreement (provided that the parties do not intend that the payments specified
in (a) and (b) shall in the aggregate exceed $3,000,000 of sale proceeds):
(a) All notes payable to Wasteco and Longo arising out of loans by them
to EPIC and the Company, currently outstanding in the aggregate principal amount
of approximately $2,340,000, shall be paid by the Company at Closing and liens
securing such loans, including subordinate pledges of EPIC stock, shall be
terminated and released.
(b) Reasonable legal fees and expenses of Wasteco and Longo (but in any
event, in the aggregate not in excess of $1 million) in connection with the
study of alternatives available to the Company and negotiations with all parties
to the Closing and those parties who have negotiated for settlement with the
Company during the period January 1, 1999 to the Closing shall be paid by the
Company at the Closing.
(c) At Closing, the Company expects to grant to a designee of Wasteco
and Longo ("Designee") a first lien security interest, including proceeds, in
(i) the Earn Out Agreement and (ii) the Company's interest in a solid waste
transfer station being developed by AMR in Bronx, New York (the "AMR Property"),
including in the case of AMR, a lien on the Company's right to purchase
additional membership interests in AMR ("AMR Interests") and a lien on any
additional AMR Interests purchased. The lien granted with respect to AMR
Interests is to be limited to $3,000,000.
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Originally, the Company had purchased a 33% membership interest in AMR
and had held an option to acquire an additional 33% membership interest.
However, in July 1999, the Company transferred its membership interest in AMR to
AW Compost in exchange for (1) the payment of $225,000 to AMR by an affiliate of
AW Compost in order to cure certain funding defaults by the Company, (2) the
return to the Company of $860,000 of its Series D Preferred Shares, which AW
Compost had purchased for $860,000 and (3) the cancellation of the "AMR Option"
held by AW Compost (as described in Section 9 of the Company's Series D
Preferred Certificate of Designation). The Company has the option to repurchase
from AW Compost up to a 16.72% membership interest in AMR, at any time prior to
June 30, 2000, for a cash payment of $1,700,000, plus interest from May 31,
2000.
The Sharing Agreement requires the Company to exercise the foregoing
option in conjunction with the Closing of the sale of EPIC. The membership
interests in AMR will then be pledged as security to the Designee in the manner
described above.
The Sharing Agreement requires the Company to make commercially
reasonable efforts to sell, dispose or otherwise monetize all of its rights in
AMR for cash within 36 months after Closing. Upon any such sale or other
disposition, the proceeds must be held in a separate account subject to the
applicable security interest.
For further information concerning AMR, the AMR Property and the status
of the proposed project, including the Giuliani administration's recent
announcement of its intention to change the City of New York's solid waste
management plan in a manner that would delete the AMMR Project, among others,
from the residential component of that plan, see "The Company's Strategic
Development Plan - AMR" hereinafter.
Upon collection of any funds under the Earn Out Agreement, such funds
must also be held in a separate account pledged for the benefit of the Designee.
The Company has agreed to hold the Earn Out Agreement to May 15, 2003 or to that
time that any Disputed Amounts (as defined in the Earn Out Agreement) are
resolved.
At any time when there are cash equivalents held in either of such
separate accounts exceeding $1,000,000, the Company has agreed (x) to redeem the
A Preferred in the amount contained in the account but not in the aggregate more
than $3,000,000 as to proceeds arising from the AMR Property; and (y) to redeem
C Preferred in the amount contained in the account but not in the aggregate more
than the amounts payable under the Earn Out Agreement. Any such obligation to
redeem A Preferred and C Preferred is subject to reduction so that such
redemption when effective will be permissible under law. The Company shall
provide prompt notice to the Designee of Wasteco and Longo of (1) any Disputed
Amount under the Earn Out Agreement, (2) receipt of property in any such
separate account and (3) any sale, disposition or other transaction involving
the property subject to the applicable security interests.
(d) The Company shall defend title to the foregoing security at its
sole expense (including the defense against any Disputed Amount under the Earn
Out Agreement unless Wasteco and Longo agree that such defense is
inappropriate). If the Company shall fail to fulfill such defense obligation,
the Designee may do so and shall be entitled to utilize any amount held in
either of the security accounts in the reasonable defense of such security.
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(e) As a result of the obligations under paragraph (c) above, the
Company's ability to pay preferred dividends other than in Common Stock has been
reduced. Accordingly, the Company's Certificate of Incorporation provisions
governing the A Preferred and C Preferred, as well as the Company's Series D
Exchangeable Redeemable Preferred (the "D Preferred"), shall be amended to
provide that the A Preferred, C Preferred and D Preferred shall pay dividends in
either cash or Common Stock, during the period November 3, 1999 through November
3, 2004, at the current formula price specified in the applicable preferred
stock certificate of designation.
Each element of the Sharing Agreement Transaction, including (i) the
terms and provisions of the Sharing Agreement itself, such as the payment of the
Wasteco and Longo loans and the reimbursement of their legal fees and expenses
from the proceeds of the EPIC sale and the granting to the Designee of liens on
and security interests in the Earn Out Agreement and the AMR Interests, (ii) the
repurchase of AMR Interests in order to allow the granting of the lien on such
Interests, and (iii) the amendments to the Company's Certificate of
Incorporation to reflect (x) the mandatory redemption of A Preferred from
proceeds of the monetization of the AMR Interests, (y) the mandatory redemption
of C Preferred from proceeds of the Earn Out Agreement and (z) the provision
that dividends on the A Preferred and C Preferred may be paid in cash or Common
Stock, has been approved by Board of Director resolutions and by consents of
Majority Stockholders, except that the provision that dividends on the D
Preferred may be paid in cash or Common Stock was approved by the Board of
Directors but was not required to be submitted for common stockholder approval.
III. Reduction of Newark Mortgage Held by Equity Investments of
Delaware, Inc. On May 15, 1999, the Company, as borrower, defaulted in the
payment of a $1,000,000 Acquisition Refinancing Promissory Note, plus an
additional $150,000 in accrued interest and penalties, payable to Equity
Investments of Delaware, Inc., ("Equity Investments"), as lender. Equity
Investments is also the holder of the Company's $2,000,000 Convertible Term Loan
Promissory Note due November 1, 2000, now in default as a result of
cross-default provisions. Both notes (together, the "Equity Investment Notes")
are secured by a first mortgage on a 12 acre parcel in Newark, New Jersey (the
"Newark Property"), owned by the Company's affiliate, Newark Recycling &
Composting Company, Inc. ("NRCC"). Equity Investments has obtained a default
judgment against the Company in respect of these claims. At Closing, the Company
expects to pay from proceeds of the sale of EPIC and from other sources
principal and accrued interest of approximately $750,000 and, contemporaneously
therewith, to refinance the terms of the Equity Investment Notes, thereby
deferring debt payments until at least December 31, 2000 (the foregoing is
referred to as the "Equity Investments Transaction").
IV. Settlement With VRH Construction Corp. On May 15, 1999, the Company
defaulted on promissory notes payable by the Company and its subsidiary NRCC,
which notes are secured by a second mortgage on the Newark Property. The total
outstanding amount of this debt currently is approximately $6,466,100. The
Company has acknowledged the debt but disputed the propriety of the mortgage.
The Company now has negotiated a settlement with VRH Construction Corp. ("VRH")
whereby the Company will pay VRH $1,000,000 from the proceeds of the sale of
EPIC in reduction of the outstanding loans. These loans then will be
consolidated as an obligation of the Company maturing up to eighteen (18) months
from the Closing Date and will be secured by a second mortgage lien on the
Newark Property (the foregoing is referred to as the "VRH Transaction"). As
indicated above in the description of the Equity Investments Transaction, the
first mortgage lien, as refinanced, contemporaneously is expected to be reduced
by approximately $750,000.
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V. Repayment of EPIC Debt to FINOVA Capital Corporation and Merrill
Lynch Business Financial Services, Inc. On June 17, 1998, EPIC, as borrower,
entered into a Loan and Security Agreement with FINOVA Capital Corporation, as
lender ("FINOVA"), whereby FINOVA loaned EPIC $10,000,000 for refinancing and
other purposes (the "FINOVA Loan"). The Company guaranteed the FINOVA Loan and
secured its guaranty by a pledge of the EPIC stock. The FINOVA Loan is further
secured by a first security interest in all of EPIC's personal property.
EPIC is also the obligor on an outstanding loan of approximately
$522,811, pursuant to a line of credit from Merrill Lynch Business Financial
Services Inc. (the "Merrill Lynch Loan"), personally guaranteed by Longo and
secured by cash collateral from Mr. Longo.
At the Closing, the FINOVA Loan and the Merrill Lynch Loan will be
repaid in full from proceeds of the EPIC sale and all pledges and liens securing
such loans are required to be released and satisfied of record. The foregoing is
referred to as the "EPIC Debt Repayment Transaction".
VI. Restructuring of Financial Arrangements with Lionhart Global
Appreciation Fund, Ltd., Lionhart Investments, Ltd. and Global Earthfund
Partners, L.L.C. The Company, together with its majority controlled subsidiary,
Miami Recycling and Composting Company, Inc. ("MRCC"), and MRCC's wholly owned
subsidiary, Bedminster Seacor Services Miami Corporation ("Bedminster" and
together with the Company and Miami, the "Compost Entities"), previously entered
into a Credit, Capitalization and Financing Agreement dated October 30, 1998
("1998 Agreement") with Lionhart Global Appreciation Fund, Ltd. ("LGAF"),
Lionhart Investments, Ltd. ("LHI") and Global EarthFund Partners, L.L.C. ("GEP"
and together with LGAF and LHI, the "Lionhart Entities"), whereby, among other
things, the Lionhart Entities made a loan of $10,500,000 to the Compost Entities
("1998 Loan") evidenced by a Mortgage Note, dated October 30, 1998, in the
principal amount of $10,500,000, constituting a joint and several obligation of
each of the Compost Entities ("1998 Note"), such 1998 Note being further
guaranteed by the Company and MRCC pursuant to a Guaranty Agreement, dated
October 30, 1998, executed and delivered to the Lionhart Entities ("1998
Guaranty).
The 1998 Loan is secured by (i) a Senior Mortgage, Security Agreement,
Fixture Filing and Assignment of Rents, dated October 30, 1998 ("1998
Mortgage"), from MRCC, as mortgagor, to the Lionhart Entities, as mortgagee,
granting a first mortgage lien on an approximately 37.85 acre site owned by MRCC
in Miami-Dade County, Florida (the "Miami-Dade County Property"); (ii) a Pledge
and Security Agreement, dated October 30, 1998, from the Compost Entities to the
Lionhart Entities as secured parties ("1998 Pledge and Security Agreement"),
pledging, assigning and granting a security interest in certain personalty owned
respectively by each of the Compost Entities; (iii) a Common Stock Pledge
Agreement, dated October 30, 1998 ("1998 MRCC Stock Pledge Agreement"), whereby
the Company, as owner of 80.1% of the outstanding capital stock of MRCC, pledged
and delivered to the Lionhart Entities, as pledgee, all of its shares of MRCC
stock; (iv) a Common Stock Pledge Agreement, dated October 30, 1998 ("1998
Bedminster Stock Pledge Agreement"), whereby MRCC, as owner of 100% of the
capital stock of Bedminster, pledged and delivered to the Lionhart Entities, as
pledgee, all of its Bedminster stock; and, (v) a Common Stock Pledge Agreement,
dated October 30, 1998 ("1998 CAHC Stock Pledge Agreement"), whereby the Company
pledged and delivered to the Lionhart Entities, as pledgee, 600,000 shares of
Common Stock.
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As additional consideration for making the 1998 Loan and consummating
the other transactions contemplated under the 1998 Agreement, LGAF received (i)
six (6) warrants ("Warrants") to purchase in the aggregate 1.5 million shares of
Common Stock at the times and prices specified in Article VIII of the 1998
Agreement and in the Warrants, (ii) a put option ("Put Option No. 1") with
respect to 400,000 shares of the Company's Series B convertible preferred stock
owned by LGAF ("B Preferred Shares") before or after such B Preferred Shares are
converted on a one for one basis to Common Stock, Put Option No. 1 to be
exercisable by LGAF and paid by the Company at a price of US $3.10 per share,
pursuant to the terms and subject to the conditions set forth in Article IX of
the 1998 Agreement, and (iii) an additional put option ("Put Option No. 2"),
with respect to 553,386 shares of Common Stock owned by LGAF immediately
following the closing of the 1998 Loan , Put Option No. 2 to be exercisable by
LGAF at the time and paid by the Company at a price of US $3.20 per share,
pursuant to the terms and subject to the conditions set forth in Article X of
the 1998 Agreement.
The Compost Entities are or may be in default under the 1998 Agreement,
the 1998 Note, the 1998 Mortgage, the 1998 Pledge and Security Agreement, the
1998 MRCC Stock Pledge Agreement, the 1998 Bedminster Stock Pledge Agreement
and/or the 1998 CAHC Stock Pledge Agreement, and/or any other agreements,
documents or instruments that respectively relate thereto or arise therefrom, by
or because of one or more actual, potential or alleged act(s) or omission(s) by
one or more of the Compost Entities that violate or may violate one or more of
the Compost Entities' undertakings under some or all of the foregoing documents
("Potential Defaults").
Contingent upon the Closing, the Compost Entities and the Lionhart
Entities have negotiated a Restructuring and Settlement Agreement substantially
in the form included herein as Exhibit 6 (the "Restructuring Agreement"),
whereby the Compost Entities would repay the 1998 Loan, including all accrued
interest and costs, with $12.4 million of proceeds of the EPIC Loan and in
consideration thereof the Lionhart Entities would terminate the 1998 Agreement,
cancel the 1998 Note and the 1998 Guaranty and release and satisfy of record the
1998 Mortgage. The Restructuring Agreement had a stated termination date of
April 30, 2000, by which time all of the conditions of such Agreement were
required to be satisfied. The Company and the Lionhart Entities have now agreed
to extend the termination date to June 30, 2000.
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The Restructuring Agreement provides further for a Put Option
Agreement, substantially in the form included herein as Exhibit 7 (the "Put
Option Agreement"), whereby Put Option No. 1 and Put Option No. 2 shall be
amended and restated in their entirety and secured solely by pledges of stock of
the Compost Entities and by certain other personal property in respect of the
proposed project for the Miami-Dade County Property.
The foregoing arrangements are referred to as the Lionhart
Restructuring Transaction.
VII. Churchill Capital, Inc. Fee. Churchill Capital, Inc. ("Churchill")
has performed certain consulting and brokerage services in connection with the
sale of EPIC and will receive a fee equal to $790,000, payable from the sale of
EPIC (the "Churchill Transaction"). Charles R. Carson, a principal of Churchill,
is a Director of the Company.
The EPIC Sale Transaction, the Sharing Agreement Transaction, including
all elements thereof, the Equity Investments Transaction, the VRH Transaction,
the EPIC Debt Repayment Transaction, the Lionhart Restructuring Transaction and
the Churchill Transaction are referred to collectively as the "Transactions".
Attached as Exhibit 8 are recent unaudited financial statements of
EPIC. Attached as Exhibit 9 are pro forma financial statements prepared by the
Company, giving effect to the proposed sale of EPIC. The Company's Form 10-KSB/A
for its fiscal year ended April 30, 1999, filed with the Securities and Exchange
Commission on May 12, 2000, is incorporated by reference in this Information
Statement.
Conditions of the Transactions
Consummation of all of the Transactions is conditioned upon the
simultaneous completion of each of the Transactions as well as the following
additional transaction for which shareholder consent was not requested and is
not required:
Aryeh Trading Corp. and certain affiliates (together, "Aryeh"), have
made loans to both the Company and EPIC in the aggregate of approximately
$2,730,000, such loans having been secured in part by subordinate liens on the
EPIC stock. Simultaneously with Closing, Aryeh will release the collateral for
such loans, which, together with a new loan of $1,500,000, will be consolidated
in a new loan agreement among the Company, MRCC and Aryeh (the "Aryeh Trading
Loan"). The new loan agreement with Aryeh will be secured by a first mortgage
lien on the Miami-Dade County Property. As additional consideration for
completing this transaction, Aryeh will be granted warrants to purchase three
million shares of the Common Stock at $.01 per share.
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Proceeds of the EPIC Sale Transaction
Proceeds of the EPIC Sale Transaction, together with certain other
sources of funds described below, are expected to be applied as follows:
<TABLE>
<CAPTION>
Estimated Sources of Funds
<S> <C>
Sale of EPIC $ 42,500,000
Aryeh Trading Loan 1,500,000
Earnout Agreement (5,000,000)
Closing fees and expenses (1,500,000)
------------
Cash proceeds at close 37,500,000
Plus Estimated Purchase Price Adjustment 3,050,000
Total Cash Proceeds at Close $ 40,550,000
============
Estimated Uses of Funds
Payment of Lionhart Loan $ 12,400,000
Payment of FINOVA Loan 7,200,000
Payment of Wasteco and Longo loans and legal fees 3,000,000
Acquisition of AMR interests 1,700,000
Payment to Equity Investments of Delaware 500,000(1)
Payment to VRH 1,000,000
Payment of Merrill Lynch Loan 550,000
EPIC employee termination costs 1,600,000
Legal fees 1,000,000
Company Working Capital (18 months) 3,300,000
IRS Penalties/Real Estate Taxes 392,965
AMR development costs 300,000
Newark and Miami permitting costs 500,000
Litigation and other claims to be settled by Closing 2,539,250
Reserve for Trade Payables, Unresolved Notes and Unsettled
Litigation 4,567,785
------------
Total Uses $ 40,550,000
============
</TABLE>
- ---------------
(1) An additional $250,000 will be paid from other sources.
10
<PAGE>
Federal Income Tax Consequences of the EPIC Sale Transaction
The following is a summary of the material United States federal income
tax consequences to the Company and the shareholders of the Company upon the
receipt by the Company pursuant to the EPIC Sale Transaction, of the cash and
the Earn Out Agreement and the possible receipt by shareholders of the Company
pursuant to the exercise of their dissenter's rights provided by the NJBCA, of
consideration equal to the fair market value of the stock owned by such
shareholders. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis. This discussion is being
provided for general informational purposes only and is not intended to be a
complete description of all of the tax consequences of the EPIC Sale
Transaction.
Because determining the tax consequences of the merger may depend upon
your personal circumstances, you should consult with your tax advisor to
understand how the merger may affect you.
Tax Consequences of the EPIC Sale Transaction to the Company. The EPIC
Sale Transaction will be treated for federal income tax purposes as a taxable
deemed sale of all of the outstanding stock of EPIC by the Company to Synagro.
The Company will recognize gain or loss upon the receipt of the cash and
payments pursuant to the Earn Out Agreement in exchange for the EPIC stock equal
to the difference between (i) the amount of cash received, and (ii) the
Company's tax basis in the EPIC stock. Gain or loss will be capital gain or loss
to the Company if the stock of EPIC was a capital asset in the hands of the
Company. Under present law, capital gains are generally taxable at a maximum
rate of 35% for corporations.
Tax Consequences to Shareholders of the Company. The sale of the stock
of EPIC, the other Transactions and the additional transaction described above
under "Conditions of the Transactions" will have no direct federal income tax
consequences for the shareholders of the Company. Also, the shareholders of the
Company who choose to continue to hold their stock will have no resulting
federal income tax consequences. However, the shareholders of the Company who
exercise their dissenter's rights under the NJBCA will receive a liquidating
distribution from the Company equal to the consideration they received for their
stock of the Company pursuant to the exercise of their dissenter's rights.
Provided this distribution is in complete liquidation of all of the particular
shareholder's interest in the Company, the shareholders of the Company who
exercise their dissenter's rights under the NJBCA will recognize gain or loss
upon the receipt of the consideration in exchange for their stock of the Company
equal to the difference between (i) the amount of cash received and (ii) their
tax basis in the stock of the Company. Gain or loss will be capital gain or loss
if the stock of the Company was a capital asset in the hands of the shareholder
of the Company and will be a long-term capital gain or loss, if at the time of
the merger, the stock of the Company was held by the shareholder for more than
12 months. Under present United States federal law, long-term capital gains are
generally taxable at a maximum rate of 20% for individuals and 35% for
corporations.
11
<PAGE>
Back-up Withholding Requirements. United States federal tax code
information requirements and backup withholding at the rate of 31% may apply
with respect to dividends paid on, and proceeds from the taxable sale, exchange
or other disposition of the stock of the Company, unless the shareholder (i) is
a corporation or comes within certain other exempt categories and, when
required, demonstrates these facts, or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder who does not supply the Company with his
correct taxpayer identification number may be subject to penalties imposed by
the Internal Revenue Service. Any amount withheld under these rules will be
refunded or credited against the shareholder's federal income tax liability.
Shareholders should consult their tax advisers as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption. If information reporting requirements apply to a shareholder, the
amount of dividends paid with respect to such shares will be reported annually
to the Internal Revenue Service and to such shareholder.
The Company's Strategic Development Plan
Upon satisfaction of the conditions of the Transactions and
effectuation of the sale of the EPIC stock to Synagro, the Company expects to
take steps to pursue its Strategic Development Plan which Company Management has
developed in conjunction with the negotiation of the sale of EPIC and the
settlement of the related matters described in this Information Statement. The
Strategic Development Plan is summarized below. More detail concerning the
Strategic Development Plan, including historical background information, is
included in the Company's Business Plan, which was accepted by the Company's
Board of Directors on March 6, 2000. The Business Plan, which is available upon
written request to the Company, was prepared based upon facts known to Company
Management as of January 31, 2000. No attempt has been made to update the
Business Plan based upon subsequent events.
The Company's new management team, which has been in place for
approximately eleven months, has spent that time identifying and assessing
creditor claims, negotiating the resolution of various legal actions taken
against the Company, raising interim financing and developing a strategic plan
for the Company's future. The Company is now at a critical turning point of
disposing of certain assets, settling with creditors, raising new capital and
implementing the strategic plan. Management estimates that the Company's current
and contingent liabilities (including trade payables, notes payable, various
litigation claims and the proposed payments specifically listed under the
caption "Proceeds of EPIC Sale Transaction") currently approximate $48,600,000.
Management has determined that in order for the Company to survive and
to meet all of its obligations, EPIC and the Company's other operating
subsidiary, American Soils, Inc. ("ASI"), must be sold. The sale of ASI, which
owns an outdoor composting facility in Freehold, New Jersey, has been negotiated
at a price of $450,000, with $200,000 payable at closing and the balance due in
60 months with interest at 9.25% per annum. In addition, the purchaser has
agreed to lease certain adjacent land owned by ASI. The sale is subject to the
purchaser completing its due diligence and the lease is subject to the Company
resolving certain lawsuits and judgments. To affect the Company's
reorganization, a number of ancillary transactions must also be consummated,
which include paying and restructuring loans, settling litigation and paying
other obligations, as described in this Information Statement.
12
<PAGE>
Management has also identified three existing properties, one or more
of which it expects to be the central focus of development for the Company
within the next eighteen months. These properties are described in more detail
below. The following statements in this Information Statement concerning the
future business, operating results and financial condition of the Company are
"forward looking" statements as defined in the Private Securities Litigation
Reform Act of 1995. Such statements are based on Management's current
expectations and are subject to a number of factors and uncertainties.
Information contained in these forward-looking statements is inherently
uncertain, and actual performance and results may differ materially.
Newark Property
- ---------------
The Company is exploring the construction, leasing and/or operation of
a solid waste transfer station at the Newark Property. It retained the firm of
Cummings and Smith ("CS"), consulting engineers who have designed numerous solid
waste facilities, to design a 1,200 tons-per-day ("tpd") facility on six acres
of the Newark Property. Assuming permitting costs of $216,000 and a 15%
contingency, CS has estimated the facility can be constructed and commissioned,
exclusive of land costs, for $9,800,000. Total time estimated by CS for
permitting and constructing the facility ranges from fifteen to twenty-four
months. Construction time for the facility is estimated to be approximately six
months, and will commence immediately following the issuance of permits.
At the same time, the Company also retained the accounting firm of
Mango, Huber and Meglio ("MHM"), with extensive experience with solid waste
transfer stations and hauling companies in New Jersey, to develop a pro forma
income statement for the facility designed by CS. The proposed transfer station
has been discussed conceptually with Newark city officials, who have expressed
unofficial initial-stage support if the facility can be used to help them to
address solid waste issues in Newark.
Using cost estimates for construction prepared by CS and for other
equipment required to operate the waste transfer station, submitted by MHM,
Management has estimated that total costs of a transfer station, including land,
construction and equipment, will be $14,000,000. Assuming decreased tipping fees
(as indicated below) and increased labor costs of $800,000, Management has
adjusted MHM's estimated income from operations from $9,364,066 to $5,076,566.
MHM Projected revenues $ 43,942,500
Less tipping fees reduction 3,487,500
-----------------
Adjusted revenues $ 40,455,000
=================
13
<PAGE>
Management believes that a combination of taxable and tax-exempt bonds
(term based on a 30-year payout) in excess of $25,000,000 can be obtained for
the project. The portion available to the Company from over funding would be
used to retire the remaining mortgages and liabilities on the Newark Property,
and would result in income after debt service (exclusive of depreciation) to the
Company of $2,426,566 annually.
Income from operations $ 5,076,566
Interest and amortization on $25,000,000 (11%) 2,650,000
-------------
Adjusted income from operations (exclusive of depreciation)
$ 2,426,566
=============
Using the MHM and CS reports and the above assumptions, it is estimated
that the market value of the waste transfer station would be in excess of
$30,000,000 to $35,000,000 when operational, based on a multiple of 6 to 7 times
income from operations.
An alternative to the Company building and operating a transfer station
would be to enter a leasehold agreement for the site with one of the major
companies in the solid waste industry. The Company intends to begin discussions
with a lessee, whereby the lessee will enter into a 30-year triple net ground
lease with a minimum payment of $2,000,000 against a royalty of $2.00 per ton,
which includes a host benefit fee to the City of Newark. The lessee will agree
to permit, construct and operate a waste transfer station at the site and
payments will commence 18 months after signing of the agreement. Management
believes that if this transaction were to be consummated, a leasehold mortgage
of $15,000,000 could be obtained, resulting in $350,000 being available to the
Company annually after debt service. The money derived from the leasehold
mortgage again would be used to retire the mortgages and liabilities of VRH and
Equity Investments.
For the other half of the Newark Property, Management has begun
pursuing a long-term lease for a gas-fired co-generation facility and a
distribution/warehouse center. Management has met with representatives of a
power company who have visited the site and expressed a strong interest in
exploring it, particularly given the availability of transmission capacity in
the area to carry the electricity. Management also intends to identify
warehouse/distribution center developers. With the continued expansion of Newark
Airport, Management expects that the demand for modern warehouse facilities
should continue to be strong.
Management has met with a power generation developer who has expressed
interest in the site, and has proposed a ground lease for five acres for an
annual payment of approximately $100,000, which is based on a land valuation of
$1,300,000, or approximately $250,000 per acre and a cap rate of 7.5%.
Management has countered with an offer for six acres for an annual payment,
using the same cap rate, of approximately $157,500, providing a value of
$2,100,000 to the Company.
Management plans to simultaneously pursue both the development of the
solid waste transfer station and attempt to obtain a triple net lease from
warehouse/distribution companies. If within six months, Management determines
that solid waste contracts cannot be secured and/or local and state permits and
14
<PAGE>
approvals cannot be obtained, Management will proceed to the alternative of
constructing a 235,000 square foot warehouse/distribution center. Analysis by CS
shows construction costs of $14,410,000. With the cost of land at $5,000,000 and
soft costs (commitment fees, insurance, interest costs during construction,
etc.) of $1,500,000, the total needed to construct the facility is $20,910,000.
Assuming the availability of a New Jersey Economic Development Authority loan
for 70% of project costs at 6.0% to 6.5% (the debt constant would be
approximately 7.75%), annual payments would be approximately $1,130,000. With
triple net rental income of $6 per square foot and maintenance costs (snow
removal, etc.) of $50,000, net income would be approximately $230,000 per year.
Management intends to sell the facility for a multiple of 6 to 7 times cash
flow (including debt service), thus realizing $7,500,000 to $8,000,000 and
enabling the Company to retire the majority of the mortgages of VRH and Equity
Investments.
Until the land can be utilized as planned, management has negotiated
and signed in April, 2000 a one-year ground lease for the use of the site as a
container storage facility, with a 90-day termination notice provision, at
$204,000 annually ($17,000 per month).
AMR
- ---
As indicated above, the AMR Property is located in Bronx, New York.
When and if constructed, AMR's facility will be capable of receiving waste by
barge from New York City's existing marine transfer station system, compacting
the waste and transporting it out of New York City by rail. AMR's business plan
was based upon a Request for Proposals ("RFP") issued by the New York City
Department of Sanitation in late 1997 for a 20-year contract, with two (2) five
(5) year extensions, to transport and dispose of up to 11,700 tons per day of
the Department's residential solid waste. The RFP was a result of New York
City's announced intent to close the Fresh Kills Landfill in Staten Island on
December 31, 2001.
AMR submitted its permit application for the disposal of solid waste to
the State of New York in the Fall of 1997 and expects final permits to be issued
later this year. Drafts of a Negative Declaration of Environmental Impact and an
environmental permit were issued to AMR in December, 1999.
The principals of AMR have continued to provide information to
facilitate completion by New York City and New York State regulatory officials
of their review of AMR's environmental permit application. There are six bid
finalists representing only three solid waste companies, and, at present, AMR is
the only company among the finalists, including the solid waste industry
leaders, to have submitted a permit application.
The release by regulatory officials of the Negative Declaration of
environmental impacts and the draft environmental permit for the project, is a
major step forward in the permitting process. The public hearing on the draft
permit occurred on March 8, 2000, and AMR expects the final permit to be issued
by year end 2000.
15
<PAGE>
In preparing the Business Plan, Management of the Company estimated
that with the receipt of the Negative Declaration the asset value of the
Company's share of AMR would be $4,000,000. That estimate was based on the fact
that as of January 31, 2000 (and continuing to date), AMR was furthest along in
the permitting process, and when the permit is issued, AMR will have the only
permitted project for long term handling of a portion of New York City's
residential solid waste after the closure of Fresh Kills Landfill. Accordingly,
Management assumed, at that point, even if New York City were to award contracts
to other bidders, such successful bidders likely would approach AMR to purchase
the project because of AMR's unique permit status.
Should AMR be issued a permit and New York City officials award a
contract to AMR, Management expects that financing for the project will be
available and, accordingly, the value of the Company's share should increase
significantly. Based upon the foregoing assumptions, detailed financial modeling
forecasts that the project will produce for the Company approximately $1,000,000
in annual cash flow beginning in 2003, $2,000,000 in 2004, and escalating
annually.
Notwithstanding the foregoing, as a result of the Giuliani
administration's recently announced plans to substantially revise the City of
New York's waste disposal plan, there is now considerable doubt concerning not
only the schedule but also the ultimate completion of AMR's project in Bronx,
New York, at least as initially envisioned with respect to residential solid
waste. In early May, Mayor Guiliani announced his revised plan, which, inter
alia, would substitute for the Bronx transfer station (as well as even larger
transfer stations in Brooklyn and New Jersey), several retrofitted smaller scale
transfer stations in New York City. Under the revised plan, trash would be
barged from these smaller transfer stations to Linden, New Jersey and
subsequently transported by rail to landfills in Illinois, South Carolina,
Georgia and elsewhere. Although the proposed revised plan has received
considerable coverage in the media, which has noted the absence of widespread
community opposition but also significant cost increases and timing delays, the
plan is subject to various legal and regulatory reviews, both in New York and
New Jersey, which could significantly alter or entirely vitiate it. In addition,
bidders under the RFP, including AMR, may challenge the legality of the revised
plan, particularly as it affects the bidding process. It has been reported that
New York City Council intends to hold a hearing on the revised plan later this
month, while the Giuliani administration is taking public comments on the
proposal through June 16. Even if implemented, it is not expected that all
aspects of the plan would be in place for at least four years.
In light of the uncertainty resulting from the revised New York City
plan, Management cannot predict the ultimate outcome of this situation. However,
after spending considerable time and effort consulting with AMR officials and
others, Management continues to believe that the AMR Property has significant
value, particularly in light of New York City's demonstrable need for commercial
as well as residential trash removal and AMR's progress to date in its
permitting process. Accordingly, Management has recommended to the Company's
Board of Directors and the Board has affirmed its approval of the acquisition of
the AMR Interests with a portion of the proceeds of the EPIC sale, unless there
are material adverse developments for AMR prior to Closing, in which case
proceeds otherwise available for the AMR project would be retained by the
Company and applied for other corporate purposes.
16
<PAGE>
Miami-Dade County, Florida Composting Project Site
- --------------------------------------------------
The Company and Bedminster are currently involved in a law suit against
the City of Miami ( "Miami") seeking to compel Miami to confirm its second
extension of a municipal solid waste disposal contract in connection with the
proposed composting project at the Miami-Dade County Property. If specific
performance is not awarded in the outcome of the lawsuit with Miami, the Company
intends to proceed with the composting project with Miami-Dade County ("Dade")
in lieu of Miami. Management has met on several occasions with senior Dade
regulatory officials who have continued to express support for the project.
Permit application reviews and approvals have been delayed and/or terminated due
to the lawsuit and a lack of Company funds, and some regulatory requirements
have been changed, but the permits are expected to be completed within one year
from the resolution of the lawsuit.
Based on its financial projections for the project, Management is
confident that a combination of taxable and tax-exempt financing, with an
initial taxable excess funding of $6,500,000, can be secured and the project
built within 24 to 30 months of the conclusion of the litigation, currently
anticipated in mid to late 2000.
Approval of the Transactions
The Company has taken all action required under New Jersey law to
approve the Transactions, such approval to be final as of the Effective Date. In
addition, as a separate requirement, since stockholder approvals of the
Transactions were obtained by written consent rather than at a stockholders'
meeting, the Exchange Act requires that the Transactions may not become
effective until the expiration of 20 calendar days from the date this
Information Statement was mailed to the stockholders of the Company.
Accordingly, the Transactions will become effective on the later of the
Effective Date or the actual closing of the Transactions.
Dissenters' Rights Regarding EPIC Sale Transaction
Any shareholder of the Company has the right to dissent from the EPIC
Sale Transaction (but not any of the other Transactions). The rights of
dissenting shareholders are set forth in Chapter 11 of the NJBCA and are
summarized herein. A shareholder who may wish to dissent should review
carefully, alone or with his adviser, all of Chapter 11, and, specifically,
Section 11-2 ("Notice of Dissent"). The form of the Notice of Dissent which may
be given by nonconsenting shareholders is included herewith as Exhibit 10.
A SHAREHOLDER WHO WISHES TO DISSENT FROM THE EPIC SALE TRANSACTION MUST FILE
WITH THE COMPANY, NO LATER THAN JUNE ___, 2000, A WRITTEN NOTICE OF SUCH DISSENT
STATING THAT THE SHAREHOLDER INTENDS TO DEMAND PAYMENT FOR HIS SHARES IF THE
EPIC SALE TRANSACTION IS COMPLETED.
17
<PAGE>
Thereafter, within 10 days after the EPIC Sale Transaction is completed, the
Company shall give notice, by certified mail, to all shareholders who previously
have filed a written notice of dissent with the Company, that the EPIC Sale
Transaction has been completed ("Notice of Completion of Transaction").
Thereafter, the following procedural steps would apply:
(1) Within 20 days of the mailing of such Notice of Completion of
Transaction, a shareholder who previously filed notice of his dissent may make
written demand on the Company for the payment of the fair value of his shares as
of the day prior to the day of receipt and tabulation by the Company of the
required shareholder consents ("Fair Value Date") (March 22, 2000).
(2) Within 20 days after making this written demand for payment, the
dissenting shareholder must submit his common stock certificate(s) to the
Company for the notation thereon by the Company that a dissenter's demand has
been made to the Company, whereupon the common stock certificate(s) will be
returned to the dissenting shareholder.
(3) Within 30 days after the mailing of the Notice of Completion of
Transaction (10 days after the last possible day for a dissenting shareholder to
file his written demand for payment of the fair value of his shares), the
Company must mail to each dissenting shareholder a copy of its balance sheet and
surplus statement, as of the Fair Value Date (March 22, 2000). The balance sheet
and surplus statement may be accompanied by a written offer from the Company to
pay each dissenting shareholder for his shares at a specified price deemed by
the Company to be the fair value thereof. All dissenting holders of common
shares must be offered the same price. This offered price could be greater than,
less than or equal to the market price of the Common Stock.
(4) If the fair value of the shares is not agreed upon within 30 days
after the Company's mailing as set forth in (3) above, any dissenting
shareholder may give the Company a written demand to commence an action in New
Jersey Superior Court within an additional 30 days in order to determine fair
value. If the Company fails to take such action, any dissenting shareholder may
commence this action within an additional 60 day period.
(5) The New Jersey Superior Court retains jurisdiction of all actions
to determine fair value, including the power to appoint an appraiser to assist
in such determination.
(6) Any judgment of the New Jersey Superior Court shall include
interest at an equitable rate determined by the Court from the date of the
dissenter's demand for payment. The Court also has the power to apportion and
assess the costs of the court proceeding between the Company and the
dissenter(s) on a equitable basis.
(7) A dissenting shareholder may request the withdrawal of his demand
for payment of the fair value of his shares at any time, but such withdrawal is
effective only with the written consent of the Company.
18
<PAGE>
(8) The enforcement by a dissenting shareholder of his right to receive
payment for his shares shall preclude such dissenting shareholder from enforcing
any other right to which he might otherwise be entitled by virtue of share
ownership, except claims based on alleged, unlawful or fraudulent acts by the
Company relating to such dissenting shareholder or claims that the Company
exceeded its statutory powers.
(9) A dissenting shareholder who accepts payment of the fair value of
his shares ceases to have any rights of a shareholder of the Company from the
time he makes his demand for payment.
(10) A dissenting shareholder who, with the Company's consent,
withdraws his demand for payment, continues to be a shareholder of the Company.
19
<PAGE>
Approval of Directors
The contents and the sending of this information statement have been
approved by the Board of Directors of the Company.
DATED the ___ day of May, 2000.
"Richard Franks"
"Assistant Secretary"
<PAGE>
EXHIBIT 1
MAJORITY SHAREHOLDERS
AS OF MARCH 29, 2000
Number of Shares
Name of Shareholder Held of Record
------------------- ----------------
1. G. Chris Andersen 328,439
2. Andersen Weinroth & Co. LP 1,082,402
3. Aryeh Trading Corporation 2,319,120
4. AW Compost Partners LLC 144,141
5. Mark Gasarch 1,201,979
6. Mark Gasarch, Trustee 165,000
Sylvia Fein Trust
7. Mark Gasarch, Trustee 100,000
Linda Ratner Trust
8. Robert J. Longo 6,251,878
9. Wasteco Ventures Limited 20,506,259
----------
TOTAL 32,099,218
==========
Majority Shareholders as a percentage of total of 58,665,228 54.72%
shares outstanding
20
<PAGE>
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
SYNAGRO TECHNOLOGIES, INC.
AND
COMPOST AMERICA HOLDING COMPANY, INC.
MARCH 31, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................1
Section 1.2 Defined Terms..........................................................................1
ARTICLE II CLOSING.....................................................................................2
Section 2.1 Closing................................................................................2
ARTICLE III SALE OF STOCK...............................................................................2
Section 3.1 Company Common Stock...................................................................2
Section 3.2 Purchase Price.........................................................................2
Section 3.3 Purchase Price Adjustment..............................................................3
Section 3.4 Closing Deliveries.....................................................................4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.................................................6
Section 4.1 Organization and Qualification.........................................................6
Section 4.2 Authority; Binding Agreement...........................................................6
Section 4.3 No Conflict............................................................................6
Section 4.4 Brokers or Finders.....................................................................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF COMPOST AND THE COMPANY...................................7
Section 5.1 Organization and Qualification.........................................................7
Section 5.2 Capitalization.........................................................................7
Section 5.3 Authority; Non-Contravention; Approvals................................................8
Section 5.4 Subsidiaries...........................................................................9
Section 5.5 Financial Statements...................................................................9
Section 5.6 Absence of Undisclosed Liabilities....................................................10
Section 5.7 Absence of Certain Changes or Events..................................................10
Section 5.8 Litigation............................................................................10
Section 5.9 Accounts Receivable...................................................................10
Section 5.10 No Violation of Law; Compliance with Agreements.......................................11
Section 5.11 Insurance.............................................................................11
Section 5.12 Taxes.................................................................................11
Section 5.13 Employee Benefit Plans................................................................13
Section 5.14 Employee and Labor Matters............................................................14
Section 5.15 Environmental Matters.................................................................15
Section 5.16 Non-Competition Agreements............................................................17
Section 5.17 Title to Assets.......................................................................17
Section 5.18 Contracts, Agreements, Plans and Commitments..........................................17
Section 5.19 Supplies..............................................................................18
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.20 Brokers and Finders...................................................................18
Section 5.21 Intellectual Property.................................................................19
Section 5.22 Relationships.........................................................................19
Section 5.23 Year 2000.............................................................................19
Section 5.24 Certain Payments......................................................................20
Section 5.25 Books and Records.....................................................................20
Section 5.26 Condition and Sufficiency of Assets...................................................20
Section 5.27 Information Statement.................................................................20
Section 5.28 Disclosure............................................................................21
ARTICLE VI CONDUCT OF BUSINESS PENDING CLOSING........................................................21
Section 6.1 Conduct of Business by the Company Pending Closing....................................21
Section 6.2 Access to Information; Environmental Due Diligence....................................23
Section 6.3 Commercially Reasonable Efforts.......................................................23
Section 6.4 Compost and Stockholders' Approval....................................................23
ARTICLE VII CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.......................................24
Section 7.1 Confidentiality.......................................................................24
Section 7.2 Further Assurances....................................................................24
Section 7.3 No Solicitation.......................................................................25
Section 7.4 Expenses and Fees.....................................................................26
Section 7.5 Agreement to Cooperate................................................................26
Section 7.6 Public Statements.....................................................................26
Section 7.7 Notification of Certain Matters.......................................................27
Section 7.8 Tax Election..........................................................................27
Section 7.9 Notice of Environmental Claims........................................................27
Section 7.10 Stockholder's Consents; Sharing Agreement.............................................27
Section 7.11 Supplements to Schedules..............................................................27
Section 7.12 Director and Officer Liability; Indemnification.......................................28
Section 7.13 Earnout Covenants.....................................................................28
ARTICLE VIII CONDITIONS TO CLOSING......................................................................29
Section 8.1 Conditions to Each Party's Obligation to Close........................................29
Section 8.2 Conditions to Obligation of Compost...................................................30
Section 8.3 Conditions to Obligations of Purchaser................................................30
Section 8.4 Failure of Conditions to Closing......................................................31
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER..........................................................32
Section 9.1 Termination...........................................................................32
Section 9.2 Effect of Termination.................................................................33
Section 9.3 Extensions; Waiver....................................................................33
ARTICLE X INDEMNIFICATION AND LIMITATION ON LIABILITY................................................34
Section 10.1 Compost's Indemnity Obligations.......................................................34
Section 10.2 Purchaser's Indemnity Obligations.....................................................35
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 10.3 Indemnification Procedures............................................................35
Section 10.4 Limitation of Compost's Liability.....................................................37
Section 10.5 Limitation of Purchaser's Liability...................................................38
Section 10.6 Right of Offset.......................................................................38
Section 10.7 Escrow................................................................................38
ARTICLE XI GENERAL PROVISIONS.........................................................................38
Section 11.1 Survival..............................................................................38
Section 11.2 Notices...............................................................................39
Section 11.3 Interpretation........................................................................40
Section 11.4 Miscellaneous.........................................................................40
Section 11.5 Governing Law.........................................................................40
Section 11.6 Binding Arbitration...................................................................40
Section 11.7 Amendment.............................................................................42
Section 11.8 Counterparts..........................................................................42
Section 11.9 Parties in Interest...................................................................42
Section 11.10 Validity..............................................................................42
</TABLE>
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Exhibits:
Exhibit A Glossary
Exhibit B Estimated Adjustment Amount
Exhibit C Release of Claims Agreements
C-1 Compost
C-2 Wasteco
C-3 Waxenbaum
C-4 Walsh
C-5 Longo
Exhibit D Legal Opinion (Counsel to Compost)
Exhibit E Employment and Covenant Not to Compete Agreements
Exhibit F Lease
Exhibit G Noncompetition Agreement
Exhibit H Earnout Agreement
Exhibit I Legal Opinion (Counsel to Purchaser)
Exhibit J Sharing Agreement
Exhibit K Stockholder's Consents and Agreements
Exhibit L D&O Policy Term Sheet
Exhibit M Amendment to Longo Security Agreement
Schedules
Schedule 3.2(a) Payment of the Purchase Price; Indebtedness
Schedule 3.4(b)(iv) Guarantees or Surety Obligations
Schedule 4.3 No Conflict
Schedule 5.1 Qualification
Schedule 5.2 Capitalization
Schedule 5.3 Authority; Non-Contravention; Approvals
Schedule 5.5 Financial Statements
Schedule 5.6 Absence of Undisclosed Liabilities
Schedule 5.7 Absence of Certain Changes of Events
Schedule 5.8 Litigation
Schedule 5.9 Accounts Receivable
Schedule 5.10 No Violation of Law; Compliance with Agreements
Schedule 5.11 Insurance Policies
Schedule 5.12 Taxes
Schedule 5.13 Employee Benefit Plans
Schedule 5.14 Employee and Labor Matters
Schedule 5.15 Environmental Matters
Schedule 5.16 Non-Competition Agreements
Schedule 5.17 Title to Assets
Schedule 5.18 Contracts, Agreements, Plans and Commitments
Schedule 5.20 Brokers and Finders Fees
Schedule 5.21 Intellectual Property
Schedule 5.22 Relationships
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of March 31, 2000 (together
with the Earnout Agreement between Compost and Purchaser in the form attached
hereto as Exhibit H, the "Agreement"), is by and between SYNAGRO TECHNOLOGIES,
INC., a Delaware corporation (the "Purchaser"), and COMPOST AMERICA HOLDING
COMPANY, INC., a New Jersey corporation ("Compost"). The Purchaser and Compost
are each referred to as a "Party" and, collectively, they are sometimes referred
to as the "Parties." Environmental Protection & Improvement Company, Inc., a New
Jersey corporation (the "Company"), has joined this Agreement solely for
purposes of making the representations and warranties in Article V of this
Agreement as to itself.
W I T N E S S E T H:
WHEREAS, Compost owns 200 shares of the issued and outstanding shares
of common stock, no par value per share, of the Company, which constitutes all
of the issued and outstanding capital stock of the Company ("Company Common
Stock");
WHEREAS, the Company is in the business of transporting (i) biosolids
by intermodal truck/rail hauling to land application sites for beneficial use
and to landfill sites, and (ii) other wastes, including but not limited to
incinerator ash, soils and municipal solid waste, to landfills and special
purpose disposal sites (collectively, the "Business");
WHEREAS, the Purchaser desires to purchase from Compost, and Compost
desires to sell to the Purchaser, the Company Common Stock upon the terms and
conditions set forth herein; and
WHEREAS, Compost is making certain representations, warranties and
indemnities herein, as an inducement to Purchaser to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements stated herein, the receipt
and sufficiency of which are hereby acknowledged, the Parties, intending to be
legally bound, covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles ("GAAP") and on a basis not inconsistent with those
applied in the preparation of the financial statements referred to in Section
5.5 hereof.
Section 1.2 Defined Terms. As used in this Agreement, certain words and
terms have the meanings ascribed to them in the Glossary attached hereto as
Exhibit A. Other capitalized terms have the meanings ascribed to them elsewhere
in this Agreement.
<PAGE>
ARTICLE II
CLOSING
Section 2.1 Closing. Subject to the terms and provisions of Article IX,
the purchase and sale of the Company Common Stock (the "Closing") provided for
in this Agreement shall take place at a location mutually agreeable to the
parties hereto in New York City, as promptly as practicable (but in any event
within five (5) business days) following the date on which the last of the
conditions set forth in Article VIII is fulfilled or waived, or at such other
time and place as the parties shall agree; provided, however, that upon
agreement of the Parties the Closing may take place by telecopy. The date on
which the Closing occurs is referred to in this Agreement as the "Closing Date."
ARTICLE III
SALE OF STOCK
Section 3.1 Company Common Stock. Subject to the terms and conditions
of this Agreement, Compost will sell, transfer and deliver to the Purchaser, and
the Purchaser will purchase, the Company Common Stock on the Closing Date.
Section 3.2 Purchase Price.
(a) The aggregate purchase price (the "Purchase Price") for
the Company Common Stock and the representations, warranties, covenants and
agreements referenced herein and contemplated hereby shall be (i) cash equal to
Thirty-Seven Million Five Hundred Thousand Dollars ($37,500,000), less the
Adjustment Amount, payable to the order of and in the amounts listed on Schedule
3.2(a) (such Schedule 3.2(a) to be provided by Compost at least ten (10) days
prior to the Closing); and (ii) the earnout consideration, if any, due and
payable under the Earnout Agreement as defined in Section 3.4(a)(xii) below.
(b) The capitalized terms used in this Section shall have the
following meanings:
"Adjustment Amount" means the sum of (1) the Company's Indebtedness as
of the Closing Date and (2) the amount, if any, by which the Company's Net
Working Capital as of the Closing Date is less than one million, four hundred
fifty thousand dollars ($1,450,000). The Adjustment Amount may be a negative
number, which will result in an increase of the Purchase Price.
"Indebtedness" means the aggregate long-term indebtedness and other
long-term liabilities of the Company (including any premiums or fees resulting
from the prepayment of the Indebtedness) determined in accordance with GAAP. To
the extent Indebtedness of the Company is paid at Closing out of the Purchase
Price proceeds as set forth in Schedule 3.2(a) to be provided by Compost at
least ten (10) days prior to the Closing, such Indebtedness shall not be
deducted a second time from the Purchase Price by including such Indebtedness
within the Adjustment Amount calculation.
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"Net Working Capital" means the aggregate current assets of the Company
less the aggregate current liabilities of the Company determined in accordance
with GAAP.
(c) For purposes of determining the Adjustment Amount, (i) no
deduction shall be taken for the Company's current liabilities and Indebtedness
payable to Carter Machinery, Temple Elevators, Citicorp Dealer Finance and Ford
Motor Credit in the amounts set forth on Schedule 5.17 and (ii) the amounts in
current assets related to (i) IEM/Sealand, (ii) P. Edwards and (iii) FINOVA
financing costs shall be disregarded.
Section 3.3 Purchase Price Adjustment.
(a) Prior to the Closing Date, Compost shall deliver to
Purchaser a worksheet which shall be attached as Exhibit B hereto, setting forth
a reasonable estimate of the Indebtedness and Net Working Capital as of the
Closing Date as well as a computation of the estimated Adjustment Amount (the
"Estimated Adjustment Amount"). The worksheet shall be prepared by Compost and
accepted by Purchaser in its reasonable discretion. If the Estimated Adjustment
Amount is a positive number, the amount payable in cash at Closing shall be
decreased in an amount equal to the Estimated Adjustment Amount. If the
Estimated Adjustment amount is a negative number, the amount payable in cash at
Closing shall be increased in an amount equal to the absolute value of the
Estimated Adjustment Amount.
(b) Within 90 days after the Closing, the Purchaser shall
cause the Company to prepare and deliver to Compost a balance sheet of the
Company as of the Closing Date (the "Closing Date Balance Sheet"), including a
computation of the actual Adjustment Amount of the Company as of the Closing
Date. The Closing Date Balance Sheet and the calculations of Indebtedness and
Net Working Capital shall be prepared in accordance with GAAP, and to the extent
consistent with GAAP, using the same accounting methods, policies, practices and
procedures with classifications, judgments and estimation methodologies
consistent with those used in preparation of the Company Financial Statements.
If within 15 calendar days following delivery of the Closing Date Balance Sheet
Compost does not object in writing thereto, Compost shall have been deemed to
have agreed to the Closing Date Balance Sheet. If Compost objects in writing to
the computation, then the Purchaser and Compost shall negotiate in good faith
and attempt to resolve their disagreement. Within the first fifteen calendar
days following the delivery of the Closing Date Balance Sheet and during the
period of any dispute within the contemplation of this Section 3.3(b), Compost
and other representatives of Compost shall have reasonable access during normal
business hours to all relevant books and records and employees of the Company to
the extent required to complete their review of the Closing Date Balance Sheet
and shall be permitted to review the working papers, if any, of the Company or
the Purchaser's Auditors relating to the Closing Date Balance Sheet. Purchaser
and Purchaser's Auditors shall cooperate with Compost and their representatives
in facilitating such review. Should such negotiations not result in an agreement
within 20 calendar days, then the matter shall be submitted to arbitration by an
independent accounting firm of national reputation mutually acceptable to the
Purchaser and Compost (the "Neutral Auditors"). Such arbitration shall be
governed by the rules provided in Sections 11.6(a), 11.6(b), 11.6(c), and
11.6(d) of this Agreement. If the Purchaser and Compost are unable to agree on
the Neutral Auditors, then they shall request the American Arbitration
Association to appoint the Neutral Auditors. All fees and expenses relating to
appointment of the Neutral Auditors and the work, if any, to be performed by the
Neutral Auditors will be borne equally by the Purchaser and Compost. The Parties
agree to execute a reasonable engagement letter if requested by the Neutral
Auditors. The Neutral Auditors shall act as an arbitrator to determine those
issues still in dispute. In resolving any disputed item, the Neutral Auditors
(x) shall be bound by the provisions of this Agreement and (y) may not assign a
value to any item greater than the greatest value for such item claimed by
either Party or less than the smallest value for such item claimed by either
Party. The Neutral Auditors' determination shall be made within 30 days after
their selection and shall set forth in a written statement their findings as to
the dispute and the resulting computation of the actual Adjustment Amount to
Purchaser and Compost. The Neutral Auditor's determination will be final,
binding and conclusive on the Parties.
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<PAGE>
(c) Within three business days following the agreement on the
Closing Date Balance Sheet setting forth the Adjustment Amount or the delivery
of the written statement of the Neutral Auditors, the following excess or
deficit amount shall be due and payable: (i) if the Estimated Adjustment Amount
less the Adjustment Amount is a positive number, the Purchaser shall pay Compost
a cash payment equal to such excess or (ii) if the Estimated Adjustment Amount
less the Adjustment Amount is a negative number, Compost shall pay the Purchaser
a cash payment equal to such deficit. Any such excess or deficit payment shall
be due and payable within three (3) business days after the Adjustment Amount is
determined pursuant to this Section 3.3.
Section 3.4 Closing Deliveries.
(a) At the Closing, Compost shall deliver to the Purchaser:
(i) certificates representing the Company Common
Stock, duly endorsed for transfer to the Purchaser or accompanied by duly
executed assignment documents, which shall transfer to the Purchaser good and
valid title to the Company Common Stock, free and clear of all liens, claims,
restrictions and encumbrances of any nature whatsoever;
(ii) evidence of all consents, waivers and/or
approvals in form reasonably acceptable to the Purchaser with respect to the
transactions contemplated in this Agreement as further described on Schedule
5.3;
(iii) Limited Release of Claims Agreements executed
by Compost, Wasteco Ventures Limited, a British Virgin Islands corporation
("Wasteco"), Wafra Acquisition Fund 7, L.P., executing such Limited Release
solely to evidence its lack of objection to the execution of such document by
Wasteco ("Wafra"), Jay Waxenbaum ("Waxenbaum"), Kevin Walsh ("Walsh") and Robert
J. Longo ("Longo") releasing the Company in the forms attached hereto as
Exhibits C-1 through C-5;
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<PAGE>
(iv) all corporate, accounting, business and tax
records of the Company;
(v) a legal opinion from Greenberg Traurig, counsel
to Compost, in a form attached hereto as Exhibit D.
(vi) Employment and Covenant Not to Compete
Agreements between the Purchaser and each of Robert J. Longo and Jay Waxenbaum,
attached as Exhibit E hereto; and
(vii) new real property lease with respect to the
office property owned by an affiliate of Longo, and located at 305 Palmer Road,
Denville, New Jersey 07834, in the form attached hereto as Exhibit F;
(viii) Covenant Not to Compete Agreement between
Compost and the Purchaser, in the form attached hereto as Exhibit G.
(ix) Certificate of Incumbency of Compost;
(x) Good Standing Certificate of the Company;
(xi) Good Standing Certificate of Compost; and
(xii) Earnout Agreement between Compost and the
Purchaser in the form attached hereto as Exhibit H (the "Earnout Agreement").
(b) At the Closing, the Purchaser shall deliver the following
to Compost:
(i) $37,500,000 as adjusted by the Estimated
Adjustment Amount set forth in Section 3.3;
(ii) Employment and Covenant Not to Compete
Agreements between the Purchaser and each of Robert J. Longo and Jay Waxenbaum,
attached as Exhibit E;
(iii) Earnout Agreement, attached as Exhibit H;
(iv) (A) The Purchaser shall either provide documents
confirming the removal of Compost from any and all personal guaranties and/or
surety obligations listed on Schedule 3.4(b)(iv) or, alternatively, the
Purchaser may provide an unsecured indemnity to Compost with respect to the
Compost guaranties and surety obligations reasonably satisfactory to Compost and
the Purchaser, and (B) the Purchaser shall either provide documents confirming
the removal of Longo from any and all personal guaranties and/or surety
obligations listed on Schedule 3.4(b)(iv) or provide Longo with a financial
guaranty bond enforceable in the State of New Jersey from AIG or National Union
(or another insurer acceptable to Longo in his sole discretion) (the "Insurer")
providing for payment directly to Safeco Insurance Company of the full amount of
any such guaranty or surety obligation within 15 days after Longo provides
written notice to such Insurer that a formal demand has been made against Longo.
The bond may provide that if the Insurer deems the claim unjustified, the
Insurer may defend against such claim in the name and place of Longo and shall
indemnify and hold him harmless from any cost, expense (including but not
limited to legal fees) or liability that may arise out of the failure to pay and
any delay in payment;
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<PAGE>
(v) a legal opinion of Locke Liddell & Sapp LLP,
counsel to the Purchaser, in a form attached hereto as Exhibit I;
(vi) Good Standing Certificate of Purchaser; and
(vii) Incumbency Certificate of Purchaser
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PURCHASER
Purchaser represents and warrants to Compost as follows:
Section 4.1 Organization and Qualification. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of Delaware
and has the requisite corporate power and authority to own, lease and operate
its assets and properties and to carry on its business as it is now being
conducted. Purchaser is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the properties owned,
leased, or operated by it or the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so qualified and in
good standing would not have, or could not reasonably be anticipated to have,
individually or in the aggregate, a material adverse effect.
Section 4.2 Authority; Binding Agreement. Purchaser has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and, assuming the due authorization, execution and
delivery hereof by Compost, constitutes a valid and legally binding agreement of
Purchaser and is enforceable against Purchaser in accordance with its terms.
Section 4.3 No Conflict. Except as set forth in Schedule 4.3, neither
the execution and delivery of this Agreement by Purchaser nor the consummation
or performance of any of the transactions contemplated herein by Purchaser will
give any Person the right to prevent, delay or otherwise interfere with any of
the transactions contemplated herein pursuant to:
(i) any provision of Purchaser's Certificate of
Incorporation and bylaws;
(ii) any resolution adopted by the board of directors
or the stockholders of Purchaser;
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<PAGE>
(iii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court or
governmental authority applicable to Purchaser or any of its properties or
assets; or
(iv) any contract to which Purchaser is a party or by
which Purchaser may be bound.
Except as set forth in Schedule 4.3, Purchaser is not and will not be required
to obtain any consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
transactions contemplated herein.
Section 4.4 Brokers or Finders. Purchaser and its officers and agents
have incurred no obligation or liability, contingent or otherwise, for brokerage
or finder's fees or agents' commissions or other similar payments in connection
with this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF COMPOST AND THE COMPANY
Compost and the Company (to the extent the representation or warranty
is applicable to the Company), jointly and severally, represent and warrant to
Purchaser as follows:
Section 5.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Except as set forth on Schedule 5.1,
the Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the properties owned, leased, or
operated by it or the nature of the business conducted by it makes such
qualification necessary except for those jurisdictions in which failure to so
qualify would not have a Material Adverse Effect. True, accurate and complete
copies of the Company's articles of incorporation and bylaws, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Purchaser.
Section 5.2 Capitalization.
(a) The authorized capital stock of the Company consists of
1,000 shares of Company Common Stock, of which 200 shares are issued and
outstanding, and no other shares of capital stock of the Company are issued and
outstanding. Except as set forth on Schedule 5.2, all of the issued and
outstanding shares of Company Common Stock were validly issued and are fully
paid, nonassessable and free of preemptive rights and are owned beneficially and
of record by Compost, free and clear of all restrictions, liens, claims and
encumbrances.
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(b) Except as set forth on Schedule 5.2, there are no
outstanding (i) subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, debenture,
instrument or other agreement obligating the Company to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of the capital stock
of the Company or obligating the Company to grant, extend or enter into any such
agreement or commitment or (ii) obligations of the Company to repurchase, redeem
or otherwise acquire any securities referred to in clause (i) above. Except as
set forth on Schedule 5.2, there are no voting trusts, proxies or other
agreements or understandings to which the Company is a party or is bound with
respect to the voting of any shares of capital stock of the Company.
(c) Wasteco and Longo entered into an agreement with Compost
in the form of Exhibit J hereto (the "Sharing Agreement") to alter certain
dividend provisions, to provide for additional redemption rights relative to the
Series A and Series C preferred stock of Compost and to provide collateral
security for undertaking to redeem stock under deferred circumstances. The
Sharing Agreement is effective to waive all rights of Wasteco and Longo to
acquire capital stock of the Company only upon the Closing. The Sharing
Agreement continues in full force and effect.
Section 5.3 Authority; Non-Contravention; Approvals.
(a) Except as set forth on Schedule 5.3, Compost has full
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been approved by the Board
of Directors and shareholders of Compost and no other corporate proceedings on
the part of the Company or Compost are necessary to authorize the execution and
delivery of this Agreement or the consummation by Compost of the transactions
contemplated hereby. The only approval of the holders in any class or series of
Compost's or the Company's capital stock that is necessary to consummate the
transactions contemplated by this Agreement is the approval and adoption of this
Agreement by the holders of a majority of the votes entitled to be cast by
holders of the Compost Common Stock, with each share of Compost Common Stock
entitled to one vote per share (the "Compost Stockholders' Approval"). The
Compost Stockholders' Approval has been obtained by written consent effected in
accordance with Compost's articles of incorporation and bylaws and all
applicable laws. Contemporaneously with the execution and delivery of this
Agreement, the stockholders of Compost referenced in Exhibit K have executed and
delivered to the Purchaser the written consents and voting and proxy agreements
attached hereto as Exhibit K (collectively, the "Stockholder Consents"). The
Stockholder Consents are irrevocable and coupled with an interest. This
Agreement has been duly executed and delivered by Compost, and, assuming the due
authorization, execution and delivery hereof by Purchaser, constitutes a valid
and legally binding agreement of Compost, enforceable against Compost in
accordance with its terms.
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<PAGE>
(b) Except as set forth on Schedule 5.3, the execution and
delivery of this Agreement by Compost and the consummation by Compost of the
transactions contemplated hereby do not and will not violate or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the articles of incorporation or bylaws of the Company or Compost, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to the
Company or Compost, or any of their respective properties or assets, or (iii)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or Compost is now a party or by which the Company or
Compost or any of their respective properties or assets may be bound or
affected.
(c) Except with regard to a Hart-Scott-Rodino filing, no
consents and approvals, no declaration, filing or registration with, or notice
to, or authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of this Agreement
by Compost or the consummation by Compost of the transactions contemplated
hereby.
Section 5.4 Subsidiaries. The Company does not have any Subsidiaries,
nor does the Company hold any equity interest in or control (directly or
indirectly, through the ownership of securities, by contract, by proxy, alone or
in combination with others, or otherwise) any corporation, limited liability
company, partnership, business organization or other Person.
Section 5.5 Financial Statements. The financial statements of the
Company attached as Schedule 5.5 (the "Company Financial Statements") have been
prepared in accordance with GAAP (except as may be indicated therein or in the
notes thereto) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended, subject, in the case of
the unaudited interim financial statements, to prior reserves, allowances,
adjustments and provisions in the ordinary course of the Company's business,
consistent with past practice and in conformity with GAAP. The Company Financial
Statements shall include the Company's April 30, 1998 and April 30, 1999 audited
balance sheets and related statements of income and cash flows, and the
Company's balance sheets and related statements of income and cash flows for
each quarterly period (unaudited) ending after April 30, 1999 and through
January 31, 2000. The Company's balance sheet and related statements of income
and cash flows as of and for the quarter ending January 31, 2000 shall be
attached as Schedule 5.5 and included within the Company Financial Statements
when delivered pursuant to Section 8.3(f).
Section 5.6 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 5.6, the Company has not incurred any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature, except
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Company Financial Statements or reflected in the notes thereto or
(ii) which were incurred after July 31, 1999, and were incurred in the ordinary
course of business and consistent with past practice.
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Section 5.7 Absence of Certain Changes or Events. Except as disclosed
in Schedule 5.7, since July 31, 1999, (i) the Company has not declared or set
aside or paid any dividend or made any other distribution with respect to its
outstanding securities, or, directly or indirectly, purchased, redeemed or
otherwise acquired any of its securities; (ii) the Company has not granted any
general increase in the compensation of its officers, directors or employees
(including any increase pursuant to any bonus, pension, profit-sharing or other
plan or commitment) and has not paid any bonuses to any officers, directors or
employees; (iii) the Company has not adopted, entered into or amended any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan, agreement,
trust fund or arrangement for the benefit or welfare of any employee or retiree,
except as required to comply with changes in applicable law; (iv) the Company
has not made any amendment to its articles of incorporation or bylaws or changed
the character of its business in any material manner; (v) the business of the
Company has been conducted in the ordinary course of business consistent with
past practice; and (vi) there has not been any event, occurrence, development or
state of circumstances or facts which has had, or could reasonably be
anticipated to have, individually or in the aggregate, a Material Adverse Effect
with respect to the Company.
Section 5.8 Litigation. Except as described in Schedule 5.8, there are
no claims, suits, actions, Environmental Claims or proceedings pending against
(and, to the best of Compost's and the Company's knowledge, there are no
inspections or investigations or other claims, suits or actions relating to,
affecting or threatened against) the Company before any court, governmental
department, commission, agency, instrumentality, authority, or any mediator or
arbitrator. Except as described in Schedule 5.8, the Company is not a party to
and, to the best of Compost's and the Company's knowledge, is not subject to any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality, authority, or any mediator or
arbitrator.
Section 5.9 Accounts Receivable. Except as disclosed on Schedule 5.9,
all accounts receivable (net of applicable reserves) reflected on the Company
Financial Statements represent sales actually made in the ordinary course of
business and, to the best of Compost's knowledge, are collectible within 90 days
after the applicable billing date. All reserves and allowances for doubtful
accounts have been prepared in accordance with GAAP, as consistently applied.
This representation is not a guaranty of collectibility.
Section 5.10 No Violation of Law; Compliance with Agreements.
(a) The Company is not in violation of and has not been given
notice or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
Environmental Law) of any governmental or regulatory body or authority. To the
best of Compost's and the Company's knowledge, no investigation or review by any
governmental or regulatory body or authority is pending or threatened with
regard to the Company or the transactions contemplated by this Agreement, nor
has any governmental or regulatory body or authority indicated an intention to
conduct the same. The Company has all permits (including without limitation
Environmental Permits), licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals required or necessary
to conduct its business as presently conducted (collectively, the "Company
Permits"). The Company is not in violation of the terms of any of the Company
Permits.
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(b) The Company is not in breach or violation of or in default
in the performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result in a
default under, (a) the charter, bylaws or similar organizational instruments of
the Company or (b) except as described in Schedule 5.10(b), any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which the Company is a party or by
which it is bound or to which any of its property is subject.
Section 5.11 Insurance. Schedule 5.11 hereto sets forth a list of all
insurance policies owned by the Company or by which the Company or any of its
properties or assets is covered against present losses, all of which are now in
full force and effect. No insurance has been refused with respect to any
operations, properties or assets of the Company nor has coverage of any
insurance been limited by any insurance carrier that has carried, or received
any application for, any such insurance since November 30, 1997. No insurance
carrier has denied any claims made against any of the policies listed on
Schedule 5.11 hereto. All performance bonds, guarantees and sureties securing
any obligations or debts of the Company are set forth on Schedule 3.4(b)(iv).
Section 5.12 Taxes.
(a) Except as set forth on Schedule 5.12, (i) Compost and the
Company have (x) duly filed (or there has been filed on their behalf, whether by
a consolidated return or otherwise) with the appropriate taxing authorities all
Tax Returns (as hereinafter defined) required to be filed by them on or prior to
the date hereof, and (y) duly paid in full or made adequate provision therefor
on the Company Financial Statements in accordance with GAAP (or payment or
adequate provision has been made on its behalf) for the payment of all Taxes (as
hereinafter defined) which if unpaid would have a Material Adverse Effect for
all periods ending through the date hereof; (ii) all such Tax Returns filed by
or on behalf of Compost and the Company are true, correct and complete in all
material respects; (iii) the Company is not the beneficiary of any extension of
time within which to file any Tax Return; (iv) no claim has ever been made by
any authority in a jurisdiction where the Company does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction; (v) the liabilities
and reserves for Taxes reflected in the most recent balance sheet included in
the Company Financial Statements to cover all Taxes for all periods ending at or
prior to the date of such balance sheet have been determined in accordance with
GAAP, and there is no material liability for Taxes for any period beginning
after such date other than Taxes arising in the ordinary course of business;
(vi) there are no liens for Taxes upon any property or assets of the Company,
except for liens for Taxes not yet due; (vii) the Company has not made any
change in accounting methods since April 30, 1999; (viii) the Company has not
received a ruling from any taxing authority or signed an agreement with any
taxing authority; (ix) the Company has complied in all material respects with
all applicable laws, rules and regulations relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code, as amended or similar provisions
under any foreign laws) and has, within the time and the manner prescribed by
law, withheld and paid over to the appropriate taxing authority all amounts
required to be so withheld and paid over under all applicable laws in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party; (x) no federal, state, local or foreign audits
or other administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of the Company, and as of the date of
this Agreement the Company has not received a written notice of any pending
audits or proceedings; (xi) Compost does not expect any authority to assess any
additional Taxes for any period for which Tax Returns have been filed; (xii) the
federal income Tax Returns of the Company have been examined by the Internal
Revenue Service ("IRS") (which examination has been completed) or the statute of
limitations for the assessment of federal income Taxes of the Company has
expired, for all periods through and including December 31, 1994, and no
deficiencies were asserted as a result of such examinations which have not been
resolved and fully paid; (xiii) no adjustments or deficiencies relating to Tax
Returns of the Company have been proposed, asserted or assessed by any taxing
authority, except for such adjustments or deficiencies which have been fully
paid or finally settled; and (xiv) the Company has delivered to the Purchaser
true, correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by the
Company since December 31, 1993.
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(b) Except as disclosed on Schedule 5.12, there are no
outstanding requests, agreements, consents or waivers to extend the statute of
limitations applicable to the assessment of any Taxes or deficiencies against
the Company, and no power of attorney granted by the Company with respect to any
Taxes is currently in force. The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662 of the
Code. The Company is not a party to any agreement providing for the allocation
or sharing of Taxes with any entity. The Company has not, with regard to any
assets or property held, acquired or to be acquired by it, filed a consent to
the application of Section 341(f) of the Code, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company. The
Company has no liability for Taxes of any Person (other than any of the Company
and its Subsidiaries) under Section 1.1502-6 of the United States Treasury
Regulations (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
Section 5.13 Employee Benefit Plans.
(a) Each Plan and each Benefit Program (as such terms are
defined below) is listed on Schedule 5.13 hereto. Except for those multiemployer
plans as described on Schedule 5.13, no Plan or Benefit Program is or has been
(i) covered by Title IV of ERISA, or (ii) subject to the minimum funding
requirements of Section 412 of the Code. Each Plan and Benefit Program, other
than the multiemployer plans listed on Schedule 5.13, intended to be qualified
under Section 401(a) of the Code is designated as a tax-qualified plan on
Schedule 5.13 and is so qualified. No Plan or Benefit Program provides for any
retiree health benefits for any employees or dependents of the Company other
than as required by Part 6 of Subtitle B of Title I of ERISA and Code Section
4980B ("COBRA"). There are no claims pending with respect to, or under, any Plan
or any Benefit Program, other than routine claims for benefits, and there are no
disputes or litigation pending or, to the knowledge of Compost and the Company,
threatened, with respect to any such Plans or Benefit Programs.
(b) Compost has heretofore delivered to Purchaser true and
correct copies of the following, if any:
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(i) each Plan and each Benefit Program listed on
Schedule 5.13, all amendments thereto as of the date hereof and all current
summary plan descriptions provided to employees regarding the Plans and Benefit
Programs;
(ii) each trust agreement and annuity contract (or
any other funding instruments) pertaining to any of the Plans or Benefit
Programs, including all amendments to such documents to the date hereof;
(iii) each management or employment contract or
contract for personal services between the Company and any officer, consultant,
director, employee or independent contractor of the Company; and
(iv) a complete description of each other plan,
policy, contract, program, commitment or arrangement providing for bonuses,
deferred compensation, retirement payments, profit sharing, incentive pay,
commissions, hospitalization or medical expenses or insurance or any other
material benefits for any officer, consultant, director, annuitant, employee or
independent contractor of the Company as such or members of their families
(other than directors' and officers' liability policies), whether or not insured
but which are currently maintained by the Company or with respect to which the
Company currently has any liability (a "Benefit Program"). For purposes of this
Agreement, "Plan" means an "employee benefit plan" (as defined in Section 3(3)
of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or by any trade or business,
whether or not incorporated, which, together with the Company, is under common
control, as described in Section 414(b) or (c) of the Code.
(c) Each other Plan and Benefit Program has been maintained
and administered in material compliance with its terms and in accordance with
all applicable laws, rules and regulations. The Company has no commitment or
obligation to establish or adopt any new or additional Plans or Benefit Programs
or to materially increase the benefits under any existing Plan or Benefit
Program.
(d) Except as set forth in Schedule 5.13, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) result in any payment to be made by
the Company, including, without limitation, severance, unemployment
compensation, golden parachute (defined in Section 280G of the Code) or
otherwise, becoming due to any employee of the Company, or (ii) increase any
benefits otherwise payable under any Plan or any Benefit Program.
(e) As of the date hereof, the Company does not sponsor any
simplified employee pension plans as described in Section 408(k) of the Code and
there are no claims against the Company for benefits relating to any such plans.
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(f) The Company contributes to several multiemployer pension
plans and multiemployer welfare plans (collectively referred to as
"multiemployer plans") as more particularly disclosed on Schedule 5.13. None of
these multiemployer plans are in reorganization or insolvent (as defined in
ERISA ss. 4241 and ss. 4245). The Company is not liable for any withdrawal
liability from any multiemployer plan as of the Closing Date, other than as
shown on Schedule 5.6, and would not be subject to such liability if, as of the
Closing Date, the Company were to engage in a complete withdrawal (as defined in
ERISA ss. 4203) or partial withdrawal (as defined in ERISA ss. 4205) from any
such multiemployer plan. In addition, the Company has, or will have as of the
Closing, made all required contributions to the multiemployer plans. The Company
further represents and warrants that prior to and as of the Closing Date, it has
done nothing to incur withdrawal liability or liability under any applicable
provision of ERISA, either now or in the future for any of the multiemployer
plans to which it contributes.
Section 5.14 Employee and Labor Matters.
(a) Compost has provided Purchaser with a true and complete
list dated as of October 31, 1999 (the "Employee Schedule") of all employees of
the Company listing the title or position held, base salary or wage rate and any
bonuses, commissions, profit sharing, the Company vehicles, club memberships or
other material compensation or perquisites payable to such persons, all employee
benefits received by such employees and any other material terms of any written
agreement between such employees and the Company. As of the date of this
Agreement, the combined projected annual payroll for the calendar year ending
April 30, 1999 of the Company required to operate its business is not materially
different from that as listed on the Employee Schedule, and except as described
in Schedule 5.14, the Company has not entered into any agreement or agreements
pursuant to which the combined annual payroll of the Company for non-hourly
employees or the wage rates per hour for other employees, including projected
pay increases, overtime and fringe benefit costs, required to operate its
business (including all administrative and support personnel) would be greater
than as listed on the Employee Schedule.
(b) Except as set forth on Schedule 5.14, the Company is not a
party to or bound by any written employment agreements or commitments, other
than on an at-will basis. The Company is in compliance with all applicable laws
respecting the employment and employment practices, terms and conditions of
employment and wages and hours of its employees and is not engaged in any unfair
labor practice. All employees of the Company who work in the United States are
to the best of Compost's and the Company's knowledge after reasonable
investigation, lawfully authorized to work in the United States according to
federal immigration laws. There is no labor strike or labor disturbance pending
or, to the knowledge of Compost and the Company, threatened against the Company
with respect to the Business and, during the past five years, the Company has
not experienced a work stoppage.
(c) Except as set forth on Schedule 5.14, (i) the Company is
not a party to or bound by the terms of any collective bargaining agreement or
other union contract applicable to any employee of the Company and no such
agreement or contract has been requested by any employee or group of employees
of the Company, nor has there been any discussion with respect thereto by
management of the Company with any employees of the Company, (ii) Compost is not
aware of any union organizing activities or proceedings involving, or any
pending petitions for recognition of, a labor union or association as the
exclusive bargaining agent for, or where the purpose is to organize, any group
or groups of employees of the Company, or (iii) there is not currently pending,
with regard to any of its facilities, any proceeding before the National Labor
Relations Board, wherein any labor organization is seeking representation of any
employees of the Company.
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Section 5.15 Environmental Matters.
(a) Except as set forth in Schedule 5.15 hereto and without
limiting any other representations and warranties set forth in this Agreement,
Compost warrants and represents that the Company and its Business Facilities are
in material compliance with all applicable Environmental Laws (as herein
defined) and that (i) such compliance includes, without limitation, the holding
and possession of all material permits, licenses, authorizations and approvals
of Government Authorities necessary to comply with Environmental Laws applicable
to the operations of the business of the Company as presently conducted; and
Compost further warrants and represents that the Company is in material
compliance with the terms and conditions of such permits, licenses,
authorizations and approvals; (ii) neither the Company nor Compost has received
any communication from a Governmental Authority or citizen's group that alleges
that the Company or any of its Business Facilities is not in compliance with
Environmental Laws or is in violation of any of its permits; (iii) the Company
has timely filed applications, where necessary, for the renewal, amendment or
modification of all material Environmental Permits applicable to the business of
the Company as presently conducted and that where such renewal, amendment or
modification has been sought or pending, no material expenditure, capital
improvements or changes in operation will be necessary as a result of such
renewal, amendment or modification, and (iv) the Company has all environmental
pollution control equipment necessary to comply materially with all
Environmental Laws (including, without limitation, to comply with all applicable
Environmental Permits) applicable to the operation of the business of the
Company as presently conducted.
(b) Except as set forth on Schedule 5.15 hereto, Compost
represents and warrants that (i) there are no Environmental Claims (as herein
defined) pending or to Compost's and the Company's best knowledge, threatened
against the Company prior to closing, any of its Business Facilities, or to the
best of Compost's and the Company's knowledge against any person whose liability
for any Environmental Claim has been retained or assumed by the Company, and
(ii) neither Compost nor the Company has received any notice with respect to any
investigation of Environmental Claims conducted by any Governmental Authority
with respect to the Company or in connection with the operation of the business.
(c) Except as set forth on Schedule 5.15 hereto, Compost
represents and warrants that the Company has not stored, treated, recycled,
released or disposed of Materials of Environmental Concern on any of the
premises it owns or operates, except in material compliance with all applicable
Environmental Laws.
(d) Except as set forth on Schedule 5.15 hereto, Compost
represents and warrants that the Company is not, as a result of the conduct,
operation or condition of the business of the Company on or prior to the date
hereof, and as of the date of the Closing, subject to any: (i) known material
contingent liability in connection with any pre-closing release of any Materials
of Environmental Concern into the environment from any Business Facility of the
Company or (ii) material reclamation, decontamination or Remediation (as defined
Exhibit A) requirements under Environmental Law, or any reporting requirements
relating thereto, except as part of the ordinary operation of the business.
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(e) Except as set forth on Schedule 5.15 hereto, there are no
underground storage tanks located on any Business Facility of the Company;
(f) Except as set forth on Schedule 5.15 hereto, Compost
represents and warrants that neither it nor the Company has received notice that
any of the off-site locations where Materials of Environmental Concern are
generated from any Business Facility of the Company or for which the Company has
arranged for their disposal, treatment or application has been nominated or
identified by a Governmental Authority as a facility which is subject to a claim
for remediation under Environmental Laws.
(g) Except as set forth on Schedule 5.15, hereto, Compost
represents and warrants that neither it nor the Company has received any notice
of any material release or threatened release of Materials of Environmental
Concern or of any violation of, noncompliance with, or remedial obligation
under, Environmental Laws or Permits, relating to the ownership, use,
maintenance or operation of any Business Facility of the Company; nor has the
Company voluntarily undertaken any material Remediation or cleanup of any
Business Facility of the Company or entered into any agreement for the payment
of costs associated with such activity.
(h) To Compost's and the Company's knowledge there is no
Environmental Law or Requirement of Environmental Laws that will require future
capital compliance costs on the part of the Company in excess of $10,000 above
costs currently expended in the ordinary course of business.
Section 5.16 Non-Competition Agreements. Except as set forth on
Schedule 5.16, neither the Company nor Compost is a party to any agreement which
purports to restrict or prohibit either of them from, directly or indirectly,
engaging in any business currently engaged in by the Company. The Company is not
restricted from, directly or indirectly, engaging in any of the businesses
currently engaged in by the Company.
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Section 5.17 Title to Assets. The Company has good and marketable title
to all its assets and valid leasehold interests in its leased assets and
properties (other than defects or encumbrances affecting the landlord's or
lessor's interest), as reflected in the most recent balance sheet included in
the Company Financial Statements, except for properties and leased assets that
have been disposed of in the ordinary course of business since the date of the
latest balance sheet included therein, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any nature whatsoever, except (i) liens for
current taxes, payments of which are not yet delinquent or are being contested
in good faith by appropriate proceedings and which are fully accrued on the
Company Financial Statements, (ii) such imperfections in title and easements and
encumbrances, if any, as are not substantial in character, amount or extent and
do not detract from the value, or interfere with the present use or
marketability of the property subject thereto or affected thereby, or otherwise
impair the Company's business operations (in the manner presently carried on by
the Company), (iii) liens which are imposed by law, such as landlords',
carriers', warehousemen's and mechanics' liens with respect to which the
underlying obligations are not delinquent, (iv) easements, rights-of-way,
restrictions and other similar encumbrances incurred in the ordinary course of
business which do not materially detract from the value or materially interfere
with the present use of any such property, or (v) any lien securing any debt or
obligation described on Schedule 5.17 which is expressly referenced as being
secured. All leases under which the Company leases any real property have been
delivered to Purchaser and are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event which with notice or lapse of time or both
would become a default by or on behalf of the Company or its Subsidiaries, or by
or on behalf of any third party.
Section 5.18 Contracts, Agreements, Plans and Commitments. Schedule
5.18 hereto sets forth a complete list of the following contracts, agreements,
plans and commitments (collectively, the "Contracts") to which the Company is a
party or by which the Company or any of its assets is bound as of the date
hereof:
(a) any contract, commitment or agreement that involves
aggregate expenditures by the Company of more than $40,000 per year;
(b) any indenture, loan agreement or note under which the
Company has outstanding indebtedness, obligations or liabilities for borrowed
money;
(c) any lease or sublease for the use or occupancy of real
property;
(d) except as disclosed on Schedule 5.16, any agreement that
restricts the right of the Company to engage in any type of business;
(e) any guarantee, direct or indirect, by any person of any
contract, lease, or agreement entered into by the Company;
(f) any partnership, joint venture or construction and
operation agreement;
(g) any agreement of surety, guarantee or indemnification with
respect to which the Company is the obligor, outside of the ordinary course of
business;
(h) any contract that requires the Company to pay for goods or
services substantially in excess of either its estimated needs for such items or
the fair market value of such items;
(i) any contract, agreement, agreed order or consent agreement
that requires the Company to take any actions or incur expenses to remedy
non-compliance with any Environmental Law; and
(j) any other contract material to the Company or its
business.
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True, correct and complete copies of each of such contracts, agreements, plans
and commitments have been delivered to or made available for inspection by
Purchaser. All such contracts, agreements, plans and commitments (i) were duly
and validly executed and delivered by the Company and the other parties thereto
and (ii) are valid and in full force and effect. Except as set forth on Schedule
5.18, the Company has fulfilled all material obligations required of the Company
under each such contract, agreement, plan or commitment to have been performed
by it prior to the date hereof, including timely paying all interest on its debt
as such interest has become due and payable. Except as set forth on Schedule
5.18, there are no counterclaims or offsets under any of such contracts,
agreements, plans and commitments.
Section 5.19 Supplies. The Supplies of the Company are of a quantity
and quality that have been normal for the Company in the ordinary course of
business of the Company and are owned by the Company free and clear of any
Liens.
Section 5.20 Brokers and Finders. Except as set forth on Schedule 5.20,
neither the Company nor Compost has entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of the
Company to pay any finder's fees, brokerage or agent commissions or other like
payments in connection with the transactions contemplated hereby. There is no
claim for payment by the Company of any investment banking fees, finder's fees,
brokerage or agent commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
Section 5.21 Intellectual Property. The Company has rights to use,
whether through ownership, licensing or otherwise, all patents, trademarks,
service marks, trade names, copyrights, software, trade secrets and other
proprietary rights and processes that are material to its business as now
conducted (collectively the "Company Intellectual Property Rights"). The Company
does not have the right to exclude others from using the name "EPIC" but does
not believe that such name is material to the Business. The Company does not own
any patents except the patent described on Schedule 5.21. The Company does not
use such patent in conducting its business and, notwithstanding any other
provision set forth herein, Compost makes no representation or warranty that the
Company may preclude others from using such patent. The Company has no knowledge
of any infringement by any other person of any of the Company Intellectual
Property Rights, and the Company has not entered into any agreement to indemnify
any other party against any charge of infringement of any of the Company
Intellectual Property Rights. The Company has not and does not violate or
infringe any intellectual property right of any other person, and the Company
has not received any communication alleging that it violates or infringes the
intellectual property right of any other person. The Company has not been sued
for infringing any intellectual property right of another person. There is no
claim or demand of any person pertaining to, or any proceeding which is pending
or, to the knowledge of the Company, threatened, that challenges the rights of
the Company in respect of any Company Intellectual Property Rights, or that
claims that any default exists under any Company Intellectual Property Rights.
None of the Company Intellectual Property Rights is subject to any outstanding
order, ruling, decree, judgment or stipulation by or with any court, tribunal,
arbitrator, or other Governmental Authority.
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Section 5.22 Relationships. Except as set forth on Schedule 5.22, since
December 31, 1998, the Company has not received notice from any customer,
supplier or any party to any Contract involving more than $40,000 annually with
the Company (each a "Contract Party") that such customer, supplier or Contract
Party intends to discontinue doing business with the Company, and, since such
date, no customer, supplier or Contract Party has indicated any intention (a) to
terminate its existing business relationship with the Company or (b) not to
continue its business relationship with the Company, whether as a result of the
transactions contemplated hereby or otherwise. Except as set forth on Schedule
5.22, the Company has not entered into or participated in any related party
transaction since November 1997.
Section 5.23 Year 2000. Compost has provided to Purchaser copies of the
Company's written Year 2000 Compliance plan (the "Y2K Plan") and any and all
audits or assessments of the Company's Year 2000 Compliance efforts conducted by
a third party. "Year 2000 Compliant" means as to any person or entity that all
software, firmware, microprocessing chips and other data processing devices
utilized by, and material to the business operations of, that person or entity
has been and will be able to accurately process date data from, into and between
the twentieth and twenty-first centuries when used in accordance with the
applicable documentation setting forth the requirements for the use of the
specific item. The Company is Year 2000 Compliant.
Section 5.24 Certain Payments. Neither the Company nor Compost or any
officer, director or employee of the Company has paid or received or caused to
be paid or received, directly or indirectly, in connection with the business of
the Company (a) any bribe, kickback or other similar payment to or from any
domestic or foreign government or agency thereof or any other person or (b) any
contribution to any domestic or foreign political party or candidate (other than
from personal funds of such officer, director or employee not reimbursed by the
Company or as permitted by applicable law).
Section 5.25 Books and Records. The corporate minute books and other
corporate records of the Company are correct and complete in all material
respects and the signatures appearing on all documents contained therein are the
true signatures of the persons purporting to have signed the same. All actions
reflected in said books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction and no meeting of the board of
directors of the Company or any committee thereof has been held for which
minutes have not been prepared and are not contained in the minute books. To the
extent that they exist, all personnel files, accounting and tax records and all
other records of every type and description that relate to the business of the
Company have been prepared and maintained in accordance with good business
practices and, where applicable, in conformity with GAAP and applicable laws and
regulations. All such books and records are located in the offices of the
Company.
Section 5.26 Condition and Sufficiency of Assets. To the best of
Compost's and the Company's knowledge, all buildings, improvements and equipment
owned or leased by the Company are structurally sound, in good operating
condition and repair (subject to normal wear and tear) and adequate for the uses
to which they are being put, and none of the buildings, improvements and
equipment owned or leased by the Company is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs consistent with past
practice. The Company has not deferred any maintenance or repairs of its
buildings, improvements and equipment.
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Section 5.27 Information Statement. None of the information being
supplied by Compost for inclusion in the information statement to be filed by
Compost with the Securities and Exchange Commission (the "SEC") with respect to
the transactions contemplated in this Agreement (the "Information Statement"),
and any amendments or supplements thereto will, at the time such document is
filed with the SEC, at the time the Information Statement or any amendment or
supplement thereto is mailed to stockholders of Compost and at the time of
Closing, contain any untrue statement of a material fact or omit to state any
material fact required to be made therein or necessary in order to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. The Information Statement will comply as to form in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 5.28 Disclosure. Neither Compost nor the Company is aware of
any fact (other than general economic conditions) that would have a Material
Adverse Effect that has not been set forth in this Agreement or in the schedules
attached hereto or to be delivered in connection with this Agreement.
ARTICLE VI
CONDUCT OF BUSINESS PENDING CLOSING
Section 6.1 Conduct of Business by the Company Pending Closing. After
the date hereof and prior to the Closing Date, unless Purchaser shall otherwise
agree in writing, Compost shall cause the Company to:
(a) conduct its businesses in the ordinary and usual course of
business and consistent with past practice;
(b) not (i) amend or propose to amend its charter or bylaws,
(ii) split, combine, reorganize, reclassify, recapitalize or take any similar
action with respect to its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in stock or property other than cash
dividends used to pay the working capital needs and indebtedness of Compost and
the amount of any indebtedness for borrowed money of Compost to the Company at
Closing;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional share of, or any options, warrants or
rights of any kind to acquire any share of, its capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock;
(d) not (i) incur or become contingently liable with respect
to any indebtedness for borrowed money other than up to $4 million in financing,
(ii) redeem, purchase, acquire or offer to redeem, purchase or acquire any
shares of its capital stock or any options, warrants or rights to acquire any of
its capital stock or any security convertible into or exchangeable for its
capital stock, (iii) make any acquisition of any assets or businesses other than
expenditures for fixed or capital assets in the ordinary course of business not
exceeding $40,000 in any instance or $100,000 in the aggregate, (iv) sell,
pledge, dispose of or encumber any assets or businesses other than sales in the
ordinary course of business or (v) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
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(e) use all reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
customers and others having business relationships with it and not engage in any
action, directly or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) not enter into or amend any employment, severance (except
as provided in Schedule 5.13), special pay arrangement with respect to
termination of employment or other similar arrangements or agreements with any
directors, officers or key employees;
(g) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law or as contemplated hereunder;
(h) use commercially reasonable efforts to maintain with
financially responsible insurance companies insurance on its tangible assets and
its businesses in such amounts and against such risks and losses as are
consistent with past practice;
(i) not make, change or revoke any material Tax election or
make any material agreement or settlement regarding Taxes with any taxing
authority;
(j) not make any change in the Company's financial, Tax or
accounting methods, practices or policies, or in any assumption underlying such
a method, practice or policy;
(k) use its commercially reasonable efforts to cause the
transfer of Environmental Permits (on the same terms and conditions), and any
financial assurance required thereunder to Purchaser as may be necessary under
applicable Environmental Laws in connection with the consummation of the
transactions under this Agreement to allow Purchaser to conduct the business of
the Company, as currently conducted;
(l) not enter into or assume any contracts or agreements
having a value or imposing an obligation upon the Company in excess of $40,000
annually or any contracts or agreements having a value or imposing an obligation
on the Company that have remaining obligations in excess of $100,000, regardless
of the annual payment;
(m) maintain its books of account and records in the usual,
regular and ordinary manner consistent with past policies and practice;
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(n) not compromise, settle, grant any waiver or release
relating to or otherwise adjust any material litigation or claims of any nature
whatsoever pending against the Company, except for item2s 2 and 3 on Schedule
5.8; and
(o) not take any action or omit to take any action, which
action or omission would result in a breach of any of the representations and
warranties set forth in this Agreement.
Section 6.2 Access to Information; Environmental Due Diligence. Compost
shall, and shall cause the Company to, give the Purchaser, its accountants,
counsel, financial advisors, and other representatives (the "Purchaser
Representatives") full access (and shall otherwise fully cooperate, including,
to the extent reasonably feasible, by making available copies of all, or
otherwise providing access to, the following documents which are susceptible to
photostatic reproduction) during normal business hours throughout the period
prior to Closing to all of the Company's properties, books, records (including,
but not limited to, Tax Returns and any and all records or documents which are
within the possession of governmental or regulatory authorities, agencies or
bodies, and the disclosure of which the Company can facilitate or control),
Contracts, premises, permits, Environmental Permits, licenses, Governmental
Authorizations, commitments of any nature (whether written or oral) and records,
and shall permit the Purchaser and Purchaser Representatives to make such
inspections (including without limitation environmental inspections, sampling,
and analysis) as they may require (at Purchaser's expense) and furnish to the
Purchaser and Purchaser Representatives during such period all such information
concerning the Company and its affairs as they may reasonably request. Compost
shall cause the Company to provide to Purchaser copies of all (aa) Permits, (bb)
reports or results of all inspections, audits, assessments, and analytical data
and (cc) such other information as Purchaser may reasonably request in the
possession or control of Compost regarding any of Company's current or prior
Business Facilities or operations and relating to (i) compliance with applicable
requirements of Environmental Laws or (ii) the exposure to, presence, release,
or any aspect of management, handling, or use of Materials of Environmental
Concern.
Section 6.3 Commercially Reasonable Efforts. Subject to Compost's
rights under Section 7.3, Compost will use its commercially reasonable efforts
to cause the representations and warranties contained in Article V hereof to
continue to be true and correct through the Closing Date and to obtain the
satisfaction of the conditions to Closing set forth in Sections 8.1 and 8.3
hereof.
Section 6.4 Compost and Stockholders' Approval.
(a) Compost shall, as promptly as reasonably practicable after
the date hereof, distribute to its stockholders the Information Statement in
accordance with applicable federal and state law and with Compost's articles of
incorporation and bylaws. Compost shall provide a copy of the Information
Statement to Purchaser contemporaneously with the filing thereof with the SEC.
(b) After the date hereof and prior to the Closing, Compost
shall not issue, deliver, or sell or authorize or propose the issuance,
delivery, or sale of, any shares of its capital stock or any class or any
security convertible into or exchangeable for, or any rights, warrants, or
options to acquire, any such shares of capital stock, other than the issuance of
securities by Compost (i) upon the exercise of stock options outstanding on the
date of this Agreement in accordance with their terms, and (ii) to obtain up to
$4 million of financing.
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(c) Compost shall use all reasonable efforts to obtain and
retain stockholder consents necessary to obtain the Compost Stockholders'
Approval.
ARTICLE VII
CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES
Section 7.1 Confidentiality.
(a) Without the express written consent of all of the Parties,
each of the Parties agrees to maintain in confidence and not disclose to any
other Person (i) the terms of the transactions contemplated hereby or (ii) the
information delivered in connection with the proposed due diligence
investigation ("Confidential Information"), other than disclosures required or
appropriate to fairly describe the transactions involved in order to obtain the
approvals for the transactions contemplated hereby, disclosures to those
employees, professionals and advisors who have a need to know, disclosures of
information already available to the public or any other disclosures required by
applicable law or the rules of the NASD. If the Purchaser or Compost is at any
time requested or required (by oral questions, interrogatories, request for
information or documents, subpoena or other similar process) to disclose any
Confidential Information, such Party agrees to provide the other Parties prompt
notice of such request so that an appropriate protective order may be sought
and/or such other Party may waive the first Party's compliance with the terms of
this Section 7.1.
It is further agreed that, if in the absence of a protective
order or the receipt of a waiver hereunder a Party is nonetheless compelled to
disclose Confidential Information to any tribunal or else stand liable for
contempt or suffer other censure or penalty, such Party may disclose to such
tribunal without liability hereunder that portion of the Confidential
Information which it is compelled to disclose; provided, however, that such
Party shall give the other Party written notice of the information to be so
disclosed as far in advance of its disclosure as is practicable so that such
other Party may seek to obtain an order or other reliable assurance that
confidential treatment will be accorded to such information.
(b) If this Agreement shall be terminated, each party will (i)
redeliver all documents, work papers and other materials of any other party
relating to the transactions contemplated hereby, or of a proprietary or
confidential nature whether so obtained before or after the execution of this
Agreement, to the Party furnishing the same, and (ii) destroy all documents,
work papers and other materials developed by its accountants, agents and
employees in connection with the transactions contemplated hereby which embody
proprietary information or trade secrets furnished by any Party hereto or
deliver such documents, work papers and other materials to the Party furnishing
the same or excise such information or secrets therefrom. If requested by
Compost, the Purchaser will certify that it has complied with this Section 7.1
and if requested by the Purchaser, Compost will certify that it has complied
with this Section.
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Section 7.2 Further Assurances. Compost and Purchaser shall execute and
deliver to the other, after the Closing Date, any other instrument which may be
requested by the other and which is reasonably appropriate to perfect or
evidence any of the sales, assignments, transfers or conveyances contemplated by
this Agreement or to obtain any consents or licenses necessary for Purchaser to
operate the Business in the manner operated by the Company prior to the Closing
Date provided, that Compost shall not be required to expend any funds to comply
with this Section unless the Purchaser agrees to promptly reimburse Compost for
such funds.
Section 7.3 No Solicitation.
(a) After the date hereof and prior to the earlier of the date
on which this Agreement terminates or the Closing Date, Compost shall not, and
it shall cause its subsidiaries, directors, officers, employees, financial and
other advisors, agents, representatives, Affiliates, and others working on its
behalf or at its direction (collectively, "Compost Representatives") not to,
initiate, solicit, encourage or facilitate offers, inquiries or proposals with
respect to, or furnish any information relating to or participate in any
negotiations or discussions concerning (i) any merger, reorganization, share
exchange, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company, or any purchase or
sale of all or any substantial part of the business and properties of the
Company or any capital stock of the Company, or (ii) any merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Compost resulting in
any entity or person (including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, or any comparable successor provisions)
becoming the beneficial owner of, or obtaining voting control over, a majority
of the then outstanding Compost stock (in each case, an "Acquisition Proposal"),
other than to Purchaser as contemplated by this Agreement.
(b) Notwithstanding Section 7.3(a), if Compost is not
otherwise in breach or violation of this Section 7.3, until the Closing Date,
the Board of Directors of Compost may (x) furnish information concerning the
Company to any Person indicating a desire to make an Acquisition Proposal
pursuant to appropriate confidentiality agreements, and (y) negotiate and
participate in discussions and negotiations with such Person concerning a
possible Acquisition Proposal, if in either case (x) or (y), (i) the Board of
Directors of Compost in good faith determines that such Acquisition Proposal (if
consummated pursuant to its terms) would result in a transaction more favorable
to the Compost stockholders than this transaction, and (ii) in the good faith
judgment of the Board of Directors of Compost, only after receipt of and based
upon advice from outside legal counsel to Compost, the failure to provide such
information or access or to engage in such discussions or negotiations would
cause the Board of Directors to violate its fiduciary duties to Compost's
stockholders under applicable law (any such acquisition proposal meeting the
conditions of clauses (i) and (ii) being hereinafter referred to as a "Superior
Proposal").
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(c) Compost shall notify Purchaser within three business days
of the commencement of any discussions or negotiations between it or any Compost
Representative and any other Person concerning an Acquisition Proposal. Such
notice shall not be required to include any details with respect to such
discussions or negotiations or the identity of such Person. Compost agrees
immediately to cease and to cause to be terminated any activities, discussions
or negotiations conducted on or prior to the date of this Agreement with any
Person other than Purchaser with respect to an Acquisition Proposal.
Section 7.4 Expenses and Fees.
(a) Compost shall pay all costs and expenses incurred by the
Company and Compost in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, any and all broker's
commissions, employee bonuses and the fees and expenses of the Company's and
Compost's attorneys and accountants. Purchaser shall pay all costs and expenses
incurred by Purchaser in connection with this Agreement and the transactions
contemplated hereby, including without limitation, the fees and expenses of
their attorneys and accountants and shall pay the filing fee required in
connection with the HSR Act filing.
(b) Notwithstanding anything to the contrary in Section
7.4(a), Compost agrees to pay to the Purchaser a fee equal to (i) the greater of
(x) $1 million or (y) the amount by which the consideration received or to be
received by Compost in the Acquisition Proposal exceeds the Purchase Price;
provided that such amount shall not exceed $3 million, plus (ii) all costs and
expenses incurred by Purchaser in connection with this Agreement and the
transactions contemplated hereby, including without limitation, all attorney's
fees, accountant's fees and broker's and investment banking fees and expenses,
if (x) Compost terminates this Agreement pursuant to Section 9.1(a)(v) or
Purchaser terminates this Agreement pursuant to Section 9.1(b)(iv) or (b)(v);
and (y) at any time prior to the date nine months after the termination of this
Agreement a definitive agreement with respect to any Acquisition Proposal shall
have been executed or any Acquisition Proposal shall have been consummated
within one year after the termination hereof. Any fee required to be paid by
Compost to the Purchaser pursuant to this Section 7.4(b) shall be due and
payable in cash on the date on which the closing of the Acquisition Proposal
occurs. This Section 7.4 (b) shall survive the termination of this Agreement
without a Closing, but shall not survive a Closing hereunder.
Section 7.5 Agreement to Cooperate. Subject to Compost's rights under
Section 7.3, prior to Closing and subject to the terms and conditions herein
provided, the Parties hereto shall use all commercially reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using their reasonable efforts to remove any injunctions or other
impediments or delays and to obtain (i) all necessary, proper or advisable
waivers, consents and approvals under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
and (ii) all necessary or appropriate waivers, consents or approvals of third
parties required in order to preserve material contractual relationships of the
Company.
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Section 7.6 Public Statements. The Parties shall obtain the written
consent of the other prior to issuing any press release or any written public
statement with respect to this Agreement or the transactions contemplated hereby
and shall not issue any such press release or written public statement prior to
such consent, which consent shall not be unreasonably withheld, except as
required by law or the NASD.
Section 7.7 Notification of Certain Matters. From the date hereof to
the Closing, each of Compost, the Company and the Purchaser agree to give prompt
notice to each other of, and to use their respective reasonable best efforts to
prevent or promptly remedy, (i) the occurrence or failure to occur or the
impending or threatened occurrence or failure to occur, of any event which would
be likely to cause any of its representations or warranties in this Agreement to
be untrue or inaccurate in any material respect and (ii) any material failure on
its part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section shall not limit or otherwise affect the
remedies available hereunder to the Party receiving such notice.
Section 7.8 Tax Election. The Purchaser shall not make a Section
338(h)(10) election under the Code with respect to the purchase of the Company
Common Stock.
Section 7.9 Notice of Environmental Claims. Up to and including the
Closing Date, Compost shall give prompt written notice to Purchaser of the
commencement of any Environmental Claim, or any non-routine inspection by any
Governmental Authority with responsibility for enforcing or implementing any
applicable Environmental Laws, and provide to Purchaser such information as
Purchaser may reasonably request regarding such Environmental Claim, any
developments in connection therewith, and, as applicable, Compost's anticipated
or actual response thereto.
Section 7.10 Stockholder's Consents; Sharing Agreement. Compost shall
not take (or cause to be taken) any action that would in any way terminate,
impede, frustrate, nullify or prevent the operation of such Stockholder
Consents. Up to and including the Closing Date, Compost shall fully satisfy and
comply with its agreements and obligations under the Sharing Agreement.
Section 7.11 Supplements to Schedules. Each Party shall have the right
from time to time prior to the date five days prior to Closing to supplement or
amend its Schedules with respect to any matter hereafter arising which if
existing or known at the date of this Agreement would have been required to be
set forth or described in such Schedules. Any such supplemental or amended
disclosure shall be deemed to have cured any related breach of any
representation or warranty made in this Agreement, except that notwithstanding
the immediately preceding clause no such supplemental or amended disclosure
shall be deemed to have cured any such breach or violation of this Agreement
with respect to any matter required to have been disclosed as of the date of
this Agreement for purposes of determining whether or not the conditions to
Closing set forth in Section 8.3(b) hereof have been satisfied.
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Section 7.12 Director and Officer Liability; Indemnification. For six
(6) years after the Closing Date, Compost will indemnify and hold harmless the
present and former directors, officers and employees of the Company and other
persons entitled to indemnification by the Company in respect of acts or
omissions occurring on or prior to the Closing Date to the same extent and in
the same manner provided under any agreements and the Company's certificate of
incorporation, bylaws and similar organizational documents in effect on the
Closing Date.
Section 7.13 Earnout Covenants. The Purchaser agrees to comply with the
following covenants commencing with the Closing Date and ending upon the earlier
of (i) April 1, 2003, and (ii) satisfaction of all amounts due and owing under
the Earnout Agreement.
(a) The Purchaser shall not directly, or indirectly through
any of its Subsidiaries, own or operate a Rail Transportation Business east of
the Mississippi River other than the Company and an Acquired Business. For
purposes of this Agreement, an "Acquired Business" is a business or company, or
group of related businesses or companies, acquired in a single transaction and
designated as an "Acquired Business" by the Purchaser. The Purchaser shall be
entitled to designate only one Acquired Business and such Acquired Business
shall not own in the aggregate more than 100 railcars. For purposes of this
Section, "Rail Transportation Business" shall mean the business of transporting
biosolids, incinerator ash and/or soils by intermodal rail for landfilling or
for land application or beneficial reuse. The Purchaser shall allow the Company
the option to provide Rail Transportation Business services to Synagro and its
Subsidiaries (other than any Acquired Business) with respect to transportation
originating east of the Mississippi River on the same terms as proposed to be
provided by a third party, unless otherwise precluded by contract, Governmental
Authority or lack of Company capacity. The Acquired Business shall be entitled
to replace railcars no longer in use with similar railcars but shall be
precluded from increasing the aggregate number of railcars owned by the Acquired
Business by more than 10% of the number owned at the time Purchaser acquires the
Acquired Business. An Acquired Business shall be able to bid on new contracts
utilizing its railcars to replace lost contracts, provided that those contracts
are for services consistent with the business of such Acquired Business. There
shall be no restrictions on the Acquired Business with respect to any business
not utilizing its railcars.
(b) The Company shall be permitted to provide Rail
Transportation Business services as a subcontractor on a non-exclusive basis to
third party bidders at the same price such services would be provided to the
Purchaser or its Subsidiaries regardless of whether Purchaser or its Affiliates
also bid the same contract or services.
(c) Compost and the Purchaser agree that the Company shall be
subject to the normal Purchaser corporate approval process with respect to new
projects, contracts, capital requests and other similar matters.
(d) All new business developed by Longo and approved by
Purchaser in accordance with Section 7.13(c) above for which Longo is otherwise
compensated by a performance bonus under his employment arrangements shall be
conducted by the Company.
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(e) The Company shall be permitted to maintain operational
management personnel and equipment consistent with the Company levels at January
31, 2000. Operational management personnel and equipment may only be leased or
otherwise assigned or transferred to Purchaser or its Subsidiaries upon terms
consented to by the Purchaser and Longo at the time of such lease, assignment or
transfer, which consents shall not be unreasonably withheld.
(f) The Purchaser agrees to comply with this Section 7.13 and
the Earnout Agreement in a fair and equitable manner.
(g) Notwithstanding the survival limitations set forth in
Section 11.1 of this Agreement, the Purchaser's liability for failure to comply
with the covenants and agreements set forth in this Section 7.13 shall survive
until the satisfaction of all amounts due and owing under the Earnout Agreement.
ARTICLE VIII
CONDITIONS TO CLOSING
In determining whether a Party has performed an agreement or covenant
referred to in Section 7.7, or Article 8 or 9 in all material respects or
whether a representation or warranty referred to in Section 7.7, or Article 8 or
9 is true and correct in all material respects, the materiality qualification
within the representation, warranty, covenant or agreement, if any, shall be
disregarded. Thus, materiality shall be counted only once with regard to
analysis of such agreement, representation or warranty.
Section 8.1 Conditions to Each Party's Obligation to Close. The
respective obligations of each Party to close the transactions contemplated
hereby shall be subject to the fulfillment or waiver of the following conditions
on or prior to the Closing Date:
(a) no preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
transactions contemplated hereby shall have been issued and remain in effect
(each party agreeing to use its reasonable efforts to have any such injunction,
order or decree lifted);
(b) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the transactions contemplated by this Agreement or make the consummation of the
transaction contemplated by this Agreement illegal;
(c) all necessary governmental and regulatory consents and
approvals shall have been obtained;
(d) Compost and, if applicable, the Company shall have entered
into a settlement agreement with Robert Jones upon the terms previously provided
to Purchaser's counsel and such settlement agreement shall be in full force and
effect;
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(e) a release, effective on the date of Closing, releasing the
Company from any and all liability under the Modification of Contract and
Settlement Agreement dated December 9, 1999 (the "Modification Agreement") by
and among Compost, Resource Reclamation Services, Inc., Tomas A. Mestre and
others, as and to the extent such Agreement modifies the April 7th Agreement, as
defined in the Modification Agreement; and
(f) The Company shall have assigned to Compost, and Compost
shall have assumed all liability with respect to, the litigation claims
referenced in item 2 of Schedule 5.8.
Section 8.2 Conditions to Obligation of Compost. Unless waived by
Compost, the obligation of Compost to close the transactions contemplated herein
shall be subject to the fulfillment of the following additional conditions on or
prior to the Closing Date:
(a) Purchaser shall have performed in all material respects
its agreements (including but not limited to the delivery by Purchaser and the
receipt by Compost of all of the Closing Deliveries in Section 3.4(b)) contained
in this Agreement required to be performed on or prior to the Closing Date;
(b) the representations and warranties of Purchaser contained
in this Agreement shall be true and correct in all material respects on and as
of the date made and on and as of the Closing Date as if made at and as of such
date; and
(c) Compost shall have received a certificate executed on
behalf of Purchaser by the President or a Vice President of the Purchaser with
respect to (a) and (b) above.
Section 8.3 Conditions to Obligations of Purchaser. Unless waived by
Purchaser, the obligation of Purchaser to close the transactions contemplated
herein shall be subject to the fulfillment of the following additional
conditions on or prior to the Closing Date:
(a) Compost and the Company shall have performed in all
material respects their agreements (including but not limited to the delivery by
Compost and the receipt by Purchaser of all of the Closing Deliveries in Section
3.4(a)) contained in this Agreement required to be performed on or prior to the
Closing Date;
(b) the representations and warranties of the Company and
Compost contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if made
at and as of such date;
(c) since the date hereof, there shall have been no changes
that constitute, and no event or events shall have occurred which have resulted
in or constitute, a Material Adverse Effect;
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(d) all waivers, consents and approvals from third parties
necessary for the transfer of any material contracts, Permits, financial
assurances and any other rights and benefits in connection with the transactions
contemplated hereby, or necessary for the consummation of the transactions
contemplated hereby shall have been obtained and be in effect at the Closing
Date, including but not limited to the approval, if required, of the New Jersey
Department of Environmental Protection and the waivers, consents and approvals
listed on Schedules 4.3, 5.2 and 5.3 to this Agreement;
(e) Purchaser shall have received a certificate executed by
Compost with respect to (a) through (d) above;
(f) Compost shall have delivered to Purchaser the unaudited
balance sheet and related statements of income and cash flows of the Company as
of and for the quarter ending January 31, 2000; and
(g) there shall be no litigation or threats of litigation
relating to the Company (except for litigation referenced in items 1 and 2 on
Schedule 5.8) or the transactions contemplated herein which may adversely affect
the Company or the Purchaser as determined in good faith by the Purchaser;
(h) the waiver with respect to the exchange rights under the
Sharing Agreement shall be effective and Wasteco and Longo shall have executed
and delivered to the Purchaser a waiver of all rights to acquire capital stock
of the Company in the form previously agreed by the parties;
(i) Compost shall have purchased and delivered evidence to the
Purchaser of a tail/runoff officers' and directors' liability insurance policy
insuring the Company and each officer and director entitled to indemnification
from the Company with respect to acts and omissions occurring on or prior to the
Closing Date with the terms set forth on Exhibit L; and
(j) The Company and Longo shall have entered into the
Amendment to the Security Agreement in the form of Exhibit M.
Section 8.4 Failure of Conditions to Closing. The failure to fulfill
any condition to closing set forth in this Article VIII shall not give rise to
liability under this Agreement unless such failure is also conduct in violation
or breach of any term or provision of Articles VI and VII.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) Compost shall have the right to terminate this Agreement:
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(i) if the representations and warranties of
Purchaser shall fail to be true and correct in all material respects on and as
of the date made or, except in the case of any such representations and
warranties made as of a specified date, on and as of any subsequent date as if
made at and as of such subsequent date and such failure shall not have been
cured in all material respects within thirty (30) days after written notice of
such failure is given to Purchaser by Compost;
(ii) if the transactions completed hereby are not
completed by May 31, 2000;
(iii) if the transactions contemplated hereby are
enjoined by a final, unappealable court order;
(iv) if Purchaser (A) fails to perform in any
material respect any of its covenants in this Agreement and (B) does not cure
such default in all material respects (or in all respects in the case of any
covenant containing any materiality qualification) within 15 days after notice
of such default is given to Purchaser by Compost;
(v) upon five (5) days' prior written notice to
Purchaser (which notice shall entitle Purchaser to terminate this Agreement
pursuant to Section 9.1(b)(v)), in order to accept a proposal which its Board of
Directors shall have determined as of the date of such notice is a Superior
Proposal and such Board of Directors shall have concluded in good faith, only
after receipt of and based on advice of its outside legal counsel, that its
fiduciary duties would require it to accept such Superior Proposal; provided,
that Compost and the Company shall have fully complied with its obligations
under Section 7.3.
(b) Purchaser shall have the right to terminate this
Agreement;
(i) if the representations and warranties of Compost
shall fail to be true and correct in all material respects on and as of the date
made or, except in the case of any such representations and warranties made as
of a specified date, on and as of any subsequent date as if made at and as of
such subsequent date and such failure shall not have been cured in all material
respects within 30 days after written notice of such failure is given to Compost
by Purchaser;
(ii) if the transactions contemplated hereby are not
completed by May 31, 2000;
(iii) if the transactions contemplated hereby are
enjoined by a final, unappealable court order;
(iv) if Compost (A) fails to perform in any material
respect any of its covenants in this Agreement and (B) does not cure such
default in all material respects within 15 days after notice of such default is
given to Compost by Purchaser; or
(v) if (i) Compost shall have delivered the notice
described in Section 9.1(a)(v), (ii) the Board of Directors of Compost shall
have approved or recommended another Acquisition Proposal, or (iii) Compost
shall have engaged in negotiations with a third party after the date hereof with
respect to any Acquisition Proposal and shall not have fully and unconditionally
rejected such proposal within seven (7) calendar days of first engaging in any
negotiations with respect to such Acquisition Proposal; and
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(vi) if Purchaser after good faith efforts to obtain
financing shall not have notified Compost in writing after the date of this
Agreement and on or prior to April 14, 2000, that Purchaser has obtained
financing in an amount and pursuant to terms satisfactory to Purchaser to
consummate the transactions contemplated in this Agreement.
(c) Compost and Purchaser mutually agree in writing.
Section 9.2 Effect of Termination. The following provisions shall apply
in the event of a termination of the Agreement:
(a) If this Agreement is terminated by either Purchaser or
Compost pursuant to the provisions of Section 9.1, this Agreement shall
forthwith become void and there shall be no further obligations on the part of
Compost or Purchaser or their stockholders, directors, officers, employees,
agents or representatives (except as set forth in Sections 7.1, 7.3, 7.4, 11.5
and 11.6, and Article X, each of which shall survive termination in its
entirety). Notwithstanding the preceding sentence or any other provision set
forth herein, nothing in this Section 9.2 shall relieve any party from liability
for any breach of this Agreement or from the remedies set forth in Section
9.2(b).
(b) The Parties hereto acknowledge and agree that Purchaser,
as a result of the actual damages Purchaser would sustain by reason of the
negligent or willful failure of Compost to perform its obligations hereunder,
could not be made whole by monetary damages. It is accordingly agreed that
Purchaser shall have the right to elect, in addition to any and all other
remedies at law or in equity, to enforce specific performance under this
Agreement. Compost waives the defense in any such action for specific
performance that a remedy at law would be adequate.
Section 9.3 Extensions; Waiver. At any time prior to the Closing Date,
the Parties may (a) extend the time for the performance of any of the
obligations or other acts of the other Parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions herein. Any agreement on the part of a Party to any such extension or
waiver shall be valid if set forth in an instrument in writing signed by or on
behalf of such Party.
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ARTICLE X
INDEMNIFICATION AND LIMITATION ON LIABILITY
Section 10.1 Compost's Indemnity Obligations. Compost shall indemnify
and hold harmless the Company (after the Closing), Purchaser and the Company's
(after the Closing) and the Purchaser's respective officers, directors,
stockholders, employees, agents, representatives and Affiliates (each a
"Purchaser Indemnified Party") from and against any and all claims (including
without limitation, Environmental Claims), actions, causes of action,
arbitrations, proceedings, losses, damages, remediations, liabilities, strict
liabilities, judgments, fines, penalties and expenses (including, without
limitation, reasonable attorneys' fees) (collectively, the "Indemnified
Amounts") paid, imposed on or incurred by a Purchaser Indemnified Party,
directly or indirectly, (i) relating to, resulting from or arising out of (a)
any breach or misrepresentation in any of the representations and warranties
made by or on behalf of Compost or the Company (on or before the Closing) in
this Agreement, including without limitation with respect to environmental
matters, or any certificate or instrument contemplated by and delivered in
connection with this Agreement, (b) any violation or breach by Compost or the
Company (on or before the Closing) of, or default by Compost or the Company (on
or before the Closing) under, the terms of this Agreement or any certificate or
instrument contemplated by and delivered in connection with this Agreement, (c)
any amounts for which the Purchaser Indemnified Parties become liable as a
result of any bankruptcy filed by Compost (whether voluntary or involuntary) on
or before the date one (1) year after Closing or any claim under the Bankruptcy
Code, including preferential transfers or fraudulent transfers; (d) any amounts
for which a Purchaser Indemnified Party may become liable as a result of any
late filing or payment of federal, state or local taxes and/or tax returns of
the Company due for periods prior to the Closing Date, (e) any amounts for which
a Purchaser Indemnified Party may become liable relating to the items listed on
Schedule 5.15, (f) any claim for indemnification by any current or former
director, officer or employee of the Company or other person entitled to
indemnification by the Company (whether pursuant to statute, contract or the
articles of incorporation or bylaws of the Company) that is not covered by the
insurance referenced in Section 8.3(i) of this Agreement, or (g) the lawsuit
listed as item no. 1 on Schedule 5.8 or (ii) relating to, resulting from or
arising out of any allegation of a third party of the events described in
Sections 10.1(a), (b), (c) , (d), (e), (f) or (g) above. For purposes of this
Section 10.1, Indemnified Amounts shall include without limitation those
Indemnified Amounts ARISING OUT OF THE STRICT LIABILITY (INCLUDING BUT NOT
LIMITED TO STRICT LIABILITY ARISING PURSUANT TO ENVIRONMENTAL LAWS) OF ANY
PARTY, INCLUDING ANY PURCHASER INDEMNIFIED PARTY OR THE NEGLIGENCE OF THE
COMPANY OR THE COMPANY'S OFFICERS, DIRECTORS, STOCKHOLDERS, EMPLOYEES, AGENTS,
REPRESENTATIVES OR AFFILIATES, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR
CONCURRENT, ACTIVE OR PASSIVE.
Section 10.2 Purchaser's Indemnity Obligations. Purchaser shall
indemnify and hold harmless the Company (before the Closing), Compost and the
Company's (before the Closing) and Compost's officers, directors, stockholders,
employees, agents, representatives and Affiliates (each a "Seller Indemnified
Party") from and against any and all Indemnified Amounts paid, imposed on or
incurred by a Seller Indemnified Party, directly or indirectly, (i) relating to,
resulting from or arising out of (a) any breach or misrepresentation in any of
the representations and warranties made by or on behalf of Purchaser in this
Agreement or any certificate or instrument contemplated by and delivered in
connection with this Agreement or (b) any violation or breach by Purchaser of or
default by Purchaser under the terms of this Agreement or any certificate or
instrument contemplated by and delivered in connection with this Agreement, or
(ii) relating to, resulting from or arising out of any allegation of a third
party of the events described in Sections 10.2(a) or (b) above.
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Section 10.3 Indemnification Procedures. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
(a) Any of the Parties claiming indemnification under this
Agreement (an "Indemnified Party") shall with reasonable promptness (i) notify
the Party from whom indemnification is sought (the "Indemnifying Party") of any
third-party claim or claims asserted against the Indemnified Party ("Third-Party
Claim") for which indemnification is sought and (ii) transmit to the
Indemnifying Party a copy of all papers served with respect to such claim (if
any) and a written notice ("Claim Notice") containing a description in
reasonable detail of the nature of the Third-Party Claim, an estimate of the
amount of damages attributable to the Third-Party Claim to the extent feasible
(which estimate shall not be conclusive of the final amount of such claim) and
the basis of the Indemnified Party's request for indemnification under this
Agreement.
Within 15 days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(i) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party with respect to such Third-Party Claim and (ii) whether the
Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend the Indemnified Party against such Third Party Claim.
If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third-Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third-Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 10.3(a). The Indemnifying
Party shall have full control of such defense and proceedings. The Indemnified
Party is hereby authorized, at the sole cost and expense of the Indemnifying
Party, to file, during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall reasonably deem necessary or
appropriate to protect its interests. If requested by the Indemnifying Party,
the Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting any Third-Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third-Party Claim or any
cross-complaint against any person. Except as otherwise provided herein, the
Indemnified Party may participate in, but not control, any defense or settlement
of any Third-Party Claim controlled by the Indemnifying Party pursuant to this
Section 10.3 and shall bear its own costs and expenses with respect to such
participation.
If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to the preceding paragraph, or if the
Indemnifying Party elects to defend the Indemnified Party but fails to prosecute
or settle the Third Party Claim as herein provided or if the Indemnified Party
reasonably objects to such election on the grounds that counsel for such
Indemnifying Party cannot represent both the Indemnified Party and the
Indemnifying Parties because such representation would be reasonably likely to
result in a conflict of interest, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings shall be
promptly and vigorously prosecuted by the Indemnified Party to a final
conclusion or settled. In such a situation, the Indemnified Party shall have
full control of such defense and proceedings and the Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 10.3, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
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The Indemnifying Party shall not settle or compromise any
Third Party Claim unless (i) the terms of such compromise or settlement require
no more than the payment of money (i.e., such compromise or settlement does not
require the Indemnified Party to admit any wrongdoing or take or refrain from
taking any action), (ii) the full amount of such monetary compromise or
settlement will be paid by the Indemnifying Party, and (iii) the Indemnified
Party receives as part of such settlement a legal, binding and enforceable
unconditional satisfaction and/or release, in form and substance reasonably
satisfactory to it, providing that such Third-Party Claim and any claimed
liability of the Indemnified Party with respect thereto is being fully satisfied
by reason of such compromise or settlement and that the Indemnified Party is
being released from any and all obligations or liabilities it may have with
respect thereto. Except as provided in Section 10.3(b) of this Agreement, the
Indemnified Party shall not settle or admit liability to any Third-Party Claim
without the prior written consent of the Indemnifying Party unless (x) the
Indemnifying Party has disputed its potential liability to the Indemnified
Party, and such dispute either has not been resolved or has been resolved in
favor of the Indemnifying Party or (y) the Indemnifying Party has failed to
respond to the Indemnified Party's Claim Notice.
(b) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding or claim may adversely affect it or its Affiliates other than as a
result (or in excess) of monetary damages for which it would be entitled to
indemnification under this Agreement, the Indemnified Party may, by notice to
the indemnifying party, assume the exclusive right to defend, compromise, or
settle such Proceeding or claim, but for the purposes of claiming against the
Earnout Agreement the Indemnifying Party will not be bound by any determination
of a Proceeding or claim so defended or any compromise or settlement effected
without its consent (which may not be unreasonably withheld).
(c) If any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third-Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. As to such a claim, agreement or arbitration shall
determine the Indemnified Amount; provided, however, that nothing herein shall
restrict the Purchaser's right to offset under Section 10.6 of this Agreement.
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Section 10.4 Limitation of Compost's Liability.
(a) Notwithstanding anything to the contrary contained in this
Agreement, except (i) for the aggregate liability of Compost for any event or
occurrence giving rise to Compost being required to indemnify Purchaser
Indemnified Parties pursuant to Section 10.1(i)(f) of this Agreement (and
Section 10.1(ii) as it relates to Section 10.1(i)(f)) which shall be unlimited,
(ii) as provided in Sections 7.4(b) and 9.2 of this Agreement, and (iii) for
claims of fraud or willful misconduct, the sole remedy of the Purchaser for any
breach or violation under this Agreement shall be limited to the rights of the
Purchaser Indemnified Parties under this Article X and under the Earnout
Agreement, and the aggregate liability for all events or occurrences giving rise
to Compost being required to indemnify the Purchaser Indemnified Parties
pursuant to Section 10.1 (together with Compost's exposure in the maximum amount
of $5,000,000 for the Company's failure to satisfy the EBITDA targets under the
Earnout Agreement) shall be limited to $9,000,000.
(b) Purchaser Indemnified Parties are entitled to
indemnification pursuant to Section 10.1(i)(a) through (c) (and Section 10.1(ii)
as it relates to Section 10.1(i)(a) through (c)) only if the amount of any
Indemnified Amount, individually or in the aggregate with all other Indemnified
Amounts hereunder (including the first $162,500 of Indemnified Amounts under
Section 10.1(i)(g) and Section 10.1(ii) as it relates to Section 10.1(i)(g), as
referenced in the next sentence), exceeds Four Hundred Fifty Thousand Dollars
($450,000), and then only to the extent of such excess. Purchaser Indemnified
Parties are entitled to indemnification pursuant to Section 10.1(i)(g) (and
Section 10.1(ii) as it relates to Section 10.1(i)(g)) only if the Indemnified
Amounts under such sections exceed $162,500 in the aggregate, and then only to
the extent of such excess. Such deductibles shall not be applicable to claims
under Section 7.4(b) and Indemnified Amounts under Sections 10.1(i)(d) through
(f) and Section 10.1(ii) as it relates to Section 10.1(i)(d) through (f).
Section 10.5 Limitation of Purchaser's Liability.
(a) Notwithstanding anything to the contrary contained in this
Agreement, the sole remedy of Compost for any breach or violation by Purchaser
under this Agreement shall be limited to the rights of Compost under this
Article X, and the aggregate liability of Purchaser for all events or
occurrences giving rise to Purchaser being required to indemnify Seller
Indemnified Parties pursuant to Section 10.2 shall be limited to $1,000,000.
(b) Seller Indemnified Parties are entitled to indemnification
pursuant to Section 10.2 only if the amount of any Indemnified Amount,
individually or in the aggregate with all other Indemnified Amounts hereunder,
exceeds Four Hundred Fifty Thousand Dollars ($450,000), and then only to the
extent of such excess.
Section 10.6 Right of Offset. Upon written notice to Compost under the
Earnout Agreement specifying in reasonable detail its justification therefore,
the Purchaser may offset the amount of any Indemnified Amount determined by
litigation, arbitration or settlement under Section 10.3 to be owed to Purchaser
against any amount owed by the Purchaser to Compost under the Earnout Agreement.
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Section 10.7 Escrow. If there exists a bona fide dispute at the time
payment of the earnout consideration is due under the Earnout Agreement
regarding a claim by a Purchaser Indemnified Party or with respect to the right
of the Purchaser to offset against amounts due under the Earnout Agreement, the
Parties agree that at such time, the Purchaser shall deposit a portion of such
earnout consideration due and payable equal to the amount in dispute into an
interest bearing escrow account ("Escrow Account"), pending resolution of such
dispute. Interest on the Escrow Account shall accrue for the benefit of the
Party to whom the Escrow Account proceeds are released upon resolution of such
dispute; provided, that if the Escrow Account proceeds are released to more than
one Party, the interest shall be prorated among the Parties based on the amounts
released to the Parties. Upon resolution of the dispute, the Purchaser shall be
entitled to exercise its right of set-off as and in the manner provided in
Section 10.6 of this Agreement against the proceeds in the Escrow Account.
Immediately after resolution of the dispute, the Escrow Agent shall immediately
release and deliver to the payee under the Earnout Agreement all of the
remaining Escrow Account proceeds.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Survival. The representations, warranties, covenants and
agreements (including, but not limited to, indemnification obligations) set
forth in this Agreement and in any certificate or instrument delivered in
connection herewith shall be continuing and shall survive the Closing for a
period of two (2) years following the date of Closing; provided, however, that
(i) in the case of all such representations, warranties, covenants and
agreements (including, but not limited to, indemnification obligations) there
shall be no such termination with respect to any such representation, warranty,
covenant or agreement to the extent a bona fide claim has been asserted by
written notice of such claim delivered to the Party or Parties making such
representation, warranty, covenant or agreement prior to the expiration of the
survival period, (ii) Compost's covenants and agreements set forth in Section
7.12 and the indemnification obligations set forth in Section 10.1(i)(f) (and
Section 10.1(ii) as it relates to Section 10.1(i)(f)) shall survive the Closing
for a period of six years after Closing, (iii) the indemnification obligations
set forth in Section 10.1(i)(g) (and Section 10.1(ii) as it relates to Section
10.1(i)(g)) shall survive the Closing until 90 days after the disputes
referenced in Section 10.1(i)(g) are finally resolved by litigation, arbitration
or settlement, and (iv) the representations and warranties of the Company shall
not survive the Closing with respect to the Company but shall survive for
purposes of Compost's indemnity obligations under Section 10.1 as set forth in
this Section 11.1.
Section 11.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the Parties at the following addresses (or at such other address for a Party as
shall be specified by like notice):
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(a) If to Purchaser, to:
Synagro Technologies, Inc.
1800 Bering Drive, Suite 1000
Houston, Texas 77057
Attention: Mark A. Rome
Telecopy: 713/369-1760
with a copy to:
Locke Liddell & Sapp LLP
600 Travis, Suite 3200
Houston, Texas 77002
Attention: Michael T. Peters, Esq.
Telecopy: 713/223-3717
(b) If to Compost, to:
Compost America Holding Company, Inc.
One Gateway Center, 25th Floor
Newark, New Jersey 07102
Attention: Office of the President c/o
Christopher J. Daggett
Telecopy: 973/297-5454
with a copy to:
Greenberg Traurig
2050 One Commerce Square
2005 Market Street
Philadelphia, Pennsylvania 19103
Attention: Theodore W. Mason, Esq.
Telecopy: 215/988-7801
Section 11.3 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
interpretation of this Agreement. In this Agreement, unless a contrary intention
is specifically set forth, (i) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any Party solely because
such Party or its legal representative drafted such provision.
Section 11.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein and the Schedules and Exhibits attached hereto)
(a) constitutes the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, among the Parties, or any of them,
with respect to the subject matter hereof, and (b) shall not be assigned by
operation of law or otherwise except that Purchaser may assign this Agreement to
any other wholly-owned Subsidiary of Purchaser, but no such assignment shall
relieve the Purchaser of its obligations hereunder.
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Section 11.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE.
Section 11.6 Binding Arbitration.
(a) General. Notwithstanding any provision of this Agreement
to the contrary, upon the request of any Party (defined for the purpose of this
provision to include Affiliates, principals and agents of any such Party), any
dispute, controversy or claim arising out of, relating to, or in connection
with, this Agreement or any agreement executed in connection herewith or
contemplated hereby, or the breach, termination, interpretation, or validity
hereof or thereof (hereinafter referred to as a "Dispute"), shall be finally
resolved by mandatory and binding arbitration in accordance with the terms
hereof. Any Party may bring an action in court to compel arbitration of any
Dispute. Any Party who fails or refuses to submit any Dispute to binding
arbitration following a lawful demand by the opposing Party shall bear all costs
and expenses incurred by the opposing Party in compelling arbitration of such
Dispute.
(b) Governing Rules. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association in effect at the time of the arbitration, except as they may be
modified herein or by mutual agreement of the Parties. The arbitration and this
clause shall be governed by the Federal Arbitration Act, 9 U.S.C. ss.ss. 1 et
seq. (the "Federal Arbitration Act"). The arbitrator shall award all reasonable
and necessary costs (including the reasonable fees and expenses of counsel)
incurred in conducting the arbitration to the prevailing Party in any such
Dispute. The Parties expressly waive all rights whatsoever to file an appeal
against or otherwise to challenge any award by the arbitrators hereunder;
provided, that the foregoing shall not limit the rights of any Party to bring a
proceeding in any applicable jurisdiction to confirm, enforce or enter judgment
upon such award (and the rights of the other Party, if such proceeding is
brought, to contest such confirmation, enforcement or entry of judgment, but
only to the extent permitted by the Federal Arbitration Act).
(c) No Waiver; Preservation of Remedies. No provision of, nor
the exercise of any rights under this Agreement shall limit the right of any
Party to apply for injunctive relief or similar equitable relief with respect to
the enforcement of this Agreement or any agreement executed in connection
herewith or contemplated hereby, and any such action shall not be deemed an
election of remedies. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The Parties agree that irreparable damage would occur if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
Parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof. The
institution and maintenance of an action for injunctive relief or similar
equitable relief shall not constitute a waiver of the right of any Party,
including without limitation the plaintiff, to submit any Dispute to arbitration
nor render inapplicable the compulsory arbitration provisions of this Agreement.
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(d) Arbitration Proceeding. In addition to the authority
conferred on the arbitration tribunal by the rules specified above, the
arbitration tribunal shall have the authority to order reasonable discovery,
including the depositions of party witnesses and production of documents. The
arbitral award shall be in writing, state the reasons for the award, and be
final and binding on the Parties with no right of appeal. All statutes of
limitations that would otherwise be applicable shall apply to any arbitration
proceeding. Any attorney-client privilege and other protection against
disclosure of confidential information, including without limitation any
protection afforded the work-product of any attorney, that could otherwise be
claimed by any Party shall be available to and may be claimed by any such Party
in any arbitration proceeding. No Party waives any attorney-client privilege or
any other protection against disclosure of confidential information by reason of
anything contained in or done pursuant to or in connection with this Agreement.
Each Party agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information to the Parties' legal
counsel or auditors or those required by applicable law. The arbitrators shall
determine the matters in dispute in accordance with the substantive law of
Texas, without regard to conflict of law rules. The obligation to arbitrate any
dispute shall be binding upon the successors and assigns of each of the Parties.
(e) Appointment of Arbitrators. The arbitration shall be
conducted by three (3) arbitrators. The Party initiating arbitration (the
"Claimant") shall appoint its arbitrator in its request for arbitration (the
"Request"). The other Party (the "Respondent") shall appoint its arbitrator
within thirty (30) days after receipt of the Request and shall notify the
Claimant of such appointment in writing. If the Respondent fails to appoint an
arbitrator within such thirty (30) day period, the arbitrator named in the
Request shall decide the controversy or claim as sole arbitrator. Otherwise, the
two (2) arbitrators appointed by the Parties shall appoint a third (3rd)
arbitrator within thirty (30) days after the Respondent has notified Claimant of
the appointment of the Respondent's arbitrator. When the third (3rd) arbitrator
has accepted the appointment, the two (2) Party-appointed arbitrators shall
promptly notify the Parties of the appointment. If the two (2) arbitrators
appointed by the Parties fail to appoint a third (3rd) arbitrator and so to
notify the Parties within the time period prescribed above, then the appointment
of the third (3rd) arbitrator shall be made by the American Arbitration
Association, which shall promptly notify the Parties of the appointment. The
third (3rd) arbitrator shall act as Chair of the panel.
Section 11.7 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the Parties.
Section 11.8 Counterparts. This Agreement may be executed by facsimile
signature and in two or more counterparts, each of which shall be deemed to be
an original, but all of which shall constitute one and the same agreement.
Section 11.9 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each Party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
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Section 11.10 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
[Signature Page Follows]
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IN WITNESS WHEREOF, Purchaser and Compost have executed and delivered
this Agreement effective as of the date first written above.
PURCHASER:
SYNAGRO TECHNOLOGIES, INC.
By: ________________________________________________
Ross M. Patten, Chief Executive Officer
COMPOST:
COMPOST AMERICA HOLDING COMPANY, INC.
By: ________________________________________________
Christopher J. Daggett, Office of the President
By: ________________________________________________
Marvin H. Roseman, Office of the President
By: ________________________________________________
Richard L. Franks, Assistant Secretary
COMPANY:
For purposes of making the
representations and
warranties of the Company
in Article V hereof only.
ENVIRONMENTAL PROTECTION & IMPROVEMENT COMPANY, INC.
By: ________________________________________________
Robert Longo, President
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EXHIBIT A
Glossary
For purposes of this Agreement, the following terms shall have the
meaning specified or referred to below when capitalized (or if not capitalized,
unless the context clearly requires otherwise).
"Affiliate(s)" with respect to any Person, means any Person directly or
indirectly controlling, controlled by or under common control with such Person,
and any natural Person who is an officer, director or partner of such Person and
any members of their immediate families living within the same household. A
Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise. None of Wasteco and its affiliates
shall be deemed an affiliate of Longo or his affiliates. None of Longo and his
affiliates shall be deemed an affiliate of Wasteco or its affiliates. The term
"Affiliate" as used with respect to Wasteco shall include only the Private
Investment Division (and no other part) of Wafra Investment Advisory Group, Inc.
and persons or entities controlled by that Division. The term Wasteco shall
include Wafra Acquisition Fund 7, L.P. and persons or entities controlled by
that entity.
"Business Facility" or "Business Facilities" includes any property
(whether real or personal) which the Company or any of their Subsidiaries
currently lease, operate, or own or manage in any manner or which the Company or
any of their Subsidiaries or any of their respective organizational predecessors
formerly leased, operated, owned or managed in any manner.
"Code" means the Internal Revenue Code of 1986, as amended, or any
amending or superseding tax laws of the United States of America.
"Environmental Claim(s)" means any claim; litigation; demand; action;
cause of action or suit; loss; cost, including, but not limited to, attorneys'
fees, and expert's fees; damage; punitive damage; fine, penalty, expense,
liability, criminal liability, strict liability, judgment, governmental or
private investigation and testing; notification by Governmental Authority of
status of being potentially responsible for clean-up of any facility or for
being in violation of any Environmental Law; proceeding; consent or
administrative orders, agreements or decrees; lien; personal injury or death of
any person; or property damage, whether threatened, sought, brought or imposed,
that is related to or that seeks to recover losses, damages, costs, expenses
and/or liabilities related to, or seeks to impose liability for: (i) improper
use or treatment of wetlands, pinelands or other protected land or wildlife;
(ii) noise; (iii) radioactive materials (including naturally occurring
radioactive materials); (iv) explosives; (v) pollution, contamination,
preservation, protection, decontamination, remediation or clean-up of the air,
surface water, groundwater, soil or protected lands; (vi) solid, gaseous or
liquid waste generation, handling, discharge, release, threatened release,
treatment, storage, disposal or transportation; (vii) exposure of persons or
property to Materials of Environmental Concern and the effects thereof; (viii)
the release or threatened release (into the indoor or outdoor environment),
generation, extraction, mining, beneficiating, manufacture, processing,
distribution in commerce, use, transfer, transportation, treatment, storage,
disposal or Remediation of Materials of Environmental Concern; (ix) injury to,
death of or threat to the health or safety of any person or persons caused
directly or indirectly by Materials of Environmental Concern; and (x)
destruction of property caused directly or indirectly by Materials of
Environmental Concern or the release or threatened release of any Materials of
Environmental Concern or any property (whether real or personal) arising at any
Business Facility.
EXHIBIT A - Page 1
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"Environmental Law(s)" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, guidance document, order, consent agreement,
order or consent judgment, decree, injunction, requirement or agreement with any
governmental entity or any judicial or administrative decision relating to (x)
the protection, preservation or restoration of the environment (including,
without limitation, air, water, vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety, (y) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, application, production, release or disposal of Materials of
Environmental Concern, in each case as amended from time to time, or (z) health,
worker protection or community's right to know. The term "Environmental Law"
includes, without limitation, (i) the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal Act, the Federal Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, each as amended from time to time, and (ii) any common law or equitable
doctrine (including, without limitation, injunctive relief and tort doctrines
such as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of, effects of or exposure to any Materials of
Environmental Concern.
"Environmental Permit(s)" means all permits, licenses, certificates,
registrations, identification numbers, applications, consents, approvals,
variances, notices of intent, and exemptions necessary for the ownership, use
and/or operation of any current Business Facility or to conduct the Company's
business as currently conducted in compliance with Requirements of Environmental
Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means generally accepted accounting principals applied on a
consistent basis.
"Governmental Authority" or "Governmental Authorities" means any nation
or government, any state or political subdivision thereof and any agency or
entity exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to government.
"Lien(s)" means any mortgage, pledge, hypothecation, security interest,
encumbrance, right of first refusal, option, lien, charge, condition,
restriction or burden of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code of any jurisdiction).
EXHIBIT A - Page 2
<PAGE>
"Material Adverse Effect" means any event, occurrence, fact, condition,
change, development or effect that is or could reasonably be anticipated to be
materially adverse to the business, assets (including intangible assets),
liabilities, financial condition, results of operations, properties (including
intangible properties) or business prospects of the Company taken as a whole.
"Materials of Environmental Concern" means: (i) those substances
included within the statutory and/or regulatory definitions or listings of
"hazardous substance," "medical waste," "special waste," "hazardous waste,"
"extremely hazardous substance," "regulated substance," "solid waste,"
"hazardous materials," or "toxic substances," under any Environmental Law; (ii)
any material, waste or substance which is or contains: (A) petroleum, oil or a
fraction thereof, (B) explosives, or (C) radioactive materials (including
naturally occurring radioactive materials); and (iii) such other substances,
materials, or wastes that are classified or regulated as hazardous or toxic
under any applicable federal, state or local law or regulation. To the extent
that the laws or regulations of any applicable state or local jurisdiction
establish a meaning for any term defined herein through reference to federal
Environmental Laws which is broader than the meaning under such federal
Environmental Laws, such broader meaning shall apply.
"Person" means any individual, partnership, joint venture, corporation,
limited liability company, association, trust, unincorporated organization,
government or agency or subdivision thereof or any other entity.
"Remediation" means any action necessary to: (i) comply with and ensure
compliance with the Requirements of Environmental Laws and (ii) the taking of
all reasonably necessary precautions to protect against and/or respond to,
remove or remediate or monitor the release or threatened release of Materials of
Environmental Concern at, on, in, about, under, within or near the air, soil,
surface water, groundwater or soil vapor at any Business Facility of the Company
or any of its Subsidiaries or of any property affected by the business,
operations, acts, omissions, or Materials of Environmental Concern of the
Company or any of its Subsidiaries.
"Requirement(s) of Environmental Law(s)" means all requirements,
conditions, restrictions or stipulations of Environmental Laws imposed upon or
related to the Company or any of its Subsidiaries or the assets, Business
Facilities and/or the business of the Company or any of its Subsidiaries.
"Schedules" means the disclosure schedules attached to this Agreement.
"Subsidiary" or "Subsidiaries" shall mean, when used with reference to
an entity, any other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions, or a majority of the outstanding
voting securities of which, are owned directly or indirectly by such entity.
"Supplies" means all inventory and supplies used or consumed in the
Business and other similar items which exist on the Closing Date.
EXHIBIT A - Page 3
<PAGE>
"Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
or personal property, sales, withholding, social security, occupation, use,
severance, environmental, license, net worth, payroll, employment, franchise,
transfer and recording taxes, fees and charges, imposed by the IRS or any other
taxing authority (whether domestic or foreign including, without limitation, any
state, county, local or foreign government or any subdivision or taxing agency
thereof (including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments.
"Tax Return(s)" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns and documents (i) with respect to or
accompanying payments of estimated Taxes or (ii) with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information, including any schedule or attachment
thereto and any amendment thereof.
EXHIBIT A - Page 4
<PAGE>
EXHIBIT B
Estimated Adjustment Amount Work Sheet
Estimated as of
Close
Current Assets (1) -----
---------------
A. Cash
B. Accounts Receivable, net of allowance for Doubtful
Account of ($________)
C. Prepaid Expenses
D. Deferred Income Taxes
E. Total Current Assets
Current Liabilities
F. Short Term Debt (2) --
G. Current Portion of Long Term Debt (2) --
H. Accounts Payable
I. Accrued Expenses
J. Total Current Liabilities
K. Net Working Capital (E. - J.)
L. Net Working Capital Requirement $1,450,000
- -------------------
(1) Excludes from Current Assets (i) IEM Sealand A/R of $334,837, (ii) P.
Edwards deposit of $200,000 and (iii) FINOVA financing costs of $226,999.
(2) Excludes all short term and long term debt paid at closing or excluded
pursuant to Section 3.2(c) of the Stock Purchase Agreement.
Estimated Adjustment Amount equals the sum of (i) the Company's Indebtedness as
of the Closing Date and (ii) the amount, if any, by which the Company's Net
Working Capital as of the Closing Date is less than one million, four hundred
fifty thousand dollars ($1,450,000).
Company's Indebtedness(2) $ 0
Net Working Capital Adjustment (L. - K.)
Estimated Adjustment Amount
EXHIBIT B-PAGE 1
<PAGE>
SCHEDULE 3.2(a)
Purchase Price
To be provided at least 10 days prior to the Closing Date.
<PAGE>
SCHEDULE 3.4(b)(iv)
Personal Guarantees/Surety Obligations
o General Agreement of Indemnity - dated June 5, 1998 by and between SAFECO,
Compost, R.J. Longo Construction Company, d/b/a EPIC and Robert J. Longo.
o General Indemnity Agreement dated January 22, 1999 by and between Universal
Bonding Insurance Company, Compost and the Company.
o The following table lists the bonds outstanding under the above indemnity
agreements:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL TYPE OF OWNER/JOB AMOUNT SURETY EXP. TAIL EXP. BOND #
BOND DATE DATE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R.J. Longo Perf & NYC Dep 947ADM1 11,857,755 Safeco 6/30/99 6/30/01 6906806
d/b/a EPIC Payment Biosolids
- ----------------------------------------------------------------------------------------------------------------------------
R.J. Longo Perf & NYC Dep 947ADM9 5,586,274 Universal/ 6/30/00 6/30/02 LM0241076
d/b/a EPIC Payment Biosolids Lumbermens
- ----------------------------------------------------------------------------------------------------------------------------
Company Perf & NYC C#1001-ADM 5,825,000 Universal/ 3/5/00 -- LM0238685
Payment Lumbermens
- ----------------------------------------------------------------------------------------------------------------------------
Company Financial New York State 2,000 Universal 10/31/00 -- USO220342
Guarantee Thruway
(E-Z Pass)
- ----------------------------------------------------------------------------------------------------------------------------
R.J. Longo Financial N.J. Turnpike 25,500 Universal 6/18/00 -- USO220339
d/b/a EPIC Guarantee
(Toll Bond)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 4.3
No Conflict
o Purchase Agreement between the Purchaser and GTCR Fund VII, L.P. dated as of
January 27, 2000
o Senior Subordinated Loan Agreement between the Purchaser and GTCR Capital
Partners, L.P. dated as of January 27, 2000
o Amended and Restated Senior Credit Agreement by and among Purchaser, Bank of
America, N.A. and certain other lenders dated as of January 27, 2000
The items listed above expire on the date specified in Section 9.1(b)(vi) of the
Stock Purchase Agreement.
<PAGE>
Schedule 5.1
Qualification
The Company is not currently in good standing in Texas; however, the Company
will be in good standing in Texas at Closing.
<PAGE>
SCHEDULE 5.2
Capitalization
Liens:
Pledge Agreement dated June 17, 1998 by and between Compost as Pledgor
and Finova Capital Corporation, as Lender.
Pledge Agreement dated May 4, 1999 by and between Compost as Pledgor,
and Robert J. Longo and Wasteco Ventures Limited as Subordinate
Pledgees, as amended.
Pledge Agreement dated September 27, 1999 between Compost as Pledgor,
and Aryeh Trading Corp., as Subordinate Pledgee.
Pledge Agreement dated December 9, 1999 between Compost as Pledgor, and
Aryeh Trading Corp. and Wasteco Ventures Limited, as Subordinate
Pledgee.
Options:
The Company's option ("Sec 9. Exchange for Longo Common Stock") in
Certificate of Designations of Rights and Preferences of Series A
Exchangeable Redeemable Preferred Stock of Compost
The Company's option ("Sec 9. Exchange for Longo Common Stock") in
Certificate of Designations of Rights and Preferences of Series C
Redeemable Convertible Preferred Stock of Compost
Other Restrictions:
Compost - Shareholders Agreement dated November 3, 1997, as amended.
Agreement amending the Company's by-laws dated December 15, 1998.
<PAGE>
SCHEDULE 5.3
Authority, Non-Contravention and Approvals
Credit, Capitalization and Financing Agreement, dated October 30, 1998, among
Compost, Miami Recycling and Composting Company, Inc., Bedminster Seacor
Services Miami Corporation, Lionhart Global Appreciation Fund, Ltd., Lionhart
Investments, Ltd. and Global Earthfund Partners, L.L.C. Compost will deliver to
the Purchaser any consents or approvals required under the Credit,
Capitalization and Financing Agreement as a result of the transactions
contemplated by the Stock Purchase Agreement.
Compliance with procedures of Section 14A:10-11 and Chapter 5 of the New Jersey
Business Corporation Act for shareholder consent/approval prior to Closing.
See "Liens" and "Options" sections listed on Schedule 5.2.
Compliance with New Jersey statutes governing changes in control in entities
holding A-901 licenses.
<PAGE>
SCHEDULE 5.5
Financial Statements
[Not Included]
<PAGE>
SCHEDULE 5.6
Absence of Undisclosed Liabilities
Demurrage receivable from IEM Sealand of $348,500 and from Sevenson
Environmental of $46,375.00, which were excluded assets in the September 17,
1997 Stock Purchase Agreement per Amended Scheduled 3.10(c). Neither the assets
nor the liabilities are recorded on the Company's Financial Statements. This
disclosure is limited to providing notice to the Purchaser that the receivables
disclosed above shall be forwarded to Robert J. Longo if they are received by
the Company or Purchaser after Closing.
See Schedule 5.8.
Estimated withdrawal liabilities not in excess of $20,000 for multiemployer
plans listed on Schedule 5.13.
Earn Out Agreement by and between Robert J. Longo and the Company for sludge
transported for Wheelabrator from PVSC & BCUA and associated Security Agreement,
as amended.
Letter Agreement dated June 1, 1998 by and among Robert G. Longo, the Company
and Compost for Mr. Longo's personal indemnity on a SAFECO surety bond.
Robert J. Longo Personal Guaranty of the Company's working capital line of
credit with Merrill Lynch Business Financial Services, Inc.
General Agreement and Indemnity dated June 5, 1998 by and among SAFECO, Compost,
R.J. Longo Construction Company, d/b/a the Company and Robert J. Longo.
General Indemnity Agreement dated January 22, 1998 by and among Universal
Bonding Insurance Company, Compost, and the Company.
Promissory Note to Aryeh Trading Corp. dated September 27, 1999.
Promissory Note to Aryeh Trading Corp. dated January 20, 2000.
Promissory Note to Wasteco Ventures Limited dated December 9, 1999.
See Schedule 5.2, all items under "Liens" except for the Pledge Agreement dated
May 4, 1999.
<PAGE>
SCHEDULE 5.7
Absence of Certain Change of Events
5.7(i) Dividends to Compost
From the Company's Operating Cash Flows:
August 6, 1999 $ 300,000.00
August 8, 1999 100,000.00
August 31, 1999 150,000.00
November 18, 1999 150,000.00
November 30, 1999 75,000.00
December 2, 1999 75,000.00
December 6, 1999 30,000.00
December 23, 1999 100,000.00
January 14, 2000 100,000.00
January 24, 2000 100,000.00
February 10, 2000 150,000.00
February 25, 2000 150,000.00
March 17, 2000 150,000.00
-------------
$1,630,000.00
=============
From Aryeh Trading Corp. Notes:
September 27, 1999 $ 500,000.00
October 26, 1999 500,000.00
January 20, 2000 100,000.00
January 31, 2000 150,000.00
February 25, 2000 250,000.00
-------------
$1,500,000.00
=============
From WasteCo Notes:
December 9, 1999 $ 250,000.00
December 29, 1999 130,000.00
January 10, 2000 200,000.00
February 4, 2000 150,000.00
-------------
$ 730,000.00
=============
5.7(vi) Cancellation of Sub-Contract by and between the Company and Wheelabrator
as it relates to services for Bergen County Utilities Authority ("BCUA").
<PAGE>
SCHEDULE 5.8
Litigation
1. Waste Professionals, Inc. v. R. J. Longo Constr. Co., Inc., U.S. District
Court for the Northern District of Illinois, Eastern Division, Court No. 98
C 0-104
2. Environmental Protection & Improvement Co., Inc. v. IEM Sealand Corporation,
et al., U.S. District Court for the District of New Jersey, Court No.
99-1413
3. R.W. Jones & Associates, Inc. and R.W. Jones, III, Plaintiffs vs. Compost
America Holding Company, Inc., R.J. Longo Construction Company, Inc., R.J.
Longo Construction Co., Inc. d\b\a EPIC, Environmental Protection and
Improvement Company, and Roger E. Tuttle. This case will be settled by
Closing.
4. Litigation threatened against Compost and its subsidiaries by Pasquale
DiLeo, a director of both Compost and the Company.
<PAGE>
SCHEDULE 5.9
Accounts Receivable
IEM Sealand, balance of $334,836.66
Sevenson, Inc., balance of $86,875.80
<PAGE>
SCHEDULE 5.10
No Violation of Law; Compliance with Agreements
Compost has defaulted in its obligation to provide Finova with audited financial
statements.
See Schedule 5.15.
<PAGE>
SCHEDULE 5.11
Insurance
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
LIMITS POLICY DEDUCTIBLE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$1,000,000 Automobile
#CA7665187 (7/1/99-00) *
- ------------------------------------------------------------------------------------------------------------------
$1,000,000 Occ. General Liability
$2,000,000 Agg. #GL4177447 (7/1/99-00) nil
- ------------------------------------------------------------------------------------------------------------------
$810,000 Property
Values #5050471086 (7/1/99-00)
- ------------------------------------------------------------------------------------------------------------------
$1,000,000 Worker's Compensation
#WC4778742 (4/1/99-00) n/a
- ------------------------------------------------------------------------------------------------------------------
$5,000 Motor Truck Cargo
#3AE586446-03 (3/1/00-01) $1,000
- ------------------------------------------------------------------------------------------------------------------
$1,000,000 Boiler and Machinery
#FBPNY858940911 (11/6/99-00) $500
- ------------------------------------------------------------------------------------------------------------------
$5,000,000 Occ. Pollution Legal Liability (on site)
$10,000,000 Agg. #PLS5292583 (12/13/99-02) $50,000
- ------------------------------------------------------------------------------------------------------------------
$5,000,000 Occ. Pollution Liability (off site) $50,000
$10,000,000 Agg. (12/13/99-00)
- ------------------------------------------------------------------------------------------------------------------
$35,000,000 Commercial Umbrella
BE 7016617 (7/1/99-00) $10,000
- ------------------------------------------------------------------------------------------------------------------
Contractor's Equipment
(See Attached Schedule) Texas Property (See Attached Schedules) (See Attached Schedule)
- ------------------------------------------------------------------------------------------------------------------
$10,000,000 Compost Directors and Officer Liability $150,000
Policy - American International Companies
(see Exhibit L to the Stock Purchase
Agreement for D & O Tail term sheet)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: $1,000 deductible all vehicles except tractors (Code 50499), which
is $3,000
o Reference is made to Disclosures made on Schedule 3.4 (b)(iv) as to listing
of outstanding bonds.
<PAGE>
SCHEDULE 5.12
Taxes
o Federal Consolidated Income Tax Return of Compost for Fiscal Year ended
April 30, 1999 has not been filed (the Company is a part of the Compost
Consolidation). This return will be filed no later than the Closing Date.
<PAGE>
SCHEDULE 5.13
Employee Benefit Plans
Plans and Benefits Programs
The Company's Plans
The Company 401(k) Plan dated November 10, 1997. This Plan will be terminated
prior to Closing.
Employee Health & Life Insurance Plan Document with Great West Life & Annuity
Insurance Co. This plan covers the Company's employees.
Standard Trust Agreement dated November 1, 1997 by and between the Company and
Kevin K. Walsh, as Trustee.
Multiemployer Plans
- -------------------
Local 945
Local 542
Local 825
Payments to the Company's employees as a result of Stock Purchase Agreement:
Buyout of the following Existing Employment Contracts:
1. Employment Agreement, dated September 17, 1997, by and between the
Company and Robert J. Longo. The Employment Agreement will be terminated
prior to the Closing of this Agreement. Compost shall be responsible for
all amounts payable relating to the buyout and termination of the
Employment Agreement.
2. Employment Agreement, dated July 31, 1997, by and between the Company
and Jay Waxenbaum. The Employment Agreement will be terminated prior to
the Closing of this Agreement. Compost shall be responsible for all
amounts payable relating to the buyout and termination of the Employment
Agreement.
3. Employment Agreement, dated September 17, 1997, by and between the
Company and Kevin K. Walsh. The Employment Agreement will be terminated
prior to the Closing of this Agreement. Compost shall be responsible for
all amounts payable relating to the buyout and termination of the
Employment Agreement.
<PAGE>
SCHEDULE 5.14
Employee and Labor Matters
Employee List as of July 31, 1999--See attached.
Employment Agreements:
Employment Agreement, dated September 17, 1997, by and between the Company and
Robert J. Longo. The Employment Agreement will be terminated prior to the
Closing of this Agreement. Compost shall be responsible for all amounts payable
relating to the buyout and termination of the Employment Agreement.
Employment Agreement, dated July 31, 1997, by and between the Company and Jay
Waxenbaum. The Employment Agreement will be terminated prior to the Closing of
this Agreement. Compost shall be responsible for all amounts payable relating to
the buyout and termination of the Employment Agreement.
Employment Agreement, dated September 17, 1997, by and between the Company and
Kevin K. Walsh. The Employment Agreement will be terminated prior to the Closing
of this Agreement. Compost shall be responsible for all amounts payable relating
to the buyout and termination of the Employment Agreement.
Collective Bargaining Agreements:
Local 945, IB of T, AFL-CIO (N.J.)
Agreement Period 4/1/97--3/31/02
Status--Active--Currently in negotiations
Local 825, International Union of Operating Engineers AFL-CIO (N.J.)
Agreement Period 4/1/97--3/31/01
Status--Active
Local 542-C, International Union of Operating Engineers, AF of L-CIO (PA)
Agreement Period 3/1/95--4/7/99 Status--No signed agreement--1 active employee
Locals 472 and 172--Heavy and general laborers Agreement Period 3/1/92--2/28/95
Status--No signed agreement--1 active employee
The Company makes no representation or warranty with respect to whether, under
applicable law as presently existing or as it may hereafter be interpreted, all
of its employees (excluding Robert J. Longo, Jay Waxenbaum and Kevin K. Walsh)
will, as a matter of law, be deemed to be "at will" employees.
<PAGE>
SCHEDULE 5.15
Environmental Matters
1. Notice of Penalty Assessment dated October 19, 1999 to the Company from
Somerset County Division of Health, Case Numbers: HD99-08-06-1500,
HD99-08-06-1501 and HD99-08-06-1502.
2. Notice of violation dated November 15, 1999 to the Company from the Union
County, New Jersey.
3. Notice of violation dated February 9, 2000 to the Company from the New
Jersey Department of Environmental Protection.
<PAGE>
SCHEDULE 5.16
Non-Competition Agreements
Agreement dated March 12, 1999 by and between Wheelabrator Clean Water New
Jersey and the Company, as to cooperatively work on the BCUA Project.
<PAGE>
SCHEDULE 5.17
Title to Assets
5.17(v)
Estimated Balance
Debt Obligations Secured by Liens on Assets: at March 1, 2000
- ------------------------------------------- ----------------
Finova Capital Corporation dated June 17, 1998
Original Principal Amount of $10,000,000.00 $7,149,879.91
Carter Machinery Company, Inc. dated March 29, 1999
Original Principal Amount of $184,842.00 151,178.92
Temple Elevators, LLP dated August 4, 1998
Original Principal Amount of $150,000.00 74,994.00
Citicorp Dealer Finance dated April 2, 1999
Original Principal Amount of $42,550.00 36,707.79
Ford Motor Credit Corp. dated February 9, 1998
Original Principal Amount of $22,347.88 11,036.05
-------------
$7,423,796.67
=============
o Security Agreement by and between the Company and Robert J. Longo, related
to Mr. Longo's Earn Out Agreement for sludge transported for Wheelabrator
from PVSC and BCUA, as amended.
o Proposed Security Interest in the Company's non-bonded Accounts Receivable
to secure amounts outstanding under the Company's Line-of-Credit.
<PAGE>
SCHEDULE 5.18(a)
Agreements in Excess of $40,000 Annually
Subcontract with Adcom Express
Subcontract with Jack Amado Trucking
Disposal Agreement with Atlantic Operations
Disposal Agreement with BFI-Imperial Landfill
Subcontract with B&M Trucking
Bonding with C&H Agency, Inc.
Rail Transportation Contract with CSX Transportation, Inc.
Lease Agreement with DJJ Leasing, Ltd.
Operative Agreement with Federal Marine Terminals, Inc.
Subcontract with MZM Construction Co, Inc.
Rail Transportation Contract with Norfolk Southern
Disposal Agreement with Nutri-Blend, Inc.
Disposal Contract with Parker AG Services
Rental Agreement with Penske Truck Leasing Co.
Disposal Contract with CDR Mid-Atlantic
Subcontract with Top Gun Transport
Lease Agreement with TracLease Co.
Disposal Agreement with USA Waste of Virginia
Disposal Agreement with Waste Management of PA, Inc.
Railcar lease proposal with the David J. Joseph Company
Reference is made to the disclosures made on Schedules 5.5, 5.11, 5.13, 5.14,
5.14(b), 5.17, 5.18(b), 5.18(c), 5.18(d), 5.18(g) and 5.22.
<PAGE>
SCHEDULE 5.18(b)
Liabilities for Borrowed Money
Finova Capital Corporation dated June 17, 1998
Carter Machinery Company, Inc. dated March 29, 1999
Temple Elevators, LLP dated August 4, 1998
Citicorp Dealer Finance dated April 2, 1999
Ford Motor Credit Corp. dated February 9, 1998
Working Capital Line of Credit with Merrill Lynch Business Financial Services,
Inc.
Promissory Note to Aryeh Trading Corp. dated September 27, 1999.
Promissory Note to Aryeh Trading Corp. dated January 20, 2000
Promissory Note to Wasteco Ventures Limited dated December 9, 1999.
<PAGE>
SCHEDULE 5.18(c)
Real Property Lease
Month by Month rental on office in Denville, New Jersey
Lease Agreement, as amended, dated March 1, 1999, by and among Consolidated Rail
Corporation and R.J. Longo Construction Co., Inc. and Virotech Systems, Inc. on
Brills Yard, Newark, New Jersey
Track Lease, dated May 28, 1998, by and between CSX Transportation, Inc. and
R.J. Longo Construction Co., Inc. d/b/a the Company relating to real property on
Gladstone Yard, Gladstone, Virginia
<PAGE>
SCHEDULE 5.18(d)
Restrictions
Agreement dated March 12, 1999 by and between Wheelabrator Clean Water New
Jersey and the Company, as to cooperatively working on BCUA Project.
<PAGE>
SCHEDULE 5.18(e)
Guarantee of Company Obligations
Robert J. Longo's Guarantee of Merrill Lynch Business Financial Services, Inc.
Working Capital Line of Credit
Compost Guarantee of Universal Bonding Co.'s bonds
Compost Guarantee of the Finova obligation
Compost Guarantee of Safeco bond
Robert J. Longo Guarantor of Safeco bond per agreement dated June 1, 1998
Compost Guarantee of Aryeh Trading Corp. Notes
Compost Guarantee of Wasteco Ventures Limited Notes
<PAGE>
SCHEDULE 5.18(f)
Partnership Joint Venture
See Schedule 5.18(d)
<PAGE>
SCHEDULE 5.18(g)
Company as Obligor
The Company guarantees to CSX, NS Conrail the obligations of MZM Construction,
Inc.
Reimbursement, Indemnification and Hold Harmless Agreement between Robert J.
Longo (Indemnified Party) and the Company and Compost (The Indemnitors).
<PAGE>
SCHEDULE 5.20
Brokers and Finders
Letter of Agreement between Churchill Capital, Inc. and Wafra Acquisition Fund
7, L.P. Compost will pay all such fees under this Agreement.
<PAGE>
SCHEDULE 5.21
Intellectual Property
Patents:
Municipal Solid Waste Landfill System
Robert L. Longo, Sr., Applicant
Application #08/661,336
Application assigned to Robert J. Longo Construction Co., Inc. d/b/a the Company
Agreement dated March 26, 1993 between the Company and R. J. Longo
Construction Co., Inc. (attached).
Registration of fictitious name filed with the New Jersey Secretary of
State on December 6, 1990 (attached).
Filing with Essex County Clerk on January 11, 1991 (attached).
Certificate of Trade Name of the Company dated December 18, 1990.
Miscellaneous license agreements relating to accounting software, word
processing software, and software for the tracking of rail cars.
<PAGE>
SCHEDULE 5.22
Relationships
Andrea Longo is employed by EMAR Group, Inc., which provides insurance services
to the Company.
Earn Out Agreement by and between Robert J. Longo and the Company for sludge
transported for Wheelabrator from PVSC & BCUA and Restated Security Agreement,
as amended.
Letter Agreement dated June 1, 1998 by and among Robert J. Longo, the Company
and Compost for Mr. Longo's personal indemnity on a Safeco surety bond
Robert J. Longo Personal Guaranty of the Company's working capital line of
credit with Merrill Lynch Business Financial Services, Inc.
December 30, 1997 Secured Promissory Note for $656,861 by and between Robert J.
Longo, as Lender, and the Company and Compost as Borrower
Secured loans from Wasteco Ventures Limited to Compost in the outstanding amount
of approximately $2,030,000 plus accrued interest.
Secured and unsecured loans from Aryeh Trading Corp to the Company and/or
Compost in the outstanding amount of approximately $2,650,000 plus accrued
interest.
Secured loan from Robert J. Longo to CAHC in the amount of $360,000 plus accrued
interest.
Intercompany receivable due the Company from Compost in the amount of $1,727,923
fully reserved for on the Company's April 30, 1999 Balance Sheet and to be
forgiven at Closing.
<PAGE>
EXHIBIT 3
EARNOUT AGREEMENT
THIS EARNOUT AGREEMENT (this "Agreement"), is made and entered into
this ____ day of _________, 2000 by and between SYNAGRO TECHNOLOGIES, INC., a
Delaware corporation ("Purchaser"), and COMPOST AMERICA HOLDING COMPANY, INC., a
New Jersey corporation ("Compost"). Purchaser and Compost are each referred to
as a "Party" and, collectively, they are sometimes referred to as the "Parties."
WITNESSETH:
WHEREAS, the Parties hereto have entered into that certain Stock
Purchase Agreement (the "Purchase Agreement"), dated as of March 31, 2000,
whereby Compost agreed to sell and transfer to Purchaser, and Purchaser agreed
to purchase, all the outstanding stock of Environmental Protection & Improvement
Company, Inc., a New Jersey corporation (the "Company");
WHEREAS, it is a condition to the Parties' obligations to close the
transactions contemplated in the Purchase Agreement that the Parties execute and
deliver this Agreement;
WHEREAS, this Agreement sets forth the terms and conditions upon which
Purchaser will, under certain circumstances, pay to Compost the earnout
consideration referenced in Section 3.2(a) of the Purchase Agreement as part of
the Purchase Price to be paid to Compost for the stock of the Company; and
WHEREAS, capitalized terms not defined herein shall have the meanings
given to them in the Purchase Agreement.
NOW, THEREFORE, for and in consideration of the transactions
contemplated in the Purchase Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Purchaser and Compost agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the respective meanings indicated:
(a) "Affiliates" shall have the meaning given such term in Exhibit A to
the Purchase Agreement.
(b) "Closing Date" shall have the meaning given such term in Section
2.1 of the Purchase Agreement.
(c) "Disputed Amount" means the portion of the Earn Out Amount, if any,
which is in dispute as of May 15, 2003, pursuant to Section 5 hereof.
(d) "Earn Out Advance" means an amount equal to $100,000 per quarter.
(e) "Earn Out Amount" means the amount, if any, owed by Purchaser to
Compost (or Compost to Purchaser) on the Earn Out Payment Date, computed as
provided in Section 5 of this Agreement.
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(f) "Earn Out Payment Date" means, with respect to any Undisputed
Amount, May 15, 2003, and with respect to any Disputed Amount, the date ten (10)
business days following agreement on or delivery of the final, binding and
conclusive calculation by the Neutral Auditor of the Three Year EBITDA.
(g) "Earn Out Representative" means Mr. John T. Shea, or, if Mr. John
T. Shea dies, resigns or for any reason refuses or is unable to act, a
substitute specified in a written notice of substitution delivered to Purchaser
and signed by Compost.
(h) "Earn Out Year" means a period of twelve (12) consecutive calendar
months, the first Earn Out Year beginning on April 1, 2000, and each succeeding
Earn Out Year beginning on each April 1 thereafter.
(i) "EBITDA" means the net income of the Company before interest,
federal, state and local income taxes, depreciation and amortization, determined
in accordance with GAAP, applied consistently with past practices of the
Company, provided, however, that (i) there shall be no deduction from earnings
in such calculation for (1) any direct expenses incurred in connection with the
acquisition of the Company by Purchaser; or (2) corporate overhead in excess of
the lesser of the actual corporate overhead allocation or $1,600,000; and (ii)
nonrecurring noncash expenses and revenues shall be disregarded in such
calculation. The corporate overhead allocation to the Company shall be
determined in a consistent manner with Purchaser's actual method of allocating
overhead to its other divisions and subsidiaries, or if Purchaser does not
allocate overhead, in a manner consistent with Purchaser's pro forma method of
allocating overhead. For purposes of calculating EBITDA, all payments made to
Longo (as defined in the Purchase Agreement) and Waxenbaum (as defined in the
Purchase Agreement) under their respective Employment Agreements with the
Company executed on the Closing Date, including but not limited to any signing
bonuses, shall be deducted as expenses, except for (i) expenses relating to
employee stock options, and (ii) any payments resulting from any amendments to
such Employment Agreements entered into after the date hereof without the
consent of Compost only to the extent such payments exceed the payments that
would have been made without regard to such amendments.
(j) "Indemnified Amounts" has the meaning given such term in Section
10.1 of the Purchase Agreement.
(k) "Neutral Auditor" means an independent accounting firm of national
reputation mutually acceptable to Purchaser and Compost.
(l) "Past Due Rate" means a rate per annum equal to ten percent (10%)
per annum.
(m) "Purchase Price" shall have the meaning given such term in Section
3.2(a) of the Purchase Agreement.
(n) "Three Year Average EBITDA" means the EBITDA of the Company for the
thirty-six (36) month period beginning on April 1, 2000 (the "Three Year
Period") divided by three (3); provided, however, that notwithstanding any other
provision set forth in this Agreement, in no event shall the Three Year Average
EBITDA exceed $7,500,000.
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(o) "Undisputed Amount" means the portion of the Earn Out Amount, if
any, which is not in dispute as of May 15, 2003, pursuant to Section 5 hereof.
2. Payment of Earn Out Amount. Purchaser shall pay the Earn Out Amount
to Compost (or Compost shall pay the Earn Out Amount to Purchaser, as the case
may be) on the Earn Out Payment Date. The Earn Out Amount shall be as computed
as provided in Section 5 below. If any portion of the Earn Out Amount is not
paid to Compost on May 15, 2003 because such portion is a Disputed Amount, then
such portion of the Disputed Amount, if any, that is later determined to be due
and payable shall bear interest from May 15, 2003 until paid at the rate of
eight percent (8%) per annum.
3. Payment of Earn Out Advances. Purchaser shall pay an Earn Out
Advance to Compost (i) on June 30, 2000 and (ii) on each September 30, December
31, March 31 and June 30 thereafter until March 31, 2002; provided, that the
Earn Out Advance for the first quarter shall be prorated by multiplying it by a
fraction, the numerator of which is the actual number of days after the Closing
Date through and including June 30, 2000, and the denominator of which is 91.
Except as set forth in the preceding sentence, the Earn Out Advance shall be
$100,000 per quarter.
4. Calculation of Three Year Average EBITDA. Purchaser shall determine
the Three Year Average EBITDA within thirty (30) days after the expiration of
the Three Year Period. Purchaser's methodology for determination of the Three
Year Average EBITDA and the results thereof shall be forwarded to Earn Out
Representative. Purchaser shall provide Earn Out Representative with access upon
request to the data it used to determine the Three Year Average EBITDA as well
as all relevant books and records of the Company to the extent required to
review the EBITDA computation, including, if necessary, the relevant working
papers of the Company's auditors. Earn Out Representative shall review the
calculation of the Three Year Average EBITDA within fifteen (15) business days
after delivery thereof and notify Purchaser in writing of any disagreement with
such calculation. If within such fifteen (15) business days following delivery
Earn Out Representative does not object in writing thereto, then Purchaser's
determination of the Three Year Average EBITDA shall be conclusive. If Earn Out
Representative objects in writing to Purchaser's computation, then Purchaser and
Earn Out Representative shall negotiate in good faith and attempt to resolve
their disagreement. Should such negotiation not result in an agreement within
twenty (20) business days of receipt by Purchaser of Earn Out Representative's
objection, then the matter shall be submitted to arbitration by a Neutral
Auditor. Such arbitration shall be governed by the rules provided in Sections
11.6(a) through 11.6(d) of the Purchase Agreement. All fees and expenses
relating to appointment of a Neutral Auditor and the work, if any, to be
performed by such Neutral Auditor will be borne equally by Purchaser and
Compost. If Purchaser and Compost are unable to agree on the Neutral Auditor,
then either or both of them shall request the American Arbitration Association
to appoint the Neutral Auditor. Purchaser and Compost agree to execute a
reasonable engagement letter if requested to do so by the Neutral Auditor. The
Neutral Auditor shall deliver to Purchaser and Earn Out Representative a written
determination (such determination to include a worksheet setting forth all
material calculations used in arriving at such determination and to be based
solely on information provided to Neutral Auditor by Purchaser and Earn Out
Representative, or their respective Affiliates) of the Three Year Average EBITDA
within thirty (30) days of receipt of the disputed items, which determination
shall be final, binding and conclusive on the Parties.
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5. Calculation of Earn Out Amount. Promptly following agreement on or
determination of the final, binding and conclusive calculation of the Three Year
Average EBITDA, the Earn Out Amount shall be determined as follows:
(a) Three Year Average EBITDA Equal to or Greater than $7,500,000. If
the Three Year Average EBITDA is equal to or greater than $7,500,000, then the
Earn Out Amount shall be equal to $5,412,000 (plus any Earn Out Advances not yet
paid).
(b) Three Year Average EBITDA Equal to or Less than $6,666,667. If the
Three Year Average EBITDA is equal to or less than $6,666,667, then on the Earn
Out Payment Date there shall be no Earn Out Amount payable by Purchaser to
Compost. In addition, Compost shall refund to Purchaser an amount equal to the
total Earn Out Advances paid by Purchaser (the "Total Earnout Advances") within
ten (10) business days following the Earn Out Payment Date.
(c) Three Year Average EBITDA Greater than $6,666,667, but less than
$7,500,000. If the Three Year Average EBITDA is greater than $6,666,667 but less
than $7,500,000, then the Earn Out Amount shall be equal to the sum of (i) six
times the amount by which the Three Year Average EBITDA exceeds $6,666,667, plus
(ii) (the sum of the Total Earn Out Advances (whether or not paid) plus
$400,000) times a fraction, the numerator of which shall be the amount
determined in (i) above, and the denominator of which is $5 million, minus (iii)
the total Earn Out Advances actually paid as of the date of determination;
provided, however, that in no event shall the sum of the Earn Out Amount and all
Earn Out Advances exceed $6,212,000 plus any interest payable under Section 2
above and/or Section 6 below, and provided, further that if the Earn Out Amount
is negative, then Compost shall refund an amount equal to such negative Earn Out
Amount to Purchaser within ten (10) business days following the Earn Out Payment
Date.
6. Interest. To the extent that Purchaser does not make a payment of
any portion of the Earn Out Advances or Earn Out Amount (except as provided
otherwise with respect to any Disputed Amount in Section 2) on the required
payment date, such unpaid amount shall bear interest at the Past Due Rate from
and after the required payment date to the date on which such unpaid amount (or
a portion thereof) is paid.
7. Binding Arbitration. Notwithstanding any provision of this Agreement
to the contrary, upon the request of any Party (defined for the purpose of this
provision and Section 13 to mean Purchaser, Compost or the Earnout
Representative), any dispute, controversy or claim arising out of, relating to,
or in connection with, this Agreement or any agreement executed in connection
herewith or contemplated hereby, or the breach, termination, interpretation, or
validity hereof or thereof (hereinafter referred to as a "Dispute"), shall be
finally resolved by mandatory and binding arbitration in accordance with Section
11.6 of the Purchase Agreement. Any Party may bring an action in court to compel
arbitration of any Dispute. Any Party who fails or refuses to submit any Dispute
to binding arbitration following a lawful demand by the opposing Party shall
bear all costs and expenses incurred by the opposing Party in compelling
arbitration of such Dispute.
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8. No Waiver by Compost. No delay or omission of Compost to exercise
any power, right or remedy accruing to Compost hereof shall impair any such
power, right or remedy or shall be construed to be a waiver of the right to
exercise any such power, right or remedy.
9. Paragraph Headings. Paragraph headings appearing in this Agreement
are for convenient reference only and shall not be used to interpret or limit
the meaning of any provision of this Agreement.
10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF TEXAS
APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
11. Successors and Assigns. This Agreement and all the agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and assigns of Purchaser and
Compost; provided, that Compost shall not assign or otherwise transfer to any
other Person or entity (other than Wasteco (as defined in the Purchase
Agreement) and/or Longo (as defined in the Purchase Agreement) or any entity
designated by both Wasteco and Longo, whether as outright assignee or as a
secured party) any interest in this Agreement unless Compost obtains Purchaser's
prior written consent.
12. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this Agreement shall
not be affected thereby, and this Agreement shall be liberally construed so as
to carry out the intent of the parties to it. Each waiver in this Agreement is
subject to the overriding and controlling rule that it shall be effective only
if and to the extent that (a) it is not prohibited by applicable law and (b)
applicable law neither provides for nor allows any material sanctions to be
imposed against Compost for having bargained for and obtained it.
13. Notices. Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by delivering it
against receipt for it, by depositing it with an overnight delivery service or
by depositing it in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties as follows (and if so given, shall be deemed
given when mailed):
If to Purchaser:
Synagro Technologies, Inc.
1800 Bering Drive, Suite 1000
Houston, Texas 77057
Attention: Mark A. Rome
If to Earnout Representative:
Mr. John T. Shea
c/o Wafra Partners, L.P.
345 Park Avenue, 41st Floor
New York, New York 10154
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If to Compost:
Compost America Holding Company, Inc.
One Gateway Center, 25th Floor
Newark, New Jersey 07102
Attention: Office of the President, c/o Christopher J. Daggett
With a copy to Wasteco at:
Wasteco Ventures Ltd.
c/o Wafra Partners, L.P.
345 Park Avenue, 41st Floor
New York, New York 10154
Attention: Mr. John T. Shea
Any Party may change its address for notice at any time and from time
to time, but only after ten (10) days' advance written notice to the other
Parties. A Party's address for notice shall be the most recent such address
furnished in writing by such Party to the other Parties. Actual notice, however
and from whomever given or received, shall always be effective when received.
14. Offset Rights. Purchaser shall have the right to offset amounts
owed to Purchaser under the Purchase Agreement, including, without limitation,
any and all Indemnified Amounts finally determined by litigation, arbitration or
settlement under Section 10.3 of the Purchase Agreement to be owed to Purchaser,
against any amounts due under this Agreement. Reference is hereby made to the
escrow provisions in Section 10.7 of the Purchase Agreement, the terms and
conditions of which are incorporated herein by this reference.
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IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first set forth above.
PURCHASER:
SYNAGRO TECHNOLOGIES, INC.
By:_______________________________________
Mark A. Rome
Executive Vice President
COMPOST:
COMPOST AMERICA HOLDING
COMPANY, INC.
By:_______________________________________
Christopher J. Daggett
Office of the President
By:_______________________________________
Marvin H. Roseman
Office of the President
By:_______________________________________
Richard L. Franks,
Assistant Secretary
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COVENANT NOT TO COMPETE AGREEMENT
Compost America Holding Company, Inc.
This Covenant Not to Compete Agreement dated _______________, 2000
(this "Agreement"), is by and between Synagro Technologies, Inc., a Delaware
corporation ("Purchaser"), and Compost America Holding Company, Inc., a New
Jersey corporation ("Compost").
WHEREAS, Purchaser has entered into a Stock Purchase Agreement with
Compost to purchase all the outstanding capital stock of Environmental
Protection & Improvement Company, Inc., a New Jersey corporation (the
"Company"), dated March 31, 2000 (the "Stock Purchase Agreement"); and
WHEREAS, Purchaser wishes to secure from Compost its Agreement Not to
Compete with Purchaser and its agreement to assure the confidentiality of
certain information relating to the Company in order that Purchaser can
successfully operate the business acquired pursuant to the Stock Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and the
promises contained herein and in the Stock Purchase Agreement, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Acknowledgments and Agreements by Compost. Compost hereby
acknowledges and agrees that:
(a) The Purchaser would not have entered into the Stock Purchase
Agreement if Compost had not executed and delivered this Agreement to
the Purchaser; and
(b) Compost, as the sole shareholder of the Company, has had access
to information that is confidential to the Company and thus to the
Purchaser, that constitutes a valuable, special and unique asset of the
Purchaser, and with respect to which the Purchaser is entitled to the
protections afforded by this Agreement and to the remedies for
enforcement of this Agreement provided by law or in equity (including,
without limitation, those remedies the availability of which may be
within the discretion of the court or arbitrator that presides over any
action for enforcement of this Agreement).
2. Consideration. Compost's obligations under this Agreement are in
consideration for the purchase price set forth in the Stock Purchase Agreement.
<PAGE>
3. Non-Competition Covenant.
(a) For a period of four (4) years beginning on the date hereof (the
"Covenant Period"), Compost agrees that it will not, directly or
indirectly, acting alone or as a member of a partnership, as a holder
or owner of any security, as an employee, agent, advisor, consultant,
representative, or in any other capacity:
(i) within southeastern New York (New York City and the counties
of Nassau, Suffolk, Westchester, Rockland, Orange and Putnam),
northern New Jersey (the counties of Monmouth, Mercer, Middlesex,
Hunterdon, Somerset, Union, Warren, Morris, Essex, Hudson, Sussex,
Passaic and Bergen) and southwestern Connecticut (the counties of
Litchfield, Fairfield and New Haven) (collectively, the "Restricted
Area") carry on or be engaged or otherwise take part in the
Transportation Business (as defined below). Notwithstanding this
provision, Purchaser and the Company acknowledge that Compost is or
may become an owner of up to 100% of an intermodal barge-to-rail
development company, American Marine Rail ("AMR"), that currently is
competing for barge-to-rail municipal solid waste transportation and
disposal contracts in the Restricted Area, and agree that such
competition shall not be deemed to violate this Agreement;
(ii) solicit, contact or enter into any agreement or contract
with any current employee or current customer (with respect to the
Company's Biosolids Business within the Restricted Area) of the
Company which results in activities that are competitive with the
Company's Biosolids Business (as defined below); or
(iii) request that any current employee or current customer of
the Company curtail or cancel its business or refrain from doing
business with Purchaser or the Company or any Affiliate of the
Purchaser or the Company in the Biosolids Business or the
Transportation Business in the Restricted Area.
(b) For a period of two (2) years beginning on the date hereof,
Compost agrees that it will not, directly or indirectly, acting alone
or as a member of a partnership, as a holder or owner of any security,
as an employee, agent, advisor, consultant, representative or in any
other capacity hire, or solicit the employment, or cause or attempt to
cause to leave the employment of the Company, any person who is
currently employed by the Company.
(c) The provisions of 3(a) above notwithstanding, Compost may engage
in the Biosolids Business in the Restricted Area if (i) such engagement
is incidental to the establishment or operation of an in-vessel or
outdoor composting facility wherein municipal sludge, municipal solid
waste and/or agricultural or other biosolids are treated and converted
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into a usable compost product and (ii) the volume of municipal sludge
used in such Biosolids Business does not exceed an average of 500 wet
tons for each day that Compost accepts municipal sludge.
(d) Without limiting the generality of the provisions of this
Section 3, Compost shall be deemed to be engaged in the Biosolids
Business or the Transportation Business if it (whether alone or in
association with one or more other persons) is an owner, proprietor,
partner, stockholder, independent contractor, or joint venturer of, or
a consultant or lender to, or an investor in any manner in, any person
who or which is directly or indirectly engaged in such business.
Notwithstanding the foregoing provisions of this Section 3, Compost may
own, solely as an investment, securities of entities in the Biosolids
Business or the Transportation Business if Compost (i) is not an
Affiliate of the issuer of such securities and (ii) does not, directly
or indirectly, beneficially own more than 5% of the class of which such
securities are a part.
(e) Compost acknowledges and agrees that the limitations imposed by
this non-competition covenant as to time, geographical area, and scope
of activity being restrained are reasonable and do not impose a greater
restraint than is necessary to protect the goodwill or other business
interest of the Purchaser.
(f) "Affiliate" means, with respect to a specified person, any
person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with the person
specified. For purposes of this definition, "control" (including
"controlling", "controlled by" and "under common control with") means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through
the ownership of voting securities, by contract or otherwise. None of
Wasteco and its affiliates shall be deemed an affiliate of Longo or his
affiliates. None of Longo and his affiliates shall be deemed an
affiliate of Wasteco or its affiliates. The term "Affiliate" as used
with respect to Wasteco shall include only the Private Investment
Division (and no other part) of Wafra Investment Advisory Group, Inc.
and persons or entities controlled by that Division. The term Wasteco
shall include Wafra Acquisition Fund 7, L.P. and persons or entities
controlled by that entity.
(g) "Biosolids Business" means the management of biosolids, limited
to the collection, rail transportation, land application and/or
landfilling of municipal sludge, agricultural and other biosolids.
(h) "Transportation Business" means transporting biosolids,
incinerator ash and/or soils by intermodel rail hauling for landfilling
or for land application or beneficial reuse.
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4. Confidential Information. During the Covenant Period and thereafter,
Compost shall hold in strict confidence, and shall not disclose to any person
(other than officers, directors, employees, agents and consultants of the
Purchaser) any confidential information of the Purchaser, its Affiliates or the
Company. For purposes of this Section 4, the term "confidential information"
shall include, without limitation, trade secrets, client and customer lists,
client or consultant contracts and the details thereof, pricing policies,
operational methods, marketing plans or strategies, business acquisition and
expansion plans, personnel acquisition plans and all other information
pertaining to the business of the Purchaser, its Affiliates or the Company,
whether previously existing or pursuant to operation of the businesses purchased
pursuant to the Stock Purchase Agreement, that is not publicly available.
Compost shall not use such confidential information except for the sole benefit
of the Purchaser and to consummate the transactions contemplated by the Stock
Purchase Agreement.
5. Remedies. Purchaser and Compost hereby agree that if Compost
violates or threatens to violate any of the provisions of this Agreement, it
would be difficult to determine the entire cost, damage or injury which the
Purchaser would sustain. Notwithstanding the above, Compost acknowledges that if
it violates or threatens to violate any of the provisions of this Agreement, the
Purchaser may have no adequate remedy at law. In that event, the Purchaser shall
have the right, in addition to any other rights that may be available to it, to
obtain in any court of competent jurisdiction injunctive relief to restrain any
violation or threatened violation by Compost of any provision of this Agreement
or to compel specific performance by Compost of one or more of its obligations
under this Agreement (any requirement for the posting of a bond for such
injunction is hereby expressly waived). The seeking or obtaining by the
Purchaser of such injunctive relief shall not foreclose or in any way limit the
right of the Purchaser to obtain a money judgment against Compost for any damage
to the Purchaser that may result from any breach by Compost of any provision of
this Agreement.
6. Reformation of Covenants. Compost acknowledges that the covenants
contained in Sections 3 and 4 are reasonable in geographical and temporal scope
and in all other respects. If any court determines that any of such covenants,
or any part thereof, are unenforceable, then (a) the remainder of such covenants
shall not be affected by such determination and (b) those of such covenants that
are determined to be unenforceable because of the duration or scope thereof
shall be reformed by the court to reduce their duration or scope so as to render
the same enforceable against Compost.
7. Miscellaneous.
(a) Severability. The unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
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(b) Waivers. No delay or omission by the Purchaser in exercising any
right of the Purchaser under this Agreement shall operate as a waiver
of that or any other right. A waiver by the Purchaser on any one
occasion of any particular right shall be effective only in that
particular instance and shall not be construed as a waiver of that or
any other right on any other occasion.
(c) Amendment of this Agreement. This Agreement may be amended only
by an amendment hereto in writing that is executed by the Purchaser and
Compost.
(d) Headings for Convenience Only. The headings contained in this
Agreement are intended solely for the convenience of the parties to
this Agreement and shall not affect their rights.
(e) Notices. All notices and other communications required or
permitted to be delivered pursuant to any provision of this Agreement
shall be in writing and addressed as follows:
(i) If to the Purchaser:
Synagro Technologies, Inc.
1800 Bering Drive, Suite 1000
Houston, Texas 77057
Attention: Mr. Alvin L. Thomas II
Telecopy No.: 713/369-1760
With copies (which shall not constitute notice) to:
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis St.
Houston, Texas 77002
Attention: Mr. Michael T. Peters
Telecopy No.: 713/223-3717
(ii) If to Compost, to:
Compost America Holding Company, Inc.
One Gateway Center, 25th Floor
Newark, New Jersey 07102
Attention: Office of the President
Telecopy: 973/297-5454
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with a copy (which shall not constitute notice) to:
Greenberg Traurig
2050 One Commerce Square
2005 Market Street
Philadelphia, Pennsylvania 19103
Attention: Theodore W. Mason, Esq.
Telecopy: 215/988-7801
The address of either party set forth above may be changed by such party by
delivering notice of such change to the other party to this Agreement. Any
notice mailed shall be deemed to have been given and received on the third
business day following the day of deposit in the United States mail.
(f) Assignments. The rights and obligations of the parties under
this Agreement may not be assigned without the consent of the parties
hereto; provided, however, that in the event of any reorganization or
restructuring of the Purchaser in which the business of the Purchaser
or the Company is transferred to an Affiliate, this Agreement and the
rights and obligations of the Purchaser hereunder shall automatically
be assigned to such Affiliate, and the rights and obligations of
Compost hereunder shall continue in effect.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (regardless of the
laws that might otherwise govern under applicable Texas principles of
conflicts of law) as to all matters, including without limitation
matters of validity, construction, effect, performance and remedies.
(h) Legal Fees. Should Purchaser seek to enforce this Agreement by
court action and fail to obtain a decree or judgment in its favor,
Purchaser shall pay to Compost all of Compost's reasonable costs of
defense, including reasonable counsel fees.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
SYNAGRO TECHNOLOGIES, INC.
By:_______________________________________________
Mark A. Rome, Executive Vice President
COMPOST AMERICA HOLDING COMPANY, INC.
By:_______________________________________________
Christopher J. Daggett, Office of the President
By:_______________________________________________
Marvin H. Roseman, Office of the President
By:_______________________________________________
Richard L. Franks, Assistant Secretary
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Schedule 4.1(f)
Exceptions to Section 4.1(f)
1. Federal, State and local tax returns for each of the Compost
Entities for the year ended April 30, 1999.
<PAGE>
EXHIBIT 5
SHARING AGREEMENT
AGREEMENT dated March 31, 2000 between Compost America Holding
Company, Inc. ("CAHC"), Wasteco Ventures Limited ("Wasteco") and Robert J. Longo
("Longo").
WHEREAS, Wasteco and Longo are holders and owners of all of
the Class A Preferred ("A Preferred") and Class C Preferred ("C Preferred")
Stock of CAHC, being a total of 130,000 shares of A Preferred and 70,000 shares
of C Preferred held by Wasteco and 39,000 shares of A Preferred and 21,000
shares of C Preferred held by Longo; and
WHEREAS, the provisions of the certificate of Incorporation of
CAHC relating to such Class A Preferred and C Preferred Stock provide to Wasteco
and Longo an option (the "Exchange Option") to exchange the CAHC "Surrender
Shares", hereinafter defined, for all of the issued and outstanding shares (the
"Exchange Shares") of Environmental Protection & Improvement Company Inc.
("EPIC") in defined circumstances. The CAHC Surrender Shares are all of the A
Preferred and C Preferred of CAHC acquired by Wasteco and Longo by purchase on
or about November, 1997 as well as (i) 14,937,791 common shares of CAHC acquired
by them at that time (11,490,609 shares held by Wasteco and 3,447,182 shares
held by Longo) (ii) 783,842 common shares acquired in a special distribution to
them in April, 1998 (602,955 shares held by Wasteco and 180,887 shares held by
Longo) being a total of 12,093,564 common shares held by Wasteco and 3,628,069
common shares held by Longo, but excluding any common shares acquired or to be
acquired by them as dividends on A Preferred and C Preferred; and
WHEREAS, CAHC has experienced financial difficulties; and
WHEREAS, CAHC acknowledges that Wasteco and Longo currently
have rights to exercise the Exchange Option subject, however, to the provisions
of New Jersey law referred to below; and
WHEREAS, Wasteco and Longo initially indicated to CAHC their
intent to exercise the Exchange Option; and
WHEREAS, after extended discussions and study, CAHC and
Wasteco and Longo thereafter concluded that CAHC might be unable to operate its
business were the Exchange Option to be exercised and honored; and
WHEREAS, CAHC, Wasteco and Longo, recognize the need to effect
a compromise that avoids impairing the operations of CAHC; and
WHEREAS, CAHC, with the consent of Wasteco and Longo, has been
exploring a sale of all the stock of EPIC to deal with its financial
difficulties; and
<PAGE>
WHEREAS, CAHC is now engaged in negotiations to sell all of
the stock of EPIC (the "Shares") to Synagro Technologies, Inc. (the "Sale")
pursuant to a stock purchase agreement ("SPA") and wishes to effect the Sale;
and
WHEREAS, the consummation of the Sale of the Shares of EPIC
and related simultaneous transactions is referred to hereinafter as the
"Closing"; and
WHEREAS, because of the existence of the Exchange Option, CAHC
is unable to effect the Sale without the agreement of Wasteco and Longo; and
WHEREAS, CAHC has considered making a significant distribution
to Wasteco and Longo to recognize their rights, subject only to the limitations
of New Jersey law relating to distributions with respect to stock; and
WHEREAS, CAHC, Wasteco and Longo estimate that the Exchange
Option, were CAHC able to fulfill its obligations under it, would be valued at
$30-35 million less the current value of CAHC stock purchased by them (and to be
surrendered upon exercise of the option) for $26 million, the value of which
stock is now severely depressed; and
WHEREAS, Wasteco and Longo recognize that, even if legally
proper, under the current circumstances, such a distribution might be
detrimental to the short term goals of Compost and its shareholders and
creditors; and
WHEREAS, Wasteco and Longo are prepared to retain their CAHC
stock and forego appropriate compensation for the loss of the Exchange Option,
provided that CAHC is agreeable to the terms and conditions of this Agreement;
and
WHEREAS, the parties desire to record their agreement with
respect to the waiver of the Exchange Option and related matters;
WHEREAS, Wafra Acquisition Fund 7 L.P. signs this agreement as
beneficial owner of shares standing in the name of Wasteco solely to confirm
that it has no objection to Wasteco's action in entering into this Agreement.
NOW THEREFORE, the parties hereto agree as follows:
1. Effective upon Closing and completion of all transactions contemplated
hereunder to take place at the Closing, Wasteco and Longo hereby waive
irrevocably and forever any right to the Exchange Option but only in order
to facilitate a sale of all of the Shares of EPIC to Synagro on or before
May 31, 2000 for a sale price of (1) not less than $37.5 million in cash
payable at Closing (subject to certain closing adjustments relating to
working capital) and (2) an Earn-Out Agreement ("EOA") providing for
payments of up to $6.2 million plus any applicable interest for late
payments.
2. All Note obligations payable to Wasteco and Longo (including interest to the
date of payment) arising out of loans to EPIC and CAHC as shown on Schedule
A hereto shall be paid by CAHC in cash at Closing.
<PAGE>
3. Reasonable legal fees and expenses of Wasteco and Longo (but not in the
aggregate in excess of $1 million) in connection with the study of the
alternatives available to CAHC and negotiations with all parties to the
Closing (including but not limited to Lionhart, Aryeh, Synagro and those
parties who have negotiated for settlements with CAHC during the period
January 1, 1999 to the Closing) shall be paid by CAHC in cash at the
Closing.
4. (a) At Closing CAHC shall grant to a designee of Wasteco and Longo (the
"Designee") a first lien security interest including proceeds in (i) the EOA
and (ii) all of its membership interests in American Marine Rail LLC ("AMR")
as well as all rights it has under AMR's limited liability company agreement
and the AMR Investment Agreement dated as of August 31, 1997, as amended,
including the rights to purchase additional interests in AMR from AW Compost
and in all additional interests purchased. The lien granted under (i) shall
be limited to $6.2 million plus interest received for late payment, and the
lien granted under (ii) shall be limited to $3 million.
(b) In order to provide such first lien interests, CAHC shall fully exercise
its options to purchase all membership interests in AMR as soon as available
to it from proceeds from the EPIC sale transaction. Each such security
interest shall secure the obligations described in this paragraph 4.
(c) CAHC will make commercially reasonable efforts to sell, dispose or
otherwise monetize all of its rights in AMR within 36 months after Closing.
Upon any such sale or disposition, the net proceeds (but not more than the
maximum amount of the lien as described above) shall be held in a separate
account subject to the applicable security interest. Upon any collection of
funds under the EOA such funds shall also be held in a separate account
subject to the applicable security interest. CAHC agrees to hold the EOA to
May 15, 2003 or to that time that any Disputed Amounts (as defined in the
EOA) under the EOA are resolved. At each time when (1) cash or cash
equivalents are held in either of the separate accounts exceeding $1 million
or (2) all of the property originally held in either of the separate
accounts is sold, CAHC shall (i) redeem Class A preferred Stock in the
amount contained in the applicable account but not in the aggregate more
than $3 million as to proceeds arising as to the AMR interests and (ii)
redeem Class C preferred Stock in the amount contained in the applicable
account but not more than $6.2 million plus interest received for late
payment as to proceeds arising as to the EOA. Each security interest shall
be terminated whenever the maximum redemption described above arising
therefrom is achieved. Any redemption otherwise required hereunder that is
not permissible under applicable law shall be deferred to the extent
required to make such redemption hereunder when effective fully permissible
under applicable law. At Closing the Certificate of Incorporation provisions
governing the Class A and Class C preferred stock shall be amended to
provide for the redemption obligations described herein.
(d) CAHC shall provide prompt notice to the Designee of (i) any adjustment
of the EOA Amount (as defined in the EOA) (ii) receipt of any property in
any such separate account and (iii) any sale, disposition or other
transaction involving the property subject to the security interests.
<PAGE>
5. (a) CAHC shall defend title to the security at its sole expense (including
the defense against any reduction in the EOA unless Wasteco and Longo agree
that such defense is inappropriate). If CAHC shall fail to fulfill such
defense obligation the Designee may do so and shall be entitled to utilize
any amount held in any of the security accounts in the reasonable exercise
of its rights to defend.
(b) In view of the obligations under paragraph 4, CAHC's ability to pay
preferred dividends other than in common stock is reduced. Accordingly, the
certificate of incorporation provisions governing the Class A and Class C
preferred shall be amended to provide that both Class A and Class C
preferred stock may pay dividends currently in common stock effective
November 1, 1999 at the current formula price specified in the Class A
Preferred Stock Certificate of Designation.
6. All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including telex and facsimile
communication) and shall be personally delivered or sent by certified mail,
postage prepaid, or overnight courier or facsimile, to the intended party at
the address or facsimile number of such party set forth below or at such
other address or facsimile number as shall be designated by such party in a
written notice to the other parties hereto. All such notices and
communications shall be effective (a) if personally delivered, when
received, (b) if sent by certified mail, four Business Days after having
been deposited in the mail, postage prepaid, (c) if sent by overnight
courier, two Business Days after having been given to such courier, unless
sooner received by the addressee and (d) if transmitted by facsimile, when
sent, upon receipt confirmed by telephone or electronic means. Notices and
communications sent hereunder on a day that is not a Business Day shall be
deemed to have been sent on the following Business Day.
If to Longo:
Robert J. Longo
71 Roxiticus Road
Mendham, New Jersey
with a copy to:
Okin Hollander & DeLuca LLP
One Parker Place
Fort Lee, New Jersey 07024
<PAGE>
If to Wasteco:
Wasteco Ventures Limited
Citco Building
Wickhams Cay
P.O. Box 662
Road Town
Tortola, B.V.I.
with a copy to:
c/o Wafra Partners
345 Park Avenue, 41st Fl.
New York, New York 10154
Attn.: John T. Shea
If to CAHC:
Compost America Holding Company, Inc.
One Gateway Center, 25th Floor
Newark, New Jersey 07102
Attention: Office of the President c/o Chris
Daggett
with a copy to:
Greenberg Traurig
2050 One Commerce Square
2005 Market Street
Philadelphia, Pennsylvania 19103
Attention: Ted Mason
7. This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York. It sets forth the entire agreement with
respect to the matters described here. Neither party may assign the
obligations or benefits of this Agreement without the consent of the others
except as specifically permitted herein and shall bind successors by
operation of law.
8. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. Delivery of a signature page to
this Agreement (whether by fax or manually executed) shall be effective as
if it were delivery of a manually executed counterpart of this Agreement.
9. (a) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any
New York State court or federal court of the United States of America
sitting in New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of
any such action or proceeding may be heard and determined in any such New
York State court or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law.
<PAGE>
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York
State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any
such court.
10. Each of the parties hereto hereby irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim (whether based on contract,
tort or otherwise) arising out of or relating to this Agreement in the
negotiation, administration, performance or enforcement thereof.
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as
of the date first written above.
COMPOST AMERICA HOLDING COMPANY INC.
By _________________________________________
WASTECO VENTURES LIMITED
By: ________________________________________
Name:
Title:
WAFRA ACQUISITION FUND 7, L.P.
By: WAFRA PARTNERS, L.P., its general partner
By: WAFRA PARTNERS, INC., in its capacity as
general partner of Wafra Partners, L.P.
By: _______________________________________
Name:
Title:
______________________________________
Robert J. Longo
<PAGE>
Additional Signatories for COMPOST AMERICA HOLDING COMPANY, INC.
OFFICE OF THE PRESIDENT
By:______________________
Christopher J. Daggett
By:______________________
Marvin H. Roseman
<PAGE>
Wasteco/Longo Notes Worksheet
Interest (per annum) 10%
Accrued Interest Principal + Interest
Date Principal at 4/15/00 at 4/15/00
---- --------- ---------- ----------
Wasteco 5/4/99 1,250,000 118,101 $1,368,101
Longo 5/4/99 360,000 34,013 394,013
Wasteco 12/9/99 250,000 8,480 258,480
12/29/99 130,000 3,700 133,700
1/20/00 200,000 4,552 204,552
2/4/00 150,000 2,846 152,846
----------
$2,511,692
==========
<PAGE>
================================================================================
RESTRUCTURING AND SETTLEMENT AGREEMENT
by and among
Compost America Holding Company, Inc.,
Miami Recycling and Composting Company, Inc.
and
Bedminster Seacor Services Miami Corporation
and
Lionhart Global Appreciation Fund, Ltd.,
Lionhart Investments, Ltd.
and
Global EarthFund Partners, L.L.C.
Date: March 29, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I ESCROW, ESCROW AGENT AND ESCROW DOCUMENTS...............................................................4
SECTION 1.1. Escrow Agent...................................................................................4
SECTION 1.2. Escrow Documents-Delivery......................................................................4
SECTION 1.3. Escrow Documents - Enforceability..............................................................5
ARTICLE II RESTRUCTURING..........................................................................................5
SECTION 2.1. EPIC/Synagro-Conditional Waiver/Release........................................................5
SECTION 2.2. Restructuring Conditions.......................................................................5
SECTION 2.3. Release from Escrow............................................................................6
SECTION 2.4. Post Satisfaction-Restructuring Conditions.....................................................7
ARTICLE III FORBEARANCE, RELEASE AND EXTENSION....................................................................8
SECTION 3.1. Forbearance....................................................................................8
SECTION 3.2. Extension......................................................................................9
SECTION 3.3. Release........................................................................................9
SECTION 3.4. No Litigation.................................................................................11
ARTICLE IV REPRESENTATIONS, WARRANTIES AND SUPPLEMENTAL CONDITIONS...............................................11
SECTION 4.1. Representations and Warranties of the Compost Entities........................................11
SECTION 4.2. Conditions Precedent..........................................................................15
ARTICLE V MISCELLANEOUS..........................................................................................15
SECTION 5.1. Notices.......................................................................................15
SECTION 5.2. Severability..................................................................................17
SECTION 5.3. Applicable Law, Jurisdiction and Venue........................................................17
SECTION 5.4. Captions/Headings.............................................................................17
SECTION 5.5. Binding Obligations...........................................................................17
SECTION 5.6. Jury Waiver...................................................................................18
SECTION 5.7. Counterparts/Facsimile........................................................................18
SECTION 5.8. Written Instrument Requirement................................................................18
SECTION 5.9. Assignment....................................................................................18
SECTION 5.10. Rights and Obligations of Escrow Agent.......................................................18
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBITS
EXHIBIT A - PUT OPTION AGREEMENT................................................................................B-1
EXHIBIT B - 2000 MRCC STOCK PLEDGE AGREEMENT....................................................................D-1
EXHIBIT C - 2000BEDMINSTER STOCK PLEDGE AGREEMENT...............................................................E-1
EXHIBIT D - 2000PLEDGE AND SECURITY AGREEMENT...................................................................F-1
EXHIBIT E - CASH collateral account agreement..................................................................G-1
EXHIBIT F - 2000 CAHC STOCK PLEDGE AGREEMENT....................................................................G-1
EXHIBIT G - 2000 MORTGAGE RELEASE...............................................................................H-1
EXHIBIT H - MUTUAL RELEASE......................................................................................I-1
EXHIBIT I - OPINION OF COUNSEL..................................................................................K-1
SCHEDULES
SCHEDULE 4.1(E) - EXCEPTIONS TO section 4.1(e).............................................................4.1(E)-1
SCHEDULE 4.1(F) - EXCEPTIONS TO section 4.1(f).............................................................4.1(F)-1
</TABLE>
(ii)
<PAGE>
RESTRUCTURING AND SETTLEMENT AGREEMENT
March 29, 2000
THIS RESTRUCTURING AND SETTLEMENT AGREEMENT ("Agreement") is made and
entered into effectively as of March 29, 2000 ("Effective Date"), by and among
COMPOST AMERICA HOLDING COMPANY, INC. ("CAHC"), MIAMI RECYCLING AND COMPOSTING
COMPANY, INC. ("MRCC") and BEDMINSTER SEACOR SERVICES MIAMI CORPORATION
("Bedminster"; CAHC, MRCC and Bedminster are referred to collectively at times
in this Agreement as the "Compost Entities"); and, LIONHART GLOBAL APPRECIATION
FUND, LTD. ("Lionhart" or "LGAF") individually and as agent for the Lionhart
Entities (as defined below), LIONHART INVESTMENTS, LTD. ("LHI") and GLOBAL
EARTHFUND PARTNERS, L.L.C. ("GEP"; LGAF, LHI and GEP are referred to
collectively at times in this Agreement as the "Lionhart Entities").
RECITALS:
A. The Compost Entities and the Lionhart Entities previously
entered into a Credit, Capitalization and Financing Agreement dated October 30,
1998 ("1998 Agreement"), whereby, among other terms, the Lionhart Entities made
a loan of $10,500,000 to the Compost Entities, bearing interest at a non-default
rate of 10.5% per annum and maturing no later than October 1, 2000 ("1998
Loan"). The 1998 Loan is further evidenced by a Mortgage Note, dated October 30,
1998, in the principal amount of $10,500,000, constituting a joint and several
obligation of each of the Compost Entities ("1998 Note"), and such 1998 Note is
further guaranteed by CAHC and MRCC pursuant to a Guaranty Agreement, dated
October 30, 1998, executed and delivered to the Lionhart Entities ("1998
Guaranty").
B. The proceeds of the 1998 Loan were applied by the Compost
Entities to refinance a previously existing mortgage, in favor of Rinker
Materials Corporation, on an approximately 37.85 acre site owned by MRCC in
Miami-Dade County, Florida ("Dade County Site"), to pay working capital for the
Compost Entities, to purchase and redeem certain CAHC common stock owned by the
Lionhart Entities (a portion of which had been converted from CAHC debentures
held by LGAF) and to pay financing fees and expenses.
C. The 1998 Loan is secured by (i) a Senior Mortgage, Security
Agreement, Fixture Filing and Assignment of Rents, dated October 30, 1998 ("1998
Mortgage"), from MRCC, as mortgagor, to the Lionhart Entities, as mortgagee,
granting a first mortgage lien on the Dade County Site; (ii) a Pledge and
Security Agreement, dated October 30, 1998, from the Compost Entities to the
Lionhart Entities as secured parties ("1998 Pledge and Security Agreement"),
pledging, assigning and granting a security interest in certain personalty owned
respectively by each of the Compost Entities; (iii) a Common Stock Pledge
Agreement, dated October 30, 1998 ("1998 MRCC Stock Pledge Agreement"), whereby
CAHC, as owner of 80.1% of the outstanding capital stock of MRCC, pledged and
delivered to the Lionhart Entities, as pledgee, all of its shares of MRCC stock
("Controlling MRCC Shares") and purported to arrange for a similar pledge of the
remaining 19.9% of MRCC stock owned by Thomas Andres Mestre ("Minority MRCC
Shares"); (iv) a Common Stock Pledge Agreement, dated October 30, 1998 ("1998
Bedminster Stock Pledge Agreement"), whereby MRCC, as owner of 100% of the
capital stock of Bedminster, pledged and delivered to the Lionhart Entities, as
pledgee, all of its Bedminster stock ("Bedminster Shares"); and, (v) a Common
Stock Pledge Agreement, dated October 30, 1998 ("1998 CAHC Stock Pledge
Agreement"), whereby CAHC pledged and delivered to the Lionhart Entities, as
pledgee, 600,000 shares of CAHC common stock ("CAHC Pledged Shares").
<PAGE>
D. As additional consideration for making the 1998 Loan and
consummating the other transactions contemplated under the 1998 Agreement, LGAF
received (i) six (6) warrants ("Warrants") to purchase in the aggregate 1.5
million shares of CAHC common stock at the times and prices specified in Article
VIII of the 1998 Agreement and in the Warrants, (ii) a put option ("Put Option
No. 1") with respect to 400,000 shares of CAHC Series B convertible preferred
stock owned by LGAF ("Series B Preferred Shares"), before or after such Series B
Preferred Shares are converted on a one for one basis to CAHC common shares
("Conversion Common Shares"), Put Option No. 1 to be exercisable by LGAF and
paid by CAHC at a price of US $3.10 per share, pursuant to the terms and subject
to the conditions set forth in Article IX of the 1998 Agreement, and (iii) an
additional put option ("Put Option No. 2"), with respect to 553,386 CAHC common
shares owned by LGAF immediately following the closing of the 1998 Loan ("Excess
Common Shares," as defined in Section 10.1 of the 1998 Agreement), Put Option
No. 2 to be exercisable by LGAF at the time and paid by CAHC at a price of US
$3.20 per share, pursuant to the terms and subject to the conditions set forth
in Article X of the 1998 Agreement.
E. As further required by the 1998 Agreement, CAHC entered into a
Registration Rights Agreement, dated October 1998, with LGAF ("1998 Registration
Rights Agreement"), granting to LGAF certain registration rights with respect to
certain CAHC Restricted Securities (as defined in the 1998 Registration Rights
Agreement); and, by virtue of a Director Appointment Agreement, dated October
30, 1998 ("1998 Director Appointment Agreement"), LGAF was granted the right to
designate, and did in fact designate in November, 1998, an individual to serve
as a member of CAHC's board of directors; however, as of and prior to the
Effective Date of this Agreement, the individual initially so designated by LGAF
resigned as a director of CAHC and no successor has been designated or appointed
by LGAF under the Director Appointment Agreement, or otherwise.
F. The Compost Entities, on and prior to the Effective Date, are
or may be in default under the 1998 Agreement, the 1998 Note, the 1998 Mortgage,
the 1998 Pledge and Security Agreement, the 1998 MRCC Stock Pledge Agreement,
the 1998 Bedminster Stock Pledge Agreement and/or the 1998 CAHC Stock Pledge
Agreement, and/or any other agreements, documents or instruments that
respectively relate thereto or arise therefrom (the 1998 Note, the 1998
Mortgage, the 1998 Pledge and Security Agreement, the 1998 MRCC Stock Pledge
Agreement, the 1998 Bedminster Stock Pledge Agreement and/or the 1998 CAHC Stock
Pledge Agreement, including all other such agreements, documents and instruments
that relate to or arise from the 1998 Agreement, including, without limitation,
the 1998 Guaranty, are referred to at times collectively as the "1998
Documents"), by or because of one or more actual, potential or alleged act(s) or
omission(s) by one or more of the Compost Entities, on and prior to the
Effective Date, that violate or may violate one or more of the Compost Entities'
undertakings under the 1998 Agreement and/or the 1998 Documents ("Potential
Defaults"). Because of the Potential Defaults under the 1998 Agreement and/or
the 1998 Documents, the Lionhart Entities are entitled, under and pursuant to
the 1998 Agreement and/or the 1998 Documents, to exercise their respective and
applicable rights and remedies under the 1998 Documents, including (without
limitation) the right to accelerate Indebtedness and Obligations (as those terms
are defined under the 1998 Agreement) and/or to assume possession, recover
and/or sell collateral as described under the 1998 Documents. The Compost
Entities have requested that the Lionhart Entities forbear in the exercise of
their respective rights and remedies under the 1998 Agreement and the 1998
Documents and/or waive or enable the Compost Entities to cure the Potential
Defaults.
2
<PAGE>
G. CAHC has disclosed to the Lionhart Entities that CAHC and
Synagro Technologies, Inc. ("Synagro") have negotiated, and propose and intend
to consummate, execute and deliver, on or about March 29, 2000, a Stock Purchase
Agreement ("Stock Purchase Agreement"), whereby, upon satisfaction of certain
conditions stated therein, CAHC would sell to Synagro all of the outstanding
shares of capital stock of Environmental Protection & Improvement Company, Inc.
("EPIC"), which is a direct wholly-owned subsidiary of CAHC. Pursuant to the
1998 Agreement, and as a precondition to the closing by CAHC of the transactions
contemplated under the Stock Purchase Agreement, CAHC must first procure the
advance written consent (or waiver thereof) by the Lionhart Entities.
Accordingly, the Compost Entities have requested that the Lionhart Entities
either consent to and approve (or waive the right to consent to and approve) the
closing of the transactions contemplated under the Stock Purchase Agreement.
H. Because of the (i) the Potential Defaults, and the request by
the Compost Entities to the Lionhart Entities that the Lionhart Entities forbear
in the exercise of their respective default rights and remedies under the 1998
Agreement and/or the 1998 Documents and/or waive or enable the Compost Entities
to cure the Potential Defaults, and (ii) the Stock Purchase Agreement, and the
request by the Compost Entities to the Lionhart Entities that the Lionhart
Entities either consent to and approve (or waive the right to consent to and
approve) the closing of the transactions contemplated under the Stock Purchase
Agreement, and pursuant to the terms and subject to the conditions set forth in
this Agreement, (x) the Compost Entities and the Lionhart Entities hereby wish
to restructure some of the financing arrangements and concomitant security
provided by the 1998 Agreement and the other 1998 Documents, (y) the Compost
Entities and the Lionhart Entities hereby wish to settle and compromise certain
claims or potential claims that relate to or arise from the 1998 Agreement and
the other 1998 Documents, and (z) the Compost Entities are desirous of inducing
the Lionhart Entities to consent to and approve (or waive the right to consent
to and approve) the closing of the transactions contemplated under the Stock
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Compost Entities
and the Lionhart Entities hereby agree as follows:
3
<PAGE>
ARTICLE I
ESCROW, ESCROW AGENT AND ESCROW DOCUMENTS
SECTION 1.1. Escrow Agent. The Compost Entities and the Lionhart
Entities hereby appoint Wilmington Trust Company, as escrow agent ("Escrow
Agent"). The Escrow Agent, for the purposes and under the terms and conditions
more fully set forth herein, hereby accepts such appointment as Escrow Agent on
the terms and conditions set forth herein.
SECTION 1.2. Escrow Documents-Delivery. The Compost Entities and the
Lionhart Entities hereby agree, promise and covenant that the Put Option
Agreement, the 2000 MRCC Stock Pledge Agreement, the 2000 Bedminster Stock
Pledge Agreement, the 2000 CAHC Stock Pledge Agreement, the 2000 Pledge and
Security Agreement, the Cash Collateral Account Agreement, the 2000 Mortgage
Release and the Mutual Release (all as defined under Section 1.2 of this
Agreement, and collectively referred to sometimes in this Agreement as the
"Escrow Documents"), shall be executed and delivered, as follows:
(a) Put Option Agreement. The Compost Entities and the
Lionhart Entities shall execute and deliver to the Escrow Agent, on the
Effective Date and upon execution and delivery of this Agreement, a put
option agreement ("Put Option Agreement"), in substantially the form as
attached hereto as Exhibit "A."
(b) 2000 MRCC Stock Pledge Agreement. CAHC and the Lionhart
Entities shall execute and deliver to the Escrow Agent, on the
Effective Date and upon execution and delivery of this Agreement, an
amended and restated 1998 MRCC Stock Pledge Agreement ("2000 MRCC Stock
Pledge Agreement"), in substantially the form as attached hereto as
Exhibit "B."
(c) 2000 Bedminster Stock Pledge Agreement. MRCC and the
Lionhart Entities shall execute and deliver to the Escrow Agent, on the
Effective Date and upon execution and delivery of this Agreement, an
amended and restated 1998 Bedminster Stock Pledge Agreement ("2000
Bedminster Stock Pledge Agreement"), in substantially the form as
attached hereto as Exhibit "C."
(d) 2000 Pledge and Security Agreement. The Compost Entities
and the Lionhart Entities shall execute and deliver to the Escrow Agent
on the Effective Date and upon execution and delivery of this
Agreement, an amended and restated 1998 Pledge and Security Agreement
("2000 Pledge and Security Agreement") in substantially the form as
attached hereto as Exhibit "D".
(e) Cash Collateral Account Agreement. The Compost Entities
and the Lionhart Entities shall execute and deliver to the Escrow Agent
on the Effective Date and upon execution and delivery of this
Agreement, a Cash Collateral Account Agreement ("Cash Collateral
Account Agreement") in substantially the form attached hereto as
Exhibit E.
4
<PAGE>
(f) 2000 CAHC Stock Pledge Agreement. CAHC and the Lionhart
Entities shall execute and deliver to the Escrow Agent, on the
Effective Date and upon execution and delivery of this Agreement, an
amended and restated 1998 CAHC Stock Pledge Agreement ("2000 CAHC Stock
Pledge Agreement"), in substantially the form as attached hereto as
Exhibit "F."
(g) 2000 Mortgage Release. The Lionhart Entities shall execute
and deliver to the Escrow Agent, on the Effective Date and upon
execution and delivery of this Agreement, a Mortgage Release ("2000
Mortgage Release"), in substantially the form as attached hereto as
Exhibit "G."
(h) Mutual Release. The Compost Entities and the Lionhart
Entities shall execute and deliver to the Escrow Agent, on the
Effective Date and upon execution and delivery of this Agreement, a
written mutual release ("Mutual Release"), in substantially the form as
attached hereto as Exhibit "H."
SECTION 1.3. Escrow Documents - Enforceability. The Escrow Documents
(1) shall not be effective, shall be null and void and of no force or effect
whatsoever and shall not be released from escrow by the Escrow Agent, unless and
until the occurrence and satisfaction of all Restructuring Conditions (as
defined under Section 2.2 of this Agreement), whereupon all such Escrow
Documents shall be valid and enforceable and binding upon the applicable parties
thereto, pursuant to and in accordance with their respective terms thereof.
ARTICLE II
RESTRUCTURING
SECTION 2.1. EPIC/Synagro-Conditional Waiver/Release. The Lionhart
Entities hereby waive their rights, under the 1998 Agreement (and any other 1998
Documents), to consent to or approve in advance the consummation, execution or
closing by CAHC, EPIC or the other Compost Entities of the transactions as
provided for and contemplated under the Stock Purchase Agreement ("Lionhart
Waiver/Release").
SECTION 2.2. Restructuring Conditions. The Escrow Documents shall not
be released from escrow and shall be null and void, and of no force and effect,
unless and until (i) the Escrow Agent simultaneously releases from escrow and
delivers (y) the Settlement Distribution to LGAF, for itself and in its capacity
as agent for the Lionhart Entities pursuant to Section 2.3 and (z) the Escrow
Documents, to the Compost Entities and to LGAF, for itself and in its capacity
as agent for the Lionhart Entities and (ii) all of the following events and
conditions have occurred and are satisfied (the conditions under Section 2.2(i)
and Section 2.2(ii) are collectively referred to in this Agreement as the
"Restructuring Conditions"):
(a) The Compost Entities and the Lionhart Entities, as
applicable, shall execute and deliver to the Escrow Agent, on the
Effective Date, the Put Option Agreement, the 2000 MRCC Stock Pledge
Agreement, the 2000 Bedminster Stock Pledge Agreement, the 2000 CAHC
Stock Pledge Agreement, the 2000 Pledge and Security Agreement, the
Cash Collateral Account Agreement, the 2000 Mortgage Release and the
Mutual Release, as provided and required under Section 1.2(a), (b),
(c), (d), (e), (f), (g) and (h) of this Agreement; and
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(b) Synagro and CAHC shall each execute and deliver to one
another the Stock Purchase Agreement on or about March 29, 2000, and
CAHC (1) shall deliver and hereby agrees, promises and covenants to
deliver to the Lionhart Entities, on the date of execution thereof by
Synagro and CAHC, a true and complete copy of that definitive and
executed Stock Purchase Agreement, as executed by CAHC and Synagro,
including all exhibits, schedules and attachments thereto, and (2)
shall deliver (and hereby agrees, promises and covenants to deliver) to
the Escrow Agent (with a copy thereof to the Lionhart Entities), on the
date of execution of the Stock Purchase Agreement, a written notice and
certificate which certifies to the Escrow Agent (and upon which the
Escrow Agent shall rely) that Synagro and CAHC each executed and
delivered the Stock Purchase Agreement on or about March 29, 2000 and
the tentative date established thereunder as the Closing Date (as
hereinafter defined); and
(c) The Closing (as defined under Section 2.1 of the Stock
Purchase Agreement) shall occur on or about the Closing Date (as
defined under Section 2.1 of the Stock Purchase Agreement), and on the
business day immediately following such Closing Date (the "Sale
Settlement Date") CAHC agrees, promises and covenants to deliver to and
shall deliver to the Escrow Agent (with a copy thereof to LGAF), a
written notice and certificate which certifies to the Escrow Agent (and
upon which the Escrow Agent shall rely) that such Closing has occurred
on or before the Sale Settlement Date (the Closing Date shall be
specifically identified in such written notice and certificate); and
(d) On or before the Sale Settlement Date, CAHC hereby agrees,
promises and covenants to deliver and shall deliver to the Escrow Agent
(with a copy thereof to LGAF) a written notice and certificate which
certifies to the Escrow Agent (and upon which the Escrow Agent shall
rely) that the Stock Purchase Agreement has not been terminated,
canceled or rescinded by Synagro and/or CAHC, or any of their
respective successors or assigns under Section 9.1 of the Stock
Purchase Agreement, or otherwise; and
(e) On or before the Sale Settlement Date, the Escrow Agent
shall receive U.S. $12,400,000 for the benefit of LGAF in its capacity
as Agent for the Lionhart Entities in good and immediately available
U.S. funds (the "Settlement Distribution") as payment in full and
complete satisfaction of any and all amounts due under the 1998 Loan,
as evidenced by the 1998 Note (including without limitation, principal
and accrued interest), and as reimbursement to the Lionhart Entities
for professional fees incurred by the Lionhart Entities that relate to
or arise from the Potential Defaults and the transactions contemplated
by this Agreement.
SECTION 2.3. Release from Escrow. Upon the occurrence and satisfaction
of all Restructuring Conditions under Section 2.2(ii)(a)-(e) (exclusive of the
Restructuring Conditions under Section 2.2(i)) on or before the close of
business on the Sale Settlement Date, the Escrow Agent on such Sale Settlement
Date shall simultaneously (a) release from escrow and deliver to the Compost
Entitles and LGAF, by hand delivery or by facsimile, to be followed immediately
by hard copy originals via overnight courier, all the Escrow Documents and (b)
release from escrow and deliver to LGAF in its capacity as agent for the
Lionhart Entities the Settlement Distribution, by wire transfer of immediately
available federal funds LGAF, c/o: O'Bryan, Brazill & Drics, LLP, Escrow
Account, Account No. 5001339765, Union Planters Bank, Memphis, Tennessee,
Attention: Indianapolis Office, ABA Routing No. 084000084. In the event the
Restructuring Conditions have not occurred and been satisfied on or before the
close of business on April 30, 2000, (1) the Escrow Agent shall so notify the
Compost Entities and LGAF, (2) the Escrow Agent shall then immediately destroy
all Escrow Documents then in the possession of the Escrow Agent, and (3) all
Escrow Documents shall be null and void and of no further force and effect.
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SECTION 2.4. Post Satisfaction-Restructuring Conditions. Immediately
upon the payment of the Settlement Distribution, by the Escrow Agent to LGAF in
its capacity as agent for the Lionhart Entities as set forth in Section 2.3(b)
above:
(a) The 1998 Note shall then and thereafter be deemed to be
paid and discharged in full and canceled, and the Lionhart Entities
shall promptly and in due course return to the Compost Entities the
original 1998 Note, marked as "paid in full"; and
(b) The 1998 Mortgage shall then and thereafter be deemed to
be paid, discharged in full and terminated, canceled and released,
pursuant to the 2000 Mortgage Release, whereupon the Compost Entities
shall promptly and in due course (1) file the 2000 Mortgage Release in
the Office of the Recorder of Miami-Dade County, Florida, and/or the
Clerk of the Circuit and County Court in Miami-Dade County, Florida,
and (2) shall pay and discharge all costs, expenses, fees and all
applicable taxes attributable to the filing and recordation of the 2000
Mortgage Release (including, without limitation, all applicable
intangible taxes, documentary stamp taxes, surtax, documentary stamp
taxes, and other applicable taxes, if any); and
(c) The 2000 Put Option Agreement shall then and thereafter be
valid and binding upon and enforceable against the Compost Entities and
the Lionhart Entities, pursuant to the terms and subject to the
conditions set forth therein; and
(d) The Cash Collateral Account Agreement shall then and
thereafter be valid and binding upon the Compost Entities, LGAF and the
other parties thereto, pursuant to the terms and subject to the
conditions set forth therein; and
(e) The 1998 MRCC Stock Pledge Agreement shall then and
thereafter be amended and restated by the 2000 MRCC Stock Pledge
Agreement, and shall be valid and binding upon and enforceable against
CAHC and the Lionhart Entities, pursuant to the terms and subject to
the conditions set forth therein; and
(f) The 1998 Bedminster Stock Pledge Agreement shall then and
thereafter be amended and restated by the 2000 Bedminster Stock Pledge
Agreement, and shall be valid and binding upon and enforceable against
MRCC and the Lionhart Entities, pursuant to the terms and subject to
the conditions set forth therein; and
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(g) The Mutual Release shall then and thereafter be valid and
binding upon and enforceable against the Compost Entities and the
Lionhart Entities, pursuant to the terms and subject to the conditions
set forth therein; and
(h) The Warrants shall then and thereafter continue to be
valid and binding upon and enforceable against CAHC and LGAF, pursuant
to their respective original terms and subject to their respective
original conditions set forth therein; and
(i) The 1998 Registration Rights Agreement shall then and
thereafter continue to be valid and binding upon and enforceable
against CAHC and LGAF, pursuant to its original terms and subject to
its original conditions set forth therein; and
(j) The 1998 CAHC Stock Pledge Agreement shall then and
thereafter be amended and restated by the 2000 CAHC Stock Pledge
Agreement, and shall be valid and binding upon and enforceable against
CAHC and the Lionhart Entities, pursuant to the terms and subject to
the conditions set forth therein; and
(k) The 1998 Pledge and Security Agreement shall then and
thereafter be amended and restated by the 2000 Pledge and Security
Agreement, and shall be valid and binding upon and enforceable against
the Compost Entities and the Lionhart Entities, pursuant to the terms
and subject to the conditions set forth therein; and
(l) The 1998 Guaranty shall then and thereafter be canceled,
released, terminated, null and void and of no further force or effect
whatsoever; and
(m) The 1998 Director Appointment Agreement shall then and
thereafter, pursuant to its terms, expire and be released, terminated,
null and void and of no further force or effect; and
(n) The 1998 Agreement shall then and thereafter be canceled,
released, terminated, null and void and of no further force or effect
whatsoever, and the Compost Entities and the Lionhart Entities shall
have no further rights or obligations thereunder.
ARTICLE III
FORBEARANCE, RELEASE AND EXTENSION
SECTION 3.1. Forbearance. During the period ("Forbearance Period")
commencing on the Effective Date and continuing through and expiring on the
earlier to occur of,
(i) April 30, 2000, or
(ii) the day and date corresponding to the Sale Settlement
Date, or
(iii) the day and date corresponding to the occurrence and
satisfaction of all Restructuring Conditions, or
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(iv) any date that the Stock Purchase Agreement is
terminated, canceled or rescinded under Section 9.1 of the Stock
Purchase Agreement, or
(v) the day and date corresponding to the date that any of the
Compost Entities shall voluntarily be adjudicated a bankrupt or
insolvent, seek or consent to the appointment of a receiver, trustee or
conservator for any or all of them, or for all or any part of their
respective properties or assets, file a petition seeking relief under
the bankruptcy or similar laws of the United States (under Title 11 of
the U.S. Bankruptcy Code, or otherwise), or any state or any other
competent jurisdiction, make any general assignment for the benefit of
creditors, admit in writing that any or all of them is or are bankrupt
or insolvent or unable to pay debts as such debts mature, or
(vi) the day and date corresponding to the date that United
States Bankruptcy Court or any other court of competent jurisdiction
shall enter an order, judgment or decree appointing a receiver or
trustee for any of the Compost Entities, or for all or any part of any
or all of their respective properties or assets, or approving a
petition filed against any of the Compost Entities seeking relief under
Title 11 of the U.S. Bankruptcy Code, or other similar laws of the
United States or any state or other competent jurisdiction,
the Lionhart Entities (a) will forbear in the commencement or prosecution of any
claims ("Claim(s)") that relate to or arise from (i) the Potential Defaults
(and/or any other actual, alleged or potential defaults after the Effective Date
and during the Forbearance Period) under the 1998 Agreement or the other 1998
Documents, and (ii) any act or omission by or on behalf of CAHC, MRCC and/or
Bedminster, and/or any of their respective officers, directors, employees or
agents or representatives, at any time on or prior to the expiration or
termination of the Forbearance Period, and (b) will forebear in the exercise of
(i) any of their respective rights and remedies under the 1998 Agreement and the
other 1998 Documents because of or with respect to the Potential Defaults
(and/or any other actual, alleged or potential defaults after the Effective Date
and during the Forbearance Period), and (ii) any of their respective rights and
remedies under any applicable federal or state laws because of any act or
omission by or on behalf of CAHC, MRCC and/or Bedminster, and/or any of their
respective officers, directors, employees or agents or representatives, at any
time on or prior to the expiration or termination of the Forbearance Period.
SECTION 3.2. Extension. If any applicable federal or state statute of
limitations ("Statutes") under any applicable federal or state laws (including,
without limitation, the Securities Act of 1933, as amended, and the Securities
Act of 1934, as amended), with respect to any actual or potential Claim(s) (as
defined under Section 3.1 herein above) expires, has expired or may expire, or
runs, or may run, on or before the 12:00 midnight on the last day of the
Forbearance Period, then any such Statute(s) shall be deemed and construed
conclusively as tolled and shall be extended automatically until, and shall
thereafter expire on the sixtieth (60th) day subsequent to the last day of the
Forbearance Period.
SECTION 3.3. Release. Upon the occurrence and satisfaction of all the
Restructuring Conditions, the Compost Entities and the Lionhart Entities hereby
agree, promise and covenant on the Sale Settlement Date, as follows:
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(a) The Compost Entities, jointly and severally, hereby
release, indemnify, hold harmless, remise, acquit and forever discharge
the Lionhart Entities, and their respective officers, directors,
employees, agents, representatives, consultants, attorneys,
professionals, fiduciaries, servants, partners, predecessors,
successors and assigns, subsidiary corporations or entities, parent
corporations or entities, and related divisions (collectively, the
"Released Parties"), from and against any and all actions, causes of
actions, judgments, executions, suits, debts, claims, demands,
liabilities, obligations, damages and expenses, of any and every
character, known or unknown, direct or indirect, actual or contingent,
at law or in equity, of whatsoever kind or nature, heretofore arising,
for or because of any manner or things done or not done, omitted or
suffered to done by any of the Released Parties prior to and including
the Sale Settlement Date, and in any way directly or indirectly
relating to and/or arising out of or in any way connected with (1) the
1998 Agreement, the 1998 Documents and/or the 1998 Loan, (2) this
Agreement, (3) the 1998 Note, (4) the 1998 CAHC Stock Pledge Agreement,
(5) the 1998 MRCC Stock Pledge Agreement, (6) the 1998 Pledge and
Security Agreement, (7) the 1998 Bedminster Stock Pledge Agreement, (8)
the 1998 Guaranty, (9) the 1998 Director Appointment Agreement, (10)
the Warrants, (11) the Put Option Agreement, (12) the 1998 Registration
Rights Agreement, (13) the 1998 CAHC Stock Purchase Agreement, (14) the
Mutual Release, (15) 2000 Mortgage Release, and/or (16) any and all of
the other Escrow Documents (collectively, the "Released Claims"),
including, but not limited to, any and all Released Claims that relate
to or arise from (i) any negotiations, dialogue, communications, acts
or omissions by or on the part of any of the Lionhart Entities, or any
of their respective agents or representatives or any other Released
Parties, on or prior to the Effective Date, and/or (ii) any lender
liability claims by or on the part of the Compost Entities against the
Lionhart Entities, or any of their respective agents or representatives
or any other Released Parties on or before the Sale Settlement Date;
provided, however, any sums that are payable to the Released Parties as
indemnity payments under this Section 3.3(a) shall not be payable to
the extent attributable to the failure by any Released Party to perform
or observe any material agreement, covenant or condition contained in
this Agreement on or before the Sale Settlement Date, which, upon
demand by any of the Compost Entities, any such Released Party does not
promptly and substantially cure within five (5) business days
thereafter.
(b) The Lionhart Entities, jointly and severally, hereby
release, indemnify, hold harmless, remise, acquit and forever discharge
the Compost Entities, and their respective officers, directors,
employees, agents, representatives, consultants, attorneys,
professionals, fiduciaries, servants, partners, predecessors,
successors and assigns, subsidiary corporations or entities, parent
corporations or entities, and related divisions (collectively, the
"Compost Released Parties"), from and against any and all actions,
causes of actions, judgments, executions, suits, debts, claims,
demands, liabilities, obligations, damages and expenses, of any and
every character, known or unknown, direct or indirect, actual or
contingent, at law or in equity, of whatsoever kind or nature,
heretofore arising, for or because of any manner or things done or not
done, omitted or suffered to be done by any of the Compost Released
Parties prior to and including the Effective Date, and in any way
directly or indirectly relating to and/or arising out of or in any way
connected with (1) the Warrants and (2) the 1998 Registration Rights
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Agreement (collectively, the "Compost Released Claims"), including, but
not limited to, any and all Compost Released Claims that relate to or
arise from any negotiations, dialogue, communications, acts or
omissions by or on the part of any of the Compost Entities, or any of
their respective agents or representatives or any other Compost
Released Parties, on or prior to the Effective Date.
(c) The Compost Entities acknowledge that this Agreement, and
the considerations and/or transactions contemplated under this
Agreement, are intended to be in full satisfaction of all or any
alleged injuries or damages sustained by any and all of the Compost
Entities relating to or arising in connection with any of the Released
Claims.
(d) Each of the Compost Entities represent and warrant to the
Lionhart Entities that it has not, either directly or indirectly or
through operation of law, transferred, assigned, encumbered or
conveyed, or purported to transfer, assign, encumber or convey, any
right, title or interest of any of the Compost Entities in any Released
Claim to any other person, individual, partnership, corporation,
limited liability company, banking association, business trust, joint
stock company, trust, unincorporated association, joint venture,
governmental authority or other organization of whatever nature, and
that the foregoing constitutes a full and complete release of all such
Released Claims.
SECTION 3.4. No Litigation. The Compost Entities hereby covenant that
from the Effective Date of this Agreement until the earlier to occur of (a) the
expiration or termination of the Forbearance Period or (b) the Sale Settlement
Date, the Compost Entities will not institute, initiate or otherwise commence
any action, cause of action, judgment, execution, suit, claim, demand at law or
in equity, of whatsoever kind or nature, for or because of any manner or things
done or not done, omitted or suffered to done by any of the Lionhart Entities
prior to and including the Effective Date in any way directly or indirectly
relating to and/or arising out of or in any way connected to the Released Claims
(as such terms are defined in Section 3.3(a) hereof).
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND SUPPLEMENTAL CONDITIONS
SECTION 4.1. Representations and Warranties of the Compost Entities. As
of the Sale Settlement Date, except as otherwise indicated in this Section 4.1,
each of the Compost Entities makes the following representations and warranties
to the Lionhart Entities, all of which representations and warranties shall
continue thereafter until and shall expire on April 30, 2001:
(a) Obligations Absolute. The obligations of CAHC (and the
other Compost Entities) to pay in full and discharge the 1998 Note, at
the Closing on the Closing Date (as those terms are defined under the
Stock Purchase Agreement) and on the Sale Settlement Date, from the net
proceeds attributable to the Purchase Price to be paid by Synagro to
CAHC as provided under Section 3.2 of the Stock Purchase Agreement and
as provided under this Agreement, if all Restructuring Conditions occur
and are satisfied and the Escrow Agent releases from escrow the
Settlement Distribution and all Escrow Documents as provided under this
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Agreement, are absolute and unconditional, and, to the best knowledge
of CAHC after due inquiry, are permissible and are not prohibited under
any applicable law (including, without limitation, the New Jersey
Business Corporation Act), and there exists no right of setoff or
recoupment, counterclaim or defense of any nature whatsoever to such
repayment of the 1998 Loan and/or such payment in full and discharge of
the 1998 Note.
(b) Financial Statements. As of the Information Statement Date
(for purposes of this Section 4.1, the term "Information Statement
Date" means the date that the information statement is sent by mail to
the shareholders of CAHC), the Compost Entities have heretofore
furnished to the Lionhart Entities (i) the financial statements
(including the audited balance sheet and unauditied statements of
income and unaudited statements of cash flow) of CAHC, and its
subsidiaries, as of April 30, 1999, and (ii) the unaudited financial
statements of CAHC, and its subsidiaries, as of October 31, 1999 (the
"Financial Statements"). To the best knowledge of CAHC, after due
inquiry, and in reliance on reports prepared by professionals employed
or engaged by CAHC, the Financial Statements (i) were prepared in
accordance with the books of account and other financial records of
CAHC and its subsidiaries, (ii) present fairly the financial
conditions, results of operation and cash flows of CAHC and its
subsidiaries, as of the dates thereof and for the periods covered
thereby, (iii) have been prepared in accordance with GAAP applied on a
basis consistent with the past practices of CAHC and throughout the
periods involved, and (iv) include all adjustments that are necessary
for a fair presentation of the consolidated financial condition of
CAHC, and its subsidiaries, and the results of operations and cash
flows of Compost, and its subsidiaries, as of the dates thereof and for
the periods covered thereby (subject, in the case of the unaudited
financial statements of CAHC, and its subsidiaries, as of October 31,
1999, to normal and recurring year-end adjustments).
(c) Compost Entities-Organization; Corporate Existence. As of
the Effective Date, each of the Compost Entities: (i) is a corporation
duly organized, validly existing and in good standing under the laws of
a state of the United States of America, (ii) has all requisite
corporate power and authority to own its properties and to carry on its
business as now conducted and as proposed hereafter to be conducted,
(iii) is not required to be qualified to do business as a foreign
corporation in any jurisdiction in order to perform its obligations
under this Agreement, the Escrow Documents and the Stock Purchase
Agreement, and (iv) has all requisite corporate power and authority to
execute and deliver, and perform all of its obligations under, this
Agreement, the Escrow Documents and the Stock Purchase Agreement, to
which it is a party. True and complete copies of (x) the Certificate of
Incorporation of each Compost Entities, as amended and restated to
date, if applicable, and (y) the By-Laws of each Compost Entities,
together with all amendments thereto, have been furnished to the
Lionhart Entities.
(d) Authorization-Compost Entities. As of the Effective Date,
to the best knowledge of the Compost Entities, after due inquiry, the
execution, delivery and performance by each of the Compost Entities of
their obligations under, and the consummation by the Compost Entities
of, the agreements, documents, instruments and other transactions, as
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prescribed or contemplated under or that relate to or arise from this
Agreement and the Escrow Documents have been duly authorized by all
requisite corporate action, and are and constitute the legal, valid and
binding obligations of the Compost Entities that are parties thereto,
enforceable against such Compost Entities (who are parties thereto) in
accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and
similar laws of general applicability relating to or affecting
creditors' rights and to general equity principals, and will not, to
the best knowledge of the Compost Entities, after due inquiry, and in
material reliance on reports of professionals employed or engaged by
CAHC, either prior to or as a result of the consummation of the
transactions contemplated by this Agreement: (i) violate any provision
of any applicable law, any order of any court or other agency of
government, any provision of the Certificate of Incorporation or
By-Laws of any of the Compost Entities, or any contract, indenture,
agreement, document or other instrument to which any one or more of the
Compost Entities is a party, or by which any one or more of the Compost
Entities or any of its assets or properties are bound, or (ii) except
for the Potential Defaults, be in conflict with, result in a breach of,
or constitute (after the giving of notice of lapse of time or both) a
default under this Agreement or the Escrow Documents, or except for
such liens created by the Escrow Documents, result in the creation or
imposition of any lien of any nature whatsoever upon any of the
property or assets of any one or more of the Compost Entities pursuant
to, any such contract, indenture, agreement, document or other
instrument. Except in respect of the filing of a Form 8-K by CAHC with
the SEC under the Securities Exchange Act of 1934, as amended, as
applicable, the Compost Entities are not required to obtain any
government approval, consent or authorization from, or to file any
declaration or statement with, any governmental instrumentality or
agency in connection with or as a condition to the execution, delivery
or performance of any of this Agreement or the Escrow Documents.
(e) Litigation. As of the Information Statement Date, except
as disclosed on Schedule "4.1(e)" attached hereto, to the best
knowledge of the Compost Entities, there is no action, suit or
proceeding at law or in equity or by or before any governmental
instrumentality or other agency now pending against any Compost Entity,
which, if adversely determined, would have a material adverse effect on
any of such assets or on the business, operations, properties, assets
or condition, financial or otherwise, of such Compost Entity.
(f) Tax Returns. As of the Information Statement Date, the
Compost Entities have filed all federal, state and local tax returns
required to be filed by them and, except as set forth on Schedule
"4.1(f)" attached hereto, have paid or made adequate provision for the
payment of all federal, state and local taxes, charges and assessments.
(g) Security Interests. The security interests, liens, pledges
and encumbrances against and with respect to the collateral (the
"Collateral") that are granted to LGAF and the other Lionhart Entities
by the applicable Compost Entities under the (1) the 2000 MRCC Stock
Pledge Agreement (2) the 2000 Pledge and Security Agreement and (3) the
2000 Bedminster Stock Pledge Agreement (collectively, for purposes of
this Section 4.1(g), referred to as the "Security Documents"), upon the
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release of such Security Documents from escrow by the Escrow Agent,
will then constitute duly attached and perfected security interests,
liens, pledges or encumbrances, under applicable laws, pursuant to the
respective Security Documents, enforceable according to the respective
terms thereof, to secure the performance and discharge by the Compost
Entities of their respective duties, obligations and undertakings under
the Put Option Agreement.
(h) Stock Purchase Agreement. As of the Effective Date, upon
execution of the Stock Purchase Agreement by CAHC and Synagro, the
execution, delivery and performance by CAHC of the Stock Purchase
Agreement, and the consummation by CAHC of the agreements, documents,
instruments and other transactions, as prescribed or contemplated under
or that relate to or arise from the Stock Purchase Agreement, (i) shall
have been duly authorized by the Board of Directors of CAHC, and, will
be submitted properly to the shareholders of CAHC for approval or
disapproval thereof as prescribed under the New Jersey Business
Corporation Act, and (ii) subject to shareholder approval as
contemplated and required under the New Jersey Business Corporation
Act, will constitute the legal, valid and binding obligations of CAHC,
enforceable against CAHC in accordance with the terms and subject to
the conditions under the Stock Purchase Agreement.
(i) Fair Values. As of the Information Statement Date, the
considerations that the Lionhart Entities have undertaken to provide or
deliver to the Compost Entities under this Agreement and the Escrow
Documents, in exchange for the considerations that the Compost Entities
have undertaken to provide or deliver to the Lionhart Entities under
this Agreement and the Escrow Documents, is fair and represents fair
value and reasonably equivalent value to the Compost Entities. Also,
the Purchase Price, as described under Section 3.2 of the Stock
Purchase Agreement, was the subject of a bidding process conducted by
third party consultants and represents the highest and best bid
received from any qualified purchaser for the sale of the capital stock
of EPIC; based entirely upon reliance of the foregoing, to the
reasonable belief of CAHC, the Purchase Price, as described under
Section 3.2 of the Stock Purchase Agreement, is fair and represents
fair value and reasonably equivalent value to CAHC for the sale,
transfer and delivery by CAHC to Synagro of capital stock of EPIC as
contemplated under the Stock Purchase Agreement.
(j) Anticipated Financial Condition. As of the Information
Statement Date, to the best knowledge and information of the Compost
Entities after due inquiry, and based primarily upon the advice of
professionals employed or engaged by and for CAHC, CAHC reasonably
believes that it will not be or become insolvent under applicable laws
immediately after and as a result of (1) the closing and financial
settlement of the transactions contemplated under the Stock Purchase
Agreement, and (2) the execution and delivery of this Agreement and the
Escrow Documents, and the payment of the Settlement Distribution in
satisfaction of the 1998 Note, and (3) the payment and distribution by
CAHC, from the net proceeds attributable to the Purchase Price under
the Stock Purchase Agreement, of all other applicable sums to (i)
Finova Capital Corporation, (ii) Wasteco Ventures Limited, (iii) Robert
J. Longo, (iv) VRH Construction Corp., (v) Equity Investments of
Delaware, Inc., and/or (vi) any other lender or creditor of CAHC
(and/or any subsidiary thereof, including EPIC, MRCC and Bedminster).
14
<PAGE>
SECTION 4.2. Conditions Precedent. This Agreement shall not be
effective unless and until each of the following conditions shall have been
satisfied or waived in the sole discretion of the Lionhart Entities, on or prior
to the Effective Date:
(a) Authorization. The Lionhart Entities shall have received a
certified copy of all corporate action and resolutions taken by the
Compost Entities to authorize the agreement, execution, delivery and
performance of this Agreement, the Stock Purchase Agreement and all
Escrow Documents to which any of the Compost Entities is a party.
(b) Articles/Bylaws/Certificates. The Lionhart Entities shall
have received (1) a certified copy of the Articles or Certificate of
Incorporation of each Compost Entity, as amended and restated to date,
(2) the By-Laws of each Compost Entity, together with all amendments
thereto, certified to be true and accurate by an authorized officer
thereof; (3) an incumbency certificate for each Compost Entity, and (4)
a certificate of good standing or existence for each Compost Entity,
from the secretary of state of each jurisdiction in which each such
Compost Entity is incorporated or organized, and each jurisdiction, if
any, in which any such Compost Entity is or is required to be qualified
as a foreign corporation.
(c) Opinions of Counsel. The Lionhart Entities shall have
received, (1) an opinion of the Compost Entities' counsel, as to the
matters referred to in or contemplated under Sections 4.1(a), (c), (d),
(g), and (h) of this Agreement, substantially in the form as attached
hereto as Exhibit "I".
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Notices. Any document, notice, certificate or other
communications required or permitted to be given hereunder shall be in writing
and shall be (i) mailed by certified mail, return receipt requested (or by the
most nearly comparable method if mailed from or to a location outside of the
United States), (ii) delivered against receipt to the party to whom it is to be
given, by direct hand delivery or (iii) telecopied and followed immediately by
delivery of a hard copy of such document, notice, certificate or other
communication by overnight courier, with a copy to each of the other parties
hereto, to the following addresses:
To CAHC, Miami or Bedminster: c/o Compost America Holding
Company, Inc.
One Gateway Center
25th Floor
Newark, New Jersey 07102
Attn: Office of the President
Tel: 973-297-5400
Fax: 973-297-5454
15
<PAGE>
Copy to: Greenberg Traurig
2050 One Commerce Square
2005 Market Street
Philadelphia, Pennsylvania 19103
Attn: Theodore W. Mason
Tel: 215-988-7805
Fax: 215-988-7801
To Lionhart, LHI or GEP: Lionhart Global Appreciation
Fund, Ltd.; Lionhart
Investments, Ltd. or Global
EarthFund Partners, Ltd.
c/o John Thomas Drics, Esq.
O'Bryan Brazill & Drics, LLP
Bank One Center/Circle
111 Monument Circle, Suite 312
Indianapolis, Indiana 46204
Tel: 317-972-1112
Fax: 317-972-1118
Copy to: O'BRYAN, BRAZILL & DRICS, LLP
Bank One Center/Circle
111 Monument Circle, Suite 312
Indianapolis, Indiana 46204
Attn: Timothy P. Brazill, Esq.
Tel: 317-972-1112
Fax: 317-972-1118
To the Escrow Agent: Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
Attn: David Fontello
Tel: 302-651-1908
Fax: 302-427-4605
The parties hereto may, by notice given hereunder, designate
any further or different addresses to which subsequent notices, certificates or
other communications shall be sent. Any document, notice, certificate or
communication telecopied before the close of business on any day shall be deemed
to have been given on such day so long as such document, notice, certificate or
communication is followed by a hard copy via overnight courier as required by
this Section 5.1. Any document, notice, certificate or communication mailed
shall be deemed given three business days after the date of mailing. A duplicate
copy of each document, notice, certificate or other communication given
hereunder by any party to another party shall also be given to each of the other
parties.
16
<PAGE>
SECTION 5.2. Severability. If any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining portions hereof shall not in any way be affected or impaired
thereby.
SECTION 5.3. Applicable Law, Jurisdiction and Venue. The parties hereby
represent and warrant, and hereby promise, agree and covenant, as follows:
(a) This Agreement shall be governed by, construed in
accordance with, and shall be enforced under, the laws of the State of
New Jersey, exclusive of its rules relating to conflict of laws.
(b) Subject to applicable conflict of laws principles, the
parties shall accept venue with respect to all claims, actions or
lawsuits that relate to or arise from this Agreement, in any state
court of U.S. Court of competent jurisdiction that sits in Newark, New
Jersey. The parties each hereby, and irrevocably and unconditionally,
for itself and its properties, submits to the jurisdiction of any such
New Jersey court or U.S. Court sitting in Newark, New Jersey, and any
appellate court with jurisdiction thereover, in any action or
proceeding relating to or arising from this Agreement, or for the
recognition or enforcement of any judgment, and the parties each
hereby, and irrevocably and unconditionally, agrees, promises and
covenants that all such claims in respect of any such action or
proceeding shall be heard, determined and adjudicated in or by any such
New Jersey court or, to the extent permitted by applicable law, by any
such U.S. Court. The parties each hereby agree, promise and covenant
that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(c) The parties each hereby, and irrevocably and
unconditionally, waives, to the fullest extent under applicable law,
any defense or objection that it may now or hereafter have (1) to the
laying of venue of any suit, action or proceeding relating to or
arising from this Agreement, in any such New Jersey court or U.S. Court
sitting in Newark, New Jersey, or (2) to the personal jurisdiction
and/or preferred and proper venue of any such New Jersey court or any
such U.S. Court in Newark, New Jersey.
SECTION 5.4. Captions/Headings. The captions and headings that are set
forth in this Agreement are for the purpose of convenience only and are not
intended to be a part of this Agreement and shall not be deemed to modify,
explain, enlarge or restrict any of the provisions hereof.
SECTION 5.5. Binding Obligations. The terms and provisions, and
promises, covenants and undertakings of this Agreement, shall bind and be
enforceable against and upon the parties hereto, and its and their respective
successors and assigns and other legal agents and representatives, and shall
inure to the benefit of the parties hereto, and its and their respective
successors and assigns. If, at any time or times, by assignment or otherwise,
LGAF, LHI and/or GEP transfers any of their respective rights under this
Agreement, any such transfer shall carry with it LGAF's, LHI's and GEP's rights,
interests and powers under this Agreement, including all such rights, interests
and powers that relate to or arise from this Agreement. Subject to Section 5.10
of this Agreement, LGAF, LHI and GEP, in their sole discretion and at their sole
option, shall have the right to assign this Agreement, to any successor(s) or
assign(s) of LGAF, LHI and/or GEP.
17
<PAGE>
SECTION 5.6. JURY WAIVER. EACH OF THE PARTIES HERETO DOES HEREBY
KNOWINGLY, VOLUNTARILY, IRREVOCABLY, UNCONDITIONALLY AND INTENTIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PERSON. THIS IRREVOCABLE WAIVER OF THE RIGHT TO A JURY TRIAL IS A
MATERIAL INDUCEMENT FOR LGAF, LHI AND/OR GEP TO EXECUTE AND DELIVER, AND
OTHERWISE CONSUMMATE THE TRANSACTIONS CONTEMPLATED UNDER, THIS AGREEMENT.
SECTION 5.7. Counterparts/Facsimile. This Agreement may be executed in
any number of counterparts, and each by fax, e-mail or other digital or
telephonic transmission, and each of which shall be an original, but all of
which together will constitute one and the same instrument.
SECTION 5.8. Written Instrument Requirement. This Agreement cannot be
altered, amended, modified or discharged orally and no executory agreement shall
be effective to modify or discharge this Agreement, in whole or in part, unless
it is in writing and signed by the party against whom enforcement of the
modification, alteration, amendment or discharge is sought.
SECTION 5.9. Assignment. This Agreement, and any rights hereunder, may
be assigned by LGAF, LHI and GEP, or any of their respective participants and/or
successors and assigns, at their sole discretion and option; notwithstanding the
foregoing, the Lionhart Entities shall not have any right to assign or delegate
any of its rights or obligations under this Agreement until the Forbearance
Period is or has expired under Section 3.1 of this Agreement. This Agreement and
the rights hereunder may not be assigned by the Compost Entities, and the
Compost Entities shall not delegate any of their respective duties under this
Agreement, in whole or in part, without the advance written consent of the
Lionhart Entities (pursuant to which any such consent may be granted or withheld
in the sole discretion of the Lionhart Entities).
SECTION 5.10. Rights and Obligations of Escrow Agent.
(a) Escrow Agent undertakes to perform only such duties
expressly set forth herein and no implied duties or obligations shall
be read into this Agreement against the Escrow Agent. In acting
hereunder, Escrow Agent shall not be liable for any act done, or
omitted to be done, by it in the absence of gross negligence or willful
misconduct.
(b) Escrow Agent may act in reliance upon any writing or
instrument or signature which it, in good faith, believes to be
genuine, and may assume the validity and accuracy of any statement or
assertion contained in such a writing or instrument and may assume that
any person purporting to give any writing, notice, advice or
instruction in connection with the provisions hereof has been duly
authorized to do so.
18
<PAGE>
(c) Escrow Agent shall not be required to use its own funds in
the performance of any of its obligations or duties or the exercise of
any of its right or powers, and shall not be required to take any
action which, in Escrow Agent's sole and absolute judgment, could
involve it in expense or liability unless furnished with security and
indemnity which it deems, in its sole and absolute discretion, to be
satisfactory.
(d) Escrow Agent shall be entitled to consult with legal
counsel in the event that a question or dispute arises with regard to
the construction of any of the provisions hereof. Escrow Agent shall
incur no liability and shall be fully authorized to act and protected
in acting in accordance with the advice or opinion of such counsel.
(e) CAHC shall pay to Escrow Agent compensation for its
services hereunder in the amount of [$11,000]. In the event Escrow
Agent renders any extraordinary services in connection with the escrow
account at the request of the parties, Escrow Agent shall be entitled
to additional compensation therefore to be determined from time to time
by the application of the current rates then charged by Escrow Agent.
The terms of this paragraph shall survive the termination of this
Agreement.
(f) The parties thereto (other than Escrow Agent) hereby
agree, jointly and severally to indemnify Escrow Agent and hold it
harmless from any and against all liabilities, losses, actions, suits
or proceedings at law or in equity, and any other expenses, fees or
charges of any character or nature, including without limitation,
attorney's fees, which Escrow Agent may incur or with which it may be
threatened by reason of its acting as Escrow Agent under this Agreement
or arising out of the existence of the escrow account, except to the
extent the same shall be caused by Escrow Agent's gross negligence or
willful misconduct. In so agreeing to indemnify, hold harmless and
reimburse Escrow Agent, the parties intend thereby to cover all losses,
claims, damages, liabilities and expenses, including reasonable cost of
investigation and counsel fees and disbursements, which may be imposed
upon Escrow Agent or incurred in connection with its acceptance of
appointment as Escrow Agent hereunder or the performing of its duties
hereunder, including any litigation arising from this Agreement. Escrow
Agent shall have a first lien against the escrow account to secure the
obligations of the parties hereunder. The terms of this paragraph shall
survive termination of this Escrow Agreement.
(g) In the event the Escrow Agent receives from any third
party (other than any of the Lionhart Entities and/or the Compost
Entities) any notice of objection, dispute or other assertion regarding
any of the provisions of this Agreement prior to the release from
escrow and delivery of the Escrow Documents and the Settlement
Distribution, the Escrow Agent shall release and deliver from escrow
the Escrow Documents and the Settlement Distribution upon reliance on
this Section 5.10.
[THE REMAINDER OF THIS PAGE IS DELIBERATELY BLANK]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by this respective duly
authorized and appoint officer, have executed and delivered this Agreement,
effective on this 29th day of March, 2000 as follows:
<TABLE>
<CAPTION>
<S> <C>
LIONHART GLOBAL APPRECIATION
FUND, LTD., individually and
as agent for the Lionhart Entities COMPOST AMERICA HOLDING COMPANY, INC.
- -------------------------------------- --------------------------------------------
Signature Signature
- -------------------------------------- --------------------------------------------
Printed Printed
- -------------------------------------- --------------------------------------------
Title Title
LIONHART INVESTMENTS, LTD. MIAMI RECYCLING AND COMPOSTING COMPANY, INC.
- -------------------------------------- --------------------------------------------
Signature Signature
- -------------------------------------- --------------------------------------------
Printed Printed
- -------------------------------------- --------------------------------------------
Title Title
GLOBAL EARTHFUND PARTNERS, L.L.C. BEDMINSTER SEACOR SERVICES MIAMI CORPORATION
- -------------------------------------- --------------------------------------------
Signature Signature
- -------------------------------------- --------------------------------------------
Printed Printed
- -------------------------------------- --------------------------------------------
Title Title
</TABLE>
<PAGE>
ACCEPTED AND AGREED TO ON
March 29, 2000, BY THE ESCROW AGENT
WILMINGTON TRUST COMPANY
- --------------------------------------
Signature
- --------------------------------------
Printed
- --------------------------------------
Title
CAHC and Affiliate Litigation & Arbitration Summary
<TABLE>
<CAPTION>
Date Court CAHC Attorneys Plaintiff's Prayer
Parties Filed
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bedminister Seacor 09/98 11th Judicial Circuit Nagin Gallop Specific
Services Miami in Miami, Dade Figueredo (Scott Performance,
Corporation v The County Florida Cagan), 3225 Compensatory and
City of Miami Aviation Avenue, Consequential
3rd Floor, Miami, FL Damages, all
33133 unliquidated
- ----------------------------------------------------------------------------------------------------
Bio-Services v CAHC 09/98 Superior Court of Cuyler Burk, (Rich $333,125 and 12,500
and Monmouth NJ, Monmouth Crooker) unregistered CAHC
Composting and County Parsippany shares
Recycling Company, Corporate Center,
Inc. 4 Century Drive,
Parsippany, NJ
07054-4663
- ----------------------------------------------------------------------------------------------------
Brownfield Partners 03/99 Superior Court of Cuyler Burk, (Rich $200,000 plus
of Freehold v NJ, Monmouth Crooker) interest, secured by
Monmouth Recycling County Parsippany mortgage on
and Composting Corporate Center, Freehold property
Company, Inc. 4 Century Drive, (Burke Road)
Parsippany, NJ
07054-4663
- ----------------------------------------------------------------------------------------------------
Brownfield Partners 08/99 Superior Court of Cuyler Burk, (Rich Foreclosure on
of Freehold v NJ, Monmouth Crooker) Freehold property
Monmouth Recycling County Parsippany (Burke Road)
and Composting Corporate Center,
Company, Inc. 4 Century Drive,
Parsippany, NJ
07054-4663
- ----------------------------------------------------------------------------------------------------
David J. Egarian, P. 09/99 Superior Court of Cole, Schotz, Entry of Default
E. and D. J. Egarian & New Jersey, Morris Meisel, Forman & Judgment based on
Associates v CAHC County Leonard, 25 Main, contract for
and NRCC Hackensack, NJ $35,009.22
07602 (Ed Kiel)
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Litigation- Settlement Settlement Status
Parties Arbitration Status Proposed or to be
Proposed
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bedminister Seacor Scheduling Unspecified offer Dormant
Services Miami Depositions. Case promised 07/99 by
Corporation v The resolution the City of Miami.
City of Miami expected Q-4 2000
- --------------------------------------------------------------------------------------------------
Bio-Services v CAHC A Summary CAHC will appeal Settlement
and Monmouth Judgement was the entry of the discussions
Composting and entered for Plaintiff Summary underway.
Recycling Company, on 10/08/99. On Judgement and
Inc. 12/10/99 CAHC attempt to settle.
granted leave to
join M. Marchese
as an additional
Defendant
personally.
- --------------------------------------------------------------------------------------------------
Brownfield Partners Dismissed 02/00
of Freehold v w/o prejudice for
Monmouth Recycling Plaintiff's failure
and Composting to respond to
Company, Inc. Defendant's
discovery
requests.
- --------------------------------------------------------------------------------------------------
Brownfield Partners Pending filing an Settlement
of Freehold v answer by 12/99 discussions
Monmouth Recycling underway as of
and Composting 12/22/99.
Company, Inc.
- --------------------------------------------------------------------------------------------------
David J. Egarian, P. Motion pending to Settlement offer of Settled 11/12/99
E. and D. J. Egarian & set aside plaintiff's $5,000, followed by
Associates v CAHC default judgment 6 $5,000 monthly
and NRCC payments accepted
by Plaintiff.
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Court CAHC Attorneys Plaintiff's Prayer
Parties Filed
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R.W. Jones & 09/99 Superior Court of Gibbons, Del Deo, All Success Fees,
Associates, Inc. and New Jersey, Essex Griffinger & Consulting Fees,
R. W. Jones, III v County Vecchione, One Attorney Fees and
CAHC, R. J. Longo Riverfront Plaza, 1.5% interest /month
Construction Newark, NJ 07102 on owed arrearage.
Company, Inc., R. J.
Longo Construction
Company, d/b/a/
EPIC, EPIC, and
Roger E. Tuttle
- ----------------------------------------------------------------------------------------------------
NuCentury Auto, Inc. 02/99 Circuit Court of the Smith & Herzog $266,256 plus
v CAHC 12th Judicial Circuit (Mark Smith) - 200 interest and costs
- Will County, West Madison (estimated
Illinois Street - Suite 1950, $300,000+), based
Chicago 60606 on oral contract with
CRCC
- ----------------------------------------------------------------------------------------------------
Devro-Teepak, Inc. v 09/99 US District Court Smith & Herzog $309,024.35 as of
CAHC for Northern (Mark Smith) - 200 04/01/99, plus
District, Illinois West Madison
interest @ $72 /day Street
- Suite 1950, and costs,
based on Chicago 60606
written contract.
- ----------------------------------------------------------------------------------------------------
Capital Active 10/98 Superior Court of General Counsel $145,020 plus
Funding, Inc. V Arizona, Maricopa interest and costs
CAHC, Ronald K. County
Bryce and Cynthia L.
Bryce, d.b.a. Bryce
Joint Venture, RC
Land Company, Inc.,
Clint Colvin and
Leslie Colvin, d.b.a.
Colvin Farms and
Micro Rubber, Inc.
- ----------------------------------------------------------------------------------------------------
Kaplan Gottbetter 12/98 Federal District Moskowitz and $1.1 million in fees
and Levinson, LLP Court, Souther Book, (Chaim based on a
and Adam S. District of New Book) 1372 consulting contract.
Gottbetter v CAHC York Broadway, New
York, NY
- ----------------------------------------------------------------------------------------------------
Center Capital Corp v 03/99 Superior Court of Cole, Schotz, $46,945.85 and
CAHC New Jersey, Meisel, Forman & costs
Bergen County Leonard, 25 Main,
Hackensack, NJ
07602 (Ed Kiel)
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Litigation- Settlement Settlement Status
Parties Arbitration Status Proposed or to be
Proposed
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
R.W. Jones & Time for filing an Single payment of Settlement
Associates, Inc. and answer delayed to $843,750 and finalized between
R. W. Jones, III v 04/15/00, to allow $10,000 legal fees Jones and CAHC.
CAHC, R. J. Longo finalization of on or before
Construction settlement 02/15/00.
Company, Inc., R. J. payment, with
Longo Construction further delay to
Company, d/b/a/ 05/15/00 upon
EPIC, EPIC, and presentation of
Roger E. Tuttle signed EPIC sale
agreement, and
authorizing Board
of Director
Resolution.
- --------------------------------------------------------------------------------------------------
NuCentury Auto, Inc. Defendant's Considering offering Dormant
v CAHC answer filed 11/99 a lump sum of
$50,000.
- --------------------------------------------------------------------------------------------------
Devro-Teepak, Inc. v Defendant's Considering offering Dormant
CAHC answer filed 11/99 a lump sum of
$150,000
- --------------------------------------------------------------------------------------------------
Capital Active Default Judgment Settlement offer Settlement offer
Funding, Inc. V entered. accepted for an accepted by
CAHC, Ronald K. initial payment of Plaintiff 10/07/99
Bryce and Cynthia L. $50,000 and and finalized by
Bryce, d.b.a. Bryce remainder in a written agreement
Joint Venture, RC single payment in 6 completed and
Land Company, Inc., months. signed by Plaintiff
Clint Colvin and
Leslie Colvin, d.b.a.
Colvin Farms and
Micro Rubber, Inc.
- --------------------------------------------------------------------------------------------------
Kaplan Gottbetter Settlement offer for Offer Accepted by Final Settlement.
and Levinson, LLP $350,000, $50,000 Plaintiff on 09/24/99 Initial Payment
and Adam S. paid followed by made 09/24/99
Gottbetter v CAHC fifteen $20,000
monthly payments
- --------------------------------------------------------------------------------------------------
Center Capital Corp v Default judgement N/A Plaintiff is in
CAHC entered 10/08/99 possession of the
for $36,979.80 and mortgaged
$231.20 in costs. equipment and
Plaintiff levied selling same. All
execution on monies formerly
CAHC's bank attached by
account and Plaintiff returned
collected the to CAHC, except
judgment amount for $5,000 being
held in escrow to
cover any
deficiency in the
sale price.
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Court CAHC Attorneys Plaintiff's Prayer
Parties Filed
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Investments of 05/99 Superior Court of None $1,000,000 plus
Delaware v CAHC and New Jersey, Essex interest and costs,
NRCC County based on note*.
- ----------------------------------------------------------------------------------------------------
Kenny Nachwalter 08/99 American Warren Trazenfield, $153,920.46 for
Seymour Arnold Arbitration PA, Suite 1870, Legal Fees on the
Critchlow & Spector, Association - First Union City of Miami
PA and CAHC, MRCC Miami Financial Center, Lawsuit
and BSS 200 South
Biscayne
Boulevard, Miami,
FL
- ----------------------------------------------------------------------------------------------------
Dughi & Hewit v 10/99 Superior Court of General Counsel $26,931.43, interest,
CAHC and NRCC New Jersey, Union costs and attorneys
County fees
- ----------------------------------------------------------------------------------------------------
Roger Tuttle v CAHC 11/99 Superior Court of Gibbons, Del Deo, 930,000 replacement
New Jersey, Essex Griffinger & shares, $264,738
County Vecchione, One repayment of loans,
Riverfront Plaza, $1,473,191 plus
Newark, NJ 07102 interest in accrued
salary
- ----------------------------------------------------------------------------------------------------
Kaysons International 11/99 Supreme Court of Gibbons, Del Deo, $150,000 on a note
Corp v CAHC New York, County Griffinger & @ 10% interest, as
of Westchester Vecchione, One well as a suit for
Riverfront Plaza, 30,000 penalty
Newark, NJ 07102 shares of CAHC for
each month when
the note payment
was not made.
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Litigation- Settlement Settlement Status
Parties Arbitration Status Proposed or to be
Proposed
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Investments of A default judgment Settlement Stalled pending
Delaware v CAHC and was taken without discussion additional funding
NRCC notice 09/99. underway. available to
CAHC.
- ---------------------------------------------------------------------------------------------------
Kenny Nachwalter Document Non-binding Matter settled in
Seymour Arnold Production Mediation mediation for
Critchlow & Spector, conference held payment of
PA and CAHC, MRCC 02/22/00. $100,000: $30,000
and BSS 05/01/00, $25,000
each on 06/01/00
& 07/01/00 and
$20,000 on
08/01/00.
- ---------------------------------------------------------------------------------------------------
Dughi & Hewit v Plaintiffs extending Verbal settlement, Settlement
CAHC and NRCC settlement date CAHC to pay $7,500 finalized 02/00
pending followed by 5 and initial
finalization of monthly payments payment made.
settlement docs. of $2,500
- ---------------------------------------------------------------------------------------------------
Roger Tuttle v CAHC Answer and Settlement No finalized
Counter-claim filed discussions settlement
12/10/99. underway. reached.
- ---------------------------------------------------------------------------------------------------
Kaysons International Summary Payment of $40,000, Settlement
Corp v CAHC Judgement entered followed by monthly proposal being
for Plaintiff payments of $30,000 considered by
03/03/00 for and $80,000, plus Plaintiff.
$150,000, interest interest and costs.
and costs. The
litigation regarding
penalty shares is
still a matter in
controversy.
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Court CAHC Attorneys Plaintiff's Prayer
Parties Filed
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pisani v. CAHC 01/00 Superior Court of Cuyler Burk, (Rich Breach of
New Jersey, Essex Crooker) Consulting
County Parsippany Contract, seeking
Corporate Center, damages of
4 Century Drive, $175,000, interest,
Parsippany, NJ attorneys fees and
07054-4663 costs
- ----------------------------------------------------------------------------------------------------
Biological and 02/00 County Court, None Suit on Account,
Environmental Broward County, $8568.14, plus
Services V CAHC & FL interest and costs
MRCC
- ----------------------------------------------------------------------------------------------------
Mehr & LaFrance v 01/00 Superior Court of None Suit for legal fees,
CAHC New Jersey, Essex $5,000 plus interest
County and costs
- ----------------------------------------------------------------------------------------------------
Resource 02/00 Circuit Court, 11th None Beach of Settlement
Reclamation Judicial Circuit, Agreement,
Services, Inc. V Miami-Dade $350,000, interest
CAHC County, FL and costs
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Litigation- Settlement Settlement Status
Parties Arbitration Status Proposed or to be
Proposed
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pisani v. CAHC CAHC served - None N/A
1/10/00. Answer
filing date delayed
to 04/031/00 to
allow counsel time
to prepare.
- --------------------------------------------------------------------------------------------------
Biological and CAHC served Payment in full on or Awaiting answer
Environmental 02/08/00. Answer about 05/15/00. on settlement
Services V CAHC & date extended offer from
MRCC indefinitely to allow Plaintiff.
Plaintiff time to consider the current settlement
offer.
- --------------------------------------------------------------------------------------------------
Mehr & LaFrance v CAHC served None N/A
CAHC 01/20/00. Answer
date extended to
03/24/00
- --------------------------------------------------------------------------------------------------
Resource CAHC served None $225,000 has
Reclamation 02/02/00, with been paid. As
Services, Inc. V answer date long as monthly
CAHC extended to payments of
03/22/00 $50,000 are timely
made, this matter
will be continued.
- --------------------------------------------------------------------------------------------------
</TABLE>
* - A second note for $2,000,000, plus accrued intereson both notes of
$700,000, is cross-defaulted. The total amount due on both notes is
$3,700,000. Page 1
<PAGE>
===============================================================================
PUT OPTION AGREEMENT
by and among
Compost America Holding Company, Inc.,
Miami Recycling and Composting Company, Inc.
and
Bedminster Seacor Services Miami Corporation
and
Lionhart Global Appreciation Fund, Ltd.,
Lionhart Investments, Ltd.
and
Global EarthFund Partners, L.L.C.
Date: March 29, 2000
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Definitions and Interpretation....................................2
Section 2. Amended/Restated Put Option No. 1.................................5
Section 3. Restated/Amended Put Option No. 2.................................8
Section 4. Effectiveness....................................................10
Section 5. Miami/Bedminster Guaranty........................................10
Section 6. Termination......................................................13
Section 7. Security.........................................................13
Section 8. Waiver and Amendment.............................................13
Section 9. Binding Effect...................................................13
Section 10. Successors and Assigns..........................................14
Section 11. Severability....................................................14
Section 12. Sole and Entire Agreement.......................................14
Section 13. Multiple Counterparts/Facsimile Signatures......................14
Section 14. Notices.........................................................14
Section 15. Applicable Law, Jurisdiction and Venue..........................14
Section 16. Jury Waiver.....................................................15
Section 17. Written Instrument Requirement..................................15
Section 18. Assignment......................................................15
Section 19. Substitution of Collateral......................................16
(i)
<PAGE>
PUT OPTION AGREEMENT
THIS PUT OPTION AGREEMENT (the "Agreement") is made and entered into as
of March 29, 2000, by and among COMPOST AMERICA HOLDING COMPANY, INC. ("CAHC"),
MIAMI RECYCLING AND COMPOSTING COMPANY, INC. ("MRCC") and BEDMINSTER SEACOR
SERVICES MIAMI CORPORATION ("Bedminster"; CAHC, MRCC and Bedminster are referred
to collectively at times as the "Compost Entities"), and, LIONHART GLOBAL
APPRECIATION FUND, LTD. ("Lionhart" or "LGAF"), for itself and as collateral
agent for LIONHART INVESTMENTS, LTD. ("LHI") and GLOBAL EARTHFUND PARTNERS,
L.L.C. ("GEP"; LGAF, LHI and GEP are referred to at times collectively as the
"Lionhart Entities" and the Compost Entities and the Lionhart Entities are
referred to collectively at times as the "Original Parties").
RECITALS:
A. The Original Parties previously entered into a Credit,
Capitalization and Financing Agreement dated October 30, 1998 (the "1998
Agreement") whereby, among other terms, Lionhart made a loan of $10,500,000 to
the Compost Entities, bearing interest at a non-default rate of 10.5% per annum
and maturing no later than October 1, 2000 (the "1998 Loan"). The 1998 Loan is
further evidenced by a Mortgage Note dated October 30, 1998 in the principal
amount of $10,500,000, constituting a joint and several obligation of each of
the Compost Entities (the "1998 Note").
B. On March 29, 2000, and contemporaneously with the execution and
delivery of this Agreement, the Compost Entities, the Lionhart Entities and the
Escrow Agent (as that term is defined in the Restructuring Agreement (as defined
hereafter)) have executed a Restructuring and Settlement Agreement (the
"Restructuring Agreement"). Pursuant to the terms and subject to the conditions
set forth in the Restructuring Agreement, the Compost Entities and the Lionhart
Entities have executed and delivered to the Escrow Agent 1) this Agreement, and
2) the other "Escrow Documents" (as that term is defined under the Restructuring
Agreement).
C. In addition to the 1998 Agreement, one or more of the Original
Parties executed and delivered the 1998 Documents, as that term is defined under
the Restructuring Agreement (the "1998 Documents"), on or about October 30,
1998.
D. Under the terms of the 1998 Agreement, Lionhart received (i) a put
option ("Put Option No. 1") with respect to 400,000 shares of CAHC Series B
convertible preferred stock owned by LGAF ("Series B Preferred Shares"), before
or after such Series B Preferred Shares are converted on a one for one basis to
CAHC common shares ("Conversion Common Shares"), to be exercisable by LGAF at
the time and paid by CAHC at a price of $3.10 per share , pursuant to the terms
and subject to the conditions set forth in Article IX of the 1998 Agreement, and
(ii) an additional put option ("Put Option No. 2"), with respect to 553,386 CAHC
common shares owned by LGAF immediately following the closing of the 1998 Loan
(the "Excess Common Shares"), to be exercisable by LGAF at the time and paid by
CAHC at a price of $3.20 per share, pursuant to the terms and subject to the
conditions set forth in Article X of the 1998 Agreement.
<PAGE>
E. This Agreement shall not be effective, and shall be null and void
and of no force or effect whatsoever unless and until the Escrow Agent releases
and delivers this Agreement from escrow as contemplated under, and pursuant to
the terms and subject to the conditions set forth in, the Restructuring
Agreement; and, this Agreement is and shall only be effective and valid, binding
and enforceable among the Original Parties, if and only if the Escrow Agent
releases and delivers this Agreement from escrow as contemplated under, and
pursuant to the terms and subject to the conditions set forth in, the
Restructuring Agreement.
F. Pursuant to the terms and subject to the conditions set forth in
this Agreement, the Original Parties wish to amend and restate separately in
this Agreement the provisions of the 1998 Agreement concerning Put Option No. 1
and Put Option No. 2.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Original Parties
hereby agree as follows:
Section 1. Definitions and Interpretation. Unless the context otherwise
requires, the capitalized terms used in this Agreement shall have the respective
meanings assigned to them in the opening paragraph and the recitals to this
Agreement, and elsewhere in this Agreement; capitalized terms not otherwise
defined herein shall have the respective meanings assigned to them in the
Restructuring Agreement, the 2000 CAHC Stock Pledge Agreement, the 2000 MRCC
Stock Pledge Agreement and the 2000 Bedminster Stock Pledge Agreement (as those
terms are defined in the Restructuring Agreement) and/or the other Escrow
Documents; and, the following terms shall have the following meanings:
"Event of Default" shall mean and include any of the following events:
1) any default, breach or violation by CAHC under this
Agreement, in the due, full and prompt payment and discharge in full by
CAHC of any obligation (i) to pay and deliver any sum of money or funds
to LGAF which is not cured within (10) business days of such nonpayment
and a reasonable opportunity to cure, which shall in no event be more
than ten (10) business days; or (ii) to issue and deliver the Bonds to
LGAF; or
2) except for any "Event of Default" with respect to any Put
Option Obligations as provided under subparagraph (1) of this
definition of "Event of Default," any other material default, breach or
violation by CAHC under this Agreement in the due, full and prompt
performance and discharge by CAHC of any other Put Option Obligations,
after written notice of any such default by LGAF to CAHC, and a
reasonable opportunity to cure the same, which shall in no event be
less than thirty (30) days nor more than sixty (60) days; or
3) any of the Compost Entities shall voluntarily be
adjudicated a bankrupt or insolvent, seek or consent to the appointment
of a receiver, trustee or conservator for any or all of them, or for
all or any part of their respective properties or assets, file a
petition seeking relief under the Bankruptcy Law (as defined herein),
or any state or any other competent jurisdiction, make any general
assignment for the benefit of creditors, or admit in writing that any
or all of them is or are bankrupt or insolvent or unable to pay debts
as such debts mature; or
2
<PAGE>
4) a U.S. Bankruptcy Court or any other court of competent
jurisdiction shall enter an order, judgment or decree appointing a
receiver or trustee for any of the Compost Entities, or for all or
substantially all of their respective properties or assets, or
approving a petition filed against any of the Compost Entities seeking
relief under the Bankruptcy Law (as defined herein); or
5) any material default, breach or violation by CAHC under the
2000 CAHC Stock Pledge Agreement in the due, full and prompt
performance and discharge by CAHC of any CAHC Pledge Agreement
Obligations (as defined in the 2000 CAHC Stock Pledge Agreement) after
written notice of such nonperformance and a reasonable opportunity to
cure the same, which shall in no event be less than thirty (30) days
nor more than sixty (60) days; provided, however, that with respect to
any material default, breach or violation by CAHC with respect to its
CAHC Pledge Agreement Obligations under Section 6.02 of the 2000 CAHC
Stock Pledge Agreement, such material default, breach or violation by
CAHC shall not be considered an "Event of Default" until after notice
of such nonperformance and a reasonable opportunity to cure the same,
which shall in no event be more than three (3) business days; or
6) any material default, breach or violation by CAHC under the
2000 MRCC Stock Pledge Agreement in the due, full and prompt
performance and discharge by CAHC of any MRCC Pledge Agreement
Obligations (as defined in the 2000 MRCC Stock Pledge Agreement) after
written notice of such nonperformance and a reasonable opportunity to
cure the same, which shall in no event be less than thirty (30) days
nor more than sixty (60) days; provided, however, that with respect to
any material default, breach or violation by CAHC with respect to its
MRCC Pledge Agreement Obligations under Section 6.02 of the 2000 MRCC
Stock Pledge Agreement, such material default, breach or violation by
CAHC shall not be considered an "Event of Default" until after notice
of such nonperformance and a reasonable opportunity to cure the same,
which shall in no event be more than three (3) business days; or
7) any material default, breach or violation by MRCC under the
2000 Bedminster Stock Pledge Agreement in the due, full and prompt
performance and discharge by MRCC of any Bedminster Pledge Agreement
Obligations (as defined in the 2000 Bedminster Stock Pledge Agreement)
after written notice of such nonperformance and a reasonable
opportunity to cure the same, which shall in no event be less than
thirty (30) days nor more than sixty (60) days; provided, however, that
with respect to any material default, breach or violation by MRCC with
respect to its Bedminster Pledge Agreement Obligations under Section
6.02 of the 2000 Bedminster Stock Pledge Agreement, such material
default, breach or violation by MRCC shall not be considered an "Event
of Default" until after notice of such nonperformance and a reasonable
opportunity to cure the same, which shall in no event be more than
three (3) business days; or
3
<PAGE>
8) any material default, breach or violation by any Compost
Entity under the 2000 Pledge and Security Agreement after written
notice of such default, breach or violation and a reasonable
opportunity to cure the same, which shall in no event be less than
thirty (30) days nor more than sixty (60) days; provided, however, that
no notice and opportunity to cure shall be required for any such
default, breach or violation resulting from a failure to deposit
proceeds of any Collateral Sale in the Cash Collateral Account in
accordance with the requirements of Section 3(b) of the 2000 Pledge and
Security Agreement; or,
9) the failure of the Compost Entities to establish the cash
collateral account in the manner required by the Cash Collateral
Account Agreement or the failure of the Compost Entities to deposit in
such cash collateral account all sums required to be deposited therein
by the Cash Collateral Account Agreement.
"Financial Closing of the Miami Project" shall mean the financial
closing of a project financing in excess of $25,000,000 by MRCC or any other
subsidiary or affiliate of CAHC for the Miami Project and receipt of bond or
loan proceeds for such Miami Project (excluding escrowed or restricted proceeds)
by MRCC or such other affiliate or subsidiary of CAHC.
"Miami Project" shall mean the development, construction and/or
acquisition by CAHC, MRCC or Bedminster, or any of their respective affiliates,
subsidiaries or successors or assigns of a composting facility or any other
waste processing, recycling, reclamation or transportation facility, including,
without limitation, a waste transfer station in Miami-Dade County, Florida.
"Put Election No. 1" shall have the meaning specified in Section 2 of
this Agreement.
"Put Election No. 2" shall have the meaning specified in Section 3 of
this Agreement.
"Put Option Date" with respect to Put Option No. 1 and Put Option No. 2
shall mean the earlier of (i) March 29, 2002 or (ii) the date corresponding to
the Financial Closing of the Miami Project.
"Put Option Obligations" shall mean all of the indebtedness,
obligations, duties, undertakings and liabilities of CAHC to LGAF under this
Agreement, whether direct or indirect, absolute or contingent, liquidated or
disputed, due or to become due, now existing or hereafter arising, and any and
all modifications, amendments, restatements, extensions, renewals, supplements
and replacements thereof, and all reasonable costs and expenses incurred or paid
or incurred by LGAF or the other Lionhart Entities to enforce this Agreement, or
any rights thereunder, upon the occurrence of any Event of Default; provided,
however that the Put Option Obligations shall not exceed in the aggregate the
amount required to pay the Puts.
"Puts" shall mean collectively the rights granted to Lionhart with
respect to Put Option No. 1 and Put Option No. 2.
Unless the context clearly requires otherwise, as used in this
Agreement, words of any gender shall be construed to include each other gender
when appropriate and words of the singular number shall be construed to include
the plural number, and vice versa, when appropriate.
4
<PAGE>
The titles, captions, and headings of the sections of this Agreement
have been inserted for convenience of reference only, and are not to be
considered a part hereof and shall not in any way modify or restrict any of the
terms or provisions hereof or be considered or given any effect in construing
this Agreement or any provisions hereof or in ascertaining intent, if any
question of intent shall arise.
The parties acknowledge that each party, and their respective counsel
have participated in the drafting and revision of this Agreement.
Section 2. Amended/Restated Put Option No. 1. Put Option No. 1, granted
by CAHC to LGAF in Article IX of the 1998 Agreement, is hereby amended and
restated in its entirety, as follows:
(a) With respect to all of the Series B Preferred Shares or
any Conversion Common Shares converted from the Series B Preferred
Shares, CAHC hereby confirms that it has granted to LGAF, and hereby
reaffirms that CAHC grants, conveys, transfers and delivers to LGAF, a
put option (referred to herein as "Put Option No. 1"), for and with
respect to each and every share of Series B Preferred Share or any
Conversion Common Share converted from any Series B Preferred Share,
that is and shall be exercisable at any time in the sole discretion and
election of LGAF strictly in accordance with this Section 2, and
pursuant to which, upon any exercise thereof by LGAF, LGAF shall be
deemed conclusively to have exercised its Put Option No. 1 with respect
to all such Series B Preferred Shares and Conversion Common Shares, and
LGAF shall have the right to demand and compel CAHC to purchase from
LGAF, and CAHC shall then and thereupon have the unconditional duty and
obligation to purchase from LGAF, all such Series B Preferred Shares or
Conversion Common Shares, pursuant to the terms and subject to the
conditions of Put Option No. 1, as set forth in this Section 2.
(b) Any exercise of Put Option No. 1 is and shall be subject
to the following procedures and conditions:
(i) Put Option Election. In order to elect to
exercise Put Option No. 1, LGAF shall deliver to CAHC, via fax
(followed promptly by a hard copy) or hard copy, a written
notice of an election at any such time ("Put Election No. 1"),
not more than twenty (20) business days before and not less
than ten (10) business days prior to the Put Option Date.
(ii) Put Purchase Price. Upon the receipt by CAHC of
any such Put Election, LGAF shall have the duty to sell to
CAHC, and CAHC shall have the duty to purchase from LGAF, on
the Put Option Date, all such Series B Preferred Shares and/or
Conversion Common Shares, for the purchase price ("Put
Purchase Price No. 1") of US $3.10 per share, which shall be
paid by CAHC to LGAF in US cash or currency, or equivalent
good US funds, on the Put Option Date.
5
<PAGE>
(iii) Lapse. If the Put Option No. 1 is not exercised
by LGAF as provided under this Section 2, then Put Option No.
1 shall then terminate and lapse, and shall thereafter be of
no legal force or effect.
(c) The Compost Entities hereby agree, promise and covenant 1)
to use commercially reasonable efforts to notify LGAF, in writing, at
least ninety (90) days prior to the approximate date corresponding to
the "Financial Closing of the Miami Project," as anticipated by the
respective management of the Compost Entities, 2) upon any demand by
LGAF, but, in any case, not more frequently than on a calendar quarter
basis, provide to LGAF, within ten (10) business days of any such
demand, a full and detailed written report of the status and all
material developments relating to or affecting the Miami Project
(including, without limitation, the financing, development,
construction and/or operation of the Miami Project) and 3) in any
event, at least twenty (20) days in advance of any scheduled Financial
Closing of the Miami Project, Compost shall notify LGAF of such
scheduled Financial Closing of the Miami Project in writing. Any
notification by the Compost Entities to LGAF that complies with the
requirements under this Section 2(c) shall be deemed to satisfy the
requirements of Section 3(b).
(d) Stock Certificate-Put Option No. 1 Legends.
(i) Certificates-Series B Preferred Shares. CAHC and
LGAF confirm that CAHC has placed or caused or will place or
cause to be placed on each stock certificate that represents
any one (1) or more of the above-referenced 400,000 shares of
Series B Preferred Stock to which the Put Option No. 1 is
applicable, and each such stock certificate bears or shall be
caused to bear, a legend which includes substantially the
following language:
"The securities represented
hereby are subject to a Put, that is
or may be exercised by the registered
holder hereof, at any time after
October 30, 1998, and on or before the
earlier of (i) March 29, 2002, or (ii)
the date corresponding to the
Financial Closing of the Miami
Project, pursuant to the terms and
subject to the conditions set forth in
a Put Option Agreement, dated on or
about March 29, 2000, by and among
Compost America Holding Company, Inc.,
Miami Recycling and Composting
Company, Inc., Bedminster Seacor Miami
Services Corporation, Lionhart Global
Appreciation Fund, Ltd., Lionhart
Investments, Ltd., and Global
EarthFund Partners, LLC."
(ii) Certificates-Conversion Common Shares. CAHC and
LGAF further confirm that CAHC has placed or caused or will
place or cause to be placed on each stock certificate that
represents any one (1) or more of the above-referenced
Conversion Common Shares to which the Put Option No. 1 is
applicable, and each such stock certificate bears or shall be
caused to bear, a legend which includes substantially the
following language:
6
<PAGE>
"The securities represented
hereby are subject to a Put, that is
or may be exercised by the registered
holder hereof, at any time after
October 30, 1998, and on or before the
earlier of (i) March 29, 2002, or (ii)
the date corresponding to the
Financial Closing of the Miami
Project, pursuant to the terms and
subject to the conditions set forth in
a Put Option Agreement, dated on or
about March 29, 2000, by and among
Compost America Holding Company, Inc.,
Miami Recycling and Composting
Company, Inc., Bedminster Seacor Miami
Services Corporation, Lionhart Global
Appreciation Fund, Ltd., Lionhart
Investments, Ltd., and Global
EarthFund Partners, LLC."
(e) CAHC Opt Out Rights. Notwithstanding the provisions of
this Section 2, but subject to Section 19(c) of this Agreement, upon
LGAF's exercise of Put Election No. 1, CAHC may either select
("Selection"), in its sole discretion, one of the following two (2)
alternatives: (i) CAHC may elect to honor Put Option No. 1 and purchase
the associated securities on the Put Option Date or, (ii)
alternatively, CAHC may, within five (5) business days after the
exercise of Put Election No. 1 ("Election Period"), by notice to LGAF
in the same manner as provided in Section 2(b)(i) hereof, notify LGAF
that it is electing to opt out of Put Option No. 1. If, upon the
expiration of such Election Period, CAHC has not provided such notice
to LGAF of its Selection, then CAHC shall deemed conclusively under
this Agreement to have decided and elected to honor Put Option No. 1
and to thereafter purchase the associated securities on the Put Option
Date, as contemplated under Section 2(b)(ii), and as provided under
this Agreement. If CAHC notifies LGAF that it is electing to opt out of
Put Option No. 1, then and in such case, on the Put Option Date, LGAF
shall surrender to CAHC or its agent the Series B Preferred Shares or
Conversion Common Shares, as applicable, and contemporaneously
therewith CAHC shall pay to LGAF U.S. $40,000 and additionally shall
issue and cause to be delivered to LGAF ten (10) debentures ("Bonds"),
each with a face value of U.S. $120,000 and each subject to the
following rights, terms and conditions:
(i) The Bonds shall mature at the end of the
thirtieth (30th) month after the date of issue of the Bonds.
(ii) The yield of the Bonds shall be 11%, payable in
arrears on each and every thirtieth (30th) day anniversary
after the date of issue of the Bonds. If, prior to maturity of
the Bonds, three month LIBOR plus 500 basis points equals or
exceeds 11%, then and thereafter the yield shall be floating,
and shall be reset every three (3) months, at the rate of the
higher of (i) the highest applicable yield of the Bonds since
the date of issue or (ii) the sum of then applicable three
month LIBOR plus 500 basis points.
7
<PAGE>
(iii) The Bonds will be (x) secured by a pledge and
delivery to a trustee of all of the MRCC capital stock subject
to the 2000 MRCC Stock Pledge Agreement (as defined under the
Restructuring Agreement), all of the Bedminster capital stock
subject to the 2000 Bedminster Stock Pledge Agreement (as
defined under the Restructuring Agreement), 1,000,000 shares
of fully registered and freely tradable CAHC common stock
(including the 600,000 CAHC Pledged Shares, as defined in the
Restructuring Agreement), and (y) any cash or other
distributions or dividends paid in respect of the stock to be
pledged in subclause (x) above, which represent in whole or in
part an extraordinary, liquidating or other distribution of
capital on such stock, shall be paid, distributed and
turned-over to the trustee for the benefit of LGAF and
retained by such trustee for the benefit of LGAF as additional
collateral securing the Bonds.
(iv) Each of the Bonds shall be convertible, in whole
or in part, into fully registered and freely tradable common
stock of CAHC, at any time prior to maturity, at the price per
share of common stock equal to the lesser of (i) U.S. $0.40,
or (ii) 50% of the average closing bid price (as commonly
determined) for the five (5) trading days immediately
preceding the date of conversion; provided, however, that the
convertibility rights attributable to the remaining
outstanding Bonds, in whole or in part, shall lapse
automatically when and if CAHC has issued to LGAF (and/or any
subsequent holders of any and all of the Bonds) a cumulative
total of 3,000,000 shares of any such common stock of CAHC due
to conversions thereof.
(v) CAHC shall have the right to prepay the Bonds, at
any time prior to maturity, upon thirty (30) day written
notice.
Section 3. Restated/Amended Put Option No. 2. Put Option No. 2, granted
by CAHC to LGAF in Article X of the 1998 Agreement, is hereby amended and
restated in its entirety, as follows:
(a) Put. CAHC hereby confirms that it has granted to LGAF and
hereby reaffirms that CAHC grants, conveys, transfers and delivers to
LGAF, a put option for and with respect to each and every Excess Common
Share, that is and shall be exercisable at any time(s) in the sole
discretion and election of LGAF as provided under (and pursuant to the
terms and subject to the conditions set forth in) this Section 3, and
pursuant to which, upon any exercise(s) thereof by LGAF, LGAF shall
have the right to demand and compel CAHC to purchase from LGAF, and
CAHC shall then and thereupon have the unconditional duty to purchase
from LGAF, any and all such Excess Common Share(s) that are otherwise
the subject of any such exercise(s) of a Put Option No. 2.
(i) Put Conditions. Any exercise(s) of any Put Option
No. 2, as provided under this Agreement, is and shall be
subject to the following procedures and conditions:
8
<PAGE>
(ii) Put Option Election. LGAF, when and if LGAF
elects at any time(s) to exercise a Put Option No. 2 with
respect to any such Excess Common Shares, shall deliver to
CAHC, via fax or hard copy, a written notice of an election at
any such time(s) to exercise the Put Option No. 2 ("Put
Election No. 2"), not more than twenty (20) business days
before and not less than ten (10) business days prior to the
Put Option Date.
(iii) Put Purchase Price. Upon the receipt by CAHC of
any such Put Election No. 2 at any time(s), LGAF shall have
the duty to sell to CAHC, and CAHC shall have the duty to
purchase from LGAF, on the Put Option Date, all such Excess
Common Shares for which, pursuant to such Put Election, LGAF
has exercised a Put Option No. 2, for the purchase price ("Put
Purchase Price No. 2") of US $3.20 per share of each such
Excess Common Share, which shall be paid by CAHC to LGAF in US
cash or currency, or equivalent good US funds, on the Put
Option Date.
(iv) Lapse. Any Put Option No. 2, with respect to any
such Excess Common Shares, that is not exercised as provided
under Section 3(a) of this Agreement, shall then and
thereafter terminate and lapse, and shall not thereafter have
any legal force or effect.
(b) The Compost Entities hereby agree, promise and covenant 1)
to notify LGAF, in writing, at least ninety (90) days prior to the
approximate date corresponding to the "Financial Closing of the Miami
Project," as anticipated by respective management of the Compost
Entities, 2) upon any demand by LGAF, but, in any case, not more
frequently than on a calendar quarter basis, provide to LGAF, within
ten (10) business days of such demand, a full and detailed written
report of the status and all material developments relating to or
affecting the Miami Project (including, without limitation, the
financing, development, construction and/or operation of the Miami
Project) and 3) in any event, at least twenty (20) days in advance of
any scheduled Financial Closing of the Miami Project, Compost shall
notify LGAF of such scheduled Financial Closing of the Miami Project in
writing. Any notification by the Compost Entities to the LGAF that
complies with the requirements under this Section 3(b) shall be deemed
to satisfy the requirements of Section 2(c).
(c) Stock Certificate-Put Option No. 2 Legends. CAHC and LGAF
hereby agree, promise and covenant that CAHC has placed or caused or
will place or cause to be placed on each stock certificate, that
represents any one (1) or more of the above-referenced Excess Common
Shares to which the Put Option No. 2 is applicable, and each such stock
certificate bears or shall be caused to bear, the following legend:
"The securities represented
hereby are subject to a Put, that is
or may be exercised by the registered
holder hereof, at any time after
October 30, 1998, and on or before the
earlier of (i) March 29, 2002, or (ii)
the Financial Closing of the Miami
Project, pursuant to the terms and
subject to the conditions set forth in
a Put Option Agreement, dated on or
about March 29, 2000, by and among
Compost America Holding Company, Inc.,
Miami Recycling and Composting
Company, Inc., Bedminster Seacor Miami
Services Corporation, Lionhart Global
Appreciation Fund, Ltd., Lionhart
Investments, Ltd., and Global
EarthFund Partners, LLC."
9
<PAGE>
Section 4. Effectiveness. This Agreement shall not be effective, and
shall be null and void and of no force or effect whatsoever unless and until the
Escrow Agent releases and delivers this Agreement from escrow as contemplated
under, and pursuant to the terms and subject to the conditions set forth in, the
Restructuring Agreement; and, this Agreement is and shall only be effective and
valid, binding and enforceable among the Original Parties, if and only if the
Escrow Agent releases and delivers this Agreement from escrow as contemplated
under, and pursuant to the terms and subject to the conditions set forth in, the
Restructuring Agreement.
Section 5. Miami/Bedminster Guaranty.
5.01 Guaranty. MRCC and Bedminster (collectively, the
"Guarantors"), on an absolute, unconditional and continuing basis, each hereby
guarantees to LGAF, and its successors and assigns, and participants and
guarantors, that CAHC shall timely, fully and completely pay, perform and
discharge all Put Option Obligations of CAHC under this Agreement, including,
without limitation, 1) all Put Option Obligations that relate to or arise from
the Puts and/or the Bonds, 2) all costs, reasonable attorneys' fees and other
expenses paid or incurred by LGAF to enforce the terms of or collect any sums
under this Agreement upon an Event of Default by CAHC, and/or 3) all renewals
and extensions thereof (the "Guaranty"). Pursuant thereto, MRCC and Bedminster
absolutely, unconditionally and continuously agree, promise and covenant that,
upon an Event of Default, MRCC and Bedminster, upon demand by LGAF and without
further notice of dishonor and without any notice with respect to any matter or
occurrence having been given to CAHC previous to any such demand, shall
immediately pay, perform and/or discharge completely and fully any and all such
Put Option Obligations. Each of MRCC, Bedminster and LGAF hereby confirms that
it is the intention of all such persons that this Guaranty and the obligations
of each Guarantor hereunder not constitute a fraudulent transfer or conveyance
for purposes of Title 11, U.S. Code, or any similar federal or state law for the
relief of debtors ("Bankruptcy Law"), the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to this Guaranty and the obligations of each Guarantor
hereunder. To effectuate the foregoing intention, LGAF, MRCC and Bedminster
hereby irrevocably agree that the obligations of each Guarantor under this
Guaranty at any time shall be limited to the maximum amount as will result in
the obligations of such Guarantor under this Guaranty not constituting a
fraudulent transfer or conveyance.
5.02 Miscellaneous. The Guarantors each hereby consents, and
hereby promises, covenants and agrees, that:
(a) The Put Option Obligations 1) may be changed, altered,
amended, supplemented or otherwise modified from time to time (pursuant
to the terms and subject to the conditions of and as set forth in this
Agreement) and/or 2) may be altered, amended, supplemented, modified,
or waived, postponed or released from time to time by (or for) CAHC
with the advance and prior written approval and consent of LGAF
(pursuant to the terms and subject to the conditions of and as are set
forth in this Agreement); and, this Guaranty, without any further or
later consent or approval by MRCC and Bedminster, shall remain in full
force and effect, pursuant to all terms and provisions hereof, and the
Guarantors shall not be released of or from any duty, obligation or
undertaking under this Section 5 whatsoever, notwithstanding any such
alteration, amendment, supplement, modification, waiver, postponement
or release of any such Put Option Obligations.
10
<PAGE>
(b) The duties and obligations of each of the Guarantors,
under this Section 5, are continuing, absolute and unconditional,
irrespective of any circumstances whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a guarantor or
surety.
(c) The Guarantors shall not be entitled to any set-off,
claim, reduction or diminution of any Put Option Obligation, or any
defense of any kind or nature to which any of the Compost now has or
hereafter may have against any of the Lionhart Entities, with respect
to the payment or performance of any Put Option Obligations under this
Agreement.
(d) The Guarantors each waives any and all legal requirements
that LGAF, and/or its successors and assigns, shall or must commence or
institute any action, lawsuit or proceedings (at law or in equity)
against CAHC under this Agreement, or any part thereof, or with respect
to any security or collateral pledged to or held by LGAF under any
applicable security agreements or other documents, as a condition
precedent to commencing or instituting any action, lawsuit or other
proceeding against the Guarantor(s) under or pursuant to Section 5 of
this Agreement. LGAF shall have the right, in its sole and exclusive
discretion, upon any Event of Default as otherwise provided under this
Section 5, to immediately (or at any time thereafter) commence and
otherwise institute any such action, lawsuit or proceedings (at law or
in equity) against the Guarantors (or any Guarantor), notwithstanding
whether or not any such action, lawsuit or other such proceeding is
also commenced against CAHC.
(e) All remedies, that are otherwise available to LGAF under
this Agreement, or under applicable law, or by reason of this Guaranty,
are separate and cumulative remedies, and no one of such remedies,
whether or not exercised by LGAF, shall be deemed to be an exclusion of
any one of the other remedies available to LGAF, and shall in no way
limit or prejudice any other legal or equitable remedies that LGAF may
have, under this Agreement.
(f) No failure or delay (or any forbearance or other
accommodation) on the part of the LGAF, or in exercising any right,
power, or remedy hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power, or
remedy preclude any other or further exercise thereof or the exercise
of any other right, power, or remedy hereunder. Any waiver by LGAF of
any Event of Default, shall not operate as or be construed to be a
waiver of any other Event of Default. The failure of LGAF to insist
upon strict adherence to any terms of this Section 5 on one or more
occasions will not be considered a waiver or deprive LGAF of the right
thereafter to insist upon strict adherence to that term or any other
term of this Section 5.
11
<PAGE>
(g) LGAF shall not be required to pursue any other remedies
before invoking the bargain and benefits of this Section 5, and
specifically LGAF shall not be required to exhaust its remedies against
the Guarantors, or CAHC, or any other co-debtors, or any surety or
other guarantor, or to proceed against any security now or hereafter
existing for the performance or payment of any such Put Option
Obligations.
(h) Until all Put Option Obligations are paid, performed,
satisfied and discharged, as otherwise contemplated under this
Agreement, the Guarantors shall not be released 1) by any act or thing
that might be deemed as a legal or equitable discharge of a surety or
2) by reason of any waiver, extension, modification, forbearance, or
delay of or by LGAF, or 3) by reason of any further obligation,
agreement or undertaking, and the Guarantors hereby expressly waive and
surrender any defense to their liabilities and duties under this
Section 5 based upon any of the foregoing acts, things, agreements or
waivers.
(i) The Guarantors each hereby waive presentment for payment,
demand, protest, notice of demand or protest and/or of dishonor, notice
of acceptance hereof, notices of default, and all other notices now or
hereafter provided by law, and/or diligence in collecting and in
bringing or commencing any lawsuit, action or other proceeding under
this Agreement. LGAF shall not have any duty or obligation to notify
the Guarantors of their respective acceptance of this Guaranty or of
any advances made or credit extended on the faith hereof, or the
failure of any Guarantor or CAHC to pay or perform any of the Put
Option Obligations as any such Put Option Obligations mature, or
otherwise, or to use diligence in preserving the liability of any
person under the Put Option Obligations. To the fullest extent
permitted by applicable law, the Guarantors waive all defenses given to
sureties and guarantors at law or in equity other than the actual
payment or performance of the Put Option Obligations, and waive, to the
fullest extent permitted by applicable law, all defenses based upon
questions of validity, legality or enforceability of this Agreement
and/or the Put Option Obligations.
Section 6. Termination. On the day immediately after a date that is ten
(10) business days after the last date that either of the Puts may be exercised,
and provided (i) that CAHC is not then in default of its obligations to pay
Purchase Price No. 1 to LGAF under Section 2(b)(ii) or, if applicable its
obligations to deliver any considerations to LGAF pursuant to Section 2(e) and
(ii) that CAHC is not then in default of its obligations to pay Purchase Price
No. 2 under Section 3(a)(ii) then the pledge, assignment and security interests
granted in the 2000 CAHC Stock Pledge Agreement, the 2000 MRCC Stock Pledge
Agreement, the 2000 Bedminster Stock Pledge Agreement, the 2000 Pledge and
Security Agreement and the Cash Collateral Account Agreement shall terminate and
LGAF, individually and in its capacity as the collateral agent for the Lionhart
Entities, shall promptly return for cancellation to the Compost Entities any and
all collateral (including, without limitation, any common stock and any other
securities then held by LGAF, individually and in its capacity as collateral
agent for the Lionhart Entities, as security for the Puts under this Agreement,
the 2000 CAHC Stock Pledge Agreement, the 2000 MRCC Stock Pledge Agreement, the
2000 Bedminster Stock Pledge Agreement, the 2000 Pledge and Security Agreement,
the Cash Collateral Account Agreement or any of the other applicable Escrow
Documents), and no party shall have further rights or obligations hereunder or
under the 2000 CAHC Stock Pledge Agreement, the 2000 MRCC Stock Pledge
Agreement, the 2000 Bedminster Stock Pledge Agreement or the 2000 Pledge and
Security Agreement and the Cash Collateral Account Agreement.
12
<PAGE>
Section 7. Security. The Puts evidenced by this Agreement are secured
by the security described in the 2000 CAHC Stock Pledge Agreement, the 2000 MRCC
Stock Pledge Agreement, the 2000 Pledge and Security Agreement, the Cash
Collateral Account Agreement and the 2000 Bedminster Stock Pledge Agreement (as
each of those terms are defined under the Restructuring Agreement); subject,
however, to the rights of the Compost Entities to provide substitute security as
described in and as provided under Section 19 hereof.
Section 8. Waiver and Amendment. Neither any modification or waiver of
any provision of this Agreement, nor any consent to any departure by the Compost
Entities therefrom, shall in any event be effective unless the same shall be set
forth in writing duly signed or acknowledged by the Lionhart Entities and the
Compost Entities, and then such waiver or consent shall be effective only in the
specific instance, and for the specific purpose, for which given.
Section 9. Binding Effect. This Agreement shall be binding upon and
inure to the benefits of the parties hereto and their respective successors and
permitted assigns. If, at any time or times, by assignment or otherwise, LGAF,
LHI and/or GEP transfers any of their respective rights under this Agreement,
any such transfer shall carry with it LGAF's, LHI's and GEP's rights, interests
and powers under this Agreement, including all such rights, interests and powers
that relate to or arise from this Agreement. Subject only to the provisions of
Section 5.9 of the Restructuring Agreement, LGAF, LHI and GEP, in their sole
discretion and at their sole option, shall have the right to assign this
Agreement, to any successor(s) or assign(s) or LGAF, LHI and/or GEP.
Section 10. Successors and Assigns. The term "LGAF," for purposes of
this Agreement, shall mean LGAF, and each and every successor registered owner
of any Series B Preferred Shares, Conversion Common Share(s) and/or Excess
Common Shares thereafter, and the rights and duties, as provided and set forth
in this Agreement, shall inure to the benefit of, and shall be binding upon, the
Compost Entities and the Lionhart Entities, and their respective successors and
assigns.
Section 11. Severability. If any provision of this Agreement is held
invalid, illegal or unenforceable, either in its entirety or by virtue of its
scope or application to given circumstances, such provision shall thereupon be
deemed modified only to the extent necessary to render same valid, or not
applicable to given circumstances, or excised from this Agreement, as the
situation may require, and this Agreement shall be construed and enforced as if
such provision had been included herein as so modified in scope or application,
or had not been included herein, as the case may be, and the remainder of this
Agreement shall be valid, enforceable and binding among the Compost Entities and
the Lionhart Entities.
13
<PAGE>
Section 12. Sole and Entire Agreement. This Agreement and the other
agreements, instruments, certificates and documents referred to or described
herein constitute the sole and entire agreement and understanding between the
parties hereto as to the subject matter hereof, and supersede all prior
discussions, agreements and understandings of every kind and nature between the
parties as to such subject matter.
Section 13. Multiple Counterparts/Facsimile Signatures. This Agreement
may be simultaneously executed in multiple counterparts and each by fax or other
digital or telephonic transmission, all of which shall constitute one and the
same instrument, and each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
Section 14. Notices. Any notice or other communication required or
permitted to be given hereunder shall be given as provided under the
Restructuring Agreement.
Section 15. Applicable Law, Jurisdiction and Venue. The parties hereby
represent and warrant, and hereby promise, agree and covenant, as follows:
(a) This Agreement shall be governed by, construed in
accordance with, and shall be enforced under, the laws of the State of
New Jersey, exclusive of its rules relating to conflict of laws.
(b) Subject to applicable conflict of laws principles, the
parties shall accept venue with respect to all claims, actions or
lawsuits that relate to or arise from this Agreement, in any state
court or U.S. Court of competent jurisdiction that sits in Newark, New
Jersey. The parties each hereby, and irrevocably and unconditionally,
for itself and its properties, submits to the jurisdiction of any such
New Jersey court or U.S. Court sitting in Newark, New Jersey, and any
appellate court with jurisdiction thereover, in any action or
proceeding relating to or arising from this Agreement, or for the
recognition or enforcement of any judgment, and the parties each
hereby, and irrevocably and unconditionally, agrees, promises and
covenants that all such claims in respect of any such action or
proceeding shall be heard, determined and adjudicated in by any such
New Jersey court or, to the extent permitted by applicable law, by any
such U.S. Court. The parties each hereby agree, promise and covenant
that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(c) The parties each hereby, and irrevocably and
unconditionally, waives, to the fullest extent under applicable law,
any defense or objection that it may now or hereafter have 1) to the
laying of venue of any suit, action or proceeding relating to or
arising from this Agreement, in any such New Jersey court or U.S. Court
sitting in Newark, New Jersey, or 2) to the personal jurisdiction
and/or preferred and proper venue of any such New Jersey court or any
such U.S. Court in Newark, New Jersey.
14
<PAGE>
Section 16. Jury Waiver. EACH OF THE ORIGINAL PARTIES HERETO DOES
HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY, UNCONDITIONALLY AND INTENTIONALLY
WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PERSON. THIS IRREVOCABLE WAIVER OF THE RIGHT TO A JURY TRIAL IS A
MATERIAL INDUCEMENT FOR LGAF, LHI AND GEP TO EXECUTE AND DELIVER, AND OTHERWISE
CONSUMMATE THE TRANSACTIONS CONTEMPLATED UNDER, THIS AGREEMENT.
Section 17. Written Instrument Requirement. This Agreement cannot be
altered, amended, modified or discharged orally and no executory agreement shall
be effective to modify or discharge this Agreement, in whole or in part, unless
it is in writing and signed by the party against whom enforcement of the
modification, alteration, amendment or discharge is sought.
Section 18. Assignment. Subject to the provisions of Section 5.9 of the
Restructuring Agreement, this Agreement, and any rights hereunder, may be
assigned by LGAF, LHI and GEP, or any of their respective participants and/or
successors and assigns, at their sole discretion and option. This Agreement may
not be assigned by the Compost Entities, and the Compost Entities shall not
delegate any of their respective duties under this Agreement, in whole or in
part, without the advance written consent of the LGAF (pursuant to which any
such consent may be granted or withheld in the sole discretion of the LGAF).
Section 19. Substitution of Collateral. Each of the parties hereto
agrees as follows:
(a) CAHC may elect at any time to deposit $3,010,835.20 in
U.S. cash or currency, or other good funds (the "Cash Deposit") in an
account to be held (the "Puts Funds Account") with an Acceptable Escrow
Agent (for purposes of this Section 19, an "Acceptable Escrow Agent"
means U.S. Trust (or any successor thereto), Wilmington Trust Company
(or any successor thereto) or any other escrow agent reasonably
acceptable to the Compost Entities and the Lionhart Entities) in lieu
of and as substitution of security for the security provided herein and
in the 2000 CAHC Stock Pledge Agreement, the 2000 MRCC Stock Pledge
Agreement, the 2000 Bedminster Stock Pledge Agreement, the 2000 Pledge
and Security Agreement and the Cash Collateral Account Agreement to
secure (x) the payment by CAHC to LGAF of the Put Purchase Price No. 1,
upon the proper exercise by LGAF of Put Option No. 1, pursuant to
Section 2(a) of this Agreement, and (y) the payment by CAHC to LGAF of
the Put Purchase Price No. 2, upon the proper exercise by LGAF of Put
Option No. 2, pursuant to Section 3(a) of this Agreement (collectively,
the payment obligations contemplated under subsection (x) and (y) of
this sentence are referred to in this Section 19 as the "Payment
Obligations"). The Puts Funds Account (including the Cash Deposit in
such Puts Funds Account of $3,010,835.20), upon establishment thereof
and deposit therein of the Cash Deposit (in the amount of
$3,010,835.20) shall then be pledged by Compost (and Compost hereby
agrees to then pledge such Puts Funds Account and Cash Deposit) to LGAF
(individually and in its capacity as collateral agent for the Lionhart
Entities) to secure the Payment Obligations. CAHC and LGAF,
individually and in its capacity as collateral agent for the Lionhart
Entities, hereby agree that LGAF's pledge and security interest in the
Puts Funds Account shall terminate automatically when CAHC is required
to pay to LGAF such amounts as are required to be paid by CAHC upon the
exercise of Put Option No. 1 and/or Put Option No. 2 (under Section
2(b) and Section 3(a) respectively of this Agreement) (the "Payment
Date"), provided that, simultaneously therewith, (i) CAHC instructs the
Acceptable Escrow Agent pursuant to Section 19(b) below, and (ii) that
such Acceptable Escrow Agent pays and delivers to LGAF, in good funds
from the Puts Funds Account, on such Payment Date, such amounts as are
required to be paid by CAHC to LGAF upon the exercise of Put Option No.
1, strictly in accordance with Section 2(b)(ii) hereof, and upon the
exercise of Put Option No. 2, strictly in accordance with Section
3(a)(iii) hereof.
15
<PAGE>
(b) On the Payment Date, CAHC shall authorize and instruct
such Acceptable Escrow Agent to immediately pay to LGAF from the Puts
Funds Account such amounts as are required to be paid by CAHC upon the
exercise of Put Option No. 1, strictly in accordance with Section
2(b)(ii) hereof and/or upon the exercise of Put Option No. 2, strictly
in accordance with Section 3(a)(iii) hereof.
(c) If CAHC elects to and does substitute collateral pursuant
to this Section 19, CAHC then and thereafter shall waive its rights
under Section 2(e) of this Agreement, shall not then have any right to
make any Selection, at any time, to opt-out of Put Option No. 1, and
shall honor Put Option No. 1 upon the exercise of Put Option No. 1,
strictly in accordance with Section 2(b)(ii) of this Agreement.
(d) Notwithstanding anything in this Agreement to the
contrary, upon the lapse and termination of (A) Put Option No. 1
pursuant to Section 2(b)(iii) hereof and (B) Put Option No. 2 pursuant
to Section 3(a)(iv) hereof, LGAF's security interest in the Puts Funds
Account shall terminate automatically and all amounts in the Puts Funds
Account shall be returned to CAHC.
(e) Immediately upon the deposit of the Cash Deposit and
pledge of the Put Funds Account (and Cash Deposit) pursuant to
paragraph 19(a) above (the "Put Security Release Date"), and subject to
the requirements of Section 19(i) below and notwithstanding anything to
the contrary in Section 6 hereof, the pledge, assignment and security
interest granted by the Compost Entities in this Agreement, the 2000
CAHC Stock Pledge Agreement, the 2000 Bedminster Stock Pledge
Agreement, the 2000 MRCC Stock Pledge Agreement, the 2000 Pledge and
Security Agreement and the Cash Collateral Account Agreement
(collectively, the "Put Documents") shall automatically terminate and
all rights to the collateral described in such documents shall revert
to the applicable Compost Entities. LGAF, individually and in its
capacity as collateral agent to the Lionhart Entities, will return any
and all share certificates and any other documents or instruments
representing any collateral held pursuant to the Put Documents to the
Compost Entities as promptly as possible, but in any case no later than
three (3) business days after the Put Security Release Date. Upon any
such termination, LGAF, individually and in its capacity as collateral
agent for the Lionhart Entities, and the other Lionhart Entities, as
applicable, shall execute and deliver to the Compost Entities such
documents as the Compost Entities shall reasonably request to evidence
such termination.
(f) The 2000 CAHC Stock Pledge Agreement, the 2000 Bedminster
Stock Pledge Agreement, the 2000 MRCC Stock Pledge Agreement, the 2000
Pledge and Security Agreement and the Cash Collateral Account Agreement
shall terminate automatically on the Put Security Release Date and the
Compost Entities will have no further duty or obligation under any such
agreements.
16
<PAGE>
(g) On the Put Security Release Date, Section 5 of this
Agreement and the Guaranty contained therein shall be automatically
terminated and shall be null and void and of no further force or legal
effect.
(h) LGAF, individually and in its capacity as collateral agent
for the Lionhart Entities, and other Lionhart Entities hereby
acknowledge that funds in the Pledgee Account (as defined in the Cash
Collateral Account Agreement) may be transferred to the Puts Funds
Account (pursuant to the terms and conditions of the Cash Collateral
Account Agreement) to satisfy in whole or in part the requirements of
Section 19.
(i) Upon the establishment of the Puts Funds Account and
deposit therein of the Cash Deposit (in the amount of $3,010,835.20, as
provided under Section 19(a) above): CAHC, concurrently therewith will
represent and warrant to LGAF, in writing, and shall be deemed to have
represented and warranted to LGAF prior to and upon such establishment
and funding of the Puts Funds Account, that (1) CAHC owns title to all
funds and other properties that will be deposited in that Puts Funds
Account, free of all security interests, pledges, liens, restrictions
or encumbrances (except for the pledge and security interest to be
granted hereby to LGAF), (2) CAHC has the power and authority to
establish and so fund the Puts Funds Account, and that the
establishment and funding of that Puts Funds Account is not then
violative of any applicable laws or orders, or any other undertaking of
CAHC, which would have a material adverse effect on CAHC, and (3) the
security interest and pledge in and to the Puts Funds Account and the
funds or other properties deposited therein, as will be granted by CAHC
to LGAF, is then a valid and perfected first and priority security
interest and (4) as of the date of the establishment of Puts Funds
Account, to the best knowledge and information of CAHC after due
inquiry, and based primarily upon the advice of professions employed or
engaged by and for CAHC, CAHC reasonably believes that it will not be
or become insolvent under applicable laws immediately after and as a
result of the deposit of $3,010,835.20 in good funds into the Puts
Funds Account.
[THE REMAINDER OF THIS DOCUMENT IS DELIBERATELY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their respective duly
authorized and appoint officers, have executed and delivered this Agreement,
effective on this 29th day of March, 2000, as follows:
LIONHART GLOBAL APPRECIATION COMPOST AMERICA HOLDING
FUND, LTD., for itself and as COMPANY, INC.
collateral agent for Lionhart
Investments, Ltd. and Global
Earthfund Partners, L.L.C.
__________________________________ ___________________________________
Signature Signature
__________________________________ ___________________________________
Printed Printed
__________________________________ ___________________________________
Title Title
LIONHART INVESTMENTS, LTD. MIAMI RECYCLING AND COMPOSTING
COMPANY, INC.
__________________________________ ___________________________________
Signature Signature
__________________________________ ___________________________________
Printed Printed
__________________________________ ___________________________________
Title Title
GLOBAL EARTHFUND PARTNERS, LLC BEDMINSTER SEACOR SERVICES MIAMI
CORPORATION
__________________________________ ___________________________________
Signature Signature
__________________________________ ___________________________________
Printed Printed
__________________________________ ___________________________________
Title Title
<PAGE>
ENVIRONMENTAL PROTECTION & IMPROVEMENT COMPANY, INC.
SUMMARY OF PERIOD ENDED BALANCE SHEETS
<TABLE>
<CAPTION>
Jan. 31, 2000 Oct. 31, 1999 July 31, 1999 April 30, 1999
------------- ------------- ------------- --------------
(Internal) (Internal) (Internal) (Unaudited)
<S> <C> <C> <C> <C>
Total Current Assets $ 6,913,391 $ 7,789,443 $ 6,246,764 $ 6,283,681
Total Current Liabilities 4,695,929 5,512,406 3,897,318 5,375,412
----------- ----------- ----------- -----------
Working Capital 2,217,462 2,277,037 2,349,446 908,269
----------- ----------- ----------- -----------
Non-Current Assets:
Property, Plant & Equipment 9,516,527 10,165,383 10,254,602 10,721,582
Intangible Assets 25,078,110 25,574,407 26,070,704 26,567,001
Other Assets 21,113 20,030 38,940 228,309
----------- ----------- ----------- -----------
Total Non-Current Assets 34,615,750 35,759,820 36,364,246 37,516,892
----------- ----------- ----------- -----------
Non-Current Liabilities:
Long-term Debt 5,706,533 6,182,642 6,639,976 7,087,062
Due to Related Parties 0 327,853 485,637 0
Deferred Income Taxes 13,204,000 13,204,000 13,204,000 13,204,000
----------- ----------- ----------- -----------
Total Non-Current Liabilities 18,910,533 19,714,495 20,329,613 20,291,062
----------- ----------- ----------- -----------
Total Equity $17,922,679 $18,322,362 $18,384,079 $18,134,099
=========== =========== =========== ===========
</TABLE>
<PAGE>
ENVIRONMENTAL PROTECTION & IMPROVEMENT COMPANY, INC.
ANALYSIS OF STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Three Six Three Three
months Months Months Months Months
Ended Ended Ended Ended Ended
Jan. 31, 2000 Jan. 31, 2000 Oct. 31, 1999 Oct. 31, 1999 Jan. 31, 1999
(Internal) (Internal) (Internal) (Internal) (Internal)
<S> <C> <C> <C> <C> <C>
Revenue $19,087,947 $5,780,451 $13,307,496 $6,952,690 $6,354,806
Operating Costs 13,021,793 4,035,609 8,986,184 4,721,303 4,264,881
----------- ---------- ----------- ---------- ----------
Gross Profits 6,066,154 1,744,842 4,321,312 2,231,387 2,089,925
S, G & A 1,503,068 537,950 965,118 486,818 478,300
----------- ---------- ----------- ---------- ----------
Profit After S, G & A 4,563,086 1,206,892 3,356,194 1,744,569 1,611,625
Depreciation and Amortization 3,108,211 1,026,858 2,081,353 1,046,288 1,035,065
Provision for CHAC, Inc. Note Receivable 0 0 0 0 0
Compensation for Stock Options 446,250 148,750 297,500 148,750 148,750
----------- ---------- ----------- ---------- ----------
Operating Profit 1,008,625 31,284 977,341 549,531 427,810
Interest Expense, net 636,298 199,719 436,579 210,098 226,481
----------- ---------- ----------- ---------- ----------
Income Before Taxes 372,327 (168,435) 540,762 339,433 201,329
Income Taxes 100,000 100,000 100,000
----------- ---------- ----------- ---------- ----------
Net Income 272,327 (168,435) 440,762 339,433 101,329
----------- ---------- ----------- ---------- ----------
Adjustments to EBITDA
Depreciation and Amortization 3,108,211 1,026,858 2,081,353 1,046,288 1,035,065
Compensation for Stock Options 446,250 148,750 297,500 148,750 148,750
Provision for CHAC, Inc., Note Receivable 0 0 0 0 0
Interest Expense, net 636,298 199,719 436,579 210,098 226,481
Income Taxes 100,000 0 100,000 0 100,000
----------- ---------- ----------- ---------- ----------
Total EBITDA Adjustments 4,290,759 1,375,327 2,915,432 1,405,136 1,510,296
----------- ---------- ----------- ---------- ----------
EBITDA $ 4,563,086 $1,206,892 $ 3,356,194 $1,744,569 $1,611,625
=========== ========== =========== ========== ==========
Annualized EBITDA $ 6,084,115 $4,827,568 $ 6,712,388 $6,978,276 $6,446,500
=========== ========== =========== ========== ==========
</TABLE>
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
Year
Ended
April 30,
1999
(Unaudited)
<S> <C>
Revenue $22,032,853
Operating Costs 15,798,816
----------
Gross Profits 6,234,037
S, G & A 1,898,736
----------
Profit After S, G & A 4,335,301
Depreciation and Amortization 4,246,996
Provision for CHAC, Inc. Note Receivable 1,727,923
Compensation for Stock Options 595,000
----------
Operating Profit (2,234,618)
Interest Expense, net 892,805
----------
Income Before Taxes (3,127,423)
Income Taxes (32,960)
----------
Net Income (3,094,463)
----------
Adjustments to EBITDA
Depreciation and Amortization 4,246,996
Compensation for Stock Options 595,000
Provision for CHAC, Inc., Note Receivable 1,727,923
Interest Expense, net 892,805
Income Taxes (32,960)
----------
Total EBITDA Adjustments 7,429,764
----------
EBITDA $4,335,301
==========
Annualized EBITDA $4,335,301
==========
</TABLE>
<PAGE>
ENVIRONMENTAL PROTECTION & IMPROVEMENT COMPANY, INC.
ANALYSIS OF STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Three Six Three Three
months Months Months Months Months
Ended Ended Ended Ended Ended
Jan. 31, 2000 Jan. 31, 2000 Oct. 31, 1999 Oct. 31, 1999 Jan. 31, 1999
(Internal) (Internal) (Internal) (Internal) (Internal)
<S> <C> <C> <C> <C> <C>
Revenue 100.00% 100.00% 100.00% 100.00% 100.00%
Operating Costs 68.22% 69.81% 67.53% 67.91% 67.11%
------ ------ ------ ------ ------
Gross Profits 31.78% 30.19% 32.47% 32.09% 32.89%
S, G & A 7.87% 9.31% 7.25% 7.00% 7.53%
------ ------ ------ ------ ------
Profit After S, G & A 23.91% 20.88% 25.22% 25.09% 25.36%
Depreciation and Amortization 16.28% 17.76% 15.64% 15.05% 16.29%
Compensation for Stock Options 2.34% 2.57% 2.24% 2.14% 2.34%
Provision for CAHC, Inc., Note Receivable 0.00% 0.00% 0.00% 0.00% 0.00%
------ ------ ------ ------ ------
Operating Profit 5.29% 0.54% 7.35% 7.91% 6.73%
Interest Expense, net 3.33% 3.46% 3.28% 3.02% 3.56%
------ ------ ------ ------ ------
Income Before Taxes 1.96% -2.92% 4.07% 4.88% 3.16%
Income Taxes 0.52% 0.00% 0.75% 0.00% 1.57%
------ ------ ------ ------ ------
Net Income 1.43% -2.92% 3.31% 4.88% 1.59%
Adjustments to EBITDA
Depreciation and Amortization 16.28% 17.76% 15.64% 15.05% 16.29%
Compensation for Stock Options 2.34% 2.57% 2.24% 2.14% 2.34%
Provision for CHAC, Inc., Note Receivable 0.00% 0.00% 0.00% 0.00% 0.00%
Interest Expense, net 3.33% 3.46% 3.28% 3.02% 3.56%
Income Taxes 0.52% 0.00% 0.75% 0.00% 1.57%
Total EBITDA Adjustments 22.48% 23.79% 21.91% 20.21% 23.77%
------ ------ ------ ------ ------
EBITDA 23.91% 20.88% 26.22% 25.09% 25.36%
====== ====== ====== ====== ======
</TABLE>
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
Year
Ended
April 30,
1999
(Unaudited)
<S> <C>
Revenue 100.00%
Operating Costs 71.71%
------
Gross Profits 28.29%
S, G & A 8.62%
------
Profit After S, G & A 19.67%
Depreciation and Amortization 19.28%
Compensation for Stock Options 2.70%
Provision for CAHC, Inc., Note Receivable 7.84%
------
Operating Profit -10.14%
Interest Expense, net 4.05%
------
Income Before Taxes -14.20%
Income Taxes -0.15%
------
Net Income -14.05%
Adjustments to EBITDA
Depreciation and Amortization 19.28%
Compensation for Stock Options 2.70%
Provision for CHAC, Inc., Note Receivable 7.84%
Interest Expense, net 4.05%
Income Taxes -0.15%
Total EBITDA Adjustments 33.72%
------
EBITDA 19.68%
======
</TABLE>
Compost America Holding Company, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
April 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Sale of Other Statement of
4/30/99 EPIC Adjustments Operations
-------------------------------------------------------------
<S> <C> <C> <C>
Revenues 22,249,982 (22,032,853) 217,129
-------------------------------------------------------------
Costs and expenses
Operating 15,830,073 (15,798,816) 31,257
Selling, general and administration 10,455,584 (1,898,736) 8,556,848
Depreciation and amortization 6,633,425 (4,246,996) 2,386,429
Compensation for stock options 595,000 (595,000) 0
Provision for impairment 10,721,161 10,721,161
-------------------------------------------------------------
44,235,243 (22,539,548) - 21,695,695
-------------------------------------------------------------
Operating loss (21,985,261) 506,695 - (21,478,566)
-------------------------------------------------------------
Other Income (expense)
Interest expense (14,162,511) 2,796,682 2,700,000 (8,665,829)
Interest income 3,468,273 (44,877) (3,423,396) -
Loss on investment (819,129) (819,129)
Gain on sale of subsidiary - 13,165,901 13,165,901
Other, net (698,044) (698,044)
-------------------------------------------------------------
Loss before income tax (provision) benefit (34,196,672) 16,424,401 (723,396) (18,495,667)
Income tax benefit 7,906,420 (12,949,000) (5,042,580)
-------------------------------------------------------------
Net loss (26,290,252) 3,475,401 (723,396) (23,538,247)
Preferred stock dividends (1,519,761) (1,519,761)
Accretion on preferred stock (3,040,954) (3,040,954)
Net loss applicable to common stockholders (30,850,967) 3,475,401 (723,396) (28,098,962)
=========== =========== ============= ============
Net loss per common share
Basic and diluted (0.75) (0.68)
=========== =========== ============= ============
</TABLE>
<PAGE>
Compost America Holding Company, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
April 30, 1999
(unaudited)
<TABLE>
<CAPTION>
ASSETS Sale of Other Pro Forma
4/30/99 EPIC Adjustments Balance Sheet
-------------------------------------------------------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents 299,010 9,318,775 9,617,785
Restricted project fund trust account 91,370,763 (91,370,763) 0
Accounts receivable, net 5,440,140 (5,424,770) 15,370
Prepaid expenses and other current assets 512,865 (507,305) 5,560
---------------------------------------------------------------
Total current assets (91,370,763)
---------------------------------------------------------------
Property, plant and equipment, net 22,523,429 (10,221,582) 12,301,847
---------------------------------------------------------------
Other assets
Customer contract rights, net 26,567,001 (26,567,001)
Other intangible assets, net 1,322,546 (228,309) 1,094,237
Investment in joint venture 872,886 1,850,000 2,722,886
Other assets 254,409 254,409
---------------------------------------------------------------
Total other assets (24,945,310) -
---------------------------------------------------------------
149,163,049 (31,780,192) (91,370,763) 26,012,094
=============================================================
Liabilities and Stockholders' Deficiency
Current liabilities
Short-term debt 522,816 (522,816) -
Bond payable 91,370,763 (91,370,763) -
Long-term debt, current portion 18,814,808 (13,302,451) 5,512,357
Due to related parties 8,403,637 (4,485,492) 3,918,145
Accounts payable 5,052,282 (1,408,042) 3,644,240
Accrued expenses 5,084,156 (4,983,230) 100,926
---------------------------------------------------------------
Total current liabilities (24,702,031) (91,370,763)
---------------------------------------------------------------
Long-term debt 7,087,062 (7,087,062) -
---------------------------------------------------------------
Redeemable Preferred and Common Stock 14,817,949 14,817,949
---------------------------------------------------------------
Stockholders' (deficiency) (1,990,424) 8,901 (1,981,523)
---------------------------------------------------------------
149,163,049 (31,780,192) (91,370,763) 26,012,094
=============================================================
</TABLE>
<PAGE>
Footnotes to Pro-Forma Financial Statements
(a) The unaudited pro forma condensed consolidated balance sheet gives
effect to the proposed sale of Compost America Holding Company, Inc.'s
(the "Company") wholly owned subsidiary Environmental Protection &
Improvement Company, Inc. ("EPIC") as of April 30, 1999. Following is a
detail of the proceeds surrounding the sale as well as a use of
proceeds:
Proceeds from sale of EPIC $31,300,000
Note payable 1,500,000
-----------
32,800,000
Use of Proceeds:
Purchase of Equity Investment 1,850,000
Advancing existing projects 500,000
Repayment of debt 16,900,000
Repayment of payables 3,932,215
-----------
Net cash received $ 9,617,785
===========
Net cash received would be used as follows:
Severance pay $ 1,600,000
Settlement of disputes 4,717,785
Working capital 3,300,000
-----------
$ 9,617,785
===========
Pro forma adjustments includes the disposition of the assets and
liabilities of EPIC, proceeds from the sale, gain on the sale and
immediate use of sale proceeds.
(b) The unaudited pro forma condensed consolidated statement of operations
for the year ended April 30, 1999 consist of the following adjustments:
Elimination of the revenues and expenses of EPIC for the year ended
April 30, 1999. Recording of the gain on the sale of EPIC calculated as
follows:
Proceeds $31,300,000
Net book value of EPIC at April 30, 1999 18,134,099
-----------
$13,165,901
===========
Deferred tax effect of arising from the sale of EPIC calculated as
follows:
Elimination of deferred tax liabilities of EPIC: 13,157,000
===========
Recording of valuation allowance on books $13,157,000
===========
of the Company
Elimination of $1,859,000 of interest expense due to assumption that
$16,900,000 of debt would be repayed with the proceeds from the sale.
Elimination in other adjustment column of interest income and expense
from restricted project fund trust account and bond payable.
<PAGE>
EXHIBIT 10
FORM OF NOTICE OF DISSENT
<PAGE>
NOTICE TO SHAREHOLDERS OF RIGHT TO DISSENT
COMPOST AMERICA HOLDING COMPANY, INC.
THIS NOTICE TO SHAREHOLDERS OF RIGHT TO DISSENT is given this ___ day
of May, 2000 pursuant to a resolution of the Board of Directors (the "Board")
of Compost America Holding Company, Inc., a New Jersey corporation (the
"Company"), and Section 14A:5-6(2) and Chapter 11 of the New Jersey Business
Corporation Act (the "Act").
1. You are hereby notified that the Company and Synagro Technologies,
Inc. ("Synagro") have negotiated, and propose and intend to consummate, execute
and deliver a Stock Purchase Agreement to be effective on or about June __, 2000
or such later date as may be required by law (the "Stock Purchase Agreement"),
whereby, upon satisfaction of certain conditions stated therein, the Company
will sell to Synagro all of the outstanding shares of capital stock of the
Company's wholly-owned subsidiary, Environmental Protection & Improvement
Company, Inc. ("EPIC"). The Company's sale of EPIC may constitute a sale of all
or substantially all of the Company's assets not in the usual or regular course
of business within the meaning of Section 14A:11-1(b) of the Act, thereby
requiring approval of the owners of a majority of the Company's voting shares
outstanding.
2. On March 6, 2000 and March 23, 2006, the Board approved the sale of
EPIC, the distribution of an information statement (the "Information Statement")
to all shareholders, the distribution of this notice and the consummation of
certain other transactions ( the "Transactions") in connection therewith (all as
more fully described in the Information Statement), subject to the approval of
shareholders entitled to cast at least the minimum number of votes which would
be necessary to authorize such actions at a meeting at which the shareholders
entitled to vote thereon were present in accordance with the Act. A copy of the
Information Statement accompanies this Notice to Shareholders of Right to
Dissent.
3. On March 23, 2000, the Board received the written consents to such
actions from a majority of the shareholders entitled to vote thereon.
4. You are hereby notified that the proposed effective date of the
Transactions is June __, 2000 and that you have certain rights as a
non-consenting shareholder, including the right to dissent and be paid fair
value ("Fair Value") for your shares.
5. To exercise your right to dissent and receive Fair Value for your
shares, you must provide, within twenty days of the mailing hereof, which date
is June __, 2000, written notice to the Company of your dissent and demand for
Fair Value in the form attached hereto and made a part hereof ("Notice of
Dissent and Demand"). Upon making such Notice of Dissent and Demand, you shall
cease to have any of the rights of a shareholder except the right to be paid
Fair Value for your shares and any other rights of a dissenting shareholder
under the Act. Fair value shall be determined as of March 22, 2000, the day
prior to the day the Company received written consents from a majority of the
shareholders entitled to vote thereon.
1
<PAGE>
6. Notice of Dissent and Demand may be supplied to:
Compost America Holding Company, Inc.
One Gateway Center, 25th Floor
Newark, NJ 07102
Attention: Richard Franks, Esquire
7. Upon your written Notice of Dissent and Demand, you must submit your
share certificates or certificates representing your shares (the "Certificates")
in the Company at the above address for notation on such Certificate that such
Notice of Dissent and Demand has been made. The Company must receive such
Certificates no later than twenty days after your Notice of Dissent and Demand
and such Certificates shall be returned to you with such notation.
8. Your rights as a dissenting shareholder shall cease if: (1) you fail
to present your certificates for notation within twenty days of your Notice of
Dissent and Demand; (2) your Notice of Dissent and Demand is withdrawn with the
written consent of the Company; (3) Fair Value is not agreed upon and no action
to determine the Fair Value is commenced within the time periods provided below
in paragraphs 9, 10 and 11; (4) the Superior Court of the State of New Jersey
determines that you are not entitled to payment for your shares; (5) the sale of
EPIC is abandoned or rescinded; or (6) a court of competent having jurisdiction
permanently enjoins or sets aside the sale of EPIC.
9. Not later than 10 days after the expiration of the period within
which you may provide a Notice of Dissent and Demand to be paid the Fair Value
of your shares, the Company shall mail to you the balance sheet and the surplus
statement of the Company, as of the latest available date (which shall not be
earlier than 12 months prior to the making of such offer) and a profit and loss
statement or statements representing not less than a 12-month period ended on
the date of such balance sheet. The Company may accompany such mailing with a
written offer to pay you for your shares at a specified price deemed by the
Company to be the Fair Value thereof. Such offer shall be made at the same price
per share to all dissenting shareholders of the same class, or, if shares are
divided into series, of the same series.
10. If, not later than 30 days after the expiration of the 10-day
period specified in paragraph 9 above, Fair Value is agreed upon between you and
the Company, payment therefor shall be made upon surrender of the Certificate to
the Company.
11. If Fair Value is not agreed upon within the 30-day period specified
in paragraph 10 above, you may serve upon the Company a written demand (a
"Determination Demand") that it commence an action in the Superior Court for the
determination of the Fair Value of the shares. Such Determination Demand shall
be served not later than 30 days after the expiration of the 30-day period for
making the Determination Demand and such action shall be commenced by the
Company not later than 30 days after receipt by the Company of such
Determination Demand, but nothing herein shall prevent the Company from
commencing such action at any earlier time.
2
<PAGE>
12. If the Company fails to commence the action as provided in the
immediately preceding paragraph, you may do so in the name of the Company, not
later than 60 days after the expiration of the time limited by the immediately
preceding paragraph in which the Company may commence such an action.
13. In any action to determine the Fair Value of shares, the Superior
Court of New Jersey shall (i) have jurisdiction to proceed in a summary manner,
(ii) make all dissenting shareholders parties to the action, (iii) have
discretion to appoint an appraiser to receive evidence and report to the court
on the question of Fair Value and (iv) have the power to render judgment against
the Company in the amount of the Fair Value of the shares. A judgment in any
such action shall be payable upon surrender to the corporation of the
Certificate. The costs and expenses of bringing any such action, including the
fees and expenses of any appraiser but excluding fees and expenses of counsel
and any experts you may employ, will be determined by the court and apportioned
among the parties to the action.
3
<PAGE>
NOTICE OF DISSENT AND DEMAND
The undersigned is the registered owner of _____ shares of common stock
of Compost America Holding Company, Inc., a New Jersey corporation (the
"Company") bearing certificate number(s) ___________ (the "Shares").
The undersigned acknowledges receipt from the Company of a copy of a
Notice to Shareholders of Right to Dissent dated June __, 2000. In compliance
with the terms of Section 14A:5-6(2) and Chapter 11 of the New Jersey Business
Corporation Act, the undersigned hereby notifies the Company that such
shareholder wishes to dissent from the Transactions (as defined in the Notice to
Shareholders of Right to Dissent) and demands Fair Value (as defined in the
Notice to Shareholders of Right to Dissent) for the Shares.
Print Name of Registered Owner ___________________________
Dated: ___________________________
Signature: ___________________________
4
