<PAGE>
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
July 18, 1996
------------------------------------------------
Date of Report (Date of Earliest Event Reported)
Synagro Technologies, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0219860
- ------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
0-21054
-------------------
Commission File No.
16000 Stuebner Airline, Suite 420, Spring, Texas 77379
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 370-6700
with copies to:
Matthias & Berg LLP
Jeffrey P. Berg, Esq.
515 South Flower Street
Seventh Floor
Los Angeles, California 90071
(213) 895-4200
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As of July 18, 1996, Synagro Technologies, Inc., a Nevada corporation (the
"Company") entered into an agreement pursuant to which the Company acquired 100%
of the issued and outstanding securities of Pima Gro Systems, Inc. and Pima Gro
Systems 2, Inc. (collectively "Pima Gro").
Pima Gro is in the business of providing transportation, site monitoring,
land application and environmental regulatory compliance services, with respect
to biosolids and wastewater products, to local and state agencies,
municipalities and private industries. Pima Gro's vehicles pick up and
transport biosolids and other organic waste materials primarily from
municipalities to permitted agricultural sites operated by third parties. Pima
Gro's primary operations are currently in the States of California and Arizona.
To a lesser extent, Pima Gro conducts business in the States of Nevada and
Indiana, and the District of Columbia.
Pima Gro also provides professional management and consulting services for
treatment of biosolids and the monitoring and land application of treated
biosolids. Pima Gro operates under approximately 20 contracts with various
state and local agencies, municipalities and private industries with respect to
sewage treatment and other waste products. The contracts with these entities
are generally renewable on an annual basis, subject to cancellation on 30 days'
notice.
Pima Gro also operates and maintains a fleet of trucks which receive,
collect and transport liquid or solid biosolids to various land application or
treatment sites for tipping fees. These tipping fees, which are fees generated
by Pima Gro in connection with the collection, transportation and treatment of
biosolids, constitute substantially all of Pima Gro's sources of revenues. Pima
Gro vehicles are registered with federal, state and local government agencies
for such transportation purposes.
Pima Gro also distributes biosolids products, including soil amendments,
under the trade name "Hyper Gro."
The Company anticipates that these acquisitions will expand the Company's
operating capacity into established businesses in the biosolids treatment
industry in the States of California and Arizona and certain other states.
In connection with this transaction, the purchase price for the acquisition
of Pima Gro was approximately $3,100,000, subject to certain adjustments set
forth below. The Company issued an aggregate of 155,000 shares of the Company's
common stock, par value $0.002 per share (the "Common Stock"), paid cash in the
aggregate amount of approximately $1,277,000, and issued a promissory note in
the aggregate principal amount of approximately
2
<PAGE>
$1,600,000. The shares of Common Stock issued to the former stockholders of
Pima Gro were valued, as of July 18, 1996, for the purposes of the transaction,
at $1.437 per share as of June 10, 1996, the date of the letter of intent with
respect to the transaction.
The amount of consideration paid in the transaction was determined based on
management's analysis of historical and projected sales of Pima Gro, the
estimated market value of Pima Gro and the synergies to be achieved through the
transaction.
As of the most recent fiscal year end for Pima Gro (December 31, 1995),
Pima Gro had combined sales of approximately $8,545,000 and combined net income
of approximately $380,000.
The promissory note, issued by the Company, bears interest at the rate of
8% PER ANNUM and is payable in four (4) semi-annual installments of principal
and accrued interest, commencing January 1, 1997, with the final payment due on
July 1, 1998. The promissory note is secured by a pledge of the securities of
Pima Gro acquired by the Company in connection with the transaction and a letter
of credit in the amount of approximately $463,000.
In the event that the Company borrows money from any source, utilizing the
assets of Pima Gro as collateral, the promissory note will become automatically
due and payable, unless there is no increase in the amount of debt imposed on
Pima Gro's assets. However, in the event that the amount of such debt
increases, the excess (up to the amount of the unpaid balance on the promissory
note) will be deposited into an escrow and paid as scheduled payments on the
promissory note come due.
The final amount of the promissory note will be subject to adjustment based
on the net asset value of Pima Gro, as of the closing date of the transaction,
as reflected on an unaudited closing balance sheet of Pima Gro to be prepared by
the Company within 60 days following the closing date. In the event that such
net asset value is determined to be less than $1,947,243, as of June 30, 1996,
and there exists a difference greater than $25,000 between the net asset value
of Pima Gro as reflected on the closing balance sheet and the audited financial
statements of Pima Gro as of December 31, 1995 delivered at closing, the amount
of the promissory note will reduced by such excess amount.
The Company has agreed to pay an additional contingent sum on the purchase
price of $4.16 for each dollar by which the pre-tax earnings of Pima Gro, for
each of the fiscal years during 1996-1998, exceed the base amount of $380,000 in
1996 and, subject to certain adjustments to the base amount, during the two (2)
following fiscal years. The additional contingent sum may be payable by the
Company, if at all, in cash, Common Stock or promissory notes, or any
combination thereof. Such amounts which
3
<PAGE>
may be payable as contingent sum payments will be held in escrow until March 31,
1999, and subject to reduction based on amounts expended by the Company for
certain capital expenditures and costs reserved for the development of certain
business sites.
In connection with this agreement, Wilson Nolan has agreed to enter into a
three (3) year employment agreement with Pima Gro at the annual base rate of
$150,000, plus other benefits. Mr. Nolan will serve as the Chief Executive
Officer and a director of Pima Gro. In addition, Mr. Nolan entered into a
non-competition agreement with the Company for a period of six (6) years
following the date of the employment agreement. In consideration of the
non-competition agreement, the Company has agreed to pay Mr. Nolan an additional
contingent sum based on the contingent sum formula payable to the former Pima
Gro stockholders described above, except that Mr. Nolan will be entitled to
receive $1.04 for each dollar by which the pre-tax earnings of Pima Gro exceed
the relevant base amount for each of the fiscal years during 1996-1998.
Further, the former stockholders of Pima Gro have granted a proxy to Don
Thone, Chief Executive Officer of the Company, to vote any shares issued in
connection with the transaction for a period of three (3) years following the
closing date.
ITEM 7 FINANCIAL STATEMENTS ON EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Combined balance sheet of Pima Gro Systems, Inc., an Arizona
corporation, as of December 31, 1995 and 1994 and the related combined
statements of income and stockholders' equity and cash flows for the
years then ended.
(b) PRO FORMA FINANCIAL INFORMATION.
1. The unaudited pro forma consolidated balance sheet as of June 30,
1996 and December 31, 1995.
2. The unaudited pro forma consolidated statement of operations for
the year ended December 31, 1995 and the six months ended June
30, 1996.
(c) EXHIBITS.
2.1 Agreement for the Purchase of Stock by and among Synagro
Technologies, Inc., CDR Environmental, Inc., Pima Gro Systems,
Inc., Pima Gro Systems 2, Inc., Wilson Nolan, Herbert Kai and
John Kai, Jr., dated July 18, 1996.
10.1 Employment Agreement between Pima Gro Systems, Inc. and Wilson
Nolan, dated July 18, 1996.
4
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SYNAGRO TECHNOLOGIES, INC.
Dated: July 31, 1996 By:/s/ Daniel L. Shook
------------------------
Daniel L. Shook
Chief Financial Officer
5
<PAGE>
PIMA GRO SYSTEMS, INC.
COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
TOGETHER WITH INDEPENDENT AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Pima Gro Systems, Inc.:
We have audited the accompanying combined balance sheet of PIMA GRO SYSTEMS,
INC. (an Arizona Corporation) as of December 31, 1995, and the related combined
statements of income and stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The combined financial statements of PIMA GRO
SYSTEMS, INC. as of December 31, 1994, were audited by other auditors whose
report dated March 1, 1995, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Pima Gro Systems, Inc.
at December 31, 1995, and the combined results of operations and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Orange County, California
March 13, 1996
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Pima Gro Systems
We have audited the accompanying combined balance sheet of Pima Gro Systems,
Inc. and affiliates (Note 1) as of December 31, 1994 and 1993, and the related
combined statements of income and retained earnings, and cash flows for the
years then ended, in accordance with standards established by the American
Institute of Certified Public Accountants. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements mentioned above present fairly, in all
material respects, the combined financial position of Pima Gro Systems, Inc.,
and affiliates at December 31, 1994 and 1993, and the combined results of
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
March 1, 1995 Rasmussen & Rogers
<PAGE>
PIMA GRO SYSTEMS, INC.
COMBINED BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
----------- -----------
CURRENT ASSETS:
Cash $ 3,583 $ 134,041
Accounts receivable 1,086,299 753,515
Prepaid expenses 213,633 142,931
----------- -----------
Total current assets 1,303,515 1,030,487
----------- -----------
PROPERTY AND EQUIPMENT:
Machinery & equipment 5,460,755 4,858,813
Leasehold improvements 93,354 -
----------- -----------
5,554,109 4,858,813
----------- -----------
Less--Accumulated depreciation and
amortization (1,965,727) (1,745,797)
----------- -----------
3,588,382 3,113,016
----------- -----------
OTHER ASSETS:
Site development cost 308,017 212,902
Deposits 69,978 83,384
----------- -----------
377,995 296,286
----------- -----------
$ 5,269,892 $ 4,439,789
=========== ===========
The accompanying notes are an integral part
of these combined balance sheets.
<PAGE>
PIMA GRO SYSTEMS, INC.
COMBINED BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
----------- -----------
CURRENT LIABILITIES:
Checks issued but not presented $ 51,697 $ -
Accounts payable 640,554 400,936
Accrued expenses 344,795 228,227
Revolving line of credit 498,800 478,800
Current portion of long-term debt and
capital lease obligations 762,629 674,992
---------- ----------
Total current liabilities 2,298,475 1,782,955
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt and capital lease
obligations, net of current portion 918,010 1,032,053
Deferred state income tax liability 106,164 57,455
---------- ----------
1,024,174 1,089,508
---------- ----------
TOTAL LIABILITIES 3,322,649 2,872,463
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 2,000,000
shares authorized, 193 shares issued
and outstanding 193 193
Additional paid-in capital 861,637 861,637
Retained earnings 1,165,413 785,496
---------- ----------
2,027,243 1,647,326
Less--Note receivable from stockholder (80,000) (80,000)
---------- ----------
1,947,243 1,567,326
---------- ----------
$5,269,892 $4,439,789
========== ==========
The accompanying notes are an integral part
of these combined balance sheets.
<PAGE>
PIMA GRO SYSTEMS, INC.
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
NET REVENUE $8,548,098 $8,939,220
---------- ----------
COST OF REVENUE:
Transportation 4,167,850 3,941,937
Processing 44,511 1,161,460
Spreading 1,172,091 753,930
Facilities 1,083,187 853,083
---------- ----------
Total cost of revenue 6,467,639 6,710,410
---------- ----------
GROSS PROFIT 2,080,459 2,228,810
---------- ----------
OPERATING EXPENSES:
Sales and marketing 146,873 -
General and administrative 1,302,422 1,900,491
---------- ----------
Total operating expenses 1,449,295 1,900,491
---------- ----------
Income from operations 631,164 328,319
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 2,174 21,610
Interest expense (241,424) (150,037)
Miscellaneous income (expense) 37,512 (41,058)
---------- ----------
(201,738) (169,485)
---------- ----------
Income before taxes 429,426 158,834
PROVISION FOR TAXES 49,509 11,000
---------- ----------
Net income $ 379,917 $ 147,834
========== ==========
The accompanying notes are an integral part
of these combined financial statements.
<PAGE>
PIMA GRO SYSTEMS, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Note
Common Stock Additional Receivable
---------------------- Paid In Retained From
Shares Amount Capital Earnings Stockholder Total
------ ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1993 193 $193 $861,637 $ 637,662 $(80,000) $1,419,492
Net income - - - 147,834 - 147,834
--- ---- -------- ---------- -------- ----------
BALANCE,
December 31, 1994 193 193 861,637 785,496 (80,000) 1,567,326
Net income - - - 379,917 - 379,917
--- ---- -------- ---------- -------- ----------
BALANCE,
December 31, 1995 193 $193 $861,637 $1,165,413 $(80,000) $1,947,243
=== ==== ======== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
<PAGE>
PIMA GRO SYSTEMS, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 379,917 $ 147,834
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 435,595 319,100
Loss (gain) on disposal of property and
equipment (18,230) 41,058
Provision for deferred taxes 48,709 11,000
(Increase) decrease in accounts receivable (332,784) 222,168
(Increase) decrease in prepaid expenses and
other assets (57,296) 150,526
Increase in checks issued not presented 51,697 -
Increase (decrease) in accounts payable 239,618 (467,389)
Increase in accrued expenses 116,568 55,699
----------- ---------
Net cash provided by operating activities 863,794 479,996
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,150,275) (268,952)
Proceeds from sale of property and equipment 379,883 4,700
Site development cost incurred (95,115) 11,778
----------- ---------
Net cash used in investing activities (865,507) (252,474)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 20,000 478,800
Proceeds from long-term bank borrowings 792,157 -
Repayments on debt and capital lease obligations (940,902) (640,608)
----------- ---------
Net cash used in financing activities (128,745) (161,808)
----------- ---------
NET INCREASE (DECREASE) IN CASH (130,458) 65,714
CASH, beginning of year 134,041 68,327
----------- ---------
CASH, end of year $ 3,583 $ 134,041
=========== =========
The accompanying notes are an integral part
of these combined financial statements.
<PAGE>
PIMA GRO SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS
Pima Gro Systems, Inc. (the Company) is engaged in the business of recycling
biosolids and operates in Arizona and California. The Company receives, hauls
and applies suitable biosolids from wastewater treatment facilities to
agricultural lands as fertilizer and soil amendment. The Company's business is
generally conducted under contractual agreements with governmental agencies.
Sales to the Company's three largest customers constituted 67 percent of net
sales for the year ended December 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Pima Gro Systems,
Inc., and Pima Gro Systems 2, Inc., herein collectively referred to as "the
Company", which are affiliated through common control. All significant
intercompany accounts and transactions have been eliminated.
b. FINANCIAL STATEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from estimated
amounts.
c. REVENUE RECOGNITION
Revenue is recognized upon the removal of biosolids from the customer's
wastewater treatment plant. The costs associated with hauling and
recycling these biosolids are recognized in the same period as the related
revenue.
<PAGE>
- 2 -
d. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Expenditures for maintenance,
repairs, and minor renewals are expensed as incurred. Major renewals that
significantly extend service lives are capitalized. Upon sale or other
disposition of the assets, the cost and related accumulated depreciation or
amortization are removed from the accounts and the resulting gain or loss,
if any, is included in operations.
Property and equipment is depreciated on a straight-line basis over the
estimated useful life of the asset as follows:
Machinery and equipment 2 to 12 years
Leasehold improvements lesser of 5 years or lease term
e. INCOME TAXES
Pima Gro Systems, Inc. has elected to be taxed as a S corporation for
federal tax purposes and is taxed as a regular corporation for California
tax purposes. Pima Gro Systems 2, Inc. has elected to be taxed as a S
corporation for both Federal and Arizona tax purposes. Under the S
corporation election, profits and losses are passed through and included in
the individual tax returns of the stockholders. The provision for taxes
represents the California Franchise Tax applicable to Pima Gro Systems,
Inc.
The Company accounts for income taxes using the liability method as
prescribed by the Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." SFAS No. 109 prescribes the use of the
liability method to compute the differences between the tax basis of assets
and liabilities and the related financial amounts using currently enacted
tax laws and rates.
f. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. NOTE RECEIVABLE FROM STOCKHOLDER
The note receivable from stockholder is due on demand. The note is unsecured
and non-interest bearing.
3. REVOLVING LINE OF CREDIT
The Company's revolving line of credit agreement provides for a total commitment
of up to $1,250,000 and expires on July 1, 1996. Borrowings under the line of
credit bear interest at the bank's reference rate (8.5 percent at December 31,
1995) plus one percent and are secured by substantially all of the Company's
assets.
The Company's line of credit agreement contains certain financial covenants
which require the Company, among other things, to maintain a specified level of
tangible net worth, debt to tangible net worth, and debt service coverage.
<PAGE>
- 3 -
4. LONG-TERM DEBT
As of December 31, 1995 and 1994, long-term debt consists of the following:
1995 1994
---------- ----------
Installment loans payable to financial
institutions, interest at rates between
7.17 to 9.65 percent, aggregate average
monthly principal payments of $46,312 and
maturities between February 1996 and
November 2000, secured by certain property
and equipment $1,286,780 $1,062,339
Capitalized lease obligations, interest at
rates between 10 and 11.5 percent, aggregate
monthly principal and interest payments of
$31,096, maturities between June 1996 and
March 1999, secured by certain property and
equipment 393,859 644,706
---------- ----------
1,680,639 1,707,045
Less--Current portion 762,629 674,992
---------- ----------
$ 918,010 $1,032,053
========== ==========
Estimated principal maturities of long-term debt outstanding at December 31,
1995 are as follows:
1996 $ 532,610
1997 331,566
1998 242,460
1999 99,080
2000 81,064
----------
$1,286,780
==========
Future minimum lease payments under capitalized leases at December 31, 1995 are
as follows:
1996 $260,038
1997 138,358
1998 38,357
1999 8,508
--------
445,261
Less--interest 51,402
--------
$393,859
========
<PAGE>
- 4 -
5. INCOME TAXES
The Company's provision for state of California income taxes consists of the
following at December 31, 1995 and 1994:
1995 1994
------- -------
Current $ 800 $ 800
Deferred 48,709 10,200
------- -------
$49,509 $11,000
======= =======
The cumulative temporary differences comprising the net deferred state tax
liability are as follows:
December 31,
------------------------
1995 1994
--------- ---------
Depreciation $(145,706) $(127,106)
NOL carryover 26,704 52,247
Accruals and other 12,838 17,404
--------- ---------
Net deferred tax liability $(106,164) $ (57,455)
========= =========
The Company has California net operating loss carryforwards as of December 31,
1995 of approximately $246,000 expiring through 2008.
6. COMMITMENTS AND CONTINGENCIES
The Company leases its office and operating facilities under noncancelable
operating leases. Subsequent to year end, the Company entered into an agreement
to lease new office and operating facilities. The term of the new lease is four
years and the related future minimum lease payments have been reflected in the
analysis below. Rent expense for the years ended December 31, 1995 and 1994,
was $140,148 and $96,659, respectively. Future minimum lease payments as of
December 31, 1995 under operating leases are as follows:
1996 $104,133
1997 51,168
1998 58,168
1999 59,568
2000 17,640
--------
$290,677
========
<PAGE>
- 5 -
In the normal course of doing business, the Company occasionally becomes a party
to litigation. In the opinion of management, the disposition of all pending
litigation involving the Company will have no adverse material effect upon its
financial condition and results of operations.
7. RELATED PARTY TRANSACTIONS
Purchased services from Company stockholders and other entities owned by the
stockholders were $108,000 in 1995 and $256,314 in 1994.
8. SITE DEVELOPMENT COST
Site development cost relates to the development of a biosolids processing
location in California. The site is in the pre-development phase and the costs
relate primarily to engineering, planning and the preparation of information
required by governmental entities prior to the issuance of operating permits.
Management expects the site to become operational in the last quarter of 1996.
9. SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash payments during the years 1995 and 1994 included interest of $241,340 and
$150,037, respectively, and income taxes of $800 for each year.
During 1995, the Company entered into a capital lease for equipment totaling
$122,339.
<PAGE>
Synagro Technologies, Inc. and Subsidiaries
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidated balance sheet and statement of
operations of Synagro Technologies, Inc. and Subsidiaries give effect to the
following transaction: The acquisition of all of the common stock of Pima Gro
Systems, Inc. and Pima Gro Systems 2, Inc. (collectively, "Pima Gro") (effective
July 1, 1996). The unaudited pro forma information is based on the historical
financial statements of Synagro and Pima Gro giving effect to the aforementioned
transactions under the purchase method of accounting and the assumptions and
adjustments in the accompanying notes to the unaudited pro forma financial
statements.
The final allocations of the purchase price has not been determined.
Accordingly, the amounts reflected in the unaudited pro forma financial
statements may differ from the amounts that would have been determined if the
final purchase price allocation had been known.
The unaudited pro forma consolidated balance sheet as of June 30, 1996 and
December 31, 1995 gives effect to the acquisition of Pima Gro as if it had been
consummated on January 1, 1995.
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 1995 and the six months ended June 30, 1996 gives effect to the
acquisition of Pima Gro as if it had occurred January 1, 1995.
The unaudited pro forma consolidated financial statements are not necessarily
indicative of operating results which would have been achieved had the
acquisitions been consummated as of the beginning of the year and should not be
construed as representative of the future operating results. The unaudited pro
forma consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes of Synagro at December 31, 1995.
<PAGE>
Synagro Technologies, Inc.
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------
Synagro Pima Gro Adjustments
Technologies, Inc. Systems, Inc Increase Pro-forma
(Synagro) (Pima Gro) (Decrease) Combined
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Current assets
Cash $2,688,000 $4,000 ($1,277,000) (a) $1,415,000
Certificates of deposit 1,016,000 1,016,000
Restricted cash, current portion 80,000 80,000
Accounts receivable 1,724,000 1,086,000 2,810,000
Inventories 449,000 449,000
Other current assets 725,000 214,000 939,000
----------------------------------------------- --------------
Total current assets 6,682,000 1,304,000 (1,277,000) 6,709,000
Property, machinery and equipment 7,348,000 3,588,000 500,000 (a) 11,436,000
Agency rights 1,178,000 1,178,000
Cost in excess of fair value of net assets acquired 4,060,000 1,512,000 (a) 5,572,000
Restricted cash 260,000 260,000
Machinery and equipment held for sale 605,000 605,000
Deposits and Other 79,000 378,000 457,000
----------------------------------------------- --------------
$20,212,000 $5,270,000 $735,000 $26,217,000
----------------------------------------------- --------------
----------------------------------------------- --------------
Current liabilities
Current portion of long-term debt $2,024,000 $763,000 $2,787,000
Notes Payable 220,000 499,000 719,000
Current portion of notes payable-related parties 490,000 490,000
Accounts payable and accrued expenses 1,872,000 985,000 2,857,000
Checks issued but not presented 52,000 52,000
Accrued interest 186,000 186,000
----------------------------------------------- --------------
Total current liabilities 4,792,000 2,299,000 0 7,091,000
Long-term debt 4,448,000 918,000 1,596,000 (a) 6,962,000
Deferred income taxes 106,000 969,000 (a)
(106,000) (a) 969,000
Stockholders' equity 10,972,000 1,947,000 (1,947,000) (a)
223,000 (a) 11,195,000
----------------------------------------------- --------------
$20,212,000 $5,270,000 $735,000 $26,217,000
----------------------------------------------- --------------
----------------------------------------------- --------------
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE>
Synagro Technologies, Inc.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------- Pro Forma
Synagro Pima Gro Adjustments
Technologies, Inc. Systems, Inc Increase Pro Forma
(Synagro) (Pima Gro) (Decrease) Combined
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $17,976,000 $8,548,000 $0 $26,524,000
Cost of goods sold 15,118,000 6,468,000 71,000 (A) 21,657,000
--------------------------------------------------- ----------
Gross profit 2,858,000 2,080,000 (71,000) 4,867,000
Selling, general and administrative 3,588,000 1,449,000 (89,000) (C) 4,948,000
Amortization of goodwill 246,000 76,000 (B) 322,000
--------------------------------------------------- ----------
Income(loss) from operations (976,000) 631,000 (58,000) (403,000)
Other income(expense) (3,577,000) (202,000) (128,000) (D) (3,907,000)
--------------------------------------------------- ----------
Net income(loss) from operations before,
provision for income taxes (4,553,000) 429,000 (186,000) (4,310,000)
Provision for income taxes 49,000 49,000
--------------------------------------------------- ----------
Net income(loss) ($4,553,000) $380,000 ($186,000) ($4,359,000)
--------------------------------------------------- ----------
--------------------------------------------------- ----------
Net loss per common share ($1.59) ($1.44)
----------------------- ----------
----------------------- ----------
Weighted average common
shares outstanding 2,864,000 3,019,000
----------------------- ---------
----------------------- ---------
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE>
Synagro Technologies, Inc. and Subsidiaries
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following notes set forth an explanation of the assumptions used in
preparing the unaudited pro forma consolidated balance sheet and statement of
operations.
ADJUSTMENTS TO DECEMBER 31, 1995 BALANCE SHEET
<TABLE>
<S> <C>
(a) Purchase of Pima Gro
Cash paid $ 1,277,000
Notes payable to sellers 1,596,000
Issuance of common stock 223,000
---------------
Total purchase price 3,096,000
Net assets acquired (1,947,000)
Additional amount allocated to machinery and equipment (500,000)
Elimination of deferred taxes (106,000)
Deferred income taxes arising from purchase accounting 969,000
---------------
Cost in excess of fair value of net assets acquired $ 1,512,000
---------------
---------------
</TABLE>
ADJUSTMENTS TO THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
(A) To reflect the recalculation of depreciation expense for machinery and
equipment acquired in the acquisition.
(B) To reflect a full year of amortization of cost in excess fair value of net
assets acquired over 20 years.
(C) To reflect the change in officers salaries for amounts owed under
employment agreements which are less than actually paid.
(D) To reflect interest on the notes payable to the sellers of the acquired
companies.
(E) Net loss per share is based upon the weighted average number of common
shares outstanding, adjusted for the number of shares necessary to complete
the purchase as if it had occurred at January 1, 1995.
<PAGE>
Synagro Technologies, Inc.
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------------------- Pro Forma
Synagro Pima Gro Adjustments
Technologies, Inc. Systems, Inc Increase Pro-forma
(Synagro) (Pima Gro) (Decrease) Combined
------- -------- -------- --------
<S> <C> <C> <C> <C>
Current assets
Cash $2,266,000 $4,000 ($1,277,000) (a) $993,000
Restricted cash, current portion 80,000 80,000
Accounts receivable 2,048,000 1,034,000 3,082,000
Note receivable 621,000 80,000 701,000
Inventories 451,000 451,000
Other current assets 435,000 275,000 710,000
------------------------------------------------- -----------
Total current assets 5,901,000 1,393,000 (1,277,000) 6,017,000
Property, machinery and equipment 6,889,000 3,508,000 500,000 (a) 10,897,000
Agency rights 1,160,000 1,160,000
Cost in excess of fair value of net assets acquired 3,944,000 1,389,000 (a) 5,333,000
Restricted cash 297,000 297,000
Deposits and Other 73,000 394,000 467,000
------------------------------------------------- -----------
$18,264,000 $5,295,000 $612,000 $24,171,000
------------------------------------------------- -----------
------------------------------------------------- -----------
Current liabilities
Current portion of long-term debt $1,881,000 $639,000 $2,520,000
Notes Payable 380,000 699,000 1,079,000
Current portion of notes payable-related parties 125,000 125,000
Accounts payable and accrued expenses 1,086,000 757,000 1,843,000
Checks issued but not presented 142,000 142,000
------------------------------------------------- -----------
Total current liabilities 3,472,000 2,237,000 0 5,709,000
Long-term debt 3,304,000 882,000 1,596,000 (a) 5,782,000
Deferred income taxes 106,000 969,000 (a)
(106,000) (a) 969,000
11,488,000 2,070,000 223,000 (a)
Stockholders' equity (2,070,000) (a) 11,711,000
------------------------------------------------- -----------
$18,264,000 $5,295,000 $612,000 $24,171,000
------------------------------------------------- -----------
------------------------------------------------- -----------
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE>
Synagro Technologies, Inc.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------------------------- Pro Forma
Synagro Pima Gro Adjustments
Technologies, Inc. Systems, Inc Increase Pro Forma
(Synagro) (Pima Gro) (Decrease) Combined
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $8,491,000 $4,175,000 $12,666,000
Cost of goods sold 6,802,000 3,190,000 36,000 (A) 10,028,000
------------------------------------------------- --------------
Gross profit 1,689,000 985,000 (36,000) 2,638,000
Selling, general and administrative 1,304,000 866,000 (38,000) (C) 2,132,000
Amortization of cost in excess of fair value acquired 116,000 35,000 (B) 151,000
------------------------------------------------- --------------
Income from operations 269,000 119,000 (33,000) 355,000
Other income(expense) 57,000 (76,000) (64,000) (D) (83,000)
------------------------------------------------- --------------
Net income from operations before,
provision for income taxes 326,000 43,000 (97,000) 272,000
Provision for income taxes 1,000 1,000
------------------------------------------------- --------------
Net income $326,000 $42,000 ($97,000) $271,000
------------------------------------------------- --------------
------------------------------------------------- --------------
Net income per common share $0.05 $0.04
------------------- --------------
------------------- --------------
Weighted average common
shares outstanding 6,194,000 6,349,000
------------------- --------------
------------------- --------------
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE>
Synagro Technologies, Inc. and Subsidiaries
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following notes set forth an explanation of the assumptions used in
preparing the unaudited pro forma consolidated balance sheet and statement of
operations.
ADJUSTMENTS TO JUNE 30, 1996 BALANCE SHEET
<TABLE>
<S> <C>
(a) Purchase of Pima Gro
Cash paid $ 1,277,000
Notes payable to sellers 1,596,000
Issuance of common stock 223,000
-------------
Total purchase price 3,096,000
Net assets acquired (2,070,000)
Additional amount allocated to machinery and equipment (500,000)
Elimination of deferred taxes (106,000)
Deferred income taxes arising from purchase accounting 969,000
-------------
Cost in excess of fair value of net assets acquired $ 1,389,000
-------------
-------------
</TABLE>
ADJUSTMENTS TO THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1996
(A) To reflect the recalculation of depreciation expense for machinery and
equipment acquired in the acquisition.
(B) To reflect a full year of amortization of cost in excess fair value of net
assets acquired over 20 years.
(C) To reflect the change in officers salaries for amounts owed under
employment agreements which are less than actually paid.
(D) To reflect interest on the notes payable to the sellers of the acquired
companies.
(E) Net income per share is based upon the weighted average number of common
shares outstanding, adjusted for the number of shares necessary to complete
the purchase as if it had occurred at January 1, 1995.
<PAGE>
AGREEMENT FOR THE PURCHASE OF STOCK
by and among
SYNAGRO TECHNOLOGIES, INC.
a Nevada corporation
and
CDR ENVIRONMENTAL, INC.
a Texas corporation
and
PIMA GRO SYSTEMS, INC.
an Arizona corporation
and
PIMA GRO SYSTEMS 2, INC.
an Arizona corporation
and
WILSON NOLAN, an individual, HERBERT KAI,
an individual and JOHN KAI, JR., an individual
Dated: July 18, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 Organization. . . . . . . . . . . . . . . . . . . . . . .2
Section 1.2 Capitalization. . . . . . . . . . . . . . . . . . . . . .2
Section 1.3 Subsidiaries and Predecessor Corporations . . . . . . . .2
Section 1.4 Options and Warrants. . . . . . . . . . . . . . . . . . .2
Section 1.5 Binding Obligation; No Default. . . . . . . . . . . . . .3
Section 1.6 Compliance with Other Instruments, etc. . . . . . . . . .3
Section 1.7 Consents. . . . . . . . . . . . . . . . . . . . . . . . .3
Section 1.8 Books and Records . . . . . . . . . . . . . . . . . . . .3
Section 1.9 Financial Statements. . . . . . . . . . . . . . . . . . .4
Section 1.10 No Undisclosed Liabilities. . . . . . . . . . . . . . . .4
Section 1.11 Absence of Certain Changes. . . . . . . . . . . . . . . .4
Section 1.12 Plant and Equipment.. . . . . . . . . . . . . . . . . . .6
Section 1.13 Leases. . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 1.14 Tax Returns.. . . . . . . . . . . . . . . . . . . . . . .7
Section 1.15 Transactions with Affiliates. . . . . . . . . . . . . . .8
Section 1.16 Contracts and Commitments.. . . . . . . . . . . . . . . .8
Section 1.17 Compliance with Contracts; Delivery
of Certain Contracts . . . . . . . . . . . . . . . 10
Section 1.18 Insurance.. . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.19 Labor Difficulties. . . . . . . . . . . . . . . . . . . 10
Section 1.20 Litigation. . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.21 No Condemnation or Expropriation. . . . . . . . . . . . 12
Section 1.22 Compliance with Law.. . . . . . . . . . . . . . . . . . 12
Section 1.23 Permits.. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.24 Environmental Compliance. . . . . . . . . . . . . . . . 13
Section 1.25 Employee Benefits.. . . . . . . . . . . . . . . . . . . 15
Section 1.26 Absence of Questionable Payments. . . . . . . . . . . . 17
Section 1.27 Personnel.. . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.28 Real Property Holding Corporation.. . . . . . . . . . . 17
Section 1.29 Accuracy of Information Furnished . . . . . . . . . . . 17
Section 1.30 Title to Patents and Trade Names. . . . . . . . . . . . 17
Section 1.31 Real Properties.. . . . . . . . . . . . . . . . . . . . 19
Section 1.32 Title and Related Matters.. . . . . . . . . . . . . . . 19
Section 1.33 Title to the Exchanged Pima Gro Stock.. . . . . . . . . 19
Section 1.34 Securities Warranties.. . . . . . . . . . . . . . . . . 20
Section 1.35 Pima Gro Schedules. . . . . . . . . . . . . . . . . . . 21
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.1 Organization. . . . . . . . . . . . . . . . . . . . . . 21
Section 2.2 Capitalization. . . . . . . . . . . . . . . . . . . . . 22
i
<PAGE>
Section 2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . 22
Section 2.4 Binding Obligation; No Default. . . . . . . . . . . . . 22
Section 2.5 Compliance with Other Instruments, etc. . . . . . . . . 22
Section 2.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.7 Books and Records.. . . . . . . . . . . . . . . . . . . 23
Section 2.8 Financial Statements. . . . . . . . . . . . . . . . . . 23
Section 2.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.10 Compliance with Law.. . . . . . . . . . . . . . . . . . 24
Section 2.11 Title to the Exchanged Synagro Stock and the Additional
Exchanged Synagro Stock. . . . . . . . . . . . . . 24
Section 2.12 Compliance With Exchange Act.. . . . . . . . . . . 24
Section 2.13 Purchasers' Schedules. . . . . . . . . . . . . . . 25
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.1 Amount and Method of Payment of Purchase Price. . . . . 25
Section 3.2 Security Interest.. . . . . . . . . . . . . . . . . . . 26
Section 3.3 Additional Security.. . . . . . . . . . . . . . . . . . 26
Section 3.4 Payment of Contingent Sum.. . . . . . . . . . . . . . . 26
Section 3.5 Purchase Price Adjustment.. . . . . . . . . . . . . . . 30
Section 3.6 Release of Pima Gro Shareholders'
Personal Guarantees. . . . . . . . . . . . . . . . 32
Section 3.7 Closing.. . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.8 Closing Events. . . . . . . . . . . . . . . . . . . . . 33
Section 3.9 Termination.. . . . . . . . . . . . . . . . . . . . . . 33
Section 3.10 Directors and Officers of
the Target Corporations. . . . . . . . . . . . . . 34
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.1 Access to Properties and Records. . . . . . . . . . . . 35
Section 4.2 Availability of Rule 144. . . . . . . . . . . . . . . . 35
Section 4.3 Information for Purchasers Public Reports.. . . . . . . 36
Section 4.4 Special Covenants and Representations
Regarding the Combined Exchanged
Synagro Stock. . . . . . . . . . . . . . . . . . . 36
Section 4.5 Third Party Consents. . . . . . . . . . . . . . . . . . 36
Section 4.6 Actions Prior to Closing. . . . . . . . . . . . . . . . 36
Section 4.7 Survival of Representations, Warranties
and Covenants. . . . . . . . . . . . . . . . . . . 38
Section 4.8 Indemnification.. . . . . . . . . . . . . . . . . . . . 38
Section 4.9 Notice of Indemnification.. . . . . . . . . . . . . . . 41
Section 4.10 Indemnification Procedure for Third-Party Claims. . . . 42
Section 4.11 Indemnification Payments. . . . . . . . . . . . . . . . 43
ii
<PAGE>
Section 4.12 Notices of Certain Events . . . . . . . . . . . . . . . 43
Section 4.13 Grant of Proxy. . . . . . . . . . . . . . . . . . . . . 44
Section 4.14 Non-competition by the Pima Gro Shareholders. . . . . . 44
Section 4.15 Termination of Agreements . . . . . . . . . . . . . . . 44
Section 4.16 Tax Treatment Related to Acquisition
of the Exchanged Pima Gro Stock. . . . . . . . . . 45
Section 4.17 Refinancing Covenant. . . . . . . . . . . . . . . . . . 45
Section 4.18 Monies Owed by or Owing to the Target
Corporations to or from the Pima Gro
Shareholders . . . . . . . . . . . . . . . . . . . 45
ARTICLE V . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.1 Accuracy of Representations.. . . . . . . . . . . . . . 45
Section 5.2 Officer's Certificate.. . . . . . . . . . . . . . . . . 46
Section 5.3 No Material Adverse Change. . . . . . . . . . . . . . . 46
Section 5.4 Opinion of Counsel to the Target Corporations.. . . . . 46
Section 5.5 Other Items.. . . . . . . . . . . . . . . . . . . . . . 48
Section 5.6 Employment Agreement for Wilson Nolan.. . . . . . . . . 48
Section 5.7 Franchise Tax Board Clearance.. . . . . . . . . . . . . 48
Section 5.8 Employment Development Department Release.. . . . . . . 48
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 6.1 Accuracy of Representations.. . . . . . . . . . . . . . 49
Section 6.2 Officer's Certificate . . . . . . . . . . . . . . . . . 49
Section 6.3 No Material Adverse Change. . . . . . . . . . . . . . . 49
Section 6.4 Opinion of Counsel to Purchasers. . . . . . . . . . . . 49
Section 6.5 Other Items . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.1 Brokers and Finders . . . . . . . . . . . . . . . . . . 51
Section 7.2 Law, Forum and Jurisdiction . . . . . . . . . . . . . . 51
Section 7.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.4 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . 52
Section 7.5 Confidentiality . . . . . . . . . . . . . . . . . . . . 53
Section 7.6 Schedules; Knowledge. . . . . . . . . . . . . . . . . . 53
Section 7.7 Third Party Beneficiaries . . . . . . . . . . . . . . . 53
Section 7.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . 53
Section 7.9 Survival; Termination . . . . . . . . . . . . . . . . . 53
iii
<PAGE>
Section 7.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . 53
Section 7.11 Amendment or Waiver . . . . . . . . . . . . . . . . . . 53
Section 7.12 Incorporation of Recitals . . . . . . . . . . . . . . . 54
Section 7.13 Expenses. . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.14 Headings; Context . . . . . . . . . . . . . . . . . . . 54
Section 7.15 Public Announcements. . . . . . . . . . . . . . . . . . 54
Section 7.16 Severability. . . . . . . . . . . . . . . . . . . . . . 54
Section 7.17 Failure of Conditions; Termination. . . . . . . . . . . 54
Section 7.18 No Strict Construction. . . . . . . . . . . . . . . . . 54
Section 7.19 Execution Knowing and Voluntary . . . . . . . . . . . . 54
Section 7.20 Assignment. . . . . . . . . . . . . . . . . . . . . . . 55
iv
<PAGE>
AGREEMENT FOR THE PURCHASE AND SALE OF STOCK
THIS AGREEMENT FOR THE PURCHASE AND SALE OF STOCK (hereinafter referred to
as the "Agreement"), is made and entered into as of July 18, 1996, by and among
Synagro Technologies, Inc., a Nevada corporation ("Synagro"), and CDR
Environmental, Inc., a Texas corporation ("CDR") on the one hand (collectively,
"Purchasers") and Pima Gro Systems, Inc., an Arizona corporation ("Pima Gro"),
and Pima Gro Systems 2, Inc. an Arizona corporation ("Pima Gro 2")
(collectively, the "Target Corporations") and each of the Pima Gro shareholders
(the "Pima Gro Shareholders") listed on the signature page hereto, on the other
hand;
Premises
WHEREAS, the Target Corporations own and operate a business which is
engaged in the business of recycling biosolids and which hauls and processes
soil amendments together with attendant activities (collectively, the
"Business");
WHEREAS, CDR is a wholly-owned subsidiary of Synagro;
WHEREAS, Purchasers desire to purchase the assets of the Business;
WHEREAS, the Pima Gro Shareholders have requested that Purchasers, and
Purchasers have agreed to, purchase the shares of the common stock of Pima Gro
and Pima Gro 2 from the Pima Gro Shareholders, which shares represent one
hundred percent (100%) of the equity securities of Pima Gro and Pima Gro 2 that
are issued and outstanding as of the Closing Date (as defined below), in lieu of
acquiring the assets of the Business; and
WHEREAS, Purchasers desire that CDR acquire from the Pima Gro Shareholders
their shares of common stock of Pima Gro and Pima Gro 2, representing one
hundred percent (100%) of the equity securities of Pima Gro and Pima Gro 2, in
exchange for the consideration referred to herein;
AGREEMENT
NOW, THEREFORE, in consideration of the agreements hereto, it is
hereby agreed as follows:
ARTICLE I
REPRESENTATIONS, COVENANTS AND WARRANTIES OF
THE TARGET CORPORATIONS AND THE PIMA GRO SHAREHOLDERS
The Target Corporations and the Pima Gro Shareholders represent and warrant
as set forth in this Article I, as follows:
1
<PAGE>
Section 1.1 ORGANIZATION. Each of the Target Corporations is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Arizona, and each such corporation has the corporate power and
is duly authorized, qualified, franchised and licensed under all applicable
laws, regulations, ordinances and orders of public authorities to own all of its
properties and assets and to carry on its Business in all material respects as
it is now being conducted, including qualification to do business as a foreign
corporation in the states in which the character and location of the assets
owned by it, or the nature of the Business, requires qualification. Included in
the Pima Gro Schedules (as defined below) are complete and correct copies of the
articles of incorporation and bylaws of the Target Corporations as in effect on
the date hereof. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement in accordance
with the terms hereof will not, violate any provision of the articles of
incorporation or bylaws of Pima Gro and Pima Gro 2. Each of the Target
Corporations has taken all actions required by law, its articles of
incorporation, its bylaws or otherwise to authorize the execution and delivery
of this Agreement. Each of the Target Corporations has full power, authority
and legal right and has taken all action required by law, its articles of
incorporation, bylaws and otherwise to consummate the transactions herein
contemplated.
Section 1.2 CAPITALIZATION. The authorized capitalization of Pima Gro and
Pima Gro 2 consists of 1,000,000 shares of common stock, $0.01 par value and
1,000,000 shares of common stock, $0.01 par value, respectively. As of the
Closing Date, there are nineteen thousand twenty (19,020) shares of Pima Gro
common stock and three hundred (300) shares of Pima Gro 2 common stock,
respectively, issued and outstanding, which represent one hundred percent (100%)
of the issued and outstanding shares of the Target Corporations common stock
(collectively, the "Exchanged Pima Gro Stock"). All of the issued and
outstanding shares of the Target Corporations are legally issued, fully paid and
nonassessable, and are not issued in violation of the preemptive or other rights
of any person. None of the Exchanged Pima Gro Stock is held by the Target
Corporations as treasury stock. All of the shares of the Target Corporations
owned, beneficially and of record, are owned free and clear of any liens or
encumbrances, by each of the Pima Gro Shareholders and constitute one hundred
percent (100%) of the issued and outstanding shares of capital stock of the
Target Corporations.
Section 1.3 SUBSIDIARIES AND PREDECESSOR CORPORATIONS. The Target
Corporations do not have any subsidiaries and do not own, beneficially or of
record, any shares of any other corporation.
Section 1.4 OPTIONS AND WARRANTS. There are no outstanding: (a)
securities convertible into or exchangeable for any capital stock of the Target
Corporations; or (b) options, warrants, calls or other rights (including rights
to demand registration or to sell in connection with any registration by the
Target Corporations under the Securities Act of 1933, as amended (the
"Securities Act")) to purchase or subscribe to capital stock of the Target
Corporations or securities convertible into or exchangeable for capital stock of
the
2
<PAGE>
Target Corporations. Neither the Target Corporations nor the Pima Gro
Shareholders are parties to any voting trust agreement or other contract,
agreement, arrangement, commitment, plan or understanding restricting or
otherwise relating to voting or dividend rights with respect to the common stock
of the Target Corporations.
Section 1.5 BINDING OBLIGATION; NO DEFAULT. Each of the Target
Corporations has duly taken all action necessary to authorize the execution,
delivery and performance of this Agreement and the other instruments and
agreements contemplated hereby. Such execution, delivery and performance does
not and will not, to the best of the knowledge of the Target Corporations,
constitute a default under or a violation of any agreement, order, award,
judgment, decree, statute, law, rule, regulation or any other instrument to
which the Target Corporations are a party or by which the Target Corporations or
the property of the Target Corporations may be bound or may be subject. This
Agreement constitutes the legal, valid and binding obligation of the Target
Corporations and the Pima Gro Shareholders, enforceable against the Target
Corporations and the Pima Gro Shareholders in accordance with its terms.
Section 1.6 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the execution
and delivery of this Agreement by the Target Corporations and the Pima Gro
Shareholders, nor compliance by the Target Corporations or the Pima Gro
Shareholders with the terms and conditions of this Agreement will: (a) require
the Target Corporations and the Pima Gro Shareholders to obtain the consent of
any governmental agency; (b) constitute a material default under any indenture,
mortgage or deed of trust to which the Target Corporations or the Pima Gro
Shareholders are a party or by which the Target Corporations and the Pima Gro
Shareholders or their properties may be subject; (c) cause the creation or
imposition of any lien, charge or encumbrance on any of their assets; or (d)
breach any statute or regulation of any governmental authority, domestic or
foreign, or will on the Closing Date conflict with or result in a breach of any
of the terms or conditions of any judgment, order, injunction, decree or ruling
of any court or governmental authority, domestic or foreign, to which the Target
Corporations are subject.
Section 1.7 CONSENTS. Except as provided in Schedule 1.7, no consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority or any third party is required to be made
or obtained by the Target Corporations or the Pima Gro Shareholders in
connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
Section 1.8 BOOKS AND RECORDS. The books of account and other financial
records of the Target Corporations are complete and correct in all material
aspects. The minute books of the Target Corporations, as previously made
available to Purchasers and their legal counsel, contain records of all meetings
and accurately reflect all other material corporate action of the stockholders,
directors and any committees of the Boards of Directors of the Target
Corporations.
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Section 1.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 1.9 are true
and complete copies of the audited financial statements of Pima Gro and Pima Gro
2, including the audited consolidated balance sheets of Pima Gro and Pima Gro 2
as of December 31, 1995, 1994 and 1993, respectively, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended (the "Pima Gro Audited Financial Statements"). The Pima
Gro Audited Financial Statements, together with the notes thereto, fairly
present the financial position of Pima Gro and Pima Gro 2 at the dates thereof
and the combined results of the operations and the changes in stockholders'
equity and cash flows for Pima Gro and Pima Gro 2 for the periods covered by
such Pima Gro Audited Financial Statements, and have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied with
prior periods, except as indicated in the accompanying opinion of the
independent auditors. Pima Gro and Pima Gro 2 have furnished to Purchasers true
and complete copies of its unaudited consolidated statement of assets,
liabilities and equity-income tax basis of Pima Gro and Pima Gro 2, as of June
30, 1996 and 1995, and the related consolidated statement of retained earnings
for the six (6) month periods then ended (collectively, the "Pima Gro Unaudited
Financial Statements"). The Pima Gro Unaudited Financial Statements fairly
present the financial position of Pima Gro and Pima Gro 2 at the date of, and
the results of the operations and the changes in stockholders' equity and cash
flows for Pima Gro and Pima Gro 2 for the periods then ended. The Pima Gro
Unaudited Financial Statements have been prepared in accordance with Statements
on Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants, and have been prepared on the accounting basis
used by Pima Gro and Pima Gro 2 for income tax purposes. (The Pima Gro Audited
Financial Statements and the Pima Gro Unaudited Financial Statements are
collectively referred to herein as the "Pima Gro Financial Statements.") John
Kai, Jr. and Herbert Kai are not providing the representation and warranties set
forth in this Section 1.9.
Section 1.10 NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule
1.10 hereto, the Target Corporations do not have any material liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) which
were not adequately reflected or reserved against on the Pima Gro Audited
Financial Statements, except for liabilities and obligations incurred since
December 31, 1995 in the ordinary course of the Business and consistent with
past practices and which, in any event, in the aggregate, would not have a
Material Adverse Effect, as defined in Section 1.11(a).
Section 1.11 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set
forth on Schedule 1.11 hereto or except as otherwise expressly contemplated
hereby, during the period between December 31, 1995 and the Closing Date, the
Target Corporations have not:
(a) Suffered any material adverse change in their financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise), or reserves
which, in the aggregate, amount to $25,000 or more, and no event has occurred
and no action has been taken by
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the Target Corporations or, to the best knowledge of the Target Corporations,
any other person, nor is any such event or action contemplated or, to the best
knowledge of the Target Corporations, threatened, which might reasonably be
expected to have a material adverse effect on the assets, operations or
conditions (financial or otherwise) of the Business ("Material Adverse Effect").
In all places in this Agreement where the term "material," whether capitalized
or not, is used in an economic context, it shall mean Material Adverse Effect.
(b) Suffered any Material (as defined below) adverse change in the
Business, operations or prospects;
(c) Experienced any shortage of raw materials or supplies;
(d) Incurred any short-term or long-term liabilities or obligations
(absolute, accrued, contingent or otherwise) except items incurred in the
ordinary course of business and consistent with past practice, none of such
short-term or long-term liabilities or obligations exceeds $2,500 individually,
or $10,000 in the aggregate (counting obligations or liabilities arising from
one transaction or a series of similar transactions, and all periodic
installments or payments under any lease or other agreement providing for
periodic installments or payments, as a single obligation or liability), or
increased or changed any assumptions underlying or method of calculating any bad
debt, contingency or other reserves;
(e) Paid, discharged or satisfied any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise) other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities and obligations reflected or reserved against in the
Pima Gro Financial Statements or incurred in the ordinary course of business and
consistent with past practice since the date of the Pima Gro Financial
Statements;
(f) Permitted or allowed any of their property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind;
(g) Written down the value of any inventory in excess of $2,500 (including
write-downs by reason of shrinkage or markdown) or written down or written off
as uncollectible any notes or accounts receivable in excess of $10,000;
(h) Canceled any debts or waived any claims or rights in excess of
$10,000;
(i) Sold, transferred or otherwise disposed of any of their properties or
Assets in excess of $10,000 (real, personal or mixed, tangible or intangible);
(j) Disposed of or permitted to lapse any rights to the use of any Patent
or Trade Name (as defined below) necessary to permit the Target Corporations to
conduct
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the Business or develop their products, or dispose of or disclose to any person,
other than representatives of Purchasers, any Proprietary Information or
Technical Information (as defined below) not theretofore a matter of public
knowledge necessary to permit the Target Corporations to conduct the Business or
develop their products;
(k) Granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) other than in the ordinary course of
business and consistent with past practice, or any increase in the compensation
(including, without limitation, salary and bonus) payable or to become payable
to any officer or key employee;
(l) Made any single capital expenditure or commitment in excess of $10,000
for additions to property, plant, equipment or intangible capital assets or made
aggregate capital expenditures and commitments in excess of $30,000 for
additions to property, plant, equipment or intangible capital assets;
(m) Declared, paid or set aside for payment any dividend or other
distribution in respect of their capital stock or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of capital stock or other
securities of the Target Corporations;
(n) Made any change in any method of accounting or accounting practice;
(o) Paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets (real, personal or mixed, tangible or intangible) to,
or entered into any agreement or arrangement with, any "Affiliate" or
"Associate" of the Target Corporations as such terms are defined in Rule 405
promulgated by the Securities and Exchange Commission (the "Commission") under
the Securities Act, or any officer, director or stockholder of the Target
Corporations (collectively, "Affiliates" or individually, an "Affiliate");
(p) Made any gifts, or sold, transferred or exchanged any property of any
material value for less than the fair value thereof;
(q) Suffered any material casualty loss or damage (whether or not covered
by insurance); or
(r) Agreed, whether in writing or otherwise, to take any action described
in this Section 1.11.
Section 1.12 PLANT AND EQUIPMENT. The material plants, buildings,
fixtures, structures and equipment owned, leased or used by the Target
Corporations (the "Target Corporations Assets") are in good operating condition
and repair, ordinary wear and tear excepted, and are adequate for the uses to
which they are being put. Included in Schedule 1.12 hereto is an accurate and
complete list of all of the fixed assets of the Target Corporations with a value
in excess of $1,000.
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Section 1.13 LEASES. Schedule 1.13 hereto is an accurate and complete
list of all leases pursuant to which the Target Corporations lease real property
or any material item of personal property. A true and correct copy of each such
lease has been delivered to Purchasers, and no changes have been made thereto
since the date of delivery. Except as set forth in Schedule 1.13 hereto, each
such lease is valid and in full force and effect, there are no existing material
defaults by the Target Corporations thereunder, and, to the best knowledge of
the Target Corporations, no event has occurred which (with notice, lapse of time
or both) would constitute a default thereunder by any party. To the best of the
Target Corporations knowledge, except as set forth on Schedule 1.13 hereto,
each of the Target Corporations is presently in compliance in all material
respects with all laws, rules, regulations and ordinances relating to zoning and
land use restrictions which are applicable to any portion of the land subject to
the real property leases set forth in Schedule 1.13 hereto. Except as set forth
on Schedule 1.13 hereto, no consent is required from the lessor under any lease
of real or personal property listed on Schedule 1.13 prior to the consummation
of the transactions contemplated hereby.
Section 1.14 TAX RETURNS. Schedule 1.14 hereto are true and correct
copies of the Corporate Income Tax Returns and Statements (as defined below) of
the Target Corporations for fiscal years 1991, 1992, 1993, 1994 and 1995. To
the best knowledge of the Target Corporations each of the Target Corporations
has established adequate reserves for the payment of all known unpaid Taxes (as
defined below) as of the date of the Pima Gro Financial Statements. Further, to
the best knowledge of the Target Corporations, each of the Target Corporations
has: (a) filed or has caused to be filed all federal, state and local and all
material foreign, territorial, franchise, income tax (collectively, the
"Corporate Income Tax Returns and Statements"), sales, gross receipts and all
other tax returns and statements required to be filed by the Target Corporations
or on their behalf and which were due prior to the date of this Agreement; and
(b) paid within the time and in the manner prescribed by law all Taxes, due for
all periods ending on or prior to the date of this Agreement, except with
respect to Taxes which are immaterial in amount and the failure to so pay or
file would not result in material penalties and would not have a Material
Adverse Effect. To the best knowledge of the Target Corporations, the Corporate
Income Tax Returns and Statements are true, complete and accurate, in all
material respects. Except as set forth in Schedule 1.14, since December 31,
1991, no tax assessment or deficiency has been made against the Target
Corporations nor has any notice been given of any actual or proposed assessment
or deficiency which has not been paid or for which an adequate reserve has not
been set aside. The Corporate Income Tax Returns and Statements are not
presently, nor have they since the inception of the Target Corporations been,
the subject of any audit or other administrative or court proceeding by any
federal, territorial, state, local or foreign governmental agency. Each of the
Target Corporations has not received any notice that any of the Corporate Income
Tax Returns and Statements is now being or will be examined or audited, and no
consents extending any applicable statute of limitations have been filed.
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For purposes of this Agreement, "Taxes" shall mean any and all taxes,
payroll and employment related taxes, levies, assessments, charges or other fees
related to taxes, together with any interest, penalties or other additions,
imposed by any governmental, taxing authority upon the Target Corporations.
Section 1.15 TRANSACTIONS WITH AFFILIATES. Except as set forth on
Schedule 1.15 hereto, no Affiliate of the Target Corporations has any interest,
directly or indirectly, in any lease, lien, contract, license, encumbrance, loan
or other agreement to which the Target Corporations are a party, or any interest
in any competitor, supplier or customer of the Target Corporations. Except as
set forth item by item on Schedule 1.15 hereto, and except for loans made after
the date of this Agreement by Affiliates to the Target Corporations from time to
time for working capital at interest rates not more than market rates in the
aggregate amount not to exceed $10,000 per month ("Affiliate Working Capital
Loans"), the Target Corporations are not indebted, directly or indirectly, to
any Affiliate of the Target Corporations or the Pima Gro Shareholders, for any
liability or obligation, whether arising by reason of stock ownership, contract,
oral or written agreement or otherwise. Except as disclosed on Schedule 1.15,
no Affiliate is indebted, directly or indirectly, to the Target Corporations.
Schedule 1.15 is a complete and accurate list of all employees of the Target
Corporations owing more than $2,500 in principal (provided that the aggregate
principal amount owed by employees to the Target Corporations not set forth on
Schedule 1.15 shall not exceed $10,000) plus accrued interest, to the Target
Corporations, other than travel or other employee advances (not exceeding $1,000
to any one person) in the ordinary course of business, setting forth the amounts
owed, the applicable interest rates, a description of the security and the
maturity dates of all such debts.
Except as set forth on Schedule 1.15 hereto, no Affiliate:(a) is a party to
any contract or arrangement with the Target Corporations pursuant to which it
directly provides material services to the Target Corporations; or (b) is a
party to any contract or arrangement with a third party, to which the Target
Corporations are not a party, but under which the Target Corporations receive
any material amount of goods or services from said third party. Except as set
forth on Schedule 1.15 hereto, all goods and services provided to the Target
Corporations by any of their Affiliates and all goods and services provided to
any of their Affiliates by the Target Corporations, at any time since the
inception of either of the Target Corporations have been charged to the
recipient at a price that would have been acceptable to an unrelated third party
receiving such goods and services in an arm's-length transaction with the
provider.
Section 1.16 CONTRACTS AND COMMITMENTS. Except as set forth on Schedule
1.16, in connection with contracts and commitments, which as of the date of this
Agreement have any executory provision:
(a) The Target Corporations have not entered into any outstanding
agreements, contracts or commitments or restrictions which, individually or in
the aggregate, are
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material to the Business, operations or prospects, or which require the making
of any charitable contribution;
(b) No purchase contracts or commitments of the Target Corporations
continue for a period of more than thirty (30) days or are in excess of the
normal, ordinary and usual requirements of the Business or, to the best
knowledge of the Target Corporations, at an excessive price;
(c) The Target Corporations have not entered into any contracts or
commitments pursuant to which the Target Corporations are, as of the date
hereof, required to obtain or maintain, on behalf of themselves or any of their
directors, officers or employees, any facility or personnel security clearances
from the U.S. Department of Defense or any other agency of the U.S. Government;
(d) There are no outstanding sales contracts, purchase orders, commitments
or proposals of the Target Corporations which continue for a period of more than
thirty (30) days or will likely result in any loss to the Target Corporations
upon completion or performance thereof;
(e) The Target Corporations have not entered into any outstanding
contracts with officers, employees, agents, consultants, advisors, salesmen,
sales representatives or suppliers that are not cancelable by their on notice of
not longer than thirty (30) days and without liability, penalty or premium, or
any agreement or arrangements providing for the payment of any bonus or
commission based on sales or earnings;
(f) The Target Corporations have not entered into any outstanding
employment agreement, or any other outstanding agreement that contains any
severance or termination pay liabilities or obligations;
(g) The Target Corporations are not parties to any collective bargaining
agreement or other contract or agreement with any labor organization;
(h) The Target Corporations are not restricted by agreement from carrying
on the Business anywhere in the world;
(i) The Target Corporations have not incurred any outstanding debt
obligation for borrowed money, including guarantees of or agreements to acquire
any such debt obligation of others, other than as reflected on the Pima Gro
Financial Statements;
(j) The Target Corporations are not parties to any contract, subcontract
or agreement with the U.S. Government or any agency or instrumentality thereof,
or with any territorial or state government or any agency or instrumentality
thereof; and
(k) The Target Corporations have not entered into any outstanding loan
with or to any person other than (i) as reflected on the Pima Gro Financial
Statements, (ii) for
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amounts not more than $2,500 to any individual and $10,000 in the aggregate, and
(iii) Affiliate Working Capital Loans.
Section 1.17 COMPLIANCE WITH CONTRACTS; DELIVERY OF CERTAIN CONTRACTS.
The Target Corporations are not in default under any material contract,
commitment, obligation or agreement, including, without limitation, those listed
in Schedules 1.13 and 1.16 hereto (the "Contacts"), except for those which would
not have a Material Adverse Effect, and no act or omission by the Target
Corporations has occurred which, with notice or lapse of time or both, would
constitute such a default under any term or provision of any such contract or
agreement. To the best knowledge of the Target Corporations, each of the
agreements referred to in Schedules 1.13 and 1.16 hereto is valid and in full
force and effect. To the best knowledge of the Target Corporations, no party is
in default under any agreement referred to in Schedules 1.13 and 1.16 hereto,
and to the best knowledge of the Target Corporations, no act or omission has
occurred by any party which, with notice or lapse of time or both, would
constitute such a default under any term or provision thereof. Each of the
Target Corporations has previously delivered to Purchasers a true and correct
copy of each agreement, contract, commitment or restriction listed on Schedules
1.13 and 1.16 hereto, including all amendments and modifications thereof.
Section 1.18 INSURANCE. Schedule 1.18 contains an accurate and true
description of all existing policies of fire, liability, worker's compensation
and all other forms of insurance owned or held by, or covering the Business,
properties or assets of, the Target Corporations, as well as the terms of each
of such policies of insurance and the dates through which the premiums for such
policies has been paid. All such policies are in full force and effect and
payments of premiums therefore are not delinquent, all premiums with respect
thereto covering all periods up to and including the date hereof have been paid,
and no notice of cancellation or termination has been received by the Target
Corporations with respect to any such policy. Such policies will remain in full
force and effect through the respective dates set forth on Schedule 1.18 without
additional premiums being paid or properly accrued as an additional liability
through the Closing Date. Schedule 1.18 also: (a) describes all products
liability claims made for the three (3) years preceding the Closing Date, and
all other claims (except medical and dental) pending or made for the three (3)
years preceding the Closing Date, under such insurance policies; and (b)
identifies all types of insurable risks which the Target Corporations and their
Boards of Directors have designated as being self insured. Except as set forth
in Schedule 1.18, the Target Corporations have not been turned down at any time
since inception of the Target Corporations for any insurance with respect to
their assets or operations, nor has their coverage been limited by any insurance
carrier to which they have applied for any such insurance or with which they
have carried insurance during the last three (3) years.
Section 1.19 LABOR DIFFICULTIES. Except to the extent set forth in
Schedule 1.19:
(a) To the best knowledge of the Target Corporations, no employee of the
Target Corporations is in violation of, or has threatened any violation of, any
material term of any employment contract or any other contract or agreement
relating to the
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relationship of such employee with the Target Corporations or any other party,
including any employee handbook and/or personnel policy manual of the Target
Corporations except for violations which would not, individually or in the
aggregate, have a Material Adverse Effect;
(b) To the best knowledge of the Target Corporations the Target
Corporation have complied in all material respects with each and every term,
provision, section and part of any written employment contract or agreement,
including any employee handbook and/or personnel policy manual, that the Target
Corporations have or have had with any individual who has performed work for the
Target Corporations;
(c) To the best knowledge of the Target Corporations there is no unfair
labor practice charge or similar charge, complaint, allegation or other process
or claim pending or, to the best knowledge of the Target Corporations,
threatened against the Target Corporations before the National Labor Relations
Board (the "NLRB") or any other federal, territorial, state or local
governmental agency or other entity;
(d) The Target Corporations are not parties to any collective bargaining
agreement applicable to the Employees; (ii) none of the Employees is represented
by any labor organization, and (iii) there is no labor strike, work stoppage or
slowdown pending against the Target Corporations and no pending lockout by the
Target Corporations, in each case, with respect to the Business.
(e) To the best knowledge of the Target Corporations, there is no petition
for election or similar charge, complaint, allegation or other process or claim
pending or, to the best knowledge of the Target Corporations, threatened against
the Target Corporations before the NLRB, any region of the NLRB, or any other
federal, territorial, state or local governmental agency or other entity, and no
organizing campaign or other effort is underway or, to the best knowledge of the
Target Corporations, threatened by any labor organization to organize any
employees of the Target Corporations;
(f) Each of the Target Corporations has not experienced any labor dispute,
strike, slowdown, work stoppage, or other job action since its inception; and
(g) There is not pending or, to the best knowledge of the Target
Corporations, threatened against the Target Corporations any complaint, charge,
allegation or other process or claim whatsoever, other than those which would
not, individually or in the aggregate, have a Material Adverse Effect: (i)
alleging any violation of the Occupational Safety and Health Act or any other
federal, territorial, state or local law governing health and/or safety in the
workplace; (ii) seeking compensation, benefits and/or penalties pursuant to any
Workers' Compensation Act or similar law; (iii) seeking any compensation or
benefits pursuant to any Unemployment Insurance Act or similar law; (iv)
alleging any violation of the Immigration Reform and Control Act of 1986 or any
similar law; (v) alleging any violation of the Fair Labor Standards Act or any
other federal, territorial, state or local law governing wage and/or hour
issues; (vi) alleging any violation of any
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federal, territorial, state or local child labor law; and/or (vii) alleging any
other federal, territorial, state or local law relating to or governing
employment or labor matters.
Section 1.20 LITIGATION. Except as set forth in Schedule 1.20 hereto:
(a) There is no pending or, to the best knowledge of the Target
Corporations, threatened complaint, charge, claim, action, suit or arbitration
proceeding before any federal, territorial, state, municipal, foreign or other
court or governmental or administrative body or agency, or any private
arbitration tribunal or any investigation or inquiry before any federal,
territorial, state, municipal, foreign or other court or governmental or
administrative body or agency against, relating to or affecting: (i) the Target
Corporations or any director, officer, agent or employee thereof in his or her
capacity as such; (ii) the assets, properties or Business; or (iii) the
transactions contemplated by this Agreement, nor, to the best knowledge of the
Target Corporations, is there any basis for any such complaint, charge, claim,
action, suit, arbitration proceeding, investigation or inquiry which could have
an adverse effect on the assets, property, Business or prospects of the Target
Corporations;
(b) To the best knowledge of the Target Corporations, there is not in
effect any order, judgment or decree of any court or governmental or
administrative body or agency enjoining, barring, suspending, prohibiting or
otherwise limiting the Target Corporations or, to the best knowledge of the
Target Corporations, any officer, director, employee or agent thereof from
conducting or engaging in any aspect of the Business of the Target Corporations,
or requiring the Target Corporations or, to the best knowledge of the Target
Corporations, any officer, director, employee or agent thereof to take certain
action with respect to any aspect of the Business of the Target Corporations
which could reasonably be anticipated to have a Material Adverse Effect; and
(c) To the best knowledge of the Target Corporation each of the Target
Corporations are not in violation of or default under any applicable order,
judgment, writ, injunction or decree of any federal, territorial, state,
municipal, foreign or other court or regulatory authority.
Section 1.21 NO CONDEMNATION OR EXPROPRIATION. Neither the whole nor any
portion of the leaseholds or any other assets of the Target Corporations is
subject to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the best knowledge of the Target Corporations,
has any such condemnation, expropriation or taking been proposed.
Section 1.22 COMPLIANCE WITH LAW. To the best of the knowledge of the
Target Corporations, the operations of the Target Corporations have been
conducted in accordance with all applicable laws, regulations and other
requirements of all national governmental authorities, and of all territories,
states, municipalities and other political subdivisions and agencies thereof
having jurisdiction over the Target Corporations,
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including, without limitation, all such laws, regulations, ordinances and
requirements relating to environmental, antitrust, consumer protection, labor
and employment, zoning and land use, currency exchange, immigration, health,
occupational safety, pension, securities, defense procurement and trading with
the enemy matters, except as disclosed in Schedule 1.22 hereto and except for
violations which would not, individually or in the aggregate, have a Material
Adverse Effect. Except as set forth in Schedule 1.22, the Target Corporations
have not received any notification since their inception of any asserted present
or past failure by the Target Corporations to comply with such laws,
regulations, ordinances or requirements. Each of the Target Corporations has all
permits, authorizations and consents necessary for the operation of THE BUSINESS
except for those which the failure to have would not, individually or in the
aggregate, have a Material Adverse Effect.
Section 1.23 PERMITS. Schedule 1.23 is a complete list of all Permits
issued by any Government Body in respect of the Business. To the best knowledge
of the Target Corporations, such Permits constitute all licenses, franchises,
permits or similar authorizations required by any law for the Target
Corporations to own and conduct the Business, and there are no outstanding
violations of any such Permits, and no action pending or, to the BEST knowledge
of the Target Corporations, threatened, to cancel, modify or not renew any such
Permit.
Section 1.24 ENVIRONMENTAL COMPLIANCE.
A. For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(a) "PREMISES" means any property or facility the Target Corporations
own, operate or lease which relate to the Business, or ever owned, operated or
leased by the Target Corporations or which constitute any of the Target
Corporations Assets;
(b) "HAZARDOUS SUBSTANCE" means, at any time, any substance,
material, chemical or waste the presence of which requires investigation or
remediation under, or which is or becomes regulated by, any federal, state or
local governmental authority due to its properties of being toxic, hazardous,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic, or
mutagenic, including, without limitation, any material, waste, chemical or
substance which is: (i) defined as a "hazardous," "extremely hazardous" or
"restricted hazardous" waste, material or substance under the laws of the
governmental jurisdiction where the Premises are located and/or to which the
Premises are subject; (ii) petroleum or a petroleum product, including, without
limitation, gasoline and diesel fuel; (iii) asbestos or asbestos containing;
(iv) polychlorinated biphenyls; (v) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 ET SEQ.
(33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water
Act (33 U.S.C. Section 1317); (vi) defined as a "hazardous waste" pursuant to
Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 ET SEQ. (42 U.S.C. Section 6903); (vii) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive
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Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601
ET SEQ. ("CERCLA") (42 U.S.C. Section 9601); or (viii) defined in the
Carpenter-Presley-Tanner Hazardous Substance Account Act, Sections 2530 ET SEQ.,
California Fish & Game Code.
(c) "HAZARDOUS SUBSTANCES LAW" means any national, territorial,
state, province or local statute, ordinance, order, rule or regulation of any
type, relating to pollution or the protection of worker safety, public safety,
human health, natural resources, or the environment, including laws, statutes,
ordinances, rules or regulations relating to the emission, discharge, release or
threatened release, of pollutants, contaminants or Hazardous Substances into
ambient air, surface water, ground water or land, or remediation or removal
thereof, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants or Hazardous Substances, including without limitation those
statutes and regulations referred to in Subparagraph (b) above and the
Occupational Health and Safety Act (29 U.S.C. Section 651 ET SEQ.); and
(d) "LOSS" means any and all of the following, whether the result of
any action of any governmental agency or a third party: liabilities; penalties;
forfeitures; suits; losses; damages; expenses; debts; obligations; claims; fines
or civil liability for violation of any Hazardous Substances Law; costs
(including the costs of investigation, defense, settlement and attorneys' and
other professional fees whether or not litigation is instituted); or, costs and
capital expenditures required for compliance with Hazardous Substances Law.
B. Except as disclosed in Schedule 1.24 hereto, to the best knowledge of
the Target Corporations:
(a) The Target Corporations have obtained, and are in full
compliance with, all Material (as defined below) permits, licenses or other
authorizations which are required under any Hazardous Substances Law for the
operations of the Business;
(b) The Target Corporations are not aware of any Material past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with, or prevent continued
compliance by the Target Corporations with any Hazardous Substances Law, or
which may give rise to Loss to the Target Corporations based on or related to
any Hazardous Substances Law;
(c) The Target Corporations have not entered into any Material
agreement with any governmental authority or agency, or with any private entity,
including, but not limited to, any prior owners of Premises, relating in any way
to violation of any Hazardous Substances Law, or to the presence, release,
threat of release, disposal, placement on, under or about any Premises of
Hazardous Substances;
(d) The Target Corporations have not discovered or caused, and to the
best of the knowledge of the Target Corporations, no other person has discovered
or
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caused, any Material discharge, emission, disposal or release of Hazardous
Substances on the Premises, on property formerly owned, operated or leased by
the Target Corporations or on the property of any third party;
(e) The Target Corporations have not discovered, and to the best of
knowledge of the Target Corporations, no other person has discovered, any
Material occurrence or condition on the Premises or on any real property in the
vicinity of the Premises, which could cause the Premises to be subject to any
Material restrictions on the ownership, occupancy, transferability or use under
any Hazardous Substances Law;
(f) The Target Corporations have not manufactured, stored or disposed
of Hazardous Substances at any location, including, without limitation, any
disposal which was not in Material compliance with any Hazardous Substances Law;
(g) The Target Corporations do not use or maintain any underground
storage tanks or surface impoundments on the Premises and, to the best knowledge
of the Target Corporations, no underground storage tanks or surface impoundments
are now, or ever have been, located on the Premises; and
(h) The Target Corporations have not received notice of any Material
lien in favor of any governmental authority for: (i) any Material liability
under any Hazardous Substances Law; or (ii) Material damages arising from or
costs incurred by such governmental authority in response to a release of
Hazardous Substances into the environment, nor has any such Material lien ever
been filed or attached to the Premises.
For purposes of this Section 1.24, "Material" shall mean any or all events
or circumstances which may result in a Material Adverse Effect on or to the
Target Corporations or their financial condition.
Section 1.25 EMPLOYEE BENEFITS.
(a) Except for the plans, agreements, arrangements and practices set
forth in Schedule 1.25 hereto (collectively, the "Employment Plans"), neither
the Target Corporations nor any Affiliates maintains or contributes to, or are
obligated or required to contribute to, any bonus, deferred compensation,
severance or termination pay, pension, profit sharing, stock purchase, stock
grant, stock option, group life insurance, health care, hospitalization
insurance, disability, retirement or any other employee benefit or fringe
benefit plan, agreement, arrangement or practice, whether formal or informal and
whether legally binding or not, which covers employees of the Target
Corporations. Neither the Target Corporations nor any Affiliates has any
commitment, whether formal or informal and whether legally binding or not, to
create or contribute to any additional such plan.
(b) To the best knowledge of the Target Corporations, each
Employment Plan, including each Employment Plan which is an "employee pension
benefit plan," as such term is defined in Section 3(2) of the Employee
Retirement Income Security
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Act of 1974, as amended ("ERISA") (the "Pension Plans"), or an "employee welfare
benefit plan," as such term is defined in Section 3(l) of ERISA (the "Welfare
Plans"), in all respects conforms to, and is and has been operated in compliance
with, applicable law, including, but not limited to, ERISA and the Internal
Revenue Code of 1986, as amended (the "Code").
(c) Neither the Target Corporations nor any Affiliates, nor any of
the Pension Plans, nor any of the Welfare Plans nor any trust created
thereunder, nor, to the best knowledge of the Target Corporations, any trustee
or administrator thereof, has engaged in a prohibited transaction (within the
meaning of Section 406 of ERISA and Section 4975 of the Code) which might
subject the Target Corporations to any material liability or civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code.
(d) To the best knowledge of the Target Corporations, full payment
has been duly made or reserved for by the Target Corporations of all amounts
that the Target Corporations or any Affiliate are required under the terms of
all Employment Plans to pay as contributions to such Employment Plans, with
respect to employees of the Target Corporations covered by such Plans, on or
prior to the Closing Date.
(e) None of the Pension Plans is a "multiemployer plan," as such term
is defined in Section 3(37) of ERISA.
(f) Neither the Target Corporations, any Affiliates nor, to the best
knowledge of the Target Corporations, any administrator or fiduciary of any
Pension Plan or Welfare Plan has engaged in any transaction or acted or failed
to act in a manner which could subject the Target Corporations to any liability
for a breach of fiduciary duty under ERISA.
(g) Neither the Target Corporations nor any Employment Plan is
obligated to make payment of post-retirement life, accidental death, medical or
disability insurance benefits of any type, excluding for this purpose the
provision of any such benefits as a result of an individuals exercise of his or
her conversion rights under the Consolidated Omnibus Budget Reconciliation Act
of 1986, to, or with respect to, any former employee of the Target Corporations.
(h) True and complete copies of each of the following documents have
been delivered to Purchasers: (i) each Welfare Plan and each Pension Plan,
related trust agreements, annuity contracts, or other funding instruments; (ii)
each Employment Plan and complete descriptions of any such plans that are not in
writing; (iii) the most recent determination letter issued by the Internal
Revenue Service with respect to each Pension Plan; (iv) Annual Reports on Form
5500 Series required to be filed with any governmental agency for each Welfare
Plan and each Pension Plan for the two most recent plan years; and (v) actuarial
reports, consisting of the Schedule B and attachments to the Form 5500 Series
prepared for the last two (2) plan years for each Pension Plan.
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Section 1.26 ABSENCE OF QUESTIONABLE PAYMENTS. Neither the Target
Corporations nor, to the best knowledge of the Target Corporations, any of their
directors, officers, agents, employees or other persons acting on their behalf
or for their benefit has used any corporate or other funds for unlawful
contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds for such purpose.
Neither the Target Corporations nor, to the best knowledge of the Target
Corporations, any of their directors, officers, agents, employees or other
persons acting on their behalf or for their benefit has accepted or received any
unlawful contributions, payments, gifts or expenditures.
Section 1.27 PERSONNEL. Schedule 1.27 hereto is a true and complete list
of the names, addresses and wage rates for all salaried and non-salaried
employees of the Target Corporations by classification, as of the Closing Date.
Section 1.28 REAL PROPERTY HOLDING CORPORATION. Each of the Target
Corporations is not a U.S. Real Property Holding Corporations within the meaning
of Section 897(c)(2) of the Code.
Section 1.29 ACCURACY OF INFORMATION FURNISHED. No representation or
warranty by the Target Corporations contained in this Agreement or in respect of
the exhibits, schedules or documents delivered to Purchasers by the Target
Corporations and expressly referred to herein, and no statement contained in any
certificate furnished or to be furnished by or on behalf of the Target
Corporations pursuant hereto, or in connection with the transactions
contemplated hereby, contains, or will contain as of the date such
representation or warranty is made or such certificate is or will be furnished,
and as of the Closing Date, any untrue statement of a material fact, or omits,
or will omit to state as of the date such representation or warranty is made or
such certificate is or will be furnished, any material fact which is necessary
to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. True and correct
copies of each agreement and other document referred to in the schedules hereto
have been furnished by the Target Corporations to Purchasers.
Section 1.30 TITLE TO PATENTS AND TRADE NAMES. To the best knowledge of
the Target Corporations, the Target Corporations have good and marketable title
to the Patents set forth in Schedule 1.30(a) and Trade Names set forth in
Schedule 1.30(b), free and clear of any lien, mortgage, charge, security
interest, pledge or other encumbrance or other adverse claim or interest of any
nature. The Target Corporations are the sole and exclusive owners of the
Patents and Trade Names, the issued or granted Patents are valid, and in full
force and effect as of the Closing Date. The Target Corporations are the
parties named in the Patents and are the parties who made, or caused to be made,
the application for the letters of patents. Each of the Target Corporations has
the right and power to assign the Patents and Trade Names and made no prior
transfer, sale or assignment of all or any part of the Patents and Trade Names
and the exploitation of the
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Patents and Trade Names do not and will not infringe the rights granted to any
other person by any United States or other patent or proprietary interest of any
kind or nature. Each of the Target Corporations further represent and warrant
that the Patents and Trade Names constitute all of its rights and interests in,
and the Target Corporations have not transferred or conveyed to any other person
or entity any right or interest in, any patents, patents pending, industrial
designs, utility models and applications for patent and method of use or
manufacture and any patents issued thereon and any continuations or reissues
thereof, including any continuation-in-part or divisional patent application
thereof, and all foreign counterparts and extensions thereof, and all of the
Technical Information and Proprietary Information or improvements thereto in
existence on the date hereof or thereafter developed, including, but not limited
to all information contained in all pending patent applications or patents, that
are pertinent in any manner whatsoever to the development, testing,
registration, assembly, manufacture, use or sale of all products and services
related to the Business. The following terms as used in this Agreement shall
have the meanings set forth below:
"PATENTS" shall mean the patents, patents pending, industrial designs,
utility models and applications for patent that are identified in Schedule
1.30(a) hereto, which relate to any products (or any component thereof) or
services related to the Business and the Target Corporations and their method of
use or manufacture and any patents issued thereon and any continuations or
reissues thereof, including any continuation-in-part or divisional patent
application thereof and all foreign counterparts and extensions thereof.
"PROPRIETARY INFORMATION" shall mean all of the information regarding any
products or services related to the Business, including the Patents, which
constitute reliable trade secrets or proprietary business information,
including, without limitation, such information as encompassed in all drawings,
designs, formulas, devices, compilations, computer programs and software
devices, plans, manuals, proposals, financial information, costs, pricing
information, marketing or sales plans, accounting, customer lists or any other
trade secrets or proprietary information whether now existing or hereinafter
developed whether it gives the disclosing party any competitive advantage over
those who do not know or use it, or whether it is patentable or subject to
copyright or trademark protection.
"TECHNICAL INFORMATION" means all information, knowledge, engineering and
technical data, manufacturing data, raw data, developments, projections,
proprietary data, manufacturing drawings, product specifications, manufacturing
and assembly techniques, production descriptions, skills, methods, trade
secrets, processes, procedures and know how and other information or
improvements thereto in existence on the date hereof or thereafter developed,
including, but not limited to all information contained in all pending patent
applications or patents within the definition of Patents (as defined above),
that is pertinent to the development, testing, registration, assembly,
manufacture, use or sale of any products or services related to the Business.
"TRADE NAMES" shall mean those tradenames, trademarks, service marks and
logos referenced on Schedule 1.30(b) hereto.
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Section 1.31 REAL PROPERTIES. Schedule 1.31 hereto is an accurate and
complete list of all real property owned by the Target Corporations, together
with a description of every mortgage, deed of trust, pledge, lien, agreement,
encumbrance, claim or equity interest of any nature whatsoever in such real
property.
Section 1.32 TITLE AND RELATED MATTERS. Except as otherwise provided
herein, the Target Corporations have good and marketable title to and are the
sole and exclusive owners of all of their material properties, inventory,
interests in properties and assets, real and personal, Patents, copyrights,
trademarks, service marks and Trade Names (collectively, the "Target
Corporations' Assets") which are reflected in the Pima Gro Financial Statements
and the Pima Gro Schedules (as defined in Section 1.35) or acquired after the
date thereof (except properties, interests in properties and assets sold or
otherwise disposed of since such date in the ordinary course of business), free
and clear of all liens, pledges, charges or encumbrances except: (a) statutory
liens or claims not yet delinquent; (b) such imperfections of title and
easements as do not and will not, materially detract from or interfere with the
present or proposed use of the properties subject thereto or affected thereby or
otherwise materially impair present business operations on such properties; and
(c) as described in the Pima Gro Schedules. Except as set forth in the Pima Gro
Schedules, the Target Corporations own free and clear of any liens, claims,
encumbrances, royalty interests or other restrictions or limitations of any
nature whatsoever, any and all products they are currently manufacturing,
including the underlying technology and data, and all procedures, techniques,
marketing plans, business plans, methods of management or other information
utilized in connection with the Business. Except as set forth in the Pima Gro
Schedules, no third party has any right to, and the Target Corporations have not
received any notice of infringement of or conflict with asserted rights of
others with respect to any product, technology, data, trade secrets, know-how,
proprietary techniques, trademarks, service marks, trade names or copyrights
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect on the Business,
operations or financial condition of the Target Corporations or any material
portion of their properties, assets or rights.
Section 1.33 TITLE TO THE EXCHANGED PIMA GRO STOCK. (a) Upon delivery to
CDR of the certificates described in Section 3.1(b) of this Agreement, CDR will
receive good and marketable title to the Exchanged Pima Gro Stock. All of the
Exchanged Pima Gro Stock shall be received by CDR as validly issued, fully paid
and nonassessable, free and clear of all pledges, liens, encumbrances, security
interests, equities, options, claims, charges, limitations on voting rights or
rights to receive dividends, or other restrictions of any kind (other than any
generally imposed by federal, corporate or territorial securities laws or as
otherwise provided for in this Agreement); and
(b) From the date of this Agreement through the Closing Date, each of the
Pima Gro Shareholders agrees that he will not sell, transfer, hypothecate,
pledge, assign, suffer
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any lien to be incurred with respect to or otherwise dispose of any of the
shares of Exchanged Pima Gro Stock.
Section 1.34 SECURITIES WARRANTIES. With respect to the Exchanged Synagro
Stock and any Additional Exchanged Synagro Stock (as defined below)
(collectively, the "Combined Exchanged Synagro Stock") to be delivered by
Synagro to the Pima Gro Shareholders pursuant to the provisions of Section
3.1(a)(iii) and 3.4 hereof, each of the Pima Gro Shareholders hereby represents
and warrants to Synagro that:
(a) The shares of Combined Exchanged Synagro Stock is being acquired for
the account of each of the Pima Gro Shareholders and not with a view to sale in
connection with any distribution of the Combined Exchanged Synagro Stock;
(b) Each of the Pima Gro Shareholders is acquiring the Combined Exchanged
Synagro Stock hereunder without having received any form of general solicitation
or general advertising;
(c) Each of the Pima Gro Shareholders or his representative, if any, has
been provided with, or given reasonable access to, full and fair disclosure of
all material information concerning Purchasers;
(d) Each of the Pima Gro Shareholders has a preexisting personal or
business relationship with Synagro or certain of its officers, directors or
controlling persons, or by reason of his business or financial experience, each
of the Pima Gro Shareholders can reasonably be assumed to have the capacity to
represent his own interests in connection with this Agreement;
(e) Each of the Pima Gro Shareholders understands and hereby acknowledges
that the Combined Exchanged Synagro Stock will be issued pursuant to those
restrictions imposed by and exemptions available pursuant to applicable federal
and state laws and that the certificates to be issued in respect of the Combined
Exchanged Synagro Stock may bear a legend in a form satisfactory to counsel for
Synagro; in part, Synagro's reliance upon such exemptions is based on the
representations and warranties made by each of the Pima Gro Shareholders in this
Section 1.34;
(f) Each of the Pima Gro Shareholders agrees that the certificates to be
issued in respect of the Combined Exchanged Synagro Stock may bear a legend in a
form satisfactory to counsel for Synagro reflecting the status of the Combined
Exchanged Synagro Stock as restricted securities under Rule 144(a)(3)
promulgated under the Securities Act and acknowledges that the transfer agent or
registrar for Synagro may be instructed to restrict the transfer of the Combined
Exchanged Synagro Stock, in accordance with such legend and any other
restrictions provided in this Agreement;
(g) Each of the Pima Gro Shareholders hereby agrees that he will not sell,
transfer, hypothecate, pledge, assign or otherwise dispose of any of the
Combined Exchanged
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Synagro Stock, except pursuant to the terms of this Agreement and to a
registration statement filed under the provisions of the Securities Act, a
favorable no-action or interpretive letter received from the Commission or an
opinion of counsel satisfactory to Synagro that such sale, transfer,
hypothecation, pledge, assignment or other disposition is exempt from the
registration requirements of the Securities Act and in Arizona and Washington,
pursuant to an opinion of counsel satisfactory to Synagro that such sale,
transfer, hypothecation, pledge, assignment or other disposition is exempt from
the registration requirements of the Securities Act and does not in any way
violate the terms of this Agreement; and
(h) Each of the Pima Gro Shareholders hereby acknowledges that: (i) the
shares of Combined Exchanged Synagro Stock referred to herein are being acquired
after adequate investigation of the business plan and prospects of Synagro; (ii)
that each of the Pima Gro Shareholders is not relying upon the accuracy of any
predictions as to the future prospects or developments of Synagro or its
business and is well informed as to the business of Synagro and has reviewed its
operations and financial statements; (iii) each of the Pima Gro Shareholders or
their professional advisors has discussed the financial condition and business
operations of Synagro with the officers and directors of Synagro and has been
afforded the opportunity to ask questions with respect thereto; and (iv) each of
the Pima Gro Shareholders specifically acknowledges that the shares of Combined
Exchanged Synagro Stock are speculative and involve a very high degree of risk
and that there can be no assurance that Synagro will achieve its business
objectives or, in particular, that it will ever have cash available for
distribution to its stockholders.
Section 1.35 PIMA GRO SCHEDULES. The Target Corporations shall cause
the schedules supplied to Purchasers in connection with this Agreement (the
"Pima Gro Schedules") and the instruments and data delivered to Purchasers
hereunder to be updated after the date hereof up to and including the Closing
Date, as hereinafter defined.
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
OF PURCHASERS
As an inducement to, and to obtain the reliance of the Target Corporations
and the Pima Gro Shareholders, Purchasers represent and warrant, as follows:
Section 2.1 ORGANIZATION. Synagro and CDR are corporations duly organized,
validly existing and in good standing under the laws of the states of Nevada and
Texas, respectively, and each such corporation has the corporate power and is
duly authorized, qualified, franchised and licensed under all applicable laws,
regulations, ordinances and orders of public authorities to own all of its
properties and assets and to carry on its business in all material respects as
it is now being conducted, including qualification to do business as a foreign
corporation in the states in which the character and location of the assets
owned by it, or the nature of the business transacted by it, requires
qualification.
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Included in the Purchasers Schedules (as hereinafter defined) are complete and
correct copies of the articles of incorporation and bylaws of the Purchasers as
in effect on the date hereof. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this Agreement in
accordance with the terms hereof will not, violate any provision of the
Purchasers' articles of incorporation or bylaws. The Purchasers have taken all
actions required by law, their articles of incorporation, their bylaws or
otherwise to authorize the execution and delivery of this Agreement. The
Purchasers have full power, authority and legal right and have taken all action
required by law, their articles of incorporation, bylaws and otherwise to
consummate the transactions herein contemplated.
Section 2.2 CAPITALIZATION. The authorized capitalization of Synagro
consists of 100,000,000 shares of common stock, par value $0.002 par share (the
"Synagro Common Stock") and 10,000,000 shares of preferred stock, par value
$0.002 per share ("Synagro Preferred Stock"). As of the Closing Date, there are
6,197,102 shares of Synagro Common Stock issued and outstanding and no shares of
Synagro Preferred Stock are issued and outstanding. All issued and outstanding
shares of Synagro are legally issued, fully paid and nonassessable and not
issued in violation of the preemptive rights or other rights of any person.
Section 2.3 SUBSIDIARIES. Synagro owns, beneficially or of record, the
securities of the corporations listed on Schedule 2.3 hereto.
Section 2.4 BINDING OBLIGATION; NO DEFAULT. Purchasers have duly taken
all action necessary to authorize the execution, delivery and performance of
this Agreement and the other instruments and agreements contemplated hereby.
Such execution, delivery and performance does not and will not, to the best of
Purchasers' knowledge, constitute a default under or a violation of any
agreement, order, award, judgment, decree, statute, law, rule, regulation or any
other instrument to which either of Purchasers is a party or by which Purchasers
or the property of Purchasers may be bound or may be subject. This Agreement
constitutes the legal, valid and binding obligation of Purchasers, enforceable
against Purchasers in accordance with its terms.
Section 2.5 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Except as set forth
on Schedule 2.5, neither the execution and delivery of this Agreement by
Purchasers nor compliance by Purchasers with the terms and conditions of this
Agreement will: (a) require Purchasers to obtain the consent of any
governmental agency; (b) constitute a material default under any indenture,
mortgage or deed of trust to which Purchasers are a party or by which Purchasers
or their properties may be subject; (c) breach any statute or regulation of any
governmental authority, domestic or foreign, or will on the Closing Date
conflict with or result in a breach of any of the terms or conditions of any
judgment, order, injunction, decree or ruling of any court or governmental
authority, domestic or foreign, to which Purchasers are subject.
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Section 2.6 CONSENTS. Except as set forth on Schedule 2.6, no consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority or any third party is required to be made
or obtained by Purchasers in connection with the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
Section 2.7 BOOKS AND RECORDS. The books of account and other financial
records of Purchasers are complete and correct in all material aspects. The
minute books of Purchasers, as previously made available to the Target
Corporations and their legal counsel, contain records of all meetings and
accurately reflect all other material corporate action of the stockholders,
directors and any committees of the Boards of Directors of Purchasers.
Section 2.8 FINANCIAL STATEMENTS. Incorporated in Commission Filings (as
defined below), which have previously been furnished to the Pima Gro
Shareholders, are true and correct copies of Synagro's audited financial
statements, including Synagro's audited consolidated balance sheets as of
December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1994 and 1995 (the "Synagro Audited Financial Statements"); and true and correct
copies of Synagro's unaudited consolidated balance sheets as of March 31, 1996,
and the related unaudited consolidated statements of operations and cash flows
for the three (3) month period ended March 31, 1995 and 1996 (the "Synagro
Unaudited Financial Statements"). The Synagro Audited Financial Statements,
together with the notes thereto, fairly present the financial position of
Synagro at December 31, 1995, and the consolidated results of the operations and
the changes in stockholders' equity and cash flows for Synagro for the periods
covered by the Synagro Audited Financial Statements and have been prepared in
accordance with GAAP, consistently applied with prior periods. The Synagro
Unaudited Financial Statements fairly present the financial position of Synagro
at March 31, 1996, and the consolidated results of the operations and cash flows
for Synagro for the periods then ended and have been prepared in accordance with
GAAP, consistently applied with prior periods. (The Synagro Audited Financial
Statements and Synagro Unaudited Financial Statements are collectively referred
to herein as the "Synagro Financial Statements.")
Section 2.9 LITIGATION. Except as set forth in Schedule 2.9 hereto:
(a) there is no pending or, to the best knowledge of Purchasers,
threatened complaint, charge, claim, action, suit or arbitration proceeding
before any federal, territorial, state, municipal, foreign or other court or
governmental or administrative body or agency, or any private arbitration
tribunal or any investigation or inquiry before any federal, territorial, state,
municipal, foreign or other court or governmental or administrative body or
agency against, relating to or affecting (i) Purchasers or any director,
officer, agent or employee thereof in his or her capacity as such, (ii) the
assets, properties or business of Purchasers, or (iii) the transactions
contemplated by this Agreement, nor, to the best knowledge of Purchasers, is
there any basis for any such complaint, charge, claim,
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action, suit, arbitration proceeding, investigation or inquiry which could have
an adverse effect on the assets, property, business or prospects of Purchasers;
(b) There is not in effect any order, judgment or decree of any court
or governmental or administrative body or agency enjoining, barring, suspending,
prohibiting or otherwise limiting Purchasers or, to the best knowledge of
Purchasers, any officer, director, employee or agent thereof from conducting or
engaging in any aspect of the business of Purchasers, or requiring Purchasers
or, to the best knowledge of Purchasers, any officer, director, employee or
agent thereof to take certain action with respect to any aspect of the business
of Purchasers which could reasonably be anticipated to have a Material Adverse
Effect; and
(c) Purchasers are not in violation of or default under any applicable
order, judgment, writ, injunction or decree of any federal, territorial, state,
municipal, foreign or other court or regulatory authority.
Section 2.10 COMPLIANCE WITH LAW. The operations of Purchasers have been
conducted in accordance with all applicable laws, regulations and other
requirements of all national governmental authorities, and of all territories,
states, municipalities and other political subdivisions and agencies thereof
having jurisdiction over Purchasers, including, without limitation, all such
laws, regulations, ordinances and requirements relating to environmental,
antitrust, consumer protection, labor and employment, zoning and land use,
currency exchange, immigration, health, occupational safety, pension,
securities, defense procurement and trading with the enemy matters, except as
disclosed in Schedule 2.10 hereto and except for violations which would not,
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth in Schedule 2.10, Purchasers have not received any notification since
their inception of any asserted present or past failure by Purchasers to comply
with such laws, regulations, ordinances or requirements. Purchasers have all of
the permits, authorizations and consents necessary for the operation of their
business except for those which the failure to have would not, individually or
in the aggregate, have a Material Adverse Effect.
Section 2.11 TITLE TO THE EXCHANGED SYNAGRO STOCK AND THE ADDITIONAL
EXCHANGED SYNAGRO STOCK. Upon delivery to the Pima Gro Shareholders of the
certificates described in Section 3.1(a)(ii) and 3.4(d) of this Agreement, the
Pima Gro Shareholders will receive good and marketable title to the Combined
Exchanged Synagro Stock, and as the case may be, all of the Exchanged Synagro
Stock and the Additional Exchanged Synagro Stock shall be received by the Pima
Gro Shareholders as validly issued, fully paid and nonassessable, free and clear
of all pledges, liens, encumbrances, security interests, equities, options,
claims, charges, limitations on voting rights or rights to receive dividends, or
other restrictions of any kind (other than any generally imposed by federal,
corporate or territorial securities laws or as otherwise provided for in this
Agreement).
Section 2.12 COMPLIANCE WITH EXCHANGE ACT. As of the Closing, Purchasers
shall be current in all filings required to be tendered to the Commission
pursuant to the
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Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Pima Gro
Shareholders have heretofore been furnished with true, complete and correct
copies of the following: (a) Synagro's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, as filed with the Commission; (b) Synagro's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996, as
filed with the Commission; and (c) all other reports or registration statements
filed by Synagro with the Commission since March 31, 1996 (collectively, the
"Commission Filings"). Since March 31, 1996, Synagro has filed all reports,
registration statements and other documents required to be filed by it under the
Exchange Act. To the best knowledge of Purchasers, the Commission Filings were
prepared in accordance and complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act, as the case may be.
None of such forms, reports and statements, including, without limitation, any
financial statements, exhibits and schedules included therein and documents
incorporated therein by reference, at the time filed, or declared or it became
effective, as the case may be, contained, or now contains, and at the Closing
Date will contain, an untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Section 2.13 PURCHASERS' SCHEDULES. Purchasers shall cause the
Purchasers Schedules and the instruments and data delivered to the Target
Corporations hereunder to be updated after the date hereof up to and including
the Closing Date, as hereinafter defined.
ARTICLE III
CONSIDERATION AND CLOSING
Section 3.1 AMOUNT AND METHOD OF PAYMENT OF PURCHASE PRICE. (a) Except as
otherwise provided herein, the consideration (the "Purchase Price") for the
purchase of the Exchanged Pima Gro Stock (inclusive of the goodwill associated
with owning and operating the Business) shall consist of the payment by
Purchasers to the Pima Gro Shareholders of the sum of Three Million Ninety-Five
Thousand Five Hundred Sixty-One Dollars ($3,095,561) (the "Fixed Sum"). The
Fixed Sum shall be paid or otherwise provided to the Pima Gro Shareholders as
follows:
(i) the sum of One Million Two Hundred Seventy Seven Thousand Two
Hundred Sixty Five Dollars ($1,277,265) in cash or cash equivalents payable at
Closing. All amounts payable as a part of the Purchase Price, which are payable
in cash or cash equivalents shall, upon the written request of the Pima Gro
Shareholders, be delivered by wire transfer pursuant to Section 3.1(a)(v)hereto;
(ii) 155,000 shares of common stock, $0.002 par value (the "Exchanged
Synagro Stock"), having an acknowledged value, for purposes of this
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Agreement, of $1.437 per share, for an aggregate consideration of Two Hundred
Twenty-Two Thousand Seven Hundred Thirty Five Dollars ($222,735);
(iii) delivery of a promissory note ("Note") in the principal amount
of One Million Five Hundred Ninety Five Thousand Five Hundred Sixty One Dollars
($1,595,561), in the form attached as Schedule 3.1 hereto;
(iv) such additional amounts as may be required to be paid (the
"Contingent Sum Payment") pursuant to Section 3.4 hereto; and
(v) all payments of cash or cash equivalents and all wire transfers
to be made by the Purchasers as against the Purchase Price or the Contingent Sum
(as defined below), if any, shall be directed in writing prior to the date each
payment is to be made; such direction being signed by each Pima Gro Shareholder
as to his share of any payments. So long as Purchasers make the payments
consistent with the directions received in writing, Purchasers are relieved of
any claims of, or responsibility to any of the Pima Gro Shareholders should any
Pima Gro Shareholder claim to have not received his portion of any such payment.
(b) The Pima Gro Shareholders shall deliver to Purchasers the
certificates for the Exchanged Pima Gro Stock described in Section 3.8 hereto.
Section 3.2 SECURITY INTEREST. As partial security for the full and timely
payment of the Note, at the Closing, Purchasers shall execute a pledge agreement
(the "Pledge Agreement") in the form attached as Schedule 3.2 hereto, which
shall represent a security interest in certain collateral (the "Collateral"), as
described in the Security Agreement.
Section 3.3 ADDITIONAL SECURITY. As additional security for the full and
timely payment of the Note, (a) at the Closing, Purchasers shall deliver to the
Pima Gro Shareholders an irrevocable standby letter of credit (the "Letter of
Credit"), in the form attached as Schedule 3.3 hereto, which shall be in favor
of the Pima Gro Shareholders, in the amount of Four Hundred Sixty-Two Thousand
Seven Hundred Thirteen Dollars ($462,713); and (b) at all times during which
there is any unpaid balance owing on the Note, Purchasers shall: (i) maintain
insurance ("Business Insurance") on the Business and the Target Corporations'
Assets with insurers, and with the types of coverages described in Schedule 3.3
hereto, (ii) designate the Pima Gro Shareholders as co-insureds under the
Business Insurance policies in the amounts of insurance designated in Schedule
3.3, and promptly notify the Pima Gro Shareholders in writing before making any
modifications to any of the Business Insurance policies.
Section 3.4 PAYMENT OF CONTINGENT SUM. (a) In addition to the Fixed Sum,
the Pima Gro Shareholders may be paid additional amounts for the Exchanged Pima
Gro Stock, such amounts, if any, which shall be referred to as the contingent
sum (the "Contingent Sum"). The Contingent Sum shall be calculated in the
manner described in Section 3.4(b) through (i), hereof, but in no event shall
Contingent Sum payments made to
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the Pima Gro Shareholders, exceed in the aggregate Two Million Nine Hundred
Forty Thousand Dollars ($2,940,000).
(b) For purposes of this Section 3.4, the Target Corporations shall prepare
a fiscal year end unaudited financial statement prepared in accordance with
GAAP. Further, from such financial statement net income from operations shall
be determined and utilized as the basis for determining pre-tax earnings as set
forth more fully hereinbelow. Except as otherwise provided herein, the amount
of the Contingent Sum Payment shall be determined, as follows:
(i) For purposes of this Section 3.4(b), "pre-tax earnings" shall be
defined as net income from operations less applicable interest expense and any
and all state and local taxes, paid or accrued, but shall not include any gain
on sale of assets by the Target Corporations during fiscal years ending December
31, 1996 through December 31, 1998 (the "Contingent Sum Determination Period").
(ii) Further, pre-tax earnings shall: (A) exclude decreases in the
operating costs of the Target Corporations derived from the reduction of
accounting, audit, tax or computer support costs ("AATC Costs") of the Target
Corporations during the Contingent Sum Determination Period related to the
effect of the integration of operations of the Target Corporations with the
Purchasers following the Closing Date ("Integration of Operations") (for this
purpose, the AATC Costs shall be fixed at Two Hundred Seventy-Five Thousand One
Hundred Dollars($275,100) per year, regardless of the actual amount of the AATC
Costs incurred during this period), and (B) include in pre-tax earnings all
increases and decreases in operating costs incurred by the Target Corporations
during the Contingent Sum Determination Period, except as otherwise specifically
provided in this Section 3.4(b). Release of such Personal Guarantees (as defined
below) shall be at the request of the Pima Gro Shareholders and to the extent
such release of Personal Guarantees results in an increase in operating costs
incurred by the Target Corporations such costs shall decrease pre-tax earnings.
No corporate overhead shall be charged to the Target Corporations by the
Purchasers. However, during the Contingent Sum Determination Period, the Target
Corporations shall reasonably share the available time of Ken McCord.
(iii) The Pima Gro Shareholders shall receive the Contingent Sum
Payment of Four Dollars and Sixteen Cents ($4.16) for each dollar by which
pre-tax earnings for each of the fiscal years during the Contingent Sum
Determination Period shall exceed the Base Earnings Amount (as defined below or
the adjusted base earnings amount (as defined below),as the case may be). The
Purchasers shall deliver written notice to the Pima Gro Shareholders of the
amount of the Contingent Sum Payment for each such fiscal year on or before
ninety (90) days following the end of each such fiscal year (the "Contingent Sum
Determination Date").
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(iv) For the fiscal year ending December 31, 1996, the base earnings
amount shall equal Three Hundred Eighty Thousand Dollars ($380,000) (the "Base
Earnings Amount").
(v) For each subsequent fiscal year during the Contingent Sum
Determination Period, the Base Earnings Amount shall be adjusted (the "Adjusted
Base Earnings Amount") by: (A) any amount utilized for calculating the
Contingent Sum Payment, before applying the Multiplier, to determine the amount
to be received by the Pima Gro Shareholders pursuant to Section (b)(i) as the
Contingent Sum Payment for the immediately preceding fiscal year, and (B) the
amount by which the Base Earnings Amount shall exceed pre-tax earnings with
respect to the immediately preceding fiscal year. In the event that the Target
Corporations do not have pre-tax earnings equal to or greater than the Base
Earnings Amount or any Adjusted Base Earnings Amount (the "Shortfall"), the
amount of the Shortfall will be added to the amount of the Base Earnings Amount
or the Adjusted Base Earnings Amount, as the case may be, for the next
succeeding Contingent Sum Determination Period, subsequent to December 31, 1996,
before any Contingent Sum is determined or paid.
(c) Any Contingent Sum Payment which may be due and payable for any
fiscal year during the Contingent Sum Determination Period shall be reduced on a
dollar for dollar basis by any amounts during each such fiscal year, borrowed or
expended, regardless of source, by the Target Corporations (or by Purchasers for
the benefit of the Target Corporations) with respect to the purchase,
replacement or maintenance of equipment and machinery utilized in the operations
of the Target Corporations, which shall exceed the amount for which the Target
Corporations have budgeted for each such fiscal year (the "Equipment Expense
Budget"). For purposes of this Section 3.4 (c), the Boards of Directors of the
Target Corporations shall prepare a written Equipment Expense Budget for each
such fiscal year on or before the the last business day of the preceding fiscal
year. However, for the fiscal year ending December 31, 1996, the Equipment
Expense Budget shall be Six Hundred Forty Two Thousand Seven Hundred Dollars
($642,700). During the Contingent Sum Period, the replacement of equipment by
either of the Target Corporations shall not exceed historic replacement levels,
without the unanimous written consent of the Boards of Directors thereof, but in
no event shall such amount be less than $200,000.
(d) Except as otherwise provided herein, Purchasers shall satisfy
their obligation to pay the Contingent Sum to the Pima Gro Shareholders, when
the Contingent Sum is due, by tendering to the Pima Gro Shareholders, on the
Contingent Sum Determination Date (as defined herein), one of the following: (i)
all or a portion of up to 1,000,000 shares of Synagro Common Stock (the
"Additional Exchanged Synagro Stock"), the number of shares of Additional
Exchanged Synagro Stock shall be determined by the Market Value (as defined
below). However, for each $0.86 of Market Value of the Synagro Common Stock the
Purchasers shall pay to the Pima Gro Shareholders the sum of $0.14 in cash (no
portion of which shall be paid pursuant to a promissory note); or (ii) at the
option of Synagro, a combination of an amount of cash, or
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cash equivalents, which cash payment shall equal no less than fifty percent
(50%) of the Contingent Sum Payment then due, and either: (A) a promissory note
(the "Contingent Note") in the form attached as Schedule 3.4, in an amount equal
to the difference between the amount of cash so paid and the Contingent Sum
Payment then due, or (B) a number of shares of Synagro Common Stock, with an
aggregate Market Value in an amount equal to the difference between the amount
of cash so paid and the Contingent Sum Payment then due. The Market Value of
the Synagro Common Stock, for purposes of this Section 3.4, shall be the average
of the mean between the bid and asked prices for the Synagro Common Stock in
the market for such securities during the twenty (20) business days preceding
each Contingent Sum Determination Date.
(e) Each of the Purchasers shall use its best efforts to provide
adequate funding and bonding for each of the Target Corporations during the
Contingent Sum Determination Period. Any capital which is advanced by either of
the Purchasers as a loan to either of the Target Corporations during the
Contingent Sum Determination Period may accrue interest at a rate equal to the
rate paid by the Purchaser to borrow such funding or bonding. If the funding
provided by a Purchaser is not borrowed by such Purchasers it may accrue
interest at a maximum rate equal to the lesser of: (A) prime, as determined at
the time of the loan; or (B) eight percent (8%) PER ANNUM.
(f) During the Contingent Sum Determination Period, Wilson Nolan
shall be able to exercise the same control and discretion with regard to each of
the Target Corporations as Wilson Nolan was able to exercise as president
thereof prior to the Closing, subject only to restrictions imposed on officers
of Affiliates of corporations whose securities are publicly traded and
applicable corporate law, except for the following, which will require approval
of the Boards of Directors of the Target Corporations: (A) capital expenditures
in excess of the amounts set forth in Section 3.4(c),of Six Hundred Forty Two
Thousand Seven Hundred Dollars ($642,700); and (B) payments from the Target
Corporations to Wilson Nolan, other than salary payable under and pursuant to
the employment agreement attached hereto as Schedule 5.6.
(g) During the Contingent Sum Determination Period, Wilson Nolan
shall have the option of electing to reduce his own compensation and benefits so
long as Wilson Nolan advises Purchasers of his election in this regard on or
before the December 31, preceding the year for which the election has been made.
For the fiscal year ending December 31, 1996, this election shall be provided no
later than August 15, 1996. Any of the savings to the Target Corporations
associated with such a reduction shall be included in pre-tax earnings for
purposes of calculating the Contingent Sum Payment.
(h) In the event that the Target Corporations are required to reserve
up to the amount of $363,000 for site development costs (the "Site Development
Costs") listed on the Pima Gro Audited Financial Statements, during the three
(3) year period ending December 31, 1998, for purposes determining the
Contingent Sum, if any, to be paid by the Purchasers to the Pima Gro
Shareholders, the parties hereto have agreed that the Site Development Costs
will be amortized equally over a three (3) year period.
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(i) Notwithstanding anything to the contrary contained in this
Agreement, in the event that Site Development Costs are reserved against (the
"Reserve") as described in Section 3.4(h) and such Reserve is not reversed prior
to any Contingent Sum Determination Period, any cash payable and any Contingent
Sum Notes or any proceeds payable pursuant and any Additional Exchanged Synagro
Stock or any proceeds of the sale thereof (the "Reserve Proceeds") that are
deliverable to the Pima Gro Shareholders shall be deposited into an escrow (the
"Escrow"), pursuant to an escrow agreement (the "Escrow Agreement") in the form
attached hereto as Schedule 3.4(i). The Reserve Proceeds shall be maintained in
the Escrow until the final Contingent Sum Determination Date. At the final
Contingent Sum Determination Date, in the event that the aggregate of the
Contingent Sum earned by the Pima Gro Shareholders is in excess of the amount of
Contingent Sum cash payments actually paid to the Pima Gro Shareholders (the
"Reserve Excess"), the Contingent Notes, shares of Additional Exchanged Synagro
Stock or cash proceeds therefrom, and interest earned thereon, if any, in the
Escrow Account equal to the Reserve Excess, plus interest thereon, if any, shall
be delivered to the Pima Gro Shareholders. Any Contingent Sum Notes, Additional
Exchanged Synagro Stock or cash proceeds thereof, including interest thereon
shall be returned to Synagro and maintained by Synagro as Synagro's property.
Section 3.5 PURCHASE PRICE ADJUSTMENT. (a) As soon as practicable, but in
no event later than sixty (60) days following the Closing Date, the Purchasers
shall prepare and deliver to the Pima Gro Shareholders a balance sheet for the
Business as of the Closing Date (the "Closing Balance Sheet"), which shall
include the Purchasers' computation of the Net Target Corporations Assets Value
("Net Asset Value")as of the Closing Date. As used herein, "Net Asset Value" as
of the Closing Date means the assets less the liabilities as reflected on the
Closing Balance Sheet. The Closing Balance Sheet shall: (i) only reflect assets
and liabilities as of the close of business on the Closing Date in accordance
with GAAP and on a basis consistent with the Pima Gro Audited Financial
Statements, and (ii) be prepared as if the Closing Date were a fiscal year end.
(b) The Pima Gro Shareholders shall have a period of thirty (30) days
from the date of receipt by the Pima Gro Shareholders of the Closing Balance
Sheet to review (the "Review Period") the Closing Balance Sheet and the
Purchasers' calculation of the Net Asset Value as of the Closing Date. During
such period, the Purchasers shall afford the Pima Gro Shareholders access to any
of the books, records and work papers reasonably necessary to enable the Pima
Gro Shareholders to review the Closing Balance Sheet and the Purchasers'
calculation of the Net Asset Value as of the Closing Date. The Pima Gro
Shareholders may dispute any amounts reflected in the Purchasers' computation,
by giving notice (the "Notice of Dispute") within the Review Period and
specifying in such Notice of Dispute each and every disputed item and setting
forth in reasonable detail the basis for such dispute.
(c) As promptly as practicable following receipt of the Closing
Balance Sheet prepared by the Purchasers and a Notice of Dispute, an auditor
selected by
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Purchasers (the "Auditor") shall complete an audit for the purpose of rendering
its report that the Closing Balance Sheet, with such adjustments, if any, as the
Auditor may require in order to render such report, has been prepared in
accordance with GAAP and on a basis consistent with the Pima Gro Audited
Financial Statements. The Closing Balance Sheet, with such adjustments, if any,
as the Auditor may require in order to render its report, is hereinafter
referred to as the "Audited Closing Balance Sheet." The Auditor also shall
prepare a calculation of the Net Asset Value as of the Closing Date based upon
the Audited Closing Balance Sheet (the "Certified Net Asset Value"), and deliver
such calculation to the Purchasers and the Pima Gro Shareholders as promptly as
practicable, but in no event later than 120 days after the Closing Date. All
expenses of the Auditor in connection with the preparation of the Audited
Closing Balance Sheet and the determination of the Certified Net Asset Value
shall be borne by the Purchasers.
(d) If the Pima Gro Shareholders or the Purchasers disagree with the
Audited Closing Balance Sheet or the Certified Net Asset Value as delivered
pursuant to Section 3.5(c) hereof, then, within thirty (30) days after the
Auditor's delivery thereof, either or both of the Pima Gro Shareholders and the
Purchasers may deliver a notice to the other and to the Auditor of such
disagreement, setting forth such disagreeing party's disagreement with respect
to the Audited Closing Balance Sheet and calculation of Certified Net Asset
Value as of the Closing Date. Any such notice of disagreement shall specify
those items or amounts as to which the Pima Gro Shareholders or the Purchasers
disagree, and the Pima Gro Shareholders or the Purchasers, as the case may be,
shall be deemed to have agreed with all other items and amounts contained in the
Audited Closing Balance Sheet and the Certified Net Asset Value.
(e) If a notice of disagreement shall be timely delivered pursuant to
Section 3.5(d) hereof, the parties shall, during the thirty (30) days following
such delivery, use their reasonable best efforts to reach agreement on the
disputed items or amounts in order to determine, as may be required, the amount
of Net Asset Value as of the Closing Date. If, during such period, the parties
are unable to reach such agreement, they shall promptly thereafter cause
Deloitte & Touche, or if such firm declines to act in such capacity, such other
firm of independent nationally recognized accountants (other than the Auditor)
chosen by the Purchasers and reasonably acceptable to the Pima Gro Shareholders
(the "Accounting Referee") promptly to review this Agreement, and the disputed
items or amounts for the purpose of calculating the Net Asset Value as of the
Closing Date. In making such calculation, the Accounting Referee shall consider
only those items or amounts in the Audited Closing Balance Sheet or Certified
Net Asset Value as to which the Pima Gro Shareholders or the Purchasers have
disagreed. The Accounting Referee shall deliver to the Pima Gro Shareholders
and the Purchasers, as promptly as practicable, a report (the "Report") setting
forth such calculation. Such report shall be final and binding upon the parties
hereto. The costs of such review and report pursuant to this Section 3.5(e)
shall be borne equally by the Pima Gro Shareholders and the Purchasers. As used
herein, "Final Net Asset Value" means (i) the Certified Net Asset Value, if no
notice of disagreement is delivered by the Pima Gro Shareholders or the
Purchasers during the period provided in Section 3.5(d); or (ii) if such a
notice of
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disagreement is delivered by the Pima Gro Shareholders or the Purchasers, either
(A) as agreed by the Pima Gro Shareholders and the Purchasers or (B) as shown in
the Accounting Referee's calculation delivered pursuant to this Section 3.5(e).
(f) In the event the Closing Balance Sheet or the Report reflects a
difference between the Pima Gro Audited Financial Statement and the Closing
Balance Sheet which is greater than $25,000, the Purchasers shall deduct from
the Note, as a downward adjustment to the Purchase Price, an amount equal to
the difference between the Net Asset Value set forth in the Pima Gro Audited
Financial Statement and the Net Asset Value contained in the Closing Balance
Sheet (or if a Certified Final Net Asset Value is required to be determined
pursuant to this Section 3.5, then pursuant to the Audited Closing Balance
Sheet).
(g) There shall be no adjustment in the Purchase Price unless the Net
Asset Value or the Certified Final Net Asset Value of the Target Corporations at
June 30, 1996 is less than $1,947,243.
Section 3.6 RELEASE OF PIMA GRO SHAREHOLDERS' PERSONAL GUARANTEES. In
connection with personal guarantees ("Personal Guarantees") provided by the Pima
Gro Shareholders in connection with obligations of the Target Corporations,
except as otherwise provided herein, Purchasers agree that Purchasers shall:
(a) within two (2) years following the Closing Date arrange to have
released all Personal Guarantees, existing at the Closing Date, of the Pima Gro
Shareholders;
(b) use Purchasers' best efforts to have released prior to such two
(2) year period all Personal Guarantees of the Pima Gro Shareholders, with
regard to:
(i) obligations owing to bonding companies (the "Bonding
Companies") listed on Schedule 3.6 hereto, which Bonding Companies have provided
surety and other forms of bonds ("Bonds") for the benefit of the Target
Corporations, in relation to the performance of services being and to be
performed by the Target Corporations, pursuant to contracts that are listed in
Schedules 1.13 and 1.16 hereto; and
(ii) obligations owing to lenders to the Target Corporations and
lessors of equipment or leased property utilized by the Target Corporations, set
forth on Schedule 3.6 hereto.
(c) Within one (1) year from the Closing Date, the Purchasers shall
have arranged for the release of the Personal Guarantees in connection with the
accounts receivable financing.
(d) In the event that Purchasers are able to arrange for the release
of one or more of the Personal Guarantees solely in connection with Bonds that
are referenced in
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this Section 3.6, within ten (10) days after receipt of notice given by
Purchasers that a Personal Guarantee is about to be released, the Pima Gro
Shareholders shall have the option to waive the provisions of this Section 3.6.
If a waiver is sought for such a Personal Guarantee and the Pima Gro
Shareholders choose to waive the provisions of Section 3.6(d), then Purchasers
obligation to obtain the release of Personal Guarantees for all bonding
referenced in Section 3.6(b)(i) and (ii) shall be modified so that the
obligation of Purchasers to obtain the release of the Personal Guarantees shall
become the greater of:
(i) two (2) years from the Closing Date; or
(ii) one (1) year from the date the Pima Gro Shareholders waive
their rights pursuant to Section 3.6(d) hereof.
(e) Under no circumstances shall any of the provisions of this Section
3.6 apply to any matter for which a Personal Guarantee has been given in which a
claim has been asserted as of the Closing Date. On the later of six (6) months
from the release of a claim on any such Bond; or (ii) the period set forth in
Section 3(d)(ii) above, the Personal Guarantee of the Pima Gro Shareholders
shall be released.
Section 3.7 CLOSING. The closing ("Closing") of the transactions
contemplated by this Agreement shall take place on July 18, 1996 (the "Closing
Date"), 10:00 a.m. at the offices of Purchasers located at 16000 Stuebner
Airline, Suite 420, Spring, Texas 77379, prior to which time the transactions
contemplated hereby may not be effectuated. The parties hereto acknowledge that
regardless of the Closing Date, the transactions referenced in this Agreement
shall be deemed to have closed as of the end of the business day on July 1,
1996. If the Closing does not occur on or before September 9, 1996, this
Agreement shall lapse.
Section 3.8 CLOSING EVENTS. At the Closing, the Pima Gro Shareholders
have been requested to deliver the certificates representing the Exchanged Pima
Gro Stock, duly endorsed and signature medallion guaranteed, to the Purchasers.
The Pima Gro Shareholders have advised the Purchasers that they cannot locate
the certificates that have been issued to the Pima Gro Shareholders, including
the share certificates that represent all of the issued and outstanding shares
of the Target Corporations, or the stock ledgers of the Target Corporations or
any certificates of the Target Corporations which have been issued and
subsequently cancelled (the "Missing Certificates"). In lieu of producing the
Missing Certificates each of the Pima Gro Shareholders shall execute the
certificates attached hereto as Schedule 3.8. Further, each of the respective
parties hereto shall execute, acknowledge, and deliver (or shall cause to be
executed, acknowledged and delivered) any and all certificates, opinions,
financial statements, schedules, agreements, resolutions, rulings, or other
instruments required by this Agreement to be so delivered at or prior to the
Closing, together with such other items as may be reasonably requested by the
parties hereto and their respective legal counsel in order to effectuate or
evidence the transactions contemplated hereby. However, in no event shall the
Closing occur without the satisfaction or waiver of the conditions set forth in
Sections 5 and 6 of this Agreement.
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Section 3.9 TERMINATION.
(a) This Agreement may be terminated by the board of directors of either
Purchasers or the Target Corporations at any time prior to the Closing Date if:
(i) there shall be any actual or threatened action or proceeding
before any court or any governmental body which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement and which, in the
judgment of such boards of directors, made in good faith and based on the advice
of their legal counsel, makes it inadvisable to proceed with the transactions
contemplated by this Agreement; or
(ii) any of the transactions contemplated hereby are disapproved by
any regulatory authority whose approval is required to consummate such
transactions or in the judgment of such boards of directors, made in good faith
and based on the advice of counsel, there is substantial likelihood that any
such approval will not be obtained or will be obtained only on a condition or
conditions which would be unduly burdensome, making it inadvisable to proceed
with the merger and consolidation.
In the event of termination pursuant to this paragraph (a) of Section 3.9,
no obligation, right or liability shall arise hereunder, and each party shall
bear all of the expenses incurred by it in connection with the negotiation,
drafting and execution of this Agreement and the transactions herein
contemplated;
(b) This Agreement may be terminated at any time prior to the Closing Date
by action of the boards of directors of Purchasers if the Target Corporations
shall fail to comply in any material respect with any of their covenants or
agreements contained in this Agreement or if any of the representations or
warranties of the Target Corporations contained herein shall be inaccurate in
any material respect. If this Agreement is terminated pursuant to this Section
3.9(b), this Agreement shall be of no further force or effect, and no
obligation, right or liability shall arise hereunder;
(c) This Agreement may be terminated at any time prior to the Closing Date
by action of the board of directors of the Target Corporations if Purchasers
shall fail to comply in any material respect with any of their covenants or
agreements contained in this Agreement or if any of the representations or
warranties of Purchasers contained herein shall be inaccurate in any material
respect. If this Agreement is terminated pursuant to this paragraph (c) of
Section 3.9, this Agreement shall be of no further force or effect and no
obligation, right or liability shall arise hereunder.
Section 3.10 DIRECTORS AND OFFICERS OF THE TARGET CORPORATIONS. (a) At the
Closing, each of the members of the Boards of Directors of the Target
Corporations shall tender his resignation and Purchasers shall appoint new
members to the Boards of Directors of the Target Corporations. Unless otherwise
provided for herein during the period beginning with the Closing Date and ending
with the Final Contingent Sum
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Determination Date, the Purchasers agree that they shall vote to elect Wilson
Nolan, or his designee to the Boards of Directors of the Target Corporations, so
that Wilson Nolan and/or his designees, during all such times, shall represent
one-third of the directors on the Boards of Directors of the Target
Corporations. Notwithstanding anything herein to the contrary, the right of
Wilson Nolan set forth in this Section 3.10 above shall lapse in the event of:
(i) his employment with Pima Gro being terminated pursuant to the terms of his
employment agreement as set forth on Schedules 5.6 hereto; or (ii) the Pima Gro
Shareholders have received the maximum amount of the Contingent Sum the Pima Gro
Shareholders are entitled to receive pursuant to Section 3.4, hereof.
(b) At the Closing, the officers of the Target Corporations shall tender
their resignations as officers and Purchasers shall appoint new officers for the
Target Corporations. The names of the officers of the Target Corporations who
shall hold office, subject to the bylaws of each of the Target Corporations,
shall be as follows: Don Thone, Chairman of the Board of Directors, Daniel
Shook, Chief Financial Officer and Corporate Secretary (the "Corporate
Secretary"), Ken McCord, as an assistant secretary and Wilson Nolan, President
and Chief Executive Officer. The Boards of Directors of the Target Corporations
shall appoint an assistant secretary in the Redlands, California office of the
Target Corporations, in addition to Ken McCord. The Boards of Directors of the
Target Corporations shall authorize such assistant secretary to execute
documents presented by Wilson Nolan related to bonding matters only, without
further authorization of the Boards of Directors of the Target Corporations.
All other matters requiring the signature of the secretary of the Target
Corporations shall be executed by the Corporate Secretary, unless otherwise
authorized by the Boards of Directors of the Target Corporations in writing.
ARTICLE IV
SPECIAL COVENANTS
Section 4.1 ACCESS TO PROPERTIES AND RECORDS. Purchasers, and the Target
Corporations, will each afford to the officers and authorized representatives of
the other full access to the properties, books and records of Purchasers, and
the Target Corporations, as the case may be, in order that each may have full
opportunity to make such reasonable investigation as it shall desire to make of
the affairs of the other, and each will furnish the other with such additional
financial and operating data and other information as to the business and
properties of Purchasers, and the Target Corporations, as the case may be, as
the other shall from time to time reasonably request.
Section 4.2 AVAILABILITY OF RULE 144. Each of the parties acknowledges
that the Combined Exchanged Synagro Stock to be issued pursuant to this
Agreement will be "restricted securities," as that term is defined in Rule 144
promulgated pursuant to the Securities Act. Synagro is under no obligation,
except as set forth herein, to register such shares under the Securities Act.
Notwithstanding the foregoing, however, Synagro will use its best efforts to:
(a) make publicly available on a regular basis not less than semi-annually,
business and financial information regarding Synagro so as to make available to
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the stockholders of Synagro the provisions of Rule 144 pursuant to subparagraph
(c)(1) thereof; and (b) within three (3) days of any written request of any
stockholder of Synagro, Synagro will provide to such stockholder written
confirmation of compliance with such of the foregoing subparagraph as may then
be applicable. The stockholders of Synagro holding restricted securities of
Synagro as of the date of this Agreement, and their respective heirs,
administrators, personal representatives, successors and assigns, are intended
third party beneficiaries of the provisions set forth herein. Synagro will not
take any action which would interfere with the ability of the Pima Gro
Shareholders to sell the Combined Exchanged Synagro Stock pursuant to applicable
law at the soonest possible date following the Closing Date. The covenants set
forth in this Section 4.2 shall survive the Closing and the consummation of the
transactions herein contemplated.
Section 4.3 INFORMATION FOR PURCHASERS PUBLIC REPORTS. Upon written
request of Synagro or its counsel, the Target Corporations and the Pima Gro
Shareholders will furnish Purchasers with all information concerning the Target
Corporations and the Pima Gro Shareholders, including all financial statements,
required for inclusion in any public reports required to be filed by Synagro
pursuant to the Securities Act, the Exchange Act or any other applicable federal
or state law. The Target Corporations represent and warrant to Synagro that, to
the best of their knowledge and belief, all information so furnished, including
the financial statements described in Section 1.9, shall be true and correct in
all material respects without omission of any material fact required to make the
information stated not misleading.
Section 4.4 SPECIAL COVENANTS AND REPRESENTATIONS REGARDING THE COMBINED
EXCHANGED SYNAGRO STOCK. The consummation of this Agreement and the
transactions herein contemplated, including the issuance of the Combined
Exchanged Synagro Stock to the Pima Gro Shareholders as contemplated hereby,
constitutes the offer and sale of securities under the Securities Act, and
applicable state statutes. Such transactions shall be consummated in reliance
on exemptions from the registration and prospectus delivery requirements of such
statutes which depend, INTER ALIA, upon the circumstances under which the Pima
Gro Shareholders acquire such securities.
Section 4.5 THIRD PARTY CONSENTS. Purchasers and the Target Corporations
agree to cooperate with each other in order to obtain any required third party
consents to this Agreement and the transactions herein contemplated.
Section 4.6 ACTIONS PRIOR TO CLOSING.
(a) From and after the date of this Agreement until the Closing Date and
except as set forth in the Purchasers or Pima Gro Schedules or as permitted or
contemplated by this Agreement, Purchasers and the Target Corporations,
respectively, will each:
(i) carry on the Business in substantially the same manner as it has
heretofore;
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(ii) maintain and keep its properties in states of good repair and
condition as at present, except for depreciation due to ordinary wear and tear
and damage due to casualty;
(iii) maintain in full force and effect insurance comparable in amount
and in scope of coverage to that now maintained by it;
(iv) perform in all material respects all of its obligations under
material contracts, leases and instruments relating to or affecting its assets,
properties and Business;
(v) use its reasonable commercial efforts to maintain and preserve
the Business organization intact, to retain its key employees and to maintain
its relationship with its material suppliers and customers; and
(vi) fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal and state laws and all
rules, regulations and orders imposed by federal or state governmental
authorities.
(b) From and after the date of this Agreement until the Closing Date,
neither Purchasers nor the Target Corporations will:
(i) (A) increase the rate of the compensation payable or to become
payable to any of the employees or agents of the Business other than in the
ordinary course of business, (B) amend in any material respect any bonus, stock
option, stock purchase, profit sharing, deferred compensation, pension,
retirement or other similar plan or arrangement to or in respect of any such
employee or agent, other than as may be required to maintain compliance with
ERISA and/or the Code or (C) enter into any new, or amend in any respect any
existing employment, severance or consulting agreement, sales agency, or other
Contract with respect to the performance of personal services for the Business,
other than as may be required to maintain compliance with ERISA and/or the Code;
(ii) (A) incur or become subject to, or agree to incur or become
subject to, any obligation or liability (contingent or otherwise) relating to
the Business, except (1) normal trade or business obligations (including
contracts) incurred in the ordinary course of business and consistent with past
practice and (2) obligations under contracts listed on any Schedule to this
Agreement, (B) sell, assign, transfer, convey, lease or otherwise dispose of any
of the Target Corporations' Assets, other than inventory of the Business, in the
ordinary course of business, (C) cancel or compromise any debts or claim or
waive or release any material right relating to the Business or the Target
Corporations' Assets, except for adjustments or settlements made in the ordinary
course of business consistent with past practice, or (D) acquire any assets
relating to the Business other than in the ordinary course of business;
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(iii) except as set forth on Schedule 4.6(b)(iii) hereof, make any
dividend, distribution or other payment in respect of its capital stock; or
(iv) take any action that would cause any representation or warranty
contained in this Agreement not to be true and correct as of the Closing Date,
as if made on the Closing Date.
Section 4.7 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
parties hereby agree that the representations and warranties made in this
Agreement and, except as set forth in the next sentence, the indemnification
obligations of the parties hereto, shall survive until June 30, 1999.
Section 4.8 INDEMNIFICATION. (a) Irrespective of any due diligence
investigation conducted by the Purchasers with regard to the transactions
contemplated hereby, the Pima Gro Shareholders, jointly and severally, agree to
indemnify and hold the Purchasers, and each of the officers and directors of
Purchasers as of the date of execution of this Agreement and as of the Closing
Date, harmless against any loss, liability, claim, damage or expense including,
but not limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened or any claim whatsoever (collectively, "Losses"), to which it or they
may become subject which are imposed on, paid by, or asserted against
Purchasers, their successors or assigns, at any time after the Closing Date by
reason or on account of, in connection with, arising out of, attributable to or
resulting from:
(i) any and all Losses incurred or suffered by the Purchasers
resulting from or arising out of any misrepresentation or breach of warranty
made by the Target Corporations or any of the Pima Gro Shareholders in the
Agreement or any of the Pima Gro Schedules;
(ii) any and all Losses incurred or suffered by the Purchasers
resulting from or arising out of the failure of the Target Corporations or any
Pima Gro Shareholders to comply with any of the covenants contained in this
Agreement or in any of the Pima Gro Schedules which are required to be performed
by the Target Corporations or any Pima Gro Shareholders prior to the Closing
Date;
(iii) any claims for any injury to person or property
attributable to any goods sold or services rendered by the Target Corporations
prior to the Closing, regardless of whether such claims are asserted prior to or
after the Closing (it being understood and agreed that (A) Losses under this
clause (iii) shall be net of any proceeds received by the Purchasers under any
policy of insurance maintained by the Purchasers in respect of such claims, and
(B) the Purchasers shall maintain the insurance required by them to be
maintained pursuant to Section 3.3 for the time period set forth in such Section
3.3);
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(iv) any Environmental Claim (as defined below) or any Remedial
Action (as defined below) arising out of or based upon anything relating to the
use of the Target Corporations' Target Corporations Assets or Business prior to
the Closing, or the operations of the Business prior to the Closing and the
present or future presence or suspected presence of Hazardous substances or
dangerous Substances in the soil, groundwater, surface waters, structures,
plumbing, wiring, or soil vapor on or about the Premises.
For purposes of this Section 4.8 "Environmental Claim" means any
allegation, notice of violating action, claim, lien, demand, abatement or other
order, injunction, judgment, decree, ruling, writ, assessment, arbitration award
or direction (conditional or otherwise) by any governmental or regulatory body
thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency or instrumentality thereof or any court or arbitrator
(public or private) (a "Governmental Body"), or any other person for personal
injury (including sickness, disease or death), tangible or intangible property
damage, damage to the environment, nuisance, pollution, contamination or other
diverse effects on the environment, or for fines, penalties or restrictions
resulting from or based upon (a) the existence, or the continuation of the
existence, or a release (including, without limitation, sudden or non-sudden
accidental or non-accidental releases) of, or exposure to, any Hazardous
Substance or other substance, chemical, material, pollutant, contaminant, odor,
audible noise, or other release in, into or onto the environment (including,
without limitation, the air, soil surface or groundwater) at, in, by, from or
related to any of the Premises or any activities conducted thereon; (b) the
environmental aspects of the transportation, storage, treatment or disposal of
Hazardous Substances in connection with the operation of the Business; or (iii)
the violation, or alleged violation, of any environmental law, order, Permit of
or from any Governmental Body relating to environmental matters connected with
the Business; and "Remedial Action" means any action, including, including
litigation, any capital expenditure, required or voluntarily undertaken to (a)
clean up, remove, treat, or in any other way address any Hazardous Substance or
any other substance in the indoor or outdoor environment, (b) prevent the
release or threat of release, or minimize the further release of any Hazardous
Substance or other substance so it does not migrate or endanger or threaten to
endanger public health or welfare of the indoor or outdoor environment, (c)
perform pre-remedial studies and investigations or post-remedial monitoring and
care, or (d) bring any asset of the Business into compliance with all
Environmental laws and Permits.
(v) any third party claims with respect to occurrences or events
which occurred on or prior to the Closing Date and relate to the Target
Corporations and/or its Employees. However, in the event Losses related solely
to the Thermal, California matter referenced in Schedule 1.20 hereto, require
indemnification pursuant to this Section 4.8, notwithstanding any provision in
this Agreement to the contrary, the Pima Gro Shareholders shall only be required
to provide indemnification on damages in excess of One Hundred Thousand Dollars
($100,000) any amount of indemnification not needed to be provided by the Pima
Gro Shareholders pursuant to this Section 4.8 (a)(v) may, at the Pima Gro
shareholders option, be applied toward any other matters of indemnifications;
and
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(vi) all actions, suits, proceedings, demands, assessments,
judgments, costs, penalties and expenses, including reasonable attorneys' fees,
incident to the foregoing.
The indemnification provided for in this Section 4.8(a) shall survive the
Closing and consummation of the transactions contemplated hereby and termination
of this Agreement. This indemnity by the Pima Gro Shareholders includes without
limitation, costs and expenses incurred in connection with any of the following:
(A) Any reasonable investigation, site monitoring, remediation,
removal, restoration, or reasonable related activities involving the presence of
or releases from the Premises of any Hazardous substances or surface waters,
structures, plumbing, wiring, or soil vapor on or about the Premises;
(B) Any claims made by any governmental authority with
jurisdiction over the Premises, including without limitation any administrative
costs; and
(C) Any claims relating to Hazardous Substances or dangerous
substances made by any third parties to this Agreement, including without
limitation government agencies, individuals and organizations of any kind
whatsoever.
However, the time during which and the amount of the indemnification
that is provided by the Pima Gro Shareholders shall be for a period of three (3)
years from the Closing Date (the "Indemnification Period") and shall be limited
in amount to the then balance due and owing on the Note or any Contingent Sums
due the Pima Gro Shareholders.
(b) Irrespective of any due diligence investigation conducted by the Pima
Gro Shareholders with regard to the transactions contemplated hereby, Purchasers
agree to indemnify and hold the Pima Gro Shareholders harmless, against any
loss, liability, claim, damage or expense including, but not limited to, any and
all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened or any claim
whatsoever (collectively, "Losses") to which they may become subject, including
claims on Personal Guarantees, which are imposed on, paid by, or asserted
against the Pima Gro Shareholders, their successors or assigns, at any time
after the Closing Date by reason or on account of, in connection with, arising
out of, attributable to or resulting from:
(i) any and all Losses incurred or suffered by the Pima Gro
Shareholders resulting from or arising out of any misrepresentation or breach of
warranty made by the Purchasers in this Agreement or in any of the Purchasers
Schedules;
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(ii) any and all Losses incurred or suffered by the Pima Gro
Shareholders resulting from or arising out of the failure of the Purchasers to
comply with any of the covenants contained in this Agreement or in any of the
Purchasers Schedules which are required to be performed by Purchasers;
(iii) any Environmental Claim or any Remedial Action arising out
of or based upon anything relating to the operation of the Business after the
Closing;
(iv) any third party claims with respect to occurrences or
events which occur after the Closing Date and relate to the operation of the
Business by the Purchasers after the Closing; and
(v) all actions, suits proceedings, demands, assessments,
judgments, costs, penalties and expenses, including reasonable attorneys' fees,
incident to the foregoing.
(vi) In the event the Pima Gro Shareholders elect to foreclose
upon the security described in the Pledge Agreement, a copy of which is attached
as Schedule 3.3 hereto, and the Target Corporations have incurred unsecured
borrowings, excluding trade payables acquired in the ordinary course of
business, prior to the date of such foreclosure, the Purchasers do indemnify and
hold the Pima Gro Shareholders harmless in an amount equal to the amounts of
such unsecured borrowings.
The indemnification provided for in this Section 4.8(b) shall survive the
Closing and consummation of the transactions contemplated hereby and termination
of this Agreement.
(c) (i) Notwithstanding anything to the contrary contained in this
Agreement, neither the Pima Gro Shareholders, on the one hand, nor the
Purchasers on the other hand, shall be liable for any Losses under this Section
4.8 unless and only to the extent such Losses exceed $25,000 in the aggregate.
The Purchasers agree, to the extent not prohibited or restricted in any way by
any law or otherwise, that the Purchasers will use their reasonable efforts, for
a period of sixty (60) days following a final determination of liability of any
of the Pima Gro Shareholders to attempt to collect any indemnification payment
due to Purchasers by the Pima Gro Shareholders hereunder as follows: Wilson
Nolan, forty-five percent (45%) Herbert Kai, twenty-seven and one-half percent
(27.5%) and John Kai, Jr., twenty seven and one-half percent (27.5%); PROVIDED,
HOWEVER, that nothing in this sentence shall relieve any of the Pima Gro
Shareholders from any liability the Pima Gro Shareholders may have; and
PROVIDED, FURTHER, that the Purchasers shall be relieved of any obligation under
this sentence if any of the Pima Gro Shareholders (or any of their assets) shall
be the subject of a bankruptcy or insolvency proceeding.
Section 4.9 NOTICE OF INDEMNIFICATION. (a) In the event any legal
proceeding shall be threatened or instituted or any claim or demand shall be
asserted by any person in respect of which payment may be sought by one party
hereto from any other party under the provisions of Section 4.8 (each such legal
proceeding, claim or demand
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being an "Indemnity Event"), the party seeking indemnification (the
"Indemnitee") shall promptly cause written notice of the occurrence of such
Indemnity Event of which it has knowledge, which is covered by this indemnity,
to be forwarded to such other party (the "Indemnitor") which notice in respect
of any claims for indemnification other than pursuant to any Sections 4.8(a) or
4.8(b) must be received by the Indemnitor prior to June 30, 1999. Any Indemnity
Event occurring by reason of any of the representations, warranties or covenants
contained in this Agreement shall state specifically the representation,
warranty or covenants with respect to which the Indemnity Event has occurred,
the facts giving rise to the occurrence of an alleged Indemnity Event, and the
amount of the liability asserted against the Indemnitor by reason of the
occurrence of such Indemnity Event. The Indemnitee shall have ninety (90) days
to cure (the "Cure Period") any Indemnity Event from the date notice is given,
before any action for Indemnification shall be instituted. However, in no event
shall the right to cure during such Cure Period interfere with the rights of
Purchasers to withhold payments up to the amount of the claim on the Note or any
Contingent Note as set forth in Section 4.11 (b) hereto. Once any asserted
claim has been cured, all amounts withheld on the Note or any Contingent Note
shall be released to the Pima Gro Shareholders, immediately.
(b) Within fifteen (15) business days (or ten (10) business days in
the case of third party claim pursuant to Section 4.10), after the receipt of a
written notice of the occurrence of an Indemnity Event, the Indemnitor shall
notify the Indemnitee in writing of its intent to contest it's obligation to
indemnify or reimburse the Indemnitor under this Agreement (a "Contest") or to
accept, in whole or in part, liability hereunder. Any such notice of Contest
shall specify those items or amounts as to which the Indemnitor disagrees, and
the Indemnitor shall be deemed to have accepted liability for all other items
and amounts. If the Indemnitor does not respond within such fifteen (15)
business day (or ten (10) business day) period to such written notice, the
Indemnitor shall be deemed to have accepted liability for the entire amount
requested by the Indemnitee.
(c) In the event of a Contest, within ten (10) business days of
receipt by an Indemnitee of the written notice thereof, each party shall select
an arbitrator and submit the dispute to binding arbitration in the State of
Texas. The arbitrators selected by each party shall select a third arbitrator.
If the third arbitrator cannot be agreed upon, the Federal District Court
sitting in Harris County, Texas shall select a third arbitrator. A decision by
the individual arbitrator or a majority decision by the three (3) arbitrators
shall be final and binding upon the parties. Such arbitration shall follow the
rules of the American Arbitration Association and must be resolved by the
arbitrators(s) within thirty (30) days after the matter is submitted to
arbitration.
Section 4.10 INDEMNIFICATION PROCEDURE FOR THIRD-PARTY CLAIMS. Except as
otherwise provided herein, in the event of the initiation of any legal
proceeding against an Indemnitee by a third party (a ("Third Party Claim"), the
Indemnitor shall have the absolute right after the receipt of notice, at its
option and at its own expense, to be represented by counsel of its choice, and
to defend against, negotiate, settle or otherwise deal with any proceeding,
claim or demand which relates to any loss, liability or damages
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indemnified against hereunder; PROVIDED, HOWEVER, that the Indemnitee may
participate in any such proceeding with counsel of its choice and at its expense
and the Indemnitor shall not settle any such proceeding, claim or demand unless
the Indemnitee is fully released without any admission of liability. The
parties hereto agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such legal proceeding, claim or
demand. To the extent the Indemnitor elects not to defend such proceeding,
claim or demand, and the Indemnitee defends against or otherwise deals with any
such proceeding, claim or demand, the Indemnitee may retain counsel, at the
expense of the Indemnitor, and control the defense of such proceeding. If the
Indemnitee shall settle any proceeding which the Indemnitor has elected not to
defend without the consent of the Indemnitor, the Indemnitee shall thereafter
have no claim against the Indemnitor under this Section 4.10 with respect to any
loss, liability, claim, obligation, damages and expense occasioned by such
settlement.
Section 4.11 INDEMNIFICATION PAYMENTS. (a) The Indemnitor shall pay any
sums due and owing by it, which are not subject to a Contest, to the Indemnitee
by wire transfer or certified check within ten (10) days after the date of the
receipt of the notice from the Indemnitee specified in Section 4.9 hereof. The
Indemnitor shall pay any sums due and owing by it, as determined by the
arbitrator(s) in accordance with Section 4.9(c), to the Indemnitee by wire
transfer or certified check within ten (10) days after the date of the award by
the arbitrator(s). Any overdue amounts payable by the Indemnitor shall bear
interest at an annual rate of eight percent (8%) PER ANNUM, based on a year of
365 days and the number of days elapsed.
(b) Notwithstanding any of the provisions or the terms of Sections
3.1(a) and 3.4, or any Schedules attached to this Agreement, if the Indemnitees
are the Purchasers, Purchasers shall have the right, in addition to all of the
other rights granted to the Purchasers in this Article IV, but not the
obligation, to set-off the amount of any liability owed to them in respect of
any Indemnity Event, determined in accordance with the provision of this Section
4.8, against any amounts owed, or to become owing, by the Purchasers to the Pima
Gro Shareholders by: (i) offsetting fifty percent (50%) of the amount of the
claim against: (a) the next payment then due on the Note; and (b) in equal
installments (the number of installments being equal to the member of payments
remaining payable on the Note). (ii) In the event that there is an inadequate
amount owing on the Note to pay such claim, then by reducing all amounts
remaining due against any Contingent Sum Payments due. (iii) In the event there
are funds held in the escrow pursuant to Section 4.17 and Schedule 4.17, and
claim may be immediately offset against any funds held in such Escrow. It being
understood that to the extent that the Purchasers do not elect set-off, or
set-off is otherwise unavailable, the Pima Gro Shareholders shall remain liable
in respect of such Indemnity Event. Further, once Purchasers assert a claim or
a Third Party Claim is asserted in which the Pima Gro Shareholders are the
Indemnitors, the Purchasers obligation to continue to make payments, in an
amount reasonably necessary to satisfy such claim, under the Note or to pay any
other consideration pursuant to Section 3.4, shall be suspended until such time
as the Third Party Claim has been resolved. During the period that the
obligations referenced in the
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immediately preceding sentence are suspended, interest will continue to accrue
on any amount ultimately determined to be due and owing to the Pima Gro
Shareholders, net of any offset arising (including interest) from such asserted
claim or Third Party Claim.
Section 4.12 NOTICES OF CERTAIN EVENTS. Each of the parties hereto shall
promptly notify all of the parties hereto of:
(a) any notice or other communication (i) alleging that the consent
of any person is or may be required in connection with the transactions
contemplated by this Agreement or (ii) from any person to the effect that such
person intends not to continue to conduct business with the Purchasers (as
successor to the Business) after the Closing;
(b) any notice or any communication from any Government Body in
connection with the transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings to its
knowledge commenced or threatened against, relating to or involving or otherwise
affecting the Target Corporations or the Business that, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant to
any provision of this Agreement or that relate to the consummation of the
transactions contemplated by this Agreement.
Section 4.13 GRANT OF PROXY. The Pima Gro Shareholders and their
assigns shall, at the Closing, grant to Don Thone an irrevocable proxy, coupled
with an interest, over any of the Combined Exchanged Synagro Stock in the form
of Schedule 4.13 hereto, for a period of no less than three (3) years or until
the Pima Gro Shareholders sell their shares of the Combined Exchanged Synagro
Stock they may own. The proxy described in this Section 4.13 shall be
structured so as not to adversely impact the ability of the Pima Gro
Shareholders to sell any shares of the Combined Exchanged Synagro Stock.
Section 4.14 NON-COMPETITION BY THE PIMA GRO SHAREHOLDERS. For a period
which is to be the lesser of: (i) three (3) years from the date of termination
of Wilson Nolan's employment under his employment agreement, Schedule 5.6
hereto; or (ii) six (6) years following the Closing Date (the "Restricted
Period"); the Pima Gro Shareholders shall not, directly or indirectly, either as
an employee, employer, consultant, agent, principal, partner, principal
stockholder, corporate officer, director, or in any other individual or
representative capacity: (i) engage or participate in that part or portion of
any business that is in competition in any manner with the Business of the
Target Corporations or the Purchasers in the Territory (as defined below); (ii)
divert, take away or attempt to divert or take away (and during the Restricted
Period, call on or solicit) any of Purchasers' clients who had a business
relationship with Purchasers or the Target Corporations in connection to the
Target Corporations and the Purchasers, with respect to the Business of
Purchasers or the Target Corporations within the states of California, Arizona,
Indiana, Arkansas, Texas and the Washington, D.C. metropolitan area (the
"Territory"), (for purposes of this Agreement, the term "Purchasers' clients"
shall mean clients of Purchasers
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or the Target Corporations and those who develop a business relationship with
Purchasers); (iii) undertake planning for or organization of any business within
the Territory competitive with Purchasers or the Target Corporations or combine
or conspire with employees or other representative of Purchasers or the Target
Corporations within the Territory; or (iv) induce or influence (or seek to
induce or influence) any person who is engaged, as an employee, agent,
independent contractor or otherwise by Purchasers within the Territory to
terminate his employment or engagement, with Purchaser.
Section 4.15 TERMINATION OF AGREEMENTS. Except as set forth on Schedule
4.15, all agreements between the Pima Gro Shareholders and the Target
Corporations existing as of the date of this Agreement shall, as of the Closing
Date, without further action by any party to this Agreement, be null and void
and any executory obligations contained in any such agreements shall be deemed
to have lapsed and similarly be null and void. Further, Wilson Nolan may resign
as of the Closing Date from all fiduciary capacities he might hold in
conjunction with the 401K Plan maintained by the Target Corporations.
Section 4.16 TAX TREATMENT RELATED TO ACQUISITION OF THE EXCHANGED PIMA
GRO STOCK. The Parties hereto covenant and agree that the Target Corporations
shall complete, in a manner satisfactory to the parties hereto, any and all
returns and reports to the Internal Revenue Service which may reflect any
obligation which arises out of or is material to the transactions provided for
in this Agreement. The parties hereto further covenant and agree that they shall
take no position on any income tax return, whether federal or state, which may,
in the judgment of Purchasers, be inconsistent with the income tax treatment
dictated by the terms of this Agreement with respect to the transactions
provided for in this Agreement.
Section 4.17 REFINANCING COVENANT. In the event the Target Corporations
borrow money from any source, utilizing the assets of the Target Corporations as
collateral for such borrowings, the Note shall become immediately due and
payable: (i) unless there is no increase in the amount of the debt imposed upon
the Target Corporations' Assets utilized as collateral for such borrowings; or
(ii) in the event that the amount of such borrowing is in excess of the debt
imposed upon the Target Corporations' Assets utilized as collateral for such
borrowings, such excess, up to the amount then remaining due on the Note, is
deposited into a payment escrow (the "Payment Escrow") pursuant to a payment
escrow agreement (the "Payment Escrow Agreement") in the form of Schedule 4.17
hereto. All funds deposited into the Payment Escrow shall be maintained and
paid out as scheduled payments on the Note as such scheduled payments come due.
Any amounts received from such borrowings in excess of the balance due on the
Note on the date of such borrowing shall be utilized by the Purchasers as they
shall elect, in Purchasers' sole and absolute discretion.
Section 4.18 MONIES OWED BY OR OWING TO THE TARGET CORPORATIONS TO OR FROM
THE PIMA GRO SHAREHOLDERS. In connection with monies owed by or owing to the
Target Corporations to or from the Pima Gro Shareholders as of June 30, 1996,
the parties hereto
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agree that ninety (90) days after the Closing Date all such amounts shall be
paid in full, as more fully set forth in Schedule 4.18 hereto.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PURCHASERS
The obligations of Purchasers under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 5.1 ACCURACY OF REPRESENTATIONS. Except as otherwise provided
herein, he material representations and warranties made by Target Corporations
and the Pima Gro Shareholders in this Agreement were true when made and shall be
true as of the Closing Date (except for changes therein permitted by this
Agreement) with the same force and effect as if such representations and
warranties were made at and as of the date of this Agreement, and the Target
Corporations and the Pima Gro Shareholders shall have performed and complied
with all covenants and conditions required by this Agreement to be performed or
complied with by the Target Corporations and the Pima Gro Shareholders prior to
or at the Closing. The Purchasers shall have been furnished with a certificate,
signed by duly authorized executive officers of The Target Corporations dated
the Closing Date, to the foregoing effect.
Section 5.2 OFFICER'S CERTIFICATE. Purchasers shall have been furnished
with a certificate dated the Closing Date and signed by duly authorized officers
of the Target Corporations, in the form of Schedule 5.2, to the effect that no
litigation, proceeding, investigation or inquiry is pending or, to the best
knowledge of the Target Corporations, threatened, which might result in an
action to enjoin or prevent the consummation of the transactions contemplated by
this Agreement or, to the extent not disclosed in the Pima Gro Schedules, by or
against the Target Corporations which might result in any material adverse
change in any of the assets, properties, the Business or operations of the
Target Corporations.
Section 5.3 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any change which has a Material Adverse Effect in the
financial condition, business or operations of nor shall any event have occurred
which, with the lapse of time or the giving of notice, may cause or create any
Material Adverse Effect in the financial condition, the Business or operations
of the Target Corporations.
Section 5.4 OPINION OF COUNSEL TO THE TARGET CORPORATIONS. Purchasers
shall receive an opinion, dated the Closing Date, of Mirau, Edwards, Cannon &
Harter, counsel to the Target Corporations, and other counsel acceptable to
Purchasers who may render opinions regarding legal matters relating to the law
of states other than California. Such
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opinions shall be to the best of such counsels knowledge and be in substantially
the following form:
(a) Pima Gro and Pima Gro 2 are corporations duly organized, validly
existing, and in good standing under the laws of the state of Arizona and have
the corporate power and are duly authorized, qualified, franchised and licensed
under all material applicable laws, regulations, ordinances and orders of public
authorities to own all of their properties and assets and to conduct the
Business as now conducted, including qualification to do business as a foreign
corporation in the states in which the character and location of the assets
owned by them or the nature of the Business transacted by them require
qualification;
(b) To the best knowledge of such legal counsel, the execution and
delivery by the Target Corporations of this Agreement and the consummation of
the transactions contemplated by this Agreement in accordance with the terms
hereof will not conflict with or result in the breach of any term or provision
of the Target Corporations' articles of incorporation or bylaws or constitute a
default or give rise to a right of termination, cancellation or acceleration
under any material mortgage, indenture, deed of trust, license, agreement or
other obligation or violate any court order, writ, injunction or decree
applicable to the Target Corporations, or their properties or assets;
(c) The Target Corporations have no subsidiaries;
(d) The authorized capitalization of Pima Gro consists of 1,000,000
shares of common stock, $0.01 par value and the authorized capitalization of
Pima Gro 2 consists of 1,000,000 shares of common stock, $0.01 par value. As of
the Closing Date, there are nineteen thousand twenty (19,020) shares of common
stock and three hundred (300) shares of common stock respectively, issued and
outstanding of Pima Gro and Pima Gro 2. All issued and outstanding shares of
the common stock of the Target Corporations are legally issued, fully paid and
nonassessable and have not been issued in violation of the preemptive rights of
any person. To the best of such counsel's knowledge, except as set forth above,
there are no outstanding: (i) securities convertible into or exchangeable for
any of the Target Corporations' capital stock; or (ii) options, warrants, calls
or other rights (including rights to demand registration or to sell in
connection with any registration by the Target Corporations under the Securities
Act to purchase or subscribe to capital stock of the Target Corporations or
securities convertible into or exchangeable for capital stock of the Target
Corporations). To the best of such counsel's knowledge, the Target Corporations
are not parties to any voting trust agreement or other contract, agreement,
arrangement, commitment, plan or understanding restricting or otherwise relating
to voting or dividend rights with respect to the common stock of the Target
Corporations;
(e) The shares of the Target Corporations' common stock to be transferred
to Purchasers pursuant to the terms of this Agreement will be, when transferred
in accordance with the terms hereof, legally issued, fully paid and
nonassessable and not issued in violation of the rights of any person and shall
be free and clear of all liens,
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encumbrances, security interests, equities, options, claims, charges,
limitations on voting rights or rights to receive dividends, or other
restrictions of any kind (other than any generally imposed by federal, corporate
or territorial securities laws or as otherwise provided for in this Agreement);
(f) The execution and delivery of this Agreement and consummation of the
transactions contemplated hereby have been duly authorized and approved by all
necessary action of the Boards of Directors and stockholders of the Target
Corporations, and there are no dissenters' rights or rights of appraisal with
respect to the authorization, approval, execution and completion of the
transactions contemplated by this Agreement. This Agreement has been duly and
validly authorized, executed and delivered and constitutes the legal and binding
obligations of the Target Corporations, enforceable in accordance with its term,
except as limited by bankruptcy and insolvency laws and by other laws affecting
the rights of creditors generally;
(g) To the best knowledge of such legal counsel, except as set forth in
the Pima Gro Schedules, there are no actions, suits or proceedings pending or
threatened by or against or affecting the Target Corporations or their
properties, at law or in equity, before any court or other governmental agency
or instrumentality, domestic or foreign or before any arbitrator of any kind;
(h) To the best of such counsel's knowledge, no consent, approval or
authorization of or filing or registration with any governmental body or agency
of the United States federal government or of any state is required for the
execution and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement. The Target Corporations have taken all actions
required by the applicable laws of the states of Arizona and Washington to
permit the transfer of the shares of the Target Corporations Common Stock to
Purchasers; and
(i) Upon delivery to Purchasers of the certificates described in Section
3.8 of this Agreement, Purchasers will receive good and marketable title to the
Exchanged Pima Gro Stock, which shall constitute one hundred percent (100%) of
the issued and outstanding capital stock of the Target Corporations.
Section 5.5 OTHER ITEMS. Purchasers shall have received such further
documents, certificates or instruments relating to the transactions contemplated
hereby as Purchasers may reasonably request.
Section 5.6 EMPLOYMENT AGREEMENT FOR WILSON NOLAN. Wilson Nolan shall
enter into an employment agreement with Pima Gro in the form attached hereto as
Schedule 5.6. The Target Corporations, Wilson Nolan and the Pima Gro
Shareholders hereby expressly agree and acknowledge that the non-disclosure and
non-competition provisions set forth in Section 4.14 hereof and the
non-competition provisions set forth in the employment agreement of Wilson Nolan
attached hereto as Schedules 5.6 are material
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consideration for Purchasers' entering into this Agreement, and that the breach
of such provisions by Wilson Nolan shall be deemed to be a breach of this
Agreement.
Section 5.7 FRANCHISE TAX BOARD CLEARANCE. Purchasers shall have received
a letter of good standing, as of a date not more than ten (10) days before the
Closing Date, of the California Franchise Tax Board for Pima Gro.
Section 5.8 EMPLOYMENT DEVELOPMENT DEPARTMENT RELEASE. Purchasers shall
have received oral confirmation of good standing from the California Employment
Development Department stating that, as of a date not more than ten (10) days
before the Closing Date, no contributions, interest, or penalties are due to the
Employment Development Department from Pima Gro.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
TARGET CORPORATIONS AND THE PIMA GRO SHAREHOLDERS
The obligations of the Target Corporations and the Pima Gro
Shareholders under this Agreement are subject to the satisfaction, at or before
the Closing Date, of the following conditions:
Section 6.1 ACCURACY OF REPRESENTATIONS. The Material representations and
warranties made by Purchasers in this Agreement were true when made and shall be
true as of the Closing Date (except for changes therein permitted by this
Agreement) with the same force and effect as if such representations and
warranties were made at and as of the date of this Agreement, and Purchasers
shall have performed and complied with all covenants and conditions required by
this Agreement to be performed or complied with by Purchasers prior to or at the
Closing. The Target Corporations shall have been furnished with a certificate,
signed by duly authorized executive officers of Purchasers and dated the Closing
Date, to the foregoing effect.
Section 6.2 OFFICER'S CERTIFICATE. The Target Corporations
and the Pima Gro Shareholders shall have been furnished with a certificate dated
the Closing Date and signed by duly authorized officers of Purchasers to the
effect that no litigation, proceeding, investigation or inquiry is pending or,
to the best knowledge of Purchasers, threatened, which might result in an action
to enjoin or prevent the consummation of the transactions contemplated by this
Agreement or, to the extent not disclosed in the Purchasers Schedules, by or
against Purchasers, which might result in any material adverse change in any of
the assets, properties, business or operations of Purchasers, in the form of
Schedule 6.2.
Section 6.3 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business or operations of, nor shall any event have occurred which, with the
lapse of time or the
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giving of notice, may cause or create any material adverse change in the
financial condition, business or operations of Purchasers.
Section 6.4 OPINION OF COUNSEL TO PURCHASERS. The Target Corporations
shall receive an opinion, dated the Closing Date, of Matthias & Berg LLP,
counsel to Purchasers. Such opinions shall be to the best of such counsels
knowledge and be in substantially the following form:
(a) Purchasers are corporations duly organized, validly existing, and in
good standing under the laws of the States of Nevada and Texas, respectively,
and each has the corporate power and is duly authorized, qualified, franchised
and licensed under all applicable laws, regulations, ordinances and orders of
public authorities to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, including
qualification to do business as a foreign corporation in the states in which the
character and location of the assets owned by it or the nature of the business
transacted by it requires qualification;
(b) To the best knowledge of such legal counsel, the execution and
delivery by Purchasers of this Agreement and the consummation of the
transactions contemplated by this Agreement in accordance with the terms hereof
will not conflict with or result in the breach of any term or provision of
Purchasers' articles of incorporation or bylaws or constitute a default or give
rise to a right of termination, cancellation or acceleration under any material
mortgage, indenture, deed of trust, license agreement or other obligation or
violate any court order, writ, injunction or decree applicable to Purchasers or
their properties or assets;
(c) The authorized capitalization of Synagro consists of 100,000,000
shares of common stock and 10,000,000 shares of preferred stock, par value
$0.002 per share. As of the Closing Date, there are 6,197,102 shares of Synagro
common stock issued and outstanding and no shares of Synagro Preferred Stock
issued and outstanding. All issued and outstanding shares are legally issued,
fully paid and nonassessable and not issued in violation of the preemptive
rights of any person. To the best of such counsel's knowledge, Synagro is not a
party to any voting trust agreement or other contract, agreement, arrangement,
commitment, plan or understanding restricting or otherwise relating to voting or
dividend rights with respect to the Synagro common stock;
(d) The shares of Synagro common stock to be issued to the Pima Gro
Shareholders pursuant to the terms of this Agreement will be, when issued in
accordance with the terms hereof, legally issued, fully paid and nonassessable
and not issued in violation of the rights of any person;
(e) To the best of such counsel's knowledge, the execution and delivery of
this Agreement and consummation of the transactions contemplated hereby have
been duly authorized and approved by all necessary action of the Boards of
Directors of Purchasers, and there are no dissenters' rights or rights of
appraisal with respect to the authorization,
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approval, execution and completion of the transactions contemplated by this
Agreement. This Agreement has been duly and validly authorized, executed, and
delivered and constitutes the legal and binding obligation of Purchasers,
enforceable in accordance with its terms, except as limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors generally;
(f) To the best knowledge of such counsel, except as set forth in the
Purchasers Schedules, there are no actions, suits or proceedings pending or
threatened by or against Purchasers or affecting Purchasers's properties, at law
or in equity, before any court or other governmental agency or instrumentality,
domestic or foreign or before any arbitrator of any kind;
(g) To the best of such counsel's knowledge, no consent, approval or
authorization of or filing or registration with any governmental body or agency
of the United States federal government or of any state is required for the
execution and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement. Purchasers have taken all actions required by
the applicable laws of the State of Nevada to permit the issuance of the shares
of Combined Exchanged Synagro Stock to the Pima Gro Shareholders; and
(h) Upon delivery to the Pima Gro Shareholders of the certificates
described in Section 3.1(a)(ii) and 3.4 of this Agreement, the Pima Gro
Shareholders will receive good and marketable title to the Combined Exchanged
Synagro Stock, all of such Combined Exchanged Synagro Stock shall be received by
the Pima Gro Shareholders as validly issued, fully paid and nonassessable, free
and clear of all liens, encumbrances, security interests, equities, options,
claims, charges, limitations on voting rights or rights to receive dividends, or
other restrictions of any kind (other than any generally imposed by federal,
corporate or territorial securities laws or as otherwise provided for in this
Agreement).
Section 6.5 OTHER ITEMS. The Target Corporations and the Pima Gro
Shareholders shall have received such further documents, certificates, or
instruments relating to the transactions contemplated hereby as they may
reasonably request.
ARTICLE VII
MISCELLANEOUS
Section 7.1 BROKERS AND FINDERS. Neither Purchasers, the Target
Corporations, nor the Pima Gro Shareholders, nor any of their respective
officers, directors, agents or employees has employed any investment banker,
broker or finder, or incurred any liability on behalf of Purchasers, the Target
Corporations, or the Pima Gro Shareholders, as the case may be, for any
investment banking fees, brokerage fees, commissions or finders' fees, in
connection with the transactions contemplated by this Agreement. The parties
each agree to indemnify the other against any claim by any third person for any
commission, brokerage or finder's fee or other payment with respect to this
Agreement or
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the transactions contemplated hereby based on any alleged agreement or
understanding between the indemnifying party and such third person, whether
express or implied from the actions of the indemnifying party.
Section 7.2 LAW, FORUM AND JURISDICTION. This Agreement shall be construed
and interpreted in accordance with the laws of the State of Texas. The parties
agree that any dispute arising under this Agreement, whether during the term of
the Agreement or at any subsequent time, shall be resolved exclusively in the
courts of the State of Texas and the parties hereby submit to the jurisdiction
of such courts for all purposes provided herein and appoint the Secretary of
State of the State of Texas as agent for service of process for all purposes
provided herein.
Section 7.3 NOTICES. Any notices or other communications required or
permitted hereunder shall be sufficiently given if personally delivered or sent
by overnight mail, registered mail or certified mail, postage prepaid, or by
prepaid telegram, or when telecopied and followed by confirmation hand-delivered
copy or sent by first class mail, addressed as follows:
If to the Target
Corporations and/or
the Pima Gro
Shareholders: Pima Gro Systems, Inc.
Wilson Nolan, President
2015 West Park Avenue, Suite 8
Redlands, California 92373
(909) 793-9954 (Telecopier)
With a copy to: Mirau, Edwards, Cannon & Harter
599 North "E" Street, Suite 205
San Bernardino, California 92401
Attn: Stanley A. Harter, Esq.
(909) 384-0203 (Telecopier)
If to Purchasers: Synagro Technologies, Inc.
Don Thone, President
16000 Stuebner Airline, Suite 420
Spring, Texas 77379
(713) 370-9292 (Telecopier)
With a copy to Matthias & Berg LLP
515 South Flower Street
7th Floor
Los Angeles, California 90071
Attn: Jeffrey P. Berg, Esq.
(213) 895-4058 (Telecopier)
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or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given as of the date so delivered, mailed or telecopied.
Section 7.4 ATTORNEYS' FEES. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the non- prevailing party or parties shall reimburse
the prevailing party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 7.5 CONFIDENTIALITY. Each party hereto agrees with the other
parties that, unless and until the transaction contemplated by this Agreement
have been consummated, they and their representatives will hold in strict
confidence all data and information obtained with respect to another party or
any subsidiary thereof from any representative, officer, director or employee,
or from any books or records or from personal inspection, of such other party,
and shall not use such data or information or disclose the same to others,
except: (a) to the extent such data is a matter of public knowledge or is
required by law to be published; and (b) to the extent that such data or
information must be used or disclosed in order to consummate the transactions
contemplated by this Agreement.
Section 7.6 SCHEDULES; KNOWLEDGE. Each party is presumed to have full
knowledge of all information set forth in the other party's schedules delivered
pursuant to this Agreement.
Section 7.7 THIRD PARTY BENEFICIARIES. This Agreement has been made and
is made solely for the benefit of Purchasers, the Target Corporations and the
Pima Gro Shareholders and their respective successors and permitted assigns.
Nothing in this Agreement 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 and permitted assigns. Nothing in this Agreement is
intended to relieve or discharge the obligation or liability of any third
persons to any party to this Agreement.
Section 7.8 ENTIRE AGREEMENT. This Agreement and all Schedules hereto, as
well as agreements and other documents referred to in this Agreement constitute
the entire agreement between the parties with regard to the subject matter
hereof and thereof. This Agreement supersedes all previous agreements between
or among the parties. There are no other courses of dealing, understandings,
agreements, representations or warranties, written or oral between or among the
parties, except as set forth in this Agreement or the documents and agreements
referred to in this Agreement.
Section 7.9 SURVIVAL; TERMINATION. The representations, warranties and
covenants of the respective parties shall survive the Closing Date and the
consummation of the transactions herein contemplated.
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Section 7.10 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
Section 7.11 AMENDMENT OR WAIVER. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred herein,
at law, or in equity, and may be enforced concurrently herewith, and no waiver
by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance hereof may be extended by a
writing signed by the party or parties for whose benefit the provision is
intended. This Agreement may not be amended or modified, except by a written
agreement signed by all parties hereto.
Section 7.12 INCORPORATION OF RECITALS. All of the recitals hereof are
incorporated by this reference and are made a part hereof as though set forth at
length herein.
Section 7.13 EXPENSES. Each of the parties to this Agreement shall bear
all of its own expenses incurred by it in connection with the negotiation of
this Agreement and in the consummation of the transactions provided for herein
and the preparation therefor.
Section 7.14 HEADINGS; CONTEXT. The headings of the sections and
paragraphs contained in this Agreement are for convenience of reference only and
do not form a part hereof and in no way modify, interpret or construe the
meaning of this Agreement.
Section 7.15 PUBLIC ANNOUNCEMENTS. Except as may be required by law,
neither party shall make any public announcement or filing with respect to the
transactions provided for herein without the prior consent of the other party
hereto.
Section 7.16 SEVERABILITY. In the event that any particular provision or
provisions of this Agreement or the other agreements contained herein shall for
any reason hereafter be determined to be unenforceable, or in violation of any
law, governmental order or regulation, such unenforceability or violation shall
not affect the remaining provisions of such agreements, which shall continue in
full force and effect and be binding upon the respective parties hereto.
Section 7.17 FAILURE OF CONDITIONS; TERMINATION. In the event any of the
conditions specified in this Agreement shall not be fulfilled on or before the
Closing Date, the parties, or any one of them, have the right either to proceed
or, upon prompt written notice to the other, to terminate and rescind this
Agreement without liability to any other party. The election to proceed shall
not affect the right of such electing party reasonably to require the other
party to continue to use its efforts to fulfill the unmet conditions.
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Section 7.18 NO STRICT CONSTRUCTION. The language of this Agreement shall
be construed as a whole, according to its fair meaning and intendment, and not
strictly for or against either party hereto, regardless of who drafted or was
principally responsible for drafting the Agreement or terms or conditions
hereof.
Section 7.19 EXECUTION KNOWING AND VOLUNTARY. In executing this Agreement,
the parties severally acknowledge and represent that each: (a) has fully and
carefully read and considered this Agreement; (b) has been or has had the
opportunity to be fully apprised by its attorneys of the legal effect and
meaning of this document and all terms and conditions hereof; (c) has been
afforded the opportunity to negotiate as to any and all terms hereof; and (d) is
executing this Agreement voluntarily, free from any influence, coercion or
duress of any kind.
Section 7.20 ASSIGNMENT. Neither party shall voluntarily or by operation of
law assign, hypothecate, give, transfer, mortgage, sublet, license, or otherwise
transfer or encumber all or any part of its rights, duties, or other interests
in this Agreement or the proceeds thereof (collectively, Assignment), without
all other parties prior written consent, which consent shall not be unreasonably
withheld or delayed. Any attempt to make an Assignment in violation of this
provision shall be a material default under this Agreement and any Assignment in
violation of the provision shall be null and void.
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IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement
to be executed by their respective officers, hereunto duly authorized, and the
individual parties have executed this Agreement as of the date first above
written at Houston, Texas.
("Purchasers")
SYNAGRO TECHNOLOGIES, INC.
By: /s/Don Thone
---------------------
Don Thone, President
("CDR")
CDR ENVIRONMENTAL, INC.
By: /s/Don Thone
---------------------
Don Thone, President
("Pima Gro")
PIMA GRO SYSTEMS, INC.
By: /s/Wilson Nolan
---------------------
Wilson Nolan, President
PIMA GRO SYSTEMS 2, INC.
By: /s/Wilson Nolan
---------------------
Wilson Nolan, President
("Pima Gro Shareholders")
/s/Wilson Nolan
---------------------
Wilson Nolan, an individual
/s/Herbert Kai
---------------------
Herbert Kai, an individual
/s/John Kai, Jr.
---------------------
John Kai, Jr., an individual
<PAGE>
EXHIBIT 10-1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into and made effective as of July 18, 1996, by
and among Pima Gro Systems, Inc., an Arizona corporation ("Employer"), and
Synagro Technologies, Inc., a Nevada corporation, with its principal place of
business in Spring, Texas ("Parent"), and Wilson Nolan ("Employee").
RECITALS
WHEREAS, Employer is desirous of hiring Employee as one of its key
employees;
WHEREAS, Employee is willing to accept employment as an employee of
Employer; and
WHEREAS, the parties hereto desire to delineate the responsibilities of
Employee and the expectations of Employer;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
AGREEMENT
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer, upon the terms and conditions set forth in
this Agreement.
2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the
terms of this Agreement shall commence on July 18, 1996 and shall continue for a
period of three (3) years, unless sooner terminated pursuant to the provisions
hereof.
DUTIES.
3.1 BASIC DUTIES. Subject to the direction and control of the Board of
Directors of Employer, Employee shall serve as the President and Chief Executive
Officer of Employer and shall fulfill all duties and obligations accruing to
such office, including but not limited to the selection of key employees.
3.2 OTHER DUTIES OF EMPLOYEE. In addition to the foregoing, Employee
shall perform such other or different duties related to those set forth in
Paragraph 3.1 as may be assigned to him from time to time by Employer.
3.3 TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time to
the business of Employer during the term of this Agreement to fulfill his
obligations hereunder.
3.4 PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall be
performed at Employer's place of business
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and at such other locations as shall be designated from time to time by
Employer.
4. COMPENSATION.
4.1 BASIC SALARY. As compensation for services rendered pursuant to
this Agreement, Employer shall pay Employee a basic annual salary of $150,000,
payable bi-monthly or otherwise in accordance with Employer's payroll practices
for all other employees.
4.2 FRINGE BENEFITS. Employee shall be entitled to participate in
Employer's employee fringe benefit programs in effect from time to time for
employees at comparable levels of responsibility. Participation will be in
accordance with any applicable policies adopted by Employer. Employee shall be
entitled to vacations, absences for illness, and to similar benefits of
employment to the extent such benefits are generally available to employees of
Employer at a comparable level of responsibility, and subject to such policies
and procedures as may be adopted by Employer. Benefits of employment shall
include three (3) weeks' vacation during each 12 month period of employment with
Employer and major medical and health insurance. Employer further agrees that
in the event it offers disability insurance to its employees, Employer shall
arrange for Employee to be covered by similar insurance. Notwithstanding the
foregoing, Employee agrees that, if at any time a deduction on the federal or
state income tax return of Employer is not permitted by or is disallowed by the
appropriate tax authorities on account of any business expense incurred by or on
behalf of Employee, whether incurred pursuant to this Paragraph 4.2 or
otherwise, Employer shall treat such item(s) as additional salary to Employee,
and Employee shall be responsible for any withholding and taxes applicable
thereto.
4.3 EXPENSE REIMBURSEMENT. Subject to such policies and procedures as
may be adopted by Employer's Board of Directors, Employee shall be entitled to
reimbursement for travel, entertainment and other expenses actually incurred on
behalf of Employer (upon presentation of reasonable evidence thereof) to the
extent such expenses are incurred in connection with direct activities of
Employer, and to the extent similar reimbursements are generally available to
employees of Employer at a comparable level of responsibility. Without limiting
the generality of the foregoing, Employer agrees to reimburse Employee for his
reasonable relocation expenses in the event Employer relocates its principal
place of business more than one hundred miles away from Employee's current
residence and this Agreement is not terminated pursuant to Paragraph 5.1.
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5. TERMINATION OF EMPLOYMENT.
5.1 BY NOTICE. This Agreement, and the employment of Employee
hereunder, may be terminated by Employer upon ninety (90) days' written notice
of termination; provided, however, in the event Employer shall terminate this
Agreement for any reason other than the occurrence of any of the events set
forth in Section 5.2, Employee shall be entitled to receive the balance of the
unpaid base salary which would otherwise be payable to Employee during the
remainder of the term of this Agreement within thirty (30) days after such
notice
In the event such termination notice is given, the non competition
clause in Section 6.5 will change to a three (3) year period beginning at the
termination date.
5.2 OTHER TERMINATION. This Agreement, and the employment of Employee
hereunder, shall terminate immediately upon the occurrence of any one of the
following events:
(1) The death of Employee.
(2) The loss by Employee of legal capacity by means of incarceration
and/or insanity.
(3) The failure by Employee to devote substantially all of his available
professional time to the business of Employer, the willful and habitual neglect
of duties, and/or the direct involvement in other business activities other than
those contemplated by this Agreement.
(4) The willful engaging by Employee in an act of dishonesty constituting a
crime under the laws of the USA resulting or intending to result in gain or
personal enrichment at the expense of Employer or to the detriment of Employer's
business to which Employee is not legally entitled.
(5) The continued incapacity in excess of one hundred eighty (180) days on
the part of Employee to perform his duties, unless waived by Employer.
(6) By the mutual written agreement of Employee and Employer.
(7) Upon the expiration of the term of this Agreement.
(8) Employee's serious breach of any part of this Agreement.
(9) Exercise of the rights of Employee or the Pima Gro Shareholders
pursuant to that certain Pledge Agreement dated as of July 18, 1996, a copy of
which is attached hereto.
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5.3 EFFECT OF TERMINATION ON COMPENSATION. In the event of the termination
of Employee's employment pursuant to this Agreement prior to the completion of
the term of employment specified herein, Employee shall be entitled to the
compensation earned by him prior to the date of such termination as provided in
this Agreement. Employee shall be entitled to no further compensation, in the
nature of severance pay or otherwise, upon the termination of his employment
pursuant to the provisions of this Agreement, except as provided in 6.6 of this
Agreement.
5.4 REMEDIES. No termination of the employment of Employee pursuant to the
terms of this Agreement shall prejudice any other remedy to which any party to
this Agreement may be entitled either at law, in equity, or under this
Agreement.
6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.
6.1 TRADE SECRETS. For purposes of this Agreement, "trade secrets" shall
include without limitation any and all financial, cost and pricing information
and any and all information contained in any drawings, designs, plans,
proposals, customer lists, records of any kind, data, formulas, specifications,
concepts or ideas, where such information is reasonably related to the business
of Employer or Parent and has not previously been publicly released by duly
authorized representatives of Employer or Parent or otherwise lawfully entered
the public domain.
6.2 PRESERVATION OF TRADE SECRETS. Employee will preserve as confidential
all trade secrets pertaining to Employer's or Parent's business that have been
or may be obtained or learned by him by reason of his employment or otherwise.
Employee will not, without the written consent of Employer or Parent, either use
for his own benefit or purposes or disclose or permit disclosure to any third
parties, either during the term of his employment hereunder or thereafter
(except as required in fulfilling the duties of his employment), any trade
secret connected with the business of Employer or Parent.
6.3 TRADE SECRETS OF OTHERS. Employee agrees that he will not disclose to
Employer or Parent or induce Employer or Parent to use any trade secrets
belonging to any third party.
6.4 PROPERTY OF EMPLOYER AND PARENT. Employee agrees that all documents,
reports, files, analyses, drawings, designs, tools, equipment, plans (including,
without limitation, marketing and sales plans), proposals, customer lists,
computer software or hardware, and similar materials that are made by him or
come into his possession by reason of his employment with Employer are the
property of Employer or Parent and shall not be used by him in any way adverse
to Employer's or Parent's interests. Employee will not knowingly
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allow any such documents or things, or any copies, reproductions or summaries
thereof to be delivered to or used by any third party without the specific
consent of Employer or Parent. Employee agrees to deliver to the Board of
Directors of Employer or its designee, upon demand, and in any event upon the
termination of Employee's employment, all of such documents and things which are
in Employee's possession or under his control.
6.5 NON COMPETITION BY EMPLOYEE. Except as otherwise provided herein, for
a period of six (6) years from the date of this Agreement, Employee shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, principal stockholder, corporate officer, director, or in
any other individual or representative capacity: (i) engage or participate in
that part or portion of any business that is in competition in any manner with
the business of Employer or Parent in the Territory (as defined below); (ii)
divert, take away or attempt to divert or take away (after employment terminates
but prior to the end of the six (6) year period call or solicit) any of
Employer's or Parent's clients who had a business relationship with Parent or
Employer in connection to the Employer and the Parent with respect to the
business of Employer or Parent within the states of California, Arizona,
Indiana, Arkansas, Texas and the metropolitan area of Washington D. C. and any
counties in any state where Employer or Parent does business at any time during
the term of this Agreement (the ("Territory"). For purposes of this Agreement,
the term "Employer's or Parent's clients" shall mean clients who had a business
relationship with Employer or Parent prior to Employee's employment with
Employer or Parent and those who develop a business relationship with Employer
or Parent, during Employee's employment with Employer; (iii) undertake planning
for or organization of any business within the Territory in which Employer or
Parent are engaged in business activity competitive with Employer's or Parent's
business or combine or conspire with employees or other representative of
Employer's or Parent's business for the purpose of organizing any such
competitive activity within the Territory; or (iv) induce or influence (or seek
to induce or influence) any person who is engaged, as an employee, agent,
independent contractor or otherwise by Employer or Parent within the Territory
to terminate his or her employment or engagement.
6.6 NON-COMPETE COMPENSATION. For purposes of determining the amount that
Employee shall receive as consideration for the non-compete provision set forth
in this Section 6.6, shall be determined by reference to and utilization of the
formulas set forth in Section 3.4(b)(i) through (i) inclusive as set forth in
the Agreement for the Purchase of Stock dated July 18, 1996 ("Stock Purchase
Agreement"), except that the reference in Section 3.4(b)(iii) in the Stock
Purchase Agreement to Four Dollars and Sixteen Cents ($4.16) shall be
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substituted out and replaced by One Dollar and Four Cents ($1.04).
6.7 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise agreed to
in writing between the parties hereto, the provisions of this Section 6 shall
survive the termination of this Agreement. The covenants in this Section 6
shall be construed as separate covenants and to the extent any covenant shall be
judicially unenforceable, it shall not affect the enforcement of any other
covenant. In the event Employee breaches any of the provisions of this Section
6, Employee agrees that Employer and Parent shall be entitled to injunctive
relief in addition to any other remedy to which Employer or Parent may be
entitled.
7. GENERAL PROVISIONS.
7.1 NOTICES. Any notices or other communications required or permitted to
be given hereunder shall be given sufficiently only if in writing and served
personally or sent by certified mail, postage prepaid and return receipt
requested, addressed as follows:
If to Employer
or Parent: Synagro Technologies, Inc.
16000 Stuebner Airline, Suite 420
Spring, Texas 77379
If to Employee: Mr. Wilson Nolan
Pima Gro Systems, Inc. N.W.
2023 E. Sims Way, #222
Port Townsend, WA 98368
However, either party may change his/its address for purposes of this
Agreement by giving written notice of such change to the other party in
accordance with this Paragraph 7.1. Notices delivered personally shall be
deemed effective as of the day delivered and notices delivered by mail shall be
deemed effective as of three days after mailing (excluding weekends and federal
holidays).
7.2 CHOICE OF LAW AND FORUM. Except as expressly provided otherwise in
this Agreement, this Agreement shall be governed by and construed in accordance
with the laws of the State of California. The parties agree that any dispute
arising under this Agreement, whether during the term of this Agreement or at
any subsequent time, shall be resolved exclusively in the courts of the State of
California and the parties hereby submit to the jurisdiction of such courts for
all purposes provided herein and appoint the Secretary of State of the State of
California as agent for service of process for all purposes provided herein.
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7.3 ENTIRE AGREEMENT: MODIFICATION AND WAIVER. This Agreement supersedes
any and all other agreements, whether oral or in writing, between the parties
hereto with respect to the employment of Employee by Employer and contains all
covenants and agreements between the parties relating to such employment in any
manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, oral or written, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement shall be effective only if it is in writing signed by the party to be
charged. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
7.4 ASSIGNMENT. Because of the personal nature of the services to be
rendered hereunder, this Agreement may not be assigned in whole or in part by
Employee without the prior written consent of Employer. However, subject to the
foregoing limitation, this Agreement shall be binding on, and shall inure to the
benefit of, the parties hereto and their respective heirs, legatees, executors,
administrators, legal representatives, successors, and assigns.
7.5 SEVERABILITY. If for any reason whatsoever, any one or more of the
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable, or invalid as applied to any particular case or in all cases,
such circumstances shall not have the effect of rendering any such provision
inoperative, unenforceable, or invalid in any other case or of rendering any of
the other provisions of this Agreement inoperative, unenforceable, or invalid.
7.6 CORPORATE AUTHORITY. Employer represents and warrants as of the date
hereof that Employer's execution and delivery of this Agreement to Employee and
the carrying out of the provisions hereof have been duly authorized by
Employer's Board of Directors and authorized by Employer's shareholders and
further represents and warrants that neither the execution and delivery of this
Agreement, nor the compliance with the terms and provisions thereof by Employer
will result in the breach of any state regulation, administrative or court
order, nor will such compliance conflict with, or result in the breach of, any
of the terms or conditions of Employer's Articles of Incorporation or Bylaws, as
amended, or any agreement or other instrument to which Employer is a party, or
by which Employer is or may be bound, or constitute an event of default
thereunder, or with the lapse of time or the giving of notice or both constitute
an event of default thereunder.
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7.7 ATTORNEYS' FEES. In any action at law or in equity to enforce or
construe any provisions or rights under this Agreement, the unsuccessful party
or parties to such litigation, as determined by the courts pursuant to a final
judgment or decree, shall pay the successful party or parties all costs,
expenses, and reasonable attorneys' fees incurred by such successful party or
parties (including, without limitation, such costs, expenses, and fees on any
appeals), and if such successful party or parties shall recover judgment in any
such action or proceedings, such costs, expenses, and attorneys' fees shall be
included as part of such judgment.
7.8 COUNTERPARTS. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.9 HEADINGS AND CAPTIONS. Headings and captions are included for purposes
of convenience only and are not a part hereof.
7.10 CONSULTATION WITH COUNSEL. Employee acknowledges that he has had the
opportunity to consult with counsel independent of Employer regarding the
entering into of this Agreement and has done so to the extent he sees fit.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective
as of the day and year first written above at Spring, Texas.
"Employer"
Pima Gro Systems, Inc.
an Arizona corporation
By:
/s/ Daniel L. Shook
-----------------------------
Daniel L. Shook, Vice President Finance/CFO
"Employee"
By: /s/ Wilson Nolan
-----------------------------
Wilson Nolan
"Parent"
Synagro Technologies, Inc.
A Nevada Corporation
By: /s/ Daniel L. Shook
-----------------------------
Daniel L. Shook, Vice President Finance/CFO
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