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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 8-K
Current Report
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 20, 1998
EASTERN ENVIRONMENTAL SERVICES, INC.
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(Exact name of issuer as specified in charter)
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Delaware 0-16102 59-2840783
(State or Other Jurisdiction Commission (I.R.S. Employer
Or Incorporation or File Number Identification
Organization) Number)
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1000 CRAWFORD PLACE, MT. LAUREL, NEW JERSEY 08054
(Address of principal executive offices)
(609)235-6009
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
-------------------------------------
On August 20, 1998, Eastern Environmental Services, Inc. (the "Registrant")
consummated the acquisition of Allegro Enterprises, Inc., Regional Recycling,
Inc., Lee Bin Containers, Inc., Madison Enterprises, Inc., Frank and Joe Savino
Partnership, Allegro Transportation and Recycling, Inc., Allegro Carting and
Recycling, Inc. and Joseph Savino and Sons, Inc. (collectively, the "Savino
Companies") pursuant to the terms of two Agreements and Plans of Reorganization
(collectively as the "Agreements"), both dated May 18, 1998 by and among the
shareholders of the Savino Companies (collectively, the "Shareholders" or
"Sellers") and the Registrant. The description of the acquisition transaction
set forth herein is qualified in its entirety by the Agreement and Plans of
Reorganization and related amendment which are incorporated as Exhibits 10.1,
10.2 and 10.3
Pursuant to the Agreements and Plans of Reorganization and related
amendment, the Registrant acquired substantially all of the assets of the Savino
Companies resulting in the Shareholders receiving approximately 506,000
unregistered shares of the Registrant's common stock, $.01 par value in exchange
for all of the outstanding common stock of the Savino Companies. The shares of
the Registrant's common stock were valued at $31.50 per share. No cash was paid
to the Shareholders for the acquisition of the shares of the Company. The
acquisition is to be accounted for using the "pooling of interests" method.
At the date of closing the Stock Purchase Agreement, the Registrant assumed
approximately $10.2 million of outstanding indebtedness of the Company.
The transaction includes substantially all of the assets and liabilities
relating to the operation of the Companies. The acquired assets were used by
the Shareholders in the solid waste collection, transfer, recycling and disposal
business. The Registrant intends to continue to use the acquired assets for
these purposes.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
Financial Information and Exhibits.
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(a) COMBINED FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. It is impracticable to
provide the required combined financial statements of Allegro Enterprises,
Inc., Regional Recycling, Inc., Lee Bin Containers, Inc., Madison
Enterprises, Inc., Frank and Joseph Savino Partnership, Allegro
Transportation and Recycling, Inc., Allegro Carting and Recycling, Inc. and
Joseph Savino and Sons, Inc. (collectively the "Savino Companies") at the
time of the filing of this report. The required combined financial
statements of the Savino Companies will be filed within the time period
required in accordance with applicable regulations under the Securities and
Exchange Act of 1934.
(b) PRO FORMA FINANCIAL INFORMATION.
It is impracticable to provide the required pro forma financial information
of Eastern Environmental Services, Inc. at the time of the filing of this
report. The pro forma information will be filed within the time period
required in accordance with applicable regulations under the Securities
Exchange Act of 1934.
(c) EXHIBITS
10.1 Agreement and Plan of Reorganization dated May 18, 1998, by and between
Eastern Environmental Services, Inc. and the shareholders of Allegro
Enterprises, Inc., Regional Recycling, Inc., Lee Bin Containers, Inc.,
Madison Enterprises, Inc., and Joseph and Frank Savino Partnership.
10.2 Agreement and Plan of Reorganization dated May 18, 1998, by and between
Eastern Environmental Services, Inc. and the shareholders of Allegro
Enterprises, Inc., Allegro Transportation and Recycling, Inc., Allegro
Carting and Recycling, Inc., Joseph Savino and Sons, Inc., Lee Bin
Containers, Inc., and Joseph and Frank Savino Partnership.
10.3 Amendment dated August 20, 1998 to the Agreements and Plans of
Reorganization dated May 18, 1998.
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SIGNATURE
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Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Eastern Environmental Services, Inc.
Date: September 2, 1998 By: /s/ Gregory M. Krzemien
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Gregory M. Krzemien, Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No. Description
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10.1 Agreement and Plan of Reorganization dated May 18, 1998, by and between
Eastern Environmental Services, Inc. and the shareholders of Allegro
Enterprises, Inc., Regional Recycling, Inc., Lee Bin Containers, Inc.,
Madison Enterprises, Inc., and Joseph and Frank Savino Partnership.
10.2 Agreement and Plan of Reorganization dated May 18, 1998, by and between
Eastern Environmental Services, Inc. and the shareholders of Allegro
Enterprises, Inc., Allegro Transportation and Recycling, Inc., Allegro
Carting and Recycling, Inc., Joseph Savino and Sons, Inc., Lee Bin
Containers, Inc., and Joseph and Frank Savino Partnership.
10.3 Amendment dated August 20, 1998 to the Agreements and Plans of
Reorganization dated May 18, 1998.
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Exhibit 10.1
AGREEMENT AND PLAN OF REORGANIZATION OF
ALLEGRO ENTERPRISES, INC.
REGIONAL RECYCLING, INC.
LEE BIN CONTAINERS, INC.
MADISON ENTERPRISES, INC.
FRANK AND JOSEPH SAVINO PARTNERSHIP
AND
EASTERN ENVIRONMENTAL SERVICES, INC.
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TABLE OF CONTENTS
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AGREEMENT AND PLAN OF REORGANIZATION.................................................................... 1
RECITALS................................................................................................ 1
ARTICLE I REORGANIZATION; CLOSING...................................................................... 2
Section 1.1 Incorporation of Recitals............................................................. 2
Section 1.2 Place for Closing..................................................................... 2
Section 1.3 Agreement to Exchange Stock for Stock and Assets; Consideration....................... 2
Section 1.4 Calculation of EESI Stock............................................................. 4
Section 1.5 Description of Seller Stock and Assets................................................ 5
Section 1.6 Excluded Assets....................................................................... 6
Section 1.7 Assumption of Obligations............................................................. 6
Section 1.8 [Intentionally Omitted]............................................................... 7
Section 1.9 Term And Time For Closing............................................................. 7
Section 1.10 Deliveries by Purchaser............................................................... 8
Section 1.11 Deliveries by Sellers................................................................. 8
Section 1.12 Transfer Tax, Allocation of Purchase Price and Bulk Sales............................. 9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS................................................ 9
Section 2.1 Organization and Standing............................................................. 10
Section 2.2 Company Stock......................................................................... 10
Section 2.3 Contracts, Permits and Material Documents............................................. 10
Section 2.4 Personal and Real Property............................................................ 11
Section 2.5 Customers............................................................................. 12
Section 2.6 Title................................................................................. 12
Section 2.7 Financial Statements.................................................................. 13
Section 2.8 Liabilities; Accounts Receivable and Working Capital.................................. 13
Section 2.9 Fiscal Condition...................................................................... 14
Section 2.10 Tax Returns........................................................................... 15
Section 2.11 Policies of Insurance................................................................. 15
Section 2.12 Employees, Pensions and, ERISA........................................................ 15
Section 2.13 Legality of Operation................................................................. 17
Section 2.14 Corrupt Practices..................................................................... 19
Section 2.15 Legal Compliance...................................................................... 19
Section 2.16 Transaction Intermediaries............................................................ 20
Section 2.17 Intellectual Property................................................................. 20
Section 2.18 Competition........................................................................... 20
Section 2.19 Shareholder Loans..................................................................... 20
Section 2.20 Conduct of Business................................................................... 20
Section 2.21 Disclosure............................................................................ 20
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER................................................. 21
Section 3.1 Structure............................................................................. 21
Section 3.2 Authorization to Proceed with this Agreement.......................................... 21
Section 3.3 Absence of Intermediaries............................................................. 21
Section 3.4 Public Reports........................................................................ 21
Section 3.5 EESI Stock............................................................................ 21
Section 3.6 Authorization......................................................................... 21
Section 3.7 Contravention; Consents and Approvals................................................. 21
ARTICLE IV ADDITIONAL AGREEMENTS OF SELLERS............................................................ 22
Section 4.1 Investment Representations and Covenants of Shareholders.............................. 22
Section 4.2 Plan of Reorganization................................................................ 23
Section 4.3 Access to Records..................................................................... 23
Section 4.4 Continuation of Business.............................................................. 23
Section 4.5 Continuation of Insurance............................................................. 24
Section 4.6 Standstill Agreement.................................................................. 24
Section 4.7 Audited Financial Statements.......................................................... 24
Section 4.8 Pooling of Interests.................................................................. 25
Section 4.9 Shareholder Debt...................................................................... 25
ARTICLE V ADDITIONAL AGREEMENTS OF PURCHASER.......................................................... 26
Section 5.1 Registration Rights................................................................... 26
Section 5.2 Books and Records..................................................................... 26
Section 5.3 Replacement of Indebtedness........................................................... 27
Section 5.4 Permitted Actions..................................................................... 27
ARTICLE VI CONDITIONS OF PURCHASER..................................................................... 27
Section 6.1 Compliance by Sellers................................................................. 28
Section 6.2 Litigation Affecting This Transaction................................................. 28
Section 6.3 Fiscal Condition of Business.......................................................... 28
Section 6.4 Opinion of Counsel.................................................................... 28
Section 6.5 Consents.............................................................................. 28
Section 6.6 Financial Statements.................................................................. 28
Section 6.7 Pooling of Interests Advice........................................................... 28
Section 6.8 Title to Real Property; Survey........................................................ 28
Section 6.9 HSR................................................................................... 29
Section 6.10 Company Debt.......................................................................... 29
Section 6.11 Due Diligence......................................................................... 29
ARTICLE VII CONDITIONS OF SELLERS....................................................................... 29
Section 7.1 Compliance by Purchaser............................................................... 29
Section 7.2 Litigation Affecting This Transaction................................................. 29
Section 7.3 Payment............................................................................... 29
Section 7.4 Consents.............................................................................. 29
Section 7.5 Opinion of Counsel.................................................................... 30
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ARTICLE VIII INDEMNIFICATION............................................................................ 30
Section 8.1 Indemnification by Sellers............................................................ 30
Section 8.2 Indemnification by Purchaser.......................................................... 30
Section 8.3 Procedure for Indemnification with Respect to Third Party Claims...................... 31
Section 8.4 Procedure for Non-Third Party Claims.................................................. 32
Section 8.5 Survival of Claims.................................................................... 32
Section 8.6 Limitation............................................................................ 32
ARTICLE IX OTHER PROVISIONS........................................................................... 33
Section 9.1 Nondisclosure by Sellers.............................................................. 33
Section 9.2 Nondisclosure by Purchaser............................................................ 33
Section 9.3 Assignment; Binding Effect; Amendment................................................. 33
Section 9.4 Entire Agreement...................................................................... 34
Section 9.5 Counterparts.......................................................................... 34
Section 9.6 Notices............................................................................... 34
Section 9.7 Governing Law......................................................................... 35
Section 9.8 No Waiver............................................................................. 35
Section 9.9 Captions.............................................................................. 35
Section 9.10 Severability.......................................................................... 35
Section 9.11 Construction.......................................................................... 35
Section 9.12 Extension or Waiver of Performance.................................................... 35
Section 9.13 Liabilities of Third Parties.......................................................... 35
Section 9.14 Disclosure on Schedules............................................................... 36
Section 9.15 Arbitration........................................................................... 36
Section 9.16 Costs and Expenses.................................................................... 37
Section 9.17 Certain Pricing Determination......................................................... 37
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AGREEMENT AND PLAN OF REORGANIZATION
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This Agreement and Plan of Reorganization ("Agreement") is made as of May 18,
1998, by and among the individuals and entities set forth on the signature page
under the heading "Shareholders"("Shareholders"), Regional Recycling, Inc.
("Regional"), Allegro Enterprises, Inc. ("Allegro"), Lee Bin Containers, Inc.
("Lee Bin"), Madison Enterprises, Inc. ("Madison"), Joseph and Frank Savino
Partnership (the "Partnership"), and Eastern Environmental Services, Inc.
("EESI"). For purposes of this Agreement, EESI is referred to as "Purchaser";
Regional, Lee Bin, and Allegro are collectively referred to as the "Companies"
and individually as a "Company;" and the Companies, Madison and the Partnership,
and the Shareholders are collectively referred to as the "Sellers."
RECITALS
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Each of the individual Shareholders is the owner of the outstanding capital
stock of each of the Companies, as set forth on Exhibit "A" attached; together
the Shareholders own all of the outstanding capital stock of the Companies; and
the Shareholders together own all of the interests in the Partnership.
Regional, Lee Bin, Madison, and Allegro are New Jersey corporations. The
Companies are in the business of collecting, transporting, recycling and
disposing of commercial, medical, industrial, and municipal solid waste in the
State of New Jersey and operating and (together with Madisons) owning a transfer
station (the "Transfer Station") located at 295 Frelinghysen Avenue, Newark, New
Jersey, which is licensed by the State of New Jersey to accept 600 tons of
municipal solid waste per day (collectively, the "New Jersey Business").
Madison owns all of the real property on which the Transfer Station is located
(the "Transfer Station Property") and certain of the personal property and
equipment comprising the Transfer Station. The Partnership owns an 80% interest
in a parcel of real property 1024 Jefferson Street, Hoboken, New Jersey, which
is used as the office of the Companies and the maintenance garage and parking
facility for vehicles and equipment owned by the Companies (the "Hoboken
Property"). The remaining interest in the Hoboken Property is held by Madison.
Except for these interests in real property and the assets set forth on Schedule
2.4(d), neither Madison nor the Partnership holds any assets, and neither
engages in any operations or business.
The parties hereto desire that substantially all of the assets of the
Companies and the interests of Madison and the Partnership in the real property
used in the New Jersey Business be acquired, directly or indirectly, by EESI in
exchange solely for the voting stock of EESI on the terms contained herein. The
parties intend that the acquisitions of Lee Bin, Allegro, Madison and Regional
contemplated hereby qualify as reorganizations within the meaning of Sections
368(a)(1)(C) and 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended,
and that, as a result of the transactions contemplated hereby, the Purchaser
shall acquire all assets and properties used in the New Jersey Business.
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Simultaneously with the execution and delivery of this Agreement, the
Shareholders and the Purchaser have entered into a second Agreement and Plan of
Reorganization (the "New York Agreement") relating to the acquisition by the
Purchaser from Lee Bin, Allegro, Allegro Carting and Recycling, inc., Allegro
Transportation, Inc., the Partnership, and Joseph Savino and Sons, Inc.,
entities wholly controlled by the Shareholders, of substantially all of their
assets (other than assets to be conveyed to Purchaser hereunder) in exchange
solely for the voting stock of EESI on the terms contained therein. The parties
intend that the transactions contemplated by this Agreement and the New York
Agreement shall be closed simultaneously and that such acquisitions be treated
(together or separately) as a pooling of interests for accounting purposes.
However, the parties recognize that simultaneous closings may not be possible.
Therefore, the closing under this Agreement and the New York Agreement are not
contingent upon each other, and the parties have agreed that they will not treat
the transactions as poolings of interests if a closing under the New York
Agreement does not occur within one year of the date of this Agreement.
ARTICLE I
REORGANIZATION; CLOSING
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Section 1.1 Incorporation of Recitals. The recitals set forth above
-------------------------
are incorporated herein by reference and are a part of this Agreement.
Section 1.2 Place for Closing. Subject to Section 1.9 hereof, closing
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under this Agreement shall take place at the offices of Muchnick, Golieb &
Golieb, P.C., 630 Fifth Avenue, New York, New York 10111, or such other place as
the parties hereto may agree upon. The date that Closing occurs is referred to
hereinafter as the "Closing Date" and the act of closing as "Closing."
Section 1.3 Agreement to Exchange Stock for Stock and Assets;
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Consideration.
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(a) At the Closing, (i) the Shareholders shall transfer and deliver to
the Purchaser or to one or more wholly-owned subsidiaries of Purchaser
designated by it all of the capital stock of Regional (the "Seller Stock"), (ii)
the Partnership and Madison shall transfer and deliver to the Purchaser, or to
one or more wholly-owned subsidiaries of the Purchaser designated by it, all of
their respective interests in and to the Hoboken Property, the Transfer Station
Property, and the assets comprising the Transfer Station, and (iii) Lee Bin and
Allegro shall transfer and deliver to the Purchaser, or to one or more wholly-
owned subsidiaries of the Purchaser designated by it, the assets owned by them
and used in the New Jersey Business, and Purchaser shall issue and deliver, in
exchange for the Seller Stock and the assets, as consideration therefor, (i)
shares of EESI's common stock ("EESI Stock"), calculated as set forth in Section
1.4 below, and (ii) assume or pay the Company Debt (as defined in Section 2.8
and as may be refinanced under Section 5.3) and assume the liabilities of Lee
Bin, Madison, the Partnership, and Allegro relating to the New Jersey Business
(the "New Jersey Liabilities") conducted by them as at the Closing
(collectively, the "Assumed Liabilities"). The EESI Stock shall be allocated and
paid to the Sellers as set forth on Exhibit "A" attached hereto and as set forth
in
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Section 1.3(c). Not less than ten (10) days prior to the Closing, the Sellers
shall deliver to Purchaser for Purchaser's review and comment a balance sheet of
Regional as of the last day of the month most recently ended and a statement of
the New Jersey Liabilities as of the same date. For purposes of this Agreement,
the balance sheet revised to incorporate Purchaser's reasonable comments shall
be referred to as the "Closing Balance Sheet" and the statement of New Jersey
liabilities revised to incorporate Purchaser's reasonable comments shall be
referred to as the "Closing Statement." The dollar value of the EESI Stock to be
delivered at Closing shall be the value that is equal to (x) $21,504,000 minus,
in all cases without duplication the following four items: (i) the liabilities
reflected on the Closing Balance Sheet, (ii) the amount of the Company Debt
refinanced or assumed by Purchaser pursuant to Section 5.3 (and not used to
reduce the purchase price under the New York Agreement), (iii) the liabilities
reflected on the Closing Statement, and (iv) the amount by which cash included
in the Assets and cash held by Regional immediately after the Closing in the
aggregate is less than $750,000. The Closing Balance Sheet and the Closing
Statement will not reflect or include any inter-company liability which will be
paid to Purchaser, Regional, or otherwise to or for Purchaser's benefit by
reason of Purchaser's purchase of a Receivable that is included in the Assets or
is owned by Regional.
(b) (i) Within one hundred fifty (150) days after the Closing Date,
Purchaser shall prepare and deliver to Sellers the balance sheet for Regional as
of the close of business on the Closing Date (the "Closing Date Balance Sheet")
and a final statement as of the close of business on the Closing Date of the New
Jersey Liabilities (the "Closing Date Statement"). The Closing Date Balance
Sheet shall set forth the assets and liabilities of Regional and the Closing
Date Statement shall set forth the Liabilities of Allegro, Lee Bin, Madison, and
the Partnership deriving from the New Jersey Business conducted by them. The
Closing Date Balance Sheet and the Closing Date Statement will not reflect or
include (x) any inter-company liability which is set forth on Schedule 1.3(b) or
(y) any Receivable that is not collected by Purchaser within one hundred fifty
(150) days after the Closing Date. Seller shall have the right to review all of
Purchaser's work papers and all relevant records relating to the Closing Date
Balance Sheet and the Closing Date Statement.
(ii) The Closing Date Balance Sheet and Closing Date Statement
delivered to Sellers shall be deemed to be and shall be final, binding and
conclusive on the parties hereto, unless Sellers dispute the Closing Date
Balance Sheet and/or the Closing Date Statement in accordance with this Section
1.3(b)(ii). Sellers may dispute any amounts reflected on the Closing Date
Balance Sheet or the Closing Date Statement (any such disputed amounts, the
"Disputed Matters") by giving written notice to Purchaser of each Disputed
Matter within forty-five (45) days of receipt of the Closing Date Balance Sheet
or the Closing Date Statement. Any Disputed Matters shall be subject to good
faith negotiations between the parties for up to fifteen (15) days prior to
being referred to the Independent Accounting Firm (as defined below). Any
Disputed Matters not resolved by such good faith negotiations shall be decided
by an independent accounting firm acceptable to both Sellers and Purchaser (the
"Independent Accounting Firm"). The costs and expenses of the Independent
Accounting Firm shall be shared equally by Sellers and Purchaser. The
Independent Accounting Firm so chosen shall consider only the Disputed Matters
and Purchaser and Sellers shall use reasonable efforts to cause the Independent
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Accounting Firm to render a final decision on the Disputed Matters by delivering
a written report to Purchaser and Sellers no later than thirty (30) days after
having received the assignment with respect thereto. The decision of the
Independent Accounting Firm with respect to all Disputed Matters shall be based
solely on whether the Closing Date Balance Sheet or the Closing Date Statement
was prepared in accordance with the requirements of this Agreement, shall be
final and binding upon the parties hereto and shall not be subject to challenge
in any court.
(iii) On the basis of the Closing Date Balance Sheet and the
Closing Date Statement the dollar value of the EESI stock shall be (A) decreased
or increased, as applicable, by the amount that is equal to the excess or
deficit, as applicable, of the sum of the liabilities reflected on the Closing
Date Balance Sheet and the Closing Date Statement over the liabilities reflected
on the Closing Balance Sheet and the Closing Statement and (B) decreased by the
amount by which the Receivables (as defined in Section 2.8) reflected on the
Closing Date Balance Sheet are less than $2,215,000, and (C) increased by the
----------
amount by which Receivables reflected on the Closing Date Balance Sheet exceed
$2,597,000; (D) if cash reflected on the Closing Date Balance Sheet is less than
- ----------
cash reflected on the Closing Balance Sheet then, the dollar value of the EESI
Shares issuable shall be decreased by the amount of the difference between the
amount of cash reflected on the Closing Date Balance Sheet and the lower of
$750,000 and the cash on the Closing Balance Sheet (however, no decrease will be
made if the cash on the Closing Date Balance Sheet is $750,000 or more); and (E)
if cash reflected on the Closing Date Balance Sheet is greater than cash
reflected on the Closing Balance Sheet, the dollar value of the EESI Shares
issuable shall be increased by the amount that is equal to the positive
difference, if any, between cash reflected on the Closing Date Balance Sheet and
the cash reflected on the Closing Balance Sheet (however, no increase will be
made for any cash on the Closing Date Balance Sheet in excess of $750,000).
(c) Ninety (90) percent (%) of the EESI Stock shall be delivered to the
Shareholders at Closing as set forth on Exhibit A hereto and ten (10) percent
(%) of the EESI Stock shall be delivered to Robert M. Kramer & Associates P.C.
in escrow ("Escrow Agent") under the provisions of this Section 1.3(c) ("Escrow
Stock") to be held against possible reduction in the purchase price pursuant to
Section 1.3(b) and to secure the Sellers' indemnity obligations under Article
VIII. Based on the final determination of the Closing Date Balance Sheet, the
Escrow Agent shall deliver to the Sellers, the Escrow Stock minus, if
applicable, the number of shares of Escrow Stock having a dollar value equal to
the amount of any decrease in the purchase price pursuant to Section 1.3(b). If
the adjustments required by Section 1.3(b) result in an increase in the number
of shares of EESI stock issuable, the Company shall promptly issue and deliver
to the Sellers the additional shares, which shall be valued as provided above.
The EESI Shares delivered pursuant to this Section shall be valued at a per-
share value equal to the closing price of EESI's common stock as reported on the
NASDAQ National Market on the day which is five (5) trading days prior to the
Closing Date. The EESI Stock delivered by Escrow Agent shall be allocated and
paid to the Sellers, as set forth on Exhibit A. The Escrow Agent shall deliver
to Purchaser for cancellation any Escrow Stock not required to be so delivered.
To the extent the Escrow Stock is not sufficient to satisfy any reduction in the
purchase price pursuant to this
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Section, the Shareholders shall transfer to the Purchaser EESI shares with a
value (as determined herein) equal to such deficiency.
Section 1.4 Calculation of EESI Stock. The number of shares of EESI
-------------------------
Stock to be delivered at Closing shall be calculated by dividing the dollar
value of the EESI Stock by the per share closing price for EESI's common stock
on the NASDAQ National Market for the trading day which is five trading days
prior to the Closing Date. For purposes of this Agreement, one-half of the EESI
Stock is hereafter referred to as the "Restricted Stock" and the remaining half
is referred to as the "Unrestricted Stock." The Unrestricted Stock shall be
entitled to registration rights set forth in Section 5.1 of this Agreement. Any
Escrow Stock delivered or cancelled and any additional EESI Stock issued
pursuant to Section 1.3(b) shall be equally divided between Restricted and
Unrestricted Stock.
Section 1.5 Description of Seller Stock and Assets. Upon the terms
--------------------------------------
and subject to the conditions set forth in this Agreement, on the Closing Date
the Shareholders, Madison, the Partnership and the Companies shall grant,
convey, sell, transfer and assign to Purchaser, (a) the Seller Stock, (b) all
assets and properties owned or leased by Allegro, Lee Bin, Madison, and the
Partnership and used in the New Jersey Business. In consequence, Purchaser shall
acquire, directly or indirectly, all of the assets and properties associated
with or used in the New Jersey Business, including the following:
(a) All of the capital stock of Regional.
(b) All containers and carts ("Containers");
(c) All bailers, extruders, scales and other equipment and personal
property associated with the Transfer Station as set forth on Schedule 1.5(c);
(d) All motor vehicles and all attachments, accessories and materials
handling equipment, as set forth on Schedule 1.5(d) attached.
(e) All compactors and recycling equipment.
(f) All radios located in the rolling stock, the radio base station,
and all manual and automated routing and billing systems and components thereof,
including, without limitation, all computer hardware, software and programs
("Radios").
(g) All inventory of parts, tires and accessories.
(h) All right, title and interest in and to all trade secrets,
proprietary rights, symbols, trademarks, service marks, logos and trade names
used and owned.
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(i) All contractual rights (whether oral or in writing), including,
without limitation, all rights under the Companies' agreement with Stero Cycle,
Inc. (relating to the sale of the Companies' medical waste business.)
(j) All accounts receivable.
(k) All leases and agreements.
(l) All permits, licenses, franchises, consents and other approvals
from governments, governmental agencies (federal, state and local) and/or third
parties ("Consents and Approvals"), used in or required for the operation of the
Business which are transferable.
(m) The exclusive right to use all names associated with the New Jersey
Business.
(n) All right, title, and interest in and to the telephone numbers used
in the conduct of the Business.
(o) All shop tools relating to the New Jersey Business.
(p) All furniture and office or other equipment.
(q) All interest in all tangible and intangible property, including,
without limitation, pre-paid expenses.
(r) All goodwill of the New Jersey Business.
(s) All real property (other than real property comprising Excluded
Assets) owned or leased by any Company and all interests in and to the Hoboken
Property and the Transfer Station Property (collectively, the "Real Property").
(t) All cash, cash equivalents, securities, prepaid expenses, deposits,
accounts receivable and financial instruments of the Companies.
(u) All books, records, original agreements and contracts and title
documents relating to the items set forth in (a) through (t) above.
All of the foregoing assets, properties and contractual rights described in (b)
through (u) above are hereinafter sometimes collectively called the "Assets."
At Closing, good and marketable title to the Assets and the Seller Stock will be
conveyed to Purchaser by the Companies free and clear of all liens,
encumbrances, security interests and claims, except in the case of the Assets
for liens securing the Assumed Liabilities.
Section 1.6 Excluded Assets. The parties agree that the only tangible
---------------
and intangible property owned by the Companies, Madison and the Partnership and
not being acquired by the
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Purchaser is (a) the corporate records of the Companies other than the records
set forth in Section 1.5(u) above, (b) certain assets that are personal to the
Shareholders and not used in the business of the Companies, and (c) the assets
of Lee Bin and Allegro, required to be conveyed to Purchaser under the New York
Agreement that are not used in the New Jersey Business ("Excluded Assets"). The
Excluded Assets (other than those referred in clause "c") are listed on Schedule
1.6.
Section 1.7 Assumption of Obligations. From and after the Closing,
-------------------------
the Purchaser agrees to assume and perform all of the obligations reflected on
the Closing Date Balance Sheet and the Closing Date Statement and (i) under the
customer contracts of Lee Bin and Allegro set forth on Schedule 2.3; and (ii)
under all documents identified in Schedule 2.3 to which Lee Bin or Allegro is a
party; and (iii) under contracts or agreements of Lee Bin or Allegro arising in
the ordinary course and which in the aggregate require the payment of $35,000 or
less a year, and (iv) subject to Section 5.3, the Company Debt.
Section 1.8 [Intentionally Omitted].
-----------------------
Section 1.9 Term And Time For Closing. Following execution of this
-------------------------
Agreement, the Purchaser and Sellers shall be obligated to conclude the
transaction strictly in accordance with its terms on the last business day of
the month that the conditions of Closing set forth in Article VI and Article VII
have been satisfied or waived. If the failure to conclude this transaction is
due to the refusal and failure of Sellers to perform their obligations to close
under this Agreement, Purchaser may seek to enforce this Agreement with an
action of specific performance, in addition to, and not in limitation of, any
other rights and remedies available to the Purchaser, under this Agreement, or
at law or in equity, including, without limitation, an action to recover their
actual damages resulting from the default of the Sellers. If the failure to
conclude this transaction is due to the refusal and failure of Purchaser to
perform its obligations to close under this Agreement, the Sellers, or any of
them, may, in addition to and not in limitation of any other rights and remedies
available to the Sellers, or any of them, under this Agreement, or at law or in
equity, bring legal action to recover their actual damages resulting from the
default of the Purchaser.
This Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Closing Date:
(a) by mutual written agreement of EESI and the Sellers;
(b) by EESI by July 15, 1998, if EESI is not satisfied with the due
diligence it has conducted on the Sellers;
(c) by EESI or the Sellers, by providing the other with written notice
thereof, if the Closing shall not have occurred by December 31, 1998, or such
other date as may be agreed to by the parties hereto in writing, if such
notifying party is ready, willing and able to consummate the transactions
contemplated by this Agreement and all of the conditions to the other party's
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obligation to close as set forth in Article VI or VII, as applicable, shall have
been satisfied and the other party fails to consummate the transactions
contemplated by this Agreement for any reason whatsoever;
(d) by the Sellers, or by EESI, on or prior to December 31, 1998 or
such other date as may be agreed to by the parties in writing, in the event
Purchaser or the Sellers, as applicable, makes a material misrepresentation
under this Agreement or breaches a material covenant or agreement under this
Agreement, and fails to cure such misrepresentation or breach within ten (10)
days from the date of written notice of the existence of such misrepresentation
or breach; or
(e) by the Purchaser and Sellers as provided in Section 9.14.
(f) by the Sellers on September 2, 1998 if the transactions
contemplated herein have not closed by September 1, 1998 and the Purchaser has
not notified the Sellers that the per share price of the EESI Stock will be
fixed at the closing price of such stock on September 2, 1998.
All terminations shall be exercised by sending the other parties a
written notice of the termination. In the event this Agreement is terminated as
provided herein, this Agreement shall become void and be of no further force and
effect and no party hereto shall have any further liability to any other party
hereto, except that Section 1.9, Article VIII, Section 9.1, Section 9.2, Section
9.4, Section 9.7, Section 9.15 and Section 9.16 shall survive and continue in
full force and effect, notwithstanding termination. The termination of this
Agreement shall not limit, waive or prejudice the remedies available to the
parties, at law or in equity, for a breach of this Agreement.
Section 1.10 Deliveries by Purchaser. At the Closing, Purchaser
------------------------
shall deliver, all duly and properly executed, authorized and issued (where
applicable):
(a) The EESI Stock, as provided in Sections 1.3 and 1.4 above, to be
delivered to the Companies;
(b) A certified copy of resolutions of the directors and, if required,
shareholders of Purchaser authorizing the execution and delivery of this
Agreement and each other agreement to be executed in connection herewith,
including, but not limited to the Employment Agreements (collectively, the
"Collateral Documents") and the consummation of the transactions contemplated
herein and therein;
(c) An opinion from counsel for Purchaser, dated the day of the Closing
in the form attached as Schedule 1.10(c);
(d) The Certificate described in Section 7.1;
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(e) An Assignment and Assumption Agreement in the form attached as
Schedule 1.10(e) attached hereto;
(f) Other documents and instruments required by this Agreement, if any.
Section 1.11 Deliveries by Sellers. At the Closing, each of the
---------------------
Sellers, as applicable, shall deliver to Purchaser, all duly executed, the
following:
(a) All of the shares of capital stock of Regional duly endorsed to
Purchaser, with signatures guaranteed if requested by Purchaser;
(b) Executed Bills of Sale for the Assets to be conveyed and assigned
to Purchaser by Lee Bin, in the form attached as Schedule 1.11(b);
(c) Each of the Shareholders, Lee Bin, Madison, Allegro, and the
Partnership shall execute the Covenant Not to Compete Agreement attached to this
Agreement as Schedule 1.11(c);
(d) The Companies shall have delivered to EESI a current certificate of
good standing for each of the Companies from the New Jersey or New York
Secretary of State, as applicable;
(e) An opinion from counsel for the Companies, dated the date of the
Closing, in form attached as Schedule 1.11(c);
(f) Each of the Sellers shall execute and deliver the Certificate
described at Section 6.1;
(g) An Assignment and Assumption Agreement in the form attached as
Schedule 1.10(e) attached hereto;
(h) The books and records of each of the Companies to be delivered as
set forth in Section 1.5(u);
(i) Physical possession of all Assets;
(j) A special warranty deed in the form attached as Schedule 10.11(i)
in proper recordable form for each parcel of Real Property (including, without
limitation, the Hoboken Property and the Transfer Station Property);
(k) Releases pursuant to which the Shareholders and each entity
controlled by or under common control with them releases Regional and the
Purchaser from any obligation to any of them other than under this Agreement and
the Collateral Documents; and
(l) Other documents and instruments required by this Agreement, if any.
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Section 1.12 Transfer Tax, Allocation of Purchase Price and Bulk Sales
---------------------------------------------------------
(a) Purchaser shall pay all sales, transfer taxes and fees imposed on
the conveyance of the Assets by all governments, state, local and federal.
(b) The Purchaser and Regional hereby waives compliance by the
Companies with the provisions of the New Jersey State Bulk Sales Law and the
Sellers, jointly and severally, covenant and agree to pay and discharge, when
due, or contest in good faith by appropriate proceedings, all claims of
creditors which could be asserted against the Purchaser, the Seller Stock or the
Assets by reason of such noncompliance, other than Assumed Liabilities.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------
Whenever the phrase "to Sellers' knowledge", "to Shareholders'
knowledge" or a similar phrase is used in this Agreement, the phrase means the
actual knowledge of any of the Shareholders and (with respect to Shareholders
who are officers or employees of the Companies) the knowledge such Shareholders
would or should have had, if such Shareholders who are employees or officers of
the Companies exercised reasonable diligence in the conduct of such
Shareholders' duties to the Companies. With knowledge that Purchaser is relying
upon the representations, warranties and covenants herein contained, all of the
Sellers jointly and severally represent and warrant to Purchaser and make the
following covenants for the Purchasers' benefit:
Section 2.1 Organization and Standing. Except as set forth on
-------------------------
Schedule 2.1, each of the Companies and Madison is a corporation duly organized,
legally existing and in good standing under the laws of the state of its
incorporation, with full power and authority to own its properties and conduct
its business as now being conducted. Each of the Companies, Madison and the
Partnership is duly qualified to do business as a foreign corporation or
partnership and is in good standing under the laws of each jurisdiction in which
the ownership or leasing of assets or properties or the nature of its activities
requires such qualification. The Companies, Madison and the Partnership do not
own or have any right or obligation to acquire any stock or interest in any
other corporation, partnership, or other business organization, except as set
forth on Schedule 2.1. Except as set forth on Schedule 2.1, the Partnership is a
New York general partnership, duly organized, legally existing and in good
standing under the laws of the state of New York, with full power and authority
to own its properties and conduct its business as now being conducted.
Section 2.2 Company Stock. Each of the Companies has the authorized
-------------
and kind of capital stock as set forth on Schedule 2.2. Schedule 2.2 hereto sets
forth the number of shares of the capital stock of each of the Companies issued
and outstanding. All of the outstanding shares of capital stock of each Company
and of Madison and all of the interests in the
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Partnership are owned beneficially and of record by the Shareholders. The shares
of capital stock ("Company Shares") each Shareholder owns in each Company and in
Madison and the interests owned by him in the Partnership are legally and
validly authorized and issued, fully paid and nonassessable. Except as set forth
on Schedule 2.2, there are no outstanding rights of any kind to acquire the
Company Shares, additional shares of any class of stock from any Company, any
interests in the Partnership, or any shares of capital stock of Madison.
Section 2.3 Contracts, Permits and Material Documents. The items
-----------------------------------------
listed in Schedule 2.3 attached are all of the following with respect to each of
the Companies ("Material Documents"): (i) leases for real and personal property
excepting office equipment, (ii) licenses, (iii) franchises, (iv) promissory
notes, guarantees, bonds, mortgages, liens, pledges, and security agreements
under which any of the Companies is bound or under which any of the Companies is
the beneficiary, (v) collective bargaining agreements, (vi) patents, trademarks,
trade names, copyrights, trade secrets, proprietary rights, symbols, service
marks, and logos, (vii) all permits, licenses, consents and other approvals from
governments, governmental agencies (federal, state and local) and/or third
parties relating to, used in or required for the operation of each Company's
businesses, and (viii) other contracts, agreements and instruments not listed on
another Schedule attached to this Agreement (such as the customer contracts
listed on Schedule 2.5) which are binding on any Company or any of its property
and pursuant to which any Company derives any material benefit or has imposed
upon it any material detriment. For purposes of this Section 2.3 a material
benefit or material detriment shall be anything which provides a benefit or
imposes a detriment having a value of $35,000 or more. The Material Documents
listed on Schedule 2.3 are organized under separate headings for each of the
Companies and under subheadings for each of the different type of documents
listed. Except as set forth on Schedule 2.3, no Company nor any person or party
to any of the Material Documents or bound thereby is in material default under
any of the Material Documents, and no act or event has occurred which with
notice or lapse of time, or both, would constitute such a default. No Company is
a party to, and no Company's property is bound by any agreement or instrument
which is material to the continued conduct of business operations of the
Companies, taken as a whole, as now being conducted, except as listed in
Schedule 2.3. Neither Madison nor the Partnership is a party to any material
document, except as set forth on Schedule 2.3. Material Documents of Lee Bin and
Allegro relating to their business conducted in New York are identified as such
on Schedule 2.3.
Section 2.4 Personal and Real Property. All items of personal and
---------------------------
real property (other than real property comprising Excluded Assets) owned or
leased by the Companies, Madison, and the Partnership or used in the business
operations of the Companies and the New Jersey Business, will be transferred to
Purchaser at Closing, in the condition set forth in subparagraphs (a), (b) and
(c) below:
(a) Attached hereto, made a part hereof and marked Schedule 2.4(a) is a
listing of all those items used in the New Jersey Business and described in
subparagraphs "i" and "ii," organized by Company and by subparagraph.
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(i) All rolling stock, including motor vehicles, trucks, front and
rear end loaders, and compactors used in each Company's business operations
together with information as to the make, description of body and chassis, model
number, serial number and year of each such vehicle, all of which are owned or
leased by each Company, as listed on Schedule 1.5(b) and all of the vehicles
are, in all material respects, in reasonably good and working condition, normal
wear and tear excepted, and adequate for the Companies' conduct of day-to-day
operations, except as noted on Schedule 2.4(a)(i);
(ii) All Containers, bailers, scales, and extruders used in each
Company's business operations are in reasonably good condition, normal wear and
tear excepted, except as noted on Schedule 2.4(a)(ii);all containers used in
each Company's business operations having a size of 10 yards or greater together
with information as to container size are listed on Schedule 2.4(a)(ii);
(b) All other items of personal property owned, leased or used by the
Companies, including, without limitation, all radios, compactors, recycling
equipment, furniture, office equipment and other equipment used in each
Company's business operations, the inventory of parts, tires and accessories
maintained by each Company, and the shop tools used by each Company are in
reasonably good, and, as applicable, working condition, in all material
respects, normal wear and tear excepted, except as noted on Schedule 2.4(b); and
(c) Schedule 2.4(c) describes each interest in Real Property owned or
leased by each Company, Madison, and the Partnership including the location and
a brief description thereof, the lessor of any such leased property and a copy
of each lease and other agreement under which any such property is held. Such
real estate and the premises located thereon occupied by each Company are
sufficient for its business and operational requirements and are expected to
continue to be sufficient for its future needs for at least the next year,
subject to the compliance requirements set forth on Schedule 2.4(c). Except as
described in Schedule 2.4(c), each Company, Madison, and the Partnership has
good and insurable title in fee simple to all of its Real Property as owned by
it and owns all right, title and interest in all leasehold estates and other
rights purported to be granted to it by the leases and other agreements listed
in Schedule 2.4(c), in each case free and clear of any restriction, mortgage,
deed of trust, pledge, lien, security interest or other charge, claim, lien or
encumbrance except for: (a) liens for current taxes, assessments and
governmental charges and levies which may be paid without penalty, interest or
other additional charge; (b) such minor utility and municipal easements and
restrictions, if any, as do not detract from the value or marketability of the
property subject thereto and do not interfere with the use of such property; and
(c) the liens, mortgages and encumbrances set forth on Schedule 2.4(c). Except
as described in Schedule 2.4(c), all of the buildings and structures to the
extent of the premises owned or leased by each Company, Madison and the
Partnership are structurally sound with no known defects, and are in good
operating condition and repair and each has adequate rights of ingress and
egress for the operation in the ordinary course of business. No such building or
structure, or any appurtenance thereto or equipment therein, or the operation or
maintenance thereof, violates any restrictive covenant or any Law (including
without limitation any such Laws relating to health, safety,
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subdivision and zoning) or encroaches on any property owned by others. All
governmental permits, approvals and licenses required in connection with the
operation and, if applicable, ownership of such Real Property and all
improvements thereon and the conduct of each Company's, Madison's and the
Partnership business thereon have been duly obtained, are in full force and
effect and no proceedings are pending, to the knowledge of Sellers, threatened
which could lead to a revocation or other impairment of any thereof. No
condemnation proceeding is pending or, to the knowledge of Sellers, threatened
with respect to any Real Property identified in Schedule 2.4(c) nor is any
change in any of the foregoing Laws pending, or to the knowledge of Sellers,
threatened which would interfere with the use of any such building, structure,
or other appurtenance thereon.
(d) Except as set forth on Schedule 2.4(d), neither Madison nor the
Partnership owns any real or personal property, tangible or intangible. Neither
Madison nor the Partnership conducts, or in the past three years has conducted,
any business or operations other than the passive ownership of the real and
personal property or interests therein identified on Schedule 2.4(d).
Section 2.5 Customers. Each customer each Company serves (listed by
---------
account number and not by name) together with information as to the services
rendered to each such customer, is listed on Schedule 2.5 attached hereto. All
customers are obligated under the Companies' standard form of contract, except
for variations agreed to by the Companies which are not material in nature.
Immediately following the execution of this Agreement, the Sellers shall provide
Purchaser with information as to frequency and type of services rendered and
rates charged to each customer. The name and address of each customer shall be
provided by the Companies to Purchaser at Closing. Except as set forth on
Schedule 2.5, no customer represents more than 3% of the total annual billings
of all of the Companies taken as a whole. No Company nor any person or party to
any of the customer contracts is in material or knowing default under any of the
customer contracts, and no act or event has occurred which with notice or lapse
of time, or both, would constitute such a default. None of Madison, Lee Bin,
Allegro, or the Partnership has any customers.
Section 2.6 Title. Each Company, Madison, and the Partnership has
-----
good and insurable title to, or a valid leasehold interest in all of its assets
both real property and personal property, each free and clear of any mortgages,
pledges, liens, encumbrances, charge, claim, security agreement or title
retention or other security arrangement ("Liens"), except the items set forth in
subparagraphs "a" through "d", and the items listed on Schedule 2.3 ("Permitted
Encumbrances").
(a) Liens imposed by law and incurred in the ordinary course of
business for indebtedness not yet due to carriers, warehousemen, laborers or
materialmen and the like;
(b) Liens in respect of pledges or deposits under worker's compensation
laws or similar legislation; and
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(c) Liens for property taxes, assessments, or governmental charges not
yet subject to penalties for nonpayment.
Section 2.7 Financial Statements. Sellers have delivered to
--------------------
Purchaser true and correct copies of the following financial statements of the
Companies (the "Financial Statements"): a combining and combined balance sheets
as of December 31, 1996 and 1997 and a statement of income, cash flow and
retained earnings for the period ended December 31, 1996 and December 31, 1997,
both prepared on an accrual basis. The Financial Statements have been prepared
by the regular accountants of the Companies, in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis in
accordance with past custom and practice of the Companies. The balance sheets
comprising the Financial Statements present fairly, in all material respects,
the financial condition of the Companies as of the dates indicated thereon and
the statements of income present fairly, in all material respects, on an accrual
basis the results of the operations of the Companies for the periods indicated
thereon. Since the date of the Financial Statements, the Companies have not (i)
made any material change in their accounting policies or (ii) effected any prior
period adjustment to, or other restatement of, its financial statements for any
period. The Financial Statements are consistent with the books and records of
Companies (which books and records are correct and complete in all material
respects). Since the date of the Financial Statements, except as set forth on
Schedule 2.7, there has not been any material adverse change in the income,
expenses or assets of the Companies, taken as a whole.
Section 2.8 Liabilities; Accounts Receivable and Working Capital.
----------------------------------------------------
(a) The Companies do not have any liabilities, fixed or contingent,
other than:
(i) the obligations under a $2 million line of credit with IESI
Corp. pursuant to the Agreements attached on Schedule 2.8(a) (the "Company
Debt");
(ii) liabilities under the capitalized and operating leases
identified on Schedule 2.8;
(iii) liabilities fully reflected in the Financial Statements,
except for liabilities not required to be disclosed therein in accordance with
GAAP, as applied on a basis consistent with past custom and practice;
(iv) liabilities disclosed in the Schedules attached to this
Agreement or not required to be disclosed therein by reason of amount or other
qualifications contained in the representations and warranties of this
Agreement; and
(v) accounts payable arising since the date of the Financial
Statement for 1997 arising during the normal course of business consistent with
past custom and practice as allowed in accordance with Section 4.4 of this
Agreement.
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<PAGE>
(b) All accounts receivable of the Companies (the "Receivables") as of
the date hereof are set forth by account number on Schedule 2.8(b). All of such
accounts and all accounts arising since such date are, or will be, valid
accounts receivable. Schedule 2.8(b) gives the aging of each of the accounts
receivable and is organized by Company. All accounts receivable have been
generated in the ordinary course of each Company's business consistent with past
practice. There are no defenses or set offs to any of the accounts receivable.
Neither Madison nor the Partnership has any accounts receivable.
(c) Each Company's accounts payable as of the date of this Agreement is
attached hereto, made a part hereof and marked Schedule 2.8(c). Schedule 2.8(c)
gives the aging of each of the accounts payables and is organized by Company.
Schedule 2.8(c) accurately reflects in all material respects the books and
records of the Companies as of the date of Schedule 2.8(c).
(d) The Company Debt is not in default, and there is no accrued
interest owed on any of the Company Debt in excess of the amount of accrued
interest.
Section 2.9 Fiscal Condition. Since the date of the Financial
----------------
Statements, there has not (except as otherwise specifically permitted by this
Agreement or as set forth in the Schedules to this Agreement) been:
(a) Any material change in the financial condition, business
organization or personnel of any Company or in the relationships of any Company
with suppliers, customers or others;
(b) Any disposition by any Company, Madison or the Partnership of any
of its capital stock or interests or any grant of any option or right to acquire
any of its capital stock or interests, or any acquisition or retirement by any
Company, Madison or the Partnership of any of its capital stock or interests or
any declaration or payment of any stock or interests dividend or other
distribution of its capital stock or interests;
(c) Any sale or other disposition of any asset owned by any Company,
Madison or the Partnership at the close of business on the date of the Financial
Statements, or acquired by it since that date, other than in the ordinary course
of business consistent with past practice;
(d) Any expenditure or commitment by any Company, Madison or the
Partnership for the acquisition of any single asset, except in the ordinary
course of business consistent with past practices or the entry into any contract
or agreement which is not cancelable upon short notice without penalty or
premium or which could require the Companies to expend more than $25,000 in any
one year;
(e) Any damage, destruction or loss (whether or not insured) adversely
affecting the property, business or prospects of any of the Companies, Madison
or the Partnership except damage, destruction or loss which does not exceed
$150,000 in the aggregate;
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<PAGE>
(f) Any bonuses or increases in the compensation payable or to become
payable by any Company to any officer or key employee, except as otherwise set
forth in Schedule 2.9(f);
(g) Any loans or advances to any Company, except as set forth on
Schedule 2.9(g); or
(h) Any change in accounting method or practice.
Section 2.10 Tax Returns. Each Company, Madison and the Partnership
-----------
has filed all Federal and other tax returns for all periods on or before the
date hereof and has paid all taxes due (and all applicable penalties and
interest) for the periods covered by the said returns, except as set forth on
Schedule 2.10. Except as set forth on Schedule 2.10, the Companies and Madison
are Subchapter "C" corporations under the Internal Revenue Service Code. The
reserves for all taxes reflected in the Financial Statements plus the reserves
on Schedule 2.10 for all taxes from the date of this Agreement through the
Closing Date, if any, are adequate to cover all taxes, interest and penalties in
connection therewith that may be assessed with respect to the property and
business operations for the period(s) ending on the Closing Date and for all
prior periods. The Companies and Madison have filed, and will file (if due) in a
timely manner, all requisite federal, state, local and other tax returns due for
all fiscal periods ended on or before the Closing Date.
Section 2.11 Policies of Insurance. All insurance policies,
---------------------
performance bonds, and letters of credit insuring the Companies, Madison, or the
Partnership or which the Companies, Madison or the Partnership have had issued
and which have not expired are listed on Schedule 2.11 attached hereto. Schedule
2.11 includes the names and addresses of the insurers and sureties, policy and
bond numbers, types of coverage or bond, time periods or projects covered and
the names and addresses of all known agents or agencies with respect to each
listed insurance policy, performance bond and letter of credit. Each current
insurance policies, performance bonds and letters of credits are in force and
effect and the premiums thereon are not delinquent. No Company, Madison or the
Partnership has received notification from any insurance carrier denying or
disputing any claim made by it or denying or disputing any coverage for any such
claim or denying or disputing the amount of any claim. Except as set forth on
SCHEDULE 2.11, no Company, Madison or the Partnership has a claim against any of
its insurance carriers under any of policies insuring it pending or anticipated
and there has been no occurrence of any kind which would give rise to any such
claim.
Section 2.12 Employees, Pensions and, ERISA.
------------------------------
(a) The Companies do not have any contract of employment with an
officer or other employee, except as listed on Schedule 2.12(a), and neither
Madison nor the Partnership has or has had (at any time in the past three) years
any employees .
(b) Except as set forth on Schedule 2.12(b), no employee of any Company
is represented by any union. The name, address and social security number and
current rate of compensation of each of the Company's employees and capacity to
which each person is employed is listed
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on Schedule 2.12(b) attached. There is no pending or, to the knowledge of the
Sellers, threatened dispute between any Company and any of its employees which
might materially and adversely affect the continuance of any Company's business
operations. The Companies are not deficient or in arrears in contributing to any
trust funds the Companies are required to contribute to in accordance with any
contracts with unions, including, without limitation, scholarship funds, legal
aid funds, pension funds and health, welfare or benefit funds ("Trust Funds").
There is no matter, action, audit, suit or claim pending or, to the knowledge of
Sellers, threatened relating to contributions of the Companies to any Trust
Fund, before any court, tribunal or government agency.
(c) Attached hereto, made a part hereof and marked Schedule 2.12(c)
lists all employee benefit plans, funds or programs (within the meaning of the
Internal Revenue Code of the United States ("Code") or the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") which are currently maintained
and/or were established or sponsored by any Company (whether or not they are now
terminated) or to which any Company currently contributes, or has an obligation
to contribute in the future, including, without limitation, employment
agreements and any other agreements containing "golden parachute" provisions
("Plans"), whether or not the Plans are or are intended to be (i) covered or
qualified under the Code, ERISA or any other applicable law, (ii) written or
oral, (iii) funded or unfunded, or (iv) generally available to all employees of
the Companies. Neither Madison nor the Partnership ever instituted or maintained
any employee benefit plan.
(d) The Companies have delivered to the Purchaser (i) true and complete
copies of all Plan documents and other instruments relating thereto, (ii) true
and complete copies of the most recent financial statements with respect to the
Plans, (iii) true and complete copies of all annual reports for any Plan
prepared within the past 5 years, and (iv) all material filings submitted to and
any correspondence received from any government agency relating to any Plan
within the past 5 years.
(e) Each Plan which is intended to be qualified under Section 401(a)
and exempt from tax under Section 501(a) of the Code has been determined by the
IRS to be so qualified and such determination remains in effect and has not been
revoked. Nothing has occurred since the date of any such determination which may
adversely affect such qualification or exemption, or result in the imposition of
excise taxes or tax on unrelated business income under the Code or ERISA. No
Plan is funded through a trust intended to be exempt from tax under Section
501(c) of the Code.
(f) No reportable event (as defined in Section 4043 of ERISA or the
regulations thereunder) for which the reporting requirements have not been fully
waived, or accumulated funding deficiency whether or not waived (as defined in
Section 302 of ERISA), or liability to the Pension Benefit Guaranty Corporation
("PBGC") under Section 4062 of ERISA, nor any prohibited transaction (as defined
in Section 406 of ERISA or Section 4975 of the Code), has occurred or exists
with respect to any Plan. All Plans are in substantial compliance with all
material applicable provisions of ERISA and the regulations issued thereunder,
as well as with
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all other material law applicable to such Plans, and, in all material respects,
have been administered, operated and managed in substantial accordance with the
governing documents of the Plan and the requirements of ERISA.
(g) There is no matter, action, audit, suit or claim pending or, to the
best knowledge of Sellers, threatened relating to any Plan, fiduciary of any
Plan or assets of any Plan, before any court, tribunal or government agency.
(h) Each most recent Plan audit report, actuarial report and annual
report, certified by the Plan's actuaries and auditors, as the case may be,
fairly presents the actuarial status and the financial condition of the Plan as
at the date thereof and the results of operations of the Plan for the plan year
reflected therein and, subject to changes in amounts attributable to investment
performance and normal employee turnover, there has been no adverse change in
the condition of the Plan since the date of the most recent Form 5500, audited
annual financial statement or actuarial valuation report.
(i) The transaction contemplated herein will not accelerate any
liability under the Plans because of an acceleration of any rights or benefits
to which any employee may be entitled thereunder.
Section 2.13 Legality of Operation. In regard to each Company,
---------------------
Madison and the Partnership:
(a) Except as disclosed in Schedule 2.13(a) to this Agreement, and
except as to Environmental Laws, as hereafter defined, each Company, the
Partnership, and Madison is in compliance with all Federal, state and local
laws, rules and regulations including, without limitation, the following laws:
land use laws; payroll, employment, labor, or safety laws; or federal, state or
local "anti-trust" or "unfair competition" or "racketeering" laws such as but
not limited to the Sherman Act, Clayton Act, Robinson Patman Act, Federal Trade
Commission Act, or Racketeer Influenced and Corrupt Organization Act ("Law").
Except as disclosed in Schedule 2.13(a), each Company, the Partnership, and
Madison is in compliance with all permits, franchises, licenses, and orders that
have been issued with respect to the Laws and are or may be applicable to their
respective property and operations, including, without limitation, any order,
decree or directive of any court or federal, state, municipal, or other
governmental department, commission, board, bureau, agency or instrumentality
wherever located, federal, state and local permits, orders, franchises and
consents. Except as set forth on Schedule 2.13(a), with respect to any Law there
are no claims, actions, suits or proceedings pending, or, to the knowledge of
the Shareholders and the threatened against or affecting any Company, the
Partnership, and Madison at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, wherever located, which would result in a change in
the financial condition or business of the Companies or which would invalidate
this Agreement or any action taken in connection with this Agreement. Except as
disclosed in Schedule 2.13(a), since January 1, 1993 no Company,
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Madison or the Partnership has received notification of any past or present
failure by the Company, Madison, or the Partnership to comply with any Law
applicable to it or its assets.
(b) Except as disclosed in Schedule 2.13(b) to this Agreement, each
Company, Madison and the Partnership is in compliance with all Federal, state
and local laws, rules and regulations relating to environmental issues of any
kind and/or the receipt, transport or disposal of any hazardous or non-hazardous
waste materials from any source ("Environmental Law"). Except as disclosed in
Schedule 2.13(b), with respect to any Environmental Law each Company, Madison,
and the Partnership is in compliance with all permits, licenses, and orders
related thereto or issued thereunder with respect to Environmental Laws, as are
or may be applicable to the their property and operations, including, without
limitation, any order, decree or directive of any court or federal, state,
municipal, or other governmental department, commission, board, bureau, agency
or instrumentality wherever located. Except as set forth on Schedule 2.13(b)
there are no Environmental Law related claims, actions, suits or proceedings
pending, or, to the knowledge of the Shareholders and the Sellers, threatened
against or affecting any Company, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, wherever located, which would result in an
adverse change in the financial condition or business of the Companies, Madison,
and the Partnership of $150,000 or more or which would invalidate this Agreement
or any action taken in connection with this Agreement. To the knowledge of the
Shareholders and the Sellers, except as set forth on Schedule 2.13(b), since
January 1, 1988 no Company, Madison or the Partnership has transported, stored,
treated or disposed, nor has any Company allowed any third persons, on its
behalf, to transport, store, treat or dispose waste to or at (i) any location
other than a site lawfully permitted to receive such waste for such purpose or,
(ii) any location currently designated for remedial action pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or any similar federal or state statute; nor has any of the Companies, Madison
or the Partnership performed, arranged for or allowed by any method or procedure
such transportation or disposal in contravention of state or federal laws and
regulations or in any other manner which may result in liability for
contamination of the environment; and no Company, Madison or the Partnership has
disposed, nor has any of a Company, Madison or the Partnership allowed third
parties to dispose of waste upon property owned or leased by any of the
Companies other than as permitted by, and in conformity with, applicable
Environmental Law. Except as disclosed in Schedule 2.13(b), since January 1,
1988, no Company, Madison or the Partnership has received notification of any
past or present failure by the Company to comply with any Environmental Law
applicable to it or its operations or its assets. Without limiting the
generality of the foregoing since January 1, 1986, no Company, Madison or the
Partnership has received any notification (including requests for information
directed to the Company an owner thereof) from any governmental agency asserting
that the business is or may be a "potentially responsible person" for a remedial
action at a waste storage, treatment or disposal facility, pursuant to the
provisions of CERCLA, or any similar federal or state statute assigning
responsibility for the costs of investigating or remediating releases of
contaminants into the environment. Since January 1, 1988, no Company, Madison or
the Partnership has received hazardous waste as defined in the Resource
Conservation and Recovery Act, 42 USCA Section 6901 et seq., or in any similar
-- ---
federal or
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state statute, which has not been handled in full compliance with all applicable
federal and state laws.
(c) Except as set forth on Schedule 2.13 (c), since January 1, 1988
none of the Companies, Madison, and the Partnership has ever owned, operated,
had an interest in, engaged in and/or leased a waste transfer, recycling,
treatment, storage, landfill or other disposal facility. The Companies, Madison,
and the Partnership have obtained and maintained, when required to do so under
applicable Environmental Laws, trip tickets, signed by the applicable waste
generators demonstrating the nature of all waste deposited and or transported by
any of them. No employee, contractor or agent of the Companies, Madison or the
Partnership has, in the course and scope of employment with any of them, been
harmed by exposure to hazardous materials, as defined under the Laws. No liens
with respect to environmental liability have been imposed against any of the
Companies, Madison, or the Partnership under CERCLA, any comparable state
statute or other applicable Environmental Law, and no facts or circumstances
exist which would give rise to the same.
(d) Schedules 2.13(a) and 2.13(b) list all remedied violations of Laws
and Environmental Laws which existed within the past three years and all
outstanding unremedied notice of violations issued to any of the Companies,
Madison or the Partnership by any federal, state or local regulatory agency.
(e) Except as set forth on Schedule 2.13(e), none of the Sellers are
under investigation for the violation of any Laws, including, without
limitation, the violation of any anti-trust, racketeering, or unfair competition
Laws.
(f) All pending or, to Sellers' knowledge, threatened litigation and
administrative or judicial proceedings involving the Companies, Madison or the
Partnership or their assets or liabilities, and a description of all such
proceedings is set forth on Schedule 2.13(f) attached.
Section 2.14 Corrupt Practices. The Shareholders, and to the best of
-----------------
the Shareholders' knowledge, the Companies, Madison, and the Partnership have
not made, offered or agreed to offer anything of value to any employees of any
customers of the Companies, Madison and the Partnership for the purpose of
attracting business to the Companies, Madison and the Partnership or any foreign
or domestic governmental official, political party or candidate for government
office or any of their respective employees or representatives in any manner
which would result in any of the Companies, Madison, or the Partnership being in
material violation of any Law, nor have any of the Companies otherwise taken any
action which would cause them to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended.
Section 2.15 Legal Compliance. The Sellers have the right, power,
----------------
legal capacity and authority to enter into, and perform their respective
obligations under this Agreement, and, except as set forth in Schedule 2.15, no
approvals or consents of any other persons or entities are necessary in
connection with the transactions contemplated by this Agreement. The Sellers are
not parties to any other agreement or understanding which would prohibit or
limit their
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ability to consummate the transactions contemplated hereby. Except as disclosed
in Schedule 2.15 to this Agreement, the execution and performance of this
Agreement will not result in a breach of or constitute a default or result in
the loss of any right or benefit under:
(a) Any charter, partnership documents, by-law, agreement or other
document to which any Company or any Seller is a party or by which such Company,
Seller or any of their property is bound; or
(b) Any decree, order or rule of any court or governmental authority
which is binding on any Company or on any Seller or on any property of any
Company or any Seller .
Section 2.16 Transaction Intermediaries. No agent or broker or other
--------------------------
person acting pursuant to the express authority of any Seller is entitled to any
commission or finder's fee in connection with the transactions contemplated by
this Agreement.
Section 2.17 Intellectual Property. No Company has infringed and is
---------------------
not now infringing, on any trade name, trademark, service mark or copyright
belonging to any person, firm or corporation ("Intellectual Property") and to
the knowledge of the Sellers no one has or is infringing any Intellectual
Property right of any Company.
Section 2.18 Competition. Except as set forth on Schedule 2.18, no
-----------
salaried officer, nor any spouse or child of any of them, has any direct or
indirect interest in any competitor of any Company within the geographical area
in which the Company currently conducts business, or an interest in any supplier
or customer of such Company or in any person from whom or to whom the Company
leases any real or personal property, or in any other person with whom the
Company is doing business which interest adversely or affects the business of
any Company.
Section 2.19 Shareholder Loans. The amount owed by the Shareholders
-----------------
(including under Shareholder Receivables, if any, acquired by Purchaser as part
of the Assets) to any Company, the Partnership and Madison do not exceed
$600,000 when netted against the amounts owed to them by the Companies, the
Partnership and Madison, all such amounts and bear interest at the rate of 6%
per annum.
Section 2.20 Conduct of Business. In the past, aspects of the New
-------------------
Jersey Business were conducted through Interboro Disposal, Inc. Prior to the
date hereof, Interboro was merged with and into Regional with the result that
Regional acquired all of its business assets, and properties. No entity or
person nor a party to this Agreement (including, without limitation, Smart,
Inc., owns any asset or property used or useful in the New Jersey Business.
Section 2.21 Disclosure. The representations and warranties of the
----------
Sellers contained in this Article II or in any Exhibit or Schedule or other
document delivered by the Sellers or the Companies pursuant hereto, do not
contain any untrue statement of a material fact, or omit any statement of a
material fact necessary to make the statements contained not misleading. If
prior to Closing the Sellers become aware of any inaccuracy, or
misrepresentation or omission in any of the Schedules, they shall immediately
advise Purchaser in writing of the inaccuracy, misrepresentation or omission.
Purchaser understands and acknowledges that in the event Sellers disclose such
subsequent inaccuracy, misrepresentation or omission in any
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of the Schedules, they shall immediately advise Purchaser in writing of the
inaccuracy, misrepresentation or omission. Purchaser understands and
acknowledges that in the event Sellers disclose such subsequent inaccuracy,
misrepresentation or omission in any of the representations set forth in this
Article II or in any of the Schedules, that Purchaser's sole remedy shall be to
terminate this Agreement whereupon all obligations of Sellers' and Purchaser
cease and in no event shall Purchaser have the right to sue for damages.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
The Purchaser represents and warrants to the Sellers that:
Section 3.1 Structure. The Purchaser is a corporation duly formed and
---------
legally existing in good standing under the laws of Delaware.
Section 3.2 Authorization to Proceed with this Agreement. Purchaser
--------------------------------------------
has by proper corporate proceedings duly authorized the execution, delivery and
performance of this Agreement and each other agreement contemplated to be
entered into and no other corporate action is required by law or the Certificate
of Incorporation or by-laws of Purchaser.
Section 3.3 Absence of Intermediaries. No agent, broker, or other
-------------------------
person acting pursuant to Purchaser's authority will be entitled to make any
claim against the Sellers for any commission or finder's fee in connection with
the transactions contemplated by this Agreement.
Section 3.4 Public Reports. Purchaser has delivered to Sellers an
--------------
accurate copy for the year ended June 30, 1997 of the historical filings made by
it on Form 10-K and all amendments thereto, its Quarterly Report on Form 10-Q
for the period ended December 31, 1997 and all reports on Form 8-K filed with
the Securities and Exchange Commission by it since December 31, 1997. Since
December 31, 1997, there has not been any material adverse change in the income,
expenses, assets, results of operation or financial condition of EESI.
Section 3.5 EESI Stock. All of the shares of EESI Stock to be issued
----------
to the Companies as contemplated by this Agreement and the Collateral Documents
will, upon delivery, be duly authorized and validly issued, fully paid and non-
assessable by EESI, free and clear of all liens, charges, restrictions,
mortgages, security interests or claims of any kind.
Section 3.6 Authorization. Purchaser has the power and authority to
-------------
enter into this Agreement and each of the Collateral Documents and to carry out
the transactions contemplated hereby and thereby and this Agreement and each of
the Collateral Documents to which the Purchaser is a party, constitutes the
legal, valid and binding obligation of the Purchaser, enforceable in accordance
with its terms.
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Section 3.7 Contravention; Consents and Approvals. Except as set
-------------------------------------
forth on Schedule 3.7, no filing, action, consent or approval of any person,
entity or governmental body is required by the Purchaser for the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby. The execution and delivery of this Agreement by the Purchaser and the
consummation of the transactions contemplated hereby by the Purchaser will not
result in a breach of the terms or conditions of, or constitute a default under,
or violate, (a) any provision of any law, regulation or ordinance, (b) any
agreement, lease, mortgage or other instrument or undertaking, oral or written,
to which the Purchaser is a party or by which any of its properties or assets is
or may be bound or affected, or (c) any judgment, order, writ, injunction or
decree of any court, administrative agency or governmental body.
ARTICLE IV
ADDITIONAL AGREEMENTS OF SELLERS
--------------------------------
Section 4.1 Investment Representations and Covenants of Shareholders.
--------------------------------------------------------
(a) Each Shareholder understands (subject to the express
obligation of EESI to register the Unrestricted Stock to be issued to the
Shareholders as provided in Section 5.1 hereof) that the issuance of the EESI
Stock will not be registered under the Securities Act of 1933, as amended (the
"Act"), on the grounds that the issuance of the EESI Stock is exempt from
registration pursuant to Section 4(2) of the Act and/or Regulation D promulgated
under the Act ("Regulation D"), and that the reliance of EESI on such exemptions
is predicated in part on such Shareholder's representations, warranties,
covenants and acknowledgements set forth in this Section.
(b) Each Shareholder hereby represents and warrants to EESI that
he is an Accredited Investor, as that term is defined in Regulation D, and that
the EESI Stock will be acquired by him for his own account, not as a nominee or
agent, for investment and without a view to resale or other distribution within
the meaning of the Act, and the rules and regulations thereunder, and such
Shareholder will not distribute or transfer any of the EESI Stock in violation
of the Act. Each Shareholder is a resident of New York for purposes of state
securities laws.
(c) Each Shareholder: (i) acknowledges that the EESI Stock is
not registered under the Act and may not be sold by such Shareholder unless the
EESI Stock is first registered under the Act (in accordance with Section 5.1
hereof or otherwise) or an exemption from registration is available with respect
to such sale transaction, (ii) is aware that any sales of the EESI Stock made
under Rule 144 of the Securities and Exchange Commission under the Act may be
made only in limited amounts and in accordance with the terms and conditions of
that Rule and that in such cases where the Rule is not applicable, registration
or compliance with some other registration exemption will be required, (iii) is
aware that Rule 144 is not presently, and for a period of at least one year
following the Closing Date hereof may not be, available for use by such
Shareholder for resale of the EESI Stock, and (iv) is aware that EESI is not
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obligated to register any sale, transfer or other disposition of the EESI Stock
except in accordance with the provisions of Section 5.1 hereof.
(d) Each Shareholder represents and warrants to EESI that such
Shareholder has such knowledge and experience in financial and business matters
that he is fully capable of evaluating the risks and merits of such
Shareholder's investment in the EESI Stock.
(e) Each Shareholder acknowledges receipt of the Public Reports
referred to in Section 3.4 hereof, and such other documents, agreements and
information as each Shareholder has required and confirms and acknowledges that:
(i) EESI has afforded such Shareholder the opportunity to ask questions of and
receive answers from EESI's officers and various directors concerning the terms
and conditions of this Agreement and such Shareholder's investment in the EESI
Stock and to obtain such additional information as such Shareholder has
requested, and (ii) such Shareholder has availed himself of such opportunity to
the extent he deems necessary and has received the information requested.
(f) In order to ensure compliance with the provisions of
subsection (b) hereof, each Shareholder covenants and agrees that, after the
Closing, he will not sell, transfer or otherwise dispose of any of the EESI
Stock or any interest therein (unless such sale, transfer or disposition has
been registered under the Act in accordance with the provisions of Section 5.1
hereof or otherwise) or otherwise without there first having been compliance
with either of the following conditions:
i) EESI shall have received a written opinion of counsel in
form and substance reasonably satisfactory to EESI, or a copy of
a "no-action" or interpretive letter of the SEC, specifying the
nature and circumstances of the proposed transfer and indicating
that the proposed transfer will not be in violation of any of
the provisions of the Act and the rules and regulations
promulgated thereunder; or
ii) EESI shall have received an opinion from its own counsel
to the effect that the proposed transfer will not be in
violation of any of the provisions of the Act and the rules and
regulations promulgated thereunder.
(g) Each Shareholder also acknowledges and agrees that the
certificates representing the EESI Stock issuable to him will contain a
restrictive legend noting the restrictions on transfer described in this Section
4.1 and under federal and applicable state securities laws, and that appropriate
"stop-transfer" instructions will be given to EESI's stock transfer agent.
Section 4.2 Plan of Reorganization. This Agreement contemplates that
----------------------
the acquisitions of the Seller Stock and the Assets are to qualify as
reorganizations within the meaning of Sections 368(a)(1)(C) and 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended (the "Code"), and shall constitute
a "plan of reorganization" within the meaning of the Code. The
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parties hereto agree to take no action inconsistent with the treatment of such
exchange as a reorganization under Code (S)(S)368(a)(1)(C) and 368(a)(1)(B) and
to comply with all IRS filing and other requirements for such exchanges.
Section 4.3 Access to Records. The Shareholders will cause the
-----------------
Companies, Madison and the Partnership to give and the Companies, Madison and
the Partnership shall give Purchaser and its representatives, from the date
hereof until six years after the Closing Date, full access during normal
business hours upon reasonable notice to all of the properties, books,
contracts, documents and records of the Companies, Madison and the Partnership
pertaining to the Business, and to make available to Purchaser and its
representatives all additional financial statements of and all information with
respect to the business and affairs of the Companies, Madison and the
Partnership that Purchaser may reasonably request.
Section 4.4 Continuation of Business. The Companies will operate
------------------------
until the time of Closing, in the ordinary course of business, consistent with
past practice, so as to preserve their business organization intact, to assure,
to the extent possible, the availability to Purchaser of the present key
employees of the Companies, and to preserve for Purchaser the relationships of
the Companies with suppliers, customers, and others.
Section 4.5 Continuation of Insurance. The Shareholders will cause the
-------------------------
Companies, Madison and the Partnership to and the Companies shall keep in
existence all policies of insurance insuring the Companies, Madison and the
Partnership against liability and property damage, fire and other casualty
through the time of Closing, consistent with the policies currently in effect.
Section 4.6 Standstill Agreement. Until the Closing Date, unless this
--------------------
Agreement is earlier terminated pursuant to the provisions hereof, the
Shareholders and the Companies will not directly or indirectly solicit offers
for the Company Shares, the Assets, any interests in or to the Partnership or
capital stock of Madison or any of their respective assets and properties or for
a merger or consolidation involving any of them, or respond to inquiries from,
share information with, negotiate with or in any way facilitate inquiries or
offers from, third parties who express or who have heretofore expressed an
interest in acquiring the Companies, Madison or the Partnership by merger,
consolidation or other combination or acquiring any of their respective assets;
nor will the Shareholders permit the Companies, Madison, or the Partnership to
do any of the foregoing.
Section 4.7 Audited Financial Statements.
----------------------------
(a) Sellers shall cause their current and former independent
accountants to cooperate fully with the Purchasers accountants, and to furnish
all necessary reports and consents in connection with the Purchasers audits of
the Companies historical financial statements referred to in Section 4.7(b)
below. Sellers shall also cause the Companies to prepare an unaudited balance
sheet of the Companies as of the end of the calendar quarter completed
immediately prior to the Closing Date and an unaudited statement of income, cash
flow and retained earnings
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for the period ending with the completion of the calendar quarter ended prior to
the Closing Date ("Interim Financial Statements"). The Companies will use their
best efforts to deliver the Interim Financial Statements within fifteen (15)
days after the end of the applicable quarter. Companies may select the
accounting firm used to prepare such statements as required above, but said firm
must be reasonably acceptable to EESI.
(b) The Sellers shall cooperate (including by delivering all required
representation letters) with all reasonable requests of Purchaser and its
auditors necessary to audit all previously unaudited periods of the Companies,
Madison and the Partnership for the purposes of enabling Purchaser to make
periodic reports pursuant to the Securities Exchange Act of 1934 (the
"Securities Exchange Act") or to make public offerings of its securities under
the Securities Act of 1933, as amended (the "Securities Act"), and Sellers shall
permit such financial statements to be included in any of Purchasers filings
with the Securities and Exchange Commission under the Securities Exchange Act or
the Securities Act, in any prospectus used in connection with any such offering,
in any filings required by any state or other governmental agency, and in any
private placement memorandum that may be used by Purchaser in connection with an
offering of securities. All fees and expenses of the Purchasers' auditors
incurred to comply with the foregoing shall be borne by Purchaser; the fees and
expenses of Sellers' auditors in furnishing any needed representation or
management letters or in providing general guidance and information to
Purchasers auditors shall be borne by the Sellers.
Section 4.8 Pooling of Interests.
--------------------
(a) Purchaser and Sellers have agreed that a material factor in their
execution of this Agreement is that the transactions contemplated by this
Agreement be treated as a "pooling of interests" for accounting purposes. If for
any a provision in this Agreement would prevent the transaction being accounted
for as a "pooling interests," the parties agree to negotiate in good faith to
modify the Agreement so the transaction can be accounted for as a "pooling of
interests." Notwithstanding any other provision of this Agreement, prior to the
publication and dissemination by Purchaser of consolidated financial results
which include results of combined operations of the Companies and Purchaser for
at least 30 days on a consolidated basis following the Closing Date, which shall
in no event occur later than 120 days after the Closing, Sellers shall not sell
or otherwise transfer or dispose of, or in any way reduce their risk relative
to, any shares of the EESI Stock received by Sellers (including by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions.) The Securities Exchange Commission ("SEC") has
issued Accounting Series Release Nos. 130 and 135, as amended (collectively, the
"ASRs"), setting forth certain restrictions applicable to the availability of
"pooling of interests" accounting treatment in transactions of the type
contemplated by this Agreement. Sellers therefore covenant and agree with EESI
to hold the EESI Stock and to comply with the ASRs until the requirements of the
ASRs have been met as set forth in this Section 4.8. In addition, the
certificates evidencing the EESI Stock to be received by Sellers will bear a
legend substantially in the form set forth below:
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"The shares represented by this certificate may not be sold, transferred
or assigned, and Eastern Environmental Services, Inc., shall not be
required to give effect to any attempted sale, transfer or assignment
prior to the application and dissemination of financial statements by
Eastern Environmental Services, Inc., which include the results of at
least 30 days of combined operations of Eastern Environmental Services,
Inc., for which these shares are issued. Upon the written request of the
holder hereof directed to Eastern Environmental Services, Inc., the
issuer agrees to remove this restrictive legend (and any stop order
placed with the transfer agents) when the requirements of Accounting
Series Releases Nos. 130 and 135, as amended, of the Securities Exchange
Commission have been met."
(b) Notwithstanding the foregoing, the parties agree that if a closing
does not occur under the New York Agreement within one year of the date of this
Agreement, the transactions contemplated hereby will not be treated as a pooling
of interests.
Section 4.9 Shareholder Debt. The Shareholders shall pay all
----------------
amounts owed by them to the Companies, the Partnership and Madison within one
year after the Closing. At the Closing, the Shareholders shall produce and
deliver to Purchaser the original notes evidencing the amounts they owe or shall
execute promissory notes evidencing the indebtedness they owe.
ARTICLE V
ADDITIONAL AGREEMENTS OF PURCHASER
----------------------------------
Section 5.1 Registration Rights.
-------------------
(a) As soon as practical following the Closing, but in any event within
one hundred twenty (120) days after the Closing, EESI shall file a registration
statement to register the Unrestricted Stock under the Act for sale to the
public pursuant to a "shelf registration" on Form S-3 or other appropriate form,
if Form S-3 is not available under Rule 415 of the Act to qualify such
securities under the Act or if required any state "blue sky" laws. EESI will
give written notice to the Sellers of the "shelf registration" at least 15 days
before the registration statement is filed. After receiving the notice of the
"shelf" registration, each Seller will advise EESI in writing of the intended
method of disposition of the Unrestricted Stock to be registered, as required
for EESI to prepare the registration statement. Sellers recognize that the
occurrence of certain corporate developments, including significant
acquisitions, may result in the failure of the registration statement in which
the Unrestricted Stock is registered to contain all information required in
accordance with applicable law until an amendment or supplement is filed and
made available to the holders of all such Unrestricted Stock. Sellers recognize
that in such event, sales under the registration statement will be suspended
until EESI files the amendments or supplements required by the next sentence.
EESI agrees, as promptly as reasonably practicable, to prepare and file with the
SEC such amendments and supplements to such registration
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statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for the period required pursuant to
the terms of this Agreement and comply with the provisions of the Act with
respect to the disposition of all Unrestricted Stock covered by such
registration statement during such period in accordance with the intended
methods of disposition by the holders thereof set forth in such registration
statement. EESI shall keep such registration statement current and effective,
until such time as all of the Unrestricted Stock may be sold by the Sellers at
any time without restriction or pursuant to the provisions of Rule 144 or until
such earlier date as all of the shares registered pursuant to such registration
statement shall have been sold or otherwise transferred to a third party.
(b) With respect to the registration of the Unrestricted Stock, EESI
will, as expeditiously as possible furnish to the Sellers such number of
prospectuses, including copies of preliminary prospectuses, prepared in
conformity with the requirements of the Act, and such other documents, as the
Sellers may reasonably request in order to facilitate the public sale or other
disposition of the securities to be sold by the Sellers.
(c) All expenses incurred by EESI in effecting the registrations
provided for in this Section 5.1 shall be paid by EESI, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for EESI, expenses of any audits incident to or
required by any such registration and expenses of complying with the securities
or "blue sky" laws of any jurisdictions.
Section 5.2 Books and Records. From the Closing Date to six years
-----------------
after the Closing Date, the Purchaser shall allow the Sellers and their agents
access to all business records and files of the Companies pertaining to the
operation of the Companies prior to the Closing Date which were delivered to the
Purchaser in accordance with Section 1.5(u) of this Agreement ("Records") where
the Shareholders or Companies require access to the Records for the purpose of
preparing their tax returns, responding to any audit or informational request
regarding their tax returns or if required by them for use in a judicial
proceeding in which they are a party. Access to the records shall be during
normal working hours at the location where such Records are stored. The Sellers
shall have the right, at their own expense, to make copies of any Records
provided, however, that any such access or copying shall be had or done in such
a manner so as not to interfere unreasonably with the normal conduct of the
Purchaser's business. For a period of six years after the Closing Date, the
Purchaser shall not dispose of or destroy any material Records without first
providing written notice to the Shareholders at least 30 days prior to the
proposed date of such disposition or destruction.
Section 5.3 Replacement of Indebtedness. The Company Debt is
---------------------------
reflected in a Loan Agreement among the Companies and IESI Corp. providing for
loans to the Companies aggregating $2 million principal amount, maturing on June
30, 1998, and bearing interest at the rate of 10% per annum, all as reflected on
Schedule 2.8. The Company Debt is secured by a first priority security interest
in substantially all of the assets and all of the shares of capital stock of the
Companies and Madison, all of the interests in and substantially all of the
assets of the Partnership, and all of the capital stock and assets of the
several affiliated companies that
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are parties to the New York Agreement. If a Closing under this Agreement shall
not have occurred on or before June 20, 1998, Purchaser shall refinance the
Company Debt and replace it with a loan from Purchaser to the Companies,
Madison, the Partnership and their affiliates, on substantially the same terms
as the terms contained in the Loan Agreement and related documents, but with a
maturity of December 31, 1998; provided, in either case, that the Sellers and
the Purchaser shall have received from the holders of the Company Debt all such
releases and discharges as they may reasonably request, and, further provided,
that the Companies, the Shareholders and their affiliates shall have granted to
and perfected in favor of the Purchaser a first priority security interest in
and lien on and to all collateral presently securing the Company debt and such
other collateral as Purchaser may reasonably request. If a Closing occurs prior
to June 20, 1998, Purchaser may at its option assume or repay the Company Debt.
Section 5.4 Permitted Actions. Notwithstanding any other provision of
-----------------
this Agreement, the Purchaser shall permit the Companies to transfer to the
Shareholders or their designees any Excluded Asset (other than an asset required
to be conveyed to Purchaser under the New York Agreement) at or prior to the
Closing.
ARTICLE VI
CONDITIONS OF PURCHASER
-----------------------
The obligations of Purchaser to effect the transactions contemplated by
this Agreement shall be subject to the fulfillment at or prior to the time of
Closing of each of the following items which are conditions to the Closing.
Section 6.1 Compliance by Sellers. The Sellers shall have performed
---------------------
and complied with all material obligations and conditions required by this
Agreement to be performed or complied with by Sellers prior to or at the Closing
Date. All representations and warranties of Sellers contained in this Agreement
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, except for changes
expressly permitted by this Agreement and the Purchaser shall have received a
Certificate duly executed by each of the Sellers as to the foregoing.
Section 6.2 Litigation Affecting This Transaction. There shall be no
-------------------------------------
actual or threatened action by or before any court which seeks to restrain,
prohibit or invalidate the transactions contemplated by this Agreement or which
might affect the right of Purchaser to own, operate or control the Assets which,
in the judgment of the Boards of Directors of Purchaser, made in good faith and
based upon advice of their counsel, makes it inadvisable to proceed with the
transactions contemplated by this Agreement.
Section 6.3 Fiscal Condition of Business. There shall have been no
----------------------------
material adverse change in the results of operations, financial condition or
business of the Companies, taken as a whole, and the Companies taken as a whole
shall have not suffered any material loss or
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damage to any of the Assets, whether or not covered by insurance, since the date
of the Financial Statements.
Section 6.4 Opinion of Counsel. The Sellers shall have delivered to
------------------
the Purchaser the opinion of counsel, dated the Closing Date, in the form
annexed hereto as Schedule 1.11(e).
Section 6.5 Consents. All approvals, authorizations and consents
--------
required to be obtained shall have been obtained, and the Purchaser shall have
been furnished with appropriate evidence, reasonably satisfactory to Purchaser
and their counsel, of the granting of such approvals, authorizations and
consents, including, without limitation the consents and approvals described on
Schedule 2.15 hereof.
Section 6.6 Financial Statements. The Purchaser shall have either
---------------------
received pursuant to Section 4.7, all financial statements required by the
applicable rules and regulations of the Securities Exchange Commission or been
advised by Ernst & Young LLP that the Companies records are auditable.
Section 6.7 Pooling of Interests Advice. The Purchaser shall have
---------------------------
received from Ernst & Young L.L.P., or such other accounting firm selected by
EESI, advice reasonably satisfactory to it to the effect that transactions
contemplated hereunder will be accounted for under the pooling of interests
method of accounting.
Section 6.8 Title to Real Property; Survey. Each parcel of Real
------------------------------
Property owned by the Companies, Madison, and the Partnership (other than Real
Property comprising Excluded Assets) shall be insurable at regular standard
rates by a reputable title company acceptable to Purchaser, and shall be free of
any conditions, covenants, restrictions or encumbrances that impose any
financial burden on the Purchaser or the premises or restrict the use of the
premises. The Purchaser shall have received a commitment for title insurance for
each such parcel and a current as built survey for each parcel reasonably
acceptable in form and substance to it.
Section 6.9 HSR. The waiting period under the Hart-Scott-Rodino
---
Antitrust Improvements Act of 1976, as amended, shall have terminated.
Section 6.10 Company Debt. All liens securing the Company Debt (other
------------
than liens in favor of Purchaser) shall have been released and the releases
contemplated by the proviso to Section 5.3 shall have been obtained or, if
assumed by Purchaser, perfected in favor of Purchaser.
Section 6.11 Due Diligence. Sellers shall have delivered to Purchaser
-------------
the Schedules, and Purchaser shall have finished its review thereof, in
accordance with and pursuant to Section 9.14.
ARTICLE VII
CONDITIONS OF SELLERS
---------------------
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The obligations of the Sellers to transfer the Assets in accordance with
this Agreement shall be subject to the fulfillment at or prior to the time of
Closing of each of the following conditions:
Section 7.1 Compliance by Purchaser. Purchaser shall have performed
-----------------------
and complied with all material obligations and conditions required by this
Agreement to be performed or complied with by it at or prior to or at the
Closing Date. All representations and warranties of Purchaser contained in this
Agreement 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, except for
changes expressly permitted by this Agreement and the Sellers shall have
received a Certificate duly executed by an officer of the Purchaser as to the
foregoing.
Section 7.2 Litigation Affecting This Transaction. There shall be no
-------------------------------------
actual or threatened action by or before any court which seeks to restrain,
prohibit or invalidate the transactions contemplated by this Agreement or which
might affect the right of Purchaser to own, operate or control any of the Assets
and which, in the judgment of the Sellers, made in good faith and based upon
advice of their counsel, makes it inadvisable to proceed with the transaction
contemplated by this Agreement.
Section 7.3 Payment. The Purchaser shall have delivered to each of the
-------
Companies, as applicable, the EESI Stock in accordance with Sections 1.3 and
1.4.
Section 7.4 Consents. All approvals, authorizations and consents
--------
required to be obtained shall have been obtained, and the Sellers shall have
been furnished with appropriate evidence, reasonably satisfactory to them and
their counsel, of the granting of such approvals, authorizations and consents.
Section 7.5 Opinion of Counsel. The Purchaser shall have delivered to
------------------
the Companies the opinion of counsel to the Purchaser, dated the Closing Date,
in the form annexed hereto as Schedule 1.10(c).
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Indemnification by Sellers. The Sellers each agree that
--------------------------
they will each, jointly and severally, indemnify, defend, protect and hold
harmless the Purchaser and its officers, shareholders, directors, divisions,
subdivisions, affiliates, subsidiaries, parent, agents, employees, successors
and assigns from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, penalties, costs and expenses whatsoever
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation) whether equitable or legal, matured or contingent,
known or unknown to the Sellers, foreseen or unforeseen, ordinary or
extraordinary, patent or latent, whether arising out
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of occurrences prior to, at, or after the date of this Agreement, from (a) any
breach of, misrepresentation in, untruth in or inaccuracy in the representations
and warranties by the Sellers, set forth in this Agreement or in the Schedules
attached to this Agreement or in the Collateral Documents; (b) nonfulfillment or
nonperformance of any agreement, covenant or condition on the part of Sellers
made in this Agreement or in the Collateral Documents and to be performed by
Sellers before or after the Closing Date; (c) any liability, claim, cost,
expense or obligation whether legal or equitable, matured or contingent, known
or unknown, foreseen or unforeseen, extraordinary or ordinary, patent or latent
of any nature ("Liabilities") of (x) Lee Bin, Allegro, Madison or the
Partnership not reflected on the Closing Date Statement, except for obligations
under contracts, agreements and documents assumed by the Purchaser at the
Closing which first mature and accrue after the close of business on the Closing
Date, (y) any liability of Regional not reflected on the Closing Date Balance
Sheet which accrues or matures or arises from events occurring prior to the
close of business on the Closing Date, and (z) any Liability of the
Shareholders, whether arising out of occurrences prior to, at, or after the date
of this Agreement and (d) any claim by a third party that, if true, would mean
that a condition for indemnification set forth in subsections (a), (b) or (c) of
this Section 8.1 of this Agreement has occurred.
Section 8.2 Indemnification by Purchaser. Purchaser agrees that it will
----------------------------
indemnify, defend, protect and hold harmless each Seller, and each of their
respective officers, directors, divisions, subdivisions, affiliates,
subsidiaries, parents, heirs, legal representatives, successors and assigns, as
applicable, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, penalties, costs and expenses whatsoever
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation) whether equitable or legal, matured or contingent,
known or unknown to the Purchaser, foreseen or unforeseen, ordinary or
extraordinary, patent or latent, whether arising out of occurrences prior to,
at, or after the date of this Agreement, incurred by them, or any of them, as a
result of or incident to: (a) any breach of, misrepresentation in, untruth in or
inaccuracy in the representations and warranties of Purchaser set forth in this
Agreement or in the Schedules attached to this Agreement or in the Collateral
Documents; (b) nonfulfillment of any agreement, covenant or condition on the
part of Purchaser made in this Agreement or in the Collateral Documents and to
be performed by Purchaser before or after the Closing Date; (c) any of the
Guarantees; (d) the imposition upon, claim against, or payment by the Sellers of
any of the Assumed Liabilities; and (e) any claim by a third party that, if
true, would mean that a condition for indemnification set forth in subsections
(a), (b), (c) or (d) of this Section 8.2 has occurred.
Section 8.3 Procedure for Indemnification with Respect to Third Party
---------------------------------------------------------
Claims
- ------
(a) If any third party shall notify a party to this Agreement (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") that may
give rise to a claim for indemnification against any other party to this
Agreement (the "Indemnifying Party") under this Article VIII, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified Party
in notifying
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any Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party is
thereby prejudiced. Such notice shall state the amount of the claim and the
relevant details thereof.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
satisfactory to the Indemnified Party so long as (i) the Indemnifying Party
notifies the Indemnified Party in writing within fifteen days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party pursuant to the
provisions of Article VIII, as applicable, from and against the entirety of any
adverse consequences (which will include, without limitation, all losses,
claims, liens, and attorneys' fees and related expenses) the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (ii) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations hereunder,
(iii) the Third Party Claim involves only monetary damages and does not seek an
injunction or equitable relief, (iv) settlement of, or adverse judgment with
respect to the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice adverse
to the continuing business interests of the Indemnified Party, and (v) the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 8.3(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in (but not control) the defense of the Third Party Claim, (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (which will not be unreasonably withheld), and
(iii) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (which will not be unreasonably
withheld). In the case of (c)(ii) or (c)(iii) above, any such consent to
judgment or settlement shall include, as an unconditional term thereof, the
release of the Indemnifying Party from all liability in connection therewith.
(d) If the conditions set forth in Section 8.3(b) above are or become
unsatisfied, (i) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim and any matter it may deem appropriate and the Indemnified Party
need not consult with, or obtain any consent from, any Indemnifying Party in
connection therewith, (ii) the Indemnifying Party will reimburse the Indemnified
Party promptly and periodically for the cost of defending against the Third
Party Claim (including attorneys' fees and expenses) and (iii) the Indemnifying
Party will remain responsible for any adverse consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the fullest extent provided in this Article
VIII.
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<PAGE>
Section 8.4 Procedure for Non-Third Party Claims. If Purchaser or
------------------------------------
Sellers wish to make a claim for indemnity under Section 8.1 or Section 8.2, as
applicable, and the claim does not arise out of a third party notification which
makes the provisions of Section 8.3 applicable, the party desiring
indemnification ("Indemnified Party") shall deliver to the parties from which
indemnification is sought ("Indemnifying Party") a written demand for
indemnification ("Indemnification Demand"). The Indemnification Demand shall
state: (a) the amount of losses, damages or expenses to which the Indemnified
Party has incurred or has suffered or is expected to incur or suffer to which
the Indemnified Party is entitled to indemnification pursuant to Section 8.1 or
Section 8.2, as applicable; (b) the nature of the event or occurrence which
entitles the Indemnified Party to receive payment under Section 8.1 or Section
8.2, as applicable. If the Indemnifying Party wishes to object to an
Indemnification Demand, the Indemnifying Party must send written notice to the
Indemnified Party stating the objections and the grounds for the objections
("Indemnification Objection"). If no Indemnification Objection is sent within
forty-five (45) days after the Indemnification Demand is sent, the Indemnifying
Party shall be deemed to have acknowledged the correctness of the claim or
claims specified in the Indemnification Demand and shall pay the full amount
claimed in the Indemnification Demand within sixty (60) days of the day the
Indemnification Demand is dated. If for any reason the Indemnifying Party does
not pay the amounts claimed in the Indemnification Demand, within thirty days of
the Indemnification Demand's date, the Indemnified Party may institute legal
proceedings to enforce payment of the indemnification claim contained in the
Indemnification Demand and any other claim for indemnification that the
Indemnified Party may have.
Section 8.5 Survival of Claims. All of the respective representations
------------------
and warranties of the Sellers and the Purchaser shall survive consummation of
the transactions contemplated by this Agreement for a period of eighteen months,
the representations and warranties of the Sellers set forth in Sections 2.8 and
2.13 and, shall survive until the expiration of all applicable statutes of
limitation and the representations and warranties of Sellers in Sections 2.2,
2.4(c) (to the extent that Section 2.4(c) relates to title), and 2.15 shall
survive indefinitely.
Section 8.6 Limitation. No person shall be entitled under the
----------
indemnification provisions of this Agreement to indemnification for damages
resulting from breaches of representations and warranties until the damages
suffered by the Purchaser's indemnitees or Seller's indemnitees, as applicable,
exceeds $150,000; provided, however, that this limitation shall not be
applicable to breaches of Sellers' representations and warranties relating to
title, taxes, environmental matters, which are not listed on Schedule 2.13 to
this Agreement or the New York Agreement or which result in liabilities in
excess of those indicated on Schedule 2.13 to this Agreement or the New York
Agreement, and accounts receivable.
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<PAGE>
ARTICLE IX
OTHER PROVISIONS
----------------
Section 9.1 Nondisclosure by Sellers. Sellers recognize and acknowledge
------------------------
that it has in the past, currently has, and in the future will have certain
confidential information of the Companies such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Companies. Sellers agree that for a period of five (5)
years from the Closing Date and as to any Records received by them under Section
5.3 of this Agreement, five (5) years from their receipt of the Records, they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except to authorized representatives of the Sellers, unless (i) such information
becomes known to the public generally through no fault of Sellers, (ii) the
Sellers are compelled to disclose such information by a governmental entity or
pursuant to a court proceeding, or (iii) the Closing does not take place. In the
event of a breach or threatened breach by Sellers of the provisions of this
Section, Purchaser shall be entitled to an injunction restraining Sellers from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Purchaser from pursuing any other available
remedy for such breach or threatened breach, including, without limitation, the
recovery of damages.
Section 9.2 Nondisclosure by Purchaser. Purchaser recognizes and
--------------------------
acknowledges that it has in the past, currently has, and prior to the Closing
Date, will have access to certain confidential information of the Companies,
such as lists of customers, operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Companies. Purchaser agrees
that it will not utilize such information in the business or operation of
Purchaser, or any of their affiliates or disclose such confidential information
to any person, firm, corporation, association, or other entity for any purpose
or reason whatsoever, unless (i) such information becomes known to the public
generally through no fault of Purchaser or any of their affiliates (ii)
Purchaser is compelled to disclose such information by a governmental entity or
pursuant to a court proceeding or (iii) Closing takes place. In the event of a
breach or threatened breach by Purchaser of the provisions of this Section, the
Sellers shall be entitled to an injunction restraining Purchaser from utilizing
or disclosing, in whole or in part, such confidential information. Nothing
contained herein shall be construed as prohibiting Sellers from pursuing any
other available remedy for such breach or threatened breach, including, without
limitation, the recovery of damages.
Section 9.3 Assignment; Binding Effect; Amendment. This Agreement and
-------------------------------------
the rights of the parties hereunder may not be assigned (except (a) after
Closing by operation of law by the merger of Purchaser, or (b) by Purchaser
prior to closing to one or more wholly-owned subsidiaries of Purchaser) and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of Purchaser and the Sellers. This Agreement, upon execution and
delivery, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by all parties hereto.
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Section 9.4 Entire Agreement. This Agreement is the final, complete
----------------
and exclusive statement and expression of the agreement among the parties hereto
with relation to the subject matter of this Agreement, it being understood that
there are no oral representations, understandings or agreements covering the
same subject matter as the Agreement. The Agreement supersedes, and cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
discussions, correspondence, or oral or written agreements of any kind. The
parties to this Agreement have relied on their own advisors for all legal,
accounting, tax or other advice whatsoever with respect to the Agreement and the
transactions contemplated hereby.
Section 9.5 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.
Section 9.6 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and may be given by depositing the same
in United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, by overnight courier
or by delivering the same in person to such party.
(a) If to Purchaser, addressed to them at:
President
1000 Crawford Place
Mt. Laurel, NJ 08054
with a copy to:
Robert M. Kramer & Assoc., P.C.
1150 First Avenue, Suite 900
King of Prussia, PA 19406
(b) If to Sellers, addressed to
each Seller as set forth on
Exhibit "A" attached.
with a copy to:
Muchnick, Golieb & Golieb, P.C.
630 Fifth Avenue
New York, New York 10111
Attn: Howard W. Muchnick, Esq.
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<PAGE>
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three business days after the deposit
in the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received, if earlier. Any
party may change the address for notice by notifying the other parties of such
change in accordance with this Section 9.6.
Section 9.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New Jersey,
without giving effect to any choice or conflict of law provision or rule
(whether of the State of New Jersey or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
Jersey.
Section 9.8 No Waiver. No delay of or omission in the exercise of any
---------
right, power or remedy accruing to any party as a result of any breach or
default by any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed as a waiver of or acquiescence in any
such breach or default, or of or in any similar breach or default occurring
later; nor shall any waiver of any single breach or default be deemed a waiver
of any other breach or default occurring before or after that waiver.
Section 9.9 Captions. The headings of this Agreement are inserted for
--------
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
Section 9.10 Severability. In case any provision of this Agreement
------------
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as most
nearly to retain the intent of the parties. If such modification is not
possible, such provision shall be severed from this Agreement. In either case
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
Section 9.11 Construction. The parties have participated jointly in
------------
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute shall be deemed to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" means included, without limitation.
Section 9.12 Extension or Waiver of Performance. Either the Sellers or
-----------------------------------
Purchaser may extend the time for or waive the performance of any of the
obligations of the other, waive any inaccuracies in the representations or
warranties by the other, or waive compliance by the other with any of the
covenants or conditions contained in this Agreement, provided that any such
extension or waiver shall be in writing and signed by the Sellers and the
Purchaser.
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Section 9.13 Liabilities of Third Parties. Nothing in this Agreement,
----------------------------
whether expressed or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors, heirs, legal representative and assigns, nor is
anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provisions give any third person any rights of subrogation or action over or
against any party to this Agreement.
Section 9.14 Disclosure on Schedules. The parties acknowledge that
-----------------------
notwithstanding the provisions of the Agreement stating all Schedules and
Exhibits to this Agreement are attached to the Agreement, none of the Schedules
have been attached and certain of the Exhibits have not been attached. Sellers
will deliver to Purchaser all Schedules to be attached to this Agreement as soon
as reasonably possible but no later than thirty (30) days from the date of this
Agreement. Purchaser will have fourteen (14) days from the date of delivery of
the Schedules to review the Schedules and terminate the Agreement by sending
written notice to Companies, if Purchaser is not satisfied with any material
matter revealed by any Schedule. The parties hereto shall use their best
efforts to agree upon and attach to this Agreement all Exhibits not attached to
this Agreement on the date of this Agreement's execution. If the parties can
not agree upon any Exhibits not attached to this Agreement by July 15, 1998, any
of the parties may terminate this Agreement by sending written notice of
termination to the other parties. Once the Schedules are produced and the
Exhibits agreed upon the parties hereto shall execute a signature page which
states that attached to the signature page are the Schedules and Exhibits to
this Agreement. For purposes of this Agreement, a disclosure by any party hereto
of any fact on any Schedule shall be deemed a disclosure on every Schedule of
any party hereto to the extent such disclosure properly could have been made
thereon but was not made. The parties to this Agreement shall have the
obligation to supplement or amend the Schedules being delivered concurrently
with the execution of this Agreement and annexed hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules. The obligations of the parties to amend or supplement the Schedules
shall terminate on the Closing Date. Notwithstanding any such amendment or
supplementation, the condition to Closing set forth in Section 6.1 shall not be
satisfied, if the amendment or supplementation of any Schedule by Sellers
results in any of Sellers' representations and warranties changing in a manner
which the Purchaser in good faith believes is materially adverse to the
Purchaser, the Assets or the Business.
Section 9.15 Arbitration.
-----------
(a) Each and every controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration in accordance with
the commercial rules (the "Rules") of the American Arbitration Association then
obtaining, in Princeton, New Jersey and judgment upon the award rendered in such
arbitration shall be final and binding upon the parties and may be confirmed in
any court having jurisdiction thereof. Notwithstanding the foregoing, this
Agreement to arbitrate shall not bar any party from seeking temporary or
provisional remedies in any Court having jurisdiction if such party can
establish irreparable harm. Notice of the
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demand for arbitration shall be filed in writing with the other party to this
Agreement, which such demand shall set forth in the same degree of particularity
as required for complaints under the Federal Rules of Civil Procedure the claims
to be submitted to arbitration. Additionally, the demand for arbitration shall
be stated with reasonable particularity with respect to such demand with
documents attached as appropriate. In no event shall the demand for arbitration
be made after the date when institution of legal or equitable proceedings based
on such claim, dispute or other matter in question would be barred by the
applicable statutes of limitations.
(b) The arbitrators shall have the authority and jurisdiction
to determine their own jurisdiction and enter any preliminary awards that would
aid and assist the conduct of the arbitration or preserve the parties' rights
with respect to the arbitration as the arbitrators shall deem appropriate in
their discretion. The award of the arbitrators shall be in writing and it shall
specify in detail the issues submitted to arbitration and the award of the
arbitrators with respect to each of the issues so submitted.
(c) Within sixty (60) days after the commencement of any
arbitration proceeding under this Agreement, each party shall file with the
arbitrators its contemplated discovery plan outlining the desired documents to
be produced, the depositions to be taken, if ordered by the arbitrators in
accordance with the Rules, and any other discovery action sought in the
arbitration proceeding. After a preliminary hearing, the arbitrators shall fix
the scope and content of each party's discovery plan as the arbitrators deem
appropriate. The arbitrators shall have the authority to modify, amend or change
the discovery plans of the parties upon application by either party, if good
cause appears for doing so.
(d) The award pursuant to such arbitration will be final,
binding and conclusive.
(e) Counsel to the Purchaser and the Sellers in connection with
the negotiation of and consummation of the transactions under this Agreement
shall be entitled to represent their respective party in any and all proceedings
under this Section or in any other proceeding (collectively, "Proceedings"). The
Purchaser and the Sellers, respectively, waive the right and agree they shall
not seek to disqualify any such counsel in any such Proceedings for any reason,
including but not limited to the fact that such counsel or any member thereof
may be a witness in any such Proceedings or possess or have learned of
information of a confidential or financial nature of the party whose interests
are adverse to the party represented by such counsel in any such Proceedings.
Section 9.16 Costs and Expenses. Expect as otherwise provided herein,
------------------
the parties hereto shall each pay their own fees and expenses and those of their
respective agents and advisors incurred in connection with the transactions
contemplated by this Agreement (including, without limitation, all legal and
accounting fees), except that the Purchaser shall be responsible for all Hart-
Scott-Rodino filing fees.
Section 9.17 Certain Pricing Determination. In establishing the
-----------------------------
consideration payable under this Agreement, (a) the rights of the Companies
under the Stericycle Agreement, relating
-39-
<PAGE>
to the sale of the Companies' medical waste business were valued at $33,000 and
(b) the Hoboken property was valued at $1.75 million.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
PURCHASER
EASTERN ENVIRONMENTAL
SERVICES, INC.
By: /s/ Robert M. Kramer
--------------------------------
Name: Robert M. Kramer
Title: Executive Vice-President
COMPANIES
FRANK AND JOSEPH SAVINO PARTNERSHIP
By: /s/ Joseph Savino
--------------------------------
Name: Joseph Savino
Title: General Partner
REGIONAL RECYCLING, INC.
By: /s/ Joseph Savino
--------------------------------
Name: Joseph Savino
Title: President
LEE BIN CONTAINERS, INC.
By: /s/ Joseph Savino
--------------------------------
Name: Joseph Savino
Title: President
MADISON ENTERPRISES, INC.
-40-
<PAGE>
By: /s/ Joseph Savino
-----------------------------
Name: Joseph Savino
Title: President
ALLEGRO ENTERPRISES, INC.
By: /s/ Joseph Savino
-----------------------------
Name: Joseph Savino
Title: President
SHAREHOLDERS
/s/ Frank Savino
--------------------------------
Frank Savino
/s/ Joseph Savino
--------------------------------
Joseph Savino
AS TO THE OBLIGATIONS OF ESCROW AGENT IN SECTION 1.3(b) ONLY
ROBERT M. KRAMER & ASSOCIATES, P.C.
By: /s/ Robert M. Kramer
---------------------------------
Robert M. Kramer
-41-
<PAGE>
Exhibit 10.2
AGREEMENT AND PLAN OF REORGANIZATION OF
ALLEGRO ENTERPRISES, INC.
ALLEGRO TRANSPORTATION AND RECYCLING, INC.
ALLEGRO CARTING AND RECYCLING, INC.
JOSEPH SAVINO AND SONS, INC.
LEE BIN CONTAINERS, INC.
JOSEPH AND FRANK SAVINO PARTNERSHIP
AND
EASTERN ENVIRONMENTAL SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
AGREEMENT AND PLAN OF REORGANIZATION................................................. 1
RECITALS............................................................................. 1
ARTICLE I
Reorganization; Closing 2
Section 1.1 Incorporation of Recitals....................................... 2
Section 1.2 Place for Closing............................................... 2
Section 1.3 Agreement to Exchange Stock for Assets; Consideration........... 2
Section 1.4 Calculation of EESI Stock....................................... 5
Section 1.5 Description of Seller Stock and Assets.......................... 5
Section 1.6 Excluded Assets................................................. 6
Section 1.7 Assumption of Obligations....................................... 7
Section 1.8 Exclusion of Certain Liabilities................................ 7
Section 1.9 Term And Time For Closing....................................... 7
Section 1.10 Deliveries by Purchaser......................................... 8
Section 1.11 Deliveries by Sellers........................................... 8
Section 1.12 Transfer Tax, Allocation of Purchase Price and Bulk Sales....... 9
ARTICLE II
Representations and Warranties of the Sellers........................................ 9
Section 2.1 Organization and Standing....................................... 10
Section 2.2 Company Stock................................................... 10
Section 2.3 Contracts, Permits and Material Documents....................... 10
Section 2.4 Personal and Real Property...................................... 11
Section 2.5 Customers....................................................... 12
Section 2.6 Title 13
Section 2.7 Financial Statements............................................ 13
Section 2.8 Liabilities; Accounts Receivable and Working Capital............ 13
Section 2.9 Fiscal Condition................................................ 14
Section 2.10 Tax Returns..................................................... 15
Section 2.11 Policies of Insurance........................................... 15
Section 2.12 Employees, Pensions and, ERISA.................................. 16
Section 2.13 Legality of Operation........................................... 17
Section 2.14 Corrupt Practices............................................... 19
Section 2.15 Legal Compliance................................................ 20
Section 2.16 Transaction Intermediaries...................................... 20
Section 2.17 Intellectual Property........................................... 20
Section 2.18 Competition..................................................... 20
Section 2.19 Shareholder Loans............................................... 20
Section 2.21 Customers....................................................... 21
Section 2.22 Disclosure...................................................... 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE III
Representations and Warranties of Purchaser.......................................... 21
Section 3.1 Structure....................................................... 21
Section 3.2 Authorization to Proceed with this Agreement.................... 21
Section 3.3 Absence of Intermediaries....................................... 21
Section 3.4 Public Reports.................................................. 21
Section 3.5 EESI Stock...................................................... 22
Section 3.6 Authorization................................................... 22
Section 3.7 Contravention; Consents and Approvals........................... 22
ARTICLE IV
Additional Agreements of Sellers..................................................... 22
Section 4.1 Investment Representations and Covenants of Shareholders........ 22
Section 4.2 Plan of Reorganization.......................................... 24
Section 4.3 Access to Records............................................... 24
Section 4.4 Continuation of Business........................................ 24
Section 4.5 Continuation of Insurance....................................... 24
Section 4.6 Standstill Agreement............................................ 24
Section 4.7 Audited Financial Statements.................................... 24
Section 4.8 Pooling of Interests............................................ 25
Section 4.9 Shareholder Debt................................................ 26
Section 4.10 Merger of Allegro............................................... 26
ARTICLE V
Additional Agreements of Purchaser................................................... 26
Section 5.1 Registration Rights............................................. 26
Section 5.2 Books and Records............................................... 27
Section 5.3 Replacement of Indebtedness..................................... 27
Section 5.4 Permitted Actions............................................... 28
Section 5.5 Management Agreement............................................ 28
ARTICLE VI
Conditions of Purchaser.............................................................. 28
Section 6.1 Compliance by Sellers........................................... 28
Section 6.2 Litigation Affecting This Transaction........................... 29
Section 6.3 Fiscal Condition of Business.................................... 29
Section 6.4 Opinion of Counsel.............................................. 29
Section 6.5 Consents........................................................ 29
Section 6.6 Financial Statements............................................ 29
Section 6.7 Pooling of Interests Advice..................................... 29
Section 6.8 Title to Real Property; Survey.................................. 29
Section 6.9 HSR 29
Section 6.10 Company Debt.................................................... 30
Section 6.11 Due Diligence................................................... 30
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VII
Conditions of Sellers................................................................ 30
Section 7.1 Compliance by Purchaser......................................... 30
Section 7.2 Litigation Affecting This Transaction........................... 30
Section 7.3 Payment......................................................... 30
Section 7.4 Consents........................................................ 30
Section 7.5 Opinion of Counsel.............................................. 30
ARTICLE VIII
Indemnification...................................................................... 31
Section 8.1 Indemnification by Sellers...................................... 31
Section 8.2 Indemnification by Purchaser.................................... 31
Section 8.3 Procedure for Indemnification with Respect to Third Party Claims 32
Section 8.4 Procedure for Non-Third Party Claims............................ 33
Section 8.5 Survival of Claims.............................................. 33
Section 8.6 Limitation...................................................... 33
ARTICLE IX
Other Provisions..................................................................... 34
Section 9.1 Nondisclosure by Sellers........................................ 34
Section 9.2 Nondisclosure by Purchaser...................................... 34
Section 9.3 Assignment; Binding Effect; Amendment........................... 34
Section 9.4 Entire Agreement................................................ 35
Section 9.5 Counterparts.................................................... 35
Section 9.6 Notices......................................................... 35
Section 9.7 Governing Law................................................... 36
Section 9.8 No Waiver....................................................... 36
Section 9.9 Captions........................................................ 36
Section 9.10 Severability.................................................... 36
Section 9.11 Construction.................................................... 36
Section 9.12 Extension or Waiver of Performance.............................. 36
Section 9.13 Liabilities of Third Parties.................................... 36
Section 9.14 Disclosure on Schedules......................................... 37
Section 9.15 Arbitration..................................................... 37
Section 9.17 Certain Pricing Determinations.................................. 38
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This Agreement and Plan of Reorganization ("Agreement") is made as of May 18,
1998, by and among the individuals and entities set forth on the signature page
under the heading "Shareholders"("Shareholders"), Allegro Enterprises, Inc.
("Allegro"), Allegro Transportation and Recycling, Inc. ("Transportation"),
Allegro Carting and Recycling, Inc. ("Carting"), Joseph Savino and Sons, Inc.
("JSS"), Lee Bin Containers, Inc. ("Lee Bin"), Joseph and Frank Savino
Partnership (the "Partnership"), and Eastern Environmental Services, Inc.
("EESI"). For purposes of this Agreement, EESI is referred to as "Purchaser";
Allegro, Transportation, Carting, JSS, and Lee Bin are collectively referred to
as the "Companies" and individually as a "Company;" and the Companies, the
Partnership, and the Shareholders are collectively referred to as the "Sellers."
RECITALS
--------
Each of the individual Shareholders is the owner of the outstanding capital
stock of each of the Companies, as set forth on Exhibit "A" attached; together
the Shareholders own all of the outstanding capital stock of the Companies; and
the Shareholders together own all of the interests in the Partnership. Each
Company other than Allegro is a New York corporation and the Partnership is a
New York general partnership. Allegro is a New Jersey corporation. The
Companies are in the business of collecting, transporting, recycling and
disposing of commercial, medical, industrial, and municipal solid waste in the
State of New York and operating and (together with the Partnership) owning a
transfer station (the "Transfer Station") located at 26 Bay Street, Brooklyn,
New York, which is licensed by the State of New York to accept asbestos waste
(collectively, the "New York Business"). The Partnership owns all of the real
property on which the Transfer Station is located and all or substantially all
of the assets and equipment that comprise the Transfer Station. Except for the
assets and properties listed on Schedule 2.4(d), the Partnership does not hold
any assets or engage in any operations or business.
The parties hereto desire that substantially all of the assets of the
Companies and the interests of the Partnership in the real and personal property
used in the New York Business be acquired, directly or indirectly, by EESI in
exchange solely for the voting stock of EESI on the terms contained herein. The
parties intend that the acquisitions of assets from the Companies contemplated
hereby qualify as reorganizations within the meaning of Sections 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended, and that, as a result of the
transactions contemplated hereby, the Purchaser shall acquire from the Sellers
all assets and properties used in the New York Business.
Simultaneously with the execution and delivery of this Agreement, the
Shareholders and the Purchaser have entered into a second Agreement and Plan of
Reorganization (the "New Jersey Agreement") relating to the acquisition by the
Purchaser from Allegro, Lee Bin, Madison Enterprises, Inc., the Partnership and
the Shareholders to acquire all of the business and assets of Regional
Recycling, Inc. ("Regional") and all of the New Jersey business of each other
Seller under that
<PAGE>
agreement in exchange solely for the voting stock of EESI on the terms contained
therein. The parties intend that the transactions contemplated by this Agreement
and the New Jersey Agreement shall be closed simultaneously and that such
acquisitions be treated (together or separately) as a pooling of interests for
accounting purposes. However, the parties recognize that simultaneous closings
may not be possible. Therefore, the closings under this Agreement and the New
Jersey Agreement are not contingent upon each other, and the parties have agreed
that they will not treat the transactions as poolings of interests if a Closing
under the New Jersey Agreement does not occur within one year of the date of
this Agreement.
ARTICLE I
REORGANIZATION; CLOSING
-----------------------
Section 1.1 Incorporation of Recitals. The recitals set forth above are
-------------------------
incorporated herein by reference and are a part of this Agreement.
Section 1.2 Place for Closing. Subject to Section 1.9 hereof, closing under
-----------------
this Agreement shall take place at the offices of Muchnick, Golieb & Golieb,
P.C., 630 Fifth Avenue, New York, New York 10111, or such other place as the
parties hereto may agree upon. The date that Closing occurs is referred to
hereinafter as the "Closing Date" and the act of closing as "Closing."
Section 1.3 Agreement to Exchange Stock for Assets; Consideration.
-----------------------------------------------------
(a) At the Closing, (i) the Partnership shall transfer and deliver to the
Purchaser, or to one or more wholly-owned subsidiaries of the Purchaser
designated by it, all of its interests in and to the Transfer Station Property
and the assets comprising the Transfer Station and the Transfer Station
Property, (ii) Allegro and Lee Bin shall transfer and deliver to the Purchaser,
or to one or more wholly-owned subsidiaries of the Purchaser designated by it,
all of their assets and properties used in the New York Business, and (iii) the
Companies (other than Lee Bin and Allegro) shall transfer and deliver to
Purchaser or to one or more wholly-owned subsidiaries designated by Purchaser
all of the assets owned or leased by them other than Excluded Assets as defined
in Section 1.6, and Purchaser shall issue and deliver, in exchange for the
assets, as consideration therefor, (i) shares of EESI's common stock ("EESI
Stock"), calculated as set forth in Section 1.4 below, and (ii) assume (or
refinance, in the case of the Company Debt, as defined in Section 2.8 and as may
be refinanced under Section 5.3) the Assumed Liabilities as set forth in Section
1.7. The EESI Stock shall be allocated and paid to the Sellers as set forth on
Exhibit "A" attached hereto and set for on Schedule 1.3(c). Not less than ten
(10) days prior to the Closing, the Sellers shall deliver to Purchaser a
combined balance sheet of the Companies (other than Lee Bin and Allegro) as of
the last day of the month most recently ended (the "Closing Balance Sheet") and
a statement of the liabilities of Lee Bin, the Partnership and Allegro deriving
from the New York Business (the "New York Liabilities") as of the same date (the
"Closing Statement"). For purposes of this Agreement, the balance sheet revised
to reflect Purchaser's reasonable comments shall be referred to as the Closing
Balance Sheet and the statement of New York Liabilities revised to incorporate
Purchaser's reasonable comments shall
2
<PAGE>
be referred to as the Closing Statement. The dollar value of the EESI Stock to
be delivered at Closing shall be the value that is equal to (x) $7,500,000
minus, in all cases without duplication, the sum of the following four items (i)
the liabilities reflected on the Closing Balance Sheet, (ii) the Amount of any
Company Debt refinanced or assumed by Purchaser pursuant to Section 5.3 (and not
used to reduce the purchase price under the New Jersey Agreement), (iii) the New
York Liabilities referenced on the Closing Statement, and (iv) the amount by
which cash included in the Assets immediately after the Closing in the aggregate
is less than $250,000. The Closing Balance Sheet and the Closing Statement will
not reflect or include any intercompany liability which will be paid to
Purchaser or Regional or otherwise to or for Purchaser's benefit by reason of
Purchaser's purchase of the Receivable that is included in the Assets or owned
by Regional.
(b) (i) Within one hundred fifty (150) days after the Closing Date, Purchaser
shall prepare and deliver to Sellers the combined balance sheet for the
Companies (other than Lee Bin and Allegro) as of the close of business on the
Closing Date (the "Closing Date Balance Sheet") and a final statement as of the
close of business on the Closing Date of the New York Liabilities (the "Closing
Date Statement"). The Closing Date Balance Sheet shall set forth the combined
assets and liabilities of the Companies (other than Lee Bin and Allegro) and the
Closing Date Statement shall set forth the liabilities of Allegro, Lee Bin, and
the Partnership deriving from the New York Business conducted by them. The
Closing Date Balance Sheet and the Closing Date Statement will not reflect or
include (x) any inter-company liability which is set forth on Schedule 1.3(b) or
(y) any Receivable that is not collected by Purchaser within 150 days after the
Closing Date. Seller shall have the right to review all of Purchaser's work
papers and all relevant records relating to the Closing Date Balance Sheet and
the Closing Date Statement.
(ii) The Closing Date Balance Sheet and Closing Date Statement delivered to
Sellers shall be deemed to be and shall be final, binding and conclusive on
the parties hereto, unless Sellers dispute the Closing Date Balance Sheet
and/or the Closing Date Statement in accordance with this Section
1.3(b)(ii). Sellers may dispute any amounts reflected on the Closing Date
Balance Sheet or the Closing Date Statement (any such disputed amounts, the
"Disputed Matters") by giving written notice to Purchaser of each Disputed
Matter within forty-five (45) days of receipt of the Closing Date Balance Sheet
or the Closing Date Statement. Any Disputed Matters shall be subject to good
faith negotiations between the parties for up to fifteen (15) days prior to
being referred to the Independent Accounting Firm (as defined below). Any
Disputed Matters not resolved by such good faith negotiations shall be decided
by an independent accounting firm acceptable to both Sellers and Purchaser (the
"Independent Accounting Firm"). The costs and expenses of the Independent
Accounting Firm shall be shared equally by Sellers and Purchaser. The
Independent Accounting Firm so chosen shall consider only the Disputed Matters
and Purchaser and Sellers shall use reasonable efforts to cause the Independent
Accounting Firm to render a final decision on the Disputed Matters by delivering
a written report to Purchaser and Sellers no later than thirty (30) days after
having received the assignment with respect thereto. The decision of the
Independent Accounting Firm with respect to all Disputed Matters shall be based
solely on whether the Closing Date Balance Sheet or the Closing Date Statement
was prepared in accordance with the requirements of this Agreement, shall be
final and binding upon the parties hereto and shall not be subject to challenge
in any court.
3
<PAGE>
(iii) On the basis of the Closing Date Balance Sheet and the Closing Date
Statement (A) the dollar value of the EESI stock shall be decreased or
increased, as applicable, by the amount that is equal to the deficit or excess,
as applicable, of the sum of the liabilities reflected on the Closing Date
Balance Sheet and the Closing Date Statement as compared to the liabilities
reflected on the Closing Balance Sheet and the Closing Statement and (B)
decreased by the amount by which the Receivables (as defined in Section 2.8)
reflected on the Closing Date Balance Sheet are less than $1,072,000, and (C)
---------
increased by the amount by which Receivables shown on the Closing Date Balance
Sheet exceed $1,455,000; (D) if cash reflected on the Closing Date Balance Sheet
---------
is less than cash reflected on the Closing Balance Sheet then, the dollar value
of the EESI Shares issuable shall be decreased by the amount of the difference
between the amount of cash reflected on the Closing Date Balance Sheet and the
lower of $250,000 and the cash on the Closing Balance Sheet (however, no
decrease will be made if the cash on the Closing Date Balance Sheet is $250,000
or more); and (E) if cash reflected on the Closing Date Balance Sheet is greater
than cash reflected on the Closing Balance Sheet, the dollar value of the EESI
Shares issuable shall be increased by the amount that is equal to the positive
difference, if any, between cash reflected on the Closing Date Balance Sheet and
the cash reflected on the Closing Balance Sheet (however, no increase will be
made for any cash on the Closing Date Balance Sheet in excess of $250,000).
(c) Ninety (90) percent of the EESI Stock shall be delivered to the Companies
at closing as forth on Exhibit A hereto and ten (10) percent (%) of the EESI
Stock shall be delivered to Robert M. Kramer & Associates P.C. in escrow
("Escrow Agent") under the provisions of this Section 1.3(c) ("Escrow Stock") to
be held against possible reduction in the purchase price pursuant to Section
1.3(b) and to secure the Sellers' indemnity obligations under Article VIII.
Based on the final determination of the Closing Date Balance Sheet, the Escrow
Agent shall deliver to the Sellers the Escrow Stock minus, if applicable, the
number of shares of Escrow Stock having a dollar value equal to the amount of
any decrease in the purchase price pursuant to Section 1.3(b). If the
adjustments required by Section 1.3(b) result in an increase in the number of
shares of EESI stock issuable, the Company shall promptly issue and deliver to
the Sellers, the additional shares, which shall be valued as provided above. The
per share value of the EESI Shares delivered pursuant to this section shall be
the same as the per share value of the EESI Shares delivered at Closing. The
EESI Stock delivered by Escrow Agent shall be allocated and paid to the Sellers,
as set forth on Exhibit A. The Escrow Agent shall deliver to Purchaser for
cancellation any Escrow Stock not required to be so delivered. To the extent the
escrow stock is not sufficient to satisfy any reduction in the purchase price
pursuant to this section, the Shareholders shall, or shall cause the Companies,
to transfer to the Purchaser EESI shares with a value (as determined herein)
equal to such deficiency.
Section 1.4 Calculation of EESI Stock. The number of shares of EESI Stock to
-------------------------
be delivered at Closing shall be calculated by dividing the dollar value of the
EESI Stock by the per share closing price for EESI's common stock on the NASDAQ
National Market for the trading day which is five trading days prior to the
Closing Date. For purposes of this Agreement, one-half of the EESI Stock is
hereafter referred to as the "Restricted Stock" and the remaining half is
referred to as the "Unrestricted Stock." The Unrestricted Stock shall be
entitled to registration rights set forth in Section 5.1 of this Agreement. Any
Escrow Stock delivered or cancelled and any additional EESI Stock issued
pursuant to Section 1.3(b) shall be equally divided between Restricted and
Unrestricted Stock.
4
<PAGE>
Section 1.5 Description of Seller Stock and Assets. Upon the terms and
--------------------------------------
subject to the conditions set forth in this Agreement, on the Closing Date the
Companies (other than Allegro and Lee Bin) shall grant, convey, sell, transfer
and assign to Purchaser (a) all assets and properties owned or leased by them
(other than the Excluded Assets), and (b) the Partnership shall grant, convey,
sell, transfer and assign to Purchaser, all right, title and interest of the
Partnership in and to the Transfer Station Property and the assets comprising
the Transfer Station, and (c) Lee Bin and Allegro shall grant, convey, sell,
transfer and assign to Purchaser all assets and properties used by them in the
New York Business. In consequence, Purchaser shall acquire, directly or
indirectly, all of the assets and properties associated with or used in the New
York Business, including the following:
(a) All containers and carts ("Containers");
(b) All bailers, extruders, scales and other equipment and personal property
associated with the Transfer Station as set forth on Schedule 1.5(b);
(c) All motor vehicles and all attachments, accessories and materials handling
equipment, as set forth on Schedule 1.5(c) attached.
(d) All compactors and recycling equipment.
(e) All radios located in the rolling stock, the radio base station, and all
manual and automated routing and billing systems and components thereof,
including, without limitation, all computer hardware, software and programs
("Radios").
(f) All inventory of parts, tires and accessories.
(g) All right, title and interest in and to all trade secrets, proprietary
rights, symbols, trademarks, service marks, logos and trade names used and
owned.
(h) All contractual rights (whether oral or in writing), including, without
limitation all rights under the Companies' agreement with Sterocycle, Inc.
(relating to the sale of the Companies' medical waste business).
(i) All accounts receivable.
(j) All leases and agreements.
5
<PAGE>
(k) All permits, licenses, franchises, consents and other approvals from
governments, governmental agencies (federal, state and local) and/or third
parties ("Consents and Approvals"), used in or required for the operation
of the Business which are transferable.
(l) The exclusive right to use all names associated with the New York
Business.
(m) All right, title, and interest in and to the telephone numbers used in the
conduct of the Business.
(n) All shop tools relating to the New York Business.
(o) All furniture and office or other equipment.
(p) All interest in all tangible and intangible property, including, without
limitation, pre-paid expenses.
(q) All goodwill of the New York Business.
(r) All real property (other than real property comprising Excluded Assets)
owned or leased by any Company and all interests in and to the Transfer
Station Property (collectively, the "Real Property").
(s) All cash, cash equivalents, securities, prepaid expenses, deposits,
accounts receivable and financial instruments of the Companies.
(t) All books, records, original agreements and contracts and title documents
relating to the items set forth in (a) through (s) above.
All of the foregoing assets, properties and contractual rights described in (b)
through (t) above are hereinafter sometimes collectively called the "Assets."
At Closing, good and marketable title to the Assets will be conveyed to
Purchaser by the Companies and the Partnership free and clear of all liens,
encumbrances, security interests and claims, except for liens securing the
Assumed Liabilities as defined in Section 1.7.
Section 1.6 Excluded Assets. The parties agree that the only tangible and
---------------
intangible property owned by the Companies and the Partnership and not being
acquired by the Purchaser is (a) the corporate records of the Companies other
than the records set forth in Section 1.5(t) above, (b) certain assets that are
personal to the Shareholders and not used in the business of the Companies or
the Partnership, and (c) assets owned by Lee Bin, Allegro, and the Partnership
required to be conveyed to Purchaser under the New Jersey Agreement that are not
used in the New York Business (the "Excluded Assets"). The Excluded Assets
other than those referred to in clause "c" are listed on Schedule 1.6.
6
<PAGE>
Section 1.7 Assumption of Obligations. From and after the Closing, the
-------------------------
Purchaser agrees to assume and perform all of the obligations of the Companies
and the Partnership (i) reflected as liabilities on the Closing Date Balance
Sheet and the Closing Date Statement; (ii) under the customer contracts set
forth on Schedule 2.5; and (iii) under all documents identified in Schedule 2.3;
and (iv) under contracts or agreements of the Companies arising in the ordinary
course and which in the aggregate require the payment of $35,000 or less a year
and (v) subject to Section 5.3, the Company Debt (as defined in Section 2.8)
(collectively, the "Assumed Liabilities").
Section 1.8 Exclusion of Certain Liabilities. [Intentionally Omitted]
--------------------------------
Section 1.9 Term And Time For Closing. Following execution of this
-------------------------
Agreement, the Purchaser and Sellers shall be obligated to conclude the
transaction strictly in accordance with its terms on the last business day of
the month that the conditions of Closing set forth in Article VI and Article VII
have been satisfied or waived. If the failure to conclude this transaction is
due to the refusal and failure of Sellers to perform their obligations to close
under this Agreement, Purchaser may seek to enforce this Agreement with an
action of specific performance, in addition to, and not in limitation of, any
other rights and remedies available to the Purchaser, under this Agreement, or
at law or in equity, including, without limitation, an action to recover their
actual damages resulting from the default of the Sellers. If the failure to
conclude this transaction is due to the refusal and failure of Purchaser to
perform its obligations to close under this Agreement, the Sellers, or any of
them, may, in addition to and not in limitation of any other rights and remedies
available to the Sellers, or any of them, under this Agreement, or at law or in
equity, bring legal action to recover their actual damages resulting from the
default of the Purchaser.
This Agreement and the transactions contemplated hereby may be terminated at
any time prior to the Closing Date:
(a) by mutual written agreement of EESI and the Sellers;
(b) by EESI by July 15, 1998, if EESI is not satisfied with the due diligence
it has conducted on the Sellers;
(c) by EESI or the Sellers, by providing the other with written notice
thereof, if the Closing shall not have occurred by December 31, 1998, or such
other date as may be agreed to by the parties hereto in writing, if such
notifying party is ready, willing and able to consummate the transactions
contemplated by this Agreement and all of the conditions to the other party's
obligation to close as set forth in Article VI or VII, as applicable, shall have
been satisfied and the other party fails to consummate the transactions
contemplated by this Agreement for any reason whatsoever;
(d) by the Sellers, or by EESI, on or prior to December 31, 1998 or such other
date as may be agreed to by the parties in writing, in the event Purchaser or
the Sellers, as applicable,
7
<PAGE>
makes a material misrepresentation under this Agreement or breaches a material
covenant or agreement under this Agreement, and fails to cure such
misrepresentation or breach within ten (10) days from the date of written notice
of the existence of such misrepresentation or breach; or
(e) by the Purchaser and Sellers as provided in Section 9.14.
(f) by the Sellers on September 2, 1998 if the transactions contemplated
herein have not closed by September 1, 1998 and the Purchaser has not notified
the Sellers that the per share price of the EESI Stock will be fixed at the
closing price of such stock on August 25, 1998.
All terminations shall be exercised by sending the other parties a written
notice of the termination. In the event this Agreement is terminated as
provided herein, this Agreement shall become void and be of no further force and
effect and no party hereto shall have any further liability to any other party
hereto, except that Section 1.9, Article VIII, Section 9.1, Section 9.2, Section
9.4, Section 9.7, Section 9.15 and Section 9.16 shall survive and continue in
full force and effect, notwithstanding termination. The termination of this
Agreement shall not limit, waive or prejudice the remedies available to the
parties, at law or in equity, for a breach of this Agreement.
Section 1.10 Deliveries by Purchaser. At the Closing, Purchaser shall
------------------------
deliver, all duly and properly executed, authorized and issued (where
applicable):
(a) The EESI Stock, as provided in Sections 1.3 and 1.4 above, to be delivered
to the Companies;
(b) A certified copy of resolutions of the directors and, if required,
shareholders of Purchaser authorizing the execution and delivery of this
Agreement and each other agreement to be executed in connection herewith,
including, but not limited to the Employment Agreements (collectively, the
"Collateral Documents") and the consummation of the transactions contemplated
herein and therein;
(c) An opinion from counsel for Purchaser, dated the day of the Closing in the
form attached as Schedule 1.10(c);
(d) The Certificate described in Section 7.1;
(e) An Assignment and Assumption Agreement in the form attached as Schedule
1.10(e) attached hereto;
(f) Other documents and instruments required by this Agreement, if any.
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Section 1.11 Deliveries by Sellers. At the Closing, each of the Sellers, as
---------------------
applicable, shall deliver to Purchaser, all duly executed, the following:
(a) Executed Bills of Sale for the Assets to be conveyed and assigned to
Purchaser in the form attached as Schedule 1.11(a);
(b) Each of the Sellers shall execute the Covenant Not to Compete Agreement
attached to this Agreement as Schedule 1.11(b);
(c) The Companies shall have delivered to EESI a current certificate of good
standing for each of the Companies from the New York Secretary of State;
(d) An opinion from counsel for the Sellers, dated the date of the Closing, in
form attached as Schedule 1.11(d);
(e) Each of the Sellers shall execute and deliver the Certificate described at
Section 6.1;
(f) An Assignment and Assumption Agreement in the form attached as Schedule
1.10(e) attached hereto;
(g) The books and records of each of the Companies to be delivered as set
forth in Section 1.5(t);
(h) Physical possession of all Assets;
(i) A bargain and sale deed with covenants against grantors acts, deed in the
form attached hereto as Schedule 11.11(i) proper recordable form for each parcel
of Real Property (including, without limitation, the Transfer Station Property);
and
(j) Other documents and instruments required by this Agreement, if any.
Section 1.12 Transfer Tax, Allocation of Purchase Price and Bulk Sales
---------------------------------------------------------
(a) Purchaser shall pay all sales, transfer taxes and fees imposed on the
conveyance of the Assets by all governments, state, local and federal.
(b) The Purchaser hereby waive compliance by the Companies with the provisions
of the New York State Bulk Sales Law and the Sellers, jointly and severally,
covenant and agree to pay and discharge, when due, or contest in good faith by
appropriate proceedings, all claims of creditors which could be asserted against
the Purchaser, the Seller Stock or the Assets by reason of such noncompliance,
other than Assumed Liabilities.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------
Whenever the phrase "to Sellers' knowledge", "to Shareholders' knowledge" or a
similar phrase is used in this Agreement, the phrase means the actual knowledge
of any of the Shareholders and (with respect to Shareholders who are officers or
employees of the Companies) the knowledge such Shareholders would or should have
had, if such Shareholders who are employees or officers of the Companies
exercised reasonable diligence in the conduct of such Shareholders' duties to
the Companies. With knowledge that Purchaser is relying upon the
representations, warranties and covenants herein contained, all of the Sellers
jointly and severally represent and warrant to Purchaser and make the following
covenants for the Purchasers' benefit:
Section 2.1 Organization and Standing. Except as set forth on Schedule 2.1,
-------------------------
each of the Companies is a corporation duly organized, legally existing and in
good standing under the laws of the state of its incorporation, with full power
and authority to own its properties and conduct its business as now being
conducted. Each of the Companies and the Partnership is duly qualified to do
business as a foreign corporation or partnership and is in good standing under
the laws of each jurisdiction in which the ownership or leasing of assets or
properties or the nature of its activities requires such qualification. The
Companies and the Partnership do not own or have any right or obligation to
acquire any stock or interest in any other corporation, partnership, or other
business organization, except as set forth on Schedule 2.1. Except as set forth
on Schedule 2.1, the Partnership is a New York general partnership, duly
organized, legally existing and in good standing under the laws of the state of
New York, with full power and authority to own its properties and conduct its
business as now being conducted.
Section 2.2 Company Stock. Each of the Companies has the authorized and
-------------
kind of capital stock as set forth on Schedule 2.2. Schedule 2.2 hereto sets
forth the number of shares of the capital stock of each of the Companies issued
and outstanding. All of the outstanding shares of capital stock of each Company
and all of the interests in the Partnership are owned beneficially and of record
by the Shareholders. The shares of capital stock ("Company Shares") each
Shareholder owns in each Company and the interests owned by him in the
Partnership are legally and validly authorized and issued, fully paid and
nonassessable. Except as set forth on Schedule 2.2, there are no outstanding
rights of any kind to acquire the Company Shares, additional shares of any class
of stock from any Company or any interests in the Partnership.
Section 2.3 Contracts, Permits and Material Documents. The items listed in
-----------------------------------------
Schedule 2.3 attached, are all of the following with respect to each of the
Companies ("Material Documents"): (i) leases for real and personal property
excepting office equipment, (ii) licenses, (iii) franchises, (iv) promissory
notes, guarantees, bonds, mortgages, liens, pledges, and security agreements
under which any of the Companies is bound or under which any of the Companies is
the beneficiary, (v) collective bargaining agreements, (vi) patents, trademarks,
trade names, copyrights, trade secrets, proprietary rights, symbols, service
marks, and logos, (vii) all permits,
10
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licenses, consents and other approvals from governments, governmental agencies
(federal, state and local) and/or third parties relating to, used in or required
for the operation of each Company's businesses, and (viii) other contracts,
agreements and instruments not listed on another Schedule attached to this
Agreement (such as the customer contracts listed on Schedule 2.5) which are
binding on any Company or any of its property and pursuant to which any Company
derives any material benefit or has imposed upon it any material detriment. For
purposes of this Section 2.3 a material benefit or material detriment shall be
anything which provides a benefit or imposes a detriment having a value of
$35,000 or more. The Material Documents listed on Schedule 2.3 are organized
under separate headings for each of the Companies and under subheadings for each
of the different type of documents listed. Except as set forth on Schedule 2.3,
no Company nor any person or party to any of the Material Documents or bound
thereby is in material default under any of the Material Documents, and no act
or event has occurred which with notice or lapse of time, or both, would
constitute such a default. No Company is a party to, and no Company's property
is bound by any agreement or instrument which is material to the continued
conduct of business operations of the Companies, taken as a whole, as now being
conducted, except as listed in Schedule 2.3. The Partnership is not a party to
any Material Document, except as set forth on Schedule 2.3. Material documents
of Lee Bin and Allegro, relating to their business conducted in New Jersey are
identified as such on Schedule 2.3 to this Agreement.
Section 2.4 Personal and Real Property. All items of personal and real
---------------------------
property (other than real property comprising Excluded Assets) owned or leased
by the Companies and the Partnership or used in the business operations of the
Companies and the New York Business, will be transferred to Purchaser at
Closing, in the condition set forth in subparagraphs (a), (b) and (c) below:
(a) Attached hereto, made a part hereof and marked Schedule 2.4(a) is a
listing of all those items used in the New York Business and described in
subparagraphs "i" and "ii," organized by Company and by subparagraph.
(i) All rolling stock, including motor vehicles, trucks, front and rear
end loaders, and compactors used in each Company's business operations together
with information as to the make, description of body and chassis, model number,
serial number and year of each such vehicle, all of which are owned or leased by
each Company, as listed on Schedule 1.5(b) and all of the vehicles are, in all
material respects, in reasonably good and working condition, normal wear and
tear excepted, and adequate for the Companies' conduct of day-to-day operations,
except as noted on Schedule 2.4(a)(i);
(ii) All Containers, bailers, scales, and extruders used in each Company's
business operations are in reasonably good condition, normal wear and tear
excepted, except as noted on Schedule 2.4(a)(ii);all containers used in each
Company's business operations having a size of 10 yards or greater together with
information as to container size are listed on Schedule 2.4(a)(ii);
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<PAGE>
(b) All other items of personal property owned, leased or used by the
Companies, including, without limitation, all radios, compactors, recycling
equipment, furniture, office equipment and other equipment used in each
Company's business operations, the inventory of parts, tires and accessories
maintained by each Company, and the shop tools used by each Company are in
reasonably good, and, as applicable, working condition, in all material
respects, normal wear and tear excepted, except as noted on Schedule 2.4(b); and
(c) Schedule 2.4(c) describes each interest in Real Property owned or leased
by each Company and the Partnership including the location and a brief
description thereof, the lessor of any such leased property and a copy of each
lease and other agreement under which any such property is held. Such real
estate and the premises located thereon occupied by each Company are sufficient
for its business and operational requirements and are expected to continue to be
sufficient for its future needs for at least the next year, subject to the
compliance requirements set forth on Schedule 2.4(c). Except as described in
Schedule 2.4(c), each Company and the Partnership has good and insurable title
in fee simple to all of its Real Property as owned by it and owns all right,
title and interest in all leasehold estates and other rights purported to be
granted to it by the leases and other agreements listed in Schedule 2.4(c), in
each case free and clear of any restriction, mortgage, deed of trust, pledge,
lien, security interest or other charge, claim, lien or encumbrance except for:
(a) liens for current taxes, assessments and governmental charges and levies
which may be paid without penalty, interest or other additional charge; (b) such
minor utility and municipal easements and restrictions, if any, as do not
detract from the value or marketability of the property subject thereto and do
not interfere with the use of such property; and (c) the liens, mortgages and
encumbrances set forth on Schedule 2.4(c). Except as described in Schedule
2.4(c), all of the buildings and structures to the extent of the premises owned
or leased by each Company, and the Partnership are structurally sound with no
known defects, and are in good operating condition and repair and each has
adequate rights of ingress and egress for the operation in the ordinary course
of business. No such building or structure, or any appurtenance thereto or
equipment therein, or the operation or maintenance thereof, violates any
restrictive covenant or any Law (including without limitation any such Laws
relating to health, safety, subdivision and zoning) or encroaches on any
property owned by others. All governmental permits, approvals and licenses
required in connection with the operation and, if applicable, ownership of such
Real Property and all improvements thereon and the conduct of each Company's and
the Partnership's business thereon have been duly obtained, are in full force
and effect and no proceedings are pending, to the knowledge of Sellers,
threatened which could lead to a revocation or other impairment of any thereof.
No condemnation proceeding is pending or, to the knowledge of Sellers,
threatened with respect to any Real Property identified in Schedule 2.4(c) nor
is any change in any of the foregoing Laws pending, or to the knowledge of
Sellers, threatened which would interfere with the use of any such building,
structure, or other appurtenance thereon.
(d) The Partnership does not own any real or personal property, tangible or
intangible, except as set forth on Schedule 2.4(d). The Partnership does not,
and in the past three years has not, conducted, any business or operations other
than the passive ownership of the real and personal property or interests
therein identified on Schedule 2.4(d).
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Section 2.5 Customers. Each customer each Company serves (listed by account
---------
number and not by name) together with information as to the services rendered to
each such customer, is listed on Schedule 2.5 attached hereto. All customers
are obligated under the Companies' standard form of contract, except for
variations agreed to by the Companies which are not material in nature.
Immediately following the execution of this Agreement, the Sellers shall provide
Purchaser with information as to frequency and type of services rendered and
rates charged to each customer. The name and address of each customer shall be
provided by the Companies to Purchaser at Closing. Except as set forth on
Schedule 2.5, no customer represents more than 3% of the total annual billings
of all of the Companies taken as a whole. No Company nor any person or party to
any of the customer contracts is in material or knowing default under any of the
customer contracts, and no act or event has occurred which with notice or lapse
of time, or both, would constitute such a default. None of Lee Bin, Allegro and
the Partnership has any customers.
Section 2.6 Title. Each Company and the Partnership has good and insurable
-----
title to, or a valid leasehold interest in all of its assets both real property
and personal property, each free and clear of any mortgages, pledges, liens,
encumbrances, charge, claim, security agreement or title retention or other
security arrangement ("Liens"), except the items set forth in subparagraphs "a"
through "d", and the items listed on Schedule 2.3 ("Permitted Encumbrances").
(a) Liens imposed by law and incurred in the ordinary course of business for
indebtedness not yet due to carriers, warehousemen, laborers or materialmen and
the like;
(b) Liens in respect of pledges or deposits under worker's compensation laws
or similar legislation; and
(c) Liens for property taxes, assessments, or governmental charges not yet
subject to penalties for nonpayment.
Section 2.7 Financial Statements. Sellers have delivered to Purchaser true
--------------------
and correct copies of the following financial statements of the Companies (the
"Financial Statements"): a combining and combined balance sheets as of December
31, 1996 and 1997, and a statement of income, cash flow and retained earnings
for the period ended December 31, 1996 and December 31, 1997, both prepared on
an accrual basis. The Financial Statements have been prepared by the regular
accountants of the Companies, in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis in accordance with past custom
and practice of the Companies. The balance sheets comprising the Financial
Statements present fairly, in all material respects, the financial condition of
the Companies as of the dates indicated thereon and the statements of income
present fairly, in all material respects, on an accrual basis the results of the
operations of the Companies for the periods indicated thereon. Since the date
of the Financial Statements, the Companies have not (i) made any material change
in their accounting policies or (ii) effected any prior period adjustment to, or
other restatement of, its financial statements for any period. The Financial
Statements are consistent with the books and records of Companies (which books
and records are correct and complete in all material respects). Since the date
of the Financial Statements, except as set forth on Schedule 2.7, there has not
been any material adverse change in the income, expenses or assets of the
Companies, taken as a whole.
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Section 2.8 Liabilities; Accounts Receivable and Working Capital.
----------------------------------------------------
(a) The Companies do not have any liabilities, fixed or contingent, other
than:
(i) the obligations under a $2 million loan with IESI Corp. pursuant to
Agreements attached on Schedule 2.8(a) (the "Company Debt");
(ii) liabilities under the capitalized and operating leases identified on
Schedule 2.8;
(iii) liabilities fully reflected in the Financial Statements, except for
liabilities not required to be disclosed therein in accordance with GAAP, as
applied on a basis consistent with past custom and practice;
(iv) liabilities disclosed in the Schedules attached to this Agreement or
not required to be disclosed therein by reason of amount or other qualifications
contained in the representations and warranties of this Agreement; and
(v) accounts payable arising since the date of the Financial Statement for
1997 arising during the normal course of business consistent with past custom
and practice as allowed in accordance with Section 4.4 of this Agreement.
(b) All accounts receivable(the "Receivables") of the Companies as of the date
hereof are set forth by account number on Schedule 2.8(b). All of such accounts
and all accounts arising since such date, are, or will be, valid accounts
receivable. Schedule 2.8(b) gives the aging of each of the accounts receivable
and is organized by Company. All accounts receivable have been generated in the
ordinary course of each Company's business consistent with past practice. There
are no defenses or set offs to any of the accounts receivable. The Partnership
has no accounts receivable.
(c) Each Company's accounts payable as of the date of this Agreement is
attached hereto, made a part hereof and marked Schedule 2.8(c). Schedule 2.8(c)
gives the aging of each of the accounts payables and is organized by Company.
Schedule 2.8(c) accurately reflects in all material respects the books and
records of the Companies as of the date of Schedule 2.8(c).
(d) The Company Debt is not in default, and there is no accrued interest owed
on any of the Company Debt in excess of the amount of accrued interest not yet
payable.
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Section 2.9 Fiscal Condition. Since the date of the Financial Statements,
----------------
there has not (except as otherwise specifically permitted by this Agreement or
as set forth in the Schedules to this Agreement) been:
(a) Any material change in the financial condition, business organization
or personnel of any Company or in the relationships of any Company with
suppliers, customers or others;
(b) Any disposition by any Company or the Partnership of any of its
capital stock or interests or any grant of any option or right to acquire any of
its capital stock or interests, or any acquisition or retirement by any Company
or the Partnership of any of its capital stock or interests or any declaration
or payment of any stock dividend or other distribution on or of its capital
stock or interests;
(c) Any sale or other disposition of any asset owned by any Company or the
Partnership at the close of business on the date of the Financial Statements, or
acquired by it since that date, other than in the ordinary course of business
consistent with past practice;
(d) Any expenditure or commitment by any Company or the Partnership for
the acquisition of any single asset, except in the ordinary course of business
consistent with past practices or the entry into any contract or agreement which
is not cancelable upon short notice without penalty or premium or which could
require the Companies to expend more than $25,000 in any one year;
(e) Any damage, destruction or loss (whether or not insured) adversely
affecting the property, business or prospects of any of the Companies or the
Partnership except damage, destruction or loss which does not exceed $150,000 in
the aggregate;
(f) Any bonuses or increases in the compensation payable or to become
payable by any Company to any officer or key employee, except as otherwise set
forth in Schedule 2.9(f);
(g) Any loans or advances to any Company, except as set forth on Schedule
2.9(g); or
(h) Any change in accounting method or practice.
Section 2.10 Tax Returns. Each Company and the Partnership has filed all
-----------
Federal and other tax returns for all periods on or before the date hereof and
has paid all taxes due (and all applicable penalties and interest) for the
periods covered by the said returns, except as set forth on Schedule 2.10.
Except as set forth on Schedule 2.10, the Companies are Subchapter "C"
corporations under the Internal Revenue Service Code. The reserves for all
taxes reflected in the Financial Statements plus the reserves on Schedule 2.10
for all taxes from the date of this Agreement through the Closing Date, if any,
are adequate to cover all taxes, interest and penalties in connection therewith
that may be assessed with respect to the property and business operations for
the period(s) ending on the Closing Date and for all prior periods. The
Companies and the Partnership have filed, and will file (if due) in a timely
manner, all requisite federal, state, local and other tax returns due for all
fiscal periods ended on or before the Closing Date.
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Section 2.11 Policies of Insurance. All insurance policies, performance
---------------------
bonds, and letters of credit insuring the Companies or the Partnership or which
the Companies or the Partnership have had issued and which have not expired are
listed on Schedule 2.11 attached hereto. Schedule 2.11 includes the names and
addresses of the insurers and sureties, policy and bond numbers, types of
coverage or bond, time periods or projects covered and the names and addresses
of all known agents or agencies with respect to each listed insurance policy,
performance bond and letter of credit. Each current insurance policy,
performance bond and letter of credit is in force and effect and the premiums
thereon are not delinquent. No Company or the Partnership has received
notification from any insurance carrier denying or disputing any claim made by
it or denying or disputing any coverage for any such claim or denying or
disputing the amount of any claim. Except as set forth on Schedule 2.11, no
Company or the Partnership has a claim against any of its insurance carriers
under any of policies insuring it pending or anticipated and there has been no
occurrence of any kind which would give rise to any such claim.
Section 2.12 Employees, Pensions and, ERISA.
------------------------------
(a) The Companies do not have any contract of employment with an officer or
other employee, except as listed on Schedule 2.12(a), and the Partnership has no
(and has not at any time in the past three years had any) employees.
(b) Except as set forth on Schedule 2.12(b), no employee of any Company is
represented by any union. The name, address and social security number and
current rate of compensation of each of the Company's employees and capacity to
which each person is employed is listed on Schedule 2.12(b) attached. There is
no pending or, to the knowledge of the Sellers, threatened dispute between any
Company and any of its employees which might materially and adversely affect the
continuance of any Company's business operations. The Companies are not
deficient or in arrears in contributing to any trust funds the Companies are
required to contribute to in accordance with any contracts with unions,
including, without limitation, scholarship funds, legal aid funds, pension funds
and health, welfare or benefit funds ("Trust Funds"). There is no matter,
action, audit, suit or claim pending or, to the knowledge of Sellers, threatened
relating to contributions of the Companies to any Trust Fund, before any court,
tribunal or government agency.
(c) Attached hereto, made a part hereof and marked Schedule 2.12(c) lists all
employee benefit plans, funds or programs (within the meaning of the Internal
Revenue Code of the United States ("Code") or the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") which are currently maintained and/or
were established or sponsored by any Company (whether or not they are now
terminated) or to which any Company currently contributes, or has an obligation
to contribute in the future, including, without limitation, employment
agreements and any other agreements containing "golden parachute" provisions
16
<PAGE>
("Plans"), whether or not the Plans are or are intended to be (i) covered or
qualified under the Code, ERISA or any other applicable law, (ii) written or
oral, (iii) funded or unfunded, or (iv) generally available to all employees of
the Companies. The Partnership has never instituted or maintained any employee
benefit plan.
(d) The Companies have delivered to the Purchaser (i) true and complete copies
of all Plan documents and other instruments relating thereto, (ii) true and
complete copies of the most recent financial statements with respect to the
Plans, (iii) true and complete copies of all annual reports for any Plan
prepared within the past 5 years, and (iv) all material filings submitted to and
any correspondence received from any government agency relating to any Plan
within the past 5 years.
(e) Each Plan which is intended to be qualified under Section 401(a) and
exempt from tax under Section 501(a) of the Code has been determined by the IRS
to be so qualified and such determination remains in effect and has not been
revoked. Nothing has occurred since the date of any such determination which may
adversely affect such qualification or exemption, or result in the imposition of
excise taxes or tax on unrelated business income under the Code or ERISA. No
Plan is funded through a trust intended to be exempt from tax under Section
501(c) of the Code.
(f) No reportable event (as defined in Section 4043 of ERISA or the
regulations thereunder) for which the reporting requirements have not been fully
waived, or accumulated funding deficiency whether or not waived (as defined in
Section 302 of ERISA), or liability to the Pension Benefit Guaranty Corporation
("PBGC") under Section 4062 of ERISA, nor any prohibited transaction (as defined
in Section 406 of ERISA or Section 4975 of the Code), has occurred or exists
with respect to any Plan. All Plans are in substantial compliance with all
material applicable provisions of ERISA and the regulations issued thereunder,
as well as with all other material law applicable to such Plans, and, in all
material respects, have been administered, operated and managed in substantial
accordance with the governing documents of the Plan and the requirements of
ERISA.
(g) There is no matter, action, audit, suit or claim pending or, to the best
knowledge of Sellers, threatened relating to any Plan, fiduciary of any Plan or
assets of any Plan, before any court, tribunal or government agency.
(h) Each most recent Plan audit report, actuarial report and annual report,
certified by the Plan's actuaries and auditors, as the case may be, fairly
presents the actuarial status and the financial condition of the Plan as at the
date thereof and the results of operations of the Plan for the plan year
reflected therein and, subject to changes in amounts attributable to investment
performance and normal employee turnover, there has been no adverse change in
the condition of the Plan since the date of the most recent Form 5500, audited
annual financial statement or actuarial valuation report.
17
<PAGE>
(i) The transaction contemplated herein will not accelerate any liability
under the Plans because of an acceleration of any rights or benefits to which
any employee may be entitled thereunder.
Section 2.13 Legality of Operation. In regard to each Company and the
---------------------
Partnership:
(a) Except as disclosed in Schedule 2.13(a) to this Agreement, and except as
to Environmental Laws, as hereafter defined, each Company and the Partnership is
in compliance with all Federal, state and local laws, rules and regulations
including, without limitation, the following laws: land use laws; payroll,
employment, labor, or safety laws; or federal, state or local "anti-trust" or
"unfair competition" or "racketeering" laws such as but not limited to the
Sherman Act, Clayton Act, Robinson Patman Act, Federal Trade Commission Act, or
Racketeer Influenced and Corrupt Organization Act ("Law"). Except as disclosed
in Schedule 2.13(a), each Company and the Partnership is in compliance with all
permits, franchises, licenses, and orders that have been issued with respect to
the Laws and are or may be applicable to their respective property and
operations, including, without limitation, any order, decree or directive of any
court or federal, state, municipal, or other governmental department,
commission, board, bureau, agency or instrumentality wherever located, federal,
state and local permits, orders, franchises and consents. Except as set forth on
Schedule 2.13(a), with respect to any Law there are no claims, actions, suits or
proceedings pending, or, to the knowledge of the Shareholders and the threatened
against or affecting any Company or the Partnership at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, wherever located, which
would result in a change in the financial condition or business of the Companies
or which would invalidate this Agreement or any action taken in connection with
this Agreement. Except as disclosed in Schedule 2.13(a), since January 1, 1993
no Company or the Partnership has received notification of any past or present
failure by the Company or the Partnership to comply with any Law applicable to
it or its assets.
(b) Except as disclosed in Schedule 2.13(b) to this Agreement, each Company
and the Partnership is in compliance with all Federal, state and local laws,
rules and regulations relating to environmental issues of any kind and/or the
receipt, transport or disposal of any hazardous or non-hazardous waste materials
from any source ("Environmental Law"). Except as disclosed in Schedule 2.13(b),
with respect to any Environmental Law each Company and the Partnership is in
compliance with all permits, licenses, and orders related thereto or issued
thereunder with respect to Environmental Laws, as are or may be applicable to
the their property and operations, including, without limitation, any order,
decree or directive of any court or federal, state, municipal, or other
governmental department, commission, board, bureau, agency or instrumentality
wherever located. Except as set forth on Schedule 2.13(b) there are no
Environmental Law related claims, actions, suits or proceedings pending, or, to
the knowledge of the Shareholders and the Sellers, threatened against or
affecting any Company, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, wherever located, which would result in an adverse change in
the financial condition or business of the Companies and the Partnership
18
<PAGE>
of $150,000 or more or which would invalidate this Agreement or any action taken
in connection with this Agreement. To the knowledge of the Shareholders and the
Sellers, except as set forth on Schedule 2.13(b), since January 1, 1988 no
Company or the Partnership has transported, stored, treated or disposed, nor has
any Company allowed any third persons, on its behalf, to transport, store, treat
or dispose waste to or at (i) any location other than a site lawfully permitted
to receive such waste for such purpose or, (ii) any location currently
designated for remedial action pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") or any similar federal or
state statute; nor has any of the Companies or the Partnership performed,
arranged for or allowed by any method or procedure such transportation or
disposal in contravention of state or federal laws and regulations or in any
other manner which may result in liability for contamination of the environment;
and no Company or the Partnership has disposed, nor has any of a Company or the
Partnership allowed third parties to dispose of waste upon property owned or
leased by any of the Companies other than as permitted by, and in conformity
with, applicable Environmental Law. Except as disclosed in Schedule 2.13(b),
since January 1, 1988, no Company or the Partnership has received notification
of any past or present failure by the Company to comply with any Environmental
Law applicable to it or its operations or its assets. Without limiting the
generality of the foregoing since January 1, 1986, no Company or the Partnership
has received any notification (including requests for information directed to
the Company an owner thereof) from any governmental agency asserting that the
business is or may be a "potentially responsible person" for a remedial action
at a waste storage, treatment or disposal facility, pursuant to the provisions
of CERCLA, or any similar federal or state statute assigning responsibility for
the costs of investigating or remediating releases of contaminants into the
environment. Since January 1, 1988, no Company or the Partnership has received
hazardous waste as defined in the Resource Conservation and Recovery Act, 42
USCA Section 6901 et seq., or in any similar federal or state statute, which has
-- ---
not been handled in full compliance with all applicable federal and state laws.
(c) Except as set forth on Schedule 2.13 (c), since January 1, 1988 none of
the Companies or the Partnership has ever owned, operated, had an interest in,
engaged in and/or leased a waste transfer, recycling, treatment, storage,
landfill or other disposal facility. The Companies and the Partnership have
obtained and maintained, when required to do so under applicable Environmental
Laws, trip tickets, signed by the applicable waste generators demonstrating the
nature of all waste deposited and or transported by any of them. No employee,
contractor or agent of the Companies or the Partnership has, in the course and
scope of employment with any of them, been harmed by exposure to hazardous
materials, as defined under the Laws. No liens with respect to environmental
liability have been imposed against any of the Companies or the Partnership
under CERCLA, any comparable state statute or other applicable Environmental
Law, and no facts or circumstances exist which would give rise to the same.
(d) Schedules 2.13(a) and 2.13(b) list all remedied violations of Laws and
Environmental Laws which existed within the past three years and all outstanding
unremedied notice of violations issued to any of the Companies or the
Partnership by any federal, state or local regulatory agency.
19
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(e) Except as set forth on Schedule 2.13(e), none of the Sellers are under
investigation for the violation of any Laws, including, without limitation, the
violation of any anti-trust, racketeering, or unfair competition Laws.
(f) All pending or, to Sellers' knowledge, threatened litigation and
administrative or judicial proceedings involving the Companies or the
Partnership or their assets or liabilities, and a description of all such
proceedings is set forth on Schedule 2.13(f) attached.
Section 2.14 Corrupt Practices. The Shareholders, and to the best of the
-----------------
Shareholder's knowledge, the Companies and the Partnership have not made,
offered or agreed to offer anything of value to any employees of any customers
of the Companies and the Partnership for the purpose of attracting business to
the Companies and the Partnership or any foreign or domestic governmental
official, political party or candidate for government office or any of their
respective employees or representatives in any manner which would result in any
of the Companies or the Partnership being in material violation of any Law, nor
have any of the Companies otherwise taken any action which would cause them to
be in violation of the Foreign Corrupt Practices Act of 1977, as amended.
Section 2.15 Legal Compliance. The Sellers have the right, power, legal
----------------
capacity and authority to enter into, and perform their respective obligations
under this Agreement, and, except as set forth in Schedule 2.15, no approvals or
consents of any other persons or entities are necessary in connection with the
transactions contemplated by this Agreement. The Sellers are not parties to any
other agreement or understanding which would prohibit or limit their ability to
consummate the transactions contemplated hereby. Except as disclosed in
Schedule 2.15 to this Agreement, the execution and performance of this Agreement
will not result in a breach of or constitute a default or result in the loss of
any right or benefit under:
(a) Any charter, partnership documents, by-law, agreement or other document to
which any Company or any Seller is a party or by which such Company, Seller or
any of their property is bound; or
(b) Any decree, order or rule of any court or governmental authority which is
binding on any Company or on any Seller or on any property of any Company or any
Seller.
Section 2.16 Transaction Intermediaries. No agent or broker or other person
--------------------------
acting pursuant to the express authority of any Seller is entitled to any
commission or finder's fee in connection with the transactions contemplated by
this Agreement.
Section 2.17 Intellectual Property. No Company has infringed and is not now
---------------------
infringing, on any trade name, trademark, service mark or copyright belonging to
any person, firm or corporation ("Intellectual Property") and to the knowledge
of the Sellers no one has or is infringing any Intellectual Property right of
any Company.
20
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Section 2.18 Competition. Except as set forth on Schedule 2.18, no salaried
-----------
officer, nor any spouse or child of any of them, has any direct or indirect
interest in any competitor of any Company within the geographical area in which
the Company currently conducts business, or an interest in any supplier or
customer of such Company or in any person from whom or to whom the Company
leases any real or personal property, or in any other person with whom the
Company is doing business which interest adversely or affects the business of
any Company.
Section 2.19 Shareholder Loans. The amount owed by Shareholders (including
-----------------
Shareholder Receivables, if any, acquired by Purchaser as part of the Assets) to
any Company or the Partnership (together with any comparable amounts refinanced
or acquired Purchaser under the New Jersey Agreement) do not exceed $600,000
when netted against the amounts owed to them by the Companies and the
Partnership, and all such amounts bear interest at the rate of 6% per annum.
Section 2.20 Conduct of Business. None of the New York Business is conducted
-------------------
through (and no asset used or useful by the New York Business is owned by) any
entity or person not a party this Agreement.
Section 2.21 Customers. Within 120 days after the Closing customers
---------
representing not less than 85% of the revenues of the New York Business from the
collection of municipal solid waste as of the last day of the month prior to
Closing Date shall have entered into contracts with the Purchaser (in form or
forms approved by the New York Trade Waste Association) for the continuation of
the services previously provided by the Companies.
Section 2.22 Disclosure. The representations and warranties of the Sellers
----------
contained in this Article II or in any Exhibit or Schedule or other document
delivered by the Sellers or the Companies pursuant hereto, do not contain any
untrue statement of a material fact, or omit any statement of a material fact
necessary to make the statements contained not misleading. If prior to Closing
the Sellers become aware of any inaccuracy, or misrepresentation or omission in
any of the Schedules, they shall immediately advise Purchaser in writing of the
inaccuracy, misrepresentation or omission. Purchaser understands and
acknowledges that in the event Sellers disclose such subsequent inaccuracy,
misrepresentation or omission in any of the representations set forth in this
Article II or in any of the Schedules, that Purchaser's sole remedy shall be to
terminate this Agreement whereupon all obligations of Sellers' and Purchaser
cease and in no event shall Purchaser have the right to sue for damages.
21
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
The Purchaser represents and warrants to the Sellers that:
Section 3.1 Structure. The Purchaser is a corporation duly formed and
---------
legally existing in good standing under the laws of Delaware.
Section 3.2 Authorization to Proceed with this Agreement. Purchaser has by
--------------------------------------------
proper corporate proceedings duly authorized the execution, delivery and
performance of this Agreement and each other agreement contemplated to be
entered into and no other corporate action is required by law or the Certificate
of Incorporation or by-laws of Purchaser.
Section 3.3 Absence of Intermediaries. No agent, broker, or other person
-------------------------
acting pursuant to Purchaser's authority will be entitled to make any claim
against the Sellers for any commission or finder's fee in connection with the
transactions contemplated by this Agreement.
Section 3.4 Public Reports. Purchaser has delivered to Sellers an accurate
--------------
copy for the year ended June 30, 1997 of the historical filings made by it on
Form 10-K and all amendments thereto, its Quarterly Report on Form 10-Q for the
period ended December 31, 1997 and all reports on Form 8-K filed with the
Securities and Exchange Commission by it since December 31, 1997. Since
December 31, 1997, there has not been any material adverse change in the income,
expenses, assets, results of operation or financial condition of EESI.
Section 3.5 EESI Stock. All of the shares of EESI Stock to be issued to the
----------
Companies as contemplated by this Agreement and the Collateral Documents will,
upon delivery, be duly authorized and validly issued, fully paid and non-
assessable by EESI, free and clear of all liens, charges, restrictions,
mortgages, security interests or claims of any kind.
Section 3.6 Authorization. Purchaser has the power and authority to enter
-------------
into this Agreement and each of the Collateral Documents and to carry out the
transactions contemplated hereby and thereby and this Agreement and each of the
Collateral Documents to which the Purchaser is a party, constitutes the legal,
valid and binding obligation of the Purchaser, enforceable in accordance with
its terms.
Section 3.7 Contravention; Consents and Approvals. Except as set forth on
-------------------------------------
Schedule 3.7, no filing, action, consent or approval of any person, entity or
governmental body is required by the Purchaser for the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby. The
execution and delivery of this Agreement by the Purchaser and the consummation
of the transactions contemplated hereby by the Purchaser will not result in a
breach of the terms or conditions of, or constitute a default under, or violate,
(a) any provision of any law, regulation or ordinance, (b) any agreement, lease,
mortgage or other instrument or undertaking, oral or written, to which the
Purchaser is a party or by which any of its properties or assets is or may be
bound or affected, or (c) any judgment, order, writ, injunction or decree of any
court, administrative agency or governmental body.
22
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ARTICLE IV
ADDITIONAL AGREEMENTS OF SELLERS
--------------------------------
Section 4.1 Investment Representations and Covenants of Shareholders.
--------------------------------------------------------
(a) Each Shareholder understands (subject to the express obligation of EESI to
register the Unrestricted Stock to be issued to the Shareholders as provided in
Section 5.1 hereof) that the issuance of the EESI Stock will not be registered
under the Securities Act of 1933, as amended (the "Act"), on the grounds that
the issuance of the EESI Stock is exempt from registration pursuant to Section
4(2) of the Act and/or Regulation D promulgated under the Act ("Regulation D"),
and that the reliance of EESI on such exemptions is predicated in part on such
Shareholder's representations, warranties, covenants and acknowledgements set
forth in this Section.
(b) Each Shareholder hereby represents and warrants to EESI that he is an
Accredited Investor, as that term is defined in Regulation D, and that the EESI
Stock will be acquired by him for his own account, not as a nominee or agent,
for investment and without a view to resale or other distribution within the
meaning of the Act, and the rules and regulations thereunder, and such
Shareholder will not distribute or transfer any of the EESI Stock in violation
of the Act. Each Shareholder is a resident of New York for purposes of state
securities laws.
(c) Each Shareholder: (i) acknowledges that the EESI Stock is not registered
under the Act and may not be sold by such Shareholder unless the EESI Stock is
first registered under the Act (in accordance with Section 5.1 hereof or
otherwise) or an exemption from registration is available with respect to such
sale transaction, (ii) is aware that any sales of the EESI Stock made under Rule
144 of the Securities and Exchange Commission under the Act may be made only in
limited amounts and in accordance with the terms and conditions of that Rule and
that in such cases where the Rule is not applicable, registration or compliance
with some other registration exemption will be required, (iii) is aware that
Rule 144 is not presently, and for a period of at least one year following the
Closing Date hereof may not be, available for use by such Shareholder for resale
of the EESI Stock, and (iv) is aware that EESI is not obligated to register any
sale, transfer or other disposition of the EESI Stock except in accordance with
the provisions of Section 5.1 hereof.
(d) Each Shareholder represents and warrants to EESI that such Shareholder has
such knowledge and experience in financial and business matters that he is fully
capable of evaluating the risks and merits of such Shareholder's investment in
the EESI Stock.
(e) Each Shareholder acknowledges receipt of the Public Reports referred to in
Section 3.4 hereof, and such other documents, agreements and information as each
Shareholder has required and confirms and acknowledges that: (i) EESI has
afforded such Shareholder the opportunity to ask questions of and receive
answers from EESI's officers and various directors concerning the terms and
conditions of this Agreement and such Shareholder's
23
<PAGE>
investment in the EESI Stock and to obtain such additional information as such
Shareholder has requested, and (ii) such Shareholder has availed himself of such
opportunity to the extent he deems necessary and has received the information
requested.
(f) In order to ensure compliance with the provisions of subsection (b)
hereof, each Shareholder covenants and agrees that, after the Closing, he will
not sell, transfer or otherwise dispose of any of the EESI Stock or any interest
therein (unless such sale, transfer or disposition has been registered under the
Act in accordance with the provisions of Section 5.1 hereof or otherwise) or
otherwise without there first having been compliance with either of the
following conditions:
(i) EESI shall have received a written opinion of counsel in form and
substance reasonably satisfactory to EESI, or a copy of a "no-action" or
interpretive letter of the SEC, specifying the nature and circumstances of
the proposed transfer and indicating that the proposed transfer will not be
in violation of any of the provisions of the Act and the rules and
regulations promulgated thereunder; or
(ii) EESI shall have received an opinion from its own counsel to the
effect that the proposed transfer will not be in violation of any of the
provisions of the Act and the rules and regulations promulgated thereunder.
(g) Each Shareholder also acknowledges and agrees that the certificates
representing the EESI Stock issuable to him will contain a restrictive legend
noting the restrictions on transfer described in this Section 4.1 and under
federal and applicable state securities laws, and that appropriate "stop-
transfer" instructions will be given to EESI's stock transfer agent.
Section 4.2 Plan of Reorganization. This Agreement contemplates that the
----------------------
acquisitions of the Assets from the Companies are to qualify as reorganizations
within the meaning of Sections 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended (the "Code"), and shall constitute a "plan of reorganization"
within the meaning of the Code. The parties hereto agree to take no action
inconsistent with the treatment of such exchange as a reorganization under Code
(S)(S)368(a)(1)(C) and to comply with all IRS filing and other requirements for
such exchanges.
Section 4.3 Access to Records. The Shareholders will cause the Companies and
-----------------
the Partnership to give and the Companies and the Partnership shall give
Purchaser and its representatives, from the date hereof until six years after
the Closing Date, full access during normal business hours upon reasonable
notice to all of the properties, books, contracts, documents and records of the
Companies and the Partnership pertaining to the New York Business, and to make
available to Purchaser and its representatives all additional financial
statements of and all information with respect to the business and affairs of
the Companies and the Partnership that Purchaser may reasonably request.
24
<PAGE>
Section 4.4 Continuation of Business. The Companies will operate until the
------------------------
time of Closing, in the ordinary course of business, consistent with past
practice, so as to preserve their business organization intact, to assure, to
the extent possible, the availability to Purchaser of the present key employees
of the Companies, and to preserve for Purchaser the relationships of the
Companies with suppliers, customers, and others.
Section 4.5 Continuation of Insurance. The Shareholders will cause the
-------------------------
Companies and the Partnership to and the Companies shall keep in existence all
policies of insurance insuring the Companies and the Partnership against
liability and property damage, fire and other casualty through the time of
Closing, consistent with the policies currently in effect.
Section 4.6 Standstill Agreement. Until the Closing Date, unless this
--------------------
Agreement is earlier terminated pursuant to the provisions hereof, the
Shareholders and the Companies will not directly or indirectly solicit offers
for the Company Shares, the Assets, any interests in or to the Partnership or
any of their respective assets and properties or for a merger or consolidation
involving any of them, or respond to inquiries from, share information with,
negotiate with or in any way facilitate inquiries or offers from, third parties
who express or who have heretofore expressed an interest in acquiring the
Companies or the Partnership by merger, consolidation or other combination or
acquiring any of their respective assets; nor will the Shareholders permit the
Companies or the Partnership to do any of the foregoing.
Section 4.7 Audited Financial Statements.
----------------------------
(a) Sellers shall cause their current and former independent accountants to
cooperate fully with the Purchaser's accountants (and to furnish all necessary
reports and consents) with the Purchaser's accountants in connection with the
Purchasers audits of the Companies historical financial statements referred to
in Section 4.7(b) below. Sellers shall also cause the Companies to prepare an
unaudited balance sheet of the Companies as of the end of the calendar quarter
completed immediately prior to the Closing Date and an unaudited statement of
income, cash flow and retained earnings for the period ending with the
completion of the calendar quarter ended prior to the Closing Date ("Interim
Financial Statements"). The Companies will use their best efforts to deliver
Interim Financial Statements are to be delivered by the Companies within fifteen
(15) days after the end of the applicable quarter. Companies may select the
accounting firm used to prepare such statements as required above, but said firm
must be reasonably acceptable to EESI.
(b) The Sellers shall cooperate (including by delivering all required
representation letters) with all reasonable requests of Purchaser and its
auditors necessary to audit all previously unaudited periods of the Companies
and the Partnership for the purposes of enabling Purchaser to make periodic
reports pursuant to the Securities Exchange Act of 1934 (the "Securities
Exchange Act") or to make public offerings of its securities under the
Securities Act of 1933, as amended (the "Securities Act"), and Sellers shall
permit such financial statements to be included in any of Purchasers filings
with the Securities and Exchange Commission under the Securities Exchange Act or
the Securities Act, in any prospectus used in connection with any
25
<PAGE>
such offering, in any filings required by any state or other governmental
agency, and in any private placement memorandum that may be used by Purchaser in
connection with an offering of securities. All fees and expenses of the
Purchasers' auditors incurred to comply with the foregoing shall be borne by
Purchaser; the fees and expenses of Sellers' auditors in furnishing any needed
representation or management letters or in providing general guidance and
information to Purchasers auditors shall be borne by the Sellers.
Section 4.8 Pooling of Interests.
--------------------
(a) Purchaser and Sellers have agreed that a material factor in their
execution of this Agreement is that the transactions contemplated by this
Agreement be treated as a "pooling of interests" for accounting purposes. If for
any reason a provision in this Agreement would prevent the transaction being
accounted for as a "pooling interests," the parties agree to negotiate in good
faith to modify the Agreement so the transaction can be accounted for as a
"pooling of interests." Notwithstanding any other provision of this Agreement,
prior to the publication and dissemination by Purchaser of consolidated
financial results which include results of combined operations of the Companies
and Purchaser for at least 30 days on a consolidated basis following the Closing
Date, which shall in no event occur later than 120 days after the Closing,
Sellers shall not sell or otherwise transfer or dispose of, or in any way reduce
their risk relative to, any shares of the EESI Stock received by Sellers
(including by way of example and not limitation, engaging in put, call, short-
sale, straddle or similar market transactions.) The Securities Exchange
Commission ("SEC") has issued Accounting Series Release Nos. 130 and 135, as
amended (collectively, the "ASRs"), setting forth certain restrictions
applicable to the availability of "pooling of interests" accounting treatment in
transactions of the type contemplated by this Agreement. Sellers therefore
covenant and agree with EESI to hold the EESI Stock and to comply with the ASRs
until the requirements of the ASRs have been met as set forth in this Section
4.8. In addition, the certificates evidencing the EESI Stock to be received by
Sellers will bear a legend substantially in the form set forth below:
"The shares represented by this certificate may not be sold, transferred or
assigned, and Eastern Environmental Services, Inc., shall not be required
to give effect to any attempted sale, transfer or assignment prior to the
application and dissemination of financial statements by Eastern
Environmental Services, Inc., which include the results of at least 30 days
of combined operations of Eastern Environmental Services, Inc., for which
these shares are issued. Upon the written request of the holder hereof
directed to Eastern Environmental Services, Inc., the issuer agrees to
remove this restrictive legend (and any stop order placed with the transfer
agents) when the requirements of Accounting Series Releases Nos. 130 and
135, as amended, of the Securities Exchange Commission have been met."
(b) Notwithstanding the foregoing, the parties agree that if a Closing does
not occur under the New Jersey Agreement within one year of the date of this
Agreement, the transactions contemplated hereby will not be treated as a pooling
of interests.
26
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Section 4.9 Shareholder Debt. The Shareholders will pay all amounts owed by
----------------
them to the Companies and the Partnership within one year after the Closing. At
the Closing, Shareholders shall produce and deliver to Purchaser the original
notes, if any, evidencing the amounts they owe or shall execute promissory notes
evidencing the indebtedness they owe.
Section 4.10 Merger of Allegro. At the request of Purchaser, the Sellers
-----------------
will cause Allegro to be merged with and into another Company at the Closing.
ARTICLE V
ADDITIONAL AGREEMENTS OF PURCHASER
----------------------------------
Section 5.1 Registration Rights.
-------------------
(a) As soon as practical following the Closing, but in any event within one
hundred twenty (120) days after the Closing, EESI shall file a registration
statement to register the Unrestricted Stock under the Act for sale to the
public pursuant to a "shelf registration" on Form S-3 or other appropriate form,
if Form S-3 is not available under Rule 415 of the Act to qualify such
securities under the Act or if required any state "blue sky" laws. EESI will
give written notice to the Sellers of the "shelf registration" at least 15 days
before the registration statement is filed. After receiving the notice of the
"shelf" registration, each Seller will advise EESI in writing of the intended
method of disposition of the Unrestricted Stock to be registered, as required
for EESI to prepare the registration statement. Sellers recognize that the
occurrence of certain corporate developments, including significant
acquisitions, may result in the failure of the registration statement in which
the Unrestricted Stock is registered to contain all information required in
accordance with applicable law until an amendment or supplement is filed and
made available to the holders of all such Unrestricted Stock. Sellers recognize
that in such event, sales under the registration statement will be suspended
until EESI files the amendments or supplements required by the next sentence.
EESI agrees, as promptly as reasonably practicable, to prepare and file with the
SEC such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period required pursuant to the terms
of this Agreement and comply with the provisions of the Act with respect to the
disposition of all Unrestricted Stock covered by such registration statement
during such period in accordance with the intended methods of disposition by the
holders thereof set forth in such registration statement. EESI shall keep such
registration statement current and effective, until such time as all of the
Unrestricted Stock may be sold by the Sellers at any time without restriction or
pursuant to the provisions of Rule 144 or until such earlier date as all of the
shares registered pursuant to such registration statement shall have been sold
or otherwise transferred to a third party.
(b) With respect to the registration of the Unrestricted Stock, EESI will, as
expeditiously as possible furnish to the Sellers such number of prospectuses,
including copies of preliminary prospectuses, prepared in conformity with the
requirements of the Act, and such other
27
<PAGE>
documents, as the Sellers may reasonably request in order to facilitate the
public sale or other disposition of the securities to be sold by the Sellers.
(c) All expenses incurred by EESI in effecting the registrations provided for
in this Section 5.1 shall be paid by EESI, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for EESI, expenses of any audits incident to or required by any such
registration and expenses of complying with the securities or "blue sky" laws of
any jurisdictions.
Section 5.2 Books and Records. From the Closing Date to six years after the
-----------------
Closing Date, the Purchaser shall allow the Sellers and their agents access to
all business records and files of the Companies pertaining to the operation of
the Companies prior to the Closing Date which were delivered to the Purchaser in
accordance with Section 1.5(t) of this Agreement ("Records") where the
Shareholders or Companies require access to the Records for the purpose of
preparing their tax returns, responding to any audit or informational request
regarding their tax returns or if required by them for use in a judicial
proceeding in which they are a party. Access to the records shall be during
normal working hours at the location where such Records are stored. The Sellers
shall have the right, at their own expense, to make copies of any Records
provided, however, that any such access or copying shall be had or done in such
a manner so as not to interfere unreasonably with the normal conduct of the
Purchaser's business. For a period of six years after the Closing Date, the
Purchaser shall not dispose of or destroy any material Records without first
providing written notice to the Shareholders at least 30 days prior to the
proposed date of such disposition or destruction.
Section 5.3 Replacement of Indebtedness. The Company Debt is reflected in a
---------------------------
Loan Agreement among the Companies and IESI Corp. providing for loans to the
Companies aggregating $2 million principal amount, maturing on June 30, 1998,
and bearing interest at the rate of 10% per annum, all as reflected on Schedule
2.8. The Company Debt is secured by a first priority security interest in
substantially all of the assets and all of the shares of capital stock of the
Companies all of the interests in and substantially all of the assets of the
Partnership, and all of the capital stock and assets of the several affiliated
companies that are parties to the New Jersey Agreement. If a Closing under this
Agreement shall not have occurred on or before June 20, 1998, Purchaser shall
refinance the Company Debt and replace it with a loan from Purchaser to the
Companies, the Partnership and their affiliates, on substantially the same terms
as the terms contained in the Loan Agreement and related documents, but with a
maturity of December 31, 1998; provided, in either case, that the Sellers and
the Purchaser shall have received from the holders of the Company Debt all such
releases and discharges as they may reasonably request, and, further provided,
that the Companies, the Shareholders and their affiliates shall have granted to
and perfected in favor of the Purchaser a first priority security interest in
and lien on and to all collateral presently securing the Company debt and such
other collateral as Purchaser may reasonably request. If a Closing occurs prior
to June 20, 1998, Purchaser may at its option assume or repay the Company Debt.
28
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Section 5.4 Permitted Actions. Notwithstanding any other provision of this
-----------------
Agreement, the Purchaser shall permit the Companies to transfer to the
Shareholders or their designees any Excluded Asset (other than an asset required
to be conveyed to Purchaser under the New Jersey Agreement) at or prior to the
Closing.
Section 5.5 Management Agreement. If, a Closing under this Agreement shall
--------------------
not have occurred and a Closing under the New Jersey Agreement shallhave
occurred, the Purchaser may at its option require the Companies and the
Partnership to enter into a management agreement pursuant to which the Purchaser
shall manage the New York Business, subject to the receipt of all necessary
approvals under New York law. The management agreement shall provide for twenty-
five (25%) of the profits of the managed business to be paid to the Sellers,
have a term of not less than one nor more than three years, terminate upon the
occurrence of a Closing under this Agreement, and contain such other terms and
conditions as are customarily found in similar management agreements and are
reasonably acceptable to the Sellers and the Purchaser.
ARTICLE VI
CONDITIONS OF PURCHASER
-----------------------
The obligations of Purchaser to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the time of Closing
of each of the following items which are conditions to the Closing.
Section 6.1 Compliance by Sellers. The Sellers shall have performed and
---------------------
complied with all material obligations and conditions required by this Agreement
to be performed or complied with by Sellers prior to or at the Closing Date.
All representations and warranties of Sellers contained in this Agreement 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, except for changes
expressly permitted by this Agreement and the Purchaser shall have received a
Certificate duly executed by each of the Sellers as to the foregoing.
Section 6.2 Litigation Affecting This Transaction. There shall be no actual
-------------------------------------
or threatened action by or before any court which seeks to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of Purchaser to own, operate or control the Assets which, in the
judgment of the Boards of Directors of Purchaser, made in good faith and based
upon advice of their counsel, makes it inadvisable to proceed with the
transactions contemplated by this Agreement.
Section 6.3 Fiscal Condition of Business. There shall have been no material
----------------------------
adverse change in the results of operations, financial condition or business of
the Companies, taken as a whole, and the Companies taken as a whole shall have
not suffered any material loss or damage to any of the Assets, whether or not
covered by insurance, since the date of the Financial Statements.
29
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Section 6.4 Opinion of Counsel. The Sellers shall have delivered to the
------------------
Purchaser the opinion of counsel, dated the Closing Date, in the form annexed
hereto as Schedule 1.11(e).
Section 6.5 Consents. All approvals, authorizations and consents required to
--------
be obtained shall have been obtained, and the Purchaser shall have been
furnished with appropriate evidence, reasonably satisfactory to Purchaser and
their counsel, of the granting of such approvals, authorizations and consents,
including, without limitation the consents and approvals described on Schedule
2.15 hereof.
Section 6.6 Financial Statements. The Purchaser shall have either received
---------------------
the financial statements required by the applicable rules and regulations of the
Securities Exchange Commission or been advised by Ernst & Young LLP that the
Companies' records are auditable.
Section 6.7 Pooling of Interests Advice. The Purchaser shall have received
---------------------------
from Ernst & Young L.L.P., or such other accounting firm selected by EESI,
advice reasonably satisfactory to it to the effect that transactions
contemplated hereunder will be accounted for under the pooling of interests
method of accounting.
Section 6.8 Title to Real Property; Survey. Each parcel of Real Property
------------------------------
owned by the Companies and the Partnership shall be insurable at regular
standard rates by a reputable title company acceptable to Purchaser, and shall
be free of any conditions, covenants, restrictions or encumbrances that impose
any financial burden on the Purchaser or the premises or restrict the use of the
premises. The Purchaser shall have received a commitment for title insurance for
each such parcel and a current as built survey for each parcel reasonably
acceptable in form and substance to it.
Section 6.9 HSR. The waiting period under the Hart-Scott-Rodino Antitrust
---
Improvements Act of 1976, as amended, shall have terminated.
Section 6.10 Company Debt. All liens securing the Company Debt (other than
------------
liens in favor of Purchaser) shall have been released and the releases
contemplated by the proviso in Section 5.3 shall have been obtained or, if
assumed by Purchaser, perfected in favor of Purchaser.
Section 6.11 Due Diligence. Sellers shall have delivered to Purchaser the
-------------
Schedules, and Purchaser shall have finished its review thereof, in accordance
with and pursuant to Section 9.14.
ARTICLE VII
CONDITIONS OF SELLERS
---------------------
The obligations of the Sellers to transfer the Assets in accordance with this
Agreement shall be subject to the fulfillment at or prior to the time of Closing
of each of the following conditions:
30
<PAGE>
Section 7.1 Compliance by Purchaser. Purchaser shall have performed and
-----------------------
complied with all material obligations and conditions required by this Agreement
to be performed or complied with by it at or prior to or at the Closing Date.
All representations and warranties of Purchaser contained in this Agreement
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, except for changes
expressly permitted by this Agreement and the Sellers shall have received a
Certificate duly executed by an officer of the Purchaser as to the foregoing.
Section 7.2 Litigation Affecting This Transaction. There shall be no actual
-------------------------------------
or threatened action by or before any court which seeks to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of Purchaser to own, operate or control any of the Assets and which,
in the judgment of the Sellers, made in good faith and based upon advice of
their counsel, makes it inadvisable to proceed with the transaction contemplated
by this Agreement.
Section 7.3 Payment. The Purchaser shall have delivered to each of the
-------
Companies, as applicable, the EESI Stock in accordance with Sections 1.3 and
1.4.
Section 7.4 Consents. All approvals, authorizations and consents required
--------
to be obtained shall have been obtained, and the Sellers shall have been
furnished with appropriate evidence, reasonably satisfactory to them and their
counsel, of the granting of such approvals, authorizations and consents.
Section 7.5 Opinion of Counsel. The Purchaser shall have delivered to the
------------------
Companies the opinion of counsel to the Purchaser, dated the Closing Date, in
the form annexed hereto as Schedule 1.10(c).
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Indemnification by Sellers. The Sellers each agree that they
--------------------------
will each, jointly and severally, indemnify, defend, protect and hold harmless
the Purchaser and its officers, shareholders, directors, divisions,
subdivisions, affiliates, subsidiaries, parent, agents, employees, successors
and assigns from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, penalties, costs and expenses whatsoever
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation) whether equitable or legal, matured or contingent,
known or unknown to the Sellers, foreseen or unforeseen, ordinary or
extraordinary, patent or latent, whether arising out of occurrences prior to,
at, or after the date of this Agreement, from (a) any breach of,
misrepresentation in, untruth in or inaccuracy in the representations and
warranties by the Sellers, set forth in this Agreement or in the Schedules
attached to this Agreement or in the Collateral Documents; (b) nonfulfillment or
nonperformance of any agreement, covenant or
31
<PAGE>
condition on the part of Sellers made in this Agreement or in the Collateral
Documents and to be performed by Sellers before or after the Closing Date; (c)
any liability claim, cost, expense or obligation whether legal or equitable,
matured or contingent, known or unknown, foreseen or unforeseen, extraordinary
or ordinary, patent or latent of any nature ("Liabilities") of any Seller other
than Liabilities reflected on the Closing Date Balance Sheet or the Closing Date
Statement, or obligations under contracts, agreements and Material Documents
assumed by the Purchaser at the Closing or under the Company Debt (if assumed by
the Purchaser) which first mature and accrue after the close of business on the
Closing Date, or, in the case of the Company Debt, the date on which it is
assumed; and (d) any claim by a third party that, if true, would mean that a
condition for indemnification set forth in subsections (a), (b) or (c) of this
Section 8.1 of this Agreement has occurred.
Section 8.2 Indemnification by Purchaser. Purchaser agrees that it will
----------------------------
indemnify, defend, protect and hold harmless each Seller, and each of their
respective officers, directors, divisions, subdivisions, affiliates,
subsidiaries, parents, heirs, legal representatives, successors and assigns, as
applicable, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, penalties, costs and expenses whatsoever
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation) whether equitable or legal, matured or contingent,
known or unknown to the Purchaser, foreseen or unforeseen, ordinary or
extraordinary, patent or latent, whether arising out of occurrences prior to,
at, or after the date of this Agreement, incurred by them, or any of them, as a
result of or incident to: (a) any breach of, misrepresentation in, untruth in
or inaccuracy in the representations and warranties of Purchaser set forth in
this Agreement or in the Schedules attached to this Agreement or in the
Collateral Documents; (b) nonfulfillment of any agreement, covenant or condition
on the part of Purchaser made in this Agreement or in the Collateral Documents
and to be performed by Purchaser before or after the Closing Date; (c) any of
the Guarantees; (d) the imposition upon, claim against, or payment by the
Sellers of any of the Assumed Liabilities; and (e) any claim by a third party
that, if true, would mean that a condition for indemnification set forth in
subsections (a), (b), (c) or (d) of this Section 8.2 has occurred.
Section 8.3 Procedure for Indemnification with Respect to Third Party Claims
----------------------------------------------------------------
(a) If any third party shall notify a party to this Agreement (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") that may
give rise to a claim for indemnification against any other party to this
Agreement (the "Indemnifying Party") under this Article VIII, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party is thereby prejudiced. Such notice shall state the amount of the claim and
the relevant details thereof.
(b) Any Indemnifying Party will have the right to defend the Indemnified Party
against the Third Party Claim with counsel of its choice satisfactory to the
Indemnified Party so long
32
<PAGE>
as (i) the Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party pursuant
to the provisions of Article VIII, as applicable, from and against the entirety
of any adverse consequences (which will include, without limitation, all losses,
claims, liens, and attorneys' fees and related expenses) the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (ii) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations hereunder,
(iii) the Third Party Claim involves only monetary damages and does not seek an
injunction or equitable relief, (iv) settlement of, or adverse judgment with
respect to the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice adverse
to the continuing business interests of the Indemnified Party, and (v) the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently.
(c) So long as the Indemnifying Party is conducting the defense of the Third
Party Claim in accordance with Section 8.3(b) above, (i) the Indemnified Party
may retain separate co-counsel at its sole cost and expense and participate in
(but not control) the defense of the Third Party Claim, (ii) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (which will not be unreasonably withheld), and (iii) the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (which will not be unreasonably withheld). In
the case of (c)(ii) or (c)(iii) above, any such consent to judgment or
settlement shall include, as an unconditional term thereof, the release of the
Indemnifying Party from all liability in connection therewith.
(d) If the conditions set forth in Section 8.3(b) above are or become
unsatisfied, (i) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim and any matter it may deem appropriate and the Indemnified Party
need not consult with, or obtain any consent from, any Indemnifying Party in
connection therewith, (ii) the Indemnifying Party will reimburse the Indemnified
Party promptly and periodically for the cost of defending against the Third
Party Claim (including attorneys' fees and expenses) and (iii) the Indemnifying
Party will remain responsible for any adverse consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the fullest extent provided in this Article
VIII.
Section 8.4 Procedure for Non-Third Party Claims. If Purchaser or Sellers
------------------------------------
wish to make a claim for indemnity under Section 8.1 or Section 8.2, as
applicable, and the claim does not arise out of a third party notification which
makes the provisions of Section 8.3 applicable, the party desiring
indemnification ("Indemnified Party") shall deliver to the parties from which
indemnification is sought ("Indemnifying Party") a written demand for
indemnification ("Indemnification Demand"). The Indemnification Demand shall
state: (a) the amount of losses,
33
<PAGE>
damages or expenses to which the Indemnified Party has incurred or has suffered
or is expected to incur or suffer to which the Indemnified Party is entitled to
indemnification pursuant to Section 8.1 or Section 8.2, as applicable; (b) the
nature of the event or occurrence which entitles the Indemnified Party to
receive payment under Section 8.1 or Section 8.2, as applicable. If the
Indemnifying Party wishes to object to an Indemnification Demand, the
Indemnifying Party must send written notice to the Indemnified Party stating the
objections and the grounds for the objections ("Indemnification Objection"). If
no Indemnification Objection is sent within forty-five (45) days after the
Indemnification Demand is sent, the Indemnifying Party shall be deemed to have
acknowledged the correctness of the claim or claims specified in the
Indemnification Demand and shall pay the full amount claimed in the
Indemnification Demand within sixty (60) days of the day the Indemnification
Demand is dated. If for any reason the Indemnifying Party does not pay the
amounts claimed in the Indemnification Demand, within thirty days of the
Indemnification Demand's date, the Indemnified Party may institute legal
proceedings to enforce payment of the indemnification claim contained in the
Indemnification Demand and any other claim for indemnification that the
Indemnified Party may have.
Section 8.5 Survival of Claims. All of the respective representations and
------------------
warranties of the Sellers and the Purchaser shall survive consummation of the
transactions contemplated by this Agreement for a period of eighteen months, the
representations and warranties of the Sellers set forth in Sections 2.8, and
2.13 and, shall survive until the expiration of all applicable statutes of
limitation and the representations and warranties of Sellers in Sections 2.2,
2.4(c) (to the extent that Section 2.4(c) relates to title) and 2.15 shall
survive indefinitely.
Section 8.6 Limitation. No person shall be entitled under the
----------
indemnification provisions of this Agreement to indemnification for damages
resulting from breaches of representations and warranties until the damages
suffered by the Purchaser's indemnitees or Seller's indemnitees, as applicable,
exceeds $150,000; provided, however, that this limitation shall not be
applicable to breaches of Sellers' representations and warranties relating to
title, taxes, environmental matters that are not listed on Schedule 2.13 to this
Agreement or the New Jersey Agreement or which result in liabilities in excess
of those indicated on Schedule 2.13 to this Agreement or the New Jersey
Agreement, and accounts receivable.
ARTICLE IX
OTHER PROVISIONS
----------------
Section 9.1 Nondisclosure by Sellers. Sellers recognize and acknowledge that
------------------------
it has in the past, currently has, and in the future will have certain
confidential information of the Companies such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Companies. Sellers agree that for a period of five (5)
years from the Closing Date and as to any Records received by them under Section
5.3 of this Agreement, five (5) years from their receipt of the Records, they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except to authorized representatives of the Sellers, unless (i) such
34
<PAGE>
information becomes known to the public generally through no fault of Sellers,
(ii) the Sellers are compelled to disclose such information by a governmental
entity or pursuant to a court proceeding, or (iii) the Closing does not take
place. In the event of a breach or threatened breach by Sellers of the
provisions of this Section, Purchaser shall be entitled to an injunction
restraining Sellers from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Purchaser from
pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
Section 9.2 Nondisclosure by Purchaser. Purchaser recognizes and
--------------------------
acknowledges that it has in the past, currently has, and prior to the Closing
Date, will have access to certain confidential information of the Companies,
such as lists of customers, operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Companies. Purchaser agrees
that it will not utilize such information in the business or operation of
Purchaser, or any of their affiliates or disclose such confidential information
to any person, firm, corporation, association, or other entity for any purpose
or reason whatsoever, unless (i) such information becomes known to the public
generally through no fault of Purchaser or any of their affiliates (ii)
Purchaser is compelled to disclose such information by a governmental entity or
pursuant to a court proceeding or (iii) Closing takes place. In the event of a
breach or threatened breach by Purchaser of the provisions of this Section, the
Sellers shall be entitled to an injunction restraining Purchaser from utilizing
or disclosing, in whole or in part, such confidential information. Nothing
contained herein shall be construed as prohibiting Sellers from pursuing any
other available remedy for such breach or threatened breach, including, without
limitation, the recovery of damages.
Section 9.3 Assignment; Binding Effect; Amendment. This Agreement and the
-------------------------------------
rights of the parties hereunder may not be assigned (except (a) after Closing by
operation of law by the merger of Purchaser, or (b) by Purchaser prior to
closing to one or more wholly-owned subsidiaries of Purchaser) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Purchaser and the Sellers. This Agreement, upon execution and
delivery, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by all parties hereto.
Section 9.4 Entire Agreement. This Agreement is the final, complete and
----------------
exclusive statement and expression of the agreement among the parties hereto
with relation to the subject matter of this Agreement, it being understood that
there are no oral representations, understandings or agreements covering the
same subject matter as the Agreement. The Agreement supersedes, and cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
discussions, correspondence, or oral or written agreements of any kind. The
parties to this Agreement have relied on their own advisors for all legal,
accounting, tax or other advice whatsoever with respect to the Agreement and the
transactions contemplated hereby.
35
<PAGE>
Section 9.5 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.
Section 9.6 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and may be given by depositing the same
in United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, by overnight courier
or by delivering the same in person to such party.
(a) If to Purchaser, addressed to them at:
President
1000 Crawford Place
Mt. Laurel, NJ 08054
with a copy to:
Robert M. Kramer & Assoc., P.C.
1150 First Avenue, Suite 900
King of Prussia, PA 19406
(b) If to Sellers, addressed to
each Seller as set forth on
Exhibit "A" attached.
with a copy to:
Muchnick, Golieb & Golieb, P.C.
630 Fifth Avenue
New York, New York 10111
Attn: Howard W. Muchnick, Esq.
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three business days after the deposit
in the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received, if earlier. Any
party may change the address for notice by notifying the other parties of such
change in accordance with this Section 9.6.
Section 9.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
36
<PAGE>
Section 9.8 No Waiver. No delay of or omission in the exercise of any right,
---------
power or remedy accruing to any party as a result of any breach or default by
any other party under this Agreement shall impair any such right, power or
remedy, nor shall it be construed as a waiver of or acquiescence in any such
breach or default, or of or in any similar breach or default occurring later;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default occurring before or after that waiver.
Section 9.9 Captions. The headings of this Agreement are inserted for
--------
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
Section 9.10 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, it shall, to the extent possible, be modified
in such manner as to be valid, legal and enforceable but so as most nearly to
retain the intent of the parties. If such modification is not possible, such
provision shall be severed from this Agreement. In either case the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
Section 9.11 Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute shall be deemed to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" means included, without limitation.
Section 9.12 Extension or Waiver of Performance. Either the Sellers or
-----------------------------------
Purchaser may extend the time for or waive the performance of any of the
obligations of the other, waive any inaccuracies in the representations or
warranties by the other, or waive compliance by the other with any of the
covenants or conditions contained in this Agreement, provided that any such
extension or waiver shall be in writing and signed by the Sellers and the
Purchaser.
Section 9.13 Liabilities of Third Parties. Nothing in this Agreement,
----------------------------
whether expressed or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors, heirs, legal representative and assigns, nor is
anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provisions give any third person any rights of subrogation or action over or
against any party to this Agreement.
Section 9.14 Disclosure on Schedules. The parties acknowledge that
-----------------------
notwithstanding the provisions of the Agreement stating all Schedules and
Exhibits to this Agreement are attached to the Agreement, none of the Schedules
have been attached and certain of the Exhibits have not been attached. Sellers
will deliver to Purchaser all Schedules to be attached to this Agreement
37
<PAGE>
as soon as reasonably possible but no later than thirty (30) days from the date
of this Agreement. Purchaser will have fourteen (14) days from the date of
delivery of the Schedules to review the Schedules and terminate the Agreement by
sending written notice to Companies, if Purchaser is not satisfied with any
material matter revealed by any Schedule. The parties hereto shall use their
best efforts to agree upon and attach to this Agreement all Exhibits not
attached to this Agreement on the date of this Agreement's execution. If the
parties can not agree upon any Exhibits not attached to this Agreement by July
15, 1998, any of the parties may terminate this Agreement by sending written
notice of termination to the other parties. Once the Schedules are produced and
the Exhibits agreed upon the parties hereto shall execute a signature page which
states that attached to the signature page are the Schedules and Exhibits to
this Agreement. For purposes of this Agreement, a disclosure by any party hereto
of any fact on any Schedule shall be deemed a disclosure on every Schedule of
any party hereto to the extent such disclosure properly could have been made
thereon but was not made. The parties to this Agreement shall have the
obligation to supplement or amend the Schedules being delivered concurrently
with the execution of this Agreement and annexed hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules. The obligations of the parties to amend or supplement the Schedules
shall terminate on the Closing Date. Notwithstanding any such amendment or
supplementation, the condition to Closing set forth in Section 6.1 shall not be
satisfied, if the amendment or supplementation of any Schedule by Sellers
results in any of Sellers' representations and warranties changing in a manner
which the Purchaser in good faith believes is materially adverse to the
Purchaser, the Assets or the Business.
Section 9.15 Arbitration.
-----------
(a) Each and every controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in accordance with the commercial
rules (the "Rules") of the American Arbitration Association then obtaining, in
the borough of Manhattan, New York, New York and judgment upon the award
rendered in such arbitration shall be final and binding upon the parties and may
be confirmed in any court having jurisdiction thereof. Notwithstanding the
foregoing, this Agreement to arbitrate shall not bar any party from seeking
temporary or provisional remedies in any Court having jurisdiction if such party
can establish irreparable harm. Notice of the demand for arbitration shall be
filed in writing with the other party to this Agreement, which such demand shall
set forth in the same degree of particularity as required for complaints under
the Federal Rules of Civil Procedure the claims to be submitted to arbitration.
Additionally, the demand for arbitration shall be stated with reasonable
particularity with respect to such demand with documents attached as
appropriate. In no event shall the demand for arbitration be made after the date
when institution of legal or equitable proceedings based on such claim, dispute
or other matter in question would be barred by the applicable statutes of
limitations.
(b) The arbitrators shall have the authority and jurisdiction to determine
their own jurisdiction and enter any preliminary awards that would aid and
assist the conduct of the arbitration or preserve the parties' rights with
respect to the arbitration as the arbitrators shall
38
<PAGE>
deem appropriate in their discretion. The award of the arbitrators shall be in
writing and it shall specify in detail the issues submitted to arbitration and
the award of the arbitrators with respect to each of the issues so submitted.
(c) Within sixty (60) days after the commencement of any arbitration
proceeding under this Agreement, each party shall file with the arbitrators its
contemplated discovery plan outlining the desired documents to be produced, the
depositions to be taken, if ordered by the arbitrators in accordance with the
Rules, and any other discovery action sought in the arbitration proceeding.
After a preliminary hearing, the arbitrators shall fix the scope and content of
each party's discovery plan as the arbitrators deem appropriate. The arbitrators
shall have the authority to modify, amend or change the discovery plans of the
parties upon application by either party, if good cause appears for doing so.
(d) The award pursuant to such arbitration will be final, binding and
conclusive.
(e) Counsel to the Purchaser and the Sellers in connection with the
negotiation of and consummation of the transactions under this Agreement shall
be entitled to represent their respective party in any and all proceedings under
this Section or in any other proceeding (collectively, "Proceedings"). The
Purchaser and the Sellers, respectively, waive the right and agree they shall
not seek to disqualify any such counsel in any such Proceedings for any reason,
including but not limited to the fact that such counsel or any member thereof
may be a witness in any such Proceedings or possess or have learned of
information of a confidential or financial nature of the party whose interests
are adverse to the party represented by such counsel in any such Proceedings.
Section 9.16 Costs and Expenses. Expect as otherwise provided herein, the
------------------
parties hereto shall each pay their own fees and expenses and those of their
respective agents and advisors incurred in connection with the transactions
contemplated by this Agreement (including, without limitation, all legal and
accounting fees), except that Purchasers shall pay all Hart-Scott-Rodino filing
fees.
Section 9.17 Certain Pricing Determinations. In establishing the
------------------------------
consideration payable under this Agreement, the rights of the Companies under
the Sterocycle Agreement relating to the sale of the Companies' medical waste
business were valued at $67,000.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
PURCHASER
EASTERN ENVIRONMENTAL
SERVICES, INC.
By: /s/ Robert M. Kramer
-------------------------------
Name:
Title: Executive VP President
COMPANIES
JOSEPH AND FRANK SAVINO PARTNERSHIP
By: /s/ Frank Savino
________________________________
Name:
Title: General Partner
By: /s/ Frank Savino
________________________________
Name:
Title: General Partner
39
<PAGE>
LEE BIN CONTAINERS, INC.
By: /s/ Frank Savino
_______________________________
Name:
Title:
ALLEGRO ENTERPRISES, INC.
By: /s/ Frank Savino
______________________________
Name:
Title:
ALLEGRO TRANSPORTATION AND
RECYCLING, INC.
By: /s/ Frank Savino
_______________________________
Name:
Title:
ALLEGRO CARTING AND RECYCLING, INC.
By: /s/ Frank Savino
______________________________
Name:
Title:
JOSEPH SAVINO and SONS, INC.
By: /s/ Frank Savino
______________________________
Name:
Title:
40
<PAGE>
SHAREHOLDERS
/s/ Frank Savino
__________________________________
Frank Savino
/s/ Joseph Savino
__________________________________
Joseph Savino
AS TO THE OBLIGATIONS OF ESCROW AGENT IN SECTION 1.3(b) ONLY
ROBERT M. KRAMER & ASSOCIATES, P.C.
By: /s/ Robert M. Kramer
________________________________
Robert M. Kramer
41
<PAGE>
Exhibit 10.3
EASTERN ENVIRONMENTAL SERVICES, INC.
1000 CRAWFORD PLACE, SUITE 400
MT. LAUREL, NEW JERSEY 08054
Mr. Joseph Savino
Mr. Frank Savino
c/o Muchnick, Golieb & Golieb, P.C.
630 Fifth Avenue
New York, New York 10111
Re: Agreements and Plans of Reorganization, dated as of May 18, 1998, by
and among Allegro Enterprises, Inc., Allegro Transportation and
Recycling, Inc., Allegro Carting and Recycling, Inc., Joseph Savino
and Sons, Inc., Lee Bin Containers, Inc., Joseph and Frank Savino
Partnership, Regional Recycling, Inc., Madison Enterprises, Inc.,
(collectively, the "Companies") and Joseph Savino and Frank Savino
(the "Sellers") and Eastern Environmental Services, Inc. ("EESI")
(hereinafter referred to as the "New Jersey Agreement", and the New
York Agreement" and collectively as the "Agreements")
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Gentlemen:
We have agreed to amend certain terms and conditions of the Agreements
as set forth below. All terms not defined in this letter shall have the
meanings set forth in the Agreements.
1. (a) An existing U. S. income tax receivable in the approximate
amount of $20,000 presently owed to several of the Companies (the "Tax
Receivable") shall be treated as a "Receivable" if the Tax Receivable is paid in
full within one hundred fifty (150) days after the Closing (as hereinafter
defined). In such event, the Tax Receivable will be deemed a bona fide
receivable, and the dollar value of the EESI Stock, if any, deliverable at the
time of the adjustments in respect of the Closing Date Balance Sheet pursuant to
the Agreements (the "Adjustment Date"), will be further increased by the amount
of the Purchasers' receipts in respect of the Tax Receivable. If the Tax
Receivable is not paid in full within one hundred fifty (150) days after the
Closing, the Tax Receivable shall be deemed to have not been a bona fide
Receivable, and no amount shall be paid by the Purchaser in respect of it.
(b) The amount of cash that the Companies are required to have at
the Closing shall be decreased by $28,900 in respect of certain amounts owed to
the Companies by Purchaser for the so-called "CVS Containers and collection
services."
<PAGE>
(c) The aggregate dollar value of the EESI Stock deliverable at the
Closing under both Agreements shall be $26,150,000 and the number of shares
delivered shall be calculated on the basis of a stock price of $31.50 per share.
The Purchase Price is allocated between the New York agreement and New Jersey
agreement as $6.55 million and $19.6 million, respectively. The number of shares
delivered shall be reduced or increased as of the Adjustment Date as provided in
Section 1.3 of the Agreements in respect of liabilities and Debt on the Closing
Balance Sheet (without regard to the further adjustment called for by the Letter
Agreement).
2. The term "restricted stock" as used in the Agreements shall mean
EESI Stock which is not transferable under Rule 144 before August 19, 1999. The
term "Closing Balance Sheet" shall mean the balance sheet dated as of June 30,
1998 and attached hereto as attachment A.
3. New Section 6.12 shall be added to Article VI of the New Jersey
Agreement, which shall read as follows:
"Section 6.12. New York Agreement Closing. Closing under the New
---------------------------
York Agreement shall occur simultaneously with the Closing under this
Agreement notwithstanding the recitals to the Agreements or any other
provisions thereof."
4. New Section 6.12 shall be added to Article VI of the New York
Agreement, which shall read as follows:
"Section 6.12 New Jersey Agreement Closing. Closing under the New
-----------------------------
Jersey Agreement shall occur simultaneously with the Closing under
this Agreement notwithstanding the recitals to the Agreements or any
other provisions thereof."
5. The simultaneous closing under the New Jersey Agreement and the New
York Agreement shall be referred to as the Closing.
6. At the Closing, thirty percent (30%) of the EESI Stock deliverable
shall be held in escrow by Robert Kramer & Associates, P.C. The Escrow Stock
shall be made up of restricted stock and shall be disbursed to Purchaser or to
Seller as follows:
(a) One third (1/3) of the Escrow Stock (the "First Tranche") shall
be disbursed to Sellers on the first anniversary of the Closing Date; provided,
however, that if Purchaser has made any indemnity claim or claims pursuant to
Article 8 of either of the Agreements and such claim or claims have not been
fully resolved by the first anniversary of the Closing Date, the Escrow Stock
included in the First Tranche shall be retained by the Escrow Agent, until the
resolution of any such claim or claims. To the event that any shares included in
the First Tranche has not been distributed at a time when the Second Tranche is
required to be distributed to Purchaser, such shares shall also be distributed
to Purchaser.
(b) Two thirds (2/3) of the Escrow Stock shall be distributed to the
Seller if the currently filed, (as amended from time to time) Major Modification
to New Jersey
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<PAGE>
Department of Environmental Protection ("DEP") (No. 7140012-35) (the "Permit")
is granted by DEP, and to the Purchaser if the Permit is revoked or the Major
Modification, as amended from time to time is not granted and the time to appeal
has expired; provided, however that if the Major Modification is granted with a
legal capacity of less than 600 tons (of municipal solid waste and/or recycling)
per day, the number of shares distributed to the Seller shall be reduced by the
amount that is equal to the number of tons that is less than 600 multiplied by
$5,000, with the product being divided by the closing price of a share of EESI
Stock on the date that the shares are disbursed. The Purchaser shall in good
faith pursue the granting of the Major Modification Permit and shall consult
with the consultantant recommended by Sellers throughout the entire process.
Purchaser shall not amend the Major Modification to increase the daily tonnage
in excess of 600 tons per day without the consent of Seller or the release of
the EESI stock to Seller. Purchaser may legally operate the Transfer Station at
600 tons per day of MSW and/or recycling one year after the expiration date of
the currently issued permit. The Escrow Stock should be dispensed to Seller.
(c) If EESI is required to issue to Sellers additional shares of
EESI Stock in accordance with an increase in the Purchase Price, there will be a
corresponding increase in the number of shares required to be held in Escrow.
(d) If there is a decrease in the Purchase Price, then there will be
a corresponding cancellation of the Escrowed shares.
7. In connection with the Closing under the New Jersey Agreement,
Sellers shall convey to EESI all right, title, and interest in, and to, the name
"Interboro", Interboro Disposal & Recycling, and any variants thereof.
8. The assets to be purchased under Section 1.5 (s) of the New Jersey
Agreement shall include all right, title, and interest in, and to, the Real
Property located at 1714 Willow Avenue, Hoboken, New Jersey. The term "Real
Property", as used in the New Jersey Agreement or any of its affiliates shall be
deemed to include this additional property for all purposes, including the
applicability of representations, warranties, covenants and indemnities. The
amount of cash that Sellers are required to have at the Closing shall be
decreased by $175,000 in respect of this additional Asset so long as an
appraisal received arriving at that amount shall have been delivered to
Purchaser.
9. Sellers acknowledge that all costs, expenses, liabilities and claims
incurred by EESI or any of its affiliates and relating to the matter captioned
IESI Corp. v. Eastern Environmental Services, Inc., et al. shall be Sellers'
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exclusive responsibility. Any such costs, expenses, liabilities, and claims
shall be treated as Liabilities for which Seller is obligated to indemnify
Purchaser under Section 8.3 of the Agreements.
10. The Sellers represent and warrant that set forth on Attachment B to
this letter agreement is a true and correct list of all assets, licenses, and
permits (including, without limitation, all containers and all other equipment
located at the Seller's Transfer Station at 26 Bay Street, Brooklyn, New York)
used by Sellers in connection with the asbestos collection business of the
Sellers conducted in the City of New York and all accounts receivable from that
business
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<PAGE>
as of the date hereof, other than assets which are jointly used in the Asbestos
and the solid waste carting business (the "Asbestos Assets").
11. The Sellers consent and agree that, notwithstanding any provision of
the Agreements, EESI may assign its rights to purchase any or all of the
Asbestos Assets and any and all rights or claims that it may have under the
Agreements relating to the Asbestos Assets to a third-party after the Closing.
12. A new sentence shall be added at the end of Section 8.1 of each the
Agreements, which shall read in its entirety as follows:
In addition to (but without in any way limiting the preceding or any
other provision of this Agreement) the Sellers shall jointly,
severally and specifically indemnify, defend, protect and hold
harmless the Purchaser and each other person indemnified under this
Section 8.1 from and against any and all Liabilities, damages or
diminution in value resulting from (A) any assertion by the City of
Newark, State of New Jersey, in respect of solid waste received at the
Sellers' Newark transfer station from January 1, 1987 through the
present, together with all penalties and other amounts payable thereon
or in respect thereof, or (B) any failure of the Sellers to convey to
the Purchaser good and marketable title to the assets of Pandora
Sanitation, Inc. free of all Encumbrances and claims.
13. [Intentionally deleted].
14. A new Section 4.12 shall be added to each of the Agreements which
shall read as follows:
Section 4.12. Condition of Real Property. Prior to the Closing, the
--------------------------
Sellers shall take all actions necessary so the Transfer Stations
shall have no more municipal solid waste, asbestos waste, and other
materials on the premises than the daily through put amount under the
applicable permit.
All other terms and conditions of the Agreements shall remain in full
force and effect.
If you agree that the terms contained in this letter sets forth an
accurate reflection of our understanding and you intend to be legally bound
hereby, please sign the duplicate copy and return the same to us.
Very truly yours,
EASTERN ENVIRONMENTAL
SERVICES, INC.
By: /s/ Robert M. Kramer
-----------------------------
Accepted and Agreed to this 18 day of August , 1998
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/s/ Joseph Savino /s/ Frank Savino
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Joseph Savino Frank Savino
Each is signing for himself and as a shareholder, partner, or officer of the
Sellers.
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