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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 3, 1998 (July 27, 1998)
-----------------------------
SYNAGRO TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-21054 76-0511324
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(Commission File Number) (IRS Employer Identification No.)
5850 SAN FELIPE, SUITE 500 HOUSTON, TEXAS 77057
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 706-6180
---------------
16000 STUEBNER AIRLINE, SUITE 420 SPRING, TEXAS 77379
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 27, 1998, Synagro Technologies, Inc. (the "Company") completed
the acquisition from GroWest, Inc., a California corporation (the "Seller"), of
all of the outstanding shares of capital stock of Recyc, Inc., a California
corporation ("Recyc"). The consideration paid in the transaction consisted of
(i) a promissory note in the amount of $2,304,750, (ii) 1,475,323 shares of the
Company's common stock, par value $.002 per share, (iii) payment of
approximately $660,000 in bank debt, and (iv) the assumption of approximately
$3,340,000 in other debts and obligations. The principal owed under the
promissory note may be offset, and up to 375,000 of the shares issued to the
Seller may be returned to the Company, if certain post closing conditions are
not met. The amount of the consideration, the cash portion of which was financed
by the Company's available cash balances, was determined by negotiations between
the Company, the Seller and one of the principal stockholders of the Seller.
Recyc is in the biosolids composting business, with its principal operations in
California. No material relationship exists between the Seller or its principal
stockholders and the Company or any of its affiliates, any director or officer
of the Company or any associate of any such officer or director, except that in
connection with the acquisition, the Company entered into a Lease Agreement with
Option to Purchase with the two stockholders of the Seller, as trustees of a
family trust of said stockholders, providing for the lease by Recyc from said
trust of, with an option to purchase, the composting facility used by Recyc. In
addition, the Company entered into a Transportation Agreement with Recyc
Trucking, Inc., a California corporation ("RTI"), which is a wholly-owned
subsidiary of the Seller, for the provision by RTI of certain transportation
services relating to Recyc's operations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
To be filed by amendment on or before October 9, 1998.
(b) Pro Forma Financial Information.
To be filed by amendment on or before October 9, 1998.
(c) Exhibits.
The following exhibits, from which schedules have been omitted and will
be furnished to the Commission upon its request, are filed with this report on
Form 8-K.
2.1 -- Stock Purchase Agreement, dated as of July 24, 1998, among
Synagro Technologies, Inc., John A. Bremer and GroWest, Inc.
4.1 -- Registration Rights Agreement dated July 24, 1998 between
Synagro Technologies, Inc. and GroWest, Inc.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SYNAGRO TECHNOLOGIES, INC.
By: /s/ Ross M. Patten
---------------------------------
Ross M. Patten
President and
Chief Executive Officer
August 3, 1998
3
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EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
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<S> <C> <C>
2.1 -- Stock Purchase Agreement, dated as of July 24, 1998, among
Synagro Technologies, Inc., John A. Bremer and GroWest, Inc.
4.1 -- Registration Rights Agreement, dated July 24, 1998, between
Synagro Technologies, Inc. and GroWest, Inc.
</TABLE>
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===============================================================================
STOCK PURCHASE AGREEMENT
AMONG
SYNAGRO TECHNOLOGIES, INC.,
GROWEST, INC.
AND
JOHN A. BREMER
DATED AS OF JULY 24, 1998
===============================================================================
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 . . . . . . . . . . . . . . . . 1
PURCHASE AND SALE . . . . . . . . . . . . . . 1
1.1 Purchase and Sale of Recyc Shares . . . . . . . . . . . . . . . . . 1
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . 8
1.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.3.1 Opinion of Synagro Counsel . . . . . . . . . . . . . . . . . 8
1.3.2 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . 9
1.3.3 Ancillary Documents . . . . . . . . . . . . . . . . . . . . 10
1.4 Receivables and Payables . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 2 . . . . . . . . . . . . . . . . 10
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER, RECYC AND BREMER . 10
2.1 Representations and Warranties of the Shareholder and Bremer . . . . 10
2.1.1 Organization and Standing . . . . . . . . . . . . . . . . . 10
2.1.2 Agreement Authorized and its Effect on Other Obligations . . 11
2.1.3 Capitalization of Recyc . . . . . . . . . . . . . . . . . . 11
2.1.4 Ownership of Recyc Shares . . . . . . . . . . . . . . . . . 11
2.1.5 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 12
2.1.6 Financial Statements . . . . . . . . . . . . . . . . . . . . 12
2.1.6.1 Consolidated Financial Statements . . . . . 12
2.1.6.2 Recast Income Statement . . . . . . . . . . 12
2.1.6.3 E&Y Financial Statements . . . . . . . . . 13
2.1.7 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.8 Additional Information . . . . . . . . . . . . . . . . . . . 14
2.1.8.1 Real Estate . . . . . . . . . . . . . . . . 14
2.1.8.2 Machinery and Equipment . . . . . . . . . . 14
2.1.8.3 Receivables . . . . . . . . . . . . . . . . 14
2.1.8.4 Payables . . . . . . . . . . . . . . . . . 14
2.1.8.5 Insurance . . . . . . . . . . . . . . . . . 14
2.1.8.6 Contracts . . . . . . . . . . . . . . . . . 14
2.1.8.7 Employee Compensation Plans . . . . . . . . 14
2.1.8.8 Certain Salaries . . . . . . . . . . . . . 15
2.1.8.9 Bank Accounts . . . . . . . . . . . . . . . 15
2.1.8.10 Employee Agreements . . . . . . . . . . . . 15
2.1.8.11 Intellectual Property . . . . . . . . . . . 15
2.1.8.12 Trade Names . . . . . . . . . . . . . . . . 15
2.1.8.13 Promissory Notes . . . . . . . . . . . . . 15
2.1.8.14 Guaranties . . . . . . . . . . . . . . . . 15
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
2.1.8.15 Leases . . . . . . . . . . . . . . . . . . 15
2.1.8.16 Permits . . . . . . . . . . . . . . . . . . 15
2.1.9 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.10 Absence of Certain Changes and Events . . . . . . . . . . . 16
2.1.10.1 Financial Change . . . . . . . . . . . . . 16
2.1.10.2 Property Damage . . . . . . . . . . . . . . 16
2.1.10.3 Dividends . . . . . . . . . . . . . . . . . 16
2.1.10.4 Capitalization Change . . . . . . . . . . . 16
2.1.10.5 Labor Disputes . . . . . . . . . . . . . . 16
2.1.10.6 Other Material Changes . . . . . . . . . . 16
2.1.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.11.1 General . . . . . . . . . . . . . . . . . . 16
2.1.11.2 Subchapter S Matters . . . . . . . . . . . 17
2.1.12 Intellectual Property . . . . . . . . . . . . . . . . . . . 17
2.1.13 Title to and Condition of Assets . . . . . . . . . . . . . . 17
2.1.14 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1.15 Licenses and Permits . . . . . . . . . . . . . . . . . . . . 18
2.1.16 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.17 Environmental Compliance . . . . . . . . . . . . . . . . . . 19
2.1.17.1 Environmental Conditions . . . . . . . . . 19
2.1.17.2 Permits, etc. . . . . . . . . . . . . . . . 19
2.1.17.3 Compliance . . . . . . . . . . . . . . . . 19
2.1.17.4 Past Compliance . . . . . . . . . . . . . . 20
2.1.17.5 Environmental Claims . . . . . . . . . . . 20
2.1.17.6 Renewals . . . . . . . . . . . . . . . . . 20
2.1.17.7 Asbestos and PCBs . . . . . . . . . . . . . 20
2.1.18 Compliance with Other Laws . . . . . . . . . . . . . . . . . 20
2.1.19 ERISA Plans or Labor Issues . . . . . . . . . . . . . . . . 21
2.1.20 Investigations; Litigation . . . . . . . . . . . . . . . . . 22
2.1.21 Absence of Certain Business Practices . . . . . . . . . . . 22
2.1.22 Consents and Approvals . . . . . . . . . . . . . . . . . . . 22
2.1.23 Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . 23
2.1.24 Composting Facility . . . . . . . . . . . . . . . . . . . . 23
2.2 Investment Representations . . . . . . . . . . . . . . . . . . . . . 23
2.2.1 Shareholder Investment Suitability and Related Matters . . . 23
2.2.2 Synagro Shares Not Registered . . . . . . . . . . . . . . . 23
2.2.3 Reliance on Representations . . . . . . . . . . . . . . . . 23
2.2.4 Investment Intent . . . . . . . . . . . . . . . . . . . . . 23
2.2.5 Permitted Resale . . . . . . . . . . . . . . . . . . . . . . 23
2.2.6 Investor Sophistication . . . . . . . . . . . . . . . . . . 24
2.2.7 Availability of Information . . . . . . . . . . . . . . . . 24
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
2.2.8 Restrictive Legends . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 3 . . . . . . . . . . . . . . . . 24
REPRESENTATIONS AND WARRANTIES OF SYNAGRO . . . . . . . . 24
3.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . 24
3.2 Agreement Authorized and its Effect on Other Obligations . . . . . . 25
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.4 Reports and Financial Statements . . . . . . . . . . . . . . . . . . 25
3.5 Absence of Certain Changes and Events in Synagro . . . . . . . . . . 26
3.5.1 Financial Change . . . . . . . . . . . . . . . . . . . . . . 26
3.5.2 Other Material Changes . . . . . . . . . . . . . . . . . . . 26
3.6 Synagro's Compliance with Other Laws . . . . . . . . . . . . . . . . 26
3.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . 26
3.8 Investigations; Litigation . . . . . . . . . . . . . . . . . . . . . 26
3.9 Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.10 Nasdaq Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 4 . . . . . . . . . . . . . . . . 27
[THIS ARTICLE INTENTIONALLY LEFT BLANK]. . . . . . . . . . 27
ARTICLE 5 . . . . . . . . . . . . . . . . 27
CONDITIONS PRECEDENT TO OBLIGATIONS . . . . . . . . . 27
5.1 Conditions Precedent to Obligations of Bremer and the Shareholder . 27
5.1.1 Representations and Warranties of Synagro True at Closing
Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1.2 No Material Litigation . . . . . . . . . . . . . . . . . . . 27
5.1.3 Closing Documents . . . . . . . . . . . . . . . . . . . . . 27
5.1.4 Consent of Certain Parties in Privity With Synagro . . . . . 27
5.1.5 Board Approval . . . . . . . . . . . . . . . . . . . . . . . 28
5.2 Conditions Precedent to Obligations of Synagro . . . . . . . . . . . 28
5.2.1 Representations and Warranties of Bremer and the Shareholder
True at Closing Date . . . . . . . . . . . . . . . . . . . . 28
5.2.2 No Material Litigation . . . . . . . . . . . . . . . . . . . 28
5.2.3 Closing Documents . . . . . . . . . . . . . . . . . . . . . 28
5.2.4 Consent of Certain Parties in Privity with Bremer, Recyc or
the Shareholder . . . . . . . . . . . . . . . . . . . . . . 28
5.2.5 Other Operations . . . . . . . . . . . . . . . . . . . . . . 28
5.2.6 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . 28
5.2.7 Termination of Leases and Bank Accounts. . . . . . . . . . . 28
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 6 . . . . . . . . . . . . . . . . 29
[THIS ARTICLE INTENTIONALLY LEFT BLANK] . . . . . . . . . . 29
ARTICLE 7 . . . . . . . . . . . . . . . . 29
ADDITIONAL AGREEMENTS . . . . . . . . . . . . 29
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2.1 Tax Reporting of Transaction . . . . . . . . . . . . . . . . 29
7.2.2 No Code Section 351 Transfer . . . . . . . . . . . . . . . . 29
7.2.3 338(h)(10) Election. . . . . . . . . . . . . . . . . . . . . 29
7.2.4 Deemed Purchase Price Allocation . . . . . . . . . . . . . . 30
7.2.5 Bremer and Shareholder Not Related Persons Under Code
Section 197(f)(9)(C) . . . . . . . . . . . . . . . . . . . . 30
7.3 Adjacent Property . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.5 Subordination of Composting Facility Liens . . . . . . . . . . . . . 31
7.6 Easement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.7 Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Monthly Financial Statements . . . . . . . . . . . . . . . . . . . . 32
7.9 1997 Financials . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Article 2 Schedules. . . . . . . . . . . . . . . . . . . . . . . . . 32
7.11 Name Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.12 Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.13 Registration Matters . . . . . . . . . . . . . . . . . . . . . . . . 33
7.13.1 Agreement to Register Resales . . . . . . . . . . . . . . . 33
7.13.2 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.13.3 Registration Expenses . . . . . . . . . . . . . . . . . . . 33
7.13.5 Rights Non-Transferable . . . . . . . . . . . . . . . . . . 34
7.13.6 Indemnification by Synagro . . . . . . . . . . . . . . . . . 34
7.13.7 Notices of Claims, etc. . . . . . . . . . . . . . . . . . . 35
7.13.8 Undertaking to File Reports and Cooperate in Rule 144 and
Rule 145 Transactions . . . . . . . . . . . . . . . . . . . 35
7.13.9 Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . 35
7.13.10 Modification . . . . . . . . . . . . . . . . . . . . . . . . 35
7.14 Registered Shares Restrictions. . . . . . . . . . . . . . . . . . . 36
7.14.1 Limitation on Transfers . . . . . . . . . . . . . . . . . . 36
7.14.2 Hedging Restriction . . . . . . . . . . . . . . . . . . . . 36
7.15 Nasdaq National Market Listing . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
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7.16 Los Alisos Consent . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 8 . . . . . . . . . . . . . . . . 37
INDEMNIFICATION . . . . . . . . . . . . . . 37
8.1 Indemnification by Bremer and the Shareholder . . . . . . . . . . . 37
8.2 Indemnification by Synagro . . . . . . . . . . . . . . . . . . . . . 37
8.3 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . 38
8.4 Termination of Indemnity, Representations and Warranties . . . . . . 38
8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 9 . . . . . . . . . . . . . . . . 39
MISCELLANEOUS . . . . . . . . . . . . . . . 39
9.1 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.2 Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3 Counterparts and Facsimile Signature . . . . . . . . . . . . . . . . 39
9.4 Notices and Waivers . . . . . . . . . . . . . . . . . . . . . . . . 39
9.5 Table of Contents and Captions . . . . . . . . . . . . . . . . . . . 40
9.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 40
9.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.8 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.9 Definition of Material Adverse Change . . . . . . . . . . . . . . . 41
9.10 Joinder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 24, 1998 among Synagro Technologies, Inc., a Delaware corporation
("Synagro"), GroWest, Inc., a California corporation and formerly known as
Professional Growers, Inc. ("Shareholder"), and John A. Bremer, an individual
residing in Riverside County, California ("Bremer").
W I T N E S S E T H:
WHEREAS, the Shareholder owns 100,000 shares (the "Recyc Shares") of
stock, no par value per share, of Recyc, Inc. ("Recyc Stock"), a California
corporation ("Recyc"), which constitute all of the issued and outstanding
shares of capital stock of Recyc;
WHEREAS, Recyc and Synagro executed that certain letter agreement,
dated May 1, 1998 (the "Letter Agreement"), relating to the acquisition by
Synagro of substantially all of the assets of Recyc, such acquisition being
subject to change to accommodate the needs of the parties thereto;
WHEREAS, the parties desire to evidence their agreement with respect
to the form of, and the other terms and provisions not set forth in the Letter
Agreement with respect to, the transaction contemplated by the Letter
Agreement; and
WHEREAS, Bremer and Laura Bremer, jointly as community property, hold
all of the issued and outstanding capital stock of the Shareholder and, as
such, expect to receive substantial benefit, directly or indirectly, from the
sale of the Recyc Shares to Synagro.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and agreements herein contained, the parties hereto hereby
agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale of Recyc Shares. (a) Subject to the terms
and conditions of this Agreement, the Shareholder agrees to sell and convey to
Synagro, free and clear of all Encumbrances (as defined in Section 2.1.8.1),
except for Encumbrances relating to the Assumed Liabilities (as hereinafter
defined), and Synagro agrees to purchase and accept from the Shareholder, all of
the Recyc Shares, in consideration of (i) the delivery to Shareholder of (A) the
Promissory Note (as hereinafter defined) and (B) 1,475,323 shares (the "Synagro
Shares") of the common stock, par value $.002 per share, of Synagro ("Synagro
Common Stock"), (ii) the payment by Synagro to Business Bank of California of
approximately $658,777.26 (the "Composting Facility Payment"), and (iii) the
retention and/or assumption by Recyc of the liabilities described on Schedule
1.1(a) (the "Assumed Liabilities"). The Synagro Shares shall consist of 760,000
shares of Synagro Common Stock (the "Registered Synagro Shares") the resale of
which by the Shareholder will, at Synagro's expense, be registered pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), in accordance
<PAGE> 8
with the provisions of Section 7.13 hereof, and 715,336 shares of Synagro
Common Stock (the "Unregistered Synagro Shares") the resale of which by the
Shareholder will not be so registered.
(b) On the Closing Date (as hereinafter defined), or as soon
thereafter as is reasonably practicable, Synagro shall issue and deliver the
Registered Synagro Shares and the Unregistered Synagro Shares to the
Shareholder, and the Shareholder shall pledge to Synagro 375,000 of the
Unregistered Synagro Shares delivered to the Shareholder (the "Pledged Shares")
pursuant to a stock pledge agreement, substantially in the form of Exhibit A
hereto (the "Pledge Agreement"), and deliver the Pledged Shares to the Escrow
Agent pursuant to a pledged share escrow agreement, substantially in the form
of Exhibit B hereto (the "Pledged Stock Escrow Agreement"). The Pledged Shares
and any Additional Pledged Shares (as hereinafter defined) attributable thereto
shall be delivered to Synagro and/or the Shareholder in accordance with the
provisions of Sections 1.1(b)(ii), 1.1(b)(iii) and 1.1(b)(iv).
(i) On the Closing Date, Synagro shall execute and
deliver to the Shareholder a promissory note, substantially in the
form of Exhibit C hereto, in the original principal amount of
$2,304,750 (the "Promissory Note"). The Promissory Note shall bear
interest at the rate of seven percent (7%) per annum, accrued interest
shall be payable quarterly, and the principal balance and all accrued
interest shall be due and payable on or before twenty-seven (27)
months following the Closing Date, subject to extension as necessary
to determine Recyc's Net Income (as hereinafter defined), and any
resulting offsets, in accordance with this Section 1.1(b)(i), provided
that the following amounts may be offset by Synagro against principal
due and owing thereunder:
A. the amount by which Recyc's pretax net income
(as determined in accordance with the second
paragraph of this Section 1.1(b)(i)) ("Net
Income") for the first twelve month period
immediately following the Closing Date (the
"First Net Income Period") is less than
$2,200,000 (a "Net Income Shortfall"),
provided that not more than $677,375 may be
offset against principal owing under the
Promissory Note as a result of a Net Income
Shortfall in the First Net Income Period and
provided that said offset shall be made as of
the first anniversary of the Closing Date;
and the amount by which Recyc's Net Income
for the second twelve month period following
the Closing Date (the "Second Net Income
Period") is less than $2,400,000 (also a "Net
Income Shortfall"), provided that not more
than $677,375 may be offset against principal
owing under the Promissory Note as a result
of a Net Income Shortfall in the Second Net
Income Period and provided that said offset
shall be made as of the second anniversary of
the Closing Date.
B. $750,000 (the "Remediation Offset Amount") in
the event Shareholder fails to complete the
Remediation Operations (as hereinafter
defined) pursuant and subject to Section
1.1(b)(iii) hereof; and
2
<PAGE> 9
C. all amounts paid by Synagro or Recyc after
Closing pursuant to that certain letter
agreement, executed March 9, 1998 by Recyc
and Synagro and March 10, 1998 by the County
of Riverside ("Settlement Costs"), a copy of
which is attached hereto as Exhibit D (the
"Settlement Agreement"), except to the extent
any such amount relates to an obligation of
Synagro arising under the Settlement
Agreement, provided that not more than
$200,000 may be offset against principal
owing under the Promissory Note as a result
of Settlement Costs and provided that said
amounts shall be offset as of the date of
incurrence thereof by Synagro.
Synagro shall provide written notice to the Shareholder of any claimed
offset together with supporting documentation showing the basis for
such offset and the method of calculating same.
Except as otherwise expressly set forth in this paragraph, Net
Income shall be determined in accordance with generally accepted
accounting principles consistently applied. The cost of
transportation services provided by RTI (as hereinafter defined) to
Recyc pursuant to the Transportation Agreement (as hereinafter
defined) shall, for purposes of determining the Net Income, be
calculated in accordance with the Transportation Agreement
notwithstanding any lesser fee charged by RTI, or any designee
thereof, for such services. The determination of Net Income shall be
based upon an unaudited statement of income, retained earnings and
cash flows for each of the First Net Income Period and the Second Net
Income Period, prepared by or on behalf of Synagro and completed
within 45 days following the expiration of each of said periods. For
a period of thirty days following the delivery of said statements, the
Shareholder shall have the right to audit said statements, and Synagro
shall provide to the Shareholder reasonable access to such records and
documents in Synagro's possession relating to the preparation thereof
as reasonably requested by the Shareholder to conduct said audit. In
determining Net Income for said periods, Synagro shall be entitled to
take into account only Recyc's reasonable expenses, it being
understood that the following shall not be included in the calculation
of Net Income: (i) depreciation associated with capital expenditures
in amounts in excess of the amount of Recyc's historical, annual
depreciation associated with capital expenditures as reflected in the
right hand column of the Unaudited Recast Income Statement (as
hereinafter defined), except that depreciation associated with the
equipment listed on Schedule 1.1(b)(i) shall be included in the
calculation of Net Income, (ii) expenses incurred by Synagro in
connection with the negotiation and closing of the transactions
described in this Agreement, (iii) charges for services rendered by
Synagro or its affiliates to Recyc to the extent that such charges
would exceed amounts Recyc would pay to any unaffiliated third parties
for similar services in an arms-length transaction, and (iv) amounts
paid by Recyc relating to the Assumed Liabilities. Subject to the
foregoing, any expense incurred by Recyc of a type, and not exceeding
in the aggregate the amounts, set forth in the right hand column of
the Unaudited Recast Income Statement shall be deemed reasonable and
proper expenses by Recyc for purposes of determining Net Income.
During said periods, Synagro shall utilize its good faith
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<PAGE> 10
commercial efforts to operate Recyc, or cause Recyc to be operated, in
a fashion designed to maximize Net Income for purposes of this Section
1.1.(b)(i).
(ii) 37,500 of the Pledged Shares plus any Additional
Pledged Shares attributable thereto (collectively, the "First Period
Net Income Shares") shall be delivered to the Shareholder if no Net
Income Shortfall occurs in the First Net Income Period. In the event
that a Net Income Shortfall occurs in the First Net Income Period,
Synagro shall first offset the amount thereof in accordance with
Section 1.1(b)(i)(A). If Recyc's Net Income in the First Net Income
Period is less than $1,522,625, a number of First Period Net Income
Shares equal to (A) the difference between $1,522,625 and the Net
Income in the First Net Income Period, divided by (B) the Deemed Value
(as hereinafter defined), shall be delivered to Synagro and the
remainder of the First Period Net Income Shares shall be delivered to
the Shareholder. 37,500 Pledged Shares plus any Additional Pledged
Shares attributable thereto (collectively, the "Second Period Net
Income Shares") shall be delivered to the Shareholder if no Net Income
Shortfall occurs in the Second Net Income Period. In the event that a
Net Income Shortfall occurs in the Second Net Income Period, Synagro
shall first offset the amount thereof in accordance with Section
1.1(b)(i)(A). If Recyc's Net Income in the Second Net Income Period
is less than $1,722,625, a number of Second Period Net Income Shares
equal to (A) the difference between $1,722,625 and the Net Income in
the Second Net Income Period, divided by (B) the Deemed Value shall be
delivered to Synagro and the remainder of the Second Period Net Income
Shares shall be delivered to the Shareholder.
(iii) 100,000 of the Pledged Shares together with any
Additional Pledged Shares attributable thereto (collectively, the
"Remediation Shares") shall be delivered to the Shareholder upon
completion by the Shareholder, at Shareholder's sole cost, risk and
expense, of (A) all clean-up, remediation, dirt removal, compost
product removal, fill dirt application, and elevation maintenance or
restoration operations on that portion of Recyc's existing composting
facility located in Riverside County, California (the "Composting
Facility") known as the Liston Pit, as required by any applicable law,
rule, regulation or ordinance, or by any order of any federal, state,
county or municipal government, court, or authority, or any
department, agency or other subdivision thereof, or by the Settlement
Agreement (as hereinafter defined), (B) the removal of the
approximately 50,000 cubic yards of compost products and other
materials that are currently located on the curing block/pile on the
north end of the portion of the Composting Facility known as Pad 3 and
the transportation to, and spreading on, one or more offsite locations
of said compost products and other materials, (C) removal of all water
in the Liston Pit that may not reasonably be used for dust control at
the Composting Facility, and (D) testing the clay liner in the Liston
Pit to confirm that said clay liner is in compliance with all
applicable laws, rules, regulations and orders and, if said clay liner
is not in such compliance, repair it to the extent necessary to bring
it into compliance with, or if no clay liner exists, construct a clay
liner in accordance with, all applicable laws, rules, regulations and
orders (the operations described in clauses (A), (B), (C) and (D)
collectively, the "Remediation Operations"). Synagro agrees to
cooperate in good faith with, and use reasonable commercial efforts to
assist, the Shareholder with respect to the Shareholder's efforts
timely to conduct the Remediation Operations; provided that Synagro
shall not be obligated to incur any costs with respect thereto or
4
<PAGE> 11
conduct any Remediation Operations, and any costs so incurred by
Synagro or Recyc shall be reimbursed by the Shareholder promptly upon
receipt from Synagro of an invoice therefor together with reasonable
supporting documentation. In the event that the Shareholder fails to
complete Remediation Operations within seven months following the
Closing Date, or any extension by the County of Riverside of the seven
month period set forth in the Settlement Agreement for completion of
the Remediation Operations, the Remediation Shares shall be retained
in escrow pending completion of the Remediation Operations by Recyc,
and the Shareholder shall have no further right, duty or obligation to
conduct the Remediation Operations. In the event Recyc conducts the
Remediation Operations following the expiration of said seven month
period, as extended by the County of Riverside, Synagro shall cause
Recyc to conduct the Remediation Operations in a reasonably efficient
and cost effective manner. Upon the incurrence thereof, Synagro may
offset against principal due under the Promissory Note, up to the
Remediation Offset Amount, all costs reasonably incurred by Recyc to
conduct the Remediation Operations (the "Recyc Remediation Costs")
and, upon completion by Recyc of the Remediation Operations, the
Remediation Shares shall be delivered to the Shareholder; provided
that, to the extent the Recyc Remediation Costs exceed the Remediation
Offset Amount (the excess amount of the Recyc Remediation Costs being
the "Unrecouped Costs"), then, upon completion by Recyc of the
Remediation Operations, a number of Remediation Shares equal to (A)
the Unrecouped Costs divided by (B) the Deemed Value shall be
delivered to Synagro and the remainder of the Remediation Shares, if
any, shall be delivered to the Shareholder. If the Shareholder fails
to complete the Remediation Operations within said seven months, as
extended by the County of Riverside, and Recyc does not commence
Remediation Operations on or before the first anniversary of the
Closing Date, the Remediation Shares shall be delivered to the
Shareholder and Synagro may not offset against the Promissory Note
pursuant to this Section 1.1(b)(iii).
(iv) 200,000 of the Pledged Shares together with any
Additional Pledged Shares attributable thereto (collectively, the
"Transportation Shares") shall be delivered as follows: one-half of
the Transportation Shares (the "Initial Period Transportation Shares")
shall be delivered to the Shareholder promptly after the expiration of
the first one year period following the Closing Date (the "Initial
Transportation Period") provided that RTI is not in breach of the
Transportation Agreement or, if it was in breach thereof, it cured
said breach in accordance with the terms of the Transportation
Agreement. If, at the end of the Initial Transportation Period, RTI
is in breach of the Transportation Agreement but is in the process of
curing said breach in accordance with the provisions thereof, the
Initial Transportation Shares shall remain in escrow pending
completion of said cure in accordance with the Transportation
Agreement and, upon such completion, or the failure to so complete,
the Initial Transportation Shares shall be distributed in accordance
with this Section 1.1(b)(iv). In the event that RTI breaches the
Transportation Agreement during the Initial Transportation Period, and
RTI does not cure such breach in accordance with the provisions
thereof, all of the Transportation Shares shall be delivered to
Synagro. Any remaining Transportation Shares not delivered to the
Shareholder and/or Synagro pursuant to the preceding provisions of
this Section 1.1.(b)(iv) shall be delivered to the Shareholder
promptly after the expiration of the second one year period following
the Closing Date (the "Subsequent Transportation Period") provided
that RTI has not breached the Transportation
5
<PAGE> 12
Agreement in the Subsequent Transportation Period or, if it was in
breach thereof, it cured said breach in accordance with the terms of
the Transportation Agreement. If, at the end of the Subsequent
Transportation Period, RTI is in breach of the Transportation
Agreement but is in the process of curing said breach in accordance
with the provisions thereof, any remaining Transportation Shares shall
remain in escrow pending completion of said cure in accordance with
the Transportation Agreement and, upon such completion, or the failure
to so complete, said Transportation Shares shall be distributed in
accordance with this Section 1.1(b)(iv). In the event RTI breaches
the Transportation Agreement during the Subsequent Transportation
Period, and RTI does not cure such breach in accordance with the
provisions hereof, a number of the remaining Transportation Shares
equal to (A) all additional cost reasonably incurred, or, pursuant to
a replacement contract entered by Recyc, to be incurred, by Recyc to
cure such breach ("Additional Transportation Cost"), including,
without limitation, the cost of comparable replacement transportation
services that is in excess of the applicable cost of the
transportation services that are the subject of said breach, divided
by (B) the Deemed Value shall be delivered to Synagro and, promptly
following the expiration of the Subsequent Transportation Period, the
remainder of the Transportation Shares, if any, shall be delivered to
the Shareholder.
(v) As used in this Agreement, "Deemed Value" shall mean
the average of the last sales price per share of Synagro Common Stock,
as reported in the Wall Street Journal, for the five trading days
immediately preceding the date of determination of said average. The
Deemed Value shall be calculated (A) as of the date that is the first
anniversary of the Closing Date with respect to the First Period Net
Income Shares and as of the second anniversary of the Closing Date
with respect to the Second Period Net Income Shares, (B) as of the
date of completion of the Remediation Operations by the Shareholder or
Recyc, or if the Shareholder fails to complete the Remediation
Operations within seven months, as extended by the County of
Riverside, and Recyc fails to commence the Remediation Operations on
or before the first anniversary of the Closing Date, as of the first
anniversary of the Closing Date, as applicable, with respect to
Section 1.1(b)(iii), and (C) on the date during the Subsequent
Transportation Period that Recyc notifies RTI of any breach by RTI of
the Transportation Agreement with respect to Section 1.1(b)(iv).
(vi) Any cash dividends, non-cash dividends or
distributions or stock dividends not excluded as set forth below which
may be declared and paid by Synagro in respect of the Pledged Shares
and any Additional Pledged Shares shall be paid by Synagro to the
Shareholder, and the Shareholder may vote the Pledged Shares and any
Additional Pledged Shares during the time such shares are held in
escrow, subject to the provisions of the Voting Agreement (as
hereinafter defined). All shares of Synagro Stock deliverable in
respect of the Pledged Shares as a result of any stock split or other
distribution of securities without consideration (excluding a stock
dividend) shall be held by the Escrow Agent and shall become additional
Pledged Shares ("Additional Pledged Shares"). All shares of Synagro
Stock deliverable in respect of any Additional Pledged Shares as a
result of any stock split or other distribution of securities
(excluding a stock dividend) shall be held by the Escrow Agent and
shall also be considered "Additional Pledged Shares".
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<PAGE> 13
(vii) The Shareholder expressly agrees that any assignment
of Pledged Shares or Additional Pledged Shares shall be subject to,
and the assignee shall assume and agree to be bound by, the terms and
provisions of this Section 1.1(b) and any other terms and provisions
of this Agreement to the extent affecting said shares.
(viii) Upon delivery of any Pledged Shares and Additional
Pledged Shares to the Shareholder and/or Synagro pursuant to this
Section 1.1(b), the lien created by the Pledge Agreement shall be
released with respect to, but only with respect to, said delivered
Pledged Shares or Additional Pledged Shares.
(ix) The Shareholder and Synagro agree to execute an
Escrow Disbursement Authorization (as defined in the Escrow Agreement)
promptly after the Shareholder and/or Synagro become entitled to a
distribution of Pledged Shares and/or Additional Pledged Shares
pursuant to the provisions of this Section 1.1(b).
(c) In the event of a dispute between the parties with
respect to any provision of Section 1.1(b) hereof, including, without
limitation, the amount of the Net Income, the amount to be offset against
principal owed under the Promissory Note, whether Shareholder completed the
Remediation Operations or whether RTI is in breach of the Transportation
Agreement, any undisputed Pledged Shares and any Additional Pledged Shares
attributable thereto shall be delivered to the appropriate party pursuant to
the provisions of Section 1.1(b), any disputed Pledged Shares and any
Additional Pledged Shares attributable thereto shall be retained by the Escrow
Agent, and the parties shall endeavor in good faith to resolve said dispute
within thirty days of the receipt by either party of written notice from the
other party of said dispute. If the parties are unable to resolve said dispute
within said thirty day period, the dispute shall be referred to an arbitrator
mutually acceptable to the Shareholder and Synagro, or if the Shareholder and
Synagro are unable to agree on such an arbitrator within five business days
after the expiration of said thirty-day period, each shall choose an arbitrator
and said arbitrators shall choose a third arbitrator, for final resolution
thereof (said arbitrator or arbitrators, hereinafter, the "Arbitrator"). With
respect to the determination of any dollar amount by the Arbitrator, if three
Arbitrators are involved and are unable to agree on said dollar amount, the two
closest dollar amounts specified by the Arbitrators shall be averaged to
determine the dollar amount, and with respect to all other matters, the
determination of the Arbitrators shall be by majority vote. The decision of
the Arbitrator shall be final and binding on the parties and may be enforced by
any court of competent jurisdiction. The non-prevailing party shall bear all
costs and fees of the Arbitrator; provided, however, that if each party
prevails with respect to a portion of the dispute, the costs and fees of the
Arbitrator shall be borne equally by Synagro and Shareholder. In addition,
with respect to any dispute arising under Sections 1.1(b)(i)(A) or 1.1(b)(ii),
(A) Synagro and its attorneys, accountants and consultants shall have the
right, during normal business hours and upon reasonable prior notice, to
inspect and copy all books, records, files, documents and agreements held by
Shareholder, Bremer or any affiliate thereof, and to interview any of Recyc's
former employees employed with Shareholder, Bremer or any affiliate thereof,
relating to Recyc's operations prior to the Closing Date, and (B) Shareholder
and its attorneys, accountants and consultants shall have the right, during
normal business hours and upon reasonable prior notice, to inspect and copy all
of Recyc's and Synagro's books, records, files, documents and agreements, and
interview Recyc's and Synagro's employees, relating to Recyc's operations after
7
<PAGE> 14
the Closing Date. For purposes of this Section 1.1(c), Shareholder and Bremer
shall collectively be deemed one party and Synagro and Recyc shall collectively
be deemed one party.
1.2 Time and Place of Closing. The consummation of the
transactions contemplated by this Agreement (the "Closing") shall be at the
offices of Porter & Hedges, L.L.P., located at 700 Louisiana, Suite 3500,
Houston, Texas, at 10:00 a.m. on July 24, 1998, unless another time, place or
date is agreed to by the Shareholder and Synagro (the date of the Closing being
the "Closing Date").
1.3 Closing Deliveries. At the Closing (i) the Shareholder shall
deliver to Synagro duly and validly issued certificates representing the Recyc
Shares, each such certificate to be duly endorsed in blank and in good form for
transfer, or accompanied by stock powers duly executed in blank sufficient and
in good form to properly transfer the Recyc Shares to Synagro; (ii) Bremer
shall execute and deliver to Synagro a confidentiality and noncompetition
agreement in substantially the form of Exhibit E hereto (the "Noncompete
Agreement"); (iii) John Alex Bremer and Laura Joyce Bremer, Trustees of the
Bremer Family 1995 Living Trust (the "Trust"; said trustees together with any
successor trustees, the "Trustee") and Synagro shall execute and deliver a
lease covering the Composting Facility substantially in the form of Exhibit F
hereto (the "Facility Lease") and a memorandum of lease and option to purchase
substantially in the form of Exhibit G hereto (the "Lease Memorandum"); (iv)
the Shareholder, Donald L. Thone, Ross M. Patten and Daniel L. Shook shall
execute and deliver a voting agreement and irrevocable proxy substantially in
the form of Exhibit H hereto (the "Voting Agreement"); (v) Bremer, Shareholder
and Laura Bremer shall execute and deliver to Synagro a waiver and an
assignment of claims substantially in the form of Exhibit I hereto (the
"Waiver"); (vi) Recyc Trucking, Inc., a California corporation ("RTI"), and
Synagro shall execute and deliver a transportation agreement substantially in
the form of Exhibit J hereto (the "Transportation Agreement"); (vii) the
Shareholder, Bremer, Laura Bremer and Synagro shall deliver to one another all
other documents, instruments and agreements required under this Agreement or
any Ancillary Document (as hereinafter defined); (viii) Synagro shall execute
and deliver to Shareholder the Promissory Note; (ix) Synagro shall deliver to
the Shareholder a stock certificate representing the Registered Synagro Shares,
a stock certificate representing the Unregistered Synagro Shares not
constituting Pledged Shares and three stock certificates representing the
Pledged Shares (one for each of the Net Income Shares, the Transportation
Shares and the Remediation Shares); (x) the Shareholder shall deliver to the
Escrow Agent the stock certificates representing the Pledged Shares together
with stock powers or other instruments of assignment and transfer, reasonably
acceptable to Synagro, duly endorsed in blank covering the Pledged Shares;
(xi) Synagro and the Shareholder shall execute and deliver a registration
rights agreement substantially in the form of Exhibit K hereto (the
"Registration Rights Agreement"); (xii) the Shareholder and Synagro shall
execute and deliver the Pledged Stock Escrow Agreement, and the Shareholder
shall execute and deliver the Pledge Agreement; (xiii) Synagro shall deliver
the Composting Facility Payment to Business Bank of California; (xiv) the
Shareholder shall deliver to Synagro resignations of each of the officers and
directors of Recyc; and (xv) Synagro and the Shareholder will deliver to one
another the opinions of counsel described below:
1.3.1 Opinion of Synagro Counsel. The Shareholder and
Bremer shall have received a favorable opinion, dated as of the
Closing Date, from Porter & Hedges, L.L.P.,
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<PAGE> 15
counsel for Synagro, in form and substance satisfactory to the
Shareholder and Bremer, to the effect that (i) Synagro has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware; (ii) all corporate
proceedings required to be taken by or on the part of Synagro to
authorize the execution of this Agreement and the implementation of
the transactions contemplated hereby have been taken; (iii) the shares
of Synagro Common Stock which are to be delivered in accordance with
this Agreement will, when issued, be validly issued, fully paid and
nonassessable outstanding securities of Synagro; (iv) this Agreement
and the Ancillary Documents to which Synagro is a party have been duly
executed and delivered by, and are the legal, valid and binding
obligation of Synagro and are enforceable against Synagro in
accordance with their respective terms, except as enforceability may
be limited by (a) equitable principles of general applicability or (b)
bankruptcy, insolvency, reorganization, fraudulent conveyance or
similar laws affecting the rights of creditors generally; and (v)
except as specified by such counsel (such exceptions to be acceptable
to the Shareholder) such counsel does not know of any material
litigation, proceedings, or governmental investigation pending or
threatened against or relating to Synagro, any of its subsidiaries, or
their respective properties or businesses in which it is sought to
restrain, prohibit or otherwise affect the consummation of the
transactions contemplated by this Agreement. Such opinion also shall
cover such other matters incident to the transactions herein
contemplated as Recyc and its counsel may reasonably request. In
rendering such opinion, such counsel may rely upon (i) certificates of
public officials and of officers of Synagro as to matters of fact and
(ii) the opinion or opinions of other counsel, which opinions shall be
reasonably satisfactory to Recyc, as to matters other than federal or
Texas law; provided that said opinion shall be limited to federal law,
the laws of the State of Texas and the general corporate law of the
State of Delaware.
1.3.2 Opinion of Counsel. Synagro shall have received a
favorable opinion, dated the Closing Date, from McKenna & Cuneo,
L.L.P., counsel to Bremer, Recyc and the Shareholder, in form and
substance satisfactory to Synagro, to the effect that (i) Recyc has
been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of California; (ii) all
corporate proceedings required to be taken by or on the part of the
Shareholder to authorize the execution of this Agreement and the
implementation of the transactions contemplated hereby have been
taken; (iii) all outstanding shares of the Recyc Stock have been
validly issued and are fully paid and nonassessable; (iv) this
Agreement and the Ancillary Documents to which Bremer, the
Shareholder, the Trustee and/or RTI are a party have been duly
executed and delivered by, and are the legal, valid and binding
obligation of Bremer, the Shareholder, the Trustee and/or RTI, as
applicable, and are enforceable against Bremer, the Shareholder, the
Trustee and/or RTI, as applicable, in accordance with their respective
terms, except as the enforceability may be limited by (a) equitable
principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the
rights of creditors generally; and (v) except as specified by such
counsel (such exceptions to be acceptable to Synagro) such counsel
does not know of any material litigation, proceedings or governmental
investigation, pending or threatened against or relating to Recyc or
its properties or businesses, the Shareholder, RTI, the Trustee or
Bremer in which it is sought to restrain, prohibit or otherwise affect
consummation of the transactions contemplated by this Agreement. Such
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<PAGE> 16
opinion shall also cover such other matters incident to the
transactions herein contemplated as Synagro and its counsel may
reasonably request. In rendering such opinion, such counsel may rely
upon (i) certificates of public officials and of officers of Recyc as
to matters of fact and (ii) on the opinion or opinions of other
counsel, which opinions shall be reasonably satisfactory to Synagro,
as to matters other than federal or California law; provided that said
opinion shall be limited to federal law and the laws of the State of
California.
1.3.3 Ancillary Documents. As used herein, "Ancillary
Documents" shall mean the Promissory Note, the Noncompete Agreement,
the Facility Lease, the Lease Memorandum, the Voting Agreement, the
Waiver, the Transportation Agreement, the Registration Rights
Agreement, the Pledge Agreement and the Pledged Stock Escrow
Agreement.
1.4 Receivables and Payables. The parties acknowledge and agree
that all receivables and other amounts owed to Recyc, and all payables, debts,
obligations and other amounts owed by Recyc (except the Assumed Liabilities),
as of the Closing Date shall be the property and obligation of the Shareholder.
To the extent Recyc receives any revenues or other payments after the Closing
Date attributable to Recyc's operations before the Closing Date, Synagro shall
cause Recyc promptly upon bank clearance of the applicable funds to pay said
revenues or other payments to the Shareholder. For a period of six months
following the Closing Date, on or before the tenth day of each month, Synagro
shall cause Recyc to provide to the Shareholder an accounting of all revenues
and other amounts received by Recyc in the previous month attributable to
Recyc's operations before the Closing Date. For a period of one year following
the Closing Date, Synagro shall cause Recyc to provide the Shareholder with
access to, during normal business hours and upon reasonable prior notice, and
the Shareholder shall have the right to audit, the books and records of Recyc
relating to revenues and other amounts received by Recyc attributable to
Recyc's operations before the Closing Date. To the extent that Recyc receives
after the Closing Date any bill or invoice for goods or services rendered to
Recyc prior to the Closing Date, or any other notice of any amount owed by
Recyc attributable to its operations before the Closing Date, except to the
extent said bill, invoice or notice relates to any Assumed Liability, Synagro
shall cause Recyc promptly to forward said bill, invoice or notice to the
Shareholder, and the Shareholder agrees timely to pay the amount of said bill,
invoice or notice, except to the extent the Shareholder disputes the amount
thereof in good faith and prosecutes said dispute with reasonable diligence.
Synagro agrees to cause Recyc to reasonably cooperate with the Shareholder with
respect to the collection of any revenues or other amounts attributable to the
operations of Recyc before the Closing Date.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDER, RECYC AND BREMER
2.1 Representations and Warranties of the Shareholder and Bremer.
The Shareholder and Bremer jointly and severally represent and warrant to
Synagro as follows:
2.1.1 Organization and Standing. Each of the Shareholder
and Recyc is a corporation duly organized, validly existing and in
good standing under the laws of the State
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<PAGE> 17
of California, has full requisite corporate power and authority to
carry on its business as it is currently conducted and to own and
operate the properties currently owned and operated by it, and is duly
qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the
business conducted by it would make such qualification or licensing
necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on its financial condition,
properties or business.
2.1.2 Agreement Authorized and its Effect on Other
Obligations. The execution, delivery and performance of this
Agreement and each of the Ancillary Documents to which it is a party
have been duly and validly authorized by all necessary corporate
action on the part of the Shareholder. This Agreement and each of the
Ancillary Documents to which Bremer, the Shareholder, RTI and/or the
Trustee is a party are valid and binding obligations of the
Shareholder, Bremer, RTI and/or the Trustee, as applicable, in
accordance with their respective terms enforceable against the
Shareholder, Bremer, RTI and/or the Trustee, as applicable, in
accordance with their respective terms except as such enforceability
may be limited by (a) equitable principles of general applicability or
(b) bankruptcy, insolvency, reorganization, fraudulent conveyance or
similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement and each of the
Ancillary Documents by the Shareholder, Bremer and/or RTI, as
applicable, will not conflict with or result in a violation or breach
of any term or provision of, nor constitute a default under (i) the
respective Articles of Incorporation or Bylaws of the Shareholder, RTI
or Recyc or (ii) to the extent such conflict, violation, breach or
default could have a material adverse effect on the business,
operations, assets or financial condition of Bremer, Recyc, RTI or the
Shareholder, any obligation, indenture, mortgage, deed of trust,
lease, contract or other agreement to which Bremer, Recyc, RTI or the
Shareholder is a party or by which Bremer, Recyc, RTI or the
Shareholder or their respective properties are bound. The execution,
delivery and performance of the Lease and the Lease Memorandum by the
Trustee will not conflict with or result in a violation or breach of
any trust indenture or agreement creating or governing, or any other
document or instrument applicable to, the Trust, or any other
obligation, indenture, mortgage, deed of trust, lease, contract or
other agreement to which the Trustee is a party or by which any of the
Trust's properties are bound.
2.1.3 Capitalization of Recyc. The authorized
capitalization of Recyc consists of 100,000 shares of Recyc Stock,
all of which are issued and outstanding and held beneficially and of
record by the Shareholder. Recyc does not have any outstanding
options, warrants, calls or commitments of any character relating to
its capital stock. All issued and outstanding shares of Recyc Stock
are validly issued, fully paid and non-assessable. None of the
outstanding shares of Recyc Stock is subject to any voting trust,
voting agreement or other agreement or understanding with respect to
the voting thereof, nor is any proxy in existence with respect
thereto.
2.1.4 Ownership of Recyc Shares. The Shareholder holds
good and valid title to all of the Recyc Shares free and clear of all
Encumbrances. The Shareholder possesses full authority and legal
right to sell, transfer and assign to Synagro the Recyc Shares, free
and
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<PAGE> 18
clear of all Encumbrances. Upon transfer to Synagro by the
Shareholder of the Recyc Shares, Synagro will own the Recyc Shares
free and clear of all Encumbrances. There are no claims pending or,
to the knowledge of Bremer and the Shareholder, threatened, against
Recyc, Bremer or the Shareholder that concern or affect title to the
Recyc Shares, or that seek to compel the issuance of capital stock or
other securities of Recyc.
2.1.5 No Subsidiaries. As of the date hereof, Recyc has no
subsidiaries, whether wholly or partially owned, and does not own,
beneficially or of record, or have any obligation to acquire, any
material amount of, or have any material investment in, any stock,
partnership or membership interest or other equity or debt securities
of any other business, enterprise or entity.
2.1.6 Financial Statements.
2.1.6.1 Consolidated Financial Statements.
The Shareholder has delivered to Synagro Recyc's unaudited
balance sheet and related statements of income, retained
earnings and cash flows, with appended notes which are an
integral part of such statements, as of and for the twelve
months ended December 31, 1997 (the "Unaudited Recyc Financial
Statements"). Copies of the Unaudited Recyc Financial
Statements are attached hereto as Schedule 2.1.6.1. All of
the Unaudited Recyc Financial Statements are complete in all
material respects (except for the omission of notes and
schedules), present fairly the financial condition of Recyc as
at the dates indicated, and the results of operations for the
respective periods indicated, and have been prepared in
accordance with generally accepted accounting principles
applied on a consistent basis, except as noted therein and
subject, in the case of the Unaudited Recyc Financial
Statements, to normal year-end adjustments and other
adjustments described therein; in addition, the Unaudited
Recyc Financial Statements, though unaudited, include all
adjustments which the Shareholder and Bremer consider
necessary for a fair presentation of Recyc's results of that
period. December 31, 1997 may sometimes be hereinafter
referred to as the "Balance Sheet Date".The Shareholder and
Bremer shall use their respective best efforts to cause to be
prepared and delivered to Synagro Recyc's audited balance
sheet and related statements of income, retained earnings, and
cash flows, as of and for the twelve month period ended
December 31, 1997 (the "Audited Recyc Financial Statements")
promptly following the date hereof. Upon delivery thereof,
the Audited Recyc Financial Statements shall be attached to
this Agreement as part of Schedule 2.1.6.1 and the
representation and warranty in this Section 2.1.6.1 shall
apply thereto, and each reference in this Agreement to
"Unaudited Recyc Financial Statements" shall be amended to
read "Audited Recyc Financial Statements".
2.1.6.2 Recast Income Statement. The
Shareholder has delivered to Synagro a statement of income, as
of and for the twelve months ended December 31, 1997, a copy
of which is attached hereto as Schedule 2.1.6.2 (the
"Unaudited Recast Income Statement") that (a) relates solely
to the composting business and operations of Recyc (the
"Composting Operations"), (b) excludes any income and expenses
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<PAGE> 19
related to (i) the prior Bergen Nurseries, trucking and
fueling business and operations of Recyc, (ii) Rentrac, Inc.
and (iii) any other prior operations of Recyc not constituting
part of its Composting Operations (the operations described in
clauses (i), (ii) and (iii) collectively, the "Other
Operations"), and (c) assumes further adjustments (referred to
therein as "Recast Adjustments") that could be achieved after
the Closing Date. The Unaudited Recast Income Statement is
complete in all material respects (except for the omission of
notes, schedules and the Other Operations), presents fairly
the financial condition of Recyc (based solely on the
Composting Operations) as at the date indicated, and the
results of the Composting Operations for the period indicated,
and has been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as
noted therein; in addition, the Unaudited Recast Financial
Statement, though unaudited, includes all adjustments which
Recyc, the Shareholder and Bremer consider necessary for a
fair presentation of Recyc's results based solely on the
Composting Operations, for the period covered thereby.
2.1.6.3 E&Y Financial Statements. The
Shareholder has delivered to Synagro Recyc's audited balance
sheet and related statements of income, retained earnings and
cash flows, as of and for the twelve months ended December 31,
1997, prepared by Ernst & Young, L.L.P., a copy of which is
attached hereto as Schedule 2.1.6.3 (the "Audited E&Y
Financial Statements") that relate solely to the Composting
Operations and exclude any assets, liabilities, income,
expenses and cash flows related to the Other Operations,
except for the inclusion of revenues and expenses attributable
to clay sales and certain trucking operations of Recyc (which,
solely for purposes of this Section 12.1.6.3, shall be
included in the definition of "Composting Operations"). All
of the Audited E&Y Financial Statements are complete in all
material respects, present fairly the financial condition of
Recyc (based solely on the Composting Operations) as at the
dates indicated, and the results of the Composting Operations
for the respective periods indicated, and have been prepared
in accordance with generally accepted accounting principles
applied on a consistent basis, except as noted therein; in
addition, the Audited E&Y Financial Statements include all
adjustments which the Shareholder and Bremer consider
necessary for a fair presentation of Recyc's results (based
solely on the Composting Operations) for the period covered
thereby. The balance sheet included in the Audited E&Y
Financial Statements is herein referred to as the "Audited E&Y
Balance Sheet").
2.1.7 Liabilities. Except as disclosed on Schedule 2.1.7
hereto, Recyc has no pending or, to Bremer's and the Shareholder's
knowledge, threatened liabilities or obligations, either accrued,
absolute or contingent, nor does either the Shareholder or Bremer have
any knowledge of any potential liabilities or obligations, which would
materially adversely affect the value and conduct of the business of
Recyc, other than those (i) reflected or reserved against in the
Audited E&Y Balance Sheet or (ii) incurred in the ordinary course of
business since the Balance Sheet Date.
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<PAGE> 20
2.1.8 Additional Information. Attached as Schedule 2.1.8
hereto are true, complete and correct lists of the following items:
2.1.8.1 Real Estate. All real property and
structures thereon owned, leased or subject to a contract of
purchase and sale, or lease commitment, by Recyc, with a
description of the nature and amount of any Encumbrances
thereon. The term "Encumbrances" means all liens, security
interests, pledges, mortgages, deeds of trust, claims, rights
of first refusal, options, charges, restrictions or conditions
to transfer or assignment, liabilities, obligations,
privileges, equities, easements, rights-of-way, limitations,
reservations, restrictions and other encumbrances of any kind
or nature;
2.1.8.2 Machinery and Equipment. All
machinery, vehicles, trailers, transportation equipment,
tools, equipment, furnishings, and fixtures owned, leased or
subject to a contract of purchase and sale, or lease
commitment, by Recyc with a description of the nature and
amount of any Encumbrances thereon;
2.1.8.3 Receivables. All accounts and notes
receivable of Recyc, together with (i) aging schedules by
invoice date and due date, (ii) the amounts provided for as an
allowance for bad debts, (iii) the identity and location of
any asset in which Recyc holds a security interest to secure
payment of the underlying indebtedness, and (iv) a description
of the nature and amount of any Encumbrance on such accounts
and notes receivable;
2.1.8.4 Payables. All accounts and notes
payable of Recyc, together with an appropriate aging schedule;
2.1.8.5 Insurance. All insurance policies
or bonds currently maintained by Recyc, including title
insurance policies, and those covering Recyc's properties,
machinery, equipment, fixtures, employees and operations, as
well as a listing of any deductibles, premiums, audit
adjustments or retroactive adjustments due or pending on such
policies or any predecessor policies;
2.1.8.6 Contracts. All sludge contracts,
bulking agent contracts and all other material contracts to
which Recyc is a party which are to be performed in whole or
in part after the date hereof;
2.1.8.7 Employee Compensation Plans. All
bonus, incentive compensation, deferred compensation, profit-
sharing, retirement, pension, welfare, group insurance, death
benefit, or other fringe benefit plans, arrangements or trust
agreements of Recyc, whether or not subject to ERISA (as
hereinafter defined), together with copies of the most recent
reports with respect to such plans, arrangements, or trust
agreements filed with any governmental agency, and all
Internal Revenue Service determination letters that have been
received with respect to such plans;
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<PAGE> 21
2.1.8.8 Certain Salaries. The names and
salary rates of all present employees of Recyc who have
salaries in excess of $25,000, and all arrangements with
respect to any bonuses to be paid to them from and after the
date of this Agreement;
2.1.8.9 Bank Accounts. The name of each
bank in which Recyc has an account, the account numbers of
each account and the names of all persons authorized to draw
thereon;
2.1.8.10 Employee Agreements. Any collective
bargaining agreements of Recyc with any labor union or other
representative of employees, including amendments,
supplements, and written or oral understandings, and all
employment and consulting and severance agreements of Recyc;
2.1.8.11 Intellectual Property. All patents,
trademarks, copyrights and other intellectual property rights
owned, licensed, or used by Recyc;
2.1.8.12 Trade Names. All trade names,
assumed names and fictitious names used or held by Recyc,
whether and where such names are registered, and where used;
2.1.8.13 Promissory Notes. All long-term and
short-term promissory notes, installment contracts, loan
agreements, credit agreements, and any other agreements of
Recyc relating thereto or with respect to collateral securing
the same;
2.1.8.14 Guaranties. All indebtedness,
liabilities and commitments of others and as to which Recyc is
a guarantor, endorser, co-maker, surety, or accommodation
maker, or contingently liable therefor and all letters of
credit, whether stand-by or documentary, issued by any third
party;
2.1.8.15 Leases. All leases to which Recyc
is a party whether as lessor or lessee; and
2.1.8.16 Permits. All permits,
authorizations, variances, waivers, exemptions, rights-of-way,
franchises, ordinances, approvals, certifications, licenses,
registrations, orders, decrees and other similar rights
applicable to current operations conducted by Recyc
(collectively, "Permits") and all environmental audits,
assessments, investigations and reviews conducted by Recyc
within the last five years on any property owned or used by
it.
2.1.9 No Defaults. Except as set forth on Schedule 2.1.9,
Recyc is not in default in any material obligation or covenant on its
part to be performed under any obligation, lease, contract, order,
plan or other agreement or arrangement.
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<PAGE> 22
2.1.10 Absence of Certain Changes and Events. Other than as
a result of the transactions contemplated by this Agreement and the
conveyance to the Shareholder of certain assets and liabilities
related to the Other Operations, since the Balance Sheet Date, there
has not been:
2.1.10.1 Financial Change. Any material
adverse change in the financial condition, backlog,
operations, assets, liabilities or business of Recyc;
2.1.10.2 Property Damage. Any material
damage, destruction, or loss to the business or properties of
Recyc (whether or not covered by insurance);
2.1.10.3 Dividends. Except as set forth on
Schedule 2.1.10.3, any declaration, setting aside, or payment
of any dividend or other distribution in respect of the Recyc
Stock, or any direct or indirect redemption, purchase or any
other acquisition by Recyc of any such stock;
2.1.10.4 Capitalization Change. Any change
in the capital stock or in the number of shares or classes of
the authorized or outstanding capital stock of Recyc as
described in Section 2.1.3 hereof;
2.1.10.5 Labor Disputes. Except as disclosed
on Schedule 2.1.16, any labor disputes involving Recyc; or
2.1.10.6 Other Material Changes. Except as
set forth on Schedule 2.1.10.6, any other event or condition
known to the Shareholder or Bremer pertaining to and adversely
affecting the operations, assets or business of Recyc which
could constitute a material adverse change in the business,
assets or financial condition of Recyc, other than events or
conditions which are of a general or industry wide nature and
of general public knowledge, or which have been disclosed to
Synagro in writing.
2.1.11 Taxes.
2.1.11.1 General. All federal, state and
local income, value added, sales, use, franchise, gross
revenue, turnover, excise, payroll, property, employment,
customs duties (collectively, "Taxes") and any and all other
tax returns, reports, and estimates have been filed with
appropriate governmental agencies, domestic and foreign, by
Recyc for each period for which any such returns, reports, or
estimates were due; all taxes shown by such returns to be
payable and, except as set forth in Schedule 2.1.11.1, any and
all other taxes due and payable have been paid other than
those being contested in good faith by Recyc; and the tax
provisions reflected in the balance sheet constituting a part
of the Unaudited Recyc Financial Statements and in the Audited
E&Y Balance Sheet are adequate, in accordance with generally
accepted accounting principles, to cover liabilities of Recyc
at the date thereof for all taxes, including any assessed
interest, assessed penalties and additions to taxes of any
character whatsoever applicable to Recyc or its assets or
business. No waiver of any
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<PAGE> 23
statute of limitations executed by Recyc with respect to any
income or other tax is in effect for any period. Except as
set forth on Schedule 2.1.11 hereto, the income tax returns of
Recyc have never been examined by the Internal Revenue Service
or the taxing authorities of any other jurisdiction. There
are no tax liens on any assets of Recyc except for taxes not
yet currently due.
2.1.11.2 Subchapter S Matters. The
Shareholder made an effective, valid and binding election to
treat Recyc as a qualified subchapter S subsidiary ("QSSS")
pursuant to Section 1361 of the Internal Revenue Code of 1986,
as amended (the "Code"), effective January 1, 1998 (the "QSSS
Election Date"). Recyc (i) made an effective, valid and
binding S election pursuant to Section 1362 of the Code
effective May 1, 1993, (ii) maintained its status as an S
Corporation pursuant to Section 1361 of the Code without lapse
or interruption from the date of said election until the QSSS
Election Date, and (iii) made and continuously maintained,
since the effective date of its federal S election, elections
similar to the federal S election in each state or local
jurisdiction where Recyc does business or is required to file
a tax return to the extent such states or jurisdictions permit
such elections. Recyc neither is nor will or can be subject to
the built-in gains tax under Section 1374 of the Code or any
similar corporate level tax imposed on Recyc by any taxing
authority. Recyc (i) has not adopted or used LIFO as a method
of accounting for inventory, and (ii) has no other tax item,
election, agreement or adjustment which will accelerate or
trigger income or deferred deductions of Recyc as a result of
termination of Recyc's status as an S Corporation.
2.1.12 Intellectual Property. Recyc owns or possesses
licenses to use all patents, patent applications, trademarks and
service marks (including registrations and applications therefor),
trade names, copyrights and written know-how, trade secrets and all
other similar proprietary data and the goodwill associated therewith
(collectively, the "Intellectual Property") that are either material
to its business or that are necessary for the rendering of any
services rendered by it and the use or sale of any equipment or
products used or sold by it, including all such Intellectual Property
listed in Schedule 2.1.8 hereto. The Intellectual Property so owned
or possessed by Recyc is owned or licensed free and clear of any
Encumbrance. Recyc has not granted to any other person any license to
use any Intellectual Property. Recyc has not received any notice of
infringement, misappropriation, or conflict with, the intellectual
property rights of others in connection with the use by it of the
Intellectual Property or otherwise in connection with the operation of
its business.
2.1.13 Title to and Condition of Assets. Recyc has good,
indefeasible and marketable title to all its properties, interests in
properties and assets, real and personal, reflected in the Audited E&Y
Balance Sheet or in Schedule 2.1.8 hereto, free and clear of any
Encumbrance, except (i) Encumbrances reflected in Schedule 2.1.8
hereto, (ii) liens for current taxes not yet due and payable, and
(iii) such imperfections of title, easements and Encumbrances, if any,
as are not substantial in character, amount, or extent and do not and
will not materially detract from the value, or interfere with the
present use, of the property subject thereto or affected thereby, or
otherwise materially impair business operations (the matters described
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<PAGE> 24
in clauses (ii) and (iii) collectively, "Permitted Encumbrances").
All leases pursuant to which Recyc leases (whether as lessee or
lessor) any substantial amount of real or personal property are in
good standing, valid, and effective; and there is not, under any such
leases, any existing default or event of default or, to Bremer's and
the Shareholder's knowledge, any event which with notice or lapse of
time, or both, would constitute a default by Recyc and in respect to
which Recyc has not taken adequate steps to prevent a default from
occurring. The buildings and premises of Recyc that are used in its
business are in good operating condition and repair, subject only to
ordinary wear and tear. All equipment, machinery, vehicles, trailers,
transportation equipment, tools and other major items of equipment of
Recyc are in good operating condition and in a state of reasonable
maintenance and repair, ordinary wear and tear excepted, and are free
from any known defects except as may be repaired by routine
maintenance and such minor defects as to not substantially interfere
with the continued use thereof in the conduct of normal operations.
To Bremer's and the Shareholder's knowledge, all such assets conform
in all material respects to all applicable laws governing their use.
Except as set forth in Schedule 2.1.18 hereto, no notice of any
violation of any law, statute, ordinance, or regulation relating to
any such assets has been (or are being) received by Recyc, Bremer or
the Shareholder, except such as have been fully complied with.
2.1.14 Contracts. All material contracts, leases, plans or
other arrangements to which Recyc is a party, by which it is bound or
to which Recyc or the assets of Recyc are subject are in full force
and effect, and constitute valid and binding obligations of Recyc.
Recyc is not, and to the knowledge of Recyc, Bremer and the
Shareholder, no other party to any such contract, lease, plan or other
arrangement, is in default of any material obligation or provision
thereunder, and, to Recyc's, Bremer's and the Shareholder's knowledge,
no event has occurred which (with or without notice, lapse of time, or
the happening of any other event) would constitute a material default
thereunder. No contract has been entered into on terms which could
reasonably be expected to have a material adverse effect on Recyc.
Neither Recyc, Bremer nor the Shareholder has received any information
that would cause Bremer or the Shareholder to conclude that any
customer of Recyc will (or is likely to) cease doing business with
Recyc (or any successors thereto) as a result of the consummation of
the transactions contemplated hereby.
2.1.15 Licenses and Permits. Except as set forth on
Schedule 2.1.15, Recyc possesses all Permits necessary under law or
otherwise for it to conduct its business as now being conducted and to
construct, own, operate, maintain and use its assets in the manner in
which they are now being constructed, operated, maintained and used.
Each of such Permits and the rights of Recyc with respect thereto is
(and will be following the consummation of the transactions
contemplated hereby) valid and subsisting, in full force and effect,
and enforceable by Recyc subject to administrative powers of
regulatory agencies having jurisdiction. Except as set forth in
Schedule 2.1.15 hereto, Recyc is in compliance in all material
respects with the terms of such Permits and there is no pending, or to
Bremer's and the Shareholder's knowledge, threatened claim that Recyc
is not in compliance with any Permit. Except as set forth in Schedule
2.1.15 hereto, none of such Permits have been, or to
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<PAGE> 25
the knowledge of Bremer and the Shareholder, are threatened to be,
revoked, canceled, suspended or modified.
2.1.16 Litigation. Except as set forth on Schedule 2.1.16
hereto, there is no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation pending
to which Recyc is a party or, to the knowledge of Bremer and the
Shareholder, might become a party or which particularly affect Recyc.
Neither Bremer, Recyc nor the Shareholder has received notice of any
pending change in the zoning or building ordinances directly affecting
the real property, the Composting Facility or leasehold interests of
Recyc, nor, to the knowledge of Bremer and the Shareholder, is any
such change threatened.
2.1.17 Environmental Compliance.
2.1.17.1 Environmental Conditions. Except as
set forth in Schedule 2.1.17 hereto, to the best knowledge of
the Shareholder and Bremer, there are no environmental
conditions or circumstances, including, without limitation,
the presence or release of any hazardous substance, on any
property presently or previously owned by Recyc, or on any
property to which hazardous substances or waste generated by
the operations of Recyc or by the use of the assets of Recyc
were disposed of. The term "hazardous substance" means (i)
asbestos, polychlorinated biphenyls, urea formaldehyde, lead
based paint, radon gas, petroleum, oil, solid waste,
pollutants and contaminants, and (ii) any chemicals,
materials, wastes or substances that are defined, regulated,
determined or identified as toxic or hazardous in any
Applicable Environmental Laws (as hereinafter defined),
including, but not limited to, substances defined as
"hazardous substances," "hazardous materials," or "hazardous
waste" in CERCLA, RCRA, HMTA (as such terms are hereinafter
defined), or comparable state and local statutes or in the
regulations adopted and promulgated pursuant to said statutes;
2.1.17.2 Permits, etc. Except as set forth in
Schedule 2.1.17 hereto, to the best knowledge of the
Shareholder and Bremer, Recyc has in full force and effect all
environmental permits, licenses, approvals and other
authorizations required to conduct its operations, other than
those that are not material to its business or operations, and
is operating in substantial compliance thereunder;
2.1.17.3 Compliance. To the best knowledge
of the Shareholder and Bremer, except as set forth on Schedule
2.1.17 hereto, neither the operations of Recyc nor the use of
the assets of Recyc violate in any respect any applicable
federal, state or local law, statute, ordinance, rule,
regulation, order or notice requirement pertaining to (a) the
condition or protection of air, groundwater, surface water,
soil, or other environmental media, (b) the environment,
including natural resources or any activity which affects the
environment, or (c) the regulation of any pollutants,
contaminants, waste, or substances (whether or not hazardous
or toxic), including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act (42
U.S.C. Section 9601 et seq.) ("CERCLA"), the Hazardous
Materials
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Transportation Act (49 U.S.C. Section 1801 et seq.) ("HMTA"),
the Resource Conservation and Recovery Act (42 U.S.C. Section
6901 et seq.) ("RCRA"), the Clean Water Act (33 U.S.C. 1251
et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.),
the Toxic Substances Control Act (17 U.S.C. Section 2601 et
seq.), the Federal Insecticide Fungicide and Rodenticide Act
(7 U.S.C. Section 136 et seq.), the Safe Drinking Water Act
(42 U.S.C. Section 201 and Section 300f et seq.), the Rivers
and Harbors Act (33 U.S.C. Section 401 et seq.), the Oil
Pollution Act (33 U.S.C. Section 2701 et seq.) and analogous
federal, interstate, state and local requirements, as any of
the foregoing may have been amended or supplemented from time
to time (collectively the "Applicable Environmental Laws"),
other than violations that in the aggregate are not material
to the business or operations of Recyc;
2.1.17.4 Past Compliance. To the best
knowledge of Bremer and the Shareholder, except as set forth
in Schedule 2.1.17 hereto, none of the operations or assets of
Recyc has ever been conducted or used in such a manner as to
constitute a violation of any of the Applicable Environmental
Laws, other than violations that in the aggregate are not
material to the business or operations of Recyc;
2.1.17.5 Environmental Claims. Except as set
forth in Schedule 2.1.17 hereto, no notice has been served on
Recyc, Bremer or the Shareholder from any entity, governmental
agency or individual regarding any existing, pending or
threatened investigation, inquiry, enforcement action or
litigation related to alleged violations under any Applicable
Environmental Laws, or regarding any claims for remedial
obligations, response costs or contribution under any
Applicable Environmental Laws;
2.1.17.6 Renewals. Except as set forth on
Schedule 2.1.17 hereto, neither Bremer nor the Shareholder
knows of any reason Recyc or its successors would not be able
to renew any of the permits, licenses, or other authorizations
required pursuant to any of the Applicable Environmental Laws
to operate and use any of assets of Recyc for their current
purposes and uses; and
2.1.17.7 Asbestos and PCBs. Except as set
forth on Schedule 2.1.17 hereto, to the best knowledge of
Bremer and the Shareholder, no material amounts of friable
asbestos currently exist on any property owned or operated by
Recyc, nor do polychlorinated biphenyls exist in
concentrations of 50 parts per million or more in electrical
equipment owned or being used by Recyc in the operations or on
the properties of Recyc.
2.1.18 Compliance with Other Laws. Except as set forth on
Schedule 2.1.18, Recyc is not in violation of or in default with
respect to, or in alleged violation of or alleged default with respect
to, the Occupational Safety and Health Act (29 U.S.C. Section Section
651 et seq.), as amended, or any other applicable law or any
applicable rule, regulation, or any writ or decree of any court or any
governmental commission, board, bureau, agency, or instrumentality, or
delinquent with respect to any report required to be filed with any
governmental commission,
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<PAGE> 27
board, bureau, agency or instrumentality, other than such violations,
defaults or delinquencies that in the aggregate are not material to
the business or operations of Recyc.
2.1.19 ERISA Plans or Labor Issues. Schedule 2.1.8 sets
forth a brief description of all Employee Compensation Plans which
Recyc maintains, to which Recyc contributes or has an obligation to
contribute, or with respect to which Recyc has any liability or
reasonable expectation of liability (all such plans, policies,
programs and arrangements individually, a "Plan" and collectively,
"Plans") as of the Closing. Except as set forth in Schedule 2.1.8,
Recyc does not maintain any Plans. For purposes of this Section
2.1.19, all references to Recyc shall be deemed to refer to Recyc and
any trade or business, whether or not incorporated, which together
with Recyc would be deemed or treated as a "single employer" within
the meaning of Section 414 of the Code or ERISA Section 4001. None of
the Plans (i) is an "employee pension benefit plan" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), (ii) is subject to Title IV of ERISA or the
minimum funding requirements of Section 412 of the Code or Section 302
of ERISA, (iii) is a plan of the type described in Section 4063 of
ERISA or Section 413(c) of the Code, (iv) is a "multiemployer plan"
(as defined in Section 3(37) of ERISA), (v) provides for medical,
dental, life, disability or other insurance benefits to current or
future retired employees or former employees of Recyc (other than as
required for group health plan continuation coverage under Code
Section 4980B or similar state law), (vi) obligates Recyc to pay any
severance or similar benefits solely as a result of a change in
control or ownership within the meaning of Code Section 280G, or (vii)
is a "voluntary employees' beneficiary association" within the meaning
of Code Section 501(c)(9). Each Plan is, in all material respects, in
compliance, and has been administered, maintained and funded in all
material respects in accordance, with the applicable provisions of
ERISA and the Code and all other applicable laws, rules and
regulations. To the best knowledge of Bremer and the Shareholder,
neither Recyc nor any fiduciary to any Plan, with respect to any Plan,
has (i) engaged in any prohibited transaction under ERISA or the Code;
(ii) breached any fiduciary duty owed by it; or (iii) failed to file
and distribute, timely and properly, all reports and information
required to be filed or distributed in accordance with ERISA or the
Code. There are also no pending or threatened, actions, suits,
investigations, arbitrations or claims with respect to any Plan (other
than routine claims for benefits) which could reasonably be expected
to result in material liability to Recyc, and there are no changes in
contributions or benefit levels that have been implemented, or
negotiated and not yet been implemented, with respect to any Plan that
have not been disclosed in Schedule 2.1.8. All contributions or
premiums which are due on or before the Closing with respect to the
Plans have been or will be timely paid by Recyc. None of the Plans
requires Recyc to make any bonus, severance or other payment to or on
behalf of any current or former employee, officer or director of
Recyc solely by reason of the change of ownership or control
contemplated by this Agreement. Each Plan may be amended or terminated
after the Closing without contravening the terms of such Plan or any
applicable laws and without material liability to the adopting
employer. With respect to each Plan, Recyc has provided Synagro with
true, complete and correct copies, to the extent applicable, of (i)
all documents pursuant to which the Plans are maintained, funded and
administered, (ii) the most recent annual report (Form 5500 series)
filed with the Internal Revenue Service (with attachments including,
without limitation,
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audited financial statements), and (iii) all rulings, determinations,
notices and opinions issued by any governmental entity in the last
three years (and pending requests for governmental rulings,
determinations, and opinions). Recyc has not engaged in any unfair
labor practices which could reasonably be expected to result in a
material adverse effect on the operations or assets of Recyc. Except
as described in Schedule 2.1.16 hereto, Recyc has no dispute with any
of the existing or former employees of Recyc. There are no labor or
employment disputes affecting Recyc or, to the knowledge of Bremer and
the Shareholder, any disputes threatened by current or former
employees of Recyc. There will not be any penalty for the termination
of any Plan listed on Schedule 2.1.8 or any other item listed in
Section 2.1.8.7.
2.1.20 Investigations; Litigation. Except as set forth in
Schedule 2.1.20 hereto, neither Bremer, Recyc nor the Shareholder has
received notice of any investigation or review by any governmental
entity with respect to Recyc or any of the transactions contemplated
by this Agreement nor, to the knowledge of Bremer and the Shareholder,
is any such investigation or review threatened, nor has any
governmental entity indicated to Recyc an intention to conduct the
same, and there is no action, suit or proceeding pending or, to the
knowledge of Bremer and the Shareholder, threatened against or
affecting Recyc at law or in equity, or before any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, that either individually or in the
aggregate, has or is likely to result in a material adverse change in
the financial condition, properties or business of Recyc.
2.1.21 Absence of Certain Business Practices. Neither
Bremer, Recyc, the Shareholder nor any officer or director of Recyc or
the Shareholder, nor, to the knowledge of Bremer and the Shareholder,
any employee or agent of Recyc or the Shareholder or any other person
acting on behalf of Recyc or the Shareholder, has, directly or
indirectly, within the past five years, given or agreed to give any
gift or similar benefit to any customer, supplier, government employee
or other person who is or may be in a position to help or hinder the
business of Recyc (or to assist Recyc in connection with any actual or
proposed transaction) which (i) might subject Recyc to any damage or
penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, might have had a material
adverse effect on the assets, business or operations of Recyc, or
(iii) if not continued in the future, might materially and adversely
affect the assets, business operations or prospects of Recyc or which
might result in liability to Recyc in a private or governmental
litigation or proceeding.
2.1.22 Consents and Approvals. No consent, approval or
authorization of, or filing or registration with, any governmental or
regulatory authority, or any other person or entity other than the
Shareholder, is required to be made or obtained by Recyc in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby except for the
consents, approvals or authorizations listed on Schedule 2.1.22 hereto
(which were obtained on or before the date hereof) or that could not
have a material adverse effect on the business, operations, assets or
financial condition of Bremer, the Shareholder or Recyc.
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2.1.23 Finder's Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried
on by Recyc, Bremer and the Shareholder and their counsel directly
with Synagro and its counsel, without the intervention of any other
person as the result of any act of Recyc, Bremer or the Shareholder in
such manner as to give rise to any valid claim against any of the
parties hereto for a brokerage commission, finder's fee or any similar
payments.
2.1.24 Composting Facility. The Trustee owns the
approximately 162 acres of real property located in Riverside County,
California, and the fixtures located thereon, that constitute the
Composting Facility, and has good and marketable title thereto, free
and clear of any Encumbrance, except Permitted Encumbrances and the
Encumbrances (and amounts secured thereby) listed on Schedule 2.1.24
hereto, and has the right, power and authority to execute the Facility
Lease and Lease Memorandum and to consummate the transactions
contemplated thereby. The Composting Facility Payment constitutes all
amounts secured by an Encumbrance on the Composting Facility, and upon
payment of the Composting Facility Payment and release by Business
Bank of California of its security interest thereon, no Encumbrance
shall exist on the Composting Facility securing any debt, guarantee,
obligation or liability, of any kind, except for any such Encumbrance
created by Synagro.
2.2 Investment Representations. Each of Bremer and the Shareholder
acknowledges, represents and agrees that:
2.2.1 Shareholder Investment Suitability and Related
Matters. (i) Synagro has made available to Recyc, Bremer and the
Shareholder the information and documents described in Section 3.4.
hereof, (ii) Bremer and the Shareholder understand the risks
associated with ownership of Synagro Common Stock, including the
Unregistered Synagro Shares, and (iii) Bremer and the Shareholder are
capable of bearing the financial risks associated with such ownership;
2.2.2 Synagro Shares Not Registered. The Unregistered
Synagro Shares have not been registered under the Securities Act or
registered or qualified under any applicable state securities laws;
2.2.3 Reliance on Representations. The Unregistered
Synagro Shares are being issued to the Shareholder in reliance upon
exemptions from such registration or qualification requirements, and
the availability of such exemptions depends in part upon the
Shareholder's bona fide investment intent with respect to the Synagro
Shares;
2.2.4 Investment Intent. The Shareholder's acquisition of
the Unregistered Synagro Shares is solely for its own account for
investment, and the Shareholder is not acquiring the Unregistered
Synagro Shares for the account of any other person or with a view
toward resale, assignment, fractionalization, or distribution thereof;
2.2.5 Permitted Resale. The Shareholder shall not offer
for sale, sell, transfer, pledge, hypothecate or otherwise dispose of
any of the Unregistered Synagro Shares except
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<PAGE> 30
in accordance with the registration requirements of the Securities Act
and applicable state securities laws or upon delivery to Synagro of an
opinion of legal counsel reasonably satisfactory to Synagro that an
exemption from registration is available or pursuant to an effective
registration statement covering the Unregistered Synagro Shares to be
sold;
2.2.6 Investor Sophistication. Bremer was or has been the
sole shareholder, the President and a director of Recyc for at least
ten years and, as a result, is intimately familiar with its business
and has a high degree of knowledge of, and experience in, the industry
in which it operates and as such he and the Shareholder have the
business savvy, knowledge and experience to evaluate the merits and
risks of an investment in Synagro, which is in the same business as
Recyc, and the Synagro Shares, and to make an informed investment
decision with respect thereto;
2.2.7 Availability of Information. Bremer and the
Shareholder have had the opportunity to ask questions of, and receive
answers from Synagro's officers and directors concerning the
Shareholder's acquisition of the Synagro Shares and to obtain such
other information concerning Synagro and the Synagro Shares, to the
extent Synagro's officers and directors possessed the same or could
acquire it without unreasonable effort or expense, as Bremer and the
Shareholder deemed necessary in connection with making an informed
investment decision; and
2.2.8 Restrictive Legends. In addition to any other
legends required by law or the other agreements entered into in
connection herewith, each certificate evidencing the Synagro Shares
will bear a conspicuous restrictive legend substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED
EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE
ACT AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS
CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SYNAGRO
Synagro represents and warrants to Bremer and the Shareholder as
follows:
3.1 Organization and Standing. Synagro is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
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<PAGE> 31
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on its financial condition, properties
or business.
3.2 Agreement Authorized and its Effect on Other Obligations. The
execution, delivery and performance of this Agreement have been duly and
validly authorized by all necessary corporate action on the part of Synagro.
This Agreement and each of the Ancillary Documents to which it is a party are
valid and binding obligations of Synagro enforceable against Synagro in
accordance with their respective terms, except as such enforceability may be
limited by (a) equitable principles of general applicability or (b) bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws affecting the
rights of creditors generally. The execution, delivery and performance of this
Agreement and each of the Ancillary Documents to which it is a party by Synagro
will not conflict with or result in a violation or breach of any term or
provision of, or constitute a default under (i) the Certificate of
Incorporation or Bylaws of Synagro or (ii) any obligation, indenture, mortgage,
deed of trust, lease, contract or other agreement to which Synagro or any of
its property is bound.
3.3 Capitalization. The capitalization of Synagro consists of (i)
10,000,000 shares of preferred stock, par value $.002 per share, of which
500,000 shares have been designated as "Preferred Stock - Junior Participating
Series A" and reserved for issuance upon exercise of Rights evidenced by the
certificates representing all outstanding shares of Synagro Common Stock, but
no such shares are issued or outstanding; and (ii) 100,000,000 shares of
Synagro Common Stock, of which as of June 25, 1998, 10,895,171 shares were
issued and outstanding, 2,261,031 shares were reserved for issuance pursuant to
stock options, and 600,000 shares were reserved for issuance pursuant to
outstanding warrants. Except as set forth in this Section 3.3., there are
outstanding as of the date hereof (i) no securities of Synagro or any other
person convertible into or exchangeable or exercisable for shares of capital
stock or other voting securities of Synagro, and (ii) no subscriptions,
options, warrants, calls, rights obligating Synagro to issue, deliver, sell,
purchase, redeem or acquire shares of capital stock or other voting securities
of Synagro. All of the outstanding Synagro Common Stock is, and, when issued,
the Synagro Shares will be, validly issued, fully paid and nonassessable and
not subject to any preemptive right. There is no stockholder agreement, voting
trust, or other agreement or understanding to which Synagro is a party or by
which it is bound relating to the voting of any shares of capital stock of
Synagro.
3.4 Reports and Financial Statements. Synagro has previously
furnished to Bremer and the Shareholder true and complete copies of (i)
Synagro's annual report filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), for Synagro's fiscal year ended December 31, 1997; (ii)
Synagro's quarterly and other reports filed with the Commission since December
31, 1997; (iii) all definitive proxy solicitation materials filed with the
Commission since December 31, 1997; and (iv) any registration statements (other
than those relating to employee benefit plans) declared effective by the
Commission since December 31, 1997. All of the foregoing items are listed on
Schedule 3.4 hereto (collectively, the "Synagro SEC Documents"). The
consolidated financial statements of Synagro and its consolidated subsidiaries
included in Synagro's most recent report on
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<PAGE> 32
Form 10-K and most recent report on Form 10-Q were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved and fairly present the consolidated financial position of
Synagro and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and changes in financial position for
the periods then ended; and the Synagro SEC Documents did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were, made not misleading. Since
December 31, 1996, Synagro has filed with the Commission all material reports,
registration statements and other material filings required to be filed with
the Commission under the rules and regulations of the Commission.
3.5 Absence of Certain Changes and Events in Synagro. Since March
31, 1998, there has not been:
3.5.1 Financial Change. Any material adverse change in the
financial condition, backlog, operations, assets, liabilities or
business of Synagro; or
3.5.2 Other Material Changes. Any other event or condition
known to Synagro particularly pertaining to and adversely affecting
the operations, assets or business of Synagro which could constitute a
material adverse change in the business, assets or financial condition
of Synagro, other than events or conditions which are of a general or
industry-wide nature and of general public knowledge, or which have
been disclosed to Bremer and the Shareholder in writing.
3.6 Synagro's Compliance with Other Laws. Synagro is not in
violation of or in default with respect to any applicable law, rule, or
regulation, or any writ or decree of any court or any governmental commission,
board, bureau, agency, or instrumentality, or delinquent with respect to any
report required to be filed with any governmental commission, board, bureau,
agency or instrumentality which could have a material adverse effect upon its
financial condition, properties or business.
3.7 Consents and Approvals. Except for the filing of the
Registration Statement (as hereinafter defined) pursuant to Section 7.13
hereof, no consent, approval or authorization of, or filing of a registration
with, any governmental or regulatory authority, or any other person or entity
is required to be made or obtained by Synagro in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.8 Investigations; Litigation. No investigation or review by any
governmental entity with respect to Synagro in connection with any of the
transactions contemplated by this Agreement is pending or, to the best of
Synagro's knowledge, threatened, nor has any governmental entity indicated to
Synagro an intention to conduct the same. There is no action, suit or
proceeding pending or, to the best of Synagro's knowledge, threatened against
or affecting Synagro by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, which either
individually or in the aggregate, has or is likely to result in any material
adverse change in the financial condition, properties or businesses of Synagro.
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3.9 Finder's Fee. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried on by Synagro and its
counsel directly with Bremer, Recyc and the Shareholder and their counsel,
without the intervention by any other person as the result of any act of
Synagro in such a manner as to give rise to any valid claim against Bremer, the
Shareholder or Recyc for any brokerage commission, finder's fee or any similar
payments.
3.10 Nasdaq Compliance. Synagro meets all current requirements for
listing on the Nasdaq Market for Small-Cap Issues and has not received any
notice, whether written or oral, from the National Association of Securities
Dealers, Inc. suggesting that its listing is not in good standing. Synagro has
submitted an application to the National Association of Securities Dealers,
Inc. for listing on the Nasdaq National Market.
ARTICLE 4
(THIS ARTICLE INTENTIONALLY LEFT BLANK)
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1 Conditions Precedent to Obligations of Bremer and the
Shareholder. The obligations of Bremer and the Shareholder to consummate and
effect the transactions contemplated hereunder shall be subject to the
satisfaction of the following conditions, or to the waiver thereof by Bremer,
on behalf of himself and the Shareholder, before the Closing Date:
5.1.1 Representations and Warranties of Synagro True at
Closing Date. The representations and warranties of Synagro herein
contained shall be, in all material respects, true as of and at the
Closing Date with the same effect as though made at such date.
5.1.2 No Material Litigation. No suit, action, or other
proceeding shall be pending, or to Synagro's knowledge, threatened,
before any court or governmental agency in which it will be, or it is,
sought to restrain or prohibit or to obtain damages or provide other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby or which might result in a material
adverse change in the value of the consolidated assets and business of
Synagro.
5.1.3 Closing Documents. Synagro shall have executed and
delivered to the appropriate parties the documents and instruments to
be executed and delivered by it pursuant to Section 1.3 hereof, and
Bremer and the Shareholder shall have received the opinion required by
Section 1.3.1 hereof.
5.1.4 Consent of Certain Parties in Privity With Synagro.
The holders of any material indebtedness of Synagro, the lessors of
any material property leased by Synagro, and the other parties to any
other material agreements to which Synagro is a party shall, when and
to the extent necessary in the reasonable opinion of Bremer, have
consented to the transactions contemplated hereby.
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5.1.5 Board Approval. The board of directors of Synagro
shall have approved the transactions contemplated hereby in accordance
with Synagro's bylaws (the "Requisite Approval").
5.2 Conditions Precedent to Obligations of Synagro. The
obligation of Synagro to consummate and effect the transactions contemplated
hereunder shall be subject to the satisfaction of the following conditions, or
to the waiver thereof by Synagro before the Closing Date.
5.2.1 Representations and Warranties of Bremer and the
Shareholder True at Closing Date. The representations and warranties
of Bremer and the Shareholder herein contained shall be, in all
material respects, true as of and at the Closing Date with the same
effect as though made at such date.
5.2.2 No Material Litigation. No suit, action, or other
proceeding shall be pending, or to Bremer's or the Shareholder's
knowledge, threatened, before any court or governmental agency in
which it will be, or it is, sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or
the consummation of the transactions contemplated hereby or which
might result in a material adverse change in the value of the assets
and business of Recyc.
5.2.3 Closing Documents. Bremer, Laura Bremer, RTI, the
Trustee and the Shareholder shall have executed and delivered to the
appropriate parties the documents and instruments to be executed and
delivered by them pursuant to Section 1.3 hereof, and Synagro shall
have received the opinion required by Section 1.3.2 hereof.
5.2.4 Consent of Certain Parties in Privity with Bremer,
Recyc or the Shareholder. The holders of any material indebtedness of
Bremer, Recyc or the Shareholder, the lessors of any material property
leased by Bremer, Recyc or the Shareholder, the other parties to any
other material agreements to which Bremer, Recyc or the Shareholder
are a party and the appropriate authority issuing any Permits shall,
when and to the extent necessary in the reasonable opinion of Synagro,
have consented to the transaction contemplated hereby.
5.2.5 Other Operations. Synagro shall be satisfied, in its
reasonable discretion, that Recyc does not own, hold, lease or have
any interest of any kind in any of the assets, whether real, personal,
or mixed, and has no duties, responsibilities, liabilities or
obligations of any kind, relating to the Other Operations.
5.2.6 Preemptive Rights. All holders of preemptive rights
applicable to the Recyc Stock shall have executed a written waiver
thereof.
5.2.7 Termination of Leases and Bank Accounts. All of the
real property leases described on Schedules 2.1.8.1 and 2.1.8.15 shall
have been terminated, or Recyc shall have been released as a party
thereto, and Recyc shall have no further rights, duties or obligations
with respect thereto. The bank accounts listed on Schedule 2.1.8.9
shall have been closed,
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the accounts shall have been transferred or Recyc shall otherwise not
be named as party thereto.
ARTICLE 6
[THIS ARTICLE INTENTIONALLY LEFT BLANK]
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Further Assurances. From time to time, as and when requested
by any party hereto, any other party hereto shall execute and deliver, or cause
to be executed and delivered, such documents and instruments and shall take, or
cause to be taken, such further or other actions as may be reasonably necessary
to effect the transactions contemplated hereby.
7.2 Tax Matters.
7.2.1 Tax Reporting of Transaction. It is the intention
and expectation of the parties to this Agreement that, for federal and
state income tax purposes, the purchase of the Recyc Stock will result
in and be reported as a taxable sale and purchase of the assets of
Recyc (whether actual or deemed pursuant to Proposed Treasury
Regulation Section 1.1361-5(b)(3) Ex (1)) by the Shareholder and
Synagro, respectively. The parties acknowledge that Synagro would not
proceed with the purchase of the Recyc Stock without such income tax
treatment. The parties to this Agreement intend to report the purchase
and sale of the Recyc Stock as a taxable sale of all the assets of
Recyc for federal and state income tax purposes on a basis consistent
with Code Section 1060, and expect that no election need be made under
Code Section 338(h)(10).
7.2.2 No Code Section 351 Transfer. Bremer and Shareholder
represent and acknowledge that the purchase of Recyc Stock will not
qualify under Code Section 351(a) because: (i) the Shareholder has a
prearranged binding obligation, as set forth in this Agreement, to
dispose of the Recyc Shares and the Recyc assets, and (ii) the
"control" test of Code Section 351(a) will not be met with respect to
a deemed transfer of the Recyc assets under Code Section
1361(b)(3)(C). Bremer and Shareholder shall (a) not report or assert
that a deemed transfer of the assets of Recyc to itself under Code
Section 1361(b)(3)(C) qualifies as a tax free incorporation under Code
Section 351 or any similar federal or state Tax provision, and (b) pay
all income taxes associated with either an actual or deemed sale of
the assets of Recyc, or a taxable deemed contribution of assets under
Code Section 1361(b)(3)(C) which does not qualify under Code Section
351.
7.2.3 338(h)(10) Election. If the Internal Revenue Service
or the Department of the Treasury should issue official guidance in
the form of a revenue ruling, revenue procedure, technical advice
memorandum, notice, treasury regulation (proposed, temporary or
final), treasury decision or other official published writing, or
alternatively, if a decision by a federal district court, the Tax
Court or the Court of Claims is published, stating that a sale
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<PAGE> 36
of the stock of a QSSS does not result and should not be reported as a
taxable sale and purchase of assets of the QSSS, Synagro and the
Shareholder shall join in an election to have the provisions of
Section 338(h)(10) of the Code and similar provisions of state, local
or other Federal law (where permissible) ("Section 338(h)(10)
Election") apply to the acquisition of the stock of Recyc described
herein whereby (i) Recyc will be treated as having sold all of its
assets in a single transaction as of the close of business on the
Closing Date, (ii) Recyc will be treated as having distributed the
sales proceeds to the Shareholder in a tax-free Code Section 332
liquidation, and (iii) no gain or loss will be recognized by the
Shareholder or Recyc with respect to the sale of the Shareholder's
shares of Recyc. The election will include the execution and
subsequent filing of Internal Revenue Service Form 8023-A pursuant to
the requirements as stated therein. Within 10 days of Synagro's
request, the Shareholder shall properly execute and deliver to Synagro
such documents or forms (including Section 338 Forms, as defined
below) as Synagro shall request or as are required by applicable law
for an effective Section 338(h)(10) Election for Recyc. Along with
the Section 338 Forms, the Shareholder will deliver a properly
executed Power of Attorney authorizing Synagro to take any and all
necessary action to effect the Section 338(h)(10) Election for Recyc.
After the date of this Agreement, neither Synagro, Recyc, nor the
Shareholder shall take, or fail to take, any action which may cause
the acquisition of Recyc to not be eligible for the 338(h)(10)
elections set forth herein. "Section 338 Forms" shall mean all
returns, documents, statements, and other forms that are required to
be submitted to any federal, state, county, or local taxing authority
in connection with the Section 338(h)(10) Election for Recyc,
including, without limitation, any "statement of Section 338 election"
and IRS Form 8023-A (together with any schedules or attachments
thereto) that are required pursuant to Treasury Regulations of the
Code.
7.2.4 Deemed Purchase Price Allocation. Synagro shall,
within 60 days of the Closing Date, provide to the Shareholder an
allocation of the deemed purchase price among the assets of Recyc in
accordance with Code Section 1060 (and 338, if applicable) and any
comparable provisions of state or local law, as appropriate. Such
allocation shall be deemed acceptable to the Shareholder unless it
notifies Synagro of any objections within 30 days of receipt of such
allocation. If the Shareholder and Synagro are unable to agree on
such allocation within 120 days of the Closing Date, then an
independent accounting firm mutually acceptable to the parties hereto
shall make a binding determination with respect to such allocation,
the fees and expenses of which shall be paid equally by the
Shareholder and Synagro.
7.2.5 Bremer and Shareholder Not Related Persons Under Code
Section 197(f)(9)(C). Bremer and Shareholder represent and warrant
that they are not currently, nor will they be after the transaction,
related to Synagro as defined in Code Section 197(f)(9)(C)., Should it
be determined that either Bremer and/or Shareholder is such a related
person, then at the request of Synagro, such related person(s) shall
enter into an election pursuant to Code Section 197(f)(9)(B).
7.3 Adjacent Property. Promptly following the Closing, Bremer
shall cause the Trustee to execute and acknowledge an instrument, in reasonable
form, and cause it to be filed in the
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appropriate public records of Riverside County, California, covering the
approximately 255 acre tract in Riverside County, California currently owned by
the Trustee that is adjacent to the Composting Facility and that is more
particularly described on Schedule 7.3 hereto (the "Adjacent Property"),
containing a notice, reasonably satisfactory to Synagro, that the Composting
Facility is adjacent to the Adjacent Property and that the operations thereon
may cause noise, odor, traffic or other nuisances from time to time that may
affect the Adjacent Property. In addition, in the event the Trustee, or any
distributee of the Trust (each a "Selling Party"), desires to sell, transfer,
mortgage, pledge, or lease all or any portion of the Adjacent Property, or any
other property owned or leased by the Trust, or by Bremer and/or Laura Bremer,
within a one mile radius of the Composting Facility (said other property
together with the Adjacent Property, the "Affected Property") to a third party,
Bremer shall, and shall cause each Selling Party to, provide Synagro with
written notice thereof not less than two weeks before the execution by the
Selling Party of any deed, assignment, mortgage, pledge or lease, or any
contract, option or agreement relating to the execution of any of the foregoing
(each a "Conveyancing Document"), including an earnest money contract or
similar agreement, so that Synagro and the Selling Party may use good faith
efforts to agree on provisions satisfactory to Synagro in its reasonable
discretion to include in any Conveyancing Document to protect Synagro's
operations on the Composting Facility from unreasonable interference by said
third party. In the event that Synagro and the Selling Party are unable to
agree on such provisions, Bremer shall, and shall cause each Selling Party to,
include in each Conveyancing Document (i) a provision notifying said third
party of the existence of the Composting Facility, (ii) an acknowledgment by
said third party that the operations on the Composting Facility may cause
noise, odor, traffic and other nuisances that may affect the Adjacent Property,
(iii) an agreement that said party will not file any untrue complaints with any
governmental authorities relating to the operations at the Composting Facility,
or any noise, odor, traffic or other nuisances caused thereby, or otherwise
interfere with said operations, and (iv) an agreement of said third party that
Recyc and Synagro will be third party beneficiaries of the acknowledgment and
agreement by said third party pursuant to clauses (ii) and (iii) of this
sentence (a "Recyc Operations Acknowledgment"). Synagro acknowledges that a
portion of the Adjacent Property is currently subject to an escrow agreement
relating to the sale thereof. Bremer agrees to use reasonable efforts to cause
the other party to said escrow agreement to execute a Recyc Operations
Acknowledgment or other similar agreement.
7.4 Payment of Taxes. Bremer and the Shareholder agree to pay
timely all Taxes assessed or assessable against them or Recyc arising out of or
in any way related to the ownership, business or operations of Recyc or the
Other Operations through the end of the Closing Date, including, without
limitation, any Taxes resulting from the consummation of the transactions
contemplated hereby, except to the extent Bremer and the Shareholder are
contesting any portion of such taxes in good faith and have made appropriate
reserves for the payment thereof.
7.5 Subordination of Composting Facility Liens. After the Closing
Date and until termination of the Facility Lease, the Trustee shall not, and
the Trustee and Bremer shall cause any distributee of the Trust receiving an
interest in the Composting Facility not to, mortgage, pledge, hypothecate or
allow any lien or encumbrance to be placed on any portion of the Composting
Facility, or enter into any agreement to do any of the foregoing, unless such
mortgage, pledge, hypothecation, lien or encumbrance is subject and
subordinate, in all respects, to the Facility Lease
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<PAGE> 38
and all of Synagro's rights thereunder and provided that all amounts secured
thereby shall never exceed the sum of $2,250,000.00.
7.6 Easement. Bremer shall cause the Trustee to negotiate in good
faith with Synagro and USA Waste towards, and shall not unreasonably withhold,
the grant to Recyc and USA Waste of an easement or easements over and across
the Adjacent Property, containing such terms and provisions and at such a
location as are reasonably satisfactory to Synagro and USA Waste, as is
reasonably necessary for the purposes outlined in that certain letter, dated
February 26, 1998, from Ross M. Patten, on behalf of Synagro, to Les Bittenson,
on behalf of USA Waste, Pacific Region, a copy of which is attached hereto as
Exhibit L (the "Easement Letter").
7.7 Settlement Agreement. Bremer and the Shareholder shall timely
pay and perform all duties, actions and obligations of Recyc under the
Settlement Agreement at their sole cost, risk and expense.
7.8 Monthly Financial Statements. On or before fifteen days
following the end of each month of the two years following the Closing Date,
Synagro shall cause Recyc to provide to the Shareholder and Bremer an unaudited
statement of income, retained earnings and cash flows of Recyc for such month.
7.9 1997 Financials. In the event that following the Closing Date
Synagro is required to file with the Securities and Exchange Commission (the
"Commission") and/or the National Association of Securities Dealers, Inc.
("NASD") audited financial statements for the year ended December 31, 1997,
related to the Composting Operations of Recyc pursuant to Rule 13a-11 or 15d-11
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated hereunder (the "Exchange Act") or its listing agreement
with, or applicable rules and regulations of, NASD, Bremer and the Shareholder
shall cause Ernst & Young, L.L.P. to prepare said financial statements in the
form and containing such information as is required by the Commission, NASD or
the Exchange Act. All cost for preparation of said financial statements shall
be borne by Bremer and the Shareholder, and Bremer and the Shareholder shall
cause said financial statements to be prepared and delivered to Synagro not
later than three business days prior to the earlier of the filing date required
by the Exchange Act or NASD.
7.10 Article 2 Schedules. While the Shareholder and Bremer have
attempted to list each exception or item of supplemental information in each
schedule required by Article 2 of this Agreement for which such exception or
item is relevant, the parties agree that inclusion of such item or exception on
any such schedule to which it is relevant shall constitute its disclosure in
each other schedule required by Article 2 to which it is relevant.
7.11 Name Use. The Shareholder and Bremer agree that, except for
the name "Recyc Trucking, Inc." neither will use, directly or indirectly
through any subsidiary or affiliate, and each hereby waives, releases,
relinquishes and assigns to Synagro the right to use, the names "Recyc, Inc."
and "Recyc" and any other names containing the word "Recyc".
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<PAGE> 39
7.12 Release of Liens. Except to the extent any of the following
constitute Assumed Liabilities, within ninety (90) days following the Closing
Date, Bremer and the Shareholder shall cause (i) all Encumbrances existing on
the Closing Date that affect any asset or property of Recyc to be released,
(ii) the notes listed on Schedule 2.1.8.13 to be paid in full or Recyc to be
released as an obligor thereon and, (iii) the guaranties listed on Schedule
2.1.8.14 to be terminated or Recyc to otherwise be released with respect
hereto, and for Recyc to have no further rights, duties or obligations with
respect to the matters described in clauses (i), (ii) and (iii).
7.13 Registration Matters.
7.13.1 Agreement to Register Resales. Synagro represents
and warrants to the Shareholder and Bremer that as of the date hereof
it meets the Registrant Requirements of the General Instructions to
Form S-3. Synagro agrees that promptly following the Closing Date, it
will file with the Commission on Form S-3, a shelf registration
statement pursuant to Rule 415 of the Securities Act (the
"Registration Statement") covering the resale by the Shareholder of
the Registered Synagro Shares, excluding any Pledged Shares, and will
use its best efforts to cause the same to be declared effective
promptly by the Commission. Synagro agrees to maintain such
Registration Statement in effect for the maximum period allowable
under the regulations promulgated by the Commission, and in any event
to maintain the same (or, to the extent necessary, successive
registration statements) through at least December 31, 2001. In any
offering pursuant to this Section 7.13.1, Synagro will use its best
efforts to effect any such registration and use its best efforts to
effect such qualification and compliance as may be required and as
would permit or facilitate the resale of the Registered Shares,
including, without limitation, registration under the Securities Act,
appropriate qualifications under applicable blue-sky or other state
securities laws and, appropriate compliance with any other
governmental requirements.
7.13.2 Procedures. With respect to sales by the Shareholder
of Registered Synagro Shares through the Nasdaq Market System or any
such other exchange, the Shareholder may only sell such shares on any
day after the first sale of Synagro Stock has occurred through the
Nasdaq Market System or such other exchange on such day and thereafter
the Shareholder may only sell 1,000 Registered Synagro Shares for each
1,000 shares of Synagro Stock sold by unrelated third parties through
the Nasdaq Market System or such other exchange on such day. In no
event shall the plan of distribution of Registered Synagro Shares
include the use of a contractual underwriter, nor shall Synagro have
any obligation to enter into an underwriting agreement with any
investment banking firm participating as a broker in the execution of
any such resales. Synagro agrees that it will furnish to the
Shareholder such number of prospectuses, prospectus supplements, or
other documents incident to any registration, qualification or
compliance referred to herein as the Shareholder from time to time may
reasonably request.
7.13.3 Registration Expenses. All expenses (except for
commissions and any legal fees for the Shareholder's counsel) of
registration of the Registered Synagro Shares effected pursuant to
this Section 7.13 (including, but not limited to, the expenses of any
33
<PAGE> 40
qualifications under the blue-sky or other state securities laws and
compliance with governmental requirements of preparing and filing any
post-effective amendments or prospectus supplements required for the
lawful distribution of the Registered Synagro Shares to the public in
connection with such registration) will be paid by Synagro.
7.13.4 Preparation; Reasonable Investigation. In connection
with the preparation and filing of the Registration Statement under
the Securities Act pursuant to this Section 7.13, Synagro will give
the Shareholder (and any single counsel designated by the
Shareholder), the opportunity to participate in the preparation of the
Registration Statement, each prospectus included therein or filed with
the Commission, and each amendment thereof or supplement thereto, and
will give each of them such access to its books and records and such
opportunities to discuss the business of Synagro with its officers and
the independent public accountants who have certified its financial
statements as shall be necessary to conduct a reasonable investigation
within the meaning of the Securities Act.
7.13.5 Rights Non-Transferable. The registration rights
provided by this Section 7.13 are for the benefit solely of the
Shareholder, are personal in nature, and shall not be available to any
subsequent holder of the Registered Synagro Shares (other than
subsequent holders who have become such by gift or other transfer by
the Shareholder to its affiliates, Bremer, an immediate family member
of Bremer, or by will or through operation of the laws of descent and
distribution).
7.13.6 Indemnification by Synagro. Synagro agrees to
indemnify and hold harmless the Shareholder and its officers,
directors, shareholders, agents and employees (the "Shareholder
Parties") against any and all claims, demands, losses, costs,
expenses, obligations, liabilities, joint or several, damages,
recoveries and deficiencies, including interest, penalties and
attorneys' fees (collectively, "Claims"), to which the Shareholder may
become subject under the Securities Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
Registration Statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and Synagro will reimburse
the Shareholder and each Shareholder Party for any legal or any other
expenses reasonably incurred by it in connection with investigating or
defending any such Claim (or action or proceeding in respect thereof);
provided that Synagro shall not be liable in any such case to the
extent that any such Claim (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
such Registration Statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance
upon and in conformity with written information furnished to Synagro
through an instrument duly executed by the Shareholder specifically
stating that it is for use in the preparation thereof. Such indemnity
shall remain in full force and effect regardless of any investigation
made by or on behalf of the
34
<PAGE> 41
Shareholder or any Shareholder Party and shall survive any transfer of
Registered Synagro Shares by the Shareholder.
7.13.7 Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a Claim referred to in this Section 7.13, such
indemnified party will, if a claim in respect thereof is to be made
against Synagro, give written notice to Synagro, in the manner and to
the address specified in Section 9.4 hereof, of the commencement of
such action, provided that the failure of any indemnified party to
give notice as provided herein shall not relieve Synagro of its
obligations under this Section 7.13, except the extent that Synagro is
actually prejudiced by such failure to give notice. In case any such
action is brought against Synagro, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such Claim, Synagro
shall be entitled to participate in and to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party, and
after notice from Synagro to such indemnified party of its election so
to assume the defense thereof, Synagro shall not be liable to such
indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other
than reasonable costs of investigation. Synagro shall not, without
the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect to
such Claim.
7.13.8 Undertaking to File Reports and Cooperate in Rule 144
and Rule 145 Transactions. For as long as the Shareholder is subject
to Rule 144 or Rule 145 of the Securities Act and continues to hold
any Synagro Shares, Synagro will use reasonable commercial efforts to
timely file all annual, quarterly and other reports required to be
filed by it under Section 13 or 15(d) of the Exchange Act and the
rules and regulations of the Commission thereunder, as amended from
time to time. If the Shareholder proposes to sell any Synagro Shares
pursuant to Rules 144 and 145, Synagro shall cooperate with the
Shareholder so as to enable such sale to be made in accordance with
applicable laws, rules and regulations, the requirements of Synagro's
transfer agent, and the reasonable requirements of the broker through
which the sales are proposed to be executed. Without limiting the
generality of the foregoing, Synagro shall, upon request, furnish with
respect to each such sale (i) a written statement certifying that
Synagro has complied with the public information requirements of Rules
144 and 145 and (ii) an opinion of Synagro's counsel regarding such
matters as Synagro's transfer agent or the Shareholder's broker may
reasonably desire to confirm.
7.13.9 Beneficiaries. The provisions of this Section 7.13
are for the benefit of the Shareholder and Synagro, and no other
person shall acquire or have any rights under or by virtue of this
Section 7.13.
7.13.10 Modification. Synagro agrees to amend this Section
7.13 as reasonably requested by the Shareholder upon advice of the
Shareholder's broker in order to assure that
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<PAGE> 42
the Registered Synagro Shares are marginable in accordance with
applicable securities laws, unless, on advice of Synagro's counsel or
other advisors, such amendment could have a material adverse effect on
the benefits Synagro reasonably expected to receive upon consummation
of the transaction contemplated hereby.
7.14 Registered Shares Restrictions.
7.14.1 Limitation on Transfers. The Shareholder agrees that
for the period commencing on the date the registration statement filed
by Synagro pursuant to Section 7.13 is declared effective by the
Commission and ending at 5:00 p.m. Houston time on the first
anniversary of said date (the "Holding Period"), the Shareholder will
not make any sale, transfer or other disposition of the Registered
Synagro Shares; provided, however, that (i) the Shareholder may
deposit the Registered Synagro Shares with a brokerage, investment
banking or similar firm ( a "Brokerage Firm") for the purpose of
margining the Registered Synagro Shares with, or pledging the
Registered Synagro Shares as security for a loan from, said Brokerage
Firm; (ii) the Shareholder, or said Brokerage Firm, may sell, transfer
or dispose of such portion of the Registered Synagro Shares necessary
to cover any margin call owed to, or make a payment that is in default
with respect to a loan from, said Brokerage Firm relating to the
Registered Synagro Shares; and (iii) commencing on the first
anniversary of the date of this Agreement, the Shareholder may sell,
transfer or dispose of Registered Synagro Shares in such amounts and
at such intervals as provided in Rule 144 of the Securities Act as if
the Registered Synagro Shares constituted Unregistered Synagro Shares.
7.14.2 Hedging Restriction. During the Holding Period,
neither said Brokerage Firm nor the Shareholder may sell short any
Common Stock or enter into any kind of straddle or any other kind of
price hedging transaction with respect to the Registered Synagro
Shares; provided that, commencing on the first anniversary of the date
of this Agreement, the Shareholder may sell short shares of Common
Stock and enter into straddles or other price hedging transaction with
respect to Registered Synagro Shares in such amounts and at such
intervals as provided in rule 144 of the Securities Act as if such
Registered Synagro Shares constituted Unregistered Synagro Shares.
7.15 Nasdaq National Market Listing. Synagro acknowledges that the
Shareholder contemplates margining some or all of the Registered Synagro Shares
and that listing of Synagro Common Stock on the Nasdaq National Market is a
requirement for the Registered Shares to be marginable. Synagro has filed an
application with the National Association of Securities Dealers, Inc. for
listing on the Nasdaq National Market and shall use reasonable commercial
efforts to cause the Synagro Common Stock to be listed on the Nasdaq National
Market.
7.16 Los Alisos Consent. Bremer and the Shareholder shall use
reasonable commercial efforts, and shall cooperate with Synagro and Recyc, to
obtain any consents to the assignment of any material contracts to which Recyc
is a party and Permits that are necessary as a result of the consummation of
the transactions contemplated hereby, including, without limitation, the
consent of all of the other parties to that certain contract among Los Alisos
Water District, Santa Margarita Water District, the City of San Clemente and
Recyc, dated February 1, 1997.
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<PAGE> 43
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Bremer and the Shareholder. After the
Closing Date, in addition to any other remedies available to Synagro under this
Agreement (including, without limitation, any offset against the Promissory
Note or the delivery of any Pledged Shares or Additional Pledged Shares to
Synagro pursuant to Section 1.1(b) hereof), or at law or in equity, each of
Bremer and the Shareholder shall jointly and severally indemnify, defend and
hold harmless Synagro, Recyc and their respective officers, directors,
employees, agents, and stockholders, against and with respect to any and all
claims, costs, damages, losses, expenses, obligations, liabilities, recoveries,
suits, causes of action and deficiencies, including interest, penalties and
reasonable attorneys' fees and expenses (collectively, the "Damages") that such
indemnitees shall incur or suffer, which arise, result from or relate to (i)
any breach of, or failure by, Bremer, RTI, the Trustee or the Shareholder to
perform their respective representations, warranties, covenants or agreements
in this Agreement, any Ancillary Document to which Bremer, RTI, the Trustee
and/or the Shareholder are a party or any schedule, certificate, exhibit, or
other instrument furnished or delivered to Synagro by Bremer, RTI, the Trustee
or the Shareholder under this Agreement or any Ancillary Document; (ii) the
ownership or operations of Recyc before the Closing Date, including, without
limitation, any Damage relating to or arising out of, in any way, any
groundwater contamination or any duties or obligations of Bremer, Recyc or
Shareholder, whether before or after the Closing Date, set forth or mentioned
in, arising out of or attributable to the Settlement Agreement, (iii) the Other
Operations, (iv) all Taxes arising out of or in any way related to the
ownership, business or operations of Recyc or the Other Operations through the
end of the Closing Date, including, without limitation, any Taxes resulting
from the consummation of the transaction contemplated hereby, or (v) a breach
by RTI of the Transportation Agreement. Notwithstanding any provision herein
to the contrary, the aggregate liability of Bremer and the Shareholder, taken
together, arising under this Section 8.1 shall not exceed $7,000,000.
8.2 Indemnification by Synagro. After the Closing Date, in
addition to any other remedies available to Bremer or the Shareholder under
this Agreement, or at law or in equity, Synagro shall indemnify, defend and
hold harmless each of Bremer and the Shareholder, and the Shareholder's
officers, directors, employees, agents and shareholders, against and with
respect to any and all Damages that such indemnities shall incur or suffer,
which arise, result from or relate to (i) any breach of, or failure by Synagro
to perform, any of its representations, warranties, covenants or agreements in
this Agreement, any Ancillary Document to which Synagro is a party or any
schedule, certificate, exhibit or other instrument furnished or delivered to
Bremer or the Shareholder by or on behalf of Synagro under this Agreement or
any Ancillary Document; and (ii) the ownership or operations of Recyc from and
after the Closing Date, except with respect to Recyc's obligations under the
Settlement Agreement for which Bremer and the Shareholder are responsible, and
(iii) any duties or obligations of Synagro, whether before or after the Closing
Date, set forth or mentioned in, arising out of or attributable to the
Settlement Agreement. Notwithstanding any provision herein to the contrary,
the aggregate liability of Synagro arising under this Section 8.2 shall not
exceed $7,000,000.
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<PAGE> 44
8.3 Indemnification Procedures. If any party hereto discovers or
otherwise becomes aware of a claim for Damages arising under this Article 8,
such indemnified party shall give written notice (an "Indemnification Notice")
to the indemnifying party, specifying such claim, and may thereafter exercise
any remedies available to such party under this Agreement; provided, however,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of any obligations hereunder, except
to the extent the indemnifying party is materially prejudiced thereby.
Further, promptly after receipt by an indemnified party hereunder of written
notice of the commencement of any action or proceeding with respect to which a
claim for Damages arising under this Article 8 may be made, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of any
obligations hereunder, except to the extent the indemnifying party is
materially prejudiced thereby. In case any such action is brought against an
indemnified party, the indemnifying party shall be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after such notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof unless the indemnifying party has failed to
assume the defense of such claim and to employ counsel reasonably satisfactory
to such indemnified person. An indemnifying party who elects not to assume the
defense of a claim shall not be liable for the fees and expenses of more than
one counsel in any single jurisdiction for all parties indemnified by such
indemnifying party with respect to such claim or with respect to claims
separate but similar or related in the same jurisdiction arising out of the
same general allegations. Notwithstanding any of the foregoing to the
contrary, the indemnified party will be entitled to select its own counsel and
assume the defense of any action brought against it if the indemnifying party
fails to select counsel reasonably satisfactory to the indemnified party, and
the expenses of such defense shall be paid by the indemnifying party. No
indemnifying party shall consent to entry of any judgment or enter into any
settlement with respect to a claim without the consent of the indemnified
party, which consent shall not be unreasonably withheld, or unless such
judgment or settlement includes as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld.
8.4 Termination of Indemnity, Representations and Warranties. The
indemnities provided in Sections 8.1 and 8.2 shall terminate with respect to
all Damages which are not the subject of an Indemnification Notice received by
the indemnifying party within two years after the Closing Date; except that the
time period for receipt of an Indemnification Notice for the indemnities
contained in Section 8.1(i), with respect to a breach of the representations,
warranties, covenants and agreements contained in Sections 2.1.4, 2.1.11,
2.1.13, 2.1.15, 2.2, 7.2 and 7.4, and the indemnities contained in Sections
8.2(i), with respect to a breach of the representation and warranty contained
in Section 3.10, shall survive for the applicable statute of limitations
period; and provided that the indemnity for a breach of Section 7.3 or Section
7.5 shall survive for the term of the Facility Lease
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<PAGE> 45
and the indemnities contained in Sections 8.1(iii) and 8.2(ii) shall survive
indefinitely. The indemnities provided in Sections 8.1 and 8.2 shall survive
indefinitely with respect to Damages for which an Indemnification Notice is
received by the indemnifying party within the applicable period provided in the
preceding sentence. The representations and warranties contained in Articles 2
and 3 hereof shall terminate two years after the Closing Date, except that the
representations warranties, covenants and agreements contained in Sections
2.1.4, 2.1.11, 2.1.13, 2.1.15, 3.10, 7.2 and 7.4, shall survive for the
applicable statute of limitations period.
8.5 Insurance. For so long as a party hereto has any indemnity
obligation under Section 8.1 or 8.2 hereof, said party shall maintain, to the
extent available on commercially reasonable terms, appropriate insurance
insuring against claims of the type subject to said indemnity obligation, in
such amounts as said party deems reasonable but in no event less than the
amounts currently maintained by said party. Promptly following the Closing
Date, as well as from time to time as such policies are renewed, the
indemnifying party shall provide the indemnified party certificates of such
insurance, which shall be endorsed to name the indemnified party as an
additional insured for all coverages, shall provide for waivers of subrogation
as to the indemnified party and shall require such insurer to notify the
indemnified party in writing at least thirty days prior to cancellation of such
insurance.
ARTICLE 9
MISCELLANEOUS
9.1 Press Releases. Neither Bremer nor the Shareholder shall make
any public statement or announcement concerning this Agreement or the
transactions contemplated herein without the prior consent of Synagro, subject,
however, to the right of Bremer or the Shareholder to make such an announcement
when in the opinion of its counsel such public statement or announcement is
legally required. Prior to making any public statement or announcement
concerning this Agreement or the transactions contemplated hereby, Synagro
shall provide a copy thereof to Bremer.
9.2 Entirety. This Agreement supersedes the Letter Agreement and
embodies the entire agreement among the parties with respect to the subject
matter hereof, and all prior representations, warranties and agreements between
the parties with respect thereto, whether written or oral, are hereby
superseded in their entirety. This Agreement may not be modified or amended in
any manner except by written instrument executed by all of the parties hereto.
9.3 Counterparts and Facsimile Signature. Any number of
counterparts of this Agreement may be executed and each such counterpart shall
be deemed to be an original instrument, but all such counterparts together
shall constitute but one instrument. This Agreement may be executed by any
party by facsimile signature, with the original signature to be promptly
delivered thereafter, and such facsimile signature shall be binding upon the
party so executing this Agreement.
9.4 Notices and Waivers. Any notice or waiver to be given to any
party hereto shall be in writing and shall be delivered in person or by
courier, sent by facsimile transmission or first class registered or certified
mail, postage prepaid, return receipt requested.
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<PAGE> 46
IF TO SYNAGRO:
<TABLE>
<CAPTION>
Addressed to: With a copy to:
<S> <C>
Synagro Technologies, Inc. Porter & Hedges, L.L.P.
5850 San Felipe, Suite 500 700 Louisiana, 35th Floor
Houston, Texas 77057 Houston, Texas 77002
Attention: Mark A. Rome Attention: T. William Porter
Telephone: (713) 706-6185 Telephone: (713) 226-0600
Facsimile: (713) 706-6181 Facsimile: (713) 228-1331
</TABLE>
IF TO BREMER OR THE SHAREHOLDER:
<TABLE>
<CAPTION>
Addressed to: With a copy to:
<S> <C>
GroWest, Inc. McKenna & Cuneo, L.L.P.
114 Business Center Drive 750 B Street
Corona, California 91720-1724 Symphony Towers, Suite 3300
Attention: John A. Bremer San Diego, California 92101-8105
Telephone: (909) 371-3929 Attention: Richard G. Opper
Facsimile: (909) 737-0956 Telephone: (619) 595-5400
Facsimile: (619) 595-5450
</TABLE>
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, with return receipt requested, shall be deemed
to be received on the third business day after so mailed, and if delivered in
person or by courier or facsimile to such address, upon delivery during normal
business hours on any business day. Any notice required to be given to Bremer,
or the Shareholder, hereunder shall be deemed duly given if sent to the
Shareholder and/or Bremer in accordance with the provisions of this Section
9.4.
9.5 Table of Contents and Captions. The table of contents and
captions contained in this Agreement are solely for convenient reference and
shall not be deemed to affect the meaning or interpretation of any article,
section, or paragraph hereof.
9.6 Successors and Assigns. Neither Synagro, Bremer nor the
Shareholder may transfer or assign this Agreement or any of their respective
rights, duties or obligations hereunder without the prior written consent of
the other parties hereto. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of and be enforceable by
the parties and their respective heirs, successors and assigns.
9.7 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
40
<PAGE> 47
9.8 Applicable Law. The laws of the State of California will
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof, and Bremer, the
Shareholder and Synagro agree that the state and federal courts situated in
Riverside County, California shall have personal jurisdiction over Bremer, the
Shareholder and Synagro, and shall be the sole venue, to hear all disputes
arising under this Agreement. This Agreement is to be at least partially
performed in Riverside County, California and, as such, Bremer, the Shareholder
and Synagro, agree that venue shall be proper with the state or federal courts
in Riverside County, California to hear such disputes. In the event either the
Shareholder, Bremer or Synagro is not able to effect service of process upon
the other with respect to such disputes, the Shareholder, Bremer and Synagro
expressly agree that the Secretary of State for the State of California shall
be an agent of Bremer, the Shareholder and/or the Synagro, as applicable, to
receive service of process on behalf of Bremer, the Shareholder and/or Synagro,
as applicable, with respect to such disputes.
9.9 Definition of Material Adverse Change. As used in this
Agreement, the term "material adverse change" means any change, event,
circumstance or condition (collectively, a "Change") which when considered with
all other Changes would reasonably be expected to result in a "loss" having the
effect of so fundamentally adversely affecting the business or financial
prospects of Recyc or Synagro, as applicable, that the benefits reasonably
expected to be obtained by Synagro, with respect to losses by Recyc, and the
Shareholder, with respect to losses by Synagro, as a result of the consummation
of the transactions contemplated by this Agreement would be jeopardized with
relative certainty. The term "loss" shall mean any and all direct or indirect
payments, obligations, assessments, losses, loss of income, liabilities, fines,
penalties, costs and expenses paid or incurred or more likely than not to be
paid or incurred, or diminutions in value of any kind or character (whether
known or unknown, conditional or unconditional, choate or inchoate, liquidated
or unliquidated, secured or unsecured, accrued, absolute, contingent or
otherwise) that are more likely than not to occur, including without limitation
penalties, interest on any amount payable to a third party as a result of the
foregoing and any legal or other expenses reasonably incurred or more likely
than not to be incurred in connection with investigating or defending any
demands, claims, actions or causes of action that, if adversely determined,
would likely result in losses, and all amounts paid in settlement of claims or
actions; provided, that losses shall be net of any recoveries by Recyc or
Synagro, as applicable, from third parties and any insurance proceeds Recyc or
Synagro, as applicable, is entitled to receive from a nonaffiliated insurance
company on account of such losses (after taking into account any costs incurred
in obtaining such proceeds and any increase in insurance premiums as a result
of a claim with respect to such proceeds). The parties agree, however, that a
reduction in the trading price of Synagro Common Stock on the Nasdaq Market for
Small-Cap Issues or the Nasdaq National Market, as applicable, shall not, in
and of itself, constitute a material adverse change.
9.10 Joinder. Laura Bremer, the spouse of Bremer, executes this
Agreement solely to (i) acknowledge its fairness and that it is in her best
interest, (ii) bind her interest, if any, in the Recyc Shares, (iii) evidence
her agreement to be bound by the terms and provisions of this Agreement, and
(iv) and (v) evidence her agreement to execute each of the documents and
instruments described in Section 1.3 hereof to which she is a party and, as a
trustee of the Trust, comply with the obligations under the covenants contained
in Sections 7.3, 7.5 and 7.6 hereof.
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<PAGE> 48
IN WITNESS WHEREOF, Bremer and Laura Bremer have executed this
Agreement, and Synagro and the Shareholder have caused this Agreement to be
signed in their respective corporate names by their respective duly authorized
representatives, all as of the day and year first above written.
SYNAGRO TECHNOLOGIES, INC.
By: /s/ Ross M. Patten
---------------------------------------------------
Ross M. Patten
President and Chief Executive Officer
GROWEST, INC.
By: /s/ John A. Bremer
--------------------------------------------------
John A. Bremer
President
/s/ John A. Bremer
------------------------------------------------------
John A. Bremer
/s/ Laura Bremer
------------------------------------------------------
Laura Bremer
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<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of July 24, 1998, between Synagro Technologies, Inc., a
Delaware corporation ("Synagro"), and GroWest, Inc., a California corporation
and formerly known as Professional Growers, Inc. (the "Stockholder).
WHEREAS, pursuant to that certain Stock Purchase Agreement, of even
date herewith, among Synagro, Stockholder and John A. Bremer (the "Stock
Purchase Agreement"), the Stockholder has received on the date hereof shares of
common stock, par value $.002 per share, of Synagro ("Common Stock") the resale
of which by the Stockholder has not been registered pursuant to the Securities
Act (as hereinafter defined; said shares being "Unregistered Common Stock"), a
portion of which were placed in escrow to be delivered to Synagro and/or
Stockholder pursuant to the terms of the Stock Purchase Agreement (the
"Escrowed Shares"); and
WHEREAS, in order to induce the Stockholder to enter into the Stock
Purchase Agreement, Synagro has agreed to provide registration rights on the
terms set forth in this Agreement for the benefit of the Stockholder;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. Definitions. The following capitalized terms shall have the
meanings assigned to them in this Section 1 or in the parts of this Agreement
referred to below:
Code: the Internal Revenue Code of 1986, as amended, and any
successor thereto.
Commission: the Securities and Exchange Commission, and any
successor thereto.
Exchange Act: the Securities Exchange Act of 1934, as
amended, and any successor thereto, and the rules and regulations
thereunder.
Exempt Offering: as defined in Section 2.
Registrable Common: shares of Unregistered Common Stock that
were issued and received by the Stockholder on the date hereof
pursuant to the Stock Purchase Agreement (except the Escrowed Shares),
and Escrowed Shares subsequently delivered to the Stockholder,
pursuant to the Stock Purchase Agreement and any additional shares of
Common Stock issued or distributed in respect of any other shares of
Registrable Common by way of a stock dividend or distribution or stock
split or in connection with a combination of shares, recapitalization,
reorganization, merger, consolidation or otherwise. For purposes of
this Agreement, shares of Registrable Common will cease to be
Registrable Common when and to the extent that (i) a registration
statement covering such shares has been declared effective under the
Securities Act and such shares have been disposed of pursuant to such
effective registration statement, (ii) such shares are sold pursuant
to Rule 144 or
<PAGE> 2
become saleable under Rule 144(k), or (iii) such shares have been
otherwise transferred to any person or entity other than the
Stockholder, other than pursuant to Section 10.
Registration Notice: as defined in Section 2
Rule 144: Securities Act Rule 144 (or any similar or
successor provision under the Securities Act).
Securities Act: the Securities Act of 1933, as amended, and
any successor thereto, and the rules and regulations thereunder.
2. Piggyback Registration Rights. Each time that
Synagro proposes to register any Common Stock for its own account
under the Securities Act for a public offering for cash, other than a
registration relating to the offering or issuance of shares in
connection with (i) employee compensation or benefit plans or (ii) one
or more acquisition transactions under a Registration Statement on
Form S-4 or Form S-1 under the Securities Act (or a successor to Form
S-4 or Form S-1) (any such offering or issuance being an "Exempt
Offering"), Synagro will give the Stockholder written notice of its
intent to do so (a "Registration Notice") at least 20 days prior to
the filing of the related registration statement with the Commission.
Such notice shall specify the approximate date on which Synagro
proposes to file such registration statement and shall contain a
statement that the Stockholder is entitled to participate in such
offering and shall set forth the number of shares of Registrable
Common that represents the best estimate of the lead managing
underwriter (or if not known or applicable, Synagro) that will be
available for sale by the Stockholder in the proposed offering. If
Synagro shall have delivered a Registration Notice, the Stockholder
shall be entitled to participate on the same terms and conditions as
Synagro in the public offering to which the Registration Notice
relates (except that the underwriter shall have no over-subscription
rights on the Registrable Common) and to offer and sell shares of
Registrable Common therein only to the extent provided in this Section
2. The Stockholder shall notify Synagro no later than ten days
following receipt of the Registration Notice of the aggregate number
of shares of Registrable Common that the Stockholder then desires to
sell in the offering. The Stockholder may include shares of
Registrable Common in the registration statement relating to the
offering, to the extent that the inclusion of such shares shall not
reduce the number of shares of Common Stock to be offered and sold by
Synagro to be included therein. If the lead managing underwriter
selected by Synagro for a public offering (or, if the offering is not
underwritten, a financial advisor to Synagro) determines that
marketing factors require a limitation on the number of shares of
Registrable Common to be offered and sold in such offering, there
shall be included in the offering only that number of shares of
Registrable Common, if any, requested to be included in the offering
that such lead managing underwriter or financial advisor, as the case
may be, reasonably and in good faith believes will not jeopardize the
success of the offering; and provided, however, that to the extent the
lead managing underwriter, or the financial advisor limits the number
of Shares of Registerable Common to be offered and sold in an
offering, the Registrable Common to be included in such offering shall
be included on a pro rata basis with other holders having comparable
rights under agreements similar to this Agreement.
2
<PAGE> 3
3. Registration Procedures. In connection with registrations
under Section 2, and subject to the terms and conditions contained therein,
Synagro shall (a) use its best efforts to prepare and file with the Commission
as soon as reasonably practicable after giving a Registration Notice (but not
less than 20 days after giving such notice), a registration statement with
respect to, among other matters, the Registrable Common and use its best
efforts to cause such registration to promptly become and remain effective for
a period of at least 120 days (or such shorter period during which the
Stockholder shall have sold all Registrable Common which it requested to be
registered); (b) prepare and file with the Commission such amendments
(including post-effective amendments) to such registration statement and
supplements to the related prospectus to reflect appropriately the plan of
distribution of the securities registered thereunder until the completion of
the distribution contemplated by such registration statement or for so long
thereafter as a dealer is required by law to deliver a prospectus in connection
with the offer and sale of the shares of Registrable Common covered by such
registration statement and/or as shall be necessary so that neither such
registration statement nor the related prospectus shall contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
so that such registration statement and the related prospectus will otherwise
comply with applicable legal requirements; (c) provide to the Stockholder and
its counsel, which counsel shall be reasonably satisfactory to Synagro, an
opportunity to review and provide comments with respect to such registration
statement (and any post-effective amendment thereto) prior to such registration
statement (or post-effective amendment) becoming effective; (d) use its best
efforts to register and qualify the Registrable Common covered by such
registration statement under applicable securities or "Blue Sky" laws of such
jurisdictions as the Stockholder shall reasonably request for the distribution
of the Registrable Common; (e) take such other actions as are reasonable and
necessary to comply with the requirements of the Securities Act; (f) furnish
such number of prospectuses (including preliminary prospectuses) and documents
incident thereto as the Stockholder from time to time may reasonably request;
(g) provide to the Stockholder and any managing underwriter participating in
any distribution thereof, and to any attorney, accountant or other agent
retained by the Stockholder or managing underwriter, reasonable access to
appropriate officers and directors of Synagro to ask questions and to obtain
information reasonably requested by the Stockholder, managing underwriter,
attorney, accountant or other agent in connection with such registration
statement or any amendment thereto; provided, however, that (i) in connection
with any such access or request, any such requesting persons shall cooperate to
the extent reasonably practicable to minimize any disruption to the operation
by Synagro of its business and (ii) any records, information or documents shall
be kept confidential by such requesting persons, unless (A) such records,
information or documents are in the public domain or otherwise publicly
available or (B) disclosure of such records, information or documents is
required by court or administrative order or by applicable law (including,
without limitation, the Securities Act); (h) notify the Stockholder and the
managing underwriters participating in the distribution pursuant to such
registration statement promptly (i) when Synagro is informed that such
registration statement or any post-effective amendment to such registration
statement becomes effective, (ii) of any request by the Commission for an
amendment or any supplement to such registration statement or any related
prospectus, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or of any order
preventing or suspending the use of any related prospectus or the initiation or
threat of any proceeding for that purpose, (iv) of the suspension of the
qualification of any shares of Registrable Common included in such registration
statement for sale
3
<PAGE> 4
in any jurisdiction or the initiation or threat of a proceeding for that
purpose, (v) of any determination by Synagro that any event has occurred which
makes untrue any statement of a material fact made in such registration
statement or any related prospectus or which requires the making of a change in
such registration statement or any related prospectus in order that the same
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (vi) of the completion of the distribution
contemplated by such registration statement if it relates to an offering by
Synagro; (i) in the event of the issuance of any stop order suspending the
effectiveness of such registration statement or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any shares of Registrable Common included in such registration statement for
sale in any jurisdiction, use reasonable efforts to obtain its withdrawal; (j)
otherwise use reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, but not later than fifteen months after the
effective date of such registration statement, an earnings statement covering
the period of at least twelve months beginning with the first full fiscal
quarter after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11 (a) of the Securities Act;
(k) use reasonable diligence to cause all shares of Registrable Common included
in such registration statement to be listed on any securities exchange
(including, for this purpose, the Nasdaq National Market or the Nasdaq Market
for Small-Cap Issues, as applicable) on which the Common Stock is then listed
at the initiation of Synagro; (l) use reasonable diligence to obtain an opinion
from legal counsel (which may include any General Counsel of Synagro) in
customary form and covering such matters of the type customarily covered by
opinions as the underwriters, if any, may reasonably request; (m) provide a
transfer agent and registrar for all such Registrable Common not later than the
effective date of such registration statement; (n) enter into such customary
agreements (including an underwriting agreement in customary form) as the
underwriters, if any, may reasonably request in order to expedite or facilitate
the disposition of such shares of Registrable Common; and (o) use reasonable
diligence to obtain a "comfort letter" from Synagro's independent public
accountants in customary form and covering such matters of the type customarily
covered by comfort letters as the underwriters, if any, may reasonably request.
As used in this Section 3 and elsewhere herein, the term "underwriters" does
not include the Stockholder.
4. Underwriting Agreement. In connection with each registration
pursuant to Section 2 covering an underwritten registered public offering,
Synagro and the Stockholder agree to enter into a written agreement with the
managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of Synagro's size and investment stature, including
provisions for indemnification by Synagro and the Stockholder as more fully
described in Section 11.
5. Availability of Rule 144. Notwithstanding anything contained
herein to the contrary, (including Section 2), Synagro shall not be obligated
to register shares of Registrable Common held by the Stockholder when the
resale provisions of Rule 144(k) are available to the Stockholder or the
Stockholder is otherwise entitled to sell the shares of Registrable Common held
by it in a brokerage transaction without registration under the Securities Act
and without limitation as to volume or manner of sale or both. In addition,
the Stockholder agrees to give at least ten days prior written notice to the
Company of any intent to sell shares of Registrable Common pursuant to Rule
144.
4
<PAGE> 5
6. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit
the sale of the shares of Registrable Common held by the Stockholder to the
public without registration, Synagro agrees to:
(a) make and keep public information available (as those
terms are understood and defined in Rule 144) at all times from and
after 90 days following the effective date of the registration
statement;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of Synagro
under the Securities Act and the Exchange Act at any time that it is
subject to such reporting requirements;
(c) so long as the Stockholder owns any shares of
Registrable Common, furnish to the Stockholder forthwith upon request
a written statement by Synagro as to its compliance with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act (at
any time that it is subject to such reporting requirements), a copy of
the most recent annual or quarterly report of Synagro, and such other
reports and documents filed in accordance with such reporting
requirements as the Stockholder may reasonably request in availing
itself of any rule or regulation of the Commission allowing the
Stockholder to sell any such securities without registration; and
(d) if required by the transfer agent and registrar for
the Common Stock, use reasonable diligence to obtain an opinion from
legal counsel (which may include any General Counsel of Synagro)
addressed to such transfer agent and registrar, with respect to any
sale of shares of Registerable Common pursuant to Rule 144 (or, at the
option of Synagro, pay the reasonable fees and expenses of legal
counsel retained by the Stockholder to provide such an opinion).
7. Market Standoff. In consideration of the granting to the
Stockholder of the registration rights pursuant to this Agreement, the
Stockholder agrees that, for so long as the Stockholder holds shares of
Registrable Common, except as permitted by Section 2, the Stockholder will not
sell, transfer or otherwise dispose of, including, without limitation, through
put or short sale arrangements, shares of Common Stock in the ten days prior to
the effectiveness of any registration (other than relating to an Exempt
Offering) of Common Stock for sale to the public and for up to 90 days
following the effectiveness of such registration (other than relating to an
Exempt Offering).
8. Registration Expenses. All expenses incurred in connection
with any registration, qualification and compliance under this Agreement,
including, without limitation, all registration, filing, qualification, legal,
printing and accounting fees, shall be borne by Synagro, except that all fees
of counsel, accountants and consultants, acting on behalf of the Stockholder
("Stockholder Consultant Fees") shall be borne by the Stockholder. All
underwriting commissions and discounts applicable to shares of Registrable
Common included in the registrations under this Agreement shall be borne by the
Stockholder. Subject to the foregoing, all expenses incident to Synagro's
performance of or compliance with this Agreement, including, without
limitation, all filing fees, fees and expenses of compliance with securities or
Blue Sky laws (including, without limitation, fees and
5
<PAGE> 6
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Common), printing expenses, messenger and delivery expenses,
internal expenses (including, without limitation, all salaries and expenses of
Synagro's officers and employees performing legal or accounting duties), the
fees and expenses applicable to shares of Registrable Common included in
connection with the listing of the securities to be registered on each
securities exchange (including, for this purpose, the Nasdaq National Market or
Nasdaq Market for Small-Cap Issues, as applicable) on which similar securities
issued by Synagro are then listed at the initiation of Synagro, registrar and
transfer agents' fees and fees and disbursements of counsel for Synagro and its
independent certified public accountants, securities act liability insurance of
Synagro and its officers and directors (if Synagro elects to obtain such
insurance), the fees and expenses of any special experts retained by Synagro in
connection with such registration and fees and expenses of other persons
retained by Synagro and incurred in connection with each registration hereunder
(but not including, without limitation, any underwriting fees, discounts or
commissions attributable to the sale of Registrable Common, Stockholder
Consultant Fees and transfer taxes, if any), will be borne by Synagro.
9. Participation in Underwritten Registrations. The Stockholder
may not participate in any underwritten registration hereunder unless it (a)
agrees to sell Stockholder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, custody agreements, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting
arrangements.
10. Transfer of Registration Rights; Additional Grants of
Registration Rights. The registration rights provided to the Stockholder under
Section 2 hereof may not be transferred to any other person or entity, except
that the Stockholder may assign, on a prorata basis, its rights under this
Agreement (i) to John Bremer and/or Laura Bremer, or an affiliate of the
Stockholder, in conjunction with an assignment of Registrable Common thereto,
(ii) pursuant to the laws of descent and distribution, and (iii) to a successor
to the Stockholder pursuant to a merger, or sale of substantially all of the
assets of the Stockholder; provided, however, that such transferees are bound
by and subject to the terms and conditions contained herein. Synagro may,
without the prior consent of the Stockholder, extend the registration rights
provided for in this Agreement to additional persons or entities who become
holders of Common Stock subsequent to the date of this Agreement by entering
into one or more addenda to this Agreement with any such stockholder, and, upon
execution of any such addenda, any stockholder that is a party thereto shall
thereafter be a "Stockholder" for purposes of this Agreement and any shares of
Common Stock referred to therein as such shall be shares of "Registrable
Common" for purposes of this Agreement. Nothing herein shall limit the ability
of Synagro to grant to any person or entity any registration or similar rights
in the future with respect to Common Stock or other securities of Synagro
(whether pursuant to the foregoing provision or otherwise). In the event the
Registrable Common is held by more than one holder or entity and the lead
managing underwriter or financial advisor, as applicable, limits the number of
Registrable Comments to be offered and sold pursuant to Section 2, the number
of shares of Registrable Common to be offered and sold shall be allocated among
said holders on a pro rata basis based on their holdings of Registrable Common.
6
<PAGE> 7
11. Indemnification and Contribution.
(a) Indemnification by the Company. To the extent
permitted by law, Synagro agrees to indemnify and hold harmless the
Stockholder, from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable legal expenses) arising
out of or based upon any untrue statement or alleged untrue statement
of a material fact contained in any registration statement or
prospectus relating to the Registrable Common or in any amendment or
supplement thereto or in any related preliminary prospectus, or
arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are
based upon, any such untrue statement or omission or allegation
thereof based upon information furnished in writing to Synagro by the
Stockholder or on the Stockholder's behalf expressly for use therein.
In connection with an underwritten offering of shares of Registrable
Common, Synagro will indemnify any underwriters of the Registrable
Common, their partners, officers and directors and each person who
controls such underwriters (within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act) on substantially
the same basis as that of the indemnification of the Stockholder
provided in this Section 11(a). Notwithstanding the foregoing,
Synagro's indemnification obligations with respect to any preliminary
prospectus shall not inure to the benefit of the Stockholder or
underwriter with respect to any loss, claim, damage, liability (or
actions in respect thereof) or expense arising out of or based on any
untrue statement or alleged untrue statement or omission or alleged
omission to state a material fact in such preliminary prospectus, in
any case where (i) a copy of the prospectus used to confirm sales of
shares of Registrable Common was sent or given to the person asserting
such loss, claim, damage or liability at or prior to the written
confirmation of the sale to such person and (ii) such untrue statement
or alleged untrue statement or omission or alleged omission was
corrected in such prospectus.
(b) Conduct of Indemnification Proceedings. Promptly
after receipt by the Stockholder of notice of any claim or the
commencement of any action or proceeding brought or asserted against
the Stockholder in respect of which indemnity may be sought from
Synagro, the Stockholder shall notify Synagro in writing of the claim
or the commencement of that action or proceeding; provided, however,
that the failure to so notify Synagro shall not relieve Synagro from
any liability that it may have to the Stockholder otherwise than
pursuant to the indemnification provisions of this Agreement. If any
such claim or action or proceeding shall be brought against the
Stockholder and the Stockholder shall have duly notified Synagro
thereof, Synagro shall have the right to assume the defense thereof,
including the employment of counsel. The Stockholder shall have the
right to employ separate counsel in any such action and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Stockholder unless (i) Synagro has
agreed to pay such fees and expenses or (ii) the named parties to any
such action or proceeding include both the Stockholder and Synagro,
and the Stockholder shall have been advised by counsel that there may
be one or more legal defenses available to the Stockholder which are
different from or additional to those available to Synagro, in which
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<PAGE> 8
case, if the Stockholder notifies Synagro in writing that it elects to
employ separate counsel at the expense of Synagro, Synagro shall not
have the right to assume the defense of such action or proceeding on
behalf of the Stockholder; it being understood, however, that Synagro
shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings
in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys (together with appropriate local counsel)
at any time for the Stockholder. Synagro shall not be liable for any
settlement of any such action or proceeding effected without Synagro's
written consent.
(c) Indemnification by Holders of Registrable Common. In
connection with any registration in which the Stockholder is
participating, the Stockholder will furnish to Synagro in writing such
information and affidavits as Synagro reasonably requests for use in
connection with any related registration statement or prospectus. To
the extent permitted by law, the Stockholder agrees to indemnify and
hold harmless Synagro, its directors and officers who sign the
registration statement relating to shares of Registrable Common
offered by the Stockholder and each person, if any, who controls
Synagro within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from Synagro to the Stockholder, but only with respect to
information concerning the Stockholder furnished in writing by the
Stockholder or on the Stockholder's behalf expressly for use in any
registration statement or prospectus relating to shares of Registrable
Common offered by the Stockholder, or any amendment or supplement
thereto, or any related preliminary prospectus. In case any action or
proceeding shall be brought against Synagro or its directors or
officers, or any such controlling person, in respect of which
indemnity may be sought against the Stockholder, the Stockholder shall
have the rights and duties given to Synagro, and Synagro or its
directors or officers or such controlling persons shall have the
rights and duties given to the Stockholder, by the preceding
paragraph. The Stockholder also agrees to indemnify and hold harmless
any underwriters of the Registrable Common, their partners, officers
and directors and each person who controls such underwriters (within
the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act) on substantially the same basis as that of the
indemnification of Synagro provided in this Section 11(c).
Notwithstanding anything to the contrary herein, in no event shall the
amount paid or payable by the Stockholder under this Section 11(c)
exceed the amount of proceeds received by the Stockholder from the
offering of the Registrable Common.
(d) Contribution. If the indemnification provided for in
this Section 11 is unavailable to any indemnified party in respect of
any losses, claims, damages, liabilities or expenses referred to
herein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages,
liabilities and expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and the
indemnified parties in connection with the actions that resulted in
such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by
reference to, among other
8
<PAGE> 9
things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by
such indemnified party or indemnified parties and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such action. Synagro and the Stockholder agree
that it would not be just and equitable if contribution pursuant to
this Section 11(d) were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to in this Section 11(d). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. If
indemnification is available under this Section 11, the indemnifying
parties shall indemnify each indemnified party to the full extent
provided in Sections 11(a) and (c) without regard to the relative
fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 11(d).
12. Miscellaneous
(a) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, except by written instrument
signed by the parties hereto.
(b) Notices. All notices and other communications
provided for or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by
telex or telecopy, or registered or certified mail (return receipt
requested), postage prepaid, or courier to the parties at the
following addresses (or at such other address for any party as shall
be specified by like notice), provided that notices of a change of
address shall be effective only upon receipt thereof. Notices sent by
mail shall be effective upon receipt thereof by the addressee, notices
sent by telecopier shall be effective when receipt is acknowledged,
and notices sent by courier guaranteeing next day delivery shall be
effective on the next business day after timely delivery by the
courier. Notices shall be sent to the following addresses:
(i) if to the Stockholder, at the following
address:
GroWest, Inc.
114 Business Center Drive
Corona, California 91720-1724
Attention: John A. Bremer
Telephone: (909) 371-3929
Telecopier: (909) 737-0956
9
<PAGE> 10
with copies to:
McKenna & Cuneo, L.L.P.
750 B Street
Symphony Towers, Suite 3300
San Diego, California 92101-8105
Attention: Richard G. Opper
Telephone: (619) 595-5400
Telecopier: (619) 595-5450
(ii) if to Synagro, at the following address:
Synagro Technologies, Inc.
5850 San Felipe, Suite 500
Houston, Texas 77057
Attention: Mark A. Rome
Telephone: (713) 706-6184
Telecopier: (713) 706-6181
with copies to: Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attention: T. William Porter, Esq.
Telephone: (713) 226-0600
Telecopier: (713) 226-1331
(c) Successors and Assigns. Subject to the provisions of
Section 10, this Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and assigns.
(d) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement.
(e) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(f) Section References. Unless the context requires
otherwise, references in this Agreement to "Sections" are to Sections
of this Agreement.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT
STATE.
(h) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any
10
<PAGE> 11
respect for any reason, the validity, legality and enforceability of
any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby,
it being intended that all the rights and privileges of the
Stockholder shall be enforceable to the fullest extent permitted by
law.
(i) Entire Agreement; Termination. This Agreement is
intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter
contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject
matter. This Agreement, except the provisions of Section 11 (which
shall survive until the expiration of the applicable statutes of
limitations) and this Section 12, shall terminate and be of no further
force or effect when all of the Common Stock delivered to the
Stockholder ceases to be Registrable Common.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SYNAGRO TECHNOLOGIES, INC.
By: /s/ Ross M. Patten
-------------------------------------
Ross M. Patten
President
GROWEST, INC.
By: /s/ John A. Bremer
-------------------------------------
John A. Bremer
President
11
