SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______ to _________.
Commission File Number: 001-13259
U S LIQUIDS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0519797
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
411 N. Sam Houston Parkway East, Suite 400
Houston, TX 77060-3545
281-272-4500
(Address and telephone number of registrant's principal executive offices)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value
12,133,488 shares as of August 13, 1998
1
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U S LIQUIDS INC.
FORM 10-Q/A-1 FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page
<S> <C>
Item 1 - Financial Statements:
- Condensed Consolidated Balance Sheets as
of December 31, 1997 and June 30, 1998....................................... 3
- Condensed Consolidated Statements of Income for the
three and six month periods ended June 30, 1997 and 1998..................... 4
- Condensed Consolidated Statements of Cash Flows for
the six month periods ended June 30, 1997
and 1998..................................................................... 5
- Notes to Condensed Consolidated Financial Statements.............................. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................... 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings................................................................ 18
Item 2 - Changes in Securities and Use of Proceeds........................................ 18
Item 3 - Defaults Upon Senior Securities.................................................. 18
Item 4 - Submission of Matters to a Vote of Security Holders.............................. 19
Item 5 - Other Information................................................................ 19
Item 6 - Exhibits and Reports on Form 8-K................................................. 19
Signature.................................................................................. 21
</TABLE>
EXPLANATORY NOTE
This Form 10-Q/A-1 is being filed by U S Liquids Inc., a Delaware
corporation (the "Company"), as an amendment to its Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998, filed August 14, 1998, to
correct a document conversion error in the Company's Condensed Consolidated
Statements of Cash Flows. The amount of "Payments to stockholders and related
parties" for the six months ended June 30, 1997 was incorrectly reported as
$8,000 when that figure is correctly reported as $80,000. A corrected Condensed
Consolidated Statements of Cash Flows is filed herewith.
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
U S LIQUIDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1997 1998
------- --------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 2,203 $ 9,197
Accounts receivable, less allowances of $342 and
$1,307 (unaudited) ........................................ 5,436 25,852
Inventories ................................................. 567 1,041
Prepaid expenses and other current assets ................... 621 2,611
------- --------
Total current assets .................................. 8,827 38,701
PROPERTY, PLANT AND EQUIPMENT, net ................................. 39,110 73,868
INTANGIBLE ASSETS, net ............................................. 6,078 92,348
OTHER ASSETS, net .................................................. 1,001 1,775
------- --------
Total assets .......................................... $55,016 $206,692
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations ................. $ 792 $ 1,923
Accounts payable ............................................ 2,154 8,115
Accrued liabilities ......................................... 3,759 12,843
Current portion of contract reserve and deferred revenue .... -- 6,206
------- --------
Total current liabilities ............................. $ 6,705 $ 29,087
LONG-TERM OBLIGATIONS, net of current maturities ................... 16,644 39,972
CELL PROCESSING RESERVE ............................................ 7,330 6,728
CLOSURE AND REMEDIATION RESERVES ................................... 3,275 6,176
CONTRACT RESERVE ................................................... -- 11,972
DEFERRED INCOME TAXES .............................................. 156 575
------- --------
Total liabilities ..................................... $34,110 $ 94,510
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued ............................................... $ -- $ --
Common stock, $.01 par value, 30,000,000 shares authorized,
7,303,164 and 12,121,870 (unaudited) shares
issued and outstanding .................................... 73 121
Additional paid-in capital .................................. 17,190 104,800
Retained earnings ........................................... 3,643 7,261
------- --------
Total stockholders' equity ............................ $20,906 $112,182
------- --------
Total liabilities and stockholders' equity ........ $55,016 $206,692
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
U S LIQUIDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
----------------- ------------------
1997 1998 1997 1998
------ -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES ................................. $9,873 $ 27,973 $17,734 $ 40,316
OPERATING EXPENSES (exclusive of $607
and $1,869, and $1,215 and $2,793,
respectively, of depreciation and
amortization) .......................... 5,473 17,919 10,147 24,930
DEPRECIATION AND AMORTIZATION ............ 641 2,038 1,274 3,026
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (exclusive of $34 and $169,
and $59 and $233, respectively,
of depreciation and amortization) ..... 1,967 3,405 2,657 4,872
------ -------- ------- --------
INCOME FROM OPERATIONS ................... $1,792 $ 4,611 $ 3,656 $ 7,488
INTEREST EXPENSE, net .................... 458 1,244 967 1,590
OTHER (INCOME) EXPENSE, net .............. 199 (163) 170 (168)
------ -------- ------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES . $1,135 $ 3,530 $ 2,519 $ 6,066
PROVISION FOR INCOME TAXES ............... 528 1,447 1,033 2,449
------ -------- ------- --------
NET INCOME ............................... $ 607 $ 2,083 $ 1,486 $ 3,617
====== ======== ======= ========
BASIC EARNINGS PER COMMON SHARE .......... $ 0.12 $ 0.23 $ 0.28 $ 0.43
====== ======== ======= ========
DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE ...................... $ 0.10 $ 0.20 $ 0.25 $ 0.37
====== ======== ======= ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,239 9,228 5,239 8,338
====== ======== ======= ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ......... 5,983 10,610 5,983 9,675
====== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
U S LIQUIDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1998
------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 1,486 $ 3,617
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ....................................... 1,285 3,026
Net gain on sale of property, plant, and equipment .................. -- (60)
Deferred income tax provision ....................................... 152 419
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net .......................................... 647 (5,210)
Inventories ....................................................... (107) 618
Prepaid expenses and other current assets ......................... 4 (1,312)
Other assets ...................................................... (151) (750)
Accounts payable and other current liabilities .................... (575) 1,165
Closure, remediation and cell processing reserves ................. 154 (503)
------- --------
Net cash provided by operating activities ...................... $ 2,895 $ 1,010
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ............................ $(1,676) $ (4,267)
Proceeds from sale of property, plant and equipment ................... -- 109
Net cash paid for acquisitions ........................................ -- (68,760)
------- --------
Net cash used in investing activities ........................ $(1,676) $(72,918)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to stockholders and related parties .......................... $ 80 $ 0
Proceeds from issuance of long-term obligations ....................... 305 76,160
Principal payments on long-term obligations ........................... (4,361) (58,191)
Interest accrued on related-party notes payable ....................... 28 --
Issuance of common stock .............................................. -- 60,933
Distributions equal to current income taxes of the limited
liability corporation ............................................... (171) --
------- --------
Net cash provided by (used in) financing activities ......... $(4,119) $ 78,902
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... $(2,900) $ 6,994
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 5,604 2,203
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 2,704 $ 9,197
======= ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest ................................................ $ 1,028 $ 1,593
Cash paid for income taxes ............................................ 1,030 2,724
Assets acquired under capital leases .................................. 46 --
Assets acquired with stock warrants ................................... -- 2,983
Notes issued related to acquisitions .................................. -- 1,226
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
U S LIQUIDS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared pursuant
to the rules and regulations of the SEC. Certain information and footnote
disclosures, normally included in annual financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to those rules and regulations; although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
consolidated financial statements, have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire year.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as filed with the SEC.
2. INVENTORIES
Inventories are stated at the lower of cost or market and, at December 31,
1997 and June 30, 1998, consisted of processed by-products of $435,000 and
$805,000, respectively, and unprocessed by-products of $132,000 and $236,000,
respectively. Cost is determined using the first-in, first-out (FIFO) method.
6
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3. EARNINGS PER SHARE
Effective December 15, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". Under
these provisions, earnings per share amounts are based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
the period. The weighted average number of shares used to compute basic and
diluted earnings per share for the three and six months ended June 30, 1997 and
1998, respectively, is illustrated below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
1997 1998 1997 1998
---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
For basic and diluted earnings per
share -- Income available to
common stockholders .............. $ 607 $ 2,083 $ 1,486 $ 3,617
========== =========== ========== ==========
Denominator:
For basic earnings per share --
Weighted-average shares .......... 5,238,875 9,227,864 5,238,875 8,338,329
Effect of dilutive securities:
Stock options and warrants ....... 744,435 1,381,940 744,435 1,336,844
---------- ----------- ---------- ----------
Denominator:
For diluted earnings per share --
Weighted-average shares and
assumed conversions .............. 5,983,310 10,609,804 5,983,310 9,675,173
========== =========== ========== ==========
</TABLE>
4. NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The SOP provides guidance with respect to accounting for the
various types of costs incurred for computer software developed or obtained for
the Company's use. The Company intends to adopt SOP 98-1 in the first quarter of
1999 and believes that adoption will not have a significant effect on its
consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities". At adoption, SOP 98-5 requires the Company to write off
any unamortized start-up costs as a cumulative change in accounting principle
and expense all future start-up costs as they are incurred. The Company intends
to adopt SOP 98-5 in the first quarter of 1999 and believes that adoption will
not have a significant effect on its consolidated financial statements.
7
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5. ACQUISITIONS
FOURTH QUARTER 1997 ACQUISITIONS
During the fourth quarter of 1997, the Company completed four acquisitions
that were accounted for under the purchase method of accounting. Results of
operations of companies that were acquired and subject to purchase accounting
are included in the consolidated financial statements from the dates of such
acquisitions. The total costs of acquisitions accounted for under the purchase
method were $6,819,000. The accompanying condensed consolidated balance sheet as
of June 30, 1998 includes allocations of the respective purchase prices and is
subject to final adjustment. The excess of the aggregate purchase price over the
fair value of the net assets acquired was approximately $5,726,000.
In addition, the Company has agreed in connection with certain transactions
to pay additional amounts to the sellers upon the achievement by the acquired
businesses of certain negotiated goals, such as targeted earnings levels.
Although the amount and timing of any payments of additional contingent
consideration depend on whether and when these goals are met, the maximum
aggregate amount of contingent consideration potentially payable if all targeted
goals are met is approximately $27,880,000 (payable through 2002) with the
achieved goals providing approximately $31,125,000 of pre-tax income over a
five-year period. The contingent consideration is payable in cash or, in some
instances, cash and stock, at the Company's option.
On October 1, 1997, the Company completed a merger accounted for as a
pooling-of-interests, pursuant to which the Company issued 241,410 shares of its
common stock in exchange for all outstanding shares of the acquired company.
Periods prior to consummation of this merger were not restated to include the
accounts and operations of the acquired company as combined results are not
materially different from the results as presented.
FIRST AND SECOND QUARTER 1998 ACQUISITIONS
During the six months ended June 30, 1998, the Company acquired or
contracted to acquire seventeen businesses engaged in the collection, treatment
and disposal of liquid wastes for approximately $69,033,000 in cash, $1,226,000
in debt issued, 20,000 stock warrants and 1,355,039 shares of the Company's
common stock using the purchase method of accounting. In addition, one
acquisition provides for additional payments of approximately $15,004,000 in
connection with a five-year disposal agreement entered into with the seller,
which the Company has accrued for as a contract reserve. All of these
acquisitions were consummated during the first six months of 1998 except for the
acquisition from USA Waste Services, Inc. ("USA Waste") of one business in
Florida with approximately $6.6 million in 1997 revenues (the "Universal Waste
Acquisition"), which was consummated on August 1, 1998. Pending the consummation
of the Universal Waste Acquisition, USA Waste operated the business on terms
that had the same effect on the Company's financial condition and results of
operations as if the acquisition had been consummated on May 1, 1998. The
accompanying condensed consolidated balance sheet includes allocations of the
respective purchase prices and is subject to final adjustment. The excess of the
aggregate purchase price over the fair value of the net assets acquired was
approximately $85,773,000.
In addition, the Company has agreed in connection with certain transactions
to pay additional amounts to the sellers upon the achievement by the acquired
businesses of certain negotiated goals, such as targeted earnings levels, or the
occurrence of other specified events. Although the amount and timing of any
payments of additional contingent consideration depend on whether and when these
goals or other conditions are met, the maximum aggregate amount of contingent
consideration potentially payable if all targeted goals are met is approximately
$14,225,000 (payable through 2001) with the achieved goals providing
approximately $25,988,000 of pre-tax income or earnings before
8
<PAGE>
interest, taxes, depreciation and amortization over a three-year period. The
contingent consideration is generally payable in cash, however, in three of the
acquisitions, the contingent consideration involves shares of the Company's
common stock.
The unaudited pro forma information set forth below presents the revenues,
net income and earnings per share of the Company, plus the 1997 and 1998
acquisitions, the initial public offering and the secondary offering of common
stock, as if these transactions were effective on the first day of the period
being reported and includes certain pro forma adjustments, including the
adjustment of amortization expenses to reflect purchase price allocations,
recording of interest expense to reflect debt issued in connection with the
acquisitions, and certain reductions of salaries and benefits payable to the
previous owners of the businesses acquired which were agreed to in connection
with the acquisitions and the related income tax effects of these adjustments.
SIX MONTHS ENDED JUNE 30,
1997 1998
---------- ----------
(In thousands, except for per share data)
(Unaudited)
Revenue .............................. $ 76,724 $ 79,802
Net income ........................... 5,076 6,450
Basic earnings per common share ...... 0.42 0.53
Diluted earnings per common share .... 0.39 0.48
The unaudited pro forma information is presented for informational purposes
only and is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisitions been consummated at the
beginning of the periods presented.
6. LEGAL PROCEEDINGS
On August 7, 1998, the Company settled substantially all of the claims
asserted against it in the three previously reported lawsuits relating to its
Bourg, Louisiana landfarm and a fourth lawsuit filed against the Company in July
1998 seeking injunctive relief against certain operations of the Bourg,
Louisiana landfarm. Under the terms of the settlement, the Company agreed to
expand the buffer zone along the western boundary of its landfarm. In addition,
the Company agreed to construct a berm along the property line closest to the
residences of the plaintiffs. The costs of these actions had previously been
reserved for by the Company and, thus, did not have any impact on earnings. This
settlement does not resolve certain claims asserted against the Company by
Acadian Shipyard, Inc., a local barge company ("Acadian"), in the FRILOUX ET AL.
V. CAMPBELL WELLS CORPORATION case pending in the 17th Judicial District Court
for the Parish of Lafourche, Louisiana. In the FRILOUX case, the Company has
asserted claims for indemnity and/or contribution against Acadian. Thereafter,
in July 1998, Acadian filed various counterclaims against the Company including,
without limitation, claims for defamation of business reputation and conspiracy
to damage Acadian's business reputation. In addition, Acadian requested
unspecified monetary damages allegedly suffered as a result of alleged
environmental contamination in connection with the ongoing operations at the
Bourg, Louisiana landfarm. The Company denies that it has any liability to
Acadian and intends to vigorously defend itself against these claims. In
addition, this settlement does not resolve the claims asserted in the class
action filed in the Civil District Court for the Parish of Orleans, Louisiana
seeking
9
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unspecified monetary damages allegedly suffered as a result of alleged air,
water and soil contamination in connection with ongoing operations at the
Company's Mermentau, Louisiana landfarm. The Company has not been named as a
defendant in this class action; however, there can be no assurance that the
Company will not subsequently be named as a defendant.
In July 1998, the Company commenced an arbitration proceeding against
Newpark Resources, Inc. ("Newpark") for failing to satisfy its delivery and
payment obligations under a long-term disposal agreement (the "Disposal
Agreement") that the Company acquired in connection with its acquisition of its
Louisiana and Texas landfarms in December 1996. Specifically, the Company has
alleged that Newpark has fallen short of its delivery obligations under the
Disposal Agreement by approximately 635,000 barrels of oilfield waste valued at
approximately $3.5 million. The Company has requested that the arbitrators enter
an order (i) declaring that Newpark has breached the Disposal Agreement and no
condition existed or exists which would excuse Newpark's breach and (ii)
awarding the Company approximately $3.5 million in damages. The arbitrators for
the arbitration proceeding have not yet been selected and, thus, Newpark has not
responded to the claims asserted by the Company.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
or property damage incurred in connection with its operations. Except as
described above, the Company is not currently involved in any litigation that it
believes will have a material adverse effect on its business, results of
operations or financial condition.
7. SUBSEQUENT EVENTS
Since June 30, 1998, the Company has acquired four additional businesses,
which collectively had 1997 revenues of approximately $1.5 million. Each of
these acquisitions has been accounted for under the purchase method of
accounting. The total consideration for these four acquisitions involved
approximately $1.9 million in cash and assumed debt and 7,786 shares of the
Company's common stock. In two of these acquisitions, the Company agreed to make
additional payments of cash to the sellers upon the achievement by the acquired
businesses of targeted earnings levels. In addition, on August 1, 1998, the
Company consummated the Universal Waste Acquisition.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED
NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
OVERVIEW
The Company is a rapidly growing provider of integrated liquid waste
management services, including collection, processing, recovery and disposal
services. Since its formation in November 1996, the Company has pursued an
aggressive acquisition program, acquiring 29 liquid waste management businesses.
The Company provides liquid waste management services through a number of
subsidiaries that are organized into two divisions. The Industrial Wastewater
Division collects, processes and disposes of liquid waste (such as industrial
wastewater, grease and grit trap waste, bulk liquids and unsaleable beverages
and certain hazardous wastes) and whenever feasible recovers saleable
by-products from the waste streams. Typically, the Company uses a variety of
physical, chemical, thermal and biological techniques to break down the liquid
waste into constituent components. Water extracted from the liquid waste is
pretreated and then discharged into the local publicly-owned treatment works and
solid materials are dried and disposed of in a solid waste landfill. The
Oilfield Waste Division processes and disposes of waste generated in oil and gas
exploration and production. The Oilfield Waste Division was formed in December
1996 when the Company purchased its Louisiana and Texas landfarms (the "Campbell
Wells Acquisition") from Campbell Wells, L.P. and Campbell Wells Norm, L.P.
(collectively, "Campbell Wells") and Sanifill, Inc. ("Sanifill"), each of which
is now a wholly-owned subsidiary of USA Waste Services, Inc. ("USA Waste").
The Industrial Wastewater Division generated $24.6 million, or 87.9%, of the
Company's revenues for the quarter ended June 30, 1998. This Division derives
revenues from two principal sources: tipping and collection fees received for
processing and disposing of waste, and revenue obtained from the sale of
by-products, including fats, oils, feed proteins, industrial and fuel grade
ethanol, solvents, aluminum, glass, plastic and cardboard recovered from waste
streams. Some of the Company's by-product sales involve the brokering of
industrial and fuel grade ethanol produced by third parties in order to meet its
customers' volume and quality requirements. Tipping and collection fees charged
to customers vary per gallon by waste stream according to the constituents of
the waste, expenses associated with processing the waste and competitive
factors. By-products are commodities and their prices fluctuate based on market
conditions. The Company anticipates that revenues from tipping and collection
fees, which have higher margins than by-product sales, will increase at a faster
rate than revenues from sales of by-products and brokering of ethanol. The
Company anticipates that the Industrial Wastewater Division will represent a
growing share of the Company's business because of its projected internal growth
and future acquisitions.
The Oilfield Waste Division generated $3.4 million, or 12.1%, of the
Company's revenues for the quarter ended June 30, 1998. This Division derives
revenues from fees charged to customers for processing and disposing of oil and
gas exploration and production waste. These fees are based on the composition of
the waste and currently range from $0.40 per barrel for saltwater to $6.75 to
$10.75 per barrel for oil-based drilling fluids, depending upon the makeup of
the waste. Accordingly, the Company believes that total revenues are a better
indicator of performance than is the average fee charged. When waste is unloaded
at a given site, the Company recognizes the related revenue and records a
reserve for the estimated amount of expenses to be incurred to process the waste
in order to match revenues with their related costs. As processing occurs,
generally over nine to twelve months, the reserve is depleted as expenses are
incurred.
11
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The Company's operating margins in the Oilfield Waste Division are typically
higher than in the Industrial Wastewater Division.
Newpark Resources, Inc. ("Newpark") is the largest customer of the Oilfield
Waste Division. Under the terms of a long-term disposal agreement (the "Disposal
Agreement") that the Company acquired in connection with the Campbell Wells
Acquisition, Newpark is obligated to deliver to the Company annually the lesser
of (i) one-third of the barrels of oilfield waste that Newpark receives for
processing and disposal in Louisiana, Texas, Mississippi, Alabama and the Gulf
of Mexico, and (ii) 1,850,000 barrels of oilfield waste, in each case excluding
saltwater. The contract price is $5.50 per barrel, adjusted semi-annually
beginning June 30, 1998, with a price floor of $5.50 per barrel. As further
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and in "Legal Proceedings" below, a dispute has arisen
with respect to Newpark's obligations under the Disposal Agreement and the
Company has initiated an arbitration proceeding seeking declaratory relief,
specific performance of the Disposal Agreement and monetary damages.
Operating expenses include compensation and overhead related to operations
workers, supplies and other raw materials, transportation charges, disposal fees
paid to third parties, real estate lease payments and energy and insurance costs
applicable to waste processing and disposal operations.
Selling, general and administrative expenses include management, clerical
and administrative compensation and overhead relating to the Company's corporate
offices and each of its operating sites, as well as professional services and
costs.
Depreciation and amortization expenses relate to the Company's landfarms and
other depreciable or amortizable assets. Landfarms, which constitute
approximately 20.8% of the Company's net property, plant and equipment, are
amortized over 25 years. Other depreciable or amortizable assets are expensed
over periods ranging from three to 40 years. Amortization expenses relating to
acquisitions have not been significant in the past, but will increase as a
result of amortization of goodwill recorded in connection with acquisitions
completed since December 31, 1997 and future acquisitions.
The timing and magnitude of acquisitions, assimilation costs and the
seasonal nature of the operations of the Oilfield Waste Division may materially
affect operating results. Accordingly, the operating results for any period are
not necessarily indicative of the results that may be achieved for any
subsequent period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1998
REVENUES. Revenues for the quarter ended June 30, 1998 increased $18.1
million, or 183.3%, from $9.9 million for the quarter ended June 30, 1997 to
$28.0 million for the quarter ended June 30, 1998. The Industrial Wastewater
Division contributed $4.2 million, or 42.8%, of second quarter 1997 revenues and
$24.6 million, or 87.9%, of second quarter 1998 revenues. Tipping and collection
fees generated $1.2 million, or 28.2%, and $18.2 million, or 73.9%, of the
Industrial Wastewater Division's revenues for the second quarters of 1997 and
1998, respectively. By-product sales generated the remaining $3.0 million, or
70.7%, and $6.4 million, or 25.8%, of the Industrial Wastewater Division's
revenues for the second quarters of 1997 and 1998, respectively. The Oilfield
Waste Division contributed $5.7 million, or 57.2%, of second quarter 1997
revenues and $3.4 million, or 12.1%, of second quarter 1998 revenues.
The revenues of the Industrial Wastewater Division increased $20.4 million,
or 484.1%, from $4.2 million for the quarter ended June 30, 1997 to $24.6
million for the quarter ended June 30, 1998 due to acquisitions
12
<PAGE>
completed during the fourth quarter of 1997 and the first six months of 1998 and
an increase in the volume of waste processed resulting primarily from the
enactment of state-wide "full-pump" regulations in Texas. The Oilfield Waste
Division's revenues decreased $2.3 million, or 40.3%, from $5.7 million for the
quarter ended June 30, 1997 to $3.4 million for the quarter ended June 30, 1998.
The revenues of the Oilfield Waste Division were down due to lower receipts of
oilfield waste from Newpark under the Disposal Agreement. During the three month
period ended June 30, 1998, Newpark delivered approximately 133,500 barrels of
oilfield waste (excluding saltwater) to the Company's landfarms, as compared to
approximately 393,200 barrels of oilfield waste (excluding saltwater) delivered
during the three month period ended June 30, 1997. Pending the resolution of the
arbitration proceeding described in "Legal Proceedings" below, the Company
anticipates that Newpark's deliveries of oilfield waste to the Company will be
substantially less than that mandated by the Disposal Agreement. While the
Company believes that it will prevail in the arbitration proceeding, it has
elected to record the dollar value associated with the volume shortfall,
utilizing the rate set in the Disposal Agreement, as deferred revenue.
OPERATING EXPENSES. Operating expenses increased $12.4 million, or 227.4%,
from $5.5 million for the quarter ended June 30, 1997 to $17.9 million for the
quarter ended June 30, 1998. As a percentage of revenues, operating expenses
increased from 55.4% in the second quarter of 1997 to 64.1% in the second
quarter of 1998. This increase was due primarily to the Company's transition
from operating primarily as an oilfield waste disposal company into an
integrated liquid waste management company providing collection, processing,
recovery and disposal services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $1.4 million, or 217.9%, from $641,000 for the quarter ended June 30,
1997 to $2.0 million for the quarter ended June 30, 1998. As a percentage of
revenues, depreciation and amortization expenses increased from 6.5% in the
second quarter of 1997 to 7.3% in the second quarter of 1998. This increase was
primarily due to an increase in capital expenditures and additional amortization
associated with the acquisitions completed in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.8 million, or 117.3%, from $1.6 million for
the quarter ended June 30, 1997 to $3.4 million for the quarter ended June 30,
1998. As a percentage of revenues, selling, general and administrative expenses
decreased from 15.9% for the second quarter of 1997 to 12.2% for the second
quarter of 1998. This decrease was primarily due to the Company's ability to
integrate new business acquisitions without a proportionate increase in general
and administrative expenses.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
$424,000, or 64.5%, from $657,000 for the quarter ended June 30, 1997 to $1.1
million for the quarter ended June 30, 1998. This increase resulted primarily
from interest expense incurred on borrowings used to fund the purchase price for
acquisitions completed in 1998.
INCOME TAXES. The provision for income taxes increased $919,000, or 174.1%,
from $528,000 for the quarter ended June 30, 1997 to $1.4 million for the
quarter ended June 30, 1998 as a result of increased taxable income. The
effective tax rate for the period ended June 30, 1997 was 46.5% compared to a
41.0% rate for the period ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
REVENUES. Revenues for the six month period ended June 30, 1998 increased
$22.6 million, or 127.3%, from $17.7 million for the six months ended June 30,
1997 to $40.3 million for the six months ended June 30, 1998. The Industrial
Wastewater Division contributed $7.9 million, or 44.3%, of revenues for the
13
<PAGE>
six months ended June 30, 1997 and $31.9 million, or 79.2%, of revenues for the
six months ended June 30, 1998. Tipping and collection fees generated $2.0
million, or 25.7%, and $22.4 million, or 70.3%, of the Industrial Wastewater
Division's revenues for the six month periods ended June 30, 1997 and 1998,
respectively. By-product sales generated the remaining $5.9 million, or 74.3%,
and $9.5 million, or 29.7%, of the Industrial Wastewater Division's revenues for
the 1997 and 1998 periods, respectively. The Oilfield Waste Division contributed
$9.9 million, or 55.7%, of revenues for the six month period ended June 30, 1997
and $8.4 million, or 20.8%, of revenues for the six month period ended June 30,
1998.
The revenues of the Industrial Wastewater Division increased $24.1 million,
or 306.2%, from $7.9 million for the six months ended June 30, 1997 to $31.9
million for the six months ended June 30, 1998. This increase was due primarily
to acquisitions completed during the fourth quarter of 1997 and the first six
months of 1998 and an increase in the volume of waste processed resulting
primarily from the enactment of state-wide "full-pump" regulations in Texas. The
Oilfield Waste Division's revenues decreased $1.5 million, or 15.0%, from $9.9
million for the six months ended June 30, 1997 to $8.4 million for the six
months ended June 30, 1998. This decrease resulted primarily from lower receipts
of oilfield waste from Newpark under the Disposal Agreement. Newpark delivered
approximately 879,500 and 450,700 barrels of oilfield waste (excluding
saltwater) to the Company's landfarms during the six month periods ended June
30, 1997 and 1998, respectively.
OPERATING EXPENSES. Operating expenses increased $14.8 million, or 145.7%,
from $10.1 million for the six months ended June 30, 1997 to $24.9 million for
the six months ended June 30, 1998. As a percentage of revenues, operating
expenses increased from 57.2% for the six month period ended June 30, 1997 to
61.8% for the six month period ended June 30, 1998. This increase was due
principally to the Company's transition from operating primarily as an oilfield
waste disposal company into an integrated liquid waste management company
providing collection, processing, recovery and disposal services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $1.8 million, or 137.5%, from $1.3 million for the six months ended
June 30, 1997 to $3.0 million for the six months ended June 30, 1998. As a
percentage of revenues, depreciation and amortization expenses increased
slightly from 7.2% for the six month period ended June 30, 1997 to 7.5% for the
six month period ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.6 million, or 115.9%, from $2.3 million for
the six months ended June 30, 1997 to $4.9 million for the six months ended June
30, 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 12.7% for the six month period ended June 30, 1997 to
12.1% for the six month period ended June 30, 1998. This improvement resulted
primarily from the Company's ability to integrate new business acquisitions
without a proportionate increase in general and administrative expenses.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
$285,000, or 25.1%, from $1.1 million for the six months ended June 30, 1997 to
$1.4 million for the six months ended June 30, 1998. This increase resulted
primarily from interest expense incurred on borrowings used to fund the purchase
price for acquisitions completed in 1998.
INCOME TAXES. The provision for income taxes increased $1.4 million, or
137.1%, from $1.0 million for the six months ended June 30, 1997 to $2.4 million
for the six months ended June 30, 1998 as a result of increased taxable income.
The effective tax rate for the six months ended June 30, 1997 was 41%, compared
to a 40.4% rate for the six months ended June 30, 1998.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In June 1998, the Company completed a secondary offering of 3,450,000 shares
of common stock, resulting in net proceeds of approximately $60.9 million. The
net proceeds were applied against the outstanding balance of the Company's
Credit Facility, the vast majority of which indebtedness was incurred in
connection with acquisitions previously consummated by the Company.
The Company had net working capital of $9.6 million at June 30, 1998,
compared to net working capital of $2.1 million at December 31, 1997.
Improvement in the working capital position was attributable primarily to an
increase in cash resulting from the exercise in late June of an over-allotment
option granted to the underwriters of the Company's secondary offering.
The Company's capital requirements for its continuing operations consist of
its general working capital needs, scheduled principal payments on its debt
obligations and capital leases, and planned capital expenditures. At June 30,
1998, approximately $1.9 million of principal payments on debt obligations were
payable during the next twelve months. Capital expenditures during the three
months and the six months ended June 30, 1998 were $3.0 million and $4.3
million, respectively. The majority of the capital expenditures were for plant
expansions, equipment and vehicle upgrades. Capital expenditures for the last
two quarters of 1998 are budgeted at approximately $11.0 million. Of this
amount, approximately $1.8 million is budgeted to be invested in the Oilfield
Waste Division on equipment replacements and landfarm expansions. The remaining
amount is budgeted to be invested in the Industrial Wastewater Division for
plant expansions, equipment and vehicle upgrades.
At June 30, 1998, the Company had established a $6.2 million reserve to
provide for the cost of future closures of facilities. The amount of this
unfunded reserve is based on the estimated total cost to the Company of closing
the facilities as calculated in accordance with the applicable regulations.
Applicable regulatory agencies require the Company to post financial assurance
with the agencies to assure that all waste will be treated and the facilities
closed appropriately. The Company has in place a total of $12.2 million of
financial assurance in the form of letters of credit and bonds.
The Company has a $100 million credit facility (the "Credit Facility") with
a group of banks under which the Company may borrow to fund working capital
requirements and acquisitions. Amounts outstanding under the Credit Facility are
secured by, among other things, a lien on all or substantially all of the
Company's assets. The Credit Facility prohibits the payment of dividends and
requires the Company to comply with certain financial covenants. The Credit
Facility also places certain restrictions on, among other things, acquisitions
and other business combination transactions which may be consummated by the
Company. The Company does not believe that these restrictions will have a
material adverse effect on the Company's ability to fulfill its current
acquisition program. The debt outstanding under the Credit Facility may be
accelerated at the option of the lenders in the event that, among other things,
a change in control of the Company occurs or Michael P. Lawlor, W. Gregory Orr
or Earl J. Blackwell ceases to serve as an executive officer of the Company and
is not replaced within sixty days by an individual reasonably satisfactory to
the lenders. At June 30, 1998, the Company had borrowed approximately $38.0
million under the Credit Facility.
The Company's capital resources consist of cash reserves, cash generated
from operations and funds available under the Credit Facility. The Company
expects that these resources will be sufficient to fund continuing operations
for at least the next twelve months. In addition to capital required for its
ongoing operations, the Company will require additional capital to pursue its
acquisition program. The Company anticipates that future acquisitions will be
made using a combination of common stock and cash, much of which is expected to
be derived from borrowings under the Credit Facility. In addition, the Company
may seek to raise additional equity capital for all or a substantial part of the
consideration to be paid for future
15
<PAGE>
acquisitions or to reduce its debt. In the event that the common stock does not
maintain a sufficient market value or potential acquisition candidates are
unwilling to accept common stock as part of the consideration for the sale of
their businesses, the Company would be required to utilize more of its cash
resources in order to continue its acquisition program. At the same time, the
Company may be unable to raise additional capital due to market conditions. As a
result, the timing of acquisitions over the longer term can be expected to be
affected by prevailing market conditions. In addition, if the Company were
unable to secure the capital necessary to carry out its acquisition program, the
implementation of the Company's growth strategy would be adversely affected.
ACQUISITIONS
During the three months ended June 30, 1998, the Company acquired or
contracted to acquire thirteen businesses, which collectively had 1997 revenues
of approximately $115.7 million. All of these acquisitions were consummated
during the three months ended June 30, 1998 except for the acquisition from USA
Waste of one business in Florida with approximately $6.6 million in 1997
revenues (the "Universal Waste Acquisition"), which was consummated on August 1,
1998. Pending the consummation of the Universal Waste Acquisition, USA Waste
operated the business on terms that had the same effect on the Company's
financial condition and results of operations as if the acquisition had been
consummated on May 1, 1998. Each of the acquisitions has been accounted for
under the purchase method of accounting. The total consideration for these
thirteen acquisitions (including the Universal Waste Acquisition) involved
approximately $64.1 million in cash and debt issued and 1,169,181 shares of the
Company's common stock. In addition, one acquisition provides for additional
payments of approximately $15,004,000 in connection with a five-year disposal
agreement entered into with the seller, which the Company has accrued for as a
contract reserve. In certain transactions, the Company agreed to issue
additional shares of common stock or make additional payments of cash to the
sellers upon the achievement by the acquired businesses of certain negotiated
goals, such as targeted earnings levels, or upon the occurrence of other
specified events.
Since June 30, 1998, the Company has acquired four additional businesses,
which collectively had 1997 revenues of approximately $1.5 million. Each of
these acquisitions has been accounted for under the purchase method of
accounting. The total consideration for these four acquisitions involved
approximately $1.9 million in cash and assumed debt and 7,786 shares of the
Company's common stock. In two of these acquisitions, the Company agreed to make
additional payments of cash to the sellers upon the achievement by the acquired
businesses of targeted earnings levels.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, such
computer applications could fail or create erroneous results by or at the Year
2000. The Company has determined that its computer programs are Year 2000
compliant. When the Company completes an acquisition, it replaces the acquired
company's system with its own management and reporting and control systems.
Accordingly, the Company does not believe that its acquisition program will be
adversely affected by Year 2000 compliance issues.
16
<PAGE>
FORWARD LOOKING STATEMENTS
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations or similar statements concerning future events
contained in this report constitute "forward looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. As with any future event,
there can be no assurance that the events described in forward looking
statements made in this report will occur or that the results of future events
will not vary materially from those described herein. Important factors that
could cause the Company's actual performance and operating results to differ
materially from the forward looking statements include, among other factors,
changes in the regulatory environment in which the Company operates, changes in
the level economic activity in markets served by the Company, the availability
of capital to support the Company's growth strategy, the ability of the Company
to execute it business plan, changes in the level of exploration and production
of oil and gas, particularly in the Gulf Coast region, changes in the level of
competition faced by the Company in each of its markets, the loss of business or
inability to collect payment from one or more significant customers and the
adverse resolution of pending litigation affecting the Company's landfarms.
17
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 7, 1998, the Company settled substantially all of the claims
asserted against it in the three previously reported lawsuits relating to its
Bourg, Louisiana landfarm and a fourth lawsuit filed against the Company in July
1998 seeking injunctive relief against certain operations of the Bourg,
Louisiana landfarm. Under the terms of the settlement, the Company agreed to
expand the buffer zone along the western boundary of its landfarm. In addition,
the Company agreed to construct a berm along the property line closest to the
residences of the plaintiffs. The costs of these actions had previously been
reserved for by the Company and, thus, did not have any impact on earnings. This
settlement does not resolve certain claims asserted against the Company by
Acadian Shipyard, Inc., a local barge company ("Acadian"), in the FRILOUX ET AL.
V. CAMPBELL WELLS CORPORATION case pending in the 17th Judicial District Court
for the Parish of Lafourche, Louisiana. In the FRILOUX case, the Company has
asserted claims for indemnity and/or contribution against Acadian. Thereafter,
in July 1998, Acadian filed various counterclaims against the Company including,
without limitation, claims for defamation of business reputation and conspiracy
to damage Acadian's business reputation. In addition, Acadian requested
unspecified monetary damages allegedly suffered as a result of alleged
environmental contamination in connection with the ongoing operations at the
Bourg, Louisiana landfarm. The Company denies that it has any liability to
Acadian and intends to vigorously defend itself against these claims. In
addition, this settlement does not resolve the claims asserted in the class
action filed in the Civil District Court for the Parish of Orleans, Louisiana
seeking unspecified monetary damages allegedly suffered as a result of alleged
air, water and soil contamination in connection with ongoing operations at the
Company's Mermentau, Louisiana landfarm. The Company has not been named as a
defendant in this class action; however, there can be no assurance that the
Company will not subsequently be named as a defendant.
In July 1998, the Company commenced an arbitration proceeding against
Newpark Resources, Inc. for failing to satisfy its delivery and payment
obligations under the Disposal Agreement. Specifically, the Company has alleged
that Newpark has fallen short of its delivery obligations under the Disposal
Agreement by approximately 635,000 barrels of oilfield waste valued at
approximately $3.5 million. The Company has requested that the arbitrators enter
an order (i) declaring that Newpark has breached the Disposal Agreement and no
condition existed or exists which would excuse Newpark's breach and (ii)
awarding the Company approximately $3.5 million in damages. The arbitrators for
the arbitration proceeding have not yet been selected and, thus, Newpark has not
responded to the claims asserted by the Company.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
or property damage incurred in connection with its operations. Except as
described above, the Company is not currently involved in any litigation that it
believes will have a material adverse effect on its business, results of
operations or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
SALES OF UNREGISTERED SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 5, 1998, the annual meeting of stockholders of the Company was
held in Houston, Texas. The items of business considered at the annual meeting
were as follows:
(1) The election of Alfred Tyler 2nd and James F. McEneaney, Jr. to serve as
directors of the Company for a term of three years.
(2) The ratification of the appointment of Arthur Andersen LLP as the
Company's independent accountants for 1998.
At the annual meeting 5,578,192 votes were cast by the stockholders FOR the
election of Alfred Tyler 2nd and 2,225 votes were voted AGAINST; 5,578,192 votes
were cast by the stockholders FOR the election of James F. McEneaney, Jr. and
2,225 votes were voted AGAINST; 5,531,445 votes were cast by the stockholders
FOR the ratification of the selection of Arthur Andersen LLP as the Company's
independent accountants for 1998, 44,547 votes were voted AGAINST and 4,425
shares ABSTAINED.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
- ------ --------------
10.71 Stock Purchase Agreement among U S Liquids Inc., MCS Transportation,
Inc., Charles C. Stout, Charlotte S. Lynch, James Scott Raimey, Danny
C. Hammond, Thomas E. Starustka, Brenda B. Savell, Janice S. Whalen,
and John Dwight Askeu.
10.72 Stock Purchase Agreement among U S Liquids Inc., Advanced Management
Systems, Inc. and Charles C. Stout.
27.1 Financial Data Schedule
(b) On April 30, 1998, the Company filed a report on Form 8-K with the
Securities and Exchange Commission. Under Item 2 of that report, the Company
described its acquisition of all of the capital stock of The National Solvent
Exchange Corp., a Georgia corporation.
On May 6, 1998, the Company filed a report on Form 8-K with the Securities
and Exchange Commission. Under Item 2 of that report, the Company described its
acquisition of substantially all of the assets of Parallel Products, a
California limited partnership, and all of the outstanding capital stock of
Waste Stream Environmental, Inc. and Earth Blends, Inc., each a New York
corporation, and Amigo Diversified Services, Inc., a Texas corporation.
On May 22, 1998, the Company filed a report on Form 8-K with the Securities
and Exchange Commission. Under Item 2 of that report, the Company described its
acquisition of all of the capital stock of Northern A-1 Sanitation Services,
Inc., a Michigan corporation, and certain assets of City Environmental, Inc. and
Universal Waste and Transit.
19
<PAGE>
On June 2, 1998, the Company amended both the May 6, 1998 Form 8-K and the
May 22, 1998 Form 8-K to include audited financial statements of City
Environmental, Inc., Waste Stream Environmental, Inc. (and its affiliate, Earth
Blend, Inc.), and Parallel Products, as well as certain pro forma financial
information .
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U S LIQUIDS INC.
Date: August 27, 1998 /s/ MICHAEL P. LAWLOR
Michael P. Lawlor, Chairman and CEO
Date: August 27, 1998 /s/ EARL J. BLACKWELL
Earl J. Blackwell, Senior Vice President
and Chief Financial Officer
21
STOCK PURCHASE AGREEMENT
AMONG
U S LIQUIDS, INC.
AND
MCS TRANSPORTATION, INC.
AND
CHARLES C. STOUT, CHARLOTTE S. LYNCH, JAMES SCOTT RAINEY,
DANNY C. HAMMOND, THOMAS E. STARUSTKA, BRENDA B. SAVELL,
JANICE S. WHALEN AND JOHN DWIGHT ASKEW
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. DELIVERY OF SHARES; ENDORSEMENT OF COMPANY STOCK. 1
1.1 DELIVERY OF SHARES................................................1
1.2 ENDORSEMENT OF COMPANY STOCK......................................1
2. PURCHASE PRICE. 2
2.1 PURCHASE PRICE....................................................2
2.2 AGREED VALUE OF BUYER STOCK.......................................2
2.3 ASSUMPTION OF DEBT................................................2
2.4 ADJUSTMENT TO CONSIDERATION.......................................2
3. TITLE ASSURANCE. 3
3.1 TITLE POLICIES....................................................3
3.2 PERMITTED ENCUMBRANCES............................................4
3.3 SURVEY............................................................4
4. CLOSING. 4
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS AND COMPANY. 4
5.1 ORGANIZATION; AUTHORITY...........................................5
5.2 STOCK OWNERSHIP; ABSENCE OF ADVERSE CLAIMS........................5
5.3 CAPITALIZATION....................................................5
5.4 PREDECESSOR ENTITIES; TRADE NAMES.................................6
5.5 NO SUBSIDIARIES...................................................6
5.6 FINANCIAL STATEMENTS..............................................6
5.7 NON-BALANCE SHEET LIABILITIES.....................................7
5.8 ACCOUNTS RECEIVABLE...............................................7
5.9 PROPRIETARY RIGHTS; ENVIRONMENTAL DOCUMENTS.......................7
5.10 REAL PROPERTY; REPORTING.........................................8
5.11 PERSONAL PROPERTY; NEW PROJECTS.................................10
5.12 CONTRACTS.......................................................10
5.13 INSURANCE POLICIES..............................................11
5.14 DIRECTORS, OFFICERS AND EMPLOYEES; COMPENSATION.................11
5.15 EMPLOYEE PLANS..................................................12
5.16 COMPLIANCE WITH ERISA...........................................12
5.17 COMPLIANCE WITH LAW; NO CONFLICTS...............................13
5.18 TAXES...........................................................13
5.19 LITIGATION......................................................14
5.20 ABSENCE OF PRICE RENEGOTIATION CONTRACTS........................14
5.21 CONDUCT OF BUSINESS SINCE BALANCE SHEET DATE....................14
5.22 BANK ACCOUNTS; DEPOSITORIES.....................................15
5.23 HAZARDOUS MATERIALS.............................................16
5.24 STORAGE TANKS...................................................16
5.25 CORRUPT PRACTICES...............................................17
5.26 COMPLETE DISCLOSURE.............................................17
6. REPRESENTATIONS AND WARRANTIES OF BUYER. 17
6.1 CORPORATE ORGANIZATION...........................................17
6.2 CORPORATE AUTHORITY..............................................17
Page 1
<PAGE>
6.3 BUYER STOCK......................................................18
6.4 NO CONFLICTS.....................................................18
6.5 BINDING AGREEMENT................................................18
7. COVENANTS. 18
7.1 ACCESS TO LAND AND RECORDS.......................................18
7.2 COMPANY ACTIVITIES PRIOR TO CLOSING..............................19
7.3 PROHIBITED ACTIVITIES PRIOR TO CLOSING...........................19
7.4 CONTACT WITH GOVERNMENT OFFICIALS................................20
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY AND STOCKHOLDERS. 20
8.1 REPRESENTATIONS AND WARRANTIES...................................20
8.2 CONSENTS.........................................................21
8.3 NO ADVERSE PROCEEDING............................................21
8.4 NONCOMPETITION AGREEMENTS........................................21
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. 21
9.1 REPRESENTATIONS AND WARRANTIES...................................21
9.2 COVENANTS........................................................21
9.3 NO ADVERSE PROCEEDING............................................21
9.4 GENERAL RELEASE..................................................21
9.5 CONSENTS.........................................................21
9.6 RESIGNATIONS.....................................................22
9.7 GOOD STANDING CERTIFICATES.......................................22
9.8 UPDATED AGREEMENTS...............................................22
9.9 NONCOMPETITION AGREEMENTS........................................22
9.10 DELIVERY OF COMPANY STOCK.......................................22
9.11 ENVIRONMENTAL REVIEW............................................22
9.12 TRANSFERABILITY OF PERMITS......................................22
9.13 GENERAL.........................................................22
10. POST CLOSING COVENANTS. 22
10.1 TAXES...........................................................22
10.2 POST CLOSING BALANCE SHEET......................................23
10.3 CLOSING DATE ACTIONS............................................23
10.4 FURTHER ASSURANCE...............................................23
10.5 TRANSITION......................................................24
10.6 SURVIVAL........................................................24
11. NON-ASSUMPTION OF LIABILITIES. 24
11.1. NON-ASSUMPTION OF LIABILITIES...................................24
12. INDEMNIFICATION. 25
12.1 INDEMNIFICATION BY STOCKHOLDERS.................................25
12.2 INDEMNIFICATION BY BUYER........................................25
12.3 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD PARTY
CLAIMS..........................................................26
13. TERMINATION OF AGREEMENT. 27
13.1 TERMINATION BY BUYER............................................27
13.2 TERMINATION BY STOCKHOLDERS.....................................27
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. 27
14.1 NONDISCLOSURE BY STOCKHOLDERS...................................27
14.2 NONDISCLOSURE BY BUYER..........................................28
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15. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON STOCK. 28
15.1 REGISTERED STOCK................................................28
15.2 CONTRACTUAL RESTRICTION.........................................28
15.3 CONTRACTUAL RESTRICTION LEGEND..................................28
15.4 GENERAL LEGEND..................................................29
15.5 COMPLIANCE WITH LAW.............................................29
16. GENERAL. 29
16.1 ASSIGNMENT; BINDING EFFECT; AMENDMENT...........................29
16.2 ENTIRE AGREEMENT................................................29
16.3 COUNTERPARTS....................................................29
16.4 NO BROKERS......................................................30
16.5 EXPENSES OF TRANSACTION.........................................30
16.6 NOTICES.........................................................30
16.7 APPOINTMENT OF AGENT............................................31
16.8 NO WAIVER.......................................................31
16.9 TIME OF THE ESSENCE.............................................31
16.10 CAPTIONS.......................................................32
16.11 SEVERABILITY...................................................32
16.12 CONSTRUCTION...................................................32
16.13 STANDSTILL AGREEMENT...........................................32
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), executed and
delivered as of June 25, 1998, among U S LIQUIDS, INC., a Delaware corporation
("Buyer"); MCS TRANSPORTATION, INC., a Texas corporation ("Company"); and
CHARLES C. STOUT, CHARLOTTE S. LYNCH, JAMES SCOTT RAINEY, DANNY C. HAMMOND,
THOMAS E. STARUSTKA, BRENDA B. SAVELL, JANICE S. WHALEN and JOHN DWIGHT ASKEW,
the sole stockholders ("Stockholders") of Company;
W I T N E S S E T H :
WHEREAS, Company operates a commercial waste transportation business
in the San Leon, Texas, area (the "Business");
WHEREAS, Company owns approximately three acres of real property
located in San Leon, Texas (the "Owned Land");
WHEREAS, Company also leases approximately 5 acres of real property
in La Porte, Texas (the "Leased Land"), from Harry Fuller pursuant to a written
lease dated February 14, 1995 (the "MCS Lease");
WHEREAS, Stockholders own all of the issued and outstanding shares
of the capital stock of Company; and
WHEREAS, Buyer desires to acquire all of the issued and outstanding
shares of the capital stock of Company from Stockholders and Stockholders desire
to sell such Company stock to Buyer as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties and obligations herein contained, the
parties hereby agree as follows:
1. DELIVERY OF SHARES; ENDORSEMENT OF COMPANY STOCK.
1.1 DELIVERY OF SHARES.
Upon the terms and subject to the conditions set forth in this
Agreement, Stockholders shall, at the Closing (hereinafter defined), deliver to
Buyer certificates representing the number of shares set forth opposite each
Stockholders' name on Annex I attached hereto and made a part hereof, which
certificates represent all of the issued and outstanding capital stock of
Company (the "Company Stock"). Stockholders shall deliver the Company Stock to
Buyer free and clear of all liens, security interests, encumbrances, adverse
claims, pledges, charges, voting trusts, equities and other restrictions on
transfer of any nature whatsoever (collectively, "Adverse Claims").
1.2 ENDORSEMENT OF COMPANY STOCK.
Stockholders shall deliver at Closing the certificates representing the
Company Stock, duly endorsed in blank by Stockholders or accompanied by stock
powers duly
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endorsed in blank and with all necessary transfer tax and other
revenue stamps, acquired at Stockholders' expense, affixed and cancelled.
Stockholders, at their sole expense, agree to cure (both before and after
Closing) any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to the Company Stock or with respect
to the stock powers accompanying the Company Stock.
2. PURCHASE PRICE.
2.1 PURCHASE PRICE.
Subject to Sections 2.3 and 2.4 below, in consideration of the sale to
Buyer in accordance with this Agreement of the certificates representing the
Company Stock, Company shall pay to Stockholders on the Closing Date an
aggregate of: (a) $1,800,000 in immediately available funds; (b) that total
number of shares of the common stock of Buyer (the "Buyer Stock"), which shall
have an Agreed Value (hereinafter defined) equal to $1,400,000, all of which
will be contractually restricted for a period of one year in accordance with
Article 15 hereof; and (c) that total number of shares of Buyer Stock which
shall have an Agreed Value equal to $1,400,000, all of which will be
contractually restricted for a period of two years in accordance with Article 15
hereof. The consideration set forth in this Section 2.1 shall be allocated among
the Stockholders as set forth on Annex II attached hereto and made a part
hereof.
2.2 AGREED VALUE OF BUYER STOCK.
For purposes of this Agreement, the "Agreed Value" per share of Buyer
Stock shall be the average of the closing prices of a share of the common stock
of Buyer, $.01 par value per share, on the American Stock Exchange as reported
in THE WALL STREET JOURNAL for a period of five consecutive trading days. The
days used to obtain the average will be the tenth trading day through the sixth
trading day before the date of Closing.
2.3 ASSUMPTION OF DEBT.
Attached hereto as Schedule 2.3 is a listing of all of the actual
long-term debt of Company (including the current portion of such debt) plus all
lease debt (including lease-end buyout payments) (the "Assumed Debt") and
evidence establishing the Assumed Debt. If the Assumed Debt of Company (when
combined with the actual long-term debt of Advanced Management Systems, Inc.
("AMS") is less than $435,000 on the Closing Date, the consideration payable in
Section 2.1(a) shall be increased by an amount equal to the difference between
$435,000 and the Assumed Debt of Company and AMS combined. If the Assumed Debt
of Company and AMS combined is more than $435,000 on the Closing Date, the
consideration payable in Section 2.1(a) shall be reduced by an amount equal to
the difference between $435,000 and the Assumed Debt of Company and AMS
combined.
2.4 ADJUSTMENT TO CONSIDERATION.
The parties agree that the consideration set forth in Section 2.1 was
determined as if the combined net working capital of Company and AMS was going
to be $1.00 at the close of business on the Closing Date. Accordingly, the
parties agree that the consideration set forth in Section 2.1(a) shall be
adjusted on the Adjustment Date to reflect the actual combined net working
capital
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of Company and AMS on the Closing Date (the "Actual Net Working Capital"), as
shown on the balance sheet to be prepared in accordance with Section 10.2
hereof. If the Actual Net Working Capital so reflected is greater than $1.00 on
the Closing Date, then the consideration paid pursuant to Section 2.1(a) shall
be increased dollar for dollar for each dollar the Actual Net Working Capital
exceeds $1.00 on the Closing Date. If the Actual Net Working Capital so
reflected is less than $1.00 on the Closing Date, then the consideration paid
pursuant to Section 2.1(a) shall be decreased dollar for dollar for each dollar
the Actual Net Working Capital falls below $1.00 on the Closing Date. For
purposes of this Agreement, Actual Net Working Capital shall mean the combined
current assets of Company and AMS on the Closing Date minus all combined current
liabilities of Company and AMS on the Closing Date, calculated in accordance
with generally accepted accounting principles ("GAAP").
In order to facilitate the contemplated adjustment to purchase price on
the Adjustment Date, between the date hereof and the Closing Date the parties
will prepare and agree upon an estimated combined net working capital balance
for Company and AMS as of May 31, 1998 (the "Estimated Working Capital").
In the event of a dispute between the parties as to the Actual Net Working
Capital, the parties will have 30 days to resolve the dispute among themselves.
If the parties have not resolved such dispute within such 30-day period, then
the parties shall select an arbitrator who shall decide the dispute within 30
days after being selected. If the parties cannot agree on an arbitrator, then
Buyer and Stockholders shall each select an arbitrator and the two arbitrators
so selected shall select a third arbitrator. The parties hereto each agree to be
bound by the decision of the arbitrator(s). In the event that three arbitrators
are chosen, a majority decision will be required. Each arbitrator can be any
natural person above the age of 18 and need not have any specific qualification.
All costs of the arbitration shall be split 50/50 between Buyer and Stockholders
(as a group).
3. TITLE ASSURANCE.
3.1 TITLE POLICIES.
Within 30 days after the Closing Date, Stockholders shall furnish to
Buyer extended coverage policies of title insurance from a title company
mutually acceptable to Buyer and Stockholders (the "Title Company") in an
aggregate amount mutually acceptable to Buyer and Stockholders with each of the
Title Company's standard printed exceptions deleted, insuring title to the
Leased Land and Owned Land to be in Company subject only to the exceptions
permitted by Section 3.2 hereof (the "Title Policies"). Stockholders shall
deliver to Buyer preliminary title commitments in respect of the Leased Land and
Owned Land, together with copies of all exception instruments referenced
therein, and any unrecorded leases, option agreements, contracts and any other
items affecting title which are in the possession of, or known to, Stockholders.
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3.2 PERMITTED ENCUMBRANCES.
The Title Policies shall insure the interest of Company in the Leased
Land and Owned Land to be free and clear of all encumbrances whatsoever except:
(a) zoning ordinances and regulations which do not, in Buyer's judgment,
adversely affect continued use of the Leased Land and Owned Land for its current
uses after the Closing; (b) real estate taxes and assessments, both general and
special, which are a lien but are not yet due and payable at the Closing Date;
(b) easements, encumbrances, covenants, conditions, reservations and
restrictions of record, if any, as have been approved in writing by Buyer; and
(d) the MCS Lease. Stockholders shall pay all of the costs associated with the
delivery of the Title Policy.
3.3 SURVEY.
Within 30 days after the Closing Date, Stockholders shall obtain for
Buyer's use and for the use of the Title Company in connection with the issuance
of the Title Policies a current and complete survey of the Owned Land, made on
the ground by a competent registered surveyor, showing for each: (a) the exact
boundary lines of the Owned Land; (b) the location thereon of all, if any,
buildings, improvements, and easements now existing; (c) the number of acres in
the Owned Land; (d) the location of any buildings, fences or other improvements
which encroach on the Owned Land; (e) the location of any improvements on the
Owned Land which encroach on any neighboring property or on any property which
is subject to any easement or right-of-way; (f) all building lines established
in respect of the Owned Land; and (g) all public access to the Owned Land, and
representing that the boundaries of the Owned Land are contiguous with the
boundaries of all adjoining parcels (together, the "Survey"). A copy of the
Survey complying with the above requirements shall be delivered to Buyer and the
Title Company, together with certification to each entity by the surveyor and
with such additional supporting reports and other certificates as the Title
Company may require to enable the Title Company to delete its standard survey
exceptions from the Title Policies. Stockholders shall pay all of the costs of
the Survey.
4. CLOSING.
Unless the parties agree otherwise, the closing of the within
contemplated transaction (the "Closing") shall take place on a date mutually
agreeable to Stockholders and Buyer within five business days after the
completion, satisfaction or waiver of each of the conditions to Closing set
forth in Articles 8 and 9. The Closing shall take place at a place mutually
agreeable to Buyer and Stockholders. The date on which the Closing occurs shall
be referred to as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS AND COMPANY.
Company, as to the time period before Closing only, and each
Stockholder, jointly and severally, represents and warrants to Buyer that the
statements contained in this Section 5, except as set forth in the schedules to
the subsections of this Section 5 delivered by Stockholders to Buyer on the date
hereof (such schedules hereinafter collectively referred to as the "Disclosure
Schedules" and, individually, as a "Disclosure Schedule"): (i) are correct and
complete as of the date of this Agreement; (ii) will be correct and complete as
of the Closing Date
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(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 5); and (iii) shall survive the
Closing. Nothing in the Disclosure Schedules shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the exception with particularity and
describes the relevant facts in detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
existence of a document or other item itself).
5.1 ORGANIZATION; AUTHORITY.
(i) Company is a Texas corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and
is now and has been at all times since its creation, duly authorized,
qualified and licensed under all laws, regulations, ordinances and
orders of public authorities to carry on its businesses in the places
and in the manner as conducted at the time such activities were
conducted except for where failure to be so authorized, qualified or
licensed would not have a material adverse affect on Company's business.
Copies of Company's Articles of Incorporation (certified by the
Secretary of State of Texas and Bylaws (certified by the Secretary of
Company), each as amended, are attached hereto as Schedule 5.1(i).
(ii) Company has full legal right, power and authority
(corporate and otherwise) to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. All corporate action of
Company necessary to approve this transaction has been taken, including
director and shareholder approvals, if necessary.
(iii) Each Stockholder is competent and under no legal restraint
or duress and has the full legal right and capacity to enter into and
perform his or her obligations under this Agreement.
5.2 STOCK OWNERSHIP; ABSENCE OF ADVERSE CLAIMS.
All of the issued and outstanding shares of Company Stock are owned of
record and beneficially by Stockholders as set forth on Annex I and are free and
clear of all Adverse Claims. This Agreement is the valid and binding obligation
of Company and Stockholders, enforceable against each of them in accordance with
its terms.
5.3 CAPITALIZATION.
The authorized capital stock of Company consists solely of 1,000 shares
of voting common stock, $1.00 par value, of which 1,000 shares are issued and
outstanding. All of the issued and outstanding shares of Company Stock have been
duly authorized and validly issued, are fully paid and nonassessable, were
offered, issued, sold and delivered by Company in compliance with all state and
federal laws concerning the issuance of securities and none of such shares were
issued pursuant to awards, grants or bonuses nor in violation of the preemptive
rights of any past or present stockholder. The stock transfer records provided
by Stockholders and Company to Buyer correctly set forth all
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issuances, acquisitions and retirements of Company Stock since the inception of
Company. No subscriptions, options, warrants, puts, calls, conversion rights or
other commitments of any kind exist which obligate Company to issue any of its
authorized but unissued capital stock or otherwise relate to the sale or
transfer by Company of any securities of Company (whether debt or equity). In
addition, Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Company has not agreed to register any securities under the Securities Act of
1933, as amended (the "Act"), or under any state securities law.
5.4 PREDECESSOR ENTITIES; TRADE NAMES.
Company has never directly or indirectly participated in any manner in
any joint venture, partnership or other noncorporate entity. Company was formed
solely to operate the Business and Company has never conducted any other
business or activity. Set forth on Schedule 5.4 is a list of the names of all
predecessors of Company, all prior corporate names of Company, and all trade
names and "doing business as" names of Company, including the names of all
entities substantially all of the assets of which were previously acquired by
Company.
5.5 NO SUBSIDIARIES.
Company has never owned or controlled and does not now own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any partnership,
corporation, association or other business entity.
5.6 FINANCIAL STATEMENTS.
Attached as Schedule 5.6 are copies of the following financial
statements of Company (together, the "Financial Statements"):
(i) balance sheet of Company as of December 31, 1997, and a
statement of income, cash flow and retained earnings for the year then
ended (the "Balance Sheet Date");
(ii) balance sheet of Company as of March 31, 1998, and a
statement of income for the quarter then ended; and
(iii) Company's monthly interim balance sheets and statements of
income commencing for the month ended April 30, 1998, and continuing for
each month end until the month immediately preceding the Closing Date.
Except as set forth on Schedule 5.6, each of the Financial Statements
(including all footnotes thereto) has been prepared in accordance with GAAP,
applied on a consistent basis throughout the periods indicated. Each of the
Financial Statements (including all footnotes thereto) is true, complete and
correct. Each of the balance sheets presents fairly the financial condition of
Company as of the date indicated thereon and each of such statements of income
presents fairly on an accrual basis the results of the operations of such
Company for the period indicated thereon. Each Financial Statement includes all
footnotes required by GAAP, each such footnote is complete and accurate, and
contains all information required by GAAP to be contained therein. All reserves
for contingent risks have been estimated in
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accordance with GAAP and are appropriate and sufficient to cover all costs
reasonably expected to be incurred from such risks. Company has not (i) made any
material change in its accounting policies or (ii) effected any prior period
adjustment to, or other restatement of, its financial statements for any period.
The Financial Statements are consistent with the books and records of Company
(which books and records are correct and complete).
5.7 NON-BALANCE SHEET LIABILITIES.
Attached hereto as Schedule 5.7 is a complete and accurate list as of
the date hereof of all liabilities and obligations of Company, excluding
obligations arising under this Agreement, which are not individually reflected
in the Financial Statements dated the Balance Sheet Date, but which would have
been so reflected in a full GAAP accounting (whether or not incurred in the
ordinary course of business) of any kind, character and description, accrued or
unaccrued, absolute or contingent, secured or unsecured, liquidated or
unliquidated, due or to become due, together with, in the case of those
liabilities and other obligations the amounts of which are not fixed, a
reasonable best estimate of the maximum amount which may be payable. For each
liability or obligation for which the amount is not fixed or is contested,
Stockholders shall provide the following information:
(i) a summary description of the liability or other obligation
together with the following:
(A) copies of all relevant documentation relating
thereto;
(B) amounts claimed and any other action or relief
sought; and
(C) name of claimant and all other parties to the claim,
suit or proceeding, if any;
(ii) the name of each court or agency before which a claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted;
and (iv) a reasonable best estimate by Stockholders of the maximum
amount, if any, which is likely to become payable with respect to each
such liability or the cost of performance with respect to each such
other obligation.
5.8 ACCOUNTS RECEIVABLE.
Attached as Schedule 5.8 is a complete and accurate list of all accounts
and notes receivable of Company as of the date hereof, including receivables
from and advances to employees and any of the Stockholders and also including
all such accounts and notes receivable which are not reflected in the Financial
Statements, if any. Also attached as Schedule 5.8 is an aging of all accounts
and notes receivable showing amounts due in 30 day aging categories. Except to
the extent reflected on Schedule 5.8, each account and note receivable is
collectible in the full amount shown on Schedule 5.8.
5.9 PROPRIETARY RIGHTS; ENVIRONMENTAL DOCUMENTS.
(i) Attached as Schedule 5.9(i) is a complete and accurate list
and summary description as of the date hereof of all permits, titles
(including motor vehicle titles and
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current registrations), fuel permits, licenses, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by Company, none of which permits, titles,
licenses, franchises and certificates, trademarks, trade names, patents,
patent applications and copyrights, has been claimed to infringe on the
rights of others and all of which are now valid, in good standing and in
full force and effect. Except as set forth on Schedule 5.9(i), such
permits, titles, licenses, franchises, certificates, trademarks, trade
names, patents, patent applications and copyrights are adequate for the
operation of the Business as presently constituted;
(ii) Stockholders have, as of the date of this Agreement, made
available to Buyer for its inspection all presently held records,
correspondence, reports, notifications, permits, pending permit
applications, licenses and pending license applications, environmental
impact studies, assessments and audits and all notifications from
governmental agencies and any other person or entity and any other
documents of Company relating to: (A) each actual and threatened
violation of Applicable Laws (hereinafter defined) by Company or
otherwise relating to any real property owned or operated by Company and
all, if any, claims thereof; (B) the present or past environmental
compliance by Company; (C) the present or past environmental condition
of any real property owned or operated by Company; (D) the discharge,
leakage, spillage, transport, disposal or release of any material into
the environment by Company or otherwise relating to any real property
owned or operated by Company; and (E) land use and access approvals
relative to any portion of any real property owned or operated by
Company (collectively, the "Environmental Documents").
5.10 REAL PROPERTY; REPORTING.
(i) Company has never owned, leased or otherwise occupied, had
an interest in or operated any real property other than the Leased Land
and the Owned Land. A true and complete copy of the MCS Lease, together
with all amendments or other modifications thereto, is attached hereto
as Schedule 5.10(i). Except as set forth on Schedule 5.10(i):
(A) The Leased Land is fully licensed, permitted and
authorized for the operation of the Business under all
Applicable Laws (hereinafter defined) relating to the protection
of the environment, the Leased Land and the conduct of the
Business thereon (including, without limitation, all zoning
restrictions and land use requirements). The Owned Land is
unimproved.
(B) The Leased Land is usable for its current uses and
can be used by Buyer after the Closing for such uses without
violating any Applicable Law or private restriction, and such
uses are legal conforming uses. There are no proceedings or
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amendments pending and brought by or threatened by any third
party which would result in a change in the allowable uses of
the Leased Land or which would modify the right of Buyer to use
the Leased Land for its current uses.
(C) Stockholders and Company have made available to
Buyer all engineering, geologic and other similar reports,
documentation and maps relating to the Leased Land and Owned
Land in the possession or control of Stockholders or Company.
(D) No third parties have any rights to drill or explore
for, collect, produce, mine, excavate, deliver or transport oil,
gas, coal, or other minerals in, on, beneath, across, over,
through, from or to any portion of the Leased Land and Owned
Land.
(E) Company, Stockholders nor the Leased Land or Owned
Land now is or ever has been involved in any litigation or
administrative proceeding seeking to impose fines, penalties or
other liabilities or seeking injunctive relief for violation of
any Applicable Laws relating to the environment.
(F) No third party has an unrecorded present or future
right to possession of all or any part of the Owned Land or
Leased Land other than the landlord under the MCS Lease.
(G) No portion of the Leased Land or Owned Land contains
any areas that could be characterized as disturbed, undisturbed
or man made wetlands or as "waters of the United States"
pursuant to any Applicable Laws or the procedural manuals of the
Environmental Protection Agency, U.S. Army Corps of Engineers or
the Texas Department of Natural Resources, whether such
characterization reflects current conditions or historic
conditions which have been altered without the necessary permits
or approvals.
(H) There are no mechanics' liens affecting the Leased
Land or Owned Land and no work has been performed thereon at the
request of Company within 120 days of the date hereof for which
a mechanic's lien could be filed.
(I) There are no levied or pending special assessments
affecting all or any part of the Leased Land or Owned Land and
none is threatened.
(J) There are no pending or threatened condemnation or
eminent domain proceedings affecting all or any part of the
Leased Land or Owned Land.
(ii) Company has provided, to the government agencies requiring
the same, all material reports, notices, filings and other disclosures
required by Applicable Laws and all such reports, notices, filings and
other documents were complete and accurate in all material respects at
the time provided to said government agencies.
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5.11 PERSONAL PROPERTY; NEW PROJECTS.
(i) Attached as Schedule 5.11(i) is a complete and accurate list
and a complete description as of the date hereof of all personal
property of Company including true and correct copies of leases for
equipment and other personal property, if any, used in the operation of
the Business and including an indication as to which assets were
formerly owned by business or personal affiliates of Company. All of the
trucks, compactors, containers, materials handling equipment, machinery
and other equipment of Company are in good working order and repair;
(ii) Company has good title to, or a valid leasehold interest
in, the properties and assets used by it shown on Company's balance
sheet dated the Balance Sheet Date or acquired after the date thereof,
whether or not located on the Leased Land, including, without
limitation, the items of personal property listed on Schedules 5.11(i),
free and clear of all security interests, liens or other Adverse Claims;
(iii) all leases set forth on Schedule 5.11(i) are in full force
and effect and constitute valid and binding agreements of the parties
thereto (and their successors) in accordance with their respective
terms. No default by Company, or any other party to any of such leases,
exists or would exist except for the passage of time or delivery of a
notice or both;
(iv) all fixed assets used by Company in the operation of the
Business are either owned by Company or leased by Company under an
agreement indicated on Schedule 5.11(i). The combined fixed assets of
Company (together with the real property assets) constitute all of the
real and personal property necessary for the operation of the Business
both by Company and by Buyer following the Closing and include all of
the permits, licenses, franchises, consents and other approvals
necessary to operate the Business both before and after Closing;
(v) at the Closing, Company shall have good and marketable title
to all personal property, free and clear of all debts and lease payments
(including lease end-buyout payments) other than the Assumed Debt; and
(vi) attached as Schedule 5.11(vi) is a summary description of
all plans or projects involving recycling, waste hauling, the opening of
new landfills, expansion of any existing landfills or the acquisition of
any real property or existing business, to which management of Company
has devoted any significant effort or expenditure on behalf of Company
which, if pursued by Company, would require the expenditure by Company
of significant additional effort or capital.
5.12 CONTRACTS.
Attached as Schedule 5.12 is a complete and accurate list as of the date
hereof of all of the following types of contracts, commitments and other
agreements to which Company is a party or by which Company or its properties are
bound, which list shall include, at a minimum, the full names of each party to
each agreement and the date of execution thereof: waste hauling, transfer and
disposal contracts,
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joint venture or partnership agreements, and all other operating agreements (if
any), contracts or collective bargaining arrangements with any labor
organizations, loan agreements, powers of attorney (each of which shall be
cancelled at the Closing), indemnity or guaranty agreements, bonds, mortgages,
options to purchase land (if any), liens, pledges or other security agreements,
agreements for the employment of any individual, agreements under which Company
has advanced or loaned any amount to one another or to any of the Stockholders
or any employee, officer or director either of Company, any guaranties by
Company, any agreement concerning confidentiality or noncompetition and any
other agreement under which the consequences of a default or termination could
have an adverse effect on the business, financial condition, operations or
prospects of Company. None of the agreements listed on Schedule 5.12 have been
modified, altered, terminated or otherwise amended except as set forth on
Schedule 5.12 and there have been no waivers, oral agreements, representations
or other statements with relation to any such agreements except as described in
Schedule 5.12. Company has complied with all obligations pertaining to it
contained in such contracts, commitments and other agreements, is not in default
thereunder and no notice of default has been received by Company or by
Stockholders nor will the consummation of the transactions contemplated by this
Agreement result in such a default. To the best of Stockholders' knowledge,
there is no default by any other party to any contract, commitment or other
agreement attached as Schedule 5.12.
5.13 INSURANCE POLICIES.
Attached as Schedule 5.13 are complete and accurate copies as of the
date hereof of all insurance policies carried by Company and an accurate list of
all insurance loss runs and workers' compensation claims received for the past
three policy years. All insurance policies are in full force and effect and
shall remain in full force and effect through the Closing Date. Company's
insurance has never been cancelled and Company has never been denied coverage.
5.14 DIRECTORS, OFFICERS AND EMPLOYEES; COMPENSATION.
Attached as Schedule 5.14 is a complete and accurate list of all
officers, directors and employees of Company and the rate of compensation of
each as of the date hereof (including a breakdown of the portion thereof
attributable to salary, bonus and other compensation, respectively). Each
employee of Company is an employee at will and there are no collective
bargaining agreements affecting any employee of Company. There is no pending or
threatened labor dispute involving Company and any group of its employees nor
has Company experienced any labor interruptions over the past three years.
Stockholders will cause Company to terminate each of its employees as of the
close of business on the Closing Date. Buyer agrees to consider the former
employees of Company for positions with Buyer, provided that each such person
seeking employment meets the minimum acceptable qualifications established by
Buyer. It is expressly understood that Buyer shall not assume or be responsible
for any severance or other employee benefit arising out of an
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individual's employment by Company prior to the Closing Date. Nothing herein
will be deemed to give any individual a right of employment.
5.15 EMPLOYEE PLANS.
Except as set forth on Schedule 5.15, Company has no group health plans,
employee benefit plans, employee welfare benefit plans, employee pension benefit
plans, multi-employer plans or multiple-employer welfare arrangements (as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (collectively,
"Plans") which are currently maintained and/or sponsored by Company, or to which
Company currently contributes, or has an obligation to contribute in the future
(including, without limitation, employment agreements and any other agreements
containing "golden parachute" provisions and deferred compensation agreements).
No such Plans have been terminated within the past three years.
5.16 COMPLIANCE WITH ERISA.
Neither of the Company, any Controlled Group Member (as defined in the
Internal Revenue Code (the "Code") Section 414(n)(6)(B)), nor any business,
subsidiary, division or operation acquired by Company or a Controlled Group
Member in the last five years, ever have maintained or sponsored, or contributed
to, an employee pension benefit plan (as defined in ERISA Section 3(2)) which is
subject to the provisions of Title IV of ERISA. Except for the Plans, Company
does not maintain or sponsor, nor is it a contributing employer to, a pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees. Further:
(i) with respect to Plans which qualify as "group health plans"
under Section 4980B of the Internal Revenue Code and Section 607(1) of
ERISA and related regulations (relating to the benefit continuation
rights imposed by "COBRA"), Company and Stockholders have complied (and
on the Closing Date will have complied) in all respects with all
reporting, disclosure, notice, election and other benefit continuation
requirements imposed thereunder as and when applicable to such plans,
and Company has no (and will not incur any) direct or indirect liability
and Company is not (and will not be) subject to any loss, assessment,
excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect
failure by Company and Stockholders or any of them, any time prior to
the Closing Date to comply with any such federal or state benefit
continuation requirement, which is capable of being assessed or asserted
before or after the Closing Date directly or indirectly against Company
or Stockholders, or any of them with respect to such group health plans;
(ii) attached hereto as Schedule 5.16(ii) is a copy of the
claims history under Company's group health plan for the past three
years; and
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(iii) with respect to any plan which qualifies as a group health
plan, such plan is fully insured and all premiums have been paid on a
timely basis and are paid in full as of the Closing Date or, to the
extent such plan is not fully insured, all self-insured obligations have
been met as of the Closing Date and are fully reflected in the plan's
financial statements. To the extent that any of Company's group health
plans are retrospectively rated, there are no liabilities capable of
assertion against Company in respect of claims already incurred and
present.
5.17 COMPLIANCE WITH LAW; NO CONFLICTS.
(i) Company has in the past complied with, and is now in
compliance with, all federal, state and local statutes, laws, rules,
regulations, orders, licenses, permits (including, without limitation,
zoning restrictions and land use requirements) and all administrative
and judicial judgments, rulings, decisions and orders of any body having
jurisdiction over Company or the Business (the "Applicable Laws").
Neither Company nor any of the Stockholders has received any notice that
Company is under investigation or other form of review with respect to
any Applicable Law; and
(ii) the execution, delivery and performance of this Agreement,
the consummation of any transactions herein referred to or contemplated
hereby and the fulfillment of the terms hereof and thereof will not:
(A) conflict with, or result in a breach or violation of
the Articles of Incorporation or Bylaws of Company;
(B) conflict with, or result in a breach under any
document, agreement or other instrument to which Company, or any
of the Stockholders is a party, or result in the creation or
imposition of any lien, charge or encumbrance on any properties
of Company or any of the Stockholders pursuant to: (1) any law
or regulation to which Company or any of the Stockholders, or
any of their respective properties are subject, or (2) any
judgment, order or decree to which Company or any of the
Stockholders is bound or any of their respective properties are
subject;
(C) result in termination or any impairment of any
permit, license, franchise, contractual right or other
authorization of Company; or
(D) require the consent of, or the filing with, any
governmental authority or agency or any other third party in
order to remain in full force and effect.
5.18 TAXES.
Company has filed, or will file, in a timely manner all requisite
federal, state, local and other tax returns due for all fiscal periods ended on
or before the date hereof and, as of the Closing, shall have filed or will file
in a timely manner all such returns due for all periods ended on or before the
Closing Date. There are no agreements to extend the statutory period for the
assessment of any taxes,
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examinations in progress or claims against Company for federal, state, local and
other taxes (including penalties and interest) for any period or periods prior
to and including the date hereof and none shall exist as of the Closing Date. No
notice of any claim for taxes, whether pending or threatened, has been received.
The amounts shown as accruals for taxes on the Financial Statements as of the
respective dates thereof are sufficient in accordance with GAAP as of such
respective dates for the payment of all taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before such date.
Copies of: (i) all tax examinations; (ii) extensions of statutory limitations;
and (iii) the federal, state, local and other income tax returns and franchise
tax returns of Company for its last three fiscal years are attached hereto as
Schedule 5.18. Company is taxed under the provisions of Subchapter C of the
Code. Company has a taxable year ended December 31. Company currently utilizes
the cash method of accounting for income tax purposes and has not changed its
method of accounting since its initial creation.
5.19 LITIGATION.
Except as set forth on Schedule 5.19, there is no claim, litigation,
action, suit or proceeding, investigation, formal arbitration, informal
arbitration or mediation, administrative, judicial or other review, pending or
threatened against Company or Stockholders, or otherwise relating to the
business or affairs of Company, at law or in equity, before any federal, state
or local court or regulatory agency, or other governmental or private authority;
no notice of any of the above has been received by Company or Stockholders; and
no facts or circumstances exist which would give rise to any of the foregoing.
Also listed on Schedule 5.19 are all instances where Company is the plaintiff,
or complaining or moving party, under any of the above types of proceedings or
otherwise.
5.20 ABSENCE OF PRICE RENEGOTIATION CONTRACTS.
Company is not now a party to any governmental contracts subject to
price redetermination or renegotiation.
5.21 CONDUCT OF BUSINESS SINCE BALANCE SHEET DATE.
Since the Balance Sheet Date, there has not been any:
(i) material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income and business or prospects
of Company;
(ii) damage, destruction or loss (whether or not covered by
insurance) which, singly or in the aggregate, materially and adversely
affects the properties (whether owned or leased) or business of Company;
(iii) change in the authorized capital of Company or in its
securities outstanding, any change in its equity ownership or any grant
by it of any subscriptions, options, warrants, puts, calls, conversion
rights or other commitments related to its equity interests;
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(iv) declaration or payment of any dividend or distribution in
respect of the capital stock of Company or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of
Company;
(v) increase in the compensation, bonus, sales commissions or
fee arrangements payable or to become payable by Company to any of its
officers, directors, employees, consultants or agents;
(vi) work interruption, labor grievance or claim filed; (vii)
sale or transfer of, or any agreement to sell or transfer, any material
assets, property or rights of Company to any person not in the ordinary
course of the business of Company, including, without limitation, all
agreements with any of the Stockholders or with affiliates of Company;
(viii) cancellation or agreement to cancel any indebtedness or
other obligation owing to Company, including, without limitation, any
indebtedness or other obligation of Stockholders or with any affiliate
of Company;
(ix) plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) purchase or acquisition by any third party of, or any
agreement, plan or other arrangement by any third party to purchase or
acquire, any property, rights or assets of Company other than in the
ordinary course of business;
(xi) waiver of any rights or claims of Company; (xii) breach,
amendment or termination of any contract, license, permit or other
agreement to which Company is a party other than in the ordinary course
of business;
(xiii) transaction by Company outside the ordinary course of its
business;
(xiv) amendment to the Articles of Incorporation or Bylaws of
Company;
(xv) other material occurrence, event, incident, action or
failure to act outside the ordinary course of business of Company; or
(xvi) action by Company, Stockholders, or any employee, officer
or agent of Company or Stockholders committing to do any of the
foregoing.
5.22 BANK ACCOUNTS; DEPOSITORIES.
Attached as Schedule 5.22 is a complete and accurate list as of the date
of this Agreement, of:
(i) the name of each financial institution in which Company has
any account or safe-deposit box;
(ii) the names in which each account or box is held;
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(iii) the type of each account; and
(iv) the name of each person authorized to draw on or have
access to each account or box.
5.23 HAZARDOUS MATERIALS.
Except as set forth on Schedule 5.23, Company has never owned, leased,
had an interest in, generated, transported, handled, recycled, reclaimed,
disposed of, or contracted for the disposal of, hazardous materials, hazardous
wastes, hazardous substances, toxic wastes or substances, infectious or medical
waste, radioactive waste or sewage sludges as those terms are defined by the
Resource Conservation and Recovery Act of 1976; the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"); the Atomic Energy Act of
1954; the Toxic Substances Control Act; the Occupational Health and Safety Act;
any comparable or similar applicable state statute; any other Applicable Law; or
the rules and regulations promulgated under any of the foregoing, as each of the
foregoing may have been amended (collectively, "Hazardous Materials"). No liens
with respect to environmental liability have been imposed against Company or the
Leased Land or Owned Land under CERCLA, any comparable state statute or other
Applicable Law, and no facts or circumstances exist which would give rise to the
same. No portion of the Leased Land or Owned Land is listed on the CERCLIS list
or the National Priorities List of Hazardous Waste Sites or any similar state
list. Neither Company nor any of the Stockholders is listed as a potentially
responsible party under CERCLA, any comparable state statute or other Applicable
Law, and neither Company nor any of the Stockholders has received a notice of
such a listing.
Company has in place procedures reasonably designed to detect an effort by
third parties to transport Hazardous Materials in connection with the Business
and has maintained and made available to Buyer for its review, all trip tickets,
signed by the applicable waste generators demonstrating the nature of all waste
transported in connection with the Business. Company has never owned, operated,
had an interest in, engaged in and/or leased a waste transfer, recycling,
treatment, storage or disposal facility, business or activity other than the
Business. None of Company's employees, contractors or agents has, in the course
and scope of employment with Company, been harmed by exposure to Hazardous
Materials.
Set forth on Schedule 5.23 is a complete list of the names and addresses
of all disposal sites at any time now or in the past utilized by Company, none
of which sites is listed on the CERCLIS list or the National Priorities List of
hazardous waste sites or any comparable state list.
There have been no spills, leaks, deposits or other releases into the
environment or onto the Leased Land by Company of any Hazardous Materials and
Company has no direct or contingent liability or obligation for or in connection
with any claimed release, discharge or leak of any substance into the
environment.
5.24 STORAGE TANKS.
Except as set forth on Schedule 5.24, the Leased Land does not contain
any underground or above-ground storage tanks or transformers containing
Hazardous Materials, petroleum
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products or wastes or other hazardous substances regulated by 40 CFR 280 or
other Applicable Laws. All aboveground and belowground tanks currently in or on
the Leased Land are being used and maintained in accordance with all Applicable
Laws.
5.25 CORRUPT PRACTICES.
Neither Company nor any of the Stockholders has ever made, offered or
agreed to offer anything of value to any employees of any customers of Company
for the purpose of attracting business to Company or any foreign or domestic
governmental official, political party or candidate for government office or any
of their respective employees or representatives, nor has it otherwise taken any
action which would cause it to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended.
5.26 COMPLETE DISCLOSURE.
This Agreement and the Schedules hereto, and all other documents and
information furnished to Buyer and its representatives pursuant hereto or
pursuant to the negotiation of this transaction or the investigations of Buyer
or the employees or representatives of either of them, do not and will not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading. If any of the
Stockholders or, prior to Closing, Company, becomes aware of any fact or
circumstance which would change a representation or warranty of Company or
Stockholders in this Agreement or any other statement made or document provided
to Buyer, the party with such knowledge shall promptly give written notice of
such fact or circumstance to Buyer. None of (i) such notification, (ii) any
pre-Closing investigation made by Buyer of Company, their properties, businesses
or assets, or (iii) the Closing contemplated by this Agreement, shall relieve
Stockholders or Company of their obligations under this Agreement, including
their representations and warranties made in this Section 5.
6. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants that the statements contained in this Section 6:
(i) are correct and complete as of the date of this Agreement; (ii) will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 6); and (iii) shall survive the Closing.
6.1 CORPORATE ORGANIZATION.
Buyer is duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. Buyer is duly authorized, qualified and
licensed under all applicable laws, regulations and ordinances of public
authorities to carry on its business in the places and in the manner as now
conducted except for where the failure to be so authorized, qualified or
licensed would not have a material adverse effect on such businesses.
6.2 CORPORATE AUTHORITY.
The officer of Buyer executing this Agreement has the corporate
authority to enter into and bind Buyer to the terms of this Agreement and Buyer
has taken all necessary corporate action to authorize the execution, delivery
and performance of this Agreement. All corporate action by
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Buyer necessary to approve the transaction, including both director and
shareholder approvals (if required), has been taken.
6.3 BUYER STOCK.
The Buyer Stock to be delivered to Stockholders in connection with this
Agreement, when delivered in accordance with the terms of this Agreement, will
constitute valid and legally issued shares, fully paid and nonassessable and
will be registered and free from any restriction on transfer other than
restrictions imposed by the Act or the regulations promulgated thereunder and
the contractual restrictions set forth in this Agreement.
6.4 NO CONFLICTS.
The execution, delivery and performance of this Agreement, the
consummation of any transactions herein referred to or contemplated hereby and
the fulfillment of the terms hereof and thereof will not:
(i) conflict with, or result in a breach or violation of the
Articles of Incorporation or Bylaws of Buyer;
(ii) conflict with, or result in a material breach under any
document, agreement or other instrument to which Buyer is a party, or
result in the creation or imposition of any lien, charge or encumbrance
on any properties of Buyer pursuant to: (A) any law or regulation to
which Buyer or its property is subject, or (B) any judgment, order or
decree to which Buyer is bound or its property is subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
Buyer.
6.5 BINDING AGREEMENT.
This Agreement is the binding and valid obligation of Buyer, enforceable
against it in accordance with its terms.
7. COVENANTS.
7.1 ACCESS TO LAND AND RECORDS.
Between the date of this Agreement and the Closing Date, Stockholders
will cause Company to afford to or obtain for the officers and authorized
representatives of Buyer access to all of the Leased Land or Owned Land
(including, without limitation, for the purpose of performing all testing,
inspections and other procedures considered desirable by Buyer), sites, books
and records, including, without limitation, the Environmental Documents, at all
reasonable times and upon reasonable notice and will furnish Buyer with such
additional financial and operating data and other information as to the business
and properties, both current and former, of Company as Buyer may from time to
time reasonably request. Buyer agrees to repair all damage, if any, caused by
Buyer's entry onto the Leased Land prior to Closing. Stockholders will
cooperate, and will cause Company to cooperate, with Buyer, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required by any governmental agency. Buyer will cause all information obtained
in connection with the negotiation and
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performance of this Agreement to be treated as confidential in accordance with
the provisions of Article 14 hereof.
7.2 COMPANY ACTIVITIES PRIOR TO CLOSING.
Between the date of this Agreement and the Closing Date, Stockholders
will cause Company:
(i) to carry on its business in substantially the same manner as
it has heretofore and not to introduce any material new method of
management, operation or accounting;
(ii) to maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) to perform its obligations under agreements relating to or
affecting its assets, properties or rights, including payment of debts
as they become due;
(iv) to keep in full force and effect present insurance policies
or other comparable insurance coverage with reputable insurers;
(v) to use reasonable efforts to maintain and preserve its
business organization intact, retain employees and maintain
relationships with suppliers, customers, consultants, independent
contractors and others having business relations with Company;
(vi) to maintain compliance with all Applicable Laws; (vii) to
maintain and perform present debt and lease instruments in accordance
with their terms and not enter into new or amended debt or lease
instruments, without the prior written consent of Buyer;
(viii) to pay and provide salaries and commissions for all
employees, officers and directors at levels no higher than those in
effect at the Balance Sheet Date;
(ix) to provide the interim financial statements required by
Section 5.6; and
(x) to provide all reasonable assistance to Buyer to provide for
an orderly transfer of operating control of Company to Buyer.
7.3 PROHIBITED ACTIVITIES PRIOR TO CLOSING.
Between the date of this Agreement and the Closing Date, Stockholders
will cause Company not, without the prior written consent of Buyer:
(i) to amend the Articles of Incorporation or Bylaws of Company;
(ii) to change the authorized capital of Company or the equity
ownership of Company or grant any options, warrants, puts, calls,
conversion rights or commitments relating to the equity interests of
Company;
(iii) to declare or pay any dividend of Company or directly or
indirectly purchase, redeem or otherwise acquire or retire for value or
issue any shares of stock of Company;
(iv) to enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures in excess of an
aggregate of $1,000;
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(v) to increase the compensation payable or to become payable to
any employee, consultant, agent, officer, director or stockholder or
make any bonus or management fee payment to any such person;
(vi) to create, assume or permit to exist any mortgage, pledge
or other lien or encumbrance upon any assets or properties whether now
owned or hereafter acquired;
(vii) to sell, assign, lease or otherwise transfer or dispose of
any property or equipment;
(viii) to negotiate to acquire any business or begin any new
business or project;
(ix) to merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(x) to waive any of its rights or claims;
(xi) to breach or permit a breach of, amend or terminate, any
material agreement, or any permit, license or other agreement or right
to which Company is a party;
(xii) to enter into any other transaction outside the ordinary
course of its business or otherwise prohibited hereunder;
(xiii) to make any oral or written public announcement
concerning this transaction except as may be required by law, all of
which announcements, if any, shall be forwarded to Buyer for review and
comment at least seven days prior to dissemination; or
(xiv) to allow any other action or omission, or series of
actions or omissions, by Company or Stockholders that would cause a
representation and warranty of Company and Stockholders made in Section
5.21 of this Agreement to be untrue on the Closing Date.
7.4 CONTACT WITH GOVERNMENT OFFICIALS.
Company and Stockholders shall use their best efforts to cooperate with
Buyer in making contact with the appropriate governmental agencies and officials
having information about or jurisdiction over Company, Stockholders or the
Leased Land, including, without limitation, environmental and land use agencies
and officials in order to assist Buyer in completing its regulatory evaluation
of Company and the Leased Land.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY AND STOCKHOLDERS.
The obligations of Stockholders and Company hereunder are subject to the
completion, satisfaction or, at their option, waiver, on or prior to the Closing
Date, of the following conditions.
8.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Buyer contained in this Agreement
shall be accurate on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; and
each and all of the terms, covenants and conditions of this Agreement to be
complied with and performed by Buyer on or before the Closing Date shall have
been duly complied with and performed.
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8.2 CONSENTS.
All necessary notices to, consents of and filings with any governmental
authority or agency or other third party relating to the consummation of the
Closing or the other transactions contemplated herein to be made or obtained by
Buyer shall have been obtained and made.
8.3 NO ADVERSE PROCEEDING.
No action or proceeding before a court or any other governmental agency
or body shall have been instituted or threatened to restrain or prohibit any of
the transactions contemplated by this Agreement.
8.4 NONCOMPETITION AGREEMENTS.
Buyer shall have executed and delivered at the Closing separate
Noncompetition Agreements with each of the Stockholders (the "Noncompetition
Agreements"), in form and substance satisfactory to Buyer and Stockholders.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
The obligations of Buyer hereunder are subject to the completion, satisfaction
or, at its option, waiver, on or prior to the Closing Date, of the following
conditions.
9.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Stockholders and Company contained
in this Agreement shall be accurate on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date, and Buyer shall have received a certificate from Stockholders to that
effect, or setting forth any discrepancies in such representations and
warranties which have arisen since the date of this Agreement. The foregoing
notwithstanding, Company and Stockholders agree that no limitation of any
representation or warranty concerning the knowledge of Company or Stockholders
or any qualification of such representations and warranties set forth in the
certificate contemplated in the first sentence of this Section 9.1 shall
restrict Buyer's right to terminate this Agreement if any representation or
warranty of Stockholders or Company is inaccurate as of the Closing Date.
9.2 COVENANTS.
Each and all of the terms, covenants and conditions of this Agreement to
be complied with and performed by Stockholders and the Company on or before the
Closing Date shall have been duly complied with and performed.
9.3 NO ADVERSE PROCEEDING.
No action or proceeding before a court or any other governmental agency
or body shall have been instituted or threatened to restrain or prohibit any of
the transactions contemplated by this Agreement.
9.4 GENERAL RELEASE.
Stockholders shall have delivered to Buyer an instrument dated the
Closing Date releasing Company and Buyer from any and all claims of Stockholders
against Company and Buyer arising out of events which occurred prior to the
Closing (but not including any claims pursuant to this Agreement).
9.5 CONSENTS.
All necessary notices to, consents of and filings with any governmental
authority or agency or other third party relating to the consummation of the
Closing or the other transactions
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contemplated herein to be made or obtained by Company or Stockholders shall have
been obtained and made.
9.6 RESIGNATIONS.
Each officer and director of Company shall have delivered to Buyer their
written resignation.
9.7 GOOD STANDING CERTIFICATES.
Stockholders shall have delivered to Buyer certificates, dated as of a
date no earlier than 10 days prior to the Closing Date, duly issued by the
appropriate governmental authority or authorities showing that Company is in
good standing in Texas.
9.8 UPDATED AGREEMENTS.
Stockholders shall have delivered to Buyer a schedule (Schedule 9.8)
dated the Closing Date, listing all agreements entered into by Company since the
date of Schedule 5.12, which new agreements must have been determined to be
acceptable to Buyer in its sole discretion.
9.9 NONCOMPETITION AGREEMENTS.
The Noncompetition Agreements shall have been executed and delivered by
all parties thereto at the Closing.
9.10 DELIVERY OF COMPANY STOCK.
Stockholders shall have delivered to Buyer certificates representing all
Company Stock, duly endorsed in blank by Stockholders or accompanied by stock
powers duly executed in blank and with all necessary transfer tax and other
revenue stamps affixed and cancelled at Stockholders' expense, none of which
certificates shall bear any restrictive legend other than those related to
compliance with the Act.
9.11 ENVIRONMENTAL REVIEW.
Buyer, through its authorized representatives, must have completed a
review (including, without limitation, all testing, inspections and other
procedures, review of existing files of, and discussions with, governmental
agencies and officials having jurisdiction over Company) of the Leased Land and
the environmental and land use practices, procedures, operations and activities
of the Company; the results of which review, without limiting the generality of
the foregoing, reflect compliance with all Applicable Laws, disclose no actual
or probable violations, compliance problems, required capital expenditures or
other substantive environmental, land use or real estate-related concerns and
are otherwise satisfactory in all respects to Buyer in its sole discretion.
9.12 TRANSFERABILITY OF PERMITS.
Buyer shall have determined, in its sole discretion, that all consents
or other approvals necessary for Company's continued use of all permits required
for the operation of the Business after Buyer's acquisition of the Company Stock
have been obtained.
9.13 GENERAL.
All actions taken by Stockholders and Company in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions and other documents required to effect the transactions contemplated
hereby will be reasonably satisfactory in form and substance to Buyer.
10. POST CLOSING COVENANTS.
10.1 TAXES.
(i) Stockholders irrevocably agrees to indemnify Buyer against,
and to hold Buyer harmless from:
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(A) any and all federal, state, local, and other taxes
of Company arising from the audit, examination, review or other
adjustment of tax liabilities for periods ending on or prior to
the Closing Date;
(B) any and all taxes, interest, penalties, additions to
tax (or additional amounts imposed with respect to any such
interest, penalties, or additions to tax) imposed with respect
to any federal, state, local, or other taxes of Company for
periods ending on or before the Closing Date; and
(C) any and all federal, state, local, or other taxes of
Buyer arising as the result of any payment by Stockholders to
Buyer in fulfillment of its obligation pursuant to this Section
10.1(i).
(ii) Stockholders agrees that he shall be responsible, at his
sole expense, for the preparation of Company's federal, state, local and
other income and franchise tax returns for the tax periods beginning
January 1, 1998, and ending on the Closing Date. Buyer agrees to
cooperate with Stockholders in the preparation of such returns.
Stockholders further agrees that he shall pay all taxes (including all
penalties and interest, if any) due for such tax period. Prior to filing
the returns provided for in this paragraph, Stockholders agrees to allow
Buyer 20 business days to review and approve such returns, approval of
which will not unreasonably be withheld.
10.2 POST CLOSING BALANCE SHEET.
On the date which is at least 120 days after the Closing Date (the
"Adjustment Date"), the parties shall adjust the Purchase Price in accordance
with Section 2.4 based on a combined balance sheet of Company and AMS for the
period ending on the close of business on the Closing Date, prepared by Buyer in
accordance with GAAP and delivered to Stockholders, together with reasonable
supporting documentation for all current assets and liabilities used to prepare
such balance sheet, at least seven days prior to the Adjustment Date. Any
accounts receivable which are written off in whole or in part in connection with
preparing such balance sheet that are subsequently collected by Buyer after the
Adjustment Date will be paid to Stockholders as soon as possible, but at least
on a quarterly basis. Any dispute between the parties as to this Section 10.2
shall be resolved in accordance with the procedure set forth in Section 2.4.
10.3 CLOSING DATE ACTIONS.
Buyer and Stockholders mutually agree that they shall not, and shall
cause Company not to, engage in an transaction outside the normal course of
business on the Closing Date.
10.4 FURTHER ASSURANCE.
From time to time on and after the Closing and without further
consideration, the parties hereto shall each deliver or cause to be delivered to
any other party at such times and places as shall be reasonably requested, such
additional instruments as any of the others may reasonably request for the
purpose of carrying out this Agreement and the transaction contemplated hereby.
Stockholders, also without further consideration, agrees to cooperate with Buyer
and to use his reasonable efforts to have the
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present officers and employees of Company cooperate on and after the Closing
Date in furnishing to Buyer information, evidence, testimony, and other
assistance in connection with obtaining all necessary permits and approvals and
in connection with any actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Closing
Date. Stockholders acknowledges and agrees that, from and after the Closing,
Buyer shall be entitled to possession of all documents, books, records
(including tax records), agreements and financial and operating data of any sort
of Company.
10.5 TRANSITION.
Stockholders will not take any action that is designed or intended to
have the effect of discouraging any customer or business associate of Company
from maintaining the same business relationships with Company after the Closing
that it maintained with Company before the Closing. Stockholders will refer all
customer inquiries relating to the business of Company to Buyer from and after
the Closing. Further, Stockholders agrees that for a period of 90 days following
the Closing Date, Stockholders will assist Buyer, at Buyer's request and
expense, with the orderly transition of the operations of Company from
Stockholders to Buyer (including, without limitation, recommendations, advice
and interaction with customers and potential customers of Company, and
governmental agencies).
10.6 SURVIVAL.
The covenants in this Article 10 shall survive the Closing.
11. NON-ASSUMPTION OF LIABILITIES.
11.1. NON-ASSUMPTION OF LIABILITIES.
Except as explicitly set forth herein, Buyer shall not, by the execution
and performance of this Agreement or otherwise, assume, become responsible for
or incur any liability or obligation of any nature of Company or any of the
Stockholders whether legal or equitable, matured or contingent, known or
unknown, foreseen or unforeseen, ordinary or extraordinary, patent or latent,
whether arising out of occurrences prior to, at or after the date of this
Agreement, out of or relating to: (a) any agreement or arrangement between
Company or any of the Stockholders and the employees of Company or any of the
Stockholders or any labor or collective bargaining unit representing any such
employees; (b) any severance pay obligation of Company or any of the
Stockholders or any employee benefit plan (within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended) or any other
fringe benefit program maintained or sponsored by Company or to which Company
contributes or any contributions, benefits or liabilities therefor or any
liability for the withdrawal or partial withdrawal from or termination of any
such plan or program by Company; (c) any litigation set forth on Schedule 5.19;
(d) any liabilities related to the operation of the Business prior to Closing;
and [(e) items disclosed in due diligence, if any]. Stockholders hereby agree to
indemnify Buyer, Company and their respective successors and assigns from and
against all of the above liabilities and obligations in accordance with Section
12.1 below. Company shall, by the Closing Date, either (i) discharge, or (ii)
obtain novations, in form and substance satisfactory to Buyer, discharging
Company and
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Buyer as obligors on, or (iii) make other arrangements satisfactory to Buyer, in
Buyer's sole judgment, to hold harmless Buyer from any claim, obligation, duty
or liability on or with respect to all non-assumed liabilities.
12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY STOCKHOLDERS.
Stockholders agree that they will, jointly and severally, indemnify,
defend (as to third party claims only), protect and hold harmless Buyer, Company
and its respective officers, shareholders, directors, divisions, subdivisions,
affiliates, subsidiaries, parent, agents, employees, successors and assigns at
all times from and after the date of this Agreement from and against all
liabilities, claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, penalties, losses, costs and expenses whatsoever (including
specifically, but without limitation, court costs, reasonable attorneys' fees
and expenses, and expenses of investigation), whether equitable or legal,
matured or contingent, known or unknown, foreseen or unforeseen, ordinary or
extraordinary, patent or latent, whether arising out of occurrences prior to, at
or after the date of this Agreement, incurred as a result of or incident to: (a)
any breach of, misrepresentation in, untruth in or inaccuracy in the
representations and warranties by Company or any of the Stockholders (including,
without limitation, those relating to the environmental condition of the Leased
Land or Owned Land and Company's environmental compliance), set forth herein or
in the Schedules, Exhibits or certificates attached hereto or delivered pursuant
hereto; (b) nonfulfillment or nonperformance of any agreement, covenant or
condition on the part of any of the Stockholders made in this Agreement; (c)
nonfulfillment or nonperformance of any agreement, covenant or condition on the
part of Company made in this Agreement and to be performed on or before the
Closing Date; (d) the matters set forth in Section 11.1; (e) the existence of
liabilities of Company in excess of the liabilities represented by Stockholders
and Company; and (f) any claim by a third party that, if true, would mean that a
condition for indemnification set forth in subsections (a) through (e) of this
Section 12.1 had been satisfied.
12.2 INDEMNIFICATION BY BUYER.
Buyer agrees that it will indemnify, defend, protect and hold harmless
Stockholders, their respective heirs, executors and personal representatives, at
all times from and after the date of this Agreement from and against all
liabilities, claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, penalties, losses costs and expenses whatsoever (including
specifically, but without limitation, court costs, reasonable attorneys' fees
and expenses and reasonable expenses of investigation) incurred by Stockholders
as a result of or incident to: (i) any breach of, misrepresentation in, untruth
in or inaccuracy in the representations and warranties set forth herein, or in
the Schedules or certificates attached hereto or delivered pursuant hereto by
Buyer; (ii) nonfulfillment or nonperformance of any agreement, covenant or
condition on the part of Buyer made in this Agreement;
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<PAGE>
and (iii) any claim by a third party that, if true, would mean that a condition
for indemnification set forth in subsections (i) or (ii) of this Section 12.2
had been satisfied.
12.3 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD PARTY CLAIMS.
(a) If any third party shall notify a party to this Agreement
(the "Indemnified Party") with respect to any matter (a "Third Party
Claim") that may give rise to a claim for indemnification against any
other party to this Agreement (the "Indemnifying Party") or if any party
who may make a claim for indemnification under this Agreement otherwise
becomes aware of any matter that may give rise to such a claim or wishes
to make such a claim (whether or not related to a Third Party Claim),
then the Indemnified Party shall promptly notify each Indemnifying Party
thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely
to the extent) the Indemnifying Party is thereby prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against a Third Party Claim with counsel of its choice
satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified Party in writing within a reasonable time
after the Indemnified Party has given notice of the Third Party Claim
that the Indemnifying Party will indemnify the Indemnified Party from
and against the entirety of any adverse consequences (which will
include, without limitation, all losses, claims, liens, and attorneys'
fees and related expenses) the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim, (ii) the Indemnifying Party provides the Indemnified
Party with evidence acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (iii) the Third Party Claim involves only monetary damages
and does not seek an injunction or equitable relief or involve the
possibility of criminal penalties, (iv) settlement of, or adverse
judgment with respect to the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential
custom or practice adverse to the continuing business interests of the
Indemnified Party, and (v) the Indemnifying Party conducts the defense
of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 12.3(b) above, (i)
the Indemnified Party may retain separate co-counsel at its sole cost
and expense and participate in the defense of the Third Party Claim,
(ii) the Indemnified Party will not consent to the entry of any judgment
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<PAGE>
or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (which will
not be unreasonably withheld) and (iii) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnified Party (which will not be unreasonably withheld).
(d) In the event or to the extent that any of the conditions set
forth in Section 12.3(b) above is or becomes unsatisfied, however, (i)
the Indemnified Party may defend against, and consent to the entry of
any judgment or enter into any settlement with respect to, the Third
Party Claim and any matter it may deem appropriate in its sole
discretion and the Indemnified Party need not consult with, or obtain
any consent from, any Indemnifying Party in connection therewith (but
will keep the Indemnifying Party reasonably informed regarding the
progress and anticipated cost thereof), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the cost
of defending against the Third Party Claim (including attorneys' fees
and expenses) and (iii) the Indemnifying Party will remain responsible
for any adverse consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 12; and
(iv) the Indemnifying Party shall be deemed to have waived any claim
that its indemnification obligation should be reduced because of the
manner in which the counsel for the Indemnified Party handled the Third
Party Claim.
13. TERMINATION OF AGREEMENT.
13.1 TERMINATION BY BUYER.
Buyer, by notice in the manner hereinafter provided on or before the
Closing Date, may terminate this Agreement in the event of a breach by
Stockholders or Company in the observance or in the due and timely performance
of any of the agreements or conditions contained herein on their part to be
performed, and such breach shall not have been cured on or before the Closing
Date.
13.2 TERMINATION BY STOCKHOLDERS.
Stockholders may, by notice in the manner hereinafter provided on or
before the Closing Date, terminate this Agreement in the event of a breach by
Buyer in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein on its part to be
performed, and such breach shall not have been cured on or before the Closing
Date.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1 NONDISCLOSURE BY STOCKHOLDERS.
Stockholders recognize and acknowledge that they had in the past,
currently have, and in the future may possibly have, access to certain
confidential information of Company and Buyer, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company and its businesses. Stockholders agree that, except
as
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<PAGE>
may be required by Applicable Laws or other legal process, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except to
authorized representatives of Buyer, unless such information becomes known to
the public generally through no fault of any of the Stockholders. In the case of
a disclosure required by Applicable Laws or other legal process, Stockholders
shall make no disclosure without prior written notice to Buyer. In the event of
a breach or threatened breach by any of the Stockholders of the provisions of
this Section, Buyer shall be entitled to an injunction restraining Stockholders
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting Buyer from pursuing any other available
remedy for such breach or threatened breach, including, without limitation, the
recovery of damages. The provisions of this Section shall apply at all times
prior to the Closing Date and for a period of one year following the Closing.
14.2 NONDISCLOSURE BY BUYER.
Buyer recognizes and acknowledges that it has in the past, currently
has, and prior to the Closing Date will have access to certain confidential
information of Company, such as lists of customers, operational policies, and
pricing and cost policies that are valuable, special and unique assets of
Company and its businesses. Buyer agrees that, except as may be required by
Applicable Laws or other legal process, it will not disclose such confidential
information to any person, firm, corporation, association, or other entity for
any purpose or reason whatsoever, prior to the Closing Date without
Stockholders' prior written consent. In the case of a disclosure required by
Applicable Laws or other legal process, Buyer shall make no disclosure without
prior written notice to Stockholders. In the event of a breach or threatened
breach by Buyer of the provisions of this Section, Stockholders shall be
entitled to an injunction restraining Buyer from disclosing, in whole or in
part, such confidential information. Nothing contained herein shall be construed
as prohibiting Stockholders from pursuing any other available remedy for such
breach or threatened breach, including, without limitation, the recovery of
damages. The provisions of this Section shall apply at all times prior to the
Closing Date and for a period of one year following the termination of this
Agreement without a Closing having occurred.
15. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON STOCK.
15.1 REGISTERED STOCK.
Buyer represents and warrants to Stockholders that all of the shares of
Buyer Stock to be delivered to Stockholders pursuant to this Agreement will be
registered under the Act prior to delivery to Stockholders.
15.2 CONTRACTUAL RESTRICTION.
Notwithstanding the above, Stockholders agree to not sell or transfer
the Buyer Stock described in Section 2.1 for the applicable time periods set
forth therein (the "Contractually Restricted Stock").
15.3 CONTRACTUAL RESTRICTION LEGEND.
(a) All one year Contractually Restricted Stock shall bear the
following legend:
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THE SALE OR OTHER TRANSFER OF THE SHARES REPRESENTED HEREBY HAS BEEN
CONTRACTUALLY RESTRICTED. THE HOLDER AGREES THAT SUCH SHARES MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF U S
LIQUIDS INC., UNTIL THE EXPIRATION OF SUCH RESTRICTION ON JUNE 25, 1999.
(b) All two-year Contractually Restricted Stock shall bear the
following legend:
THE SALE OR OTHER TRANSFER OF THE SHARES REPRESENTED HEREBY HAS BEEN
CONTRACTUALLY RESTRICTED. THE HOLDER AGREES THAT SUCH SHARES MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF U S
LIQUIDS INC., UNTIL THE EXPIRATION OF SUCH RESTRICTION ON JUNE 25, 2000.
15.4 GENERAL LEGEND.
All Buyer Stock shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS
OF RULE 145(d) PROMULGATED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT
BE TRANSFERRED OR DISPOSED OF BY THE HOLDER WITHOUT COMPLIANCE WITH SAID
RULE.
15.5 COMPLIANCE WITH LAW.
Stockholders covenant, warrant and represent that none of the shares of
Buyer Stock will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except in full compliance with the Act and the rules
and regulations promulgated thereunder. 16. GENERAL.
16.1 ASSIGNMENT; BINDING EFFECT; AMENDMENT.
This Agreement and the rights of the parties hereunder may not be
assigned (except by operation of law) and shall be binding upon and shall inure
to the benefit of the parties hereto, the successors of the corporate parties
hereto, and the respective heirs and legal representatives of each of the
Stockholders. This Agreement, upon execution and delivery, constitutes a valid
and binding agreement of the parties hereto enforceable in accordance with its
terms and may be modified or amended only by a written instrument executed by
all parties hereto.
16.2 ENTIRE AGREEMENT.
This Agreement is the final, complete and exclusive statement and
expression of the agreement among the parties hereto with relation to the
subject matter of this Agreement, it being understood that there are no oral
representations, understandings or agreements covering the same subject matter
as this Agreement. This Agreement supersedes, and cannot be varied, contradicted
or supplemented by evidence of any prior or contemporaneous discussions,
correspondence, or oral or written agreements of any kind.
16.3 COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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<PAGE>
16.4 NO BROKERS.
Company and each Stockholder represent and warrant to Buyer and Buyer
represents to each Stockholder and Company that the warranting party has had no
dealings with any broker or agent so as to entitle such broker or agent to a
commission or fee in connection with the within transaction. If for any reason a
commission or fee shall become due, the party dealing with such agent or broker
shall pay such commission or fee and agrees to indemnify and save harmless each
of the other parties from all claims for such commission or fee and from all
attorneys' fees, litigation costs and other expenses relating to such claim.
16.5 EXPENSES OF TRANSACTION.
Whether or not the transactions herein contemplated shall be
consummated: (i) Buyer will pay the fees, expenses and disbursements of Buyer
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments hereto and all
other costs and expenses incurred in the performance and compliance with all
conditions to be performed by Buyer under this Agreement; and (ii) Stockholders
will pay personally the fees, expenses and disbursements of Stockholders and
Company and their respective agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments hereto and all other costs and expenses incurred in the performance
and compliance with all conditions to be performed by Stockholders and Company
under this Agreement. All such fees, expenses and disbursements of Stockholders
and Company shall be paid by Stockholders prior to the Closing so as not to
become an obligation of Company or shall be included as a current liability for
purposes of the calculation of "net working capital" set forth in Section 2.3.
Stockholders represents and warrants to Buyer that Stockholders has relied on
his own advisors for all legal, accounting, tax or other advice whatsoever with
respect to this Agreement and the transactions contemplated hereby.
16.6 NOTICES.
All notices or other communications required or permitted hereunder
shall be in writing and may be given by depositing the same in the United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, by overnight courier or by delivering
the same in person to such party.
(i) If to Buyer, addressed to it at:
U S Liquids
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: David Turkal
with a copy to:
U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
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<PAGE>
Houston, TX 77060
ATTN: W. Gregory Orr
and a copy to:
Elaine A. Chotlos, Esq.
Baker & Hostetler LLP
3200 National City Center
1900 E. 9th Street
Cleveland, OH 44114-3485
(ii) If to Stockholders, addressed to them at:
c/o Charles C. Stout
1400 El Camino Village Dr.
Apt. 1611
Houston, TX 77058
with a copy to:
Charlotte S. Lynch
3806 Glenmeade
Houston, TX 77059
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier, subject to signature verification, and
three business days after the deposit in the U.S. mail of a writing addressed as
above and sent first-class mail, certified, return receipt requested, or when
actually received, if earlier. Any party may change the address for notice by
notifying the other parties of such change in accordance with this Section.
16.7 APPOINTMENT OF AGENT.
Each of the Stockholders agree to maintain a registered agent in the
State of Texas to accept and acknowledge service of process. Each of the
Stockholders initially hereby appoint Charlotte S. Lynch, 3806 Glenmeade,
Houston, Texas 77059, as such registered agent and agrees to notify Company in
the manner set forth in Section 16.6 of any change in registered agent. Each
party agrees that service of process or notice in any such action, suit or
proceeding shall be effective if in writing and delivered to the address
provided in Section 16.6 for such party, in the manner prescribed in such
Section.
16.8 NO WAIVER.
No delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
or in any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach of default
occurring before or after that waiver.
16.9 TIME OF THE ESSENCE.
Time is of the essence for this Agreement.
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<PAGE>
16.10 CAPTIONS.
The headings of this Agreement are inserted for convenience only and
shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
16.11 SEVERABILITY.
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, it shall, to the extent possible, be modified in such manner as
to be valid, legal and enforceable but so as most nearly to retain the intent of
the parties. If such modification is not possible, such provision shall be
severed from this Agreement. In either case the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
16.12 CONSTRUCTION.
The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local or foreign statute
shall be deemed to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The word "including" means including,
without limitation. The parties intend that representation, warranty and
covenant contained herein shall have independent significance. If any party has
breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) that the party has not breached shall not detract from or mitigate
the fact the party is in breach of the first representation, warranty or
covenant.
16.13 STANDSTILL AGREEMENT.
Unless and until this Agreement is terminated pursuant to Article 13
hereof without the Closing having taken place, Stockholders will not directly or
indirectly solicit offers for Company Stock or the assets of Company or a merger
or consolidation involving Company from, or respond to inquiries from, share
information with, negotiate with or in any way facilitate inquiries or offers
from, third parties who express or who have heretofore expressed an interest in
acquiring Company by merger, consolidation or other combination or acquiring any
of Company's assets; nor will any Stockholder permit Company to do any of the
foregoing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U S LIQUIDS, INC.
By:
Its:
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<PAGE>
MCS TRANSPORTATION, INC.
(EIN: 76-0380799)
By:
Its:
Charles C. Stout
(SSN: ###-##-####)
Charlotte S. Lynch
(SSN: ###-##-####)
James Scott Rainey
(SSN: ###-##-####)
Danny C. Hammond
(SSN: ###-##-####)
Thomas E. Starustka
(SSN: ###-##-####)
Brenda B. Savell
(SSN: ###-##-####)
Janice S. Whalen
(SSN: ###-##-####)
John Dwight Askew
(SSN: ###-##-####)
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<PAGE>
LIST OF SCHEDULES
Exhibit A -- Legal
Description of the MCS Leased Land
Exhibit B -- Legal
Description of the Owned Land
Schedule 2.2 -- Assumed Debt
Schedule 5.1(i) -- Articles and Bylaws
Schedule 5.4 -- Predecessor Entities; Trade Names
Schedule 5.6 -- Financial Statements
Schedule 5.7 -- Non-Balance Sheet Liabilities
Schedule 5.8 -- Accounts Receivable
Schedule 5.9(i) -- Proprietary Rights
Schedule 5.10(i) -- MCS Lease; Real
Property Disclosure
Schedule 5.11(i) -- Personal Property
Schedule 5.11(vi) -- Plans or Projects
Schedule 5.12 -- Contracts
Schedule 5.13 -- Insurance Policies
Schedule 5.14 -- Employees
Schedule 5.15 -- Employee Plans
Schedule 5.16(ii) -- Claims History
Schedule 5.18 -- Tax Returns
Schedule 5.19 -- Litigation
Schedule 5.22 -- Bank Accounts
Schedule 5.23 -- Hazardous
Materials; List of
Disposal Sites
Schedule 5.24 -- Storage Tanks
Page 34
STOCK PURCHASE AGREEMENT
Among
U S LIQUIDS, INC.
and
ADVANCED MANAGEMENT SYSTEMS, INC.,
and
CHARLES C. STOUT
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. DELIVERY OF SHARES; ENDORSEMENT OF COMPANY STOCK. 1
1.1 DELIVERY OF SHARES................................................1
1.2 ENDORSEMENT OF COMPANY STOCK......................................1
2. PURCHASE PRICE. 2
2.1 PURCHASE PRICE....................................................2
2.2 AGREED VALUE OF BUYER STOCK......................................2
2.3 ASSUMPTION OF DEBT................................................2
2.4 ADJUSTMENT TO CONSIDERATION.......................................2
3. TITLE ASSURANCE. 3
4. CLOSING. 3
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER AND COMPANY. 3
5.1 ORGANIZATION; AUTHORITY...........................................4
5.2 STOCK OWNERSHIP; ABSENCE OF ADVERSE CLAIMS........................4
5.3 CAPITALIZATION....................................................4
5.4 PREDECESSOR ENTITIES; TRADE NAMES.................................5
5.5 NO SUBSIDIARIES...................................................5
5.6 FINANCIAL STATEMENTS..............................................5
5.7 NON-BALANCE SHEET LIABILITIES.....................................6
5.8 ACCOUNTS RECEIVABLE...............................................6
5.9 PROPRIETARY RIGHTS; ENVIRONMENTAL DOCUMENTS.......................6
5.10 REAL PROPERTY; REPORTING.........................................7
5.11 PERSONAL PROPERTY; NEW PROJECTS..................................8
5.12 CONTRACTS........................................................9
5.13 INSURANCE POLICIES..............................................10
5.14 DIRECTORS, OFFICERS AND EMPLOYEES; COMPENSATION.................10
5.15 EMPLOYEE PLANS..................................................10
5.16 COMPLIANCE WITH ERISA...........................................11
5.17 COMPLIANCE WITH LAW; NO CONFLICTS...............................11
5.18 TAXES...........................................................12
5.19 LITIGATION......................................................13
5.20 ABSENCE OF PRICE RENEGOTIATION CONTRACTS........................13
5.21 CONDUCT OF BUSINESS SINCE BALANCE SHEET DATE....................13
5.22 BANK ACCOUNTS; DEPOSITORIES.....................................14
5.23 HAZARDOUS MATERIALS.............................................14
5.24 STORAGE TANKS...................................................15
5.25 CORRUPT PRACTICES...............................................15
5.26 COMPLETE DISCLOSURE.............................................15
6. REPRESENTATIONS AND WARRANTIES OF BUYER. 16
6.1 CORPORATE ORGANIZATION...........................................16
6.2 CORPORATE AUTHORITY..............................................16
6.3 BUYER STOCK.....................................................16
6.4 NO CONFLICTS.....................................................16
6.5 BINDING AGREEMENT................................................17
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7. COVENANTS. 17
7.1 ACCESS TO LAND AND RECORDS.......................................17
7.2 COMPANY ACTIVITIES PRIOR TO CLOSING..............................17
7.3 PROHIBITED ACTIVITIES PRIOR TO CLOSING...........................18
7.4 CONTACT WITH GOVERNMENT OFFICIALS................................19
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY AND STOCKHOLDER. 19
8.1 REPRESENTATIONS AND WARRANTIES...................................19
8.2 CONSENTS.........................................................19
8.3 NO ADVERSE PROCEEDING............................................19
8.4 NONCOMPETITION AGREEMENT.........................................19
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. 19
9.1 REPRESENTATIONS AND WARRANTIES...................................19
9.2 COVENANTS.......................................................20
9.3 NO ADVERSE PROCEEDING............................................20
9.4 GENERAL RELEASE..................................................20
9.5 CONSENTS.........................................................20
9.6 RESIGNATIONS.....................................................20
9.7 GOOD STANDING CERTIFICATES.......................................20
9.8 UPDATED AGREEMENTS...............................................20
9.9 NONCOMPETITION AGREEMENT.........................................20
9.10 DELIVERY OF COMPANY STOCK.......................................20
9.11 ENVIRONMENTAL REVIEW............................................21
9.12 TRANSFERABILITY OF PERMITS......................................21
9.13 TERMINATION OF AMS LEASE AND EXECUTION OF NEW LEASE.............21
9.14 GENERAL.........................................................21
10. POST CLOSING COVENANTS. 21
10.1 TAXES...........................................................21
10.2 POST CLOSING BALANCE SHEET......................................22
10.3 CLOSING DATE ACTIONS............................................22
10.4 FURTHER ASSURANCE...............................................22
10.5 TRANSITION......................................................22
10.6 SURVIVAL........................................................23
11. NON-ASSUMPTION OF LIABILITIES. 23
11.1. NON-ASSUMPTION OF LIABILITIES..................................23
12. INDEMNIFICATION. 23
12.1 INDEMNIFICATION BY STOCKHOLDER..................................23
12.2 INDEMNIFICATION BY BUYER........................................24
12.3 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD PARTY
CLAIMS..........................................................24
13. TERMINATION OF AGREEMENT. 26
13.1 TERMINATION BY BUYER............................................26
13.2 TERMINATION BY STOCKHOLDER......................................26
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. 26
14.1 NONDISCLOSURE BY STOCKHOLDER....................................26
14.2 NONDISCLOSURE BY BUYER..........................................27
15. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON STOCK. 27
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15.1 REGISTERED STOCK................................................27
15.2 CONTRACTUAL RESTRICTION.........................................27
15.3 CONTRACTUAL RESTRICTION LEGEND..................................27
15.4 GENERAL LEGEND..................................................27
15.5 COMPLIANCE WITH LAW.............................................28
16. GENERAL. 28
16.1 ASSIGNMENT; BINDING EFFECT; AMENDMENT...........................28
16.2 ENTIRE AGREEMENT................................................28
16.3 COUNTERPARTS....................................................28
16.4 NO BROKERS......................................................28
16.5 EXPENSES OF TRANSACTION.........................................28
16.6 NOTICES.........................................................29
16.7 APPOINTMENT OF AGENT............................................30
16.8 NO WAIVER.......................................................30
16.9 TIME OF THE ESSENCE.............................................30
16.10 CAPTIONS.......................................................30
16.11 SEVERABILITY...................................................30
16.12 CONSTRUCTION...................................................30
16.13 STANDSTILL AGREEMENT...........................................31
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), executed and delivered as
of June 25, 1998, among U S LIQUIDS, INC., a Delaware corporation ("Buyer");
ADVANCED MANAGEMENT SYSTEMS, INC., a Texas corporation ("Company"); and CHARLES
C. STOUT, the sole stockholder ("Stockholder") of Company;
W I T N E S S E T H :
WHEREAS, Company operates a business which provides industrial field
services, hazardous and non-hazardous waste identification and manifesting and
technical sales support services in the San Leon, Texas, area (collectively, the
"Business");
WHEREAS, in connection with the Business AMS leases office space in
Galveston, Texas (the "Leased Land"), from Galveston Environmental Services,
Inc., a separate company owned by Stockholder (the "AMS Lease");
WHEREAS, Stockholder owns all of the issued and outstanding shares of the
capital stock of Company; and
WHEREAS, Buyer desires to acquire all of the issued and outstanding shares
of the capital stock of Company from Stockholder and Stockholder desires to sell
such Company stock to Buyer as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties and obligations herein contained, the
parties hereby agree as follows:
1. DELIVERY OF SHARES; ENDORSEMENT OF COMPANY STOCK.
1.1 DELIVERY OF SHARES.
Upon the terms and subject to the conditions set forth in this Agreement,
Stockholder shall, at the Closing (hereinafter defined), deliver to Buyer
certificates representing the number of shares of stock of Company owned by
Stockholder, which certificates represent all of the issued and outstanding
capital stock of Company (the "Company Stock"). Stockholder shall deliver the
Company Stock to Buyer free and clear of all liens, security interests,
encumbrances, adverse claims, pledges, charges, voting trusts, equities and
other restrictions on transfer of any nature whatsoever (collectively, "Adverse
Claims").
1.2 ENDORSEMENT OF COMPANY STOCK.
Stockholder shall deliver at Closing the certificates representing the
Company Stock, duly endorsed in blank by Stockholder or accompanied by stock
powers duly endorsed in blank and with all necessary transfer tax and other
revenue stamps, acquired at Stockholder's expense, affixed and cancelled.
Stockholder, at his sole expense, agrees to cure (both before and after Closing)
any deficiencies with respect to the endorsement of the certificates or other
documents of
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conveyance with respect to the Company Stock or with respect to the stock powers
accompanying the Company Stock.
2. PURCHASE PRICE.
2.1 PURCHASE PRICE.
Subject to Sections 2.3 and 2.4 below, in consideration of the sale to
Buyer in accordance with this Agreement of the certificates representing the
Company Stock, Company shall pay to Stockholder on the Closing Date: (a)
$1,100,000 in immediately available funds; (b) that total number of shares of
the common stock of Buyer (the "Buyer Stock"), which shall have an Agreed Value
(hereinafter defined) equal to $50,000, all of which will be contractually
restricted for a period of one year in accordance with Article 15 hereof; and
(c) that total number of shares of Buyer Stock which shall have an Agreed Value
equal to $50,000, all of which will be contractually restricted for a period of
two years in accordance with Article 15 hereof.
2.2 Agreed Value of Buyer Stock.
For purposes of this Agreement, the "Agreed Value" per share of Buyer Stock
shall be the average of the closing prices of a share of the common stock of
Buyer, $.01 par value per share, on the American Stock Exchange as reported in
The Wall Street Journal for a period of five consecutive trading days. The days
used to obtain the average will be the tenth trading day through the sixth
trading day before the date of Closing.
2.3 Assumption of Debt.
Attached hereto as Schedule 2.3 is a listing of all of the actual long-term
debt of Company (including the current portion of such debt) plus all lease debt
(including lease-end buyout payments) (the "Assumed Debt") and evidence
establishing the Assumed Debt. If the Assumed Debt of Company (when combined
with the actual long term debt of MCS Transportation, Inc. ("MCS")) is less than
$435,000 on the Closing Date, the consideration payable in Section 2.1(a) shall
be increased by an amount equal to the difference between $435,000 and the
Assumed Debt of Company and MCS combined. If the Assumed Debt of Company and MCS
combined is more than $435,000 on the Closing Date, the consideration payable in
Section 2.1(a) shall be reduced by an amount equal to the difference between
$435,000 and the Assumed Debt of Company and MCS combined.
2.4 ADJUSTMENT TO CONSIDERATION.
The parties agree that the consideration set forth in Section 2.1 was
determined as if the combined net working capital of Company and MCS was going
to be $1.00 at the close of business on the Closing Date. Accordingly, the
parties agree that the consideration set forth in Section 2.1(a) shall be
adjusted on the Adjustment Date to reflect the actual combined net working
capital of Company and MCS on the Closing Date (the "Actual Net Working
Capital"), as shown on the balance sheet to be prepared in accordance with
Section 10.2 hereof. If the Actual Net Working Capital so reflected is greater
than $1.00 on the Closing Date, then
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the consideration paid pursuant to Section 2.1(a) shall be increased dollar for
dollar for each dollar the Actual Net Working Capital exceeds $1.00 on the
Closing Date. If the Actual Net Working Capital so reflected is less than $1.00
on the Closing Date, then the consideration paid pursuant to Section 2.1(a)
shall be decreased dollar for dollar for each dollar the Actual Net Working
Capital falls below $1.00 on the Closing Date. For purposes of this Agreement,
Actual Net Working Capital shall mean the combined current assets of Company and
MCS on the Closing Date minus all combined current liabilities of Company and
MCS on the Closing Date, calculated in accordance with generally accepted
accounting principles ("GAAP").
In order to facilitate the contemplated adjustment to purchase price on the
Adjustment Date, between the date hereof and the Closing Date the parties will
prepare and agree upon an estimated combined net working capital balance for
Company and MCS as of May 31, 1998 (the "Estimated Working Capital").
In the event of a dispute between the parties as to the Actual Net Working
Capital, the parties will have 30 days to resolve the dispute among themselves.
If the parties have not resolved such dispute within such 30-day period, then
the parties shall select an arbitrator who shall decide the dispute within 30
days after being selected. If the parties cannot agree on an arbitrator, then
Buyer and Stockholder shall each select an arbitrator and the two arbitrators so
selected shall select a third arbitrator. The parties hereto each agree to be
bound by the decision of the arbitrator(s). In the event that three arbitrators
are chosen, a majority decision will be required. Each arbitrator can be any
natural person above the age of 18 and need not have any specific qualification.
All costs of the arbitration shall be split equally between Buyer and
Stockholder.
3. TITLE ASSURANCE. INTENTIONALLY DELETED.
4. CLOSING.
Unless the parties agree otherwise, the closing of the within contemplated
transaction (the "Closing") shall take place on a date mutually agreeable to
Stockholder and Buyer within five business days after the completion,
satisfaction or waiver of each of the conditions to Closing set forth in
Articles 8 and 9. The Closing shall take place at a place mutually agreeable to
Buyer and Stockholder. The date on which the Closing occurs shall be referred to
as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER AND COMPANY.
Company, as to the time period before Closing only, and Stockholder,
jointly and severally, represents and warrants to Buyer that the statements
contained in this Section 5, except as set forth in the schedules to the
subsections of this Section 5 delivered by Stockholder to Buyer on the date
hereof (such schedules hereinafter collectively referred to as the "Disclosure
Schedules" and, individually, as a "Disclosure Schedule"): (i) are correct and
complete as of the date of this Agreement; (ii) will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 5); and (iii)
shall survive the Closing. Nothing in the Disclosure Schedules shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with
particularity
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and describes the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of a document or other item itself).
5.1 ORGANIZATION; AUTHORITY.
(i) Company is a Texas corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and is now and
has been at all times since its creation, duly authorized, qualified and
licensed under all laws, regulations, ordinances and orders of public
authorities to carry on its businesses in the places and in the manner as
conducted at the time such activities were conducted except for where
failure to be so authorized, qualified or licensed would not have a
material adverse affect on Company's business. Copies of Company's Articles
of Incorporation (certified by the Secretary of State of Texas and Bylaws
(certified by the Secretary of Company), each as amended, are attached
hereto as Schedule 5.1(i).
(ii) Company has full legal right, power and authority (corporate and
otherwise) to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. All corporate action of Company necessary
to approve this transaction has been taken, including director and
shareholder approvals, if necessary.
(iii) Stockholder is competent and under no legal restraint or duress
and has the full legal right and capacity to enter into and perform his
obligations under this Agreement.
5.2 Stock Ownership; Absence of Adverse Claims.
All of the issued and outstanding shares of Company Stock are owned of
record and beneficially by Stockholder and are free and clear of all Adverse
Claims. This Agreement is the valid and binding obligation of Company and
Stockholder, enforceable against each of them in accordance with its terms.
5.3 CAPITALIZATION.
The authorized capital stock of Company consists solely of 1,000 shares of
voting common stock, $1.00 par value, of which 1,000 shares are issued and
outstanding. All of the issued and outstanding shares of Company Stock have been
duly authorized and validly issued, are fully paid and nonassessable, were
offered, issued, sold and delivered by Company in compliance with all state and
federal laws concerning the issuance of securities and none of such shares were
issued pursuant to awards, grants or bonuses nor in violation of the preemptive
rights of any past or present stockholder. The stock transfer records provided
by Stockholder and Company to Buyer correctly set forth all issuances,
acquisitions and retirements of Company Stock since the inception of Company. No
subscriptions, options, warrants, puts, calls, conversion rights or other
commitments of any kind exist which obligate Company to issue any of its
authorized but unissued capital stock or otherwise relate to the
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sale or transfer by Company of any securities of Company (whether debt or
equity). In addition, Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Company has agreed not to register any securities under the Securities
Act of 1933, as amended (the "Act"), or under any state securities law.
5.4 PREDECESSOR ENTITIES; TRADE NAMES.
Company has never directly or indirectly participated in any manner in any
joint venture, partnership or other noncorporate entity. Company was formed
solely to operate the Business and Company has ever conducted any other business
or activity. Set forth on Schedule 5.4 is a list of the names of all
predecessors of Company, all prior corporate names of Company, and all trade
names and "doing business as" names of Company, including the names of all
entities substantially all of the assets of which were previously acquired by
Company.
5.5 NO SUBSIDIARIES.
Company has never owned or controlled and does not now own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any partnership,
corporation, association or other business entity.
5.6 FINANCIAL STATEMENTS.
Attached as Schedule 5.6 are copies of the following financial statements
of Company (together, the "Financial Statements"):
(i) balance sheet of Company as of December 31, 1997, and a statement
of income, cash flow and retained earnings for the year then ended (the
"Balance Sheet Date");
(ii) balance sheet of Company as of March 31, 1998, and a statement of
income for the quarter then ended; and
(iii) Company's monthly interim balance sheets and statements of
income commencing for the month ended April 30, 1998, and continuing for
each month end until the month immediately preceding the Closing Date.
Except as set forth on Schedule 5.6, each of the Financial Statements
(including all footnotes thereto) has been prepared in accordance with
GAAP, applied on a consistent basis throughout the periods indicated. Each
of the Financial Statements (including all footnotes thereto) is true,
complete and correct. Each of the balance sheets presents fairly the
financial condition of Company as of the date indicated thereon and each of
such statements of income presents fairly on an accrual basis the results
of the operations of Company for the period indicated thereon. Each
Financial Statement includes all footnotes required by GAAP, each such
footnote is complete and accurate, and contains all information required by
GAAP to be contained therein. All reserves for contingent risks have been
estimated in accordance with GAAP and are appropriate and sufficient to
cover all costs reasonably expected to be incurred from such risks. Company
has not (i) made any material change in its accounting policies or (ii)
effected any prior period adjustment to, or other restatement of, its
financial statements for any period. The Financial
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Statements are consistent with the books and records of Company (which
books and records are correct and complete).
5.7 NON-BALANCE SHEET LIABILITIES.
Attached hereto as Schedule 5.7 is a complete and accurate list as of the
date hereof of all liabilities and obligations of Company, excluding obligations
arising under this Agreement, which are not individually reflected in the
Financial Statements dated the Balance Sheet Date, but which would have been so
reflected in a full GAAP accounting (whether or not incurred in the ordinary
course of business) of any kind, character and description, accrued or
unaccrued, absolute or contingent, secured or unsecured, liquidated or
unliquidated, due or to become due, together with, in the case of those
liabilities and other obligations the amounts of which are not fixed, a
reasonable best estimate of the maximum amount which may be payable. For each
liability or obligation for which the amount is not fixed or is contested,
Stockholder shall provide the following information:
(i) a summary description of the liability or other obligation
together with the following:
(A) copies of all relevant documentation relating thereto;
(B) amounts claimed and any other action or relief sought; and
(C) name of claimant and all other parties to the claim, suit or
proceeding, if any;
(ii) the name of each court or agency before which a claim, suit or
proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a reasonable best estimate by Stockholder of the maximum amount,
if any, which is likely to become payable with respect to each such
liability or the cost of performance with respect to each such other
obligation.
5.8 ACCOUNTS RECEIVABLE.
Attached as Schedule 5.8 is a complete and accurate list of all accounts
and notes receivable of Company as of the date hereof, including receivables
from and advances to employees and Stockholder and also including all such
accounts and notes receivable which are not reflected in the Financial
Statements, if any. Also attached as Schedule 5.8 is an aging of all accounts
and notes receivable showing amounts due in 30 day aging categories. Except to
the extent reflected on Schedule 5.8, each account and note receivable is
collectible in the full amount shown on Schedule 5.8.
5.9 PROPRIETARY RIGHTS; ENVIRONMENTAL DOCUMENTS.
(i) Attached as Schedule 5.9(i) is a complete and accurate list and
summary description as of the date hereof of all permits, titles (including
motor vehicle titles and current registrations), fuel permits, licenses,
franchises, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by Company, none of which
permits, titles, licenses, franchises and certificates, trademarks, trade
names,
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patents, patent applications and copyrights, has been claimed to infringe
on the rights of others and all of which are now valid, in good standing
and in full force and effect. Except as set forth on Schedule 5.9(i), such
permits, titles, licenses, franchises, certificates, trademarks, trade
names, patents, patent applications and copyrights are adequate for the
operation of the Business as presently constituted;
(ii) Stockholder has, as of the date of this Agreement, made available
to Buyer for its inspection all presently held records, correspondence,
reports, notifications, permits, pending permit applications, licenses and
pending license applications, environmental impact studies, assessments and
audits and all notifications from governmental agencies and any other
person or entity and any other documents of Company relating to: (A) each
actual and threatened violation of Applicable Laws (hereinafter defined) by
Company or otherwise relating to any real property owned or operated by
Company and all, if any, claims thereof; (B) the present or past
environmental compliance by Company; (C) the present or past environmental
condition of any real property owned or operated by Company; (D) the
discharge, leakage, spillage, transport, disposal or release of any
material into the environment by Company or otherwise relating to any real
property owned or operated by Company; and (E) land use and access
approvals relative to any portion of any real property owned or operated by
Company (collectively, the "Environmental Documents").
5.10 REAL PROPERTY; REPORTING.
(i) Company has never owned, leased or otherwise occupied, had an
interest in or operated any real property other than the Leased Land. A
true and complete copy of the AMS Lease, together with all amendments or
other modifications thereto, is attached hereto as Schedule 5.10(i). Except
as set forth on Schedule 5.10(i):
(A) The Leased Land is fully licensed, permitted and authorized
for the operation of the Business under all Applicable Laws
(hereinafter defined) relating to the protection of the environment,
the Leased Land and the conduct of the Business thereon (including,
without limitation, all zoning restrictions and land use
requirements).
(B) The Leased Land is usable for its current uses and can be
used by Buyer after the Closing for such uses without violating any
Applicable Law or private restriction, and such uses are legal
conforming uses. There are no proceedings or amendments pending and
brought by or threatened by any third party which would result in a
change in the allowable uses of the Leased Land or which would modify
the right of Buyer to use the Leased Land for its current uses.
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(C) Stockholder and Company have made available to Buyer all
engineering, geologic and other similar reports, documentation and
maps relating to the Leased Land in the possession or control of
Stockholder or Company.
(D) No third parties have any rights to drill or explore for,
collect, produce, mine, excavate, deliver or transport oil, gas, coal,
or other minerals in, on, beneath, across, over, through, from or to
any portion of the Leased Land.
(E) Company, Stockholder nor the Leased Land now is or ever has
been involved in any litigation or administrative proceeding seeking
to impose fines, penalties or other liabilities or seeking injunctive
relief for violation of any Applicable Laws relating to the
environment.
(F) No third party has an unrecorded present or future right to
possession of all or any part of the Leased Land other than the
landlord under the AMS Lease.
(G) No portion of the Leased Land contains any areas that could
be characterized as disturbed, undisturbed or man made wetlands or as
"waters of the United States" pursuant to any Applicable Laws or the
procedural manuals of the Environmental Protection Agency, U.S. Army
Corps of Engineers or the Texas Department of Natural Resources,
whether such characterization reflects current conditions or historic
conditions which have been altered without the necessary permits or
approvals.
(H) There are no mechanics' liens affecting the Leased Land and
no work has been performed thereon at the request of Company within
120 days of the date hereof for which a mechanic's lien could be
filed.
(I) There are no levied or pending special assessments affecting
all or any part of the Leased Land and none is threatened.
(J) There are no pending or threatened condemnation or eminent
domain proceedings affecting all or any part of the Leased Land.
(ii) Company has provided, to the government agencies requiring the
same, all material reports, notices, filings and other disclosures
required by Applicable Laws and all such reports, notices, filings and
other documents were complete and accurate in all material respects at the
time provided to said government agencies.
5.11 PERSONAL PROPERTY; NEW PROJECTS.
(i) Attached as Schedule 5.11(i) is a complete and accurate list and a
complete description as of the date hereof of all personal property of
Company including true and correct copies of leases for equipment and other
personal property, if any, used in the operation of the Business and
including an indication as to which assets were formerly owned by business
or personal affiliates of Company. All of the trucks, compactors,
containers, materials
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handling equipment, machinery and other equipment of Company are in good
working order and repair;
(ii) Company has good title to, or a valid leasehold interest in, the
properties and assets used by it shown on Company's balance sheet dated
the Balance Sheet Date or acquired after the date thereof, whether or not
located on the Leased Land, including, without limitation, the items of
personal property listed on Schedules 5.11(i), free and clear of all
security interests, liens or other Adverse Claims;
(iii) all leases set forth on Schedule 5.11(i) are in full force and
effect and constitute valid and binding agreements of the parties thereto
(and their successors) in accordance with their respective terms. No
default by Company, or any other party to any of such leases, exists or
would exist except for the passage of time or delivery of a notice or
both;
(iv) all fixed assets used by Company in the operation of the Business
are either owned by Company or leased by Company under an agreement
indicated on Schedule 5.11(i). The combined fixed assets of Company
(together with the real property assets) constitute all of the real and
personal property necessary for the operation of the Business both by
Company and by Buyer following the Closing and include all of the permits,
licenses, franchises, consents and other approvals necessary to operate
the Business both before and after Closing;
(v) at the Closing, Company shall have good and marketable title to
all personal property, free and clear of all debts and lease payments
(including lease end-buyout payments) other than the Assumed Debt; and
(vi) attached as Schedule 5.11(vi) is a summary description of all
plans or projects involving recycling, waste hauling, the opening of new
landfills, expansion of any existing landfills or the acquisition of any
real property or existing business, to which management of Company has
devoted any significant effort or expenditure on behalf of Company which,
if pursued by Company, would require the expenditure by Company of
significant additional effort or capital.
5.12 CONTRACTS.
Attached as Schedule 5.12 is a complete and accurate list as of the date
hereof of all of the following types of contracts, commitments and other
agreements to which Company is a party or by which Company or its properties are
bound, which list shall include, at a minimum, the full names of each party to
each agreement and the date of execution thereof: waste hauling, transfer and
disposal contracts, joint venture or partnership agreements, and all other
operating agreements (if any), contracts or collective bargaining arrangements
with any labor organizations, loan agreements, powers of attorney (each of which
shall be cancelled at the Closing), indemnity or guaranty agreements, bonds,
mortgages, options to purchase land (if any), liens, pledges or other security
agreements, agreements for the employment of any individual, agreements under
which Company has advanced or loaned any amount to
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one another or to Stockholder or any employee, officer or director either of
Company, any guaranties by Company, any agreement concerning confidentiality or
noncompetition and any other agreement under which the consequences of a default
or termination could have an adverse effect on the business, financial
condition, operations or prospects of Company. None of the agreements listed on
Schedule 5.12 have been modified, altered, terminated or otherwise amended
except as set forth on Schedule 5.12 and there have been no waivers, oral
agreements, representations or other statements with relation to any such
agreements except as described in Schedule 5.12. Company has complied with all
obligations pertaining to it contained in such contracts, commitments and other
agreements, is not in default thereunder and no notice of default has been
received by Company or by Stockholder nor will the consummation of the
transactions contemplated by this Agreement result in such a default. To the
best of Stockholder's knowledge, there is no default by any other party to any
contract, commitment or other agreement attached as Schedule 5.12. 5.13
Insurance Policies.
Attached as Schedule 5.13 are complete and accurate copies as of the date
hereof of all insurance policies carried by Company and an accurate list of all
insurance loss runs and workers' compensation claims received for the past three
policy years. All insurance policies are in full force and effect and shall
remain in full force and effect through the Closing Date. Company's insurance
has never been cancelled and Company has never been denied coverage. 5.14
Directors, Officers and Employees; Compensation.
Attached as Schedule 5.14 is a complete and accurate list of all officers,
directors and employees of Company and the rate of compensation of each as of
the date hereof (including a breakdown of the portion thereof attributable to
salary, bonus and other compensation, respectively). Each employee of Company is
an employee at will and there are no collective bargaining agreements affecting
any employee of Company. There is no pending or threatened labor dispute
involving Company and any group of its employees nor has Company experienced any
labor interruptions over the past three years. Stockholder will cause Company to
terminate each of its employees as of the close of business on the Closing Date.
Buyer agrees to consider the former employees of Company for positions with
Buyer, provided that each such person seeking employment meets the minimum
acceptable qualifications established by Buyer. It is expressly understood that
Buyer shall not assume or be responsible for any severance or other employee
benefit arising out of an individual's employment by Company prior to the
Closing Date. Nothing herein will be deemed to give any individual a right of
employment.
5.15 EMPLOYEE PLANS.
Except as set forth on Schedule 5.15, Company has no group health plans,
employee benefit plans, employee welfare benefit plans, employee pension benefit
plans, multi-employer plans or multiple-employer welfare arrangements (as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"))
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(collectively, "Plans") which are currently maintained and/or sponsored by
Company, or to which Company currently contributes, or has an obligation to
contribute in the future (including, without limitation, employment agreements
and any other agreements containing "golden parachute" provisions and deferred
compensation agreements). No such Plans have been terminated within the past
three years.
5.16 COMPLIANCE WITH ERISA.
Neither of the Company, any Controlled Group Member (as defined in the
Internal Revenue Code (the "Code") Section 414(n)(6)(B)), nor any business,
subsidiary, division or operation acquired by Company or a Controlled Group
Member in the last five years, ever have maintained or sponsored, or contributed
to, an employee pension benefit plan (as defined in ERISA Section 3(2)) which is
subject to the provisions of Title IV of ERISA. Except for the Plans, Company
does not maintain or sponsor, nor is it a contributing employer to, a pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees. Further:
(i) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA"), Company and Stockholder have complied (and on the Closing Date
will have complied) in all respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder as
and when applicable to such plans, and Company has no (and will not incur
any) direct or indirect liability and Company is not (and will not be)
subject to any loss, assessment, excise tax penalty, loss of federal income
tax deduction or other sanction, arising on account of or in respect of any
direct or indirect failure by Company and Stockholder or any of them, any
time prior to the Closing Date to comply with any such federal or state
benefit continuation requirement, which is capable of being assessed or
asserted before or after the Closing Date directly or indirectly against
Company or Stockholder, or any of them with respect to such group health
plans;
(ii) attached hereto as Schedule 5.16(ii) is a copy of the claims
history under Company's group health plan for the past three years; and
(iii) with respect to any plan which qualifies as a group health plan,
such plan is fully insured and all premiums have been paid on a timely
basis and are paid in full as of the Closing Date or, to the extent such
plan is not fully insured, all self-insured obligations have been met as of
the Closing Date and are fully reflected in the plan's financial
statements. To the extent that any of Company's group health plans are
retrospectively rated, there are no liabilities capable of assertion
against Company in respect of claims already incurred and present.
5.17 COMPLIANCE WITH LAW; NO CONFLICTS.
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(i) Company has in the past complied with, and is now in compliance
with, all federal, state and local statutes, laws, rules, regulations,
orders, licenses, permits (including, without limitation, zoning
restrictions and land use requirements) and all administrative and judicial
judgments, rulings, decisions and orders of any body having jurisdiction
over Company or the Business (the "Applicable Laws"). Neither Company nor
Stockholder has received any notice that Company is under investigation or
other form of review with respect to any Applicable Law; and
(ii) the execution, delivery and performance of this Agreement, the
consummation of any transactions herein referred to or contemplated hereby
and the fulfillment of the terms hereof and thereof will not:
(A) conflict with, or result in a breach or violation of the
Articles of Incorporation or Bylaws of Company;
(B) conflict with, or result in a breach under any document,
agreement or other instrument to which Company, or Stockholder is a
party, or result in the creation or imposition of any lien, charge or
encumbrance on any properties of Company or Stockholder pursuant to:
(1) any law or regulation to which Company or Stockholder, or any of
their respective properties are subject, or (2) any judgment, order or
decree to which Company or Stockholder is bound or any of their
respective properties are subject;
(C) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of
Company; or
(D) require the consent of, or the filing with, any governmental
authority or agency or any other third party in order to remain in
full force and effect.
5.18 TAXES.
Company has filed, or will file, in a timely manner all requisite federal,
state, local and other tax returns due for all fiscal periods ended on or before
the date hereof and, as of the Closing, shall have filed or will file in a
timely manner all such returns due for all periods ended on or before the
Closing Date. There are no agreements to extend the statutory period for the
assessment of any taxes, examinations in progress or claims against Company for
federal, state, local and other taxes (including penalties and interest) for any
period or periods prior to and including the date hereof and none shall exist as
of the Closing Date. No notice of any claim for taxes, whether pending or
threatened, has been received. The amounts shown as accruals for taxes on the
Financial Statements as of the respective dates thereof are sufficient in
accordance with GAAP as of such respective dates for the payment of all taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before such date. Copies of: (i) all tax examinations; (ii)
extensions of statutory limitations; and (iii) the federal, state, local and
other income tax returns and franchise tax returns of Company for its last three
fiscal years are
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attached hereto as Schedule 5.18. Company is taxed under the
provisions of Subchapter C of the Code. Company has a taxable year ended
December 31. Company currently utilizes the cash method of accounting for income
tax purposes and has not changed its method of accounting since its initial
creation. 5.19 Litigation.
Except as set forth on Schedule 5.19, there is no claim, litigation,
action, suit or proceeding, investigation, formal arbitration, informal
arbitration or mediation, administrative, judicial or other review, pending or
threatened against Company or Stockholder, or otherwise relating to the business
or affairs of Company, at law or in equity, before any federal, state or local
court or regulatory agency, or other governmental or private authority; no
notice of any of the above has been received by Company or Stockholder; and no
facts or circumstances exist which would give rise to any of the foregoing. Also
listed on Schedule 5.19 are all instances where Company is the plaintiff, or
complaining or moving party, under any of the above types of proceedings or
otherwise.
5.20 ABSENCE OF PRICE RENEGOTIATION CONTRACTS.
Company is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.21 CONDUCT OF BUSINESS SINCE BALANCE SHEET DATE.
Since the Balance Sheet Date, there has not been any:
(i) material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income and business or prospects of
Company;
(ii) damage, destruction or loss (whether or not covered by insurance)
which, singly or in the aggregate, materially and adversely affects the
properties (whether owned or leased) or business of Company;
(iii) change in the authorized capital of Company or in its securities
outstanding, any change in its equity ownership or any grant by it of any
subscriptions, options, warrants, puts, calls, conversion rights or other
commitments related to its equity interests;
(iv) declaration or payment of any dividend or distribution in respect
of the capital stock of Company or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Company;
(v) increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by Company to any of its
officers, directors, employees, consultants or agents;
(vi) work interruption, labor grievance or claim filed;
(vii) sale or transfer of, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person not in the
ordinary course of the business of Company, including, without limitation,
all agreements with Stockholder or with affiliates of Company;
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(viii) cancellation or agreement to cancel any indebtedness or other
obligation owing to Company, including, without limitation, any
indebtedness or other obligation of Stockholder or with any affiliate of
Company;
(ix) plan, agreement or arrangement granting any preferential right to
purchase or acquire any interest in any of the assets, property or rights
of Company or requiring consent of any party to the transfer and assignment
of any such assets, property or rights;
(x) purchase or acquisition by any third party of, or any agreement,
plan or other arrangement by any third party to purchase or acquire, any
property, rights or assets of Company other than in the ordinary course of
business;
(xi) waiver of any rights or claims of Company; (xii) breach,
amendment or termination of any contract, license, permit or other
agreement to which Company is a party other than in the ordinary course of
business;
(xiii) transaction by Company outside the ordinary course of its
business;
(xiv) amendment to the Articles of Incorporation or Bylaws of Company;
(xv) other material occurrence, event, incident, action or failure to
act outside the ordinary course of business of Company; or
(xvi) action by Company, Stockholder, or any employee, officer or
agent of Company or Stockholder committing to do any of the foregoing.
5.22 BANK ACCOUNTS; DEPOSITORIES.
Attached as Schedule 5.22 is a complete and accurate list as of the date of
this Agreement, of:
(i) the name of each financial institution in which Company has any
account or safe-deposit box;
(ii) the names in which each account or box is held; (iii) the type of
each account; and
(iv) the name of each person authorized to draw on or have access to
each account or box.
5.23 HAZARDOUS MATERIALS.
Except as set forth on Schedule 5.23, Company has never owned, leased, had
an interest in, generated, transported, handled, recycled, reclaimed, disposed
of, or contracted for the disposal of, hazardous materials, hazardous wastes,
hazardous substances, toxic wastes or substances, infectious or medical waste,
radioactive waste or sewage sludges as those terms are defined by the Resource
Conservation and Recovery Act of 1976; the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"); the Atomic Energy Act of 1954; the
Toxic Substances Control Act; the Occupational Health and Safety Act; any
comparable or similar applicable state statute; any other Applicable Law; or the
rules and regulations promulgated under any of the foregoing, as each of the
foregoing may have been amended (collectively, "Hazardous Materials"). No liens
with respect
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to environmental liability have been imposed against Company or the
Leased Land under CERCLA, any comparable state statute or other Applicable Law,
and no facts or circumstances exist which would give rise to the same. No
portion of the Leased Land is listed on the CERCLIS list or the National
Priorities List of Hazardous Waste Sites or any similar state list. Neither
Company nor Stockholder is listed as a potentially responsible party under
CERCLA, any comparable state statute or other Applicable Law, and neither
Company nor Stockholder has received a notice of such a listing.
Company has never owned, operated, had an interest in, engaged in and/or
leased a waste transfer, recycling, treatment, storage or disposal facility,
business or activity other than the Business. None of Company's employees,
contractors or agents has, in the course and scope of employment with Company,
been harmed by exposure to Hazardous Materials.
Set forth on Schedule 5.23 is a complete list of the names and addresses of
all disposal sites at any time now or in the past utilized by Company, none of
which sites is listed on the CERCLIS list or the National Priorities List of
hazardous waste sites or any comparable state list.
There have been no spills, leaks, deposits or other releases into the
environment or onto the Leased Land by Company of any Hazardous Materials and
Company has no direct or contingent liability or obligation for or in connection
with any claimed release, discharge or leak of any substance into the
environment. 5.24 Storage Tanks.
Except as set forth on Schedule 5.24, the Leased Land does not contain any
underground or above-ground storage tanks or transformers containing Hazardous
Materials, petroleum products or wastes or other hazardous substances regulated
by 40 CFR 280 or other Applicable Laws. All aboveground and belowground tanks
currently in or on the Leased Land are being used and maintained in accordance
with all Applicable Laws.
5.25 CORRUPT PRACTICES.
Neither Company nor Stockholder has ever made, offered or agreed to offer
anything of value to any employees of any customers of Company for the purpose
of attracting business to Company or any foreign or domestic governmental
official, political party or candidate for government office or any of their
respective employees or representatives, nor has it otherwise taken any action
which would cause it to be in violation of the Foreign Corrupt Practices Act of
1977, as amended.
5.26 COMPLETE DISCLOSURE.
This Agreement and the Schedules hereto, and all other documents and
information furnished to Buyer and its representatives pursuant hereto or
pursuant to the negotiation of this transaction or the investigations of Buyer
or the employees or representatives of either of them, do not and will not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading. If Stockholder or,
prior to Closing, Company, becomes aware of any fact or circumstance which would
change a representation or warranty of Company or Stockholder in this Agreement
or any other statement made or document provided to Buyer, the party
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with such
knowledge shall promptly give written notice of such fact or circumstance to
Buyer. None of (i) such notification, (ii) any pre-Closing investigation made by
Buyer of Company, their properties, businesses or assets, or (iii) the Closing
contemplated by this Agreement, shall relieve Stockholder or Company of their
obligations under this Agreement, including their representations and warranties
made in this Section 5.
6. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants that the statements contained in this Section
6: (i) are correct and complete as of the date of this Agreement; (ii) will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 6); and (iii) shall survive the Closing.
6.1 CORPORATE ORGANIZATION.
Buyer is duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Buyer is duly authorized, qualified and licensed
under all applicable laws, regulations and ordinances of public authorities to
carry on its business in the places and in the manner as now conducted except
for where the failure to be so authorized, qualified or licensed would not have
a material adverse effect on such businesses.
6.2 CORPORATE AUTHORITY.
The officer of Buyer executing this Agreement has the corporate authority
to enter into and bind Buyer to the terms of this Agreement and Buyer has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Agreement. All corporate action by Buyer necessary to
approve the transaction, including both director and shareholder approvals (if
required), has been taken.
6.3 BUYER STOCK.
The Buyer Stock to be delivered to Stockholder in connection with this
Agreement, when delivered in accordance with the terms of this Agreement, will
constitute valid and legally issued shares, fully paid and nonassessable and
will be registered and free from any restriction on transfer other than
restrictions imposed by the Act or the regulations promulgated thereunder and
the contractual restrictions set forth in this Agreement.
6.4 NO CONFLICTS.
The execution, delivery and performance of this Agreement, the consummation
of any transactions herein referred to or contemplated hereby and the
fulfillment of the terms hereof and thereof will not:
(i) conflict with, or result in a breach or violation of the Articles
of Incorporation or Bylaws of Buyer;
(ii) conflict with, or result in a material breach under any document,
agreement or other instrument to which Buyer is a party, or result in the
creation or imposition of any lien, charge or encumbrance on any properties
of Buyer pursuant to: (A) any law or regulation to which Buyer
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or its property is subject, or (B) any judgment, order or decree to which
Buyer is bound or its property is subject; or
(iii) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Buyer.
6.5 BINDING AGREEMENT.
This Agreement is the binding and valid obligation of Buyer, enforceable
against it in accordance with its terms.
7. COVENANTS.
7.1 ACCESS TO LAND AND RECORDS.
Between the date of this Agreement and the Closing Date, Stockholder will
cause Company to afford to or obtain for the officers and authorized
representatives of Buyer access to all of the Leased Land (including, without
limitation, for the purpose of performing all testing, inspections and other
procedures considered desirable by Buyer), sites, books and records, including,
without limitation, the Environmental Documents, at all reasonable times and
upon reasonable notice and will furnish Buyer with such additional financial and
operating data and other information as to the business and properties, both
current and former, of Company as Buyer may from time to time reasonably
request. Buyer agrees to repair all damage, if any, caused by Buyer's entry onto
the Leased Land prior to Closing. Stockholder will cooperate, and will cause
Company to cooperate, with Buyer, its representatives, engineers, auditors and
counsel in the preparation of any documents or other material which may be
required in connection with any documents or materials required by any
governmental agency. Buyer will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Article 14 hereof.
7.2 COMPANY ACTIVITIES PRIOR TO CLOSING.
Between the date of this Agreement and the Closing Date, Stockholder will
cause Company:
(i) to carry on its business in substantially the same manner as it
has heretofore and not to introduce any material new method of management,
operation or accounting;
(ii) to maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) to perform its obligations under agreements relating to or
affecting its assets, properties or rights, including payment of debts as
they become due;
(iv) to keep in full force and effect present insurance policies or
other comparable insurance coverage with reputable insurers;
(v) to use reasonable efforts to maintain and preserve its business
organization intact, retain employees and maintain relationships with
suppliers, customers, consultants, independent contractors and others
having business relations with Company;
(vi) to maintain compliance with all Applicable Laws;
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(vii) to maintain and perform present debt and lease instruments in
accordance with their terms and not enter into new or amended debt or lease
instruments, without the prior written consent of Buyer;
(viii) to pay and provide salaries and commissions for all employees,
officers and directors at levels no higher than those in effect at the
Balance Sheet Date;
(ix) to provide the interim financial statements required by Section
5.6; and
(x) to provide all reasonable assistance to Buyer to provide for an
orderly transfer of operating control of Company to Buyer.
7.3 PROHIBITED ACTIVITIES PRIOR TO CLOSING.
Between the date of this Agreement and the Closing Date, Stockholder will
cause Company not, without the prior written consent of Buyer:
(i) to amend the Articles of Incorporation or Bylaws of Company; (ii)
to change the authorized capital of Company or the equity ownership of
Company or grant any options, warrants, puts, calls, conversion rights or
commitments relating to the equity interests of Company;
(iii) to declare or pay any dividend of Company or directly or
indirectly purchase, redeem or otherwise acquire or retire for value or
issue any shares of stock of Company;
(iv) to enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures in excess of an
aggregate of $1,000;
(v) to increase the compensation payable or to become payable to any
employee, consultant, agent, officer, director or stockholder or make any
bonus or management fee payment to any such person;
(vi) to create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now owned
or hereafter acquired;
(vii) to sell, assign, lease or otherwise transfer or dispose of any
property or equipment;
(viii) to negotiate to acquire any business or begin any new business
or project;
(ix) to merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(x) to waive any of its rights or claims;
(xi) to breach or permit a breach of, amend or terminate, any material
agreement, or any permit, license or other agreement or right to which
Company is a party;
(xii) to enter into any other transaction outside the ordinary course
of its business or otherwise prohibited hereunder;
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(xiii) to make any oral or written public announcement concerning this
transaction except as may be required by law, all of which announcements,
if any, shall be forwarded to Buyer for review and comment at least seven
days prior to dissemination; or
(xiv) to allow any other action or omission, or series of actions or
omissions, by Company or Stockholder that would cause a representation and
warranty of Company and Stockholder made in Section 5.21 of this Agreement
to be untrue on the Closing Date.
7.4 CONTACT WITH GOVERNMENT OFFICIALS.
Company and Stockholder shall use their best efforts to cooperate with
Buyer in making contact with the appropriate governmental agencies and officials
having information about or jurisdiction over Company, Stockholder or the Leased
Land, including, without limitation, environmental and land use agencies and
officials in order to assist Buyer in completing its regulatory evaluation of
Company and the Leased Land.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY AND STOCKHOLDER.
The obligations of Stockholder and Company hereunder are subject to the
completion, satisfaction or, at their option, waiver, on or prior to the Closing
Date, of the following conditions.
8.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Buyer contained in this Agreement
shall be accurate on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; and
each and all of the terms, covenants and conditions of this Agreement to be
complied with and performed by Buyer on or before the Closing Date shall have
been duly complied with and performed.
8.2 CONSENTS.
All necessary notices to, consents of and filings with any governmental
authority or agency or other third party relating to the consummation of the
Closing or the other transactions contemplated herein to be made or obtained by
Buyer shall have been obtained and made.
8.3 NO ADVERSE PROCEEDING.
No action or proceeding before a court or any other governmental agency or
body shall have been instituted or threatened to restrain or prohibit any of the
transactions contemplated by this Agreement.
8.4 NONCOMPETITION AGREEMENT.
Buyer shall have executed and delivered at the Closing a Noncompetition
Agreement with Stockholder (the "Noncompetition Agreement"), in form and
substance satisfactory to Buyer and Stockholder.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
The obligations of Buyer hereunder are subject to the completion,
satisfaction or, at its option, waiver, on or prior to the Closing Date, of the
following conditions.
9.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Stockholder and Company contained in
this Agreement shall be accurate on and as of the Closing Date with the same
effect as
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though such representations and warranties had been made on and as of
such date, and Buyer shall have received a certificate from Stockholder to that
effect, or setting forth any discrepancies in such representations and
warranties which have arisen since the date of this Agreement. The foregoing
notwithstanding, Company and Stockholder agree that no limitation of any
representation or warranty concerning the knowledge of Company or Stockholder or
any qualification of such representations and warranties set forth in the
certificate contemplated in the first sentence of this Section 9.1 shall
restrict Buyer's right to terminate this Agreement if any representation or
warranty of Stockholder or Company is inaccurate as of the Closing Date. 9.2
Covenants.
Each and all of the terms, covenants and conditions of this Agreement to be
complied with and performed by Stockholder and the Company on or before the
Closing Date shall have been duly complied with and performed.
9.3 NO ADVERSE PROCEEDING.
No action or proceeding before a court or any other governmental agency or
body shall have been instituted or threatened to restrain or prohibit any of the
transactions contemplated by this Agreement.
9.4 GENERAL RELEASE.
Stockholder shall have delivered to Buyer an instrument dated the Closing
Date releasing Company and Buyer from any and all claims of Stockholder against
Company and Buyer arising out of events which occurred prior to the Closing (but
not including any claims pursuant to this Agreement).
9.5 CONSENTS.
All necessary notices to, consents of and filings with any governmental
authority or agency or other third party relating to the consummation of the
Closing or the other transactions contemplated herein to be made or obtained by
Company or Stockholder shall have been obtained and made. 9.6 Resignations.
Each officer and director of Company shall have delivered to Buyer their
written resignation.
9.7 GOOD STANDING CERTIFICATES.
Stockholder shall have delivered to Buyer certificates, dated as of a date
no earlier than 10 days prior to the Closing Date, duly issued by the
appropriate governmental authority or authorities showing that Company is in
good standing in Texas.
9.8 UPDATED AGREEMENTS.
Stockholder shall have delivered to Buyer a schedule (Schedule 9.8) dated
the Closing Date, listing all agreements entered into by Company since the date
of Schedule 5.12, which new agreements must have been determined to be
acceptable to Buyer in its sole discretion.
9.9 NONCOMPETITION AGREEMENT.
The Noncompetition Agreement shall have been executed and delivered by all
parties thereto at the Closing.
9.10 DELIVERY OF COMPANY STOCK.
Stockholder shall have delivered to Buyer certificates representing all
Company Stock, duly endorsed in blank by Stockholder or accompanied by stock
powers duly executed
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in blank and with all necessary transfer tax and other
revenue stamps affixed and cancelled at Stockholder's expense, none of which
certificates shall bear any restrictive legend other than those related to
compliance with the Act.
9.11 ENVIRONMENTAL REVIEW.
Buyer, through its authorized representatives, must have completed a review
(including, without limitation, all testing, inspections and other procedures,
review of existing files of, and discussions with, governmental agencies and
officials having jurisdiction over Company) of the Leased Land and the
environmental and land use practices, procedures, operations and activities of
the Company; the results of which review, without limiting the generality of the
foregoing, reflect compliance with all Applicable Laws, disclose no actual or
probable violations, compliance problems, required capital expenditures or other
substantive environmental, land use or real estate-related concerns and are
otherwise satisfactory in all respects to Buyer in its sole discretion.
9.12 TRANSFERABILITY OF PERMITS.
Buyer shall have determined, in its sole discretion, that all consents or
other approvals necessary for Company's continued use of all permits required
for the operation of the Business after Buyer's acquisition of the Company Stock
have been obtained.
9.13 TERMINATION OF AMS LEASE AND EXECUTION OF NEW LEASE.
The AMS Lease shall have been terminated without liability to AMS or Buyer
and Buyer and Galveston Environmental Services, Inc. shall have entered into a
new lease providing for Buyer's continued use of the AMS Leased Land in form and
substance acceptable to Buyer and landlord.
9.14 GENERAL.
All actions taken by Stockholder and Company in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions and other documents required to effect the transactions contemplated
hereby will be reasonably satisfactory in form and substance to Buyer.
10. POST CLOSING COVENANTS.
10.1 TAXES.
(i) Stockholder irrevocably agrees to indemnify Buyer against, and to
hold Buyer harmless from:
(A) any and all federal, state, local, and other taxes of Company
arising from the audit, examination, review or other adjustment of tax
liabilities for periods ending on or prior to the Closing Date;
(B) any and all taxes, interest, penalties, additions to tax (or
additional amounts imposed with respect to any such interest,
penalties, or additions to tax) imposed with respect to any federal,
state, local, or other taxes of Company for periods ending on or
before the Closing Date; and
(C) any and all federal, state, local, or other taxes of Buyer
arising as the result of any payment by Stockholder to Buyer in
fulfillment of its obligation pursuant to this Section 10.1(i).
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(ii) Stockholder agrees that he shall be responsible, at his sole
expense, for the preparation of Company's federal, state, local and other
income and franchise tax returns for the tax periods beginning January 1,
1998, and ending on the Closing Date. Buyer agrees to cooperate with
Stockholder in the preparation of such returns. Stockholder further agrees
that he shall pay all taxes (including all penalties and interest, if any)
due for such tax period. Prior to filing the returns provided for in this
paragraph, Stockholder agrees to allow Buyer 20 business days to review and
approve such returns, approval of which will not unreasonably be withheld.
10.2 POST CLOSING BALANCE SHEET.
On the date which is at least 120 days after the Closing Date (the
"Adjustment Date"), the parties shall adjust the Purchase Price in accordance
with Section 2.4 based on a combined balance sheet of Company and MCS for the
period ending on the close of business on the Closing Date, prepared by Buyer in
accordance with GAAP and delivered to Stockholder, together with reasonable
supporting documentation for all current assets and liabilities used to prepare
such balance sheet, at least seven days prior to the Adjustment Date. Any
accounts receivable which are written off in whole or in part in connection with
preparing such balance sheet that are subsequently collected by Buyer after the
Adjustment Date will be paid to Stockholder as soon as possible, but at least on
a quarterly basis. Any dispute between the parties as to this Section 10.2 shall
be resolved in accordance with the procedure set forth in Section 2.4.
10.3 CLOSING DATE ACTIONS.
Buyer and Stockholder mutually agree that they shall not, and shall cause
Company not to, engage in an transaction outside the normal course of business
on the Closing Date.
10.4 FURTHER ASSURANCE.
From time to time on and after the Closing and without further
consideration, the parties hereto shall each deliver or cause to be delivered to
any other party at such times and places as shall be reasonably requested, such
additional instruments as any of the others may reasonably request for the
purpose of carrying out this Agreement and the transaction contemplated hereby.
Stockholder, also without further consideration, agrees to cooperate with Buyer
and to use his reasonable efforts to have the present officers and employees of
Company cooperate on and after the Closing Date in furnishing to Buyer
information, evidence, testimony, and other assistance in connection with
obtaining all necessary permits and approvals and in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date. Stockholder
acknowledges and agrees that, from and after the Closing, Buyer shall be
entitled to possession of all documents, books, records (including tax records),
agreements and financial and operating data of any sort of Company.
10.5 TRANSITION.
Stockholder will not take any action that is designed or intended to have
the effect of discouraging any customer or business associate of Company from
maintaining the same business relationships with Company after the Closing that
it maintained with Company before the Closing.
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Stockholder will refer all
customer inquiries relating to the business of Company to Buyer from and after
the Closing. Further, Stockholder agrees that for a period of 90 days following
the Closing Date, Stockholder will assist Buyer, at Buyer's request and expense,
with the orderly transition of the operations of Company from Stockholder to
Buyer (including, without limitation, recommendations, advice and interaction
with customers and potential customers of Company, and governmental agencies).
10.6 SURVIVAL.
The covenants in this Article 10 shall survive the Closing.
11. NON-ASSUMPTION OF LIABILITIES.
11.1. NON-ASSUMPTION OF LIABILITIES.
Except as explicitly set forth herein, Buyer shall not, by the execution
and performance of this Agreement or otherwise, assume, become responsible for
or incur any liability or obligation of any nature of Company or Stockholder
whether legal or equitable, matured or contingent, known or unknown, foreseen or
unforeseen, ordinary or extraordinary, patent or latent, whether arising out of
occurrences prior to, at or after the date of this Agreement, out of or relating
to: (a) any agreement or arrangement between Company or Stockholder and the
employees of Company or Stockholder or any labor or collective bargaining unit
representing any such employees; (b) any severance pay obligation of Company or
Stockholder or any employee benefit plan (within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended) or any other
fringe benefit program maintained or sponsored by Company or to which Company
contributes or any contributions, benefits or liabilities therefor or any
liability for the withdrawal or partial withdrawal from or termination of any
such plan or program by Company; (c) any litigation set forth on Schedule 5.19;
(d) any liabilities related to the operation of the Business prior to Closing;
and (e) any loss related to the existing federal tax lien in the amount of
approximately $1,879. Stockholder hereby agrees to indemnify Buyer, Company and
their respective successors and assigns from and against all of the above
liabilities and obligations in accordance with Section 12.1 below. Company
shall, by the Closing Date, either (i) discharge, or (ii) obtain novations, in
form and substance satisfactory to Buyer, discharging Company and Buyer as
obligors on, or (iii) make other arrangements satisfactory to Buyer, in Buyer's
sole judgment, to hold harmless Buyer from any claim, obligation, duty or
liability on or with respect to all non-assumed liabilities.
12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY STOCKHOLDER.
Stockholder agrees that he will indemnify, defend (as to third party claims
only), protect and hold harmless Buyer, Company and its respective officers,
shareholders, directors, divisions, subdivisions, affiliates, subsidiaries,
parent, agents, employees, successors and assigns at all times from and after
the date of this Agreement from and against all liabilities, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, penalties,
losses, costs and expenses whatsoever (including specifically, but without
limitation, court costs, reasonable attorneys' fees
Page 23
<PAGE>
and expenses, and expenses
of investigation), whether equitable or legal, matured or contingent, known or
unknown, foreseen or unforeseen, ordinary or extraordinary, patent or latent,
whether arising out of occurrences prior to, at or after the date of this
Agreement, incurred as a result of or incident to: (a) any breach of,
misrepresentation in, untruth in or inaccuracy in the representations and
warranties by Company or Stockholder (including, without limitation, those
relating to the environmental condition of the Leased Land and Company's
environmental compliance), set forth herein or in the Schedules, Exhibits or
certificates attached hereto or delivered pursuant hereto; (b) nonfulfillment or
nonperformance of any agreement, covenant or condition on the part of
Stockholder made in this Agreement; (c) nonfulfillment or nonperformance of any
agreement, covenant or condition on the part of Company made in this Agreement
and to be performed on or before the Closing Date; (d) the matters set forth in
Section 11.1; (e) the existence of liabilities of Company in excess of the
liabilities represented by Stockholder and Company; and (f) any claim by a third
party that, if true, would mean that a condition for indemnification set forth
in subsections (a) through (e) of this Section 12.1 had been satisfied.
12.2 INDEMNIFICATION BY BUYER.
Buyer agrees that it will indemnify, defend, protect and hold harmless
Stockholder, his heirs, executors and personal representatives, at all times
from and after the date of this Agreement from and against all liabilities,
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
penalties, losses costs and expenses whatsoever (including specifically, but
without limitation, court costs, reasonable attorneys' fees and expenses and
reasonable expenses of investigation) incurred by Stockholder as a result of or
incident to: (i) any breach of, misrepresentation in, untruth in or inaccuracy
in the representations and warranties set forth herein, or in the Schedules or
certificates attached hereto or delivered pursuant hereto by Buyer; (ii)
nonfulfillment or nonperformance of any agreement, covenant or condition on the
part of Buyer made in this Agreement; and (iii) any claim by a third party that,
if true, would mean that a condition for indemnification set forth in
subsections (i) or (ii) of this Section 12.2 had been satisfied.
12.3 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD PARTY CLAIMS.
(a) If any third party shall notify a party to this Agreement
(the "Indemnified Party") with respect to any matter (a "Third Party
Claim") that may give rise to a claim for indemnification against any
other party to this Agreement (the "Indemnifying Party") or if any
party who may make a claim for indemnification under this Agreement
otherwise becomes aware of any matter that may give rise to such a
claim or wishes to make such a claim (whether or not related to a
Third Party Claim), then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no
delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party is thereby prejudiced.
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<PAGE>
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against a Third Party Claim with counsel of its
choice satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within a
reasonable time after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any adverse
consequences (which will include, without limitation, all losses,
claims, liens, and attorneys' fees and related expenses) the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence
acceptable to the Indemnified Party that the Indemnifying Party will
have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (iii) the Third
Party Claim involves only monetary damages and does not seek an
injunction or equitable relief or involve the possibility of criminal
penalties, (iv) settlement of, or adverse judgment with respect to the
Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or
practice adverse to the continuing business interests of the
Indemnified Party, and (v) the Indemnifying Party conducts the defense
of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 12.3(b) above, (i)
the Indemnified Party may retain separate co-counsel at its sole cost
and expense and participate in the defense of the Third Party Claim,
(ii) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party
(which will not be unreasonably withheld) and (iii) the Indemnifying
Party will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (which will not be
unreasonably withheld).
(d) In the event or to the extent that any of the conditions set
forth in Section 12.3(b) above is or becomes unsatisfied, however, (i)
the Indemnified Party may defend against, and consent to the entry of
any judgment or enter into any settlement with respect to, the Third
Party Claim and any matter it may deem appropriate in its sole
discretion and the Indemnified Party need not consult with, or obtain
any consent from, any Indemnifying Party in connection therewith (but
will keep the Indemnifying Party reasonably informed regarding the
progress and anticipated cost thereof), (ii) the Indemnifying Party
will
Page 25
<PAGE>
reimburse the Indemnified Party promptly and periodically for the cost
of defending against the Third Party Claim (including attorneys' fees
and expenses) and (iii) the Indemnifying Party will remain responsible
for any adverse consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the fullest extent provided in this
Section 12; and (iv) the Indemnifying Party shall be deemed to have
waived any claim that its indemnification obligation should be reduced
because of the manner in which the counsel for the Indemnified Party
handled the Third Party Claim.
13. TERMINATION OF AGREEMENT.
13.1 TERMINATION BY BUYER.
Buyer, by notice in the manner hereinafter provided on or before the
Closing Date, may terminate this Agreement in the event of a breach by
Stockholder or Company in the observance or in the due and timely performance of
any of the agreements or conditions contained herein on their part to be
performed, and such breach shall not have been cured on or before the Closing
Date.
13.2 TERMINATION BY STOCKHOLDER.
Stockholder may, by notice in the manner hereinafter provided on or before
the Closing Date, terminate this Agreement in the event of a breach by Buyer in
the observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein on its part to be performed, and such
breach shall not have been cured on or before the Closing Date.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
14.1 NONDISCLOSURE BY STOCKHOLDER.
Stockholder recognizes and acknowledges that he had in the past, currently
has, and in the future may possibly have, access to certain confidential
information of Company and Buyer, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of Company and its businesses. Stockholder agrees that, except as may be
required by Applicable Laws or other legal process, he will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except to authorized
representatives of Buyer, unless such information becomes known to the public
generally through no fault of Stockholder. In the case of a disclosure required
by Applicable Laws or other legal process, Stockholder shall make no disclosure
without prior written notice to Buyer. In the event of a breach or threatened
breach by Stockholder of the provisions of this Section, Buyer shall be entitled
to an injunction restraining Stockholder from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
Buyer from pursuing any other available remedy for such breach or threatened
breach, including, without limitation, the recovery of damages. The provisions
of this Section shall apply at all times prior to the Closing Date and for a
period of one year following the Closing.
Page 26
<PAGE>
14.2 NONDISCLOSURE BY BUYER.
Buyer recognizes and acknowledges that it has in the past, currently has,
and prior to the Closing Date will have access to certain confidential
information of Company, such as lists of customers, operational policies, and
pricing and cost policies that are valuable, special and unique assets of
Company and its businesses. Buyer agrees that, except as may be required by
Applicable Laws or other legal process, it will not disclose such confidential
information to any person, firm, corporation, association, or other entity for
any purpose or reason whatsoever, prior to the Closing Date without
Stockholder's prior written consent. In the case of a disclosure required by
Applicable Laws or other legal process, Buyer shall make no disclosure without
prior written notice to Stockholder. In the event of a breach or threatened
breach by Buyer of the provisions of this Section, Stockholder shall be entitled
to an injunction restraining Buyer from disclosing, in whole or in part, such
confidential information. Nothing contained herein shall be construed as
prohibiting Stockholder from pursuing any other available remedy for such breach
or threatened breach, including, without limitation, the recovery of damages.
The provisions of this Section shall apply at all times prior to the Closing
Date and for a period of one year following the termination of this Agreement
without a Closing having occurred.
15. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON STOCK.
15.1 REGISTERED STOCK.
Buyer represents and warrants to Stockholder that all of the shares of
Buyer Stock to be delivered to Stockholder pursuant to this Agreement will be
registered under the Act prior to delivery to Stockholder.
15.2 CONTRACTUAL RESTRICTION.
Notwithstanding the above, Stockholder agrees to not sell or transfer the
Buyer Stock described in Section 2.1 for the applicable time periods set forth
therein (the "Contractually Restricted Stock").
15.3 CONTRACTUAL RESTRICTION LEGEND.
(a) All one year Contractually Restricted Stock shall bear the
following legend:
THE SALE OR OTHER TRANSFER OF THE SHARES REPRESENTED HEREBY HAS BEEN
CONTRACTUALLY RESTRICTED. THE HOLDER AGREES THAT SUCH SHARES MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF U S
LIQUIDS INC., UNTIL THE EXPIRATION OF SUCH RESTRICTION ON JUNE 25, 1999.
(b) All two-year Contractually Restricted Stock shall bear the
following legend:
THE SALE OR OTHER TRANSFER OF THE SHARES REPRESENTED HEREBY HAS BEEN
CONTRACTUALLY RESTRICTED. THE HOLDER AGREES THAT SUCH SHARES MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF U S
LIQUIDS INC., UNTIL THE EXPIRATION OF SUCH RESTRICTION ON JUNE 25, 2000.
15.4 GENERAL LEGEND.
All Buyer Stock shall bear the following legend:
Page 27
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
RULE 145(D) PROMULGATED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE
TRANSFERRED OR DISPOSED OF BY THE HOLDER WITHOUT COMPLIANCE WITH SAID RULE.
15.5 COMPLIANCE WITH LAW.
Stockholder covenants, warrants and represents that none of the shares of
Buyer Stock will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except in full compliance with the Act and the rules
and regulations promulgated thereunder.
16. GENERAL.
16.1 ASSIGNMENT; BINDING EFFECT; AMENDMENT.
This Agreement and the rights of the parties hereunder may not be assigned
(except by operation of law) and shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of the corporate parties hereto,
and the respective heirs and legal representatives of Stockholder. This
Agreement, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and may
be modified or amended only by a written instrument executed by all parties
hereto.
16.2 ENTIRE AGREEMENT.
This Agreement is the final, complete and exclusive statement and
expression of the agreement among the parties hereto with relation to the
subject matter of this Agreement, it being understood that there are no oral
representations, understandings or agreements covering the same subject matter
as this Agreement. This Agreement supersedes, and cannot be varied, contradicted
or supplemented by evidence of any prior or contemporaneous discussions,
correspondence, or oral or written agreements of any kind.
16.3 COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute but one and the same instrument.
16.4 NO BROKERS.
Company and Stockholder represent and warrant to Buyer and Buyer represents
to Stockholder and Company that the warranting party has had no dealings with
any broker or agent so as to entitle such broker or agent to a commission or fee
in connection with the within transaction. If for any reason a commission or fee
shall become due, the party dealing with such agent or broker shall pay such
commission or fee and agrees to indemnify and save harmless each of the other
parties from all claims for such commission or fee and from all attorneys' fees,
litigation costs and other expenses relating to such claim.
16.5 EXPENSES OF TRANSACTION.
Whether or not the transactions herein contemplated shall be consummated:
(i) Buyer will pay the fees, expenses and disbursements of Buyer and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments hereto and all other costs and
expenses incurred in the performance and compliance
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<PAGE>
with all conditions to be
performed by Buyer under this Agreement; and (ii) Stockholder will pay
personally the fees, expenses and disbursements of Stockholder and Company and
their respective agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments hereto
and all other costs and expenses incurred in the performance and compliance with
all conditions to be performed by Stockholder and Company under this Agreement.
All such fees, expenses and disbursements of Stockholder and Company shall be
paid by Stockholder prior to the Closing so as not to become an obligation of
Company or shall be included as a current liability for purposes of the
calculation of "net working capital" set forth in Section 2.3. Stockholder
represents and warrants to Buyer that Stockholder has relied on his own advisors
for all legal, accounting, tax or other advice whatsoever with respect to this
Agreement and the transactions contemplated hereby.
16.6 NOTICES.
All notices or other communications required or permitted hereunder shall
be in writing and may be given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, by overnight courier or by delivering
the same in person to such party.
(i) If to Buyer, addressed to it at:
U S Liquids
411 N. Sam Houston Parkway East Suite 400 Houston, TX
77060 ATTN: David Turkal
with a copy to:
U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: W. Gregory Orr
and a copy to:
Elaine A. Chotlos, Esq.
Baker & Hostetler LLP
3200 National City Center
1900 E. 9th Street
Cleveland, OH 44114-3485
(ii) If to Stockholder, addressed to him at:
1400 El Camino Village Dr.
Apt. 1611
Houston, TX 77058
Page 29
<PAGE>
with a copy to:
Charlotte S. Lynch
3806 Glenmeade
Houston, TX 77059
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier, subject to signature verification, and
three business days after the deposit in the U.S. mail of a writing addressed as
above and sent first-class mail, certified, return receipt requested, or when
actually received, if earlier. Any party may change the address for notice by
notifying the other parties of such change in accordance with this Section. 16.7
Appointment of Agent.
Stockholder agrees to maintain a registered agent in the State of Texas to
accept and acknowledge service of process. Stockholder initially hereby appoints
Charlotte S. Lynch, 3806 Glenmeade, Houston, Texas 77059, as such registered
agent and agrees to notify Company in the manner set forth in Section 16.6 of
any change in registered agent. Each party agrees that service of process or
notice in any such action, suit or proceeding shall be effective if in writing
and delivered to the address provided in Section 16.6 for such party, in the
manner prescribed in such Section.
16.8 NO WAIVER.
No delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
or in any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach of default
occurring before or after that waiver.
16.9 TIME OF THE ESSENCE.
Time is of the essence for this Agreement.
16.10 CAPTIONS.
The headings of this Agreement are inserted for convenience only and shall
not constitute a part of this Agreement or be used to construe or interpret any
provision hereof.
16.11 SEVERABILITY.
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, it shall, to the extent possible, be modified in such manner as
to be valid, legal and enforceable but so as most nearly to retain the intent of
the parties. If such modification is not possible, such provision shall be
severed from this Agreement. In either case the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
16.12 CONSTRUCTION.
The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local or foreign statute
shall be deemed to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The word "including" means
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<PAGE>
including, without limitation. The parties intend that representation, warranty
and covenant contained herein shall have independent significance. If any party
has breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) that the party has not breached shall not detract from or mitigate
the fact the party is in breach of the first representation, warranty or
covenant.
16.13 STANDSTILL AGREEMENT.
Unless and until this Agreement is terminated pursuant to Article 13 hereof
without the Closing having taken place, Stockholder will not directly or
indirectly solicit offers for Company Stock or the assets of Company or a merger
or consolidation involving Company from, or respond to inquiries from, share
information with, negotiate with or in any way facilitate inquiries or offers
from, third parties who express or who have heretofore expressed an interest in
acquiring Company by merger, consolidation or other combination or acquiring any
of Company's assets; nor will he permit Company to do any of the foregoing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
U S LIQUIDS, INC.
By:
Its:
ADVANCED MANAGEMENT SYSTEMS,
INC.
(EIN: 76-0346347)
By:
Its:
Charles C. Stout
(SSN: ###-##-####)
Page 31
<PAGE>
LIST OF SCHEDULES
Exhibit A -- Legal
Description of the Leased Land
Schedule 2.2 -- Assumed Debt
Schedule 5.1(i) -- Articles and Bylaws
Schedule 5.4 -- Predecessor Entities; Trade Names
Schedule 5.6 -- Financial Statements
Schedule 5.7 -- Non-Balance Sheet Liabilities
Schedule 5.8 -- Accounts Receivable
Schedule 5.9(i) -- Proprietary Rights
Schedule 5.10(i) -- MCS Lease; Real Property
Disclosure
Schedule 5.11(i) -- Personal Property
Schedule 5.11(vi) -- Plans or Projects
Schedule 5.12 -- Contracts
Schedule 5.13 -- Insurance Policies
Schedule 5.14 -- Employees
Schedule 5.15 -- Employee Plans
Schedule 5.16(ii) -- Claims History
Schedule 5.18 -- Tax Returns
Schedule 5.19 -- Litigation
Schedule 5.22 -- Bank Accounts
Schedule 5.23 -- Hazardous
Materials; List of Disposal Sites
Schedule 5.24 -- Storage Tanks
Page 32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM U S LIQUIDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,197
<SECURITIES> 0
<RECEIVABLES> 27,159
<ALLOWANCES> (1,307)
<INVENTORY> 1,041
<CURRENT-ASSETS> 38,701
<PP&E> 80,625
<DEPRECIATION> 6,757
<TOTAL-ASSETS> 206,692
<CURRENT-LIABILITIES> 29,087
<BONDS> 0
0
0
<COMMON> 121
<OTHER-SE> 112,061
<TOTAL-LIABILITY-AND-EQUITY> 206,692
<SALES> 0
<TOTAL-REVENUES> 40,316
<CGS> 0
<TOTAL-COSTS> 32,828
<OTHER-EXPENSES> (168)
<LOSS-PROVISION> 965
<INTEREST-EXPENSE> 1,590
<INCOME-PRETAX> 6,066
<INCOME-TAX> 2,449
<INCOME-CONTINUING> 3,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,617
<EPS-PRIMARY> .43
<EPS-DILUTED> .37
</TABLE>
