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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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 000-24685
EARTHCARE COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE 58-2335973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14901 QUORUM DRIVE, SUITE 200 75240
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code (972) 858-6025
Securities registered pursuant to Section 12(b) of the Act: None
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.0001 Nasdaq National Market
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Securities registered pursuant to Section 12(g) of the Act:
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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 for 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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of April 10, 2000, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was $56,150,164.
Indicate by check mark whether the registrant has filed all documents and
reports required by Section 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 [X] No [ ]
On April 10, 2000, the number of shares outstanding of the registrant's
common stock, $.0001 par value, was 12,603,853 shares.
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE REGISTRANT'S PROXY
STATEMENT WITH RESPECT TO THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY
25, 2000, ARE INCORPORATED BY REFERENCE IN PART III.
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EARTHCARE COMPANY
TABLE OF CONTENTS
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PART I
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 9
ITEM 3. Legal Proceedings........................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders......... 10
ITEM 4A. Executive Officers of the Registrant........................ 10
PART II
ITEM 5. Market for Registrant's Common Equity and Related 11
Stockholder Matters.......................................
ITEM 6. Selected Financial Data..................................... 13
ITEM 7. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations.................................
ITEM 7A. Quantitative and Qualitative Disclosures About Market 20
Risk......................................................
ITEM 8. Financial Statements and Supplementary Data................. 20
ITEM 9. Changes in and Disagreements with Accountants on Accounting 20
and Financial Disclosure..................................
PART III
ITEM 10. Directors and Executive Officers............................ 20
ITEM 11. Executive Compensation...................................... 21
ITEM 12. Security Ownership of Certain Beneficial Owners and 21
Management................................................
ITEM 13. Certain Relationships and Related Transactions.............. 21
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 21
8-K.......................................................
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Signatures..................................................
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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K, including information set forth under
the captions "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in certain documents incorporated by
reference herein constitute "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (together, the "Acts"). In addition,
when used in this Form 10-K, the words "believes," "intends," "anticipates,"
"plans," "expects" and similar expressions are intended to identify
forward-looking statements. The Company desires to take advantage of the "safe
harbor" provisions of the Acts and is including this special note to enable the
Company to do so. Forward-looking statements included in this Form 10-K, or
hereafter included in other publicly available documents filed with the
Securities and Exchange Commission, reports to the Company's stockholders and
other publicly available statements issued or released by the Company involve
known and unknown risks, uncertainties, and other factors which could cause the
Company's actual results, performance (financial or operating) or achievements
to differ materially from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. The Company believes the following risks, uncertainties and other
factors could cause such material differences to occur:
1. The Company's ability to grow through the acquisition and
development of non-hazardous liquid waste ("NLW") companies or the
acquisition of ancillary businesses, and to identify suitable acquisition
candidates at a reasonable cost, and to profitably operate and successfully
integrate acquired operations into the Company's other operations. The
Company expects competition to exist in the industry to acquire these
candidates, which may limit the number of acquisition opportunities and may
lead to higher acquisition prices.
2. The Company's ability to minimize any potential liabilities,
including environmental liabilities, resulting from the acquisition of NLW
service providers or to obtain adequate insurance to mitigate any potential
exposure to the Company from these liabilities. The Company has obtained
representations from the sellers of acquired businesses that no undisclosed
liabilities exist and certain rights to indemnification from the sellers
for any liabilities. There can be no assurance, however, that undisclosed
liabilities do not exist or that the Company will receive any compensation
pursuant to its rights to indemnification.
3. The Company's ability to comply with existing and future rules and
regulations of various federal, state and local governmental agencies.
Environmental laws and regulations are, and will continue to be, a
principal factor affecting the marketability of the services provided by
the Company. Changes in these laws or regulations may affect the operations
of the Company by imposing additional regulatory compliance costs on the
Company, requiring the modification of or adversely affecting the market
for the Company's NLW services.
4. The Company's ability to compete with other NLW service providers.
The NLW business is highly competitive and the entrance of new competitors
or the expansion of operations by existing competitors in the Company's
markets could adversely affect the Company's plans and results of
operations.
5. The development of internal methods for disposition of NLW by
current and potential customers of the Company.
6. The Company's strategies, objectives, expectations and intentions
are subject to change at any time at the discretion of management and the
Board of Directors. In addition, approximately 44% of the Company's
outstanding common stock is held by affiliates.
7. The Company's ability to attract qualified management and retain
key personnel of acquired NLW service providers.
8. The Company's ability to secure the capital and the related costs
of such capital necessary to fund its future growth through acquisition and
development, as well as internal growth.
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9. Changes in general economic conditions which may affect the demand
for the Company's liquid waste collection, processing and disposal
services.
10. Changes in weather conditions which may affect demand for the
Company's services.
11. The Company's ability to develop national and regional accounts
for our liquid waste management services and other marketing programs.
12. Change in demand for by-products we recover from certain liquid
waste streams.
The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures previously
made by the Company.
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PART I
ITEM 1. BUSINESS
GENERAL AND HISTORY
EarthCare Company ("EarthCare" or the "Company") engages in the following
services relating to the nonhazardous liquid waste ("NLW") industry: bulk liquid
waste transportation, liquid waste collection, processing, treatment and
disposal, maintenance, plumbing and pumping. EarthCare's customers include
restaurants, hospitals, military bases, office buildings, apartments, schools,
municipalities, industrial businesses, auto and truck service centers and single
family residences. EarthCare intends to grow in the NLW industry mainly through
internal growth. Selective acquisitions of local service providers may be
completed when operational synergies are apparent and the acquired businesses
have the potential to expand.
SanTi Group, Inc. ("SGI") was incorporated in Delaware on August 19, 1997.
Effective May 13, 1998, SGI merged with and into Microlytics, Inc., a Delaware
corporation ("Micro"), with Micro surviving the merger and changing its name to
SanTi Group, Inc. Effective September 21, 1998, SanTi Group, Inc. changed its
name to EarthCare. All references to EarthCare or the Company include its
operating subsidiaries unless the context indicates otherwise.
DESCRIPTION OF BUSINESS
The Company generally receives fees to collect, process, treat and dispose
of nonhazardous liquid wastes. Collection fees charged to customers vary per
gallon by waste stream according to constituents of the waste, expenses
associated with collecting and processing the waste, and competitive factors.
EarthCare operates a fleet of vehicles to collect waste directly from generators
and receives some waste from independent transporters servicing additional waste
generators. Using a variety of physical, chemical, thermal and other biological
techniques, the waste is broken down into constituent components. Water
extracted from the waste is pretreated and then discharged into the municipal
sanitary sewer system or applied to leased grasslands. Some solid materials are
dried and disposed of in solid waste landfills. At many locations where the
Company does not have pretreatment or treatment facilities, the waste is
transported to private pretreatment facilities, or, where permitted by local
regulations, directly to municipal or private wastewater treatment facilities.
The Company benefits from federal, state and local regulations prohibiting
the disposal of certain waste streams in municipal collection and treatment
systems. Although septic systems, restaurants, food processing and preparation
facilities and other industrial operations have produced such waste for many
years, regulations governing the management of NLW, and the enforcement of such
regulations, are becoming increasingly stringent. These requirements have
increased the value of EarthCare's services to its customers in recent years. As
federal, state and local regulations governing the disposal of NLW increase,
EarthCare believes the amount of NLW products delivered to third parties for
processing and disposal will continue to increase.
EarthCare intends to continue to establish local operating facilities or
service centers throughout the United States, with initial service centers
established in major population centers. Acquired local service providers and
partnership and affiliate service arrangements made in the areas will be managed
from local service centers. A service center manager at each location will be
responsible for the service center's overall performance.
STRATEGY
EarthCare is focused on:
- Working to protect the environment and ensure compliance with
environmental regulations.
- Promoting proactive versus reactive services.
- Building dominant, branded, national positions in select lines of
business.
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- Using technology and innovation to differentiate the Company from its
competitors.
- Building a highly qualified company-wide management team.
During the fourth quarter of 1999, the Company refocused its strategy and
changed its organizational structure to recognize management's belief that new
proactive service programs would be the key to successful growth. The Company
made changes in strategy and organization to promote:
- Growth from new programs
- Partnership and affiliate related growth
- Technology and Internet information services.
The Company believes by developing and marketing new service programs, the
Company will increase market share and achieve internal growth. However, these
programs, which began in fiscal year 2000, are in their early implementation
stages or are still being developed and there can be no assurance that the
Company will achieve these objectives.
OPERATIONS
EarthCare has NLW operations in Delaware, Florida, Georgia, Louisiana,
Maryland, New Jersey, New York, Pennsylvania and Texas. In addition to serving
customers in these states, the Company also provides services to customers in
Alabama, Connecticut, Massachusetts, Mississippi, Virginia and West Virginia.
EarthCare does not currently provide all of its NLW services from every
operating location. Septic tank, grease trap and bulk transportation services
are provided by operations located near Atlanta and Gainesville, Georgia,
several cities in Florida, Northern New Jersey, Eastern Pennsylvania and on Long
Island, New York. The Company owns wastewater treatment plants that provide
treatment and disposal services for nonhazardous liquid waste customers in
Orlando, Florida and Beacon, New York. Plumbing services are provided from
operations in the Atlanta, Georgia area and in Orlando and Pompano Beach,
Florida.
EarthCare has expanded its operations to include the oily wastewater and
used oil recycling business through its acquisition of Magnum Environmental,
Inc. ("Magnum") in September 1999 and the acquisition of International Petroleum
Corporation ("IPC") in February 2000. These services are provided by operations
based in Wilmington, Delaware, several cities in Florida and New Orleans,
Louisiana. Satellite collection centers for these operations are also located in
Maryland, New Jersey, and Pennsylvania.
In the future, EarthCare may expand the lines of NLW services offered at
certain locations. Locations that have the necessary land, buildings and
dispatch, maintenance, administrative and management services to support
additional service lines will be considered. Management will also study local
market conditions, including competition in the area, before service lines are
expanded in any market. Management believes that there will be opportunities to
expand its services in certain markets in the future, but there can be no
assurance that this will be successfully accomplished.
EarthCare has also entered into a management agreement with Liberty Waste,
Inc., a Florida corporation in the solid waste industry, to provide management
services such as accounting services, investment banking advisory services, bid
and bond advice, municipal contract assistance and commercial banking services.
EarthCare is entitled to receive a $500,000 fee upon the execution of the
management agreement, $250,000 of which has been received, and will receive
$75,000 per month for the services provided under the management agreement.
THE NLW INDUSTRY
The NLW industry is impacted by commercial and residential expansion. The
Company estimates that the septic tank and grease trap business segments of the
U.S. domestic NLW industry generate approximately $20 billion in revenues
annually. Other service lines, such as bulk transportation and plumbing,
generate significant additional domestic service revenues. There are
approximately 25,000 service providers currently in the septic tank and grease
trap segments of the NLW industry and, of these service providers, approximately
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75% generate less than $500,000 of annual revenues. Services in this segment of
the NLW industry have generally been performed on an event driven or emergency
basis. In other business segments such as oily wastewater, bulk transportation
and used oil services, competitors tend to be larger and more regional in terms
of their operations and services generally are scheduled.
The Company believes the NLW industry will continue to grow based on
increased waste from a growing population and general economic conditions that
are driving new building demand and industrial production and the related need
for NLW services.
PERSONNEL AND ORGANIZATION
Currently, 14 employees are headquartered in Dallas, Texas, including
executive officers and senior management. In total, the Company employs
approximately 800 employees. As of December 31, 1999, the Company employed 478
employees. EarthCare considers its relations with its employees to be good.
During 1999, the Company's operations were managed as one business
segment-nonhazardous liquid waste collection and disposal. As a result of the
reorganization during the fourth quarter of 1999, EarthCare's primary services
are organized in three separate business units operated under three different
trade names: EarthAmerica(SM), EarthLiquids(SM), and ISNetworld(SM).
EarthAmerica focuses on the liquid waste needs of residential, restaurant and
food service customers. This business unit, which has its own management team
with specific program unit heads, also includes EarthCare's bulk transportation
and plumbing businesses.
EarthLiquids(SM) focuses on the used oil and oily wastewater business. This
business unit is integrating the Magnum and IPC acquisitions and developing an
integrated operating system, including new service programs.
ISNetworld(SM) is marketing an online network that enables safety councils,
on behalf of plants, to monitor and manage safety and training requirements for
the many contractors who work at major industrial facilities throughout the
country.
Another component of EarthCare's services are provided by AllenTate
Commercial Software, Inc. ("AllenTate"), acquired by EarthCare in August 1999,
which specializes in software development and Internet services for industrial
companies and developed ISNetworld. AllenTate also supports other EarthCare
lines of business with information technology, internet, and other systems
needs.
PROGRAMS
EarthCare has developed or intends to develop new proactive service
programs in several of its key business lines. In 2000, EarthAmerica began
accepting orders for SeptiShield(SM) and SeptiMax(SM), its residential proactive
septic system and service warranty programs. Initially, SeptiShield and SeptiMax
will be available in four test markets, Philadelphia, Atlanta, Pompano and
Orlando.
The SeptiMax Service Program provides a full septic system clean-out and
inspection every two years and delivery of a bacterial additive four times a
year. A scheduled systems monitoring is also provided every six months. The
SeptiShield Service and Warranty Program provides a service similar to SeptiMax
with a warranty providing for up to $20,000 of protection against specified
system failures. As a result, septic systems must pass an inspection to qualify
for this program.
EarthAmerica has been testing an additional program for regional and
national restaurant customers. RestaurantCare.com is an online account
management program that is currently being tested with a large restaurant
operator. EarthCare intends to conduct an additional test of the program with a
government agency responsible for filing requirements and onsite inspections for
grease traps. RestaurantCare.com has the capacity to reduce paper record
keeping, including service information, and manifest data by location, to reduce
costs and reporting requirements for customers.
EarthLiquids is in the early development stages of creating
ComplianceCare(SM), which will be similar to RestaurantCare.com, for customers
in the used oil business unit. These customers include gas stations, fast
service lube and oil change centers, car dealerships and other automobile and
truck service related businesses.
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The Company believes it can successfully implement these programs and
create internal growth to reduce the need to acquire companies in new markets.
However, there can be no assurance that the Company will achieve these
objectives.
PREDECESSOR CORPORATIONS
SanTi Group, Inc. ("SGI"), a privately-held corporation, was incorporated
in Delaware on August 19, 1997, for the purpose of engaging, through its
operating subsidiaries, in the following businesses related to the NLW industry:
grease trap pumping, septic tank services (including designing, pumping,
installation, and maintenance); sewer and drain cleaning services; high pressure
jetting services; portable toilet servicing; bulk liquid waste transportation;
biosolids management; on-site biotreatment systems and liquid waste processing
and disposal. In December 1997, SGI acquired the assets of Bone-Dry Enterprises,
Inc. ("Bone Dry") in a share exchange in which each share of Bone-Dry was
exchanged for 1.3 shares of SGI. Bone-Dry was formed in March 1997 to acquire
businesses in the NLW industry. SGI and Bone-Dry were primarily controlled by
Mr. Raymond M. Cash, Vice Chairman of the Board of Directors of the Company, and
entities controlled by Mr. Cash. Following a stock split effected in the form of
a 0.25 per share stock dividend effective January 30, 1998 (the "Stock
Dividend"), SGI had approximately 8,088,379 shares of common stock, $.0001 par
value per share (the "SGI Stock"), issued and outstanding as of the date of the
merger of SGI into Micro, as described below.
Micro was incorporated in Delaware in 1985 for the purposes of engaging in
the business of developing, manufacturing and marketing electronic reference
products, including computer software programs which provided linguistic and
information compression technology, bilingual dictionaries and thesaurus
products. In 1989, Micro operated as a wholly owned subsidiary of Selectronics,
Inc. ("Selectronics"). In 1995, Selectronics changed its name to Microlytics,
Inc. In the early 1990's, Micro began experiencing financial difficulties as a
result of the highly competitive nature of the computer software industry. On
November 27, 1996, Micro filed for protection under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Western
District of New York (the "Court"). In July of 1997, substantially all of the
intangible assets of Micro and its subsidiary were sold to Metro One
Telecommunications, Inc. In August of 1997, substantially all of the tangible
assets of Micro were also sold. The proceeds of these sales were held in a
segregated trust account by the debtor's counsel prior to the Court's
confirmation of Micro's plan of reorganization.
In April of 1998, Micro filed a Plan of Reorganization (the "Plan") that
was approved by its stockholders, the creditor's committee and the Court.
Pursuant to the Plan, Micro effected a 1 for 400 reverse stock split,
distributed the proceeds from asset liquidations to its creditors, and
distributed shares and warrants to its creditors and stockholders. The Plan
provided for this reverse stock split prior to the merger of SGI and Micro, as
described below. Pursuant to the Plan, any shareholder of Micro as of April 30,
1998 who, as a result of the 1 for 400 reverse stock split, held less than 100
shares, had his or her shares rounded up to 100 shares. Also under the Plan,
Micro issued warrants for 500,000 shares of Micro common stock, exercisable at
$5.80 per share.
THE MERGER AND NAME CHANGES
On May 13, 1998, SGI was merged with and into Micro under an agreement, and
plan of merger, with Micro surviving and changing its name to SGI (the
"Merger"). Effective September 21, 1998, SGI changed its name to EarthCare
Company by filing an amendment to its Certificate of Incorporation with the
Delaware Secretary of State. The Merger was subject to the approval of the
Court. On the effective date of the Merger, each issued and outstanding share of
SGI stock was converted into one share of common stock of Micro (now EarthCare).
These exchange ratios were determined after the 1 for 400 reverse split of
Common Stock pursuant to the Plan. This exchange resulted in the receipt of SGI
stockholders of approximately 8,088,379 shares of Common Stock, representing
approximately 86.2% of the shares of Common Stock issued and outstanding on the
effective date of the Merger. All options to acquire shares of SGI stock were
also converted into options to receive shares of Common Stock. EarthCare
succeeded to all of the assets, liabilities and NLW business of SGI.
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ACQUISITIONS
EarthCare intends to primarily expand its business in the NLW industry
through internal growth. However, selective acquisitions may also be considered.
These acquisitions will be made with cash, shares of common stock or a
combination of cash and shares of common stock. EarthCare's acquisition strategy
will focus on increasing the efficiency and profitability of acquisition targets
through operational and marketing synergies with EarthCare's existing business
operations.
During 1999, EarthCare completed the following acquisitions of NLW local
service providers:
On March 1, 1999, the Company acquired all of the outstanding capital stock
of Reifsneider Transportation, Inc. ("Reifsneider"), a Pennsylvania corporation.
Reifsneider is engaged in the nonhazardous liquid waste, transportation,
management and disposal business in and around Pennsylvania, New Jersey, New
York, Maryland, and Delaware. Consideration for the acquisition consisted of
$5,050,000 in cash, 350,000 shares of EarthCare common stock, the delivery of a
$200,000 note payable to the former owner of Reifsneider and a working capital
adjustment of approximately $715,000.
On March 31, 1999, the Company acquired all of the outstanding capital
stock of Brehm's Cesspool, Inc. ("Brehm's"), a Pennsylvania corporation. Brehm's
is engaged in the septic waste collection, transportation, management and
disposal business in and around eastern Pennsylvania. Consideration for the
acquisition consisted of $1,000,000 in cash and 35,367 shares of EarthCare
common stock.
Effective April 1, 1999, the Company acquired all of the outstanding
capital stock of National Plumbing & Drain, Inc. ("National"), a Georgia
corporation, in exchange for $1,325,000 in cash, the issuance of 125,159 shares
of EarthCare common stock, and the assumption of up to $513,000 in liabilities.
National is a residential and commercial sewer and drain services company
servicing customers in Georgia.
On May 1, 1999, the Company acquired the assets of Rooter Plus, Inc
("Rooter Plus") a Georgia corporation, in exchange for $2,600,000 in cash and
the issuance of 100,000 shares of EarthCare common stock. Rooter Plus is a
residential and commercial sewer and drain services company servicing customers
in Georgia.
Effective August 1, 1999, the Company acquired certain assets of AllenTate
Commercial Software ("AllenTate"), a Texas corporation, in exchange for 75,000
shares of EarthCare common stock and the assumption of up to $200,000 in
liabilities. The Company will issue an additional 120,000 shares of unregistered
EarthCare common stock to the former owners if certain earnings targets are
achieved. AllenTate specializes in software development and Internet services
for industrial companies.
On September 1, 1999, the Company acquired all of the outstanding capital
stock of Magnum Environmental, Inc. ("Magnum"), a Florida corporation, in
exchange for $12,000,000 in cash and 310,000 shares of EarthCare common stock.
In addition, the Company issued 275,000 shares of unregistered EarthCare common
stock, which is being held in escrow and will be released to the former owners
if certain financial targets are achieved. Magnum's core business is the
transportation, treatment and disposal of used oil and petroleum contact
wastewater streams.
On November 3, 1999, the Company acquired all of the outstanding stock of
Food Service Technologies, Inc., a Texas corporation engaged in the grease trap
services business in and around Dallas, Texas. Consideration for the acquisition
was 80,383 shares of unregistered EarthCare common stock and the assumption of
up to $85,000 in liabilities.
On November 16 , 1999, the Company acquired all of the outstanding capital
stock of Hulsey Plumbing, Heating & Cooling, Inc. and Hulsey Environmental
Services, Inc., Georgia corporations ("Hulsey") engaged in the NLW and plumbing
business in and around Gainesville, Georgia. Consideration for the acquisition
was $1,406,250 in cash and the issuance of 28,005 shares of EarthCare common
stock and the assumption of up to $586,750 in liabilities. Additional
consideration of 65,271 shares of EarthCare common stock will be paid over a
three-year period from the closing date if certain financial conditions are met.
In addition, the Company acquired certain assets of an affiliate of Hulsey for
19,523 shares of EarthCare common stock.
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Shares of common stock issued in these acquisitions (except unregistered
shares) were issued pursuant to EarthCare's Post-Effective Amendment No. 2 to
its Registration Statement on Form S-1.
In connection with each acquisition, EarthCare may have assumed or
succeeded to certain liabilities of the acquired businesses or assets which may
include environmental liabilities. EarthCare has obtained representations from
the sellers of the acquired businesses or assets that no undisclosed liabilities
exist and certain rights to indemnification from the sellers for any
liabilities. There can be no assurance, however, that undisclosed liabilities do
not exist or that EarthCare will receive any compensation pursuant to its rights
to indemnification.
RECENT ACQUISITIONS
On February 15, 2000, the Company acquired all of the outstanding capital
stock of World Fuels Services Corporation's oil recycling services division,
International Petroleum Corporation (IPC). IPC operates major recycling centers
in Wilmington, Delaware, Plant City, Florida, and New Orleans, Louisiana, and
satellite collection centers strategically located near its customer base. IPC
collects and receives, directly from customers, nonhazardous used oil, oil
filters and oily wastewater. The aggregate purchase price for IPC was
$33,000,000, with $28,000,000 paid in cash and the balance in the form of
750,458 shares of EarthCare common stock.
On March 10, 2000, EarthCare acquired all of the outstanding capital stock
of All County Resource Management Corporation ("All County"). Headquartered in
Vernon, New Jersey, All County provides collection, transportation, treatment
and disposal services to NLW customers in Connecticut, Pennsylvania, New Jersey
and New York. The aggregate purchase price was $12,300,000, consisting of
$7,800,000 in cash and the remainder in the form of 598,686 shares of
unregistered EarthCare common stock.
The Company funded the cash portion of the purchase price for IPC and All
County with borrowings under the Company's revolving credit facility with Bank
of America, N.A., and BankBoston, N.A., and proceeds from the issuance of its
12% subordinated notes.
COMPETITION
EarthCare competes with a significant number of other NLW service
providers. Competitors compete primarily on the basis of proximity to collection
operations, fees charged, quality and cost of service. EarthCare must compete
with area landfills that accept grease trap waste. Future technological changes
and innovations may result in a reduction of the amount of NLW generated, or in
alternative methods of treatment and disposal being developed. EarthCare also
faces competition from customers that may seek to enhance and develop their own
methods of disposal. Increased use of internal treatment and disposal methods
and other competitive factors may have a material adverse effect on EarthCare's
business, results of operations and financial condition.
EarthCare will be at a disadvantage in competing against service providers
that are better capitalized, have greater name recognition, have more background
and experience, have greater financial, technical, marketing, and other
resources and skills, have better facilities and are able to provide services or
products at a lower cost than EarthCare. New competitors may enter EarthCare's
markets due to the low barriers to entry in the NLW industry. As a result of
these competitive factors, there can be no assurance that EarthCare's growth and
strategy will be successful or that EarthCare will be able to generate cash flow
adequate for its operations and to support future acquisitions and internal
growth.
In addition to internal growth, the growth of EarthCare may depend on its
continued acquisition of NLW service providers. EarthCare expects competition to
exist in the industry to acquire these candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition costs. Acquisitions
of these entities entail various risks, including failure of the acquired
service providers to achieve expected results, diversion of management's
attention, failure to retain key personnel of the acquired service providers and
risks associated with unanticipated events and liabilities. All of these risks
may have an adverse effect on
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the ability of EarthCare to make additional acquisitions and on its business
condition and results of operations. Any complementary businesses that are
acquired also may not be successfully integrated.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS
EarthCare is subject to rules and regulations of various federal, state and
local governmental agencies. Environmental laws and regulations are, and will
continue to be, a principal factor affecting the marketability of the services
provided by EarthCare. Any changes in these laws or regulations may adversely
affect the operations of EarthCare by imposing additional regulatory compliance
costs on EarthCare, requiring the modification of or adversely affecting the
market for EarthCare's services. To the extent that demand for these services is
based upon the need to comply with these regulations, any modification to these
regulations may decrease the demand for these services and adversely affect
EarthCare's business condition and results of operations.
Additionally, if new environmental legislation or regulations are enacted
or existing legislation or regulations are amended or enforced differently,
EarthCare may be required to obtain additional operating permits, registrations
or approvals. The process of obtaining required permits, registrations or
approvals can be lengthy and expensive and the issuance of such permits or the
obtaining of such approvals may be subject to public opposition. There can be no
assurance that EarthCare will be able to meet the applicable regulatory
requirements.
The Resource Conservation and Recovery Act ("RCRA") is the principal
federal statute governing hazardous and solid waste generation, treatment,
storage and disposal. RCRA and state hazardous waste management programs govern
the handling and disposal of "hazardous waste." The U.S. Environmental
Protection Agency ("EPA") has issued regulations pursuant to RCRA. States have
also promulgated regulations under comparable state statutes that govern
hazardous waste generators, transporters and owners and operators of hazardous
waste treatment, storage and disposal facilities. These regulations impose
detailed operating, inspection, training and emergency preparedness and response
standards and requirements for the financial responsibility, manifesting of
wastes, record keeping and reporting, as well as treatment standards for any
hazardous wastes intended for land disposal.
On November 29, 1985, the EPA issued final regulations under RCRA which
restrict the burning of waste oil. These regulations prohibit burning waste oil
in non-industrial boilers unless the oil meets certain standards of lad,
arsenic, chromium, chlorine, cadmium, and flashpoint levels. The regulations do
not restrict the burning of waste oil in industrial boilers and furnaces. These
regulations have not had a significant impact on the Company's business because
the Company does not presently sell recycled fuel to non-industrial burners.
Industrial burners of recycled oil, however, must comply with certain
notification and administrative procedures.
NLW is currently exempt from the requirements of RCRA. The repeal or
modification of the RCRA exemption covering NLW, or the modification of
applicable regulations or interpretations regarding the treatment or disposal of
NLW, may require EarthCare to alter its method of treating and disposing of NLW.
EarthCare's current methods do not comply with the methods prescribed by the EPA
for treatment and/or disposal of waste as defined by RCRA. These potential
changes may result in decreased demand for EarthCare's services and could have a
material adverse effect on EarthCare's business.
The Comprehensive Environmental Response, Competition and Liability Act
("CERCLA") provides for immediate response and removal actions coordinated by
the EPA for releases of hazardous substances into the environment and authorizes
the government or private parties to respond to the release or potential release
of hazardous substances. The government may also order persons responsible for
the release to perform any necessary cleanup. Liability extends to the present
owners and operators of waste disposal facilities from which a release occurs,
persons who owned or operated the facilities at the time the substance was
released, persons who arranged for the disposal or treatment of hazardous
substances and waste transporters who selected such facilities for treatment or
disposal of hazardous substances. CERCLA creates strict, joint and several
liability for all costs of removal and remediation, other necessary response
costs and damages for injury to natural resources.
7
<PAGE> 12
Because the Company will be engaged in businesses that involve the
treatment and removal of nonhazardous liquid waste, EarthCare does not expect to
be subject to CERCLA. However, if EarthCare were to acquire a business that in
the past has disposed of hazardous waste or treated hazardous waste that falls
within the parameters of CERCLA, EarthCare may be held jointly and severally
liable for the costs of any damage or required cleanup of the site.
The Clean Air Act of 1978, as amended in 1977, was the first major federal
environmental law to establish National Ambient Air Quality Standards for
certain air pollutants, which are to be achieved by the individual states
through State Implementation Plans ("SIPs"). SIPs typically attempt to meet
ambient standards by regulating the quantity and quality of emissions from
specific industrial sources. For toxic emissions, the Act authorizes the EPA to
regulate emissions from industrial facilities directly. The EPA also directly
establishes emissions limits for new sources of pollution, and is responsible
for ensuring compliance with air quality standards. The Clean Air Act Amendments
of 1990 (the "1990 Amendments") place the primary responsibility for the
prevention and control of air pollution upon state and local governments. The
1990 Amendments require regulated emission sources to obtain operating permits,
which could impose emission limitations, standards, and compliance schedules.
The Clean Water Act of 1972, as amended in 1987, establishes water
pollutant discharge standards applicable to many basic types of manufacturing
plants and imposes standards on municipal sewage treatment plants. The Act
requires states to set water quality standards for significant bodies of water
within their boundaries and to ensure attainment and/or maintenance of those
standards. Most industrial and government facilities must apply for and obtain
discharge permits, monitor pollutant discharges, and under certain conditions
reduce certain discharges.
The Safe Drinking Water Act, as amended in 1986, regulates public water
supplies by requiring the EPA to establish primary drinking water standards.
These standards are likely to be further expanded under the EPA's evolving
groundwater protection strategy which is intended to set levels of protection or
clean-up of the nation's groundwater resources. These groundwater quality
requirements will then be applied to RCRA facilities and CERCLA sites, and
remedial action will be required for releases of contaminants into groundwater.
The National Pollutant Discharge Elimination System ("NPDES"), a program
promulgated under the Clean Water Act, permits states to issue permits for the
discharge of pollutants into the waters of the United State in lieu of federal
EPA regulation. State programs must be consistent with minimum federal
requirements, although they may be more stringent. NPDES permits are required
for, among other things, certain industrial discharges of storm water.
The Oil Pollution Act of 1990 imposes liability for oil discharges, or
threats of discharge, into the navigable waters of the United States on the
owner or operator of the responsible vessel or facility. Oil is defined to
include oil refuse and oil mixed with wastes other than dredged spoil, but does
not include oil designated as a hazardous substance under CERCLA. The Act
requires the responsible party to pay all removal costs, including the costs to
prevent, minimize or mitigate oil pollution in any case in which there is a
discharge or a substantial threat of an actual discharge of oil. In addition,
the responsible party may be held liable for damages for injury to natural
resources, loss of use of natural resources and loss of revenues from the use of
such resources.
During the ordinary course of its operations, the Company has from time to
time received, and expects that it may in the future receive, citations or
notices from governmental authorities that its operations are not in compliance
with its permits or certain applicable regulations, including various
transportation, environmental or land use laws and regulations. The Company
generally seeks to work with the authorities to resolve the issues raised by
such citations or notices. There can be no assurance, however, that the Company
will always be successful in this regard, and the failure to resolve a
significant issue could result in adverse consequences to the Company.
8
<PAGE> 13
INSURANCE
While the Company maintains insurance, such insurance is subject to various
deductible and coverage limits and certain policies exclude coverage for damages
resulting from environmental contamination. There can be no assurance that
insurance will continue to be available to the Company on commercially
reasonable terms, that the possible types of liabilities that may be incurred by
the Company will be covered by its insurance, that the Company's insurance
carriers will be able to meet their obligations under their policies or that the
dollar amount of such liabilities will not exceed the Company's policy limits.
An uninsured claim, if successful and of significant magnitude, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
CUSTOMERS
EarthCare's customers include restaurants, hospitals, military bases,
office buildings, apartments, schools, municipalities, industrial businesses,
auto and truck service centers and single family residences. No customers
accounted for more than ten percent of EarthCare's revenues during 1999.
INCORPORATION AND EXECUTIVE OFFICE
EarthCare, formerly SanTi Group, Inc., was incorporated in Delaware on
August 19, 1997. Its principal executive offices are located at 14901 Quorum
Drive, Suite 200, Dallas, Texas 75240. EarthCare's telephone number at such
offices is (972) 858-6025. EarthCare's predecessor corporation, Micro, was
incorporated in Delaware on August 19, 1997.
ITEM 2. PROPERTIES
EarthCare's corporate offices in Dallas, Texas are subleased from VHA
Southwest, Inc., for a current rate of $17,089 per month, expiring July 31,
2003.
EarthCare Company owns the following facilities: (i) property located at
1280 N.E. 48th Street, Pompano Beach, Florida and the commercial buildings
thereon (ii) property located at 5690 W. Midway Road, Ft. Pierce, Florida and
the commercial buildings thereon, (iii) property located at McCloskey Blvd,
Tampa, Florida and the commercial buildings thereon, (iv) property located in
Center Hill, Florida and the commercial buildings thereon, (v) property located
at 9401 Fairgrounds Road, West Palm Beach, Florida and the commercial buildings
thereon, and (vi) property located at 223 Fellowship Road, Eagle, Pennsylvania
and the office and commercial buildings thereon.
The following properties are leased by subsidiaries of EarthCare: (i)
property in Pompano Beach, Florida leased by A Rapid Rooter Sewer and Drain from
William E. and Joan C. Rice for a rate of $4,240 per month, expiring August 13,
2000, which is guaranteed by EarthCare; (ii) property in Orlando, Florida leased
by Brownie Environmental Services, Inc. from Seagraves, Inc. for $8,000 per
month, expiring March 5, 2003, which is guaranteed by EarthCare; (iii) property
in Austell, Georgia leased by Quality Plumbing and Septic, under a sublease from
BFI Services Group, Inc. for $4,914 per month, expiring January 13, 2001, which
is guaranteed by EarthCare; (iv) properties in Deer Park, New York leased by RGM
Liquid Waste Removal consisting of: (1) property leased from Equitable
Enterprises Realty for $6,900 per month until July 31, 2001 and increasing to
$11,500 per month, expiring May 31, 2002, and (2) property leased from Equitable
Enterprises Realty for $1,000 per month until July 31, 2001, and increasing to
$2,000 per month, expiring May 31, 2002, which is guaranteed by EarthCare; (v)
property in Dallas, Texas leased by Liquid Waste Control from W.B. Kibler
Construction for $2,300 per month, expiring December 1, 2001, which is
guaranteed by EarthCare; and (vi) the following properties leased by AllenTate
in Sugarland, Texas: (1) property leased from Sugarland Properties Incorporated
for $8,247 per month, expiring August 17, 2003, and (2) property from I&M
Properties for $1,212 per month, expiring April 30, 2001, which is guaranteed by
EarthCare.
9
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
Eldredge Wastewater Management Company ("Eldredge") instituted an
arbitration proceeding before the American Arbitration Association against the
Company for an alleged breach of contract. The Company purchased certain assets
owned by Eldredge under the terms of an Asset Purchase Agreement between the
Company and Eldredge. As a condition of the closing of the acquisition, the
Company entered into a separate agreement with an affiliate of Eldredge, for the
disposal of oily wastes collected by the Company within a defined territory.
Eldredge alleged the Company breached such agreement in that the Company is not
bringing the oily wastes collected within the area included within such
agreement to the affiliate for disposal. Arbitration proceedings for the claim
were completed in April 2000 but no decision has been rendered. The Company has
zealously presented its position that it has not breached the agreement and does
not believe that a decision, even if favorable to Eldredge, will have a material
adverse effect on the Company's business or operations.
Additionally, EarthCare may become involved in litigation and claims
arising out of the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and key employee are as follows:
<TABLE>
<CAPTION>
OFFICERS AGE POSITION
-------- --- --------
<S> <C> <C>
Donald F. Moorehead, Jr................ 49 Chief Executive Officer
Chairman of the Board
Harry M. Habets........................ 50 President
Chief Operating Officer
Director
William M. Addy........................ 40 Vice President of Marketing
Sales and Corporate Development
Director
KEY EMPLOYEE
- ---------------------------------------
Daniel M. Self......................... 54 Corporate Controller
</TABLE>
Donald F. Moorehead, Jr., Chief Executive Officer and Chairman of the Board
since June 1998. Mr. Moorehead served as Vice Chairman and Chief Development
Officer of USA Waste Services, Inc. ("USA Waste") from May 1994 through August
1997. From October 1990 until May 1994, he served as Chairman of the Board and
Chief Executive Officer of USA Waste. Mr. Moorehead was also a founder of USA
Waste. Mr. Moorehead has served as Director for the Environmental Research and
Education Foundation since November of 1996. Mr. Moorehead serves on the board
of FYI, Inc., a document and information outsourcing company.
Harry M. Habets, President, Chief Operating Officer and Director of
EarthCare since August 1999. Mr. Habets has over 25 years of domestic and
international business experience. Mr. Habets was Managing Director of UK Waste,
a $350 million joint venture of Wessex Water and Waste Management International
in the United Kingdom from July 1997 to May 1999. Mr. Habets was employed by
Waste Management from 1985 to 1999 where he served as Vice President of
Operations for Waste Management International, President of WMI Medical Services
and Vice President and Region Manager in the United States.
William M. Addy, Vice President of Marketing, Sales and Corporate
Development since April 1999 and Director since March 2000. Mr. Addy joined the
Boston Consulting Group ("BCG") in 1986, where he was a consultant on issues of
marketing, sales and strategy with leading packaged goods, industrial products
and service companies. Mr. Addy was elected a partner of BCG in 1992.
10
<PAGE> 15
Daniel M. Self, Corporate Controller since December 1999. Mr. Self served
as Controller with Rubbish Removal, Inc. in El Paso, Texas from September 1997
until December 1999. Prior to 1997, Mr. Self was employed by Waste Management,
Inc. for eighteen years in several capacities, the last of which was the
District Controller for landfills in Dallas and Fort Worth, Texas.
The Company has been conducting an executive search to fill the vacant
Chief Financial Officer position and hopes to announce a new Chief Financial
Officer by May 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The common stock was listed on the Nasdaq OTC Bulletin Board in June 1998.
In July 1999, the common stock was listed for trading on the Nasdaq National
Market. The trading symbol for the common stock was changed from "ECUS" to
"ECCO" in July 1999. The closing price for the Common Stock on April 10, 2000
was $6.75 per share.
The following tables set forth, for the periods indicated, the high and low
closing prices for the common stock as reported by Nasdaq. Over-The-Counter
market quotations reflect inter-dealer prices without retail mark-up, mark-down
or commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
YEAR FISCAL QUARTER ENDED HIGH LOW
- ---- --------------------------------- ------- -------
<S> <C> <C> <C>
2000............................. March 31, 2000 $ 9.750 $ 5.750
1999............................. March 31, 1999 16.750 14.000
June 30, 1999 16.125 14.000
September 30, 1999 16.188 11.375
December 31, 1999 12.375 8.000
1998............................. June 30, 1998 (from 6/16/98) 19.000 13.000
September 30, 1998 24.750 16.500
December 31, 1998 $17.000 $14.750
</TABLE>
As of April 10, 2000, there were 957 record holders of the Common Stock.
EarthCare has contractual obligations to issue up to 460,271 additional
shares of common stock if the conditions relating to financial guarantees
contained in certain acquisition agreements with NLW service providers are met.
As of April 10, 2000, warrants to purchase approximately 163,977 shares of
common stock with an average exercise price of $5.80 were outstanding. EarthCare
has also issued warrants to purchase 50,000 shares of common stock with an
exercise price of $13.00 per share and 35,000 shares of common stock with an
exercise price of $14.00 per share to Bank of America, N.A, pursuant to the
existing or prior credit agreements. In connection with the current credit
agreement, EarthCare also issued warrants to purchase 10,000 shares of common
stock at an exercise price of $15.50 per share to Bank Boston, N.A. The Company
also issued warrants to purchase 400,000 shares of common stock to the
purchasers of the 12% subordinated notes in February 2000. Options are
outstanding to various employees, officers and directors and other non-
employees to purchase a total of 2,770,904 shares of common stock at exercise
prices ranging from $6.00 to $25.00 per share.
The Company has not declared or paid any cash dividends on its common
stock. The Company currently intends to retain future earnings to finance its
growth and development and, therefore, does not anticipate paying cash dividends
in the foreseeable future. Payment of any future dividends will depend upon the
future earnings and capital requirements of the Company and other factors that
the Board of Directors considers appropriate. Additionally, the terms of the
Company's credit agreement restrict the payment of cash dividends on any of its
capital stock.
11
<PAGE> 16
RECENT SALES OF UNREGISTERED SECURITIES
On October 11, 1999, the Company completed a $15,000,000 private placement
of its 10% convertible subordinated debentures, due October 2006 (the
"Debentures"). As of December 31, 1999, $13,962,500 of the Debentures were
outstanding. The remaining $1,037,500 of Debentures was issued in January 2000.
The Debentures accrue interest at 10% per annum from the date of issuance,
payable quarterly for (i) for the first two years, through the issuance of
additional debentures at the option of the Company, (ii) the next two years, in
cash, unless prohibited by senior lender covenants (in which event the interest
may be paid by issuance of additional debentures), and (iii) thereafter, in
cash. The Debentures are unsecured obligations of the Company and are
subordinated in right of payment to existing and future senior indebtedness of
the Company. The Debentures are convertible at any time at the election of the
holder into shares of EarthCare common stock, at a price per share equal to
$11.50 per share, subject to downward adjustment based on certain antidilution
provisions, as provided in the debenture agreement. In February 2000, the
conversion price was reduced to $6.663 per share as a result of warrants which
were issued in connection with the Company's Notes. The Debentures not
previously called or converted will be due and payable on October 31, 2006.
Approximately 33% of the Debentures were purchased by two of the Company's
majority shareholders.
On February 16, 2000, the Company completed a $20,000,000 private placement
of its 12% subordinated notes, due February 2008 (the "Notes"). The Company also
issued warrants to purchase, at an exercise price of $6.663 per share, 400,000
shares of the Company's Common Stock with the Notes. The warrants are
exercisable for five years from the date of issuance. The Notes accrue interest
at 12% per annum from the date of issuance, payable semi-annually on September
30 and March 30, in each year commencing on September 30, 2000. The Company may
pay interest by issuing shares of Common Stock, in the aggregate principal
amount equal to interest due and payable on an interest payment date as provided
in the note agreement. In addition, the interest due and payable on September
30, 2000, may be deferred to March 30, 2001, as provided in the note agreement.
Approximately 75% of the Notes were purchased by two of the Company's majority
shareholders.
12
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company. The
selected financial data for the period from inception (March 19, 1997) to
December 31, 1997 and for the years ended December 31, 1998 and 1999, are
derived from the audited financial statements of the Company. The selected
financial data for the years ended December 31, 1995 and 1996 and for the period
from January 1, 1997 to December 21, 1997 are derived from the audited financial
statements of the predecessor of the Company. As a result of acquisitions
occurring in 1997, 1998 and 1999, the Company's historical financial statements
are not representative of the financial results expected for future periods.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the consolidated
financial statements of the Company and Predecessor and notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -----------------------------------------
---------------------------------------- PERIOD
PERIOD FROM
FROM INCEPTION
YEAR ENDED JANUARY 1, (MARCH 19, YEAR ENDED
DECEMBER 31, 1997 TO 1997) TO DECEMBER 31,
------------------------- DECEMBER 21, DECEMBER 31, --------------------------
1995 1996 1997 1997 1998 1999
---------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $1,499,392 $1,832,043 $1,218,268 $ 737,858 $25,690,672 $ 41,813,333
---------- ---------- ---------- ---------- ----------- ------------
Operating Expenses:
Cost of Operations................ 615,069 785,996 625,892 406,638 17,907,036 27,601,273
General and Administrative........ 754,580 757,655 646,273 442,040 5,796,164 10,520,254
Sales, Marketing and
Development..................... -- -- -- 79,332 1,713,211 3,246,440
Depreciation and Amortization..... 94,948 122,296 121,496 127,338 1,348,357 2,663,286
Provision for Impairment of
Intangible Assets............... -- -- -- -- -- 11,261,000
---------- ---------- ---------- ---------- ----------- ------------
Total Operating Expenses...... 1,464,597 1,665,947 1,393,661 1,055,348 26,764,768 55,292,253
---------- ---------- ---------- ---------- ----------- ------------
Income (Loss) from Operations....... 34,795 166,096 (175,393) (317,490) (1,074,096) (13,478,920)
Interest Expense.................... 45,475 70,868 22,077 104,494 657,455 2,256,373
Interest Income..................... -- -- -- -- -- (86,022)
Other Expense (Income).............. 7,404 (2,500) (204,124) -- 2,101 225,845
---------- ---------- ---------- ---------- ----------- ------------
Income (Loss) Before Income Taxes
and Extraordinary Item............ (18,084) 97,728 6,654 (421,984) (1,733,652) (15,875,116)
Income Tax Provision (Benefit)...... (3,304) 39,094 4,334 (163,632) (304,562) 571,060
---------- ---------- ---------- ---------- ----------- ------------
Income (Loss) Before Extraordinary
Item.............................. (14,780) 58,634 2,320 (258,352) (1,429,090) (16,446,176)
Extraordinary Item, Gain on Early
Extinguishment of Debt (net of
taxes of $53,000)................. -- -- -- -- -- 86,817
---------- ---------- ---------- ---------- ----------- ------------
Net Income (Loss)................... $ (14,780) $ 58,634 $ 2,320 $ (258,352) $(1,429,090) $(16,359,359)
========== ========== ========== ========== =========== ============
Income (Loss) per Share Before
Extraordinary Item -- Basic and
Diluted........................... N/A N/A N/A $ (0.13) $ (0.17) $ (1.59)
========== ========== ========== ========== =========== ============
Extraordinary Item per Share Basic
and Diluted....................... N/A N/A N/A $ -- $ -- $ .01
========== ========== ========== ========== =========== ============
Net Income (Loss) per Share --
Basic and Diluted................... N/A N/A N/A $ (0.13) $ (0.17) $ (1.58)
========== ========== ========== ========== =========== ============
Weighted Average Shares
Outstanding -- Basic and
Diluted........................... N/A N/A N/A 1,940,536 8,427,407 10,321,164
---------- ---------- ---------- ---------- ----------- ------------
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit)....... $(104,623) $(130,188) $(1,153,561) $ 938,120 $ 2,426,363
Intangibles, Net (1)............ -- -- 1,473,489 20,166,445 29,582,485
Total Assets.................... 855,192 1,102,047 2,614,143 33,290,279 75,160,692
Long-Term Debt, including
Current Portion.............. 437,735 539,859 303,955 9,327,940 47,487,588
Retained Earnings (Deficit)..... 211,807 270,441 (258,352) (1,687,442) (18,046,801)
Total Shareholders'
Equity................ 212,307 270,941 812,453 19,016,070 19,615,724
</TABLE>
- ---------------
(1) Intangibles, Net, consist primarily of goodwill and noncompete agreements.
Noncompete agreements are amortized over the lives of the contracts.
Goodwill is being amortized over 40 years. See Note 2 to EarthCare's
Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
EarthCare engages in services relating to the NLW industry. These services
include bulk liquid waste transportation, liquid waste collection, processing,
treatment, disposal, maintenance, plumbing and pumping of NLW. The customers of
EarthCare include restaurants, hospitals, military bases, office buildings,
apartments, schools, municipalities, industrial businesses, auto and truck
service centers and single family residences.
EarthCare intends to expand its business in the NLW industry through
internal growth from new programs, partnership and affiliate alliances and
development of technology and Internet information systems. Future acquisitions
may focus more on the oily water and used oil recycling business and will be
made with cash, shares of common stock or a combination of cash and shares of
common stock.
The NLW industry serves a basic need -- the collection, treatment and
disposal of NLW waste. Demand for NLW services is driven primarily by population
and the general level of economic activity. Increasing regulation at the
federal, state and local level, as well as increased awareness of and demand
for, a safer and cleaner environment are creating the need for a more
professional and environmentally responsible NLW industry.
GENERAL
The Company derives the majority of its revenues from commercial and
residential services and industrial liquid waste transportation, processing and
disposal. Collection fees charged to customers vary per gallon by waste stream
according to constituents of the waste, expenses associated with processing the
waste and competitive factors. Cost of operations consist of fixed costs such as
salaries and benefits of vehicle operators and construction labor and variable
costs such as supplies, maintenance, fuel and equipment rentals. General and
administrative costs consist primarily of compensation and related benefits for
executives and administrative staff, marketing and development activities,
advertising, office rent, communications and professional fees. Depreciation and
amortization expense primarily relates to the depreciation of capital assets,
the amortization of excess cost over the fair value of net assets acquired
(goodwill) and other intangible assets.
From its inception on March 19, 1997 through December 31, 1999, the Company
has acquired 17 businesses, all of which were accounted for using the purchase
method of accounting. In connection with these acquisitions the Company recorded
goodwill of approximately $30.3 million, which is being amortized over 40 years.
During the fourth quarter of 1999, the Company determined that its internal
reorganization and a change in the Company's business strategy necessitated an
evaluation of the carrying value of certain of its long-lived assets. In that
regard, the Company applied the guidance of FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS 121"), which resulted in a write-down of goodwill in the amount of
$11.3 million. Such write-down was recorded as a provision for impairment of
intangible assets in the fourth quarter of 1999 and is more fully
14
<PAGE> 19
described below. At December 31, 1999, the Company's balance sheet includes
remaining net goodwill of $28.9 million. This amount represents 38% of total
assets and 147% of stockholders' equity. Goodwill arises when the purchase price
and other related costs for a business acquisition exceed the fair value of the
net assets acquired.
In connection with each of its acquisitions, the Company attempts to
implement a number of cost saving measures, including possible reductions in
management levels and other personnel, the implementation of centralized
management and cost controls and the elimination of duplicate collection routes.
RESULTS OF OPERATIONS
On March 20, 1997, the Company purchased certain assets of Andrews
associated with the Andrews grease disposal business. On December 22, 1997, the
Company acquired the remaining assets and ongoing business of Andrews. For
financial reporting purposes Andrews is considered the predecessor to the
Company (the "Predecessor"). As a result of the Company's numerous acquisitions
in recent years, the Company believes that period-to-period comparisons,
although presented below, are not meaningful and are not necessarily indicative
of financial results expected in future periods.
The following table sets forth the percentage of certain items in relation
to net revenue:
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------
PREDECESSOR PERIOD FROM
--------------- INCEPTION
PERIOD FROM (MARCH 19, YEAR ENDED
JANUARY 1, 1997 1997) TO DECEMBER 31,
DECEMBER 21, DECEMBER 31, -----------------
1997 1997 1998 1999
--------------- ------------ ---------- ----
<S> <C> <C> <C> <C>
Revenues............................................ 100% 100% 100% 100%
Expenses
Cost of Operations................................ 51 55 70 66
General and Administrative........................ 53 60 23 25
Sales, Marketing and Development.................. -- 11 6 8
Depreciation and Amortization..................... 10 17 5 6
Provision for Impairment of Intangible Assets..... -- -- -- 27
--- --- --- ---
Total Operating Expenses.................. 114 143 104 132
--- --- --- ---
Income (Loss) From Operations....................... (14) (43) (4) (32)
Interest Expense.................................... 2 14 3 5
Other (Income) Expense.............................. (17) -- -- 1
--- --- --- ---
Income (Loss) Before Income
Taxes and Extraordinary Item...................... 1 (57) (7) (38)
--- --- --- ---
Income Tax Provision (Benefit)...................... 1 (22) (1) 1
--- --- --- ---
Income (Loss) Before
Extraordinary Item................................ -- (35) (6) (39)
Extraordinary Item, Gain On
Early Extinguishment Of Debt...................... -- -- -- 1
--- --- --- ---
Net Income (Loss)................................... --% (35)% (6)% (39)%
=== === === ===
</TABLE>
YEAR ENDED DECEMBER 31, 1999
Revenues: Revenues totaled $41,813,333 for the year ended December 31,
1999, and consist of revenues from each of the nine businesses acquired in 1997
and 1998, plus revenues from the eight businesses acquired during 1999 from the
date of each acquisition. The eight acquisitions completed during 1999
contributed approximately $17.3 million or 41% of revenues for the year ended
December 31, 1999.
15
<PAGE> 20
Cost of Operations: Cost of operations totaled $27,601,273 for the year
ended December 31, 1999 as compared to $17,907,036 in 1998. Such amounts consist
of fixed costs such as salaries and benefits of operational employees and
variable costs such as disposal fees, supplies, maintenance, fuel and equipment
rentals. These costs have increased due to the Company's acquisitions during
1999, but as a percentage of revenues decreased from 70% in 1998 to 66% in 1999
due to operational efficiencies.
General and Administrative: For the year ended December 31, 1999, general
and administrative expense totaled $10,520,254 or 25% of revenues. General and
administrative expense includes recurring costs such as (i) compensation,
benefits and other expenses for executives and administrative staff, (ii) legal
and professional, and public relations fees, (iii) insurance and rent expense,
and (iv) bad debt expense. General and administrative expense for 1999 also
includes costs which are not expected to recur such as (i) computer software
implementation and development costs of approximately $300,000 related to the
Company's new information technology system which was implemented in 1999, (ii)
administrative integration costs of approximately $100,000 related to the
Company's 1999 acquisitions, and (iii) severance costs of approximately $338,000
associated with the separation of certain executive officers and employees
during 1999. In addition, general and administrative expense for 1999 was
reduced during 1999 by approximately $600,000 related to the reversal of 1998
accruals for bonuses, relocation costs, and insurance reserves due to changes in
estimates.
Sales, Marketing and Development: For the year ended December 31, 1999,
sales, marketing and development expense totaled $3,246,440 or 8% of revenues,
as compared to $1,713,211 or 7% of revenues in 1998. The 1999 amount reflects
ongoing sales efforts from the Company's traditional businesses, as well as
marketing and development activities related to new programs such SepiShield,
SeptiMax and RestaurantCare.com These new programs reflect the Company's move to
increase its focus on internal growth.
Depreciation and Amortization: Depreciation and amortization was
$2,663,286 or 6% of revenues for the year ended December 31, 1999, as compared
to $1,348,357 or 5% of revenues in 1998. The increase in 1999 relates to the
acquisitions in 1998 and 1999.
Provision for Impairment of Intangible Assets: The Company recorded a
provision for impairment of intangible assets in the fourth quarter of 1999 of
approximately $11.3 million, based on the Company's assessment of certain of its
long-lived assets, under the guidance of FAS 121. During the fourth quarter of
1999, the Company reorganized its business and changed its business strategy.
The previous business plan, under which the Company's 1997 and 1998 acquisitions
were made, was predicated upon a rapid pace of small to medium sized
acquisitions of residential and light commercial septic maintenance, pumping and
disposal services companies and integrating these companies under regional
management in anticipation of achieving synergistic benefits. In November 1999,
the Company announced a new business plan for EarthCare that set forth a plan
for three basic operations of the business: the existing septic business,
modified to rely more on a distributorship approach of providing services, and
two additional areas that the Company will actively pursue going forward,
industrial liquid/oily water waste and environmental compliance software
development. The new plan will de-emphasize the traditional residential services
in the manner in which they were delivered by the predecessor companies (the
1997 and 1998 acquisitions).
Based on the events and changes in circumstances noted above, the Company
evaluated the recoverability of the net book value of the fixed assets and
intangible assets of its residential service companies, based on the estimated
undiscounted future cash flows of these companies. For the companies whose
carrying values exceeded the estimated undiscounted future cash flows, an
impairment loss was calculated. The impairment loss was measured by the amount
that the carrying value of the assets exceeded the fair value of the assets,
including goodwill. As no quoted market prices or other market valuation sources
were readily available, fair value was estimated based on a present value
calculation of expected future cash flows, discounted using a rate of 18% which
the Company believes is commensurate with the risks involved in its business.
The impairment measurement resulted in a write-down of goodwill of approximately
$11.3 million, which has been reported in the Company's consolidated financial
statements as a provision for impairment of intangible assets.
Interest: Interest expense for the year ended December 31, 1999 was
$2,256,373 as compared to $657,455 in 1998. The increase in 1999 relates
primarily to the additional debt issued in connection with the
16
<PAGE> 21
1999 acquisitions. The 1999 amount includes interest on the Company's revolving
credit agreement in the amount of $1,981,084 and interest on the Company's
Debentures in the amount of $230,336. The average effective rate for the
Company's borrowings was approximately 8.2% during the year ended December 31,
1999. The Company also realized $86,022 in interest income during 1999.
Other Expense: The 1999 amount of $225,845 reflects losses on disposal of
surplus equipment and abandonment of facilities that were acquired in 1997 and
1998.
Income Tax: During 1999, a determination was made by management that it is
not likely that the deferred tax asset will be realized, accordingly, a 100%
valuation allowance has been recorded. As the Company continues to grow,
management will evaluate the realizability of this asset and adjust the
valuation allowance accordingly.
Extraordinary Item: The Company recorded an extraordinary gain of $86,817,
net of $53,000 in taxes, in the second quarter of 1999, due to the early
extinguishment of debt related to a 1998 acquisition.
YEAR ENDED DECEMBER 31, 1998
Revenues: Revenues for the year ended December 31, 1998, consist of
revenues from each of the businesses acquired in 1997 plus revenues from
businesses acquired during 1998 from the date of each acquisition. The nine
completed acquisitions contributed approximately $24.2 million or 94% of
revenues for the year ended December 31, 1998.
Cost of Operations: Cost of operations consist of fixed costs such as
salaries and benefits of vehicle operators and construction labor and variable
costs such as disposal fees, supplies, fuel and equipment rentals. The operating
margin for the year ended December 31, 1998, was 30%.
General and Administrative and Sales, Marketing and Development: For the
year ended December 31, 1998, these expenses totaling $7,509,375 include
non-recurring expenses associated with the relocation of the corporate
headquarters to Dallas, Texas; expenses associated with registering the Company
as a reporting company with the Securities and Exchange Commission; and costs
associated with the establishment of the Company's management team.
Depreciation and Amortization: Depreciation and amortization was
$1,348,357 or 5% of revenues for the year ended December 31, 1998.
Loss From Operations: The loss from operations of $1,074,096 is primarily
the result of the high level of general and administrative expense.
Interest Expense: Interest expense for the year ended December 31, 1998
was $657,455. Interest was incurred at an average rate of approximately 7.2%
during the year ended December 31, 1998.
Income Tax Benefit: An income tax benefit of 38% of pretax loss has been
computed in accordance with SFAS No. 109 "Accounting for Income Taxes." The tax
benefit has been offset by a valuation allowance of $223,423. Realization of the
net tax asset is dependent on the Company generating sufficient taxable income
in future periods. During 1998, a determination was made by management that it
is not likely that a portion of the deferred tax asset will be realized,
accordingly, a valuation allowance has been recorded. As the Company continues
to grow through acquisitions, management will evaluate the realizability of this
asset and adjust the valuation allowance accordingly.
PERIOD FROM INCEPTION (MARCH 19, 1997) TO DECEMBER 31, 1997
The Company completed three acquisitions in 1997: the grease division of
Andrews in March 1997, Atlanta Grease Trap in August 1997 and the remaining
assets of Andrews in December 1997. All three acquisitions have been accounted
for using purchase accounting and the results of operations of the acquired
businesses have been included in the consolidated financial statements from the
date of each acquisition.
Revenues: Revenues for period from inception (March 19, 1997) to December
31, 1997 consist of revenues from each of the businesses acquired from the date
of each acquisition.
17
<PAGE> 22
Cost of Operations: The operating margin was 45%.
General and Administrative: General and administrative expense has been
and is projected to be a significant percentage of revenues in the early stages
of the Company's growth. It is anticipated that as revenues grow from future
acquisitions, that general and administrative expense as a percentage of revenue
will decline. The amounts reported for general and administrative expense
include a number of costs associated with establishing the Company and hiring
employees.
Depreciation and Amortization: Depreciation and amortization was $127,338
or 17% revenues.
Loss From Operations: The loss from operations is due primarily to the
high level of general and administrative expense as a percentage of revenue.
Interest Expense: Interest expense of $104,494 was based on an average
interest rate of 13% over the period.
Income Tax Benefit: An income tax benefit of 39% of pretax loss was
recorded for the period from inception (March 19, 1997) to December 31, 1997.
SEASONALITY AND INFLATION
The Company's operations are affected by the weather. Although the Company
experiences a certain degree of seasonality in its operations due to weather,
this seasonality is lessened through its operations in various geographic areas.
The Company believes that inflation and changing prices have not had, and
are not expected to have, any material adverse effect on its results of
operations in the near future.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash of approximately $282,000 and
working capital of $2,426,363. During the year ended December 31, 1999, the
Company's net cash used in operating activities totaled $5,494,685, of which
$16,359,359 was due to the net loss and $4,315,151 was due to changes in
operating assets and liabilities. Such amounts were partially offset by non-cash
charges of $15,179,825, primarily depreciation and amortization of goodwill of
$2,663,286 and the provision for impairment of tangible assets of $11,261,000.
The Company used $33,221,030 in investing activities during the year ended
December 31, 1999. This amount is composed of $27,172,324 related to the 1999
business acquisitions and $4,764,427 related to other capital expenditures.
Net cash provided by financing activities for the year ended December 31,
1999 totaled $37,958,124 This amount primarily reflects proceeds of $50,825,231
from the issuance of long-term debt, net of $13,100,166 in repayments of
long-term debt.
At December 31, 1998, the Company had cash of approximately $1.0 million
and working capital of $938,120. During the year ended December 31, 1998, the
Company's net cash used in operating activities totalled $1,470,683, of which
$1,429,090 was due to the net loss and $1,246,540 was due to changes in
operating assets and liabilities. Such amounts were partially offset by non-cash
charges of $1,204,947, primarily depreciation and amortization of goodwill.
The Company used $21,460,495 in investing activities during the year ended
December 31, 1998. This amount is composed of $20,416,428 related to the 1998
business acquisitions and $1,044,067 related to other capital expenditures.
Net cash provided by financing activities for the year ended December 31,
1998 totalled $23,775,220. This amount includes proceeds of $15,500,000 from the
sale of common stock and $2,383,987 from the exercise of stock options and
warrants. The balance provided by financing activities of $5,891,233 relates to
net borrowings.
18
<PAGE> 23
On June 26, 1998 the Company entered into a $40 million revolving credit
agreement with Bank of America, which was amended as of October 19, 1999 (the
"Credit Agreement"). The Company may obtain up to $5 million in letters of
credit, subject to availability under the Credit Agreement. Interest is payable
monthly at variable rates, depending on the Company's Funded Debt to EBITDA (as
defined in the Credit Agreement), but is capped at LIBOR plus 2.25%. The Credit
Agreement expires September 26, 2001, is secured by a first lien on
substantially all assets of the Company and requires the Company to maintain
certain financial covenants. As of December 31, 1999, the outstanding balance
under the Credit Agreement was $33,100,000. On February 11, 2000, the Credit
Agreement was amended to increase the borrowing capacity to $60 million and to
add two of the Company's primary shareholders as guarantors of up to $10 million
of the debt outstanding under the Credit Agreement. In addition, on April 14,
2000, the Credit Agreement was amended to waive compliance with certain
covenants, modify certain financial covenants and increase the guaranty of the
two primary shareholders to $20 million. Availability of funds under the Credit
Agreement is limited by the requirement that the Company comply with various
loan covenants. The Company's primary requirements for capital (other than those
related to acquisitions) consists of purchasing vehicles and equipment used in
the operation of its businesses. At March 31, 2000, the Company had
approximately $2.1 million available under the Credit Agreement.
On April 26, 1999, the Company entered into a financial commitment to loan
up to $3 million to Crossroads Environmental Corporation ("Crossroads").
Crossroads has permits in Texas to drill deep injection wells for the disposal
of NLW. The permitted capacity of the first well that Crossroads plans to drill
is 180 million gallons per year. EarthCare has an equity conversion privilege
that could enable the Company to own a majority of the equity of Crossroads. As
of December 31, 1999, $1,538,000 has been loaned to Crossroads, including
accrued interest on the loan.
On October 11, 1999, the Company completed a $15 million private placement
of the Debentures, due October 31, 2006. As of December 31, 1999, $13,962,500 of
the Debentures were outstanding. The remaining $1,037,500 of Debentures were
issued in January 2000. The Company incurred $867,000 in debt issuance costs
associated with the Debentures, which is being amortized over the term of the
debt. The Credit Agreement with Bank of America was amended to allow for the
issuance of the Debentures. The Debentures accrue interest at 10% per annum from
the date of issuance, payable quarterly (i) for the first two years, through the
issuance of additional Debentures at the option of the Company, (ii) for the
next two years, in cash, unless prohibited by senior lender covenants (in which
event the interest may be paid by issuance of additional Debentures), and (iii)
thereafter, in cash. The Debentures are unsecured obligations of the Company and
are subordinated in right of payment to existing and future senior indebtedness
of the Company. The Debentures are convertible at any time at the election of
the holder into shares of Common Stock, at a price per share equal to $11.50 per
share, subject to downward adjustment based on certain antidilution provisions,
as provided in the Debenture agreement. In February 2000, the conversion price
as reduced to $6.663 per share as a result of warrants which were issued with
the Company's Notes. The Debentures not previously called or converted will be
due and payable on October 31, 2006. Approximately 33% was purchased by two of
the Company's primary shareholders.
On February 16, 2000, the Company completed a $20 million private placement
of the Notes, due February 2008. The Company also issued warrants to purchase,
at an exercise price of $6.663 per share, 400,000 shares of the Company's Common
Stock with the Notes. The warrants are exercisable for five years from the date
of issuance. The estimated fair value of such warrants was approximately
$680,000 on the date of issuance. The Credit Agreement with Bank of America was
amended to allow for the issuance of the Notes. The Notes accrue interest at 12%
per annum from the date of issuance, payable semi-annually on September 30 and
March 30, in each year commencing on September 30, 2000. The Company may pay
interest by issuing shares of common stock, in aggregate principal amount equal
to interest due and payable on an interest payment date as provided in the note
agreement. In addition, the interest due and payable on September 30, 2000, may
be deferred to March 30, 2001, as provided in the note agreement. Approximately
75% of the Notes were purchased by two of the Company's primary shareholders.
On February 15, 2000, the Company acquired all of the outstanding capital
stock of IPC. IPC operates major recycling centers in Wilmington, Delaware,
Plant City, Florida and New Orleans, Louisiana, and
19
<PAGE> 24
satellite collection centers strategically located near its customer base. IPC
collects and receives, directly from customers, nonhazardous used oil, oil
filters and oily wastewater. The aggregate purchase price of $33.0 million was
paid with $28 million in cash and the balance in the form of 750,458 shares of
EarthCare common stock.
On March 10, 2000, EarthCare acquired all of the outstanding capital stock
of All County. Headquartered in Vernon, New Jersey, All County provides
collection, transportation, treatment and disposal services to NLW customers in
Connecticut, Pennsylvania, New Jersey and New York. The aggregate purchase price
of $12.3 million, was paid with $7.8 million in cash and the remainder in the
form of 598,686 shares of unregistered EarthCare common stock.
The Company believes that cash on hand and funds available under the Credit
Agreement, the Debentures and the Notes will be adequate to meet the Company's
anticipated capital expenditures for 2000, financial commitment to Crossroads
and working capital needs, if necessary.
The Company intends to continue to pursue internal growth and strategic
acquisition opportunities. The timing, size or success of any acquisitions
effort and the associated potential capital commitments are unpredictable. The
Company expects to fund future acquisitions primarily through a combination of
cash on hand, borrowings under the Credit Agreement and the issuance of shares
of common stock and/or preferred stock.
YEAR 2000
Prior to 2000, the Company had conducted operations for less than two years
. The Company selected Year 2000 compliant hardware and software for its
computing needs and began implementation of these new systems during the fourth
quarter of 1998, which implementation was to ensure proper processing of
transactions relating to the Year 2000 and beyond. The Company completed the
conversion of all systems in the fourth quarter of 1999 and incurred total costs
for its Year 2000 compliant hardware, systems and software of $932,000, $363,000
of which has been expensed.
Planning for the Year 2000 issue also focused on the systems of various
entities with which the Company interacts, including the Company's vendors and
customers. Even though the date is now past January 1, 2000, and we have not
experienced any immediate adverse impact from the transition to the year 2000,
we cannot provide any assurance that our suppliers and customers have not been
affected in a manner that is not yet apparent.
EarthCare will continue to monitor internal Year 2000 compliance issues and
the Year 2000 compliance of its suppliers and customers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements, together with the reports
thereon, begin on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information contained under the heading "Information Concerning
Directors" in the Company's Proxy Statement for its annual meeting of
stockholders to be held on May 25, 2000 is incorporated herein by reference. See
Item 4A of Part I hereof for information regarding the Company's executive
officers.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the
Company's Proxy Statement for the Company's 2000 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to the
Company's Proxy Statement for the Company's 2000 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference to the
Company's Proxy Statement for the Company's 2000 annual meeting of stockholders.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
(1) Financial statements of EarthCare Company and Subsidiaries are listed
on the Index to Financial Information on page F-1 of this report.
(2) Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts for EarthCare Company
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (MARCH 19, 1997) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS* OF PERIOD
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Period ending December 31, 1997
Allowance for doubtful accounts................... -- 17,875 -- 17,875
Period ending December 31, 1998
Allowance for doubtful accounts................... 17,875 280,497 20,387 277,985
Deferred tax valuation allowance.................. -- 223,423 -- 223,423
Period ending December 31, 1999
Allowance for doubtful accounts................... 277,985 395,451 261,429 412,007
Deferred tax valuation allowance.................. 223,423 6,552,230 -- 6,775,653
</TABLE>
- ---------------
* Deductions represent the write-off of uncollectible receivables, net of
recoveries.
(3) Exhibits:
21
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
3.1 -- Certificate of Incorporation of the Company dated May 13,
1998 (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form 10, Registration
No. 00024685, as amended)
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form 10,
Registration No. 00024685, as amended)
4.1 -- Article IV of Registrant's Certificate of Incorporation
4.2 -- Article VI of Registrant's Certificate of Incorporation
9.1 -- Voting Trust Agreement (incorporated by reference to Exhibit
9.1 to the Company's Registration Statement on Form 10,
Registration No. 00024685, as amended)
10.1 -- Stock Purchase Agreement between EarthCare Company and
Reifsneider Transportation, Inc., dated February 26, 1999
(incorporated by reference to Exhibit 2.1 to the Company's
Form 8-K dated March 1, 1999)
10.2 -- Stock Purchase Agreement between EarthCare Company and
Charles Brehm, dated March 31, 1999.
10.3 -- Stock Purchase Agreement between EarthCare Company and
National Plumbing & Drain, Inc., dated April 1, 1999.
10.4 -- Agreement and Plan of Merger, by and between EarthCare
Company and Vince Hills, Michael H. Patton, George Propes,
Elizabeth Renee Propes, and David Christopher Propes, dated
as of April 5, 1999.
10.5 -- Asset Purchase Agreement between EarthCare Company and
Rooter Plus, Inc., dated May 1, 1999 (incorporated by
reference to Exhibit 2.1 to Company's Form 8-K dated May 1,
1999).
10.6 -- Asset Purchase Agreement between EarthCare Company and
AllenTate Commercial Software, L.L.P., dated August 1, 1999.
10.7 -- Stock Purchase Agreement by and between EarthCare Company
and Albert DiMaria, James Frederico, and Osiris Ramos, dated
as of September 1, 1999.
10.8 -- Stock Purchase Agreement between EarthCare Company and Food
Services Technologies, Inc., dated November 3, 1999.
10.9 -- Stock Purchase Agreement between EarthCare Company and John
Hulsey, dated November 16, 1999.
10.10 -- Stock Purchase Agreement, by and between EarthCare Company
and World Fuel Services Corporation, effective as of
February 1, 2000 (incorporated by reference to Exhibit 2.1
to the Company's Form 8-K dated February 15, 2000.)
10.11 -- Amended and Restated Credit Agreement by and between
EarthCare Company, various financial institutions,
BankBoston, N.A. and Bank of America, dated as of February
15, 2000.
10.12 -- Note Agreement by and between EarthCare Company and Donald
Moorehead, Cash Family Limited Partnership, founders' Equity
Group, Thomas P. Hughes and George O. Moorehead, dated
February 11, 2000
10.13 -- Stock Purchase Agreement by and between EarthCare Company
and All County Resource Management Corporation, dated March
10, 2000 (incorporated by reference to Company's Form 8-K
dated March 10, 2000).
10.14 -- Management Agreement by and between Liberty Waste, Inc. and
EarthCare Company, dated March 31, 2000.
10.15 -- Form of 10% Convertible Subordinated Debenture Due 2006
21.0 -- Subsidiaries of EarthCare Company.
23.1 -- Consent of PricewaterhouseCoopers LLP
</TABLE>
22
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
23.2 -- Consent of Arthur Andersen LLP
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
(b) Reports filed on Form 8-K during the fourth quarter of 1999:
Form 8-K/A, dated November 4, 1999, providing financial statements for
Magnum Environmental Services, Inc.
23
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registration has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on April 13, 2000.
EARTHCARE COMPANY
By: /s/ HARRY HABETS
------------------------------------
Harry Habets
President and Chief Operating
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD F. MOOREHEAD, JR. Chairman, Chief Executive April 13, 2000
- ----------------------------------------------------- Officer (Principal Executive
Donald F. Moorehead, Jr. Officer) and Director
/s/ RAYMOND M. CASH Vice Chairman and Director April 13, 2000
- -----------------------------------------------------
Raymond M. Cash
/s/ HARRY HABETS President, Chief Operating April 13, 2000
- ----------------------------------------------------- Officer and Director
Harry Habets
/s/ DANIEL M. SELF Corporate Controller (Principal April 13, 2000
- ----------------------------------------------------- Accounting Officer)
Daniel M. Self
/s/ WILLIAM M. ADDY Vice President of Marketing, April 13, 2000
- ----------------------------------------------------- Sales & Corporate Development,
William M. Addy Director
/s/ PHILIP S. SIEGEL Director April 13, 2000
- -----------------------------------------------------
Philip S. Siegel
/s/ BRIAN ROSBOROUGH Director April 13, 2000
- -----------------------------------------------------
Brian Rosborough
/s/ ELROY G. ROELKE Director April 13, 2000
- -----------------------------------------------------
Elroy G. Roelke
</TABLE>
24
<PAGE> 29
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EarthCare Company and Subsidiaries
Report of independent accountants......................... F-2
Report of independent public accountants.................. F-3
Consolidated balance sheet................................ F-4
Consolidated statement of operations...................... F-5
Consolidated statement of stockholders' equity............ F-6
Consolidated statement of cash flows...................... F-7
Notes to consolidated financial statements................ F-8
</TABLE>
F-1
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of EarthCare Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of EarthCare
Company and Subsidiaries at December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the accompanying financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit. We conducted our audit of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
April 7, 2000, except for the last sentence of
Note 5(A), as to which the date is April 14, 2000
F-2
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EarthCare Company:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of EARTHCARE COMPANY (a Delaware
corporation) AND SUBSIDIARIES for the period from inception (March 19, 1997) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of EarthCare Company and subsidiaries'
operations and their cash flows for the period from inception (March 19, 1997)
to December 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 2, 1998 (except for the fourth paragraph of
Note 1 as to which the date is June 29, 1998)
F-3
<PAGE> 32
EARTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,039,594 $ 282,003
Accounts receivable, net of allowance for doubtful
accounts of $277,985 and $411,707 in 1998 and 1999,
respectively........................................... 3,960,520 8,582,145
Prepaid expenses.......................................... 557,669 1,882,654
Other current assets...................................... 445,106 15,375
----------- -----------
Total current assets.............................. 6,002,889 10,762,177
----------- -----------
Property and Equipment, Net................................. 4,910,004 30,877,976
----------- -----------
Other Noncurrent Assets:
Intangibles, net.......................................... 20,166,445 29,582,485
Other assets.............................................. 2,210,941 3,938,054
----------- -----------
22,377,386 33,520,539
----------- -----------
$33,290,279 $75,160,692
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 2,761,451 $ 4,873,594
Accrued expenses.......................................... 2,184,818 3,183,786
Current portion of long-term debt......................... 118,500 278,434
----------- -----------
Total current liabilities......................... 5,064,769 8,335,814
Long-term debt, net of current portion...................... 9,209,440 47,209,154
Commitments (Notes 6 and 10)
Stockholders' Equity:
Preferred stock, $.0001 par value; 30,000,000 shares
authorized, 0 shares issued and outstanding............ -- --
Common stock, $.0001 par value; 70,000,000 shares
authorized, 9,571,533 and 11,250,793 shares issued and
outstanding in 1998 and 1999, respectively............. 957 1,124
Additional paid-in capital................................ 20,702,555 37,661,401
Accumulated deficit....................................... (1,687,442) (18,046,801)
----------- -----------
Total stockholders' equity........................ 19,016,070 19,615,724
----------- -----------
$33,290,279 $75,160,692
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 33
EARTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 19, YEAR ENDED
1997) DECEMBER 31,
TO DECEMBER 31, --------------------------
1997 1998 1999
--------------- ----------- ------------
<S> <C> <C> <C>
Revenues............................................. $ 737,858 $25,690,672 $ 41,813,333
---------- ----------- ------------
Expenses:
Cost of operations................................. 406,638 17,907,036 27,601,273
General and administrative......................... 442,040 5,796,164 10,520,254
Sales, marketing and development................... 79,332 1,713,211 3,246,440
Depreciation and amortization...................... 127,338 1,348,357 2,663,286
Provision for impairment of intangible assets...... -- -- 11,261,000
---------- ----------- ------------
Total operating expenses................... 1,055,348 26,764,768 55,292,253
---------- ----------- ------------
Income (loss) from operations........................ (317,490) (1,074,096) (13,478,920)
Other Expense (Income):
Interest expense................................... 104,494 657,455 2,256,373
Interest income.................................... -- -- (86,022)
Other.............................................. -- 2,101 225,845
---------- ----------- ------------
Income (loss) before income taxes and extraordinary
item............................................... (421,984) (1,733,652) (15,875,116)
Income tax provision (benefit)....................... (163,632) (304,562) 571,060
---------- ----------- ------------
Income (loss) before extraordinary item.............. (258,352) (1,429,090) (16,446,176)
Extraordinary item, gain on early extinguishment of
debt (net of taxes of $53,000)..................... -- -- 86,817
---------- ----------- ------------
Net income (loss).................................... $ (258,352) $(1,429,090) $(16,359,359)
========== =========== ============
Income (Loss) Per Share Before Extraordinary Item:
Basic and diluted.................................. $ (0.13) $ (0.17) $ (1.59)
========== =========== ============
Extraordinary Item Per Share:
Basic and diluted.................................. $ -- $ -- $ 0.01
========== =========== ============
Income (Loss) Per Share:
Basic and diluted.................................. $ (0.13) $ (0.17) $ (1.58)
========== =========== ============
Weighted Average Shares Outstanding:
Basic and diluted.................................. 1,940,536 8,427,407 10,321,164
========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 34
EARTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, March 19, 1997
(Inception)...................... 1,115,816 $ 112 $ (112) $ -- $ --
Sale of common stock............. 3,250,000 325 789,675 -- 790,000
Issuance of common stock in
settlement of notes payable... 14,479 2 263,683 -- 263,685
Issuance of common stock for
acquired business............. 21,400 2 17,118 -- 17,120
Net loss......................... -- -- -- (258,352) (258,352)
---------- ------ ----------- ------------ ------------
Balance, December 31, 1997......... 4,401,695 441 1,070,364 (258,352) 812,453
Sale of common stock............. 3,753,397 375 15,499,625 -- 15,500,000
Issuance of common stock for
acquired businesses........... 460,000 46 1,544,454 -- 1,544,500
Exercise of stock options........ 627,500 63 473,062 -- 473,125
Exercise of warrants............. 328,941 32 1,910,830 -- 1,910,862
Issuance of warrant for debt
issuance costs................ -- -- 100,000 -- 100,000
Issuance of options for
non-employee compensation..... -- -- 104,220 -- 104,220
Net loss......................... -- -- -- (1,429,090) (1,429,090)
---------- ------ ----------- ------------ ------------
Balance, December 31, 1998......... 9,571,533 957 20,702,555 (1,687,442) 19,016,070
Issuance of common stock for
acquired businesses........... 1,493,437 150 15,485,930 -- 15,486,080
Exercise of stock options........ 178,750 16 1,065,165 -- 1,065,181
Exercise of warrants............. 7,073 1 40,008 -- 40,009
Issuance of warrant for debt
issuance costs................ -- -- 70,714 -- 70,714
Issuance of options for
non-employee compensation..... -- -- 297,029 -- 297,029
Net loss......................... -- -- -- (16,359,359) (16,359,359)
---------- ------ ----------- ------------ ------------
Balance, December 31, 1999......... 11,250,793 $1,124 $37,661,401 $(18,046,801) $ 19,615,724
========== ====== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 35
EARTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED
(MARCH 19, 1997) DECEMBER 31,
TO DECEMBER 31, ---------------------------
1997 1998 1999
---------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (258,352) $ (1,429,090) $(16,359,359)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 127,338 1,348,357 2,663,286
Provision for impairment of intangible assets........... -- -- 11,261,000
Loss on disposition of assets........................... -- -- 225,845
Gain on early extinguishment of debt.................... -- -- (139,817)
Bad debt expense........................................ -- 280,497 395,451
Deferred income taxes................................... (163,632) (460,428) 624,060
Noncash expenses........................................ -- 36,521 150,000
Changes in assets and liabilities, excluding effects of
acquired businesses:
Accounts receivable................................... (125,777) (4,115,240) (2,732,534)
Notes receivable...................................... -- 26,124 --
Other current assets.................................. (81,089) (476,580) (841,141)
Other assets.......................................... (13,062) (189,358) (352,363)
Accounts payable...................................... 37,774 2,723,677 (250,612)
Accrued expenses...................................... 339,961 784,837 (138,501)
----------- ------------ ------------
Net cash used in operating activities..................... (136,839) (1,470,683) (5,494,685)
----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures...................................... (15,432) (1,044,067) (4,764,427)
Business acquisitions..................................... (1,531,337) (19,056,428) (27,172,324)
Proceeds from sale of assets.............................. -- -- 539,245
Issuance of notes receivable.............................. -- -- (1,553,037)
Collection of notes receivable............................ -- -- 66,293
Increase in other assets.................................. -- -- (336,780)
Escrow deposits for business acquisitions................. -- (1,360,000) --
----------- ------------ ------------
Net cash used in investing activities..................... (1,546,769) (21,460,495) (33,221,030)
----------- ------------ ------------
Cash flows from financing activities:
Net borrowings under lines of credit...................... 1,120,000 -- --
Proceeds from long-term debt.............................. -- 15,632,187 50,825,231
Payments of long-term debt................................ (30,840) (9,740,954) (13,100,166)
Sale of common stock...................................... 790,000 15,500,000 --
Payment of debt issue costs............................... -- -- (872,131)
Exercise of stock options and warrants.................... -- 2,383,987 1,105,190
----------- ------------ ------------
Net cash provided by financing activities................. 1,879,160 23,775,220 37,958,124
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents........ 195,552 844,042 (757,591)
Cash and cash equivalents, beginning of period.............. -- 195,552 1,039,594
----------- ------------ ------------
Cash and cash equivalents, end of period.................... $ 195,552 $ 1,039,594 $ 282,003
=========== ============ ============
Supplemental cash flow information:
Cash paid for interest.................................... $ 78,763 $ 657,455 $ 1,777,714
=========== ============ ============
Cash paid for income taxes................................ $ -- $ 157,000 $ --
=========== ============ ============
Noncash investing and financing activities:
Notes payable issued for business acquisitions............ $ 257,350 $ 2,000,000 $ 574,400
=========== ============ ============
Notes payable issued for noncompete agreements............ $ 341,130 $ -- $ --
=========== ============ ============
Common stock issued for business acquisitions............. $ 17,120 $ 1,544,500 $ 15,486,080
=========== ============ ============
Common stock issued in settlement of notes payable........ $ 263,685 $ -- $ --
=========== ============ ============
Fair value of warrant and options issued for debt issuance
costs and other services rendered....................... $ -- $ 204,220 $ 217,743
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 36
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
EarthCare Company, ("EarthCare" or the "Company") was incorporated on
August 19, 1997 as a Delaware corporation under the name SanTi Group, Inc. On
September 21, 1998, the Company's certificate of incorporation was amended (the
"Amendment") to change the Company's name from SanTi Group, Inc. to EarthCare
Company. All references to the Company included in the consolidated financial
statements and notes to consolidated financial statements treat the Amendment as
if it occurred August 19, 1997.
EarthCare engages in the following services relating to the nonhazardous
liquid waste ("NLW") industry: bulk liquid waste transportation, liquid waste
collection, processing, treatment and disposal, maintenance, plumbing and
pumping. EarthCare's customers include restaurants, hospitals, military bases,
office buildings, apartments, schools, municipalities, industrial businesses,
auto and truck service centers and single family residences.
Bone-Dry Enterprises, Inc. ("Bone-Dry") was incorporated on March 19, 1997
as a Georgia corporation. On December 1, 1997, all shares of Bone-Dry common
stock were exchanged for EarthCare common stock. Since the Company and Bone-Dry
were under common ownership since their respective dates of inception, the
accompanying financial statements are for the period from the inception of Bone
Dry (March 19, 1997) to December 31, 1997. The accompanying consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries.
On May 13, 1998, SanTi Group, Inc. ("SGI") was merged with and into
Microlytics, Inc. ("Micro") under an agreement and plan of merger, with Micro
surviving and changing its name to SanTi Group, Inc. ("the Merger"). The Merger
was subject to the approval of the United States Bankruptcy Court for the
Western District of New York. On the effective date of the Merger, each issued
and outstanding share of SGI Stock was converted into one share of common stock
of Micro (now EarthCare). These exchange ratios were determined after the 1 for
400 reverse split of Common Stock pursuant to a Plan of Reorganization.
Immediately prior to the Merger, Micro had 1,115,816 shares of common stock
outstanding and warrants to purchase an additional 500,000 shares with an
exercise price of $5.80, of which 250,000 were exercised immediately following
the Merger. This exchange resulted in the receipt by SGI stockholders of
approximately 8,088,379 shares of Common Stock, representing approximately 86.2%
of the shares of Common Stock issued and outstanding on the effective date of
the Merger. The Merger was accounted for as a capital transaction accompanied by
a recapitalization of EarthCare. All costs incurred in connection with the
Merger were expensed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of EarthCare and
all of its majority-owned subsidiaries.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase as cash equivalents. The Company
maintains its cash in bank deposit accounts, which at times may exceed the
federal insurance limits. As of December 31, 1998 and 1999, the Company had cash
in banks totaling $711,000 and $458,000, respectively, in excess of federal
depository insurance limits.
F-8
<PAGE> 37
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable represent short-term credit granted to the Company's
customers for which collateral is generally not required. Credit risk on
receivables is considered by management to be limited due to the variety of
industries served and geographic dispersion of customers.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided on
the straight-line basis using useful lives of 5 to 7 years for machinery and
equipment and office equipment and 20 years for buildings and improvements.
Leasehold improvements are depreciated over the shorter of the term of the lease
or the useful life of the improvements. When property and equipment are retired
or otherwise disposed of, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is included in operations.
INTANGIBLES
As of December 31, 1998 and 1999, intangibles consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Goodwill.................................................... $19,876,923 $30,303,569
Noncomplete agreements...................................... 961,279 1,131,179
----------- -----------
20,838,202 31,434,748
Accumulated amortization.................................... (671,757) (1,852,263)
----------- -----------
$20,166,445 $29,582,485
=========== ===========
</TABLE>
Noncompete agreements were entered into in connection with certain of the
Company's acquisitions and were valued based on the estimated benefit to be
derived from such noncompete agreements. Noncompete agreements are being
amortized over the lives of the contracts. Goodwill arises when the purchase
price and other related costs for a business acquisition exceed the fair value
of the net assets acquired. Goodwill is being amortized over 40 years.
Amortization expense associated with intangibles was $95,464 for the period from
inception (March 19, 1997) to December 31, 1997 and was $572,426 and $1,181,289,
respectively, for the years ended December 31, 1998 and 1999.
The Company recorded a provision for impairment of intangible assets in the
fourth quarter of 1999 in the amount of $11,261,000, based on the Company's
assessment of certain of its long-lived assets under the guidance of FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Assets to Be Disposed Of". During the fourth quarter of 1999, the Company
reorganized its business and changed its business strategy. The previous
business plan, under which the Company's 1997 and 1998 acquisitions were made,
was predicated upon a rapid pace of small to medium sized acquisitions of
residential and light commercial septic maintenance, pumping and disposal
services companies and integrating these companies under regional management in
anticipation of achieving synergistic benefits. In November 1999, the Company
announced a new business plan for EarthCare that set forth a plan for three
basic operations of the business: the existing septic business modified to rely
more on a distributorship approach of providing services, and two additional
areas that the Company will actively pursue going forward. The two new areas
include industrial/oily water liquid waste and environmental compliance software
development. This new plan will de-emphasize the traditional residential
services in the manner in which they were delivered by the predecessor companies
(the 1997 and 1998 acquisitions).
Based on the events and changes in circumstances noted above, the Company
evaluated the recoverability of the net book value of the fixed assets and
intangible assets of the residential service companies that were acquired in
1997 and 1998, based on the estimated undiscounted future cash flows of these
companies.
F-9
<PAGE> 38
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the companies whose carrying values exceeded the estimated undiscounted
future cash flows, an impairment loss was calculated. The impairment loss was
measured by the amount that the carrying value of the assets exceeded the fair
value of the assets, including goodwill. As no quoted market prices or other
market valuation sources were readily available, fair value was estimated based
on a present value calculation of expected future cash flows, discounted using a
rate of 18% which the Company believes is commensurate with the risks involved
in its business. The impairment measurement resulted in a write-down of goodwill
of $11,261,000, which has been reported in the Company's consolidated statement
of operations as a provision for impairment of intangible assets.
REVENUE RECOGNITION
The Company recognizes revenues as services are provided.
ADVERTISING COSTS
The Company expenses advertising costs, which primarily consist of
telephone book advertising, over the period that the benefit is received.
Advertising expense was approximately $9,000, $974,000 and $1,636,000 during
1997, 1998 and 1999, respectively. At December 31, 1998 and 1999, $54,000 and
$770,000, respectively, were included in prepaid expenses for these costs.
EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of shares
outstanding. Diluted earnings per share are based on the weighted average number
of shares outstanding and the dilutive effect of stock options and warrants
outstanding (using the treasury stock method) and contingently issuable shares.
For the period from inception (March 19, 1997) to December 31, 1997, outstanding
options of 612,500 and contingently issuable shares have been excluded from
diluted weighted average shares outstanding, as their impact was antidilutive.
Antidilutive options and warrants of 2,304,009 and 70,000 contingently issuable
shares were excluded from diluted weighted average shares outstanding for the
year ended December 31, 1998. Antidilutive options and warrants of 2,976,140 and
460,271 contingently issuable shares and 1,304,348 shares issuable on
convertible debentures have been excluded from diluted weighted average shares
outstanding for the year ended December 31, 1999. Subsequent to December 31,
1999, a total of 1,338,744 shares of common stock were issued in connection with
business acquisitions and 400,000 warrants were issued for debt issue costs.
REPORTABLE SEGMENTS
During 1999, the Company's operations were managed as one business segment
- -nonhazardous liquid waste collection and disposal. As a result of the
reorganization during the latter part of the fourth quarter of 1999, the Company
will manage its operation in three segmented businesses. "EarthAmerica," which
will include lines of business that provide liquid waste services to
residential, restaurant and food service customers, as well as EarthCare's bulk
transportation and plumbing businesses. "EarthLiquids" will focus on the used
oil and oily wastewater business and will integrate the Magnum and IPC
acquisitions. "ISNetwork" is developing and will market an on-line network that
enables safety councils, on behalf of plants, to monitor and manage safety and
training requirements for the many contractors who work at major industrial
facilities throughout the country. Beginning in fiscal 2000, the Company will be
reporting segment information for these separately identifiable businesses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-10
<PAGE> 39
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Further, the evaluation of realizability of long-lived assets and the related
write-down of intangible assets discussed above involves significant estimates,
which could materially differ from the actual amounts ultimately realized.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1998 balances to
conform to 1999 reporting.
3. ACQUISITIONS
In fiscal year 1998, the Company acquired the following businesses which
were accounted for under the purchase method of accounting:
On January 22, 1998, the Company acquired the assets of Ferrero Wastewater
Management, Inc. ("Ferrero"), a Pennsylvania corporation. Ferrero is engaged in
the nonhazardous liquid waste and septic waste collection, transportation,
management, and disposal business in and around Ambler, Pennsylvania.
Consideration was $2,240,100 in cash and 90,000 shares of SanTi common stock.
Contingent consideration of $248,900 in cash and 10,000 shares of EarthCare
common stock was paid in the fourth quarter of 1998 in accordance with the terms
of the purchase agreement.
On February 13, 1998, the Company acquired the assets of A Rapid Rooter
Sewer & Drain Service, Inc. ("A Rapid"), a Florida corporation. A Rapid is
engaged in the nonhazardous liquid waste and septic waste collection,
transportation, management, and disposal business in and around Pompano Beach,
Florida. Consideration was $3,990,120 in cash and 100,000 shares of EarthCare
common stock.
On February 17, 1998, the Company acquired the assets of Quality Plumbing
and Septic, Inc. ("Quality"), a Georgia corporation. Quality is engaged in the
nonhazardous liquid waste and septic waste collection, transportation,
management, and disposal business in and around Douglasville, Georgia.
Consideration was $2,000,000 in cash. Contingent consideration of $250,000 and
10,000 shares of EarthCare common stock was paid in June 1998.
On March 6, 1998, the Company acquired the assets of Seagraves, Inc. (d/b/a
Brownie Environmental) and Grease-Tec, Inc. (collectively, "Seagraves"), two
Florida corporations. Seagraves is engaged in the nonhazardous liquid waste and
septic waste collection, transportation, management, and disposal business in
and around Orlando, Florida. Consideration was $3,250,000 in cash, a note
payable of $2,000,000, and 60,000 shares of EarthCare common stock.
On May 1, 1998, the Company acquired certain assets of RGM Liquid Waste
Removal Corporation and Affiliates ("RGM"), consisting of four New York
corporations. RGM is engaged in the nonhazardous liquid waste and septic waste
collection, transportation, management, and disposal business in and around Long
Island, New York. Consideration was $4,500,000 in cash and 105,000 shares of
EarthCare common stock. Contingent consideration of $1,000,000 and 55,000 shares
of EarthCare common stock was paid in 1999.
On May 8, 1998, the Company acquired certain assets of Eldredge Wastewater
Management, Inc., a Pennsylvania corporation. Eldredge is engaged in the
nonhazardous liquid waste and septic waste collection, transportation,
management, and disposal business in and around Philadelphia, Pennsylvania.
Consideration was $2,040,000 in cash and 85,000 shares of EarthCare common
stock. Contingent consideration of $360,000 and 15,000 shares of EarthCare
common stock was paid in 1999.
The acquisitions completed in fiscal 1998 were accounted for using the
purchase method of accounting; accordingly, the purchase prices have been
allocated to the assets acquired based on their respective fair values
F-11
<PAGE> 40
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at the dates of acquisition. The resulting excess of purchase prices over fair
values of assets acquired was recorded as goodwill. Goodwill recorded in 1998
totaled $18,606,450.
In fiscal year 1999, the Company acquired the following businesses:
On March 1, 1999, the Company acquired all of the outstanding capital stock
of Reifsneider Transportation, Inc. ("Reifsneider"), a Pennsylvania corporation.
Reifsneider is engaged in the nonhazardous liquid waste, transportation,
management and disposal business in and around Pennsylvania, New Jersey, New
York, Maryland, and Delaware. Consideration for the acquisition consisted of
$5,050,000 in cash, 350,000 shares of EarthCare common stock, the delivery of a
$200,000 note payable to the former owner of Reifsneider and a working capital
adjustment of approximately $715,000.
On March 31, 1999, the Company acquired all of the outstanding capital
stock of Brehm's Cesspool, Inc. ("Brehm's"), Pennsylvania corporation. Brehm's
is engaged in the septic waste collection, transportation, management and
disposal business in and around eastern Pennsylvania. Consideration for the
acquisition consisted of $1,000,000 in cash and 35,367 shares of EarthCare
common stock.
Effective April 1, 1999, the Company acquired all of the outstanding
capital stock of National Plumbing & Drain, Inc. ("National"), a Georgia
corporation, in exchange for $1,325,000 in cash, the issuance of 125,159 shares
of EarthCare common stock, and the assumption of up to $513,000 in liabilities.
National is a residential and commercial sewer and drain services Company
servicing customers in Georgia.
On May 1, 1999, the Company acquired the assets of Rooter Plus, Inc.
("Rooter Plus"), a Georgia corporation, in exchange for $2,600,000 in cash and
the issuance of 100,000 shares of EarthCare common stock. Rooter Plus is a
residential and commercial sewer and drain services company services for
industrial companies.
Effective August 1, 1999, the Company acquired certain assets of AllenTate
Commercial Software ("AllenTate"), a Texas corporation, in exchange for 75,000
shares of EarthCare common stock and the assumption of up to $200,000 in
liabilities. The Company will issue an additional 120,000 shares of unregistered
EarthCare common stock to the former owners if certain earnings targets are
achieved. AllenTate specializes in software development and internet services
for industrial companies.
On September 1, 1999, the Company acquired all of the outstanding capital
stock of Magnum Environmental, Inc. ("Magnum"), a Florida corporation, in
exchange for $12,000,000 in cash and 310,000 shares of EarthCare common stock.
In addition, the Company issued 275,000 shares of unregistered EarthCare common
stock, which is being held in escrow and will be released to the former owners
if certain financial targets are achieved. Mangum's core business is the
transportation, treatment and disposal of used oil and petroleum contact
wastewater streams.
On November 3, 1999 the Company acquired all of the outstanding stock of
Food Service Technologies, Inc., a Texas corporation engaged in the grease trap
services business in and around Dallas, Texas. Consideration for the acquisition
was 80,383 shares of unregistered EarthCare common stock and the assumption of
up to $85,000 in liabilities.
On November 16, 1999, the Company acquired all of the outstanding capital
stock of Hulsey Plumbing, Heating and Cooling, Inc. and Hulsey Environmental
Services, Inc., Georgia corporations ("Hulsey") engaged in the nonhazardous
liquid waste and plumbing business in and around Gainesville, Georgia.
Consideration for the acquisition was $1,406,250 in cash, 28,005 shares of
EarthCare common stock and the assumption of up to $586,750 in liabilities.
Additional consideration of 65,271 shares of EarthCare common stock will be paid
over a three-year period from the closing date if certain financial conditions
are met. In addition, the Company acquired certain assets from an affiliate of
Hulsey for 19,523 shares of EarthCare common stock.
F-12
<PAGE> 41
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's unaudited pro forma consolidated results of operations for
the years ended December 31, 1998 and 1999, shown below are presented assuming
that the 1998 and 1999 acquisitions had been consummated on January 1, 1998:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Pro forma revenue.......................................... $61,902,385 $ 56,594,842
Pro forma net (loss)....................................... (2,215,689) (17,180,850)
Pro forma (loss) per share................................. (0.23) (1.60)
</TABLE>
The Company's unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated the acquired businesses since the beginning
of 1998.
4. PROPERTY AND EQUIPMENT
At December 31, 1998 and 1999, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Land........................................................ $ -- $ 6,323,401
Machinery and equipment..................................... 4,692,551 12,644,414
Buildings and improvements.................................. 110,627 10,509,283
Office equipment............................................ 684,063 1,845,168
Leasehold improvements...................................... 103,755 153,062
Construction-in-process..................................... -- 1,490,849
---------- -----------
5,590,996 32,966,177
Less accumulated depreciation............................... (680,992) (2,088,201)
---------- -----------
$4,910,004 $30,877,976
========== ===========
</TABLE>
Depreciation expense was $31,874, $775,931 and $1,481,997 during 1997, 1998
and 1999, respectively.
F-13
<PAGE> 42
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LINES OF CREDIT AND LONG-TERM DEBT
At December 31, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Lines of credit with a financial institution, interest
payable monthly at a variable interest rate, due in
September 2001 (A)........................................ $7,418,126 $33,100,000
Convertible subordinated debentures, interest payable
quarterly at 10%, due October 2006 (B).................... -- 13,962,500
Note payable to a stockholder, interest payable monthly at
6%, due in March 2003..................................... 1,696,000 --
Notes payable to former owners of acquired businesses, at
various interest rates, payable in various installments
through September 2001.................................... 213,814 425,088
---------- -----------
9,327,940 47,487,588
Less current portion........................................ (118,500) (278,434)
---------- -----------
$9,209,440 $47,209,154
========== ===========
</TABLE>
- ---------------
(A) On June 26, 1998, the Company entered into a $40 million revolving credit
agreement with Bank of America, which was amended as of October 19, 1999
(the "Credit Agreement"). The Company may obtain up to $5 million in letters
of credit, subject to availability under the Credit Agreement. Interest is
payable monthly at variable rates, depending on the Company's Funded Debt to
EBITDA (as defined in the Credit Agreement), but is capped at LIBOR plus
2.25% (8.67% at December 31, 1999). The Credit Agreement expires September
26, 2001, is collateralized by a first lien on substantially all assets of
the Company and requires the Company to maintain certain financial
covenants. During 1999, the Company was not in compliance with certain
financial covenants for which waivers have been obtained from the lender. As
of December 31, 1999, the outstanding balance under the Credit Agreement was
$33,100,000, with approximately $6,900,000 available for borrowing. On
February 11, 2000, the Credit Agreement was amended to increase the
borrowing capacity to $60 million and to add two of the Company's primary
shareholders as guarantors of up to $10 million of the debt outstanding
under the Credit Agreement. In addition, on April 14, 2000, the Credit
Agreement was amended to waive compliance with certain covenants, modify
certain financial covenants and increase the guaranty of the primary
shareholders to $20 million.
(B) On October 11, 1999, the Company completed a $15 million private placement
of its 10% convertible subordinated debentures, due October 2006 (the
"Debentures"). As of December 31, 1999, $13,962,500 of the Debentures were
outstanding. The remaining $1,037,500 of Debentures were issued in January
2000. The Company incurred $867,000 in debt issuance costs associated with
the Debentures, which is being amortized over the term of the debt. The
Credit Agreement with Bank of America was amended to allow for the issuance
of the Debentures. The Debentures accrue interest at 10% per annum from the
date of issuance, payable quarterly (i) for the first two years, through the
issuance of additional debentures at the option of the Company, (ii) for the
next two years, in cash, unless prohibited by senior lender covenants (in
which event the interest may be paid by issuance of additional debentures),
and (iii) thereafter, in cash. The Debentures are unsecured obligations of
the Company and are subordinated in right of payment to existing and future
senior indebtedness of the Company. The Debentures are convertible at any
time at the election of the holder into shares of Common Stock, at a price
per share equal to $11.50 per share, subject to downward adjustment based on
certain antidilution provisions, as provided in the debenture agreement. In
February 2000, the conversion price was reduced to $6.663 per share as a
result of warrants which were issued with the Company's 12% notes (See Note
11 -- "Subsequent Events"). The Debentures not previously called or
converted will be due and payable on
F-14
<PAGE> 43
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
October 31, 2006. Approximately 33% of the Debentures was purchased by two
of the Company's primary shareholders.
Future aggregate annual maturities of long-term debt are as follows as of
December 31, 1999:
<TABLE>
<S> <C>
2000........................................................ $ 278,434
2001........................................................ 33,246,654
2002........................................................ --
2003........................................................ --
2004........................................................ --
Thereafter.................................................. 13,962,500
-----------
$47,487,588
===========
</TABLE>
6. RELATED-PARTY TRANSACTIONS
In March 1997, the Company entered into a four-year consulting agreement
with a former owner of an acquired business. The Company paid its obligation of
$75,000 in full during 1997, as required by the agreement, and is recognizing
the expense over the life of the agreement. For the period from inception (March
19, 1997) to December 31, 1997, consulting expense related to the agreement was
$13,021 and is included in general and administrative expenses in the
accompanying statement of operations. For 1998 and 1999 the expense was $18,750.
During 1997, the Company entered into three noncompete agreements with
former owners of acquired businesses in exchange for notes payable totaling
$341,130. In connection with the December 22, 1997 purchase of Andrews, one of
the former owners of Andrews exchanged $263,685 of outstanding notes payable,
issued in connection with the March 1997 purchase of Andrews for 14,479 shares
of EarthCare common stock.
The Company leased office space and equipment from an entity controlled by
the Company's majority owner under a lease agreement which expired January 31,
1998. The office space was leased for an additional period terminating on April
3, 1998. Rental expense under the lease was $8,262 for 1998 and $11,690 for the
period from inception (March 19, 1997) to December 31, 1997.
In connection with the 1998 acquisitions, the Company entered into
employment agreements with 8 employees. Upon termination of employment (other
than voluntarily by the employee, by the Company for cause or upon death of the
employee), the Company is committed to pay certain benefits, including specified
monthly severance of not more than $6,667 per employee per month. The benefits
are to be paid from the date of termination to dates ranging from January 22,
1999 to March 6, 2001.
The Company leases office space from various entities controlled by
stockholders and employees who are former owners of companies acquired during
1998. The leases are typically structured on a one-year term with annual renewal
options from three to nine years. Total lease expense related to such leases
totaled approximately $337,000 and $230,000 in 1998 and 1999, respectively.
The Company has entered into employment agreements with various executive
officers which provide for minimum aggregate annual compensation of $765,000.
The agreements expire between July 2001 and June 2003, and automatically renew
for additional twelve-month periods. Upon termination of employment related to a
change in control of the Company, the Company is committed to immediately pay
the minimum compensation for each of the remaining years or portions thereof.
During 1999, two officers separated from the Company and in connection with
their termination agreements, the Company has recognized an aggregate of
$338,000 in expense related to estimated value of stock options, severance
compensation and other benefits.
F-15
<PAGE> 44
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 30,000,000 authorized shares of $0.001 par value of
preferred stock. The preferred stock may, by resolution of the board of
directors, be issued in different series, and the series may vary as to dividend
rights, preferences, conversion privileges, voting rights, participation in
earnings and redemption. No shares of preferred stock were outstanding at
December 31, 1998 or 1999.
Private Placements
On January 12, 1998, a group of investors purchased 1,250,000 shares of the
Company's common stock for $0.80 per share. On January 30, 1998, the Company
declared a 1.25-for-1 stock split effected in the form of a stock dividend. All
share amounts have been restated for this stock split. During March and April,
1998, the Company sold 2,500,000 shares of its common stock through private
offerings. Proceeds from the 1998 offerings totaled $15,500,000.
Stock-Based Compensation
In August 1997 and December 1997, the Company granted nonqualified stock
options to purchase 125,000 and 487,500 EarthCare common stock, respectively, at
$.65 per share, which represented the fair market value as of the dates of
grant.
In April 1998, the Company granted stock options to purchase 131,250 shares
of EarthCare common stock at $5.00 per share. The estimated fair value as of the
date of grant was $5.80 per share. In June 1998, the Company granted stock
options to purchase 1,550,000 shares of EarthCare common stock at prices ranging
from $6.00 to $25.00 per share. The estimated fair value as of the date of grant
was $6.00 per share. In October and December 1998, the Company granted stock
options to purchase 267,200 and 275,000 shares of EarthCare common stock,
respectively, at prices ranging from $15.00 to $25.00 per share. The estimated
fair value as of the dates of grant was $15.00 per share. All of the options
granted during 1998 vest ratably over four years, except for the 131,250 options
granted in April 1998 which vest over three years, and 250,000 options granted
in December 1998 which vested immediately upon grant.
In March 1999, the Company granted stock options to purchase 266,704 shares
of EarthCare common stock to two executive officers of the Company at $14.50 per
share, which was the market price on the date of grant. Between January and
March 1999, the Company granted stock options to purchase 67,500 shares of
EarthCare common stock to various employees of the Company for $15.00 per share,
which was the market price on the respective dates of grant. In March 1999, the
Company granted options to purchase 20,000 shares of EarthCare common stock for
$14.50 per share to a consultant, which was the market price on the date of
grant. The fair value of the consultant non-employee options is being amortized
to expense over the service period. In April 1999, the Company granted stock
options to purchase 437,500 shares of EarthCare common stock to employees at
prices ranging from $14.00 to $20.00 per share, when the market price of the
Company's stock was $14.00 per share. In May 1999, the Company granted stock
options to purchase 65,000 shares of EarthCare common stock to various employees
at $15.88 per share, which was the market price on the date of grant. In August
1999, the Company granted stock options to an officer of the Company to purchase
200,000 shares of EarthCare common stock at $13.56 per share and 140,000 shares
at $25.00 per share when the market price was $13.56 per share. In September
1999, the Company granted stock options to various employees to purchase 50,000
shares of EarthCare common stock at $13.00 per share, which was the market price
on the date of grant. The options granted in 1999 generally vest ratably over
four years.
F-16
<PAGE> 45
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Incentive Stock Option Plan
Effective September 22, 1998, the board of directors of the Company adopted
an incentive stock option plan (the "Plan"), which provides for the issuance of
options to purchase up to 1,500,000 shares of common stock to key employees and
Directors. The incentive stock options granted under the Plan are generally
exercisable for a period of ten years from the date of the grant, except that
the term of an incentive stock option granted under the Plan to a stockholder
owning more than 10% of the outstanding common stock must not exceed five years
and the exercise price of an incentive stock option granted to such a
stockholder must not be less than 110% of the fair market value of the common
stock on the date of grant. As of December 31, 1999, all of the options to
purchase shares of common stock under the Plan had been granted.
The following table summarizes warrant and option activity for 1998 for
both the employee options and other non-employee warrants and options:
<TABLE>
<CAPTION>
EXERCISE NUMBER
PRICE($) EXPIRATION OUTSTANDING EXPIRED/ OUTSTANDING
PER SHARE DATE 12/31/1997 GRANTED EXERCISED CANCELED 12/31/1998
--------- ---------- ----------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
WARRANTS:
Microlytics............................. 5.80 Dec-01 -- 500,000 328,941 -- 171,059
Bank of America......................... 13.00 Jun-03 -- 50,000 -- -- 50,000
------- --------- ------- ------- ---------
Total Warrants.......................... -- 550,000 328,941 -- 221,059
------- --------- ------- ------- ---------
OPTIONS:
Employee................................ 5.00 Apr-08 -- 131,250 15,000 112,500 3,750
Employee................................ 6.00 Jun-08 -- 50,000 -- -- 50,000
Employee................................ 10.00 Jul-08 -- 100,000 -- -- 100,000
Employee................................ 15.00 Oct-08 -- 65,000 -- -- 65,000
Employee................................ 15.00 Dec-08 -- 2,000 -- -- 2,000
Employee................................ 20.00 Jun-08 -- 100,000 -- -- 100,000
Employee................................ 25.00 Oct-08 -- 30,000 -- -- 30,000
Non-Employee............................ 6.00 Jun-08 -- 50,000 -- -- 50,000
Non-Employee............................ 10.00 Jun-08 -- 25,000 -- -- 25,000
Non-Employee............................ 15.00 Jun-08 -- 50,000 -- -- 50,000
Non-Employee............................ 15.00 Oct-08 -- 82,200 -- -- 82,200
Non-Employee............................ 15.00 Dec-08 -- 250,000 -- -- 250,000
Non-Employee............................ 23.50 Oct-08 -- 20,000 -- -- 20,000
Non-Employee............................ 25.00 Jun-08 -- 50,000 -- -- 50,000
Officer and Director.................... 0.65 Dec-01 612,500 -- 612,500 -- --
Officer and Director.................... 6.00 Jun-08 -- 400,000 -- 40,000 360,000
Officer and Director.................... 10.00 Jun-08 -- 50,000 -- -- 50,000
Officer and Director.................... 15.00 Jun-08 -- 350,000 -- 50,000 300,000
Officer and Director.................... 15.00 Oct-08 -- 35,000 -- -- 35,000
Officer and Director.................... 15.00 Dec-08 -- 25,000 -- -- 25,000
Officer and Director.................... 25.00 Jun-08 -- 500,000 -- 100,000 400,000
Officer and Director.................... 25.00 Oct-08 -- 35,000 -- -- 35,000
------- --------- ------- ------- ---------
Total Options........................... 612,500 2,400,450 627,500 302,500 2,082,950
------- --------- ------- ------- ---------
Total Warrants and Options.............. 612,500 2,950,450 956,441 302,500 2,304,009
------- --------- ------- ------- ---------
</TABLE>
F-17
<PAGE> 46
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes warrant and option activity for 1999
for both the employee options and other non-employee warrants and options:
<TABLE>
<CAPTION>
EXERCISE NUMBER NUMBER
PRICE($) EXPIRATION OUTSTANDING EXPIRED/ OUTSTANDING EXERCISABLE
PER SHARE DATE 12/31/1998 GRANTED EXERCISED CANCELED 12/31/1999 12/31/1999
--------- ---------- ----------- --------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WARRANTS:
Microlytics............... 5.80 Dec-01 171,059 -- 7,073 -- 163,986 163,986
Bank...................... 13.00 Jun-03 50,000 -- -- -- 50,000 50,000
Bank...................... 14.00 Apr-04 -- 35,000 -- -- 35,000 35,000
Bank...................... 15.50 Apr-04 -- 10,000 -- -- 10,000 10,000
--------- --------- ------- ------- --------- -------
Total Warrants............ 221,059 45,000 7,073 -- 258,986 258,986
--------- --------- ------- ------- --------- -------
OPTIONS:
Employee.................. 5.00 Apr-08 3,750 -- 3,750 -- -- --
Employee.................. 6.00 Jun-08 50,000 -- -- -- 50,000 12,500
Employee.................. 10.00 Jul-08 100,000 -- -- -- 100,000 25,000
Employee.................. 15.00 Oct-08 65,000 -- -- 18,750 46,250 16,250
Employee.................. 15.00 Dec-08 2,000 -- -- -- 2,000 500
Employee.................. 20.00 Jun-08 100,000 -- -- -- 100,000 25,000
Employee.................. 25.00 Oct-08 30,000 -- -- -- 30,000 7,500
Employee.................. 13.00 Sep-09 -- 50,000 -- -- 50,000 --
Employee.................. 14.00 Apr-09 -- 30,000 -- -- 30,000 --
Employee.................. 15.00 Jan-Mar-09 -- 67,500 -- -- 67,500 --
Employee.................. 15.00 Apr-09 -- 7,500 -- -- 7,500 --
Non-Employee.............. 6.00 Jun-08 50,000 -- -- -- 50,000 12,500
Non-Employee.............. 10.00 Jun-08 25,000 -- -- -- 25,000 6,250
Non-Employee.............. 15.00 Jun-08 50,000 -- -- -- 50,000 12,500
Non-Employee.............. 15.00 Oct-08 82,200 -- -- -- 82,200 80,550
Non-Employee.............. 15.00 Dec-08 250,000 -- -- -- 250,000 250,000
Non-Employee.............. 23.50 Oct-08 20,000 -- -- 20,000 -- --
Non-Employee.............. 25.00 Jun-08 50,000 -- -- -- 50,000 12,500
Non-Employee.............. 14.50 Mar-99 -- 20,000 -- -- 20,000 20,000
Officer and Director...... 6.00 Jun-08 360,000 -- 175,000 10,000 175,000 43,750
Officer and Director...... 10.00 Jun-08 50,000 -- -- -- 50,000 12,500
Officer and Director...... 15.00 Jun-08 300,000 -- -- 150,000 150,000 37,500
Officer and Director...... 15.00 Oct-08 35,000 -- -- 17,500 17,500 8,750
Officer and Director...... 10.00 Dec-08 25,000 -- -- -- 25,000 6,250
Officer and Director...... 25.00 Jun-08 400,000 -- -- 200,000 200,000 50,000
Officer and Director...... 25.00 Oct-08 35,000 -- -- 17,500 17,500 8,750
Officer and Director...... 13.56 Aug-09 -- 200,000 -- -- 200,000 --
Officer and Director...... 14.00 Apr-09 -- 200,000 -- -- 200,000 --
Officer and Director...... 14.50 Mar-09 -- 266,704 -- -- 266,704 33,338
Officer and Director...... 15.88 May-09 -- 65,000 -- -- 65,000 --
Officer and Director...... 20.00 Apr-09 -- 200,000 -- -- 200,000 --
Officer and Director...... 25.00 Aug-09 -- 140,000 -- -- 140,000 --
--------- --------- ------- ------- --------- -------
Total Options............. 2,082,950 1,246,704 178,750 433,750 2,717,154 681,888
--------- --------- ------- ------- --------- -------
Total Warrants and
Options................. 2,304,009 1,291,704 185,823 433,750 2,976,140 940,874
========= ========= ======= ======= ========= =======
</TABLE>
F-18
<PAGE> 47
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock options granted to employees at fair market value
at the date of grant. Had compensation cost for the Company's employee stock
options been determined consistent with the provisions of SFAS No. 123, the
Company's net loss would have been increased to the pro forma amount indicated
below for the period from inception (March 19, 1997) to December 31, 1997 and
for the years ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
Net loss, as reported........................... $(258,352) $(1,429,090) $(16,359,359)
Net loss, pro forma............................. (322,729) (3,242,183) (22,982,178)
Pro forma net loss per share.................... (0.35) (0.38) (2.23)
</TABLE>
The fair values of options granted were estimated on the date of grant
using the minimum value approach in 1997 and the Black-Scholes Model in 1998 and
1999. The Company's stock volatility was 110% in 1998 and 76% in 1999, based on
prior stock performance. The Company's dividend yield was estimated to remain at
zero, the options granted had an expected life of five years, and risk-free
interest rates ranging from 4.70% to 5.88% in 1997 and 1998 and 6.0% in 1999.
The weighted average estimated fair value of employee stock options granted
during 1997, 1998 and 1999 was $.0.11, $5.23 and $8.90 per share, respectively.
The estimated fair value of options granted during 1997, 1998 and 1999 totaled
$64,377, $8,184,352 and $10,910,236, respectively.
8. INCOME TAXES
The following summarizes the components of the income tax benefit
(provision):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Current provision..................................... $ -- $ -- $ --
Deferred taxes........................................ 163,632 304,562 (571,060)
-------- -------- ---------
Income tax benefit (provision)........................ $163,632 $304,562 $(571,060)
======== ======== =========
</TABLE>
Reconciliation from the federal statutory rate to the actual income tax
benefit (provision) is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Statutory federal tax rate............................ $143,475 $589,442 $5,397,539
State income taxes, net of federal tax benefit........ 21,099 68,653 628,655
Change in valuation allowance......................... -- (223,423) (6,552,230)
Other................................................. (942) (130,110) (45,024)
-------- -------- ----------
$163,632 $304,562 $ (571,060)
======== ======== ==========
</TABLE>
F-19
<PAGE> 48
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The sources of differences between the financial accounting and tax bases
of the Company's assets and liabilities which give rise to the deferred tax
asset and liabilities and the tax effects of each are as follows as of December
31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 105,634 $ 156,448
Intangibles............................................... -- 3,731,979
Accrued expense........................................... 271,512 49,821
Net operating loss carryforward........................... 862,127 3,129,900
Valuation allowance....................................... (223,423) (6,775,653)
---------- -----------
Total deferred tax assets......................... 1,015,850 292,495
---------- -----------
Deferred tax liabilities:
Depreciation.............................................. (184,836) (292,495)
Intangibles............................................... (206,954) --
---------- -----------
Total deferred tax liabilities.................... (391,790) (292,495)
---------- -----------
Net deferred tax asset...................................... $ 624,060 $ --
========== ===========
</TABLE>
As of December 31, 1998 and 1999, deferred tax assets include net operating
loss carryforwards of approximately $2,370,000 and $8,235,000, respectively,
which are available to offset future taxable income through 2019. Realization of
the net deferred tax asset is dependent on generating sufficient taxable income
in future periods. As of December 31, 1998 and 1999, the Company recorded a
valuation allowance of $223,423 and $6,775,653, respectively. As the Company
continues to grow, management will evaluate the realizability of these assets
and adjust the valuation allowance accordingly.
9. ENVIRONMENTAL REGULATIONS
The Company is subject to extensive and evolving federal, state, and local
environmental laws and regulations that have been enacted in response to
technological advances and the public's increased concern over environmental
issues. The majority of the expenditures necessary to comply with the
environmental laws and regulations is made in the normal course of business. The
Company, to the best of its knowledge, is in compliance, in all material
respects, with the laws and regulations affecting its operations.
10. LEASE COMMITMENTS
The Company leases certain buildings, autos and machinery and equipment
under noncancelable operating leases. Under certain of these leases, the Company
is required to pay property taxes, insurance, repairs and other costs related to
the leased property. At December 31, 1999, future minimum lease payments under
noncancelable operating leases are $854,140 in 2000; $700,016 in 2001; $577,432
in 2002 and $266,982 in 2003. Total rent expense for all leases was $11,690,
$604,413 and $767,467 in 1997, 1998 and 1999, respectively.
11. SUBSEQUENT EVENTS
On February 15, 2000, the Company acquired all of the outstanding capital
stock of World Fuels Services Corporation's oil recycling services division,
International Petroleum Corporation ("IPC"). IPC operates major recycling
centers in Wilmington, DE, Plant City, FL and New Orleans, LA, and satellite
collections centers strategically located near its customer base. IPC collects
and receives, directly from customers, nonhazardous used oil, oil filters and
oily wastewater. The aggregate purchase price of $33,000,000 was paid with
$28,000,000 in cash and the balance in the form of 750,458 shares of EarthCare
common stock.
F-20
<PAGE> 49
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 10, 2000, EarthCare acquired all of the outstanding capital stock
of All County Resource Management Corporation ("All County"). Headquartered in
Vernon, New Jersey, All County provides collection, transportation, treatment
and disposal services to nonhazardous liquid waste customers in Connecticut,
Pennsylvania, New Jersey and New York. The aggregate purchase price of
$12,300,000, was paid with $7,800,000 in cash and the remainder in the form of
598,686 shares of unregistered EarthCare common stock.
The Company funded the cash portion of the purchase price for IPC and All
County with borrowings under the Company's Credit Agreement and with proceeds
from the issuance of the Company's 12% subordinated notes, discussed below.
The Company's unaudited pro forma consolidated results of operations for
the years ended December 31, 1998 and 1999, shown below are presented assuming
that the 1998, 1999 and 2000 acquisitions had been consummated on January 1,
1998:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Pro forma revenue........................................... $94,563,984 $87,731,441
Pro forma net (loss)........................................ (1,720,320) (18,234,394)
Pro forma (loss) per share.................................. $ (0.16) $ (1.50)
</TABLE>
On February 16, 2000, the Company completed a $20,000,000 private placement
of its 12% subordinated notes, due February 2008 (the "Notes"). The Company also
issued five-year warrants to purchase, at an exercise price of $6.663 per share,
400,000 shares of the Company's Common Stock with the Notes. The estimated fair
value of such warrants was approximately $680,000 on the date of issuance. The
Credit Agreement with Bank of America was amended to allow for the issuance of
the Debentures. The Debentures accrue interest at 12% per annum from the date of
issuance, payable semi-annually on September 30 and March 30, in each year
commencing on September 30, 2000. The Company may pay interest by issuing shares
of the Company's Common Stock in an aggregate principal amount equal to interest
due and payable on an interest payment date as provided in the note agreement.
In addition, the interest due and payable on September 30, 2000, may be deferred
to March 30, 2001, as provided in the note agreement. Approximately 75% of the
Notes was purchased by two of the Company's primary shareholders.
On March 31, 2000 EarthCare entered into a management agreement with
Liberty Waste, Inc., a Florida corporation in the solid waste industry, to
provide management services such as accounting services, investment banking
advisory services, bid and bond advice, municipal contract assistance and
commercial banking services. EarthCare is entitled to receive a $500,000 fee
upon the execution of the management agreement, $250,000 of which has been
received, and will receive $75,000 per month for the services provided under the
management agreement.
F-21
<PAGE> 50
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
3.1 -- Certificate of Incorporation of the Company dated May 13,
1998 (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form 10, Registration
No. 00024685, as amended)
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form 10,
Registration No. 00024685, as amended)
4.1 -- Article IV of Registrant's Certificate of Incorporation
4.2 -- Article VI of Registrant's Certificate of Incorporation
9.1 -- Voting Trust Agreement (incorporated by reference to Exhibit
9.1 to the Company's Registration Statement on Form 10,
Registration No. 00024685, as amended)
10.1 -- Stock Purchase Agreement between EarthCare Company and
Reifsneider Transportation, Inc., dated February 26, 1999
(incorporated by reference to Exhibit 2.1 to the Company's
Form 8-K dated March 1, 1999)
10.2 -- Stock Purchase Agreement between EarthCare Company and
Charles Brehm, dated March 31, 1999.
10.3 -- Agreement and Plan of Merger, by and between EarthCare
Company and National Plumbing & Drain, Inc., Vince Hills,
Michael H. Patton, George Propes, Elizabeth Renee Propes,
and David Christopher Propes, dated as of April 5, 1999.
10.4 -- Asset Purchase Agreement between EarthCare Company and
Rooter Plus, Inc., dated May 1, 1999 (incorporated by
reference to Exhibit 2.1 to Company's Form 8-K dated May 1,
1999).
10.5 -- Asset Purchase Agreement between EarthCare Company and
AllenTate Commercial Software, L.L.P., dated August 1, 1999.
10.6 -- Purchase Agreement by and between EarthCare Company and
Albert DiMaria, James Frederico, and Osiris Ramos, dated as
of September 1, 1999.
10.7 -- Agreement and Plan of Merger among EarthCare Company and
Mitzy Spano, Kerry Spano and Ron Sekerak dated November 3,
1999.
10.8 -- Stock Purchase Agreement between EarthCare Company and John
Hulsey, dated November 16, 1999.
10.9 -- Stock Purchase Agreement, by and between EarthCare Company
and World Fuel Services Corporation, effective as of
February 1, 2000 (incorporated by reference to Exhibit 2.1
to the Company's Form 8-K dated February 15, 2000.)
10.10 -- Amended and Restated Credit Agreement by and between
EarthCare Company, various financial institutions,
BankBoston, N.A. and Bank of America, dated as of February
15, 2000.
10.11 -- Note Agreement by and between EarthCare Company and Donald
Moorehead, Cash Family Limited Partnership, Founders' Equity
Group, Thomas P. Hughes and George O. Moorehead, dated
February 11, 2000
10.12 -- Stock Purchase Agreement by and between EarthCare Company
and All County Resource Management Corporation, dated March
10, 2000 (incorporated by reference to Company's Form 8-K
dated March 10, 2000).
10.13 -- Management Agreement by and between Liberty Waste, Inc. and
EarthCare Company, dated March 31, 2000.
10.14 -- Form of 10% Convertible Subordinated Debenture Due 2006
21.0 -- Subsidiaries of EarthCare Company.
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Arthur Andersen LLP
</TABLE>
<PAGE> 51
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports filed on Form 8-K during the fourth quarter of 1999:
Form 8-K/A, dated November 4, 1999, providing financial statements for
Magnum Environmental Services, Inc.
<PAGE> 1
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into by and between Charles Brehm, an
individual residing at 315 Townshipline Road, Douglasville, PA 19518
(hereinafter sometimes referred to as "Seller"), and EarthCare Company, a
Delaware Corporation (hereinafter referred to as "EarthCare" or "Buyer").
WITNESSETH:
WHEREAS, the Seller is the owner of 100 shares of common stock no
par value per share of Brehm's Cesspool Services, Inc., a Pennsylvania
corporation, engaged in liquid waste collection and disposal activities (said
corporation is hereinafter sometimes referred to as the "Company") (said shares
of Brehm's Cesspool Services, Inc. common stock are hereinafter sometimes
collectively referred to as the "Brehm Common Stock"); and
WHEREAS, the Brehm Common Stock constitutes all of the issued and outstanding
shares of capital stock of the Company; and
WHEREAS, the parties hereto desire that the Buyer acquire the Brehm Common
Stock in exchange for cash and shares of the common stock, $.0001 par value, of
the Buyer (said shares of common stock are hereafter sometimes referred to as
the "EarthCare Common Stock")
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, and for other
good and valuable consideration the mutual receipt and sufficiency of which is
hereby acknowledged by the parties hereto, THE PARTIES HERETO, INTENDING TO BE
LEGALLY BOUND, HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
A. Upon the basis of the representations and warranties contained
herein and subject to the terms and conditions of this Agreement, at the time
of "Closing" (as hereinafter defined) Seller shall sell, convey, transfer,
assign and deliver to Buyer, and Buyer shall purchase from Seller, all of the
Brehm Common Stock.
B. At the time of Closing, as the purchase price for the Brehm Common Stock,
and in exchange therefor, Buyer shall pay to Seller:
(1) Shares of EarthCare Common Stock equal in Value (as
defined hereinafter) to $500,000 less the Holdback Shares (as hereinafter
defined) duly registered under the Securities Act of 1933 as amended (the
"Act") and applicable state securities laws, to the extent necessary to permit
the disposition of such shares by Seller; provided, however that such shares
shall be subject to a lock-up agreement as in the form of Exhibit 1-B, attached
hereto (the "Lock-up Agreement"), and
(2) $1,000,000 cash, less the Holdback Cash (as hereinafter
defined)
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For purposes of determining the number of shares of EarthCare Common Stock to
be issued to Seller pursuant to Section 1B(1) above, the "Value" of such shares
shall be based upon the average closing price of EarthCare Common Stock as
reflected on NASDAQ (Bulletin Board) for the ten (10) trading days immediately
preceding the Closing Date.
2. CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the purchase and sale of the Brehm Common Stock (the "Closing")
shall be held at 10:00 a.m. March 31, 1999, at the Reading, Pennsylvania
offices of Stevens & Lee, P.C. or at such other time and date as shall be
mutually agreed upon by the parties hereto in writing. (Such time and date is
sometimes hereinafter referred to as the "Closing Date" or "Closing".)
3. PROCEDURE AT THE CLOSING. At the Closing, the parties hereto agree to
take the following steps in the order listed:
A. Seller shall deliver to the Buyer the Brehm Common Stock, and such
stock powers and other instruments to transfer to the Buyer good and marketable
title to the Brehm Common Stock, free and clear of all liens, claims and
encumbrances.
B. In exchange for the Brehm Common Stock, Buyer shall transfer to Seller:
(1) Shares of registered EarthCare Common Stock equal in
Value to $500,000 less that number of shares of registered EarthCare Common
Stock equal in Value to $150,000, which shares are hereinafter referred to as
the "Holdback Shares", and
(2) $1,000,000 (subject to adjustment as set forth in Section
3E hereof) by wire transfer to an account of Seller designated by Seller, less
$100,000, (hereinafter referred to as the "Holdback Cash").
C. Buyer shall transfer to an escrow holder (the "Escrow Holder"),
mutually agreed to by Buyer and Seller, the Holdback Shares and Holdback Cash.
Buyer, Seller and Escrow Holder shall execute an escrow agreement (the "Escrow
Agreement") the form of which is attached hereto as Exhibit 3-C.
D. The parties shall also exchange an executed Lock-up Agreement as well
as a consulting agreement, in the form attached hereto as Exhibit 3-D.
E. The purchase price shall be adjusted (the "Adjustment") as follows:
1. If the Company's current assets as of the Closing Date exceed the
Company's current liabilities as of such date, then such excess shall be paid
to Seller as an addition to the purchase price.
2. If the Company's current liabilities as of the Closing Date exceed the
Company's current assets as of such date, then Seller shall reimburse to Buyer
an amount equal to such deficiency.
3. The adjustment to be made under this paragraph shall be made 120 days
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<PAGE> 3
after the Closing Date ("the Adjustment Date"). Current assets and current
liabilities shall be determined in accordance with generally accepted
accounting principles except that accounts receivable, including unbilled
services rendered to the date of Closing and billed thereafter (the "Accounts
Receivable"), will be considered current assets only if collected prior to the
Adjustment Date or are otherwise accepted in writing by Buyer. Buyer agrees
that all amounts collected shall be applied first to Accounts Receivable
generated prior to the Closing and that Buyer shall cause the Company to
collect the Accounts Receivable in the same manner as that employed by Buyer
and its affiliates in the collection of accounts receivable in general.
4. The Adjustment shall be made hereunder as follows:
a. If there is an excess of current assets over current
liabilities, the excess, to the extent of cash collected through the Adjustment
Date, shall be paid to Seller on the Adjustment Date. To the extent such excess
is in the form of yet uncollected Accounts Receivable, Buyer shall cause the
Company to continue to collect such outstanding Accounts Receivables after the
Adjustment Date and Buyer shall pay to Seller, monthly, Accounts Receivables
thereafter collected. Payment on account of the Accounts Receivables shall be
made by the 10th day of each month for collections received during the
preceding month and shall be accompanied by a statement of Accounts Receivables
collected.
b. If the current liabilities exceed current assets then, at
Seller's election, (a) Seller shall pay to Buyer the amount of such deficiency
or (b) the number of the Holdback Shares (as defined in Paragraph 3-B(1))
having a Value (calculated at the then current market) equal to the deficiency
shall be released to Buyer and, in either such event, Buyer shall pay to Seller
on a monthly basis as described above, an amount equal to the Accounts
Receivable thereafter collected by the Company.
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
In order to induce the Buyer to enter into this Agreement and to consummate
the transactions contemplated hereunder, the Seller hereby makes the following
representations and warranties to and covenants and agreements with, Buyer:
A. ORGANIZATION AND EXISTENCE. The Company is a corporation duly organized
and validly subsisting under the laws of the Commonwealth of Pennsylvania, and
has all requisite corporate power and authority to carry on its business as now
conducted. Neither the nature of the business of the Company nor the character
of the properties owned or leased by it requires qualification to do business
as a foreign corporation in any jurisdiction. Seller has delivered to Buyer a
true and correct copy of the Articles of Incorporation (duly certified by the
Secretary of State of Pennsylvania) and By-Laws of the Company (certified by
its Secretary).
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<PAGE> 4
B. SUBSIDIARIES OR OTHER ENTITIES. The Company has no subsidiaries, nor
does it have any ownership interests in any other corporations, partnerships,
joint ventures or other business enterprises.
C. CAPITALIZATION. The Company is authorized to issue 100 shares of common
stock, no par value, of which 100 shares are issued and outstanding at the time
of the execution of this Agreement. The Brehm Common Stock constitutes all of
the issued and outstanding shares of capital stock of the Company. The Brehm
Common Stock, all of which has been duly issued, is validly outstanding, is
fully paid and nonassessable, and is held of record and beneficially by Seller;
there is no outstanding subscriptions, options, warrants or rights to receive,
purchase or subscribe to, or securities convertible into or exchangeable for,
any issued or unissued shares of the capital stock of the Company. The Company
has no liability for dividends declared but unpaid. Except as contemplated
herein, as of the Closing, the Seller has not, and has not permitted the
Company, to issue or enter into any subscriptions, options, agreements or other
commitments in respect of the issuance, transfer, sale or encumbrance of any
shares of the Brehm Common Stock.
D. STOCK OWNERSHIP. At the time of Closing, Seller shall have good,
marketable and valid title to the Brehm Common Stock, and there shall be, no
restrictions to the sale and transfer of the Brehm Common Stock to Buyer. Upon
delivery of the Brehm Common Stock to Buyer, the Brehm Common Stock (i) shall
constitute all of the issued and outstanding shares of capital stock of the
Company, and (ii) shall be free and clear of all security interests, liens,
charges, pledges, mortgages, encumbrances or rights of third parties
whatsoever. There are no existing options, calls, or commitments relating to
any issued, or authorized but unissued, capital stock of the Company.
E. FINANCIAL CONDITION.
Seller represents and warrants to Buyer that the Company's gross revenues for
the year ended December 31, 1998 were not less than $1,700,000 and that gross
revenues for the period January 1, 1999 through February 28, 1999 were in
excess of $250,000. Long term liabilities of the Company do not exceed $110,000
and will be paid on or before the Closing Date.
F. ASSETS.
1. The Company has good and marketable title to or a valid leasehold
interest in and is in possession of, all of its assets, equipment, vehicles,
properties and rights, including all properties, assets, vehicles and equipment
listed on Schedule 4-F attached hereto, free and clear of all liabilities,
mortgages, liens, pledges, security interests, restrictions, conditional sales
agreements, title retention agreements, charges or encumbrances except: (i)
taxes constituting a lien, set forth on Schedule 4-F attached hereto, but not
yet due and payable; (ii) those obligations set forth in Schedule 4-F; and
(iii) leases set forth in Schedule 4-F. Seller represents that Schedule 4-F
sets forth a list of all assets, equipment, vehicles, properties, and rights,
waste compaction bodies, containers,
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<PAGE> 5
machinery, shop tools and miscellaneous equipment, office furniture, fixtures,
computer hardware/software and equipment owned by the Company which have a net
book value in excess of $1,000 as of the date of this Agreement (hereinafter
sometimes referred to as the "Operating Equipment"); such list identifies the
Operating Equipment by manufacturer, model number and serial number, where
available.
2. Except as set forth in Schedule 4-F, all of the Operating Equipment is,
in due regard to its age, in good operating condition (normal wear and tear
excepted), and is in adequate condition to service the Company's Customer
Accounts (as hereinafter defined) and to conduct the operations of the Company
as it exists on the Closing Date.
3. To the knowledge of the Seller there has not been any material adverse
change in the Operating Equipment, in the aggregate, since the inspection of
such Operating Equipment by Buyer on March 24, 1999. G. LIABILITIES. Except as
set forth in Schedule 4-G attached hereto, or in any other Schedule or Exhibit
delivered pursuant hereto, neither the Company nor its assets or properties are
subject to any liabilities or obligations (accrued, absolute, contingent or
otherwise), and the Company is not in material default in respect of any
material term or condition of any material indebtedness or liability. The
transactions contemplated by this Agreement do not and will not subject the
Company or the Buyer to any claim or liability for any obligation, debt or
contract other than specifically disclosed in this Agreement and the Schedules
attached hereto. Except as set forth in Schedule 4-G attached hereto, all
required consents of creditors and customers have been obtained for performance
of this Agreement.
H. CUSTOMER ACCOUNTS, MUNICIPAL CONTRACTS AND RELATED MATTERS.
1. "Customer Accounts" are the current commercial, industrial and
residential customers of the Company pursuant to which the Company provides
waste removal, collections, storage and/or disposal on a frequency which is
greater than once per year. Said Customer Accounts are listed on Schedule 4-H
attached hereto. (Each of the Customer Accounts listed in Schedule 4-H shall
identify the name and address of each of the Customer Accounts, and shall
reflect as to each the current monthly billing amount and frequency of
service.)
2. Also included in Schedule 4-H is a true, accurate and complete listing
of all written service agreements, franchises, licenses or other contracts
equal or greater than $5,000 annually, if any, for the collection and
transportation of waste to which the Company is a party and which relate to
Customer Accounts. Original copies of all such contracts shall be delivered by
the Seller to the Buyer no later than the Closing Date, and such copies shall
be true, accurate and complete and shall include all amendments, supplements or
other modifications to such contracts. Except as disclosed in Schedule 4-H, to
the knowledge of the Seller, neither the Company nor any other party to any of
the Company's municipal contracts or Customer Accounts is in material default
or alleged to be in material default thereunder and as
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<PAGE> 6
of Closing, and to the knowledge of Seller, there exists no condition or event
which, after notice or the lapse of time or both, would constitute such a
material default. The sale, transfer and assignment of the Brehm Common Stock
will not result in a breach, violation or default of any of the Company's
municipal contracts or Customer Accounts.
3. Except as otherwise disclosed in Schedule 4-H, the Seller knows of no
oral or written communication, fact, event or action other than industry
consolidation or other general economic conditions, which exists or has
occurred within 90 days prior to the date of execution of this Agreement, which
would cause a reasonable person to conclude that any current customers of the
Company intends to terminate its business relationship with the Company.
4. Except for deminimis amounts, to the knowledge of the Seller, none of
the Customer Accounts, service agreements, franchises, licenses, or other
contracts for collection and transportation of waste, in any manner involve the
collection or transportation of waste materials classified as hazardous, toxic,
chemical or radioactive under the laws of the United States or the Commonwealth
of Pennsylvania or under any rules or regulations promulgated by any
administrative agency thereof.
I. MATERIAL CONTRACTS. Attached hereto as Schedule 4-I is a list and brief
description, as of the date of this Agreement, of material leases, contracts,
commitments, agreements and other documents to which the Company is a party or
by which it is bound and which is related to the operation of its business.
Except for contracts and documents listed in Schedule 4-I, the Company is not a
party to or bound by any written or oral (i) contracts not made in the ordinary
course of business; (ii) employment contracts, other than those terminable at
the will of the Company; (iii) contracts with any labor union or association;
(iv) bonus, pension, profit sharing, retirement, hospitalization, insurance or
other plan providing employee benefits; (v) leases with respect to any
property, real or personal, whether as lessor or lessee; (vi) continuing
contracts for the future purchase of materials, supplies or equipment in excess
of the requirements of its business now booked; (vii) contracts or commitment
for capital expenditures; (viii) contracts continuing over a period of more
than six (6) months from its date; or (ix) material contracts necessary to
conduct the operations and business of the Company. A true copy of each written
contract, commitment and agreement listed on Schedule 4-I has been furnished to
Buyer prior to Closing.
J. EMPLOYEES - LABOR MATTERS. Attached hereto as Schedule 4-J is a
complete list of all employees of the Company whose duties are related to the
operation of the business of the Company. Seller warrants there exists no
pending or, to the knowledge of Seller, threatened actions by any of its
employees alleging sex, age, race, or other discriminatory practices, no
current effort to organize these employees into collective bargaining units,
and no collective bargaining agreement is now in effect. There are no
contracts, written or oral, between the Company and any of its employees,
except as specifically disclosed in Schedule 4-J.
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<PAGE> 7
K. INSURANCE. As of the Closing, the Company maintains in effect insurance
policies covering its assets and business as set forth in Schedule 4-K in the
amount identified therein. Except as set forth in Schedule 4-K attached hereto,
there are no pending material property damage or personal injury claims against
the Company or any of its assets.
L. LICENSES AND PERMITS. The Company possesses all licenses and other
required governmental or official approvals, permits or authorizations, if any,
of which the failure to possess would have a material adverse effect on the
business, financial condition or results of operations of the Company, taken as
a whole, including, without limitation, all common carrier rights, certificates
of public need, waste material transportation permits, trademarks and trade
names necessary to carry on its business as now being conducted, without known
conflict with valid licenses, permits, trademarks and trade names of others.
All such licenses and permits are in full force and effect, and Seller has
received no notices of any violations thereof which remain uncured as of the
Closing Date. There is no proceeding pending, or to the knowledge of Seller
threatened, to revoke, suspend or otherwise limit such licenses or permits. A
list of such licenses and permits is set forth on Schedule 4-L.
M. TAX MATTERS. Except as set forth in Schedule 4-M, the Company has
timely filed all federal, state, sales tax, franchise tax, and other tax
returns which are required to be filed by it and has paid or has made provision
for the payment of all taxes which have or may become due pursuant to said
returns. All taxes, including, without limitation, withholding and social
security taxes due with respect to the Company's employee, federal and state
income tax liabilities, corporate franchise taxes, sales, use, excise and ad
valorem taxes, due and payable by the Company on or before the Closing Date
have or will be paid. The Company has filed all reports required to be filed by
it with all such taxing authorities.
N. LITIGATION. Except as disclosed in Schedules 4-N and 4-H attached
hereto, the Company has not received any written notices of material default
and is not in material default of (a) any order, writ, injunction or decree of
any court, or any federal, state, municipal or other governmental department,
commission, board, bureau or instrumentality, or (b) any agreement or
obligation to which the Company is a party or by which the Company is bound or
to which the Company or any of the property of the Company's may be subject.
Except as disclosed in Schedules 4-N and 4-H, there are no material outstanding
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Seller, threatened against the Company or which affect the
Company or any of its assets or property, at law or in equity before or by any
federal, state, municipal court or other governmental department, authority,
commission, board, bureau, agency or instrumentality.
O. COMPLIANCE WITH LAWS. Except as otherwise disclosed in Schedule 4-O
attached hereto, the Company is in compliance in all material respects with all
federal, state, and local laws, ordinances, regulations, rules, and orders
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<PAGE> 8
applicable to it or to its assets including, without limitation, all laws and
regulations relating to the protection of the environment, the safe conduct of
the Company's business, anti-competitive practices, discrimination, employment,
wage and hour practices and health. The Company has not received notification
of any asserted past or present failure to comply with any of such laws or
regulations which remain unsecured as of the Closing Date.
P. ENVIRONMENTAL MATTERS Except as disclosed in Schedule 4-P attached
hereto, there are no claims, actions, suits, proceedings or investigations
relating to any Environmental Law (as hereinafter defined) pending or to the
knowledge of Seller threatened against the Company. Except as set forth on
Schedule 4-P attached hereto to the knowledge of Seller: (i) no release of any
hazardous substance or regulated substance has occurred or is occurring as a
result of the business of the Company; (ii) no hazardous substance or regulated
substance is currently present at, or has been previously generated, stored,
treated or disposed of at any landfill by the Company or through the conduct of
the business of the Company except deminimis amounts mixed with household
waste; (iii) no underground or partially underground storage tank has been or
is currently located at any facility of the Company; (iv) the business,
activities and processes heretofore conducted by the Company comply in all
material respects with all applicable Environmental Laws; (v) no facility of
the Company is listed on any list, registry or other compilation of sites that
require, or potentially require, removal, remedial action or any other response
under any Environmental Law as the result of the presence, release or potential
release of any hazardous substance or regulated substance; (vi) neither Seller
nor the Company has received any notice that the Company is liable or
responsible, or potentially liable or responsible, for any costs of any
removal, remedial action or other response under any Environmental Law as the
result of the presence, release or potential release of any hazardous substance
or regulated substance; and (vii) there is no pending litigation or
administrative proceeding (and Seller does not know of any potential or
threatened litigation or administrative proceeding) in which it is asserted
that the Company has materially violated or is not in materially compliance
with any material Environmental Law. "Environmental Law" means all laws,
statutes or acts of the United States of America, the Commonwealth of
Pennsylvania, or any political subdivision thereof as of the date hereof, that
relate to the condition of the air, ground or surface water, land or other
parts of the environment, to the release or potential release of any substance
or radiation into the air, ground or surface water, land or other parts of the
environment, or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or other handling of substances that might
pollute, contaminate or be hazardous or toxic if present in the air, ground or
surface water, land, or other parts of the environment. To the knowledge of
Seller, the landfills and other disposal sites to which waste material
transported by the Company has been delivered are properly licensed pursuant to
applicable Environmental Laws to receive the material disposed of therein.
Q. NO BROKERS'S OR AGENT'S FEES. No agent, broker, finder, representative
or other person or entity acting pursuant to authority of the
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<PAGE> 9
Seller will be entitled to any commission or finder's fee in connection with
the origination, negotiation, execution or performance of the transactions
contemplated under this Agreement.
R. NO MATERIAL OR ADVERSE CHANGE. Except as otherwise disclosed in
Schedule 4-R attached hereto, since December 31, 1998, there has not been: (i)
any material adverse change in the financial condition, assets, liabilities,
business or results of operations of the Company; (ii) to the knowledge of the
Seller, any threatened or prospective event or condition of any character
whatsoever which could materially and adversely affect the business, financial
condition or results of operations of the Company; (iii) any sale or other
disposition of any of the Company's assets other than the ordinary course of
business; or (iv) any damage, destruction or loss (whether or not insured)
materially and adversely affecting the property, business or prospects of the
Company.
S. DUE AUTHORIZATION AND ABSENCE OF BREACH. This Agreement and all other
agreements of the Seller executed in connection herewith constitute valid and
binding obligations of the Seller, enforceable in accordance with their
respective terms. Except as set forth in Schedule 4-S attached hereto, neither
the execution and delivery of this Agreement (or any agreement contemplated
hereunder) nor the consummation of the transactions contemplated hereby will:
(i) conflict with or violate any provision of the Articles of Incorporation or
By-Laws of the Company; (ii) conflict with or violate any decree, writ,
injunction or order of any court or administrative or other governmental body
which is applicable to, binding upon or enforceable against the Company or
Seller; or (iii) result in any breach of or default (or give rise to any right
of termination, cancellation or acceleration) under any mortgage, contract,
agreement, indenture, will, trust or other instrument which is either binding
upon or enforceable against the Seller or the Company or its assets.
T. AUTHORITY TO CONTRACT. Except for the consent of the lenders listed in
Schedule 4-T attached hereto which will be satisfied as of Closing, Seller has
the full power, right and authority to enter into and perform this Agreement
without the consent of any person, entity or governmental agency, and the
consummation of the transactions contemplated by this Agreement will not result
in the breach or termination of any provision of or constitute a default under
any lease, indenture, mortgage, deed of trust or other agreement or instrument
or any order, decree, statute or restriction to which Seller or the Company is
a party or by which the Company is bound or to which the outstanding shares of
stock of the Company or any of the properties of the Company is subject.
U. ACCURACY OF THE INFORMATION FURNISHED BY THE SELLER. No representation,
statement or information made or furnished by the Seller to the Buyer contained
in this Agreement and the various exhibits attached hereto contain any untrue
statement of any material fact or omit any material fact necessary to make the
information contained therein not misleading. As used herein, the term
"knowledge of Seller" or any derivative thereof, shall mean
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<PAGE> 10
the actual knowledge of Charles Brehm without investigation. All
representatives set forth in this Section 4 are made as the Closing Date unless
otherwise indicated to the contrary. Seller makes no other representation or
warranty, express or implied, to Buyer except those representations and
warranties set forth in this Section 4.
5. REPRESENTATION AND WARRANTIES OF BUYER. In order to induce the Seller
to enter into this Agreement and to consummate the transactions contemplated
hereunder, the Buyer hereby makes the following representations and warranties
to, and covenants and agreements with, Seller:
A. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all the requisite corporate power and authority to carry on its business as
now conducted and to consummate the transactions contemplated by this Agreement
and is authorized to do business in the Commonwealth of Pennsylvania.
B. AUTHORITY TO CONTRACT. The execution, delivery and performance of this
Agreement and the documents executed in connection herewith by Buyer has been
duly approved by its Board of Directors, and no further corporate action is
necessary on the part of Buyer to consummate the transactions contemplated by
this Agreement. This Agreement and all other agreements of the Buyer
contemplated hereunder constitute valid and binding obligations of the Buyer,
enforceable in accordance with their respective terms. Neither the execution
and delivery of this Agreement (or any agreement contemplated hereunder) nor
the consummation of the transactions contemplated hereby will: (i) conflict
with or violate any provision of the Articles of Incorporation or By-Laws of
the Buyer; (ii) conflict with or violate any decree, writ, injunction or order
of any court or administrative or other governmental body which is applicable
to, binding upon or enforceable against the Buyer; or (iii) result in any
breach of or default (or give rise to any right of termination, cancellation or
acceleration) under any mortgage, contract, agreement, indenture, will, trust
or other instrument which is either binding upon or enforceable against the
Buyer or its assets.
C. NO BROKER'S OR AGENT'S FEES. No agent, broker, finder, representative
or other person or entity acting pursuant to the authority of the Buyer will be
entitled to any commission or finder's fee in connection with the origination,
negotiation, execution or performance of the transactions contemplated under
this Agreement.
D. ACCURACY OF INFORMATION FURNISHED BY BUYER. No representation,
statement or information made or furnished by Buyer to the Seller in this
Agreement contains, or shall contain any untrue statement of any material fact
or omits or shall omit any material fact necessary to make the information
contained herein true.
E. REGISTRATION. The EarthCare Common Stock delivered to Seller on the
Closing Date has been duly registered with the Securities and Exchange
Commission (the "SEC") on Form S-1 effective December 9, 1998, and such
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<PAGE> 11
registration statement is true and correct in all material respects and does
not omit to state any material information necessary to make such registration
statement not misleading.
F. REPORTS AND FINANCIAL STATEMENTS. Buyer has made available to Seller a
copy of each report, schedule, registration statement and definitive proxy
statement filed by Buyer with the SEC since September 1, 1998 (as such
documents have since the time of their filing been amended, the "Buyer SEC
Reports") which are all the documents (other than preliminary material) that
Buyer was required to file with the SEC since such date. As of their respective
dates, the Buyer SEC Reports complied in all material respects with the
requirements of the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Buyer SEC Reports. As of
their respective dates, the Buyer SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statement therein, in light of the
circumstances under which they were made, not misleading.
The audited consolidated financial statements and unaudited interim
financial statements of Buyer included in such reports (the "Buyer Financial
Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto and except with respect to unaudited statements
as permitted by Form 10-Q of the SEC) and fairly present the financial position
of Buyer and its subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods of then ended,
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
1. Absence of Undisclosed Liabilities. Except for matters
disclosed in the Buyer SEC Reports, neither Buyer nor any of its subsidiaries
had at December 31, 1998, or has incurred since that date, any liabilities or
obligations whether absolute, accrued, contingent, or otherwise) of any nature,
except liabilities, obligations or contingencies (i) which are accrued in the
ordinary course of business or reserved against in the Buyer Financial
Statements or reflected in the notes thereto or (ii) which were incurred after
December 31, 1998, and were incurred in the ordinary course of business and
consistent with past practices, and except, in either case, for any such
liabilities, obligations or contingencies which would not, in the aggregate,
have a material adverse effect.
2. No Restrictions Regarding the EarthCare Stock. Except as set
forth in the Lock-up Agreement, the EarthCare Common Stock to be issued
pursuant to the provisions of Section 1B(i) will, upon the issuance thereof, to
the Seller, be (a) validly issued, fully paid, nonassessable and free and clear
of any liens or encumbrances or any restrictions regarding the transferability
thereof including, without limitation, any restrictions imposed pursuant to the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, or any applicable "blue sky" laws and (b) duly registered and freely
tradeable on NASDAQ.
3. Information Supplied. None of the information to be supplied
by Buyer, or their respective auditors, attorneys, financial advisors or other
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<PAGE> 12
consultant or advisors, for inclusion in any documents to be filed with any
federal or state regulatory agency in connection with the transactions
contemplated hereby will, at the respective times of the filings, contain any
untrue statement of a material fact or omit to make the statements therein, in
light of the circumstances under which they were made, not misleading or
necessary to correct any statement in any earlier such filing.
6. ADDITIONAL AGREEMENT OF THE SELLER.The Seller further agrees with the
Buyer as follows:
A. DISCLOSURE OF FINANCIAL DATA. Seller acknowledges that Buyer is a
publicly-traded corporation and that Buyer will be required under the
applicable securities laws to publicly disclose detailed financial data
concerning the Company's operations.
B. EXECUTION OF FURTHER DOCUMENTS BY SELLER. From and after the Closing,
upon the reasonable request of the Buyer at Buyer's expense, the Seller shall
execute, acknowledge and deliver such documents as may be appropriate to carry
out the transactions contemplated by this Agreement.
C. INDEMNIFICATION BY SELLER.
1. The Seller will indemnify, defend and hold the Buyer harmless from and
against any and all damage, loss, cost, deficiency, assessment, liability or
other expense (including reasonable attorney's fees, costs of court and
litigation expenses, if any) suffered, incurred or paid by the Buyer as a
result of:
(a) The untruth, inaccuracy, breach or violation of any
representation, warranty, covenant or other obligation of the Seller set forth
in this Agreement or such other documents executed in connection herewith.
(b) The assertion against the Buyer or the Company of any liability or
obligation of the Company or of any claim relating to the operation of the
Company's waste collection and transportation business, prior to the Closing
Date, whether absolute or contingent, matured or unmatured, as of the Closing
Date (including, without limitation, customer claims or disputes and excluding
accounts payable and other liabilities disclosed to Buyer).
(c) The enforcement of the Buyer's right to indemnification under this
Agreement.
2. The Buyer shall give written notice to the Seller (and Escrow Holder if
within 6 months of the Closing Date) of any bona fide claim, for indemnity
against Seller not later than ten (10) days after Buyer has received notice or
become aware thereof. Seller shall have the right, at his option, to compromise
or defend, at his own expense and by his own counsel (which counsel shall be
reasonably satisfactory to Buyer), any such action, suit or
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<PAGE> 13
proceeding. Buyer and Seller agree to cooperate in any such defense or
settlement and to give each other full access to all information relevant
thereto.
3. The Holdback Shares and Holdback Cash shall constitute security for
Seller's indemnification. The Holdback Shares and Holdback Cash shall be placed
in escrow with a third party as agreed upon by Buyer and Seller. Payments, on
account of any such claims, if any, shall be made with 40% cash and 60% stock,
such stock being Valued as of the Closing Date. Buyer and Seller shall each pay
50% of the cost attributable to the escrow account. If Buyer makes no claim of
breach of any of Seller's representations, warranties or covenants, then the
Holdback Shares and Holdback Cash shall be delivered in full to Seller within
one hundred eighty days of the Closing Date. In addition, Holdback Shares and
Holdback Cash in amounts exceeding Buyer's claims shall be delivered to Seller
within one hundred eighty days of the Closing Date.
4. If Buyer asserts there has been a breach of any of Seller's
representations, warranties or covenants, then Buyer shall notify Seller in
writing setting forth the nature of the breach and/or the amount of loss,
damage, cost or expense, as provided above. A claim or claims by Buyer against
Seller must total at least seven thousand five hundred dollars ($7,500.00) in
the aggregate before Seller is liable for indemnification; however, once
Buyer's claim(s) total at least seven thousand five hundred dollars ($7,500.00)
in the aggregate, then Seller shall be liable for the incremental amount above
$7,500.00. The balance of the Holdback Shares and Holdback Cash shall be
delivered to Seller on the date on which any unresolved claim asserted by Buyer
against Seller is finally resolved.
5. Seller's liability in connection with this Agreement shall in no event
exceed the amount paid (with the EarthCare Common Stock being Valued as of the
date hereof) for the Brehm Common Stock. Any claims of Buyer arising after 180
days from the Closing Date may be satisfied by Seller with cash or EarthCare
Common Stock(Valued as of the date hereof), or any combination thereof, at the
option of Seller. Seller's liability to Buyer or its affiliates for claims made
under or in connection with this Agreement (whether such claim is for indemnity
hereunder, or a claim based on breach of contract, warranty, tort or otherwise)
shall in no event exceed the amount of cash paid to Seller plus the shares of
EarthCare Common Stock delivered to Seller.
7. ADDITIONAL AGREEMENT OF THE BUYER.
A. EXECUTION OF FURTHER DOCUMENTS BY BUYER. From and after the Closing,
upon reasonable request of Seller at Seller's expense, Buyer shall execute,
acknowledge and deliver to Seller all such further documents as may be
appropriate to carry out the transactions contemplated by this Agreement.
B. INDEMNIFICATION BY BUYER.
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<PAGE> 14
1. The Buyer will indemnify and hold the Seller harmless from and against
any and all damages, loss, cost, deficiency assessment, liability or other
expense (including reasonable attorney's fees, costs of court and costs of
litigation, if any) suffered, incurred or paid by the Seller as a result of:
(a) The untruth, inaccuracy, breach or violation of any
representation, warranty, covenant or other obligation of the Buyer set forth
in or made in connection with this Agreement;
(b) The assertion against the Seller of any liability or
obligation of the Buyer or the Company or of any claim relating to the
operation of the Company's waste collection and transportation business
subsequent to the Closing Date (including, without limitation, customer claims
or disputes); or
(c) The enforcement of the Seller's right to indemnification under
this Agreement.
2. The Seller shall give written notice to the Buyer of any claim, action,
suit or proceeding relating to the indemnity herein provided by Buyer not later
than ten (10) days after Seller has received notice thereof. Buyer shall have
the right, at its option, to compromise or defend, at its own expense and by
its own counsel (which counsel shall be reasonably satisfactory to Seller), any
such action, suit or proceeding. Seller and Buyer agree to cooperate in any
such defense or settlement and to give each other full access to all
information relevant thereto.
3. Except as herein expressly provided, the remedies provided in paragraph
7.B hereof shall be cumulative and shall not preclude assertion by the Seller
of any other rights or the seeking of any other remedies available against the
Buyer at law or in equity.
C Buyer shall promptly notify Seller in writing upon receipt by Buyer of
notice of any pending or threatened tax audits or assessments against the
Company for the tax periods of the Company which include any time periods prior
to the Closing Date. Seller shall have the exclusive right, at his own expense,
to control any audit or determination by any taxing authority or other
governmental body, initiate any claim for refund or amended return, and
contest, resolve and defend against any assessment, notice of deficiency, or
other adjustment or proposed adjustment of taxes for any taxable period
described in the immediately preceding sentence, and the Seller shall retain
all rights with respect to any tax refunds that may be due or payable with
regard to any such taxable periods.
In furtherance of the above, Buyer will cooperate fully with and, if
requested by the Seller, will appoint Seller as a duly authorized officer of
the Company solely for purposes of conducting any audits or examinations with
respect to any of the tax returns described in the immediately preceding
paragraph or any tax return with respect to which, or as the result of which,
the Seller may have any liability, negotiating and approving all changes or
adjustments to such tax returns or any tax return with respect to which, or as
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<PAGE> 15
the result of which, the Seller may have any liability, and negotiating,
approving and executing all agreements (including closing agreements) with the
appropriate taxing authorities or other governmental bodies at the conclusion
of any such audits or examinations, which shall binding upon the Company and
Buyer. The Seller shall have sole and exclusive authority with respect to the
conduct, negotiation and settlement of any such audits or examinations;
provided, however, that (1) with respect to any matters that may adversely
affect the Buyer or the Company after the Closing Date, the Seller shall
consult with, and consider in good faith, the suggestions of the Buyer or
Company, and the Seller shall not settle any such matter without Buyer's
written consent, which consent will not be unreasonably withheld and (2)
nothing set forth in this Section 7.C will alter or affect Buyer's right to
receive, or the Sellers' obligation to provide, indemnity pursuant to Section 6
of the Agreement.
Buyer, upon the request of the Seller, will, at any time and from time
to time, afford to the Seller, or any representative of Seller, full and
complete access to the books and records of the Company (including all
accounting, financial and tax records) as shall be necessary to permit the
Seller and the Company to effectuate the provisions of this Section 7.C and, in
connection therewith, Buyer will make available, or cause to be made available,
to the Seller, such qualified personnel of as the Seller shall reasonably
request to assist in the compilation of the information necessary to prepare
and file the tax returns referred to in this Section 7.C as well as may be
necessary to respond to any audit that may be conducted from time to time with
respect to such tax returns or any other tax returns filed by the Company on or
prior to the Closing Date.
Buyer agrees to not amend or cause to be amended any income tax return
filed by the Company for tax years ending on or before the Closing Date,
without obtaining the consent of Seller.
D Confidentiality. Purchaser will maintain in confidence any confidential
or proprietary written, oral, or other information obtained from the Seller in
connection with this Agreement including, without limitation, the tax returns
of the Company prior to the date hereof (it being understood that, in all
events, such information may be disclosed to the Seller's affiliates,
representatives and financing providers), unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault or such party,
(b) the use of such information is necessary in making any filing or obtaining
any consent or approval required for the consummation of the transactions
contemplated under the Agreement, or (c) the furnishing or use of such
information is required by or necessary in connection with a legal requirement
or proceeding.
8. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligations of the Buyer to
effect the transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing Date of each of the following
conditions:
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A. OPINION OF COUNSEL FOR SELLER. The Buyer shall have received an
opinion from counsel for the Seller dated the date of the Closing, in the form
of Exhibit 8.A, attached hereto.
B. RECEIPT BY THE BUYER OF NECESSARY CONSENTS. All necessary consents or
approvals of third parties to any of the transactions contemplated hereby shall
have been obtained, and satisfactory evidence of such consents or approvals
shall have been delivered to the Buyer at Closing.
C. RESIGNATION OF OFFICERS AND DIRECTORS. Buyer shall have received such
resignations of officers and directors of the Companies as shall have been
requested by Buyer.
9. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations of the
Seller to effect the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions:
A. PRE-CLOSING OBLIGATIONS. The Buyer shall have performed and complied
with all the obligations and conditions required by this Agreement to be
performed or complied with by Seller at or prior to the Closing Date, including
the execution and delivery of all documents and contracts required to be
delivered at or before the Closing Date pursuant to this Agreement.
B. CORPORATE AUTHORITY OF BUYER. The execution and performance of this
Agreement by the Buyer shall have been duly and legally authorized in accordance
with applicable law, and the Buyer shall have furnished to counsel for the
Seller certified copies of resolutions adopted by the Board of Directors of the
Buyer authorizing and approving the execution and delivery of this Agreement and
performance of the transactions contemplated hereunder.
C. OPINION OF COUNSEL FOR BUYER. The Seller shall have received an
opinion from counsel for the Buyer dated the date of the Closing, in the form
of Exhibit 9.C., attached hereto.
10. SELLER'S NON-COMPETE AND NON-SOLICITATION AGREEMENT. As inducement to
Buyer to enter into this Agreement and perform its obligations hereunder, and
in consideration of the payments to Seller pursuant to this Agreement, the
Seller agrees that Seller will not, for period of five (5) years from the
Closing Date, directly or indirectly (whether as owner, partner, shareholder,
agent, employee, independent contractor, consultant or otherwise): (i) engage
in the waste management business, waste collection and transportation business,
landfill business, or any other business which
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<PAGE> 17
directly competes with business of the Buyer, or with any subsidiary of Buyer
as of the date of Closing, within, in each case, within the Counties of
Chester, Burks, Montgomery, or Lehigh, Commonwealth of Pennsylvania; (ii)
solicit any party who is or was a customer or supplier of the Company on the
closing Date or at any time during the 12 month period immediately prior
thereto for services of any type or quality being provided by the Company;
(iii) with the exception of Seller's son, solicit for employment any person who
was or is an employee of the Company on the Closing Date, or at any time during
the 12 month period immediately prior thereto (provided, however, that the
exception for Seller's son shall not be construed as diminishing Seller's
covenants contained in this Article); or (iv) either directly or indirectly,
divulge, disclose, or communicate to any person, firm or corporation in any
manner whatsoever any confidential information relating to the business of
Buyer, or the Company. The term, "confidential information", as used herein
means all information of a business or technical nature relative to the
business of Buyer, the business of any customers of the Company or any business
of any person, firm or corporation which consults with, or is affiliated with,
Buyer or the Company. The term "confidential information" shall not include
information in the public domain. Notwithstanding the foregoing, confidential
information may be disclosed to the extent required by law or court order.
Each of the covenants contained in this Article are separate and independent.
The Seller acknowledges and agrees that Buyer's and Company's remedies at law
may be inadequate in the event of a breach or threatened breach of the
covenants set forth herein, and in such event, Buyer and the Company shall be
entitled to seek an injunction issued by any court of competent jurisdiction,
enjoining and restraining each and every party concerned therewith from the
creation or continuation of such breach.
11. OTHER PROVISIONS.
A. CONSULTING AGREEMENT. At Closing, Buyer will enter into a written
Consulting Agreement with Seller in a form substantially similar to Exhibit
11-A.
B. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, obligations and agreements of the parties contained in this
Agreement, or in any writing delivered pursuant to provisions of this
Agreement, shall survive the Closing for a period of two (2) years with the
exception of representations and warranties concerning Paragraph 4.M. hereof,
Tax Matters and Paragraph 4.P. hereof, Environmental Matters, which will
survive for as long as any claims may be asserted under the applicable periods
of limitation for violations of any tax (without extension) or environmental
law, rule or regulation. All claims shall be made within the applicable
survival period.
C. WAIVER OR EXTENSION OF CONDITIONS. The Seller or the Buyer may extend
the time for or waive the performance of any of the obligations of the other
party, waive any inaccuracies in the representations or warranties by the
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<PAGE> 18
other party, or waive compliance by the other party with any of the covenants
or conditions contained in this Agreement. Any such extension or waiver shall
be in writing and signed by the Seller and the Buyer. Any such extension or
waiver shall not act as a waiver or an extension of any other provisions of
this Agreement.
D. NOTICES. Any notice, request or other document shall be in writing and
sent by registered or certified mail, return receipt requested, postage prepaid
and addressed to the party to be notified at the following addresses, or such
other address as such party may hereafter designate by written notice to all
parties, which notice shall be effective as of the date of posting:
(i) If to the Buyer:
EarthCare Company
14901 Quorum Drive
Suite 200
Dallas, TX 75240
Copy to: Robert C. Gist, Esq.
12809 Plum Hollow Drive
Oklahoma City, OK 73142-5148
(ii) If to the Seller:
Charles Brehm
315 Townshipline Road
Douglasville, PA 19518
Copy to: Frank M. Macerato, Esq.
Stevens & Lee, P.C.
111 North Sixth Street
Reading, PA 19603
E. GOVERNING LAW. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
F. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns.
G. HEADINGS. The subject headings of the Sections of this Agreement are
included for purposes of convenience only and shall not affect the construction
or interpretation of any of its provisions.
H. 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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I. ARBITRATION. Any controversy or claim arising out of, in connection
with, or relating to this Agreement or a breach thereof shall be settled by
arbitration under the arbitration rules of the American Arbitrators
Association. The arbitration proceeding shall be governed by the statutes of
the Commonwealth of Pennsylvania, and the proceeding shall be held in Reading,
Pennsylvania. The arbitration panel shall be comprised of three arbitrators.
Each party shall appoint one arbitrator for the panel and the two so appointed
shall appoint a third. The panel shall resolve the dispute within sixty (60)
days of the appointment of the panel and shall notify the parties of its
findings in writing. Each party agrees to bear its own costs of arbitrators and
to split equally the cost of the third arbitrator.
Anything to the contrary contained in the above mentioned rules and statutes
notwithstanding, the parties consent that any papers, notices, or process
necessary or proper for the institution or continuance of, or relating to any
arbitration proceeding, or for the confirmation of an award and entry of
judgement on any award made, including appeals in connection with any judgement
or award, may be served on each of the parties by registered mail addressed to
the party at the notice address set forth above, or by personal service on the
party in or without the above mentioned State. The parties hereby recognize and
consent to the above mentioned arbitration association's jurisdiction over each
and every one of them.
J. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the schedules
attached hereto) and the documents delivered pursuant hereto constitute the
entire agreement and understanding between the parties, and supersede any prior
agreements and understandings relating to the subject matter hereof. This
Agreement may be modified or amended by a written instrument executed by all
parties hereto.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
31st day of March, 1999
"Seller"
- -------------------------------------
Charles Brehm
"Buyer"
EarthCare Company
By:
----------------------------------
James Farrell, Vice-President
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<PAGE> 1
EXHIBIT 10.3
This Agreement and Plan of Merger (the "Agreement"), is made
and entered into this _____ day of April, 1999 between and among EARTHCARE
COMPANY, a Delaware corporation ("EarthCare"), EC ACQUISITIONS, INC., a Georgia
corporation ("Subsidiary"), which is a wholly-owned subsidiary of EarthCare,
NATIONAL PLUMBING & DRAIN, INC., a Georgia corporation ("National" or
"Company"), Vince Hils, Matthew H. Patton, George Propes, Elizabeth Renee Propes
and David Christopher Propes (collectively, the "Shareholders"). Vince Hils and
George Propes are sometimes referred to collectively as the "Covenanting
Shareholders".
WITNESSETH:
1. The Shareholders own all of the outstanding capital stock
of National.
2. The respective boards of directors of EarthCare, Subsidiary
and the Company have approved the merger of the Company with and into Subsidiary
(the "Merger") upon the terms and subject to the conditions set forth herein and
have approved this Agreement as a "plan of reorganization" within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended (the "Code").
3. EarthCare, the sole shareholder of Subsidiary, and the
Shareholders have approved the Merger upon the terms and subject to the
conditions set forth herein.
<PAGE> 2
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, and agreements herein contained, the
parties agree as follows:
1. MERGER.
A. Effect of the Merger. In accordance with the provisions of this Agreement,
and the Georgia Business Corporation Code, at the Effective Time (as defined in
Section B hereof), the Company shall be merged with and into Subsidiary; the
separate existence of the Company shall cease; and Subsidiary as the surviving
corporation shall continue its corporate existence under the laws of the State
of Georgia. Pursuant to the Merger, Subsidiary shall possess all the rights,
privileges, powers, and franchises of the Company and shall be subject to all
the restrictions, disabilities, and duties of the Company; all rights,
privileges, powers, and franchises of the Company and all property, real,
personal, and mixed, belonging to the Company shall be vested in Subsidiary;
and all property, rights, privileges, powers, and franchises and every other
interest shall be thereafter as effectually the property of Subsidiary as
they were of the Company, and the title to any real estate vested by deed or
otherwise in the Company shall not revert or be in any way impaired by reason
of the Merger, provided that all rights of creditors and all liens upon any
property of the Company shall be preserved unimpaired and all debts,
liabilities, and duties of the Company shall thenceforth attach to Subsidiary
and may be enforced against Subsidiary to the same extent as if said debts,
liabilities, and duties had been incurred or contracted by Subsidiary.
B. Effective Time of the Merger. The Merger shall become effective when a
properly executed Certificate of Merger is duly filed with the Office of the
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Secretary of State of Georgia, which filing shall be made simultaneously with
the closing of the transactions contemplated by this Agreement in accordance
with Section E below. The date and time when the Merger shall become effective
is referred to as the "Effective Time."
C. Certificate of Incorporation and Bylaws. As a part of the Merger, the
Articles of Incorporation and Bylaws of Subsidiary as in effect at the Effective
Time, shall be the Articles of Incorporation and Bylaws of Subsidiary
immediately after the Effective Time.
D. Officers and Directors. The officers and directors of Subsidiary at the
Effective Time shall be the officers and directors of Subsidiary immediately
after the Effective Time, each to serve until his respective successor is duly
elected and qualified in the manner provided in the Certificate of Incorporation
and Bylaws of Subsidiary, or until his earlier resignation or removal, or as
otherwise provided by law.
E. Time and Place. The closing (the "Closing") of the transactions contemplated
in this Agreement shall occur no later than April 30, 1999, but in any event as
soon as possible (the "Closing Date"), at 115 Perimeter Center Place, Suite 170,
Atlanta, Georgia 30346.
2. CONVERSION AND EXCHANGE OF STOCK.
A. Conversion and Exchange of Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder:
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<PAGE> 4
(1) All shares of capital stock of National which
immediately prior to the Effective Time are held as treasury stock by
National shall be canceled.
(2) All shares of National common stock, par value
$.10 per share (the "National Stock"), other than shares to be
canceled pursuant to Section 2.A(1), shall be converted into the
right to receive the following property and securities (the "Merger
Consideration"), subject to adjustment as provided in Section 2.B,
which shall be divided among the Shareholders as set forth in
Schedule 2.A(2).
(a) Cash consideration in the amount of $1,000,000.
(b) That number of shares of EarthCare common stock,
par value $.0001 per share (the "EarthCare Stock"), which
shall have an aggregate Agreed Value of $1,762,000.
Transfer of the EarthCare Stock shall be restricted until
January 1, 2000 pursuant to the terms of a lock-up
agreement in the form attached hereto as Exhibit
2.A(2)(b).
(c) For purposes of this Agreement, the Agreed Value
per share of the EarthCare Stock shall mean the average of
the closing sale price of a share of EarthCare Stock on
the NASDAQ system as reported in The Wall Street Journal
for the period beginning March 22, 1999 and ending on the
third trading day preceding the Effective Time.
B. Adjustment of Merger Consideration. The Merger Consideration shall be
increased or reduced as provided in this Section 2.B.
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(1) Long Term Liabilities Adjustment. In the event
the liabilities of the Company as of the Closing Date for the payoff
amounts under the leases set forth on Schedule 2.B(1) and under the
promissory notes identified on Schedule 2.B(1) (collectively the
"Long Term Liabilities") are not equal to $513,000, then the cash
portion of the Merger Consideration shall be modified by an amount
equal to $513,000 minus the amount of the Long Term Liabilities.
(2) Accounts Receivable Adjustment. Ninety (90) days
after the Closing Date the stock portion of the Merger Consideration
shall be reduced to the extent by which the sum of (i) the accounts
receivable as of the Closing Date that are not collected within 90
days after the Closing Date plus (ii) the cash, cash equivalents, and
other marketable securities as of the Closing Date is less than the
accounts payable as of the Closing Date (such accounts payable shall
not include any Long Term Liabilities), subject to and in accordance
with the following:
(a) After Closing, Subsidiary will use reasonable
efforts to collect accounts receivable and retainage in
accordance with prudent business practices and in a manner
which will not result in the discount of other accounts
receivable or retainage owed by the same account debtor or
of the terms on which goods or services are provided to
the same account debtor in the future.
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(b) Payments by an account debtor will be applied to
the oldest invoices and retainage first if the account
debtor does not designate application of payments to
specific invoices.
(c) Accounts receivable which are not collected
within 90 days after they arose will be applied to the
allowance for doubtful accounts reflected on the most
recent Balance Sheet, and no reduction to the Merger
Consideration shall be made under this Section 2.B(2)
until the allowance for doubtful accounts reflected on the
Balance Sheet has been reduced to zero.
(d) To the extent an account receivable is not
collected within 90 days after the Closing Date and the
Merger Consideration is reduced under this Section 2.B(2),
Subsidiary will, upon the request of the Shareholders,
assign the account receivable to the Shareholders. Any
such assignment shall be made without recourse to
Subsidiary, and the Shareholders shall indemnify
Subsidiary against any claims which may be asserted by the
account debtor which arose prior to the Closing Date. In
the event such assignment is of only a portion of an
account receivable, the Shareholders and Subsidiary shall
cooperate in the collection thereof.
(e) The number of shares of EarthCare Stock used to
satisfy any adjustment to the Merger Consideration due to
the failure to collect accounts receivable pursuant to
this Section 2.B(2) shall be based upon the closing sale
price of a share of EarthCare Stock on the NASDAQ
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system as reported in The Wall Street Journal for the
trading day immediately preceding the day which is 90 days
after Closing.
B. Payment and Delivery of Merger Consideration. All of the Merger
Consideration, except for 21,000 shares of EarthCare common stock, shall be paid
and delivered to the Shareholders at Closing. The remaining 21,000 shares shall
be held pursuant to the Escrow Agreement in the form attached hereto as Exhibit
2.C for the purpose of effecting any adjustment to the Merger Consideration
required under Section 2.B(2) and as security for Shareholders' indemnification
obligations.
3. DELIVERIES AT CLOSING.
A. Deliveries by Shareholders at Closing. At Closing, the Shareholders and the
Company shall deliver the following Related Documents, each of which shall be
fully executed and completed as appropriate or as required under this Agreement:
(1) all stock certificates representing all shares of
National stock issued and outstanding as of the Effective Time;
(2) the Escrow Agreement referred to in Section 2.C
and in the form attached hereto as Exhibit 2.C;
(3) the opinion of counsel referred to in Section 8.C
and in the form attached hereto as Exhibit 8.C;
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(4) the Consulting Agreement in the form attached
hereto as Exhibit 3.B(5);
(5) all other certificates, documents, and other
instruments required to be delivered by the Company and the
Shareholders pursuant to this Agreement.
B. Deliveries by EarthCare at Closing. At Closing, EarthCare shall deliver the
following Related Documents, each of which shall be fully executed and completed
as appropriate or as required under this Agreement:
(1) The amount of $1,000,000 in the form of certified
check or other immediately available funds (subject to adjustment
pursuant to Section 2.B(1));
(2) the Escrow Agreement referred to in Section 2.C
and in the form attached hereto as Exhibit 2.C;
(3) stock certificates representing all shares of
EarthCare Stock required to be delivered by EarthCare to the
Shareholders at Closing pursuant to this Agreement;
(4) the opinion of counsel to EarthCare referred to
in Section 9.D and in the form attached hereto as Exhibit 9.D;
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(5) the Consulting Agreement in the form attached
hereto as Exhibit 3.B(5).
(6) all other certificates, documents, and other
instruments required to be delivered by EarthCare pursuant to this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. In order to induce EarthCare
and Subsidiary to enter into this Agreement and to consummate the transactions
contemplated hereunder, Covenanting Shareholders hereby make the following
representations, warranties, covenants and agreements:
A. Organization and Existence. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia,
and has all requisite corporate power and authority to carry on its business as
now conducted. The Company is not qualified to do business in any state other
than Georgia, and Georgia is the only state which by the nature of the business
of the Company and the character of the properties owned or leased by it
requires qualification to do business as a foreign corporation. Shareholders
have delivered to EarthCare a true and correct copy of the Articles of
Incorporation (duly certified by the Secretary of State of Georgia) and By-Laws
of the Company (certified by its Secretary).
B. Subsidiaries or Other Entities. Except as disclosed on Schedule 4.B, attached
hereto, Company has no subsidiaries or investments or ownership interests in any
corporations, partnerships, joint ventures or other business enterprises.
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C. Capitalization. The Company is authorized to issue 3,000 shares of common
stock, $.10 par value, of which 3,000 shares are issued and outstanding at the
time of the execution of this Agreement. All of the issued and outstanding
shares of capital stock of the Company (the "National Common Stock") have been
duly issued, are validly outstanding, are fully paid and nonassessable, and are
held of record and beneficially by the Shareholders; there are no outstanding
subscriptions, options, warrants or rights to receive, purchase or subscribe to,
or securities convertible into or exchangeable for, any issued or unissued
shares of the capital stock of the Company. The Company has no liability for
dividends declared but unpaid. Prior to Closing, Shareholders shall not, and
shall not permit the Company, to issue or enter into any subscriptions, options,
agreements or other commitments in respect of the issuance, transfer, sale or
encumbrance of any shares of the National Common Stock.
D. Stock Ownership. Shareholders have, and at the time of Closing will have,
good and marketable title to the National Common Stock, and there are, and at
the time of Closing will be, no impediments to the conversion of the National
Common Stock other than those imposed by the securities laws of the United
States of America and of the various states. Immediately prior to the Effective
Time, the National Common Stock (i) shall constitute all of the issued and
outstanding shares of capital stock of the Company, and (ii) shall be free and
clear of all security interests, liens, charges, pledges, mortgages,
encumbrances or rights of third parties whatsoever.
E. Financial Condition. Attached as Schedule 4.E are the following financial
statements of the Company, all of which are true and complete in all material
respects and have been prepared in accordance with generally accepted accounting
principles consistently applied (except to the extent otherwise reported):
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1. A Balance sheet ("Balance Sheet") of the Company as of
December 31, 1998.
2. Statements of income and cash flow of the Company for the
twelve (12) months ended December 31, 1998. (Collectively, the Balance
Sheets and statements of income and cash flow are hereinafter referred
to as the "Financial Statements").
The Financial Statements are complete and correct and in accordance with the
books of account and records of the Company and present fairly the financial
position of the Company's business and the income, stockholders' equity and cash
flow of the Company's business at the dates and for the periods indicated.
F. Assets.
1. The Company has good and marketable title to, and is in
possession of, all of its assets, equipment, vehicles, properties and
rights, including all properties, assets, vehicles and equipment listed
on Schedule 4.F(1) attached hereto and as shown on the Balance Sheet,
free and clear of all liabilities, mortgages, liens, pledges, security
interests, restrictions, conditional sales agreements, title retention
agreements, charges or encumbrances except as shown on the Balance
Sheet. Shareholder represents that Schedule 4.F(1) sets forth a list of
all equipment, vehicles, properties, containers, machinery, shop
equipment, welders, grinders, work benches, jacks, stands, parts,
office furniture, fixtures, computer hardware/software and equipment
owned by the Company as of
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<PAGE> 12
the date of this Agreement and used in connection with its business
operations (hereinafter sometimes referred to as the "Operating
Equipment"); such list identifies the Operating Equipment by size,
manufacturer, model number and serial number, where available.
2. Except as set forth on Schedule 4.F(2), all of the
Operating Equipment is in good operating condition (normal wear and
tear excepted), has been adequately maintained, and is in adequate
condition to service the Company's Customer Accounts (as herein
defined) and to conduct the operations of the Company as it exists on
the Closing Date.
G. Liabilities. Except as set forth in Schedule 4.G attached hereto or in the
Financial Statements , or in any other exhibit delivered pursuant hereto,
neither the Company nor its assets or properties are subject to any liabilities
or obligations (accrued, absolute, contingent or otherwise), except for
liabilities incurred in the ordinary course of business affairs and the Company
is not in material default in respect of any material term or condition of any
material indebtedness or liability. The transactions contemplated by this
Agreement do not and will not subject the Company or the Subsidiary to any claim
or liability for any obligation, debt or contract other than as specifically
disclosed in this Agreement and the Schedules attached hereto. All required
consents of creditors, if any, have been, or by closing will be, obtained for
performance of this Agreement.
H. Customer Accounts, Municipal Contracts and Related Matters.
1. Schedule 4.H(1) is a true, accurate and complete listing of
all written service agreements, franchises, licenses or other
contracts, if any, to which the
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<PAGE> 13
Company is a party and which relate to accounts of customers. Original
copies of all such contracts shall be delivered by Shareholder to
Subsidiary no later than the Closing Date, and such copies shall be
true, accurate and complete and shall include all amendments,
supplements or other modifications to such contracts. Except as
disclosed in Schedule 4.H(1), to the knowledge of Shareholder, neither
the Company nor any other party to any of the Company's municipal
contracts is in material default or alleged to be in material default
thereunder and there exists no condition or event which, after notice
or the lapse of time or both, would constitute such a default. The
sale, transfer and assignment of the National Common Stock will not
result in a breach, violation or default of any of the Company's
municipal contracts , and all of the Company's municipal contracts will
remain in full force and effect as if there had been no sale, transfer
and assignment thereof.
2. Except as otherwise disclosed in Schedule 4.H(2),
Shareholder knows of no oral or written communication, fact, event or
action which exists or has occurred within 90 days prior to the date of
execution of this Agreement, which would tend to indicate that any
material current customers of the Company intends to terminate its
business relationship with the Company.
I. Material Contracts. Attached hereto as Schedule 4.I is a list and brief
description, as of the date of this Agreement, of certain leases, contracts,
commitments, agreements and other documents to which the Company is a party or
by which it is bound and which is related to the operation of its business.
Except for contracts and documents listed in Schedule 4.I, the Company is not a
party to or bound by any written or oral (i) contracts not made in the ordinary
course of business; (ii) employment contracts, other than those
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<PAGE> 14
terminable at the will of the Company; (iii) contracts with any labor union or
association; (iv) bonus, pension, profit sharing, retirement, hospitalization,
insurance or other plan providing employee benefits; (v) leases with respect to
any property, real or personal, whether as lessor or lessee; (vi) continuing
contracts for the future purchase of materials, supplies or equipment in excess
of the requirements of its business now booked; (vii) contracts or commitment
for capital expenditures; (viii) contracts continuing over a period of more than
six (6) months from its date; or (ix) contracts with annual payments of $25,000
or more necessary to conduct the operations and business of the Company. A true
copy of each contract, commitment and agreement listed on Schedule 4.I will be
furnished to Subsidiary prior to Closing.
J. Employees - Labor Matters. The Company has generally enjoyed a good
employer-employee relationship with its employees. Attached hereto as Schedule
4.J is a complete list of all employees of the Company whose duties are related
to the operation of the business of the Company. Covenanting Shareholders
warrant that to their knowledge there exists no pending or threatened actions by
any employees alleging sex, age, race, or other discriminatory practices, no
current effort to organize these employees into collective bargaining units, and
no collective bargaining agreement is now in effect. There are no contracts,
written or oral, between the Company and any of its employees, except as
specifically disclosed in Schedule 4.J.
K. Insurance. The Company maintains in effect insurance covering its assets and
businesses and any liabilities relating thereto in an amount believed adequate
by Shareholder, and such insurance coverage shall be maintained by the Company
through the Closing Date. Between the date hereof and the Closing Date,
Shareholder shall cause the Company to furnish to the Subsidiary such
information as Subsidiary shall
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<PAGE> 15
reasonably request regarding the Company's insurance. Except as set forth in
Schedule 4.K attached hereto, there are no pending material property damage or
personal injury claims against the Company or any of its assets.
L. Licenses and Permits. The Company possesses all licenses and other required
governmental or official approvals, permits or authorizations, if any, the
failure to possess which would have a material adverse effect on the businesses,
financial condition or results of operations of the Company including, without
limitation, all rights, certificates of public need, waste material
transportation permits, trademarks and trade names necessary to carry on its
business as now being conducted, without known conflict with valid licenses,
permits, trademarks and trade names of others. All such licenses and permits are
in full force and effect, and no violations are or have been recorded in respect
to any thereof, and no proceeding is pending, or to the knowledge of Shareholder
threatened, to revoke, suspend or otherwise limit such licenses or permits. All
licenses and permits will survive the closing of the transactions contemplated
by this Agreement.
M. Tax Matters. Except as disclosed on Schedule 4.M, the Company has timely
filed all federal, state, sales tax, franchise tax, and other tax returns which
are required to be filed by it and has paid or has made provision for the
payment of all taxes which have or may become due pursuant to said returns. All
taxes, including, without limitation, withholding and social security taxes due
with respect to the Company's employee, federal and state income tax
liabilities, corporate franchise taxes, sales, use, excise and ad valorem taxes,
due, payable or accrued by the Company on or before the Closing Date have or
will be paid. The Company has filed all reports required to be filed by it with
all such taxing authorities.
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<PAGE> 16
N. Litigation. Except as disclosed in Schedule 4.N attached hereto, the Company
has not received any notices of material default and is not in material default
of (i) any order, writ, injunction or decree of any court, or any federal,
state, municipal or other governmental department, commission, board, bureau or
instrumentality, or (ii) any material agreement or obligation to which the
Company is a party or by which the Company is bound or to which the Company or
any of the property of the Company's may be subject. Except as disclosed in
Schedule 4.N, there are no material outstanding claims, actions, suits,
proceedings or investigations pending or, to the knowledge of Shareholder,
threatened against the Company or which affect the Company or any of its assets
or property, at law or in equity before or by any federal, state, municipal
court or other governmental department, authority, commission, board, bureau,
agency or instrumentality.
O. Compliance with Laws. Except as otherwise disclosed in Schedule 4.O attached
hereto, the Company is in compliance in all material respects with all federal,
state, and local laws, ordinances, regulations, rules, and orders applicable to
it or to its assets including, without limitation, all laws and regulations
relating to the protection of the environment, the safe conduct of the Company's
business, anti-competitive practices, discrimination, employment, wage and hour
practices and health. The Company has not received notification of any asserted
past or present failure to comply with any of such laws or regulations.
P. Environmental Matters. Except as disclosed in Schedule 4.P attached hereto,
there are no claims, actions, suits, proceedings or investigations relating to
any Environmental Law (as hereinafter defined) pending or threatened against or
affecting the Company. Except as set forth on Schedule 4.P attached hereto: (i)
no release of any
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<PAGE> 17
hazardous substance, medical waste, toxic waste or controlled substance has
occurred or is occurring as a result of the business of the Company; (ii) no
hazardous substance, medical waste, toxic waste or controlled substance is
currently present at, or has been previously generated, stored, treated or
disposed of at any landfill by the Company or through the conduct of the
business of the Company except de minimis amounts mixed with household waste;
(iii) no underground or partially underground storage tank has been or is
currently located at any facility of the Company; (iv) the business, activities
and processes heretofore conducted by the Company comply in all material
respects with all applicable Environmental Laws; (v) no facility of the Company
is listed on any list, registry or other compilation of sites that require, or
potentially require, removal, remedial action or any other response under any
Environmental Law as the result of the presence, release or potential release of
any hazardous substance, medical waste, toxic waste, or controlled substance;
(vi) neither Shareholder nor the Company has received any notice that the
Company is liable or responsible, or potentially liable or responsible, for any
costs of any removal, remedial action or other response under any Environmental
Law as the result of the presence, release or potential release of any hazardous
substance, medical waste, toxic waste, or controlled substance; and (vii) there
is no pending litigation or administrative proceeding (and neither Shareholder
nor the Company knows or has reason to know of any potential or threatened
litigation or administrative proceeding) in which it is asserted that the
Company has violated or is not in compliance with any material Environmental
Law. "Environmental Law" means all laws, statutes or acts of the United States
of America, the State of Georgia, or any political subdivision thereof, that
relate to the condition of the air, ground or surface water, land or other parts
of the environment, to the release or potential release of any substance or
radiation into the air, ground or surface water, land or other parts of the
environment, or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or other handling of
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<PAGE> 18
substances that might pollute, contaminate or be hazardous or toxic if present
in the air, ground or surface water, land, or other parts of the environment.
The Company has not received any written notice to the effect that the landfills
and other disposal sites to which waste material transported by the Company has
been delivered are not properly licensed pursuant to applicable Environmental
Laws to receive the material disposed of therein.
Q. No Broker's or Agent's Fees. No agent, broker, finder, representative or
other person or entity acting pursuant to authority of any Shareholder will be
entitled to any commission or finder's fee in connection with the origination,
negotiation, execution or performance of the transactions contemplated under
this Agreement.
R. No Material or Adverse Change. Except as otherwise disclosed in Schedule 4.R
attached hereto, since December 31, 1998, there has not been: (i) any material
adverse change in the financial condition, assets, liabilities, business or
results of operations of the Company; (ii) to the knowledge of any Shareholder,
any threatened or prospective event or condition of any character whatsoever
which is likely to materially and adversely affect the business, financial
condition or results of operations of the Company; (iii) any sale or other
disposition of any of the Company's assets other than in the ordinary course of
business; or (iv) any damage, destruction or loss (whether or not insured)
materially and adversely affecting the property, business or prospects of the
Company.
S. Due Authorization and Absence of Breach. This Agreement and all other
agreements of Shareholders and Company contemplated hereunder constitute valid
and binding obligations of Shareholders and Company, enforceable in accordance
with their respective terms. Neither the execution and delivery of this
Agreement (or any agreement contemplated hereunder) nor the consummation of the
transactions
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<PAGE> 19
contemplated hereby will: (i) conflict with or violate any provision of the
Articles of Incorporation or By-Laws of the Company; (ii) conflict with or
violate any decree, writ, injunction or order of any court or administrative or
other governmental body which is applicable to, binding upon or enforceable
against the Company or any Shareholder; or (iii) except as set forth on Schedule
4.S result in any breach of or default (or give rise to any right of
termination, cancellation or acceleration) under any mortgage, contract,
agreement, indenture, will, trust or other instrument which is either binding
upon or enforceable against any Shareholder or the Company or its assets.
T. Authority to Contract. Shareholders and Company have the full power, right
and authority to enter into and perform this Agreement without the consent of
any person, entity or governmental agency, and the consummation of the
transactions contemplated by this Agreement will not result in the material
breach or termination of any provision of or constitute a material default under
any lease, indenture, mortgage, deed of trust or other agreement or instrument
or any order, decree, statute or restriction to which Shareholders or the
Company is a party or by which the Company is bound or to which the outstanding
shares of stock of the Company or any of the properties of the Company is
subject.
U. Accuracy of the Information Furnished by Shareholder. No representation,
statement or information made or furnished by Shareholders to Subsidiary
contained in this Agreement and the various exhibits and schedules attached
hereto contains or shall contain any untrue statement of any material fact.
5. REPRESENTATION AND WARRANTIES OF EARTHCARE AND SUBSIDIARY. In order to induce
Shareholders to enter into this Agreement and to consummate the
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<PAGE> 20
transactions contemplated hereunder, EarthCare and Subsidiary jointly and
severally hereby make the following representations, warranties, covenants and
agreements:
A. Organization and Existence. EarthCare and Subsidiary are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and Georgia, respectively, and have all the requisite corporate power
and authority to carry on their business as now conducted and to consummate the
transactions and perform the obligations contemplated by this Agreement.
B. Authority to Contract. The execution, delivery and performance of this
Agreement by EarthCare and Subsidiary have been duly approved by their Board of
Directors, and no further corporate action is necessary on the part of EarthCare
or Subsidiary to consummate the transactions contemplated by this Agreement,
assuming due execution of this Agreement by the Parties. This Agreement and each
other agreement to be executed pursuant to this Agreement has been or, upon
execution and delivery thereof, will have been duly executed and delivered by
EarthCare and Subsidiary and is or will be the valid and binding agreement of
EarthCare and Subsidiary, enforceable against them in accordance with its terms.
C. No Broker's or Agent's Fees. No agent, broker, finder, representative or
other person or entity acting pursuant to the authority of EarthCare or
Subsidiary will be entitled to any commission or finder's fee in connection with
the origination, negotiation, execution or performance of the transactions
contemplated under this Agreement.
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<PAGE> 21
D. Accuracy of Information Furnished by EarthCare and Subsidiary. No
representation, statement or information made or furnished by EarthCare or
Subsidiary to Shareholders in this Agreement, or in connection with the
transactions contemplated hereby , contains, or shall contain any untrue
statement of any material fact or omits or shall omit any material fact
necessary to make the information contained herein or therein true or not
misleading.
E. Registration. The EarthCare common stock delivered to Shareholders on the
Closing Date has been duly registered with the Securities and Exchange
Commission on Form S-1 effective December 9, 1998, and such registration
statement is effective. Such stock has also been registered or is exempt from
registration under the blue sky laws in each of the various applicable states of
the United States.
F. Capitalization. The authorized stock and securities of EarthCare consist of
70,000,000 shares of common stock, $.0001 par value per share, of which
9,930,000 shares are issued and outstanding. The authorized stock and securities
of Subsidiary consist solely of 50,000 shares of common stock, $1.00 par value
per share, of which 500 shares are issued and outstanding and are owned by
EarthCare. All of the issued and outstanding shares of capital stock of
EarthCare and Subsidiary have been duly authorized and validly issued and are
fully paid and nonassessable. There are no outstanding subscriptions, options,
contracts, commitments, warrants, calls, agreements, understandings or other
arrangements or rights of any character affecting or relating in any manner to
the issuance of capital stock or other securities of EarthCare (whether by
subscription, option, exchange, right of conversion, right of refusal, or
otherwise) or
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entitling anyone to acquire shares of the capital stock of EarthCare or other
securities of any kind of EarthCare except as set forth in the prospectus, dated
December 9, 1998 (the "Prospectus"), which constitutes a part of Registration
Statement (the "Registration Statement") filed by EarthCare with the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act").
G. Valid Issuance of EarthCare Stock. The shares of EarthCare Stock to be
delivered to the Shareholders at Closing have been duly authorized and, upon
issuance thereof in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable.
H. Filings with the Securities and Exchange Commission. EarthCare and Subsidiary
have made all filings with the SEC that they have been required to make under
the Securities Act and the Exchange Act. All filings with the SEC made by
EarthCare or Subsidiary (collectively the "Public Reports") have complied with
the Securities Act and the Exchange Act in all material respects. None of the
Public Reports, as of their respective dates, contained any untrue statement of
a material fact or omitted to state a material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
I. Financial Statements. EarthCare has filed Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, June 30 and September 30 (the "Most Recent
Fiscal Period"). The financial statements included in and incorporated by
reference in these
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Public Reports (including the related notes and schedules) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
contemplated by, and present fairly the consolidated financial condition of
EarthCare and its subsidiaries as of the indicated dates and the consolidated
results of operations of EarthCare and its subsidiaries for the indicated
periods, are correct and complete in all material respects, and are consistent
with the books and records of EarthCare and its subsidiaries; provided, however,
that any interim statements are subject to normal year-end adjustments.
J. Events Subsequent to End of Most Recent Fiscal Period. Since the end of the
Most Recent Fiscal Period there has not been any material adverse change in the
business, financial condition, operations, results of operations or future
prospects of EarthCare and its subsidiaries taken as a whole.
K. Undisclosed Liabilities. Neither EarthCare nor any of its subsidiaries has
any material liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any material liability for taxes, except for (i) liabilities disclosed in the
Financial Statements for the Most Recent Fiscal Period (including the notes
thereto), and (ii) liabilities which have arisen after the end of the Most
Recent Fiscal Period in the ordinary course of business none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of law.
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<PAGE> 24
L. No Conflict. Neither the execution and delivery of this Agreement nor any
other related documents contemplated hereby will violate, conflict with, or
result in a breach of any provisions of or constitute a default (or an event
which, with the giving of notice or lapse of time, or both, would constitute a
default) under or result in the termination of or accelerate the performance
required by or result in a right of termination or acceleration under or result
in the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of EarthCare or Subsidiary under any of the terms,
conditions or provisions of (i) the charter documents or bylaws of EarthCare and
Subsidiary, or (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, contract, agreement or other instrument or obligation to which EarthCare
or Subsidiary is a party or to which either of them or any of their properties
or assets may be subject.
M. No Liabilities of Subsidiary. Subsidiary is not subject to any liabilities,
obligations, claims, whether absolute or contingent, liquidated or unliquidated.
6. ADDITIONAL AGREEMENT OF SHAREHOLDER. Shareholders further agree with
EarthCare and Subsidiary as follows:
A. Access to Offices and Records. The Shareholders shall cause the Company to
afford representatives of EarthCare and Subsidiary, from and after the date of
execution of this Agreement, full access, during normal business hours and upon
reasonable notice, to all offices, books, properties, contracts, documents and
records of the Company and to furnish to EarthCare and Subsidiary or its
representatives all additional information,
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including financial or operating information with respect to the business and
affairs of the Company that EarthCare and Subsidiary or their representatives
may reasonably request. Shareholders acknowledge that EarthCare is a
publicly-traded corporation and that EarthCare will be required under the
applicable securities laws to make public disclosure of detailed financial data
concerning the Company's operations. Prior to the Closing Date, EarthCare has
Shareholder's permission to disclose publicly: (i) the amount of the Company's
revenues; and (ii) such other information as shall be included in any press
release of EarthCare which Shareholder approves in advance of being released;
such approval shall not be unreasonably withheld. Provided, however, that any
furnishing of such information to EarthCare and any investigation by EarthCare
shall not affect the right of EarthCare and Subsidiary to rely solely upon the
representations and warranties made by Shareholders in or pursuant to this
Agreement; and provided further, that EarthCare and Subsidiary: (i) will hold in
strict confidence all documents and information concerning the Company so
furnished; and (ii) will promptly return all such documents and all copies to
the Company if this Agreement is not closed for any reason.
B. Conduct of Business Pending the Closing. From and after the execution and
delivery of this Agreement and until the Closing Date, except as otherwise
provided by the prior written consent or approval of EarthCare or Subsidiary:
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1. Shareholders will cause the Company to conduct its business
and operations in the manner in which the same has heretofore been
conducted and Shareholders will use their best efforts to cause the
Company to: (i) preserve the Company's current business organization
intact; (ii) keep available to Subsidiary the services of the Company's
current employees and the Company's agents and distributors; and (iii)
preserve the Company's current relationships with customers, suppliers
and others having business dealing with the Company.
2. The Shareholders will cause the Company to maintain all of
its properties in customary repair, order and condition, reasonable
wear and use excepted, and will maintain its existing insurance upon
all of its properties and with respect to the conduct of its business
in such amounts and of such kinds comparable to that in effect on the
date of this Agreement.
3. Shareholders will take action to insure that the Company
will not: (i) pay any bonus or increase the rate of compensation of any
of the Company's employees or enter into any new employment agreement
or amend any existing employment agreement; (ii) make any general
increase in the compensation or rate of compensation payable or to
become payable to the Company's hourly-rated employees; (iii) sell or
transfer any of the Company's assets; (iv) obligate itself for capital
expenditures other than in the ordinary course of business and not
unusual in amount; or (v) incur any material obligations or
liabilities, which are not in the ordinary course of business, or enter
into any material transaction.
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4. Shareholders shall not, and shall not permit the Company
to, issue or enter into any subscriptions, options, agreements or other
commitments in respect of the issuance, transfer, sale or encumbrance
of any shares of the National Common Stock.
C. Execution of Further Documents by Shareholder. From and after the Closing,
upon the reasonable request of EarthCare or Subsidiary, Shareholders shall
execute, acknowledge and deliver such documents as may be appropriate to carry
out the transactions contemplated by this Agreement.
D. Indemnification by Covenanting Shareholders.
1. Covenanting Shareholders will indemnify and hold EarthCare
and Subsidiary harmless from and against any and all damage, loss,
cost, deficiency, assessment, liability or other expense (including
reasonable attorney's fees, costs of court and litigation expenses, if
any) suffered, incurred or paid by EarthCare or Subsidiary as a result
of:
(a) The untruth, inaccuracy, breach or violation of
any representation, warranty, covenant or other obligation of
Shareholders set forth in or made in connection with this
Agreement;
(b) The enforcement of EarthCare's right to
indemnification under this Agreement.
2. EarthCare or Subsidiary shall give written notice to
Covenanting Shareholders of any claim, action, suit or proceeding
relating to the indemnity
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herein provided by Covenanting Shareholders not later than ten (10)
days after EarthCare or Subsidiary has received notice thereof. Each
Covenanting Shareholder shall have the right, at his option, to
compromise or defend, at his own expense and by his own counsel (which
counsel shall be reasonably satisfactory to EarthCare and Subsidiary),
any such action, suit or proceeding. EarthCare, Subsidiary and
Covenanting Shareholders agree to cooperate in any such defense or
settlement and to give each other full access to all information
relevant thereto.
3. The Holdback Shares shall constitute security for
Covenanting Shareholders' obligations to adjust the Merger
Consideration pursuant to Section 2.8(2) and of indemnification
pursuant to Section 6.D and shall be governed and distributed solely in
accordance with the terms of the Escrow Agreement.
4. A claim or claims by EarthCare or Subsidiary against
Shareholder must total at least ten thousand dollars ($10,000.00) in
the aggregate before Shareholder is liable for indemnification. Once
EarthCare or Subsidiary's claim(s) total at least ten thousand dollars
($10,000.00) in the aggregate, then Shareholder shall be liable for the
full amount of such claim(s) in excess of $10,000.00, but not liable
for the first $10,000.00 of such claim.
5. The sole and exclusive remedy of EarthCare or Subsidiary
for any breach of a representation, warranty or covenant under this
Agreement or any agreement or document made in connection therewith
shall be a claim for indemnification under and pursuant to this Section
6.D. Any claim (whether under this Section 6.D or otherwise) for breach
of a representation, warranty or covenant under this Agreement or any
agreement or document made in connection herewith by EarthCare or
Subsidiary may be made only against the Covenanting Shareholders.
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<PAGE> 29
7. ADDITIONAL AGREEMENT OF THE EARTHCARE AND SUBSIDIARY.
A. Execution of Further Documents by EarthCare and Subsidiary. From and after
the Closing, upon reasonable request of Shareholder, EarthCare and Subsidiary
shall execute, acknowledge and deliver to Shareholders all such further
documents as may be appropriate to carry out the transactions contemplated by
this Agreement.
B. Indemnification by EarthCare.
1. EarthCare will indemnify and hold Shareholders harmless
from and against any and all damages, loss, cost, deficiency
assessment, liability or other expense (including reasonable attorney's
fees, costs of court and costs of litigation, if any) suffered,
incurred or paid by Shareholders as a result of:
(a) The untruth, inaccuracy, breach or violation of
any representation, warranty, covenant or other obligation of
EarthCare or Subsidiary set forth in or made in connection
with this Agreement;
(b) The assertion against Shareholders of any
liability or obligation of EarthCare, Subsidiary or the
Company or of any claim relating to the operation of the
Company's business subsequent to the Closing Date (including,
without limitation, customer claims or disputes); or
(c) The enforcement of Shareholder's right to
indemnification under this Agreement.
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<PAGE> 30
2. The Shareholder shall give written notice to EarthCare of
any claim, action, suit or proceeding relating to the indemnity herein
provided by EarthCare not later than ten (10) days after Shareholder
has received notice thereof. EarthCare shall have the right, at its
option, to compromise or defend, at its own expense and by its own
counsel (which counsel shall be reasonably satisfactory to
Shareholder), any such action, suit or proceeding. Shareholder and
EarthCare agree to cooperate in any such defense or settlement and to
give each other full access to all information relevant thereto.
3. The sole and exclusive remedy of Shareholders for any
breach of a representation, warranty or covenant under this Agreement
or any agreement or document made in connection therewith shall be a
claim for indemnification under and pursuant to Section 7.B.
C. Release of Patton and Propes Guaranty. EarthCare agrees to use its best
efforts to obtain the release within ninety (90) days after Closing of Matthew
H. Patton and George Propes from the obligations of those certain personal
guaranties dated August 10, 1998 (the SouthTrust note) in favor SouthTrust Bank
guaranteeing that certain loan from SouthTrust Bank, N.A. to National dated
August 10, 1998 in the original principal amount of 275,959.01 and as further
reflected on National's December 31, 1998 Balance Sheet. EarthCare hereby
assumes and agrees to timely pay and perform the obligations of National under
the SouthTrust Note and of Matthew H. Patton and George Propes under said
guaranties.
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<PAGE> 31
8. CONDITIONS TO OBLIGATIONS OF THE EARTHCARE AND SUBSIDIARY. The obligations of
EarthCare and Subsidiary to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing Date of
each of the following conditions:
A. Validity of Shareholder's Representations. All representations and warranties
of Shareholder contained in this Agreement or otherwise made in writing pursuant
to this Agreement shall have been true and correct at and as of the date hereof
and they shall be true and correct at and as of the Closing Date, with the same
force and effect as though made at and as of the Closing Date.
B. Pre-Closing Obligations. Shareholder shall have performed and complied with
all the obligations and conditions required by this Agreement to be performed or
complied with by Shareholder at or prior to the Closing Date, including the
execution and delivery of all documents and contracts required to be delivered
at or before the Closing Date pursuant to this Agreement.
C. Opinion of Counsel for Shareholder. EarthCare shall have received a favorable
opinion from counsel for Shareholders dated the date of the Closing, in the form
set forth in Exhibit 8.C.
D. Receipt by EarthCare of Necessary Consents. All necessary consents or
approvals of third parties to any of the transactions contemplated hereby shall
have been obtained, and satisfactory evidence of such consents or approvals
shall have been delivered to EarthCare or Subsidiary at Closing.
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E. Resignation of Officers and Directors. EarthCare or Subsidiary shall have
received such resignations of officers and directors of the Companies as shall
have been requested by either of them.
9. CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS. The obligations of the Shareholder
to effect the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions:
A. Validity of EarthCare and Subsidiary's Representations. All representations
and warranties of EarthCare and Subsidiary contained in this Agreement or
otherwise made in writing pursuant to this Agreement shall have been true and
correct at and as of the date hereof and they shall be true and correct at and
as of the Closing Date, with the same force and effect as though made at and as
of the Closing Date.
B. Pre-Closing Obligations. EarthCare and Subsidiary shall have performed and
complied with all the obligations and conditions required by this Agreement to
be performed or complied with by Shareholder at or prior to the Closing Date,
including the execution and delivery of all documents and contracts required to
be delivered at or before the Closing Date pursuant to this Agreement.
C. Corporate Authority of EarthCare and Subsidiary. The execution and
performance of this Agreement by EarthCare and Subsidiary shall have been duly
and legally authorized in accordance with applicable law, and EarthCare and
Subsidiary shall have furnished to counsel for Shareholder certified copies of
resolutions adopted by the Board of Directors of EarthCare and Subsidiary
authorizing and proving the execution and delivery of this Agreement and
performance of the transactions contemplated hereunder.
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<PAGE> 33
D. Opinion of Counsel for EarthCare. Shareholder shall have received a favorable
opinion from counsel for EarthCare and Subsidiary dated the date of the Closing,
in the form set forth in Exhibit 9.D.
10. SHAREHOLDER'S NON-COMPETE AND NON-SOLICITATION AGREEMENT. As inducement to
EarthCare and Subsidiary to enter into this Agreement and perform its
obligations hereunder, and in consideration of the payments to Shareholders
pursuant to this Agreement, each Shareholder agrees that Shareholder will not,
for a period of five (5) years from the Closing Date, directly or indirectly
(whether as owner, partner, shareholder, agent, employee, independent
contractor, consultant or otherwise): (i) engage in the business of plumbing and
plumbing repair services, sewer, drain and pipe cleaning services, septic tank
pumping, sewer line excavation and replacement, or related services for
residential and commercial buildings ("Plumbing Services"), within the Counties
of Bartow, Cherokee, Fulton, Gwinnett, Dekalb, Clayton, Rockdale, Henry,
Douglas, Paulding, Cobb and Fayette, State of Georgia; (ii) solicit any party
who is or was a customer or supplier of the Company on the Closing Date or at
any time during the 12 month period immediately prior thereto for any Plumbing
Services; (iii) solicit for employment any person who was or is an employee of
the Company on the Closing Date, or at any time during the 12 month period
immediately prior thereto; or (iv) either directly or indirectly, divulge,
disclose, or communicate to any person, firm or corporation in any manner
whatsoever any confidential information relating to the business of EarthCare,
Subsidiary, or the Company. The term, "confidential information", as used herein
means all information of a business or technical nature relative to the business
of EarthCare or Subsidiary, the business of any customers of the Company or any
business of any person, firm or corporation which consults with, or is
affiliated with, EarthCare,
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Subsidiary or the Company. The term "confidential information" shall not include
information so generally known as to be part of the public domain.
Each of the covenants contained in this Article are separate and independent.
Each Shareholder acknowledges and agrees that EarthCare, Subsidiary and
Company's remedies at law may be inadequate in the event of a breach or
threatened breach of the covenants set forth herein, and in such event,
EarthCare, Subsidiary and the Company shall be entitled to have an injunction
issued by any court of competent jurisdiction, enjoining and restraining each
and every party concerned therewith from the creation or continuation of such
breach.
11. OTHER PROVISIONS.
A. Consulting Agreements. At Closing, EarthCare or Subsidiary will enter into a
written Consulting Agreement with Vince Hils in the form set forth in Exhibit
3.B(5).
B. Incomplete Exhibits. The parties hereto acknowledge and agree (a) that many,
if not all, of the schedules to be attached to this Agreement will not have been
prepared by the time of execution of this Agreement, and (b) that consummation
of the transactions contemplated by this Agreement are subject to the completion
of such exhibits by Shareholders (to the extent that an exhibit is to be
completed by Shareholders, such exhibit must be reasonably acceptable to
EarthCare) or Subsidiary (to the extent that an exhibit is to be completed by
EarthCare, it must be reasonably acceptable to Shareholders) as the case may be,
prior to or at the Closing, pursuant to the terms of this Agreement.
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<PAGE> 35
C. Survival of Representations and Warranties. The representations, warranties,
obligations and agreements of the parties contained in this Agreement, or in any
writing delivered pursuant to provisions of this Agreement, shall survive the
Closing for a period of three years with the exception of representations and
warranties concerning Paragraph 4.M. hereof, Tax Matters and Paragraph 4.P.
hereof, Environmental Matters, which will survive for as long as any claims may
be asserted under the applicable periods of limitation for violations of any tax
or environmental law, rule or regulation.
D. Waiver or Extension of Conditions. Shareholder or EarthCare may extend the
time for or waive the performance of any of the obligations of the other party,
waive any inaccuracies in the representations or warranties by the other party,
or waive compliance by the other party with any of the covenants or conditions
contained in this Agreement. Any such extension or waiver subsequent to Closing
shall be in writing and signed by Shareholder and EarthCare. Any such extension
or waiver shall not act as a waiver or an extension of any other provisions of
this Agreement.
E. Notices. Any notice, request or other document shall be in writing and sent
by registered or certified mail, return receipt requested, postage prepaid and
addressed to the party to be notified at the following addresses, or such other
address as such party may hereafter designate by written notice to all parties,
which notice shall be effective as of the date of posting:
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<PAGE> 36
If to EarthCare or Subsidiary:
EarthCare Company
14901 Quorum Drive
Suite 200
Dallas, TX 75240
Copy to: Robert C. Gist, Esq.
12809 Plum Hollow Drive
Oklahoma City, OK 73142-5148
If to Shareholders:
Matthew H. Patton
c/o Kilpatrick Stockton, LLP
1100 Peachtree St., Ste. 2800
Atlanta, GA 30309-4530
George Propes
875 Oakhaven Dr.
Roswell, GA 30075
Elizabeth Renee Propes
908 Emerson Ave.
Atlanta, GA 30316
David Christopher Propes
727 Jett Road
Woodstock, GA 30188
Vince Hils
6598 Pleasantdale Road
Doraville, GA 30340
Copy to: Charles E. Buker, III, Esq.
Perrie, Buker, Jones & Morton, P.C.
115 Perimeter Center Place, Ste. 170
Atlanta, GA 30346-1238
F. Governing Law. This Agreement shall be governed by the laws of the State of
Georgia.
G. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, representatives,
successors and assigns.
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<PAGE> 37
H. Headings. The subject headings of the Sections of this Agreement are included
for purposes of convenience only and shall not affect the construction or
interpretation of any of its provisions.
I. 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.
J. Arbitration. Any controversy or claim arising out of, in connection with, or
relating to this Agreement or a breach thereof shall be settled by binding
arbitration in Dekalb or Gwinnett County, Georgia. The arbitration panel shall
be comprised of one arbitrator. Each party shall appoint one arbitrator and the
two so appointed shall appoint a third. The chosen arbitrator shall resolve the
dispute within sixty (60) days of the appointment and shall notify the parties
of its findings in writing. Each party agrees to bear its own costs of
arbitrators and to split equally the cost of the third arbitrator.
K. Entire Agreement; Modification. This Agreement (including the exhibits and
schedules attached hereto), the Public Reports and the documents delivered
pursuant hereto constitute the entire agreement and understanding between the
parties, and supersede any prior agreements, understandings or representations
by or among the parties, relating to the subject matter hereof (including the
"Letter of Intent" dated December 8, 1998 from Terry W. Patrick to National).
This Agreement may be modified or amended by a written instrument executed by
all parties hereto.
{Signatures on following page}
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<PAGE> 38
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first
above written.
"Shareholders" EC Acquisitions, Inc.
By:
- -------------------------------- -----------------------------
Vince Hils
"National"
- -------------------------------- National Plumbing & Drain, Inc.
Matthew H. Patton, Jr.
By:
- -------------------------------- -----------------------------
George Propes
- --------------------------------
Elizabeth Renee Propes
- --------------------------------
David Christopher Propes
"EarthCare"
EarthCare Company
By:
-----------------------------
"Subsidiary"
<PAGE> 1
EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into by and between Allentate Commercial
Software, L.L.P., a Texas registered limited liability partnership ("Seller" or
"Company"), Charles W. Allen and Roy D. Tate, individuals (hereinafter
sometimes referred to as "Partners"), and EarthCare Company, a Delaware
Corporation (hereinafter referred to as "EarthCare" or "Buyer").
WITNESSETH:
WHEREAS, the Seller is the owner of certain assets used in Seller's business
(hereinafter sometimes referred to as the "Assets").
WHEREAS, Buyer desires to acquire the Assets from Seller in accordance with the
terms and conditions hereinafter provided, in exchange for shares of the common
stock, $.0001 par value of the Buyer (said shares of common stock are hereafter
sometimes referred to as the "EarthCare Common Stock").
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, and for other
good and valuable consideration the mutual receipt and sufficiency of which is
hereby acknowledged by the parties hereto, THE PARTIES HERETO AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF ASSETS.
A. Upon the basis of the representations and warranties contained herein
and subject to the terms and conditions of this Agreement, at the time of
"Closing" (as hereinafter defined) Seller shall sell, convey, transfer, assign
and deliver to Buyer, and Buyer shall purchase from Seller, the Assets
specifically described on Schedule 1-A.
B. At the time of Closing, as the purchase price for the Assets, Buyer
shall transfer to Seller 75,000 shares of common stock of Buyer (the "EarthCare
Stock") less the Holdback Shares, as hereinafter defined. The EarthCare stock
shall be registered under the Securities Act of 1933, as amended, to the extent
necessary to permit disposition of such shares, provided, however, that such
shares shall be subject to certain restrictions on resale or transfer for one
year from the date of Closing, pursuant to the terms of a Lock-up Agreement, in
a form as attached hereto as Exhibit 1-B.
1. An additional 60,000 shares of unregistered EarthCare Stock
shall be delivered to Seller on the condition that, for the
twelve (12) month period following Closing (the "First
Earnout Date") the Assets have generated pre-tax earnings of
at least $416,000.
2. An additional 60,000 shares of unregistered EarthCare Stock
shall be delivered to Sellers on the condition that, for the
twelve (12) month period following the First Earnout Date,
the Assets have
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<PAGE> 2
generated pre-tax earnings of at least $416,000.
3. Buyer shall retain 7,500 registered shares of EarthCare Stock
(Holdback Shares) as security for Seller's and Partners'
representations, warranties and covenants. The Holdback
Shares shall be delivered to Sellers 120 days after Closing,
provided that no breach of any such representations,
warranties and covenants has occurred.
C. Except as set forth in this Agreement, Buyer shall not assume or be
responsible for any liabilities, obligations or commitments of Seller,
contingent or otherwise, asserted or unasserted, matured or unmatured,
provided, however that Buyer shall assume liabilities of Seller in an amount
not to exceed $100,000.
i. Without limiting the foregoing, Company shall pay all current
liabilities prior to the Closing Date.
2. CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the purchase and sale of the Assets (the "Closing") shall be held
August 6, 1999 at EarthCare Company, Dallas, TX or at such other time and date
as shall be mutually agreed upon by the parties hereto in writing. However, the
purchase shall be effective as of August 1,1999. (Such time and date are
sometimes hereinafter referred to as the "Closing Date" or "Closing").
3. PROCEDURE AT THE CLOSING. The parties hereto agree to take the
following steps in the order set forth below:
A. Seller shall deliver to the Buyer the Assets, and such bills of sale,
assignments and other instruments to transfer to the Buyer good and marketable
title to the Assets, free and clear of all liens, claims, taxes and
encumbrances.
B. In exchange for the Assets, Buyer shall deliver to Seller 75,000
shares of registered EarthCare Common Stock, less the Holdback Shares. C. The
parties shall also exchange other documents contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND PARTNERS. In order to
induce the Buyer to enter into this Agreement and to consummate the
transactions contemplated hereunder, the Seller and Partners hereby make the
following representations, warranties, covenants and agreements:
A. ORGANIZATION AND EXISTENCE. The Company is a registered limited
liability partnership organized and in good standing under the laws of the
State of Texas, and has all requisite power and authority to carry on its
business as now conducted. The Company is qualified to do business in the State
of Texas which is the only state which by the nature of the business of
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<PAGE> 3
the Company and the character of the properties owned or leased by it requires
qualification to do business. Seller has delivered to Buyer a true and correct
copy of its Articles of Partnership and Partnership Agreement.
B. SUBSIDIARIES OR OTHER ENTITIES. Company has no investments or
ownership interests in any corporations, partnerships, joint ventures or other
business enterprises.
C FINANCIAL CONDITION. Seller has furnished to Buyer copies of the
following financial statements of the Company, all of which are true and
complete in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied (except to the
extent otherwise reported):
1. A Balance sheet ("Balance Sheet") of the Company as of December 31,
1998.
2. Statements of income and loss of the Company for the twelve (12)
months ended December 31, 1998. (Collectively, the Balance Sheet and statements
of income and loss are hereinafter referred to as the "Financial Statements").
The Financial Statements are complete and correct and in accordance with the
books of account and records of the Company and present fairly the financial
position of the Company's business and the income, partners equity and cash
flow of the Company's business at the dates and for the periods indicated.
3. Seller and Partners warrant that current assets of the Company will be
sufficient to pay the liabilities of the Company as of the Closing Date.
4. Seller and Partners warrant that Seller's gross revenues for the year
ending December 31, 1998, based on generally accepted accounting principles,
were not less than $_________, and neither Seller nor Partners have knowledge
of any fact, event or action which would have a material adverse effect on the
Company's gross revenue for periods after December 31, 1998.
D. ASSETS.
1. The Company has good and marketable title to, and is in possession of
all the Assets, Schedule 1-A attached hereto and as shown on the Balance Sheet,
free and clear of all liabilities, mortgages, liens, pledges, security
interests, restrictions, conditional sales agreements, title retention
agreements, charges or encumbrances except as shown on the Balance Sheet.
2. Schedule 4-D-2 shall identify all assets and property of Seller which
shall be excluded from this Agreement.
E. LIABILITIES. Except as set forth in Schedule 4-E attached hereto or in
the Financial Statements submitted to Buyer, or in any other Exhibit delivered
pursuant hereto, neither the Company nor its assets or properties is subject to
any liabilities or obligations (accrued, absolute,
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<PAGE> 4
contingent or otherwise), except for liabilities incurred in the ordinary
course of business affairs and the Company is not in material default in
respect of any material term or condition of any material indebtedness or
liability. The transactions contemplated by this Agreement do not and will not
subject the Company or the Buyer to any claim or liability for any obligation,
debt or contract other than as specifically disclosed in this Agreement and the
Schedules attached hereto. All required consents of creditors, if any have
been, or by closing will be, obtained for performance of this Agreement.
F. CUSTOMER ACCOUNTS, MUNICIPAL CONTRACTS AND RELATED MATTERS.
1. Customer Accounts are the commercial, industrial, municipal, and
residential accounts of the Company pursuant to which the Company provides its
services . Said Customer Accounts are listed on Schedule 4-F-1 attached hereto.
(Each of the Customer Accounts listed in Schedule 4-F shall identify the name
and address of each of the Customer Accounts and shall reflect as to each the
current monthly billing amount and frequency of service.
2. Schedule 4-F-2 is a true, accurate and complete listing of all written
service agreements, franchises, licenses or other contracts, if any, to which
the Company is a party and which relate to Customer Accounts. Original copies
of all such contracts shall be delivered by the Seller to the Buyer no later
than the Closing Date, and such copies shall be true, accurate and complete and
shall include all amendments, supplements or other modifications to such
contracts. Except as disclosed in Schedule 4-F-2, to the knowledge of the
Seller, neither the Company nor any other party to any of the Company's
municipal contracts or Customer Accounts is in material default or alleged to
be in material default thereunder and there exists no condition or event which,
after notice or the lapse of time or both, would constitute such a default. The
sale, transfer and assignment of the Assets will not result in a breach,
violation or default of any of the Company's municipal contracts or Customer
Accounts, and all of the Company's municipal contracts and Customer Accounts
will remain in full force and effect as if there had been no sale, transfer and
assignment thereof.
3. Except as otherwise disclosed in Schedule 4-F-3, neither the Partners
nor the Seller knows of no oral or written communication, fact, event or action
which exists or has occurred within 90 days prior to the date of execution of
this Agreement, which would tend to indicate that any current customers of the
Company intends to terminate its business relationship with the Company.
G. MATERIAL CONTRACTS. Attached hereto as Schedule 4-G is a list and
brief description, as of the date of this Agreement, of certain leases,
contracts, commitments, agreements and other documents to which the Company is
a party or by which it is bound and which is related to the operation of its
business. Except for contracts and documents listed in Schedule 4-G, the
Company is not a party to or bound by any written or oral (i) contracts not
made in the ordinary course of business; (ii) employment contracts, other than
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<PAGE> 5
those terminable at the will of the Company; (iii) contracts with any labor
union or association; (iv) bonus, pension, profit sharing, retirement,
hospitalization, insurance or other plan providing employee benefits; (v)
leases with respect to any property, real or personal, whether as lessor or
lessee; (vi) continuing contracts for the future purchase of materials,
supplies or equipment in excess of the requirements of its business now booked;
(vii) contracts or commitment for capital expenditures; (viii) contracts
continuing over a period of more than six (6) months from its date; or (ix)
material contracts necessary to conduct the operations and business of the
Company. A true copy of each contract, commitment and agreement listed on
Schedule 4-G will be furnished to Buyer prior to Closing.
H. EMPLOYEES - LABOR MATTERS. The Company has generally enjoyed a good
employer-employee relationship with its employees. Attached hereto as Schedule
4-H is a complete list of all employees of the Company whose duties are related
to the operation of the business of the Company. Seller and Partners warrant
there exists no pending or threatened actions by any employees alleging sex,
age, race, or other discriminatory practices, no current effort to organize
these employees into collective bargaining units, and no collective bargaining
agreement is now in effect. There are no contracts, written or oral, between
the Company and any of its employees, except as specifically disclosed in
Schedule 4-H.
I. INSURANCE. The Company maintains in effect insurance covering its
assets and businesses and any liabilities relating thereto in an amount
believed adequate by the Seller, and such insurance coverage shall be
maintained by the Company through the Closing Date. Between the date hereof and
the Closing Date, the Seller shall cause the Company to furnish to the Buyer
such information as the Buyer shall reasonably request regarding the Company's
insurance. Except as set forth in Schedule 4-I attached hereto, there are no
pending material property damage or personal injury claims against the Company
or any of its assets.
J. LICENSES AND PERMITS. The Company possesses all licenses and other
required governmental or official approvals, permits or authorizations, if any,
the failure to possess which would have a material adverse effect on the
businesses, financial condition or results of operations of the Company
including, without limitation, all common carrier rights, certificates of
public need, trademarks and trade names necessary to carry on its business as
now being conducted, without known conflict with valid licenses, permits,
trademarks and trade names of others. All such licenses and permits are in full
force and effect, and no violations are or have been recorded in respect to any
thereof, and no proceeding is pending, or to the knowledge of Seller
threatened, to revoke, suspend or otherwise limit such licenses or permits. All
licenses and permits will survive the closing of the transactions contemplated
by this Agreement.
K. TAX MATTERS. The Company has timely filed all federal, state, sales
tax, franchise tax, and other tax returns which are required to
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<PAGE> 6
be filed by it and has paid or has made provision for the payment of all taxes
which have or may become due pursuant to said returns. All taxes, including,
without limitation, withholding and social security taxes due with respect to
the Company's employee, federal and state income tax liabilities, corporate
franchise taxes, sales, use, excise and ad valorem taxes, due, payable or
accrued by the Company on or before the Closing Date have or will be paid. The
Company has filed all reports required to be filed by it with all such taxing
authorities. Seller shall be responsible for any tax liability attributable to
operations of the Company prior to Closing.
L. LITIGATION. Except as disclosed in Schedule 4-L attached hereto, the
Company has not received any notices of material default and is not in material
default of (i) any order, writ, injunction or decree of any court, or any
federal, state, municipal or other governmental department, commission, board,
bureau or instrumentality, or (ii) any agreement or obligation to which the
Company is a party or by which the Company is bound or to which the Company or
any of the property of the Company's may be subject. Except as disclosed in
Schedule 4-L, there are no material outstanding claims, actions, suits,
proceedings or investigations pending or, to the knowledge of Partners or
Seller, threatened against the Company or which affect the Company or any of
its assets or property, at law or in equity before or by any federal, state,
municipal court or other governmental department, authority, commission, board,
bureau, agency or instrumentality.
M. COMPLIANCE WITH LAWS. Except as otherwise disclosed in Schedule 4-M
attached hereto, the Company is in compliance in all material respects with all
federal, state, and local laws, ordinances, regulations, rules, and orders
applicable to it or to its assets including, without limitation, all laws and
regulations relating to the protection of the environment, the safe conduct of
the Company's business, anti-competitive practices, discrimination, employment,
wage and hour practices and health. The Company has not received notification
of any asserted past or present failure to comply with any of such laws or
regulations.
N. NO BROKERS' OR AGENT'S FEES. No agent, broker, finder, representative
or other person or entity acting pursuant to authority of the Seller or
Partners will be entitled to any commission or finder's fee in connection with
the origination, negotiation, execution or performance of the transactions
contemplated under this Agreement.
O. NO MATERIAL OR ADVERSE CHANGE. Except as otherwise disclosed in
Schedule 4-O attached hereto, since December 31, 1998, there has not been: (i)
any material adverse change in the financial condition, assets, liabilities,
business or results of operations of the Company; (ii) to the knowledge of the
Seller or Partners, any threatened or prospective event or condition of any
character whatsoever which could materially and adversely affect the business,
financial condition or results of operations of the Company; (iii) any sale or
other disposition of any of the Company's assets other than in the ordinary
course of business; or (iv) any damage, destruction or loss (whether or not
insured) materially and adversely affecting the property, business or prospects
of the Company.
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P. DUE AUTHORIZATION AND ABSENCE OF BREACH. This Agreement and all other
agreements of the Seller contemplated hereunder constitute valid and binding
obligations of the Seller, enforceable in accordance with their respective
terms. Neither the execution and delivery of this Agreement (or any agreement
contemplated hereunder) nor the consummation of the transactions contemplated
hereby will: (i) conflict with or violate any provision of the Articles of
Partnership or Partnership Agreement of the Company; (ii) conflict with or
violate any decree, writ, injunction or order of any court or administrative or
other governmental body which is applicable to, binding upon or enforceable
against the Company or; (iii) except as set forth on Schedule 4-P result in any
breach of or default (or give rise to any right of termination, cancellation or
acceleration) under any mortgage, contract, agreement, indenture, will, trust
or other instrument which is either binding upon or enforceable against the
Seller or the Company or its assets.
Q. AUTHORITY TO CONTRACT. Seller has the full power, right and authority
to enter into and perform this Agreement without the consent of any person,
entity or governmental agency, and the consummation of the transactions
contemplated by this Agreement will not result in the breach or termination of
any provision of or constitute a default under any lease, indenture, mortgage,
deed of trust or other agreement or instrument or any order, decree, statute or
restriction to which Seller or the Company is a party or by which the Company
is bound or which any of the properties of the Company is subject.
R. ACCURACY OF THE INFORMATION FURNISHED BY THE SELLER. No
representation, statement or information made or furnished by the Seller to the
Buyer, including those contained in this Agreement and the various exhibits
attached hereto and the other information and statements referred to herein,
contains or shall contain any untrue statement of any material fact, or omits
information necessary to make any such statement not misleading.
5. REPRESENTATION AND WARRANTIES OF BUYER. In order to induce the Seller
to enter into this Agreement and to consummate the transactions contemplated
hereunder, the Buyer hereby makes the following representations, warranties,
covenants and agreements:
A. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all the requisite corporate power and authority to carry on its
business as now conducted and to consummate the transactions contemplated by
this Agreement.
B. AUTHORITY TO CONTRACT. The execution, delivery and performance of this
Agreement by Buyer has been duly approved by its Board of Directors, and no
further corporate action is necessary on the part of Buyer to consummate the
transactions contemplated by this Agreement, assuming due execution of this
Agreement by the Parties.
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<PAGE> 8
C. NO BROKER'S OR AGENT'S FEES. No agent, broker, finder, representative
or other person or entity acting pursuant to the authority of the Buyer will be
entitled to any commission or finder's fee in connection with the origination,
negotiation, execution or performance of the transactions contemplated under
this Agreement.
D. ACCURACY OF INFORMATION FURNISHED BY BUYER. No representation,
statement or information made or furnished by Buyer to the Seller in this
Agreement, or in connection with the transactions contemplated hereby
including, without limitation copies of the Buyer's filings with the Securities
and Exchange Commission, contains, or shall contain any untrue statement of any
material fact or omits or shall omit any material fact necessary to make the
information contained herein true.
E. REGISTRATION. The EarthCare common stock delivered to Seller on the
Closing Date has been duly registered with the Securities and Exchange
Commission on Form S-1 effective December 9, 1998, and such registration
statement is true and correct in all material respects and does not omit to
state any material information necessary to make such registration statement
not misleading.
6. ADDITIONAL AGREEMENT OF THE SELLER AND PARTNERS. The Seller further
agrees with the Buyer as follows:
A. ACCESS TO OFFICES AND RECORDS. The Seller shall cause the Company to
afford representatives of the Buyer, from and after the date of execution of
this Agreement, full access, during normal business hours and upon reasonable
notice, to all offices, books, properties, contracts, documents and records of
the Company and to furnish to the Buyer or its representatives all additional
information, including financial or operating information with respect to the
business and affairs of the Company that the Buyer or its representatives may
reasonably request. Seller acknowledges that Buyer is a publicly-traded
corporation and that Buyer will be required under the applicable securities
laws to make public disclosure of detailed financial data concerning the
Company's operations. Prior to the Closing Date, Buyer has Seller's permission
to disclose publicly: (i) the amount of the Company's revenues; and (ii) such
other information as shall be included in any press release of Buyer which
Seller approves in advance of being released; such approval shall not be
unreasonably withheld. Provided, however, that any furnishing of such
information to the Buyer and any investigation by the Buyer shall not affect
the right of the Buyer to rely solely upon the representations and warranties
made by the Seller in or pursuant to this Agreement; and provided further, that
the Buyer: (i) will hold in strict confidence all documents and information
concerning the Company so furnished; and (ii) will promptly return all such
documents and all copies to the Company if this Agreement is not closed for any
reason.
B. EXECUTION OF FURTHER DOCUMENTS BY SELLER. From and after the Closing,
upon the reasonable request of the Buyer, the Seller shall execute,
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<PAGE> 9
acknowledge and deliver such documents as may be appropriate to carry out the
transactions contemplated by this Agreement.
C. INDEMNIFICATION BY SELLER AND PARTNERS.
1. The Seller and Partners will indemnify and hold the Buyer harmless
from and against any and all damage, loss, cost, deficiency, assessment,
liability or other expense (including reasonable attorney's fees, costs of
court and litigation expenses, if any) suffered, incurred or paid by the Buyer
as a result of:
(a) The untruth, inaccuracy, breach or violation of any
representation, warranty, covenant or other obligation of the Seller or
Partners set forth in or made in connection with this Agreement;
(b) The assertion against the Buyer or the Company of any material
liability or obligation of the Company or of any claim relating to the
operation of the Company's business, prior to the Closing Date, whether
absolute or contingent, matured or unmatured, known or unknown as of the
Closing Date, or
(c) The enforcement of the Buyer's right to indemnification under this
Agreement.
2. The Buyer shall give written notice to the Seller of any claim,
action, suit or proceeding relating to the indemnity herein provided by Seller
not later than ten (10) days after Buyer has received notice thereof. Seller
shall have the right, at his option, to compromise or defend, at his own
expense and by its own counsel (which counsel shall be reasonably satisfactory
to Buyer), any such action, suit or proceeding. Buyer and Seller agree to
cooperate in any such defense or settlement and to give each other full access
to all information relevant thereto.
3. The Holdback Shares shall constitute security for Seller's and
Partners' indemnification. If Buyer makes no claim of breach of any of Seller's
or Partners' representations, warranties or covenants, then the Holdback Shares
shall be delivered to Seller one hundred twenty days after the Closing Date. 4.
Except as herein expressly provided, the remedies provided in paragraph 6.D
hereof shall be cumulative and shall not preclude assertion by the Buyer of any
other rights or the seeking of any other remedies available against the Seller
at law or in equity.
7. ADDITIONAL AGREEMENT OF THE BUYER.
A. EXECUTION OF FURTHER DOCUMENTS BY BUYER. From and after the Closing,
upon reasonable request of Seller, Buyer shall execute, acknowledge and deliver
to Seller all such further documents as may be appropriate to carry out the
transactions contemplated by this Agreement.
B. INDEMNIFICATION BY BUYER.
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<PAGE> 10
1. The Buyer will indemnify and hold the Seller harmless from and against
any and all damages, loss, cost, deficiency assessment, liability or other
expense (including reasonable attorney's fees, costs of court and costs of
litigation, if any) suffered, incurred or paid by the Seller as a result of:
(a) The untruth, inaccuracy, breach or violation of any
representation, warranty, covenant or other obligation of the Buyer set forth
in or made in connection with this Agreement;
(b) The assertion against the Seller of any liability or obligation of
the Buyer or the Company or of any claim relating to the operation of the
Company's business subsequent to the Closing Date (including, without
limitation, customer claims or disputes); or
(c) The enforcement of the Seller's right to indemnification under
this Agreement.
2. The Seller shall give written notice to the Buyer of any claim,
action, suit or proceeding relating to the indemnity herein provided by Buyer
not later than ten (10) days after Seller has received notice thereof. Buyer
shall have the right, at its option, to compromise or defend, at its own
expense and by its own counsel (which counsel shall be reasonably satisfactory
to Seller), any such action, suit or proceeding. Seller and Buyer agree to
cooperate in any such defense or settlement and to give each other full access
to all information relevant thereto.
3. Except as herein expressly provided, the remedies provided in
Paragraph 7.B hereof shall be cumulative and shall not preclude assertion by
the Seller of any other rights or the seeking of any other remedies available
against the Buyer at law or in equity.
8. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligations of the Buyer
to effect the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions:
A. VALIDITY OF SELLER'S REPRESENTATIONS. All representations and
warranties of the Seller contained in this Agreement or otherwise made in
writing pursuant to this Agreement shall have been true and correct at and as
of the date hereof and they shall be true and correct at and as of the Closing
Date, with the same force and effect as though made at and as of the Closing
Date.
B. PRE-CLOSING OBLIGATIONS. The Seller shall have performed and complied
with all the obligations and conditions required by this Agreement to be
performed or complied with by Seller at or prior to the Closing Date, including
the execution and delivery of all documents and contracts required to be
delivered at or before the Closing Date pursuant to this Agreement.
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<PAGE> 11
C. OPINION OF COUNSEL FOR SELLER. The Buyer shall have received a
favorable opinion from counsel for the Seller dated the date of the Closing, in
form satisfactory to counsel for the Buyer, to the effect that:
1. The Company is a registered limited liability partnership, duly
organized and legally existing under the laws of the State of Texas, and it has
the power and authority to carry on its business as now being conducted and to
own or hold under lease, or otherwise, its assets.
2. This Agreement has been duly executed and delivered by the Seller, and
constitutes a valid, enforceable and binding obligation of the Seller pursuant
to the terms of this Agreement.
3. Except as otherwise disclosed in this Agreement, counsel does not know
of any action, suit, investigation or other legal, administrative or
arbitration proceeding pending against the Seller or which questions the
validity or enforceability of this Agreement or of any action taken or to be
taken pursuant to or in connection with this Agreement or any agreement
contemplated herein.
4. To the knowledge of such counsel, no consent, authorization, license,
franchise, permit, approval or order of any court or governmental agency or
body, other than those obtained by Seller and delivered to the Buyer prior to
or on the date of the opinion, is required for the sale of the Assets by the
Seller pursuant to this Agreement.
5. The execution and performance of this Agreement by the Seller will not
violate: (i) the Articles of Partnership or partnership agreement of the
Company, or (ii) any order of any court or other agency of government known to
said counsel.
6. The instruments of conveyance and assignments executed by the Seller
to the Buyer pursuant to this Agreement are adequate to convey the ownership to
the Assets, free and clear of all liens, claims or encumbrances known to such
counsel after conducting a UCC-1 lien search with the offices of the Secretary
of State for the State of Texas, and the offices of the County Clerk for the
County of Harris, in the State of Texas.
D. RECEIPT BY THE BUYER OF NECESSARY CONSENTS. All necessary consents or
approvals of third parties to any of the transactions contemplated hereby shall
have been obtained, and satisfactory evidence of such consents or approvals
shall have been delivered to the Buyer at Closing.
E. KEY EMPLOYEES. Buyer shall have entered into employment or consulting
agreements acceptable to Buyer with Seller's key employees.
9. CONDITIONS TO OBLIGATIONS OF THE
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SELLER. The obligations of the Seller to effect the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the
Closing Date of each of the following conditions:
A. VALIDITY OF BUYER'S REPRESENTATIONS. All representations and
warranties of the Buyer contained in this Agreement or otherwise made in
writing pursuant to this Agreement shall have been true and correct at and as
of the date hereof and they shall be true and correct at and as of the Closing
Date, with the same force and effect as though made at and as of the Closing
Date.
B. PRE-CLOSING OBLIGATIONS. The Buyer shall have performed and complied
with all the obligations and conditions required by this Agreement to be
performed or complied with by Seller at or prior to the Closing Date, including
the execution and delivery of all documents and contracts required to be
delivered on or before the Closing Date pursuant to this Agreement.
C. CORPORATE AUTHORITY OF BUYER. The execution and performance of this
Agreement by the Buyer shall have been duly and legally authorized in
accordance with applicable law, and the Buyer shall have furnished to counsel
for the Seller certified copies of resolutions adopted by the Board of
Directors of the Buyer authorizing and proving the execution and delivery of
this Agreement and performance of the transactions contemplated hereunder.
D. OPINION OF COUNSEL FOR BUYER. The Seller shall have received a
favorable opinion from counsel for the Buyer dated the date of the Closing, in
form satisfactory to counsel for the Seller, to the effect that:
1. The Buyer is a corporation, duly organized and legally existing in
good standing under the laws of the State of Delaware, and it has the corporate
power and authority to carry on its business as now being conducted and to
carry out the transactions and agreements contemplated hereby.
2. All corporate and other proceedings required to be taken by or on the
part of the Buyer in order to authorize it to perform its obligations hereunder
have been duly and properly taken, including any necessary approval or
authorization by the Board of Directors of the Buyer.
3. This Agreement has been duly executed and delivered by the Buyer and
constitutes a valid, enforceable and binding obligation of the Buyer pursuant
to the terms of this Agreement.
4. Except as otherwise disclosed in this Agreement, said counsel does not
know of any action, suit, investigation or other legal, administrative or
arbitration proceeding which questions the validity or enforceability of this
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<PAGE> 13
Agreement or of any action taken or to be taken pursuant to or in connection
with this Agreement or any agreement contemplated herein.
5. The execution and performance of this Agreement by the Buyer will not
violate: (i) the Articles of Incorporation or the By-Laws of the Buyer; or (ii)
any order of any court or other agency of government known to said counsel.
10. SELLER'S NON-COMPETE AND NON-SOLICITATION AGREEMENT. As inducement to
Buyer to enter into this Agreement and perform its obligations hereunder, and
in consideration of the payments to Seller pursuant to this Agreement, the
Seller and Partners agree that neither the Partners nor the Seller will, for a
period of three (3) years from the Closing Date, directly or indirectly
(whether as owner, partner, shareholder, agent, employee, independent
contractor, consultant or otherwise): (i) engage in the business which directly
or indirectly competes with business of the Seller acquired by Buyer, or with
any subsidiary of Buyer, in each case, within any County in the State of Texas
where the Seller is currently conducting its business; (ii) solicit any party
who is or was a customer or supplier of the Company on the Closing Date or at
any time during the 12 month period immediately prior thereto for services of
any type or quality being provided by the Company; (iii) solicit for employment
any person who was or is an employee of the Company on the Closing Date, or at
any time during the 12 month period immediately prior thereto; or (iv) either
directly or indirectly, divulge, disclose, or communicate to any person, firm
or corporation in any manner whatsoever any confidential information relating
to the business of Buyer, or the Company. The term, "confidential information",
as used herein means all information of a business or technical nature relative
to the business of Buyer, the business of any customers of the Company or any
business of any person, firm or corporation which consults with, or is
affiliated with, Buyer or the Company. The term "confidential information"
shall not include information so generally known as to be part of the public
domain.
Each of the covenants contained in this Article are separate and independent.
The Seller acknowledges and agrees that Buyer's and Company's remedies at law
may be inadequate in the event of a breach or threatened breach of the
covenants set forth herein, and in such event, Buyer and the Company shall be
entitled to have an injunction issued by any court of competent jurisdiction,
enjoining and restraining each and every party concerned therewith from the
creation or continuation of such breach.
11. OTHER PROVISIONS.
A. EMPLOYMENT AGREEMENTS. At Closing, Buyer will enter into written
Employment Agreements with the Partners in a form satisfactory to both parties.
Annual salary for each of the Partners shall be $144,000, and Partners shall
receive such benefits as afforded comparable executive of Buyer.
B. INCOMPLETE EXHIBITS. The parties hereto acknowledge and agree (a) that
many, if not all, of the schedules to be attached to this Agreement will
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not have been prepared by the time of execution of this Agreement, and (b) that
consummation of the transactions contemplated by this Agreement are subject to
the completion of such exhibits by Seller (to the extent that an exhibit is to
be completed by Seller, such exhibit must be reasonably acceptable to Buyer) or
Buyer ( to the extent that an exhibit is to be completed by Buyer, it must be
reasonably acceptable to Seller) as the case may be, prior to or at the
Closing, pursuant to the terms of this Agreement.
C. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, obligations and agreements of the parties contained in this
Agreement, or in any writing delivered pursuant to provisions of this
Agreement, shall survive the Closing for a period of eighteen (18) months with
the exception of representations and warranties concerning Paragraph 4.K.
hereof, Tax Matters, which will survive for as long as any claims may be
asserted under the applicable periods of limitation for violations of any tax
law, rule or regulation.
D. WAIVER OR EXTENSION OF CONDITIONS. The Seller or the Buyer may extend
the time for or waive the performance of any of the obligations of the other
party, waive any inaccuracies in the representations or warranties by the other
party, or waive compliance by the other party with any of the covenants or
conditions contained in this Agreement. Any such extension or waiver shall be
in writing and signed by the Seller and the Buyer. Any such extension or waiver
shall not act as a waiver or an extension of any other provisions of this
Agreement.
E. NOTICES. Any notice, request or other document shall be in writing and
sent by registered or certified mail, return receipt requested, postage prepaid
and addressed to the party to be notified at the following addresses, or such
other address as such party may hereafter designate by written notice to all
parties, which notice shall be effective as of the date of posting:
(i) If to the Buyer:
EarthCare Company
14901 Quorum Drive
Suite 200
Dallas, TX 75240
Copy to: Robert C. Gist, Esq.
12809 Plum Hollow Drive
Oklahoma City, OK 73142-5148
(ii) If to the Seller
-----------------------
-----------------------
-----------------------
Copy to:
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F. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
G. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns.
H. HEADINGS. The subject headings of the Sections of this Agreement are
included for purposes of convenience only and shall not affect the construction
or interpretation of any of its provisions.
I. 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.
J. ARBITRATION. Any controversy or claim arising out of, in connection
with, or relating to this Agreement or a breach thereof shall be settled by
binding arbitration in ____________, ____________. The arbitration panel shall
be comprised of three arbitrators. Each party shall appoint one arbitrator for
the panel and the two so appointed shall appoint a third. The panel shall
resolve the dispute within sixty (60) days of the appointment of the panel and
shall notify the parties of its findings in writing. Each party agrees to bear
its own costs of arbitrators and to split equally the cost of the third
arbitrator.
K. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
schedules attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding between the parties, and
supersede any prior agreements and understandings relating to the subject
matter hereof. This Agreement may be modified or amended by a written
instrument executed by all parties hereto.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
__________ day of August, 1999.
"Seller"
Allentate Commercial Software, L.L.P.
By:
--------------------------
------------------------
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"Partners"
- -----------------------------------
Charles W. Allen
- -----------------------------------
Roy D. Tate
"Buyer"
EarthCare Company
By:
--------------------------------
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EXHIBIT 10.6
PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of September,
1999 by and between Albert DiMaria, James Frederico, and Osiris Ramos,
individuals having an office for the transaction of business at 1280 N.E. 48th
Street, Pompano Beach, Florida 33064 (hereinafter sometimes referred to
individually as "Seller" and collectively as "Sellers"), and, EarthCare
Company, a Delaware Corporation with principal offices at 14901 Quorum Drive,
Suite 200, Dallas, Texas 75240 (hereinafter referred to as "EarthCare" or
"Buyer").
WITNESSETH:
WHEREAS, the Sellers are the owners of all of the capital stock of
the following corporations: MAGNUM ENVIRONMENTAL SERVICES, INC. (hereinafter
referred to as "ENVIRONMENTAL SERVICES"); MAGNUM WORLD ENTERPRISES, INC.
(hereinafter referred to as "WORLD ENTERPRISES") and MAGNUM PROPERTY
DEVELOPMENT CORPORATION (hereinafter referred to as "PROPERTY DEVELOPMENT"),
such corporations being hereafter sometimes referred to as the "Corporations".
WHEREAS, the Sellers are the owners of all of the limited partnership
interests in, and Property Development is the sole owner of the general
partnership in, the following limited partnerships: MAGNUM EAST COAST
PROPERTIES, LTD (hereinafter referred to as "EAST COAST"), MAGNUM WEST COAST
PROPERTIES, LTD. (hereinafter referred to as "WEST COAST") and MAGNUM NORTH
EAST PROPERTIES, LTD. (hereinafter referred to as "NORTH EAST"), such limited
partnerships being hereinafter sometimes referred to as the "Limited
Partnerships."
WHEREAS, the Corporations and the Limited Partnerships are hereinafter
collectively referred to as the "Companies" and the interest of the Sellers in
the capital stock of the Corporations and the limited partnership interest of
the Limited Partnerships are hereinafter referred to sometimes collectively as
the "Ownership Interests."
WHEREAS, Buyer desires to acquire, and Seller desire to sell, the
Ownership Interests for cash and shares of the common stock, ($.0001 par value
of the Buyer) said shares of common stock being hereinafter sometimes referred
to as the "Earth Care Common Stock."
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration the mutual receipt and
sufficiency of which is hereby acknowledged by the parties hereto, THE PARTIES
HERETO AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF OWNERSHIP INTERESTS.
1.1 Upon the basis of the representations and warranties
contained herein and subject to the terms and conditions of
this Agreement, at the time of "Closing" (as hereinafter
defined) Sellers shall sell, convey, transfer, assign and
deliver to Buyer, and Buyer shall purchase from Sellers, all
of the Ownership Interests.
1.2 At the time of Closing, as part of the purchase price
for the Ownership Interests, and in exchange therefor, Buyer
shall pay to Sellers:
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1.2(a) Base Purchase Price. Sellers shall receive from Buyer Two
Million Two Hundred Seventy Eight Thousand One Hundred Forty
Three Dollars ($2,278,143) by a wire transfer through the
Federal Reserve System at Closing. In addition, Buyer shall
deliver to an escrow agent satisfactory to Buyer and Sellers,
the sum of Five Hundred Thousand Dollars ($500,000) for
Sellers' benefit as security for the material accuracy of
Seller's representations and warranties (Holdback Escrow). The
form of the escrow agreement with appropriate insertions is
attached hereto as SCHEDULE A and made a part hereof.
1.2(b) Registered Shares Purchase Price. In addition, Sellers shall
receive from Buyer at Closing Three Hundred Ten Thousand
(310,000) shares of Buyers' common stock duly registered under
the Securities Act of 1933 as amended ("Act") to the extent
necessary to permit dispositions of such shares.
1.2(c) Working Capital Purchase Price. Buyer shall pay to Sellers on
October 31, 1999 (Adjustment Date), as part of the purchase
price, any excess working capital computed as of August 31,
1999, actual closing of books of account. To the extent that
any of Company's accounts receivable generated prior to the
Closing Date are outstanding and constitute a portion of
excess working capital on the Adjustment Date, such accounts
receivable shall be distributed to Sellers on the Adjustment
Date.
1.2(d) Earnout Purchase Price. Sellers shall receive from Buyers Two
Hundred Seventy-Five Thousand (275,000) shares of unregistered
EarthCare Common Stock at Closing in escrow. The form of
escrow agreement is attached hereto as SCHEDULE A and made a
part hereof.
If Companies generate earnings before interest, depreciation,
taxes and amortization (EBITDA) of Two Million Dollars
($2,000,000) twelve (12) months subsequent to the Closing, One
Hundred Thirty-Eight Thousand (138,000) of such shares shall
be released from escrow; and if they generate that much in the
second twelve (12) months subsequent to Closing, One Hundred
Thirty-Seven Thousand (137,000) shares shall be released from
escrow. Notwithstanding anything to the contrary stated herein
275,000 of such shares shall be released from escrow if the
EBITDA for 24 months subsequent to closing equals or exceeds
Four Million Dollars ($4,000,000). EBITDA shall be determined
in accordance with generally accepted accounting principles.
Such shares released from escrow shall be registered as a
"piggy back" registration on EarthCare's first registration
filed after such release from escrow.
Buyer promises in calculating earnings in the EBITDA formula,
that it will not intentionally or through bad faith impact
earnings so as to prevent Sellers from receiving their earnout
Purchase Price.
In addition, as a condition of escrow release, the principal
executives of the Companies are to be employed (provided they
are surviving) under the terms of mutually agreeable
employment agreements, the form of which is attached hereto as
SCHEDULE F, and no material breach of this Agreement between
Buyer and Sellers shall remain unresolved.
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1.2(e) PURCHASE PRICE ALLOCATION. Buyer and Seller agree to
allocate the aggregate Purchase Price in the manner set
forth on SCHEDULE E attached hereto and made a part hereof.
1.3 To facilitate the foregoing, Buyer agrees that for two (2)
years after the Closing, all Ownership Interests acquired
hereunder should be placed in and remain the sole assets of
a Buyer subsidiary entity for which separate financial
statements are prepared and reflected in the annual EBITDA
computation referred to herein and none of the assets of the
Companies shall be transferred to Buyer or its subsidiaries
or affiliates, whether in liquidation or otherwise.
2. CLOSING.
2.1 Immediately after the Closing, Buyer shall transfer to Company by
a wire transfer through the Federal Reserve System at Closing Nine
Million Two Hundred Twenty One Thousand Eight Hundred Fifty-Seven
Dollars ($9,221,857) to Companies' creditors identified in
SCHEDULE C attached hereto and made a part hereof.
2.2 Subject to the terms and conditions of this Agreement, the
closing of the purchase and sale of the Acquisition Stock
(the "Closing") shall be held as of August 31, 1999, at the
offices of Magnum Environmental Services, Inc., 1280 N.E.
48th Street, Pompano Beach, Florida, or at such other time,
location and date as shall be mutually agreed upon by the
parties hereto in writing. (Such time and date is sometimes
hereinafter referred to as the "Closing Date" or "Closing".)
All term liabilities of the Companies shall be paid by
Buyer on the Closing Date as set forth in paragraph 1.2(d),
and Buyer shall be responsible for obtaining the return and
cancellation of any and all guaranties of all Companies'
debt given by Sellers. All surety bonds currently
outstanding shall remain in full force and effect.
3. PROCEDURE AT THE CLOSING. The parties hereto agree to take the following
steps in the order listed:
3.1 Sellers shall deliver to the Buyer the Ownership Interests, and
such stock certificates, endorsements, assignments and other
instruments to transfer to the Buyer good and marketable title to
the Ownership Interests, free and clear of all liens, claims and
encumbrances.
3.2 In exchange for the Ownership Interests, Buyer shall deliver to
Sellers the Purchase Price and other consideration required by this
Agreement.
3.3 The Buyer and Seller shall also deliver whatever other documents
are contemplated by the Agreement.
4. REPRESENTATIONS AND WARRANTIES OF SELLERS. In order to induce the Buyer to
enter into this Agreement and to consummate the transactions contemplated
hereunder, the Seller hereby makes the following representations,
warranties, covenants and agreements:
4.1 ORGANIZATION AND EXISTENCE.
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4.1(a) ENVIRONMENTAL SERVICES is a corporation duly organized and legally
existing in good standing under the laws of the State of Florida, and
has all requisite corporate power to carry on its business as now
conducted. The nature of the business of ENVIRONMENTAL SERVICES and the
character of the properties owned or leased by it do not require its
qualification to do business as a foreign corporation in any state.
Seller has delivered to Buyer a true and correct copy of the Articles of
Incorporation of ENVIRONMENTAL SERVICES (certified by the Secretary of
State of Florida) and by-laws of ENVIRONMENTAL SERVICES (certified by
its Secretary).
4.1(b) WORLD ENTERPRISES is a corporation duly organized and legally existing
in good standing under the laws of the State of Florida, and has all
requisite corporate power to carry on its business as now conducted. The
nature of the business of WORLD ENTERPRISES and the character of the
properties owned or leased by it do not require its qualification to do
business as a foreign corporation in any state. Seller has delivered to
Buyer a true and correct copy of the Articles of Incorporation of WORLD
ENTERPRISES (certified by the Secretary of State of Florida) and By-Laws
of WORLD ENTERPRISES (certified by its Secretary).
4.1(c) PROPERTY DEVELOPMENT is a corporation duly organized and legally existing
in good standing under the laws of the State of Florida, and has all
requisite corporate power to carry on its business as now conducted. The
nature of the business of PROPERTY DEVELOPMENT and the character of the
properties owned or leased by it do not require its qualification to do
business as a foreign corporation in any state. Seller has delivered to
Buyer a true and correct copy of the Articles of Incorporation of
PROPERTY DEVELOPMENT (certified by the Secretary of State of Florida)
and By-Laws of PROPERTY DEVELOPMENT (certified by its Secretary).
4.1(d) EAST COAST is a limited partnership duly organized and legally existing
in good standing under the laws of the State of Florida, and has all
requisite power to carry on its business as now conducted. The nature of
the business of EAST COAST and the character of the properties owned or
leased by it do not required its qualification to do business as a
foreign limited partnership in any state. Sellers have delivered to
Buyer a true and correct copy of the Limited Partnership Agreement of
EAST COAST (certified by the General Partner, Property Development).
4.1(e) WEST COAST is a limited partnership duly organized and legally existing
in good standing under the laws of the State of Florida, and has all
requisite corporate power to carry on its business as now conducted. The
nature of the business of WEST COAST and the character of the properties
owned or leased by it do not required its qualification to do business as
a foreign corporation. Sellers have delivered to Buyer a true and correct
copy of the Limited Partnership Agreement of WEST COAST (certified by the
General Partner, Property Development).
4.1(f) NORTH EAST is a limited partnership duly organized and legally existing
in good standing under the laws of the State of Florida, and has all
requisite power to carry on its business as now conducted. The nature of
the business of NORTH EAST and the character of the properties
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owned or leased by it do not require its qualification to do
business as a foreign limited partnership in any state. Sellers
have delivered to Buyer a true and correct copy of the Limited
Partnership Agreement of NORTH EAST (certified by the General
Partner of Property Development).
4.2 SUBSIDIARIES OR OTHER ENTITIES. Except as stated herein, none of the
Companies has any investments or ownership interests in any corporations,
partnerships, joint ventures or other business enterprises, other than a
limited partnership, Midway Development Limited, which entity is not part
of this agreement.
4.3 CAPITALIZATION.
4.3(a) ENVIRONMENTAL SERVICES is authorized to issue 1,000,000 shares of
common stock, no par value, of which 436 shares are issued and
outstanding at the time of the execution of this Agrement. All of
the issued and outstanding shares of capital stock of ENVIRONMENTAL
SERVICES have been duly issued, are validly outstanding, are fully
paid and nonassessable, and are held of record and beneficially by
Sellers; there are no outstanding subscriptions, options, warrants
or rights to receive, purchase or subscribe to, or securities
convertible into or exchangeable for, any issued or unissued shares
of the capital stock of ENVIRONMENTAL SERVICES. ENVIRONMENTAL
SERVICES has no liability for dividends declared and unpaid. Prior
to Closing, the Sellers shall not, and shall not permit
ENVIRONMENTAL SERVICES to, issue or enter into any subscriptions,
options, agreements or other commitments in respect of the
issuance, transfer, sale or encumbrance of any shares of the
ENVIRONMENTAL SERVICES capital stock.
4.3(b) WORLD ENTERPRISES is authorized to issue 1,000,000 shares of common
stock, $1.00 par value, of which 310 shares are issued and
outstanding at the time of the execution of this Agrement. All of
the issued and outstanding shares of capital stock of WORLD
ENTERPRISES have been duly issued, are validly outstanding, are
fully paid and nonassessable, and are held of record and
beneficially by Sellers; there are no outstanding subscriptions,
options, warrants or rights to receive, purchase or subscribe to,
or securities convertible into or exchangeable for, any issued or
unissued shares of the capital stock of WORLD ENTERPRISES. WORLD
ENTERPRISES has no liability for dividends declared and unpaid.
Prior to Closing, the Sellers shall not, and shall not permit WORLD
ENTERPRISES to, issue or enter into any subscriptions, options,
agreements or other commitments in respect of the issuance,
transfer, sale or encumbrance of any shares of the WORLD
ENTERPRISES capital stock.
4.3(c) PROPERTY DEVELOPMENT is authorized to issue 300 shares of common
stock, $1.00 par value, of which 100 shares are issued and
outstanding at the time of the execution of this Agreement. All of
the issued and outstanding shares of capital stock of PROPERTY
DEVELOPMENT have been duly issued, are validly outstanding, are
fully paid and nonassessable, and are held of record and
beneficially by Sellers; there are no outstanding subscriptions,
options, warrants or rights to receive,
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purchase or subscribe to, or securities
convertible into or exchangeable for, any
issued or unissued shares of the capital
stock of PROPERTY DEVELOPMENT. PROPERTY
DEVELOPMENT has no liability for dividends
declared and unpaid. Prior to Closing, the
Sellers shall not, and shall not permit
PROPERTY DEVELOPMENT, to issue or enter into
any subscriptions, options, agreements or
other commitments in respect of the
issuance, transfer, sale or encumbrance of
any shares of the PROPERTY DEVELOPMENT
capital stock.
4.3(d) EAST COAST has a 1% general partner interest
(owned by PROPERTY DEVELOPMENT) and 99%
limited partner interests (owned by the
Sellers) issued and outstanding at the time
of the execution of this Agreement. All of
the outstanding partnership interests of
EAST COAST have been duly issued, are
validly outstanding, are fully paid, and are
held of record and beneficially by PROPERTY
DEVELOPMENT and Sellers; there are no
outstanding subscriptions, options, warrants
or rights to receive, purchase or subscribe
to, or securities convertible into or
exchangeable for, any issued or unissued
partnership interests of EAST COAST. EAST
COAST has no liability for distributions
declared and unpaid. Prior to Closing, the
Sellers shall not, and shall not permit EAST
COAST to, issue or enter into any
subscriptions, options, agreements or other
commitments in respect of the issuance,
transfer, sale or encumbrance of any
partnership interests of EAST COAST.
4.3(e) West Coast has a 1% general partner
interest (owned by PROPERTY DEVELOPMENT)
and 99% limited partner interests (owned by
the Sellers) issued and outstanding at the
time of the execution of this Agreement.
All of the outstanding partnership
interests of West Coast have been duly
issued, are validly outstanding, are fully
paid, and are held of record and
beneficially by Sellers; there are no
outstanding subscriptions, options,
warrants or rights to receive, purchase or
subscribe to, or securities convertible
into or exchangeable for, any issued or
unissued partnership interests of West
Coast. West Coast has no liability for
distributions declared and unpaid. Prior to
Closing, the Sellers shall not, and shall
not permit West Coast to, issue or enter
into any subscriptions, options, agreements
or other commitments in respect of the
issuance, transfer, sale or encumbrance of
any partnership interests of West Coast.
4.3(f) NORTH EAST has a 1% general partner
interest (owned by PROPERTY DEVELOPMENT)
and 99% limited partner interests (owned by
the Sellers) issued and outstanding at the
time of the execution of this Agreement.
All of the outstanding partnership
interests of NORTH EAST have been duly
issued, are validly outstanding, are fully
paid, and are held of record and
beneficially by PROPERTY DEVELOPMENT and
Sellers; there are no outstanding
subscriptions, options, warrants or rights
to receive, purchase or subscribe to, or
securities convertible into or exchangeable
for, any issued or unissued partnership
interests of NORTH EAST. NORTH EAST has no
liability for distributions declared and
unpaid. Prior to Closing, the Sellers shall
not, and shall not permit NORTH EAST, to
issue or enter into any subscriptions,
options, agreements or other commitments in
respect of the issuance, transfer, sale or
encumbrance of any partnership interests of
NORTH EAST.
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4.4 OWNERSHIP. Sellers have, and at the time of Closing will have, good and
marketable title to the Ownership Interests, and there are, and at the
time of Closing will be, no impediments to the sale and transfer of the
Ownership Interests to Buyer. Upon delivery of the Ownership Interests
to Buyer, by whatever instrument(s) are appropriate, the Ownership
Interests (i) shall constitute all of the issued and outstanding
Ownership Interests of the Companies, and (ii) shall be free and clear
of all security interests, liens, charges, pledges, mortgages,
encumbrances or rights of third parties whatsoever. It is noted that
the general partnership interests in the Limited Partnership shall be
deemed adequately conveyed by Sellers' transfer to Buyer of all of this
issued and outstanding capital stock of PROPERTY DEVELOPMENT, the sole
general partner of each such Limited Partnership.
4.5 FINANCIAL CONDITION. Sellers have furnished to Buyer copies of the
following consolidated financial statements of the Companies, all of
which are true and complete in all material respects and have been
prepared in accordance with generally accepted accounting principles
consistently applied (except to the extent otherwise reported):
4.5(a) A consolidated balance sheet ("Balance Sheet") of the
Companies as of December 31, 1998.
4.5(b) Consolidated statements of income and retained earnings of the
Companies for the twelve (12) months ended December 31, 1998
and for the 6-month period ended June 30, 1999. (Collectively,
the Balance Sheet and statements of income and retained
earnings are hereinafter referred to as the "Financial
Statements").
The Financial Statements are complete and correct in all
material respects and in accordance with the books of account
and records of the Companies and present fairly the financial
position of the Companies' business and the income,
stockholders' equity and cash flow of the Companies' business
at the dates and for the periods indicated.
4.5(c) Sellers warrant that the aggregate current assets of the
Companies will be sufficient to pay the aggregate amount of
current liabilities of the Companies as of the Closing Date.
Buyer agrees that any excess working capital on the Closing
Date after payment of all term debt (including principal and
interest to Closing Date) shall be distributed to Sellers as
set forth in paragraph 2.1(c). Such amount shall constitute
part of the Purchase Price.
4.6 ASSETS.
4.6(a) To Sellers' knowledge, the Companies have good and marketable
title to, and are in possession of, all of the assets,
equipment, vehicles, properties and rights, including all
properties, assets, vehicles and equipment as shown on the
Balance Sheet, free and clear of all liabilities, mortgages,
liens, pledges, security interests, restrictions, conditional
sales agreements, title retention agreements, charges or
encumbrances, except as shown on the Balance Sheet and in
Companies' records. Sellers represent its records to the
extent available, to Sellers' knowledge, set forth a list of
all material items of equipment, vehicles, properties,
containers, machinery, shop equipment, welders, grinders,
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work benches, jacks, stands, parts, office furniture,
fixtures, computer hardware/software and equipment owned by
the Companies as of the date of this Agreement and used in
connection with its business operations (hereinafter
sometimes referred to as the "Operating Equipment").
4.6(b) To Sellers' knowledge all of the Operating Equipment is in
good operating condition (normal wear and tear excepted),
has been well maintained, and is in adequate condition to
service the Companies' Customer Accounts (as herein defined)
and to conduct the operations of the Companies existing on
the Closing Date.
4.6(c) To Sellers' knowledge, there has not been any material
change in the Operating Equipment, since the inspection of
such Operating Equipment by Buyer on August 31, 1999, and
there shall not be any material change in the Operating
Equipment, in the aggregate, subsequent to a final
inspection of the Operating Equipment to be performed by
Buyer and Sellers prior to Closing.
4.6(d) The transactions contemplated by this Agreement do not and
will not subject any of the Companies or the Buyer to any
claim or liability for any obligation, debt or contract,
other than as specifically disclosed in this Agreement or
the Schedules attached hereto.
4.7 CUSTOMER ACCOUNTS, MUNICIPAL CONTRACTS AND RELATED MATTERS.
4.7(a) Customer Accounts are the commercial, industrial,
municipal, and residential accounts of the Companies
pursuant to which the Companies provide waste removal,
collections, incorporation, storage and/or disposal. To
Sellers' knowledge, said Customer Accounts are listed on
Companies' books and records.
4.7(b) To Sellers' knowledge, all written service agreements,
franchises, licenses or other contracts, if any, to which
any of the Companies is a party and which related to
Customer Accounts is contained in Companies' books and
records. Original copies of all such contracts shall be
delivered by the Sellers to the Buyer no later than the
Closing Date, and such copies shall be true, accurate and
complete and shall include all amendments, supplements or
other modifications to such contracts. To the knowledge of
the Sellers, none of the Companies or any other party to any
of the Companies' municipal contracts or Customer Accounts
is in material default or alleged to be in material default
thereunder and there exists no condition or event which,
after notice or the lapse of time or both, would constitute
such a default.
4.7(c) Except as otherwise disclosed, the Sellers know of no oral
or written communication, fact, event or action which exists
or has occurred within 30 days prior to the date of
execution of this Agreement, which would tend to indicate
that any current customers of any of the Companies intends
to terminate their business relationship with any of the
Companies.
4.8 MATERIAL CONTRACTS. To Sellers' knowledge, none of the Companies is a
party to or bound by any material written or oral (i) contracts not
made in the ordinary
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course of business; (ii) employment contracts, other than those
terminable at will; (iii) contracts with any labor union or
association; (iv) leases with respect to any property, real or
personal, whether as lessor or lessee, except intercompany or as
disclosed; (v) continuing contracts for the future purchase of
materials, supplies or equipment in excess of the requirements of its
business now booked; or (vi) contracts or commitment for capital
expenditures heretofore otherwise disclosed.
4.9 EMPLOYEES - LABOR MATTERS. The Companies have generally enjoyed a good
employer-employee relationship with employees. To Sellers' knowledge,
there exists no pending or threatened actions by any employees alleging
sex, age, race, or other discriminatory practices, no current effort to
organize these employees into collective bargaining units, and no
collective bargaining agreement is now in effect.
4.10 INSURANCE. The Companies maintain in effect insurance covering assets
and businesses and any liabilities relating thereto in an amount
believed adequate by the Sellers, and such insurance coverage shall be
maintained by the Companies through and shall survive the Closing Date.
Between the date hereof and the Closing Date, the Sellers shall cause
the Companies to furnish to the Buyer such information as the Buyer
shall reasonably request regarding the Companies' insurance.
4.11 LICENSES AND PERMITS. To Sellers' knowledge, the Companies possess all
licenses and other required governmental or official approvals, permits
or authorizations, if any, the failure to possess which would have a
material adverse effect on the businesses, financial condition or
results of operations of the Companies including, without limitation,
all common carrier rights, certificates of public need, waste material
transportation permits, trademarks and trade names necessary to carry
on business as now being conducted, without known conflict with valid
licenses, permits, trademarks and trade names of others. All such
licenses and permits are in full force and effect, and to Sellers'
knowledge, no violations are or have been recorded in respect to any
thereof, and no proceeding is pending, or to the knowledge of Sellers
threatened, to revoke, suspend or otherwise limit such licenses or
permits, except for the items identified in SCHEDULE G. To Sellers'
knowledge, all licenses and permits will survive the Closing of the
transactions contemplated by this Agreement.
4.12 TAX MATTERS. The Companies have filed all federal, state, franchise
tax, and other tax returns which are required to be filed and have paid
or have made provision for the payment of all taxes which have or may
become due pursuant to said returns. All taxes, including, without
limitation, withholding and social security taxes due with respect to
all of the Companies' employee, federal and state income tax
liabilities, corporate franchise taxes, due, payable or accrued by each
of the Companies on or before the Closing Date have or will be paid.
The Companies have filed all reports required to be filed with all such
taxing authorities. Sellers shall be responsible for any tax liability
attributable to operations of the Companies prior to Closing; in such
event, Companies agree to provide Sellers with prompt access to
Companies' records and personnel at no expense to Sellers. The parties
agree that if Buyer whishes to maintain the Subchapter S status of the
Corporations, there shall be an interim closing of the books as of the
Closing Date so that Sellers shall be charged with only the profit of
the Corporations from the beginning of the fiscal year to the Closing
Date. Preparation of the final tax returns for the Subchapter S
Corporations shall be
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completed by Sellers' accountants at Corporations' expense.
Similar closing of the books shall be had with respect to
the Limited Partnerships.
Buyer and Sellers agree to cause the Companies to make the
election provided by Section 338(h)(10) of the Internal
Revenue Code of 1986 as amended and Treasury Regulation
Paragraph 1.338(h)(10)-1(d)(1), and in connection therewith,
the parties agree that the allocation of the Purchase Price
shall be used in connection with the preparation of tax
returns reflecting the sale and purchase contemplated hereby.
Buyer agrees to reimburse Sellers for, and provide
simultaneously for the payment of, any and all additional
taxes, interest, and penalties incurred as a result of Sellers
agreeing to make such election and to indemnify Sellers
therefor together with any expenses incurred as a result
thereof including reasonable attorneys' and accountants' fees.
4.13 LITIGATION. To the knowledge of Sellers, none of the
Companies has received any notices of material default and
none of the Companies is in material default of (i) any
order, writ, injunction or decree of any court, or any
federal, state, municipal or other governmental department,
commission, board, bureau or instrumentality, or (ii) any
agreement or obligation to which any of the Companies is a
party or by which any of the Companies is bound or to which
any of the Companies or any of the property of the Companies'
may be subject. To Sellers' knowledge, there are no material
outstanding claims, actions, suits, proceedings or
investigations pending or, to the knowledge of the Sellers,
threatened against any of the Companies or which affect any of
the Companies or any assets or property of the Companies, at
law or in equity before or by any federal, state, municipal
court or other governmental department, authority, commission,
board, bureau, agency or instrumentality.
4.14 COMPLIANCE WITH LAWS. To Sellers' knowledge, the Companies
are in compliance in all material respects with all federal,
state, and local laws, ordinances, regulations, rules, and
orders applicable to the Companies or to assets of the
Companies including, without limitation, all laws and
regulations relating to the protection of the environment,
anti-competitive practices, discrimination, employment, and
wage and hour practices. None of the Companies has received
notification of any asserted past or present material failure
to comply with any of such laws or regulations.
4.15 ENVIRONMENTAL MATTERS. To the best of Seller's knowledge, and
not having conducted any environmental assessment, audit or
investigation.
4.15(a) During the period of time Seller owned or
operated any facility of the Companies,
Seller has been in material compliance with
all currently applicable federal, state and
local statutes, rules, ordinances and other
laws and regulations relating to
environmental matters;
4.15(b) No releases or threats of releases of any
toxic, hazardous or carcinogenic substances
or medical wastes (including, but not limited
to, petroleum products) to the environment
from or at any facility of any of the
Companies have occurred which have not been
remediated to the extent required under
currently applicable federal, state and local
statutes, rules, ordinances and other laws,
regulations, permits or orders of a
governmental authority;
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4.15(c) None of the Companies have received any written notice to the
effect that the landfills and other disposal sites to which
waste material transported by any of the Companies has been
delivered are not properly licensed pursuant to applicable
environmental laws to receive the material disposed of
therein.
4.15(d) No pending or threatened, claims, assessments or litigation
notices have been received by Seller with respect to any
alleged noncompliance with any of the Environmental Laws with
respect to the ownership or operation of any facility of any
of the Companies or any of the other Acquired Assets.
4.16 NO BROKERS' OR AGENT'S FEES. No agent, broker, finder, representative
or other person or entity acting pursuant to authority of the Sellers
will be entitled to any commission or finder's fee in connection with
the origination, negotiation, execution or performance of the
transactions contemplated under this Agreement.
4.17 NO MATERIAL ADVERSE CHANGE. To Sellers' knowledge from January 1, 1999,
there has not been: (i) any material adverse change in the financial
condition, assets, liabilities, business or results of operations of
any of the Companies; (ii) to the knowledge of the Sellers, any
threatened or prospective event or condition of any character
whatsoever which could materially and adversely affect the business,
financial condition or results of operations of any of the Companies;
(iii) any sale or other disposition of any of the Companies' (iii) any
sale or other disposition of any of the Companies' assets other than in
the ordinary course of business; or (iv) any uninsured damage,
destruction or loss materially and adversely affecting the property,
business or prospects of any of the Companies.
4.18 DUE AUTHORIZATION AND ABSENCE OF BREACH. This Agreement and all other
agreements of the Sellers contemplated hereunder constitute valid and
binding obligations of the Sellers, enforceable in accordance with
their respective terms. Neither the execution and delivery of this
Agreement (or any agreement contemplated hereunder) nor the
consummation of the transactions contemplated hereby will: (i) conflict
with or violate any provision of the Articles of Incorporation or
By-Laws of any of the Companies; (ii) conflict with or violate any
decree, writ, injunction or order of any court or administrative or
other governmental body which is applicable to, binding upon or
enforceable against any of the Companies or Sellers.
4.19 AUTHORITY TO CONTRACT. Sellers have the full power, right and authority
to enter into and perform this Agreement without the consent of any
person, entity or governmental agency.
4.20 ACCURACY OF THE INFORMATION FURNISHED BY THE SELLERS. No
representation, statement or information made or furnished by the
Sellers to the Buyer, including those contained in this Agreement and
the various schedules attached hereto and the other information and
statements referred to herein, contains or shall contain any materially
untrue statement of any material fact.
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5. REPRESENTATION AND WARRANTIES OF BUYER. In order to induce the Sellers
to enter into this Agreement and to consummate the transactions
contemplated hereunder, the Buyer hereby makes the following
representations, warranties, covenants and agreements:
5.1 ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware and has all the requisite corporate
power and authority to carry on its business as now conducted
and to consummate the transactions contemplated by this
Agreement.
5.2 AUTHORITY TO CONTRACT. The execution, delivery and performance
of this Agreement by Buyer has been duly approved by its Board
of Directors, and no further corporate action is necessary on
the part of Buyer to consummate the transactions contemplated by
this Agreement, assuming due execution of this Agreement by the
parties.
5.3 NO BROKER'S OR AGENT'S FEES. No agent, broker, finder,
representative or other person or entity acting pursuant to the
authority of the buyer will be entitled to any commission or
finder's fee in connection with the origination, negotiation,
execution or performance of the transactions contemplated under
this Agreement.
5.4 ACCURACY OF INFORMATION FURNISHED BY BUYER. No representation,
statement or information made or furnished by Buyer to the
Sellers in this Agreement, or in connection with the
transactions contemplated hereby including, without limitation
copies of the Buyer's filings with the Securities and Exchange
Commission, contains, or shall contain any untrue statement of
any material fact or omits or shall omit any material fact
necessary to make the information contained herein true.
5.5 REGISTRATION. The EarthCare common stock delivered to Sellers on
the Closing Date has been duly registered with the Securities
and Exchange commission on Form S-1 effective December 9, 1998,
and such registration statement is true and correct in all
material respects and does not omit to state any material
information necessary to make such registration statement not
misleading. Buyer agrees to maintain the currency of the
registration statement and to provide Sellers with sufficient
copies of the prospectus, as the same may be supplemented or
stickered from time to time to enable Sellers to sell the
registered shares for one year from Closing Date or until sold.
Buyer also agrees to comply with the reporting requirement of
the Securities Exchange Act of 1934 so that Sellers may sell the
unregistered shares in accordance with Rule 144 thereunder.
6. ADDITIONAL AGREEMENT OF THE SELLERS. The Sellers further agree with
the Buyer as follows:
6.1 ACCESS TO OFFICES AND RECORDS. The Sellers shall cause the
Companies to afford representatives of the Buyer, from and after
the date of execution of this Agreement, full access, during
normal business hours and upon reasonable notice, to all
offices, books, properties, contracts, documents and records of
the Companies and to furnish to the Buyer or its representatives
all additional information, including financial or operating
information with respect to the business and affairs of the
Companies that the Buyer or its representatives may reasonably
request. Sellers acknowledge that Buyer is a publicly-traded
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corporation and that Buyer will be required under the applicable
securities laws to make public disclosure of detailed financial data
concerning the Companies' operations. Prior to the Closing Date, Buyer
has Sellers' permission to disclose publicly: (i) the amount of the
Companies' revenues; and (ii) such other information as shall be
included in any press release of Buyer which Sellers approve in
advance of being released; such approval shall not be unreasonably
withheld. Provided, however, that any furnishing of such information
to the Buyer and any investigation by the Buyer shall not affect the
right of the Buyer to rely solely upon the representations and
warranties made by the Sellers in or pursuant to this Agreement; and
provided further, that the Buyer: (i) will hold in strict confidence
all documents and information concerning the Companies so furnished;
and (ii) will promptly return all such documents and all copies to the
Companies if this Agreement is not closed or for no reason.
6.2 CONDUCT OF BUSINESS PENDING THE CLOSING. From and after the
execution and delivery of this Agreement and until the Closing Date,
except as otherwise provided by the prior written consent or approval
of the Buyer:
6.2(a) The Sellers will cause the Companies to conduct business and
operations in the manner in which the same has heretofore been
conducted and Sellers will use their best efforts to cause the
Companies to: (i) preserve the Companies' current business
organization intact; (ii) keep available to the Buyer the
services of the Companies' current employees and the
Companies' agents and distributors; and (iii) preserve the
Companies' current relationship with customers, suppliers and
others having business dealings with the Companies.
6.2(b) The Sellers will cause the Companies to maintain all its
properties in customary repair, order and condition,
reasonable wear and use excepted, and will maintain its
existing insurance upon all of its properties and with respect
to the conduct of its business in such amounts and of such
kinds comparable to that in effect on the date of this
Agreement.
6.2(c) The Sellers will take action to insure that none of the
Companies will: (i) pay any bonus or increase the rate of
compensation of any of the Companies' employees or enter into
any new employment agreement or amend any existing employment
agreement; (ii) make any general increase in the compensation
or rate of compensation payable or to become payable to the
Companies' hourly-rated employees; (iii) sell or transfer any
of the Companies' assets, except in the ordinary course; (iv)
obligate itself for capital expenditures other than in the
ordinary course of business and not unusual in amount; or
(v) incur any material obligations or liabilities, which are
not in the ordinary course of business, or enter into any
material transaction.
6.2(d) The Sellers shall not, and shall not permit any of the
Companies to, issue or enter into any subscriptions, options,
agreements or other commitments in respect of the issuance,
transfer, sale or encumbrance of any shares of the Acquisition
Stock.
6.3 EXECUTION OF FURTHER DOCUMENTS BY SELLERS. From and after the
Closing, upon the reasonable request of the Buyer and at the Buyer's
cost and expense,
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<PAGE> 14
the Sellers shall execute, acknowledge and deliver such
documents as may be appropriate to carry out the
transactions contemplated by this Agreement.
6.4 INDEMNIFICATION BY SELLERS.
6.4(a) To the extent specified herein, the Sellers will indemnify
and hold the buyer harmless from and against any and all
damage, loss, cost, deficiency, assessment, liability or
other expense (including reasonable attorney's fees, costs of
court and litigation expenses, if any) suffered, incurred or
paid by the Buyer as a result of:
6.4(a)(1) The material untruth, inaccuracy, breach or
violation of any representation, warranty, covenant
or other obligation of the Sellers set forth in or
made in connection with this Agreement;
6.4(a)(2) The assertion against the Buyer or any of the
Companies of any material liability or obligation
of any of the Companies or of any claim relating to
the operation of the Companies, businesses, prior
to the Closing Date, whether absolute or
contingent, matured or unmatured, known or unknown
as of the Closing Date (including, without
limitation, customer claims or disputes).
6.4(a)(3) No claims for indemnification by Buyer shall be
payable until the aggregate thereof reaches
$50,000 and only claims in excess of $50,000 shall
be subject to indemnification. The maximum amount
payable to Buyers for Sellers' claims of
indemnification shall be $500,000.
6.4(b) The Buyer shall give written notice to the Sellers of
any claim, action, suit or proceeding relating to the
indemnity herein provided by Sellers not later than ten
(10) days after Buyer has received notice thereof.
Sellers shall have the right, at his option, to
compromise or defend, at his own expense and by his own
counsel (which counsel shall be reasonably satisfactory
to Buyer), any such action, suit or proceeding. Buyer
and Sellers agree to cooperate in any such defense or
settlement and to give each other full access to all
information relevant thereto.
6.4(c) The Holdback Cash shall constitute security for
Sellers' indemnification. If Buyer makes no claim of
breach of any of Sellers' representations, warranties
or covenants, or of any deficiency resulting from
uncollectible accounts receivable, then the Holdback
Escrow shall be delivered in full or in part to Sellers
one hundred eighty (180) days after the Closing Date,
along with an assignment to Sellers of the
uncollectible accounts receivable.
6.4(d) Except as herein expressly provided, the remedies
provided in this paragraph shall be cumulative and
shall not preclude assertion by the Buyer of any other
rights or the seeking of any other remedies available
against the Sellers at law or in equity.
7. ADDITIONAL AGREEMENT OF THE BUYER.
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<PAGE> 15
7.1 EXECUTION OF FURTHER DOCUMENTS BY BUYER. From and after
the Closing, upon reasonable request of Sellers, Buyer
shall execute, acknowledge and deliver to Sellers all
such further documents as may be appropriate to carry out
the transactions contemplated by this Agreement.
7.2 INDEMNIFICATION BY BUYER.
7.2(a) The Buyer will indemnify and hold the Sellers
harmless from and against any and all damages,
loss, cost, deficiency assessment, liability or
other expense (including reasonable attorney's
fee, costs of court and costs of litigation, if
any) suffered, incurred or paid by the Sellers as
a result of:
7.2(a)(1) The untruth, inaccuracy, breach or
violation of any representation,
warranty, covenant or other obligation
of the Buyer set forth in or made in
connection with this Agreement;
7.2(a)(2) The assertion against the Sellers of
any liability or obligation of the
Buyer or any of the Companies or of any
claim relating to the operation of the
Companies' business subsequent to the
Closing Date (including, without
limitation, guaranties, customer claims
or disputes); or
7.2(a)(3) As a result of any claim being made by
a creditor of Companies against Buyer
based on a personal guaranty of the
indemnity.
7.2(b) The Sellers shall give written notice to the
Buyer of any claim, action, suit or proceeding
relating to the indemnity herein provided by
Buyer not later than ten (10) days after Sellers
have received notice thereof. Buyer shall have
the right, at its option, to compromise or
defend, at its own expense and by its own counsel
(which counsel shall be reasonably satisfactory
to Sellers), any such action, suit or proceeding.
Sellers and Buyer agree to cooperate in any such
defense or settlement and to give each other full
access to all information relevant thereto.
7.2(c) Except as herein expressly provided, the
remedies provided in this Paragraph hereof shall
be cumulative and shall not preclude assertion by
the Sellers of any other rights or the seeking of
any other remedies available against the Buyer at
law or in equity.
8. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligations of the
Buyer to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to
the Closing Date of each of the following conditions:
8.1 VALIDITY OF SELLERS' REPRESENTATIONS. All representations
and warranties of the Sellers contained in this Agreement
or otherwise made in writing pursuant to this Agreement
shall have been true and correct at and as of the date
hereof and they shall be true and correct at and as of
the Closing Date, with the same force and effect as
though made at and as of the Closing Date.
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<PAGE> 16
8.2 PRE-CLOSING OBLIGATIONS. The Sellers shall have performed and
compiled with all the obligations and conditions required by this
Agreement to be performed or complied with by Sellers at or prior
to the Closing Date, including the execution and delivery of all
documents and contracts required to be delivered at or before the
Closing Date pursuant to this Agreement.
8.3 OPINION OF COUNSEL FOR SELLERS. The Buyer shall have received a
favorable opinion from counsel for the Sellers limited to State of
Florida and federal law, dated the date of the Closing, in form
satisfactory to counsel for the Buyer, to the effect that:
8.3(a) Each of the Companies is a duly organized and legally
existing in good standing under the laws of its respective
jurisdiction, and it has the power and authority to carry
on its business as now being conducted and to own or hold
under lease, or otherwise, its assets.
8.3(b) This Agreement has been duly executed and delivered by the
Sellers, and constitutes a valid, enforceable and binding
obligation of the Sellers pursuant to the terms of this
Agreement.
8.3(c) Except as otherwise disclosed in this Agreement, counsel
does not know of any action, suit, investigation or other
legal, administrative or arbitration proceeding pending
against the Sellers or any of the Companies, or which
questions the validity or enforceability of this Agreement
or of any action taken or to be taken pursuant to or in
connection with this Agreement or any agreement
contemplated herein.
8.3(d) To the knowledge of such counsel, and without inquiry, no
consent, authorization, license, franchise, permit,
approval or order of any court or governmental agency or
body, other than those obtained by Sellers and delivered
to the Buyer prior to or on the date of the opinion, is
required for the sale of the Acquisition Stock by the
Sellers pursuant to this Agreement.
8.3(e) To the knowledge of such counsel, and without inquiry,
the execution and performance of this Agreement by the
Sellers will not violate: (i) the Organizational Documents
or the By-Laws, if applicable, of any of the Companies, or
(ii) any order of any court or other agency of government
known to said counsel.
8.3(f) The instruments of conveyance and assignments executed by
the Sellers to the Buyer pursuant to this Agreement are
adequate to convey the Ownership Interests, free and clear
of all liens, claims or encumbrances known to such counsel
after conducting a UCC-11 lien search with the offices of
the Secretary of State for the State of Florida, and the
offices of the County Clerk for the Counties in which
Companies do business, and
8.3(g) To the knowledge of such counsel (after reasonable
investigation), Sellers own all of the issued and
outstanding Ownership Interests of the Companies.
The form of such opinion is set forth on SCHEDULE H attached
hereto and made a part hereof.
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<PAGE> 17
8.4 RECEIPT BY THE BUYER OF NECESSARY CONSENTS. All necessary
consents or approvals of third parties to any of the
transactions contemplated hereby shall have been obtained, and
satisfactory evidence of such consents or approvals shall have
been delivered to the Buyer at Closing.
8.5 RESIGNATION OF OFFICERS AND DIRECTORS. Buyer shall have
received such resignations of officers and directors of the
Companies as shall have been requested by Buyer in the form
attached hereto as SCHEDULE I and made a part hereof.
8.6 STOCK PURCHASE. On Closing, the obligations of the
signatories shall be consummated.
9. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers to effect the transactions contemplated by this Agreement shall
be subject to the fulfillment at or prior to the Closing Date of each
of the following conditions:
9.1 VALIDITY OF BUYER'S REPRESENTATIONS. All representations and
warranties of the Buyer contained in this Agreement or
otherwise made in writing pursuant to this Agreement shall
have been true and correct at and as of the date hereof and
they shall be true and correct at and as of the Closing Date,
with the same force and effect as though made at and as of the
Closing Date.
9.2 PRE-CLOSING OBLIGATIONS. The Buyer shall have performed and
complied with all the obligations and conditions required by
this Agreement to be performed or complied with by Sellers at
or prior to the Closing Date, including the execution and
delivery of all documents and contracts required to be
delivered at or before the Closing Date pursuant to this
Agreement.
9.3 CORPORATE AUTHORITY OF BUYER. The execution and performance
of this Agreement by the Buyer shall have been duly and
legally authorized in accordance with applicable law, and the
Buyer shall have furnished to counsel for the Sellers
certified copies of resolutions adopted by the Board of
Directors of the Buyer authorizing and proving the execution
and delivery of this Agreement and performance of the
transactions contemplated hereunder.
9.4 OPINION OF COUNSEL FOR BUYER. The Sellers shall have received
a favorable opinion from counsel for the Buyer dated the date
of the Closing, in form satisfactory to counsel for the
Sellers, to the effect that:
9.4(a) The Buyer is a corporation, duly organized and
legally existing in good standing under the laws of
the State of Delaware, and it has the corporate
power and authority to carry on its business as now
being conducted and to carry out the transactions
and agreements contemplated hereby.
9.4(b) All corporate and other proceedings required to be
taken by or on the part of the Buyer in order to
authorize it to perform its obligations hereunder
have been duly and properly taken, including any
necessary approval or authorization by the Board of
Directors of the Buyer.
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<PAGE> 18
9.4(c) This Agreement has been duly executed and delivered by the
Buyer and constitutes a valid, enforceable and binding
obligation of the Buyer pursuant to the terms of this
Agreement.
9.4(d) Except as otherwise disclosed in this Agreement, said counsel
does not know of any action, suit, investigation or other
legal, administrative or arbitration proceeding which
questions the validity or enforceability of this Agreement or
of any action taken or to be taken pursuant to or in
connection with this Agreement or any agreement contemplated
herein.
9.4(e) The execution and performance of this Agreement by the Buyer
will not violate: (i) the Articles of Incorporation or the
By-Laws of the Buyer; or (ii) any order of any court or other
agency of government know to said counsel.
10. SELLERS' NON-COMPETE AND NON-SOLICITATION AGREEMENT. As inducement to
Buyer to enter into this Agreement and perform its obligations
hereunder, and in consideration of the payments to Sellers pursuant to
this Agreement, the Sellers agree that Sellers will not, for a period
of two (2) years from the Closing Date, directly or indirectly, in each
case, within the County of Broward and the County of Palm Beach, State
of Florida; (whether as owner, partner, shareholder, agent, employee,
independent contractor, consultant or otherwise): (i) engage in any
business which directly competes with business of the Buyer, or with
any subsidiary of Buyer as of the Closing Date, (ii) solicit any party
who is or was a customer or supplier of the Company on the Closing Date
for services of any type or quality being provided by the Company;
(iii) solicit for employment any person who was or is an employee of
the Company on the Closing Date, or (iv) either directly or indirectly,
divulge, disclose, or communicate to any person, firm or corporation in
any manner whatsoever any confidential information relating to the
business of Buyer, or the Company for a period of two (2) years from
date of Closing. The term, "confidential information", as used herein,
means all information of a business or technical nature relative to the
business of Buyer, the business of any customers of the Company or any
business of any person, firm or corporation which consults with, or is
affiliated with, Buyer or the Company. The term "confidential
information" shall not include information so generally known as to be
part of the public domain.
Each of the covenants contained in this Article are separate and
independent. The Sellers acknowledge and agree that Buyer's remedies at
law may be inadequate in the event of a breach or threatened breach of
the covenants set forth herein, and in such event, Buyer shall be
entitled to have an injunction issued by any court of competent
jurisdiction, enjoining and restraining each and every party concerned
therewith from the creation or continuation of such breach.
11. OTHER PROVISIONS.
11.1 EMPLOYMENT AGREEMENTS. At Closing, Buyer will enter into
written Employment Agreements with key employees of Company in
a form set forth on SCHEDULE F.
11.2 INCOMPLETE EXHIBITS. The parties hereto acknowledge and agree
(a) that many, if not all, of the schedules to be attached to
this Agreement will not have been prepared by the time of
execution of this Agreement, and (b) that consummation of the
transactions contemplated by this Agreement are subject to the
completion of such schedules by Sellers (to the extent that an
exhibit is to be completed by Sellers, such schedule must be
reasonably acceptable to Buyer) or
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<PAGE> 19
Buyer (to the extent that a schedule is to be completed by Buyer, it must
be reasonably acceptable to Sellers) as the case may be, prior to or at
the Closing, pursuant to the terms of this Agreement.
11.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, obligations and agreements of the parties contained in this
Agreement, or in any writing delivered pursuant to provisions of this
Agreement, shall survive the Closing for a period of 180 days.
11.4 WAIVER OR EXTENSIONS OF CONDITIONS. The Sellers or the Buyer may extend
the time for or waive the performance of any of the obligations of the
other party, waive any inaccuracies in the representations or warranties
by the other party, or waive compliance by the other party with any of
the covenants or conditions contained in this Agreement. Any such
extension or waiver shall be in writing and signed by the Sellers and the
Buyer. Any such extension or waiver shall not act as a waiver or an
extension of any other provisions of this Agreement.
11.5 NOTICES. Any notice, request or other document shall be in writing and
sent by registered or certified mail, return receipt requested, postage
prepaid and addressed to the party to be notified at the following
addresses, or such other address as such party may hereafter designate by
written notice to all parties, which notice shall be effective as of the
date of posting:
(i) If to the Buyer:
EarthCare Company
14901 Quorum Drive
Suite 200
Dallas, TX 75240
Copy to:
Robert C. Gist, Esq.
12809 Plum Hollow Drive
Oklahoma City, OK 73142-5148
(ii) If to the Sellers:
James Frederico
3779 N.W. 52nd Street
Boca Raton, FL 33496
Copy to:
Samuel P. Merio, Esq.
Woods, Oviatt, Gilman
Sturman & Clarke LLP
700 Crossroads Building
2 State Street
Rochester, New York 14614
11.6 GOVERNING LAW. This Agreement shall be governed by the laws of the State
of Florida.
11.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns.
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11.8 HEADINGS. The subject headings of the Sections of this
Agreement are included for purposes of convenience only and
shall not affect the construction or interpretation of any of
its provisions.
11.9 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.
11.10 ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
schedules attached hereto) and the documents delivered
pursuant hereto constitute the entire agreement and
understanding between the parties, and supersede any prior
agreements and understandings relating to the subject matter
hereof. This Agreement may be modified or amended by a
written instrument executed by all parties hereto.
IN WITNESS WHEREOF the parties have executed this Agreement as of the 24th day
of August, 1999.
"Sellers"
/s/
- ----------------------------
/s/
- ----------------------------
/s/
- ----------------------------
"Buyer"
EarthCare Company
By: /s/ Harry M. Habets
--------------------------
HARRY M. HABETS
President
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<PAGE> 1
EXHIBIT 10.7
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement"), is made and
entered into this 3rd day of November,1999 between and among EARTHCARE COMPANY,
a Delaware Corporation ("EarthCare" or "Buyer"). EARTHCARE COMPANY OF TEXAS, a
Texas corporation ("Subsidiary"), which is a wholly-owned subsidiary of
EARTHCARE, LIQUID WASTE CONTROL SYSTEMS, INC., a Texas corporation ("LWCS" or
"Company"), Mitzy Spano, Kerry Spano and Ron Sekerak ("Shareholders or
"Seller").
WITNESSETH:
1. The Shareholders own all of the outstanding capital stock of
Company.
2. The respective boards of directors of EarthCare, Subsidiary
and the Company have approved the merger of the Company with
and into Subsidiary (the "Merger") upon the terms and subject
to the conditions set forth herein and have approved this
Agreement as a "plan of reorganization" within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code").
3. EarthCare, the sole shareholder of Subsidiary, and the
Shareholders have approved the Merger upon the terms and
subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants, and agreements herein contained, the parties agree as
follows:
1. MERGER.
A. Effect of the Merger. In accordance with the provisions of
this Agreement, and the Texas Business Corporation Act, at
the Effective Time (as defined in Section B hereof), the
Company shall be merged with and into Subsidiary; the
separate existence of the Company shall cease; and Subsidiary
as the surviving corporation shall continue its corporate
existence under the laws of the State of Texas. Pursuant to
the Merger, Subsidiary shall possess all the rights,
privileges, powers and franchises of the Company and shall be
subject to all the restrictions, disabilities, and duties of
the Company; all rights privileges, powers, and franchises of
the Company and all property, real, personal, and mixed,
belonging to the Company shall be vested in Subsidiary; and
all property, rights privileges, powers, and franchises and
every other interest shall be thereafter as effectually the
property of Subsidiary as they were of the Company, and the
title to any real estate vested by deed or otherwise in the
Company shall not revert or be in any way impaired by reason
of the Merger, provided that all rights of creditors and all
liens upon any property of the Company shall be preserved
unimpaired and all debts, liabilities, and duties of the
Company shall thenceforth attach to Subsidiary and may be
enforced against
<PAGE> 2
Subsidiary to the same extent as if said debts, liabilities,
and duties had been incurred or contracted by Subsidiary.
B. Effective Time of the Merger. The Merger shall become
effective when properly executed Articles of Merger are duly
filed with the Office of the Secretary of State of Texas;
which filing shall be made simultaneously with the closing of
the transactions contemplated by this Agreement in accordance
with Section E below. The date and time when the Merger shall
become effective is referred to as the "Effective Time".
C. Certificate of Incorporation and Bylaws. As a part of the
Merger, the Articles of Incorporation and Bylaws of
Subsidiary as in effect at the Effective Time, shall be the
Articles of Incorporation and Bylaws of Subsidiary
immediately after the Effective Time.
D. Officers and Directors. The officers and directors of
Subsidiary at the Effective Time shall be the officers and
directors of Subsidiary immediately after the Effective Time,
each to serve until his respective successor is duly elected
and qualified in the manner provided in the Articles of
Incorporation and Bylaws of Subsidiary, or until his earlier
resignation or removal, or as otherwise provided by law.
E. Time and Place. The closing the (the "Closing") of the
transactions contemplated in this Agreement shall occur no
later than November 3, 1999, but in any event as soon as
possible (the "Closing Date"), at 14901 Quorum Drive, Suite
200, Dallas, TX 75240.
2. CONVERSION AND EXCHANGE OF STOCK.
A. Conversion and Exchange of Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of any holder:
1 All shares of capital stock of LCWS which immediately prior
to the Effective Time are held as treasury stock by LCWS
shall be canceled.
2 All shares of LCWS common stock, par value $.01 per share
(the "LCWS Common Stock"), other than shares to be canceled
pursuant to Section 2.A(1), shall be converted into the right
to receive the following property and securities (the "Merger
Consideration"), subject to adjustment as provided in Section
10.
(a) The Merger Consideration for the LWCS Common Stock is
$1,020,946. At the Closing, Buyer shall pay the Merger
Consideration as follows:
(1) Buyer shall deliver to Seller shares of
unregistered EarthCare Common Stock (the
"EarthCare Shares") in an amount equal to
$935,663.03 divided by the average
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<PAGE> 3
closing sale price of a share of EarthCare
Common Stock on the NASDAQ system as
reported in the Wall Street Journal for the
5 trading days in the week preceding the
Closing (the "Closing Market Price"). If
the EarthCare Shares are registered
pursuant to a "piggy-back" registration
before June 1, 2000, then such shares shall
be subject to a lock-up agreement until
June 1, 2000. Seller may demand
registration of the EarthCare Shares,
unless sooner registered, on or after
January 1, 2001.
(2) Buyer shall pay liabilities of LWCS listed
on Schedule 3.B(2) attached hereto and
incorporated herein by this reference, in
the amount of $85,282.97.
Payment and Delivery of Merger Consideration. All of the Merger
Consideration except for 6,000 shares of EarthCare common stock, shall be paid
and delivered to the Shareholders at Closing. The remaining 6,000 shares shall
be held as security for Shareholders' indemnification obligations.
3. PROCEDURE AT THE CLOSING.
The parties hereto agree to take the following steps in the order
listed:
A. Seller shall deliver to the Buyer the LWCS Common Stock, and such bills
of sale, assignments and other instruments to transfer to the Buyer good and
marketable title to the LWCS Common Stock, free and clear of all liens, claims
and encumbrances.
B. In exchange for the LWCS Common Stock, Buyer shall deliver to Seller:
(1) The EarthCare Shares less 8,000 shares, which are
hereinafter referred to as the "Holdback Shares";
(2) Buyer shall pay liabilities of LWCS set forth on
Schedule 3.B(2), attached hereto.
C. The parties shall also exchange executed lock-up agreements and other
documents contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. In order to induce the
Buyer to enter into this Agreement and to consummate the transactions
contemplated hereunder, the Seller hereby makes the following representations,
warranties, covenants and agreements:
A. ORGANIZATION AND EXISTENCE. The Company is a corporation duly organized
and legally existing in good standing under the laws of the State of Texas, and
has all requisite corporate power and authority to carry on its business as now
conducted. Seller has delivered to Buyer a true and correct copy of the
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<PAGE> 4
Articles of Incorporation (duly certified by the Secretary of State of Texas)
and By-Laws of the Company (certified by its Secretary).
B. SUBSIDIARIES OR OTHER ENTITIES. Company has no investments or ownership
interests in any corporations, partnerships, joint ventures or other business
enterprises.
C. CAPITALIZATION. The Company is authorized to issue 1,000,000 shares of
common stock, $.01 par value, of which 1,000 are issued and outstanding at the
time of the execution of this Agreement. All of the issued and outstanding
shares of capital stock of the Company (the "LWCS Common Stock") have been duly
issued, are validly outstanding, are fully paid and nonassessable, and are held
of record and beneficially by Seller; there are no outstanding subscriptions,
options, warrants or rights to receive, purchase or subscribe to, or securities
convertible into or exchangeable for, any issued or unissued shares of the
capital stock of the Company. The Company has no liability for dividends
declared but unpaid. Prior to Closing, the Seller shall not, and shall not
permit the Company, to issue or enter into any subscriptions, options,
agreements or other commitments in respect of the issuance, transfer, sale or
encumbrance of any shares of the LWCS Common Stock.
D. STOCK OWNERSHIP. Seller has, and at the time of Closing will have, good
and marketable title to the LWCS Common Stock, and there are, and at the time
of Closing will be, no impediments to the sale and transfer of the LWCS Common
Stock to Buyer. Upon delivery of the LWCS Common Stock to Buyer, the LWCS
Common Stock (i) shall constitute all of the issued and outstanding shares of
capital stock of the Company, and (ii) shall be free and clear of all security
interests, liens, charges, pledges, mortgages, encumbrances or rights of third
parties whatsoever.
E. FINANCIAL CONDITION. Seller has furnished to Buyer copies of the
following financial statements of the Company, all of which are true and
complete in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied (except to the
extent otherwise reported):
1. A Balance sheet ("Balance Sheet") of the Company as of December 31,
1998.
2. Statements of income and retained earnings of the Company for the
twelve (12) months ended December 31, 1998, and for the period January 1, 1999
through June 30, 1999. (Collectively, the Balance Sheet and statements of
income and retained earnings are hereinafter referred to as the "Financial
Statements").
The Financial Statements are complete and correct and in accordance with the
books of account and records of the Company and present fairly the financial
position of the Company's business and the income, stockholders' equity and
cash flow of the Company's business at the dates and for the periods indicated.
3. Seller warrants that current assets of the Company will be sufficient
to
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<PAGE> 5
pay the current liabilities of the Company as of the Closing Date.
4. Seller warrants that the gross revenue of LWCS for the year ended
December 31, 1998 was not less than $1,000,000, and not less than $500,000 for
the period January 1, 1999 through June 30, 1999.
F. ASSETS.
1. The Company has good and marketable title to, and is in possession of,
all of its assets, equipment, vehicles, properties and rights, including all
properties, assets, vehicles and equipment listed on Schedule 4-F-1 attached
hereto and as shown on the Balance Sheet, free and clear of all liabilities,
mortgages, liens, pledges, security interests, restrictions, conditional sales
agreements, title retention agreements, charges or encumbrances except as shown
on the Balance Sheet. Seller represents that Schedule 4-F-1 sets forth a list
of all material items of equipment, vehicles, properties, containers,
machinery, shop equipment, welders, grinders, work benches, jacks, stands,
parts, office furniture, fixtures, computer hardware/software and equipment
owned by the Company as of the date of this Agreement and used in connection
with its business operations (hereinafter sometimes referred to as the
"Operating Equipment"); such list identifies the Operating Equipment by size,
manufacturer, model number and serial number, where available.
2. Except as set forth on Schedule 4-F-2, all of the Operating Equipment
is in good operating condition (normal wear and tear excepted), has been well
maintained, and is in adequate condition to service the Company's Customer
Accounts (as herein defined) and to conduct the operations of the Company as it
exists on the Closing Date.
3. There has not been any material change in the Operating Equipment, in
the aggregate, since the inspection of such Operating Equipment by Buyer on
July 29, 1999, and there shall not be any material change in the Operating
Equipment, in the aggregate, subsequent to a final inspection of the Operating
Equipment to be performed by Buyer and Seller prior to Closing.
4. Schedule 4-F-4 shall identify all assets and property of the Company
which shall be excluded from this Agreement.
G. LIABILITIES. Except as set forth in Schedule 4-G attached hereto or in
the Financial Statements submitted to Buyer, or in any other Exhibit delivered
pursuant hereto, neither the Company nor its assets or properties are subject
to any liabilities or obligations (accrued, absolute, contingent or otherwise),
except for liabilities incurred in the ordinary course of business affairs and
the Company is not in material default in respect of any material term or
condition of any material indebtedness or liability. The transactions
contemplated by this Agreement do not and will not subject the Company or the
Buyer to any claim or liability for any obligation, debt or contract other than
as specifically disclosed in this Agreement and the Schedules attached hereto.
All required consents of creditors, if any have been, or by closing will be,
obtained for performance of this Agreement.
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H. CUSTOMER ACCOUNTS, MUNICIPAL CONTRACTS AND RELATED MATTERS.
1. Customer Accounts are the commercial, industrial, municipal, and
residential accounts of the Company pursuant to which the Company provides its
services. Said Customer Accounts are listed on Schedule 4-H-1 attached hereto.
(Each of the Customer Accounts listed in Schedule 4-H shall identify the name
and address of each of the Customer Accounts, and shall reflect as to each the
current monthly billing amount, frequency of service and size and type of
container.)
2. Schedule 4-H-2 is a true, accurate and complete listing of all written
service agreements, franchises, licenses or other contracts, if any, to which
the Company is a party and which relate to Customer Accounts. Original copies
of all such contracts shall be delivered by the Seller to the Buyer no later
than the Closing Date, and such copies shall be true, accurate and complete and
shall include all amendments, supplements or other modifications to such
contracts. Except as disclosed in Schedule 4-H-2, to the knowledge of the
Seller, neither the Company nor any other party to any of the Company's
municipal contracts or Customer Accounts is in material default or alleged to
be in material default thereunder and there exists no condition or event which,
after notice or the lapse of time or both, would constitute such a default. The
sale, transfer and assignment of the LWCS Common Stock will not result in a
breach, violation or default of any of the Company's municipal contracts or
Customer Accounts, and all of the Company's municipal contracts and Customer
Accounts will remain in full force and effect as if there had been no sale,
transfer and assignment thereof.
3. Except as otherwise disclosed in Schedule 4-H-3, the Seller knows of no
oral or written communication, fact, event or action which exists or has
occurred within 90 days prior to the date of execution of this Agreement, which
would tend to indicate that any current customer of the Company intends to
terminate its business relationship with the Company.
I. MATERIAL CONTRACTS. Attached hereto as Schedule 4-I is a list and brief
description, as of the date of this Agreement, of certain leases, contracts,
commitments, agreements and other documents to which the Company is a party or
by which it is bound and which is related to the operation of its business.
Except for contracts and documents listed in Schedule 4-I, the Company is not a
party to or bound by any written or oral (i) contracts not made in the ordinary
course of business; (ii) employment contracts, other than those terminable at
the will of the Company; (iii) contracts with any labor union or association;
(iv) bonus, pension, profit sharing, retirement, hospitalization, insurance or
other plan providing employee benefits; (v) leases with respect to any
property, real or personal, whether as lessor or lessee; (vi) continuing
contracts for the future purchase of materials, supplies or equipment in excess
of the requirements of its business now booked; (vii) contracts or commitment
for capital expenditures; (viii) contracts continuing over a period of more
than six (6) months from its date; or (ix) material contracts necessary to
conduct the operations and business of the Company. A true copy of each
contract, commitment and agreement listed on Schedule 4-I will be furnished to
Buyer prior to Closing.
J. EMPLOYEES - LABOR MATTERS. The Company has generally enjoyed a
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good employer-employee relationship with its employees. Attached hereto as
Schedule 4-J is a complete list of all employees of the Company whose duties
are related to the operation of the business of the Company. Seller warrants
there exists no pending or threatened actions by any employees alleging sex,
age, race, or other discriminatory practices, no current effort to organize
these employees into collective bargaining units, and no collective bargaining
agreement is now in effect. There are no contracts, written or oral, between
the Company and any of its employees, except as specifically disclosed in
Schedule 4-J.
K. INSURANCE. The Company maintains in effect insurance covering its
assets and businesses and any liabilities relating thereto in an amount
believed adequate by the Seller, and such insurance coverage shall be
maintained by the Company through the Closing Date. Between the date hereof and
the Closing Date, the Seller shall cause the Company to furnish to the Buyer
such information as the Buyer shall reasonably request regarding the Company's
insurance. Except as set forth in Schedule 4-K attached hereto, there are no
pending material property damage or personal injury claims against the Company
or any of its assets.
L. LICENSES AND PERMITS. The Company possesses all licenses and other
required governmental or official approvals, permits or authorizations, if any,
the failure to possess which would have a material adverse effect on the
businesses, financial condition or results of operations of the Company
including, without limitation, all common carrier rights, certificates of
public need, waste material transportation permits, trademarks and trade names
necessary to carry on its business as now being conducted, without known
conflict with valid licenses, permits, trademarks and trade names of others.
All such licenses and permits are in full force and effect, and no violations
are or have been recorded in respect to any thereof, and no proceeding is
pending, or to the knowledge of Seller threatened, to revoke, suspend or
otherwise limit such licenses or permits. All licenses and permits will survive
the closing of the transactions contemplated by this Agreement.
M. TAX MATTERS. The Company has timely filed all federal, state, sales
tax, franchise tax, and other tax returns which are required to be filed by it
and has paid or has made provision for the payment of all taxes which have or
may become due pursuant to said returns. All taxes, including, without
limitation, withholding and social security taxes due with respect to the
Company's employee, federal and state income tax liabilities, corporate
franchise taxes, sales, use, excise and ad valorem taxes, due, payable or
accrued by the Company on or before the Closing Date have or will be paid. The
Company has filed all reports required to be filed by it with all such taxing
authorities. Seller shall be responsible for any tax liability attributable to
operations of the Company prior to Closing. Buyer and Seller agree to cause the
Company to make the election provided by Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended and Treas. Reg ss.1.338(h)(10)-1(d)(1), and in
connection therewith, the parties agree that the allocation of the purchase
price as set forth on Schedule 4-M shall be used in connection with the
preparation of tax returns reflecting the sale and purchase contemplated
hereby.
N. LITIGATION. Except as disclosed in Schedule 4-N attached hereto, the
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Company has not received any notices of material default and is not in material
default of (i) any order, writ, injunction or decree of any court, or any
federal, state, municipal or other governmental department, commission, board,
bureau or instrumentality, or (ii) any agreement or obligation to which the
Company is a party or by which the Company is bound or to which the Company or
any of the property of the Company's may be subject. Except as disclosed in
Schedule 4-N, there are no material outstanding claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Seller,
threatened against the Company or which affect the Company or any of its assets
or property, at law or in equity before or by any federal, state, municipal
court or other governmental department, authority, commission, board, bureau,
agency or instrumentality.
O. COMPLIANCE WITH LAWS. Except as otherwise disclosed in Schedule 4-O
attached hereto, the Company is in compliance in all material respects with all
federal, state, and local laws, ordinances, regulations, rules, and orders
applicable to it or to its assets including, without limitation, all laws and
regulations relating to the protection of the environment, the safe conduct of
the Company's business, anti-competitive practices, discrimination, employment,
wage and hour practices and health. The Company has not received notification
of any asserted past or present failure to comply with any of such laws or
regulations.
P. ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 4-P attached
hereto, there are no claims, actions, suits, proceedings or investigations
relating to any Environmental Law (as hereinafter defined) pending or
threatened against or affecting the Company. Except as set forth on Schedule
4-P attached hereto: (i) no release of any hazardous substance, medical waste,
toxic waste or controlled substance has occurred or is occurring as a result of
the business of the Company; (ii) the business, activities and processes
heretofore conducted by the Company comply in all material respects with all
applicable Environmental Laws; (iii) neither Seller nor the Company has
received any notice that the Company is liable or responsible, or potentially
liable or responsible, for any costs of any removal, remedial action or other
response under any Environmental Law as the result of the presence, release or
potential release of any hazardous substance, medical waste, toxic waste, or
controlled substance; and (iv) there is no pending litigation or administrative
proceeding (and neither Seller nor the Company knows or has reason to know of
any potential or threatened litigation or administrative proceeding) in which
it is asserted that the Company has violated or is not in compliance with any
material Environmental Law. "Environmental Law" means all laws, statutes or
acts of the United States of America, the State of Texas, or any political
subdivision thereof, that relate to the condition of the air, ground or surface
water, land or other parts of the environment, to the release or potential
release of any substance or radiation into the air, ground or surface water,
land or other parts of the environment, or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or other handling of
substances that might pollute, contaminate or be hazardous or toxic if present
in the air, ground or surface water, land, or other parts of the environment.
Q. NO BROKERS' OR AGENT'S FEES. No agent, broker, finder, representative
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or other person or entity acting pursuant to authority of the Seller will be
entitled to any commission or finder's fee in connection with the origination,
negotiation, execution or performance of the transactions contemplated under
this Agreement.
R. NO MATERIAL OR ADVERSE CHANGE. Except as otherwise disclosed in
Schedule 4-R attached hereto, since December 31, 1998, there has not been: (i)
any material adverse change in the financial condition, assets, liabilities,
business or results of operations of the Company; (ii) to the knowledge of the
Seller, any threatened or prospective event or condition of any character
whatsoever which could materially and adversely affect the business, financial
condition or results of operations of the Company; (iii) any sale or other
disposition of any of the Company's assets other than in the ordinary course of
business; or (iv) any damage, destruction or loss (whether or not insured)
materially and adversely affecting the property, business or prospects of the
Company.
S. DUE AUTHORIZATION AND ABSENCE OF BREACH. This Agreement and all other
agreements of the Seller contemplated hereunder constitute valid and binding
obligations of the Seller, enforceable in accordance with their respective
terms. Neither the execution and delivery of this Agreement (or any agreement
contemplated hereunder) nor the consummation of the transactions contemplated
hereby will: (i) conflict with or violate any provision of the Articles of
Incorporation or By-Laws of the Company; (ii) conflict with or violate any
decree, writ, injunction or order of any court or administrative or other
governmental body which is applicable to, binding upon or enforceable against
the Company or Seller; or (iii) except as set forth on Schedule 4-S result in
any breach of or default (or give rise to any right of termination,
cancellation or acceleration) under any mortgage, contract, agreement,
indenture, will, trust or other instrument which is either binding upon or
enforceable against the Seller or the Company or its assets.
T. AUTHORITY TO CONTRACT. Seller has the full power, right and authority
to enter into and perform this Agreement without the consent of any person,
entity or governmental agency, and the consummation of the transactions
contemplated by this Agreement will not result in the breach or termination of
any provision of or constitute a default under any lease, indenture, mortgage,
deed of trust or other agreement or instrument or any order, decree, statute or
restriction to which Seller or the Company is a party or by which the Company
is bound or to which the outstanding shares of stock of the Company or any of
the properties of the Company is subject.
U. ACCURACY OF THE INFORMATION FURNISHED BY THE SELLER. No representation,
statement or information made or furnished by the Seller to the Buyer,
including those contained in this Agreement and the various exhibits attached
hereto and the other information and statements referred to herein, contains or
shall contain any untrue statement of any material fact.
5. REPRESENTATION AND WARRANTIES OF BUYER. In order to induce the Seller
to enter into this Agreement and to consummate the transactions contemplated
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hereunder, the Buyer hereby makes the following representations, warranties,
covenants and agreements:
A. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all the requisite corporate power and authority to carry on its
business as now conducted and to consummate the transactions contemplated by
this Agreement.
B. AUTHORITY TO CONTRACT. The execution, delivery and performance of this
Agreement by Buyer has been duly approved by its Board of Directors, and no
further corporate action is necessary on the part of Buyer to consummate the
transactions contemplated by this Agreement, assuming due execution of this
Agreement by the Parties.
C. NO BROKER'S OR AGENT'S FEES. No agent, broker, finder, representative
or other person or entity acting pursuant to the authority of the Buyer will be
entitled to any commission or finder's fee in connection with the origination,
negotiation, execution or performance of the transactions contemplated under
this Agreement.
D. ACCURACY OF INFORMATION FURNISHED BY BUYER. No representation,
statement or information made or furnished by Buyer to the Seller in this
Agreement, or in connection with the transactions contemplated hereby
including, without limitation copies of the Buyer's filings with the Securities
and Exchange Commission, contains, or shall contain any untrue statement of any
material fact or omits or shall omit any material fact necessary to make the
information contained herein true.
E. REGISTRATION. The EarthCare common stock delivered to Seller on the
Closing Date has been duly registered with the Securities and Exchange
Commission on Form S-1 effective December 9, 1998, and such registration
statement is true and correct in all material respects and does not omit to
state any material information necessary to make such registration statement
not misleading.
6. ADDITIONAL AGREEMENT OF THE SELLER. The Seller further agrees with the
Buyer as follows:
A. ACCESS TO OFFICES AND RECORDS. The Seller shall cause the Company to
afford representatives of the Buyer, from and after the date of execution of
this Agreement, full access, during normal business hours and upon reasonable
notice, to all offices, books, properties, contracts, documents and records of
the Company and to furnish to the Buyer or its representatives all additional
information, including financial or operating information with respect to the
business and affairs of the Company that the Buyer or its representatives may
reasonably request. Seller acknowledges that Buyer is a publicly-traded
corporation and that Buyer will be required under the applicable securities
laws to make public disclosure of detailed financial data concerning the
Company's operations. Prior to the Closing Date, Buyer has Seller's permission
to disclose publicly: (i) the amount of the Company's revenues; and (ii) such
other information as shall be included in any press release of Buyer which
Seller approves in advance of being released; such approval shall not be
unreasonably
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withheld. Provided, however, that any furnishing of such information to the
Buyer and any investigation by the Buyer shall not affect the right of the
Buyer to rely solely upon the representations and warranties made by the Seller
in or pursuant to this Agreement; and provided further, that the Buyer: (i)
will hold in strict confidence all documents and information concerning the
Company so furnished; and (ii) will promptly return all such documents and all
copies to the Company if this Agreement is not closed for any reason.
B. CONDUCT OF BUSINESS PENDING THE CLOSING. From and after the execution
and delivery of this Agreement and until the Closing Date, except as otherwise
provided by the prior written consent or approval of the Buyer:
1. The Seller will cause the Company to conduct its business and
operations in the manner in which the same has heretofore been conducted and
Seller will use his best efforts to cause the Company to: (i) preserve the
Company's current business organization intact; (ii) keep available to the
Buyer the services of the Company's current employees and the Company's agents
and distributors; and (iii) preserve the Company's current relationships with
customers, suppliers and others having business dealing with the Company.
2. The Seller will cause the Company to maintain all of its properties in
customary repair, order and condition, reasonable wear and use excepted, and
will maintain its existing insurance upon all of its properties and with
respect to the conduct of its business in such amounts and of such kinds
comparable to that in effect on the date of this Agreement.
3. The Seller will take action to insure that the Company will not: (i)
pay any bonus or increase the rate of compensation of any of the Company's
employees or enter into any new employment agreement or amend any existing
employment agreement; (ii) make any general increase in the compensation or
rate of compensation payable or to become payable to the Company's hourly-rated
employees; (iii) sell or transfer any of the Company's assets; (iv) obligate
itself for capital expenditures other than in the ordinary course of business
and not unusual in amount; or (v) incur any material obligations or
liabilities, which are not in the ordinary course of business, or enter into
any material transaction.
4. The Seller shall not, and shall not permit the Company to, issue or
enter into any subscriptions, options, agreements or other commitments in
respect of the issuance, transfer, sale or encumbrance of any shares of the
LWCS Common Stock.
C. EXECUTION OF FURTHER DOCUMENTS BY SELLER. From and after the Closing,
upon the reasonable request of the Buyer, the Seller shall execute, acknowledge
and deliver such documents as may be appropriate to carry out the transactions
contemplated by this Agreement.
D. INDEMNIFICATION BY SELLER.
1. The Seller will indemnify and hold the Buyer harmless from and against
any and all damage, loss, cost, deficiency, assessment, liability or other
expense
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(including reasonable attorney's fees, costs of court and litigation expenses,
if any) suffered, incurred or paid by the Buyer as a result of:
(a) The untruth, inaccuracy, breach or violation of any
representation, warranty, covenant or other obligation of the Seller set forth
in or made in connection with this Agreement;
(b) The assertion against the Buyer or the Company of any material
liability or obligation of the Company or of any claim relating to the
operation of the Company's waste collection and transportation and disposal
business, prior to the Closing Date, whether absolute or contingent, matured or
unmatured, known or unknown as of the Closing Date, or
(c) The enforcement of the Buyer's right to indemnification under
this Agreement.
2. The Buyer shall give written notice to the Seller of any claim, action,
suit or proceeding relating to the indemnity herein provided by Seller not
later than ten (10) days after Buyer has received notice thereof. Seller shall
have the right, at his option, to compromise or defend, at his own expense and
by his own counsel (which counsel shall be reasonably satisfactory to Buyer),
any such action, suit or proceeding. Buyer and Seller agree to cooperate in any
such defense or settlement and to give each other full access to all
information relevant thereto.
3. The Holdback Shares shall constitute security for Seller's
indemnification. If Buyer makes no claim of breach of any of Seller's
representations, warranties or covenants, or of any deficiency resulting from
uncollectible Receivables, then the Holdback Shares shall be delivered in full
to Seller within ninety days of the Closing Date.
4. If within such ninety day period Buyer asserts there has been a breach
of any of Seller's representations, warranties or covenants or asset loss or
damage due to uncollectible Receivable, then Buyer shall notify Seller in
writing within such period setting forth the nature of the breach and/or the
amount of loss, damage, cost or expense, as provided above. A claim or claims
by Buyer against Seller must total at least five thousand dollars ($5,000.00)
in the aggregate before Seller is liable for indemnification; however, once
Buyer's claim(s) total at least five thousand dollars ($5,000.00) in the
aggregate, then Seller shall be liable for the full amount of such claim(s) and
not just for the incremental amount above $5,000.00. The balance of the
Holdback Shares shall be delivered to Seller on the date on which any
unresolved claim asserted by Buyer against Seller is finally resolved.
5. Except as herein expressly provided, the remedies provided in paragraph
6.D hereof shall be cumulative and shall not preclude assertion by the Buyer of
any other rights or the seeking of any other remedies available against the
Seller at law or in equity.
7. ADDITIONAL AGREEMENT OF THE BUYER.
A. EXECUTION OF FURTHER DOCUMENTS BY BUYER. From and after the Closing,
upon
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reasonable request of Seller, Buyer shall execute, acknowledge and deliver to
Seller all such further documents as may be appropriate to carry out the
transactions contemplated by this Agreement.
B. INDEMNIFICATION BY BUYER.
1. The Buyer will indemnify and hold the Seller harmless from and against
any and all damages, loss, cost, deficiency assessment, liability or other
expense (including reasonable attorney's fees, costs of court and costs of
litigation, if any) suffered, incurred or paid by the Seller as a result of:
(a) The untruth, inaccuracy, breach or violation of any
representation, warranty, covenant or other obligation of the Buyer set forth
in or made in connection with this Agreement;
(b) The assertion against the Seller of any liability or
obligation of the Buyer or the Company or of any claim relating to the
operation of the Company's waste collection and transportation business
subsequent to the Closing Date (including, without limitation, customer claims
or disputes); or
(c) The enforcement of the Seller's right to indemnification under
this Agreement.
2. The Seller shall give written notice to the Buyer of any claim, action,
suit or proceeding relating to the indemnity herein provided by Buyer not later
than ten (10) days after Seller has received notice thereof. Buyer shall have
the right, at its option, to compromise or defend, at its own expense and by
its own counsel (which counsel shall be reasonably satisfactory to Seller), any
such action, suit or proceeding. Seller and Buyer agree to cooperate in any
such defense or settlement and to give each other full access to all
information relevant thereto.
3. Except as herein expressly provided, the remedies provided in Paragraph
7.B hereof shall be cumulative and shall not preclude assertion by the Seller
of any other rights or the seeking of any other remedies available against the
Buyer at law or in equity.
8. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligations of the Buyer to
effect the transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing Date of each of the following
conditions:
A. VALIDITY OF SELLER'S REPRESENTATIONS. All representations and
warranties of the Seller contained in this Agreement or otherwise made in
writing pursuant to this Agreement shall have been true and correct at and as
of the date hereof and they shall be true and correct at and as of the Closing
Date, with the same force and effect as though made at and as of the Closing
Date.
B. PRE-CLOSING OBLIGATIONS. The Seller shall have performed and complied
with all the obligations and conditions required by this Agreement to be
performed or complied
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with by Seller at or prior to the Closing Date, including the execution and
delivery of all documents and contracts required to be delivered at or before
the Closing Date pursuant to this Agreement.
C. OPINION OF COUNSEL FOR SELLER. The Buyer shall have received a
favorable opinion from counsel for the Seller dated the date of the Closing, in
form satisfactory to counsel for the Buyer, to the effect that:
1. The Company is a corporation, duly organized and legally existing under
the laws of the State of Texas, and it has the corporate power and authority to
carry on its business as now being conducted and to own or hold under lease, or
otherwise, its assets.
2. This Agreement has been duly executed and delivered by the Seller, and
constitutes a valid, enforceable and binding obligation of the Seller pursuant
to the terms of this Agreement.
3. Except as otherwise disclosed in this Agreement, counsel does not know
of any action, suit, investigation or other legal, administrative or
arbitration proceeding pending against the Seller or the Company, or which
questions the validity or enforceability of this Agreement or of any action
taken or to be taken pursuant to or in connection with this Agreement or any
agreement contemplated herein.
4. To the knowledge of such counsel, no consent, authorization, license,
franchise, permit, approval or order of any court or governmental agency or
body, other than those obtained by Seller and delivered to the Buyer prior to
or on the date of the opinion, is required for the sale of the LWCS Common
Stock by the Seller pursuant to this Agreement.
5. The execution and performance of this Agreement by the Seller will not
violate: (i) the Articles of Incorporation or the By-Laws of the Company, or
(ii) any order of any court or other agency of government known to said
counsel.
6. The instruments of conveyance and assignments executed by the Seller to
the Buyer pursuant to this Agreement are adequate to convey the ownership to
the LWCS Common Stock, free and clear of all liens, claims or encumbrances
known to such counsel after conducting a UCC-1 lien search with the offices of
the Secretary of State for the State of Texas, and the offices of the County
Clerk for the County of Dallas, in the State of Texas.
7. To the knowledge of such counsel (after reasonable investigation),
Seller owns all of the issued and outstanding shares of capital stock of the
Company.
D. RECEIPT BY THE BUYER OF NECESSARY CONSENTS. All necessary consents or
approvals of third parties to any of the transactions contemplated hereby shall
have been obtained, and satisfactory evidence of such consents or approvals
shall have been delivered to the Buyer at Closing.
E. RESIGNATION OF OFFICERS AND DIRECTORS. Buyer shall have received such
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resignations of officers and directors of the Companies as shall have been
requested by Buyer.
9. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations of the Seller
to effect the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions:
A. VALIDITY OF BUYER'S REPRESENTATIONS. All representations and warranties
of the Buyer contained in this Agreement or otherwise made in writing pursuant
to this Agreement shall have been true and correct at and as of the date hereof
and they shall be true and correct at and as of the Closing Date, with the same
force and effect as though made at and as of the Closing Date.
B. PRE-CLOSING OBLIGATIONS. The Buyer shall have performed and complied
with all the obligations and conditions required by this Agreement to be
performed or complied with by Seller at or prior to the Closing Date, including
the execution and delivery of all documents and contracts required to be
delivered at or before the Closing Date pursuant to this Agreement.
C. CORPORATE AUTHORITY OF BUYER. The execution and performance of this
Agreement by the Buyer shall have been duly and legally authorized in
accordance with applicable law, and the Buyer shall have furnished to counsel
for the Seller certified copies of resolutions adopted by the Board of
Directors of the Buyer authorizing and proving the execution and delivery of
this Agreement and performance of the transactions contemplated hereunder.
D. OPINION OF COUNSEL FOR BUYER. The Seller shall have received a
favorable opinion from counsel for the Buyer dated the date of the Closing, in
form satisfactory to counsel for the Seller, to the effect that:
1. The Buyer is a corporation, duly organized and legally existing in good
standing under the laws of the State of Delaware, and it has the corporate
power and authority to carry on its business as now being conducted and to
carry out the transactions and agreements contemplated hereby.
2. All corporate and other proceedings required to be taken by or on the
part of the Buyer in order to authorize it to perform its obligations hereunder
have been duly and properly taken, including any necessary approval or
authorization by the Board of Directors of the Buyer.
3. This Agreement has been duly executed and delivered by the Buyer and
constitutes a valid, enforceable and binding obligation of the Buyer pursuant
to the terms of this Agreement.
4. Except as otherwise disclosed in this Agreement, said counsel does not
know of any action, suit, investigation or other legal, administrative or
arbitration
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proceeding which questions the validity or enforceability of this Agreement or
of any action taken or to be taken pursuant to or in connection with this
Agreement or any agreement contemplated herein.
5. The execution and performance of this Agreement by the Buyer will not
violate: (i) the Articles of Incorporation or the By-Laws of the Buyer; or (ii)
any order of any court or other agency of government known to said counsel.
10. ADJUSTMENT TO PURCHASE PRICE.
A. The Purchase Price shall be adjusted as follows:
1 If the Company's current assets as of the Closing Date exceed the
Company's liabilities as of such date, then Buyer shall issue
additional shares of EarthCare Common Stock to Seller in an amount
equal to the difference between the Company's current assets and
liabilities divided by the average of the closing sale price of a
share of EarthCare Common Stock on the NASDAQ system as reported in
the Wall Street Journal for the period beginning five trading days
preceding the Adjustment Date and ending on the trading day
immediately preceding the Adjustment Date (as hereafter defined).
2. If the Company's liabilities as of the Closing Date exceed the
Company's current assets as of such date, then Seller shall return
shares of EarthCare Common Stock to Buyer in an amount equal to the
difference between the Company's liabilities and current assets
divided by the average of the closing sale price of a share of
EarthCare Common Stock on the NASDAQ system as reported in the Wall
Street Journal for the period beginning five trading days preceding
the Adjustment Date and ending on the trading day immediately
preceding the Adjustment Date (as hereafter defined).
B. The adjustment to be made under this paragraph shall be made January
31, 2000 ("the Adjustment Date"). Current assets and liabilities shall be
determined in accordance with generally accepted accounting principles except
that accounts receivable, including unbilled services rendered to the date of
closing and billed thereafter, will be considered current assets only if
collected prior to the Adjustment Date or are otherwise accepted in writing by
Buyer.
C. The adjustment shall be made hereunder as follows:
1. If there is an excess of current assets over liabilities, the excess,
to the extent of cash collected, shall be paid to Seller on the Adjustment
Date. To the extent such excess is in the form of yet uncollected accounts
receivable, Buyer shall cause the Company to continue to collect such
outstanding receivables and Buyer shall pay to Seller, monthly, receivables
thereafter collected. Payment on account of such receivables shall be made by
the 10th day of each month for collections received during the preceding month
and shall be accompanied by a statement of accounts collected.
2. All payment received after Closing in respect of Customer Accounts
shall
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be applied to the oldest receivables then outstanding. In addition, the Seller
shall cause the Company to collect all accounts receivable in its normal course
provided that the Seller shall not be required to cause the Company to pursue
the collection of accounts receivable for the direct or indirect benefit of
Seller unless Seller shall have agreed to bear the costs thereof.
11. SELLER'S NON-COMPETE AND NON-SOLICITATION AGREEMENT. As inducement to
Buyer to enter into this Agreement and perform its obligations hereunder, and
in consideration of the payments to Seller pursuant to this Agreement, the
Seller agrees that Seller will not, for a period of five (5) years from the
Closing Date, directly or indirectly (whether as owner, partner, shareholder,
agent, employee, independent contractor, consultant or otherwise): (i) engage
in any business which directly or indirectly competes with business of the
Buyer, or with any subsidiary of Buyer, in each case, within the County of
___________ and the County of ___________________, State of Texas; (ii) solicit
any party who is or was a customer or supplier of the Company on the Closing
Date or at any time during the 12 month period immediately prior thereto for
services of any type or quality being provided by the Company; (iii) solicit
for employment any person who was or is an employee of the Company on the
Closing Date, or at any time during the 12 month period immediately prior
thereto; or (iv) either directly or indirectly, divulge, disclose, or
communicate to any person, firm or corporation in any manner whatsoever any
confidential information relating to the business of Buyer, or the Company. The
term, "confidential information", as used herein means all information of a
business or technical nature relative to the business of Buyer, the business of
any customers of the Company or any business of any person, firm or corporation
which consults with, or is affiliated with, Buyer or the Company. The term
"confidential information" shall not include information so generally known as
to be part of the public domain.
Each of the covenants contained in this Article are separate and independent.
The Seller acknowledges and agrees that Buyer's and Company's remedies at law
may be inadequate in the event of a breach or threatened breach of the
covenants set forth herein, and in such event, Buyer and the Company shall be
entitled to have an injunction issued by any court of competent jurisdiction,
enjoining and restraining each and every party concerned therewith from the
creation or continuation of such breach.
12. OTHER PROVISIONS.
A. EMPLOYMENT AGREEMENTS. At Closing, Buyer will enter into written
Employment Agreements with key employees of Company in a form reasonably
satisfactory to Buyer and such employees.
B. INCOMPLETE EXHIBITS. The parties hereto acknowledge and agree (a) that
many, if not all, of the schedules to be attached to this Agreement will not
have been prepared by the time of execution of this Agreement, and (b) that
consummation of the transactions contemplated by this Agreement are subject to
the completion of such exhibits by Seller (to the extent that an exhibit is to
be completed by Seller, such exhibit must be reasonably acceptable to Buyer) or
Buyer ( to the extent that an exhibit is to be completed by Buyer, it must be
reasonably acceptable to Seller) as the case may be, prior to or at the
Closing,
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pursuant to the terms of this Agreement.
C. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, obligations and agreements of the parties contained in this
Agreement, or in any writing delivered pursuant to provisions of this
Agreement, shall survive the Closing for a period of eighteen (18) months with
the exception of representations and warranties concerning Paragraph 4.M.
hereof, Tax Matters and Paragraph 4.P. hereof, Environmental Matters, which
will survive for as long as any claims may be asserted under the applicable
periods of limitation for violations of any tax or environmental law, rule or
regulation.
D. WAIVER OR EXTENSION OF CONDITIONS. The Seller or the Buyer may extend
the time for or waive the performance of any of the obligations of the other
party, waive any inaccuracies in the representations or warranties by the other
party, or waive compliance by the other party with any of the covenants or
conditions contained in this Agreement. Any such extension or waiver shall be
in writing and signed by the Seller and the Buyer. Any such extension or waiver
shall not act as a waiver or an extension of any other provisions of this
Agreement.
E. NOTICES. Any notice, request or other document shall be in writing and
sent by registered or certified mail, return receipt requested, postage prepaid
and addressed to the party to be notified at the following addresses, or such
other address as such party may hereafter designate by written notice to all
parties, which notice shall be effective as of the date of posting:
(i) If to the Buyer:
EarthCare Company
14901 Quorum Drive
Suite 200
Dallas, TX 75240
Copy to: Robert C. Gist, Esq.
12809 Plum Hollow Drive
Oklahoma City, OK 73142-5148
(ii) If to the Seller
Mitzy Spano
PMB 963
1201 W. Arbrook #121
Arlington, TX 76015
Copy to: Michael A. Dover
550 Sterling Plaza
5949 Sherry Lane
Dallas, TX 75225
F. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
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G. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns.
H. HEADINGS. The subject headings of the Sections of this Agreement are
included for purposes of convenience only and shall not affect the construction
or interpretation of any of its provisions.
I. 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.
J. ARBITRATION. Any controversy or claim arising out of, in connection
with, or relating to this Agreement or a breach thereof shall be settled by
binding arbitration in Dallas, Texas. The arbitration panel shall be comprised
of three arbitrators. Each party shall appoint one arbitrator for the panel and
the two so appointed shall appoint a third. The panel shall resolve the dispute
within sixty (60) days of the appointment of the panel and shall notify the
parties of its findings in writing. Each party agrees to bear its own costs of
arbitrators and to split equally the cost of the third arbitrator.
K. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the schedules
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<PAGE> 20
attached hereto) and the documents delivered pursuant hereto constitute the
entire agreement and understanding between the parties, and supersede any prior
agreements and understandings relating to the subject matter hereof. This
Agreement may be modified or amended by a written instrument executed by all
parties hereto.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
"Seller"
/s/ MITZY SPANO
- --------------------------------
Mitzy Spano
/s/ KERRY SPANO
- --------------------------------
Kerry Spano
/s/ RON SEKERAK
- --------------------------------
Ron Sekerak
"Buyer"
EarthCare Company
By: /s/ JAMES FARRELL
-----------------------------
James Farrell
Liquid Waste Control Systems
By: /s/ JOANNA PURCELL
-----------------------------
Joanna Purcell
EarthCare Company of Texas
By: /s/ JAMES FARRELL
-----------------------------
James Farrell
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<PAGE> 1
EXHIBIT 10.8
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into by and between John Hulsey, an
individual residing at 3230 Dunlap Drive, Gainesville, GA 30506 (hereinafter
sometimes referred to as "Seller"), and EarthCare Company, a Delaware
Corporation (hereinafter referred to as "EarthCare" or "Buyer").
WITNESSETH:
WHEREAS, the Seller is the owner of five hundred (500) shares of common stock
no par value per share of John Hulsey Plumbing Heating & Cooling, Inc., a
Georgia corporation, (said corporation is hereinafter sometimes referred to as
the "Company") (said shares of John Hulsey Plumbing Heating & Cooling, Inc.
common stock are hereinafter sometimes collectively referred to as the "Hulsey
Common Stock"); and
WHEREAS, the Hulsey Common Stock constitutes all of the issued and outstanding
shares of the Company; and
WHEREAS, the parties hereto desire that the Buyer acquire the Hulsey Common
Stock in exchange for cash and shares of the common stock, $.0001 par value of
the Buyer (said shares of common stock are hereafter sometimes referred to as
the "EarthCare Common Stock")
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, and for other
good and valuable consideration the mutual receipt and sufficiency of which is
hereby acknowledged by the parties hereto, THE PARTIES HERETO AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
A. Upon the basis of the representations and warranties contained
herein and subject to the terms and conditions of this Agreement, at the time
of "Closing" (as hereinafter defined) Seller shall sell, convey, transfer,
assign and deliver to Buyer, and Buyer shall purchase from Seller, all of the
Hulsey Common Stock.
B. At the time of Closing, as the purchase price for the Hulsey Common
Stock, and in exchange therefor, Buyer shall pay to Seller:
(1) $1,406,250 cash;
(2) 19,223 shares of EarthCare Common Stock; and
(3) Seller shall also pay certain liabilities of Company
in the
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amount of $31,500.
C. Additional consideration consisting of shares of unregistered
EarthCare Common Stock in an amount equal to $752,250 divided by the average
closing sale price of a share of EarthCare Common Stock on the NASDAQ system as
reported in the Wall Street Journal for the five trading days in the week
preceding the Closing ("Earnout Consideration") will be delivered to Seller
provided that the following conditions are met:
(i) If the Company and Hulsey Environmental Services Co., Inc.
("Environmental") generate earnings before interest, taxes, depreciation and
amortization (EBITDA) in the aggregate amount of $722,978 twelve months
subsequent to Closing, 50% of the Earnout Consideration shall be delivered to
the Seller.
(ii) If the Company and Environmental, in the aggregate, generate
EBITDA of $927,918 in the second twelve months subsequent to Closing, 50% of
the Earnout Consideration shall be delivered to Seller. All of the Earnout
Consideration will be delivered to Seller if the Company and Environmental, in
the aggregate, generate EBITDA in an amount equal to or in excess of $1,650,896
for the period ending 24 months after Closing.
(iii) Buyer promises in calculating earnings in the EBITDA formula,
that it will not intentionally through bad faith impact earnings so as to
prevent Seller from receiving the Earnout Consideration.
(a) To facilitate the foregoing, Buyer agrees that for
two (2) years after the Closing, the Company acquired hereunder shall be placed
in and remain the sole assets of Buyer subsidiary entities for which separate
financial statements are prepared and reflected in the annual EBITDA
computation referred to herein and none of the assets of the Company shall be
transferred to Buyer or its subsidiaries or affiliates, whether in liquidation
or otherwise.
(iv) In addition, the principal executives of the Company,
including Seller are to be employed (provided they are surviving) under the
terms of mutually agreeable employment agreements, the form of which is
attached hereto as ____________, and no material breach of this Agreement
between Buyer and Seller shall remain unresolved.
(v) If the above requirements are not satisfied, Buyer shall have
no obligation to pay Seller additional consideration; provided, however, Seller
shall receive one-third of the Earnout Consideration two years after the
Closing Date, regardless of any failure to meet the EBITDA requirements.
(vi) Termination of Seller's employment with Buyer for any reason
shall not affect Seller's Earnout Consideration.
2. CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the
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<PAGE> 3
purchase and sale of the Hulsey Common Stock (the "Closing") shall be effective
as of November 16, 1999, at the offices of Hartness & Link, P.C., 126 Spring
Street, Gainesville, GA 30501 or at such other time and date as shall be
mutually agreed upon by the parties hereto in writing. (Such time and date is
sometimes hereinafter referred to as the "Closing Date" or "Closing".)
3. PROCEDURE AT THE CLOSING. The parties hereto agree to take the
following steps in the order listed:
A. Seller shall deliver to the Buyer the Hulsey Common Stock, and such
bills of sale, assignments and other instruments to transfer to the Buyer good
and marketable title to the Hulsey Common Stock, free and clear of all liens,
claims and encumbrances.
B. In exchange for the Hulsey Common Stock, Buyer shall deliver to
Seller:
(1) 19,223 shares of unregistered EarthCare Common
Stock;
(2) $1,406,250 cash or certified check; and
(3) Buyer shall also pay the liabilities of Company set
forth on Schedule 3.B., attached hereto.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. In order to induce the
Buyer to enter into this Agreement and to consummate the transactions
contemplated hereunder, the Seller hereby makes the following representations,
warranties, covenants and agreements:
A. ORGANIZATION AND EXISTENCE. The Company is a corporation duly
organized and legally existing in good standing under the laws of the State of
Georgia, and has all requisite corporate power and authority to carry on its
business as now conducted. The Company is qualified to do business in the State
of Georgia which is the only state which by the nature of the business of the
Company and the character of the properties owned or leased by it requires
qualification to do business as a foreign corporation. Seller has delivered to
Buyer a true and correct copy of the Articles of Incorporation (duly certified
by the Secretary of State of Georgia) and By-Laws of the Company (certified by
its Secretary).
B. SUBSIDIARIES OR OTHER ENTITIES. Company has no investments or
ownership interests in any corporations, partnerships, joint ventures or other
business enterprises.
C. CAPITALIZATION. The Company is authorized to issue 50,000 shares of
common stock, no par value, of which 500 shares are issued and outstanding at
the time of the execution of this Agreement. All of the issued and outstanding
shares of capital stock of the Company (the "Hulsey Common
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<PAGE> 4
Stock") have been duly issued, are validly outstanding, are fully paid and
nonassessable, and are held of record and beneficially by Seller; there are no
outstanding subscriptions, options, warrants or rights to receive, purchase or
subscribe to, or securities convertible into or exchangeable for, any issued or
unissued shares of the capital stock of the Company. The Company has no
liability for dividends declared but unpaid. Prior to Closing, the Seller shall
not, and shall not permit the Company, to issue or enter into any
subscriptions, options, agreements or other commitments in respect of the
issuance, transfer, sale or encumbrance of any shares of the Hulsey Common
Stock. Provided, however, the parties acknowledge that the HVAC assets of the
Company will be "spun-off" into another corporation, and that Seller will
exchange shares of Company for shares in the new corporation, resulting in the
creation of treasury stock and a reduction in the number of shares to be
purchased hereunder.
D. STOCK OWNERSHIP. Seller has, and at the time of Closing will have,
good and marketable title to the Hulsey Common Stock, and there are, and at the
time of Closing will be, no impediments to the sale and transfer of the Hulsey
Common Stock to Buyer. Upon delivery of the Hulsey Common Stock to Buyer, the
Hulsey Common Stock (i) shall constitute all of the issued and outstanding
shares of capital stock of the Company, and (ii) shall be free and clear of all
security interests, liens, charges, pledges, mortgages, encumbrances or rights
of third parties whatsoever.
E. FINANCIAL CONDITION. Seller has furnished to Buyer copies of the
following financial statements of the Company, all of which are to the best of
Seller's knowledge, true and complete in all material respects and have been
prepared in accordance with generally accepted accounting principles
consistently applied (except to the extent otherwise reported):
1. A Balance sheet ("Balance Sheet") of the Company as of December 31,
1998.
2. Statements of income and retained earnings of the Company for the
eight months ended August 31, 1999. (Collectively, the Balance Sheet and
statements of income and retained earnings are hereinafter referred to as the
"Financial Statements").
The Financial Statements are to the best of Seller's knowledge, complete and
correct and in accordance with the books of account and records of the Company
and present fairly the financial position of the Company's business and the
income, stockholders' equity and cash flow of the Company's business at the
dates and for the periods indicated.
3. Subject to Paragraph 10, Seller warrants that current assets of the
Company will be sufficient to pay the liabilities of the Company as of the
Closing Date. All term liabilities shall be paid on or before Closing Date.
4. Seller warrants that the Company's revenue run rate (first and second
quarter revenue x 2)is not less than $2,500,000.
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<PAGE> 5
F. ASSETS.
1. The Company has good and marketable title to, and is in possession of,
all of its assets, equipment, vehicles, properties and rights, including all
properties, assets, vehicles and equipment listed on Schedule 4-F-1 attached
hereto and as shown on the Balance Sheet, free and clear of all liabilities,
mortgages, liens, pledges, security interests, restrictions, conditional sales
agreements, title retention agreements, charges or encumbrances except as shown
on the Balance Sheet. Seller represents that Schedule 4-F-1 sets forth a list
of all material items of equipment, vehicles, properties, containers,
machinery, shop equipment, welders, grinders, work benches, jacks, stands,
parts, office furniture, fixtures, computer hardware/software and equipment
owned by the Company as of the date of this Agreement and used in connection
with its business operations (hereinafter sometimes referred to as the
"Operating Equipment"); such list identifies the Operating Equipment by size,
manufacturer, model number and serial number, where available.
2. Except as set forth on Schedule 4-F-2, all of the Operating Equipment
is in good operating condition (normal wear and tear excepted), has been well
maintained, and is in adequate condition to service the Company's Customer
Accounts (as herein defined) and to conduct the operations of the Company as it
exists on the Closing Date.
3. There has not been any material change in the Operating Equipment, in
the aggregate, since the inspection of such Operating Equipment by Buyer on
June 19, 1999, and there shall not be any material change in the Operating
Equipment, in the aggregate, subsequent to a final inspection of the Operating
Equipment to be performed by Buyer and Seller prior to Closing.
4. Schedule 4-F-4 shall identify all assets and property of the Company
which shall be excluded from this Agreement (Excluded Assets).
G. LIABILITIES. Except as set forth in Schedule 4-G attached hereto or in
the Financial Statements submitted to Buyer, or in any other Exhibit delivered
pursuant hereto, neither the Company nor its assets or properties are subject
to any liabilities or obligations (accrued, absolute, contingent or otherwise),
except for liabilities incurred in the ordinary course of business affairs and
the Company is not in material default in respect of any material term or
condition of any material indebtedness or liability. The transactions
contemplated by this Agreement do not and will not subject the Company or the
Buyer to any claim or liability for any obligation, debt or contract other than
as specifically disclosed in this Agreement and the Schedules attached hereto.
All required consents of creditors, if any have been, or by closing will be,
obtained for performance of this Agreement.
H. CUSTOMER ACCOUNTS, MUNICIPAL CONTRACTS AND RELATED MATTERS.
1. Customer Accounts are the commercial, industrial, municipal, and
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<PAGE> 6
residential accounts of the Company pursuant to which the Company provides
plumbing services. Said Customer Accounts are listed on Schedule 4-H-1 attached
hereto. (Each of the Customer Accounts listed in Schedule 4-H shall identify
the name and address of each of the Customer Accounts, and shall reflect as to
each the current monthly billing amount, frequency of service and size and type
of container.)
2. Schedule 4-H-2 is a true, accurate and complete listing of all written
service agreements, franchises, licenses or other contracts, if any, to which
the Company is a party and which relate to Customer Accounts. Original copies
of all such contracts shall be delivered by the Seller to the Buyer no later
than the Closing Date, and such copies shall be true, accurate and complete and
shall include all amendments, supplements or other modifications to such
contracts. Except as disclosed in Schedule 4-H-2, to the knowledge of the
Seller, neither the Company nor any other party to any of the Company's
municipal contracts or Customer Accounts is in material default or alleged to
be in material default thereunder and there exists no condition or event which,
after notice or the lapse of time or both, would constitute such a default. The
sale, transfer and assignment of the Hulsey Common Stock will not result in a
breach, violation or default of any of the Company's municipal contracts or
Customer Accounts, and all of the Company's municipal contracts and Customer
Accounts will remain in full force and effect as if there had been no sale,
transfer and assignment thereof.
3. Except as otherwise disclosed in Schedule 4-H-3, the Seller knows of
no oral or written communication, fact, event or action which exists or has
occurred within 90 days prior to the date of execution of this Agreement, which
would tend to indicate that any current customers of the Company intends to
terminate its business relationship with the Company.
I. MATERIAL CONTRACTS. Attached hereto as Schedule 4-I is a list and
brief description, as of the date of this Agreement, of certain leases,
contracts, commitments, agreements and other documents to which the Company is
a party or by which it is bound and which is related to the operation of its
business. Except for contracts and documents listed in Schedule 4-I, to the
best of Seller's knowledge, the Company is not a party to or bound by any
written or oral (i) contracts not made in the ordinary course of business; (ii)
employment contracts, other than those terminable at the will of the Company;
(iii) contracts with any labor union or association; (iv) bonus, pension,
profit sharing, retirement, hospitalization, insurance or other plan providing
employee benefits; (v) leases with respect to any property, real or personal,
whether as lessor or lessee; (vi) continuing contracts for the future purchase
of materials, supplies or equipment in excess of the requirements of its
business now booked; (vii) contracts or commitment for capital expenditures;
(viii) contracts continuing over a period of more than six (6) months from its
date; or (ix) material contracts necessary to conduct the operations and
business of the Company. A true copy of each contract, commitment and agreement
listed on Schedule 4-I will be furnished to Buyer prior to Closing.
J. EMPLOYEES - LABOR MATTERS. The Company has generally enjoyed a
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<PAGE> 7
good employer-employee relationship with its employees. Attached hereto as
Schedule 4-J is a complete list of all employees of the Company whose duties
are related to the operation of the business of the Company. Seller warrants
there exists no pending or threatened actions by any employees alleging sex,
age, race, or other discriminatory practices, no current effort to organize
these employees into collective bargaining units, and no collective bargaining
agreement is now in effect. There are no contracts, written or oral, between
the Company and any of its employees, except as specifically disclosed in
Schedule 4-J.
K. INSURANCE. The Company maintains in effect insurance covering its
assets and businesses and any liabilities relating thereto in an amount
believed adequate by the Seller, and such insurance coverage shall be
maintained by the Company through the Closing Date. Between the date hereof and
the Closing Date, the Seller shall cause the Company to furnish to the Buyer
such information as the Buyer shall reasonably request regarding the Company's
insurance. Except as set forth in Schedule 4-K attached hereto, there are no
pending material property damage or personal injury claims against the Company
or any of its assets.
L. LICENSES AND PERMITS. To the best of Seller's knowledge, the Company
possesses all licenses and other required governmental or official approvals,
permits or authorizations, if any, the failure to possess which would have a
material adverse effect on the businesses, financial condition or results of
operations of the Company including, without limitation, all common carrier
rights, certificates of public need, waste material transportation permits,
trademarks and trade names necessary to carry on its business as now being
conducted, without known conflict with valid licenses, permits, trademarks and
trade names of others. All such licenses and permits are in full force and
effect, and no violations are or have been recorded in respect to any thereof,
and no proceeding is pending, or to the knowledge of Seller threatened, to
revoke, suspend or otherwise limit such licenses or permits. All licenses and
permits will survive the closing of the transactions contemplated by this
Agreement. The parties acknowledge that same of said licenses are personal to
the individual holding such license.
M. TAX MATTERS. The Company has timely filed all federal, state, sales
tax, franchise tax, and other tax returns which are required to be filed by it
and has paid or has made provision for the payment of all taxes which have or
may become due pursuant to said returns. All taxes, including, without
limitation, withholding and social security taxes due with respect to the
Company's employee, federal and state income tax liabilities, corporate
franchise taxes, sales, use, excise and ad valorem taxes, due, payable or
accrued by the Company on or before the Closing Date have or will be paid. Any
of the Company's unpaid tax liabilities as of the Closing Date will be recorded
as a current liability and included in the Adjustment to Purchase Price
calculation subject to paragraph 10. The Company has filed all reports required
to be filed by it with all such taxing authorities. Seller shall be responsible
for any tax liability attributable to operations of the Company prior to
Closing. Buyer and Seller agree to cause the Company to make the election
provided by Section 338(h)(10) of the Internal Revenue Code of 1986,
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<PAGE> 8
as amended and Treas. Reg ss.1.338(h)(10)-1(d)(1), and in connection therewith,
the parties agree that the allocation of the purchase price as set forth on
Schedule 4-M shall be used in connection with the preparation of tax returns
reflecting the sale and purchased contemplated hereby. Buyer agrees to
reimburse Seller for any additional income tax liability incurred by Seller as
a result of such election.
N. LITIGATION. Except as disclosed in Schedule 4-N attached hereto, to
the best of Seller's knowledge, the Company has not received any notices of
material default and is not in material default of (i) any order, writ,
injunction or decree of any court, or any federal, state, municipal or other
governmental department, commission, board, bureau or instrumentality, or (ii)
any agreement or obligation to which the Company is a party or by which the
Company is bound or to which the Company or any of the property of the
Company's may be subject. Except as disclosed in Schedule 4-N, there are no
material outstanding claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Seller, threatened against the Company or
which affect the Company or any of its assets or property, at law or in equity
before or by any federal, state, municipal court or other governmental
department, authority, commission, board, bureau, agency or instrumentality.
O. COMPLIANCE WITH LAWS. Except as otherwise disclosed in Schedule 4-O
attached hereto, to the best of Seller's knowledge, the Company is in
compliance in all material respects with all federal, state, and local laws,
ordinances, regulations, rules, and orders applicable to it or to its assets
including, without limitation, all laws and regulations relating to the
protection of the environment, the safe conduct of the Company's business,
anti-competitive practices, discrimination, employment, wage and hour practices
and health. The Company has not received notification of any asserted past or
present failure to comply with any of such laws or regulations.
P. ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 4-P attached
hereto, to the best of Seller's knowledge, there are no claims, actions, suits,
proceedings or investigations relating to any Environmental Law (as hereinafter
defined) pending or threatened against or affecting the Company. To the best of
Seller's knowledge, except as set forth on Schedule 4-P attached hereto: (i) no
release of any hazardous substance, medical waste, toxic waste or controlled
substance has occurred or is occurring as a result of the business of the
Company; (ii) no hazardous substance, medical waste, toxic waste or controlled
substance is currently present at, or has been previously generated, stored,
treated or disposed of at any landfill by the Company or through the conduct of
the business of the Company except deminimis amounts mixed with household
waste; (iii) no underground or partially underground storage tank has been or
is currently located at any facility of the Company; (iv) the business,
activities and processes heretofore conducted by the Company comply in all
material respects with all applicable Environmental Laws; (v) no facility of
the Company is listed on any list, registry or other compilation of sites that
require, or potentially require, removal, remedial action or any other response
under any Environmental Law as the result of the presence, release or potential
release of any hazardous substance, medical waste, toxic waste, or controlled
substance; (vi) neither Seller nor the Company has received any notice that the
Company is liable or responsible, or potentially liable or responsible, for any
costs of any removal, remedial action or other response under any Environmental
Law as the result of the presence, release or potential release of any
hazardous
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<PAGE> 9
substance, medical waste, toxic waste, or controlled substance; and (vii) there
is no pending litigation or administrative proceeding (and neither Seller nor
the Company knows or has reason to know of any potential or threatened
litigation or administrative proceeding) in which it is asserted that the
Company has violated or is not in compliance with any material Environmental
Law. "Environmental Law" means all laws, statutes or acts of the United States
of America, the State of Georgia, or any political subdivision thereof, that
relate to the condition of the air, ground or surface water, land or other
parts of the environment, to the release or potential release of any substance
or radiation into the air, ground or surface water, land or other parts of the
environment, or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or other handling of substances that might
pollute, contaminate or be hazardous or toxic if present in the air, ground or
surface water, land, or other parts of the environment. The Company has not
received any written notice to the effect that the landfills and other disposal
sites to which waste material transported by the Company has been delivered are
not properly licensed pursuant to applicable Environmental Laws to receive the
material disposed of therein.
Q. NO BROKERS' OR AGENT'S FEES. No agent, broker, finder, representative
or other person or entity acting pursuant to authority of the Seller will be
entitled to any commission or finder's fee in connection with the origination,
negotiation, execution or performance of the transactions contemplated under
this Agreement.
R. NO MATERIAL OR ADVERSE CHANGE. Except as otherwise disclosed in
Schedule 4-R attached hereto, since December 31, 1998, to the best of Seller's
knowledge, there has not been: (i) any material adverse change in the financial
condition, assets, liabilities, business or results of operations of the
Company; (ii) to the knowledge of the Seller, any threatened or prospective
event or condition of any character whatsoever which could materially and
adversely affect the business, financial condition or results of operations of
the Company; (iii) any sale or other disposition of any of the Company's assets
(other than the Excluded Assets) other than in the ordinary course of business;
or (iv) any damage, destruction or loss (whether or not insured) materially and
adversely affecting the property, business or prospects of the Company.
S. DUE AUTHORIZATION AND ABSENCE OF BREACH. This Agreement and all other
agreements of the Seller contemplated hereunder constitute valid and binding
obligations of the Seller, enforceable in accordance with their respective
terms. Neither the execution and delivery of this Agreement (or any agreement
contemplated hereunder) nor the consummation of the transactions contemplated
hereby will: (i) conflict with or violate any provision of the Articles of
Incorporation or By-Laws of the Company; (ii) conflict with or violate any
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<PAGE> 10
decree, writ, injunction or order of any court or administrative or other
governmental body which is applicable to, binding upon or enforceable against
the Company or Seller; or (iii) except as set forth on Schedule 4-S result in
any breach of or default (or give rise to any right of termination,
cancellation or acceleration) under any mortgage, contract, agreement,
indenture, will, trust or other instrument which is either binding upon or
enforceable against the Seller or the Company or its assets.
T. AUTHORITY TO CONTRACT. Seller has the full power, right and authority
to enter into and perform this Agreement without the consent of any person,
entity or governmental agency, and the consummation of the transactions
contemplated by this Agreement will not result in the breach or termination of
any provision of or constitute a default under any lease, indenture, mortgage,
deed of trust or other agreement or instrument or any order, decree, statute or
restriction to which Seller or the Company is a party or by which the Company
is bound or to which the outstanding shares of stock of the Company or any of
the properties of the Company is subject.
U. ACCURACY OF THE INFORMATION FURNISHED BY THE SELLER. To the best of
Seller's knowledge, no representation, statement or information made or
furnished by the Seller to the Buyer, including those contained in this
Agreement and the various exhibits attached hereto and the other information
and statements referred to herein, contains or shall contain any untrue
statement of any material fact.
5. REPRESENTATION AND WARRANTIES OF BUYER. In order to induce the Seller
to enter into this Agreement and to consummate the transactions contemplated
hereunder, the Buyer hereby makes the following representations, warranties,
covenants and agreements:
A. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all the requisite corporate power and authority to carry on its business
as now conducted and to consummate the transactions contemplated by this
Agreement.
B. AUTHORITY TO CONTRACT. The execution, delivery and performance of this
Agreement by Buyer has been duly approved by its Board of Directors, and no
further corporate action is necessary on the part of Buyer to consummate the
transactions contemplated by this Agreement, assuming due execution of this
Agreement by the Parties.
C. NO BROKER'S OR AGENT'S FEES. No agent, broker, finder, representative
or other person or entity acting pursuant to the authority of the Buyer will be
entitled to any commission or finder's fee in connection with the origination,
negotiation, execution or performance of the transactions contemplated under
this Agreement.
D. ACCURACY OF INFORMATION FURNISHED BY BUYER. No representation,
statement or information made or furnished by Buyer to the Seller in this
Agreement, or in connection with the transactions contemplated hereby
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<PAGE> 11
including, without limitation copies of the Buyer's filings with the Securities
and Exchange Commission, contains, or shall contain any untrue statement of any
material fact or omits or shall omit any material fact necessary to make the
information contained herein true.
E. REGISTRATION. The EarthCare common stock delivered to Seller on the
Closing Date has been duly registered with the Securities and Exchange
Commission on Form S-1 effective December 9, 1998, and such registration
statement is true and correct in all material respects and does not omit to
state any material information necessary to make such registration statement
not misleading.
6. ADDITIONAL AGREEMENT OF THE SELLER. The Seller further agrees with the
Buyer as follows:
A. ACCESS TO OFFICES AND RECORDS. The Seller shall cause the Company to
afford representatives of the Buyer, from and after the date of execution of
this Agreement, full access, during normal business hours and upon reasonable
notice, to all offices, books, properties, contracts, documents and records of
the Company and to furnish to the Buyer or its representatives all additional
information, including financial or operating information with respect to the
business and affairs of the Company that the Buyer or its representatives may
reasonably request. Seller acknowledges that Buyer is a publicly-traded
corporation and that Buyer will be required under the applicable securities
laws to make public disclosure of detailed financial data concerning the
Company's operations. Prior to the Closing Date, Buyer has Seller's permission
to disclose publicly: (i) the amount of the Company's revenues; and (ii) such
other information as shall be included in any press release of Buyer which
Seller approves in advance of being released; such approval shall not be
unreasonably withheld. Provided, however, that any furnishing of such
information to the Buyer and any investigation by the Buyer shall not affect
the right of the Buyer to rely solely upon the representations and warranties
made by the Seller in or pursuant to this Agreement; and provided further, that
the Buyer: (i) will hold in strict confidence all documents and information
concerning the Company so furnished; and (ii) will promptly return all such
documents and all copies to the Company if this Agreement is not closed for any
reason.
B. CONDUCT OF BUSINESS PENDING THE CLOSING. With the exception of
activities incident to the Excluded Assets, from and after the execution and
delivery of this Agreement and until the Closing Date, except as otherwise
provided by the prior written consent or approval of the Buyer:
1. The Seller will cause the Company to conduct its business and
operations in the manner in which the same has heretofore been conducted and
Seller will use his best efforts to cause the Company to: (i) preserve the
Company's current business organization intact; (ii) keep available to the
Buyer the services of the Company's current employees and the Company's agents
and distributors; and (iii) preserve the Company's current relationships with
customers, suppliers and others having business dealing with the Company.
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<PAGE> 12
2. The Seller will cause the Company to maintain all of its properties in
customary repair, order and condition, reasonable wear and use excepted, and
will maintain its existing insurance upon all of its properties and with
respect to the conduct of its business in such amounts and of such kinds
comparable to that in effect on the date of this Agreement.
3. The Seller will take action to insure that the Company will not: (i)
pay any bonus or increase the rate of compensation of any of the Company's
employees or enter into any new employment agreement or amend any existing
employment agreement; (ii) make any general increase in the compensation or
rate of compensation payable or to become payable to the Company's hourly-rated
employees; (iii) sell or transfer any of the Company's assets; (iv) obligate
itself for capital expenditures other than in the ordinary course of business
and not unusual in amount; or (v) incur any material obligations or
liabilities, which are not in the ordinary course of business, or enter into
any material transaction.
4. The Seller shall not, and shall not permit the Company to, issue or
enter into any subscriptions, options, agreements or other commitments in
respect of the issuance, transfer, sale or encumbrance of any shares of the
Hulsey Common Stock.
C. EXECUTION OF FURTHER DOCUMENTS BY SELLER. From and after the Closing,
upon the reasonable request of the Buyer, the Seller shall execute, acknowledge
and deliver such documents as may be appropriate to carry out the transactions
contemplated by this Agreement.
D. INDEMNIFICATION BY SELLER.
(1) The Seller will indemnify and hold the Buyer harmless from
and against any and all damage, loss, cost, deficiency,
assessment, liability or other expense (including reasonable
attorney's fees, costs of court and litigation expenses, if
any) suffered, incurred or paid by the Buyer as a result of:
(a) The untruth, inaccuracy, breach or violation of any
representation, warranty, covenant or other
obligation of the Seller set forth in or made in
connection with this Agreement;
(b) The assertion against the Buyer or any of the
Companies of any material liability or obligation of
any of the Companies or of any claim relating to the
operation of the Companies' businesses, prior to the
Closing Date, whether absolute or contingent,
matured or unmatured, known or unknown (except as
qualified with respect to knowledge) as of the
Closing Date (including, without limitation,
customer claims or disputes); and,
(c) The enforcement of the Buyer's right to
indemnification under this Agreement.
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<PAGE> 13
2. The Buyer shall give written notice to the Seller of any
claim, action, suit or proceeding relating to the indemnity
herein provided by Seller not later than ten (10) days after
Buyer has received notice thereof. Seller shall have the
right, at his option, to compromise or defend, at his own
expense and by his own counsel (which counsel shall be
reasonably satisfactory to Buyer), any such action, suit or
proceeding. Buyer and Seller agree to cooperate in any such
defense or settlement and to give each other full access to
all information relevant thereto.
3. The Earnout Consideration shall constitute security for
Seller's indemnification. If Buyer makes no claim of breach
of any of Seller's representations, warranties or covenants,
or of any deficiency resulting from uncollectible account
receivable, then the Earnout Consideration shall be delivered
in full to Seller in accordance with the schedule set forth
above.
4. Except as herein expressly provided, the remedies provided in
Paragraph 6.D. hereof shall be cumulative and shall not
preclude assertion by the Buyer of any other rights or the
seeking of any other remedies available against the Seller at
law or in equity.
5. Indemnification shall not be applicable to any claim covered
by insurance. Buyer shall cause Company to continue with all
insurance coverage carried by Company prior to sale,
including but not limited to, completed operations and
failure to continue insurance coverage identical in all
material respects to such previous coverage shall void
Seller's warranty with regard to any type of claim previously
insured.
7. ADDITIONAL AGREEMENT OF THE BUYER.
A. EXECUTION OF FURTHER DOCUMENTS BY BUYER. From and after the
Closing, upon reasonable request of Seller, Buyer shall
execute, acknowledge and deliver to Seller all such further
documents as may be appropriate to carry out the transactions
contemplated by this Agreement.
B. INDEMNIFICATION BY BUYER.
(1) The Buyer will indemnify and hold the Seller
harmless from and against any and all damages, loss,
cost, deficiency assessment, liability or other
expense (including reasonable attorney's fees, costs
of court and costs of litigation, if any) suffered,
incurred or paid by the Seller as a result of:
(a) The untruth, inaccuracy, breach or
violation of any representation, warranty,
covenant or other obligation of the Buyer
set forth in or made in connection with
this Agreement;
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<PAGE> 14
(b) The assertion against the Seller of any
liability or obligation of the Buyer or any
of the Companies or of any claim relating
to the operation of the Companies' business
subsequent to the Closing Date (including,
without limitation, customer claims or
disputes); or,
(c) The enforcement of the Seller's right to
indemnification under this Agreement.
2. The Seller shall give written notice to the Buyer of
any claim, action, suit or proceeding relating to
the indemnity herein provided by Buyer not later
than ten (10) days after Seller has received notice
thereof. Buyer shall have the right, at its option,
to compromise or defend, at its own expense and by
its own counsel (which counsel shall be reasonably
satisfactory to Seller), any such action, suit or
proceeding. Seller and Buyer agree to cooperate in
any such defense or settlement and to give each
other full access to all information relevant
thereto.
(3) Except as herein expressly provided, the remedies
provided in Paragraph 7.B. hereof shall be
cumulative and shall not preclude assertion by the
Seller of any other rights or the seeking of any
other remedies available against the Buyer at law or
in equity.
8. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligations of the Buyer
to effect the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of each of
the following conditions:
A. VALIDITY OF SELLER'S REPRESENTATIONS. All representations and
warranties of the Seller contained in this Agreement or
otherwise made in writing pursuant to this Agreement shall
have been true and correct at and as of the date hereof and
they shall be true and correct at and as of the Closing Date,
with the same force and effect as though made at and as of
the Closing Date.
B. PRE-CLOSING OBLIGATIONS. The Seller shall have performed and
complied with all the obligations and conditions required by
this Agreement to be performed or complied with by Seller at
or prior to the Closing Date, including the execution and
delivery of all documents and contracts required to be
delivered at or before the Closing Date pursuant to this
Agreement.
C. OPINION OF COUNSEL FOR SELLER. The Buyer shall have received
a favorable opinion from counsel for the Seller dated the
date of the Closing, in form satisfactory to counsel for the
Buyer, to the effect that:
(1) Each of the Companies is a corporation duly
organized and
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<PAGE> 15
legally existing in good standing under the laws of
its respective jurisdiction, and it has the
corporate power and authority to carry on its
business as now being conducted and to own or hold
under lease, or otherwise, its assets.
(2) This Agreement has been duly executed and delivered
by the Seller, and constitutes a valid, enforceable
and binding obligation of the Seller pursuant to the
terms of this Agreement.
(3) Except as otherwise disclosed in this Agreement,
counsel does not know of any action, suit,
investigation or other legal, administrative or
arbitration proceeding pending against the Seller or
any of the Companies, or which questions the
validity or enforceability of this Agreement or of
any action taken or to be taken pursuant to or in
connection with this Agreement or any agreement
contemplated herein.
(4) To the knowledge of such counsel, no consent,
authorization, license, franchise, permit, approval
or order of any court or governmental agency or
body, other than those obtained by Seller and
delivered to the Buyer prior to or on the date of
the opinion, is required for the sale of the
Acquisition Stock by the Seller pursuant to this
Agreement.
(5) The execution and performance of this Agreement by
the Seller will not violate: (i) the Articles of
Incorporation or the By-Laws of any of the
Companies, or (ii) any order of any court or other
agency of government known to said counsel.
D. RECEIPT BY THE BUYER OF NECESSARY CONSENTS. All necessary
consents or approvals of third parties to any of the
transactions contemplated hereby shall have been obtained,
and satisfactory evidence of such consents or approvals shall
have been delivered to the Buyer at Closing.
E. RESIGNATION OF OFFICERS AND DIRECTORS. Buyer shall have
received such resignations of officers and directors of the
Companies as shall have been requested by Buyer.
9. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations of the Seller
to effect the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of each of
the following conditions:
A. VALIDITY OF BUYER'S REPRESENTATIONS. All representations and
warranties of the Buyer contained in this Agreement or
otherwise made in writing pursuant to this Agreement shall
have been true and correct at and as of the date hereof and
they shall
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<PAGE> 16
be true and correct at and as of the Closing Date, with the
same force and effect as though made at and as of the Closing
Date.
B. PRE-CLOSING OBLIGATIONS. The Buyer shall have performed and
complied with all the obligations and conditions required by
this Agreement to be performed or complied with by Seller at
or prior to the Closing Date, including the execution and
delivery of all documents and contracts required to be
delivered at or before the Closing Date pursuant to this
Agreement.
C. CORPORATE AUTHORITY OF BUYER. The execution and performance
of this Agreement by the Buyer shall have been duly and
legally authorized in accordance with applicable law, and the
Buyer shall have furnished to counsel for the Seller
certified copies of resolutions adopted by the Board of
Directors of the Buyer authorizing and proving the execution
and delivery of this Agreement and performance of the
transactions contemplated hereunder.
D. OPINION OF COUNSEL FOR BUYER. The Seller shall have received
a favorable opinion from counsel for the Buyer dated the date
of the Closing, in form satisfactory to counsel for the
Seller, to the effect that:
(1) The Buyer is a corporation, duly organized and
legally existing in good standing under the laws of
the State of Delaware, and it has the corporate
power and authority to carry on its business as now
being conducted and to carry out the transactions
and agreements contemplated hereby.
(2) All corporate and other proceedings required to be
taken by or on the part of the Buyer in order to
authorize it to perform its obligations hereunder
have been duly and properly taken, including any
necessary approval or authorization by the Board of
Directors of the Buyer.
(3) This Agreement has been duly executed and delivered
by the Buyer and constitutes a valid, enforceable
and binding obligation of the Buyer pursuant to the
terms of this Agreement.
(4) Except as otherwise disclosed in this Agreement,
said counsel does not know of any action, suit,
investigation or other legal, administrative or
arbitration proceeding which questions the validity
or enforceability of this Agreement or of any action
taken or to be taken pursuant to or in connection
with this Agreement or any agreement contemplated
herein.
(5) The execution and performance of this Agreement by
the Buyer will not violate: (i) the Articles of
Incorporation or the
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<PAGE> 17
By-Laws of the Buyer; or (ii) any order of any court
or other agency of government known to said counsel.
E. Buyer shall have provided to Seller a written Plan
of Merger to reflect tax free exchange treatment.
10. ADJUSTMENT TO PURCHASE PRICE.
A. The Purchase Price shall be adjusted as follows:
1. If the Company's current assets as of the Closing
Date exceed the Company's liabilities as of such
date, then such excess shall be paid to Seller as an
addition to the Purchase Price.
2. If the Company's liabilities as of the Closing Date
exceed the Company's current assets as of such date,
then Seller shall reimburse to Buyer an amount equal
to such deficiency.
B. The adjustment to be made under this paragraph shall be made
120 days after the Closing Date ("the Adjustment Date").
Current assets and liabilities shall be determined in
accordance with generally accepted accounting principles
except that accounts receivable, including unbilled services
rendered to the date of closing and billed thereafter, will
be considered current assets only if collected prior to the
Adjustment Date or are otherwise accepted in writing by
Buyer.
C. The adjustment shall be made hereunder as follows:
1. If there is an excess of current assets over
liabilities, the excess, to the extent of cash
collected, shall be paid to Seller on the Adjustment
Date. To the extent such excess is in the form of
yet uncollected accounts receivable, Buyer shall
cause the Company to continue to collect such
outstanding receivables and Buyer shall pay to
Seller, monthly, receivables thereafter collected.
Payment on account of such receivables shall be made
by the 10th day of each month for collections
received during the preceding month and shall be
accompanied by a statement of accounts collected.
2. If the liabilities exceed current assets then Seller
shall pay to Buyer the amount of such deficiency.
Buyer shall pay to Seller on a monthly basis as
described above, an amount equal to the accounts
receivable thereafter collected by the Company.
3. All payment received after Closing in respect of
Customer Accounts shall be applied to the oldest
receivables then outstanding. In addition, the
Seller shall cause the
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<PAGE> 18
Company to collect all accounts receivable in its
normal course provided that the Seller shall not be
required to cause the Company to pursue the
collection of accounts receivable for the direct or
indirect benefit of Seller unless Seller shall have
agreed to bear the costs thereof.
11. SELLER'S NON-COMPETE AND NON-SOLICITATION AGREEMENT. As inducement to
Buyer to enter into this Agreement and perform its obligations hereunder, and
in consideration of the payments to Seller pursuant to this Agreement (with the
exception of activities incident to the Excluded Assets and LHR Farms), the
Seller agrees that Seller will not, for a period of three (3) years from the
Closing Date, directly or indirectly (whether as owner, partner, shareholder,
agent, employee, independent contractor, consultant or otherwise): (i) engage
in the plumbing business, or any other business which directly or indirectly
competes with business of the Buyer, or with any subsidiary of Buyer, in each
case, within the County of Hall, State of Georgia; (ii) solicit any party who
is or was a customer or supplier of the Company on the Closing Date or at any
time during the 12 month period immediately prior thereto for services of any
type or quality being provided by the Company; (iii) solicit for employment any
person who was or is an employee of the Company on the Closing Date, or at any
time during the 12 month period immediately prior thereto; or (iv) either
directly or indirectly, divulge, disclose, or communicate to any person, firm
or corporation in any manner whatsoever any confidential information relating
to the business of Buyer, or the Company. The term, "confidential information",
as used herein means all information of a business or technical nature relative
to the business of Buyer, the business of any customers of the Company or any
business of any person, firm or corporation which consults with, or is
affiliated with, Buyer or the Company. The term "confidential information"
shall not include information so generally known as to be part of the public
domain. Each of the covenants contained in this Article are separate and
independent. The Seller acknowledges and agrees that Buyer's and Company's
remedies at law may be inadequate in the event of a breach or threatened breach
of the covenants set forth herein, and in such event, Buyer and the Company
shall be entitled to have an injunction issued by any court of competent
jurisdiction, enjoining and restraining each and every party concerned
therewith from the creation or continuation of such breach.
12. OTHER PROVISIONS.
A. EMPLOYMENT AGREEMENTS. At Closing, Buyer will enter into
written Employment Agreements with key employees of Company
in a form satisfactory to Buyer and such employees.
B. INCOMPLETE EXHIBITS. The parties hereto acknowledge and agree
(a) that many, if not all, of the schedules to be attached to
this Agreement will not have been prepared by the time of
execution of this Agreement, and (b) that consummation of the
transactions contemplated by this Agreement are subject to
the completion of such exhibits by Seller (to the extent that
an exhibit is to be completed by Seller, such exhibit must be
reasonably acceptable to
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<PAGE> 19
Buyer) or Buyer (to the extent that an exhibit is to be
completed by Buyer, it must be reasonably acceptable to
Seller) as the case may be, prior to or at the Closing,
pursuant to the terms of this Agreement.
C. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, obligations and agreements of
the parties contained in this Agreement, or in any writing
delivered pursuant to provisions of this Agreement, shall
survive the Closing for a period of two (2) years with the
exception of representations and warranties concerning
Paragraph 4.M. hereof, Tax Matters and Paragraph 4.P. hereof,
Environmental Matters, which will survive for as long as any
claims may be asserted under the applicable periods of
limitation for violations of any tax or environmental law,
rule or regulation.
D. WAIVER OR EXTENSION OF CONDITIONS. The Seller or the Buyer
may extend the time for or waive the performance of any of
the obligations of the other party, waive any inaccuracies in
the representations or warranties by the other party, or
waive compliance by the other party with any of the covenants
or conditions contained in this Agreement. Any such extension
or waiver shall be in writing and signed by the Seller and
the Buyer. Any such extension or waiver shall not act as a
waiver or an extension of any other provisions of this
Agreement.
1. NOTICES. Any notice, request or other document shall be in
writing and sent by registered or certified mail, return
receipt requested, postage prepaid and addressed to the party
to be notified at the following addresses, or such other
address as such party may hereafter designate by written
notice to all parties, which notice shall be effective as of
the date of posting:
1. If to the Buyer:
EarthCare Company
14901 Quorum Drive
Suite 200
Dallas, TX 75240
Copy to:
Robert C. Gist, Esq.
12809 Plum Hollow Drive
Oklahoma City, OK 73142-5148
2. If to the Seller:
John Hulsey
3230 Dunlap Drive
Gainesville, GA 30506
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<PAGE> 20
Copy to:
Eddie Hartness, Esq.
P.O. Box 26
Gainesville, GA 30506
2. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Georgia.
3. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns.
4. HEADINGS. The subject headings of the Sections of this
Agreement are included for purposes of convenience only and
shall not affect the construction or interpretation of any of
its provisions.
5. 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.
6. ARBITRATION. Any controversy or claim arising out of, in
connection with, or relating to this Agreement or a breach
thereof shall be settled by binding arbitration in
Gainesville, Georgia. The arbitration panel shall be
comprised of three arbitrators. Each party shall appoint one
arbitrator for the panel and the two so appointed shall
appoint a third. The panel shall resolve the dispute within
sixty (60) days of the appointment of the panel and shall
notify the parties of its findings in writing. Each party
agrees to bear its own costs of arbitrators and to split
equally the cost of the third arbitrator.
7. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
schedules attached hereto) and the documents delivered
pursuant hereto constitute the entire agreement and
understanding between the parties, and supersede any prior
agreements and understandings relating to the subject matter
hereof. This Agreement may be modified or amended by a
written instrument executed by all parties hereto.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
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_____ day of November, 1999
"Seller"
- -----------------------------------
John Hulsey
"Buyer"
EarthCare Company
By:
--------------------------------
21
<PAGE> 1
EXHIBIT 10.10
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of February 15, 2000
among
EARTHCARE COMPANY,
VARIOUS FINANCIAL INSTITUTIONS,
BANKBOSTON, N.A.,
as Syndication Agent,
and
BANK OF AMERICA, N.A.,
as Administrative Agent
BANC OF AMERICA SECURITIES LLC,
Lead Arranger and Sole Book Manager
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 DEFINITIONS........................................................ 1
1.1 Definitions.................................................... 1
1.2 Other Interpretive Provisions..................................12
SECTION 2 COMMITMENTS OF THE BANKS; BORROWING, CONVERSION AND
LETTER OF CREDIT PROCEDURES.......................................12
2.1 Commitments....................................................12
2.1.1 Loans..................................................12
2.1.2 L/C Commitment.........................................12
2.2 Loan Procedures................................................12
2.2.1 Various Types of Loans.................................12
2.2.2 Borrowing Procedures...................................13
2.2.3 Conversion and Continuation Procedures.................13
2.3 Letter of Credit Procedures....................................14
2.3.1 L/C Applications.......................................14
2.3.2 Participations in Letters of Credit....................14
2.3.3 Reimbursement Obligations..............................15
2.3.4 Limitation on Obligations of Issuing Banks.............15
2.3.5 Funding by Banks to Issuing Banks......................15
2.4 Commitments Several............................................16
2.5 Certain Conditions.............................................16
SECTION 3 NOTES EVIDENCING LOANS.............................................16
3.1 Notes..........................................................16
3.2 Recordkeeping..................................................16
SECTION 4 INTEREST...........................................................17
4.1 Interest Rates.................................................17
4.2 Interest Payment Dates.........................................17
4.3 Setting and Notice of Eurodollar Rates.........................17
4.4 Computation of Interest........................................17
SECTION 5 FEES...............................................................17
5.1 Non-Use Fee....................................................17
5.2 Letter of Credit Fees..........................................17
5.3 Administrative Agent's and Arranger's Fees.....................18
</TABLE>
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SECTION 6 CHANGES IN THE COMMITMENT AMOUNT; PREPAYMENTS.....................18
6.1 Changes in the Commitment Amount...............................18
6.1.1 Optional Increase in the Commitment Amount.............18
6.1.2 Voluntary Reductions of the Commitment Amount..........18
6.2 Prepayments....................................................19
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES....................19
7.1 Making of Payments.............................................19
7.2 Application of Certain Payments................................19
7.3 Due Date Extension.............................................19
7.4 Setoff.........................................................20
7.5 Proration of Payments..........................................20
7.6 Taxes..........................................................20
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS...........20
8.1 Increased Costs................................................20
8.2 Basis for Determining Interest Rate Inadequate or Unfair.......20
8.3 Changes in Law Rendering Eurodollar Loans Unlawful.............20
8.4 Funding Losses.................................................21
8.5 Right of Banks to Fund through Other Offices...................21
8.6 Discretion of Banks as to Manner of Funding....................21
8.7 Mitigation of Circumstances; Replacement of Affected Bank......22
8.8 Conclusiveness of Statements; Survival of Provisions...........22
SECTION 9 WARRANTIES.........................................................22
9.1 Organization, etc..............................................22
9.2 Authorization; No Conflict.....................................22
9.3 Validity and Binding Nature....................................23
9.4 Financial Condition............................................23
9.5 No Material Adverse Change.....................................23
9.6 Litigation and Contingent Liabilities..........................23
9.7 Ownership of Properties; Liens.................................23
9.8 Subsidiaries...................................................23
9.9 Pension and Welfare Plans......................................24
9.10 Investment Company Act.........................................24
9.11 Public Utility Holding Company Act.............................24
9.12 Regulation U...................................................24
9.13 Taxes..........................................................24
9.14 Solvency, etc..................................................25
9.15 Environmental Matters..........................................25
9.16 Information....................................................25
</TABLE>
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SECTION 10 COVENANTS.........................................................25
10.1 Reports, Certificates and Other Information.......................25
10.1.1 Audit Report...............................................25
10.1.2 Quarterly Reports..........................................26
10.1.3 Monthly Reports............................................26
10.1.4 Compliance Certificates....................................26
10.1.5 Reports to SEC and to Shareholders.........................26
10.1.6 Notice of Default, Litigation and ERISA Matters............27
10.1.7 Subsidiaries...............................................27
10.1.8 Management Reports.........................................27
10.1.9 Projections................................................27
10.1.10 Environmental Reports.....................................27
10.1.11 Other Information.........................................27
10.2 Books, Records and Inspections....................................27
10.3 Insurance.........................................................27
10.4 Compliance with Laws; Payment of Taxes and Liabilities............28
10.5 Maintenance of Existence, etc.....................................28
10.6 Financial Covenants...............................................28
10.6.1 Minimum Consolidated Net Worth.............................28
10.6.2 Minimum Interest Coverage..................................28
10.6.3 Leverage Ratio.............................................29
10.6.4 Senior Leverage Ratio......................................29
10.6.5 Debt to Capitalization Ratio...............................29
10.6.6 Capital Expenditures.......................................29
10.7 Limitations on Debt...............................................30
10.8 Liens.............................................................30
10.9 Operating Leases..................................................31
10.10 Restricted Payments...............................................31
10.11 Mergers, Consolidations, Sales ...................................31
10.12 Use of Proceeds ..................................................32
10.13 Further Assurances................................................32
10.14 Transactions with Affiliates......................................33
10.15 Employee Benefit Plans............................................33
10.16 Environmental Laws ..............................................33
10.17 Unconditional Purchase Obligations ...............................33
10.18 Inconsistent Agreements .........................................33
10.19 Business Activities...............................................33
10.20 Advances and Other Investments....................................33
10.21 Interest Rate Protection .........................................34
10.22 Amendments to Certain Agreements..................................34
</TABLE>
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SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.........................35
11.1 Effectiveness.....................................................35
11.1.1 Notes......................................................35
11.1.2 Resolutions................................................35
11.1.3 Consents, etc..............................................35
11.1.4 Incumbency and Signature Certificates......................35
11.1.5 Guaranties.................................................35
11.1.6 Security Agreement.........................................35
11.1.7 Pledge Agreement...........................................36
11.1.8 Individual Pledge Agreement. The Individual Pledge Agreement executed by
Donald F. Moorehead, Jr. and Raymond M. Cash, together with debentures
evidencing not less than $5,500,000 of the 1999 Subordinated Debt endorsed
to the Administrative Agent pursuant thereto.
11.1.9 Opinion of Counsel for the Company and the Guarantors......36
11.1.10 Closing Certificate.......................................36
11.1.11 Other.....................................................36
11.2 Conditions........................................................36
11.2.1 Compliance with Warranties, No Default, etc................36
11.2.2............................................................37
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT................................37
12.1 Events of Default.................................................37
12.1.1 Non-Payment of the Loans, etc..............................37
12.1.2 Non-Payment of Other Debt..................................37
12.1.3 Other Material Obligations.................................38
12.1.4 Bankruptcy, Insolvency, etc................................38
12.1.5 Non-Compliance with Provisions of This Agreement...........38
12.1.6 Warranties.................................................38
12.1.7 Pension Plans..............................................38
12.1.8 Judgments..................................................39
12.1.9 Invalidity of Guaranty, etc................................39
12.1.10 Invalidity of Collateral Documents, etc..................39
12.1.11 Change in Control........................................39
12.2 Effect of Event of Default........................................40
SECTION 13 THE ADMINISTRATIVE AGENT..........................................40
13.1 Appointment and Authorization.....................................40
13.2 Delegation of Duties..............................................41
13.3 Liability of Administrative Agent.................................41
13.4 Reliance by Administrative Agent..................................41
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13.5 Notice of Default.................................................42
13.6 Credit Decision...................................................42
13.7 Indemnification...................................................42
13.8 Administrative Agent in Individual Capacity.......................43
13.9 Successor Administrative Agent....................................44
13.10 Withholding Tax...................................................44
13.11 Collateral Matters................................................46
13.12 Syndication Agent.................................................46
SECTION 14 GENERAL...........................................................47
14.1 Waiver; Amendments................................................47
14.2 Confirmations.....................................................47
14.3 Notices...........................................................47
14.4 Computations......................................................48
14.5 Regulation U......................................................48
14.6 Costs, Expenses and Taxes.........................................48
14.7 Subsidiary References.............................................48
14.8 Captions..........................................................49
14.9 Assignments; Participations.......................................49
14.9.1 Assignments................................................49
14.9.2 Participations.............................................50
14.10 Governing Law.....................................................50
14.11 Counterparts......................................................51
14.12 Successors and Assigns............................................51
14.13 Indemnification by the Company....................................51
14.14 Forum Selection and Consent to Jurisdiction.......................52
14.15 Waiver of Jury Trial..............................................52
14.16 Amendment and Restatement.........................................53
</TABLE>
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SCHEDULE 1.1 Pricing Schedule
SCHEDULE 2.1 Banks and Percentages
SCHEDULE 9.6 Litigation and Contingent Liabilities
SCHEDULE 9.8 Subsidiaries
SCHEDULE 9.15 Environmental Matters
SCHEDULE 10.7 Existing Debt
SCHEDULE 10.8 Existing Liens
SCHEDULE 12.1.11 Key Executives
SCHEDULE 14.3 Addresses for Notices
EXHIBIT A Form of Note
(Section 3.1)
EXHIBIT B Form of Compliance Certificate
(Section 10.1.3)
EXHIBIT C Form of Subsidiary Guaranty
(Section 1)
EXHIBIT D Form of Security Agreement
(Section 1)
EXHIBIT E Form of Pledge Agreement
(Section 1)
EXHIBIT F Form of Individual Guaranty
(Section 1)
EXHIBIT G Form of Individual Pledge Agreement
(Section 1)
EXHIBIT H Form of Assignment Agreement
(Section 14.9)
EXHIBIT I Form of Increase Request
(Section 6.1.1)
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AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT dated as of February 15,
2000 (this "Agreement") is among EARTHCARE COMPANY, a Delaware corporation (the
"Company"), the financial institutions that are or may from time to time become
parties hereto (together with their respective successors and assigns, the
"Banks"), and BANK OF AMERICA, N.A. (in its individual capacity, "Bank of
America"), as administrative agent for the Banks.
WHEREAS, the Company (then known as Santi Group, Inc.), various
financial institutions and Bank of America (then known as Bank of America
National Trust and Savings Association), as agent, are parties to a Credit
Agreement dated as of June 26, 1998 (as amended prior to the date hereof, the
"Original Agreement"); and
WHEREAS, the parties hereto have agreed to amend and restate the
Original Agreement so as to increase the amount of the credit facility
thereunder and to make various other changes thereto;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereto agree as follows:
SECTION 1 DEFINITIONS.
1.1 Definitions. When used herein the following terms shall have
the following meanings:
Adjusted Funded Debt means all Funded Debt other than, prior to the
Release Date, the New Subordinated Debt and the Pledged Subordinated Debt.
Administrative Agent means Bank of America in its capacity as
administrative agent for the Banks hereunder and any successor thereto in such
capacity.
Affected Bank means any Bank that has given notice to the Company (which
has not been rescinded) of (i) any obligation by the Company to pay any amount
pursuant to Section 7.6 or 8.1 or (ii) the occurrence of any circumstances of
the nature described in Section 8.2 or 8.3.
Affiliate of any Person means (i) any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person and (ii) any officer or director of such Person.
Agent-Related Persons means the Administrative Agent and any successor
administrative agent arising under Section 13.9, together with their respective
Affiliates (including, in the case of Bank of
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<PAGE> 9
America, the Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
Agreement - see the Preamble.
Arranger means Banc of America Securities LLC in its capacity as lead
arranger and sole book manager for the credit facility established hereunder
Assignee - see Section 14.9.1.
Assignment Agreement - see Section 14.9.1.
Bank - see the Preamble. References to the "Banks" shall include the
Issuing Bank; for purposes of clarification only, to the extent that Bank of
America (or any successor Issuing Bank) may have any rights or obligations in
addition to those of the other Banks due to its status as Issuing Bank, its
status as such will be specifically referenced.
Base Rate means at any time the greater of (a) the Federal Funds Rate
plus 0.5% and (b) the Prime Rate.
Bank of America - see the Preamble.
Business Day means any day on which Bank of America is open for
commercial banking business in Chicago, New York and Charlotte and, in the case
of a Business Day which relates to a Eurodollar Loan, on which dealings are
carried on in the interbank eurodollar market.
Capital Expenditures means all expenditures which, in accordance with
GAAP, would be required to be capitalized and shown on the consolidated balance
sheet of the Company, but excluding expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed (i)
from insurance proceeds (or other similar recoveries) paid on account of the
loss of or damage to the assets being replaced or restored or (ii) with awards
of compensation arising from the taking by eminent domain or condemnation of the
assets being replaced.
Capital Lease means, with respect to any Person, any lease of (or other
agreement conveying the right to use) any real or personal property by such
Person that, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of such Person.
Cash Equivalent Investment means, at any time, (a) any evidence of
Debt, maturing not more than one year after such time, issued or guaranteed by
the United States Government or any agency thereof, (b) commercial paper,
maturing not more than one year from the date of issue, or corporate demand
notes, in each case (unless issued by a Bank or its holding company) rated at
least A-l by
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<PAGE> 10
Standard & Poor's Ratings Group or P-l by Moody's Investors Service, Inc., (c)
any certificate of deposit (or time deposits represented by such certificates of
deposit) or bankers acceptance, maturing not more than one year after such time,
or overnight Federal Funds transactions that are issued or sold by a commercial
banking institution that is a member of the Federal Reserve System and has a
combined capital and surplus and undivided profits of not less than
$500,000,000, (d) any repurchase agreement entered into with any Bank (or other
commercial banking institution of the stature referred to in clause (c)) which
(i) is secured by a fully perfected security interest in any obligation of the
type described in any of clauses (a) through (c) and (ii) has a market value at
the time such repurchase agreement is entered into of not less than 100% of the
repurchase obligation of such Bank (or other commercial banking institution)
thereunder and (e) investments in short-term asset management accounts offered
by any Bank for the purpose of investing in loans to any corporation (other than
the Company or an Affiliate of the Company), state or municipality, in each case
organized under the laws of any state of the United States or of the District of
Columbia.
CERCLA - see Section 9.15.
Code means the Internal Revenue Code of 1986.
Collateral Documents means the Pledge Agreement, the Security Agreement
and any other agreement pursuant to which the Company or any Guarantor grants
collateral to the Administrative Agent for the benefit of the Banks.
Commitment Amount means $80,000,000 as changed from time to time
pursuant to Section 6.1.
Commitment means, as to any Bank, such Bank's commitment to make Loans,
and to issue or participate in Letters of Credit, under this Agreement.
Company - see the Preamble.
Computation Period means each period of four consecutive Fiscal
Quarters ending on the last day of a Fiscal Quarter.
Consolidated Net Income means, with respect to the Company and its
Subsidiaries for any period, the net income (or loss) of the Company and its
Subsidiaries for such period, excluding any extraordinary gains during such
period.
Consolidated Net Worth means, at any date, consolidated stockholders'
equity (excluding any equity attributed to any preferred stock which is
mandatorily redeemable at any time prior to eight years after the Effective
Date) of the Company and its Subsidiaries as at such date.
3
<PAGE> 11
Controlled Group means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Company, are treated as a single employer under Section 414 of the Code or
Section 4001 of ERISA.
Covenant Change Date means the earlier of September 30, 2000 or the
Release Date.
Debt of any Person means, without duplication, (a) all indebtedness of
such Person for borrowed money, whether or not evidenced by bonds, debentures,
notes or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been or should be recorded as liabilities on a balance
sheet of such Person, (c) all obligations of such Person to pay the deferred
purchase price of property or services (excluding trade accounts payable in the
ordinary course of business), (d) all indebtedness secured by a Lien on the
property of such Person, whether or not such indebtedness shall have been
assumed by such Person (it being understood that if such Person has not assumed
or otherwise become personally liable for any such indebtedness, the amount of
the Debt of such Person in connection therewith shall be limited to the lesser
of the face amount of such indebtedness or the fair market value of all property
of such Person securing such indebtedness), (e) all obligations, contingent or
otherwise, with respect to the face amount of all letters of credit (whether or
not drawn) and banker's acceptances issued for the account of such Person
(including the Letters of Credit), (f) net Hedging Obligations of such Person
and (g) all Suretyship Liabilities of such Person.
Disposal - see the definition of "Release".
Dollar and the sign "$" mean lawful money of the United States of
America.
EBITDA means, for any Computation Period, Consolidated Net Income for
such Computation Period plus to the extent deducted in determining such
Consolidated Net Income, Interest Expense, income tax expense, depreciation and
amortization for such Computation Period; provided that EBITDA shall be
calculated on a pro forma basis (in accordance with Article 11 of Regulation S-X
of the SEC) giving effect to (a) any acquisition made by the Company or any
Subsidiary during such Computation Period so long as, and to the extent that,
(i) the Company delivers to the Administrative Agent (which shall promptly
deliver to each Bank) a summary in reasonable detail of the assumptions
underlying, and the calculations made, in computing EBITDA on a pro forma basis
and (ii) the Required Banks do not object to such assumptions and/or
calculations within 10 Business Days after receipt thereof; and (b) any
divestiture of a Subsidiary, division or other operating unit made during such
Computation Period.
Effective Date - see Section 11.1.
4
<PAGE> 12
Environmental Claims means all claims, however asserted, by any
governmental, regulatory or judicial authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law, or
for release or injury to the environment.
Environmental Laws means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authority, in each case
relating to environmental matters.
Equity Offering means the receipt by the Company after the Effective
Date of not less than $20,000,000 in Net Cash Proceeds from the issuance of (a)
preferred stock which has no required cash dividends or required redemptions for
at least eight years and/or (b) common stock.
ERISA means the Employee Retirement Income Security Act of 1974.
Eurocurrency Reserve Percentage means, with respect to any Eurodollar
Loan for any Interest Period, a percentage (expressed as a decimal) equal to the
daily average during such Interest Period of the percentage in effect on each
day of such Interest Period, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor), for determining the aggregate maximum
reserve requirements applicable to "Eurocurrency Liabilities" pursuant to
Regulation D or any other then applicable regulation of such Board of Governors
which prescribes reserve requirements applicable to "Eurocurrency Liabilities"
as presently defined in Regulation D.
Eurodollar Loan means any Loan which bears interest at a rate
determined by reference to the Eurodollar Rate (Reserve Adjusted).
Eurodollar Margin - see Schedule 1.1.
Eurodollar Office means with respect to any Bank the office or offices
of such Bank which shall be making or maintaining the Eurodollar Loans of such
Bank hereunder or such other office or offices through which such Bank
determines its Eurodollar Rate. A Eurodollar Office of any Bank may be, at the
option of such Bank, either a domestic or foreign office.
Eurodollar Rate means, with respect to any Eurodollar Loan for any
Interest Period, the rate per annum at which Dollar deposits in immediately
available funds are offered to the Eurodollar Office of Bank of America two
Business Days prior to the beginning of such Interest Period by major banks in
the interbank eurodollar market as at or about 10:00 A.M., Chicago time, for
delivery on the first day of such Interest Period, for the number of days
comprised therein and in an amount equal or comparable to the amount of the
Eurodollar Loan of Bank of America for such Interest Period.
5
<PAGE> 13
Eurodollar Rate (Reserve Adjusted) means, with respect to any
Eurodollar Loan for any Interest Period, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined pursuant to the following
formula:
Eurodollar Rate = Eurodollar Rate
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
Event of Default means any of the events described in Section 12.1.
Exemption Representation - see Section 7.6.
Federal Funds Rate means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor
publication, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Administrative Agent of the rates for the
last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Administrative Agent.
Financial Letter of Credit means any Letter of Credit determined by the
applicable Issuing Bank to be a "financial guaranty-type Standby Letter of
Credit" as defined in footnote 13 to Appendix A to the Risk Based Capital
Guidelines issued by the Comptroller of the Currency (or in any successor
regulation, guideline or ruling by any applicable banking regulatory authority).
Fiscal Quarter means a fiscal quarter of a Fiscal Year.
Fiscal Year means the fiscal year of the Company and its Subsidiaries,
which period shall be the 12-month period ending on December 31 of each year.
Floating Rate Loan means any Loan which bears interest at or by
reference to the Base Rate.
Floating Rate Margin - see Schedule 1.1.
Funded Debt means all Debt of the Company and its Subsidiaries,
excluding (i) contingent obligations in respect of undrawn letters of credit and
Suretyship Liabilities (except, in each case, to the extent constituting
Suretyship Liabilities in respect of Debt of a Person other than the Company or
any Subsidiary), (ii) Hedging Obligations and (iii) Debt of the Company to
Subsidiaries and Debt of Subsidiaries to the Company or to other Subsidiaries.
6
<PAGE> 14
GAAP means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
Group - see Section 2.2.1.
Guarantor means, at any time, (a) each Subsidiary that has executed a
counterpart of the Subsidiary Guaranty on or prior to such time (or is required
to execute a counterpart of the Subsidiary Guaranty at such time) and (b) so
long as the Release Date has not occurred, Donald F. Moorehead, Jr. and Raymond
M. Cash.
Guaranty means each of the Subsidiary Guaranty and, so long as the
Release Date has not occurred, the Individual Guaranty.
Hazardous Substances - see Section 9.15.
Hedging Agreement means any interest rate swap, interest rate cap,
interest rate collar or similar agreement protecting against fluctuations in
interest rates, any currency swap, forward currency exchange agreement or
similar agreement protecting against fluctuations in currency exchange rates,
any commodity swap or similar agreement protecting against fluctuations in
commodity prices, any option to enter into any of the foregoing, and any
combination of any of the foregoing.
Hedging Obligations means, with respect to any Person, obligations of
such Person under Hedging Agreements.
Individual Guaranty means a Guaranty substantially in the form of
Exhibit F.
Individual Pledge Agreement means a Pledge Agreement substantially in
the form of Exhibit G.
Interest Coverage Ratio means, for any Computation Period, the ratio of
(a) EBITDA for such Computation Period to (b) the remainder of Interest Expense
minus PIK Interest for such Computation Period.
Interest Expense means, for any Computation Period, the consolidated
interest expense of the Company and its Subsidiaries for such Computation Period
(including all imputed interest on Capital Leases and before giving effect to
any capitalization of interest but excluding amortization of deferred financing
costs).
7
<PAGE> 15
Interest Period means, as to any Eurodollar Loan, the period commencing
on the date such Loan is borrowed or continued as, or converted into, a
Eurodollar Loan and ending on the date one, two, three or six months thereafter,
as selected by the Company pursuant to Section 2.2.3; provided that:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period for a Eurodollar Loan that begins on
a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall end on the last
Business Day of the calendar month at the end of such Interest Period;
and
(iii) the Company may not select any Interest Period for any
Loan which would extend beyond the scheduled Termination Date.
Investment means, relative to any Person, (a) any loan or advance made
by such Person to any other Person (excluding any commission, travel or similar
advances made to directors, officers and employees of the Company or any of its
Subsidiaries), (b) any Suretyship Liability of such Person, (c) any ownership or
similar interest held by such Person in any other Person and (d) deposits and
the like relating to prospective acquisitions of businesses.
Issuing Bank means Bank of America in its capacity as an issuer of
Letters of Credit hereunder and any other Bank which, with the written consent
of the Company and the Administrative Agent, is the issuer of one or more
Letters of Credit hereunder.
L/C Application means, with respect to any request for the issuance of
a Letter of Credit, a letter of credit application in the form being used by the
applicable Issuing Bank at the time of such request for the type of letter of
credit requested.
Letter of Credit - see Section 2.1.2.
Leverage Ratio means, for any Computation Period, the ratio of (a)
Adjusted Funded Debt as of the last day of such Computation Period to (b) EBITDA
for such Computation Period.
Lien means, with respect to any Person, any interest granted by such
Person in any real or personal property, asset or other right owned or being
purchased or acquired by such Person which secures payment or performance of any
obligation and shall include any mortgage, lien, encumbrance, charge or other
security interest of any kind, whether arising by contract, as a matter of law,
by judicial process or otherwise.
8
<PAGE> 16
Loan Documents means this Agreement, the Notes, the Guaranties, the L/C
Applications and the Collateral Documents.
Loans - see Section 2.1.1.
Margin Stock means any "margin stock" as defined in Regulation U of the
Board of Governors of the Federal Reserve System.
Material Adverse Effect means (a) a material adverse change in, or a
material adverse effect upon, the financial condition, operations, assets,
business, properties or prospects of the Company and its Subsidiaries taken as a
whole, or (b) a material adverse effect upon any substantial portion of the
collateral under the Collateral Documents or upon the legality, validity,
binding effect or enforceability against the Company or any Guarantor of any
applicable Loan Document.
Multiemployer Pension Plan means a multiemployer plan, as such term is
defined in Section 4001(a)(3) of ERISA, and to which the Company or any member
of the Controlled Group may have any liability.
Net Cash Proceeds means, with respect to any issuance of equity
securities, the aggregate cash proceeds received by the Company or any
Subsidiary pursuant to such issuance, net of the direct costs relating to such
issuance (including sales and underwriter's discounts and commissions and legal,
accounting and investment banking fees).
New Subordinated Debt means the 12% Subordinated Notes due 2008 issued
by the Company pursuant to the Debenture Agreement dated February 15, 2000, and
any additional convertible subordinated debentures issued in payment of interest
thereon.
1999 Subordinated Debt means the $14,750,000 of 10% Convertible
Subordinated Debentures due October 31, 2006 issued by the Company pursuant to
the Debenture Agreement dated October 19, 1999, and any additional convertible
subordinated debentures issued in payment of interest thereon.
Non-Financial Letter of Credit means any Letter of Credit other than a
Financial Letter of Credit.
Note - see Section 3.1.
Operating Lease means any lease of (or other agreement conveying the
right to use) any real or personal property by the Company or any Subsidiary, as
lessee, other than any Capital Lease.
Original Agreement - see the Recitals.
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PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
Pension Plan means a "pension plan", as such term is defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer
Pension Plan), and to which the Company or any member of the Controlled Group
may have any liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any time
during the preceding five years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
Percentage means, with respect to any Bank, the percentage specified
opposite such Bank's name on Schedule 2.1 hereto, reduced (or increased) by any
subsequent assignment pursuant to Section 14.9.1 and any reallocation of
Percentages as a result of a non-pro-rata increase in the Commitment Amount
pursuant to Section 6.1.1.
Person means any natural person, corporation, partnership, trust,
limited liability company, association, governmental authority or unit, or any
other entity, whether acting in an individual, fiduciary or other capacity.
PIK Interest means any interest on Qualifying Subordinated Debt (as
defined below) which is paid by the issuance of additional Qualifying
Subordinated Debt and/or common stock of the Company. For purposes of the
foregoing, Qualifying Subordinated Debt means Subordinated Debt which has no
scheduled payments of principal or cash interest prior to the date which is 91
days after the scheduled Termination Date.
Pledge Agreement means a Restated Pledge Agreement substantially in the
form of Exhibit E.
Pledged Subordinated Debt means the $5,500,000 of 1999 Subordinated
Debt pledged to the Administrative Agent pursuant to the Individual Pledge
Agreement.
Prime Rate means, for any day, the rate of interest in effect for such
day as publicly announced from time to time by Bank of America in Charlotte as
its "prime rate." (The "prime rate" is a rate set by Bank of America based upon
various factors, including Bank of America's costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such announced
rate.) Any change in the prime rate announced by Bank of America shall take
effect at the opening of business on the day specified in the public
announcement of such change.
RCRA - see Section 9.15.
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Release has the meaning specified in CERCLA and the term "Disposal" (or
"Disposed") has the meaning specified in RCRA; provided that in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply as of the effective date of such
amendment; and provided, further, that to the extent that the laws of a state
wherein any affected property lies establish a meaning for "Release" or
"Disposal" which is broader than is specified in either CERCLA or RCRA, such
broader meaning shall apply.
Release Date means the first date on which (a) the Equity Offering has
been completed; (b) as of the last day of the most recent Fiscal Quarter, (i)
the ratio of Funded Debt as of such day to EBITDA for the Computation Period
ending on such day was equal to or less than 4.25 to 1.0, (ii) the Senior
Leverage Ratio was equal to or less than 3.25 to 1.0, (iii) the Interest
Coverage Ratio was equal to or greater than 2.75 to 1.0 and (iv) the ratio of
Funded Debt to the sum of Funded Debt plus Consolidated Net Worth was not
greater than 55.0%; and (c) no Event of Default or Unmatured Event of Default
exists.
Required Banks means Banks having Percentages aggregating 66-2/3% or
more; provided that at any time there are less than three Banks, "Required
Banks" shall mean all Banks.
SEC means the Securities and Exchange Commission.
Security Agreement means an Amended and Restated Security Agreement
substantially in the form of Exhibit D.
Senior Leverage Ratio means, for any Computation Period, the ratio of
(a) the remainder of (i) Funded Debt as of the last day of such Computation
Period minus Subordinated Debt as of such day to (b) EBITDA for such Computation
Period.
Stated Amount means, with respect to any Letter of Credit at any date
of determination, the maximum aggregate amount available for drawing thereunder
at any time during the then ensuing term of such Letter of Credit under any and
all circumstances, plus the aggregate amount of all unreimbursed payments and
disbursements under such Letter of Credit.
Subordinated Debt means (a) the 1999 Subordinated Debt, (b) the New
Subordinated Debt and (c) any other Debt of the Company which has maturities,
covenants, defaults and other terms, and which is subordinated to the
obligations of the Company and its Subsidiaries hereunder and under the other
Loan Documents in a manner, approved in writing by the Required Banks.
Subsidiary means, with respect to any Person, a corporation,
partnership, limited liability company or other entity of which such Person
and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares, partnership units or other equity interests as have more
than 50% of the ordinary voting power for the election of the members of the
board of directors or similar governing
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body of such entity. Unless the context otherwise requires, each reference to a
Subsidiary herein shall be a reference to a Subsidiary of the Company.
Subsidiary Guaranty means a Guaranty substantially in the form of
Exhibit C.
Suretyship Liability means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person's obligation in respect of any Suretyship Liability shall (subject to any
limitation set forth therein) be deemed to be the principal amount of the debt,
obligation or other liability supported thereby.
Termination Date means the earlier to occur of (a) February 15, 2003 or
(b) such other date on which the Commitments shall terminate pursuant to Section
6 or 12.
Total Outstandings means at any time the sum of (a) the aggregate
principal amount of all outstanding Loans plus (b) the Stated Amount of all
Letters of Credit.
Type of Loan or Borrowing - see Section 2.2.1. The types of Loans or
borrowings under this Agreement are as follows: Floating Rate Loans or
borrowings and Eurodollar Loans or borrowings.
Unmatured Event of Default means any event that, if it continues
uncured, will, with lapse of time or notice or both, constitute an Event of
Default.
Welfare Plan means a "welfare plan", as such term is defined in Section
3(1) of ERISA.
1.2 Other Interpretive Provisions. (a) The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) Section, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(c) (i) The term "including" is not limiting and means "including
without limitation."
(ii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding", and the word
"through" means "to and including."
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(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting such statute
or regulation.
(e) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Administrative
Agent, the Company, the Banks and the other parties thereto and are the products
of all parties. Accordingly, they shall not be construed against the
Administrative Agent or the Banks merely because of the Administrative Agent's
or Banks' involvement in their preparation.
2 COMMITMENTS OF THE BANKS; BORROWING, CONVERSION AND LETTER OF CREDIT
PROCEDURES.
2.1 Commitments. On and subject to the terms and conditions of
this Agreement, each of the Banks, severally and for itself alone, agrees to
make loans to, and to issue or participate in the issuance of letters of credit
for the account of, the Company as follows:
2.1.1 Loans. Each Bank will make loans on a revolving basis
("Loans") from time to time before the Termination Date in such Bank's
Percentage of such aggregate amounts as the Company may from time to time
request from all Banks; provided that the Total Outstandings will not at any
time exceed the Commitment Amount.
2.1.2 L/C Commitment. (a) The Issuing Banks will issue standby
letters of credit, in each case containing such terms and conditions as are
permitted by this Agreement and are reasonably satisfactory to the applicable
Issuing Bank and the Company (each, a "Letter of Credit"), at the request of and
for the account of the Company or any Subsidiary from time to time before the
Termination Date and (b) as more fully set forth in Section 2.3.5, each Bank
agrees to purchase a participation in each such Letter of Credit; provided that
the aggregate Stated Amount of all Letters of Credit shall not at any time
exceed the lesser of (i) $5,000,000 and (ii) the excess, if any, of the
Commitment Amount over the aggregate principal amount of all outstanding Loans.
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2.2 Loan Procedures.
2.2.1 Various Types of Loans. Each Loan shall be either a Floating
Rate Loan or a Eurodollar Loan (each a "type" of Loan), as the Company shall
specify in the related notice of borrowing or conversion pursuant to Section
2.2.2 or 2.2.3. Eurodollar Loans having the same Interest Period are sometimes
called a "Group" or collectively "Groups". Floating Rate Loans and Eurodollar
Loans may be outstanding at the same time, provided that (i) not more than eight
different Groups of Eurodollar Loans shall be outstanding at any one time, (ii)
the aggregate principal amount of each Group of Eurodollar Loans shall at all
times be at least $500,000 and an integral multiple of $100,000 and (iii) during
the 90 days immediately following the Effective Date, the Company may not select
any Interest Period for any Group of Eurodollar Loans which would end after the
date specified by the Administrative Agent in writing on the Effective Date as
the date on which the Administrative Agent plans to complete the primary
syndication of the credit facility established hereunder. All borrowings,
conversions and repayments of Loans shall be effected so that each Bank will
have a pro rata share (according to its Percentage) of all types and Groups of
Loans.
2.2.2 Borrowing Procedures. The Company shall give written notice or
telephonic notice (followed promptly by written confirmation thereof) to the
Administrative Agent of each proposed borrowing not later than (a) in the case
of a Floating Rate borrowing, 11:00 A.M., Chicago time, on the proposed date of
such borrowing, and (b) in the case of a Eurodollar borrowing, 9:00 A.M.,
Chicago time, at least two Business Days prior to the proposed date of such
borrowing. Each such notice shall be effective upon receipt by the
Administrative Agent, shall be irrevocable, and shall specify the date, amount
and type of borrowing and, in the case of a Eurodollar borrowing, the initial
Interest Period therefor. Promptly upon receipt of such notice, the
Administrative Agent shall advise each Bank thereof. Not later than 1:00 p.m.,
Chicago time, on the date of a proposed borrowing, each Bank shall provide the
Administrative Agent at the office specified by the Administrative Agent with
immediately available funds covering such Bank's Percentage of such borrowing
and, so long as the Administrative Agent has not received written notice that
the conditions precedent set forth in Section 11 with respect to such borrowing
have not been satisfied, the Administrative Agent shall pay over the requested
amount to the Company on the requested borrowing date. Each borrowing shall be
on a Business Day. Each borrowing shall be in an aggregate amount of at least
$500,000 and an integral multiple of $100,000.
2.2.3 Conversion and Continuation Procedures. (a) Subject to the
provisions of Section 2.2.1, the Company may, upon irrevocable written notice to
the Administrative Agent in accordance with clause (b) below:
(i) elect, as of any Business Day, to convert any
outstanding Loan into a Loan of a different type; or
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(ii) elect, as of the last day of the applicable
Interest Period, to continue any Group of Eurodollar Loans
having an Interest Period expiring on such day (or any part
thereof in an aggregate amount not less than $500,000 or a
higher integral multiple of $100,000) for a new Interest
Period.
(b) The Company shall give written or telephonic (followed
promptly by written confirmation thereof) notice to the Administrative
Agent of each proposed conversion or continuation not later than (i) in
the case of conversion into Floating Rate Loans, 10:00 a.m., Chicago
time, on the proposed date of such conversion; and (ii) in the case of
a conversion into or continuation of Eurodollar Loans, 10:00 a.m.,
Chicago time, at least three Business Days prior to the proposed date
of such conversion or continuation, specifying in each case:
(1) the proposed date of conversion or continuation;
(2) the aggregate amount of Loans to be converted or
continued;
(3) the type of Loans resulting from the proposed
conversion or continuation; and
(4) in the case of conversion into, or continuation
of, Eurodollar Loans, the duration of the requested Interest
Period therefor.
(c) If upon expiration of any Interest Period applicable to
Eurodollar Loans, the Company has failed to select timely a new
Interest Period to be applicable to such Eurodollar Loans, the Company
shall be deemed to have elected to convert such Eurodollar Loans into
Floating Rate Loans effective on the last day of such Interest Period.
(d) The Administrative Agent will promptly notify each Bank of
its receipt of a notice of conversion or continuation pursuant to this
Section 2.4 or, if no timely notice is provided by the Company, of the
details of any automatic conversion.
(e) Unless the Required Banks otherwise consent, during the
existence of any Event of Default or Unmatured Event of Default, the
Company may not elect to have a Floating Rate Loan converted into or
continued as a Eurodollar Loan.
2.3 Letter of Credit Procedures.
2.3.1 L/C Applications. The Company shall give notice to the
Administrative Agent and the applicable Issuing Bank of the proposed issuance of
each Letter of Credit on a Business Day which is at least three Business Days
(or such lesser number of days as the Administrative Agent and such Issuing Bank
shall agree in any particular instance) prior to the proposed date of issuance
of such Letter
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of Credit. Each such notice shall be accompanied by an L/C application, duly
executed by the Company (together with any Subsidiary for the account of which
the related Letter of Credit is to be issued) and in all respects satisfactory
to the Administrative Agent and the applicable Issuing Bank, together with such
other documentation as the Administrative Agent or such Issuing Bank may
reasonably request in support thereof, it being understood that each L/C
Application shall specify, among other things, the date on which the proposed
Letter of Credit is to be issued, the expiration date of such Letter of Credit
(which shall not be later than the Termination Date) and whether such Letter of
Credit is to be transferable in whole or in part. So long as the applicable
Issuing Bank has not received written notice that the conditions precedent set
forth in Section 11 with respect to the issuance of such Letter of Credit have
not been satisfied, such Issuing Bank shall issue such Letter of Credit on the
requested issuance date. Each Issuing Bank shall promptly advise the
Administrative Agent of the issuance of each Letter of Credit by such Issuing
Bank and of any amendment thereto, extension thereof or event or circumstance
changing the amount available for drawing thereunder.
2.3.2 Participations in Letters of Credit. Concurrently with the
issuance of each Letter of Credit, the applicable Issuing Bank shall be deemed
to have sold and transferred to each other Bank, and each other Bank shall be
deemed irrevocably and unconditionally to have purchased and received from such
Issuing Bank, without recourse or warranty, an undivided interest and
participation, to the extent of such other Bank's Percentage, in such Letter of
Credit and the Company's reimbursement obligations with respect thereto. For the
purposes of this Agreement, the unparticipated portion of each Letter of Credit
shall be deemed to be the applicable Issuing Bank's "participation" therein.
Each Issuing Bank hereby agrees, upon request of the Administrative Agent or any
Bank, to deliver to such Bank a list of all outstanding Letters of Credit issued
by such Issuing Bank, together with such information related thereto as such
Bank may reasonably request.
2.3.3 Reimbursement Obligations. The Company hereby unconditionally
and irrevocably agrees to reimburse the applicable Issuing Bank for each payment
or disbursement made by such Issuing Bank under any Letter of Credit honoring
any demand for payment made by the beneficiary thereunder, in each case on the
date that such payment or disbursement is made. Any amount not reimbursed on the
date of such payment or disbursement shall bear interest from the date of such
payment or disbursement to the date that such Issuing Bank is reimbursed by the
Company therefor, payable on demand, at a rate per annum equal to the Base Rate
from time to time in effect plus the Floating Rate Margin from time to time in
effect plus, beginning on the third Business Day after receipt of notice from
the Issuing Bank of such payment or disbursement, 2%. The applicable Issuing
Bank shall notify the Company and the Administrative Agent whenever any demand
for payment is made under any Letter of Credit by the beneficiary thereunder;
provided, however, that the failure of such Issuing Bank to so notify the
Company shall not affect the rights of such Issuing Bank or the Banks in any
manner whatsoever.
2.3.4 Limitation on Obligations of Issuing Banks. In determining
whether to pay under any Letter of Credit, no Issuing Bank shall have any
obligation to the Company or any Bank other than to
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confirm that any documents required to be delivered under such Letter of Credit
appear to have been delivered and appear to comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken
by an Issuing Bank under or in connection with any Letter of Credit, if taken or
omitted in the absence of gross negligence and willful misconduct, shall not
impose upon such Issuing Bank any liability to the Company or any Bank and shall
not reduce or impair the Company's reimbursement obligations set forth in
Section 2.3.3 or the obligations of the Banks pursuant to Section 2.3.5.
2.3.5 Funding by Banks to Issuing Banks. If an Issuing Bank makes
any payment or disbursement under any Letter of Credit and the Company has not
reimbursed such Issuing Bank in full for such payment or disbursement by 11:00
A.M., Chicago time, on the date of such payment or disbursement, or if any
reimbursement received by such Issuing Bank from the Company is or must be
returned or rescinded upon or during any bankruptcy or reorganization of the
Company or otherwise, each other Bank shall be obligated to pay to the
Administrative Agent for the account of such Issuing Bank, in full or partial
payment of the purchase price of its participation in such Letter of Credit, its
pro rata share (according to its Percentage) of such payment or disbursement
(but no such payment shall diminish the obligations of the Company under Section
2.3.3), and upon notice from the applicable Issuing Bank, the Administrative
Agent shall promptly notify each other Bank thereof. Each other Bank irrevocably
and unconditionally agrees to so pay to the Administrative Agent in immediately
available funds for the applicable Issuing Bank's account the amount of such
other Bank's Percentage of such payment or disbursement. If and to the extent
any Bank shall not have made such amount available to the Administrative Agent
by 2:00 P.M., Chicago time, on the Business Day on which such Bank receives
notice from the Administrative Agent of such payment or disbursement (it being
understood that any such notice received after noon, Chicago time, on any
Business Day shall be deemed to have been received on the next following
Business Day), such Bank agrees to pay interest on such amount to the
Administrative Agent for the applicable Issuing Bank's account forthwith on
demand for each day from the date such amount was to have been delivered to the
Administrative Agent to the date such amount is paid, at a rate per annum equal
to (a) for the first three days after demand, the Federal Funds Rate from time
to time in effect and (b) thereafter, the Base Rate from time to time in effect.
Any Bank's failure to make available to the Administrative Agent its Percentage
of any such payment or disbursement shall not relieve any other Bank of its
obligation hereunder to make available to the Administrative Agent such other
Bank's Percentage of such payment, but no Bank shall be responsible for the
failure of any other Bank to make available to the Administrative Agent such
other Bank's Percentage of any such payment or disbursement.
2.4 Commitments Several. The failure of any Bank to make a
requested Loan on any date shall not relieve any other Bank of its obligation
(if any) to make a Loan on such date, but no Bank shall be responsible for the
failure of any other Bank to make any Loan to be made by such other Bank.
2.5 Certain Conditions. Notwithstanding any other provision of
this Agreement, no Bank shall have an obligation to make any Loan, or to permit
the continuation of or any conversion into any
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Eurodollar Loan, and no Issuing Bank shall have any obligation to issue any
Letter of Credit, if an Event of Default or Unmatured Event of Default exists.
SECTION 3 NOTES EVIDENCING LOANS.
3.1 Notes. The Loans of each Bank shall be evidenced by a
promissory note (each a "Note") payable to the order of such Bank substantially
in the form set forth in Exhibit A.
3.2 Recordkeeping. Each Bank shall record in its records, or at
its option on the schedule attached to its Note, the date and amount of each
Loan made by such Bank, each repayment or conversion thereof and, in the case of
each Eurodollar Loan, the dates on which each Interest Period for such Loan
shall begin and end. The aggregate unpaid principal amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on such
Note. The failure to so record any such amount or any error in so recording any
such amount shall not, however, limit or otherwise affect the obligations of the
Company hereunder or under any Note to repay the principal amount of the Loans
evidenced by such Note together with all interest accruing thereon.
SECTION 4 INTEREST.
4.1 Interest Rates. The Company promises to pay interest on the
unpaid principal amount of each Loan for the period commencing on the date of
such Loan until such Loan is paid in full as follows:
(a) at all times while such Loan is a Floating Rate Loan,
at a rate per annum equal to the sum of the Base Rate from time to time
in effect plus the Floating Rate Margin from time to time in effect;
and
(b) at all times while such Loan is a Eurodollar Loan, at
a rate per annum equal to the sum of the Eurodollar Rate (Reserve
Adjusted) applicable to each Interest Period for such Loan plus the
Eurodollar Margin from time to time in effect;
provided, however, that upon request of the Required Lenders at any time an
Event of Default exists, the interest rate applicable to each Loan shall be
increased by 2%.
4.2 Interest Payment Dates. Accrued interest on each Floating Rate
Loan shall be payable in arrears on the last Business Day of each calendar month
and at maturity. Accrued interest on each Eurodollar Loan shall be payable on
the last day of each Interest Period relating to such Loan (and, in the case of
a Eurodollar Loan with a six-month Interest Period, on the three-month
anniversary of the first day of such Interest Period) and at maturity. After
maturity, accrued interest on all Loans shall be payable on demand.
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4.3 Setting and Notice of Eurodollar Rates. The applicable
Eurodollar Rate for each Interest Period shall be determined by the
Administrative Agent, and notice thereof shall be given by the Administrative
Agent promptly to the Company and each Bank. Each determination of the
applicable Eurodollar Rate by the Administrative Agent shall be conclusive and
binding upon the parties hereto, in the absence of demonstrable error. The
Administrative Agent shall, upon written request of the Company or any Bank,
deliver to the Company or such Bank a statement showing the computations used
by the Administrative Agent in determining any applicable Eurodollar Rate
hereunder.
4.4 Computation of Interest. All determinations of interest for
Floating Rate Loans when the Base Rate is determined by the Prime Rate shall be
made on the basis of a year of 365 or 366 days, as the case may be, and the
actual number of days elapsed. All other computations of interest shall be
computed for the actual number of days elapsed on the basis of a year of 360
days. The applicable interest rate for each Floating Rate Loan shall change
simultaneously with each change in the Base Rate.
SECTION 5 FEES.
5.1 Non-Use Fee. The Company agrees to pay to the Administrative
Agent for the account of each Bank a non-use fee, for the period from the
Effective Date to the Termination Date, at 0.5% of the daily average of the
unused amount of such Bank's Percentage of the Commitment Amount. For purposes
of calculating usage under this Section, the Commitment Amount shall be deemed
used to the extent of the aggregate principal amount of all outstanding Loans
plus the Stated Amount of all Letters of Credit. Such non-use fee shall be
payable in arrears on the last Business Day of each calendar quarter and on the
Termination Date for any period then ending for which such non-use fee shall
not have theretofore been paid. The non-use fee shall be computed for the
actual number of days elapsed on the basis of a year of 360 days.
5.2 Letter of Credit Fees. (a) The Company agrees to pay to the
Administrative Agent for the account of the Banks pro rata according to their
respective Percentages a letter of credit fee for each Letter of Credit in an
amount equal to the rate per annum in effect from time to time pursuant to
Schedule 1.1 of the undrawn amount of such Letter of Credit (computed for the
actual number of days elapsed on the basis of a year of 360 days); provided
that the rate applicable to each Letter of Credit shall be increased by 2% at
any time that an Event of Default exists. Such letter of credit fee shall be
payable in arrears on the last Business Day of each calendar quarter and on the
Termination Date for the period from the date of the issuance of each Letter of
Credit to the date such payment is due or, if earlier, the date on which such
Letter of Credit expired or was terminated.
(b) The Company agrees to pay each Issuing Bank a fronting fee
for each Letter of Credit issued by such Issuing Bank in the amount separately
agreed to between the Company and such Issuing Bank.
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(c) In addition, with respect to each Letter of Credit, the
Company agrees to pay to the applicable Issuing Bank, for its own account, such
fees and expenses as such Issuing Bank customarily requires in connection with
the issuance, negotiation, processing and/or administration of letters of
credit in similar situations.
5.3 Administrative Agent's and Arranger's Fees. The Company
agrees to pay to the Administrative Agent and the Arranger such administrative
agent's fees and arranger's fees, respectively, as are mutually agreed to from
time to time by the Company, the Administrative Agent and the Arranger.
SECTION 6 CHANGES IN THE COMMITMENT AMOUNT; PREPAYMENTS.
6.1 Changes in the Commitment Amount.
6.1.1 Optional Increase in the Commitment Amount. The Company may,
from time to time after the Equity Offering and a "Successful Syndication" (as
defined in the letter agreement dated February 11, 2000 between the Company and
the Administrative Agent) have been completed, by means of a letter to the
Administrative Agent substantially in the form of Exhibit I, request that the
Commitment Amount be increased by (a) increasing the Commitment of one or more
Banks which have agreed to such increase and/or (b) adding one or more
commercial banks or other Persons as a party hereto with a Commitment in an
amount agreed to by any such commercial bank or other Person; provided that (i)
no commercial bank or other Person shall be added as a party hereto without the
written consent of the Administrative Agent (which shall not be unreasonably
withheld) and (ii) in no event shall the Commitment Amount exceed $80,000,000
without the written consent of all Banks. Any increase in the Commitment Amount
pursuant to this Section 6.1.1 shall be effective three Business Days after the
date on which the Administrative Agent has received and accepted the applicable
increase letter in the form of Annex 1 to Exhibit I (in the case of an increase
in the Commitment of an existing Bank) or assumption letter in the form of
Annex 2 to Exhibit I (in the case of the addition of a commercial bank or other
Person as a new Bank). The Administrative Agent shall promptly notify the
Company and the Banks of any increase in the Commitment Amount pursuant to this
Section 6.1.1 and of the Commitment and Percentage of each Bank after giving
effect thereto. The Company acknowledges that, in order to maintain Loans in
accordance with each Bank's Percentage, a reallocation of the Commitments as a
result of a non-pro-rata increase in the Commitment Amount may require
prepayment of all or portions of certain Loans on the date of such increase
(and any such prepayment shall be subject to the provisions of Section 8.4).
6.1.2 Voluntary Reductions of the Commitment Amount. The Company
may from time to time on at least five Business Days' prior written notice
received by the Agent (which shall promptly advise each Bank thereof)
permanently reduce the Commitment Amount to an amount not less than the Total
Outstandings. Any such reduction shall be in an amount not less than $5,000,000
or a higher integral multiple of $1,000,000. The Company may at any time on
like notice terminate the
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Commitments upon payment in full of all Loans and all other obligations of the
Company hereunder and cash collateralization in full, pursuant to documentation
in form and substance reasonably satisfactory to the Administrative Agent, of
all obligations arising with respect to Letters of Credit. All reductions of
the Commitment Amount shall reduce the amounts of the Commitments of the Banks
pro rata according to their respective Percentages.
6.2 Prepayments. The Company may from time to time prepay the
Loans in whole or in part, provided that the Company shall give the
Administrative Agent (which shall promptly advise each Bank) notice thereof not
later than 10:00 A.M., Chicago time, on the day of such prepayment (which shall
be a Business Day), specifying the Loans to be prepaid and the date and amount
of prepayment. Each partial prepayment shall be in a principal amount of
$100,000 or a higher integral multiple thereof. All prepayments shall be
applied to prepay the Loans of the Banks pro rata according to their respective
Percentages. Any prepayment of a Eurodollar Loan on a day other than the last
day of an Interest Period therefor shall include interest on the principal
amount being repaid and shall be subject to Section 8.4.
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.
7.1 Making of Payments. All payments of principal of or interest
on the Notes, and of all fees, shall be made by the Company to the
Administrative Agent in immediately available funds at the office specified by
the Administrative Agent not later than noon, Chicago time, on the date due;
and funds received after that hour shall be deemed to have been received by the
Administrative Agent on the next following Business Day. The Administrative
Agent shall promptly remit to each Bank its share of all such payments received
in collected funds by the Administrative Agent for the account of such Bank.
All payments under Section 8.1 shall be made by the Company directly to
the Bank entitled thereto.
7.2 Application of Certain Payments. Each payment of principal
shall be applied to such Loans as the Company shall direct by notice to be
received by the Administrative Agent on or before the date of such payment or,
in the absence of such notice, as the Administrative Agent shall determine in
its discretion. Concurrently with each remittance to any Bank of its share of
any such payment, the Administrative Agent shall advise such Bank as to the
application of such payment.
7.3 Due Date Extension. If any payment of principal or interest
with respect to any of the Notes, or of any fees, falls due on a day which is
not a Business Day, then such due date shall be extended to the immediately
following Business Day (unless, in the case of a Eurodollar Loan, such
immediately following Business Day is the first Business Day of a calendar
month, in which case such date shall be the immediately preceding Business Day)
and, in the case of principal, additional interest shall accrue and be payable
for the period of any such extension.
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7.4 Setoff. The Company agrees that the Administrative Agent and
each Bank have all rights of set-off and bankers' lien provided by applicable
law, and in addition thereto, the Company agrees that at any time any Event of
Default exists, the Administrative Agent and each Bank may apply to the payment
of any obligations of the Company hereunder, whether or not then due, any and
all balances, credits, deposits, accounts or moneys of the Company then or
thereafter with the Administrative Agent or such Bank.
7.5 Proration of Payments. If any Bank shall obtain any payment
or other recovery (whether voluntary, involuntary, by application of offset or
otherwise, but excluding any payment pursuant to Section 8.7 or 14.9) on
account of principal of or interest on any Note (or on account of its
participation in any Letter of Credit) in excess of its pro rata share of
payments and other recoveries obtained by all Banks on account of principal of
and interest on Notes (or such participation) then held by them, such Bank
shall purchase from the other Banks such participation in the Notes (or sub-
participation in Letters of Credit) held by them as shall be necessary to cause
such purchasing Bank to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing Bank,
the purchase shall be rescinded and the purchase price restored to the extent
of such recovery.
7.6 Taxes. (a) All payments of principal of, and interest on, the
Loans and all other amounts payable hereunder shall be made free and clear of
and without deduction for any present or future income, excise, stamp or
franchise taxes and other taxes, fees, duties, withholdings or other charges of
any nature whatsoever imposed by any taxing authority, but excluding franchise
taxes and taxes imposed on or measured by any Bank's net income or receipts
(all non-excluded items being called "Taxes"). If any withholding or deduction
from any payment to be made by the Company hereunder is required in respect of
any Taxes pursuant to any applicable law, rule or regulation, then the Company
will:
(i) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
(ii) promptly forward to the Administrative Agent an
official receipt or other documentation satisfactory to the
Administrative Agent evidencing such payment to such authority; and
(iii) (except to the extent such withholding or deduction
would not be required if such Bank's Exemption Representation were
true) pay to the Administrative Agent for the account of the Banks
such additional amount or amounts as is necessary to ensure that the
net amount actually received by each Bank will equal the full amount
such Bank would have received had no such withholding or deduction
been required.
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Moreover, if any Taxes are directly asserted against the Administrative Agent
or any Bank with respect to any payment received by the Administrative Agent or
such Bank hereunder, the Administrative Agent or such Bank may pay such Taxes
and the Company will (except to the extent such Taxes are payable by a Bank and
would not have been payable if such Bank's Exemption Representation were true)
promptly pay such additional amounts (including any penalty, interest and
expense) as is necessary in order that the net amount received by such Person
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount such Person would have received had such Taxes not been
asserted.
(b) If the Company fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent, for
the account of the respective Banks, the required receipts or other required
documentary evidence, the Company shall indemnify the Banks for any incremental
Taxes, interest or penalties that may become payable by any Bank as a result of
any such failure. For purposes of this Section 7.6, a distribution hereunder by
the Administrative Agent or any Bank to or for the account of any Bank shall be
deemed a payment by the Company.
(c) Each Bank represents and warrants (such Bank's "Exemption
Representation") to the Company and the Administrative Agent that, as of the
date of this Agreement (or, in the case of an Assignee, the date it becomes a
party hereto), it is entitled to receive payments hereunder without any
deduction or withholding for or on account of any Taxes imposed by the United
States of America or any political subdivision or taxing authority thereof.
(d) Upon the request from time to time of the Company or the
Administrative Agent, each Bank that is organized under the laws of a
jurisdiction other than the United States of America shall execute and deliver
to the Company and the Administrative Agent one or more (as the Company or the
Administrative Agent may reasonably request) United States Internal Revenue
Service Forms 4224 or Forms 1001 or such other forms or documents,
appropriately completed, as may be applicable to establish the extent, if any,
to which a payment to such Bank is exempt from withholding or deduction of
Taxes.
(e) If, and to the extent that, any Bank shall obtain a credit,
relief or remission for, or repayment of, any Taxes indemnified or paid by the
Company pursuant to this Section 7.6, such Bank agrees to promptly notify the
Company thereof and thereupon enter into negotiations in good faith with the
Company to determine the basis on which an equitable reimbursement of such
Taxes can be made to the Company.
8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS.
8.1 Increased Costs. (a) If, after the date hereof, the adoption
of any applicable law, rule or regulation, or any change therein, or any change
in the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
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administration thereof, or compliance by any Bank (or any Eurodollar Office of
such Bank) with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency
(A) shall subject any Bank (or any Eurodollar Office of
such Bank) to any tax, duty or other charge with respect to its
Eurodollar Loans, its Note or its obligation to make Eurodollar Loans,
or shall change the basis of taxation of payments to any Bank of the
principal of or interest on its Eurodollar Loans or any other amounts
due under this Agreement in respect of its Eurodollar Loans or its
obligation to make Eurodollar Loans (except for changes in the rate of
tax on the overall net income of such Bank or its Eurodollar Office
imposed by the jurisdiction in which such Bank's principal executive
office or Eurodollar Office is located); or
(B) shall impose, modify or deem applicable any reserve
(including any reserve imposed by the Board of Governors of the
Federal Reserve System, but excluding any reserve included in the
determination of interest rates pursuant to Section 4), special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by any Bank (or any Eurodollar
Office of such Bank); or
(C) shall impose on any Bank (or its Eurodollar Office)
any other condition affecting its Eurodollar Loans, its Note or its
obligation to make Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D of the Board of Governors of the Federal Reserve System,
to impose a cost on) such Bank (or any Eurodollar Office of such Bank) of
making or maintaining any Eurodollar Loan, or to reduce the amount of any sum
received or receivable by such Bank (or its Eurodollar Office) under this
Agreement or under its Note with respect thereto, then within 10 days after
demand by such Bank (which demand shall be accompanied by a statement setting
forth the basis for such demand and a calculation of the amount thereof in
reasonable detail, a copy of which shall be furnished to the Administrative
Agent), the Company shall pay directly to such Bank such additional amount as
will compensate such Bank for such increased cost or such reduction.
(b) If any Bank shall reasonably determine that the adoption or
phase-in of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Bank or any Person controlling such Bank with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Bank's or such controlling Person's capital
as a consequence of such Bank's obligations hereunder or under any Letter of
Credit to a level below that which such Bank or such controlling Person could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's or such controlling Person's policies with respect to
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capital adequacy) by an amount deemed by such Bank or such controlling Person
to be material, then from time to time, within 10 days after demand by such
Bank (which demand shall be accompanied by a statement setting forth the basis
for such demand and a calculation of the amount thereof in reasonable detail, a
copy of which shall be furnished to the Administrative Agent), the Company
shall pay to such Bank such additional amount or amounts as will compensate
such Bank or such controlling Person for such reduction.
(c) Notwithstanding the foregoing provisions of this Section 8.1,
(i) if any Bank fails to notify the Company of any event or circumstance which
will entitle the Bank to compensation pursuant to this Section 8.1 within 120
days after such Bank obtains knowledge of such event or circumstance, then such
Bank shall not be entitled to compensation from the Company for any amount
arising prior to the date which is 120 days before the date on which such Bank
notifies the Company of such event or circumstance; and (ii) no Bank shall not
make a claim for compensation under this Section 8.1 unless such Bank is then
making a claim against a substantial portion of the other borrowers from such
Bank which have language in the applicable borrowing agreement similar to that
found in the foregoing provisions of this Section 8.1.
8.2 Basis for Determining Interest Rate Inadequate or Unfair. If
with respect to any Interest Period:
(a) deposits in Dollars (in the applicable amounts) are
not being offered to the Administrative Agent in the interbank
eurodollar market for such Interest Period, or the Administrative
Agent otherwise reasonably determines (which determination, if made in
good faith, shall be binding and conclusive on the Company) that by
reason of circumstances affecting the interbank eurodollar market
adequate and reasonable means do not exist for ascertaining the
applicable Eurodollar Rate; or
(b) Banks having an aggregate Percentage of 40% or more
advise the Administrative Agent that the Eurodollar Rate (Reserve
Adjusted) as determined by the Administrative Agent will not
adequately and fairly reflect the cost to such Banks of maintaining or
funding such Eurodollar Loans for such Interest Period (taking into
account any amount to which such Banks may be entitled under Section
8.1) or that the making or funding of Eurodollar Loans has become
impracticable as a result of an event occurring after the date of this
Agreement which in the opinion of such Banks materially affects such
Loans;
then the Administrative Agent shall promptly notify the other parties thereof
and, so long as such circumstances shall continue, (i) no Bank shall be under
any obligation to make or convert into Eurodollar Loans and (ii) on the last
day of the current Interest Period for each Eurodollar Loan, such Loan shall,
unless then repaid in full, automatically convert to a Floating Rate Loan.
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8.3 Changes in Law Rendering Eurodollar Loans Unlawful. In the
event that any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it (or in the good faith judgment of any
Bank cause a substantial question as to whether it is) unlawful for any Bank to
make, maintain or fund Eurodollar Loans, then such Bank shall promptly notify
each of the other parties hereto and, so long as such circumstances shall
continue, (a) such Bank shall have no obligation to make or convert into
Eurodollar Loans (but shall make Floating Rate Loans concurrently with the
making of or conversion into Eurodollar Loans by the Banks which are not so
affected, in each case in an amount equal to such Bank's pro rata share of all
Eurodollar Loans which would be made or converted into at such time in the
absence of such circumstances) and (b) on the last day of the current Interest
Period for each Eurodollar Loan of such Bank (or, in any event, on such earlier
date as may be required by the relevant law, regulation or interpretation),
such Eurodollar Loan shall, unless then repaid in full, automatically convert
to a Floating Rate Loan. Each Floating Rate Loan made by a Bank which, but for
the circumstances described in the foregoing sentence, would be a Eurodollar
Loan (an "Affected Loan") shall remain outstanding for the same period as the
Group of Eurodollar Loans of which such Affected Loan would be a part absent
such circumstances.
8.4 Funding Losses. The Company hereby agrees that upon demand by
any Bank (which demand shall be accompanied by a statement setting forth the
basis for the amount being claimed, a copy of which shall be furnished to the
Administrative Agent), the Company will indemnify such Bank against any net
loss or expense which such Bank may sustain or incur (including any net loss or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Bank to fund or maintain any Eurodollar Loan), as
reasonably determined by such Bank, as a result of (a) any payment, prepayment
or conversion of any Eurodollar Loan of such Bank on a date other than the last
day of an Interest Period for such Loan (including any conversion pursuant to
Section 8.3) or (b) any failure of the Company to borrow or convert any Loan on
a date specified therefor in a notice of borrowing or conversion pursuant to
this Agreement. For this purpose, all notices to the Administrative Agent
pursuant to this Agreement shall be deemed to be irrevocable.
8.5 Right of Banks to Fund through Other Offices. Each Bank may,
if it so elects, fulfill its commitment as to any Eurodollar Loan by causing a
foreign branch or affiliate of such Bank to make such Loan, provided that in
such event for the purposes of this Agreement such Loan shall be deemed to have
been made by such Bank and the obligation of the Company to repay such Loan
shall nevertheless be to such Bank and shall be deemed held by it, to the
extent of such Loan, for the account of such branch or affiliate.
8.6 Discretion of Banks as to Manner of Funding. Notwithstanding
any provision of this Agreement to the contrary, each Bank shall be entitled to
fund and maintain its funding of all or any part of its Loans in any manner it
sees fit, it being understood, however, that for the purposes of this Agreement
all determinations hereunder shall be made as if such Bank had actually funded
and
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maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
8.7 Mitigation of Circumstances; Replacement of Affected Bank.
(a) Each Bank shall promptly notify the Company and the Administrative Agent of
any event of which it has knowledge which will result in, and will use
reasonable commercial efforts available to it (and not, in such Bank's good
faith judgment, otherwise disadvantageous to such Bank) to mitigate or avoid,
(i) any obligation by the Company to pay any amount pursuant to Section 7.6 or
8.1 or (ii) the occurrence of any circumstances of the nature described in
Section 8.2 or 8.3 (and, if any Bank has given notice of any such event
described in clause (i) or (ii) above and thereafter such event ceases to
exist, such Bank shall promptly so notify the Company and the Administrative
Agent). Without limiting the foregoing, each Bank will designate a different
funding office if such designation will avoid (or reduce the cost to the
Company of) any event described in clause (i) or (ii) of the preceding sentence
and such designation will not, in such Bank's sole good faith judgment, be
otherwise disadvantageous to such Bank.
(b) At any time any Bank is an Affected Bank, the Company may
replace such Affected Bank as a party to this Agreement with one or more other
bank(s) or financial institution(s) reasonably satisfactory to the
Administrative Agent (and upon notice from the Company such Affected Bank shall
assign pursuant to an Assignment Agreement, and without recourse or warranty,
its Commitment, its Loans, its Note, its participation in Letters of Credit,
and all of its other rights and obligations hereunder to such replacement
bank(s) or other financial institution(s) for a purchase price equal to the sum
of the principal amount of the Loans so assigned, all accrued and unpaid
interest thereon, its ratable share of all accrued and unpaid fees, any amounts
payable under Section 8.4 as a result of such Bank receiving payment of any
Eurodollar Loan prior to the end of an Interest Period therefor and all other
obligations owed to such Affected Bank hereunder).
8.8 Conclusiveness of Statements; Survival of Provisions.
Determinations and statements of any Bank pursuant to Section 8.1, 8.2, 8.3 or
8.4 shall be conclusive absent demonstrable error. Banks may use reasonable
averaging and attribution methods in determining compensation under Sections
8.1 and 8.4, and the provisions of such Sections shall survive repayment of the
Loans, cancellation of the Notes, cancellation or expiration of the Letters of
Credit and any termination of this Agreement.
SECTION 9 WARRANTIES.
To induce the Administrative Agent and the Banks to enter into this
Agreement and to induce the Banks to make Loans and issue or purchase
participations in Letters of Credit hereunder, the Company warrants to the
Administrative Agent and the Banks that:
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9.1 Organization, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; each Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation; and the
Company and each Subsidiary is duly qualified to do business in each
jurisdiction where the nature of its business makes such qualification
necessary (except in those instances in which the failure to be qualified or in
good standing does not have a Material Adverse Effect) and has full power and
authority to own its property and conduct its business as presently conducted
by it.
9.2 Authorization; No Conflict. The execution and delivery by the
Company of this Agreement and each other Loan Document to which it is a party,
the borrowings hereunder, the execution and delivery by each Subsidiary of each
Loan Document to which it is a party and the performance by each of the Company
and each Subsidiary of its obligations under each Loan Document to which it is
a party are within the corporate powers of the Company and each Subsidiary,
have been duly authorized by all necessary corporate action on the part of the
Company and each Subsidiary (including any necessary shareholder action), have
received all necessary governmental approval (if any shall be required), and do
not and will not (a) violate any provision of law or any order, decree or
judgment of any court or other government agency which is binding on the
Company or any Subsidiary, (b) contravene or conflict with, or result in a
breach of, any provision of the Certificate of Incorporation, By-Laws or other
organizational documents of the Company or any Subsidiary or of any agreement,
indenture, instrument or other document which is binding on the Company or any
Subsidiary or (c) result in, or require, the creation or imposition of any Lien
on any property of the Company or any Subsidiary (other than Liens arising
under the Loan Documents).
9.3 Validity and Binding Nature. Each of this Agreement and each
other Loan Document to which the Company is a party is the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
affecting the enforceability of creditors' rights generally and to general
principles of equity; and each Loan Document to which any Subsidiary is a party
is, or upon the execution and delivery thereof by such Subsidiary will be, the
legal, valid and binding obligation of such Subsidiary, enforceable against
such Subsidiary in accordance with its terms, subject to bankruptcy, insolvency
and similar laws affecting the enforceability of creditors' rights generally
and to general principles of equity.
9.4 Financial Condition. The audited consolidated financial
statements of the Company and its Subsidiaries dated December 31, 1998 and the
unaudited consolidated financial statements of the Company and its Subsidiaries
dated September 30, 1999, copies of which have been furnished prior to the
Effective Date to each Bank which is a party hereto on the Effective Date:
(i) were prepared in accordance with GAAP consistently
applied throughout the periods covered thereby, except as otherwise
expressly noted therein; and
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(ii) fairly present in all material respects the
financial condition of the Company and its Subsidiaries as of the
dates thereof and the results of operations for the periods covered
thereby (subject, in the case of the unaudited financial statements,
to the absence of footnotes and to normal year-end adjustments).
9.5 No Material Adverse Change. Since December 31, 1998, there
has been no material adverse change in the financial condition, operations,
assets, business, properties or prospects of the Company and its Subsidiaries
taken as a whole.
9.6 Litigation and Contingent Liabilities. No litigation
(including derivative actions), arbitration proceeding, labor controversy or
governmental investigation or proceeding is pending or, to the Company's
knowledge, threatened against the Company or any Subsidiary which might
reasonably be expected to have a Material Adverse Effect, except as set forth
in Schedule 9.6. Other than any liability incident to such litigation or
proceedings, neither the Company nor any Subsidiary has any material contingent
liabilities not listed in such Schedule 9.6.
9.7 Ownership of Properties; Liens. Each of the Company and each
Subsidiary owns good and, in the case of real property, marketable title to all
of its properties and assets, real and personal, tangible and intangible, of
any nature whatsoever (including patents, trademarks, trade names, service
marks and copyrights), free and clear of all Liens, charges and material claims
(including material infringement claims with respect to patents, trademarks,
copyrights and the like) except as permitted pursuant to Section 10.8.
9.8 Subsidiaries. The Company has no Subsidiaries except those
listed in Schedule 9.8.
9.9 Pension and Welfare Plans. (a) During the
twelve-consecutive-month period prior to the date of the execution and delivery
of this Agreement or the making of any Loan hereunder, (i) no steps have been
taken to terminate any Pension Plan and (ii) no contribution failure has
occurred with respect to any Pension Plan sufficient to give rise to a lien
under Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which could result in the incurrence
by the Company of any material liability, fine or penalty. The Company has no
contingent liability with respect to any post-retirement benefit under a
Welfare Plan, other than liability for continuation coverage described in Part
6 of Subtitle B of Title I of ERISA.
(b) All contributions (if any) have been made to any
Multiemployer Pension Plan that are required to be made by the Company or any
other member of the Controlled Group under the terms of the plan or of any
collective bargaining agreement or by applicable law; neither the Company nor
any member of the Controlled Group has withdrawn or partially withdrawn from
any Multiemployer Pension Plan, incurred any withdrawal liability with respect
to any such plan, received notice of any claim or demand for withdrawal
liability or partial withdrawal liability from any such plan, and no condition
has occurred which, if continued, might result in a withdrawal or partial
withdrawal from any
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such plan; and neither the Company nor any member of the Controlled Group has
received any notice that any Multiemployer Pension Plan is in reorganization,
that increased contributions may be required to avoid a reduction in plan
benefits or the imposition of any excise tax, that any such plan is or has been
funded at a rate less than that required under Section 412 of the Code, that
any such plan is or may be terminated, or that any such plan is or may become
insolvent.
9.10 Investment Company Act. Neither the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940.
9.11 Public Utility Holding Company Act. Neither the Company nor
any Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding
Company Act of 1935.
9.12 Regulation U. The Company is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying Margin Stock.
9.13 Taxes. Each of the Company and each Subsidiary has filed all
tax returns and reports required by law to have been filed by it and has paid
all taxes and governmental charges thereby shown to be owing, except any such
taxes or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books.
9.14 Solvency, etc. On the Effective Date (or, in the case of any
Subsidiary which becomes a Guarantor after the Effective Date, on the date such
Person becomes a Guarantor), and immediately prior to and after giving effect
to the issuance of each Letter of Credit and each borrowing hereunder and the
use of the proceeds thereof, (a) each of the Company's and each Subsidiary's
assets will exceed its liabilities and (b) each of the Company and each
Subsidiary will be solvent, will be able to pay its debts as they mature, will
own property with fair saleable value greater than the amount required to pay
its debts and will have capital sufficient to carry on its business as then
constituted.
9.15 Environmental Matters.
(a) No Violations. Except as set forth on Schedule 9.15, neither
the Company nor any Subsidiary, nor any operator of the Company's or any
Subsidiary's properties, is in violation, or alleged violation, of any
judgment, decree, order, law, permit, license, rule or regulation pertaining to
environmental matters, including those arising under the Resource Conservation
and Recovery Act ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 or any other Environmental Law which (i) in any
single case, requires expenditures in any three-year period of
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$500,000 or more by the Company and its Subsidiaries in penalties and/or for
investigative, removal or remedial actions or (ii) individually or in the
aggregate otherwise might reasonably be expected to have a Material Adverse
Effect.
(b) Notices. Except as set forth on Schedule 9.15, neither the
Company nor any Subsidiary has received notice from any third party, including
any Federal, state or local governmental authority: (a) that any one of them
has been identified by the U.S. Environmental Protection Agency as a
potentially responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B; (b) that any hazardous
waste, as defined by 42 U.S.C. ss.6903(5), any hazardous substance as defined
by 42 U.S.C. ss.9601(14), any pollutant or contaminant as defined by 42 U.S.C.
ss.9601(33) or any toxic substance, oil or hazardous material or other chemical
or substance regulated by any Environmental Law, excluding household hazardous
waste (all of the foregoing, "Hazardous Substances"), which any one of them has
generated, transported or disposed of has been found at any site at which a
Federal, state or local agency or other third party has conducted a remedial
investigation, removal or other response action pursuant to any Environmental
Law; (c) that the Company or any Subsidiary must conduct a remedial
investigation, removal, response action or other activity pursuant to any
Environmental Law; or (d) of any Environmental Claim.
(c) Handling of Hazardous Substances. Except as set forth on
Schedule 9.15, (i) no portion of the real property or other assets of the
Company or any Subsidiary has been used for the handling, processing, storage
or disposal of Hazardous Substances except in accordance in all material
respects with applicable Environmental Laws; and no underground tank or other
underground storage receptacle for Hazardous Substances is located on such
properties; (ii) in the course of any activities conducted by the Company, any
Subsidiary or the operators of any real property of the Company or any
Subsidiary, no Hazardous Substances have been generated or are being used on
such properties except in accordance in all material respects with applicable
Environmental Laws; (iii) there have been no Releases or threatened Releases of
Hazardous Substances on, upon, into or from any real property or other assets
of the Company or any Subsidiary, which Releases singly or in the aggregate
might reasonably be expected to have a material adverse effect on the value of
such real property or assets; (iv) to the Company's actual knowledge, there
have been no Releases on, upon, from or into any real property in the vicinity
of the real property or other assets of the Company or any Subsidiary which,
through soil or groundwater contamination, may have come to be located on, and
which might reasonably be expected to have a material adverse effect on the
value of, the real property or other assets of the Company or any Subsidiary;
and (v) any Hazardous Substances generated by the Company and its Subsidiaries
have been transported offsite only by properly licensed carriers and delivered
only to treatment or disposal facilities maintaining valid permits as required
under applicable Environmental Laws, which transporters and facilities have
been and are, to the best of the Company's knowledge, operating in compliance
with such permits and applicable Environmental Laws.
(d) Investigations. Except as set forth on Schedule 9.15, the
Company and its Subsidiaries have taken reasonable steps to investigate the
past and present condition and usage of the real property
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of the Company and its Subsidiaries and the operations conducted by the Company
and its Subsidiaries with regard to environmental matters.
9.16 Information. All information heretofore or contemporaneously
herewith furnished in writing by the Company or any Subsidiary to any Bank for
purposes of or in connection with this Agreement and the transactions
contemplated hereby is, and all written information hereafter furnished by or
on behalf of the Company or any Subsidiary to any Bank pursuant hereto or in
connection herewith will be, true and accurate in every material respect on the
date as of which such information is dated or certified, and none of such
information is or will be incomplete by omitting to state any material fact
necessary to make such information not misleading in light of the circumstances
under which made (it being recognized by the Administrative Agent and the Banks
that (a) any projections and forecasts provided by the Company are based on
good faith estimates and assumptions believed by the Company to be reasonable
as of the date of the applicable projections or assumptions and that actual
results during the period or periods covered by any such projections and
forecasts will likely differ from projected or forecasted results and (b) any
information provided by the Company or any Subsidiary with respect to any
Person or assets acquired or to be acquired by the Company or any Subsidiary
shall, for all periods prior to the date of such acquisition, be limited to the
knowledge of the Company or the acquiring Subsidiary after reasonable inquiry).
SECTION 10 COVENANTS.
Until the expiration or termination of the Commitments and thereafter
until all obligations of the Company hereunder and under the other Loan
Documents are paid in full and all Letters of Credit have been terminated, the
Company agrees that, unless at any time the Required Banks shall otherwise
expressly consent in writing, it will:
10.1 Reports, Certificates and Other Information. Furnish to the
Administrative Agent (with sufficient copies to provide one to each Bank):
10.1.1 Audit Report. Promptly when available and in any event within
90 days after the close of each Fiscal Year: (a) a copy of the annual audit
report of the Company and its Subsidiaries for such Fiscal Year, including
therein consolidated balance sheets of the Company and its Subsidiaries as of
the end of such Fiscal Year and consolidated statements of earnings and cash
flow of the Company and its Subsidiaries for such Fiscal Year certified without
qualification by Arthur Andersen or other independent auditors of recognized
standing selected by the Company and reasonably acceptable to the Required
Banks, together with a written statement from such accountants to the effect
that in making the examination necessary for the signing of such annual audit
report by such accountants, they have not become aware of any Event of Default
or Unmatured Event of Default that has occurred and is continuing or, if they
have become aware of any such event, describing it in reasonable detail and (b)
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such Fiscal Year and consolidating statements of earnings for the Company
and its Subsidiaries for such Fiscal Year, certified
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by the chief financial officer, chief accounting officer, controller, treasurer
or Vice President, Finance of the Company.
10.1.2 Quarterly Reports. Promptly when available and in any event
within 45 days after the end of each Fiscal Quarter (except the last Fiscal
Quarter) of each Fiscal Year, consolidated and consolidating balance sheets of
the Company and its Subsidiaries as of the end of such Fiscal Quarter, together
with consolidated and consolidating statements of earnings and consolidated
statements of cash flow for such Fiscal Quarter and for the period beginning
with the first day of such Fiscal Year and ending on the last day of such
Fiscal Quarter, certified by the chief financial officer, chief accounting
officer, controller, treasurer or Vice President, Finance of the Company.
10.1.3 Monthly Reports. Promptly when available and in any event
within 30 days after the end of each of the first two months of each Fiscal
Quarter, consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such month, together with consolidated and
consolidating statements of earnings for such month and for the period
beginning with the first day of the Fiscal Year and ending on the last day of
such month, certified by the chief financial officer, chief accounting officer,
controller, treasurer or Vice President, Finance of the Company.
10.1.4 Compliance Certificates. Contemporaneously with the
furnishing of a copy of each annual audit report pursuant to Section 10.1.1 and
of each set of quarterly statements pursuant to Section 10.1.2, (a) a duly
completed compliance certificate in the form of Exhibit B, with appropriate
insertions, dated the date of such annual report or such quarterly statements
and signed by the chief financial officer, chief accounting officer,
controller, treasurer or Vice President, Finance of the Company, containing a
computation of each of the financial ratios and restrictions set forth in
Section 10.6 and to the effect that such officer has not become aware of any
Event of Default or Unmatured Event of Default that has occurred and is
continuing or, if there is any such event, describing it and the steps, if any,
being taken to cure it; and (b) an updated organizational chart listing all
Subsidiaries and the locations of their businesses.
10.1.5 Reports to SEC and to Shareholders. Promptly upon the filing
or sending thereof, copies of all regular, periodic or special reports of the
Company or any Subsidiary filed with the SEC (excluding exhibits thereto,
provided that the Company shall promptly deliver any such exhibit to the
Administrative Agent or any Bank upon request therefor); copies of all
registration statements of the Company or any Subsidiary filed with the SEC
(other than on Form S-8); and copies of all proxy statements or other
communications made to shareholders generally concerning material developments
in the business of the Company or any Subsidiary.
10.1.6 Notice of Default, Litigation and ERISA Matters. Promptly
upon becoming aware of any of the following, written notice describing the same
and the steps being taken by the Company or the Subsidiary affected thereby
with respect thereto:
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<PAGE> 41
(a) the occurrence of an Event of Default or an
Unmatured Event of Default;
(b) any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by the Company to
the Banks which has been instituted or, to the knowledge of the
Company, is threatened against the Company or any Subsidiary or to
which any of the properties of any thereof is subject which, if
adversely determined, might reasonably be expected to have a Material
Adverse Effect;
(c) the institution of any steps by any member of the
Controlled Group or any other Person to terminate any Pension Plan, or
the failure of any member of the Controlled Group to make a required
contribution to any Pension Plan (if such failure is sufficient to
give rise to a lien under Section 302(f) of ERISA) or to any
Multiemployer Pension Plan, or the taking of any action with respect
to a Pension Plan which could result in the requirement that the
Company furnish a bond or other security to the PBGC or such Pension
Plan, or the occurrence of any event with respect to any Pension Plan
or Multiemployer Pension Plan which could result in the incurrence by
any member of the Controlled Group of any material liability, fine or
penalty (including any claim or demand for withdrawal liability or
partial withdrawal from any Multiemployer Pension Plan), or any
material increase in the contingent liability of the Company with
respect to any post-retirement Welfare Plan benefit, or any notice
that any Multiemployer Pension Plan is in reorganization, that
increased contributions may be required to avoid a reduction in plan
benefits or the imposition of an excise tax, that any such plan is or
has been funded at a rate less than that required under Section 412 of
the Code, that any such plan is or may be terminated, or that any such
plan is or may become insolvent;
(d) any cancellation (without replacement) or material
change in any insurance maintained by the Company or any Subsidiary;
(e) any event (including any violation of any
Environmental Law or the assertion of any Environmental Claim) which
might reasonably be expected to have a Material Adverse Effect; or
(f) any setoff, claims (including any Environmental
Claim), withholding or other defense to which any of the collateral
granted under any Collateral Document, or the Banks' rights with
respect to any such collateral, are subject.
10.1.7 Subsidiaries. Promptly upon any change in the list of its
Subsidiaries from that set forth on Schedule 9.8 (or in the most recent notice
pursuant to this Section), notification of such change.
10.1.8 Management Reports. Promptly upon the request of the
Administrative Agent or any Bank (acting through the Administrative Agent),
copies of all detailed financial and management reports
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<PAGE> 42
submitted to the Company by independent auditors in connection with each annual
or interim audit made by such auditors of the books of the Company.
10.1.9 Projections. As soon as practicable and in any event within
60 days after the commencement of each Fiscal Year, financial projections for
the Company and its Subsidiaries for such Fiscal Year prepared in a manner
consistent with those projections delivered by the Company to the
Administrative Agent prior to the Effective Date.
10.1.10 Environmental Reports. As soon as practicable and in any
event within 30 days following the acquisition of International Petroleum
Corporation and its Subsidiaries (collectively, "IPC"), all environmental
reports and related information prepared with respect to the real property or
other assets of IPC.
10.1.11 Other Information. From time to time such other information
concerning the Company and its Subsidiaries as the Administrative Agent or any
Bank (acting through the Administrative Agent) may reasonably request.
10.2 Books, Records and Inspections. Keep, and cause each
Subsidiary to keep, its books and records in accordance with sound business
practices sufficient to allow the preparation of financial statements in
accordance with GAAP; permit, and cause each Subsidiary to permit, any Bank or
the Administrative Agent or any representative thereof upon reasonable prior
notice to inspect the properties and operations of the Company and of such
Subsidiary; and permit, and cause each Subsidiary to permit, at any reasonable
time and with reasonable notice (or at any time without notice if an Event of
Default exists), any Bank or the Administrative Agent or any representative
thereof to visit any or all of its offices, to discuss its financial matters
with its officers and its independent auditors (and the Company hereby
authorizes such independent auditors to discuss such financial matters with any
Bank or the Administrative Agent or any representative thereof whether or not
any representative of the Company or any Subsidiary is present), and to examine
(and, at the expense of the Company or the applicable Subsidiary, photocopy
extracts from) any of its books or other corporate records.
10.3 Insurance. Maintain, and cause each Subsidiary to maintain,
with responsible insurance companies, such insurance as may be required by any
law or governmental regulation or court decree or order applicable to it and
such other insurance, to such extent and against such hazards and liabilities,
as is customarily maintained by companies similarly situated; and, upon request
of the Administrative Agent (or any Bank acting through the Administrative
Agent), furnish to the Administrative Agent or such Bank a certificate setting
forth in reasonable detail the nature and extent of all insurance maintained by
the Company and its Subsidiaries.
10.4 Compliance with Laws; Payment of Taxes and Liabilities. (a)
Comply, and cause each Subsidiary to comply, in all material respects with all
applicable laws (including Environmental Laws), rules, regulations, decrees,
orders, judgments, licenses and permits; and (b) pay, and cause each
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<PAGE> 43
Subsidiary to pay, prior to delinquency, all taxes and other governmental
charges against it or any of its property, as well as claims of any kind which,
if unpaid, might become a Lien on any of its property; provided that the
foregoing shall not require the Company or any Subsidiary to pay any such tax
or charge so long as it shall contest the validity thereof in good faith by
appropriate proceedings and shall set aside on its books adequate reserves with
respect thereto in accordance with GAAP.
10.5 Maintenance of Existence, etc. Maintain and preserve, and
(subject to Section 10.11) cause each Subsidiary to maintain and preserve, (a)
its existence and good standing in the jurisdiction of its incorporation and
(b) its qualification and good standing as a foreign corporation in each
jurisdiction where the nature of its business makes such qualification
necessary (except in those instances in which the failure to be qualified or in
good standing does not have a Material Adverse Effect).
10.6 Financial Covenants.
10.6.1 Minimum Consolidated Net Worth. Not permit Consolidated Net
Worth at any time to be less than the sum of (a) $31,250,000 plus (b) 75% of
the sum of Consolidated Net Income for each Fiscal Quarter, beginning with the
Fiscal Quarter ending December 31, 1999 and ending with the most recently-ended
Fiscal Quarter for which the Company has delivered financial statements
(provided that, if Consolidated Net Income is less than zero for any Fiscal
Quarter, for purposes of this Section 10.6.1 Consolidated Net Income will be
deemed to be zero for such quarter) plus (c) 75% of the Net Cash Proceeds of
any equity issued by the Company or any of its Subsidiaries (on a consolidated
basis) after the Effective Date.
10.6.2 Minimum Interest Coverage. Not permit the Interest Coverage
Ratio for any Computation Period to be less than the applicable ratio set forth
below:
<TABLE>
<CAPTION>
COMPUTATION INTEREST
PERIOD ENDING: COVERAGE RATIO
-------------- --------------
<S> <C>
12/31/99 to Covenant Change Date 2.50 to 1.0
Covenant Change Date through 12/31/00 2.75 to 1.0
Thereafter 3.00 to 1.0.
</TABLE>
10.6.3 Leverage Ratio. Not permit the Leverage Ratio as of the last
day of any Computation Period to exceed the applicable ratio set forth below:
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<PAGE> 44
<TABLE>
<CAPTION>
COMPUTATION LEVERAGE
PERIOD ENDING: RATIO
-------------- ---------
<S> <C>
12/31/99 to Covenant Change Date 4.50 to 1.0
Covenant Change Date through 12/31/00 4.25 to 1.0
Thereafter 4.00 to 1.0.
</TABLE>
10.6.4 Senior Leverage Ratio. Not permit the Senior Leverage Ratio
as of the last day of any Computation Period to exceed the applicable ratio set
forth below:
<TABLE>
<CAPTION>
COMPUTATION SENIOR
PERIOD ENDING: LEVERAGE RATIO
-------------- --------------
<S> <C>
12/31/99 to Covenant Change Date 3.70 to 1.0
Covenant Change Date through 12/31/00 3.25 to 1.0
Thereafter 3.00 to 1.0.
</TABLE>
10.6.5 Debt to Capitalization Ratio. Not permit the ratio of (a)
Adjusted Funded Debt to (b) the sum of Funded Debt plus Consolidated Net Worth
at any time to exceed the applicable percentage set forth below during any
period set forth below:
<TABLE>
<CAPTION>
DEBT TO
CAPITALIZATION
PERIOD: PERCENTAGE
------- --------------
<S> <C>
12/31/99 to Covenant Change Date 60%
Covenant Change Date through 12/31/00 55%
Thereafter 50%.
</TABLE>
10.6.6 Capital Expenditures. The Company will not permit the
aggregate amount of all Capital Expenditures (excluding amounts, if any, paid
to consummate acquisitions permitted by Section 10.11(c) which constitute
Capital Expenditures) made by the Company and its Subsidiaries in any Fiscal
Year to exceed the product of 1.5 multiplied by the depreciation and
amortization of the Company and its Subsidiaries during the prior Fiscal Year
(calculated on a pro forma basis giving effect to acquisitions and sales and
other dispositions made subsequent to such prior Fiscal Year).
10.7 Limitations on Debt. Not, and not permit any Subsidiary to,
create, incur, assume or suffer to exist any Debt, except:
(a) obligations in respect of the Loans, the L/C Applications and
the Letters of Credit;
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(b) unsecured Debt of the Company which represents all or part of
the purchase price payable in connection with a transaction permitted
by Section 10.11(c); provided that the aggregate principal amount of
all such unsecured Debt shall not at any time exceed $5,000,000;
(c) Debt secured by Liens permitted by subsection 10.8(c) or (d),
and refinancings of any such Debt so long as the terms applicable to
such refinanced Debt are no less favorable to the Company or the
applicable Subsidiary than the terms in effect immediately prior to
such refinancing, provided that the aggregate amount of all such Debt
at any time outstanding shall not exceed $2,000,000;
(d) Debt arising under Capital Leases in an aggregate amount not
at any time exceeding $1,000,000;
(e) Debt of Subsidiaries owed to the Company;
(f) unsecured Debt of the Company to Subsidiaries;
(g) Subordinated Debt; and
(h) Debt arising under Hedging Agreements entered into in the
ordinary course of business as bona fide hedging transactions
(including any Hedging Agreement entered into pursuant to
Section 10.21) and not for speculative purposes.
10.8 Liens. Not, and not permit any Subsidiary to, create or
permit to exist any Lien on any of its real or personal properties, assets or
rights of whatsoever nature (whether now owned or hereafter acquired), except:
(a) Liens for taxes or other governmental charges not at the time
delinquent or thereafter payable without penalty or being contested in
good faith by appropriate proceedings and, in each case, for which it
maintains adequate reserves;
(b) Liens arising in the ordinary course of business (such as (i)
Liens of carriers, warehousemen, mechanics and materialmen and other
similar Liens imposed by law and (ii) Liens incurred in connection
with worker's compensation, unemployment compensation and other types
of social security (excluding Liens arising under ERISA) or in
connection with surety bonds, bids, performance bonds and similar
obligations) for sums not overdue or being contested in good faith by
appropriate proceedings and not involving any deposits or advances or
borrowed money or the deferred purchase price of property or services,
and, in each case, for which it maintains adequate reserves;
(c) Liens identified in Schedule 10.8;
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<PAGE> 46
(d) subject to the limitation set forth in Section 10.7(c),(i)
Liens existing on property at the time of the acquisition thereof by
the Company or any Subsidiary (and not created in contemplation of
such acquisition) and (ii) Liens that constitute purchase money
security interests on any property securing debt incurred for the
purpose of financing all or any part of the cost of acquiring such
property, provided that any such Lien attaches to such property within
60 days of the acquisition thereof and such Lien attaches solely to
the property so acquired;
(e) attachments, appeal bonds, judgments and other similar Liens,
for sums not exceeding $250,000 arising in connection with court
proceedings, provided the execution or other enforcement of such Liens
is effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings;
(f) easements, rights of way, restrictions, minor defects or
irregularities in title and other similar Liens not interfering in any
material respect with the ordinary conduct of the business of the
Company or any Subsidiary; and
(g) Liens in favor of the Administrative Agent pursuant to the
Loan Documents.
10.9 Operating Leases. Not permit the aggregate amount of all
rental payments made (or scheduled to be made) under Operating Leases by the
Company and its Subsidiaries (on a consolidated basis) in any Fiscal Year to
exceed $1,000,000.
10.10 Restricted Payments. Not, and not permit any Subsidiary to,
(a) declare or pay any dividends on any of its capital stock (other than stock
dividends), (b) purchase or redeem any such stock or any warrants, units,
options or other rights in respect of such stock, (c) make any other
distribution to shareholders (d) prepay, purchase, redeem or defease any
Subordinated Debt, (e) make any payment on or in respect of any Subordinated
Debt (other than scheduled payments of interest made in the form of additional
Subordinated Debt or common stock), or (f) set aside funds for any of the
foregoing; provided that (i) any Subsidiary may declare and pay dividends to
the Company or to any other wholly-owned Subsidiary, (ii) the Company may
convert 1999 Subordinated Debt and/or New Subordinated Debt into common stock
of the Company in accordance with the terms of such Subordinated Debt, and
(iii) so long as no Event of Default or Unmatured Event of Default exists and
the Release Date has occurred, the Company may prepay principal of and/or cash
interest on New Subordinated Debt with Net Cash Proceeds from any issuance of
equity.
10.11 Mergers, Consolidations, Sales. Not, and not permit any
Subsidiary to, be a party to any merger or consolidation, or purchase or
otherwise acquire all or substantially all of the assets or any stock of any
class of, or any partnership or joint venture interest in, any other Person, or
sell, transfer, convey or lease all or any substantial part of its assets, or
sell or assign with or without recourse any receivables, except for (a) any
such merger or consolidation, sale, transfer, conveyance, lease or
39
<PAGE> 47
assignment of or by any wholly-owned Subsidiary into the Company or into, with
or to any other wholly-owned Subsidiary; (b) any such purchase or other
acquisition by the Company or any wholly-owned Subsidiary of the assets or
stock of any wholly-owned Subsidiary; (c) any such purchase or other
acquisition by the Company or any wholly-owned Subsidiary of the assets or
stock of any other Person where (1) such assets (in the case of an asset
purchase) are for use, or such Person (in the case of a stock purchase) is
engaged in the processing, collection, handling and disposal of non-hazardous
liquid or solid waste or similar non-hazardous waste-related business
activities; (2) immediately before or after giving effect to such purchase or
acquisition, no Event of Default or Unmatured Event of Default shall have
occurred and be continuing; (3) either (i) (x) the aggregate consideration to
be paid by the Company and its Subsidiaries (including any Debt assumed or
issued in connection therewith, the amount thereof to be calculated in
accordance with GAAP) in connection with such purchase or other acquisition (or
any series of related acquisitions) is not greater than $10,000,000 and (y) the
aggregate consideration to be paid in cash or by the assumption or issuance of
Debt by the Company and its Subsidiaries in connection with such purchase or
acquisition (or any series of related acquisitions) is not greater than
$7,000,000 or (ii) the Required Banks have consented to such purchase or
acquisition; and (4) the Company is in pro forma compliance with all the
financial ratios and restrictions set forth in Section 10.6; and (d) sales and
dispositions of assets (including the stock of Subsidiaries) so long as the net
book value of all assets sold or otherwise disposed of in any Fiscal Year does
not exceed $750,000.
10.12 Use of Proceeds. Use the proceeds of the Loans solely for
working capital, for acquisitions permitted by Section 10.11, for capital
expenditures and for other general corporate purposes; and not use or permit
any proceeds of any Loan to be used, either directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of "purchasing or carrying"
any Margin Stock.
10.13 Further Assurances. Take, and cause each Subsidiary to take,
such actions as are necessary, or as the Administrative Agent (or the Required
Banks acting through the Administrative Agent) may reasonably request, from
time to time (including the execution and delivery of guaranties, security
agreements, pledge agreements, financing statements and other documents, the
filing or recording of any of the foregoing, and the delivery of stock
certificates and other collateral with respect to which perfection is obtained
by possession) to ensure that (i) the obligations of the Company hereunder and
under the other Loan Documents are secured by substantially all of the assets
(other than real property and, unless the Required Banks (acting through the
Administrative Agent) otherwise request in writing, any motor vehicle subject
to a statute requiring notation on a certificate of title to perfect a security
interest in such vehicle) of the Company and guaranteed by all Subsidiaries
(including, promptly upon the acquisition or creation thereof, any Subsidiary
acquired or created after the date hereof) by execution of a counterpart of the
Subsidiary Guaranty and (ii) the obligations of each Subsidiary under the
Subsidiary Guaranty are secured by substantially all of the assets (other than
real property and, unless the Required Banks (acting through the Administrative
Agent) otherwise request in writing, any motor vehicle subject to a statute
requiring notation on a certificate of title to perfect a security interest in
such vehicle) of such Subsidiary.
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<PAGE> 48
10.14 Transactions with Affiliates. Not, and not permit any
Subsidiary to, enter into, or cause, suffer or permit to exist any transaction,
arrangement or contract with any of its other Affiliates (other than the Company
and its Subsidiaries) which is on terms which are less favorable than are
obtainable from any Person which is not one of its Affiliates.
10.15 Employee Benefit Plans. Maintain, and cause each Subsidiary to
maintain, each Pension Plan in substantial compliance with all applicable
requirements of law and regulations.
10.16 Environmental Laws. Conduct, and cause each Subsidiary to
conduct, its operations and keep and maintain its property in material
compliance with all Environmental Laws (other than Immaterial Laws).
10.17 Unconditional Purchase Obligations. Not, and not permit any
Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services; provided that the
foregoing shall not prohibit the Company or any Subsidiary from entering into
options for the purchase of particular assets or businesses.
10.18 Inconsistent Agreements. Not, and not permit any Subsidiary
to, enter into any agreement containing any provision which (a) would be
violated or breached by any borrowing, or the obtaining of any Letter of Credit,
by the Company hereunder or by the performance by the Company or any Subsidiary
of any of its obligations hereunder or under any other Loan Document or (b)
would prohibit the Company or any Subsidiary from granting to the Administrative
Agent, for the benefit of the Banks, a Lien on any of its assets.
10.19 Business Activities. Not, and not permit any Subsidiary to,
engage in any line of business other than the processing, collection, handling
and disposal of non-hazardous liquid or solid waste or similar non-hazardous
waste-related business activities.
10.20 Advances and Other Investments. Not, and not permit any
Subsidiary to, make, incur, assume or suffer to exist any Investment in any
other Person, except (without duplication) the following:
(a) equity Investments existing on the Effective Date in wholly-owned
Subsidiaries identified in Schedule 9.8;
(b) equity Investments in Subsidiaries acquired after the Effective
Date in transactions permitted as acquisitions of stock or assets
pursuant to Section 10.11;
(c) in the ordinary course of business, contributions by the Company to
the capital of any of its Subsidiaries, or by any such Subsidiary to
the capital of any of its Subsidiaries;
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<PAGE> 49
(d) in the ordinary course of business, Investments by the Company in
any Subsidiary or by any of the Subsidiaries in the Company, by way of
intercompany loans, advances or guaranties, all to the extent permitted
by Section 10.7;
(e) Suretyship Liabilities permitted by Section 10.7;
(f) good faith deposits made in connection with prospective
acquisitions of stock or assets permitted by Section 10.11;
(g) loans to officers and employees not exceeding (i) $100,000 in the
aggregate to any single individual or (ii) $250,000 in the aggregate
for all such individuals;
(h) Cash Equivalent Investments;
(i) bank deposits in the ordinary course of business; provided that the
aggregate amount of all such deposits (excluding (x) amounts in payroll
accounts or for accounts payable, in each case to the extent that
checks have been issued to third parties, and (y) amounts maintained
(in the ordinary course of business consistent with past practice) in
accounts of any Person which is acquired by the Company or a Subsidiary
in accordance with the terms hereof during the 45 days following the
date of such acquisition) which are maintained with any bank other than
a Bank shall not at any time exceed (x) in the case of such deposits
with any single bank, $100,000 for three consecutive Business Days and
(y) in the case of all such deposits, $500,000 for three consecutive
Business Days;
(j) Investments in SeptiShield in an aggregate amount not exceeding
$1,000,000 (or, after the Release Date, $2,000,000) in any Fiscal Year;
and
(k) other investments in an aggregate amount not exceeding $3,000,000;
provided, however, that no Investment otherwise permitted by clause (b), (c),
(d), (e), (f), (g), (j) or (k) shall be permitted to be made if, immediately
before or after giving effect thereto, any Event of Default or Unmatured Event
of Default shall have occurred and be continuing and (ii) no investments shall
be made in SeptiShield other than those permitted by clause (j).
10.21 Interest Rate Protection. Within 90 days following the
Effective Date, enter into one or more Hedging Agreements with counterparties
reasonably satisfactory to the Administrative Agent effectively fixing or
capping the interest rates (at rates reasonably satisfactory to the
Administrative Agent) on not less than 50% of the Commitment Amount for a period
of not less than 18 months.
10.22 Amendments to Certain Agreements. Not amend or otherwise
modify any document or agreement evidencing, or governing the terms of, any
Subordinated Debt (including the Debenture
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<PAGE> 50
Agreement pursuant to which the 1999 Subordinated Debt was issued and the
Debenture Agreement pursuant to which the New Subordinated Debt was issued) in
any manner which is adverse to the Banks.
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.
11.1 Effectiveness. This Agreement shall become effective, and all
loans and letters of credit outstanding under the Original Agreement shall be
deemed to be Loans made and Letters of Credit issued hereunder, on the date (the
"Effective Date") on which (a) each of the conditions precedent specified in
Section 11.2 shall have been satisfied and (b) the Administrative Agent shall
have received (i) all amounts which are then due and payable pursuant to Section
5 and (to the extent billed) Section 14.6; (ii) evidence, reasonably
satisfactory to the Administrative Agent, that the Company has received not less
than $20,000,000 of cash proceeds from the issuance of New Subordinated Debt;
and (iii) all of the following, each duly executed and dated the Effective Date
(or such earlier date as shall be satisfactory to the Administrative Agent), in
form and substance satisfactory to the Administrative Agent, and each (except
for the Notes, of which only the originals shall be signed) in sufficient number
of signed counterparts to provide one for each Bank:
11.1.1 Notes. The Notes.
11.1.2 Resolutions. Certified copies of resolutions of the Board of
Directors of the Company authorizing or ratifying the execution, delivery and
performance by the Company of this Agreement, the Notes and the other Loan
Documents to which the Company is a party; and certified copies of resolutions
of the Board of Directors of each Subsidiary authorizing or ratifying the
execution, delivery and performance by such Subsidiary of each Loan Document to
which such Subsidiary is a party.
11.1.3 Consents, etc. Certified copies of all documents evidencing
any necessary corporate action, consents and governmental approvals (if any)
required for the execution, delivery and performance by the Company and each
Subsidiary of the documents referred to in this Section 11.
11.1.4 Incumbency and Signature Certificates. A certificate of the
Secretary or an Assistant Secretary of the Company and each Subsidiary
certifying the names of the officer or officers of such entity authorized to
sign the Loan Documents to which such entity is a party, together with a sample
of the true signature of each such officer (it being understood that the
Administrative Agent and each Bank may conclusively rely on each such
certificate until formally advised by a like certificate of any changes
therein).
11.1.5 Guaranties. The Subsidiary Guaranty executed by each
Subsidiary and the Individual Guaranty executed by Donald F. Moorehead, Jr. and
Raymond M. Cash.
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11.1.6 Security Agreement. The Security Agreement executed by the
Company and each Subsidiary, together with evidence, satisfactory to the
Administrative Agent, that all filings necessary to perfect the Administrative
Agent's Lien on all collateral granted under the Security Agreement have been
duly made and are in full force and effect.
11.1.7 Pledge Agreement. The Restated Pledge Agreement signed by the
Company and each Subsidiary that as of the Effective Date has one or more
Subsidiaries, together with all stock certificates, stock powers and other items
required to be delivered in connection therewith.
11.1.8 Individual Pledge Agreement. The Individual Pledge Agreement
executed by Donald F. Moorehead, Jr. and Raymond M. Cash, together with
debentures evidencing not less than $5,500,000 of the 1999 Subordinated Debt
endorsed to the Administrative Agent pursuant thereto.
11.1.9 Opinion of Counsel for the Company and the Guarantors. The
opinion of Snell & Smith, A Professional Corporation, counsel to the Company and
the Guarantors.
11.1.10 Closing Certificate. A certificate of the Chief Executive
Officer, the President or any Vice President of the Company to the effect that
(i) all representations and warranties of the Company and the Guarantors in this
Agreement and the other Loan Documents are true and correct in all material
respects on the Effective Date; and (ii) no Event of Default or Unmatured Event
of Default exists or will result from the transactions contemplated to occur on
the proposed Effective Date.
11.1.11 Other. Such other documents as the Administrative Agent or any
Bank may reasonably request.
11.2 Conditions. The obligation (a) of each Bank to make each Loan
and (b) of each Issuing Bank to issue each Letter of Credit is subject to the
following further conditions precedent that:
11.2.1 Compliance with Warranties, No Default, etc. Both before and
after giving effect to any borrowing and the issuance of any Letter of Credit
(but, if any Event of Default of the nature referred to in Section 12.1.2 shall
have occurred with respect to any other Debt, without giving effect to the
application, directly or indirectly, of the proceeds thereof) the following
statements shall be true and correct:
(a) the representations and warranties of the Company
and the Guarantors set forth in this Agreement (excluding Sections 9.6,
9.8, and 9.15) and the other Loan Documents shall be true and correct
in all material respects with the same effect as if then made (except
to the extent stated to relate to an earlier date, in which case such
representations and warranties shall be true and correct in all
material respects as of such earlier date);
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(b) except as disclosed by the Company to the
Administrative Agent and the Banks pursuant to Section 9.6,
(i) no litigation (including derivative actions),
arbitration proceeding, labor controversy or governmental
investigation or proceeding shall be pending or, to the
knowledge of the Company, threatened against the Company or
any of its Subsidiaries which might reasonably be expected to
have a Material Adverse Effect or which purports to affect the
legality, validity or enforceability of this Agreement, the
Notes or any other Loan Document; and
(ii) no development shall have occurred in any
litigation (including derivative actions), arbitration
proceeding, labor controversy or governmental investigation or
proceeding disclosed pursuant to Section 9.6 which might
reasonably be expected to have a Material Adverse Effect; and
(c) no Event of Default or Unmatured Event of Default
shall have then occurred and be continuing, and neither the Company nor
any of its Subsidiaries shall be in violation of any law or
governmental regulation or court order or decree where such violation
or violations singly or in the aggregate might reasonably be expected
to have a Material Adverse Effect.
11.2.2 Confirmatory Certificate. If requested by the Administrative
Agent or any Bank (acting through the Administrative Agent), the Administrative
Agent shall have received (in sufficient counterparts to provide one to each
Bank) a certificate dated the date of such requested Loan or Letter of Credit
and signed by a duly authorized representative of the Company as to the matters
set out in Section 11.2.1 (it being understood that each request by the Company
for the making of a Loan or the issuance of a Letter of Credit shall be deemed
to constitute a warranty by the Company that the conditions precedent set forth
in Section 11.2.1 will be satisfied at the time of the making of such Loan or
the issuance of such Letter of Credit), together with such other documents as
the Administrative Agent or any Bank (acting through the Administrative Agent)
may reasonably request in support thereof.
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.
12.1 Events of Default. Each of the following shall constitute an
Event of Default under this Agreement:
12.1.1 Non-Payment of the Loans, etc. Default in the payment when due
of the principal of any Loan; default and continuance thereof for five days
after notice from the Administrative Agent, in the payment when due of any
reimbursement obligation with respect to any Letter of Credit; or default, and
continuance thereof for five days, in the payment when due of any interest, fee
or other amount payable by the Company hereunder or under any other Loan
Document.
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12.1.2 Non-Payment of Other Debt. Any default shall occur under the
terms applicable to any Debt of the Company or any Subsidiary in an aggregate
amount (for all such Debt so affected) exceeding $100,000 and such default shall
(a) consist of the failure to pay such Debt when due (subject to any applicable
grace period), whether by acceleration or otherwise, or (b) accelerate the
maturity of such Debt or permit the holder or holders thereof, or any trustee or
agent for such holder or holders, to cause such Debt to become due and payable
prior to its expressed maturity.
12.1.3 Other Material Obligations. Default in the payment when due,
or in the performance or observance of, any material obligation of, or condition
agreed to by, the Company or any Subsidiary with respect to any material
purchase or lease of goods or services where such default, singly or in the
aggregate with other such defaults might reasonably be expected to have a
Material Adverse Effect (except only to the extent that the existence of any
such default is being contested by the Company or such Subsidiary in good faith
and by appropriate proceedings and appropriate reserves have been made in
respect of such default).
12.1.4 Bankruptcy, Insolvency, etc. The Company or any Subsidiary
becomes insolvent or generally fails to pay, or admits in writing its inability
or refusal to pay, debts as they become due; or the Company or any Subsidiary
applies for, consents to, or acquiesces in the appointment of a trustee,
receiver or other custodian for the Company or such Subsidiary or any property
thereof, or makes a general assignment for the benefit of creditors; or, in the
absence of such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for the Company or any Subsidiary or for a
substantial part of the property of any thereof and is not discharged within 60
days; or any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding (except the voluntary dissolution, not under any
bankruptcy or insolvency law, of a Subsidiary), is commenced in respect of the
Company or any Subsidiary, and if such case or proceeding is not commenced by
the Company or such Subsidiary, it is consented to or acquiesced in by the
Company or such Subsidiary, or remains for 60 days undismissed; or the Company
or any Subsidiary takes any corporate action to authorize, or in furtherance of,
any of the foregoing.
12.1.5 Non-Compliance with Provisions of This Agreement. (a) Failure
by the Company to comply with or to perform any covenant set forth in Sections
10.5 through 10.15; or (b) failure by the Company to comply with or to perform
any other provision of this Agreement (and not constituting an Event of Default
under any of the other provisions of this Section 12) and continuance of such
failure for 30 days after notice thereof to the Company from the Administrative
Agent or any Bank.
12.1.6 Warranties. Any warranty made by the Company herein is
breached or is false or misleading in any material respect, or any schedule,
certificate, financial statement, report, notice or other writing furnished by
the Company to the Administrative Agent or any Bank in connection herewith is
false or misleading in any material respect on the date as of which the facts
therein set forth are stated or certified.
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12.1.7 Pension Plans. (i) Institution of any steps by the Company or
any other Person to terminate a Pension Plan if as a result of such termination
the Company could be required to make a contribution to such Pension Plan, or
could incur a liability or obligation to such Pension Plan, in excess of
$250,000; (ii) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under section 302(f) of ERISA; or (iii) there
shall occur any withdrawal or partial withdrawal from a Multiemployer Pension
Plan and the withdrawal liability (without unaccrued interest) to Multiemployer
Pension Plans as a result of such withdrawal (including any outstanding
withdrawal liability that the Company and the Controlled Group have incurred on
the date of such withdrawal) exceeds $250,000.
12.1.8 Judgments. Final judgments which exceed an aggregate of
$250,000 shall be rendered against the Company, or any Subsidiary and shall not
have been paid, discharged or vacated or had execution thereof stayed pending
appeal within 30 days after entry or filing of such judgments.
12.1.9 Invalidity of Guaranty, etc. Either Guaranty shall cease to be
in full force and effect with respect to any Guarantor (other than (a) in the
case of an Individual Guarantor, as a result of the occurrence of the Release
Date, and (b) in the case of a Subsidiary, as a result of a transaction
permitted hereunder), any Guarantor shall fail (subject to any applicable grace
period) to comply with or to perform any applicable provision of the Guaranty to
which such Guarantor is a party, or any Guarantor (or any Person by, through or
on behalf of such Guarantor) shall contest in any manner the validity, binding
nature or enforceability of the Guaranty to which such Guarantor is a party.
12.1.10 Invalidity of Collateral Documents, etc. Any Collateral
Document shall cease to be in full force and effect with respect to the Company
or any applicable Guarantor, the Company or any Guarantor shall fail (subject to
any applicable grace period) to comply with or to perform any applicable
provision of any Collateral Document to which such Person is a party, or the
Company or any Guarantor (or any Person by, through or on behalf of the Company
or such Guarantor) shall contest in any manner the validity, binding nature or
enforceability of any Collateral Document.
12.1.11 Change in Control. (a) Any Person or group of Persons (within
the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, but
excluding the executive managers of the Company as of the Effective Date) shall
acquire beneficial ownership (within the meaning of Rule 13d-3 promulgated under
such Act) of 20% or more of the outstanding shares of common stock of the
Company; (b) during any 24-month period, individuals who at the beginning of
such period constituted the Company's Board of Directors (together with any new
directors whose election by the Company's Board of Directors or whose nomination
for election by the Company's shareholders was approved by a vote of at least
two-thirds of the directors who either were directors at beginning of such
period or whose election or nomination was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company; or (c)
a period of 60 consecutive days shall have elapsed during which any of the
individuals named in Schedule 12.1.11 shall have ceased to hold executive
offices with the Company at least equal in seniority to such individual's
present offices, as set out in such Schedule 12.1.11, excluding any such
individual who has been replaced by another
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individual or individuals reasonably satisfactory to the Required Banks (it
being understood that any such replacement individual shall be deemed added to
Schedule 12.1.11 on the date of approval thereof by the Required Banks).
12.2 Effect of Event of Default. If any Event of Default described
in Section 12.1.4 shall occur, the Commitments (if they have not theretofore
terminated) shall immediately terminate and the Notes and all other obligations
hereunder shall become immediately due and payable and the Company shall become
immediately obligated to deliver to the Administrative Agent cash collateral in
an amount equal to the outstanding face amount of all Letters of Credit, all
without presentment, demand, protest or notice of any kind; and, if any other
Event of Default shall occur and be continuing, the Administrative Agent (upon
written request of the Required Banks) shall declare the Commitments (if they
have not theretofore terminated) to be terminated and/or declare all Notes and
all other obligations hereunder to be due and payable and/or demand that the
Company immediately deliver to the Administrative Agent cash collateral in
amount equal to the outstanding face amount of all Letters of Credit, whereupon
the Commitments (if they have not theretofore terminated) shall immediately
terminate and/or all Notes and all other obligations hereunder shall become
immediately due and payable and/or the Company shall immediately become
obligated to deliver to the Administrative Agent cash collateral in an amount
equal to the face amount of all Letters of Credit, all without presentment,
demand, protest or notice of any kind. The Administrative Agent shall promptly
advise the Company of any such declaration, but failure to do so shall not
impair the effect of such declaration. Notwithstanding the foregoing, the effect
as an Event of Default of any event described in Section 12.1.1 or Section
12.1.4 may be waived by the written concurrence of all of the Banks, and the
effect as an Event of Default of any other event described in this Section 12
may be waived by the written concurrence of the Required Banks. Any cash
collateral delivered hereunder shall be held by the Administrative Agent
(without liability for interest thereon) and applied to obligations arising in
connection with any drawing under a Letter of Credit. After the expiration or
termination of all Letters of Credit, such cash collateral shall be applied by
the Administrative Agent to any remaining obligations hereunder and any excess
shall be delivered to the Company or as a court of competent jurisdiction may
elect.
SECTION 13 THE ADMINISTRATIVE AGENT.
13.1 Appointment and Authorization. (a) Each Bank hereby
irrevocably (subject to Section 13.9) appoints, designates and authorizes the
Administrative Agent to take such action on its behalf under the provisions of
this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Administrative Agent shall not have any duties or responsibilities except those
expressly set forth herein, nor shall the Administrative Agent have or be deemed
to have any fiduciary relationship with any Bank,
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and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
(b) Each Issuing Bank shall act on behalf of the Banks with
respect to any Letters of Credit issued by it and the documents associated
therewith. Each Issuing Bank shall have all of the benefits and immunities (i)
provided to the Administrative Agent in this Section 13 with respect to any acts
taken or omissions suffered by such Issuing Bank in connection with Letters of
Credit issued by it or proposed to be issued by it and the applications and
agreements for letters of credit pertaining to such Letters of Credit as fully
as if the term "Administrative Agent", as used in this Section 13, included such
Issuing Bank with respect to such acts or omissions and (ii) as additionally
provided in this Agreement with respect to the Issuing Banks.
13.2 Delegation of Duties. The Administrative Agent may execute any
of its duties under this Agreement or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
13.3 Liability of Administrative Agent. None of the Agent-Related
Persons shall (i) be liable for any action taken or omitted to be taken by any
of them under or in connection with this Agreement or any other Loan Document or
the transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or (ii) be responsible in any manner to any of the Banks
for any recital, statement, representation or warranty made by the Company or
any Subsidiary or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or any other
Loan Document, or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document, or for any failure of
the Company or any other party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent-Related Person shall be under any obligation
to any Bank to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books or records of the
Company or any of the Company's Subsidiaries or Affiliates.
13.4 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Company), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Banks as it
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deems appropriate and, if it so requests, confirmation from the Banks of their
obligation to indemnify the Administrative Agent against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Required
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
13.5 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Event of Default or
Unmatured Event of Default except with respect to defaults in the payment of
principal, interest and fees required to be paid to the Administrative Agent for
the account of the Banks, unless the Administrative Agent shall have received
written notice from a Bank or the Company referring to this Agreement,
describing such Event of Default or Unmatured Event of Default and stating that
such notice is a "notice of default". The Administrative Agent will notify the
Banks of its receipt of any such notice. The Administrative Agent shall take
such action with respect to such Event of Default or Unmatured Event of Default
as may be requested by the Required Banks in accordance with Section 12;
provided, however, that unless and until the Administrative Agent has received
any such request, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such Event
of Default or Unmatured Event of Default as it shall deem advisable or in the
best interest of the Banks.
13.6 Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Administrative Agent hereafter taken, including any review of the
affairs of the Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Bank. Each Bank
represents to the Administrative Agent that it has, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Company and its Subsidiaries, and
all applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Company hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Company. Except for notices, reports and other documents
expressly herein required to be furnished to the Banks by the Administrative
Agent, the Administrative Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial or other condition or
creditworthiness of the Company which may come into the possession of any of the
Agent-Related Persons.
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13.7 Indemnification. Whether or not the transactions contemplated
hereby are consummated, the Banks shall indemnify upon demand the Agent-Related
Persons (to the extent not reimbursed by or on behalf of the Company and without
limiting the obligation of the Company to do so), pro rata, from and against any
and all Indemnified Liabilities; provided, however, that no Bank shall be liable
for any payment to the Agent-Related Person of any portion of the Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Bank shall reimburse the
Administrative Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including reasonable fees of attorneys for the
Administrative Agent (including the allocable costs of internal legal services
and all disbursements of internal counsel)) incurred by the Administrative Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Administrative
Agent is not reimbursed for such expenses by or on behalf of the Company. The
undertaking in this Section shall survive repayment of the Loans, cancellation
of the Notes, cancellation or expiration of the Letters of Credit, any
foreclosure under, or any modification, release or discharge of, any or all of
the Collateral Documents, any termination of this Agreement and the resignation
or replacement of the Administrative Agent.
For the purposes of this Section 13.7, "Indemnified Liabilities" shall
mean: any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including
reasonable fees of attorneys for the Administrative Agent (including the
allocable costs of internal legal services and all disbursements of internal
counsel)) of any kind or nature whatsoever which may at any time (including at
any time following repayment of the Loans and the termination, resignation or
replacement of the Administrative Agent or the replacement of any Bank) be
imposed on, incurred by or asserted against any Agent-Related Person in any way
relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action taken
or omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
(a) any case, action or proceeding before any court or other governmental
authority relating to bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or (b) any general
assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of its creditors generally
or any substantial portion of its creditors; undertaken under U.S. Federal,
state or foreign law, including the Bankruptcy Code, and including any appellate
proceeding) related to or arising out of this Agreement or the Commitments or
the use of the proceeds thereof, whether or not any Agent-Related Person, any
Bank or any of their respective officers, directors, employees, counsel, agents
or attorneys-in-fact is a party thereto.
13.8 Administrative Agent in Individual Capacity. Bank of America
and its Affiliates may make loans to, issue letters of credit for the account
of, accept deposits from, acquire equity interests in and generally engage in
any kind of banking, trust, financial advisory, underwriting or other business
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with the Company and its Subsidiaries and Affiliates as though Bank of America
were not the Administrative Agent, the Issuing Bank hereunder and without notice
to or consent of the Banks. The Banks acknowledge that, pursuant to such
activities, Bank of America or its Affiliates may receive information regarding
the Company or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Company or such Subsidiary) and
acknowledge that the Administrative Agent shall be under no obligation to
provide such information to them. With respect to their Loans, Bank of America
and its Affiliates shall have the same rights and powers under this Agreement as
any other Bank and may exercise the same as though Bank of America were not the
Administrative Agent and the Issuing Bank, and the terms "Bank" and "Banks"
include Bank of America and its Affiliates, to the extent applicable, in their
individual capacities.
13.9 Successor Administrative Agent. The Administrative Agent may,
and at the request of the Required Banks shall, resign as Administrative Agent
upon 30 days' notice to the Banks. If the Administrative Agent resigns under
this Agreement, the Required Banks shall, with (so long as no Event of Default
exists) the consent of the Company (which shall not be unreasonably withheld or
delayed), appoint from among the Banks a successor administrative agent for the
Banks. If no successor administrative agent is appointed prior to the effective
date of the resignation of the Administrative Agent, the Administrative Agent
may appoint, after consulting with the Banks and the Company, a successor
administrative agent from among the Banks. Upon the acceptance of its
appointment as successor administrative agent hereunder, such successor
administrative agent shall succeed to all the rights, powers and duties of the
retiring Administrative Agent and the term "Administrative Agent" shall mean
such successor administrative agent, and the retiring Administrative Agent's
appointment, powers and duties as Administrative Agent shall be terminated.
After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Section 13 and Sections 14.6 and
14.13 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Administrative Agent under this Agreement. If no successor
administrative agent has accepted appointment as Administrative Agent by the
date which is 30 days following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective and the Banks shall perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Banks
appoint a successor administrative agent as provided for above. Notwithstanding
the foregoing, however, Bank of America may not be removed as the Administrative
Agent at the request of the Required Banks unless Bank of America shall also
simultaneously be replaced as an "Issuing Bank" hereunder pursuant to
documentation in form and substance reasonably satisfactory to Bank of America.
13.10 Withholding Tax.
(a) If any Bank is a "foreign corporation, partnership or
trust" within the meaning of the Code and such Bank claims exemption
from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees to deliver to the Administrative
Agent:
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(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax
treaty, properly completed Internal Revenue Service ("IRS")
Forms 1001 and W-8 before the payment of any interest in the
first calendar year and before the payment of any interest in
each third succeeding calendar year during which interest may
be paid under this Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States trade
or business of such Bank, two properly completed and executed
copies of IRS Form 4224 before the payment of any interest is
due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may
be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a
condition to exemption from, or reduction of, United States
withholding tax.
Such Bank agrees to promptly notify the Administrative Agent
of any change in circumstances which would modify or render invalid any
claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form
1001 and such Bank sells, assigns, grants a participation in, or
otherwise transfers all or part of the obligations of the Company to
such Bank, such Bank agrees to notify the Administrative Agent of the
percentage amount in which it is no longer the beneficial owner of such
obligations of the Company hereunder. To the extent of such percentage
amount, the Administrative Agent will treat such Bank's IRS Form 1001
as no longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Administrative Agent
sells, assigns, grants a participation in, or otherwise transfers all
or part of the obligations of the Company to such Bank hereunder, such
Bank agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the
Code.
(d) If any Bank is entitled to a reduction in the
applicable withholding tax, the Administrative Agent may withhold from
any interest payment to such Bank an amount equivalent to the
applicable withholding tax after taking into account such reduction. If
the forms or other documentation required by subsection (a) of this
Section are not delivered to the Administrative Agent, then the
Administrative Agent
53
<PAGE> 61
may withhold from any interest payment to such Bank not providing such
forms or other documentation an amount equivalent to the applicable
withholding tax.
(e) If the IRS or any other governmental authority of the
United States or any other jurisdiction asserts a claim that the
Administrative Agent did not properly withhold tax from amounts paid to
or for the account of any Bank (because the appropriate form was not
delivered or was not properly executed, or because such Bank failed to
notify the Administrative Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax
ineffective, or for any other reason) such Bank shall indemnify the
Administrative Agent fully for all amounts paid, directly or
indirectly, by the Administrative Agent as tax or otherwise, including
penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Administrative Agent under
this Section, together with all costs and expenses (including
reasonable fees of attorneys for the Administrative Agent (including
the allocable costs of internal legal services and all disbursements of
internal counsel)). The obligation of the Banks under this subsection
shall survive repayment of the Loans, cancellation of the Notes,
cancellation or expiration of the Letters of Credit, any termination of
this Agreement and the resignation or replacement of the Administrative
Agent.
13.11 Collateral Matters. The Banks irrevocably authorize the
Administrative Agent, at its option and in its discretion, (a) to release any
Lien on any property granted to or held by the Administrative Agent under any
Collateral Document (i) upon termination of the Commitments and payment in full
of all Loans and all other obligations of the Company hereunder and the
expiration or termination of all Letters of Credit; (ii) which is sold or to be
sold or disposed of as part of or in connection with any disposition permitted
hereunder; or (iii) subject to Section 14.1, if approved, authorized or ratified
in writing by the Required Banks; (b) to subordinate any Lien on any property
granted to or held by the Administrative Agent under any Collateral Document to
the holder of any Lien on such property which is permitted by subsection
10.8(d); and (c) to release any Subsidiary from its obligations under the
Subsidiary Guaranty if such entity ceases to be a Subsidiary as a result of a
transaction permitted hereunder. In addition, the Banks irrevocably authorize
the Administrative Agent, at any time on or after the Release Date, to release
Donald F. Moorehead, Jr. and Raymond M. Cash from any obligation under the
Individual Guaranty, under any Collateral Document executed pursuant thereto and
under the Individual Pledge Agreement (and to release all collateral granted
under or in connection with the foregoing). Upon request by the Administrative
Agent at any time, the Required Banks will confirm in writing the Administrative
Agent's authority to release or subordinate its interest in particular types or
items of property, or to release any Subsidiary from its obligations under the
Subsidiary Guaranty, pursuant to this Section 13.11.
13.12 Syndication Agent. No Bank identified on the cover page, the
first page or the signature pages of this Agreement or otherwise herein as being
the "Syndication Agent" shall have any
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<PAGE> 62
right, power, obligation, liability, responsibility or duty under this Agreement
other than those applicable to all Banks. Each Bank acknowledges that it has not
relied, and will not rely, on any Person so identified in deciding to enter into
this Agreement or in taking or refraining from taking any action hereunder or
pursuant hereto.
SECTION 14 GENERAL.
14.1 Waiver; Amendments. No delay on the part of the Administrative
Agent or any Bank in the exercise of any right, power or remedy shall operate as
a waiver thereof, nor shall any single or partial exercise by any of them of any
right, power or remedy preclude other or further exercise thereof, or the
exercise of any other right, power or remedy. No amendment, modification or
waiver of, or consent with respect to, any provision of this Agreement or the
Notes shall in any event be effective unless the same shall be in writing and
signed and delivered by Banks having an aggregate Percentage of not less than
the aggregate Percentage expressly designated herein with respect thereto or, in
the absence of such designation as to any provision of this Agreement or the
Notes, by the Required Banks, and then any such amendment, modification, waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given. No amendment, modification, waiver or consent shall
change the Percentage of any Bank without the consent of such Bank. No
amendment, modification, waiver or consent shall (i) extend or increase the
amount of the Commitments, (ii) extend the date for payment of any principal of
or interest on the Loans or any fees payable hereunder, (iii) reduce the
principal amount of any Loan, the rate of interest thereon or any fees payable
hereunder, (iv) release any Guarantor from such Guarantor's obligations under
the applicable Guaranty or all or substantially all of the collateral granted
under the Collateral Documents or (v) reduce the aggregate Percentage required
to effect an amendment, modification, waiver or consent without, in each case,
the consent of all Banks. No provisions of Section 13 or other provision of this
Agreement affecting the Administrative Agent in its capacity as such shall be
amended, modified or waived without the consent of the Administrative Agent. No
provision of this Agreement relating to the rights or duties of an Issuing Bank
in its capacity as such shall be amended, modified or waived without the consent
of such Issuing Bank.
14.2 Confirmations. The Company and each Bank agree from time to
time, upon written request received by it from the other, to confirm to the
other in writing (with a copy of each such confirmation to the Administrative
Agent) the aggregate unpaid principal amount of the Loans held by such Bank.
14.3 Notices. Except as otherwise provided in Sections 2.2, 2.4 and
4.3, all notices hereunder shall be in writing (including facsimile
transmission) and shall be sent to the applicable party at its address shown on
Schedule 14.3 or at such other address as such party may, by written notice
received by the other parties, have designated as its address for such purpose.
Notices sent by facsimile transmission shall be deemed to have been given when
sent; notices sent by mail shall be deemed to have been given three Business
Days after the date when sent by registered or certified mail,
55
<PAGE> 63
postage prepaid; and notices sent by hand delivery or overnight courier service
shall be deemed to have been given when received. For purposes of Sections 2.2,
2.4 and 4.3, the Administrative Agent shall be entitled to rely on telephonic
instructions from any person that the Administrative Agent in good faith
believes is an authorized officer or employee of the Company, and the Company
shall hold the Administrative Agent and each other Bank harmless from any loss,
cost or expense resulting from any such reliance.
14.4 Computations. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with GAAP, consistently applied; provided that if the Company
notifies the Administrative Agent that the Company wishes to amend any covenant
in Section 10 to eliminate or to take into account the effect of any change in
GAAP on the operation of such covenant (or if the Administrative Agent notifies
the Company that the Required Banks wish to amend Section 10 for such purpose),
then the Company's compliance with such covenant shall be determined on the
basis of GAAP in effect immediately before the relevant change in GAAP became
effective, until either such notice is withdrawn or such covenant is amended in
a manner satisfactory to the Company and the Required Banks.
14.5 Regulation U. Each Bank represents that it in good faith is
not relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
14.6 Costs, Expenses and Taxes. The Company agrees to pay on demand
all reasonable out-of-pocket costs and expenses of the Administrative Agent and
the Arranger (including the reasonable fees and charges of counsel for the
Administrative Agent and the Arranger and of local counsel, if any, who may be
retained by said counsel) in connection with the preparation, execution,
delivery and administration of this Agreement, the other Loan Documents and all
other documents provided for herein or delivered or to be delivered hereunder or
in connection herewith (including any amendments, supplements or waivers to any
Loan Documents), and all reasonable out-of-pocket costs and expenses (including
reasonable attorneys' fees, court costs and other legal expenses and allocated
costs of staff counsel) incurred by the Administrative Agent and each Bank after
an Event of Default in connection with the enforcement of this Agreement, the
other Loan Documents or any such other documents. Each Bank agrees to reimburse
the Administrative Agent for such Bank's pro rata share (based on its respective
Percentage) of any such costs and expenses of the Administrative Agent not paid
by the Company. In addition, the Company agrees to pay, and to save the
Administrative Agent, the Arranger and the Banks harmless from all liability
for, (a) any stamp or other taxes (excluding income taxes and franchise taxes
based on net income) which may be payable in connection with the execution and
delivery of this Agreement, the borrowings hereunder, the issuance of the Notes
or the execution and delivery of any other Loan Document or any other document
provided for herein or delivered or to be delivered hereunder or in connection
herewith and (b) any fees of the Company's
56
<PAGE> 64
auditors in connection with any reasonable exercise by the Administrative Agent
and the Banks of their rights pursuant to Section 10.2. All obligations provided
for in this Section 14.6 shall survive repayment of the Loans, cancellation of
the Notes, cancellation or expiration of the Letters of Credit and any
termination of Agreement.
14.7 Subsidiary References. The provisions of this Agreement
relating to Subsidiaries shall apply only during such times as the Company has
one or more Subsidiaries.
14.8 Captions. Section captions used in this Agreement are for
convenience only and shall not affect the construction of this Agreement.
14.9 Assignments; Participations.
14.9.1 Assignments. Any Bank may, with the prior written consents of
the Company (so long as no Event of Default or Unmatured Event of Default
exists) and the Administrative Agent (which consents shall not be unreasonably
delayed or withheld and shall not be required in the case of an assignment by a
Lender to one of its affiliates or to another existing Lender), at any time
assign and delegate to one or more commercial banks or other Persons (any Person
to whom such an assignment and delegation is to be made being herein called an
"Assignee"), all or any fraction of such Bank's Loans and Commitment (which
assignment and delegation shall be of a constant, and not a varying, percentage
of all the assigning Bank's Loans and Commitment) in a minimum aggregate amount
equal to the lesser of (i) the amount of the assigning Bank's remaining
Commitment and (ii) $2,500,000; provided that (a) no assignment and delegation
may be made to any Person if, at the time of such assignment and delegation, the
Company would be obligated to pay any greater amount under Section 7.6 or
Section 8 to the Assignee than the Company is then obligated to pay to the
assigning Bank under such Sections (and if any assignment is made in violation
of the foregoing, the Company will not be required to pay the incremental
amounts) and (b) the Company and the Administrative Agent shall be entitled to
continue to deal solely and directly with such Bank in connection with the
interests so assigned and delegated to an Assignee until the date when all of
the following conditions shall have been met:
(x) five Business Days (or such lesser period of time as the
Administrative Agent and the assigning Bank shall agree) shall have
passed after written notice of such assignment and delegation, together
with payment instructions, addresses and related information with
respect to such Assignee, shall have been given to the Company and the
Administrative Agent by such assigning Bank and the Assignee;
(y) the assigning Bank and the Assignee shall have executed
and delivered to the Company and the Administrative Agent an assignment
agreement substantially in the form of Exhibit H (an "Assignment
Agreement"), together with any documents required to be delivered
thereunder, which Assignment Agreement shall have been consented to by
the Company and
57
<PAGE> 65
the Administrative Agent (to the extent applicable) and accepted by the
Administrative Agent; and
(z) the assigning Bank or the Assignee shall have paid the
Administrative Agent a processing fee of $3,500.
From and after the date on which the conditions described above have been met,
(x) such Assignee shall be deemed automatically to have become a party hereto
and, to the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee pursuant to such Assignment Agreement, shall have the
rights and obligations of a Bank hereunder, and (y) the assigning Bank, to the
extent that rights and obligations hereunder have been assigned and delegated by
it pursuant to such Assignment Agreement, shall be released from its obligations
hereunder. If the Assignee was not previously a party hereto, then within five
Business Days after effectiveness of any Assignment Agreement, the Company shall
execute and deliver to the Administrative Agent (for delivery to the Assignee) a
new Note in favor of the Assignee. Any attempted assignment and delegation not
made in accordance with this Section 14.9.1 shall be null and void.
Notwithstanding the foregoing provisions of this Section 14.9.1 or any
other provision of this Agreement, any Bank may at any time assign all or any
portion of its Loans and its Note to a Federal Reserve Bank (but no such
assignment shall release any Bank from any of its obligations hereunder).
14.9.2 Participations. Any Bank may at any time sell to one or more
commercial banks or other Persons participating interests in any Loan owing to
such Bank, the Note held by such Bank, the Commitment of such Bank, the direct
or participation interest of such Bank in any Letter of Credit or any other
interest of such Bank hereunder (any Person purchasing any such participating
interest being herein called a "Participant"); provided that any Bank selling
any such participating interest shall give notice thereof to the Company. In the
event of a sale by a Bank of a participating interest to a Participant, (x) such
Bank shall remain the holder of its Note for all purposes of this Agreement, (y)
the Company and the Administrative Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
hereunder and (z) all amounts payable by the Company shall be determined as if
such Bank had not sold such participation and shall be paid directly to such
Bank. No Participant shall have any direct or indirect voting rights hereunder
except with respect to any of the events (excluding the events described in
clause (v) thereof) described in the fourth sentence of Section 14.1. Each Bank
agrees to incorporate the requirements of the preceding sentence into each
participation agreement which such Bank enters into with any Participant. The
Company agrees that if amounts outstanding under this Agreement and the Notes
are due and payable (as a result of acceleration or otherwise), each Participant
shall be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement, any Note and with respect to any
Letter of Credit to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement or such Note;
provided that such right of setoff shall be subject to the obligation of each
Participant to share with the Banks, and the Banks agree to share with
58
<PAGE> 66
each Participant, as provided in Section 7.5. The Company also agrees that each
Participant shall be entitled to the benefits of Section 7.6 and Section 8 as if
it were a Bank (provided that no Participant shall receive any greater
compensation pursuant to Section 7.6 or Section 8 than would have been paid to
the participating Bank if no participation had been sold).
14.10 Governing Law. This Agreement and each Note shall be a
contract made under and governed by the internal laws of the State of Illinois.
Whenever possible each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement. All obligations of the Company and rights of the
Administrative Agent and the Banks expressed herein or in any other Loan
Document shall be in addition to and not in limitation of those provided by
applicable law.
14.11 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement.
14.12 Successors and Assigns. This Agreement shall be binding upon
the Company, the Banks and the Administrative Agent and their respective
successors and assigns, and shall inure to the benefit of the Company, the Banks
and the Administrative Agent and the successors and assigns of the Banks and the
Administrative Agent.
14.13 Indemnification by the Company. (a) In consideration of the
execution and delivery of this Agreement by the Administrative Agent and the
Banks and the agreement to extend the Commitments provided hereunder, the
Company hereby agrees to indemnify, exonerate and hold the Administrative Agent,
the Arranger, each Bank, each of their respective Affiliates and each officer,
director, employee and agent of any of the foregoing (each a "Bank Party") free
and harmless from and against any and all actions, causes of action, suits,
losses, liabilities, damages and expenses, including reasonable attorneys' fees
and charges and, without duplication, allocated costs of staff counsel
(collectively, for purposes of this Section 14.13, the "Indemnified
Liabilities"), incurred by any Bank Party as a result of, or arising out of, or
relating to (i) any tender offer, merger, purchase of stock, purchase of assets
or other similar transaction financed or proposed to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan, (ii) the use,
handling, release, emission, discharge, transportation, storage, treatment or
disposal of any hazardous substance at any property owned, leased or operated by
the Company or any Subsidiary, (iii) any violation of any Environmental Law with
respect to conditions at any property owned, leased or operated by the Company
or any Subsidiary or the operations conducted thereon, (iv) the investigation,
cleanup or remediation of offsite locations at which the Company or any
Subsidiary or their respective predecessors are alleged to have directly or
indirectly disposed of hazardous substances or (v) the execution, delivery,
performance or enforcement of this Agreement or any other Loan Document by any
of the Bank Parties, except for any
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<PAGE> 67
Indemnified Liabilities arising on account of any such Bank Party's gross
negligence or willful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Company hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. Nothing set
forth above shall be construed to relieve any Bank Party from any obligation it
may have under this Agreement.
(b) All obligations provided for in this Section 14.13 shall
survive repayment of the Loans, cancellation of the Notes, cancellation or
expiration of the Letters of Credit, any foreclosure under, or any modification,
release or discharge of, any or all of the Collateral Documents and any
termination of this Agreement.
14.14 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS
AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE COMPANY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM
THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
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14.15 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE ADMINISTRATIVE
AGENT AND EACH BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY
OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
14.16 Amendment and Restatement. This Agreement amends and restates
the Original Agreement in its entirety and, after the Effective Date, the
Original Agreement shall be of no further force or effect (except for any
provision thereof which by its terms survives termination thereof).
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<PAGE> 69
Delivered at Chicago, Illinois, as of the day and year first above written.
EARTHCARE COMPANY
By
------------------------------------------
Title
--------------------------------------
BANK OF AMERICA, N.A., as Administrative Agent
By
------------------------------------------
Title
--------------------------------------
BANK OF AMERICA, N.A., as Issuing Bank and as
a Bank
By
------------------------------------------
Title
--------------------------------------
BANKBOSTON, N.A., as Syndication Agent and as
a Bank
By
------------------------------------------
Title
--------------------------------------
S-1
<PAGE> 70
SCHEDULE 1.1
PRICING SCHEDULE
The Floating Rate Margin, the Eurodollar Margin and the rate per annum
applicable for letter of credit fees for Financial Letters of Credit and
Non-Financial Letters of Credit, respectively, shall be determined in accordance
with the table below and the other provisions of this Schedule 1.1.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eurodollar Margin 2.250% 2.500% 2.750% 3.000% 3.250%
- ----------------------------------------------------------------------------------------------
Floating Rate Margin 1.000% 1.250% 1.500% 1.750% 2.000%
- ----------------------------------------------------------------------------------------------
Rate for
Non-Financial LC Fee 1.125% 1.250% 1.375% 1.500% 1.625%
- ----------------------------------------------------------------------------------------------
Rate for
Financial LC Fee 2.250% 2.500% 2.750% 3.000% 3.250%
- ----------------------------------------------------------------------------------------------
</TABLE>
Each of the percentages in the above table shall (i) decrease by 0.25%
(or, in the case of the rate for the Non-Financial LC Fee, by 0.125%) on the
Business Day following completion of the Equity Offering; (ii) shall temporarily
increase by 0.25% (or, in the case of the rate for the Non-Financial LC Fee, by
0.125%) on July 15, 2000 if the Equity Offering has not been completed by such
date; and (iii) shall temporarily increase by an additional 0.25% (or, in the
case of the rate for the Non-Financial LC Fee, by an additional 0.125%) on
August 15, 2000 if the Equity Offering has not been completed by such date; it
being understood that the increases in items (ii) and (iii) above shall be
disregarded when decreasing percentages pursuant to item (i) above.
Level I applies when the Leverage Ratio is less than 2.50 to 1.0.
Level II applies when the Leverage Ratio is equal to or greater than
2.50 to 1.0 but less than 3.00 to 1.0.
Level III applies when the Leverage Ratio is equal to or greater than
3.00 to 1.0 but less than 3.50 to 1.0.
Level IV applies when the Leverage Ratio is equal to or greater than
3.50 to 1.0 but less than 4.00 to 1.0.
Level V applies when the Leverage Ratio is equal to or greater than
4.00 to 1.0.
1
<PAGE> 71
Initially, the applicable Level shall be Level V. The applicable Level
shall be adjusted, to the extent applicable, 45 days (or, in the case of the
last Fiscal Quarter of any Fiscal Year, 90 days) after the end of each Fiscal
Quarter, beginning with the Fiscal Quarter ending June 30, 2000, based on the
Leverage Ratio as of the last day of such Fiscal Quarter; provided that if the
Company fails to deliver the financial statements required by Section 10.1.1 or
10.1.2, as applicable, and the related certificate required by Section 10.1.3 by
the 45th day (or, if applicable, the 90th day) after any Fiscal Quarter, Level V
shall apply until such financial statements are delivered.
2
<PAGE> 72
SCHEDULE 2.1
BANKS AND PERCENTAGES
<TABLE>
<CAPTION>
Amount of
Bank Commitment Percentage
- ---- ----------- ----------
<S> <C> <C>
Bank of America, N.A. $30,000,000 50%
Bank Boston, N.A. $30,000,000 50%
TOTALS $60,000,000 100%
</TABLE>
1
<PAGE> 73
SCHEDULE 12.1.11
KEY EXECUTIVES
<TABLE>
<CAPTION>
Name Current Office(s)
- ---- -----------------
<S> <C>
Donald F. Moorehead, Jr. Chairman, Chief Executive Officer
Raymond M. Cash Vice Chairman
Harry Habets President, Chief Operating Officer
</TABLE>
2
<PAGE> 74
SCHEDULE 14.3
ADDRESSES FOR NOTICES
EARTHCARE COMPANY.
7200 Bishop Road
Austell, Georgia 30168
Attention: President
Telephone: 770-449-8844
Facsimile: 770-745-0225
BANK OF AMERICA, N.A.,
as Administrative Agent
Agency Management Services
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Kristine Hyde
Telephone: (312) 828-1657
Facsimile: (312) 974-9102
BANK OF AMERICA, N.A.,
as Issuing Bank and as a Bank
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Helen Perry
Telephone: (312) 828-0940
Facsimile: (312) 974-0761
BANKBOSTON, N.A.,
as Syndication Agent and as a Bank
100 Federal Street 01-08-02
Boston, Massachusetts 02110
Attention: Arthur Oberheim
Telephone: (617) 434-1956
Facsimile: (617) 434-2160
1
<PAGE> 1
EXHIBIT 10.11
NOTE AGREEMENT
EarthCare Company
14901 Quorum Drive, Suite 200
Dallas, Texas 75240
12% Subordinated Notes
Due March 30, 2008
February 11, 2000
To each of the Purchasers of the above Notes listed in the Schedule of
Purchasers attached hereto as Schedule 1:
Gentlemen:
EarthCare Company, a Delaware corporation (the "Company"), hereby
agrees with you (each herein called a "Purchaser" and together, the
"Purchasers") as follows:
1. AUTHORIZATION OF NOTES AND COMMON STOCK: The Company will
authorize the issue and sale of (i) up to $20,000,000 in aggregate principal
amount of its 12% Subordinated Notes due February 28, 2008 (the "Notes"), and
(ii) warrants (the "Warrants") evidencing the right to purchase in the aggregate
400,000 shares of Common Stock, $.0001 par value ("Common Stock"), of the
Company, at the Warrant Purchase Price per share, such number of shares and the
Warrant Purchase Price being subject to adjustment as provided in the Warrants.
Each Note issued hereunder will be dated the date purchased by you hereunder,
will mature on March 30, 2008, will bear interest on its unpaid principal
balance from the date of issuance at the rate of 12% per annum, payable
semi-annually on September 30 and March 30 each year (an "Interest Payment
Date"), commencing on September 30, 2000 and continuing to March 30, 2008, and
thereafter shall bear interest on its unpaid principal balance at the rate of
18% per annum, payable semi-annually on September 30 and March 30 each year, and
upon prepayment of a Note; provided, however, the Company, at its option may
defer the interest payment that is otherwise due and payable on September 30,
2000, to March 30, 2001, at which date it shall be due and payable together with
interest on the deferred amount at the rate of 12% per annum compounded
semi-annually. The Notes will have the other terms and provisions provided
herein and in the form of Note attached hereto as Exhibit A, with such changes
therefrom, if any, as may be approved by you and the Company. Each Warrant shall
be in the form attached hereto as Exhibit B, with such changes therefrom, if
any, as may be approved by you and the company. The term "Note" or "Notes" as
used herein shall include each Note delivered pursuant to any provision of this
Agreement and each Note delivered in substitution or exchange for any such Note
pursuant to any such provision. Certain capitalized terms used in this Agreement
are defined in Section 14.
2. PURCHASE AND SALE OF NOTES. The Company will issue and sell to
you and, subject to the terms and conditions of this Agreement, you will
purchase from the Company, at the Closings provided for in Section 3, the
principal amount of Notes specified opposite your name in the Schedule of
Purchasers at the purchase price of 100% of the principal amount or value
thereof.
<PAGE> 2
3. CLOSING. The sale of the Notes to be purchased by you will
take place at the offices of the Company, 14901 Quorum Drive, Suite 200, Dallas,
Texas 75240 at 10:00 a.m., Dallas Time, at a closing to occur not later than
February __, 2000, or such other Business Day thereafter as may be agreed upon
by the Purchasers and the Company. Each such closing is referred to herein as a
"Closing," the Date of each such Closing is referred to herein as a "Closing
Date."
At the Closing, the Company will deliver to you the Notes to be
purchased by you in the form of one Note (or such greater number of Notes as you
may request in denominations of not less than $1,000.00 per note and integral
multiples thereof and a minimum principal amount of $25,000 unless otherwise
agreed to by the Company), each dated the date of the Closing and registered in
your name (or in the name of your nominee as indicated on the Schedule of
Purchasers or otherwise made known in writing by you to the Company prior to the
Closing), against delivery by you to the Company or its order of immediately
available funds in the amount of the purchase price therefor.
4. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to you that:
4.1. ORGANIZATION, QUALIFICATION, STANDING, CAPITAL STOCK, ETC. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation, has the corporate power to
own its properties and to carry on its businesses as the same are now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it or the nature
of its businesses makes such qualification necessary, except where the failure
to so qualify would not have a Material Adverse Effect. The authorized capital
stock of the Company consists of 70,000,000 shares of Common Stock, $0.0001 par
value per share, of which 11,122,784 shares are issued and outstanding and
30,000,000 shares of Preferred Stock, $.0001 par value per share, of which zero
shares of Preferred Stock are issued and outstanding. All of such outstanding
shares have been validly issued and are fully paid and nonassessable. The
Company has reserved (i) 1,304,348 shares of Common Stock for issuance pursuant
to the conversion of the 10% Convertible Subordinated Notes due October __,
2006, (ii) [3,030,565] shares of Common Stock for issuance pursuant to options
and warrants outstanding on the date hereof, (iii) 120,000 shares of Common
Stock for issuance pursuant to acquisition agreements, and (iv) 5,000,000 shares
of Common Stock for issuance in acquisitions pursuant to the Company
registration statement on Form S-1. Except as stated in this Section 4.1, the
Company has not reserved any additional shares for issuance (except as expressly
required by this Agreement) and has not issued any shares of its Common Stock.
Except for those described in the second preceding sentence, there are not
outstanding, nor is the Company subject to any agreement, arrangement, or
understanding under which there may become outstanding, any option, warrant, or
other right to purchase or subscribe to, or security convertible into or
exchangeable for, any shares of capital stock of any class of the Company. The
Company's Subsidiaries are identified in Item 1 of the Form 10-K and such Item
correctly states the jurisdiction of organization and the extent of the
Company's ownership of outstanding voting securities of each such Subsidiary.
All such voting securities are owned by the Company free and clear of any liens,
claims or encumbrances of any nature.
4.2. FINANCIAL STATEMENTS, SUBSEQUENT CHANGES, ETC. The Form 10-K,
one or more copies of which have been furnished to you, contains consolidated
balance sheets of the Company and its consolidated Subsidiary, and the
consolidated statements of income, stockholders' equity, and cash flows of the
Company and its consolidated Subsidiaries for each of the three years ended
December 31, 1998, including notes thereto, and the opinion of
PriceWaterhouseCoopers LLP, independent certified public accountants with
respect to such financial statements. The Form 10-Q, one or more copies of which
have been furnished to
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you, contains the unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries at, and the unaudited consolidated statements of
income, stockholders' equity, and cash flows of the Company and its consolidated
Subsidiaries for the period ended, September 30, 1999. All of the foregoing
financial statements are complete and correct in all material respects and
fairly present in all material respects the consolidated financial condition of
the Company and its consolidated Subsidiaries at the respective dates of said
balance sheets and the consolidated results of operations of the Company and its
consolidated Subsidiaries for the respective periods covered thereby. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as otherwise noted therein). There were no material
liabilities, direct or indirect, fixed or contingent, of the Company and its
consolidated Subsidiaries as of the respective dates of such balance sheets that
are not reflected therein or in the notes thereto. There has been no material
change in the consolidated condition, financial or otherwise, or operations of
the Company and its consolidated Subsidiaries since September 30, 1999, nor has
the Company or any Subsidiaries, except for the execution, delivery, and
performance of this Agreement, incurred any Indebtedness for borrowed money,
incurred any material liability, contingent or otherwise, except in the ordinary
course of business (including acquisitions of business and assets), or entered
into any material commitment or other transaction not in the ordinary course of
business since such date.
4.3. OTHER INFORMATION AS TO THE COMPANY. Each of the documents
filed by the Company with the SEC complied (the "SEC Filings") when filed in all
material respects with all of the requirements of the Securities Act and the
Exchange Act, as applicable, and did not contain any untrue statement of a
material fact or omit to state any material fact required to be contained
therein or necessary or necessary in order to make the statements therein not
misleading.
4.4. LITIGATION. Except as disclosed in the SEC Filings or Schedule
4.4, there is no action, suit or proceeding at law or in equity or by or before
any governmental instrumentality or agency or any arbitrator now pending or, to
the Company's knowledge, threatened, against, or affecting the Company, its
Subsidiaries or any of their respective properties or rights, which, if
adversely determined, would be reasonable likely to, either in any case or in
the aggregate result in a Material Adverse Change, or result in any substantial
liability not adequately covered by insurance, or for which adequate reserves
are not maintained on the Company's consolidated balance sheet.
4.5. FRANCHISES, LICENSES, TRADEMARKS, ETC. Except as disclosed in
the SEC Filings or Schedule 4.5, the Company and the Subsidiaries have all
franchises, permits, licenses and other authority as are necessary to enable it
to conduct its business as now conducted and as proposed to be conducted, and to
the best of the Company's knowledge, neither the Company nor any Subsidiary is
in default under any such franchises, permits, licenses or other authority.
Except as disclosed in the SEC Filings or Schedule 4.5, the Company and each
Subsidiaries own (or have made appropriate application for) or are duly licensed
to use trademarks, trademark rights, trade names, trade name rights, and
copyrights required to conduct its business as the same is now being operated,
to the Company's knowledge, and none of the foregoing conflict with or infringe
trademarks, copyrights, or trade names of others.
4.6. DUE AUTHORIZATION AND COMPLIANCE WITH OTHER INSTRUMENTS. This
Agreement and the Notes have been duly and validly authorized by all requisite
corporate proceeding and this Agreement constitutes, and the Notes when executed
and delivered will be, valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms except as
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium,
or other laws relating to or affecting generally the
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enforcement of creditors' rights and except to the extent that availability of
equitable remedies are subject to the discretion of courts before which any
proceeding therefor may be brought and the Notes will be entitled to the
benefits of this Agreement and are not subject to any preemptive or similar
rights on the part of any holder or holders of shares of capital stock of the
Company. The shares of Common Stock to be issued to you in payment of any
interest payment have been authorized for issuance, are not subject to any
preemptive or similar rights on the part of any holder or holders of shares of
capital stock of the Company and, if issued in payment of interest, will be
validly issued, fully paid and nonassessable.
4.7. BURDENSOME AND CONFLICTING AGREEMENTS AND VIOLATIONS OF
CHARTER PROVISIONS. Neither the Company nor any Subsidiary is bound by any
agreement or instrument or subject to any charter or other corporate restriction
which materially and adversely affects its business, properties, operations,
prospects or condition, financial or otherwise. The Company is not in violation
of its charter or by-laws or of any agreement or instrument by which it is
bound, or of any statute, law, rule or regulation, or of any judgment, decree,
writ, injunction, order or award of any arbitrator, court or governmental
authority applicable to it, in a manner that could result in the imposition of
substantial penalties or result in a Material Adverse Change. Neither the
authorization, execution and delivery of this Agreement or the Notes, the
issuance and delivery of shares of Common Stock in payment of interest, the
consummation of the transactions herein and therein contemplated, nor the
fulfillment of or compliance with the terms hereof and thereof, will conflict
with or result in a breach of any of the terms of the charter or by-laws, or of
any material statute, law, rule or regulation, or of any judgment, decree, writ,
injunction, order or award of any arbitrator, court or governmental authority,
or of any instrument, which is applicable to the Company or its Subsidiaries or
by which the Company or any Subsidiary is bound, or result in the imposition of
any lien upon any of the properties or assets of the Company or its
Subsidiaries.
4.8. CONSENTS AND APPROVALS. The Company has obtained or made
provisions to obtain all material (a) governmental consents, approvals and
authorizations, and registrations and filings with governmental authorities, and
(b) consents, approvals, waivers and notifications of stockholders, creditors,
lessors and other non-governmental persons, in each case, in connection with the
execution and delivery of this Agreement and the Notes, and the consummation of
the transactions herein and therein contemplated.
4.9. TAX RETURNS AND PAYMENTS. The Company and its Subsidiaries
have filed all required information and tax returns and reports and have paid,
or adequately provided for the payment of, all taxes, assessments and other
governmental charges that are material in amount respectively imposed upon them
or upon any of their respective assets, income or franchises, other than any
such charges which are currently payable without penalty or interest. The
charges, accruals and reserves on the books of the Company and the Subsidiaries
with respect to taxes for all fiscal periods are adequate, in the opinion of the
Company, and neither the Company nor any Subsidiary knows of any actual or
proposed tax assessment that is material in amount for any fiscal period or of
any basis therefor against which adequate reserves have not been set up. The
Company has not been advised that any federal income tax or information return
of the Company or any Subsidiary has been, or will be, examined or audited by
the Internal Revenue Service.
4.10. OFFERING OF THE SECURITIES. Neither the Company nor anyone
authorized to act on its behalf has or will directly or indirectly sell or offer
the Securities or any part thereof or any similar securities to, or solicit any
offer to buy any thereof from, any Person so as to bring the issue and sale of
any thereof within the provisions of Section 5 of the Securities Act.
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4.11. OTHER ADVERSE FACTS, ETC. To the best of the Company's
knowledge, there are no existing facts or circumstances which materially and
adversely affect, or (insofar as the Company can now reasonably foresee) in the
future may materially and adversely affect, the business, prospects, results of
operations or condition, financial or otherwise, of the Company and the
Subsidiaries, on a consolidated basis, which are not disclosed in the Form 10-K,
the Form 10-Q, other documents filed with the SEC pursuant to the Exchange Act,
or in this Agreement or any exhibit hereto, or which are required to be
disclosed by the Company in an Exchange Act filing.
4.12. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any
Subsidiary is either (i) a "public utility company" or a "holding company", or
an "affiliate" or a "subsidiary company" of a "holding company", or an
"affiliate" of such a "subsidiary company", as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility" as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
5. PREPAYMENT OF THE NOTES.
5.1. OPTIONAL PREPAYMENT. The Company may, at its option at any
time, upon notice as provided in Section 5.3, prepay, without premium or
penalty, all or any portion (but not less than $500,000 and only in multiples of
$100,000 for portions in excess of $500,000) of the outstanding principal of the
Notes, such prepayment of principal to be accompanied by payment of all interest
accrued and unpaid on the principal being repaid.
5.2. MANDATORY PREPAYMENT. The Company shall, upon notice as
provided in Section 5.3, prepay the outstanding principal of the Notes, plus
accrued and unpaid interest to and including the Prepayment Date upon the
occurrence of the following events:
(a) The Company completes an offering of equity securities
pursuant to which the Company realizes net proceeds at least
equal to the outstanding principal of the Notes and all
accrued and unpaid interest on the Notes;
(b) The Company is in compliance with all affirmative covenants
under the Senior Obligations; and
(c) The prepayment of the Notes would not cause a Senior
Obligations Default and the Company obtains the prior written
consent of the Designated Holders of the Senior Obligations.
5.3. NOTICE OF PREPAYMENT. The Company will give each holder of any
Notes written notice of any prepayment of Notes under Section 5.1 or 5.2 not
less than 15 days and not more than 60 days prior to the Prepayment Date, such
notice to specify the Prepayment Date, the aggregate amount of Notes to be
redeemed, the principal amount of each Note held by such holder to be redeemed
as of the date of such notice. Such notice shall be accompanied by a certificate
of the chief financial officer of the Company certifying that the conditions of
Section 5.1 or 5.2 have been fulfilled and specifying the particulars of such
fulfillment.
5.4. MATURITY; SURRENDER. With respect to a prepayment of the Notes
pursuant to Section 5.1 or 5.2, the principal amount of each Note shall mature
and become due and payable on the Prepayment Date, together with interest on
such principal amount accrued and unpaid to the Prepayment Date. From and after
the Prepayment Date, unless the Company
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shall fail to pay such principal amount when so due and payable, together with
interest on such principal, as aforesaid, interest on such principal amount
shall cease to accrue. Any Note prepaid shall, after such prepayment, be
surrendered to the Company and canceled.
5.5. FAILURE TO PREPAY. If the Notes are not prepaid in full on or
before September 30, 2000, the Company shall distribute pro rata to the holders
of the Notes Warrants evidencing the right to purchase in the aggregate 400,000
shares of Common Stock of the Company, at per share Warrant Purchase Price, such
number of shares and the purchase price being subject to adjustment as provided
in the Warrants.
6. CONDITIONS PRECEDENT.
6.1. CLOSING. Your obligation to purchase from the Company the
principal amount of Notes specified opposite your name in the Schedule of
Purchasers at any Closing shall be subject to the following conditions
precedent:
(A) OPINIONS OF COMPANY COUNSEL. You shall have received from John
T. Unger, counsel for the Company, an opinion, dated the Closing Date and
updated each subsequent Closing Date, satisfactory in form and substance to you
to the effect that:
(i) the Company is a corporation validly existing and in
good standing under the laws of its state of incorporation, has the
corporate power to own its properties and to carry on its business as
now being conducted, and is duly qualified to do business and is in
good standing in each jurisdiction in which its ownership or leasing of
property requires such qualification;
(ii) the Company has full corporate power and authority to
execute and deliver this Agreement, to make and deliver the Notes and
to perform and observe the terms and provisions of this Agreement and
of the Notes;
(iii) this Agreement has been duly authorized, executed,
and delivered by the Company and constitutes the legal, valid, and
binding obligation of the Company, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, rearrangement,
moratorium, reorganization, or similar debtor relief laws affecting the
rights of creditors generally from time to time in effect and except to
the extent that availability of equitable remedies are subject to the
discretion of the court before which any proceeding therefor may be
brought and that rights to indemnification may be limited by applicable
law;
(iv) the Notes sold to you on the Closing Date have been
duly authorized, executed, and delivered by the Company, constitute the
valid and legally binding obligations of the Company and are entitled
to the benefits of this Agreement, subject to applicable bankruptcy,
insolvency, rearrangement, moratorium, reorganization, or similar
debtor relief laws affecting the rights of creditors generally from
time to time in effect and except to the extent that availability of
equitable remedies are subject to the discretion of the court before
which any proceeding therefor may be brought;
(v) neither the execution and delivery of this Agreement
and the Securities nor performance and observance of the terms and
provisions hereof and thereof violate or conflict with the Articles of
Incorporation or By-Laws of the Company, conflict with or result in any
material breach or contravention of any provision of any currently
applicable statute or regulation and existing interpretations thereof
or governmental regulation, or of any order, writ, injunction, decree,
or award of any court, arbitrator, or governmental authority known to
such counsel so as to
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result in a Material Adverse Change, or conflict with or result in any
material breach of any of the terms, conditions, or provisions of, or
constitute a default under, or result in the creation or imposition of
any lien, charge, or encumbrance upon any of the properties or assets
of the Company pursuant to the terms of, any instrument evidencing any
Senior Obligations;
(vi) it is not necessary in connection with the issuance
and delivery of the Securities to you on the Closing Date under the
circumstances contemplated by, and in accordance with the terms of,
this Agreement to register the Securities under the Securities Act or
to register or qualify the Securities under any applicable state
securities of the States of [identify States where Securities are
offered and sold] or to qualify an indenture in respect of the Notes
under the Trust Indenture Act; and
(vii) all approvals and authorizations by any state or
federal agency or body required for the issuance and sale of the
Securities to you and for the execution and delivery of this Agreement
have been obtained or that no such approvals of authorizations are
required.
(B) REPRESENTATIONS AND DEFAULTS. The representations and
warranties made by the Company herein shall be true and correct in all material
respects on and as of the Closing Date with the same effects as if they had been
made on and as of the Closing Date (except as to any changes resulting from
transactions expressly reflected herein or contemplated hereby) and no Event of
Default (as defined in Section 11), nor any condition or event which, after
notice or lapse of time, or both, would constitute such an Event of Default,
shall exist; and the Company shall deliver to you on the Closing Date a
certificate of the President and the Treasurer of the Company to the foregoing
effects.
(C) DOCUMENTS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement to be consummated at or prior to the
Closing Date, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to you and you shall have received original
counterparts or certified or other copies of all documents which you may have
reasonably requested in connection with said transactions and of all corporate
proceedings in connection therewith, in form and substance reasonably
satisfactory to you and your counsel.
(D) NO MATERIAL ADVERSE CHANGE. As of the Closing Date, no
Material Adverse Change has occurred in the business or financial condition of
the Company.
(F) BANK CONSENT. The Company shall have received the consent, of
its lenders under the Senior Credit Agreement (as defined in Section 9.7) to the
issuance and sale of up to $20,000,000 in aggregate principal amount of the
Notes, and the execution and performance of this Agreement and the transactions
contemplated hereby.
7. COVENANTS OF THE COMPANY. The Company covenants and agrees
that, so long as any of the Notes are outstanding, it will comply with the
following provisions, subject to the provisions of Section 15:
AFFIRMATIVE COVENANTS
7.1. USE OF PROCEEDS. The Company will apply all proceeds (net of
costs directly related to the preparation and negotiation of this Agreement and
the offering and sale of the Notes) derived from the sale of the Notes to
acquisitions and for general corporate purposes.
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7.2. PAYMENT OF PRINCIPAL AND INTEREST. The Company will make all
payments of principal of and interest on the Notes at the time the same shall
become due thereunder or hereunder.
7.3. TAXES. The Company will, and will cause each Subsidiary to,
promptly pay and discharge all lawful taxes, assessments, and governmental
charges or levies (other than taxes, assessments, and other governmental charges
imposed by foreign jurisdictions or otherwise which in the aggregate are not
material to the business or assets of the Company on an individual or
consolidated basis) imposed on it or upon its income or profits, or upon any of
its properties, real or personal, before the same shall become in default, as
well as all lawful claims for labor, materials, and supplies or otherwise which,
if unpaid, might become a lien or charge upon its properties or any part
thereof; provided, however, that neither the Company nor any Subsidiary shall
not be required to pay or cause to be paid any such tax, assessment, charge,
levy or claim prior to institution of foreclosure proceedings if the validity
thereof shall be contested in good faith by appropriate proceedings and if the
Company shall have established reserves deemed by the Company adequate with
respect to such tax, assessment, charge, levy, or claim or as may be required by
generally accepted accounting principles consistently applied.
7.4. INSURANCE. The Company will, and will cause its Subsidiaries
to, maintain liability, property damage, and insurance on its insurable property
against fire and other hazards with financially sound and responsible insurance
carriers in the relative proportionate amounts usually carried by reasonable and
prudent companies conducting businesses similar to that of the Company.
7.5. MAINTENANCE OF EXISTENCE AND PROPERTIES. The Company will keep
its corporate existence in full force and effect. The Company will, and will
cause its Subsidiaries to, keep its properties in good repair, working order,
and condition (ordinary wear and tear excepted), and from time to time will make
all needful and proper repairs, renewals, replacements, extensions, additions,
betterments, and improvements thereto, so that the business carried on may be
properly conducted at all times in accordance with prudent business management.
The Company will, and will cause each Subsidiary to, comply with all applicable
laws and regulations (including Environmental Laws), decrees, orders, judgments,
licenses and permits, including without limitation all environmental permits
("Applicable Laws"), except where noncompliance with such Applicable Laws would
not cause a Material Adverse Change.
7.6. FINANCIAL STATEMENTS AND COMPLIANCE CERTIFICATES. The Company
will, and will cause each Subsidiary to, keep books of record and account in
which full, true and correct entries in all material respects in accordance with
generally accepted accounting principles will be made of all dealings or
transactions in relation to its business and activities. The Company shall
furnish to each holder of any of the Notes:
(A) as soon as available and in any event within 47 days after the
close of each fiscal quarter, commencing with the fiscal quarter ending
September 30, 1999, an unaudited consolidated balance sheet of the Company and
its consolidated Subsidiaries as of the end of such quarter and consolidated
statements of income, stockholders' equity, and cash flows of the Company and
its consolidated Subsidiaries for such quarter and for the expired portion of
the then current fiscal year, setting forth comparable figures for the same
quarter and expired portion of the previous fiscal year, and prepared and
certified by the chief financial officer of the Company, subject to year-end
audit adjustment;
(B) as soon as available and in any event within 92 days after the
close of each fiscal
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year of the Company, a balance sheet of the Company as of the end of such fiscal
year and statements of income, stockholders' equity, and cash flows of the
Company for such fiscal year, setting forth comparable figures for the previous
fiscal year, all reported upon, and certified, by PriceWaterhouseCoopers LLP or
other independent certified public accountants of nationally recognized
standing;
(C) with each financial statement required to be delivered
pursuant to the provisions of paragraph (a) or (b) above, a certificate of the
President and the chief financial officer of the Company stating that to their
knowledge there does not exist any Event of Default or any condition or event
which after notice or lapse of time, or both, would constitute an Event of
Default, or specifying the nature and period of existence of each such Event of
Default, condition or event and the action the Company is taking or proposes to
take with respect thereto;
(D) copies of all financial statements and reports sent by the
Company to its shareholders and of all regular and periodic reports, if any,
filed by it with the SEC pursuant to any statute administered by the SEC; and
(E) such other information relating to the business and financial
condition of the Company as may from time to time be reasonably requested by
you.
Except as and to the extent required by law or by any regulatory authority
having jurisdiction over you, and except for disclosures to prospective
transferees of any of your Notes, you will not willfully disclose to others
information obtained from any such inspection or discussion which the Company
advises you is confidential in nature.
7.7. NOTICE OF DEFAULT. The Company will within ten Business Days
notify you upon becoming aware of the occurrence of any Event of Default
hereunder (or the occurrence of any event or existence of any condition which
with notice or lapse of time, or both, would be reasonably likely to become an
Event of Default) or any event of default under any instrument evidencing Senior
Obligations.
7.8. REPURCHASE OF THE NOTES AT THE OPTION OF THE HOLDER UPON A
CHANGE IN CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer (subject only to conditions required by applicable law, if any) to
each Holder (the "Change of Control Offer"), to repurchase for cash all or any
part of such holder's Notes on a date (the "Change of Control Purchase Date")
that is no later than 60 Business Days after the occurrence of such Change of
Control, at the Change of Control Purchase Price specified below, plus accrued
and unpaid interest to the Change of Control Purchase Date, and each Holder
shall have the right, at such Holder's option, to tender such Holder's Notes to
the Company on the terms set forth in the Change of Control Offer. The Change of
Control Offer shall be made within 10 Business Days following a Change of
Control, and shall remain open for 20 Business Days following its commencement
(the "Change of Control Offer Period"). Upon expiration of the Change of Control
Offer Period, the Company promptly, but, in any event, no later than 60 Business
Days from the Change of Control, shall purchase all Notes properly tendered in
response to the Change of Control Offer and each Holder who has given a notice
pursuant to this Section 7.8 that such Holder desires to accept the Change of
Control Offer for all or part of such Holder's Notes shall be obligated to
tender and sell such Notes to the Company pursuant to such Offer.
(b) As used herein, a "Change of Control" means:
(i) any merger or consolidation of the Company with or into
any Person or any sale, transfer or other conveyance, whether direct or
indirect, of all or
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substantially all of the assets of the Company on a consolidated basis,
in one transaction or a series of related transactions, if, immediately
after giving effect to such transaction(s), any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable), is or becomes the beneficial
owner (as such term is used in Rule 13d-3 of the Exchange Act or any
successor provision thereto), directly or indirectly, of more than 50%
of the total voting power in the aggregate normally entitled to vote in
the election of directors, managers or trustees, as applicable, of the
transferee(s) or surviving entity or entities,
(ii) any "person" or "group," becomes the beneficial owner,
directly or indirectly, of more than 50% of the total voting power in
the aggregate of all classes of capital stock of the Company then
outstanding normally entitled to vote in elections of directors, or
(iii) during any period of 12 consecutive months after the
Closing Date, individuals, together with successors selected by such
individuals, who at the beginning of any such 12-month period
constituted the Board of Directors of the Company cease for any reason
(other than a planned retirement) to constitute a majority of the Board
of Directors of the Company then in office, as applicable;
provided, however, that any transaction that would otherwise fall within clause
(i), (ii), or (iii) with respect to which discussions between the Company and
the other Person to such transaction were initiated prior to the date hereof.
The "Change of Control Purchase Price" means 100% of the principal
amount of the Notes, if a Change of Control occurs on or prior to the second
anniversary of the Closing Date;
(c) On or before the Change of Control Purchase Date, the Company
will (i) accept for payment the Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) promptly pay the Holders of Notes
so accepted an amount equal to the Change of Control Purchase Price (together
with accrued and unpaid interest, if any), and (iii) authenticate and deliver to
such Holders a new Note equal in principal amount to any unpurchased portion of
the Note surrendered.
NEGATIVE COVENANTS
7.9. LIMITATION ON CONSOLIDATION, MERGER AND SALE. The Company
shall not consolidate with or merge with any other corporation or convey,
transfer or lease substantially all of its assets in a single transaction or
series of transactions to any Person unless:
(a) the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance,
transfer or lease substantially all of the assets of the
Company as an entirety, as the case may be, shall be a solvent
corporation organized and existing under the laws of the
United States or any State thereof (including the District of
Columbia), and, if the Company is not such corporation, such
corporation shall have executed and delivered to each holder
of any Notes its assumption of the due and punctual
performance and observance of each covenant and condition of
this Agreement and the Notes; and
(b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be
continuing.
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No such conveyance, transfer or lease of substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 7.9 from its liability under this Agreement, the
Other Agreements to which the Company is a party or the Notes.
7.10 NO DIVIDENDS. The Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly declare or pay any dividend or make
any distribution on account of the capital stock (including all shares,
interests, participations, rights or other equivalents of corporate stock) of
the Company or any of its Subsidiaries (other than dividends or distributions
payable to the Company or any of its Subsidiaries and other than dividends or
distributions in connection with a shareholder rights plan).
7.11 OTHER SUBORDINATED INDEBTEDNESS. The Company shall not incur
any Indebtedness other than the Senior Obligations that is or purports to be
senior in right of payment to the Notes without the written consent of Holders
holding a majority in principal amount of the Notes.
8. PAYMENT, REGISTRATION AND TRANSFER OF NOTES.
8.1. PLACE OF PAYMENT. The Company will promptly and punctually pay
the interest on the Notes held by you without any presentment thereof; and the
Company will pay all amounts payable to you in respect of principal of and
interest on the Notes to you or your nominees at the address specified in
Schedule 1, or at such other place as you may from time to time designate in
writing.
8.2. REGISTRATION AND TRANSFER. The Company agrees to maintain an
office (or to appoint an agent having an office) in Dallas, Texas, or such other
city as the Company may designate by notice in writing to you, at which Notes
may be surrendered for transfer and reissuance, for exchange, replacement, or
cancellation. The Company shall keep or cause to be kept, at the office or
agency so maintained, a register or registers in which the Company or its agent
shall register the names and addresses of the Holders and shall transfer
registered Notes in accordance with this Agreement. Upon surrender for transfer
of any registered Note duly assigned by the registered holder (or its duly
authorized attorney) to the transferee(s) thereof and subject to satisfaction of
the requirements set forth in Section 12.4 if such Note is then a Restricted
Note, the Company shall execute and deliver a new registered Note (or Notes in
appropriately subdivided denominations of principal), dated the most recent date
to which interest shall have been paid on the surrendered Note, in an equal
principal amount with notation of payments of principal made thereon, or in a
principal amount equal to the original principal amount as reduced by payments
of principal theretofore made on the Note surrendered, in the name of, and
payable to the order of, the transferee(s) thereof. No service charge shall be
assessed for any transfer, registration, reissuance, exchange, or notation of
payment hereunder.
8.3. INTEREST. Interest on the Notes shall be computed on the basis
of a 365-day year at a rate of 12% per annum from the Closing Date, payable in
equal semiannual installments on each Interest Payment Date of each year (or
such prorated amount as may be applicable with respect to the first payment)
until the principal on the Notes becomes due and payable. To the extent
permitted by law, interest on any overdue payment of principal or interest shall
be payable quarterly at a rate equal to 18% per annum.
Interest on the Notes shall be payable on each Interest Payment Date in
cash or, at the option of the Company, by the issuance to the Holder of shares
of Common Stock with a
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Current Market Price on the Interest Payment Date equal to the interest payable
on such Interest Payment Date;
8.4 COMMON STOCK ISSUED IN PAYMENT OF INTEREST. Any shares of
Common Stock issued pursuant to Section 8.3 shall be validly issued, fully paid
and nonassessable shares of the Common Stock of the Company and shall be subject
to the restrictions on transfer set forth in Section 12 hereof.
9. SUBORDINATION OF NOTES. The Company covenants and agrees, and
each holder of a Note, by acceptance thereof, likewise covenants and agrees (i)
that, to the extent and in the manner set forth in this Section 9, the Company's
Senior Obligations (as defined in Section 9.1), if any, will be senior in right
of payment to the Notes, and (ii) that the subordination provisions set forth in
this Section 9 are, and are intended to be, an inducement and a consideration to
each holder of any Senior Obligations, whether such Senior Obligation was
created or acquired before or after the date of this Agreement, to acquire and
continue to hold, or to continue to hold, such Senior Obligation, and each
holder of Senior Obligations shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or continuing to
hold, such Senior Obligations.
9.1. SUBORDINATION TO SENIOR OBLIGATIONS. As used herein, "senior
in right of payment to the Notes" means that:
(a) no part of the Debt shall have any claim to the assets of
the Company on a parity with or prior to the claim of the Senior
Obligations; and
(b) unless and until the Senior Obligations have been paid in
full, without the express prior written consent of all holders of such
Senior Obligations, no Holder will take, demand (including by means of
any legal action) or receive from the Company, and the Company will not
make, give or permit, directly or indirectly, by set-off, prepayment,
purchase or in any other manner, any cash payment of or security for
the whole or any part of the Debt; provided, however, that (x) so long
as no default exists in the payment of any principal of or premium, if
any, or interest on any Senior Obligations, the Company may make, and
the Holders may receive, scheduled payments on account of the Debt in
accordance with the terms hereof, except if a default in the
performance or observance of any term or condition relating to any
Senior Obligations (other than a default in the payment of any
principal of or premium, if any, or interest on the Senior Obligations)
has occurred and is continuing that permits the holders of the Senior
Obligations to declare such Senior Obligations to be due and payable,
any Designated Holder of Senior Obligations (as defined in Section 9.6)
may give notice (a "Senior Blockage Notice") to the Company (provided,
however, no more than one Senior Blockage Notice may be given during
any 360 consecutive day period) that until all Senior Obligations are
paid in full, no scheduled payments (whether in cash or securities, but
excluding additional Notes) may be made by the Company on account of
the Debt during the period ("Senior Blockage Period") commencing on the
date of such Senior Blockage Notice and ending on the earliest of: (A)
180 days after the date of such Senior Blockage Notice; (B) the date
such default is cured or waived; and (C) the date that the holders of
the Senior Obligations shall have given notice to the Company of
termination of the Senior Blockage Period, and except when a default in
the payment of any principal of, premium if any, or interest on the
Senior Obligations has occurred and is continuing or would result
therefrom, and (y) upon the acceleration of the maturity of any Senior
Obligations, the Holders may accelerate the scheduled maturities of the
Notes if and to the extent permitted hereby at such time but such
acceleration shall not give (i) any Holder any right
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to take, demand (including by means of any legal action) or receive
from the Company, or (ii) the Company the right to make, give or
permit, directly or indirectly, by set-off, prepayment, purchase or in
any other manner, any cash payment of or security for the whole or any
part of the Notes unless and until the Senior Obligations have been
paid in full.
9.2. PAYMENTS DUE HOLDERS OF SENIOR OBLIGATIONS. Any payment or
distribution by the Company to which any Holder would be entitled except for the
provisions hereof (whether in cash or securities, but excluding additional
Notes) shall be paid or delivered by the Holder, or any receiver, trustee in
bankruptcy, liquidating trustee, disbursing agent or other Person making such
payment or distribution, to the holders of the Senior Obligations or their
representative, ratably in accordance with the amounts thereof, to the extent
necessary to pay in full all Senior Obligations, before any payment or
distribution shall be made to any Holder.
9.3. MEANING OF PAYMENT IN FULL. The expressions "prior payment in
full," "payment in full," "paid in full" and any other similar terms or phrases
when used herein with respect to the Senior Obligations shall mean the payment
in full in cash of all of the Senior Obligations; and the expression "any cash
payment of or security for the whole or any part of the Debt" and any other
similar terms or phrases when used herein shall not be deemed to include a
payment or distribution of stock or securities of the Company provided for by a
plan of reorganization or readjustment authorized by an order or decree of a
court of competent jurisdiction in a reorganization proceeding under any
applicable bankruptcy law, or of any other corporation provided for by such plan
of reorganization or readjustment, which stock or securities are subordinated in
right of payment to all then outstanding Senior Obligations to substantially the
same extent as the Notes are so subordinated as provided in this Section 9.7.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
conveyance or transfer of all or substantially all of its properties and assets
as an entirety to another Person upon the terms and conditions set forth in
Section 7.9 shall not be deemed a "proceeding" for the purposes of this Section
9.7 if the Person formed by such consolidation or into which the Company is
merged or the Person which acquires by conveyance or transfer such properties
and assets as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions set
forth in Section 7.9.
9.4. MEANING OF SENIOR OBLIGATIONS. As used herein, "Senior
Obligations" shall mean collectively all obligations of the Company (i) under or
in connection with the Senior Credit Agreement (as defined below) and the other
"Loan Documents" referred to in the Senior Credit Agreement; (ii) to any Bank
(as defined below) or any affiliate of a Bank under or in connection with (x)
any interest rate, currency or commodity swap agreement, cap agreement or collar
agreement or any other agreement or arrangement designed to protect the Company
against fluctuations in interest rates, currency exchange rates or commodity
prices, or (y) any purchase card or credit card issued by such Bank or such
affiliate, (iii) to any Bank or any affiliate of any Bank under or in connection
with any other credit arrangement (including without limitation any lease by
such Bank or such affiliate, any guaranty issued by the Company in favor of such
Bank or such affiliate and any deposit account services (including in respect of
any overdraft) if such obligation is secured by the assets of the Company; and
(iv) under or in connection with any other secured Indebtedness of the Company
having an initial principal amount in excess of $5,000,000 which by its express
terms states that it is a "Senior Obligation"; in each case (a) whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter incurred, and (b) whether on account of principal, premium, interest
(including, without limitation, interest accruing after the maturity date of any
Senior Obligation and interest accruing after the commencement of any
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bankruptcy, insolvency, reorganization or similar proceeding relating to the
Company, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), reimbursement obligations, fees, indemnities,
costs, expenses or otherwise. For purposes of the foregoing, "Senior Credit
Agreement" means the Credit Agreement dated as of February __, 2000 among the
Company, various financial institutions and Bank of America, N.A., as
Administrative Agent and BankBoston N.A., as Syndication Agent, as amended,
restated or otherwise modified from time to time, together with any replacement
or refinancing thereof; and "Bank" means any bank, insurance company, mutual
fund or other financial institution which from time to time is a party to the
Senior Credit Agreement.
9.5. MEANING OF DEBT. As used herein, "Debt" shall mean
collectively the unpaid principal of, premium, if any, and interest on
(including, without limitation, interest accruing after the maturity date of any
Note and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to the Company, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) and all other obligations in respect of the
Notes, whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter incurred, in each case whether on account of
principal, premium, interest, reimbursement obligations, rights to rescission,
fees, indemnities, costs, expenses or otherwise.
9.6. MEANING OF DESIGNATED HOLDER OF SENIOR OBLIGATIONS. As used
herein, "Designated Holder of Senior Obligations" means (i) the Administrative
Agent under the Senior Credit Agreement or (ii) any holder of Senior Obligations
(or representative of holders of Senior Obligations) in an initial aggregate
principal amount of $20,000,000 or more (excluding Senior Obligations under the
Senior Credit Agreement).
9.7. BANKRUPTCY PROCEEDINGS. Any Designated Holder of Senior
Obligations is hereby authorized to (i) file an appropriate claim for and on
behalf of any Holder if such Holder does not file, and there is not otherwise
filed on behalf of such Holder, a proper claim or proof of claim in the form
required in any bankruptcy, insolvency, reorganization or similar proceeding
with respect to the Company at least 30 days before the expiration of the time
to file such claim or proof of claim and (ii) file an appropriate ballot for and
on behalf of any Holder if such Holder does not file, and there is not otherwise
filed on behalf of such Holder, a proper ballot in any such proceeding in the
form required at least 10 days before the expiration of the time to file such
ballot.
9.8. ACTIONS FOLLOWING DEFAULT. If any Event of Default shall occur
and be continuing, the Holders shall not, without the prior written consent of
the agent under the Senior Credit Agreement (the "Agent"), accelerate the
maturity of any Debt, or institute proceedings to enforce or collect any Debt,
or commence or join with any other creditor of the Company in commencing any
bankruptcy, insolvency, reorganization or similar proceeding against the
Company, or otherwise exercise any right or remedy in respect of the Debt,
except after the first to occur of a Standstill Termination Event or the 30th
day following the giving of notice of such Event of Default to the Agent by a
Holder. For purposes of the foregoing, a "Standstill Termination Event" will be
deemed to occur upon (1) commencement of a bankruptcy, insolvency,
reorganization or similar proceeding by or against the Company (provided that if
such proceeding is instituted against the Company, a Standstill Termination
Event shall only be deemed to occur in respect thereof if such proceeding has
not been dismissed within 60 days of commencement thereof or if the Company
acquiesces thereto) or (2) the acceleration of the maturity of any Senior
Obligations.
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9.9. NO MODIFICATIONS WITHOUT CONSENT OF DESIGNATED HOLDERS. The
Holders agree with and for the benefit of each holder of Senior Obligations that
no provision of this Section 9 may be amended or otherwise modified, and no
other provision of this Agreement may be amended or otherwise modified in any
manner which is adverse to the holders of the Senior Obligations, without (in
each case) the prior written consent of all Designated Holders of Senior
Obligations.
9.10. OBLIGATIONS UNIMPAIRED. Nothing contained in this Section 9 is
intended to or shall impair as between the Company, its creditors other than the
holders of Senior Obligations and the Holders, the obligation of the Company,
which shall be absolute and unconditional, to pay to the Holders the principal
of and interest on the Notes, as and when the same will become due and payable
in accordance with the terms thereof, or to affect the relative rights of the
Holders and creditors of the Company other than the holders of Senior
Obligations, nor shall anything herein or therein prevent the holder of any Note
from exercising all remedies otherwise permitted by applicable law upon default,
subject to the rights, if any, under this Section 9 of the holders of Senior
Obligations in respect of any required notice of the exercise of any such remedy
or cash, property, or securities of the Company received upon the exercise of
any such remedy.
10. SUBSTITUTION OF NOTES. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction, or mutilation of any Note,
and of indemnity satisfactory to it (which, in the case of any original
purchaser of the Notes, shall be a contractual obligation of such purchaser) and
upon surrender, at the office or agency maintained in accordance with Section 8,
and cancellation of any Note, if mutilated, the Company will execute and deliver
a new Note of like tenor, in lieu of such Note, dated the most recent date to
which interest on such Note shall have been paid.
11. EVENTS OF DEFAULT. If any one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
(A) default shall be made in the payment of principal of any of
the Notes when and as the same shall become due and payable, either at maturity
or by acceleration or otherwise;
(B) default shall be made in the payment of interest on the Notes
when the same becomes due and payable and the default continues for a period of
30 days;
(c) default shall be made in the due performance or
observance of any other material covenant, agreement, or provision
herein to be performed or observed by the Company or a material breach
shall exist in any representation or warranty herein contained, and
such default or material breach shall have continued for a period of 30
days after written notice thereof to the Company from any holder or
Holders of Notes aggregating not less than 51% of the aggregate
principal amount of the Notes then outstanding; provided, however, that
if any such default or material breach shall be such that it cannot be
cured or corrected within such 30-day period, such period shall be
extended for such additional period of time (not exceeding 30
additional days) as shall be necessary to effect such cure or
correction if curative or corrective action is instituted within said
30-day period and thereafter diligently pursued;
(d) the Company or any Subsidiary shall (i) apply for or
consent to the appointment of a receiver, trustee, or liquidator of the
Company or such Subsidiary or any of their respective assets, (ii) make
a general assignment for the benefit of creditors, (iii) be adjudicated
a bankrupt or insolvent or (iv) file a voluntary
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petition in bankruptcy, or a petition or answer seeking reorganization
or an arrangement with creditors to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, moratorium,
dissolution, liquidation, or debtor relief law, or any chapter of any
such law, or an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law or chapter, or
corporate action shall be taken by the Company or any Subsidiary for
the purpose of effecting any of the foregoing; or an order, judgment,
or decree shall be entered, without the application, approval, or
consent of the Company or a Subsidiary, by any court of competent
jurisdiction, approving a petition seeking liquidation or
reorganization of the Company or such Subsidiary, as applicable, of all
or a substantial part of the assets of the Company or such Subsidiary;
and provided that such order, judgment, or decree remains in effect for
more than 30 days, whether or not consecutive;
(e) a Senior Obligations Default shall occur and continue
for a period of 90 days;
(f) default shall occur with respect to any other
Indebtedness for borrowed money of the Company or any Subsidiary (other
than the Notes or Senior Obligations) or under any agreement under
which such Indebtedness may be issued by the Company or such Subsidiary
and such default shall continue for more than the period of grace, if
any, therein specified, if the aggregate amount of such Indebtedness
for which such default shall have occurred exceeds $500,000; or
(g) final judgment for the payment of money in excess of
$500,000 shall be rendered against the Company or any Subsidiary and
the same shall remain undischarged for a period of 60 days during which
execution shall not be effectively stayed;
then and in each and every such case the Holders of Notes aggregating not less
than 51% of the aggregate principal amount of the Notes then outstanding may by
notice in writing to the Company declare the unpaid principal of the Notes
together with accrued interest thereon to be forthwith due and payable and
thereupon such principal and interest shall be due and payable without
presentment, protest, or further demand or notice of any kind, all of which are
hereby expressly waived.
This Section 11, however, is subject to the condition that, if at any
time after the principal of the Notes shall have become so due and payable, and
before any judgment or decree for the payment of the moneys so due, or any
thereof, shall be entered and if all arrears of interest upon the Notes and all
other sums payable under the Notes (except the principal on the Notes which
solely by reason of such declaration shall have become payable) shall have been
duly paid, then and in every such case the Holders of Notes aggregating not less
than 66-2/3% of the aggregate principal amount of the Notes then outstanding
may, by written notice to the Company, either temporarily suspend or permanently
rescind and annul such declaration and its consequences; but no such suspension
or rescission and annulment shall extend to or affect any prior, concurrent, or
subsequent default or Event of Default (other than the ones identified by the
Holders declaring them due as the ones upon which such declaration was based) or
impair any right consequent thereon.
Notwithstanding anything to the contrary herein, if default shall be
made in the payment of any principal of, or interest on, any Note when and as
the same shall become due and payable, at maturity (but not merely by virtue of
an acceleration pursuant to the foregoing provisions of this Section 11), the
holder of such Note may by notice in writing to the Company declare the unpaid
principal of such Note, with accrued interest, to be forthwith due and payable
and thereupon such principal and interest shall be due and payable
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without presentment, protest, or further demand or notice of any kind, all of
which are hereby expressly waived.
If any holder of a Note shall demand payment thereof or take any other
action (of which the Company has actual knowledge) in respect of an Event of
Default, the Company will forthwith give written notice thereof, specifying such
action and the nature of such event, to each holder of record of the Notes then
outstanding. The Company will also give prompt written notice to each holder of
record of the Notes at the time outstanding of any written notice of suspension,
rescission, or annulment given to it as aforesaid.
The Company covenants that, if default be made in any payment of
principal of or interest on any Note, it will pay to the holder thereof such
further amount as shall be reasonably sufficient to cover the cost and expense
of collection, including, without limitation, court costs and reasonable
compensation to the attorneys and counsel of the holder for all services
rendered in that connection.
No course of dealing between the Company and any holder of a Note or
any delay on the part of the holder of a Note in exercising any rights
thereunder or hereunder shall operate as a waiver of any rights of any such
holder.
12. SECURITIES ACT.
12.1. INVESTMENT INTENT, ETC. Each of you and each other Person who
has been designated by you as a registered holder to whom Securities will be
initially issued on a Closing Date, by acceptance of such Securities, represent
and in making this sale it is specifically understood and agreed that you and
each such other Person (a) are an "accredited investor" within the meaning of
Rule 501 of Regulation D under the Securities Act and the rules and regulations
promulgated thereunder and was not organized for the specific purpose of
acquiring the Shares and (b) are acquiring the Securities to be purchased for
your, or such Person's, own account, or for the account of one or more trusts
which you, or such Person, manage, and not with a view to or for sale in
connection with any distribution thereof, provided that the disposition of your,
or such Person's, property shall at all times be and remain within your, or such
Person's, control.
12.2. RESTRICTIONS ON TRANSFERABILITY. The Notes and Restricted
Stock shall not be transferable except upon the conditions specified in this
Section 12, which conditions are intended to ensure compliance with the
provisions of the Securities Act in respect of the transfer of any Note or
Restricted Stock.
12.3. RESTRICTIVE LEGENDS. Each Note shall (unless otherwise
permitted by the provisions of Section 12.4) be stamped or otherwise imprinted
with a legend in substantially the following form:
"This Note has not been registered under the Securities Act of
1933, as amended, and is transferable only upon the conditions
specified in the Purchase Agreement referred to herein."
Each certificate for Common Stock issued in payment of interest or upon exercise
of a Warrant and each certificate for Common Stock issued to a subsequent
transferee shall (unless otherwise permitted by the provisions of Section 12.4)
be stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or any state securities
act. The shares have been acquired for investment and may not be sold,
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transferred, pledged or hypothecated unless (i) they shall have been
registered under the Securities Act of 1933 and any applicable state
securities act, or (ii) the corporation shall have been furnished with
an opinion of counsel, satisfactory to counsel for the corporation,
that registration is not required under any such acts."
12.4. NOTICE OF PROPOSED TRANSFERS. (a) Except as otherwise provided
in paragraph (b) of this Section 12.4, prior to any transfer or attempted
transfer of any Restricted Note or Restricted Stock, the holder thereof shall
give written notice to the Company of such holder's intention to effect such
transfer. Each such notice shall describe the manner and circumstances of the
proposed transfer and shall be accompanied by an opinion of counsel for such
holder satisfactory to the Company, to the effect that such transfer may be
effected without registration of such Restricted Note or Restricted Stock, as
the case may be, under the Securities Act. If such notice is accompanied by such
an opinion, such holder shall be entitled to transfer such security in
conformity with the terms of such notice, and, if the opinion of counsel so
specifies, the securities issued upon any such transfer shall not bear the
restrictive legend set forth in Section 12.3. Such holder shall indemnify the
Company for any transfer effected pursuant to this Section 12.4(a).
(b) The procedures set forth in paragraph (a) of this Section 12.4
shall not apply to any transfer by you (or a transferee pursuant to this
paragraph (b)) of any Restricted Note or Restricted Stock to any of your
Subsidiaries or Affiliates; provided, however, that at the time of such transfer
the transferee shall execute and deliver to the Company an "Investment Letter"
containing substantially the representations provided in Section 12.1 with
respect to the Notes or Common Stock that are the subject of such transfer and
its agreement to be bound by the provisions of this Section 12 and such transfer
is otherwise exempt from registration under the Securities Act and applicable
state securities laws. Notes or Common Stock issued upon such transfer shall
bear the appropriate restrictive legend set forth in Section 12.3.
13. DEFINITIONS.
"Affiliates" of any Person shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
Person. A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation, whether through the ownership
of voting securities, by contract or otherwise.
"Applicable Law" shall have the meaning given such term in Section 7.5.
"Bank" shall have the meaning given such term in Section 9.4
"Business Day" shall mean any day that the Nasdaq Stock Market is open
for trading.
"Change of Control" shall have the meaning given such term in Section
7.8.
"Change of Control Offer" shall have the meaning given such term in
Section 7.8.
"Change of Control Offer Period" shall have the meaning given such term
in Section 7.8.
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"Change of Control Purchase Date" shall have the meaning given such
term in Section 7.8.
"Change of Control Purchase Price" shall have the meaning given such
term in Section 7.8.
"Closing" shall have the meaning given such term in Section 3.
"Closing Date" shall have the meaning given such term in Section 3.
"Common Stock" shall mean the Company's presently authorized Common
Stock, $0.0001 par value per share.
"Company" means EarthCare Company, a Delaware corporation.
"Current Market Price" shall mean, as of any date, 20% of the sum of
the average, for each of the 5 consecutive Trading Days prior to such date, of
the Market Price on such Trading Day.
"Notes" shall have the meaning given such term in Section 1.
"Debt" shall have the meaning given such term in Section 9.5.
"Designated Holder of Senior Obligations" shall have the meaning given
such term in Section 9.6.
"Eligible Holder" shall have the meaning given such term in Section
12.6.
"Environmental Law" shall mean all federal, state, local and foreign
laws and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Event of Default" shall have the meaning given such term in Section
11.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Form 10-K" shall mean the Company's Annual Report Pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 for the fiscal year
ended December 31, 1998.
"Form 10-Q" shall mean the Company's Quarterly Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal
quarter ended September 30, 1999.
"Guaranty" shall mean, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such indebtedness or obligation or any
property constituting security therefor;
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(b) to advance or supply funds (i) for the purchase or payment
of such indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available
funds for the purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Holder" or "Holders" shall mean, with respect to any Note, the Person
in whose name such Note is registered in the register maintained by the Company
pursuant to Section 8.
"Indebtedness" shall mean, with respect to any Person means, at any
time, without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities created
or arising under any conditional sale or other title retention
agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with generally accepted accounting principles leases with
respect to which the lessee is required concurrently to recognize the
acquisition of an asset and the incurrence of a liability;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money); and
(f) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (e) hereof.
"Interest Payment Date" shall mean the date an installment of interest
becomes due and payable on the Notes in accordance with Section 1.
"Lien" shall mean, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other
20
<PAGE> 21
title retention agreement or capital lease, upon or with respect to any property
or asset of such Person (including in the case of stock, stockholder agreements,
voting trust agreements and all similar arrangements).
"Market Price" for any day shall mean (i) if the Common Stock is listed
or admitted for trading on any national securities exchange registered under
Section 6 of the Exchange Act the last sale price, or the closing bid price if
no sale occurred, of such class of stock on the principal national securities
exchange on which such class of stock is listed, or (ii) if not listed or traded
as described in clause (i), the last reported sale price of Common Stock on the
Nasdaq National Market tier of the Nasdaq Stock Market, if so quoted, (iii) if
not quoted as described in clause (ii), the average of the bid and asked price
on the Nasdaq Smallcap Market tier of the Nasdaq Stock Market or any similar
system of automated dissemination of quotations of securities prices then in
common use, if so quoted, or (iv) if not quoted as described in clause (iii),
the mean between the high bid and low asked quotations for Common Stock as
reported by the OTC Bulletin Board Service or National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and asked
quotations for such class of stock on at least five of the ten preceding days.
If the Common Stock is quoted on a national securities or central market system,
in lieu of a market or quotation system described above, the closing price shall
be determined in the manner set forth in clause (i) of the preceding sentence if
actual transactions are reported and in the manner set forth in clause (iii) of
the preceding sentence if bid and asked quotations are reported but actual
transactions are not. If none of the conditions set forth above is met, the
closing price of Common Stock on any day or the average of such closing prices
for any period shall be the fair market value of such class of stock as
determined by a member firm of the New York Stock Exchange, Inc. selected by the
Company. If the Market Price cannot be determined under any of the foregoing
methods, Market Price shall mean the fair value per share of Common Stock on
such date determined by the Board of Directors of the Company in good faith,
irrespective of any accounting treatment; provided, however, if Holders of 51%
or more in aggregate principal amount of the Notes disagree with the Board's
determination of the fair value per share of the Common Stock, such fair value
shall be determined by an investment banking firm, which as part of its business
engages in the valuation of businesses and their securities in connection with
mergers and acquisitions, underwritings, distributions, and private placements,
jointly selected by the Company and the Holders. If the Company and the Holders
shall not be able to agree on an investment banking firm to provide such
valuation, then each of the Company and the Holders shall select an investment
banking firm to provide a determination of such fair value and the average of
such determinations shall be the fair value per share of the Common Stock. The
Company shall pay the fees and expenses of any such investment banking firms
retained to provide such valuations.
"Material Adverse Change" shall mean any single circumstance or event
(or series of circumstances or events) having a material adverse effect on the
assets, properties, financial condition, business operations or prospects of the
Company or on the Company and the Subsidiaries, on a consolidated basis.
"Materials of Environmental Concern" shall mean chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products.
"Nasdaq Stock Market" shall mean The Nasdaq Stock Market, Inc.
"Person" shall mean and include an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a
government or any department or agency thereof, and any other entity.
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<PAGE> 22
"Prepayment Date" shall mean the date fixed for prepayment of the Notes
pursuant to Section 5.1.
"Restricted Note" shall mean any Note bearing the restrictive legend
set forth in Section 12.3 hereof.
"Restricted Stock" shall mean shares of Common Stock issued in payment
of interest on the Notes and evidenced by a certificate nearing the restrictive
legend set forth in Section 12.3 hereof or shares issuable upon exercise of the
Warrants.
"SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"SEC Filings" shall have the meaning given such term in Section 4.3.
"Securities" shall mean the Notes and the Common Stock as the same may
be respectively amended and supplemented from time to time.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
"Senior Blockage Notice" shall have the meaning given such term in
Section 9.1.
"Senior Credit Agreement" shall have the meaning given such term in
Section 9.4.
"Senior Obligations" shall have the meaning given such term in Section
9.4.
"Senior Obligations Default" shall mean a default in payment of the
principal of or sinking fund installments, if any, due with respect to, fees in
respect of or interest on, any Senior Obligations, or any default, or any event
which, with notice or lapse of time or both, would constitute a default, in any
other agreement, term or condition contained in any agreement under which any
Senior Obligations is issued.
"Subsidiaries" shall mean any Person of which at the time of
determination the Company and/or one or more Subsidiaries owns or controls
directly or indirectly more than 50% of the shares of voting stock of such
Person.
"Trading Day" shall mean a day on which an amount greater than zero can
be calculated with respect to the Common Stock under any one or more of the
clauses (i), (ii), or (iii) under the definition of "Market Price" below.
"Warrant" shall have the meaning given such term in Section 1.
"Warrant Purchase Price" shall mean the Current Market Price of the
Common Stock on the Closing Date, such price being subject to adjustment as
provided in the Warrant.
14. WAIVERS; MODIFICATIONS OF AGREEMENT. Any provision in this
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or condition herein set
forth may be omitted, if the Company (a) shall obtain from the holders of record
of Notes aggregating not less than 66-2/3% of the aggregate principal amount of
the Notes at the time outstanding (and, in the case of any such change,
addition, or omission adversely affecting the rights pursuant to Section 12 of
any holder of record of Restricted Stock or Notes, additionally from the Holders
of not less than 100% of the number of shares of Restricted Stock or Notes at
the time
22
<PAGE> 23
outstanding) their consent thereto in writing and (b) shall deliver copies of
such consent in writing to any such Holders of record who did not execute the
same; provided, however, that without the consent in writing of the holder of
each Note (or, in the case of any change, addition, or omission adversely
affecting the rights pursuant to Section 12 of any holder of record of
Restricted Stock or Notes, as aforesaid, of each share of Restricted Stock or
Notes) affected thereby, no such consent shall be effective to reduce the
principal of or rate of interest payable on, or to postpone any date fixed for
the payment of principal of or any installment of interest on, any Note, to
increase the percentage specified in Section 11 of the principal amount of the
Notes the Holders of which may, in accordance with the provisions of such
Section 11, accelerate the maturity of the Notes upon an Event of Default or to
reduce the percentage of the principal amount of the Notes (or Restricted Stock)
the consent of the Holders of which shall be required under this Section 15.
15. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations, and warranties made herein and in the Notes and in any
certificate delivered pursuant hereto shall survive any investigation made by
you and the execution and delivery to you of the Notes to be purchased by you
and your payment therefor.
16. BROKERS; ISSUANCE TAXES. The Company will hold you free and
harmless from any (a) claim, demand, liability for, or expense in connection
with, any brokers' or finders' fees or commissions claimed by any Person
asserted to be acting on behalf of the Company in connection with this Agreement
or the transactions contemplated herein and (b) taxes, if any, payable upon, or
on account of, issuance of the Notes or the Common Stock.
17. GOVERNING LAW. This Agreement and the Notes are being
delivered in Texas and shall be governed by and construed according to the laws
of the State of Texas without consideration of its conflict of law provisions.
18. NOTICES. Any notice, consent, request, or other communication
required or permitted hereunder shall be in writing and shall be deemed given
when either (a) personally delivered to the intended recipient or (b) sent, by
certified or registered mail, return-receipt requested, addressed to the
intended recipient as follows:
if to the Company, to:
EarthCare Company
14901 Quorum Drive, Suite 200
Dallas, Texas 75240
; if to any of you, to the address given for such of you on Schedule 1 hereto;
if to any other holder of a Note to the address of such holder given to the
Company in accordance with Section 8; and if to any other holder of Restricted
Stock, to the address of such holder as set forth in the stock transfer records
of the Company. Any Person (other than the Company) may change the address to
which notice is to be sent pursuant to the preceding sentence by giving notice
of such new address to the Company in accordance with this Section 19. The
Company may change the address to which notice is to be sent hereunder by giving
notice of such change, in accordance with this Section 19, to each Person
against whom such change shall be effective. Any notice mailed as aforesaid
shall, unless otherwise provided herein, be deemed given on the fifth day after
deposited in the Unites States mail in accordance with the first sentence of
this Section 19.
19. ORIGINAL ISSUE DISCOUNT. The Notes will be subject to the
original issue discount provisions of Section 1273 of the Internal Revenue Code
of 1986, as amended. If the Notes are determined to have been issued with
original issue discount, a holder would
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<PAGE> 24
be required to include a portion of such original issue discount in gross income
in each year, or portion thereof, during which such holder held a Note, even
though no cash payment with respect to such original issue discount would have
been received. The Treasury Regulations under Section 1273 require the Company
and the purchasers of the Notes to make certain joint determines concerning
original issue discount. The Company will use its best efforts to provide the
holders of the Notes with its allocation of the purchase price of the Securities
among the Notes and the Warrants within thirty (30) days following the Closing.
The Company and the purchasers of the Securities agree to cooperate in
determining the amount of original issue discount attributable to the Notes and
in reporting such discount on their respective tax returns.
20. PARTIES IN INTEREST. All of the terms and provisions of this
Agreement shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
21. BUSINESS DAYS. Should any installment of the principal of or
interest on any Note become due and payable upon a day other than a day on which
national banks located in Texas, are open for the conduct of banking business,
the maturity thereof shall be extended to the next succeeding day upon which
such banks are open for the conduct of banking business and, in the case of an
installment of principal, interest shall be payable thereon at the rate per
annum specified in such Note during such extension.
22. HEADINGS. The headings of the various sections and subsections
hereof have been inserted for convenience of reference only and shall not be
deemed to in any way modify any of the terms or provisions hereof.
23. COUNTERPARTS. This Agreement may be signed by each party
hereto upon a separate copy, in which event all of said copies shall constitute
a single counterpart of this Agreement. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
If the foregoing is in accordance with your understanding, please sign
the form of confirmation and acceptance on the enclosed counterpart of this
Agreement and return the same to the Company, whereupon this Agreement shall be
a binding agreement between you and the Company.
Very truly yours,
EARTHCARE COMPANY
By:
--------------------------------
Harry Habets, President
24
<PAGE> 25
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written
- ----------------------------
Donald F. Moorehead
- ----------------------------
Raymond M. Cash
- ----------------------------
Thomas P. Hughes
Founders Equity Group
By
-------------------------
- ---------------------------
George O. Moorehead
25
<PAGE> 26
SCHEDULE 1
Schedule of Purchasers
Principal
Amount of
<TABLE>
<CAPTION>
Name and Address Notes
- ---------------- ------------
<S> <C>
Donald F. Moorehead $ 9,000,000
Highland Holdings, Inc.
15301 Spectrum Drive, Suite 390
Addison, Texas 75001
Cash Family Limited Partnership
Raymond M. Cash 7,500,000
2300 Long Road
Ballground, Georgia 30107
Founders Equity Group 1,000,000
2602 McKinney, Suite 220
Dallas, Texas 75204
Thomas P. Hughes 1,000,000
Auto, Inc.
P.O. Box 3327
Pinehurst, North Carolina 28374
George O. Moorehead 1,500,000
-----------
5339 E. Lafayette Blvd $20,000,000
Phoenix, Arizona 85018
</TABLE>
26
<PAGE> 1
EXHIBIT 10.13
MANAGEMENT AGREEMENT
THIS AGREEMENT, entered into the 31st day of March, 2000 between Liberty Waste,
Inc., a Florida corporation ("Liberty") and EarthCare Company, a Delaware
corporation ("EarthCare").
In consideration of the following mutual covenants, the parties agree
as follows:
1. RECITATIONS. Liberty and EarthCare desire to enter into an
agreement for EarthCare to furnish various management services
in exchange for a management fee. EarthCare has hired
executive personnel and invested in data processing assets in
anticipation of entering into this Agreement. EarthCare has
familiarized itself with the business of Liberty and has
consulted with various professionals and investment bankers
regarding the business of Liberty.
2. MANAGEMENT SERVICES. During the term of this Agreement,
EarthCare shall provide the following services for Liberty:
(a) Accounting services;
(b) Investment banking advisory services;
(c) Information and data processing services;
(d) Bid and bond advice;
(e) Municipal contract assistance; and
(f) Commercial banking services.
3. MANAGEMENT FEES. In exchange for the management services to be
furnished hereunder, Liberty shall pay EarthCare management
fees as follows:
(a) $500,000 upon the execution of this Agreement; and
(b) $75,000 per month, commencing April 15, 2000, for the
term of this Agreement.
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<PAGE> 2
4. TERM. This Agreement shall be for a term commencing March 31,
2000 and ending on March 31, 2001, and shall be renewed
automatically for additional one - year terms unless
terminated by either party by giving not less than 60 days
written notice prior to the end of a term to the other party.
5. REPRESENTATIONS AND WARRANTIES OF LIBERTY.
(a) Liberty is a corporation duly organized and legally
existing in good standing under the laws of the State
of Florida, and has all the requisite corporate power
and authority to carry on its business as now
conducted.
(b) The execution, delivery and performance of this
Agreement by Liberty has been duly approved by its
Board of Directors, and no further corporate action
is necessary on the part of Liberty to consummate the
transactions contemplated by this Agreement, assuming
due execution of this Agreement by the Parties.
(c) Liberty maintains in effect insurance covering its
assets and businesses and any liabilities relating
thereto in an amount believed adequate by Liberty,
and such insurance coverage shall be maintained by
Liberty.
(d) Liberty possesses all licenses and other required
governmental or official approvals, permits or
authorizations, if any, the failure to possess which
would have a material adverse effect on the business,
financial condition or results of operations of
Liberty including, without limitation, all common
carrier rights, certificates of public need, waste
material transportation permits, trademarks and trade
names necessary to carry on its business as now being
conducted, without known conflict with valid
licenses, permits, trademarks and trade names of
others. All such licenses and permits are in full
force and effect, and no violations are or have been
recorded in respect to any thereof, and no proceeding
is pending, or to the knowledge of Liberty
threatened, to revoke, suspend or otherwise limit
such licenses or permits. All licenses and permits
will survive the closing of the transactions
contemplated by this Agreement.
(e) No agent, broker, finder, representative or other
person or entity acting pursuant to authority of
Liberty will be entitled to any commission or
2
<PAGE> 3
finder's fee in connection with the origination,
negotiation, execution or performance of the
transactions contemplated under this Agreement.
(f) This Agreement and all other agreements of Liberty
contemplated hereunder constitute valid and binding
obligations of Liberty, enforceable in accordance
with their respective terms. Neither the execution
and delivery of this Agreement (or any agreement
contemplated hereunder) nor the consummation of the
transactions contemplated hereby will: (i) conflict
with or violate any provision of the Articles of
Incorporation or By-Laws of Liberty; (ii) conflict
with or violate any decree, writ, injunction or order
of any court or administrative or other governmental
body which is applicable to, binding upon or
enforceable against Liberty; or (iii) result in any
breach of or default (or give rise to any right of
termination, cancellation or acceleration) under any
mortgage, contract, agreement, indenture, will, trust
or other instrument which is either binding upon or
enforceable against Liberty or its assets.
(g) Liberty has the full power, right and authority to
enter into and perform this Agreement without the
consent of any person, entity, or governmental
agency, and the consummation of the transactions
contemplated by this Agreement will not result in the
breach or termination of any provision of or
constitute a default under any lease, indenture,
mortgage, deed of trust or other agreement or
instrument or any order, decree, statute or
restriction to which Liberty is a party or by which
Liberty is bound or to which the outstanding shares
of stock of Liberty or any of the properties of
Liberty is subject.
(h) No representation, statement or information made or
furnished by Liberty to EarthCare, including those
contained in this Agreement and the other information
and statements referred to herein, contains or shall
contain any untrue statement of any material fact.
6. REPRESENTATIONS AND WARRANTIES OF EARTHCARE.
(a) EarthCare is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware and has all the requisite corporate
power and authority to carry on its business as now
conducted and to consummate the transactions
contemplated by this
3
<PAGE> 4
Agreement.
(b) The execution, delivery and performance of this
Agreement by EarthCare has been duly approved by its
Board of Directors, and no further corporate action
is necessary on the part of EarthCare to consummate
the transactions contemplated by this Agreement,
assuming due execution of this Agreement by the
Parties.
(c) No agent, broker, finder, representative or other
person or entity acting pursuant to the authority of
EarthCare will be entitled to any commission or
finder's fee in connection with the origination,
negotiation, execution or performance of the
transactions contemplated under this Agreement.
(d) This Agreement and all other agreements of EarthCare
contemplated hereunder constitute valid and binding
obligations of EarthCare, enforceable in accordance
with their respective terms. Neither the execution
and delivery of this Agreement (or any agreement
contemplated hereunder) nor the consummation of the
transactions contemplated hereby will: (i) conflict
with or violate any provision of the Articles of
Incorporation or By-Laws of EarthCare; (ii) conflict
with or violate any decree, writ, injunction or order
of any court or administrative or other governmental
body which is applicable to, binding upon or
enforceable against EarthCare; or (iii) result in any
breach of or default (or give rise to any right of
termination, cancellation or acceleration) under any
mortgage, contract, agreement, indenture, will, trust
or other instrument which is either binding upon or
enforceable against EarthCare or its assets.
(e) EarthCare has the full power, right and authority to
enter into and perform this Agreement without the
consent of any person, entity, or governmental
agency, and the consummation of the transactions
contemplated by this Agreement will not result in the
breach or termination of any provision of or
constitute a default under any lease, indenture,
mortgage, deed of trust or other agreement or
instrument or any order, decree, statute or
restriction to which EarthCare is a party or by which
EarthCare is bound or to which the outstanding shares
of stock of EarthCare or any of the properties of
EarthCare is subject.
4
<PAGE> 5
(f) No representation, statement or information made or
furnished by EarthCare to Liberty in this Agreement,
or in connection with the transactions contemplated
hereby contains, or shall contain any untrue
statement of any material fact or omits or shall omit
any material fact necessary to make the information
contained herein true.
7. MATERIAL CONTRACTS, ETC. In anticipation of the acquisition by
EarthCare of a significant minority interest in Liberty,
Liberty shall not, without the written consent of EarthCare,
issue or enter into any subscriptions, options, agreements or
other commitments in respect of the issuance, transfer, sale
or encumbrance of any shares of Liberty common stock, or enter
into any material transactions outside the ordinary course of
business.
8. INDEMNIFICATION BY LIBERTY.
(a) Liberty shall indemnify and hold EarthCare harmless
from and against any and all damages, loss, cost,
deficiency, assessment, liability or other expense
(including reasonable attorney's fees, costs of court
and costs of litigation, if any) suffered, incurred
or paid by EarthCare as a result of:
(i) The untruth, inaccuracy, breach or violation
of any representation, warranty covenant or
other obligation of Liberty set forth in or
made in connection with this Agreement.
(ii) The assertion against EarthCare of any
liabilities or obligations of Liberty or any
claim relating to the operations of
Liberty's business; or
(iii) The enforcement of EarthCare's right to
indemnification under this Agreement.
(b) EarthCare shall give written notice to Liberty of any
claim, action, suit or proceeding relating to the
indemnity herein provided by Liberty not later than
ten (10) days after EarthCare has received notice
thereof. Liberty shall have the right, at its option,
to compromise or defend, at its own expense and by
its own counsel (which counsel shall be reasonably
satisfactory to EarthCare), any such action, suit or
proceeding. EarthCare and Liberty agree to cooperate
in any such
5
<PAGE> 6
defense or settlement and to give each other full
access to all information relevant thereto.
(c) Except as herein expressly provided, the remedies
provided in Paragraph 8 hereof shall be cumulative
and shall not preclude assertion by EarthCare or the
seeking of any other remedies available against
Liberty at law or in equity.
(d) The indemnification shall not extend to damages or
costs caused by the willful or wrongful acts of
EarthCare, including, without limitation, violations
of federal, state or local laws.
9. INDEMNIFICATION BY EARTHCARE
(a) EarthCare shall indemnify and hold Liberty harmless
from and against any and all damages, loss, cost,
deficiency, assessment, liability or other expense
(including reasonable attorney's fees, costs of court
and costs of litigation, if any) suffered, incurred
or paid by Liberty as a result of:
(i) The untruth, inaccuracy, breach or violation
of any representation, warranty, covenant or
other obligation of EarthCare set forth in
or made in connection with this Agreement.
(ii) The assertion against Liberty of any
liabilities or obligations of EarthCare or
any claim relating to the operations of
EarthCare's business; or
(iii) The enforcement of Liberty's right to
indemnification under this Agreement.
(b) Liberty shall give written notice to EarthCare of any
claim, action, suit or proceeding relating to the
indemnity herein provided by EarthCare not later than
ten (10) days after Liberty has received notice
thereof. EarthCare shall have the right, at its
option, to compromise or defend, at its own expense
and by its own counsel (which counsel shall be
reasonably satisfactory to Liberty), any such action,
suit or proceeding. EarthCare and Liberty agree to
cooperate in any such defense or
6
<PAGE> 7
settlement and to give each other full access to all
information relevant thereto.
(c) Except as herein expressly provided, the remedies
provided in Paragraph 9 hereof shall be cumulative
and shall not preclude assertion by Liberty or the
seeking of any other remedies available against
EarthCare at law or in equity.
(d) The indemnification shall not extend to damages or
costs caused by the willful or wrongful acts of
Liberty, including, without limitation, violations of
federal, state or local laws.
10. WAIVER OR EXTENSION OF CONDITIONS. Liberty or EarthCare may
extend the time for or waive the performance of any of the
obligations of the other party, waive any inaccuracies in the
representations or warranties by the other party, or waive
compliance by the other party with any of the covenants or
conditions contained in this Agreement. Any such extension or
waiver shall be in writing and signed by the Liberty and
EarthCare. Any such extension or waiver shall not act as a
waiver or an extension of any other provisions of this
Agreement.
11. NOTICES. Any notice, request or other document shall be in
writing and sent by registered or certified mail, return
receipt requested, postage prepaid and addressed to the party
to be notified at the following addresses, or such other
address as such party may hereafter designate by written
notice to all parties, which notice shall be effective as of
the date of posting:
(a) If to EarthCare:
EarthCare Company
14901 Quorum Drive
Suite 200
Dallas, TX 75240
Copy to:
Robert C. Gist, Esq.
12809 Plum Hollow Drive
Oklahoma City, OK 73142-5148
7
<PAGE> 8
(b) If to Liberty
Copy to:
12. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Texas.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns.
14. HEADINGS. The subject headings of the Sections of this
Agreement are included for purposes of convenience only and
shall not affect the constructions or interpretation of any of
its provisions.
15. 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. ARBITRATION. Any controversy or claim arising out of, in
connection with, or relating to this Agreement or a breach
thereof shall be settled by binding arbitration in
Dallas, Texas. The arbitration panel shall be comprised of
three arbitrators. Each party shall appoint one arbitrator for
the panel and the two so appointed shall appoint a third. The
panel shall resolve the dispute within sixty (60) days of the
appointment of the panel and shall notify the parties of its
findings in writing. Each party agrees to bear its own costs
of arbitrators and to split equally the cost of the third
arbitrator.
17. ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement and understanding between the parties, and
supersede any prior agreements and understandings relating to
the subject matter hereof. This Agreement may be modified or
amended only by a written instrument executed by all parties
hereto.
8
<PAGE> 9
IN WITNESS WHEREOF the parties have executed this Agreement on the date
first above written.
Liberty Waste, Inc.
By:
---------------------------
EarthCare Company
By:
---------------------------
9
<PAGE> 1
EXHIBIT 10.14
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND IS TRANSFERABLE ONLY UPON THE CONDITIONS SPECIFIED IN THE DEBENTURE
AGREEMENT REFERRED TO HEREIN.
EARTHCARE COMPANY
10% Convertible Subordinated Debenture Due 2006
No. <<Note_>> <<Purchase_Price>>
EARTHCARE COMPANY, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company") for value received,
hereby promises to pay to <<REGISTERED_OWNER>> or registered assigns, the
principal sum of <<Purchase_Price>> Dollars on October 31, 2006, and to pay
interest thereon quarterly on December 31, March 31, June 30, and September 30
(each an "Interest Payment Date"), in each year commencing on December 31, 1999,
at 10% per annum, from the date of issuance of this Debenture, or from the most
recent Interest Payment Date for which interest has been paid or duly provided
for on the Debentures, and upon prepayment or conversion hereof, as provided in
the Debenture Agreement, until the principal hereof is paid or made available
for payment. To the extent permitted by law, interest on any overdue payment of
principal or interest shall be payable quarterly at a rate equal to 18% per
annum. Interest will be computed on the basis of a 365-day year. The Company may
pay interest by issuing additional Debentures to the holder in aggregate
principal amount equal to interest due and payable on an Interest Payment Date
as provided in the Debenture Agreement.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will be paid to the person in whose name this
Debenture is registered. Payment of the principal of and interest on this
Debenture will be made at the offices or agencies of the Company maintained for
that purpose in Dallas, Texas and at any other office or agency maintained by
the Company for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the person entitled
thereto as such address shall appear in the Debenture register.
This Debenture is one of a duly authorized issue of Debentures of the
Company (which term includes any successor corporation under the Debenture
Agreement hereinafter referred to) designated as its 10% Convertible
Subordinated Debentures due 2006 (the "Debentures"), limited in aggregate
principal amount of up to $15,000,000, issued pursuant to a Debenture Agreement
dated
Page 1 of 4 Pages
<PAGE> 2
as of October 19, 1999 (the "Debenture Agreement"), between the Company and the
purchasers of the Debentures. The terms of this Debenture include those stated
in the Debenture Agreement. Reference is hereby made to the Debenture Agreement
and all supplements thereto for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, and the
holders of the Debentures and of the terms upon which the Debentures are, and
are to be, and delivered.
In the event of conversion of this Debenture in part only, a new
Debenture or Debentures for the unpaid or unconverted principal portion hereof
will be issued in the name of the holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Debentures may be declared due and payable in the manner and with the
effect provided in the Debenture Agreement.
The indebtedness evidenced by the Debentures is, to the extent provided
in the Debenture Agreement, subordinate and junior in right of payment to the
prior payment in full of all Senior Obligations, as defined in the Debenture
Agreement. Each holder of this Debenture, by accepting the same, agrees to and
shall be bound by such provisions of the Debenture Agreement.
Subject to and upon compliance with the provisions of the Debenture
Agreement, the holder of this Debenture is entitled, at such holder's option, at
any time on or before the close of business on October 31, 2006, or, if earlier,
the close of business on the Business Day immediately preceding any Redemption
Date, or the date this Debenture is paid if later, to convert this Debenture (or
any portion of the principal amount hereof which is $1,000 or an integral
multiple thereof), at the principal amount hereof, or of such portion, into
newly issued, fully paid and nonassessable shares of Common Stock of the Company
at a Conversion Price equal to $11.50 aggregate principal amount of Debentures
for each share of Common Stock (or at the current adjusted Conversion Price if
an adjustment has been made as provided in the Debenture Agreement) by surrender
of this Debenture, duly endorsed or assigned to the Company or in blank and also
accompanied by the conversion notice hereon duly executed, to the Company at
such office or agency of the Company as may be designated by it for such purpose
in Dallas, Texas. Upon receipt of a duly endorsed Debenture and conversion
notice, the Company will cancel such Debenture, issue the requisite number of
shares of Common Stock into which such Debenture or portion thereof is
convertible in the name of the holder, or his designated assigns, and deliver
such shares to such holder or assigns along with interest accrued on the portion
of such Debenture so converted from the last Interest Payment Date to the
effective date of conversion, as provided in the Debenture Agreement. Subject to
the aforesaid requirement for payment, no payment or adjustment is to be made on
conversion for interest accrued hereon after the date of conversion or for
dividends on the Common Stock issued on conversion. No fractions of shares or
scrip representing fractions of shares will be issued on conversion, but
Page 2 of 4 Pages
<PAGE> 3
instead of any fractional interest (calculated to the nearest 1/100th of a
share) the Company shall pay a cash adjustment as provided in the Debenture
Agreement. The Conversion Price is subject to adjustment as provided in the
Debenture Agreement. In addition, the Debenture Agreement provides that in case
of certain consolidations or mergers to which the Company is a party or the
transfer of all or substantially all of the assets of the Company, the Debenture
Agreement shall be amended, without the consent of any holders of Debentures, so
that this Debenture, if then outstanding, will be convertible thereafter, during
the period this Debenture shall be convertible as specified above, only into the
kind and amount of securities, cash, and other property receivable upon such
consolidation, merger, or transfer by a holder of the number of shares of Common
Stock of the Company into which this Debenture might have been converted
immediately prior to such consolidation, merger, or transfer (assuming such
holder of Common Stock failed to exercise any rights of election and received
per share the kind and amount received per share by a plurality of non-electing
shares). Adjustments in the Conversion Price of less than one percent of such
price will not be required, but any adjustment that would otherwise be required
to be made will be carried forward and taken into account in the computation of
any subsequent adjustment.
The Debenture Agreement permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the holders under the Debenture
Agreement at any time by the Company with the consent of the holders of 66-2/3%
in aggregate principal amount of the Debentures at the time outstanding. The
Debenture Agreement also contains provisions permitting the holders of 66-2/3%
in aggregate principal amount of the Debentures at the time outstanding, on
behalf of the holders of all the Debentures, to waive compliance by the Company
with certain provisions of the Debenture Agreement and certain past defaults
under the Debenture Agreement and their consequences. Any such consent or waiver
by the holder of this Debenture shall be conclusive and binding upon such holder
and upon all future holders of this Debenture and of any Debenture issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Debenture.
No reference herein to the Debenture Agreement and no provision of this
Debenture or of the Debenture Agreement shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of and
interest on this Debenture at the times, places and rate, and in the coin or
currency, herein prescribed or to convert this Debenture as provided in the
Debenture Agreement.
As provided in the Debenture Agreement and subject to certain
limitations therein set forth, the transfer of this Debenture is registrable in
the Debenture register, upon surrender of this Debenture for registration of
transfer at the offices or agencies of the Company in Dallas, Texas duly
endorsed by, or accompanied by a written instrument of transfer in substantially
the form
Page 3 of 4 Pages
<PAGE> 4
accompanying this Debenture duly executed by, the holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Debentures, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
As provided in the Debenture Agreement and subject to certain
limitations therein set forth, the Debentures are exchangeable for a like
aggregate principal amount of Debentures of a different authorized denomination,
as requested by the holder surrendering the same.
Prior to due presentment of this Debenture for registration of
transfer, the Company, and any agent of the Company may treat the person in
whose name this Debenture is registered as the owner hereof for all purposes,
whether or not this Debenture be overdue, and neither the Company, nor any such
agent shall be affected by notice to the contrary.
All terms used in this Debenture which are defined in the Debenture
Agreement shall have the meanings assigned to them in the Debenture Agreement.
The Company will furnish to any Debentureholder of record upon written request
without charge a copy of the Debenture Agreement. Requests may be made to:
EarthCare Company, 14901 Quorum Drive, Suite 200, Dallas, Texas 75240.
IN WITNESS WHEREOF, EarthCare Company has caused this instrument to be
executed in its corporate name.
Dated: November 5, 1999
EARTHCARE COMPANY
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Page 4 of 4 Pages
<PAGE> 5
ASSIGNMENT FORM
If you the holder want to assign this 10% Subordinated Convertible
Debenture, fill in the form below and have your signature guaranteed:
I or we assign and transfer this 10% Subordinated Convertible Debenture
to:
- --------------------------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint __________________________, agent to transfer this 10%
Convertible Subordinated Debenture on the books of the Company. The agent may
substitute another to act for him.
Dated:______________________ Signed:________________________
<PAGE> 6
'
Form of Conversion Notice.
CONVERSION NOTICE
The undersigned holder of this Debenture hereby irrevocably exercises
the option to convert this Debenture, or any portion hereof (which is $1,000 or
an integral multiple thereof) below designated, into shares of Common Stock in
accordance with the terms of the Debenture Agreement referred to in this
Debenture, and directs that such shares, together with a check in payment for
any fractional share and any Debentures representing any unconverted principal
amount hereof, be delivered to and be registered in the name of the undersigned
unless a different name has been indicated below. If shares of Common Stock or
Debentures are to be registered in the name of a Person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto.
Dated:
-----------------
------------------------------
Signature
If shares or Registered Debentures If only a portion of the Debentures
are to be registered in the name of a is to be converted, please indicate:
Person other than the holder, please
print such Person's name and
address:
- ------------------------- 1. Principal Amount to be converted:
Name U.S. $__________
- ------------------------- 2. Amount and denomination of
Address Registered Debentures representing
unconverted principal amount to be
issued:
Amount: $__________
- ------------------------- Denominations:
Social Security or other
Taxpayer Identification $__________
Number, if any ($1,000 or an integral multiple
thereof)
[Signature Guaranteed]
- -------------------------
<PAGE> 1
EXHIBIT 21.0
LIST OF SUBSIDIARIES
1) Bone-Dry Enterprises, Inc., a Georgia corporation which operates under
the following tradenames: Andrews Environmental, Bone-Dry Enterprises
and Quality Plumbing and Septic.
2) SanTi Group of Florida, Inc., a Georgia corporation which operates
under the following tradenames: Brownie Environmental Services,
Grease-Tec and A Rapid Rooter Sewer and Drain.
3) SanTi Group of Pennsylvania, Inc., a Georgia corporation which
operates under the following tradenames: Ferrero Wastewater Management
and Eldredge Wastewater Management.
4) SanTi Group of New York, Inc., a Georgia corporation which operates
under the following tradenames: RGM Liquid Waste Removal and Devito
Environmental.
5) Nutrecon, Inc., a Pennsylvania corporation.
6) Reifsneider Transportation, Inc., a Pennsylvania corporation.
7) Brehm's Cesspool, Inc., a Pennsylvania corporation.
8) National Plumbing & Drain, Inc., a Georgia corporation.
9) Magnum Environmental, Inc., a Florida corporation.
10) Food Service Technologies, Inc., a Texas corporation.
11) Hulsey Plumbing, Heating and Cooling, Inc., a Georgia corporation.
12) Hulsey Environmental Services, Inc., a Georgia corporation.
13) International Petroleum Corporation, a Florida corporation.
14) International Petroleum Corporation of Louisiana, a Louisiana
corporation.
15) International Petroleum Corporation of Maryland, a Maryland
corporation.
16) International Petroleum Corporation of Georgia, a Georgia corporation.
17) International Petroleum Corporation of Delaware, a Delaware
corporation.
18) International Petroleum Corporation of Pennsylvania, a Pennsylvania
corporation.
19) International Petroleum Corporation of Lafayette, a Louisiana
corporation.
20) International Environmental Services, Inc., a Florida corporation.
21) All County Resource Management Corporation, a New Jersey corporation.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-85785) of EarthCare Company of our report dated
April 7, 2000 except for the last sentence of Note 5(A), as to which the date is
April 14, 2000 relating to the consolidated financial statements, which appears
in this Form 10-K. We also consent to the incorporation by reference of our
report dated April 7, 2000 except for the last sentence of Note 5(A), as to
which the date in April 14, 2000 relating to the financial statement schedule,
which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
April 13, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated April 2, 1998 (except for the fourth paragraph of Note 1 as to
which the date is June 29, 1998) included in this Form 10-K into the Company's
previously filed Registration Statement on Form S-8, File No. 333-85785.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 12, 2000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 282,003
<SECURITIES> 0
<RECEIVABLES> 8,993,852
<ALLOWANCES> 411,707
<INVENTORY> 0
<CURRENT-ASSETS> 10,762,177
<PP&E> 32,966,177
<DEPRECIATION> 2,088,201
<TOTAL-ASSETS> 75,160,692
<CURRENT-LIABILITIES> 8,335,814
<BONDS> 0
0
0
<COMMON> 1,124
<OTHER-SE> 19,614,600
<TOTAL-LIABILITY-AND-EQUITY> 75,160,692
<SALES> 0
<TOTAL-REVENUES> 41,813,333
<CGS> 0
<TOTAL-COSTS> 55,292,253
<OTHER-EXPENSES> 225,845
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,170,351
<INCOME-PRETAX> (15,875,116)
<INCOME-TAX> 571,060
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 86,817
<CHANGES> 0
<NET-INCOME> (16,359,359)
<EPS-BASIC> (1.58)
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