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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Mark One)
[x] AMENDING AND RESTATING ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21054
SYNAGRO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0511324
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
16000 Stuebner Airline, Suite 420, Spring, Texas 77379
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (281) 370-6700
Securities registered pursuant to Section 12(g) Of The Act:
Common Stock, $.002 Par Value
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The number of shares outstanding of the issuer's common stock as of
April 10, 1998 was 7,610,305. The aggregate market value of the 6,354,462 shares
of the Company's Common Stock (and associated Preferred Stock Purchase Rights)
held by non-affiliates of the Company, based on the market price of the Common
Stock of $6.94 per share as of April 10, 1998, was approximately $44,084,080.
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1997 FORM 10-K/A ANNUAL REPORT
TABLE OF CONTENTS
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Item Page
PART I
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1 Business.............................................................................. 1
History of the Business............................................................... 1
Business of the Company............................................................... 1
Mergers, Acquisitions and Dispositions................................................ 2
Government Regulation................................................................. 4
Marketing............................................................................. 6
Bonding Requirements.................................................................. 6
Competition........................................................................... 6
Patent and Trademarks................................................................. 6
Employees............................................................................. 7
2 Properties............................................................................ 7
3 Legal Proceedings..................................................................... 7
4 Submission of Matters to a Vote of Security Holders................................... 8
PART II
5 Market for Registrant's Common Equity and Related Stockholder Matters................. 8
6 Selected Financial Data............................................................... 8
7 Management's Discussion and Analysis of Financial Condition and Results of Operations. 9
General............................................................................... 9
Results of Operations................................................................. 9
Bonding............................................................................... 12
Year 2000 System Requirements......................................................... 12
Liquidity and Capital Resources....................................................... 12
8 Financial Statements and Supplementary Data........................................... 13
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 13
PART III
10 Directors and Executive Officers of the Registrant.................................... 13
11 Executive Compensation................................................................ 15
12 Security Ownership of Certain Beneficial Owners and Management........................ 17
13 Certain Relationships and Related Transactions........................................ 18
PART IV
14 Exhibits. Financial Statement Schedules and Reports on Form 8-K....................... 19
Financial Statements.................................................................. 19
Exhibit Index......................................................................... 19
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This report on Form 10-K/A contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties. When used in this document, the words "anticipate,"
"believe," "estimate" and "expect" and similar expressions, as they relate to
the Company, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including those discussed below. The Company's actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors including those set forth under Item 1. "Business" and Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
PART I
Item 1. BUSINESS.
History Of The Company
Synagro Technologies, Inc. ("Synagro" or the "Company") was originally
incorporated on May 9, 1986 as a Nevada corporation under the name N-Viro
Recovery, Inc. On October 28, 1994, the Company changed its name to "Synagro
Technologies, Inc." to reflect the diversity of biosolids treatment services
provided by the Company.
The Company reincorporated in Delaware on August 16, 1996 by means of a
merger (the "Reincorporation Merger") of the Company with and into a
wholly-owned subsidiary of the Company in Delaware known as Synagro
Technologies, Inc. ("Synagro Delaware"). On the effective date of the
Reincorporation Merger, each issued and outstanding share of Common Stock of the
Company was converted into one share of Common Stock of Synagro Delaware.
Synagro Delaware succeeded to all of the assets, liabilities and business of the
Company and possesses all of the rights and powers of the Company. (Synagro
Delaware and the Company are collectively referred to hereinafter as the
"Company").
Business Of The Company
The Company engages in the business of the management of biosolids
through beneficial reuse of organic materials, including sewage sludge. The
Company provides transportation, treatment, site monitoring, land application
and environmental regulatory compliance services with respect to biosolids and
wastewater products to local and state agencies, municipalities and private
industries. The Company's vehicles pick up and transport biosolids and other
organic waste materials to sites operated by the Company. The Company's services
also include the dredging of sludge ponds, dewatering of biosolids, and cleaning
out municipal and industrial lagoons and digesters.
Additionally, the Company provides professional management and
consulting services for treatment of biosolids and the monitoring and land
application of treated biosolids. The Company currently operates under
approximately 77 contracts with various state and local agencies, municipalities
and private industries with respect to sewage treatment and other waste
products. These entities include municipal utility districts, correctional
facilities and private businesses. The Company provides a variety of methods of
treatment of biosolids as a means of offering options to prospective customers
who may prefer alternative methods of biosolids treatment. These methods include
land application, pumping, transportation and dewatering of biosolids.
There are two standards of pathogen reduction--Class A and Class B. The
Company is able to treat biosolids with Class A pathogen reduction and certain
levels of vector attraction reduction (i.e., pests, such as insects and
rodents), to produce "Exceptional Quality Biosolids." Exceptional Quality
Biosolids can be beneficially used on the land without limitations, site
restrictions or regulatory reporting. Non-Exceptional Quality Biosolids, while
less expensive to process, are subject to monitoring and detailed record keeping
requirements. These alternative methods provide a broader variety of choice to
prospective customers who may prefer to continue to use
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methods which currently require lower initial cost, but which may require
additional future costs for monitoring of the related disposal sites.
The Company also operates and maintains a fleet of trucks which pump,
collect and transport liquid or solid municipal biosolids to various land
application or treatment sites for tipping fees. These tipping fees, which are
fees generated by the Company in connection with the collection, transportation
and treatment of biosolids, constitute substantially all of the Company's
sources of revenues. The Company's vehicles are registered with federal, state
and local governmental agencies for such transportation purposes.
The Company primarily conducts its business through its wholly-owned
subsidiaries CDR Environmental, Inc., a Texas corporation ("CDR"), and Pima Gro
Systems, Inc., an Arizona corporation ("Pima Gro"). The Company's primary
operations are conducted in Arkansas, Arizona, California, Georgia, Maryland,
Ohio, Pennsylvania, Texas, Virginia and Washington D.C. To a lesser extent, the
Company conducts business in Indiana, Louisiana, Mississippi, Missouri, Oklahoma
and South Carolina.
Over the past few years, the Company has acquired certain agency and
licensing rights to market a patented sludge treatment technology, using cement
kiln dust ("CKD") and other related materials and an alkaline pasteurization
process (the "N-Viro Technology"), in certain states in the southwestern United
States.
Through December 1996, the Company had generated nominal profits through
the commercialization of the N-Viro Technology. In December 1996, the Board of
Directors decided to write down the Company's investment in the N-Viro
Technology and associated assets. For this reason, the Company has voluntarily
given up its processing permit for the Hockley, Texas site, and will re-evaluate
its various agency agreements for the application of the N-Viro Technology. See
"Mergers, Acquisitions and Dispositions--Sale of Organi-Gro, Inc.,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Note 13 to the Notes to Consolidated Financial Statements.
Mergers, Acquisitions And Dispositions
The Company's business plan has developed through the acquisition of
privately held biosolids treatment companies and their integration into the
business operations of the Company and its subsidiaries. The Company's
acquisition strategy has been developed with the intent to increase the
efficiency and profitability of each of these acquisition targets through
operational and marketing synergies with the Company's existing business
operations. There can be no assurances that the Company's acquisition strategy
will generate these synergies or result in profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BFI ORGANICS DIVISION. Effective August 1, 1997, the Company purchased
certain assets and revenue contracts of the Organics Division of Browning Ferris
Industries, Inc. ("BFI") in the District of Columbia, Georgia, Maryland, Ohio,
Pennsylvania, and Virginia for approximately $946,000. The acquisition was
financed through the issuance of third-party debt. The debt bears an interest
rate equal to 30 day commercial paper plus 2.77%.
PIMA GRO SYSTEMS, INC. Effective July 1996, the Company entered into an
agreement pursuant to which the Company acquired 100% of the issued and
outstanding securities of Pima Gro. The amount of consideration paid in the
transaction was determined based on management's analysis of historical and
projected sales of Pima Gro, the estimated market value of Pima Gro and the
synergies to be achieved through the transaction.
The purchase price for the acquisition of Pima Gro was $3,095,561. The
Company issued an aggregate of 155,000 shares of the Company's common stock, par
value $.002 per share ("Common Stock"), paid cash in the aggregate amount of
$1,277,265, and issued a promissory note in the aggregate principal amount of
$1,595,561. The shares of Common Stock issued to the former stockholders of Pima
Gro were valued at $1.437 per share for the purposes of the transaction. The
promissory note issued by the Company bears interest at the rate of 8% per
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annum and is payable in four semi-annual installments of principal and accrued
interest, commencing January 1, 1997, with the final payment due on July 1,
1998.
The Company agreed to pay an additional contingent sum on the purchase
price of $4.16 for each dollar by which the pre-tax earnings of Pima Gro, for
each of the fiscal years during 1996-1998, exceed the base amount of $380,000 in
1996 and, subject to certain adjustments to the base amount, during the two
following fiscal years. The additional contingent sum may be payable by the
Company, if at all, in cash, Common Stock or promissory notes, or any
combination thereof. Such amounts which may be payable as contingent sum
payments will be held in escrow until March 31, 1999, and subject to reduction
based on amounts expended by the Company for certain capital expenditures and
costs reserved for the development of certain business sites. As of December 31,
1997, there were no additional contingent amounts payable by the Company.
In connection with this agreement, Wilson Nolan entered into a three
year employment agreement with Pima Gro at the annual base rate of $150,000,
plus other benefits. Mr. Nolan serves as the Chief Executive Officer and a
director of Pima Gro. In addition, Mr. Nolan entered into a non-competition
agreement with the Company for a period of six years following the date of the
employment agreement. In consideration of the non-competition agreement, the
Company has agreed to pay Mr. Nolan an additional contingent sum based on the
contingent sum formula payable to the former Pima Gro stockholders described
above, except that Mr. Nolan will be entitled to receive $1.04 for each dollar
by which the pre-tax earnings of Pima Gro exceed the relevant base amount for
each of the fiscal years during 1996-1998.
Further, the former stockholders of Pima Gro granted a proxy to Donald
L. Thone, Chief Executive Officer of the Company, to vote any shares issued in
connection with the transaction for a period of three years following the
closing date.
CHILDERS BROTHERS TRUCKING, INC. On October 1, 1994, the Company
acquired substantially all of the assets and assumed certain liabilities of
Childers Brothers Trucking, Inc. ("Childers Brothers"), Thompson Shaving
Service, Inc. ("Thompson"), Hodges Heavy Duty Truck Parts and Services, Inc.
("Hodges") and Zeiler Timber Products, Inc. ("Zeiler"). These purchases were
consolidated into Organi-Gro Inc., a wholly owned subsidiary ("Organi-Gro").
In December 1996, the Company decided to sell substantially all of the
assets of its wholly owned subsidiary, Organi-Gro. In March 1997, the Company
sold these assets for consideration including subordinated notes with a face
value of approximately $1.4 million and the assumption of certain debt and
liabilities. The notes are payable in equal monthly installments of
approximately $15,000 for 48 months following the first anniversary date of the
note and bears interest at a rate of 6%. In addition, proceeds received from the
sale of products by the purchaser are to be remitted on a monthly basis with a
total amount of $603,930 due no later than September 16, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 13 to the Notes to Consolidated Financial Statements.
THONE BROTHERS TRUCKING, INC. AND ORGANI-GRO, INC. In July 1993, the
Company entered into two agreements, pursuant to which the Company acquired 100%
of the common stock of: (i) Thone Brothers Trucking, Inc. ("Thone Brothers") in
exchange for 66,667 shares of the Company's Common Stock, and (ii) Organi-Gro in
exchange for $100,000 in cash and a secured promissory note in the principal
amount of approximately $1,050,000, bearing interest at the rate of 9% per
annum, which was paid in full as of March 8, 1996. Both of these companies were
engaged in the business of the transportation and/or treatment of biosolids and
poultry waste, primarily in the State of Arkansas.
In connection with these transactions, the Company merged the business
operations of Thone Brothers into CDR, and Organi-Gro became a separate
wholly-owned subsidiary of the Company. In connection with the merger, Donald L.
Thone became a director of the Company. Mr. Thone currently serves as Chairman
of the Board of the Company.
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CDR ENVIRONMENTAL, INC. On November 30, 1992, the Company entered into
a reorganization agreement with CDR pursuant to which the Company acquired 100%
of the issued and outstanding capital stock of CDR in exchange for 133,333
shares of the Company's Common Stock and a cash payment in the amount of
approximately $1,160,000. In connection with the reorganization agreement, CDR
became a wholly-owned subsidiary of the Company.
ADDITIONAL ACQUISITIONS. As of January 1993, the Company acquired 100%
of the common stock of Bio-Star, Inc., Gro-Mor, Inc. and K-3 Environmental
Services, Inc., all of which were Texas corporations engaged in the business of
the transportation and/or treatment of biosolids and wastewater products. As of
April, 1994, the Company acquired all of the assets and related liabilities of
Border Farms, Inc. The Company merged the business operations of these companies
into CDR. The Company completed these four separate transactions for total
consideration of, 62,185 shares of Common Stock and cash of approximately
$1,147,000.
Government Regulation
Federal and state environmental legislation and regulations require
substantial expenditures by wastewater sludge generators and impose liabilities
on such entities for noncompliance. Environmental laws and regulations are, and
will continue to be, a principal factor affecting the marketability of the
biosolids treatment methods marketed by the Company. Any changes in these laws
or regulations may affect the operations of the Company by imposing additional
regulatory compliance costs on the Company, requiring the modification of and/or
adversely affecting the market for the Company's biosolids treatment methods. To
the extent that demand for the Company's biosolids treatment methods is created
by the need to comply with such environmental laws and regulations, any
modification of the standards created by such laws and regulations may reduce
the demand for the Company's biosolids treatment methods, thereby adversely
affecting the Company's business prospects.
The Company operates in a highly regulated environment and the
wastewater treatment and other plants at which the Company's biosolids treatment
methods may be implemented are required to have permits, registrations and
approvals from federal, state and local governments for the operation of such
facilities. Moreover, each facility is typically required to obtain a state
permit for the processing of Exceptional Quality Biosolids. In some
jurisdictions, state and/or local authorities have prohibited and, in other
jurisdictions, have sought and may seek to prohibit, the land application or
agricultural use of biosolid products.
Any of the permits, registrations or approvals noted above, or
applications therefor, may be subject to denial, revocation or modification
under various circumstances. In addition, if new environmental legislation or
regulations are enacted or existing legislation or regulations are amended or
are enforced differently, the Company may be required to obtain additional
operating permits, registrations or approvals. The process of obtaining a
required permit, registration or approval can be lengthy and expensive and the
issuance of such permit or the obtaining of such approval may be subject to
public opposition. There can be no assurances that the Company will be able to
meet applicable regulatory requirements or that further attempts by state or
local authorities to prohibit the land application or agricultural use of
biosolids will not be successful.
In March 1993, the EPA regulations under the Clean Water Act of 1987
(40 CFR Part 503) which regulate methods for the disposal and use of biosolids
became effective. These regulations address the issues of treating biosolids
generated from the treatment of domestic sewage and septage and the subsequent
disposition of treated biosolids. These regulations establish biosolid use and
disposal standards applicable to approximately 35,000 publicly and privately
owned wastewater treatment plants in the United States. Under these regulations,
biosolids may be surface disposed, incinerated or land applied for beneficial
use in accordance with the requirements established by the regulations.
Biosolids may also be disposed in municipal solid waste landfills approved under
Subtitle D of the Resource Conservation and Recovery Act ("RCRA"). This type of
disposal is regulated under 40 C.F.R. Part 258. The last applicable deadline for
compliance with the new standards was February 19, 1995.
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Land application regulations apply to generators (sources) of
biosolids, persons who treat the biosolids or persons who apply treated
biosolids to land. Beneficial uses for land application include use on
agricultural land, non- agricultural land (forest, range lands), public contact
sites (parks and golf courses), disturbed and reclamation sites (mines and
gravel pits) and home gardens.
Any biosolids used for land application must meet two sets of standards
established by the EPA for pollutant limits. The first set establishes ceiling
concentrations for nine pollutants; biosolids which contain pollutants in
concentrations exceeding the ceiling limits cannot be applied to the land for
beneficial use. The second set establishes more stringent concentration levels
for eight of the nine pollutants which, if met, allow greater flexibility in the
use of the biosolids. The second set also constitutes the pollutant
concentrations, which when combined with Class A pathogen reduction and certain
levels of vector attraction reduction, form Exceptional Quality Biosolids.
There are two standards of pathogen reduction. These standards are
classified as Class A or Class B. The standard of classification of biosolids as
Class A or Class B is based on pathogen levels in the treated biosolids.
Biosolids which meet the Class A standards for pathogen reduction and certain
standards for reduction of attraction to vectors and meet the lower pollutant
levels of the Exceptional Quality Biosolids may be applied to a site (which does
not require a permit for disposal) without the need for further monitoring under
EPA regulations. However, biosolids which do not meet the Exceptional Quality
standards, but which otherwise meet the Class A or Class B standards of pathogen
reduction and other less strict standards for pollutant control and vector
attraction, may only be applied to sites which have obtained governmental
permits for such deposit, and further, are subject to continuous monitoring and
detailed record keeping of the site.
Class A pathogen reduction and vector attraction reduction requires
treating sludge to meet certain levels for indicator bacteria (such as fecal
coliform or salmonella). To meet the Exceptional Quality standard, sludge must
be treated with one of several alternative methods. These methods include heat
disinfection, alkaline stabilization and composting. Sludge which meets the
Exceptional Quality standards does not impose ongoing site management
restrictions.
The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") generally imposes strict, joint and several liability for cleanup
costs upon (1) present owners and operators of facilities at which hazardous
substances were disposed; (2) past owners and operators at the time of disposal;
(3) generators of hazardous substances that were disposed at such facilities;
and (4) parties who arranged for the disposal of hazardous substances at such
facilities. CERCLA Section 107 liability extends to cleanup costs necessitated
by a release or threat of release of a hazardous substance. However, the
definition of "release" under CERCLA excludes the "normal application of
fertilizer." EPA regulations establish standards for biosolids applied to land
for beneficial use, such as a fertilizer substitute or soil conditioner. EPA has
indicated in a published document that it considers biosolids applied to land in
compliance with the applicable regulations not to constitute a "release."
Although the biosolids and alkaline waste products may contain hazardous
substances (as defined under CERCLA), the Company has developed plans to manage
the risk of CERCLA liability, including training of operators, regular testing
of the biosolids and the alkaline admixtures to be used in treatment methods and
reviewing incineration and other permits held by the entities from which
alkaline admixtures are obtained.
The Company currently maintains environmental impairment liability
insurance in the amount of $6,000,000. The Company could be adversely affected
by a claim that is not covered or is only partially covered by liability
insurance.
Many states have regulations or guidelines covering the land
application of biosolids which set either a maximum allowable concentration or
maximum pollutant loading rate for at least one pollutant. In addition, some
states have established management practices for land application of biosolids.
In some jurisdictions, state and/or local authorities have imposed permit
requirements for, or have prohibited, the land application or agricultural use
of biosolid products, including Exceptional Quality Biosolids. There can be no
assurance that any such permits will be issued or that any further attempts to
require permits for, or to prohibit, the land application or agricultural use of
biosolid products will not be successful.
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In addition, many states enforce landfilling restrictions for
nonhazardous biosolids and some states have site restrictions or other
management practices governing lands. These regulations typically require a
permit to sell or use biosolid products as landfill cover material. There can be
no assurances that landfill operators will be able to obtain required permits.
Marketing
The Company markets its services by soliciting prospective customers,
attending trade shows, obtaining referrals and competitive bidding on potential
contracts. The Company's primary marketing and promotion targets are: (i)
government personnel (municipal, county and state); (ii) POTW operators and
landfill operators; (iii) politicians; (iv) consulting engineers and
construction contractors; (v) equipment and building products manufacturers and
distributors; (vi) the agricultural and horticultural industry; (vii)
transportation service companies; and (viii) the public.
The Company provides services, through the operations of CDR and Pima
Gro, for the treatment of biosolids, including the transportation of municipal
sludge, and providing monitoring and assistance services in compliance with
governmental regulatory provisions. The Company primarily markets Class B
biosolids processing and land applications to customers who prefer this method
due to higher costs associated with Class A biosolids processing methods.
Bonding Requirements
Commercial, federal, state and municipal projects, often require
contractors to post both performance and payment bonds at the execution of a
contract. Contractors without adequate bonding may be ineligible to bid or
negotiate on many projects. The Company has frequently been required to obtain
such bonds, and it should be assumed that the Company will continue to be
required to obtain such bonds, in the future, particularly with government
contracts. As of December 31, 1997, the Company had a bonding capacity of
approximately $15,000,000, with $3,369,737 utilized as of such date, which
management believes is sufficient to meet bonding needs for the foreseeable
future. To date, no payments have been made by any bonding company for bonds
issued for the Company.
Competition
The Company provides a variety of services relating to the treatment of
biosolids. The Company is in direct and indirect competition with other
businesses, some of which are larger, more firmly established and have greater
capital resources. Many of these competitors provide aspects of the services
provided by the Company.
Since November 1992, the Company has engaged in a business plan of the
acquisition of privately held companies which provide varieties and alternative
methods for the treatment and processing of biosolids, including the
acquisitions of Pima Gro, Thone Brothers, CDR, and certain of the assets and
revenue contracts of BFI's Organics Division. This business plan has enabled the
Company to offer alternative treatment methods and to diversify the Company's
services to prospective customers. Management of the Company believes that the
full range of treatment services provided by the Company provides a competitive
advantage over other entities which offer a lesser variety of services. However,
there can be no assurances that the Company will be able to achieve and maintain
a competitive position.
The Company competes principally through offering quality services at
competitive prices. These methods are enhanced by the Company's ownership of
facilities and trucks and equipment utilized in the delivery of the Company's
services, which allow the Company to maintain costs and quality controls over
its services.
Patents And Trademarks
The Company makes use of its trade secrets or "know-how" developed in
the course of its experience in the marketing of the Company's services. To the
extent that the Company relies upon trade secrets, unpatented
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know-how and the development of improvements in establishing and maintaining a
competitive advantage in the market for the Company's services, there can be no
assurances that such proprietary technology will remain a trade secret or that
others will not develop substantially equivalent or superior technologies to
compete with the Company's services.
Employees
As of April 10, 1998, the Company had approximately 117 full-time
employees. These employees include: 4 executive officers and 2 non-executive
officers, 8 operations managers, 3 environmental specialists, 13 maintenance
personnel, 38 drivers, 13 land applications specialists, 17 general operation
specialists, 20 financial services/office support employees. The loss of the
services of key employees could have a material adverse effect on the Company's
business. Since there is intense competition for qualified personnel
knowledgeable of the Company's industry, no assurances can be given that the
Company will be successful in retaining and recruiting needed personnel.
The Company's employees are not represented by a labor union or covered
by a collective bargaining agreement, and the Company believes it has good
relations with its employees. The Company provides its employees with certain
benefits, including health, life and dental insurance and 401(k) benefits.
ITEM 2. PROPERTIES.
The Company currently leases approximately 3,700 square feet of office
space located at 16000 Stuebner Airline, Suite 420, Spring, Texas 77379. This
facility serves as the Company's principal place of business. The Company pays
approximately $3,100 per month on a lease expiring in January, 2001. The Company
also leases additional facilities on a 430 acre site in Hockley, Texas under a 3
year lease with a current monthly rental payment of $5,000.
The Company owns a 35 acre farm in Maysville, Arkansas with a 130,000
square foot composting facility for the processing of biosolids. The Maysville
site is subject to a note secured by a deed of trust in the amount of
approximately $1,000,000 held by an unaffiliated third party, with the
underlying loan personally guaranteed by Donald L. Thone, the Company's Chairman
of the Board. The Company also owns two acres of land in Russellville, Arkansas
with a 4,200 square foot office building which serves as the Company's Arkansas
division facilities. The Company also owns 367 acres of land in Arkansas on
which the Company has approximately 144,000 gallons of storage facilities for
biosolids.
The Company leases a 2,800 square foot facility in Redlands, California
as a regional office for the operations of Pima Gro. The Company pays a monthly
rent of $1,400 on the lease, which expires in February 2000. The Company also
leases additional facilities in California, Arizona and Maryland which are used
as truck maintenance yards in connection with the operations of Pima Gro.
The Company leases a 1,500 square foot facility in Oxford, Pennsylvania
as a regional office for the operations of CDR's Mid Atlantic Division. The
Company pays a monthly rent of $550 on the lease which expires in August 1998.
The Company maintains permits, registrations or licensing agreements on
104,266 acres of land for applications of biosolids.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in litigation and claims arising in the ordinary course
of its business. Management believes, based on consultation with legal counsel
and accruals provided, that the ultimate outcome of these matters will not have
a material adverse impact on the Company's operations or financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been listed for trading on The Nasdaq
SmallCap Market, under the symbol "SYGR", since October 1994. The reported high
and low bid prices of the Company's Common Stock on The Nasdaq SmallCap Market
for the past two fiscal years as adjusted for the reverse stock split are as
follows:
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HIGH LOW
YEAR ENDED DECEMBER 31, 1997 ------- ------
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1st Quarter........................................... $ 3.00 $ 1.88
2nd Quarter........................................... 2.38 1.50
3rd Quarter........................................... 3.66 1.94
4th Quarter........................................... 4.25 2.50
YEAR ENDED DECEMBER 31, 1996
1st Quarter........................................... 2.50 1.16
2nd Quarter........................................... 1.47 1.00
3rd Quarter........................................... 2.66 1.00
4th Quarter........................................... 4.75 2.00
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As of April 10, 1998, the Company had 7,610,305 shares of Common Stock
issued and outstanding. On April 10, 1998, the market price for the Company's
Common Stock in the Nasdaq SmallCap Market was approximately $6.94 per share. As
of April 10, 1998, the Company had approximately 725 stockholders of record.
Historically, the Company has not paid any dividends on its Common
Stock and has no present plans to pay such dividends. The payment of any future
dividends on Common Stock would depend, among other things, upon the current and
retained earnings and financial condition of the Company.
On July 18, 1996, the Company issued 155,000 shares of Common Stock to
the former stockholders of Pima Gro in connection with the acquisition of that
entity by the Company pursuant to an exemption from registration under Section
4(2) of the Securities Act.
On August 19, 1996, the Company issued or repriced options to purchase
246,296 and 125,000 shares of Common Stock to Donald L. Thone and Daniel L.
Shook, respectively, pursuant to an exemption from registration under Section
4(2) of the Securities Act, in connection with their respective employment
agreements.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data with respect to
the Company and should be read in conjunction with the Consolidated Financial
Statements.
8
<PAGE> 11
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ 25,303 $ 22,977 $ 17,976 $ 13,197 $ 9,482
Gross profit................................. 4,296 3,723 2,858 2,502 2,136
Selling, general and administrative expenses. 3,572 6,141 4,150 3,900 3,393
Other charges (credits)...................... (721) 4,842 2,444 3,169 --
Interest expense, net........................ 924 673 938 626 576
Net income (loss)............................ 929 (7,589) (4,553) (4,165) (1,999)
Net income (loss) per share (basic and diluted) .12 (1.21) (1.59)* (2.19)* (1.27)*
Working capital (deficit).................... (796) (2,075) 1,889 (667) 285
Total assets................................. 19,945 18,631 20,212 23,154 19,931
Total long-term debt, net.................... 5,495 8,263 4,448 8,396 7,330
Stockholders' equity......................... 7,478 3,802 10,972 10,212 8,655
</TABLE>
*As adjusted for the 1 for 15 reverse split consummated on July 3, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of the Company's operations
should be read in conjunction with the "Business--Business of the Company,"
"--Government Regulation" and "--Competition" sections hereto. Certain
statements are forward-looking, based on the Company's expectations and, as
such, these statements are subject to uncertainty and risks.
General
On August 1, 1997, the Company purchased the assets and certain revenue
contracts from BFI in the amount of $946,000. The acquisition was financed
through the issuance of third party debt, with all working capital requirements
funded under the existing credit facility. This acquisition increased the
Company's regional coverage by including the states of Georgia, Maryland, Ohio,
Pennsylvania, and Virginia.
In December 1996, the Company decided that the Organi-Gro operations
were not part of its core business. In March 1997, the Company sold the assets
of Organi-Gro to the previous owners. The total consideration for this sale
resulted in approximately $1.4 million of subordinated notes receivable and the
assumption of certain debt and liabilities by the purchasers. See Note 13 to the
Notes to Consolidated Financial Statements.
The improvement in results from operations as detailed below is the
result of a successful implementation of certain restructuring plans which
include: focus on core business, minimizing support expenses and management's
commitment to achieving the business goals previously established.
Results Of Operations
The following table sets forth certain items included in the Selected
Financial Data, as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Net sales..................................................... 100% 100% 100%
Gross profit.................................................. 17.0 16.2 15.9
Selling, general and administrative expenses.................. 14.1 26.7 23.1
Other charges (credits)....................................... (2.9) 21.1 13.6
Interest expense, net......................................... 3.7 2.9 5.2
Net income (loss)............................................. 3.7 (33.0) (25.3)
</TABLE>
9
<PAGE> 12
Results of Operations for the years ended December 31, 1997 and 1996.
The Company's net sales increased by $2,325,665 or 10.1% in 1997 as
compared to 1996. The increase in sales is directly attributable to the purchase
of BFI's Organics Division, and the result of having a full year's revenues for
Pima Gro which was acquired in July 1996, partially offset by revenues
associated with the Organi-Gro divestiture in April 1997.
Gross profit increased to $4,295,682, or 17% of sales in 1997, compared
to $3,722,501 or 16.2% of sales in 1996, as a result of continued reductions in
operations costs through obtaining land application sites closer to the waste
generator, and reduced personnel and associated costs.
Selling, general and administrative expenses decreased to $3,571,765,
or 14.1% of sales, in 1997, compared to $6,141,013, or 26.7% of sales, in 1996.
Included in 1997 expenses is an additional provision for legal and other claims
costs of approximately $500,000. The decrease in selling, general and
administrative expenses is a result of management's restructuring plans as
previously indicated.
Other charges (credits) decreased to ($721,286) in 1997 from $4,841,807
in 1996. The decrease relates to the sale of assets of Organi-Gro and the
write-off of the Company's interest in the N-Viro Technology recognized in 1996.
During 1997, the Company recognized other credits as a result of collection on
and expected realization of a portion of the subordinated notes received in
connection with the sale of Organi-Gro. See Note 13 to the Notes to Consolidated
Financial Statements.
Other income and expense (net) was in line with 1996 expenses, but
interest expense increased in 1997 to $923,879, compared to $672,706 in 1996,
while other income increased to $407,177 in 1997 from $344,095 in 1996. The
increase in interest expense is a result of additional debt incurred throughout
the year, due to acquisitions.
As a result of the foregoing, net income of $928,501 was reflected in
1997, as compared to a net loss of $7,588,930 in 1996.
The Company has incurred substantial losses since inception and,
therefore, has not been subject to federal income taxes. As of December 31,
1997, the Company has generated net operating loss carryforwards for financial
reporting purposes of approximately $11.0 million. These carryforwards will
begin to expire in the year 2004 through 2012. The Company's ability to utilize
these carryforwards is limited by a "change in ownership", as such term is
defined by the federal income tax laws and regulations. As the Company has
incurred losses in recent years and the utilization of these carryforwards may
be limited as discussed above, a valuation allowance has been established to
fully offset the deferred tax asset at December 31, 1997.
Results of Operations For The Years Ended December 31, 1996 and 1995.
The Company's net sales increased by $5,001,355, or 27.8%, in fiscal
1996 as compared to fiscal 1995. This increase in sales was directly
attributable to the acquisition of Pima Gro in July 1996. No other significant
changes occurred in the sale of other services or products in relation to the
respective periods.
During the year ended December 31, 1996, cost of goods sold and gross
profit increased to $19,254,903 and $3,722,501, respectively from $15,117,950
and $2,858,099, respectively for the year ended December 31, 1995. Gross profit
as a percent of sales increased to 16.2% in 1996 from 15.9% in 1995.
Selling, general administrative expenses increased to $6,141,013, or
26.7% of sales, for the year ended 1996 as compared to $4,150,437, or 23.1% of
sales, in 1995. The increase in such expenses was primarily the result of
increased expenses of approximately $1,000,000 related to the Pima Gro
acquisition and additional provisions related to legal or other claims costs of
approximately $800,000.
10
<PAGE> 13
In the fourth quarter of 1996, management evaluated the future
profitability of the investments made in Organi-Gro and the N-Viro technologies.
As a result, the Company decided to sell all of the assets of Organi-Gro (which
was accomplished in March 1997) and to write off its interest in the N-Viro
technology and associated assets. This decision resulted in a charge to
operation for the year of $4,841,807. See Notes 4 and 13 to the Notes to
Consolidate Financial Statements.
Interest expense for fiscal year 1996 was $672,706, as compared to
$937,586 for 1995. This decrease of $264,880 was directly attributable to
reduced average debt levels throughout the year prior to assumption of debt
related to the purchase of Pima Gro.
As a result of the foregoing, a net loss of $7,588,930 was reflected in
fiscal 1996 as compared to a net loss of $4,553,169 in fiscal 1995.
Results of Operations For The Years Ended December 31, 1995 and 1994.
The Company's net sales increased by $4,778,788, or 36%, in fiscal 1995
as compared to fiscal 1994. This increase in sales was directly attributable to
sales from poultry bedding and wood waste materials from the October 1994
acquisitions of Childers Brothers, Thompson and Hodges. No other significant
changes occurred in the sale of other services or products in relation to the
respective periods.
During the year ended December 31, 1995, cost of goods sold and gross
profit increased to $15,117,950 and $2,858,099, respectively, from $10,695,468
and $2,501,793, respectively, for the year ended December 31, 1994. Gross
margin, as a percentage of sales, decreased to 16% in 1995 from 19% in 1994.
This decrease in gross margin was directly attributable to the full year's
results in 1995 related to the October 1994 acquisitions of Childers Brothers,
Thompson and Hodges, in which gross margins were, historically, significantly
lower as a percent of sales than the Company's other operations.
Selling, general and administrative expenses increased to $4,150,437,
or 23.1% of sales, in 1995 as compared to $3,889,727, or 29.5% of sales, for the
year ended 1994. The increase in absolute dollars of such expenses was primarily
the result of an increase in the allowance for doubtful accounts reserve of
$181,000. Historically, the Company has had minimal bad debt expense, and
management believes that this is not a recurring expense.
In the first quarter of 1996, certain changes in events caused
management to take charges in the amount of approximately $2,444,000 directly
related to asset impairments as follows:
1. The Company had continued to invest in the Company's
sawmill operations in Arkansas in an attempt to produce its own
shavings for the poultry bedding and wood waste markets and brought
this facility to a production mode in the last part of 1995. In
evaluating the efficiency of the mill for the remainder of 1995 and
through March 1996, management determined that sufficient production
quantities could not be sustained to justify further consideration.
This decision resulted in a charge to fixed assets of $1,091,991 and an
associated goodwill charge of $286,000.
2. At December 31, 1994, the Company had an investment in
Pan American N-Viro of approximately $776,034. Pan American N-Viro was
formed in 1994 to market the N-Viro Process in South and Central
America and the Caribbean with the intent of generating a substantial
revenue base prior to the end of 1995. Subsequent evaluation of this
business venture and a review of the marketing efforts through March
28, 1996, revealed continued losses for the year ending December 31,
1995 of $152,000 and total losses since the formation of Pan American
N-Viro of $244,178. Further, no sales were generated in this period and
very little indication of significant future sales prospects. Based on
management's decision to stop any future cash contributions to Pan
American N-Viro, the Company decided to write off the investment in Pan
American N-Viro in full as of December 31, 1995.
11
<PAGE> 14
3. In 1995, management determined that a charge to
operations of $290,000 was required to properly reflect the current
fair market value of certain assets held for resale pertaining to the
Company's then existing pelletized poultry waste products division.
This decision was made based on a previous decision to discontinue
these operations in 1994 and on market indications as of February 1996
for the sale of these assets.
Interest expense for 1995 was $937,586, as compared to $626,172 for
1994. This increase of $311,414 was directly attributable to the October 1994
acquisitions and the related debt assumed in connection with these acquisitions.
As a result of the foregoing, a net loss of $4,553,169 was reflected in
fiscal 1995.
Bonding
The amount of bonding capacity offered by sureties is a function of
financial health of the company requesting the bonding. As of December 31, 1997,
the Company had a bonding capacity of approximately $15,000,000 with $3,369,737
utilized as of such date, which management believes is sufficient to meet
bonding needs for the foreseeable future.
Year 2000 System Requirements
The Company is performing an analysis of its systems in order to
determine the impact of year 2000 issues. Management is unable to predict at
this time the full impact year 2000 issues will have on the Company's
operations or future financial condition. However, the Company does not expect
that such costs to modify its programs and systems will be material to its
financial condition or results of operations. The Company does not currently
have information concerning the year 2000 compliance of its suppliers and
customers. In the event the Company's major suppliers or customers do not
successfully and timely achieve year 2000 compliance, the Company's operations
could be adversely affected.
Liquidity and Capital Resources
The Company has historically financed its operations principally
through the sale of equity and debt securities and through funds provided by
operating activities.
As of March 31, 1998, the Company issued a Series B Preferred Stock,
with shares outstanding of 1,458,335, for total cash consideration of
$3,500,004. This Series B Preferred Stock is convertible into common on a 1:1
ratio at a conversion price of $2.40.
In August 1997, the Company acquired certain assets and revenue
contracts from BFI. This acquisition was financed through the issuance of third
party debt.
On February 22, 1997, the Company completed its call of 3,000,000
warrants to purchase Common Stock. Warrants for 1,324,243 shares of Common Stock
were converted providing net proceeds to the Company in the amount of
$3,117,636. The remaining outstanding warrants were redeemed by the Company for
$167,576.
The Company purchased additional capital assets during 1997 in the
amount of $1,089,076.
In 1997, the Company generated negative cash flows from operations
of ($1,200,575) primarily due to the funding of working capital needs of the
acquisition mentioned above.
As of December 31, 1997, the Company had current maturities on
long-term debt of $2,951,291, as compared to $2,434,057 in 1996. The Company's
long-term debt of $5,494,549 in 1997 reflects a reduction of $2,768,345 over
1996. This decrease is due primarily to the use of cash proceeds from the
previously disclosed warrant call to extinguish certain indebtedness.
The Company has a credit facility with LaSalle National Bank
("LaSalle") in the amount of $10,000,000 ($5 million term and $5 million line of
credit). At December 31, 1997, the Company had borrowings under the term loan in
the amount of $4,000,000 and $1,037,270 under the line of credit. Amounts under
the line of credit are subject to a borrowing base consisting of 85% of accounts
receivable, as defined in the credit facility. The LaSalle credit facility
requires the Company to meet certain loan covenants, and the Company was in
compliance with those covenants as of December 31, 1997. This credit facility
expires in September 1999 and management anticipates that it will renegotiate
and/or refinance this credit facility prior to that time.
12
<PAGE> 15
At December 31, 1997, the Company had a working capital deficit of
$(795,972). The Company's revolving line of credit has a lock box requirement
and subjective acceleration clause. As a result, in order to comply with
Emerging Issues Task Force pronouncement 95-22, the Company has classified the
revolving line as a current liability. However, management believes the bank
will continue to provide credit to the Company through the expiration date of
September 30, 1999. The Company believes that its cash requirements for 1998 can
be met with its existing cash and short-term investments at December 31, 1997,
the March 31, 1998 convertible preferred stock proceeds, cash flows from
operations and its borrowing availability under its credit facility. Beyond
1998, there can be no assurances that additional financing requirements will not
be required to maintain liquidity as the LaSalle credit facility will expire in
September 1999 and will need to be renegotiated and/or refinanced prior to that
time.
The Company has undergone significant recapitalization and
restructuring events throughout the last two fiscal years. As a result of these
changes, management believes that the Company is better positioned to respond to
opportunities in the biosolids market and aggressively pursue its goal of
acquiring additional biosolids management companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this Item 8 are incorporated
herein by reference as set forth on pages F-1 to F-20 attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
Company's current directors and executive officers:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1)
APRIL 10, 1998
----------------------------
DIRECTOR PERCENT OF
NAME POSITION AGE SINCE SHARES (2) CLASS
- ------------------------ ---------------------------------------------------- ---- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Donald L. Thone Director and chairman of the board 50 1993 927,622 11.3%
Ross M. Patten Director, chief executive officer, and president 54 1998 161,667 2.1%
Daniel L. Shook Director, vice president of finance, chief financial 44 1996 433,140 5.4%
officer, secretary and treasurer
Irwin I. Gelbart Director 60 1991 35,017 *
J. Mark Myers Director 49 1996 21,460 *
Kenneth Ch'uan-k'ai Leung Director 53 1998 28,167 *
</TABLE>
- --------------
* Less than 1% of outstanding shares.
(1) Each person has sole voting and investment power with respect to
the shares listed.
(2) Includes shares underlying stock options, as follows: Mr. Thone
--610,622; Mr. Patten--161,667; Mr. Shook--424,140; Mr. Gelbart--
35,017; Mr. Myers--1,667; and Mr. Leung--16,667.
Donald L. Thone has been chairman of the board of directors since 1994.
From January 1994 to February 1998, Mr. Thone served as chief executive officer
and president of the Company. He was president of a subsidiary of the Company
from July 1993 through November 1994. Mr. Thone was co-owner and president of
Thone Brothers Trucking Inc., a transporter of biosolids and poultry waste
primarily in the State of Arkansas, from 1984 until its acquisition by the
Company and merger into CDR Environmental, Inc. ("CDR") in 1993. In addition,
from 1983 to 1986 he was the owner and manager of River Valley Propane, Inc.
13
<PAGE> 16
Ross M. Patten was appointed by the board of directors to the position
of president and chief executive officer in February 1998. Prior to joining the
Company, Mr. Patten enjoyed a successful seventeen year career at
Browning-Ferris Industries, where he last served as divisional vice president --
corporate development. He also served as executive vice president for
development of Wheelbrator Technologies, a Waste Management, Inc. subsidiary,
and Director and vice president -- business development at Resource NE, Inc,
prior to its acquisition by Waste Management, Inc. Mr. Patten was a founder,
principal and managing director of Bedford Capital, an investment firm
specializing in environmental companies, and of Bedford Management, which
provides consulting services to publicly held waste management and environment
related companies in the areas of growth and acquisition strategy formation and
implementation.
Daniel L. Shook has been chief financial officer and vice
president-finance of the Company since January 1996 and secretary since October
1996. Mr. Shook was vice president-finance and chief financial officer of U.S.
Zinc Corp., a multi-state manufacturer, from December 1994 until January 1996,
and vice president-finance, chief financial officer and treasurer of Gundle
Environmental Systems, Inc., a public company that manufacturers and installs
liners at sanitary and hazardous landfills, from September 1986 to December
1994.
Irwin I. Gelbart has been vice president of Fed Met Stainless & Alloys
Corporation, a distributor of flat rolled stainless steel products and a
subsidiary of Federal Industries, a publicly traded company based in
Mississauga, Canada, since November 1994. From April 1991 to November 1994, Mr.
Gelbart was vice president and general manager of the Samuel Stainless Rolled
Products Division of Samuel Whittar, Inc., a distributor and service center for
flat rolled steel products. From 1987 to 1991, he served as general manager of
ELG Haniel Trading Corporation, a distributer of flat rolled steel products in
Inwood, New York. Mr. Gelbart founded and was president of GSI Trading
Corporation (New York) and Stainless International, Inc. (Pennsylvania) from
1966 to 1987. He also founded, and is presently a director of, Dai Ichi Metal
Co., Ltd., Hong King, which distributes flat rolled steel products to the
People's Republic of China.
J. Mark Myers, M.D., F.A.C.S., has been associated with Millard-Henry
Clinic, P.A. in Russellville, Arkansas in the private practice of general
surgery since 1981 and has been president of that clinic since 1995. From 1978
to 1981, Dr. Myers was associated with McPheeter's Clinic in Poplar Bluff,
Missouri in the private practice of general surgery. Dr. Myers was chief of
staff of St. Mary's Hospital in Russellville, Arkansas from 1990 to 1992.
Kenneth Ch'uan-k'ai Leung is a managing director of Investment Banking
at Sanders Morris Mundy and is the chief investment officer of the Environmental
Opportunities Fund, Ltd. Additionally, he is the Editor of Environmental Review.
Previously, Mr. Leung was associated with Smith Barney for seventeen years, and
before that with F. Eberstadt & Co. Inc., Chemical Bank and Chase Manhattan
Bank. He received his B.A. from Fordham College and his M.B.A. from Columbia
University. Mr. Leung serves on the boards of Eastern Environmental Services
Inc., Zahren Alternative Power Corp., Independent Environmental Services, Inc.,
Capital Environmental Resources Inc., and Avista Resources, Inc.
EXECUTIVE OFFICER TENURE
The executive officers of the Company serve at the pleasure of the
board of directors and are subject to annual appointment by the board at its
first meeting following the annual meeting of stockholders.
14
<PAGE> 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership with the Securities and Exchange Commission (the
"Commission"). With respect to the year ended December 31, 1997, Mr. J. Mark
Myers-Director was delayed in filing one Form 4 Report regarding one transaction
as required by Section 16(A). The Company believes that all other filing
requirements applicable to the Company's executive officers, directors and 10%
shareholders have been met.
ITEM 11. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to
the Company for the periods indicated of each individual who was (i) the chief
executive officer at any time during the period or (ii) an executive officer at
December 31, 1997 (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- ------------------------------
STOCK
RESTRICTED OPTION AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER STOCK (SHARES) COMPENSATION
- ----------------------------- ------- --------- ---------- -------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald L. Thone(1) 1997 $150,000 $ 33,125 -- -- 444,326 --
President and chief 1996 $150,000 $155,500 -- -- 246,296 --
executive officer 1995 $128,846 -- -- -- -- --
Daniel L. Shook 1997 $125,000 $ 28,437 -- -- 352,474 --
Vice president-finance, 1996 $115,975 $ 45,000 -- -- 125,000 --
chief financial officer,
secretary and treasurer
</TABLE>
- -------------------------
(1) Served as president and chief executive officer until February 1998.
EMPLOYMENT AGREEMENTS
Mr. Thone, Mr. Patten, and Mr. Shook are each employed by the Company
under separate employment agreements effective April 16, 1998 for a duration of
twenty-four consecutive months. The annual salary under their respective
employment agreements is as follows: Mr. Thone--$160,500; Mr. Patten--$150,000;
and Mr. Shook--$133,750. Additionally, Messrs. Thone, Patten, and Shook may be
entitled to such bonus as may be approved by the board of directors, and
participation in any applicable profit-sharing, stock option or similar benefit
plan. All employment agreements automatically renew for successive twenty-four
month periods annually, unless terminated by prior written notice. If employment
is terminated without cause, Messrs. Thone, Patten, and Shook are each entitled
to a severance payment equal two 200% of the sum of their annual salary and
bonus for the preceding year. All agreements contain confidentiality and
non-compete provisions. For Mr. Thone only, in the event employment is
terminated for any reason, the Company shall immediately take such actions as
are necessary or appropriate to remove Mr. Thone as a guarantor or other party
to certain loan agreements.
15
<PAGE> 18
OPTION GRANTS
The following table sets forth certain information with respect to
stock options granted to the Named Executives during 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS(2) APPRECIATION FOR OPTION TERM(1)
----------------------------------------- -----------------------------------
PERCENT OF TOTAL
OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED YEAR PRICE DATE 5% 10%
- ------------------------ ------------ ---------------- ---------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Donald L. Thone 120,000 11.8% $2.00 6/16/07 $145,071 $ 373,161
324,326 32% $3.38 10/1/07 $689,408 $1,747,095
Daniel L. Shook 80,000 7.9% $2.00 6/16/07 $ 96,714 $ 248,774
272,474 26.9% $3.38 10/1/07 $579,188 $1,467,776
</TABLE>
- ----------------------
(1) Potential values stated are the result of using the Securities and
Exchange Commission (the "Commission") method of calculations of 5% and
10% appreciation in value from the date of grant to the end of the
option term. Such assumed rates of appreciation and potential
realizable values are not necessarily indicative of the appreciation,
if any, which may be realized in future periods.
(2) Unvested options will immediately vest upon a change of control of the
Company, including acquisition by any person or group of persons of at
least 25% of the common stock of the Company, a merger resulting in the
existing stockholders of the Company owning less than 50% of the
outstanding stock of the Company following the merger, termination of
employment without cause and election by the stockholders of a director
not nominated by a majority of the board.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to the
exercised and unexercised options to purchase shares of common stock for each of
the Named Executives held by them at December 31, 1997. Of the Named Executives,
none exercised stock options during 1997.
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE NUMBER OF UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
ON EXERCISE REALIZED DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997(1)
--------------- ----------- --------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- -------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Donald L. Thone -- -- 610,622 80,000 $161,042 $45,000
Daniel L. Shook -- -- 382,474 95,000 $ 61,875 $53,438
</TABLE>
- ----------------------
(1) Value of in-the-money options calculated based on the closing price per
share of the common stock on December 31, 1997 ($2.5625 per share) as
reported by the NASDAQ National Market on December 31, 1997.
16
<PAGE> 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock at April 10, 1998, by each
stockholder who is known by the Company to own beneficially more than 5% of the
outstanding common stock.
<TABLE>
<CAPTION>
NAME OF PERSON NUMBER OF PERCENT
OR IDENTITY OF GROUP SHARES SHARES OF CLASS
- ----------------------------------------- --------------- ------------
<S> <C> <C>
Kennedy Capital Management, Inc. 915,015 12 %
10829 Olive Boulevard
St. Louis, Missouri 63141
Donald L. Thone 927,622(1) 11.3%
410 Prestwick Ct.
Houston, Texas 77057
</TABLE>
- ----------------------
(1) Includes exercisable options as of April 10, 1998.
MANAGEMENT STOCKHOLDINGS
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock at April 10, 1998, by (i) all
directors, (ii) the chief executive officer and other executive officers and
(iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME OF PERSON OR IDENTITY OF GROUP SHARES(1) OF CLASS
- --------------------------------------- --------------- -------------
<S> <C> <C>
Donald L. Thone 927,622 11.3%
Ross M. Patten 161,667 2.1%
Daniel L. Shook 433,140 5.4%
Irwin I. Gelbart 35,017 *
J. Mark Myers 21,460 *
Kenneth Ch'uan-k'ai Leung 28,167 *
All directors and executive officers 1,607,073(2) 18.1%
as a group (6 persons)
</TABLE>
* Less than 1% of outstanding shares.
(1) Includes shares underlying outstanding stock options, as follows: Mr.
Thone--610,662; Mr. Patten--161,667; Mr. Shook--424,140; Mr. Gelbart--
35,017; Mr. Myers--1,667; and Mr. Leung--16,667.
(2) Includes (without duplication) all shares referred to above.
17
<PAGE> 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of April 10, 1998, the Company had an aggregate of $1,245,000 of
long term debt that is personally guaranteed by Mr. Thone, who is a five percent
or greater stockholder of the Company. The Company has agreed to use its best
efforts to obtain the release of this personal guarantee.
In October 1997, Mr. Thone and Mr. Shook agreed to cancel their
preexisting employment agreements. The preexisting employment agreements were
for a five year term of employment. In the event of termination due to a change
of control, the employment agreements provided that the Company would pay Mr.
Thone and Mr. Shook's salaries through the unexpired term of employment.
Furthermore, the agreements required the Company to establish a cash fund to
prepare for the possible severance payments. In connection with the
cancellations of those agreements, Mr. Thone and Mr. Shook were awarded stock
options of 324,326 shares and 272,474 shares, respectively, at an exercise price
of $3.38 per share.
Notwithstanding any apparent (or actual) conflict of interest that may
have existed with respect to the above financial arrangement, the board of
directors is of the opinion that these arrangements are as favorable to the
Company as any that could have been negotiated at arm's length with similar
situated third parties under the same circumstances.
18
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
Synagro Technologies, Inc. and Subsidiaries consolidated balance sheets
as of December 31, 1997 and 1996, and related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997.
2. Financial Schedules.
Schedule II--Synagro Technologies, Inc. and Subsidiaries consolidated
schedule of valuation and qualifying accounts for each of the three years in the
period ended December 31, 1997.
All other financial statement schedules are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or the notes thereto.
(b) None
(c) Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
<S> <C>
3.1 Restated Certificate of Incorporation of Synagro Technologies, Inc. (the "Company") dated August
16, 1996 (Exhibit 3.1 to the Company's Post-Effective Amendment No. 1 to Registration Statement
No. 33-95028, dated October 25, 1996, is incorporated herein by reference).
3.2 Bylaws of the Company dated August 5, 1996. (Exhibit 3.2 to the Company's Post-Effective
Amendment No. 1 to Registration Statement No. 33-95028, dated October 25, 1996, is incorporated
herein by reference).
4.1 Specimen Common Stock Certificate of the Company. (Exhibit 4.1 to the Company's Registration
Statement on Form 10, dated December 29, 1992, is incorporated herein by reference).
4.2 Specimen Warrant Certificate of the Company. (Exhibit 4.2 to the Company's Registration
Statement on Form S-1 (No. 33-95028), dated July 27, 1995, and as amended, is incorporated
herein by reference).
4.3 Rights Agreement, dated as of December 20, 1996, between the Company and Intercontinental
Registrar & Transfer Agency, Inc., as Rights Agent, which includes as Exhibit A thereto the
Synagro Technologies, Inc. Statement of Designations, Preferences, Limitations and Relative
Rights of its Series A Junior Participating Preferred Stock, and as Exhibit C thereto the Form
of Rights Certificate (Incorporated by reference to Exhibit No. 4.1 to Registrant's Registration
Statement on Form 8-A dated December 27, 1996).
*4.4 Certificate of Designation, Preferences, Rights and Limitations of Series B Preferred Stock of
Synagro Technologies, Inc.
*4.5 Registration Rights Agreement, dated as of March 31, 1998, among the Company, Environmental
Opportunities Fund, L.P., Environmental Fund (Cayman), L.P. and other purchasers of the
Company's Series B Preferred Stock as listed on Exhibit A thereto.
*4.6 Specimen Series B Preferred Stock Certificate.
*10.1 Synagro Technologies, Inc. Subscription Agreement, dated as of March 31, 1998 among the Company,
Environmental Opportunities Fund, L.P., Environment Opportunities Fund (Cayman), L.P. and other
purchasers of the Company's Series B Preferred Stock as listed on Exhibit A thereto.
10.2 Form of Indemnification Agreement. (Appendix F to the Company's Proxy Statement on Schedule 14A
for Annual Meeting of Stockholders, dated May 9, 1996, is incorporated herein by reference).
10.3 Amended and Restated 1993 Stock Option Plan dated August 5, 1996. (Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (No. 333-18029), dated December 17, 1996, is incorporated
herein by reference).
10.4 Lease Agreement between the Company and Green Coast Enterprises, Inc. dated February 1, 1996.
(Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995,
is incorporated herein by reference).
</TABLE>
19
<PAGE> 22
<TABLE>
<S> <C>
10.5 Employment Agreement between Pima Gro Systems, Inc. and Wilson Nolan, dated July 18, 1996.
(Exhibit 10.1 to the Company's Current Report on Form 8-K, dated July 31, 1996, is incorporated
herein by reference).
10.6 Agreement for the Purchase of Stock by and among Synagro Technologies, Inc., CDR Environmental,
Inc., Pima Gro, Pima Gro Systems 2, Inc., Wilson Nolan, Herbert Kai and John Kai, Jr., dated
July 18, 1996. (Exhibit 2.1 to the Company's Current Report on Form 8-K, dated July 31, 1996,
is incorporated herein by reference).
10.7 6% Promissory Note made by Custom Poultry to Organi-Gro and the Company in the principal amount
of $1,152,381, dated April 1, 1997 (Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by reference).
10.8 Guaranty of Tony D. Childers ("Childers") for 6% Promissory Note made by Custom Poultry to
Organi-Gro, dated April 1, 1997 (Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by reference).
10.9 6% Promissory Note made by Hodges to Organi-Gro and the Company in the principal amount of
$308,203, dated April 1, 1997. (Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by reference).
10.10 Guaranty of Childers and Jack Hodges for 6% Promissory Note made by Hodges to Organi-Gro, dated
April 1, 1997 (Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference).
*10.11 Employment Agreement between the Company and Donald L. Thone, dated April 16, 1998.
*10.12 Employment Agreement between the Company and Daniel L. Shook, dated April 16, 1998.
*10.13 Employment Agreement between the Company and Ross M. Patten, dated April 16, 1998.
*21.1 Subsidiaries of Synagro Technologies, Inc.
*23.2 Consent of Arthur Andersen LLP.
*23.3 Consent of Singer Lewak Greenbaum & Goldsteen LLP.
*27.1 Financial Data Schedule.
</TABLE>
- -------------
* Filed herewith.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 28, 1998.
SYNAGRO TECHNOLOGIES, INC.
By: /s/ Donald L. Thone
-------------------------------------
Donald L. Thone,
Chairman of the Board and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on April 10, 1998.
<TABLE>
<S> <C> <C>
By: /s/ Donald L. Thone Chairman of the Board and Director
-------------------------------------------
Donald L. Thone
By: /s/ Ross M. Patten Chief Executive Officer, President
------------------------------------------- and Director
Ross M. Patten
By: /s/ Daniel L. Shook Chief Financial Officer, Vice President of Finance,
------------------------------------------- Secretary and Director
Daniel L. Shook
By: /s/ Irwin I. Gelbart Director
-------------------------------------------
Irwin I. Gelbart
By: /s/ J. Mark Myers Director
-------------------------------------------
J. Mark Myers
By: /s/ Kenneth Ch'uan-k'ai Leung Director
-------------------------------------------
Kenneth Ch'uan-k'ai Leung
</TABLE>
21
<PAGE> 24
SYNAGRO TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years Ended December 31, 1997,
1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997,
1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Synagro Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Synagro
Technologies, Inc. (a Delaware corporation), and subsidiaries as of December 31,
1997 and 1996, and the related statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Synagro
Technologies, Inc., and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 20, 1998 (except with respect
to certain matters discussed in Note 7 and
the matters discussed in Note 14,
as to which the date is April 14, 1998)
F-1
<PAGE> 26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Synagro Technologies, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Synagro Technologies, Inc. and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and consolidated
cash flows of Synagro Technologies, Inc. and subsidiaries for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
February 28, 1996
F-2
<PAGE> 27
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------------
1997 1996
----------- -------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 166,994 $ 643,109
Short-term investments 64,504 560,000
Restricted cash, current portion 172,925 159,285
Accounts receivable, net of allowance of $189,862
and $287,514 3,942,355 2,910,781
Notes receivable 500,133 --
Prepaid expenses and other current assets 1,330,018 218,224
------------ ------------
Total current assets 6,176,929 4,491,399
PROPERTY, MACHINERY AND EQUIPMENT, net 8,914,588 8,582,862
OTHER ASSETS:
Goodwill, net of accumulated amortization of $869,079
and $737,184 4,430,277 4,562,172
Restricted cash, long-term portion 173,387 186,077
Assets held for sale, net -- 702,246
Other 249,938 106,531
------------ ------------
Total assets $ 19,945,119 $ 18,631,287
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,951,291 $ 2,434,057
Accounts payable and accrued expenses 4,021,610 4,132,212
------------ ------------
Total current liabilities 6,972,901 6,566,269
LONG-TERM DEBT, net 5,494,549 8,262,894
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.002 par value, authorized 10,000,000 shares,
none issued and outstanding -- --
Common stock, $.002 par value, authorized 100,000,000 shares,
7,610,305 shares and 6,355,434 shares issued and outstanding 15,221 12,712
Additional paid-in capital 25,323,915 22,579,380
Accumulated deficit (17,861,467) (18,789,968)
------------ ------------
Total stockholders' equity 7,477,669 3,802,124
------------ ------------
Total liabilities and stockholders' equity $ 19,945,119 $ 18,631,287
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 28
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 25,303,069 $ 22,977,404 $ 17,976,049
COST OF SERVICES 21,007,387 19,254,903 15,117,950
------------ ------------ ------------
Gross profit 4,295,682 3,722,501 2,858,099
------------ ------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,571,765 6,141,013 4,150,437
OTHER CHARGES (CREDITS):
Loss on assets held for sale and other special
charges / (credits) (721,286) 4,841,807 2,158,025
Write-off of goodwill -- -- 286,000
------------ ------------ ------------
Income (Loss) from operations 1,445,203 (7,260,319) (3,736,363)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Other income, net 407,177 344,095 120,780
Interest (923,879) (672,706) (937,586)
------------ ------------ ------------
(516,702) (328,611) (816,806)
------------ ------------ ------------
NET INCOME (LOSS) BEFORE BENEFIT FOR INCOME TAXES 928,501 (7,588,930) (4,553,169)
BENEFIT FOR INCOME TAXES -- -- --
------------ ------------ ------------
NET INCOME (LOSS) $ 928,501 $ (7,588,930) $ (4,553,169)
============ ============ ============
INCOME PER COMMON AND COMMON SHARE EQUIVALENT:
Net income (loss), basic $ .12 $ (1.21) $ (1.59)
Net income (loss), diluted $ .12 $ (1.21) $ (1.59)
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC 7,545,113 6,266,759 2,864,195
WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED 7,740,344 6,266,759 2,864,195
</TABLE>
Reflects a one for 15 reverse stock split effective on July 3, 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 29
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 1,957,449 $ 3,915 $ 16,855,772 $ (6,647,869) $ 10,211,818
Sale of common stock 3,000,000 6,000 5,994,000 -- 6,000,000
Conversion of long-term debt 715,709 1,431 1,468,527 -- 1,469,958
Conversion of long-term debt,
related parties 400,000 800 799,200 -- 800,000
Offering costs 12,867 26 (1,382,928) (1,382,902)
Exercise of options 18,999 38 121,676 -- 121,714
Shares issued for services 8,800 18 29,216 -- 29,234
Shares repurchased in legal
settlement (20,000) (40) (500,960) -- (501,000)
Repurchase of shares (1,067) (2) (23,998) -- (24,000)
Shares exchanged for investment (40,000) (80) (1,199,920) -- (1,200,000)
Net Loss -- -- -- (4,553,169) (4,553,169)
--------- -------- ----------- ------------ ----------
BALANCE, December 31, 1995 6,052,757 12,106 22,160,585 (11,201,038) 10,971,653
Shares issued for acquisition 155,000 310 222,425 -- 222,735
Conversion of long-term debt 144,344 289 189,711 -- 190,000
Exercise of options 3,333 7 6,659 -- 6,666
Net Loss -- -- -- (7,588,930) (7,588,930)
--------- -------- ----------- ------------ ----------
BALANCE, December 31, 1996 6,355,434 12,712 22,579,380 (18,789,968) 3,802,124
Redemption of warrants, net 1,324,243 2,648 2,947,412 -- 2,950,060
Shares exchanged in repayment of --
notes receivable and other (74,372) (149) (212,867) (213,016)
Exercise of options 5,000 10 9,990 -- 10,000
Net Income -- -- -- 928,501 928,501
--------- -------- ----------- ------------ ----------
BALANCE, December 31, 1997 7,610,305 $ 15,221 $25,323,915 $(17,861,467) $7,477,669
========= ======== =========== ============ ==========
</TABLE>
Reflects a one for 15 reverse stock split effective on July 3, 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 30
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income (Loss) $ 928,501 $(7,588,930) $(4,553,169)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation 1,498,255 1,951,518 1,681,616
Amortization 131,895 255,690 505,295
Write-off of goodwill -- -- 286,000
Loss on assets held for sale and other special
charges (credits) (721,286) 4,841,807 2,158,025
Gain on sale of property, machinery and equipment (251,470) (261,319) (5,597)
Stock issued for payment of interest and services -- -- 64,196
Conversion of accrued interest into note payable -- -- 33,533
Other (113,133) -- (119,028)
(Increase) decrease in the following, excluding
the effects of acquisitions-
Accounts receivable (1,408,821) (635,872) 505,557
Inventory -- 111,429 459,623
Prepaid expenses and other current assets (1,111,794) 758,253 (362,655)
Other assets (143,407) (27,627) (106,042)
Increase (decrease) in the following excluding
the effects of acquisitions-
Accounts payable and accrued expenses (9,315) 1,472,235 (209,285)
=========== =========== ===========
Net cash provided by (used in) operating (1,200,575) 877,184 338,069
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired -- (1,277,265) --
Purchase of property, machinery and equipment (1,089,076) (1,404,815) (1,224,110)
Proceeds from sale of property, machinery and equipment 456,564 640,404 559,033
Sales (purchases) of short-term investments, net 495,496 455,743 (1,015,743)
Proceeds from notes receivable 121,286 -- --
----------- ----------- -----------
Net cash used in investing activities (15,730) (1,585,933) (1,680,820)
=========== =========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 1,082,410 5,797,696 3,538,284
Payments on debt (3,301,330) (7,135,023) (4,638,099)
Increase in restricted cash (950) (5,105) (103,825)
Deferred offering costs -- -- 128,663
Sale of common stock, net of offering costs 2,960,060 6,666 4,807,290
Purchase of common stock -- -- (24,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities 740,190 (1,335,766) 3,708,313
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (476,115) (2,044,515) 2,365,562
CASH AND CASH EQUIVALENTS, beginning of year 643,109 2,687,624 322,062
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 166,994 $ 643,109 $ 2,687,624
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 31
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
SUPPLEMENTAL CASH FLOW INFORMATION:
<S> <C> <C> <C>
Interest paid $ 942,877 $ 760,339 $ 880,668
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES
The Company sold the operations of a wholly-owned subsidiary in 1997. The assets
and liabilities sold were approximately $978,000 net of a loss allowance of
approximately $2.4 million and assumed debt by the purchaser was approximately
$978,000 in exchange for a note receivable of approximately $1.4 million which
was reserved by the Company.
In 1997, $946,000 of assets were purchased in accordance with a purchase and
sale agreement. The purchase was financed through debt.
In 1997, $212,998 of notes receivable was repaid with 65,538 shares of common
stock.
The Company purchased all of the common stock of an entity during 1996. The
assets acquired and liabilities assumed were as follows for the year ended
December 31, 1996:
<TABLE>
<S> <C>
Fair value of assets acquired $ 6,211,327
Liabilities assumed (3,115,766)
Promissory notes payable (1,595,561)
Common stock issued (222,735)
-----------
Net cash paid $ 1,277,265
===========
</TABLE>
In 1996, $190,000 of debentures were converted into 144,344 shares of common
stock.
In 1996, $1,325,150 of machinery and equipment was acquired with debt.
In 1995, $1,050,000 of debentures and $34,961 of accrued interest were converted
into 404,273 shares of common stock.
In 1995, $384,997 of long-term debt was converted to 311,436 shares of common
stock.
In 1995, $800,000 of long-term debt to related parties was converted to 400,000
shares of common stock.
In 1995, the Company completed its exchange of $1,200,000 of investment in
partnership for 40,000 shares of common stock based on an agreement entered into
in August 1994.
In 1995, the Company transferred 100 percent of the stock in its Agkone, Inc.,
subsidiary in exchange for 20,000 shares of common stock, valued at $501,000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 32
SYNAGRO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Organization and Line of Business
Synagro Technologies, Inc. (the Company), is engaged in the biosolids management
business. The Company does this through beneficial reuse of organic materials,
transportation and monitoring of biosolids, and the marketing of end products
from the treatment of such materials. The Company's primary concentration of
customers is in the states of Arkansas, Arizona, California, Georgia, Maryland,
Ohio, Pennsylvania, Texas, Virginia and the District of Columbia.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
Cash Equivalents and Short-Term Investments
The Company considers all investments with an original maturity of three months
or less when purchased to be cash equivalents. Short-term investments have
maturities greater than three months at the date of purchase. At December 31,
1997 and 1996, short-term investments consisted of certificates of deposit. All
short-term investments have been classified as held-to-maturity at December 31,
1997 and 1996. These investments have various maturity dates which do not exceed
one year. These securities are carried at cost which approximates fair value.
Property, Machinery and Equipment
Property, machinery and equipment is stated at cost. Depreciation is being
provided using straight-line and accelerated methods over estimated useful lives
of three to twenty years. Leasehold improvements are capitalized and amortized
over the lesser of the life of the lease or the estimated useful life of the
asset.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property, machinery and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
In the second quarter of 1997, the Company changed the estimated useful lives of
certain fixed assets. The change did not materially effect current year
depreciation expense.
Goodwill
In 1997, the Company changed the estimated useful lives of remaining excess of
cost over the fair value of net assets (goodwill) at one of its subsidiaries
from 20 to 40 years. As a result of the change, the Company recorded $96,986
less in amortization expense in the current year. Amortization expense was
$131,895, $255,690, and $246,376 in 1997, 1996 and 1995, respectively.
In the event that facts and circumstances indicate that goodwill may be
impaired, an evaluation of recoverability would be performed. If an evaluation
were required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or
F-8
<PAGE> 33
discounted cash flow value was necessary. The Company believes the goodwill
remaining as of December 31, 1997, is fully realizable.
Revenue Recognition
Revenues are primarily recognized as services are completed and provided.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The Company adopted SFAS No. 121 on January 1, 1996. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company's adoption of SFAS No. 121 did not materially impact the results of its
operations.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the 1997 presentation.
(2) ACQUISITIONS --
On August 1, 1997, the Company acquired the assets and certain revenue contracts
of a division of an unrelated company in Georgia, Ohio, Pennsylvania, Maryland,
Virginia, and the District of Columbia for $946,000 in cash. The acquisition was
accounted for under the purchase method.
Effective July 1, 1996, the Company acquired all the issued and outstanding
stock of Pima Gro Systems, Inc., and Pima Gro Systems 2, Inc. (collectively,
PimaGro), a company engaged in the business of recycling and transportation of
biosolids. The aggregate purchase price was $3,095,561, consisting of $1,277,265
in cash, $1,595,561 in notes payable and 155,000 shares of the Company's common
stock valued at $222,735, subject to an additional contingent sum on the
purchase price of $5.20 for each dollar by which the pretax earnings of PimaGro,
for each of the fiscal years during 1996 through 1998, exceed the base amount of
$380,000 in 1996 and, subject to certain adjustments to the base amount, during
the two following fiscal years. The additional contingent sum may be payable by
the Company, if at all, in cash, common stock or promissory notes, or any
combination thereof. Such amounts which may be payable as contingent sum
payments will be held in escrow until March 31, 1999, and subject to reduction
based on amounts expended by the Company for certain capital expenditures and
costs reserved for the development of certain business sites. As of December 31,
1997, there were no additional contingent amounts payable by the Company. The
acquisition has been accounted for under the purchase method and, accordingly,
the operating results of PimaGro have been included in the operating results of
the Company since the date of acquisition. The excess of the total acquisition
cost over the fair value of the net assets acquired (goodwill) in the amount of
$1,419,000 is being amortized on a straight-line basis over 40 years.
The following unaudited pro forma information for the periods set forth below
gives effect to the acquisition of Pima Gro as if it had occurred at the
beginning of each period. The unaudited pro forma information is presented for
information purposes only and is not necessarily indicative of what would have
occurred if the acquisition had been made as of those dates.
F-9
<PAGE> 34
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 (UNAUDITED)
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $27,152,000 $26,524,000
Net loss $(7,547,000) $(4,173,000)
Net loss per share (basic and diluted) $ (1.19) $ (1.38)
</TABLE>
(3) PROPERTY, MACHINERY AND EQUIPMENT --
Property, machinery and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Land $ 576,884 $ 676,884
Buildings 252,093 483,207
Machinery and equipment 12,678,260 11,332,460
Office furniture and equipment 362,578 338,663
Leasehold improvements 93,080 99,555
Construction in process 116,725 162,075
------------ ------------
14,079,620 13,092,844
Less- Accumulated depreciation and amortization 5,165,032 4,509,982
------------ ------------
$ 8,914,588 $ 8,582,862
============ ============
</TABLE>
(4) AGENCY RIGHTS --
The Company had the exclusive agency rights to market the "N-Viro Process" in
the southwestern United States. The "N-Viro Process" is a process to convert
biological organic waste into marketable products. The Company acted as the
agent to collect all of the fees from any licensees and to pay to N-Viro
International any amounts not payable to the Company as compensation pursuant to
the agency and license agreements.
In December 1996, the Company decided to wind down and discontinue its
operations relating to the N-Viro Process and accordingly determined that a
permanent impairment had occurred in the value of the agency rights. The
carrying value of the agency rights of $1,178,325 was charged to operations. In
addition, the Company sold certain assets related to these operations and
recorded a charge to operations in the fourth quarter of 1996 amounting to
$1,200,426 to adjust the carrying values of these assets to their estimated fair
market values. These charges are included in "loss on assets held for sale and
other special charges (credits)" in the accompanying consolidated statements of
operations. The remaining assets in the amount of $397,040 and $436,508 in 1997
and 1996, respectively, have been classified as property, machinery and
equipment in the accompanying consolidated balance sheet at December 31, 1997
and 1996.
(5) INVESTMENT IN PARTNERSHIP --
In 1995, the Company sold its limited partnership interest in N-Viro Energy
Systems, Ltd in exchange for 40,000 shares of the Company's common stock, valued
at $1,200,000.
(6) EQUITY INVESTMENT --
In 1994, the Company entered into a 50 percent/50 percent partnership agreement
with N-Viro International pursuant to which the Company agreed to transfer the
Company's rights for the Central and South America N-Viro Process" license
agreement to Pan-American N-Viro, Inc. (Pan-American). The corporation was
formed by the parties for the purpose of marketing the N-Viro Technology in the
South and Central American and Caribbean territories. N-Viro International
contributed $150,000 in cash and its marketing and technical expertise to
Pan-American.
At December 31, 1995, the Company determined that its partnership interest in
Pan-American had suffered permanent impairment due to the inability of the
partnership to successfully market the "N-Viro Process,"
F-10
<PAGE> 35
continued losses since the inception of the partnership and the need for
additional funding which neither partner is expected to contribute. Accordingly,
the remaining investment of $662,254 was charged to operations.
(7) DEBT --
Credit Facility
On December 16, 1996, the Company, through two of its subsidiaries, obtained a
new credit facility with a bank. The credit facility consists of a $5 million
revolving line of credit and a $5 million term loan. The credit facility was
used to retire certain debt payable to various individuals and financial
institutions. The credit facility is secured by substantially all of the
Company's assets. The Company is required to pay a facility fee of 1 percent and
.5 percent for 1997 and 1998, respectively. In addition, the agreement provides
for a prepayment premium of $100,000 through December 16, 1997, and $50,000
through December, 1998.
The credit facility matures September 30, 1999, as a result of an extension
negotiated in April 1998 , and bears interest at the prime rate plus 1
percent (9.5 percent at December 31, 1997). The weighted average interest rate
in 1997 was 9.5%. Amounts available under the line of credit at December 31,
1997 totaled approximately $1,446,000 and are subject to a borrowing base
consisting of 85 percent of eligible accounts receivable, as defined. The term
loan requires principal payments of $1,000,000 a year with the remaining
principal balance due upon maturity.
Pursuant to the terms of the credit facility, the Company is required to satisfy
certain financial covenants. Specifically, the two subsidiaries of the Company
are required to maintain (a) a ratio of current assets to current liabilities of
1 to 1, (b) a ratio of debt to tangible net worth, as defined, not to exceed 2.5
to 1 and (c) a tangible net worth, as defined, of not less than $3,600,000
through December 30, 1997, and $4,100,000 from January 1, 1998, through December
30, 1998 and $4,600,000 thereafter. The bank has the right to accelerate
borrowings outstanding in the event the bank reasonably feels insecure for any
material reason. Additionally, the Company's cash collections are subject to a
lockbox arrangement. As a result, in order to comply with Emerging Issues Task
Force pronouncement 95-22, the Company has classified the revolving line of
credit portion of the credit facility as a current liability in the accompanying
balance sheet as of December 31, 1997. However, management believes the bank
will continue to provide credit to the Company through the expiration date of
September 30, 1999.
Third-Party Debt
The Company has third-party debt, including the credit facility discussed above,
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Term loan with a bank $ 4,000,000 $ 4,614,099
Revolving line of credit with a bank 1,037,270 --
Economic development revenue bonds 945,000 1,030,000
Notes payable to banks and financial institutions, maturing in varying
installments through the year 2002, secured by certain assets of the Company,
with interest rates ranging from 4% to 10%, $300,000 guaranteed by
an officer of the Company 300,000 898,425
Notes payable to financial institutions, maturing in varying installments through
the year 2000, secured by certain assets of the Company, with interest rates
ranging from 8% to 16.56%, assumed by purchasers of Organi-Gro
(see Note 13) -- 1,034,743
Notes payable to financial institutions and individuals, maturing in varying
installments through the year 2008, secured by equipment and real estate, with
interest rates ranging from 8% to 10% 1,764,680 1,524,123
Note payable to former owners of PimaGro, maturing in 1998, secured by Pima Gro
common stock, bearing interest at 8% 398,890 1,595,561
----------- -----------
Total debt 8,445,840 10,696,951
Less- Current maturities 2,951,291 2,434,057
----------- -----------
Long-term debt $ 5,494,549 $ 8,262,894
=========== ===========
</TABLE>
The economic development revenue bonds have annual maturities of $90,000 in
1998, increasing to $150,000 by its maturity date in 2005. Interest was payable
at 6.9 percent and 6.8 percent per annum in 1997 and 1996, respectively,
increasing to 7.3 percent by 2005. Monthly payments are required to be deposited
into restricted cash
F-11
<PAGE> 36
accounts from which the annual principal and semiannual interest are paid.
Included in the accompanying consolidated balance sheets as of December 31, 1997
and 1996, is restricted cash of $346,312 and $345,362, respectively, for future
payment of principal and interest on the bonds. The bonds are secured by certain
real estate in Arkansas and are guaranteed by an officer of the Company.
In January 1996, $190,000 of convertible promissory notes were converted to
144,344 shares of the Company's common stock and the remaining $1,225,001 of the
notes were repaid.
Principal payments of debt are as follows:
Year ending December 31-
<TABLE>
<S> <C>
1998 $ 2,951,291
1999 3,829,643
2000 328,067
2001 358,099
2002 and thereafter 978,740
------------
Total $ 8,445,840
============
</TABLE>
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES --
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Accounts payable $2,461,811 $1,989,263
Accrued legal and other claims costs 937,065 858,480
Professional fees 90,000 389,430
Accrued salaries and benefits 77,803 365,984
Other accrued expenses 454,931 529,055
---------- ----------
Total $4,021,610 $4,132,212
========== ==========
</TABLE>
(9) INCOME TAXES --
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". This standard provides the method for determining
the appropriate asset and liability for deferred taxes which are computed by
applying applicable tax rates to temporary (timing) differences. Therefore,
expenses recorded for financial statement purposes before they are deducted for
tax purposes create temporary difference which give rise to deferred tax assets.
Expenses deductible for tax purposes before they are recognized in the financial
statements create temporary differences which give rise to deferred tax
liabilities.
Significant components of the Company's deferred tax liabilities and assets for
federal income taxes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
----------- -----------
Deferred tax assets-
<S> <C> <C>
Net operating loss carryforwards $ 3,756,000 $ 2,612,000
Accrual not currently deductible for tax purposes 240,000 412,000
Allowance for bad debts 65,000 98,000
Write-off of assets not currently deductible for tax purposes 505,000 591,000
Difference between book and tax bases of fixed assets -- 70,000
Other 1,000 3,000
----------- -----------
Total deferred tax assets 4,567,000 3,786,000
Valuation allowance for deferred tax assets (4,143,000) (3,786,000)
Deferred tax liability-
Differences between book and tax bases of fixed assets (424,000) --
----------- -----------
Net deferred tax liability $ -- $ --
=========== ===========
</TABLE>
F-12
<PAGE> 37
As of December 31, 1997, the Company has generated net operating loss (NOL)
carryforwards of approximately $11,047,000 available to reduce future income
taxes. These carryforwards begin to expire in 2004 through 2012. A change in
ownership, as defined by federal income tax regulations, could significantly
limit the Company's ability to utilize its carryforwards. Accordingly, the
Company's ability to utilize its NOLs to reduce future taxable income and tax
liabilities may be limited. Additionally, because federal tax laws limit the
time during which these carryforwards may be applied against future taxes, the
Company may not be able to take full advantage of these attributes for federal
income tax purposes. As the Company has incurred losses in recent years and the
utilization of these carryforwards could be limited as discussed above, a
valuation allowance has been established to fully offset the net deferred tax
asset at December 31, 1997 and 1996. The valuation allowance increased $357,000
and $2,121,000 for the year ended December 31, 1997 and 1996, respectively, due
to the Company's tax losses.
(10) COMMITMENTS AND CONTINGENCIES --
Leases
The Company leases certain facilities for its corporate and operations offices
under non-cancelable long-term lease agreements. Minimum annual rental
commitments under these leases are as follows:
<TABLE>
<S> <C>
Year ending December 31-
1998 $ 537,685
1999 312,388
2000 166,990
2001 26,409
2002 --
-----------
$ 1,043,472
===========
</TABLE>
Rental expense was $530,685, $633,751 and $160,683 for 1997, 1996 and 1995,
respectively.
Litigation
The Company is involved in litigation and claims arising in the ordinary course
of its business. Management believes, based on consultation with legal counsel
and accruals provided, that the ultimate outcome of these matters will not have
a material adverse impact on the Company's operations or financial position.
(11) STOCK, STOCK OPTIONS AND WARRANTS --
Reorganization
In 1995, the Company effected a recapitalization that included a 1 for 15
reverse stock split of the common stock. The common stock outstanding and
weighted average shares outstanding for all years presented have been adjusted
for this stock split. The financial statements give effect to these transactions
for all years presented.
Sale of Common Stock
In October 1995, the Company completed a secondary public offering of its common
stock. The offering consisted of 500,000 units at $12.00 per unit, each unit
consisting of six shares of common stock and six redeemable common stock
purchase warrants. The 3,000,000 warrants have an exercise price of $2.40 per
share and expire in October 2000. These warrants are redeemable by the Company
at $0.10 per warrant, subject to certain events occurring. The underwriters were
issued a warrant which expires in October 2000 to purchase 50,000 units
(includes 300,000 warrants) at $16.20 per unit.
On December 23, 1996, the Company called the 3,000,000 warrants, for redemption
on February 22, 1997. Prior to redemption, 1,324,243 warrants were converted
into common shares providing net proceeds to the Company of
F-13
<PAGE> 38
$3,117,636 in 1997. In February 1997, the remaining 1,675,757 warrants were
redeemed by the Company for $167,576.
Warrants
At December 31, 1997 and 1996, the Company had warrants to purchase 16,667
shares of common stock outstanding, which are exercisable at $90.00 per share
and expire December 1998.
Stock Option Plans
At December 31, 1997, the Company had outstanding stock options granted under
the Amended and Restated 1993 Stock Option Plan (the Plan) for officers,
directors, key employees and certain consultants of the Company.
Under the Plan, the Company has reserved 540,000 shares of common stock for
issuance. The exercise price of options granted shall be at least 100 percent
(110 percent for 10 percent or greater stockholders) of the fair value of the
Company's common stock on the date of grant. Options must be granted within 10
years from the date of the Plan and become exercisable at such times as
determined by the Plan committee. Options are exercisable for no longer than
five years for certain 10 percent or greater stockholders and for no longer than
10 years for others.
A summary of the Company's stock option plans as of December 31, 1997, 1996 and
1995, and changes during those years is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE
OPTION PRICE
-------- --------
<S> <C> <C>
Options outstanding at December 31, 1994 -- $ --
Converted from "other" options 24,100 10.80
Granted 99,894 9.64
Canceled/expired (13,067) 10.80
Exercised (19,000) 6.56
-------
Options outstanding at December 31, 1995 91,927 10.48
Granted 174,667 2.00
Canceled/expired (162,662) 5.12
Exercised (3,333) 2.00
-------
Options outstanding at December 31, 1996 100,599 3.57
Granted 206,000 2.13
Canceled/expired (29,667) 2.89
Exercised (5,000) 2.00
-------
Options outstanding at December 31, 1997 271,932 2.58
=======
Exercisable at December 31, 1997 123,600 3.14
=======
</TABLE>
At December 31, 1997, there were 240,735 shares of common stock reserved under
the Plan for the future granting of stock options.
Other options
In addition to options issuable under the Plan, the Company has options
outstanding to employees and consultants of the Company. The options were issued
at exercise prices equal to or greater than the fair market value at the grant
date of the options.
F-14
<PAGE> 39
The following summarizes the stock option transactions of the "other" options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE
OPTION PRICE
------------ --------
<S> <C> <C>
Options outstanding at December 31, 1994 26,100 $ 56.25
Canceled/expired (2,000) 56.25
Converted to ISOP/NSOP (24,100) 56.25
Granted 400,000 10.80
---------
Options outstanding at December 31, 1995 400,000 10.80
Granted 221,296 2.00
---------
Options outstanding at December 31, 1996 621,296 2.00
Granted 806,800 3.03
---------
Options outstanding at December 31, 1997 1,428,096 2.58
=========
Exercisable at December 31, 1997 1,229,821 2.58
=========
</TABLE>
In May 1995, 24,100 of the "other" options were converted into options under the
Stock Option Plan and the exercise price was reduced to $10.80, the market price
on the repricing date. In 1996, the exercise price of 400,000 of the "other"
options was reduce to $2.00, the market price on the repricing date.
During 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123, which is effective for fiscal years beginning after
December 15, 1995, establishes financial accounting and reporting standards for
stock-based employee compensation plans and for transactions in which an entity
issues its equity instruments to acquire goods and services from non-employees.
SFAS No. 123 requires, among other things, that compensation cost be calculated
for fixed stock options at the grant date by determining fair value using an
option-pricing model. The Company has the option of recognizing the compensation
cost over the vesting period as an expense in the income statement or making pro
forma disclosures in the notes to the financial statements for employee
stock-based compensation.
The Company continues to apply APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
in the accompanying consolidated financial statements for its stock option
plans. Had the Company elected to apply SFAS No. 123, the Company's net loss and
loss per share would have approximated the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)
As reported $ 928,501 $(7,588,930) $(4,553,169)
Pro forma (1,212,604) (7,781,351) (5,194,188)
Diluted earnings (loss) per share-
As reported $ .12 $ (1.21) $ (1.59)
Pro forma (.16) (1.24) (1.81)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model resulting in a weighted average fair value of
$2.79, $0.78, and $7.47 for grants made during the years ended December 31,
1997, 1996, and 1995, respectively. The following assumptions were used for
option grants in 1997, 1996 and 1995, respectively: expected volatility of 70
percent, 87 percent and 78 percent; risk-free interest rates of 6.45 percent,
6.47 percent, and 6.04 percent; and expected lives of up to 6.5 years. The
compensation expense included in the above pro forma net income data, may not be
indicative of amounts to be included in future periods as the fair value of
options granted prior to 1995 was not determined.
Earnings (Loss) Per Share
The FASB issued SFAS No. 128, "Earnings Per Share" in February 1997.
Implementation of SFAS No. 128 is required for periods ending after December 15,
1997. SFAS No. 128 requires dual presentation of earnings per share (EPS); basic
EPS and diluted EPS. Basic EPS excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. For purposes of this calculation outstanding stock options
are considered common stock
F-15
<PAGE> 40
equivalents. The following table summarizes the basic EPS and diluted EPS
computations for fiscal 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ------------ ------------
Basic earnings per share:
<S> <C> <C> <C>
Net income (loss) $ 928,501 $ (7,588,930) $ (4,553,169)
---------- ------------ ------------
Weighted average number of common shares 7,545,113 6,266,579 2,864,195
---------- ------------ ------------
Basic earnings (loss) per share $ 0.12 $ (1.21) $ (1.59)
========== ============ ============
Diluted earnings (loss) per share:
Net income available to common stockholders $ 928,501 $ (7,588,930) $ 4,553,169
---------- ------------ ------------
Weighted average number of common shares 7,545,113 6,266,579 2,864,195
---------- ------------ ------------
Stock options and other 195,231 -- --
---------- ------------ ------------
Adjusted weighted average number of common shares 7,740,344 6,266,579 2,864,195
---------- ------------ ------------
Diluted earnings (loss) per share $ 0.12 $ (1.21) $ (1.59)
========== ============ ============
</TABLE>
(12) STOCKHOLDERS' RIGHTS PLAN --
In December 1996, the Company adopted a stockholders' rights plan (the Rights
Plan). The Rights Plan provides for a dividend distribution of one preferred
stock purchase right (Right) for each outstanding share of the Company's common
stock, to stockholders of record at the close of business on January 10, 1997.
The Rights Plan is designed to deter coercive takeover tactics and to prevent an
acquirer from gaining control of the Company without offering a fair price to
all of the Company's stockholders. The Rights will expire on December 31, 2006.
Each Right entitles stockholders to buy one one-thousandth of a newly issued
share of Series A Junior Participating Preferred Stock of the Company at an
exercise price of $10. The Rights are exercisable only if a person or group
acquires beneficial ownership of 15 percent or more of the Company's common
stock or commences a tender or exchange offer which, if consummated, would
result in that person or group owning 15 percent or more of the common stock of
the Company. However, the Rights will not become exercisable if common stock is
acquired pursuant to an offer for all shares which a majority of the board of
directors determines to be fair to and otherwise in the best interests of the
Company and its stockholders. If, following an acquisition of 15 percent or more
of the Company's common stock, the Company is acquired by that person or group
in a merger or other business combination transaction, each Right would then
entitle its holder to purchase common stock of the acquiring company having a
value of twice the exercise price. The effect will be to entitle the Company
stockholder to buy stock in the acquiring company at 50 percent of its market
price.
The Company may redeem the Rights at $.001 per Right at any time on or prior to
the tenth business day following the acquisition of 15 percent or more of its
common stock by a person or group or commencement of a tender offer for such 15
percent ownership.
(13) OTHER CHARGES (CREDITS) TO OPERATIONS --
Sale of Organi-Gro, Inc.
In March 1997, the Company sold the operations of Organi-Gro, a wholly owned
subsidiary, to its former owners. Consideration included subordinated notes of
approximately $1.4 million and the assumption of certain debt and liabilities.
The notes are payable in equal monthly installments of approximately $15,000 for
48 months following the first anniversary date of the note and bears interest at
a rate of 6 percent. In addition, proceeds received from the sale of products by
the purchaser are to be remitted on a monthly basis with a total amount of
$603,930 due no later than September 16, 1998. The balance of the notes are due
in March 2002. The notes were reserved at the date of sale due to considerable
doubt relative to realization. During 1997, approximately $300,000 was realized
on the notes through cash collections or other consideration and has been
included in "loss on assets held for sale and other special charges (credits)"
in the accompanying consolidated statements of operations. During the fourth
quarter of 1997, management assessed realization of the notes based on
collection history to date and current
F-16
<PAGE> 41
financial condition of the purchasers and recognized approximately $500,000 of
the notes which has also been included in "loss on assets held for sale and
other special charges (credits)". As a result of the sale, the Company recorded
a charge to operations in the fourth quarter of 1996 amounting to approximately
$2.5 million to adjust the carrying value of Organi-Gro's net assets to its
estimated fair market value. This charge is included in "losses on assets held
for sale and other special charges (credits)" in the accompanying consolidated
statements of operations.
During December 1997, one of the notes was substantially paid off with the
remaining balance being paid in lieu of cash by the buyers, providing repair
services on equipment in the amount of $1,000 per month for the next 50 months.
Write-Off of Fixed Assets
At December 31, 1995, the Company determined that certain equipment had suffered
impairment in value. This equipment, which was acquired in October 1994, and for
which additional refurbishing costs were incurred in 1995, had suffered
impairment of $1,091,991 due to operating losses and the decision to not
actively pursue the business which utilized that equipment. In addition, the
Company determined that certain other equipment had suffered permanent
impairment of $290,000 due to operating losses and the decision to not pursue
the business which utilized that equipment. Accordingly, a provision in the
amount of $1,381,991 for impairment of fixed assets was charged to operations
and is included in "loss on assets held for sale and other special charges
(credits)" in the accompanying consolidated statements of operations. In
addition, the remaining net book value of these assets amounting to $605,000 has
been classified as machinery and equipment held for sale at December 31, 1995.
In 1996, these assets were sold resulting in a gain of approximately $200,000
which is included in "other income" in the accompanying consolidated statements
of operations.
Write-Off of Goodwill
At December 31, 1995, the Company determined that there had been a permanent
impairment in the value of the excess of cost over fair value of net assets
acquired (goodwill) relating to certain equipment which was written off as a
result of the impairment. Accordingly, $286,000 of excess of cost over fair
value of net assets acquired was charged to operations.
(14) SUBSEQUENT EVENTS --
Extension of Credit Facility
On April 14, 1998, the maturity date of the credit facility, consisting of a $5
million revolving line of credit and a $5 million term loan, was extended to
September 30, 1999.
Issuance of Preferred Stock
On March 31, 1998, the Company issued 1,458,335 shares of Series B Preferred
Stock, par value $.002 per share for total consideration of $3,500,004.
The Series B Preferred Stock is convertible by the holders to common shares at a
rate of 1:1, with a beneficial conversion feature permitting the shareholders to
convert their holdings to common shares at $2.40. The market price of the
Company's common stock at date of issuance was $4.81. The Company will recognize
the value of the beneficial conversion feature of approximately $3.5 million as
a preferred dividend during its first quarter of 1998. The value of such
preferred dividend will have no impact on the Company's cash flows, but will
reduce basic and diluted earnings available to common stockholders. The Company
is required to effect one registration statement to register such securities. If
any holder elects not to include its securities in such registration, they will
have no other rights to have such securities registered except as discussed
below. At any time the Company proposes to register for sale for cash any of its
equity securities (excluding registrations on Form S-8 or Form S-4, or any
comparable successor forms), the holders shall have the right to be included.
F-17
<PAGE> 42
Each share of Preferred Stock is entitled to vote with the Common Stock with one
vote per share. The vote of a majority of the Preferred Stock is required to
validate certain specified actions by the Company. Holders of the Preferred
Stock are entitled to a liquidation preference equal to the face value and
accrued and unpaid dividends, if any, plus a special redemption premium in the
event of a dissolution, liquidation or winding up of the affairs of the Company
or if a change of control occurs, as defined. The special redemption premium
begins at 112% of the liquidation preference in 1998 and increases to 172% in
2003 or thereafter.
Unless restricted from doing so by law or covenant of a loan or financing
agreement, as defined therein, the Preferred Stock is redeemable by the Company
on April 1, 2003, at the greater of the sum of $2.40 per share, and accrued but
unpaid dividends, if any, or fair market value, as defined. The Preferred Stock
will automatically convert to Common Stock in certain circumstances related to
an underwritten public offering generating proceeds in excess of a defined
amount or within four years if the Company achieves a certain level of trailing
twelve-month diluted earnings per share. The Preferred Stock contains certain
anti-dilution conversion features.
No dividends accrue on the Preferred Stock through its fifth anniversary date.
Thereafter, if not redeemed, dividends accrue at a quarterly rate of $.108 per
share, decreasing at a rate of $.0048 per quarter thereafter.
Dividends are payable in additionally issued Preferred Stock.
Stock Options
During March 1998, the Company granted 485,000 options to an officer at the
market price of $3.25, with vesting at one third at time of grant, one third at
the first anniversary and one third at the second anniversary.
During April 1998, the Company issued options to a newly elected director to buy
50,000 shares of common stock at the market price of $5.06 with vesting at one
third at time of grant, one third at the first anniversary, and one third at
the second anniversary.
F-18
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Synagro Technologies, Inc.:
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements of Synagro Technologies, Inc., and
subsidiaries included in this Form 10-K/A and have issued our report thereon
dated February 20, 1998, except with respect to certain matters discussed in
Note 7 and the matters discussed in Note 14 as to which the date is April 14,
1998. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Part IV, Item 14
(a)(2) for Synagro Technologies, Inc., and subsidiaries is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 20, 1998
F-19
<PAGE> 44
SCHEDULE II
SYNAGRO TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE, CHARGED TO
BEGINNING COSTS AND BALANCE,
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
- -------------------------------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts-
Year ended December 31, 1997 $287,514 -- $ (97,652)(a) $189,862
Year ended December 31, 1996 $217,724 $ 268,463 $ (198,673)(a) $287,514
Year ended December 31, 1995 36,622 184,377 (3,275)(a) 217,724
</TABLE>
(a) Recoveries, net of write-offs.
F-20
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
<S> <C>
3.1 Restated Certificate of Incorporation of Synagro Technologies, Inc. (the "Company") dated August
16, 1996 (Exhibit 3.1 to the Company's Post-Effective Amendment No. 1 to Registration Statement
No. 33-95028, dated October 25, 1996, is incorporated herein by reference).
3.2 Bylaws of the Company dated August 5, 1996. (Exhibit 3.2 to the Company's Post-Effective
Amendment No. 1 to Registration Statement No. 33-95028, dated October 25, 1996, is incorporated
herein by reference).
4.1 Specimen Common Stock Certificate of the Company. (Exhibit 4.1 to the Company's Registration
Statement on Form 10, dated December 29, 1992, is incorporated herein by reference).
4.2 Specimen Warrant Certificate of the Company. (Exhibit 4.2 to the Company's Registration
Statement on Form S-1 (No. 33-95028), dated July 27, 1995, and as amended, is incorporated
herein by reference).
4.3 Rights Agreement, dated as of December 20, 1996, between the Company and Intercontinental
Registrar & Transfer Agency, Inc., as Rights Agent, which includes as Exhibit A thereto the
Synagro Technologies, Inc. Statement of Designations, Preferences, Limitations and Relative
Rights of its Series A Junior Participating Preferred Stock, and as Exhibit C thereto the Form
of Rights Certificate (Incorporated by reference to Exhibit No. 4.1 to Registrant's Registration
Statement on Form 8-A dated December 27, 1996).
*4.4 Certificate of Designation, Preferences, Rights and Limitations of Series B Preferred Stock of
Synagro Technologies, Inc.
*4.5 Registration Rights Agreement, dated as of March 31, 1998, among the Company, Environmental
Opportunities Fund, L.P., Environmental Fund (Cayman), L.P. and other purchasers of the
Company's Series B Preferred Stock as listed on Exhibit A thereto.
*4.6 Specimen Series B Preferred Stock Certificate.
*10.1 Synagro Technologies, Inc. Subscription Agreement, dated as of March 31, 1998 among the Company,
Environmental Opportunities Fund, L.P., Environment Opportunities Fund (Cayman), L.P. and other
purchasers of the Company's Series B Preferred Stock as listed on Exhibit A thereto.
10.2 Form of Indemnification Agreement. (Appendix F to the Company's Proxy Statement on Schedule 14A
for Annual Meeting of Stockholders, dated May 9, 1996, is incorporated herein by reference).
10.3 Amended and Restated 1993 Stock Option Plan dated August 5, 1996. (Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (No. 333-18029), dated December 17, 1996, is incorporated
herein by reference).
10.4 Lease Agreement between the Company and Green Coast Enterprises, Inc. dated February 1, 1996.
(Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995,
is incorporated herein by reference).
10.5 Employment Agreement between Pima Gro Systems, Inc. and Wilson Nolan, dated July 18, 1996.
(Exhibit 10.1 to the Company's Current Report on Form 8-K, dated July 31, 1996, is incorporated
herein by reference).
10.6 Agreement for the Purchase of Stock by and among Synagro Technologies, Inc., CDR Environmental,
Inc., Pima Gro, Pima Gro Systems 2, Inc., Wilson Nolan, Herbert Kai and John Kai, Jr., dated
July 18, 1996. (Exhibit 2.1 to the Company's Current Report on Form 8-K, dated July 31, 1996,
is incorporated herein by reference).
10.7 6% Promissory Note made by Custom Poultry to Organi-Gro and the Company in the principal amount
of $1,152,381, dated April 1, 1997 (Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by reference).
10.8 Guaranty of Tony D. Childers ("Childers") for 6% Promissory Note made by Custom Poultry to
Organi-Gro, dated April 1, 1997 (Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by reference).
10.9 6% Promissory Note made by Hodges to Organi-Gro and the Company in the principal amount of
$308,203, dated April 1, 1997. (Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, is incorporated herein by reference).
10.10 Guaranty of Childers and Jack Hodges for 6% Promissory Note made by Hodges to Organi-Gro, dated
April 1, 1997 (Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference).
*10.11 Employment Agreement between the Company and Donald L. Thone, dated April 16, 1998.
*10.12 Employment Agreement between the Company and Daniel L. Shook, dated April 16, 1998.
*10.13 Employment Agreement between the Company and Ross M. Patten, dated April 16, 1998.
*21.1 Subsidiaries of Synagro Technologies, Inc.
*23.2 Consent of Arthur Andersen LLP.
*23.3 Consent of Singer Lewak Greenbaum & Goldstein LLP.
*27.1 Financial Data Schedule.
</TABLE>
- ------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 4.4
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES B PREFERRED STOCK
OF
SYNAGRO TECHNOLOGIES, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware (the "DGCL"), Synagro Technologies, Inc., a corporation organized and
existing under the DGCL (the "Corporation"),
DOES HEREBY CERTIFY that pursuant to the authority conferred upon the
Board of Directors by the Certificate of Incorporation, as amended, of the
Corporation, and pursuant to Section 151 of the DGCL, said Board of Directors,
at a meeting duly held on March 20, 1998, duly adopted a resolution providing
for the designation and issuance of a series of 1,458,335 shares of Preferred
Stock, par value $.002 per share, which resolution is and reads as follows:
RESOLVED, That pursuant to the authority expressly granted to
and invested in the Board of Directors of Synagro Technologies, Inc.
(the "Corporation") by the provisions of the Certificate of
Incorporation of the Corporation, as amended, a series of the
Preferred Stock, par value $.002 per share, of the Corporation be, and
it hereby is, established; and
FURTHER RESOLVED, That the said series of Preferred Stock of
the Corporation be, and it hereby is, given the distinctive
designation of "Series B Preferred Stock;" and
FURTHER RESOLVED, That the Series B Preferred Stock shall
consist of 1,458,335 shares; and
FURTHER RESOLVED, That the Series B Preferred Stock shall have
the powers and preferences, and the relative, participating, optional
and other rights, and the qualifications, limitations and restrictions
thereon set forth below:
SECTION I
DIVIDENDS
The holders of record of any Series B Preferred Stock outstanding at
the close of business on the first day of January, April, July and October in
each year commencing on the fifth anniversary of the date on which the shares
of Series B Preferred Stock are first issued (each such day being hereinafter
referred to as a "Dividend Record Date") shall be entitled to receive, when and
as
<PAGE> 2
declared by the Board of Directors of the Corporation out of any funds legally
available for that purpose, dividends at the quarterly rate of $0.108 per
share, which amount shall decrease at the rate of $0.0048 per quarter for each
Dividend Payment Date occurring after the initial Dividend Payment Date, and no
more, payable quarterly on the 10th day of January, April, July and October in
each year (each such day being hereinafter referred to as a "Dividend Payment
Date") and accruing during the quarterly period ending at the close of business
on the day prior to the Dividend Record Date next preceding such Dividend
Payment Date. Such dividends upon the Series B Preferred Stock hereunder shall
be payable by the Corporation's issuance and delivery to such record holder of
a number of shares of Series B Preferred Stock determined by dividing the
dollar amount of such dividend by the "Dividend Conversion Price," which shall
be equal to the product of $2.40 multiplied by the Conversion Ratio (as
hereinafter defined) from time to time in effect.
No fractional shares of Series B Preferred Stock or scrip will be used
in respect of fractional interests resulting from any dividend hereunder; in
lieu of any fractional shares of Series B Preferred Stock which may be issued
as aforesaid, the holders thereof instead shall receive a cash payment in an
amount equal to the product of such fraction multiplied by the Dividend
Conversion Price. Such dividends upon the Series B Preferred Stock (to the
extent contemplated in this Section I) shall be preferential and cumulative
(whether or not in any dividend period or periods there shall be funds of the
Corporation legally available for the payment of such dividends), so that, if
at any time dividends upon the Series B Preferred Stock at the per annum rate
hereinabove specified from the "Cumulation Date," as herein defined, to (but
not including) the next preceding Dividend Record Date shall not have been
paid, the amount of the arrearage shall be fully paid, but without interest,
before (i) any sums shall be paid or set aside for the purchase or redemption
of Series B Preferred Stock, Common Stock, or any class or series of the
Corporation's capital stock which by its terms ranks on a parity with, or
junior to, the Series B Preferred Stock as to dividends and/or distribution of
assets, or (ii) any dividend shall be declared, paid or set apart for payment
on Common Stock or any class or series of the Corporation's capital stock which
by its terms ranks on a parity with, or junior to, the Series B Preferred Stock
as to dividends and/or distributions of assets. As used in this Resolution,
the term "Cumulation Date" shall mean (i) the Dividend Record Date next
preceding the most recent Dividend Payment Date through which dividends on the
Series B Preferred Stock at the per annum rate hereinabove specified have been
paid, or (ii) if no dividends have been paid, the date on which shares of
Series B Preferred Stock shall first be issued.
In addition, for so long as any Series B Preferred Stock is
outstanding, (i) no sums shall be paid or set aside for the purchase or
redemption of Common Stock or any class or series of the Corporation's capital
stock which by its terms ranks on a parity with, or junior to, the Series B
Preferred Stock (except for partial redemptions of the Series B Preferred Stock
as provided for under Section III hereof) as to distributions of assets, and
(ii) no dividend or other distribution (except in stock of the same class or
series) shall be declared, paid or set apart for payment on Common Stock or any
class or series of the Corporation's capital stock which by its terms ranks on
a parity with, or junior to, the Series B Preferred Stock as to dividends or
distributions of assets.
2
<PAGE> 3
SECTION II
DISSOLUTION
In the event of the dissolution, liquidation, or winding up of the
affairs of the Corporation, whether voluntary or involuntary, or in the event
of its insolvency (a "Dissolution"), the holders of Series B Preferred Stock
shall be paid, or distributed out of assets of the Corporation (whether capital
or surplus) or the proceeds thereof, an amount equal to the product of (i) the
sum of $2.40 per share, plus all accrued but unpaid dividends thereon, but
without interest, multiplied by (ii) the "Special Redemption Premium"
(expressed as the percentage by which the liquidation preference shall be
multiplied) set forth below:
<TABLE>
<CAPTION>
If the Dissolution The Special Redemption
is in Premium is
------------------------- ----------
<S> <C>
1998 112%
1999 124%
2000 136%
2001 148%
2002 160%
2003 or thereafter 172%
</TABLE>
Any payments made under this Section II shall be made before any
distribution of assets or any payment shall be made to the holders of the
Common Stock or any other class or series of the Corporation's capital stock
which by its terms is junior to the Series B Preferred Stock as to dividends
and distributions of assets. In the event the assets of the Corporation
available for such distributions shall be insufficient to permit (i) payment to
the holders of the Series B Preferred Stock of the full preferential amount
aforesaid, and (ii) payment to the holders of any other class or series of the
Corporation's capital stock which by its terms ranks on a parity with the
Series B Preferred Stock as to dividends and distributions of assets, of the
preferential amount to which they may be entitled, then all such assets shall
first be apportioned as between the Series B Preferred Stock and all other
classes or series of capital stock ranking on a parity with the Series B
Preferred Stock, utilizing the following formula:
[ A x N ]
P = Z ---------------------
[ (A x N) + Y ]
3
<PAGE> 4
For purposes of the formula the symbols shall have the following
meaning:
(i) the symbol "P," the unknown in the equation, means
the amount of the assets available for distribution to the Series B
Preferred Stock and all other classes and series of capital stock
ranking on a parity with the Series B Preferred Stock which shall be
apportioned to the Series B Preferred Stock;
(ii) the symbol "A" means the product of (i) the sum of
$2.40, plus the accrued but unpaid dividends on a share of Series B
Preferred Stock to the proposed distribution date, multiplied by (ii)
the applicable Special Redemption Premium as set forth above, and the
symbol "N" means the number of shares of Series B Preferred Stock
outstanding at the time of such proposed distribution;
(iii) the symbol "Y" means the sum of the products obtained
by multiplying the per share liquidation preference of each other
specific class or series of capital stock ranking on a parity with the
Series B Preferred Stock plus the accrued but unpaid dividends on a
share of that specific class or series to the proposed distribution
date, times the number of shares of that class or series outstanding
at the time of such proposed liquidation; and
(iv) the symbol "Z" represents the aggregate amount of all
assets available for distribution to the Series B Preferred Stock and
all other classes or series or classes of capital stock ranking on a
parity with Series B Preferred Stock.
After apportionment of the available assets, that portion which is
attributable to the Series B Preferred Stock shall then be distributed ratably
among the holders thereof in proportion to the number of shares held by each.
SECTION III
REDEMPTION
Terminal Redemption. Unless restricted from doing so by (i) law or
(ii) a covenant contained in any loan agreement or other financing arrangement
entered into by the Corporation to enable it to refinance, replace, or increase
a loan agreement or other financing arrangement of the Corporation in existence
as of the date of this Resolution; provided, however, that the restriction
contained in clause (ii) shall not apply unless the holders of Series B
Preferred Stock have not, after reasonable request to do so by the Corporation,
entered into a subordination agreement in favor of the lenders or other parties
to such loan agreements or financing arrangements, if any, the Corporation
shall redeem, out of funds legally available therefor, the Series B Preferred
Stock on April 1, 2003 and, if so restricted, on the earliest date thereafter
upon which the Corporation shall not be so restricted (the "Terminal Redemption
Date"), at a price (the "Terminal Redemption Price"), of the greater of (i) the
sum of $2.40 per share, plus all accrued but unpaid dividends thereon to the
Terminal Redemption Date and (ii) the "Fair Market Value".
4
<PAGE> 5
If on the Terminal Redemption Date the Corporation shall not have
funds which are legally sufficient to permit the Corporation to redeem all of
the Series B Preferred Stock, the Corporation shall (i) then purchase such
shares of Series B Preferred Stock which it legally can purchase on a ratable
basis among all holders in proportion to the respective amounts that would be
payable per share if such funds were sufficient to permit payment in full, and
thereafter (ii) shall purchase and pay for any remaining shares of Series B
Preferred Stock held by the holders thereof on the same ratable basis on the
first date of each quarter of each calendar year in which the Corporation has
no less than $250,000 of legally available funds therefor, until the
Corporation has purchased and fully paid for all shares of Series B Preferred
Stock. The rights of each holder of shares of Series B Preferred Stock,
including without limitation, the right to receive dividends and convert such
shares into Common Stock, shall continue after the Terminal Redemption Date
until such shares are actually redeemed in accordance with this subsection.
Upon redemption of only a portion of the number of shares covered by a
certificate representing shares of Series B Preferred Stock, the Corporation
shall issue and deliver to the holder of the certificate, at the expense of the
Corporation, a new certificate covering the unredeemed shares of Series B
Preferred Stock.
The proceeds, if any, of any refinancing or replacement of or any
increase in any loan agreements or other financing arrangements of the
Corporation as exist as of the date of this Resolution shall be applied to
redemptions made under this subsection; provided, however, that the Corporation
shall not be required to redeem shares out of such funds to the extent the same
are necessary for working capital requirements, provided further, that in no
case shall the funds excepted for such working capital requirements exceed
$1,000,000.
Holder Redemption. The holders of shares Series B Preferred Stock
issued and outstanding on April 1, 2001 shall have the one time right, for a
period of 120 days from and after April 1, 2001 (the "Holder Redemption
Period"), to require the Corporation to redeem, out of funds legally available
therefor, all shares of Series B Preferred Stock held by such requesting
holders at a price (the "Holder Redemption Price") of $2.40 per share. Unless
restricted from doing so by (i) law or (ii) a covenant contained in any loan
agreement or other financing arrangement entered into by the Corporation to
enable it to refinance, replace, or increase a loan agreement or other
financing arrangement of the Corporation in existence as of the date of this
Resolution; provided, however, that the restriction contained in clause (ii)
shall not apply unless the holders of Series B Preferred Stock have not, after
reasonable request to do so by the Corporation, entered into a subordination
agreement in favor of the lenders or other parties to such loan agreements or
financing arrangements, if any, such redemption shall be made by the
Corporation on the first date that (x) is the first day of a month and (y) is
not less than 30 days following written request (a "Redemption Request") by the
holders of a majority in interest of the Series B Preferred Stock and, if so
restricted, on the earliest date thereafter upon which the Corporation shall
not be so restricted (the "Holder Redemption Date"). The Corporation shall
send prompt written notice to all holders of any Redemption Request received
hereunder and each such holder shall have the right to include its shares of
Series B Preferred Stock in such Redemption Request by giving written notice to
the Corporation of its election to do so within 10 days after receipt of such
notice by the Corporation. Any holder not
5
<PAGE> 6
participating in such Redemption Request shall no longer have the right to
require the corporation to redeem its shares under this subsection.
If at the time of such Redemption Request the Corporation shall not
have funds which are legally sufficient to permit the Corporation to redeem all
or any portion of Series B Preferred shares in respect of which a Redemption
Request has been made, the Corporation shall (i) then purchase such shares of
Series B Preferred Stock which it legally can purchase on a ratable basis among
all requesting holders in proportion to the respective amounts that would be
payable per share if such funds were sufficient to permit payment in full, and
thereafter (ii) shall purchase and pay for any remaining shares of Series B
Preferred Stock held by such requesting holders on the same ratable basis on
the first date of each quarter in which the Corporation has no less than
$250,000 of legally available funds therefor, until the Corporation has
purchased and fully paid for all shares of Series B Preferred Stock in respect
of which a Redemption Request has been made. The rights of each holder
electing to include its shares of Series B Preferred Stock in any Redemption
Request, including without limitation the right to receive dividends and to
convert such shares into Common Stock, shall terminate on the date on which any
such Redemption Request is made. The rights of any holder not electing to
include its shares of Series B Preferred Stock in such Redemption Request,
including without limitation the right to receive dividends and to convert such
shares into Common Stock, shall continue and remain in effect pursuant to the
terms and conditions of this Resolution. Upon redemption of only a portion of
the number of shares covered by a certificate representing shares of Series B
Preferred Stock, the Corporation shall issue and deliver to the holder of the
certificate, at the expense of the Corporation, a new certificate covering the
unredeemed shares of Series B Preferred Stock.
Special Redemption on Change of Control. If a "Change of Control" of
the Corporation shall occur, unless restricted from doing so by (i) law or (ii)
a covenant contained in any loan agreement or other financing arrangement
entered into by the Corporation to enable it to refinance, replace, or increase
a loan agreement or other financing arrangement of the Corporation in existence
as of the date of this Resolution; provided, however, that the restriction
contained in clause (ii) shall not apply unless the holders of Series B
Preferred Stock have not, after reasonable request to do so by the Corporation,
entered into a subordination agreement in favor of the lenders or other parties
to such loan agreements or financing arrangements, if any, the Corporation
shall, upon written request ("Special Redemption Request") by a majority in
interest of the holders of record of the Series B Preferred Stock outstanding
on such date, redeem, out of funds legally available therefor, or for property
or rights (including securities) offered to stockholders of the Corporation
generally in connection with any such Change of Control transaction, the Series
B Preferred Stock on the first date that (x) is the first day of a month and
(y) is not less than 30 days following the Change of Control and, if so
restricted, on the earliest date thereafter upon which the Corporation
(including for this purpose, any successor to the Corporation) shall not be so
restricted (the "Special Redemption Date") at a price (the "Special Redemption
Price") of the product of (i) the sum of $2.40 per share, plus all accrued but
unpaid dividends thereon to the Special Redemption Date multiplied by (ii) the
applicable Special Redemption Premium set forth below:
6
<PAGE> 7
<TABLE>
<CAPTION>
If the Special
Redemption Date The Special Redemption
is in Premium is
------------------------- ----------
<S> <C>
1998 112%
1999 124%
2000 136%
2001 148%
2002 160%
2003 or thereafter 172%
</TABLE>
If on the Special Redemption Date the Corporation shall not have funds
or other property which are legally sufficient to permit the Corporation to
redeem all of the Series B Preferred Stock, the Corporation shall (i) then
purchase such shares of Series B Preferred Stock which it legally can purchase
on a ratable basis among all holders in proportion to the respective amounts
that would be payable per share if such funds or other property were sufficient
to permit payment in full, and thereafter (ii) shall purchase and pay for any
remaining shares of Series B Preferred Stock held by the holders thereof on the
same ratable basis on the first date of each quarter of each calendar year in
which the Corporation has no less than $250,000 of legally available funds or
other property therefor, until the Corporation has purchased and fully paid for
all shares of Series B Preferred Stock. If the Corporation elects to
distribute, in payment of the Special Redemption Price upon any Change of
Control, property, rights, or securities in lieu of cash the value of such
property, rights, or securities, distributed shall be determined in good faith
by the Board of Directors of the Corporation.
The rights of each holder of shares of Series B Preferred Stock,
including without limitation, the right to receive dividends and convert such
shares into Common Stock, shall continue after the Special Redemption Date
until such shares are actually redeemed in accordance with this subsection.
Upon redemption of only a portion of the number of shares covered by a
certificate representing shares of Series B Preferred Stock, the Corporation
shall issue and deliver to the holder of the certificate, at the expense of the
Corporation, a new certificate covering the unredeemed shares of Series B
Preferred Stock.
As used in this Section, the following terms have the following
meanings:
"Change of Control" means (i) the first date on which any of
the following events occurs, with or without the approval of the Board
of Directors of the Corporation incumbent prior to the occurrence, (a)
any Person shall become the Beneficial Owner of more than 50%
7
<PAGE> 8
of the Corporation's outstanding securities entitled to vote in
elections of directors, or (b) as the result of a tender offer, merger,
consolidation, sale of assets, or contested election, or any
combination of such transactions, the persons who were directors of the
Corporation immediately before the transaction shall cease to
constitute a majority of the Board of Directors of the Corporation or
of any successor to the Corporation; provided, that any such
transaction or combination of transactions which required the
affirmative vote of a majority of the stockholders entitled to vote
thereon would have been approved without giving affect to either (x)
the votes of the holders of the Series B Preferred Stock or (y) the
number of shares of Series B Preferred Stock outstanding on such date
or (ii) the effective date of any consolidation or merger of the
Corporation with or into any other Person in which the Corporation is
not the surviving entity, or any sale or conveyance to another Person
of all, substantially all, of the assets or property of the
Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means the value of the shares of the
Series B Preferred Stock on the Terminal Redemption Date, as
determined by a third party appraiser mutually agreeable to the
Corporation and the holders of the Series B Preferred Stock, and if
the parties are unable to agree to an appraiser, by a third party
chosen to perform the valuation by valuation advisors chosen by each
the Corporation and the holders of the Series B Preferred Stock.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act as in effect on the date of this
Resolution.
A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," and shall be deemed to have
Beneficial Ownership of, any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, beneficially
owns (as determined pursuant to Rule 13d-3 under the Exchange
Act as in effect on the date of this Resolution);
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has
(A) the right to acquire (whether such
right is exercisable immediately or only after the
passage of time or the satisfaction of a condition,
or both) pursuant to any agreement, arrangement or
understanding (whether written or oral) or upon the
exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the
"Beneficial Owner" of or to "beneficially own"
securities tendered pursuant to a tender or exchange
offer made by or
8
<PAGE> 9
on behalf of such Person or any of its Affiliates or
Associates until such tendered securities are
accepted for purchase or exchange; or
(B) the right to vote, alone or in
concert with others, pursuant to any agreement,
arrangement or understanding (whether written or
oral) or otherwise; provided, however, that a Person
shall not be deemed the "Beneficial Owner" of or to
"beneficially own" any security as a result of an
agreement, arrangement or understanding to vote such
security if such agreement, arrangement or
understanding (1) arises solely from a revocably
proxy or consent given in response to a public proxy
or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations
under the Exchange Act and (2) is not also then
reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person or any of its Affiliates or
Associates has any agreement, arrangement or understanding
(whether written or oral) for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as
described in subparagraph (ii)(B) immediately above) or
disposing of any such securities. Despite the foregoing, for
purposes of determining Beneficial Ownership of securities
under this Resolution, officers and directors of the
Corporation solely by reason of their status as such shall not
constitute a group (notwithstanding that they may be
Associates of one another or may be deemed to constitute a
group for purposes of Section 13(d) of the Exchange Act) and
shall not be deemed to own shares owned by another officer or
director of the Corporation. Further, nothing contained in
this definition shall cause a Person ordinarily engaged in
business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired
in a bona fide firm commitment underwriting pursuant to an
underwriting agreement with the Corporation.
"Person" means any individual, firm, corporation,
partnership or other entity.
General. In the case of a Terminal Redemption, notice of redemption
shall be given not less than thirty and no more than sixty days prior to any
Terminal Redemption Date to each holder of record of shares of Series B
Preferred Stock and shall be sufficiently given if the Corporation shall cause
a copy thereof to be mailed to each holder of record at his address as the same
shall appear on the books of the Corporation, by first class mail, postage
prepaid; provided, however, that the failure by the Corporation to mail such
notice to one or more of such holders shall not affect the validity of such
redemption as to the other holders. Any such notice shall include the Terminal
Redemption Price at which such shares are being redeemed, including the results
of the appraisal performed to obtain the Fair Market Value. In the case of a
Special Redemption or Holder Redemption, any holder of Series B Preferred Stock
electing to redeem his shares in accordance with this Section III
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<PAGE> 10
shall surrender the certificate or certificates for shares of the Series B
Preferred Stock, duly endorsed to the Corporation or in blank, at the office of
any transfer agent for the Series B Preferred Stock (or such other place as may
be designated by the Corporation), at the same time the written notice required
in this Section III is given to the Corporation at said office.
No holder of shares of Series B Preferred Stock redeemed in accordance
with this Section III (the "Redeemed Shares") shall be entitled to receive
payment of the redemption price for such shares until such holder causes to be
delivered, the stock certificate representing the Redeemed Shares and transfer
instructions satisfactory to the Corporation. If notice of redemption shall
have been duly given or if the Corporation shall have granted to a bank or
trust company irrevocable written authorization to promptly give or complete
such notice, and if, on or after the date on which such notice of redemption is
given and on or before such Terminal Redemption Date, Special Redemption Date
or Holder Redemption Date, all funds necessary for redemption (including an
amount equal to any applicable redemption premium and unpaid dividends accrued
and to be accrued thereon to such redemption date) shall have been deposited by
the Corporation with a bank or trust company designated in such notice, in
trust for the pro rata benefit of the holders of Redeemed Shares, then from and
after any such Terminal Redemption Date, Special Redemption Date or Holder
Redemption Date, notwithstanding that any certificate for Redeemed Shares shall
not have been surrendered for cancellation, the Redeemed Shares shall be deemed
no longer outstanding from and after the Terminal Redemption Date, the Special
Redemption Date or Holder Redemption Date, as the case may be, and all rights
with respect to the Redeemed Shares shall thereupon cease and terminate, except
only the right of the record holders of the certificates therefor, upon
surrender thereof, to receive the applicable redemption price thereof out of
the funds so deposited, without interest. Any interest accrued on such
deposited funds shall be paid to the Corporation from time to time.
All funds so deposited and unclaimed at the end of one year from the
applicable redemption date shall be released or repaid to the Corporation,
after which the holders of the shares so called for redemption shall look only
to the Corporation for the payment thereof.
Any shares of the Series B Preferred Stock redeemed, purchased, or
otherwise acquired by the Corporation, or converted into Common Stock shall be
deemed retired and shall be canceled and may not thereafter be reissued or
otherwise disposed of by the Corporation, and the Corporation shall from time
to time and at least once each year cause all such shares to be retired in the
manner provided by law.
SECTION IV
VOTING RIGHTS
For so long as any shares of Series B Preferred Stock shall be
outstanding, and except as otherwise provided herein, the outstanding shares of
Series B Preferred Stock shall be entitled to
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<PAGE> 11
vote with the outstanding shares of Common Stock, with one vote per share of
Series B Preferred Stock (subject to such adjustments as would entitle each
share of Series B Preferred Stock to that number of votes as the holder thereof
would be entitled to cast if such shares of Series B Preferred Stock were
converted into shares of Common Stock in accordance with Section V hereof on
the record date of the vote on the corporate action), at any annual or special
meeting called for the purpose, or in any action proposed to be taken by the
consent of stockholders, with respect to which the holders of shares of the
Series B Preferred Stock and the Common Stock shall vote together as one class,
except as set forth in the second paragraph of this Section IV or as otherwise
specifically required by the DGCL.
The vote of at least a majority of the shares of the Series B
Preferred Stock at the time outstanding, given in person or by proxy, at any
special or annual meeting called for the purpose, or in any action proposed to
be taken by the consent of stockholders, with respect to which the holders of
shares of the Series B Preferred Stock shall vote separately as a class (and
not with the Common Stock), shall be necessary to permit, effect or validate
any one or more of the following:
(i) the authorization of, or any increase in, the
authorized amount of any class of stock ranking prior to, or on a
parity with, or of any security convertible into or exchangeable for
or carrying rights to purchase any stock ranking prior to, or on a
parity with, the Series B Preferred Stock as to dividends or
distribution of assets; or
(ii) the amendment, alteration or repeal of any of the
designations, rights, preferences, powers, or privileges of the Series
B Preferred Stock so as to affect adversely the holders of the Series
B Preferred Stock as a class; or
(iii) the sale, lease, or conveyance of all or
substantially all of the assets, property, or business of the
Corporation, or the merger or consolidation of the Corporation with or
into any such other corporation unless the surviving or resulting
corporation will have after such merger or consolidation no stock
either authorized or outstanding which ranks prior to or on a parity
with (as to dividends and/or distributions of assets) the class of
stock of the surviving or resulting corporation issued in exchange for
the Series B Preferred Stock.
SECTION V
CONVERSION
Optional Conversion. The shares of Series B Preferred Stock shall be
convertible at the option of the holder, at any time, in whole or in part,
prior to the actual redemption thereof, into full shares of Common Stock of the
Corporation at the initial ratio of one share of Common Stock for each share of
Series B Preferred Stock, subject to such adjustments, if any, of the
conversion ratio and the securities or other property issuable upon such
conversion pursuant to the provisions set
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<PAGE> 12
forth below in this Section V under the caption "Adjustments of the Conversion
Ratio" (the conversion ratio from time to time in effect being hereinafter
referred to as the "Conversion Ratio").
Automatic Conversion. All shares of Series B Preferred Stock shall
automatically and without any action on the part of any holder of outstanding
shares of Series B Preferred Stock be converted into full shares of Common
Stock of the Corporation at the Conversion Ratio at the close of business on
the 30th day following written notice to each holder of record of Series B
Preferred Stock stating the date upon which the outstanding Series B Preferred
Stock is to be so automatically converted (the "Automatic Conversion Date") and
advising the holder of either (i) the consummation not more than 90 days prior
to the Automatic Conversion Date by the Corporation of an underwritten primary
public offering of its Common Stock at a minimum per share price to public of
not less than $6.00 per share and yielding net proceeds to the Corporation of
at least $10 million (a "Qualified Offering") or (ii) the attainment at any
time prior to April 1, 2002 of fully diluted consolidated earnings per share of
at least $.30 (the "Required Income") for any trailing twelve month period (the
"Measurement Period") ended not more than 120 days prior to the Automatic
Conversion Date and determined in accordance with generally accepted accounting
principles ("GAAP"), except that (i) an assumed combined effective federal and
state income tax rate of 40% (rather than the actual combined tax rate
experienced) shall be applied to the Corporation's GAAP-based pre-tax income
for the Measurement Period (after giving effect to the following adjustments);
and (ii) if the Corporation shall have acquired during the Measurement Period
any entity or component thereof which constitutes a "business" within the
meaning of Rule 11-01(d) of Regulation S-X promulgated under the Exchange Act
for which it accounts using the purchase method, then for that portion of the
Measurement Period during which such "business" was not owned, pro forma effect
shall be given to the following (in each case determined on a basis consistent
with GAAP): (A) the pre-tax income of the acquired "business," plus (I) the
savings which would have resulted from contractually determined and immediately
available reductions in cash compensation to the owners or managers of the
"business" had it been acquired on the first day of the Measurement Period and
minus (II) any additional depreciation, amortization or interest expense which
would have been incurred by the Corporation had the "business" been acquired on
the first day of the Measurement Period and (B) any Common Stock or equivalents
issued in the acquisition of the "business" shall be deemed to have been issued
on the first day of the Measurement Period; and (iii) if the Corporation shall
have acquired during the Measurement Period any entity for which it accounts
using the pooling of interests method, then any out-of-pocket fees and expenses
(including without limitation legal, accounting, printing, investigatory,
investment banking and other fees and expenses) incurred in connection with the
acquisition and required to be currently expensed under GAAP, as well as all
amounts paid or payable to any directors, officers or employees of the acquired
entity under employment or similar contracts, non-competition agreements,
employee benefit plans or severance agreements, which costs would not have been
incurred but for the acquisition, shall be recalculated on a purchase
accounting basis and amortized as if such entity had been acquired on the first
day of the Measurement Period; and (iv) any gains realized during the
Measurement Period by the Corporation and any acquired entity or business upon
the disposition of fixed assets or from other non-recurring events during the
Measurement Period shall be excluded for all purposes; provided, however, that
any gains or losses attributable to operations shall not be so excluded.
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<PAGE> 13
If any Measurement Period ends between October 1 and December 31 of
any year, the Automatic Conversion Date shall be delayed until the earlier to
occur of (i) the Corporation shall have advised the holders of Series B
Preferred Stock in writing that the Required Income was achieved and shall have
furnished such holders with documentation of the determination of the Required
Income and a majority of the holders of Series B Preferred Stock shall not have
advised the Corporation in writing within 30 days following their receipt of
written notice from the Corporation that they do not agree that the Required
Income was achieved during the Measurement Period or (ii) the Corporation
receives an audit by independent certified accountants for its financial
statements covering the calendar year in which the Measurement Periods ends and
such audit reflects results for all of part of the Measurement Period which are
consistent with the Corporation's calculation of Required Income; provided,
however, that in any case in which an Automatic Conversion Date is delayed in
accordance with this paragraph, the Conversion Ratio for such Automatic
Conversion Date shall continue to be determined as of the close of business on
the 30th day following written notice to the holders in accordance with the
first sentence of the preceding paragraph.
Notice of Automatic Conversion shall be sufficiently given if the
Corporation shall cause a copy thereof to be mailed to each holder of record of
Series B Preferred Stock at his address as the same shall appear on the books
of the Corporation, by first class mail postage prepaid and accompanied by (x)
in the case of a Qualified Offering, a final prospectus, press release or
"tombstone" advertisement reflecting that transaction as it was consummated and
(y) in the case of attainment of the Required Income, a calculation reflecting
the same in reasonable detail, together with a certificate of the Corporation's
chief financial officer or principal accounting officer attesting that such
calculation was made in accordance with the provisions of Article V of this
Resolution; provided, however, that in the absence of bad faith the failure to
mail such notice of Automatic Conversion to one or more of such holders shall
not affect the validity of such Automatic Conversion as to any holder.
Adjustments of the Conversion Ratio. The Conversion Ratio shall be
subject to the following adjustments:
(i) While any shares of Series B Preferred Stock are
outstanding, in case the Corporation shall, at any time, pay to the
holders of Common Stock dividends in Common Stock or in securities
convertible into Common Stock, the Conversion Ratio in effect
immediately prior to the record date fixed for the determination of
stockholders entitled to such dividend shall be increased
proportionately to reflect the full amount of all such dividends
(adjusted to the nearest, or if there shall be no nearest, then to the
next lower, ten- thousandth of a share of Common Stock), such increase
in the Conversion Ratio to become effective immediately at the opening
of business on the day following such record date. Anything in this
subparagraph (i) to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment in the Conversion Ratio
in any case in which the Conversion Ratio immediately prior to such
adjustment would be changed in an amount less than 3% of such
Conversion Ratio, but in any such case any adjustment that would
otherwise
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<PAGE> 14
be required then to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which,
together with any adjustments so carried forward, would amount to 3%
of the Conversion Ratio in effect prior to such adjustments.
(ii) While any shares of Series B Preferred Stock are
outstanding, in case the Corporation shall subdivide the outstanding
shares of Common Stock into a greater number of shares of Common Stock
or combine the outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Ratio in effect
immediately prior to such subdivision or combination, as the case may
be, shall be proportionately increased or decreased (adjusted to the
nearest, or if there shall be no nearest, then to the next lower, ten-
thousandth of a share of Common Stock), as the case may require, such
increase or decrease, as the case may be, to become effective at the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iii) In case of any reclassification or change of
outstanding shares of Common Stock of the class issuable upon
conversion of the Series B Preferred Stock, or in case of any
consolidation or merger of the Corporation with or into another
corporation, or in case of any sale or conveyance to another Person of
all or substantially all of the property of the Corporation, or in the
case of any distribution of any securities, cash or other assets or
any indebtedness of the Corporation to the holders of Common Stock,
each holder of shares of the Series B Preferred Stock then outstanding
shall have the right thereafter, so long as his conversion right
hereunder shall exist, to convert such shares into the kind and number
or amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger,
sale, conveyance or distribution by a holder of the number of shares
of Common Stock of the Corporation into which such shares of the
Series B Preferred Stock might have been converted immediately prior
to such reclassification, change, consolidation, merger, sale,
conveyance or distribution, and shall have no other conversion rights
under these provisions; provided, that effective provision shall be
made, in the articles or certificate of incorporation of the resulting
or surviving corporation or otherwise, so that the provisions set
forth herein for the protection of the conversion rights of the Series
B Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other
securities and property deliverable upon conversion of the Series B
Preferred Stock remaining outstanding or other convertible preferred
stock received by the holders in place thereof; and provided, further,
that any such resulting or surviving corporation shall expressly
assume the obligation to deliver, upon the exercise of the conversion
privilege, such shares, securities or property as the holders of the
Series B Preferred Stock remaining outstanding, or other convertible
preferred stock received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make
provisions for the protection of the conversion right as above
provided. In case securities or property other than shares of Common
Stock shall be issuable or deliverable upon conversion as aforesaid,
then all provisions of this Section V of this Resolution shall be
deemed to apply, so far as appropriate and as nearly as may be,
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<PAGE> 15
to such other securities or property. The subdivision or combination
of shares of Common Stock at any time outstanding into a greater or
lesser number of shares of Common Stock (whether with or without par
value) shall not be deemed to be a reclassification of the shares of
Common Stock of the Corporation for the purposes of this subparagraph
(iii).
In case of any distribution of any security other than Common
Stock (including rights or warrants to subscribe for any such
securities) of the Corporation to the holders of its Common Stock
where the nature of the security is such that the adjustment
provisions in this clause (iii) would not properly grant to the
holders of Series B Preferred Stock the rights intended to be granted
hereby, then in each such case the Conversion Ratio in effect
immediately prior to such distribution shall be adjusted (to the
nearest, of if there be no nearest, then to the next lower,
ten-thousandth of a share of Common Stock) to a number obtained by
dividing the Conversion Ratio in effect immediately prior thereto by a
fraction, the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to any such
distribution multiplied by the Current Market Price on such date,
less the fair market value (as determined in good faith by the Board
of Directors) of the securities distributed by the Corporation and the
denominator of which shall be the total number of outstanding shares
of Common Stock multiplied by the Current Market Price; such
adjustment shall become effective as of the record date for the
determination of shareholders entitled to receive such distribution.
The "Current Market Price" shall mean, as of any date, the
average, for each of the 20 consecutive trading days immediately prior
to such date, of the last recorded sale price of such share on the
Nasdaq Stock Market (or if the Common Stock is not then traded in such
market, then on the principal exchange or in the principal market on
which the Common Stock is then listed or traded), or if there be no
such recorded sale price on any trading day, the last quoted bid price
per share of Common Stock in such market or on such stock exchange at
the close of trading on such date. If the Current Market Price cannot
be determined pursuant to the foregoing, Current Market Price shall
mean the fair value per share of Common Stock on such date determined
by the Board of Directors in good faith, irrespective of any
accounting treatment.
(iv) (A) If at any time prior to and including April 1, 1999,
while any shares of Series B Preferred Stock are outstanding, the
Corporation shall issue or sell any shares of Common Stock (other than
"Excepted Shares," as defined herein) without consideration or for a
consideration per share less than the "Conversion Price" (i.e., $2.40
divided by the Conversion Ratio) in effect immediately prior to such
issue or sale, then such Conversion Price shall immediately be
adjusted (but not increased, except in the case of readjustments
provided for in clauses (B), (C) and (D) below) to a price equal to
the price at which such Common Stock is issued or sold. If at any
time after April 1, 1999, while any shares of Series B Preferred Stock
are outstanding, the Corporation shall issue or sell any shares of
Common Stock (other than Excepted Shares) without consideration or for
a consideration per share less than the Conversion Price in effect
immediately prior to such issue or sale,
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<PAGE> 16
then such Conversion Price shall immediately be adjusted (but not
increased, except in the case of readjustments provided for in clauses
(B), (C) and (D) below) to a price (calculated to the nearest cent)
equal to the amount obtained by dividing (x) a sum equal to (i) the
number of shares of Common Stock outstanding on April 1, 1998,
multiplied by $2.40, plus (ii) the aggregate amount of consideration,
if any, received by the Corporation (or without duplication, deemed to
be received upon the exercise or conversion of rights, options, stock
or obligations referred to in clauses (B), (C) or (D) below) upon the
issue or sale of shares of Common Stock (other than Excepted Shares)
subsequent to April 1, 1998 (including the aggregate amount of
consideration, if any, received or deemed to be received upon the
issue or sale of the shares for which such adjustment is made) by (y)
the total number of shares of Common Stock outstanding immediately
after such issue or sale, whereupon the Conversion Ratio in effect
immediately prior to such issuance or sale shall be adjusted (to the
nearest, or if there be no nearest, then to the next lower,
ten-thousandth of a share of Common Stock) to a number obtained by
dividing (x) $2.40 by (y) the Conversion Price as so adjusted for such
issuance or sale.
"Excepted Shares" shall include (I) shares of Common Stock
issued or sold (or deemed to be issued or sold) to a director, officer
or employee of the Corporation or any Subsidiary pursuant to a stock
option or other employee benefit agreement, arrangement or plan
heretofore or hereafter adopted or approved by the stockholders of the
Corporation, provided that the aggregate of all shares covered by such
employee arrangements shall not at any time exceed 1,000,000 shares of
Common Stock, (II) shares of Common Stock issued or sold and for which
adjustment in the Conversion Ratio is required to be and is made
pursuant to paragraphs (i), (ii) or (iii) above, and (III) shares of
Common Stock issued or sold upon conversion of or in payment of any
dividends on Series B Preferred Stock.
(B) For the purposes of Clause (A) above, in case the
Corporation shall hereafter issue any rights to subscribe for or to
purchase Common Stock or grant any options for the purchase of Common
Stock (other than rights or options constituting Excepted Shares or
rights or options to purchase Excepted Shares) at a price less than
the Conversion Price in effect at the time such rights are issued or
such options are granted, all shares of Common Stock which the holders
of such rights or options shall be entitled to subscribe for or
purchase pursuant to such rights or options shall be deemed to have
been issued or sold as of the date of the offering of such rights or
the granting of such options, as the case may be, and the minimum
aggregate consideration named in such rights or options for the shares
of Common Stock covered thereby, plus any consideration received by
the Corporation for such rights or options, shall be deemed to be the
consideration actually received by the Corporation (as of the date on
which such rights or options are issued or granted) for the issue or
sale of such shares; provided, however, that, upon the expiration or
other termination of any such rights or options, if any thereof shall
not have been exercised, the number of shares of Common Stock deemed
to be issued and outstanding by reason of the fact that they were
issuable upon the exercise of such rights or options shall no longer
be deemed to be issued and outstanding, and the Conversion Price then
in effect shall forthwith be readjusted
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<PAGE> 17
and thereafter be the price which it would have been had adjustment
been made on the basis of the issue only of the shares of Common Stock
actually issued upon the exercise of any such rights or options.
(C) For the purposes of clause (A) above, in case the
Corporation shall hereafter issue or sell any stock or obligations
directly or indirectly convertible into or exchangeable for Common
Stock (other than Excepted Shares or stock or obligations directly or
indirectly convertible into or exchangeable for Excepted Shares) or
rights to subscribe for or options to purchase such stock or
obligations (other than rights or options constituting Excepted Shares
or rights or options to purchase Excepted Shares) and the price per
share for which Common Stock is deliverable upon such conversion or
exchange (which price shall be determined by dividing (i) the sum of
the aggregate amount received or receivable by the Corporation as
consideration for the issue or sale of such stock or obligations or of
such rights or options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon
exercise of such rights or options and conversion or exchange of such
stock or obligations, by (ii) the total maximum number of shares of
Common Stock necessary to effect the conversion or exchange of all
such stock or obligations) shall be less than the Conversion Price in
effect at the time of such issue or sale, then such issue or sale
shall be deemed to be an issue or sale (as of the date on which such
stock or obligations or such rights or options are issued or sold) of
the total maximum number of shares of Common Stock necessary to effect
the conversion or exchange of all such stock or obligations on the
basis, if applicable, of such minimum aggregate additional
consideration, and the sum of the aggregate amount received or
receivable by the Corporation as consideration for the issue or sale
of such stock or obligations or of such rights or options and
conversion or exchange of such stock or obligations, shall be deemed
to be the consideration actually received (as of the date on which
such stock or obligations or such rights or options are issued or
sold) for the issue or sale of such Common Stock; provided, however,
that upon the termination of the right to convert or exchange such
stock or obligations and upon the expiration of any such rights or
options, if any thereof shall not have been exercised, the number of
shares of Common Stock deemed to be issued and outstanding by reason
of the fact that such shares were issuable upon conversion or exchange
of any such stock or obligations which were not so converted or
exchanged or as to which such rights or options were not exercised
shall no longer be deemed to be issued and outstanding, and the
Conversion Price shall forthwith be readjusted and thereafter be the
price which it would have been had the adjustment been made on the
basis of the issue or sale only of the number of shares of Common
Stock issued or sold upon the actual conversion or exchange of such
stock or obligations or upon the actual exercise of such rights or
options.
(D) For the purposes of clause (A) above, if the purchase
price provided for in any right or options referred to in clauses (B)
or (C) above or the rate at which the stock or obligations referred to
in clause (C) above are convertible into or exchangeable for Common
Stock, shall change at any time or from time to time (other than under
or by reason of
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<PAGE> 18
provisions designed to protect against dilution) then, upon such change
becoming effective, the Conversion Price then in effect hereunder shall
forthwith be increased or decreased to such Conversion Price as would
have obtained had the adjustments made upon the issuance of such rights
or options or such stock or obligations then outstanding been made upon
the basis of (and the total consideration received or receivable for)
such change. If the purchase price provided for in any right or option
referred to in clauses (B) or (C) above, or the rate at which any stock
or obligations referred to in clause (C) above are convertible into or
exchangeable for Common Stock, shall decrease at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then in the case of the delivery of shares of Common Stock
upon the exercise of any such rights or options, or upon conversion or
exchange of any stock or obligations convertible into or exchangeable
for Common Stock, the Conversion Price then in effect hereunder shall
forthwith be decreased to such Conversion Price as would have obtained
had the adjustments made upon issuance of such rights or options or
such stock or obligations been made upon the basis of the issuance of
(and the total consideration received for) the shares of Common Stock
delivered as aforesaid.
(E) For the purposes of clause (A) above, in case of an
issue or sale of shares of Common Stock or of rights or options to
purchase Common Stock or of any stock or obligations convertible into
or exchangeable for Common Stock or of any rights or options to
purchase such stock or obligations for a consideration other than cash
or a consideration part of which shall be other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the value of such consideration as determined in good
faith by the Board of Directors; provided, however, that if the issue
or sale of shares of Common Stock or of rights or options to purchase
Common Stock or of any stock or obligations convertible or
exchangeable for Common Stock or of rights or obligations to purchase
such stock or obligations involves a number of shares of Common Stock
greater than 20% of the then issued and outstanding shares of Common
Stock (excluding the issuance of shares in connection with the
agreement among the Corporation, GroWest, Inc., and John A. Bremer),
the determination of the Board of Directors will be based on an
appraisal or valuation opinion issued by an investment banking firm or
appraiser of recognized standing with expertise in providing such a
valuation opinion or appraisal.
(F) For the purposes of clause (A) above, the number of
shares of Common Stock at any time outstanding shall include any
shares acquired by the Corporation and held in its treasury, and the
aggregate number of shares deliverable in respect of rights, options
and convertible and exchangeable stock and obligations, referred to in
clauses (B) and (C) above, at all times while such rights, options or
securities remain outstanding and unexercised, unconverted or
unexchanged, as the case may be. The sale by the Corporation of
shares of Common Stock held in its treasury shall be treated as an
issuance or sale for purposes of this paragraph (iv).
Fractional Interests. No fraction of a share of Common Stock shall be
issued upon any conversion, but, in lieu thereof, there shall be paid, to the
holder of shares of Series B Preferred
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<PAGE> 19
Stock surrendered for conversion as soon as practicable after the date such
shares of Series B Preferred Stock are surrendered for conversion, an amount in
cash equal to the same fraction of the market value of a share of Common Stock,
which shall be the last recorded sale price of such share on the NASDAQ Small
Cap Market (or if the Common Stock is not then traded in such market, then on
the principal exchange or in the principal market on which the Common Stock is
then listed or traded) on the day immediately preceding the date upon which
such shares are surrendered for conversion, or if there be no such recorded
sale price on such day, the last quoted bid price per share of Common Stock in
such market or on such stock exchange at the close of trading on such date.
Notice of Adjustments. Any adjustment of the Conversion Ratio as
herein provided shall remain in effect until further adjustment of the
Conversion Ratio as required hereunder. Upon each such adjustment (i) a
written instrument, signed by an officer of the Corporation, setting forth such
adjustment and a computation and a summary of the facts upon which it is based,
and (ii) the resolutions, if any, of the Board of Directors passed in
connection therewith, shall forthwith be filed with the transfer agent or
agents for the Series B Preferred Stock and made available for inspection by
the stockholders, and any adjustment so evidenced, made in good faith, shall be
binding upon all stockholders and upon the Corporation.
Conversion Procedures. In order to convert shares of the Series B
Preferred Stock into shares of Common Stock, the holder thereof shall surrender
the certificate or certificates for shares of the Series B Preferred Stock,
duly endorsed to the Corporation or in blank, at the office of any transfer
agent for the Series B Preferred Stock (or such other place as may be
designated by the Corporation), and shall give written notice to the
Corporation at said office that he elects to convert the same and shall state
in writing therein the name or names in which he wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation will, as
soon as practicable thereafter, deliver at said office to such holder of the
Series B Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of full shares of Common Stock to which he shall be
entitled as aforesaid and make payment for any fractional shares. All shares
of Series B Preferred Stock shall be deemed to have been converted as of the
date of the surrender of such shares for conversion as provided above, and the
person or persons entitled to receive shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
Status of Converted Series B Preferred Stock. All shares of Series B
Preferred Stock which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with
respect to such shares shall forthwith cease and determine except only the
right of the holders thereof to receive full shares of Common Stock in exchange
therefor and payment for any fractional share interest that would otherwise
result on such conversion. Any shares of Series B Preferred Stock so converted
shall be permanently retired, shall no longer be deemed outstanding and shall
not be reissued and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the number of authorized shares
of Series B Preferred Stock accordingly.
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<PAGE> 20
Reservation of Common Stock. A number of authorized shares of Common
Stock sufficient to provide for the conversion, at the Conversion Ratio, of all
shares of Series B Preferred Stock outstanding shall at all time be reserved
for such conversion.
Notice of Certain Events. In case at any time
(i) The Corporation shall declare any dividend in stock,
cash, or property;
(ii) the Corporation shall propose a subdivision of its
outstanding shares of Common Stock into a greater number of shares of
Common Stock or propose a combination of the Corporation's outstanding
shares of Common Stock into a lesser number of shares of Common Stock;
or
(iii) any capital reorganization or any reclassification of
capital stock of the Corporation or any consolidation, merger, sale of
properties and assets or distribution is proposed by the Corporation
which would require an adjustment of the Conversion Ratio:
then, and in each of said cases, the Corporation shall cause notice thereof to
be mailed to the transfer agent or agents for the Series B Preferred Stock and
to each holder of record of the outstanding shares of the Series B Preferred
Stock at the last address, if any, appearing on the books of the Corporation or
given by him to the Corporation for the purpose of notice. Such notices shall
be mailed at least twenty days prior to the date on which the record date shall
be taken for such dividend, stock split, or combination, or to vote upon such
capital reorganization, reclassification, consolidation, merger, sale of
properties and assets or distribution, as the case may be. Such notice shall
specify such record date or date for the closing of the transfer books. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Ratio and the
number, kind or class of shares or other securities or property which shall be
deliverable upon conversion of shares of Series B Preferred Stock. In the case
of any action which would require the fixing of a record date, such notice
shall be given at least 10 days prior to the date so fixed, and in case of all
other action, such notice shall be given at least 15 days prior to the taking
of such proposed action. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any such action.
Valid Issuance. All shares of Common Stock or other securities which
may be issued upon conversion of the shares of Series B Preferred Stock will
upon issuance by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof and the Corporation shall take no action which will cause a
contrary result (including, without limitation, any action which would cause
the Conversion Ratio to be less than the par value, if any, the Common Stock).
20
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ARTICLE VI
RIGHT OF FIRST REFUSAL
Notwithstanding anything contained herein to the contrary, while any
shares of Series B Preferred Stock are outstanding, if the Corporation shall at
any time issue or sell any shares of Common Stock (other than Excepted Shares)
for a cash consideration per share less than the Conversion Price in effect
immediately prior to such issue or sale (other than in a firm commitment
underwritten offering), the Corporation shall, prior to making any such issue
or sale, first offer such shares of Common Stock (for purposes of this Article
VI, the "Option Shares") for sale to the holders of the Series B Preferred
Stock, in accordance with the following provisions of this Article VI.
Option Price, Terms; Offering Notices. The price per Option Share at
which the Corporation shall be required to offer the Option Shares (for
purposes of this Article VI, the "Option Price") and the terms of such offer,
shall be the price at which and the terms upon which any proposed third party
purchaser shall have offered to purchase the Option Shares from the Corporation
and which the Corporation is prepared to accept. Each offer required to be
made by the Corporation pursuant to this Article VI shall be made by a written
notice (for purposes of this Article VI, the "Offering Notice") which shall
state that the offer is being made pursuant to this Article VI and which shall
set forth the number of Option Shares, the name or names of the proposed
purchaser or purchasers of the Option Shares, the price per share offered by
such proposed purchaser or purchasers for the Option Shares, the method of
payment of the purchase price and the scheduled date of consummation of such
proposed sale. A copy of the written offer from any proposed third-party
purchaser shall be attached to each Offering Notice.
Offer to the Holders. The Corporation shall offer the option Shares
to the record holders of the Series B Preferred Stock by delivering an offering
Notice to each such holder at his address as the same shall appear on the books
of the Corporation, by first class mail, postage prepaid. The holders of the
Series B Preferred Stock shall deliver to the Corporation a reply notice within
thirty days following the receipt of such notice accepting the offer of the
Corporation with respect to all (but not less than all) of the Option Shares or
rejecting such offer. If by such reply notice the holders of the Series B
Preferred Stock accept the offer made by the Corporation, the reply notice
shall constitute an agreement binding on the holders of the Series B Preferred
Stock and the Corporation purchase and sell the Option Shares at a price per
share equal to the Option Price. If within such thirty-day period, the holders
of the Series B Preferred Stock shall have failed to deliver a reply notice
accepting the offer of the Corporation as to all of the Option Shares, the
holders shall be deemed to have rejected such offer.
Lapse of Option. If the foregoing offer to sell Option Shares has
been made by the Corporation and has not been accepted by the holders of the
Series B Preferred Stock, then the Corporation may sell not less than all of
the Option Shares at any time within, but not subsequent to, 60 days after the
lapse of the option granted pursuant to this Article VI; provided, however,
that no sale of the Option Shares shall be made at any price lower than the
Option Price or on terms
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<PAGE> 22
materially different from those specified in the Offering Notice or to any
person or persons other than the persons specified in the Offering Notice.
Consummation of Purchases. Each transaction of purchase and sale of
Option Shares pursuant to this Article VI shall be completed by delivery of the
stock certificates representing the Option Shares upon payment of the purchase
price to the Corporation. Any such transaction shall be closed at such time
and place as shall be agreed upon by the parties thereto, or, if no such
agreement is reached, at the principal office of the Corporation on the 30th
day following the date of delivery of the last reply notice given in connection
with such transaction or, if such day shall not be a business day, on the first
business day thereafter during normal business hours.
ARTICLE VII
EXCLUSION OF OTHER RIGHTS
Except as otherwise specifically required by the provisions of the
DGCL, the Series B Preferred Stock shall not have any preferences or relative,
participating, optional or other special rights, other than those specifically
set forth herein. The shares of Series B Preferred Stock shall have no
preemptive or subscription rights, other than the right of first refusal set
forth in Article VI.
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<PAGE> 23
IN WITNESS WHEREOF, the said Synagro Technologies, Inc. has caused
this statement to be duly executed by Donald L. Thone, its Chairman of the
Board and attested by Daniel L. Shook, its Secretary, on this 31st day of March
1998.
SYNAGRO TECHNOLOGIES, INC.
By:
---------------------------------------
Donald L. Thone, Chairman of the Board
ATTEST:
By:
-----------------------------
Daniel L. Shook, Secretary
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<PAGE> 1
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into on this 31st day of March, 1998, by and between Synagro
Technologies, Inc., a Delaware corporation (the "Company"), Environmental
Opportunities Fund, L.P., a Delaware limited partnership ("EOF"), Environmental
Opportunities Fund (Cayman), L.P., a Delaware limited partnership ("EOFC") and
other purchasers of the Company's Series B Preferred Stock, par value $.002 per
share (the "Preferred Stock"), listed on Exhibit A hereto (collectively with
EOF and EOFC, the "Purchasers").
WHEREAS, the parties hereto have entered into that certain
Subscription Agreement (the "Subscription Agreement" pursuant to which the
Purchasers have subscribed for shares of the Company's Preferred Stock; and
WHEREAS, pursuant to Section 1.2 of the Subscription Agreement, the
Company has agreed to provide the Purchasers with certain registration rights
in respect of the Company's common stock, par value $.002 per share (the
"Common Stock"), issuable upon conversion of the Preferred Stock.
NOW, THEREFORE, for and in consideration of the premises, and the
mutual and dependent promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
indicated meanings:
1.1 "COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
1.2 "EXCHANGE ACT" shall mean the Securities and Exchange Act of
1934, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at any time.
1.3 "HOLDER" shall mean a Purchaser and any person or entity who
holds of record Registrable Securities originally held by a Purchaser if such
person meets the requirements of Section 2.8 hereof.
1.4 The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration of a cash offering effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering by the Commission of the effectiveness of such
registration statement.
<PAGE> 2
1.5 "REGISTRABLE SECURITIES" shall mean the shares of Common Stock
issued or issuable upon conversion of the Preferred Stock held by a Purchaser,
including any Common Stock issued or issuable upon a stock dividend, stock
split, recapitalization or other similar event involving the Company; provided,
however, that such shares of Registrable Securities shall cease to be
Registrable Securities (1) when a registration statement covering such
securities has become effective with the Commission and they have been sold or
transferred by the Holder pursuant to such effective Registration Statement,
(2) when transferred to any person who is not a Holder or (3) when otherwise
transferred and such securities may be resold without subsequent registration
under the Securities Act.
1.6 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
ARTICLE 2
REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION RIGHTS. (a) For the five-year period
commencing on the first anniversary of the date of the Closing (as defined in
the Subscription Agreement), after receipt of a written request (a
"Registration Request") from the Holders of a majority in interest of the
Registrable Securities requesting that the Company effect the registration of
Registrable Securities under the Securities Act and specifying the intended
method or methods of disposition thereto, the Company shall prepare and file
with the Commission a registration statement under the Securities Act on any
form which the Company is eligible to use for registering the resale of the
Registrable Securities which the Company has been requested to register
(including, without limitation, a registration statement on Form S-3 of the
Securities Act) and shall use its best efforts to cause such registration
statement to become effective. The Company shall send prompt written notice to
all Holders of any request for registration received hereunder and each such
Holder shall have the right to include its Registrable Securities therein by so
requesting in writing within 15 days after receipt of such notice by the
Company. Any Holder not electing to include its Registrable Securities in such
registration will have no further rights to have such Registrable Securities
registered pursuant to this Section 2.1 (other than in the case of a withdrawn
registration statement, as provided below). The Company shall not be required
to effect more than a total of one registration statement of Registrable
Securities with respect to a Registration Request pursuant to this Section 2.1
and, in the case of an underwritten offering, the Company shall have the right
to approve the underwriter, which approval shall not be unreasonably withheld;
provided, however, that if a registration statement of Registrable Securities
with respect to a Registration Request pursuant to this Section 2.1 is
withdrawn prior to the registration statement becoming effective, or the
offering of such Registrable Securities is otherwise terminated before
completion thereof, for any reason other than at the request of the Holders,
the Company shall continue to be required to effect one registration statement
of Registrable Securities upon receipt of a Registration Request from the
Holders (including any Holders who previously elected not to participate in a
registration that was withdrawn or terminated for any reason other than at the
request of the Holders) of a majority in interest of the Registrable
Securities. The Company shall have the right to defer the filing of any
registration statement requested pursuant to this Section 2.1 if (i) on the
date of the request the Company is in the process of preparing another
registration
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<PAGE> 3
statement for an underwritten public offering, until the 90th day after the
date of such Registration Request, (ii) in order to file such registration
statement, the Company would be required to conduct an audit other than the
regular audit conducted by the Company at the end of its fiscal year, until
such time the Company conducts its regular annual audit (unless the Holder
agrees to pay the expenses of such an audit) and (iii) the Board of Directors
of the Company gives written notice to the Holders making such Registration
Request that, in its good faith determination, the filing of such registration
statement would have a materially adverse effect on the Company, until such
time period as such filing would not have such effect, such period not to
exceed 90 days.
(b) The notification by the Holders to the Company of their
request for registration shall contain the number of shares to be offered and
the proposed manner of their distribution for inclusion in the registration
statement. In the event that any registration pursuant to this Section shall
be, in whole or in part, in connection with an underwritten offering of Common
Stock, any request by Holders pursuant to this Section to register Common Stock
shall be subject to the requirement that such Common Stock be included in the
underwriting on the same terms and conditions as the shares of Common Stock to
be registered, if any, and sold through underwriters under such registration.
2.2 PIGGYBACK REGISTRATION RIGHTS. (a) At any time that the
Company proposes to register for sale for cash any of its equity securities
under the Securities Act (excluding registrations on Form S-8 or Form S-4, or
any comparable successor forms), whether such registration statement relates to
sales of equity securities by the Company or other holders of its equity
securities, it shall not less than 30 days prior to the filing of any such
registration statement, give notice to Holders of its intention to do so and,
upon the written request of Holders delivered to the Company within 15 days of
the Company's notice, the Company shall use all commercially reasonable efforts
to cause Registrable Securities owned by Holders as to which registration shall
have been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, to the extent
necessary to permit the sale or other disposition in accordance with the
request of Holders.
(b) The notification by the Holders to the Company of their
request for registration shall contain the number of shares to be offered and
the proposed manner of their distribution for inclusion in the registration
statement. In the event that any registration pursuant to this Section shall
be, in whole or in part, in connection with an underwritten offering of Common
Stock, any request by Holders pursuant to this Section to register Common Stock
shall be subject to the requirement that such Common Stock be included in the
underwriting on the same terms and conditions as the shares of Common Stock to
be registered, if any, and sold through underwriters under such registration.
(c) Notwithstanding the foregoing provisions of this Section 2.2,
if the managing underwriter in any underwritten offering relating to sales of
Common Stock by the Company determines and advises in writing that the
inclusion in the underwriting of all Common Stock proposed to be included by
Holders and any other shares of Common Stock sought to be registered by any
other stockholder of the Company exercising "piggyback" registration rights
comparable to
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<PAGE> 4
those of the Purchasers under this Agreement (the "Other Common Stock") would
interfere with the successful marketing of the securities proposed to be
registered by the Company, then the number of shares of Common Stock and Other
Common Stock requested to be included in the underwriting shall be reduced pro
rata among the Holders and the holders of Other Common Stock requesting such
registration and inclusion in the underwriting and may, in the determination of
such managing underwriter and consistent with pro rata reduction, be reduced to
zero.
(d) The Holders shall have the right at any time prior to a
registration statement under this Section 2.2 becoming effective to withdraw
their Registrable Securities from the offering.
2.3 REGISTRATION PROCEDURES. (a) In connection with the
Company's obligations with respect to any registration pursuant to this Article
2, and subject to the limitations therein, the Company shall use all
commercially reasonable best efforts to effect or cause the registration of the
Registrable Securities requested to be registered under the Securities Act to
permit the sale of such Registrable Securities by the Holders in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto, the Company shall, as soon as reasonably possible following any
request for such registrations:
(i) prepare and file with the Commission a registration
statement on any form selected by the Company which may be used by the
Company and which shall permit the disposition of the Registrable
Securities in accordance with the intended method or methods thereof,
and use all commercially reasonable efforts to cause such registration
statement or statements to become effective as soon as possible
thereafter;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to maintain the
effectiveness of such registration statement or statements for the
period necessary for the distribution contemplated thereby and comply
with the provisions of the Securities Act with respect to the
disposition of all of the Registrable Securities included in such
registration statement;
(iii) provide the participating Holders and the
underwriters (which term, for purposes of this Agreement, shall
include a person deemed to be an underwriter within the meaning of
Section 2(11) of the Securities Act), if any, of the securities being
sold, counsel for participating Holders and such underwriters copies
of such registration statement, each prospectus included therein or
proposed to be filed with the Commission, and each amendment or
supplement thereto prior to their filing with the Commission, all of
which shall be subject to the reasonable approval of such persons;
and, subject to the execution of confidentiality agreements in a form
reasonably satisfactory to the Company, make available for inspection
by such persons such financial
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<PAGE> 5
and other information, books and records of the Company, and cause the
officers, directors and employees of the Company, and counsel and
independent certified public accountants of the Company, to respond to
such inquiries as shall be reasonably necessary, in the opinion of
counsel to participating Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act;
(iv) promptly notify the participating Holders and the
managing underwriters, if any, of the securities being sold and (if
requested by any such person) confirm such advice in writing (1) when
such registration statement, the prospectus or any prospectus
supplement or post-effective amendment has been filed, and, with
respect to such registration statement or any post-effective
amendment, when the same has become effective, (2) of any request by
the Commission for amendments or supplements to such registration
statement or the prospectus or for additional information, (3) of the
issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations
and warranties of the Company contemplated by Section 2.2(a)(xi)(1)
cease to be true and correct in all material respects, (5) of the
receipt by the Company of any notification with respect to the
suspension of the qualification of Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding
for such purpose, or (6) at any time when a prospectus is required to
be delivered under the Securities Act, of the happening of any event
as a result of which such registration statement, prospectus, any
prospectus supplement or any document incorporated by reference in any
of the foregoing contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances then existing;
(v) use all commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement hereunder or any post-effective amendment thereto at the
earliest practicable date;
(vi) if requested by the managing underwriter or
underwriters or Holders, promptly incorporate in a prospectus,
prospectus supplement or post-effective amendment such information as
such managing underwriter or underwriters or Holders specify should be
included therein relating to the sale of the Registrable Securities,
including, without limitation, information with respect to the amount
of Registrable Securities being sold to such underwriters, the
purchase price being paid
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<PAGE> 6
therefor by such underwriters and with respect to any other terms of
the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all
required filings of such prospectus, prospectus supplement or
post-effective amendment promptly after notification of the matters to
be incorporated in such prospectus, prospectus supplement or
post-effective amendment;
(vii) furnish to participating Holders and each
underwriter, if any, of the securities being sold such number of
copies of such registration statement, each such amendment and
supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with
the requirements of the Securities Act, and such other documents as
participating Holders and each underwriter, if any, may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by participating Holders; and the Company hereby
consents to the use of the prospectus or any amendment or supplement
thereto by participating Holders and each underwriter, if any, in
connection with the offering and sale of the Registrable Securities
covered by the prospectus or any supplement or amendment thereto;
(viii) use all commercially reasonable efforts to (1) register
or qualify the Registrable Securities to be included in a registration
statement under such other securities laws or blue sky laws of such
jurisdictions as the participating Holders and each underwriter, if
any, of the securities being sold shall reasonably request, (2) keep
such registrations or qualifications in effect for so long as the
registration statement remains in effect, and (3) take any and all
such actions as may be reasonably necessary or advisable to enable
participating Holders and each underwriter, if any, to consummate the
disposition in such jurisdictions of such Registrable Securities owned
by participating Holders, provided, however, that the Company shall
not for any purpose be required to qualify to do business as a foreign
corporation in any jurisdiction or file a general consent to service
of process in any jurisdiction;
(ix) use commercially reasonable efforts to cause all of
the Registrable Securities to be included in a registration statement
hereunder to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business
and operations of the Company to enable the participating Holders to
consummate the disposition of such Registrable Securities;
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<PAGE> 7
(x) cooperate with the participating Holders and the
managing underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be
sold and not bearing any restrictive legends; and, in the case of an
underwritten offering, enable such Registrable Securities to be in
such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any
delivery of the Registrable Securities;
(xi) enter into such customary agreements (including an
underwriting agreement) and take such other actions in connection
therewith as participating Holders shall reasonably request in order
to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration (1) make such representations and warranties
to the participating Holders and the underwriters, if any, in form,
substance and scope as are customarily made in such a registration;
(2) use all commercially reasonable efforts to obtain an opinion of
counsel to the Company in customary form and covering such matters of
the type customarily covered by such opinion as the participating
Holders and the underwriters, if any, may reasonably request,
addressed to the participating Holders and the underwriters, if any,
and dated the effective date of such registration statement (or, if
such registration includes an underwritten offering, dated the date of
the closing under the underwriting agreement); (3) use all
commercially reasonable efforts to obtain a "cold comfort" letter from
the independent certified public accountants of the Company addressed
to the participating Holders and the underwriters, if any, dated the
effective date of such registration statement (and, if such
registration includes an underwritten offering, dated the date of the
closing under the underwriting agreement), such letter to be in
customary form and covering such matters of the type customarily
covered by such letter; and (4) deliver such documents and
certificates as may be reasonably requested by the participating
Holders and the managing underwriters, if any, to evidence compliance
with clause (xi)(1) above and with any customary conditions contained
in the underwriting agreement or other agreement entered into by the
Company;
(xii) use all commercially 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,
an earnings statement covering a period of at least 12 months which
shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder; and
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<PAGE> 8
(xiii) use all commercially reasonable efforts to cause all
such Registrable Securities to be listed on each securities exchange
on which the Company's capital stock is then listed.
(b) Upon the occurrence of any event contemplated by Section
2.2(a)(iv)(6), the Company shall prepare and furnish to the participating
Holders and each underwriter, if any, a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of the Registrable Securities, such prospectus shall not contain an
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
in light of the circumstances then existing. The participating Holders agree
that upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 2.2(a)(iv)(6), they shall forthwith
discontinue the offer or sale of Registrable Securities pursuant to the
registration statement applicable to such Registrable Securities until the
participating Holders receive copies of such amended or supplemented
registration statement or prospectus, and if so directed by the Company, the
participating Holders shall deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, of the prospectus covering such
Registrable Securities in the participating Holders' possession at the time of
receipt of such notice.
(c) The Company may require the Holders to furnish to the Company
such information regarding such participating Holders and the distribution of
such Registrable Securities as the Company may from time to time reasonably
request in writing in order to comply with the Securities Act. Each
participating Holder agrees to notify the Company as promptly as practicable of
any inaccuracy or change in information previously furnished by such
participating Holder to the Company or of the happening of any event in either
case as a result of which any prospectus relating to such registration contains
an untrue statement of a material fact regarding such participating Holder or
the distribution of such Registrable Securities by such participating Holder or
omits to state any material fact regarding such participating Holder or the
distribution of such Registrable Securities by such participating Holder
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and to promptly furnish
to the Company any additional information required to correct and update any
previously furnished information or required so that such prospectus shall not
contain, with respect to Stockholder or the distribution of such Registrable
Securities by such participating Holder, an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statement therein not misleading in light of the circumstances then
existing.
2.4 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Article 2, including, without
limitation, all Commission and any national securities exchange or National
Association of Securities Dealers, Inc. registration and filing fees and
expenses, fees and expenses of compliance with securities and blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities),
document and certificate preparation and printing expenses, messenger and
delivery expenses, fees and expenses of any transfer agent or registrar,
internal expenses (including, without limitation, all salaries and expenses of
the Company's officers
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<PAGE> 9
and employees performing legal or accounting duties), fees and disbursements of
counsel and independent certified public accountants of the Company (including
the expenses of any "cold comfort" letters required by or incident to such
performance and compliance), and fees and expenses of any other persons,
including special experts, retained by the Company shall be borne by the
Company. The Company shall not be required to pay any stock transfer taxes or
underwriting discounts, fees or commissions attributable to the sale of its
Registrable Securities and all fees and disbursements of counsel to the Holders
retained in connection with each such registration.
2.5 RESTRICTION ON OTHER REGISTRATIONS. The Company hereby agrees
that, if requested by the managing underwriter in any offering in which
Registrable Securities are included, it shall not effect any public sale or
distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any equity securities (other than registrations
on Form S-8 or Form S-4, or any comparable successor forms) during the seven
(7) days prior to and the ninety (90) days after the effective date of the
registration statement relating to such offering.
2.6 UNDERWRITTEN OFFERINGS. (a) In the event that participating
Holders request the sale of Registrable Securities pursuant to a registration
statement for an underwritten public offering, each participating Holder shall
become a party to the underwriting agreements pertaining to such public
offering. Notwithstanding any other term of this Agreement to the contrary, no
participating Holder shall be required as a condition to its right to
participate in any underwritten offering to make any representations or
warranties to or agreements (including without limitation indemnities) with the
Company or the underwriters other than representations, warranties or
agreements (including without limitation indemnities) regarding such
participating Holder, such participating Holder's Registrable Securities and
such participating Holder's intended method or methods of disposition with
respect to the Registrable Securities.
(b) Holders may not participate in any underwritten
offering pursuant to this Agreement unless such Holder (i) agrees to sell its
securities on the basis provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements, and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
2.7 RULE 144. The Company covenants to Holder that, if and to the
extent it shall be required to do so under the Exchange Act, the Company shall
use reasonable commercial efforts to timely file the reports required to be
filed by it thereunder (including, but not limited to, the reports under
Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of
Rule 144 adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder, all to the extent required
from time to time to enable the Holder to sell Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder who proposes to sell Registrable
Securities in compliance with Rule 144, the Company shall deliver to Holder a
written statement as to whether it has complied with the filing
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<PAGE> 10
requirements of the Commission as set forth in Rule 144, as such Rule may be
amended from time to time.
2.8 RIGHTS OF SUBSEQUENT HOLDERS. (a) The registration rights of
this Agreement, subject to the terms and conditions hereof, shall be available
at a Purchaser's option (but without duplication) to any subsequent holder of
the shares of Registrable Securities, so long as such subsequent holder shall
be the beneficial owner of 25% or more of the Registrable Securities originally
held by a Purchaser. Each subsequent Holder entitled to registration rights
under this Agreement shall be bound by the terms and subject to the obligations
of this Agreement as though it were an original signatory hereto.
2.9 RESTRICTIVE LEGEND. Each of the certificates evidencing the
Registrable Securities shall be stamped or otherwise conspicuously imprinted
with a legend substantially as follows:
The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended (the "Act"), and may not be
transferred (other than pursuant to Rule 144 or any similar analogous
rule or rules) except pursuant to an effective registration statement
under the Act or in a transaction which, in the opinion of counsel
reasonably satisfactory to the Company, qualifies as an exempt
transaction under the Act and the rules and regulation promulgated
thereunder. In addition, the securities evidenced hereby are subject
to the provisions of a Registration Rights Agreement dated March 31,
1998, between the Company and the original holder of such securities,
a copy of which will be furnished by the Company to the owner hereof
without charge upon written request.
ARTICLE 3
INDEMNIFICATION
3.1 INDEMNIFICATION BY THE COMPANY. Upon the registration of the
Registrable Securities pursuant to Article 2, the Company shall, and it hereby
agrees to, indemnify and hold harmless each participating Holder, each person
who participates as an underwriter in the offering or sale of such Registrable
Securities, each officer, director or partner of such underwriter, and each
other person, if any, who controls any such underwriter within the meaning of
the Securities Act, from and against any and all losses, claims, damages or
liabilities, joint or several (or actions or proceedings, whether commenced or
threatened, in respect thereof), and expenses (including, subject to Section
3.3 hereof, fees of counsel and any amounts paid in any settlement effected
with the consent of the Company) to which any participating Holder, such
underwriter or such director, officer or partner of such underwriter, and any
such controlling person may become subject under the Securities Act, the
Exchange Act, common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof), or expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act, or any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, or (ii) any omission
or alleged omission
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<PAGE> 11
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading except as otherwise provided in the
proviso in the next sentence. The Company shall reimburse any participating
Holder, such underwriter, such officer, director or partner of such
underwriter, and such controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided, however,
that the Company shall not be required to make any such reimbursement to the
extent that any such loss, claim, damage, liability (or action or proceeding,
whether commenced or threatened, in respect thereof) or expenses arise out of
or is based upon (A) an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement or
preliminary, final or summary prospectus or amendment or supplement in reliance
upon and in conformity with written information concerning such Holder
furnished to the Company by such person with the intent that such information
be included therein, or (B) the sale of Registrable Securities by a Holder or
any underwriter after delivery by a Holder or underwriter of a preliminary
prospectus in connection with such sale, if such Holder or such underwriter
failed to send or give a copy of the related prospectus, as the same may be
then amended or supplemented, to such person within the time required by the
Securities Act and the untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact in such
preliminary prospectus was corrected in the prospectus, and if Stockholder or
such underwriter would not have been liable had a copy of the prospectus, as
the same may be amended or supplemented, been so sent or given, unless such
failure resulted from the Company's non-compliance with Section 2.2(a)(vii).
Such indemnification and reimbursement of expenses shall remain in full force
and effect regardless of any investigation made by or on behalf of a Purchaser,
the underwriter, such director, officer or partner of such underwriter, or such
controlling person and shall survive the transfer of such securities by a
Purchaser.
3.2 INDEMNIFICATION BY THE PARTICIPATING HOLDERS. Upon the
registration of Registrable Securities pursuant to Article 2, each
participating Holder shall, and it hereby agrees to, indemnify and hold
harmless the Company, each director and officer of the Company and each other
person, if any, who controls the Company (within the meaning of the Securities
Act), and all other Holders, if any, participating in such offering, each
person who participates as an underwriter in the offering or sale of such
Registrable Securities, and their respective directors, officers, partners and
controlling persons, if any, from and against any and all losses, claims,
damages or liabilities, joint or several (or actions or proceedings, whether
commenced or threatened, in respect thereof), and expenses (including, subject
to Section 3.3 hereof, fees of counsel and any amounts paid in settlement
effected with the consent of such Holder) to which the Company, such director
or officer or controlling person of the Company or such other holder or such
director, officer, partner or controlling person of such other holder may
become subject under the Securities Act, the Exchange Act, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof), or
expenses arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities
Act, or any preliminary, final or summary prospectus contained therein, or any
amendment or supplement thereto, or (ii) 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, to the extent, but only to the
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<PAGE> 12
extent, such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
concerning such Holder to the Company by such Holder with the intent that such
information be included therein; provided, however, that such Holder shall not
be liable to any such person under this Section 3.2 for any amount in excess of
the dollar amount of the net proceeds received by such Holder from the sale of
such Holder's Registrable Securities pursuant to such registration. Such
indemnification and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company or
any of its directors, officers or controlling persons or any of such other
Holders or any person who participates as an underwriter in the offering or any
of their respective directors, officers, partners or controlling persons and
shall survive the transfer of such securities by Holder.
3.3 INDEMNIFICATION PROCEDURE. 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 indemnification may be made
pursuant to this Article 3, 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, to the extent the
indemnifying party is not 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, other than reasonable costs
of investigation, 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, the
expenses of such defense to 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 in respect
of 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.
3.4 CONTRIBUTION. (a) If for any reason the indemnification
provided for in Section 3.1 or Section 3.2 is unavailable to or insufficient to
hold harmless an indemnified party in respect of
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<PAGE> 13
any losses, claims, damages or liabilities covered by the indemnification
provisions set forth therein, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and the indemnified
party and any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether any action or question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by
such indemnifying party or indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 3.3, any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. In no event shall any Holder be required to
contribute an amount greater than the dollar amount of the net proceeds
received by such Holder from the sale of Registrable Securities pursuant to the
registration in question.
(b) The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 3.4 were determined by
pro rata allocation or by any other method of allocation which does not take
into account all of the equitable considerations referred to in the immediately
preceding paragraph. 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.
(c) The contribution provided for in this Section 3.4
shall survive, with respect to Holder, the transfer of Registrable Securities
by such Holder and with respect to Holder or the Company shall remain in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party.
3.5 ADDITIONAL INDEMNIFICATION AND CONTRIBUTION. Indemnification
and contribution similar to that specified in Sections 3.1 through and
including 3.4 (with appropriate modifications) shall be given by the Company
and the Purchasers with respect to any required registration or other
qualification of such Registrable Securities under any authority other than the
Securities Act.
3.6 METHOD OF PAYMENT. The indemnification required by this
Article 3 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, subject to refund in the event
any such payments are determined not to have been due and owing hereunder,
together with interest thereon at the applicable federal rate for short term
investments.
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<PAGE> 14
ARTICLE 4
MISCELLANEOUS
4.1 NO INCONSISTENT RIGHTS. The Company covenants and agrees that
it shall not grant, and has not previously granted, registration rights with
respect to Registrable Securities or any other securities which are
inconsistent with the registration rights contained in this Agreement.
4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties contained herein shall survive the consummation
of any transactions contemplated hereby and shall remain in full force and
effect regardless of any investigation that may have been or may be made at any
time by or on behalf of the party to whom such representations and warranties
are made.
4.3 AGREEMENT TO TAKE ACTIONS. Each party hereto shall perform
its covenants and agreements promptly and diligently and shall not take any
action or omit to take any action which might adversely affect its ability to
consummate the transactions contemplated by this Agreement and shall execute
and deliver such documents, certificates, agreements and other writings and
take such other actions as may be necessary or desirable in order expeditiously
to consummate such transactions.
4.4 AMENDMENTS; ASSIGNABILITY OF RIGHTS. Except as otherwise
provided herein, neither this Agreement nor any term or provision hereof may be
amended, waived or modified without the written consent of the party or parties
against whom enforcement of the amendment, waiver or modification is sought.
Except as provided in Section 2.8, no Purchaser may assign its rights or
delegate its duties under this Agreement without the Company's prior written
consent. The Company may not assign its rights or delegate its duties under
this Agreement without the prior written consent of the holders of a majority
of the Registrable Securities.
4.5 SUCCESSORS AND ASSIGNS. Subject to other contrary provisions
hereof, this Agreement shall bind, inure to the benefit of and be enforceable
by the parties hereto and their respective successors and permitted assigns,
and if an individual, by his executors, administrators, and beneficiaries of
his estate by will or the laws of descent and distribution.
4.6 NOTICES. Any notice, instruction, authorization, request,
demand or waiver required hereunder shall be in writing, and shall be delivered
either by personal delivery, by telegram, telex, telecopy or similar facsimile
means, by certified or registered mail, return receipt requested, or by courier
or delivery service, addressed to the parties hereto at the principal offices
of the Company at the address indicated beneath its signature on the execution
page of this Agreement, and to the Stockholders at their respective addresses
indicated beneath their respective signatures on the execution page of this
Agreement, or at such other address and number as a party shall have previously
designated by written notice given to the other party in the manner hereinabove
set forth. Notices shall be deemed given when received, if sent by facsimile
means (confirmation of such receipt by confirmed facsimile transmission being
deemed receipt of communications sent by facsimile means); and when delivered
and receipted for (or upon the date of attempted delivery
-14-
<PAGE> 15
where delivery is refused), if hand-delivered, sent by express courier or
delivery service, or sent by certified or registered mail, return receipt
requested.
4.7 CERTAIN REFERENCES. Unless otherwise specified, all
references herein to days, weeks, months or years shall be to calendar days,
weeks, months or years. Whenever the context requires, the gender of all words
used herein shall include the masculine, feminine and neuter. References to
Sections are to Sections of this Agreement unless otherwise specified. The
headings and captions used in this Agreement are solely for convenient
reference and shall not affect the meaning or interpretation of any section or
paragraph herein, or this Agreement. The terms "hereof," "herein" or
"hereunder" shall refer to this Agreement as a whole and not to any particular
section or paragraph. The terms "including" or "include" are used herein in an
illustrative sense and not to limit a more general statement. When computing
time periods described by a number of days before or after a stated date or
event, the stated date or date on which the specified event occurs shall not be
counted and the last day of the period shall be counted.
4.8 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas and of the United
States applicable in Texas, excluding, however, any rule of conflict-of-laws
that would direct or refer the resolution of any issue to the laws of any other
jurisdiction. Each party hereto hereby acknowledges and agrees that it has
consulted legal counsel in connection with the negotiation of this Agreement
and that it has bargaining power equal to that of the other parties hereto in
connection with the negotiation and execution of this Agreement. Accordingly,
the parties hereto agree that the rule that an agreement shall be construed
against the draftsman shall have no application in the construction or
interpretation of this Agreement.
4.9 DISPUTE RESOLUTION; SEVERABILITY. Any dispute arising out of,
or in connection with any provision of this Agreement shall be resolved by
binding arbitration in Houston, Texas in accordance with the Commercial Rules
of the American Arbitration Association then in effect, and judgment on the
award rendered by the arbitrator(s) may be entered in any court of competent
jurisdiction. All costs and expenses, including attorneys' fees, relating to
the resolution of any such dispute shall be borne by the party incurring such
costs and expenses. 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 this Agreement had
the terms, provisions, covenants and restrictions which may be hereafter
declared invalid, void, or unenforceable not initially been included herein.
4.10 ENTIRETY. This Agreement sets forth the entire agreement and
understanding of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements, arrangements, and understandings
relating to the subject matter hereof.
4.11 COUNTERPARTS. This Agreement may be executed by the parties
hereto in counterparts and by telecopy, each of which shall be deemed to
constitute an original and all of which together shall constitute one and the
same instrument.
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<PAGE> 16
4.12 MAINTENANCE OF AGREEMENT. A counterpart of this Agreement
shall be deposited by the Company at its principal place of business and at the
registered office of the Company.
IN WITNESS WHEREOF, the parties hereto, by their respective officers
thereunto duly authorized, have executed this Agreement as of the date first
written above.
SYNAGRO TECHNOLOGIES, INC.
By:
----------------------------------------------------
Donald L. Thone, Chairman of the Board
Address: 16000 Stuebner Airline, Suite 420,
Spring, TX 77379
Telecopy: 281-370-9292
Attention: Donald L. Thone
ENVIRONMENTAL OPPORTUNITIES FUND, L.P.
By: Environmental Opportunities Management Company,
L.L.C., its General Partner
By:
----------------------------------------------------
Bruce R. McMaken, Manager
Address: 3100 Chase Tower, Houston, Texas 77002
Telecopy: 713-250-4294
Attention: Bruce R. McMaken
ENVIRONMENTAL OPPORTUNITIES FUND (CAYMAN), L.P.
By: Environmental Opportunities Management Company,
L.L.C., its General Partner
By:
----------------------------------------------------
Bruce R. McMaken, Manager
Address: 3100 Chase Tower, Houston, Texas 77002
Telecopy: 713-250-4294
Attention: Bruce R. McMaken
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<PAGE> 1
EXHIBIT 4.6
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
** **
SEE RESTRICTIVE LEGEND(S) ON BACK
SYNAGRO TECHNOLOGIES, INC.
SERIES B PREFERRED STOCK
PAR VALUE $.002
THIS CERTIFIES THAT (SPECIMEN) is the owner of
** _________________________________________________________________________ **
fully paid and non-assessable Shares OF THE SERIES B PREFERRED STOCK OF SYNAGRO
TECHNOLOGIES, INC. transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated
----------------
/s/ /s/
- ---------------------------- ---------------------------
SECRETARY PRESIDENT
<PAGE> 2
The securities evidenced hereby have not been registered under the Securities
Act of 1933, as amended (the "Act"), and may not be transferred (other than
pursuant to Rule 144 or any similar analogous rule or rules) except pursuant to
an effective registration statement under the Act or in a transaction which, in
the opinion of counsel reasonably satisfactory to the Company, qualifies as an
exempt transaction under the Act and the rules and regulation promulgated
thereunder. In addition, the securities evidenced hereby are subject to the
provisions of a Registration Rights Agreement dated March 31, 1998, between the
Company and the original holder of such securities, a copy of which will be
furnished by the Company to the owner hereof without charge upon written
request.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT - Custodian (Minor)
under Uniform Gifts to Minors Act (State)
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL
SECURITY OR OTHER
IDENTIFYING NUMBER OF
ASSIGNEE
[ ]
- -------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- ----------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------
represents by the within Certificate, and hereby irrevocably constitutes and
appoints ______________ Attorney to transfer the said Shares on the books of
the within-named Corporation with full power of substitution in the premises.
Dated,
---------------------------
--------------------------
In presence of
- ---------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
<PAGE> 1
EXHIBIT 10.1
SYNAGRO TECHNOLOGIES, INC.
SERIES B PREFERRED STOCK
SUBSCRIPTION AGREEMENT
<PAGE> 2
SYNAGRO TECHNOLOGIES, INC. SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is made as of the
latest date set forth on the signature page hereof, by and among Synagro
Technologies, Inc., a Delaware corporation (the "Company"), Environmental
Opportunities Fund, L.P., a Delaware limited partnership ("EOF") and
Environmental Opportunities Fund (Cayman), L.P., a Delaware limited partnership
("EOFC") and other purchasers of the Company's Series B Preferred Stock, par
value $.002 per share (the "Preferred Stock"), listed on Exhibit A hereto
(collectively with EOF and EOFC, the "Purchasers") each of whom shall be bound
by the terms and subject to the obligations of this Agreement as though it were
an original signatory hereto.
WHEREAS, the Company has engaged Sanders Morris Mundy Inc., a Texas
corporation (the "Agent"), as its exclusive placement agent with respect to the
offering and sale of shares of the Preferred Stock; and
WHEREAS, the Purchasers desire to purchase shares of the Preferred
Stock based on the representations and warranties made by the Company herein,
all on and subject to the terms and conditions of this Agreement; and
WHEREAS, based on the representations and warranties herein made by
the Purchasers and on the terms and subject to the conditions contained herein,
the Company desires to offer and sell to the Purchaser an aggregate of
1,458,335 shares of Preferred Stock as set forth herein (the "Offering").
NOW THEREFORE, in consideration of the mutual promises herein
contained, the parties, intending to be legally bound, agree as follows:
SECTION 1
Authorization and Sale of Preferred Stock
1.1 Subject to the terms and conditions of this Agreement, the
Purchasers hereby subscribe for and agree to purchase an aggregate of 1,458,335
shares of Preferred Stock (the "Shares") at a purchase price of $2.40 per
share, as follows: EOF subscribes for and agrees to purchase 1,112,125 shares
of Preferred Stock for a purchase price of $2,669,100, EOFC subscribes for and
agrees to purchase 137,875 shares of Preferred Stock for a purchase price of
$330,900 and other Purchasers subscribe for and agree to purchase that number
of Shares of Preferred Stock for the purchase prices as listed opposite their
names on Exhibit A hereto.
1.2 Additional Rights. In connection with the Offering, the
Company agrees with the Purchasers that on or before the Closing (as defined in
Section 1.5) an agreement will be entered into
<PAGE> 3
with the Purchasers providing them with registration rights (the "Registration
Rights"), to be negotiated prior to the Closing, substantially in the form as
set forth in Exhibit 1.2 hereto.
1.3 Acceptance of Subscriptions. The Purchasers understand
and agree that the Company, in its sole and absolute discretion, reserves the
right to accept or reject this or any other subscriptions for the Shares,
notwithstanding prior receipt by the Purchaser of notice of acceptance of the
subscription. The Company shall have no obligation hereunder until the Company
shall execute and deliver to the Purchaser an executed copy of this Agreement.
1.4 Delivery. At the Closing, the Company will deliver to the
Purchasers certificates representing the Shares against payment by the
Purchasers of the purchase price therefor by wire transfer of immediately
available funds or by certified or cashier's check drawn on a United States
bank, payable to the Company in an amount equal to the applicable purchase
price. The certificates bear a legend restricting transfer under the
Securities Act, and applicable state laws, such legend to be substantially as
follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
TRANSFERRED (OTHER THAN PURSUANT TO RULE 144 OR ANY SIMILAR ANALOGOUS
RULE OR RULES) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE OPINION OF COUNSEL IS
REASONABLY SATISFACTORY TO THE COMPANY, QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE ACT AND THE RULES AND REGULATION PROMULGATED
THEREUNDER.
The Shares may also include any legend required under the laws of any state or
other jurisdiction.
1.5 Closing. The closing of the sale and purchase of the
Preferred Stock (the "Closing") shall take place at the offices of Sanders
Morris Mundy, Inc., on March 31, 1998 unless otherwise agreed to by all of the
parties to this Agreement. At the Closing, each of the Purchasers shall
deliver a check drawn on a bank acceptable to the Company, or will immediately
make a wire transfer payment to the Company in the full amount of the purchase
price of the Shares for which it is subscribing (the "Payment").
SECTION 2
Representations and Warranties of the Company
The Company hereby represents and warrants to the undersigned as
follows:
2.1 Organization. The Company and each of its subsidiaries (the
"Subsidiaries") have been duly incorporated and are validly existing as
corporations in good standing under the laws of
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their respective jurisdictions of incorporation. The Company and each
Subsidiary have the requisite corporate power and authority to own, lease and
operate their properties and assets, and to carry on their business as
presently conducted and as proposed to be conducted. The Company and each
Subsidiary are qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of their property or the nature of their
business requires such qualification, except where failure so to qualify would
not have a material adverse effect on the Company.
2.2 Authorization. The Company has all corporate right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of Shares contemplated hereby and the performance of the
Company's obligations hereunder has been taken. This Agreement has been duly
executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies, and to
limitations of public policy. Upon the issuance and delivery of the Shares and
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable shares of the Company's capital stock, and
such Shares will not be subject to any preemptive rights or rights of first
refusal on behalf of any person.
2.3. No Conflict. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will
not, result in any violation of, or default (with or without notice of lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or to a loss of a material benefit,
under, any provision of the Certificate of Incorporation or Bylaws of the
Company or any mortgage, indenture, lease or other agreement or instrument to
which the Company or any Subsidiary is a party, or any, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any Subsidiary, or any properties or assets of the Company or any
Subsidiary, the effect of which would have a material adverse effect on the
business, financial condition, results of operation or prospects, of the
Company and the Subsidiaries, taken as a whole.
2.4 Governmental Consents, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the
execution and delivery of this Agreement, the offer, sale or issuance of the
Shares, or the consummation of any other transaction contemplated hereby,
except such filings as may be required to be made with the Securities and
Exchange Commission (the "SEC") and with any state or foreign blue sky or
securities regulatory authority.
2.5 Litigation. Except as disclosed in any Exchange Act Documents
(as herein defined) or the Placement Agent Agreement between the Company and
the Agent (including any schedules thereto), there is no litigation,
arbitration, governmental or other proceeding (formal or informal) or claim or
investigation pending of which the Company has notice or, to the knowledge of
the
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<PAGE> 5
Company, threatened with respect to the Company or any of its operations,
businesses, properties or assets, which, if determined adversely to the
Company, would have a material adverse effect on the condition, (financial or
otherwise), business or results of operations of the Company and the Company is
not in violation of, or in default with respect to, any law, rule, regulation,
order, judgment or decree.
2.6 Exchange Act Documents. The Company has filed all documents
that the Company was required to file with the Securities and Exchange
Commission ("SEC") under Sections 13, 14(a) and 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), during the 24 months
preceding the date of this Agreement ("Exchange Act Documents"). As of their
respective filing dates, the Exchange Act Documents complied in all material
respects with the requirements of the Exchange Act. No Exchange Act Document,
as of its respective date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
2.7 No Material Change. Except as set forth or contemplated
in the Exchange Act Documents, including the financial statements and notes
thereto, since the date of the latest audited financial statements included in
an Exchange Act Document, there has not been (i) any changes in the financial
condition or results of operations of the Company or the Subsidiaries except
changes in the ordinary course of business which have not been, either
individually or in the aggregate, materially adverse; (ii) any material
increase in indebtedness for borrowed money, current liabilities or total
liabilities (whether absolute, accrued, contingent or otherwise) incurred by
the Company or any Subsidiary, except for liabilities, commitments and
obligations incurred in the ordinary course of business; (iii) any material
loss sustained by the Company or any Subsidiary or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any court or government action, order or decree; (iv) any
change in the capital stock or long term debt of the Company or any Subsidiary;
(v) any material adverse change in or affecting the general affairs,
management, financial position, stockholders' equity, business prospects or
results of operation of the Company or any Subsidiary, taken as a whole; and
(vi) any dividend or distribution of any kind declared or paid on the capital
stock of the Company and, as of the date hereof, there are no dividends
declared by the Company but unpaid or in arrears.
2.8 Financial Statements. The consolidated financial
statements (including the related notes) which appear in the Exchange Act
Documents present fairly, in all material respects, the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated, and, except as disclosed or otherwise
stated therein, to the Company's knowledge, have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved.
2.9 Options, Warrants, Etc. Except as set forth in Exhibit 2.9
attached hereto, the Company has not granted or issued, or entered into any
agreements pursuant to which it has agreed to grant or issue, any options,
warrants or other rights to acquire or receive any of the shares of its
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authorized but unissued capital stock or any securities convertible into shares
of its capital stock. Nor is the Company party to any agreements or
understandings with respect to the sale of any shares of the Common Stock of
the Company, except as set forth in Schedule 2.9 or in any Exchange Act
Document.
2.10 Conversion of Preferred Stock. The Common Stock issuable upon
conversion of the Preferred Stock has been duly authorized and, when issued and
delivered in the manner provided in the terms and provisions of the Preferred
Stock contained in the Certificate of Designations with respect to the
Preferred Stock, will be validly issued, fully paid and non-assessable, with no
personal liability attaching to the ownership thereof. There are no preemptive
rights or other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, any shares of Common Stock pursuant to the Company's
certificate of incorporation or bylaws, or any agreement or other instrument to
which the Company is a party.
2.11 Title to Properties. Except as otherwise stated in the
Exchange Act Documents (including the financial statements and notes thereto
included therein), the Company and each of its Subsidiaries has good title,
free and clear of all liens and encumbrances, to all of the personal property
referred to in the Exchange Act Documents as being owned by it except liens and
encumbrances that are not material in the aggregate and do not materially
interfere with the conduct of the business of the Company and the Subsidiaries,
and, except as otherwise stated in the Exchange Act Documents, has valid and
binding leases to the real and/or personal property described in the Exchange
Act Documents as under lease to it with such exceptions as do not materially
interfere with the conduct of the business of, or the use of such property by,
the Company or any Subsidiary.
2.12 Taxes. Each of the Company and the Subsidiaries has filed all
United States federal, state, county, local and foreign national, provincial
and local returns and reports which were required to be filed on or prior to
the date hereof in respect of all income, withholding, franchise, payroll,
excise, property, sales, use, value-added or other taxes or levies, imposts,
duties, license and registration fees, charges, assessments or penalties, fine
and interest which have become due pursuant to such returns or reports or
pursuant to any assessment which has become payable, or, to the extent its
liability for any taxes (and any related penalties, fines and interest) has not
been fully discharged, the same adequate reserves therefor have been
established and except where the failure to file such tax returns or reports or
to pay such taxes would not have a material adverse effect on the financial
condition of the Company and the Subsidiaries taken as a whole. All such
returns and reports filed on or prior to the date hereof have been properly
prepared and are true, correct (and to the extent such returns reflect
judgments made by the Company or a Subsidiary, as the case may be, such
judgments were reasonable under circumstances) and complete in all material
respects.
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<PAGE> 7
SECTION 3
Representations and Warranties of the Purchasers
The Purchasers each hereby represent and warrant to the Company as
follows:
3.1 It has carefully considered and has, to the extent the
undersigned believes such discussion necessary, discussed with the
undersigned's professional legal, tax, accounting and financial advisors, of
the suitability of an investment in the Preferred Stock for the undersigned's
particular tax and financial situation and has determined that the Preferred
Stock being subscribed for by the undersigned is a suitable investment for the
undersigned.
3.2 Each of the Purchasers acknowledges that (i) it has had the
right to request copies of any documents, records, and books pertaining to this
investment and (ii) any such documents, records and books which the undersigned
requested have been made available for inspection by the undersigned and the
undersigned's attorney, accountant or adviser.
3.3 Each of the Purchasers or its adviser has had a reasonable
opportunity to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the offering and all such questions
have been answered to the full satisfaction of the undersigned.
3.4 It is not subscribing for Preferred Stock as a result of or
after any advertisement, article, notice or other communication published in
any newspaper, magazine or similar media or broadcast over television or radio
or presented at any seminar or meeting.
3.5 It or its purchaser representative, as the case may be, has
such knowledge and experience in financial, tax and business matters so as to
enable the undersigned to use the information made available to the undersigned
in connection with the offering to evaluate the merits and risks of an
investment in the Preferred Stock and to make an informed investment decision
with respect thereto.
3.6 It will not sell or otherwise transfer the Preferred Stock
without registration under the Securities Act and applicable state securities
laws or an exemption therefrom. The Preferred Stock has not been registered
under the Securities Act or under the securities laws of any state. Each of
the Purchasers represents that it is purchasing the Preferred Stock for its own
account, for investment and not with a view to resale or distribution except in
compliance with the Securities Act. Neither EOF nor EOFC has offered or sold
the Preferred Stock being acquired nor does it have any present intention of
selling, distributing or otherwise disposing of such Preferred Stock either
currently or after the passage of a fixed or determinable period of time or
upon the occurrence or non-occurrence of any predetermined event or
circumstance in violation of the Securities Act. Each of the Purchasers is
aware that there is currently no market for the Preferred Stock, the Company
has no obligation to register the Preferred Stock subscribed for hereunder
(except as may be required under
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<PAGE> 8
the Registration Rights), or to make available an exemption from the
registration requirements pursuant to Rule 144 or any successor rule for resale
of the Preferred Stock.
3.7 Each of the Purchasers recognize that investment in the
Preferred Stock involves substantial risks, including loss of the entire amount
of such investment and has taken full cognizance of and understands all of the
risks related to the purchase of the Preferred Stock.
3.8 Each of the Purchasers acknowledge that the certificates
representing the Preferred Stock shall be stamped or otherwise imprinted with
a legend substantially in the form as set forth in Section 1.4 of this
Agreement.
3.9 It is an "accredited investor," as that term is defined in
Rule 501(a) promulgated under the Securities Act, which is incorporated herein
by reference.
3.10 Each of the Purchasers shall indemnify and hold harmless the
Company, and its officers, directors or control persons who are or may be a
party or are or may be threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any actual or
alleged misrepresentation or misstatement of facts or omission to represent or
state facts made or alleged to have been made by the undersigned to the
Company, or omitted or alleged to have been omitted by the undersigned,
concerning the undersigned or the undersigned's authority to invest or
financial position in connection with the offering, against losses, liabilities
and expenses for which the Company, or its officers, directors or control
persons have not otherwise been reimbursed (including attorneys' fees,
judgements, fines and amounts paid in settlement) actually and reasonably
incurred by the Company, or such officers, directors or control persons in
connection with such action, suit or proceeding.
SECTION 4
Conditions to Obligations of the Purchasers
4.1 Conditions to Obligations of the Purchasers. The Purchasers'
obligations to purchase the Shares at the Closing are, at the option of the
Purchasers, subject to the fulfillment on or before the Closing Date of the
following conditions:
(a) Representations and Warranties Correct. The
representations and warranties made by the Company in Section 2 hereof shall be
true and correct in all material respects when made, and shall be true and
correct in all material respects on the date of the Closing with the same force
and effect as if they had been made on and as of the date of the Closing.
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(b) Covenants. All covenants, agreement and conditions
contained in this Agreement to be performed by the Company on or before such
purchase shall have been performed or complied with in all material respects.
(c) No Legal Order Pending. There shall not then be in
effect any legal or other order enjoining or restraining the transactions
contemplated by this Agreement.
(d) No Law Prohibiting or Restricting Such Sale. There
shall not be in effect any law, rule or regulation prohibiting or restricting
such sale or requiring any consent or approval of any person which shall not
have been obtained to issue the Shares (except as otherwise provided in this
Agreement).
(e) Legal Opinion. On or before the Closing, counsel to
the Company shall have delivered to the Agent for the benefit of the Agent and
the Purchasers, a legal opinion with respect to such legal matters relating to
this Agreement as the Agent may reasonably require.
(f) Payment of Fees. The Company will have reimbursed
the Agent for its reasonable out-of-pocket accountable expenses incurred in
connection with the purchase of the Shares, such reimbursement not to exceed
$75,000.
SECTION 5
Conditions to Obligations of Company
5.1 Conditions to Obligations of Company. The Company's
obligation to sell and issue the Shares at the Closing is, at the option of the
Company, subject to the fulfillment on or before the Closing of the following
conditions:
(a) Representations and Warranties Correct. The
representations and warranties made by the Purchasers in Section 3 hereof shall
be true and correct in all material respects when made, and shall be true and
correct in all material respects on the date of the Closing with the same force
and effect as if they had been made on and as of the Closing.
(b) Covenants. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers before the
Closing shall have been performed or complied with in all material respects.
(c) No Legal Order Pending. There shall not then be in
effect any legal or other order enjoining or restraining the transactions
contemplated by this Agreement.
(d) No Law Prohibiting or Restriction Such Sale. There
shall not be in effect any law, rule or regulation prohibiting or restricting
such sale or requiring any consent or approval of any
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person which shall not have been obtained to issue the Shares (except as
otherwise provided in this Agreement).
SECTION 6
Miscellaneous
6.1 Termination of Agreement. The Company may terminate its
obligation to perform or observe any of its covenants and agreements hereunder
to any Purchaser if such Purchaser violates in any material respect any of the
covenants or agreements of the Purchaser under this Agreement, and a Purchaser
may terminate its obligation to perform or observe any of its covenants and
agreements hereunder if the Company violates or fails to perform in any
material respect any of the covenants or agreements of the Company under this
Agreement to such Purchaser; provided, however, that neither the Company nor
the Purchaser, as the case may be, may terminate any of its obligations under
this Agreement pursuant to this sentence unless it shall have delivered written
notice of such default to the other party and such default shall not have been
cured within five business days after the delivery of such notice.
6.2 Nomination of Director. Immediately following the Closing,
the Company agrees to take such steps as are necessary to increase the number
of members of the Board of Directors and elect Kenneth Ch'uan-K'ai Leung to
fill such vacancy. Additionally, the Company agrees to nominate Mr. Leung to
the Compensation Committee of the Board of Directors.
6.3 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Texas as applied to contracts entered into
solely between residents of, and to be performed entirely within, such state.
6.4 Survival; Reliance. The representations and warranties in
Sections 2 and 3 of this Agreement shall expire and be of no further force and
effect upon the Closing or the termination of the Offering, whichever shall
occur earlier. Any representation or warranty contained herein may be relied
upon by counsel to the Company in connection with any opinion delivered in
connection with the transactions contemplated hereby.
6.5 Successors and Assigns. Except as otherwise provided in this
Agreement, this Agreement may not be assigned by a party without the prior
written consent of the other party except by operation of law, in which case
the assignee shall be subject to all of the provisions of this Agreement.
6.6 Notices and Dates. Any notice or other communication given
under this Agreement shall be sufficient if in writing and (a) the date of
receipt if delivered by hand, by messenger or by courier, or transmitted by
facsimile, to a party at its address set forth below (or at such other address
as shall be designated for such purpose by such party in a written notice to
the other party hereto) or (b) three days after the date when the same shall
have been posted by registered mail, return
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receipt requested in any post office in the United States of America, postage
prepaid and addressed to the party at such address:
(i) if to the Company:
Synagro Technologies, Inc.
16000 Stuebner Airline, Suite 420
Spring, Texas 77379
Attn: Daniel L. Shook
(ii) if to the Purchasers:
Environmental Opportunities Fund, L.P.
3100 Chase Tower
Houston, Texas 77002
Attn: Bruce R. McMaken
Environmental Opportunities Fund (Cayman), L.P.
3100 Chase Tower
Houston, Texas 77002
Attn: Bruce R. McMaken
with a copy to:
Sanders Morris Mundy, Inc.
3100 Chase Tower
Houston, Texas 77002
Attn: Charles L. Davis
Each such notice or other communication for all purposes of
this Agreement be treated as effective or having been given when delivered if
delivered personally, by messenger or by courier, or, if sent by facsimile,
upon confirmation of receipt.
6.7 Specific Performance. The parties hereto acknowledge and
agree that irreparable damage would occur if any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached, and that such damage would not be compensable in money
damages, and that it would be extremely difficult or impracticable to measure
the resultant damages. It is accordingly agreed that any party hereto shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
in addition to any other remedy to which it may be entitled at law or in
equity, and such party that is sued for breach of this Agreement expressly
waives any defense that
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a remedy in damages would be adequate and expressly waives any requirement in
an action for specific performance for the posting of a bond by the party
bringing such action.
6.8 Further Assurances. The parties hereto shall do and perform
or cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
document as any other party may reasonably request from time to time in order
to carry out the intent and purposes of this Agreement and the consummation of
the transactions contemplated hereby.
6.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by fewer than all of the parties,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
6.10 Severability. If any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision; provided, that no such severability shall be effective if it
materially changes the economic impact of this Agreement on any party.
6.11 Captions. Headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be relied
upon in construing this Agreement.
6.12 Public Statements. The Purchasers agree not to issue any
public statement with respect to the Purchasers' investment or proposed
investment in the Company or the terms of any agreement or covenant between
them and the Company without the Company's prior written consent, except such
disclosures as may be required under applicable law or under any applicable
order, rule or regulation.
6.13 Costs and Expenses. Except as provided in Section 4(g)
hereto, each party hereto shall pay its own costs and expenses incurred in
connection herewith, including the fees of counsel, auditors and other
representatives, whether or not the transactions contemplated herein are
consummated.
6.14 No Third-Party Rights. Nothing in this Agreement shall create
or be deemed to create any rights in any person or entity not a party to this
Agreement.
6.15 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and thereof and supersede all prior agreements and understandings
among the parties relating to the subject matter hereof. No party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein. Neither
this Agreement nor any term hereof may be amended, waived,
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discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
12
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IN WITNESS WHEREOF, each of the undersigned have caused this Agreement
to be executed by its duly authorized representative on this 31st day of March,
1998.
PURCHASERS:
ENVIRONMENTAL OPPORTUNITIES FUND, L.P.
By: ENVIRONMENTAL OPPORTUNITIES MANAGEMENT
COMPANY, L.L.C. its General Partner
By:
---------------------------------------
Bruce R. McMaken, Manager
ENVIRONMENTAL OPPORTUNITIES FUND (CAYMAN), L.P.
By: ENVIRONMENTAL OPPORTUNITIES MANAGEMENT
COMPANY, L.L.C. its General Partner
By:
---------------------------------------
Bruce R. McMaken, Manager
SYNAGRO TECHNOLOGIES, INC.
By:
---------------------------------------
Donald L. Thone, Chairman of the Board
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CERTIFICATE OF SIGNATORY
I, Bruce R. McMaken, am a Manager of Environmental Opportunities
Management Company, L.L.C., the general partner of Environmental Opportunities
Fund, L.P. (the "Entity").
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Subscription Agreement and to purchase
and hold the Shares and certify further that the Subscription Agreement has
been duly and validly executed on behalf of the Entity and constitutes a legal
and binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this 31st day of March, 1998.
-----------------------------------------
Bruce R. McMaken
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CERTIFICATE OF SIGNATORY
I, Bruce R. McMaken, am a Manager of Environmental Opportunities
Management Company, L.L.C., the general partner of Environmental Opportunities
Fund (Cayman), L.P. (the "Entity").
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Subscription Agreement and to purchase
and hold the Shares and certify further that the Subscription Agreement has
been duly and validly executed on behalf of the Entity and constitutes a legal
and binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this 31st day of March, 1998.
----------------------------------------
Bruce R. McMaken
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EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the 16th day
of April, 1998 (the "EFFECTIVE DATE"), by and between Synagro Technologies,
Inc., a Delaware corporation (hereafter "COMPANY") and Donald L. Thone
(hereafter "EXECUTIVE"), an individual;
W I T N E S S E T H:
WHEREAS, Company wishes to secure the services of the Executive
subject to the terms and conditions hereafter set forth; and
WHEREAS, the Executive is willing to enter into this Agreement upon
the terms and conditions hereafter set forth,
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. During the Employment Period (as defined in
Section 4 hereof), the Company shall employ Executive, and Executive shall
serve, as Chairman of the Board of Directors. Executive's principal place of
employment shall be at the Company's principal corporate offices in Spring,
Texas or at such other location for the Company's principal corporate offices
during the Employment Period.
2. COMPENSATION. The Company shall pay or cause to be paid to
Executive during the Employment Period an annual base salary for his services
under this Agreement of not less than $160,500, payable in equal monthly or
semi-monthly installments in accordance with the Company's normal payroll
procedures. The Executive's base salary shall be subject to annual review and
may be increased, depending upon the performance of the Company and Executive,
upon the recommendation of the Board of Directors of the Company (hereafter
"BOARD OF DIRECTORS"). Nothing contained herein shall preclude the payment of
a bonus, supplemental or incentive compensation to Executive provided that the
Board of Directors authorizes any such compensation payment.
3. DUTIES AND RESPONSIBILITIES OF EXECUTIVE. During the
Employment Period, Executive shall devote his services full time to the
business of the Company and perform the duties and responsibilities assigned to
him by the Board of Directors to the best of his ability and with reasonable
diligence. In determining Executive's duties and responsibilities, the Board
of Directors shall act in good faith and shall not assign duties and
responsibilities to Executive that are not appropriate or customary with
respect to the position of Executive hereunder. This Section 3 shall not be
construed as preventing Executive from engaging in reasonable volunteer
services for
Initials:________
Initials:________
<PAGE> 2
charitable, educational or civic organizations, or from investing his assets in
such form or manner as will not require a material amount of his services in
the operations of the companies or businesses in which such investments are
made.
4. TERM OF EMPLOYMENT. Executive's term of employment with the
Company under this Agreement shall be for twenty-four (24) consecutive months
beginning on the Effective Date and continuing thereafter so that the remaining
term of employment hereunder is always 24 months, unless Notice of Termination
pursuant to Section 7 is given by either the Company or Executive to the other
party. The Company and Executive shall each have the right to give Notice of
Termination at will, with or without cause, at any time, subject to the terms
of this Agreement regarding rights and duties of the parties upon termination
of employment. This "evergreen" 24-month employment period hereunder shall be
referred to herein as the "TERM OF EMPLOYMENT." The period from the Effective
Date through the date of Executive's termination of employment for whatever
reason shall be referred to herein as the "EMPLOYMENT PERIOD."
5. BENEFITS. Subject to the terms and conditions of this
Agreement, during the Employment Period, Executive shall be entitled to the
following:
(a) REIMBURSEMENT OF EXPENSES. The Company shall pay or
reimburse Executive for all reasonable travel, entertainment and other
reasonable expenses paid or incurred by Executive in performing his
business obligations hereunder. The Company shall also provide
Executive with suitable office space and secretarial help. Executive
shall provide substantiating documentation for expense reimbursement
requests as reasonably required by the Company for its tax and other
business records.
(b) EXPENSE ALLOWANCES. Executive shall be entitled to:
(i) a car allowance of $800 per month plus additional reimbursement
for fuel expenses, and (ii) if for any reason Employee shall not be
covered by a health insurance policy of Employer, a medical insurance
coverage expense allowance of $360 per month.
(c) OTHER BENEFITS. Executive shall be entitled to
participate in any pension, profit-sharing, stock option, deferred
compensation, or similar plan or program of the Company established by
the Company, to the extent that he is eligible under the provisions
thereof. Executive shall also be entitled to participate in any group
insurance, hospitalization, medical, health and accident, disability
or similar plan or program established by the Company, to the extent
that he is eligible under the provisions thereof.
(d) PAID VACATION. Executive shall be entitled to the
number of days of paid vacation each year that is accorded under the
Company's vacation policy as in effect from time to time. Without
limiting the generality of the foregoing, Executive shall initially be
entitled to four (4) weeks' of paid vacation during each 12-month
period of employment with
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the Company (which shall accrue monthly on a pro rata basis). Unused
vacation days in one year shall be carried forward for a period not to
exceed 12 months in accordance with Company's vacation policy as in
effect from time to time.
6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right
to compensation and benefits for periods after the date on which his employment
with the Company terminates for whatever reason (the "TERMINATION DATE") shall
be determined in accordance with this Section 6,
(a) MINIMUM PAYMENTS. Executive shall be entitled to the
following payments, in addition to any payments or benefits to which
the Executive is entitled under the terms of any employee benefit plan
or the following provisions of this Section 6:
(1) his unpaid salary for the full month in which
his Termination Date occurred; provided, however, if Executive
is terminated for Cause pursuant to Section 6(b) below, he
shall only be entitled to receive his accrued but unpaid
salary through his Termination Date; and
(2) his accrued but unpaid vacation pay for the
period ending on his Termination Date in accordance with the
Company's vacation pay policy as in effect at such time.
(b) SEVERANCE PAYMENT. Notwithstanding any other
provision of this Agreement to the contrary, in the event that (i)
Executive's employment hereunder is terminated by the Company at any
time for any reason except (A) for Cause (as defined below) or (B)
Executive's death or Disability (as defined below) or (ii) Executive
terminates his own employment hereunder at any time for Good Reason
(as defined below), then, in either such event, Executive shall be
entitled to receive, and the Company shall be obligated to pay, a lump
sum cash payment equal to two hundred percent (200%) of the sum of X
and Y. For purposes of the immediately preceding sentence, X is the
present value of Executive's base annual salary pursuant to Section 2
or the annual salary then being paid to him, whichever is greater, and
Y is the Executive's bonus payment(s) made by the Company to Executive
in the Company's fiscal year immediately preceding the fiscal year in
which his termination of employment occurred. For purposes of the
immediately preceding sentence, the "present value" of such base
annual salary shall be determined in accordance with the regulations
under Section 280G of the Code (as defined below). Also, except as
otherwise specifically provided in this Section 6(b), such severance
payment shall be in addition to, and shall not reduce or offset, any
other payments that are due to Executive from the Company or any other
source or under any other agreements, except any severance pay plan or
program maintained by the Company that covers employees generally.
The provisions of this Section 6(b) shall supersede any conflicting
provisions of this Agreement but shall not be construed to curtail,
offset or limit Executive's rights to any other payments, whether
contingent upon
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a Change in Control (as defined below) or otherwise, under the
Agreement or any other agreement, contract, plan or other source of
payment except as specifically provided herein. In addition, in the
event of a Change in Control, Executive shall be entitled to receive
the bonus payment described in Section 9 hereof, if applicable.
Notwithstanding any provision of this Section 6(b) to the
contrary, the Executive must first execute an appropriate release and
waiver agreement whereby Executive agrees to release and waive, in
return for the severance payment described in this Section 6(b), any
claims that he may have against the Company for (1) unlawful
discrimination (including, without limitation, age discrimination) and
(2) severance pay under any other severance pay plan or program
maintained by the Company that covers Executive; provided, however,
such agreement shall not release or waive any claims that may be
brought by Executive for payments that may be due under this
Agreement, without Executive's express written consent. Any severance
payment required under this Section 6(b)shall be paid to Executive
within twenty (20) days after Executive executes such release and
waiver agreement, unless the parties agree in writing before then to
another payment date or method of payment, e.g., installment payments.
Executive shall not be required to mitigate any damages under this
Section 6(b) or any other provision of this Agreement.
A "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred if any of the following shall have taken place: (1) a change
in control is reported by the Company in response to either Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") or Item 1 of Form 8-K
promulgated under the Exchange Act, or any successor provisions
thereto; (2) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), or any successor
provisions thereto, directly or indirectly, of securities of the
Company representing twenty-five (25%) or more of the combined voting
power of the Company's then-outstanding securities; (3) the approval
by the stockholders of the Company of a reorganization, merger, or
consolidation, in each case with respect to which persons who were
stockholders of the Company immediately prior to such reorganization,
merger, or consolidation do not, immediately thereafter, own or
control more than fifty percent (50%) of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding
securities, or a liquidation or dissolution of the Company or of the
sale of all or substantially all of the Company's assets; (4) in the
event any person shall be elected by the stockholders of the Company
to the Board of Directors who shall have not been nominated for
election by a majority of the Board of Directors or any duly appointed
committee thereof; or (5) following the election or removal of
directors, a majority of the Board of Directors consists of
individuals who were not members of the Board of Directors two (2)
years before such election or removal, unless the election of each
director who is not a director at the beginning of such two-year
period has been approved in
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advance by directors representing at least a majority of the directors
then in office who were directors at the beginning of the two-year
period.
"DISABILITY" means a "permanent and total disability" as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "CODE") and Treasury regulations thereunder. Evidence of
such Disability shall be certified by a physician acceptable to both
the Company and Executive. In the event that the parties are not able
to agree on the choice of a physician, each shall select a physician
who, in turn, shall select a third physician to render such
certification. All costs relating to the determination of whether
Executive has incurred a Disability shall be paid by the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
References in this Agreement to any Section of the Code shall include
any "Successor Provisions" as defined in Section 9(e).
"CAUSE" means a termination of employment directly resulting
from (1) the Executive having engaged in intentional misconduct
causing a serious and material violation by the Company of any state
or federal laws, (2) the Executive having engaged in a material theft
of corporate funds or corporate assets or in a material act of fraud
upon the Company, (3) an act of personal dishonesty taken by the
Executive that was intended to result in substantial personal
enrichment of the Executive at the expense of the Company, (4)
repeated violations by the Executive of Executive's material
obligations under this Agreement or under written policies of the
Company which are demonstrably willful on the Executive's part, and
for which Executive has received more than one written warning that
specifies each area of Executive's violations, (5) Executive's use of
illegal drugs as evidenced by a drug test authorized by Company, (6)
Executive's final conviction (or the entry of a plea of nolo
contendere or equivalent plea) in a court of competent jurisdiction of
a felony, and (7) a breach by the Executive during the Employment
Period of the provisions of Sections 11, 12, 13 or 14 below, if such
breach results in a material injury to the Company.
"GOOD REASON" means the occurrence of any of the following
events without Executive's express written consent:
(1) A ten percent (10%) or greater reduction in
Executive's annual base salary; or
(2) Any breach by the Company or its successors
of any material provision of this Agreement; or
(3) A substantial and adverse change in the
Executive's duties, control, authority, status or position, or
the assignment to the Executive of any duties or
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responsibilities which are materially inconsistent with such
status or position, or a material reduction in the duties and
responsibilities previously exercised by the Executive, or a
loss of title, loss of office, loss of significant authority,
power or control, or any removal of Executive from, or any
failure to reappoint or reelect him to, such positions, except
in connection with the termination of his employment for
Cause, Disability or death; or
(4) Following a Change in Control (as defined in
Section 6(b)) any of the following events:
(A) the failure by the Company or its
successor to expressly assume and agree to continue
and perform this Agreement in the same manner and to
the same extent that the Company would be required to
perform if such Change in Control had not occurred;
(B) a relocation of more than
twenty-five (25) miles of Executive's principal
office from the location of such office immediately
prior to the Change in Control date;
(C) A substantial increase in the
business travel required of Executive by the Company
or its successor; or
(D) the Company or its successor fails
to continue in effect any pension plan,
health-and-accident plan, or disability income plan
in which Executive was participating at the time of
the Change in Control (or plans providing Executive
with substantially equal and similar benefits), or
the taking of any action by the Company or its
successor which would adversely affect Executive's
participation in or materially reduce his benefits
under any such plan that was enjoyed by him
immediately prior to the Change in Control.
(c) STOCK OPTIONS. In the event that there is a
termination of Executive's employment hereunder for any reason except
for Cause, Executive shall be entitled to exercise any and all
nonstatutory stock options (as opposed to any incentive stock options
described in Section 422 of the Internal Revenue Code) that were
previously granted to him by the Company, and are outstanding, vested
and unexercised as of his Termination Date, during the exercise period
ending on the shorter of (i) two (2) years from his Termination Date
or (ii) the expiration date of the stock option as specified in the
stock option plan or stock option agreement, as applicable,
notwithstanding any provision in such plan or agreement that provides
for a more limited time period to exercise stock options following
termination of employment; provided however, if said stock option plan
or stock option
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agreement provides therein for a longer period of time to exercise
such outstanding, vested and unexercised stock options following his
Termination Date, then such stock option plan or agreement shall
control and the remaining provisions of this Section 6(c) shall be
inapplicable and without further force or effect.
During the extension period specified in the previous
paragraph, if applicable, the Executive shall be considered an
employee of the Company who shall make himself available to provide
consulting services to the Company in consideration for such extension
of the option exercise period and any post-termination payments
provided to Executive under Section 6(a) or (b) of this Agreement. In
this regard, Executive agrees to be classified as an employee of the
Company solely for the limited purpose of making himself available to
provide consulting services on an as-needed basis; provided, however,
Executive hereby specifically waives any right, entitlement, claim or
demand to (i) any additional compensation for such consulting services
and (ii) coverage or benefits under any of the Company's employee
benefit plans or programs, or other perquisites, terms and conditions
of employment, except as expressly specified in other provisions of
this Agreement. Except as expressly provided in this Section 6(c),
the provision of consulting services by Executive shall not expand his
rights or duties under this Agreement. Executive hereby agrees to
provide, upon request of the Company, consulting services to the
Company on the following terms and conditions:
(1) Executive will make himself available, on an
as-needed basis, to provide consulting services to
the Company for up to three (3) days per month during
the period beginning on the day after his Termination
Date and ending on the last day of the extension
period for exercising stock options as provided in
the first paragraph of Section 6(c) above, subject to
the following conditions:
(A) At least five (5) days written advance notice
to Executive is provided by the Company;
(B) There is no concurrent illness of Executive
or his spouse;
(C) There is no prior commitment of Executive
including, without limitation, vacation or
attention to personal affairs; and
(D) No travel is required of Executive in excess
of 200 miles round-trip.
Executive, in any particular instance, may waive any
or all of the conditions set forth in clauses (A),
(B), (C) or (D) above in his complete discretion.
Any such waiver shall not be a continuing waiver and
shall not release Executive of any of his rights
hereunder.
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(2) Executive agrees to provide such information,
services, advice and recollection of events as may
from time to time be reasonably requested by, or on
behalf of, the Company regarding corporate,
regulatory or business matters of which Executive may
have knowledge, information or understanding,
including testifying truthfully in any litigation or
other proceedings involving the Employer, provided
that (i) Executive first determines that his
interests are not adverse, or potentially adverse, to
those of the Company, and (ii) the Company has
indemnified Executive to his satisfaction including,
without limitation, for reasonable attorney's fees
and costs. The parties hereto agree that it is the
quality, and not the quantity, of the consulting
services to be provided by Executive that is
important to the Company.
(3) The Company will reimburse Executive for all
reasonable out-of-pocket expenses incurred by
Executive in the course of his performance of
consulting services, including, without limitation,
supplies, mileage and travel expenses. Executive
agrees not to incur any expense, obligation, or
liability on behalf of the Company without its prior
written consent.
(4) The provision of consulting services by Executive for
the Company is non-exclusive and shall not, in any
way, limit the rights of Executive to seek and
maintain other employment or to perform compensatory
services on behalf of any other person or entity.
(5) The consulting services contemplated under this
Section 6(c) shall not be considered part of
Executive's Employment Period pursuant to Section 4,
nor affect his Termination Date.
(d) RELEASE OF GUARANTY ON COMPANY INDEBTEDNESS. In the
event that the employment of Executive hereunder is terminated for any
reason, including, without limitation, for Cause, death or Disability,
the Company shall immediately take such actions as are necessary or
appropriate to remove Executive as a guarantor or other party to (1)
that certain promissory note dated June 16, 1992 with debtor Arkansas
Energy Office (a division of Arkansas Industrial Development
Commission) in the face amount of $350,000 and (2) that certain loan
agreement dated September 1, 1990 with debtor Arkansas Development
Finance Authority in the face amount of $3,380,000. After the
Employment Period, Executive shall have no further responsibility or
liability under the promissory note and loan agreement referenced in
the immediately preceding sentence and Company shall take all such
action is necessary or desirable to effectuate the removal of
Executive from any capacity in which he was obligated under such
promissory note or loan agreement; it being the intent of this Section
6(d) for the Company to terminate the liability or responsibility of
Executive under such promissory note and loan agreement effective as
of the end of his Employment Period.
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7. NOTICE OF TERMINATION. Any termination by the Company or the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means
a written notice which indicates the specific termination provision of this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
8. NO MITIGATION REQUIRED. Executive shall not be required to
mitigate the amount of any payment provided for under this Agreement by seeking
other employment or in any other manner.
9. CHANGE IN CONTROL: REQUIREMENT OF BONUS PAYMENT IN CERTAIN
CIRCUMSTANCES.
(a) In the event that Executive is deemed to have
received an "excess parachute payment" (as such term is defined in
Section 280G(b) of the Code) which is subject to the excise taxes (the
"EXCISE TAXES") imposed by Section 4999 of the Code in respect of any
payment pursuant to this Agreement, or any other agreement, plan,
instrument or obligation, in whatever form, the Company shall make the
Bonus Payment (defined below) to Executive promptly after the date on
which Executive received or is deemed to have received any excess
parachute payment notwithstanding any contrary provision herein.
(b) The term "BONUS PAYMENT" means a cash payment in an
amount equal to the sum of (i) all Excise Taxes payable by Executive,
plus (ii) all additional Excise Taxes and federal or state income
taxes to the extent such taxes are imposed in respect of the Bonus
Payment, such that Executive shall be in the same after- tax position
and shall have received the same benefits that he would have received
if the Excise Taxes had not been imposed. For purposes of calculating
any income taxes attributable to the Bonus Payment, Executive shall be
deemed for all purposes to be paying income taxes at the highest
marginal federal income tax rate, taking into account any applicable
surtaxes and other generally applicable taxes which have the effect of
increasing the marginal federal income tax rate and, if applicable, at
the highest marginal state income tax rate, to which the Bonus Payment
and Executive are subject. An example of the calculation of the Bonus
Payment is set forth below: Assume that the Excise Tax rate is 20%,
the highest federal marginal income tax rate is 40% and Executive is
not subject to state income taxes. Further assume that Executive has
received an excess parachute payment in the amount of $200,000, on
which $40,000 in Excise Taxes are payable. The amount of the required
Bonus Payment is thus $100,000. The Bonus Payment of $100,000, less
additional Excise Taxes on the Bonus Payment of $20,000 (i.e.,
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20% x $100,000) and income taxes of $40,000 (i.e., 40% x $100,000),
yields $40,000, the amount of the Excise Taxes payable in respect of
the original excess parachute payment.
(c) Executive agrees to reasonably cooperate with the
Company to minimize the amount of the excess parachute payments,
including, without limitation, assisting the Company in establishing
that some or all of the payments received by Executive that are
"contingent on a change", as described in Section 280G(b)(2)(A)(i) of
the Code, are reasonable compensation for personal services actually
rendered by Executive before the date of such change or to be rendered
by Executive on or after the date of such change. In the event that
the Company is able to establish that the amount of the excess
parachute payments is less than originally anticipated by Executive,
Executive shall refund to the Company any excess Bonus Payment to the
extent not required to pay Excise Taxes or income taxes (including
those incurred in respect of receipt of the Bonus Payment).
Notwithstanding the foregoing, Executive shall not be required to take
any action which his attorney or tax advisor advises him in writing
(i) is improper or (ii) exposes Executive to material personal
liability. Executive may require the Company to deliver to Executive
an indemnification agreement in form and substance satisfactory to
Executive as a condition to taking any action required by this
subsection (c).
(d) The Company shall make any payment required to be
made under this Section 9 in cash and on demand. Any payment required
to be paid by the Company under this Section 9 which is not paid
within 30 days of receipt by the Company of Executive's written demand
therefor shall thereafter be deemed delinquent, and the Company shall
pay to Executive immediately upon demand interest at the highest
nonusurious rate per annum allowed by applicable law from the date
such payment becomes delinquent to the date of payment of such
delinquent sum with interest.
(e) In the event that there is any change to the Code
which results in the recodification of Section 280G or Section 4999 of
the Code, or in the event that either such section of the Code is
amended, replaced or supplemented by other provisions of the Code of
similar import ("SUCCESSOR PROVISIONS"), then this Agreement shall be
applied and enforced with respect to such new Code provisions in a
manner consistent with the intent of the parties as expressed herein,
which is to assure that Employee is in the same after-tax position and
has received the same benefits that he would have been in and received
if any taxes imposed by Section 4999 or any Successor Provisions had
not been imposed.
10. POST-TERMINATION MEDICAL COVERAGE. If the employment of
Executive is terminated for any reason except for Cause (as defined in Section
6(b)) or death, then the Company shall provide post-employment medical coverage
in accordance with the terms and conditions of this Section 10. The Company
shall continue to cover Executive and his spouse (hereinafter referred to as
"SPOUSE") and his eligible dependent children, if any, from the Termination
Date until two (2)
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years following the Termination Date, under the group health care plan
maintained by the Company to provide major medical insurance coverage for
employees and their dependents (such group medical plan or its successor shall
be hereinafter referred to as the "HEALTH CARE PLAN").
Executive, on behalf of himself and his Spouse and other dependents,
if any, shall be required to pay premiums for their coverage under the Health
Care Plan at the rates, if any, charged by the Company to active employees who
are senior officers of the Company at the time the premium is charged. Any
post-employment coverage under the Health Care Plan provided under this Section
10 shall run concurrently with COBRA continuation coverage under the Health
Care Plan and, therefore, Executive and the other qualifying beneficiaries
shall elect any COBRA continuation coverage offered to them under the Health
Care Plan following the Termination Date. The Company shall not be responsible
for the payment of any income or other taxes which may be imposed on Executive,
or on his Spouse or dependents, as the result of receiving coverage under the
Health Care Plan pursuant to this Section 10.
Executive, on behalf of himself and his Spouse and dependent, hereby
agree and consent to acquire and maintain any coverage that of any them are
entitled to at any time during the two year period (as specified above in this
Section 10) under the Medicare program or any similar or succeeding plan or
program that is sponsored or maintained by the United States Government or any
agency thereof (hereinafter referred to as "MEDICARE"). The coverage described
in the immediately preceding sentence includes, without limitation, parts A and
B of Medicare and any additional or successor parts of Medicare. Executive and
his Spouse further agree and consent to pay all required premiums and other
costs for Medicare coverage from their personal funds. Medicare coverage shall
be primary payor to the coverage provided under the Health Care Plan to the
extent permitted by applicable federal law.
11. CONFLICTS OF INTEREST. In keeping with his fiduciary duties
to Company, Executive hereby agrees that he shall not become involved in a
conflict of interest, or upon discovery thereof, allow such a conflict to
continue at any time during the Employment Period. Moreover, Executive agrees
that he shall immediately disclose to the Board of Directors any facts which
might involve a conflict of interest that has not been approved by the Board of
Directors.
Executive and Company recognize and acknowledge that it is not
possible to provide an exhaustive list of actions or interests which may
constitute a "conflict of interest." Moreover, Company and Executive recognize
there are many borderline situations. In some instances, full disclosure of
facts by the Executive to the Board of Directors may be all that is necessary
to enable Company to protect its interests. In others, if no improper
motivation appears to exist and Company's interests have not demonstrably
suffered, prompt elimination of the outside interest may suffice. In other
egregious instances, it may be necessary for Company to terminate Executive's
employment for Cause pursuant to Section 6(b) hereof. The Board of Directors
reserves the right to take such action as, in its good faith judgment, will
resolve the conflict of interest.
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Executive hereby agrees that any direct or indirect interest in,
connection with, or benefit from any outside activities, particularly
commercial activities, which interest might adversely affect the Company or any
of its affiliated entities, involves a possible conflict of interest.
Circumstances in which a conflict of interest on the part of Executive would or
might arise, and which should be reported immediately to the Board of
Directors, include, but are not limited to, any of the following:
(a) Ownership of more than a de minimis interest in any
lender, supplier, contractor, customer or other entity with which
Company or any of its affiliated entities does business;
(b) Misuse of information, property or facilities to
which Executive has access in a manner which is demonstrably injurious
to the interests of Company or any of its affiliated entities,
including its business, reputation or goodwill; or
(c) Materially trading in products or services connected
with products or services designed or marketed by or for the Company
or any of its affiliated entities.
For purposes of this Agreement, "AFFILIATED ENTITY" means any entity
which owns or controls, is owned or controlled by, or is under common ownership
or control with, the Company.
12. CONFIDENTIAL INFORMATION.
(a) CONFIDENTIAL INFORMATION DEFINED. Executive hereby
acknowledges that in his senior management position, he will create,
acquire and have access to confidential information and trade secrets
pertaining to the business of Company (hereafter "Confidential
Information" as defined below). Executive hereby acknowledges that
such Confidential Information is unique and valuable to Company's
business and that Company would suffer irreparable injury if
Confidential Information was divulged to the public or to persons or
entities in competition with Company. Therefore, Executive hereby
covenants and agrees to keep in strict secrecy and confidence, both
during and after the Employment Period, any Confidential Information.
Executive specifically agrees that he will not at any time disclose to
others, use, copy or permit to be copied, except in pursuance of his
duties on behalf of Company or with the prior consent of Company,
Confidential Information relating to the Company or any of its
affiliated entities. For purposes of this Agreement, "CONFIDENTIAL
INFORMATION" shall mean and include, without limitation, information
related to the business affairs, property, methods of operation,
future plans, financial information, customer or client information,
or other data which relates to the business or operations of Company
or any of its affiliated entities, and all other information obtained
by Executive from and during the Employment Period which concerns the
affairs of Company or any of its affiliated entities and which Company
has requested be held in confidence or could reasonably be expected to
desire be held in confidence, or the disclosure of which would likely
be embarrassing,
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detrimental or disadvantageous to the Company or any of its
affiliated entities, or its and their directors, officers, employees
or shareholders. Confidential Information, however, shall not include
information that is at the time of receipt by Executive in the public
domain or is otherwise generally known in the industry or subsequently
enters the public domain or becomes generally known in the industry
through no fault of Executive or breach of his duty under this Section
12.
(b) REQUIRED DISCLOSURE. In the event that Executive is
required by law which cannot be waived to disclose any Confidential
Information, Executive agrees that he will provide prompt notice of
such potential disclosure to Company so that an appropriate protective
order may be sought and/or a waiver of compliance with the provisions
of this Agreement may be granted. In the event that (i) such
protection or other remedy is not obtained or (ii) Company waives in
writing the compliance by Executive with this provision, Executive
agrees that he may furnish only that portion of the Confidential
Information which Executive is advised by written opinion of counsel
is legally required to be disclosed, and Executive shall exercise his
best efforts to obtain assurances that confidential treatment will be
accorded such Confidential Information.
(c) DELIVERY OF DOCUMENTS. Executive further agrees to
deliver to Company at the termination of his employment, all
correspondence, memoranda, notes, records, drawings, plans, customer
lists or other documents, and all copies thereof made, composed or
received by Executive, solely or jointly with others, and which are in
Executive's possession, custody or control at such date and which
relate in any manner to the past, present or anticipated business of
Company or any of its affiliated entities.
(d) REMEDIES. In the event of a breach or threatened
breach of any of the provisions of this Section 12, Company shall be
entitled to an injunction ordering the return of all such documents,
and any and all copies thereof, and restraining Executive from using
or disclosing, for his benefit or the benefit of others, in whole or
in part, any Confidential Information, including, but not limited to,
the Confidential Information which such documents contain, constitute
or embody. Executive further agrees that any breach or threatened
breach of any of the provisions of this Section 12 would cause
irreparable injury to Company, for which it would have no adequate
remedy at law. Nothing herein shall be construed as prohibiting
Company from pursuing any other remedies available to it for any such
breach or threatened breach, including the recovery of damages.
13. PROPERTY RIGHTS. In keeping with his fiduciary duties to
Company, Executive hereby covenants and agrees that during his Employment
Period, and for a period of one (1) year following his Termination Date,
Executive shall promptly disclose in writing to Company any and all
information, ideas, concepts, improvements, discoveries, inventions and other
intellectual properties, whether patentable or not, and whether or not reduced
to practice, which are conceived,
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developed, made or acquired by Executive, either individually or jointly with
others, and which relate to the business, products or services of Company or
any of its affiliated entities. In consideration for his employment hereunder,
Executive hereby specifically sells, assigns and transfers to Company all of
his worldwide right, title and interest in and to all such information, ideas,
concepts, improvements, discoveries, inventions and other intellectual
properties.
If during the Employment Period, Executive creates any original work
of authorship or other property fixed in any tangible medium of expression
which (a) is the subject matter of copyright (including computer programs) and
(b) relates to Company's present or planned business, products, or services,
whether such property is created solely by Executive or jointly with others,
such property shall be deemed a work for hire, with the copyright automatically
vesting in Company. To the extent that any such writing or other property is
determined not to be a work for hire for whatever reason, Executive hereby
consents and agrees to the unconditional waiver of "moral rights" in such
writing or other property, and to assign to Company all of his right, title and
interest, including copyright, in such writing or other property.
Executive hereby agrees to (a) assist Company or its nominee at all
times in the protection of any and all property subject to this Section 13, (b)
not to disclose any such property to others without the written consent of
Company or its nominee, except as required by his employment hereunder, and (c)
at the request of Company, to execute such assignments, certificates or other
interests as Company or its nominee may from time to time deem desirable to
evidence, establish, maintain, perfect, protect or enforce its rights, title or
interests in or to any such property.
14. AGREEMENT NOT TO COMPETE. Executive hereby recognizes and
acknowledges that: (a) in his executive capacity with Company he will be given
knowledge of, and access to, the Confidential Information (as described in
Section 12); (b) in the event that Executive was to enter into competition with
Company, Executive's knowledge of such Confidential Information would be of
invaluable benefit to a competitor of Company, and could cause irreparable harm
to Company's business interests; and (c) Executive's consent and agreement to
enter into the noncompetition provisions and covenants set forth herein is an
integral condition of this Agreement, without which Company would not have
agreed to provide Confidential Information to Executive nor to his
compensation, benefits, and other terms of this Agreement. Accordingly, in
consideration for his employment, compensation, benefits, access to and
entrustment of Confidential Information, and the goodwill, training and
experience provided to Executive during his Employment Period, Executive hereby
covenants, consents and agrees (regardless of whether or not there has been a
Change of Control) that during the Employment Period, and for a period of one
(1) year after his employment is terminated for any reason except termination
by the Company without Cause (as defined in Section 6(b)) or termination by
Executive for Good Reason (as defined in Section 6(b)), Executive shall not,
directly or indirectly, acting alone or in conjunction with others, for his own
account or for the account of others, including, without limitation, as an
officer, director, stockholder, owner, partner, joint venturer, employee,
promoter, consultant, agent, representative, or otherwise:
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(a) Solicit, canvass, or accept any fees or business from
any customer of Company for himself or any other person or entity
engaged in a "Similar Business to Company" (as defined below);
(b) Engage or participate in any Similar Business to
Company within any states of the United States in which the Company
transacts business on Executive's termination of employment date, or
in which, as of such termination date, the Company has made any plans
or proposals to transact business within one year from such
termination date (referred to herein as the "RESTRICTED AREA");
(c) Request or advise any service provider, supplier, or
customer to reduce or cancel any business that it may transact with
Company or any of its affiliated entities;
(d) Solicit, induce, or otherwise attempt to influence
any employee of the Company or any of its affiliated entities, to
terminate his or her relationship with the Company or any of its
affiliated entities; or
(e) Make any statement or perform any act intended to
advance an interest of an existing or prospective competitor of the
Company or any of its affiliated entities in any way that demonstrably
injures the reputation, goodwill or any other business interest of
Company or any of its affiliated entities.
For purposes of this Agreement, "SIMILAR BUSINESS TO COMPANY" means
any business or other enterprise that is competitive with the current or
planned businesses, products, services or operations of the Company or any of
its affiliated entities at the time of termination of Executive's employment
including, without limitation, municipal biosolids management. For purposes of
clarity, the non-compete and other provisions of this Section 14 shall not
apply to Executive if Executive's employment hereunder is terminated (i) by the
Company without Cause (as defined in Section 6(b)), or (ii) by the Executive
for Good Reason (as defined in Section 6(b)).
Executive hereby agrees that the limitations set forth above on his
rights to compete with Company after his termination of employment are
reasonable and necessary for the protection of Company. In this regard,
Executive specifically agrees that such limitations as to the period of time,
geographic area and types and scopes of restriction on his activities, as
specified above, are reasonable and necessary to protect the goodwill and other
business interests of Company. However, should the time period, the geographic
area or any other non-competition provision set forth herein be deemed invalid
or unenforceable in any respect, then Executive acknowledges and agrees that,
as set forth in Section 15 hereof, reformation may be made with respect to such
time period,
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geographic area or other non-competition provision in order to protect
Company's reasonable business interests to the maximum permissible extent.
15. REMEDIES. In the event of any pending, threatened or actual
breach of any of the covenants or provisions of Section 11, 12, 13 or 14, it is
understood and agreed by Executive that the remedy at law for a breach of any
of the covenants or provisions of these Sections may be inadequate and,
therefore, Company shall be entitled to a restraining order or injunctive
relief from any court of competent jurisdiction, in addition to any other
remedies at law and in equity. In the event that Company seeks to obtain a
restraining order or injunctive relief, Executive hereby agrees that Company
shall not be required to post any bond in connection therewith. Should a court
of competent jurisdiction or an arbitrator (pursuant to Section 24) declare any
provision of Section 11, 12, 13 or 14 to be unenforceable due to an
unreasonable restriction of duration or geographical area, or for any other
reason, such court or arbitrator is hereby granted the consent of each of the
Executive and Company to reform such provision and/or to grant the Company any
relief, at law or in equity, reasonably necessary to protect the reasonable
business interests of Company or any of its affiliated entities. Executive
hereby acknowledges and agrees that all of the covenants and other provisions
of Sections 11, 12, 13 and 14 are reasonable and necessary for the protection
of the Company's reasonable business interests. Executive hereby agrees that
if the Company prevails in any action, suit or proceeding with respect to any
matter arising out of or in connection with Section 11, 12, 13 or 14, Company
shall be entitled to all equitable and legal remedies, including, but not
limited to, injunctive relief and compensatory damages.
16. DEFENSE OF CLAIMS. Executive agrees that, during the
Employment Period and for a period of two (2) years after his Termination Date,
upon reasonable request from the Company, he will cooperate with the Company
and its affiliated entities in the defense of any claims or actions that may be
made by or against the Company or any of its affiliated entities that affect
his prior areas of responsibility, except if Executive's reasonable interests
are adverse to the Company (or affiliated entity) in such claim or action. To
the extent travel is required to comply with the requirements of this Section
16, the Company shall, to the extent possible, provide Executive with notice at
least 10 days prior to the date on which such travel would be required. The
Company agrees to promptly pay or reimburse Executive upon demand for all of
his reasonable travel and other direct expenses incurred, or to be reasonably
incurred, to comply with his obligations under this Section 16.
17. DETERMINATIONS BY THE BOARD OF DIRECTORS.
(a) TERMINATION OF EMPLOYMENT. Prior to a Change in
Control (as defined in Section 6(b)), any question as to whether and
when there has been a termination of Executive's employment, and the
cause of such termination, shall be determined by the Board of
Directors in its discretion.
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(b) COMPENSATION. Prior to a Change in Control (as
defined in Section 6(b)), any question regarding salary, bonus and
other compensation payable to Executive pursuant to this Agreement
shall be determined by the Committee in its discretion.
18. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and
deduct from any benefits and payments made or to be made pursuant to this
Agreement (a) all federal, state, local and other taxes as may be required
pursuant to any law or governmental regulation or ruling, (b) all other normal
employee deductions made with respect to Company's employees generally, and (c)
any advances made to Executive and owed to Company.
19. NONALIENATION. The right to receive payments under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge or encumbrance by Executive, his dependents or
beneficiaries, or to any other person who is or may become entitled to receive
such payments hereunder. The right to receive payments hereunder shall not be
subject to or liable for the debts, contracts, liabilities, engagements or
torts of any person who is or may become entitled to receive such payments, nor
may the same be subject to attachment or seizure by any creditor of such person
under any circumstances, and any such attempted attachment or seizure shall be
void and of no force and effect.
20. INCOMPETENT OR MINOR PAYEES. Should the Board of Directors
determine that any person to whom any payment is payable under this Agreement
has been determined to be legally incompetent or is a minor, any payment due
hereunder may, notwithstanding any other provision of this Agreement to the
contrary, be made in any one or more of the following ways: (a) directly to
such minor or person; (b) to the legal guardian or other duly appointed
personal representative of the person or estate of such minor or person; or (c)
to such adult or adults as have, in the good faith knowledge of the Board of
Directors, assumed custody and support of such minor or person; and any payment
so made shall constitute full and complete discharge of any liability under
this Agreement in respect to the amount paid.
21. SEVERABILITY. It is the desire of the parties hereto that
this Agreement be enforced to the maximum extent permitted by law, and should
any provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 24), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided,
however, if such provision cannot be reformed, it shall be deemed ineffective
and deleted herefrom without affecting any other provision of this Agreement.
22. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to
Sections hereof are for the purpose of reference only and shall in no way
limit, define or otherwise affect the provisions hereof. Any and all Exhibits
referred to in this Agreement are, by such reference, incorporated herein and
made a part hereof for all purposes. The words "herein", "hereof", "hereunder"
and other compounds of the word "here" shall refer to the entire Agreement and
not to any particular provision hereof.
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23. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW.
24. ARBITRATION.
(a) ARBITRABLE MATTERS. If any dispute or controversy
arises between Executive and the Company as to their respective rights
or obligations under this Agreement, then either party may submit the
dispute or controversy to arbitration under the then-current National
Employment Dispute Resolution Rules of the American Arbitration
Association (AAA) (the "Rules"); provided, however, the Company shall
retain its rights to seek a restrainin g order or injunctive relief
pursuant to Section 15. Any arbitration hereunder shall be conducted
before a single arbitrator unless the parties mutually agree to a
panel of three arbitrators. The site for any arbitration hereunder
shall be in Montgomery County or Harris County, Texas, unless
otherwise mutually agreed by the parties.
(b) SUBMISSION TO ARBITRATION. The party submitting any
matter to arbitration shall do so in accordance with the Rules.
Notice to the other party shall state the question or questions to be
submitted for decision or award by arbitration. Notwithstanding any
provision in this Section 24, Executive shall be entitled to seek
specific performance of the Executive's right to be paid during the
pendency of any dispute or controversy arising under this Agreement.
In order to prevent irreparable harm, the arbitrator may grant
temporary or permanent injunctive or other equitable relief for the
protection of property rights.
(c) ARBITRATION PROCEDURES. The arbitrator shall set the
date, time and place for each hearing, and shall give the parties
advance written notice in accordance with the Rules. Any party may be
represented by counsel or other authorized representative at any
hearing. The arbitration shall be governed by the Federal Arbitration
Act, 9 U.S.C. Sections 1 et. seq. (or its successor). The arbitrator
shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas to the claims asserted to the extent
that the arbitrator determines that federal law is not controlling.
(d) COMPLIANCE WITH AWARD.
(1) Any award of an arbitrator shall be final and
binding upon the parties to such arbitration, and each party
shall immediately make such changes in its conduct or provide
such monetary payment or other relief as such award requires.
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The parties agree that the award of the arbitrator shall be
final and binding and shall be subject only to the judicial
review permitted by the Federal Arbitration Act.
(2) The parties hereto agree that the arbitration
award may be entered with any court having jurisdiction and
the award may then be enforced as between the parties, without
further evidentiary proceedings, the same as if entered by the
court at the conclusion of a judicial proceeding in which no
appeal was taken. The Company and the Executive hereby agree
that a judgment upon any award rendered by an arbitrator may
be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(e) COSTS AND EXPENSES. Each party shall pay any
monetary amount required by the arbitrator's award, and the fees,
costs and expenses for its own counsel, witnesses and exhibits, unless
otherwise determined by the arbitrator in the award. The compensation
and costs and expenses assessed by the arbitrator and AAA shall be
paid by the losing party unless otherwise determined by the arbitrator
in the award. If court proceedings to stay litigation or compel
arbitration are necessary, the party who unsuccessfully opposes such
proceedings shall pay all associated costs, expenses, and attorney's
fees which are reasonably incurred by the other party as determined by
the arbitrator.
25. BINDING EFFECT: THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, and to
their respective heirs, executors, personal representatives, successors and
permitted assigns hereunder, but otherwise this Agreement shall not be for the
benefit of any third parties.
26. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the
entire agreement of the parties with respect to Executive's employment and the
other matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and understandings, oral or written, between the
parties hereto concerning the subject matter hereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both
parties hereto.
27. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the
intention of the parties hereto, the respective rights and obligations of said
parties, including, but not limited to, the rights and obligations set forth in
Sections 6 through 17 and 24 hereof, shall survive any termination or
expiration of this Agreement.
28. WAIVER OF BREACH. No waiver by either party hereto of a
breach of any provision of this Agreement by any other party, or of compliance
with any condition or provision of this Agreement to be performed by such other
party, will operate or be construed as a waiver of any subsequent breach by
such other party or any similar or dissimilar provision or condition at the
same
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or any subsequent time. The failure of either party hereto to take any action
by reason of any breach will not deprive such party of the right to take action
at any time while such breach continues.
29. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of Company and its affiliated entities, and its and
their successors, and upon any person or entity acquiring, whether by merger,
consolidation, purchase of assets or otherwise, all or substantially all of the
assets and business of Company. Any reference herein to "Company" shall mean
the Company as first written above, as well as any successor or successors
thereto.
This Agreement is personal to Executive, and Executive may not assign,
delegate or otherwise transfer all or any of his rights, duties or obligations
hereunder without the consent of the Board of Directors. Any attempt by the
Executive to assign, delegate or otherwise transfer this Agreement, any portion
hereof, or his rights, duties or obligations hereunder without the prior
written consent of the Board of Directors shall be deemed void and of no force
and effect.
30. NOTICES. Notices provided for in this Agreement shall be in
writing and shall be deemed to have been duly received (a) when delivered in
person or sent by facsimile transmission, (b) on the first business day after
it is sent by air express overnight courier service, or (c) on the third
business day following deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed, to the
following address, as applicable:
(1) If to Company, addressed to:
Synagro Technologies, Inc.
16000 Stuebner Airline, Suite 420
Spring, Texas 77379
Attention: Secretary
(2) If to Executive, addressed to the address set forth
below his name on the execution page hereof;
or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 30.
31. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a copy hereof containing multiple
signature pages, each signed by one party hereto, but together signed by both
of the parties hereto.
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32. EXECUTIVE ACKNOWLEDGMENT/NO STRICT CONSTRUCTION. The
Executive represents to Company that he is knowledgeable and sophisticated as
to business matters, including the subject matter of this Agreement, that he
has read the Agreement and that he understands its terms and conditions. The
parties hereto agree that the language used in this Agreement shall be deemed
to be the language chosen by them to express their mutual intent, and no rule
of strict construction shall be applied against either party hereto. Executive
also represents that he is free to enter into this Agreement including, without
limitation, that he is not subject to any other contract of employment or
covenant not to compete that would conflict in any way with his duties under
this Agreement. Executive acknowledges that he has had the opportunity to
consult with counsel of his choice, independent of Employer's counsel,
regarding the terms and conditions of this Agreement and has done so to the
extent that he, in his unfettered discretion, deemed to be appropriate.
33. SUPERSEDING AGREEMENT. This Employment Agreement shall
supersede any prior employment agreement entered into between the Company and
Executive.
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IN WITNESS WHEREOF, the Executive has hereunto set his hand,
and Company has caused these presents to be executed in its name and
on its behalf, to be effective as of the Effective Date first above
written.
<TABLE>
<S> <C>
WITNESS: EXECUTIVE:
Signature: Signature:
--------------------------------------- --------------------------------------------------------
Printed Name: Printed Name:
------------------------------------ -----------------------------------------------------
Date: Date:
-------------------------------------------- -------------------------------------------------------------
Address for Notices:
---------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
ATTEST: SYNAGRO TECHNOLOGIES, INC.:
By: By:
---------------------------------------------- ---------------------------------------------------------------
Title: Its:
------------------------------------------- --------------------------------------------------------------
Printed Name: Printed Name:
------------------------------------ ----------------------------------------------------
Date: Date:
-------------------------------------------- -------------------------------------------------------------
</TABLE>
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<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the 16th day
of April, 1998 (the "EFFECTIVE DATE"), by and between Synagro Technologies,
Inc., a Delaware corporation (hereafter "COMPANY") and Daniel L. Shook
(hereafter "EXECUTIVE"), an individual;
W I T N E S S E T H:
WHEREAS, Company wishes to secure the services of the Executive
subject to the terms and conditions hereafter set forth; and
WHEREAS, the Executive is willing to enter into this Agreement upon
the terms and conditions hereafter set forth,
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. During the Employment Period (as defined in
Section 4 hereof), the Company shall employ Executive, and Executive shall
serve, as Chief Financial Officer, Vice President of Finance, Treasurer and
Secretary. Executive's principal place of employment shall be at the Company's
principal corporate offices in Spring, Texas or at such other location for the
Company's principal corporate offices during the Employment Period.
2. COMPENSATION. The Company shall pay or cause to be paid to
Executive during the Employment Period an annual base salary for his services
under this Agreement of not less than $133,750, payable in equal monthly or
semi-monthly installments in accordance with the Company's normal payroll
procedures. The Executive's base salary shall be subject to annual review and
may be increased, depending upon the performance of the Company and Executive,
upon the recommendation of the Board of Directors of the Company (hereafter
"BOARD OF DIRECTORS"). Nothing contained herein shall preclude the payment of
a bonus, supplemental or incentive compensation to Executive provided that the
Board of Directors authorizes any such compensation payment.
3. DUTIES AND RESPONSIBILITIES OF EXECUTIVE. During the
Employment Period, Executive shall devote his services full time to the
business of the Company and perform the duties and responsibilities assigned to
him by the Board of Directors to the best of his ability and with reasonable
diligence. In determining Executive's duties and responsibilities, the Board
of Directors shall act in good faith and shall not assign duties and
responsibilities to Executive that are not appropriate or customary with
respect to the position of Executive hereunder. This Section 3 shall not be
construed as preventing Executive from engaging in reasonable volunteer
services for
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charitable, educational or civic organizations, or from investing his assets in
such form or manner as will not require a material amount of his services in
the operations of the companies or businesses in which such investments are
made.
4. TERM OF EMPLOYMENT. Executive's term of employment with the
Company under this Agreement shall be for twenty-four (24) consecutive months
beginning on the Effective Date and continuing thereafter so that the remaining
term of employment hereunder is always 24 months, unless Notice of Termination
pursuant to Section 7 is given by either the Company or Executive to the other
party. The Company and Executive shall each have the right to give Notice of
Termination at will, with or without cause, at any time, subject to the terms
of this Agreement regarding rights and duties of the parties upon termination
of employment. This "evergreen" 24-month employment period hereunder shall be
referred to herein as the "TERM OF EMPLOYMENT." The period from the Effective
Date through the date of Executive's termination of employment for whatever
reason shall be referred to herein as the "EMPLOYMENT PERIOD."
5. BENEFITS. Subject to the terms and conditions of this
Agreement, during the Employment Period, Executive shall be entitled to the
following:
(a) REIMBURSEMENT OF EXPENSES. The Company shall pay or
reimburse Executive for all reasonable travel, entertainment and other
reasonable expenses paid or incurred by Executive in performing his
business obligations hereunder. The Company shall also provide
Executive with suitable office space and secretarial help. Executive
shall provide substantiating documentation for expense reimbursement
requests as reasonably required by the Company for its tax and other
business records.
(b) EXPENSE ALLOWANCES. Executive shall be entitled to:
(i) a car allowance of $800 per month plus additional reimbursement
for fuel expenses, and (ii) if for any reason Employee shall not be
covered by a health insurance policy of Employer, a medical insurance
coverage expense allowance of $360 per month.
(c) OTHER BENEFITS. Executive shall be entitled to
participate in any pension, profit-sharing, stock option, deferred
compensation, or similar plan or program of the Company established by
the Company, to the extent that he is eligible under the provisions
thereof. Executive shall also be entitled to participate in any group
insurance, hospitalization, medical, health and accident, disability
or similar plan or program established by the Company, to the extent
that he is eligible under the provisions thereof.
(d) PAID VACATION. Executive shall be entitled to the
number of days of paid vacation each year that is accorded under the
Company's vacation policy as in effect from time to time. Without
limiting the generality of the foregoing, Executive shall initially be
entitled to four (4) weeks' of paid vacation during each 12-month
period of employment with
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the Company (which shall accrue monthly on a pro rata basis). Unused
vacation days in one year shall be carried forward for a period not to
exceed 12 months in accordance with Company's vacation policy as in
effect from time to time.
6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right
to compensation and benefits for periods after the date on which his employment
with the Company terminates for whatever reason (the "TERMINATION DATE") shall
be determined in accordance with this Section 6,
(a) MINIMUM PAYMENTS. Executive shall be entitled to the
following payments, in addition to any payments or benefits to which
the Executive is entitled under the terms of any employee benefit plan
or the following provisions of this Section 6:
(1) his unpaid salary for the full month in which
his Termination Date occurred; provided, however, if Executive
is terminated for Cause pursuant to Section 6(b) below, he
shall only be entitled to receive his accrued but unpaid
salary through his Termination Date; and
(2) his accrued but unpaid vacation pay for the
period ending on his Termination Date in accordance with the
Company's vacation pay policy as in effect at such time.
(b) SEVERANCE PAYMENT. Notwithstanding any other
provision of this Agreement to the contrary, in the event that (i)
Executive's employment hereunder is terminated by the Company at any
time for any reason except (A) for Cause (as defined below) or (B)
Executive's death or Disability (as defined below) or (ii) Executive
terminates his own employment hereunder at any time for Good Reason
(as defined below), then, in either such event, Executive shall be
entitled to receive, and the Company shall be obligated to pay, a lump
sum cash payment equal to two hundred percent (200%) of the sum of X
and Y. For purposes of the immediately preceding sentence, X is the
present value of Executive's base annual salary pursuant to Section 2
or the annual salary then being paid to him, whichever is greater, and
Y is the Executive's bonus payment(s) made by the Company to Executive
in the Company's fiscal year immediately preceding the fiscal year in
which his termination of employment occurred. For purposes of the
immediately preceding sentence, the "present value" of such base
annual salary shall be determined in accordance with the regulations
under Section 280G of the Code (as defined below). Also, except as
otherwise specifically provided in this Section 6(b), such severance
payment shall be in addition to, and shall not reduce or offset, any
other payments that are due to Executive from the Company or any other
source or under any other agreements, except any severance pay plan or
program maintained by the Company that covers employees generally.
The provisions of this Section 6(b) shall supersede any conflicting
provisions of this Agreement but shall not be construed to curtail,
offset or limit Executive's rights to any other payments, whether
contingent upon
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a Change in Control (as defined below) or otherwise, under the
Agreement or any other agreement, contract, plan or other source of
payment except as specifically provided herein. In addition, in the
event of a Change in Control, Executive shall be entitled to receive
the bonus payment described in Section 9 hereof, if applicable.
Notwithstanding any provision of this Section 6(b) to the
contrary, the Executive must first execute an appropriate release and
waiver agreement whereby Executive agrees to release and waive, in
return for the severance payment described in this Section 6(b), any
claims that he may have against the Company for (1) unlawful
discrimination (including, without limitation, age discrimination) and
(2) severance pay under any other severance pay plan or program
maintained by the Company that covers Executive; provided, however,
such agreement shall not release or waive any claims that may be
brought by Executive for payments that may be due under this
Agreement, without Executive's express written consent. Any severance
payment required under this Section 6(b)shall be paid to Executive
within twenty (20) days after Executive executes such release and
waiver agreement, unless the parties agree in writing before then to
another payment date or method of payment, e.g., installment payments.
Executive shall not be required to mitigate any damages under this
Section 6(b) or any other provision of this Agreement.
A "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred if any of the following shall have taken place: (1) a change
in control is reported by the Company in response to either Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") or Item 1 of Form 8-K
promulgated under the Exchange Act, or any successor provisions
thereto; (2) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), or any successor
provisions thereto, directly or indirectly, of securities of the
Company representing twenty-five (25%) or more of the combined voting
power of the Company's then-outstanding securities; (3) the approval
by the stockholders of the Company of a reorganization, merger, or
consolidation, in each case with respect to which persons who were
stockholders of the Company immediately prior to such reorganization,
merger, or consolidation do not, immediately thereafter, own or
control more than fifty percent (50%) of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding
securities, or a liquidation or dissolution of the Company or of the
sale of all or substantially all of the Company's assets; (4) in the
event any person shall be elected by the stockholders of the Company
to the Board of Directors who shall have not been nominated for
election by a majority of the Board of Directors or any duly appointed
committee thereof; or (5) following the election or removal of
directors, a majority of the Board of Directors consists of
individuals who were not members of the Board of Directors two (2)
years before such election or removal, unless the election of each
director who is not a director at the beginning of such two-year
period has been approved in
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advance by directors representing at least a majority of the directors
then in office who were directors at the beginning of the two-year
period.
"DISABILITY" means a "permanent and total disability" as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "CODE") and Treasury regulations thereunder. Evidence of
such Disability shall be certified by a physician acceptable to both
the Company and Executive. In the event that the parties are not able
to agree on the choice of a physician, each shall select a physician
who, in turn, shall select a third physician to render such
certification. All costs relating to the determination of whether
Executive has incurred a Disability shall be paid by the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
References in this Agreement to any Section of the Code shall include
any "Successor Provisions" as defined in Section 9(e).
"CAUSE" means a termination of employment directly resulting
from (1) the Executive having engaged in intentional misconduct
causing a serious and material violation by the Company of any state
or federal laws, (2) the Executive having engaged in a material theft
of corporate funds or corporate assets or in a material act of fraud
upon the Company, (3) an act of personal dishonesty taken by the
Executive that was intended to result in substantial personal
enrichment of the Executive at the expense of the Company, (4)
repeated violations by the Executive of Executive's material
obligations under this Agreement or under written policies of the
Company which are demonstrably willful on the Executive's part, and
for which Executive has received more than one written warning that
specifies each area of Executive's violations, (5) Executive's use of
illegal drugs as evidenced by a drug test authorized by Company, (6)
Executive's final conviction (or the entry of a plea of nolo
contendere or equivalent plea) in a court of competent jurisdiction of
a felony, and (7) a breach by the Executive during the Employment
Period of the provisions of Sections 11, 12, 13 or 14 below, if such
breach results in a material injury to the Company.
"GOOD REASON" means the occurrence of any of the following
events without Executive's express written consent:
(1) A ten percent (10%) or greater reduction in
Executive's annual base salary; or
(2) Any breach by the Company or its successors
of any material provision of this Agreement; or
(3) A substantial and adverse change in the
Executive's duties, control, authority, status or position, or
the assignment to the Executive of any duties or
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responsibilities which are materially inconsistent with such
status or position, or a material reduction in the duties and
responsibilities previously exercised by the Executive, or a
loss of title, loss of office, loss of significant authority,
power or control, or any removal of Executive from, or any
failure to reappoint or reelect him to, such positions, except
in connection with the termination of his employment for
Cause, Disability or death; or
(4) Following a Change in Control (as defined in
Section 6(b)) any of the following events:
(A) the failure by the Company or its
successor to expressly assume and agree to continue
and perform this Agreement in the same manner and to
the same extent that the Company would be required to
perform if such Change in Control had not occurred;
(B) a relocation of more than
twenty-five (25) miles of Executive's principal
office from the location of such office immediately
prior to the Change in Control date;
(C) A substantial increase in the
business travel required of Executive by the Company
or its successor; or
(D) the Company or its successor fails
to continue in effect any pension plan,
health-and-accident plan, or disability income plan
in which Executive was participating at the time of
the Change in Control (or plans providing Executive
with substantially equal and similar benefits), or
the taking of any action by the Company or its
successor which would adversely affect Executive's
participation in or materially reduce his benefits
under any such plan that was enjoyed by him
immediately prior to the Change in Control.
(c) STOCK OPTIONS. In the event that there is a
termination of Executive's employment hereunder for any reason except
for Cause, Executive shall be entitled to exercise any and all
nonstatutory stock options (as opposed to any incentive stock options
described in Section 422 of the Internal Revenue Code) that were
previously granted to him by the Company, and are outstanding, vested
and unexercised as of his Termination Date, during the exercise period
ending on the shorter of (i) two (2) years from his Termination Date
or (ii) the expiration date of the stock option as specified in the
stock option plan or stock option agreement, as applicable,
notwithstanding any provision in such plan or agreement that provides
for a more limited time period to exercise stock options following
termination of employment; provided however, if said stock option plan
or stock option
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agreement provides therein for a longer period of time to exercise
such outstanding, vested and unexercised stock options following his
Termination Date, then such stock option plan or agreement shall
control and the remaining provisions of this Section 6(c) shall be
inapplicable and without further force or effect.
During the extension period specified in the previous
paragraph, if applicable, the Executive shall be considered an
employee of the Company who shall make himself available to provide
consulting services to the Company in consideration for such extension
of the option exercise period and any post-termination payments
provided to Executive under Section 6(a) or (b) of this Agreement. In
this regard, Executive agrees to be classified as an employee of the
Company solely for the limited purpose of making himself available to
provide consulting services on an as-needed basis; provided, however,
Executive hereby specifically waives any right, entitlement, claim or
demand to (i) any additional compensation for such consulting services
and (ii) coverage or benefits under any of the Company's employee
benefit plans or programs, or other perquisites, terms and conditions
of employment, except as expressly specified in other provisions of
this Agreement. Except as expressly provided in this Section 6(c),
the provision of consulting services by Executive shall not expand his
rights or duties under this Agreement. Executive hereby agrees to
provide, upon request of the Company, consulting services to the
Company on the following terms and conditions:
(1) Executive will make himself available, on an
as-needed basis, to provide consulting services to
the Company for up to three (3) days per month during
the period beginning on the day after his Termination
Date and ending on the last day of the extension
period for exercising stock options as provided in
the first paragraph of Section 6(c) above, subject to
the following conditions:
(A) At least five (5) days written advance notice
to Executive is provided by the Company;
(B) There is no concurrent illness of Executive
or his spouse;
(C) There is no prior commitment of Executive
including, without limitation, vacation or
attention to personal affairs; and
(D) No travel is required of Executive in excess
of 200 miles round-trip.
Executive, in any particular instance, may waive any
or all of the conditions set forth in clauses (A),
(B), (C) or (D) above in his complete discretion.
Any such waiver shall not be a continuing waiver and
shall not release Executive of any of his rights
hereunder.
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(2) Executive agrees to provide such information,
services, advice and recollection of events as may
from time to time be reasonably requested by, or on
behalf of, the Company regarding corporate,
regulatory or business matters of which Executive may
have knowledge, information or understanding,
including testifying truthfully in any litigation or
other proceedings involving the Employer, provided
that (i) Executive first determines that his
interests are not adverse, or potentially adverse, to
those of the Company, and (ii) the Company has
indemnified Executive to his satisfaction including,
without limitation, for reasonable attorney's fees
and costs. The parties hereto agree that it is the
quality, and not the quantity, of the consulting
services to be provided by Executive that is
important to the Company.
(3) The Company will reimburse Executive for all
reasonable out-of-pocket expenses incurred by
Executive in the course of his performance of
consulting services, including, without limitation,
supplies, mileage and travel expenses. Executive
agrees not to incur any expense, obligation, or
liability on behalf of the Company without its prior
written consent.
(4) The provision of consulting services by Executive for
the Company is non-exclusive and shall not, in any
way, limit the rights of Executive to seek and
maintain other employment or to perform compensatory
services on behalf of any other person or entity.
(5) The consulting services contemplated under this
Section 6(c) shall not be considered part of
Executive's Employment Period pursuant to Section 4,
nor affect his Termination Date.
7. NOTICE OF TERMINATION. Any termination by the Company or the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means
a written notice which indicates the specific termination provision of this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
8. NO MITIGATION REQUIRED. Executive shall not be required to
mitigate the amount of any payment provided for under this Agreement by seeking
other employment or in any other manner.
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9. CHANGE IN CONTROL: REQUIREMENT OF BONUS PAYMENT IN CERTAIN
CIRCUMSTANCES.
(a) In the event that Executive is deemed to have
received an "excess parachute payment" (as such term is defined in
Section 280G(b) of the Code) which is subject to the excise taxes (the
"EXCISE TAXES") imposed by Section 4999 of the Code in respect of any
payment pursuant to this Agreement, or any other agreement, plan,
instrument or obligation, in whatever form, the Company shall make the
Bonus Payment (defined below) to Executive promptly after the date on
which Executive received or is deemed to have received any excess
parachute payment notwithstanding any contrary provision herein.
(b) The term "BONUS PAYMENT" means a cash payment in an
amount equal to the sum of (i) all Excise Taxes payable by Executive,
plus (ii) all additional Excise Taxes and federal or state income
taxes to the extent such taxes are imposed in respect of the Bonus
Payment, such that Executive shall be in the same after- tax position
and shall have received the same benefits that he would have received
if the Excise Taxes had not been imposed. For purposes of calculating
any income taxes attributable to the Bonus Payment, Executive shall be
deemed for all purposes to be paying income taxes at the highest
marginal federal income tax rate, taking into account any applicable
surtaxes and other generally applicable taxes which have the effect of
increasing the marginal federal income tax rate and, if applicable, at
the highest marginal state income tax rate, to which the Bonus Payment
and Executive are subject. An example of the calculation of the Bonus
Payment is set forth below: Assume that the Excise Tax rate is 20%,
the highest federal marginal income tax rate is 40% and Executive is
not subject to state income taxes. Further assume that Executive has
received an excess parachute payment in the amount of $200,000, on
which $40,000 in Excise Taxes are payable. The amount of the required
Bonus Payment is thus $100,000. The Bonus Payment of $100,000, less
additional Excise Taxes on the Bonus Payment of $20,000 (i.e., 20% x
$100,000) and income taxes of $40,000 (i.e., 40% x $100,000), yields
$40,000, the amount of the Excise Taxes payable in respect of the
original excess parachute payment.
(c) Executive agrees to reasonably cooperate with the
Company to minimize the amount of the excess parachute payments,
including, without limitation, assisting the Company in establishing
that some or all of the payments received by Executive that are
"contingent on a change", as described in Section 280G(b)(2)(A)(i) of
the Code, are reasonable compensation for personal services actually
rendered by Executive before the date of such change or to be rendered
by Executive on or after the date of such change. In the event that
the Company is able to establish that the amount of the excess
parachute payments is less than originally anticipated by Executive,
Executive shall refund to the Company any excess Bonus Payment to the
extent not required to pay Excise Taxes or income taxes (including
those incurred in respect of receipt of the Bonus Payment).
Notwithstanding the foregoing, Executive shall not be required to take
any action which his attorney or tax advisor advises him in writing
(i) is improper or (ii) exposes Executive to material personal
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liability. Executive may require the Company to deliver to Executive
an indemnification agreement in form and substance satisfactory to
Executive as a condition to taking any action required by this
subsection (c).
(d) The Company shall make any payment required to be
made under this Section 9 in cash and on demand. Any payment required
to be paid by the Company under this Section 9 which is not paid
within 30 days of receipt by the Company of Executive's written demand
therefor shall thereafter be deemed delinquent, and the Company shall
pay to Executive immediately upon demand interest at the highest
nonusurious rate per annum allowed by applicable law from the date
such payment becomes delinquent to the date of payment of such
delinquent sum with interest.
(e) In the event that there is any change to the Code
which results in the recodification of Section 280G or Section 4999 of
the Code, or in the event that either such section of the Code is
amended, replaced or supplemented by other provisions of the Code of
similar import ("SUCCESSOR PROVISIONS"), then this Agreement shall be
applied and enforced with respect to such new Code provisions in a
manner consistent with the intent of the parties as expressed herein,
which is to assure that Employee is in the same after-tax position and
has received the same benefits that he would have been in and received
if any taxes imposed by Section 4999 or any Successor Provisions had
not been imposed.
10. POST-TERMINATION MEDICAL COVERAGE. If the employment of
Executive is terminated for any reason except for Cause (as defined in Section
6(b)) or death, then the Company shall provide post-employment medical coverage
in accordance with the terms and conditions of this Section 10. The Company
shall continue to cover Executive and his spouse (hereinafter referred to as
"SPOUSE") and his eligible dependent children, if any, from the Termination
Date until two (2) years following the Termination Date, under the group health
care plan maintained by the Company to provide major medical insurance coverage
for employees and their dependents (such group medical plan or its successor
shall be hereinafter referred to as the "HEALTH CARE PLAN").
Executive, on behalf of himself and his Spouse and other dependents,
if any, shall be required to pay premiums for their coverage under the Health
Care Plan at the rates, if any, charged by the Company to active employees who
are senior officers of the Company at the time the premium is charged. Any
post-employment coverage under the Health Care Plan provided under this Section
10 shall run concurrently with COBRA continuation coverage under the Health
Care Plan and, therefore, Executive and the other qualifying beneficiaries
shall elect any COBRA continuation coverage offered to them under the Health
Care Plan following the Termination Date. The Company shall not be responsible
for the payment of any income or other taxes which may be imposed on Executive,
or on his Spouse or dependents, as the result of receiving coverage under the
Health Care Plan pursuant to this Section 10.
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Executive, on behalf of himself and his Spouse and dependent, hereby
agree and consent to acquire and maintain any coverage that of any them are
entitled to at any time during the two year period (as specified above in this
Section 10) under the Medicare program or any similar or succeeding plan or
program that is sponsored or maintained by the United States Government or any
agency thereof (hereinafter referred to as "MEDICARE"). The coverage described
in the immediately preceding sentence includes, without limitation, parts A and
B of Medicare and any additional or successor parts of Medicare. Executive and
his Spouse further agree and consent to pay all required premiums and other
costs for Medicare coverage from their personal funds. Medicare coverage shall
be primary payor to the coverage provided under the Health Care Plan to the
extent permitted by applicable federal law.
11. CONFLICTS OF INTEREST. In keeping with his fiduciary duties
to Company, Executive hereby agrees that he shall not become involved in a
conflict of interest, or upon discovery thereof, allow such a conflict to
continue at any time during the Employment Period. Moreover, Executive agrees
that he shall immediately disclose to the Board of Directors any facts which
might involve a conflict of interest that has not been approved by the Board of
Directors.
Executive and Company recognize and acknowledge that it is not
possible to provide an exhaustive list of actions or interests which may
constitute a "conflict of interest." Moreover, Company and Executive recognize
there are many borderline situations. In some instances, full disclosure of
facts by the Executive to the Board of Directors may be all that is necessary
to enable Company to protect its interests. In others, if no improper
motivation appears to exist and Company's interests have not demonstrably
suffered, prompt elimination of the outside interest may suffice. In other
egregious instances, it may be necessary for Company to terminate Executive's
employment for Cause pursuant to Section 6(b) hereof. The Board of Directors
reserves the right to take such action as, in its good faith judgment, will
resolve the conflict of interest.
Executive hereby agrees that any direct or indirect interest in,
connection with, or benefit from any outside activities, particularly
commercial activities, which interest might adversely affect the Company or any
of its affiliated entities, involves a possible conflict of interest.
Circumstances in which a conflict of interest on the part of Executive would or
might arise, and which should be reported immediately to the Board of
Directors, include, but are not limited to, any of the following:
(a) Ownership of more than a de minimis interest in any
lender, supplier, contractor, customer or other entity with which
Company or any of its affiliated entities does business;
(b) Misuse of information, property or facilities to
which Executive has access in a manner which is demonstrably injurious
to the interests of Company or any of its affiliated entities,
including its business, reputation or goodwill; or
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(c) Materially trading in products or services connected
with products or services designed or marketed by or for the Company
or any of its affiliated entities.
For purposes of this Agreement, "AFFILIATED ENTITY" means any entity
which owns or controls, is owned or controlled by, or is under common ownership
or control with, the Company.
12. CONFIDENTIAL INFORMATION.
(a) CONFIDENTIAL INFORMATION DEFINED. Executive hereby
acknowledges that in his senior management position, he will create,
acquire and have access to confidential information and trade secrets
pertaining to the business of Company (hereafter "Confidential
Information" as defined below). Executive hereby acknowledges that
such Confidential Information is unique and valuable to Company's
business and that Company would suffer irreparable injury if
Confidential Information was divulged to the public or to persons or
entities in competition with Company. Therefore, Executive hereby
covenants and agrees to keep in strict secrecy and confidence, both
during and after the Employment Period, any Confidential Information.
Executive specifically agrees that he will not at any time disclose to
others, use, copy or permit to be copied, except in pursuance of his
duties on behalf of Company or with the prior consent of Company,
Confidential Information relating to the Company or any of its
affiliated entities. For purposes of this Agreement, "CONFIDENTIAL
INFORMATION" shall mean and include, without limitation, information
related to the business affairs, property, methods of operation,
future plans, financial information, customer or client information,
or other data which relates to the business or operations of Company
or any of its affiliated entities, and all other information obtained
by Executive from and during the Employment Period which concerns the
affairs of Company or any of its affiliated entities and which Company
has requested be held in confidence or could reasonably be expected to
desire be held in confidence, or the disclosure of which would likely
be embarrassing, detrimental or disadvantageous to the Company or any
of its affiliated entities, or its and their directors, officers,
employees or shareholders. Confidential Information, however, shall
not include information that is at the time of receipt by Executive in
the public domain or is otherwise generally known in the industry or
subsequently enters the public domain or becomes generally known in
the industry through no fault of Executive or breach of his duty under
this Section 12.
(b) REQUIRED DISCLOSURE. In the event that Executive is
required by law which cannot be waived to disclose any Confidential
Information, Executive agrees that he will provide prompt notice of
such potential disclosure to Company so that an appropriate protective
order may be sought and/or a waiver of compliance with the provisions
of this Agreement may be granted. In the event that (i) such
protection or other remedy is not obtained or (ii) Company waives in
writing the compliance by Executive with this provision, Executive
agrees that he may furnish only that portion of the Confidential
Information which
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Executive is advised by written opinion of counsel is legally required
to be disclosed, and Executive shall exercise his best efforts to
obtain assurances that confidential treatment will be accorded such
Confidential Information.
(c) DELIVERY OF DOCUMENTS. Executive further agrees to
deliver to Company at the termination of his employment, all
correspondence, memoranda, notes, records, drawings, plans, customer
lists or other documents, and all copies thereof made, composed or
received by Executive, solely or jointly with others, and which are in
Executive's possession, custody or control at such date and which
relate in any manner to the past, present or anticipated business of
Company or any of its affiliated entities.
(d) REMEDIES. In the event of a breach or threatened
breach of any of the provisions of this Section 12, Company shall be
entitled to an injunction ordering the return of all such documents,
and any and all copies thereof, and restraining Executive from using
or disclosing, for his benefit or the benefit of others, in whole or
in part, any Confidential Information, including, but not limited to,
the Confidential Information which such documents contain, constitute
or embody. Executive further agrees that any breach or threatened
breach of any of the provisions of this Section 12 would cause
irreparable injury to Company, for which it would have no adequate
remedy at law. Nothing herein shall be construed as prohibiting
Company from pursuing any other remedies available to it for any such
breach or threatened breach, including the recovery of damages.
13. PROPERTY RIGHTS. In keeping with his fiduciary duties to
Company, Executive hereby covenants and agrees that during his Employment
Period, and for a period of one (1) year following his Termination Date,
Executive shall promptly disclose in writing to Company any and all
information, ideas, concepts, improvements, discoveries, inventions and other
intellectual properties, whether patentable or not, and whether or not reduced
to practice, which are conceived, developed, made or acquired by Executive,
either individually or jointly with others, and which relate to the business,
products or services of Company or any of its affiliated entities. In
consideration for his employment hereunder, Executive hereby specifically
sells, assigns and transfers to Company all of his worldwide right, title and
interest in and to all such information, ideas, concepts, improvements,
discoveries, inventions and other intellectual properties.
If during the Employment Period, Executive creates any original work
of authorship or other property fixed in any tangible medium of expression
which (a) is the subject matter of copyright (including computer programs) and
(b) relates to Company's present or planned business, products, or services,
whether such property is created solely by Executive or jointly with others,
such property shall be deemed a work for hire, with the copyright automatically
vesting in Company. To the extent that any such writing or other property is
determined not to be a work for hire for whatever reason, Executive hereby
consents and agrees to the unconditional waiver of "moral rights" in such
writing or
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other property, and to assign to Company all of his right, title and interest,
including copyright, in such writing or other property.
Executive hereby agrees to (a) assist Company or its nominee at all
times in the protection of any and all property subject to this Section 13, (b)
not to disclose any such property to others without the written consent of
Company or its nominee, except as required by his employment hereunder, and (c)
at the request of Company, to execute such assignments, certificates or other
interests as Company or its nominee may from time to time deem desirable to
evidence, establish, maintain, perfect, protect or enforce its rights, title or
interests in or to any such property.
14. AGREEMENT NOT TO COMPETE. Executive hereby recognizes and
acknowledges that: (a) in his executive capacity with Company he will be given
knowledge of, and access to, the Confidential Information (as described in
Section 12); (b) in the event that Executive was to enter into competition with
Company, Executive's knowledge of such Confidential Information would be of
invaluable benefit to a competitor of Company, and could cause irreparable harm
to Company's business interests; and (c) Executive's consent and agreement to
enter into the noncompetition provisions and covenants set forth herein is an
integral condition of this Agreement, without which Company would not have
agreed to provide Confidential Information to Executive nor to his
compensation, benefits, and other terms of this Agreement. Accordingly, in
consideration for his employment, compensation, benefits, access to and
entrustment of Confidential Information, and the goodwill, training and
experience provided to Executive during his Employment Period, Executive hereby
covenants, consents and agrees (regardless of whether or not there has been a
Change of Control) that during the Employment Period, and for a period of one
(1) year after his employment is terminated for any reason except termination
by the Company without Cause (as defined in Section 6(b)) or termination by
Executive for Good Reason (as defined in Section 6(b)), Executive shall not,
directly or indirectly, acting alone or in conjunction with others, for his own
account or for the account of others, including, without limitation, as an
officer, director, stockholder, owner, partner, joint venturer, employee,
promoter, consultant, agent, representative, or otherwise:
(a) Solicit, canvass, or accept any fees or business from
any customer of Company for himself or any other person or entity
engaged in a "Similar Business to Company" (as defined below);
(b) Engage or participate in any Similar Business to
Company within any states of the United States in which the Company
transacts business on Executive's termination of employment date, or
in which, as of such termination date, the Company has made any plans
or proposals to transact business within one year from such
termination date (referred to herein as the "RESTRICTED AREA");
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(c) Request or advise any service provider, supplier, or
customer to reduce or cancel any business that it may transact with
Company or any of its affiliated entities;
(d) Solicit, induce, or otherwise attempt to influence
any employee of the Company or any of its affiliated entities, to
terminate his or her relationship with the Company or any of its
affiliated entities; or
(e) Make any statement or perform any act intended to
advance an interest of an existing or prospective competitor of the
Company or any of its affiliated entities in any way that demonstrably
injures the reputation, goodwill or any other business interest of
Company or any of its affiliated entities.
For purposes of this Agreement, "SIMILAR BUSINESS TO COMPANY" means
any business or other enterprise that is competitive with the current or
planned businesses, products, services or operations of the Company or any of
its affiliated entities at the time of termination of Executive's employment
including, without limitation, municipal biosolids management. For purposes of
clarity, the non-compete and other provisions of this Section 14 shall not
apply to Executive if Executive's employment hereunder is terminated (i) by the
Company without Cause (as defined in Section 6(b)), or (ii) by the Executive
for Good Reason (as defined in Section 6(b)).
Executive hereby agrees that the limitations set forth above on his
rights to compete with Company after his termination of employment are
reasonable and necessary for the protection of Company. In this regard,
Executive specifically agrees that such limitations as to the period of time,
geographic area and types and scopes of restriction on his activities, as
specified above, are reasonable and necessary to protect the goodwill and other
business interests of Company. However, should the time period, the geographic
area or any other non-competition provision set forth herein be deemed invalid
or unenforceable in any respect, then Executive acknowledges and agrees that,
as set forth in Section 15 hereof, reformation may be made with respect to such
time period, geographic area or other non-competition provision in order to
protect Company's reasonable business interests to the maximum permissible
extent.
15. REMEDIES. In the event of any pending, threatened or actual
breach of any of the covenants or provisions of Section 11, 12, 13 or 14, it is
understood and agreed by Executive that the remedy at law for a breach of any
of the covenants or provisions of these Sections may be inadequate and,
therefore, Company shall be entitled to a restraining order or injunctive
relief from any court of competent jurisdiction, in addition to any other
remedies at law and in equity. In the event that Company seeks to obtain a
restraining order or injunctive relief, Executive hereby agrees that Company
shall not be required to post any bond in connection therewith. Should a court
of competent jurisdiction or an arbitrator (pursuant to Section 24) declare any
provision of Section 11, 12, 13 or 14 to be unenforceable due to an
unreasonable restriction of duration or geographical area, or for any other
reason, such court or arbitrator is hereby granted the consent of each of the
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Executive and Company to reform such provision and/or to grant the Company any
relief, at law or in equity, reasonably necessary to protect the reasonable
business interests of Company or any of its affiliated entities. Executive
hereby acknowledges and agrees that all of the covenants and other provisions
of Sections 11, 12, 13 and 14 are reasonable and necessary for the protection
of the Company's reasonable business interests. Executive hereby agrees that
if the Company prevails in any action, suit or proceeding with respect to any
matter arising out of or in connection with Section 11, 12, 13 or 14, Company
shall be entitled to all equitable and legal remedies, including, but not
limited to, injunctive relief and compensatory damages.
16. DEFENSE OF CLAIMS. Executive agrees that, during the
Employment Period and for a period of two (2) years after his Termination Date,
upon reasonable request from the Company, he will cooperate with the Company
and its affiliated entities in the defense of any claims or actions that may be
made by or against the Company or any of its affiliated entities that affect
his prior areas of responsibility, except if Executive's reasonable interests
are adverse to the Company (or affiliated entity) in such claim or action. To
the extent travel is required to comply with the requirements of this Section
16, the Company shall, to the extent possible, provide Executive with notice at
least 10 days prior to the date on which such travel would be required. The
Company agrees to promptly pay or reimburse Executive upon demand for all of
his reasonable travel and other direct expenses incurred, or to be reasonably
incurred, to comply with his obligations under this Section 16.
17. DETERMINATIONS BY THE BOARD OF DIRECTORS.
(a) TERMINATION OF EMPLOYMENT. Prior to a Change in
Control (as defined in Section 6(b)), any question as to whether and
when there has been a termination of Executive's employment, and the
cause of such termination, shall be determined by the Board of
Directors in its discretion.
(b) COMPENSATION. Prior to a Change in Control (as
defined in Section 6(b)), any question regarding salary, bonus and
other compensation payable to Executive pursuant to this Agreement
shall be determined by the Committee in its discretion.
18. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and
deduct from any benefits and payments made or to be made pursuant to this
Agreement (a) all federal, state, local and other taxes as may be required
pursuant to any law or governmental regulation or ruling, (b) all other normal
employee deductions made with respect to Company's employees generally, and (c)
any advances made to Executive and owed to Company.
19. NONALIENATION. The right to receive payments under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge or encumbrance by Executive, his dependents or
beneficiaries, or to any other person who is or may become entitled to receive
such payments hereunder. The right to receive payments hereunder shall not be
subject
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to or liable for the debts, contracts, liabilities, engagements or torts of any
person who is or may become entitled to receive such payments, nor may the same
be subject to attachment or seizure by any creditor of such person under any
circumstances, and any such attempted attachment or seizure shall be void and
of no force and effect.
20. INCOMPETENT OR MINOR PAYEES. Should the Board of Directors
determine that any person to whom any payment is payable under this Agreement
has been determined to be legally incompetent or is a minor, any payment due
hereunder may, notwithstanding any other provision of this Agreement to the
contrary, be made in any one or more of the following ways: (a) directly to
such minor or person; (b) to the legal guardian or other duly appointed
personal representative of the person or estate of such minor or person; or (c)
to such adult or adults as have, in the good faith knowledge of the Board of
Directors, assumed custody and support of such minor or person; and any payment
so made shall constitute full and complete discharge of any liability under
this Agreement in respect to the amount paid.
21. SEVERABILITY. It is the desire of the parties hereto that
this Agreement be enforced to the maximum extent permitted by law, and should
any provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 24), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided,
however, if such provision cannot be reformed, it shall be deemed ineffective
and deleted herefrom without affecting any other provision of this Agreement.
22. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to
Sections hereof are for the purpose of reference only and shall in no way
limit, define or otherwise affect the provisions hereof. Any and all Exhibits
referred to in this Agreement are, by such reference, incorporated herein and
made a part hereof for all purposes. The words "herein", "hereof", "hereunder"
and other compounds of the word "here" shall refer to the entire Agreement and
not to any particular provision hereof.
23. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW.
24. ARBITRATION.
(a) ARBITRABLE MATTERS. If any dispute or controversy
arises between Executive and the Company as to their respective rights
or obligations under this Agreement, then either party may submit the
dispute or controversy to arbitration under the then-current National
Employment Dispute Resolution Rules of the American Arbitration
Association (AAA) (the "Rules"); provided, however, the Company shall
retain its rights to seek a
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restraining order or injunctive relief pursuant to Section 15. Any
arbitration hereunder shall be conducted before a single arbitrator
unless the parties mutually agree to a panel of three arbitrators.
The site for any arbitration hereunder shall be in Montgomery County
or Harris County, Texas, unless otherwise mutually agreed by the
parties.
(b) SUBMISSION TO ARBITRATION. The party submitting any
matter to arbitration shall do so in accordance with the Rules.
Notice to the other party shall state the question or questions to be
submitted for decision or award by arbitration. Notwithstanding any
provision in this Section 24, Executive shall be entitled to seek
specific performance of the Executive's right to be paid during the
pendency of any dispute or controversy arising under this Agreement.
In order to prevent irreparable harm, the arbitrator may grant
temporary or permanent injunctive or other equitable relief for the
protection of property rights.
(c) ARBITRATION PROCEDURES. The arbitrator shall set the
date, time and place for each hearing, and shall give the parties
advance written notice in accordance with the Rules. Any party may be
represented by counsel or other authorized representative at any
hearing. The arbitration shall be governed by the Federal Arbitration
Act, 9 U.S.C. Sections 1 et. seq. (or its successor). The arbitrator
shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas to the claims asserted to the extent
that the arbitrator determines that federal law is not controlling.
(d) COMPLIANCE WITH AWARD.
(1) Any award of an arbitrator shall be final and
binding upon the parties to such arbitration, and each party
shall immediately make such changes in its conduct or provide
such monetary payment or other relief as such award requires.
The parties agree that the award of the arbitrator shall be
final and binding and shall be subject only to the judicial
review permitted by the Federal Arbitration Act.
(2) The parties hereto agree that the arbitration
award may be entered with any court having jurisdiction and
the award may then be enforced as between the parties, without
further evidentiary proceedings, the same as if entered by the
court at the conclusion of a judicial proceeding in which no
appeal was taken. The Company and the Executive hereby agree
that a judgment upon any award rendered by an arbitrator may
be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(e) COSTS AND EXPENSES. Each party shall pay any
monetary amount required by the arbitrator's award, and the fees,
costs and expenses for its own counsel, witnesses and exhibits, unless
otherwise determined by the arbitrator in the award. The compensation
and costs and expenses assessed by the arbitrator and AAA shall be
paid by the losing party
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unless otherwise determined by the arbitrator in the award. If court
proceedings to stay litigation or compel arbitration are necessary,
the party who unsuccessfully opposes such proceedings shall pay all
associated costs, expenses, and attorney's fees which are reasonably
incurred by the other party as determined by the arbitrator.
25. BINDING EFFECT: THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, and to
their respective heirs, executors, personal representatives, successors and
permitted assigns hereunder, but otherwise this Agreement shall not be for the
benefit of any third parties.
26. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the
entire agreement of the parties with respect to Executive's employment and the
other matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and understandings, oral or written, between the
parties hereto concerning the subject matter hereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both
parties hereto.
27. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the
intention of the parties hereto, the respective rights and obligations of said
parties, including, but not limited to, the rights and obligations set forth in
Sections 6 through 17 and 24 hereof, shall survive any termination or
expiration of this Agreement.
28. WAIVER OF BREACH. No waiver by either party hereto of a
breach of any provision of this Agreement by any other party, or of compliance
with any condition or provision of this Agreement to be performed by such other
party, will operate or be construed as a waiver of any subsequent breach by
such other party or any similar or dissimilar provision or condition at the
same or any subsequent time. The failure of either party hereto to take any
action by reason of any breach will not deprive such party of the right to take
action at any time while such breach continues.
29. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of Company and its affiliated entities, and its and
their successors, and upon any person or entity acquiring, whether by merger,
consolidation, purchase of assets or otherwise, all or substantially all of the
assets and business of Company. Any reference herein to "Company" shall mean
the Company as first written above, as well as any successor or successors
thereto.
This Agreement is personal to Executive, and Executive may not assign,
delegate or otherwise transfer all or any of his rights, duties or obligations
hereunder without the consent of the Board of Directors. Any attempt by the
Executive to assign, delegate or otherwise transfer this Agreement, any portion
hereof, or his rights, duties or obligations hereunder without the prior
written consent of the Board of Directors shall be deemed void and of no force
and effect.
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30. NOTICES. Notices provided for in this Agreement shall be in
writing and shall be deemed to have been duly received (a) when delivered in
person or sent by facsimile transmission, (b) on the first business day after
it is sent by air express overnight courier service, or (c) on the third
business day following deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed, to the
following address, as applicable:
(1) If to Company, addressed to:
Synagro Technologies, Inc.
16000 Stuebner Airline, Suite 420
Spring, Texas 77379
Attention: Secretary
(2) If to Executive, addressed to the address set forth
below his name on the execution page hereof;
or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 30.
31. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a copy hereof containing multiple
signature pages, each signed by one party hereto, but together signed by both
of the parties hereto.
32. EXECUTIVE ACKNOWLEDGMENT/NO STRICT CONSTRUCTION. The
Executive represents to Company that he is knowledgeable and sophisticated as
to business matters, including the subject matter of this Agreement, that he
has read the Agreement and that he understands its terms and conditions. The
parties hereto agree that the language used in this Agreement shall be deemed
to be the language chosen by them to express their mutual intent, and no rule
of strict construction shall be applied against either party hereto. Executive
also represents that he is free to enter into this Agreement including, without
limitation, that he is not subject to any other contract of employment or
covenant not to compete that would conflict in any way with his duties under
this Agreement. Executive acknowledges that he has had the opportunity to
consult with counsel of his choice, independent of Employer's counsel,
regarding the terms and conditions of this Agreement and has done so to the
extent that he, in his unfettered discretion, deemed to be appropriate.
33. SUPERSEDING AGREEMENT. This Employment Agreement shall
supersede any prior employment agreement entered into between the Company and
Executive.
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IN WITNESS WHEREOF, the Executive has hereunto set his hand, and
Company has caused these presents to be executed in its name and on its behalf,
to be effective as of the Effective Date first above written.
<TABLE>
<S> <C>
WITNESS: EXECUTIVE:
Signature: Signature:
--------------------------------------- --------------------------------------------------------
Printed Name: Printed Name:
------------------------------------ -----------------------------------------------------
Date: Date:
-------------------------------------------- -------------------------------------------------------------
Address for Notices:
---------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
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ATTEST: SYNAGRO TECHNOLOGIES, INC.:
By: By:
---------------------------------------------- ---------------------------------------------------------------
Title: Its:
------------------------------------------- --------------------------------------------------------------
Printed Name: Printed Name:
------------------------------------ ----------------------------------------------------
Date: Date:
-------------------------------------------- -------------------------------------------------------------
</TABLE>
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<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the 16th day
of April, 1998 (the "EFFECTIVE DATE"), by and between Synagro Technologies,
Inc., a Delaware corporation (hereafter "COMPANY") and Ross M. Patten
(hereafter "EXECUTIVE"), an individual;
W I T N E S S E T H:
WHEREAS, Company wishes to secure the services of the Executive
subject to the terms and conditions hereafter set forth; and
WHEREAS, the Executive is willing to enter into this Agreement upon
the terms and conditions hereafter set forth,
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. During the Employment Period (as defined in
Section 4 hereof), the Company shall employ Executive, and Executive shall
serve, as Chief Executive Officer and President. Executive's principal place
of employment shall be at the Company's principal corporate offices in Spring,
Texas or at such other location for the Company's principal corporate offices
during the Employment Period.
2. COMPENSATION. The Company shall pay or cause to be paid to
Executive during the Employment Period an annual base salary for his services
under this Agreement of not less than $150,000, payable in equal monthly or
semi- monthly installments in accordance with the Company's normal payroll
procedures. The Executive's base salary shall be subject to annual review and
may be increased, depending upon the performance of the Company and Executive,
upon the recommendation of the Board of Directors of the Company (hereafter
"BOARD OF DIRECTORS"). Nothing contained herein shall preclude the payment of
a bonus, supplemental or incentive compensation to Executive provided that the
Board of Directors authorizes any such compensation payment.
3. DUTIES AND RESPONSIBILITIES OF EXECUTIVE. During the
Employment Period, Executive shall devote his services full time to the
business of the Company and perform the duties and responsibilities assigned to
him by the Board of Directors to the best of his ability and with reasonable
diligence. In determining Executive's duties and responsibilities, the Board
of Directors shall act in good faith and shall not assign duties and
responsibilities to Executive that are not appropriate or customary with
respect to the position of Executive hereunder. This Section 3 shall not be
construed as preventing Executive from engaging in reasonable volunteer
services for
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charitable, educational or civic organizations, or from investing his assets in
such form or manner as will not require a material amount of his services in
the operations of the companies or businesses in which such investments are
made.
4. TERM OF EMPLOYMENT. Executive's term of employment with the
Company under this Agreement shall be for twenty-four (24) consecutive months
beginning on the Effective Date and continuing thereafter so that the remaining
term of employment hereunder is always 24 months, unless Notice of Termination
pursuant to Section 7 is given by either the Company or Executive to the other
party. The Company and Executive shall each have the right to give Notice of
Termination at will, with or without cause, at any time, subject to the terms
of this Agreement regarding rights and duties of the parties upon termination
of employment. This "evergreen" 24-month employment period hereunder shall be
referred to herein as the "TERM OF EMPLOYMENT." The period from the Effective
Date through the date of Executive's termination of employment for whatever
reason shall be referred to herein as the "EMPLOYMENT PERIOD."
5. BENEFITS. Subject to the terms and conditions of this
Agreement, during the Employment Period, Executive shall be entitled to the
following:
(a) REIMBURSEMENT OF EXPENSES. The Company shall pay or
reimburse Executive for all reasonable travel, entertainment and other
reasonable expenses paid or incurred by Executive in performing his
business obligations hereunder. The Company shall also provide
Executive with suitable office space and secretarial help. Executive
shall provide substantiating documentation for expense reimbursement
requests as reasonably required by the Company for its tax and other
business records.
(b) EXPENSE ALLOWANCES. Executive shall be entitled to:
(i) a car allowance of $800 per month plus additional reimbursement
for fuel expenses, and (ii) if for any reason Employee shall not be
covered by a health insurance policy of Employer, a medical insurance
coverage expense allowance of $360 per month.
(c) OTHER BENEFITS. Executive shall be entitled to
participate in any pension, profit-sharing, stock option, deferred
compensation, or similar plan or program of the Company established by
the Company, to the extent that he is eligible under the provisions
thereof. Executive shall also be entitled to participate in any group
insurance, hospitalization, medical, health and accident, disability
or similar plan or program established by the Company, to the extent
that he is eligible under the provisions thereof.
(d) PAID VACATION. Executive shall be entitled to the
number of days of paid vacation each year that is accorded under the
Company's vacation policy as in effect from time to time. Without
limiting the generality of the foregoing, Executive shall initially be
entitled to four (4) weeks' of paid vacation during each 12-month
period of employment with
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the Company (which shall accrue monthly on a pro rata basis). Unused
vacation days in one year shall be carried forward for a period not to
exceed 12 months in accordance with Company's vacation policy as in
effect from time to time.
6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right
to compensation and benefits for periods after the date on which his employment
with the Company terminates for whatever reason (the "TERMINATION DATE") shall
be determined in accordance with this Section 6,
(a) MINIMUM PAYMENTS. Executive shall be entitled to the
following payments, in addition to any payments or benefits to which
the Executive is entitled under the terms of any employee benefit plan
or the following provisions of this Section 6:
(1) his unpaid salary for the full month in which
his Termination Date occurred; provided, however, if Executive
is terminated for Cause pursuant to Section 6(b) below, he
shall only be entitled to receive his accrued but unpaid
salary through his Termination Date; and
(2) his accrued but unpaid vacation pay for the
period ending on his Termination Date in accordance with the
Company's vacation pay policy as in effect at such time.
(b) SEVERANCE PAYMENT. Notwithstanding any other
provision of this Agreement to the contrary, in the event that (i)
Executive's employment hereunder is terminated by the Company at any
time for any reason except (A) for Cause (as defined below) or (B)
Executive's death or Disability (as defined below) or (ii) Executive
terminates his own employment hereunder at any time for Good Reason
(as defined below), then, in either such event, Executive shall be
entitled to receive, and the Company shall be obligated to pay, a lump
sum cash payment equal to two hundred percent (200%) of the sum of X
and Y. For purposes of the immediately preceding sentence, X is the
present value of Executive's base annual salary pursuant to Section 2
or the annual salary then being paid to him, whichever is greater, and
Y is the Executive's bonus payment(s) made by the Company to Executive
in the Company's fiscal year immediately preceding the fiscal year in
which his termination of employment occurred. For purposes of the
immediately preceding sentence, the "present value" of such base
annual salary shall be determined in accordance with the regulations
under Section 280G of the Code (as defined below). Also, except as
otherwise specifically provided in this Section 6(b), such severance
payment shall be in addition to, and shall not reduce or offset, any
other payments that are due to Executive from the Company or any other
source or under any other agreements, except any severance pay plan or
program maintained by the Company that covers employees generally.
The provisions of this Section 6(b) shall supersede any conflicting
provisions of this Agreement but shall not be construed to curtail,
offset or limit Executive's rights to any other payments, whether
contingent upon
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a Change in Control (as defined below) or otherwise, under the
Agreement or any other agreement, contract, plan or other source of
payment except as specifically provided herein. In addition, in the
event of a Change in Control, Executive shall be entitled to receive
the bonus payment described in Section 9 hereof, if applicable.
Notwithstanding any provision of this Section 6(b) to the
contrary, the Executive must first execute an appropriate release and
waiver agreement whereby Executive agrees to release and waive, in
return for the severance payment described in this Section 6(b), any
claims that he may have against the Company for (1) unlawful
discrimination (including, without limitation, age discrimination) and
(2) severance pay under any other severance pay plan or program
maintained by the Company that covers Executive; provided, however,
such agreement shall not release or waive any claims that may be
brought by Executive for payments that may be due under this
Agreement, without Executive's express written consent. Any severance
payment required under this Section 6(b)shall be paid to Executive
within twenty (20) days after Executive executes such release and
waiver agreement, unless the parties agree in writing before then to
another payment date or method of payment, e.g., installment payments.
Executive shall not be required to mitigate any damages under this
Section 6(b) or any other provision of this Agreement.
A "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred if any of the following shall have taken place: (1) a change
in control is reported by the Company in response to either Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") or Item 1 of Form 8-K
promulgated under the Exchange Act, or any successor provisions
thereto; (2) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), or any successor
provisions thereto, directly or indirectly, of securities of the
Company representing twenty-five (25%) or more of the combined voting
power of the Company's then-outstanding securities; (3) the approval
by the stockholders of the Company of a reorganization, merger, or
consolidation, in each case with respect to which persons who were
stockholders of the Company immediately prior to such reorganization,
merger, or consolidation do not, immediately thereafter, own or
control more than fifty percent (50%) of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding
securities, or a liquidation or dissolution of the Company or of the
sale of all or substantially all of the Company's assets; (4) in the
event any person shall be elected by the stockholders of the Company
to the Board of Directors who shall have not been nominated for
election by a majority of the Board of Directors or any duly appointed
committee thereof; or (5) following the election or removal of
directors, a majority of the Board of Directors consists of
individuals who were not members of the Board of Directors two (2)
years before such election or removal, unless the election of each
director who is not a director at the beginning of such two-year
period has been approved in
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advance by directors representing at least a majority of the directors
then in office who were directors at the beginning of the two-year
period.
"DISABILITY" means a "permanent and total disability" as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "CODE") and Treasury regulations thereunder. Evidence of
such Disability shall be certified by a physician acceptable to both
the Company and Executive. In the event that the parties are not able
to agree on the choice of a physician, each shall select a physician
who, in turn, shall select a third physician to render such
certification. All costs relating to the determination of whether
Executive has incurred a Disability shall be paid by the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
References in this Agreement to any Section of the Code shall include
any "Successor Provisions" as defined in Section 9(e).
"CAUSE" means a termination of employment directly resulting
from (1) the Executive having engaged in intentional misconduct
causing a serious and material violation by the Company of any state
or federal laws, (2) the Executive having engaged in a material theft
of corporate funds or corporate assets or in a material act of fraud
upon the Company, (3) an act of personal dishonesty taken by the
Executive that was intended to result in substantial personal
enrichment of the Executive at the expense of the Company, (4)
repeated violations by the Executive of Executive's material
obligations under this Agreement or under written policies of the
Company which are demonstrably willful on the Executive's part, and
for which Executive has received more than one written warning that
specifies each area of Executive's violations, (5) Executive's use of
illegal drugs as evidenced by a drug test authorized by Company, (6)
Executive's final conviction (or the entry of a plea of nolo
contendere or equivalent plea) in a court of competent jurisdiction of
a felony, and (7) a breach by the Executive during the Employment
Period of the provisions of Sections 11, 12, 13 or 14 below, if such
breach results in a material injury to the Company.
"GOOD REASON" means the occurrence of any of the following
events without Executive's express written consent:
(1) A ten percent (10%) or greater reduction in
Executive's annual base salary; or
(2) Any breach by the Company or its successors
of any material provision of this Agreement; or
(3) A substantial and adverse change in the
Executive's duties, control, authority, status or position, or
the assignment to the Executive of any duties or
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responsibilities which are materially inconsistent with such
status or position, or a material reduction in the duties and
responsibilities previously exercised by the Executive, or a
loss of title, loss of office, loss of significant authority,
power or control, or any removal of Executive from, or any
failure to reappoint or reelect him to, such positions, except
in connection with the termination of his employment for
Cause, Disability or death; or
(4) Following a Change in Control (as defined in
Section 6(b)) any of the following events:
(A) the failure by the Company or its
successor to expressly assume and agree to continue
and perform this Agreement in the same manner and to
the same extent that the Company would be required to
perform if such Change in Control had not occurred;
(B) a relocation of more than
twenty-five (25) miles of Executive's principal
office from the location of such office immediately
prior to the Change in Control date;
(C) A substantial increase in the
business travel required of Executive by the Company
or its successor; or
(D) the Company or its successor fails
to continue in effect any pension plan,
health-and-accident plan, or disability income plan
in which Executive was participating at the time of
the Change in Control (or plans providing Executive
with substantially equal and similar benefits), or
the taking of any action by the Company or its
successor which would adversely affect Executive's
participation in or materially reduce his benefits
under any such plan that was enjoyed by him
immediately prior to the Change in Control.
(c) STOCK OPTIONS. In the event that there is a
termination of Executive's employment hereunder for any reason except
for Cause, Executive shall be entitled to exercise any and all
nonstatutory stock options (as opposed to any incentive stock options
described in Section 422 of the Internal Revenue Code) that were
previously granted to him by the Company, and are outstanding, vested
and unexercised as of his Termination Date, during the exercise period
ending on the shorter of (i) two (2) years from his Termination Date
or (ii) the expiration date of the stock option as specified in the
stock option plan or stock option agreement, as applicable,
notwithstanding any provision in such plan or agreement that provides
for a more limited time period to exercise stock options following
termination of employment; provided however, if said stock option plan
or stock option
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agreement provides therein for a longer period of time to exercise
such outstanding, vested and unexercised stock options following his
Termination Date, then such stock option plan or agreement shall
control and the remaining provisions of this Section 6(c) shall be
inapplicable and without further force or effect.
During the extension period specified in the previous
paragraph, if applicable, the Executive shall be considered an
employee of the Company who shall make himself available to provide
consulting services to the Company in consideration for such extension
of the option exercise period and any post-termination payments
provided to Executive under Section 6(a) or (b) of this Agreement. In
this regard, Executive agrees to be classified as an employee of the
Company solely for the limited purpose of making himself available to
provide consulting services on an as-needed basis; provided, however,
Executive hereby specifically waives any right, entitlement, claim or
demand to (i) any additional compensation for such consulting services
and (ii) coverage or benefits under any of the Company's employee
benefit plans or programs, or other perquisites, terms and conditions
of employment, except as expressly specified in other provisions of
this Agreement. Except as expressly provided in this Section 6(c),
the provision of consulting services by Executive shall not expand his
rights or duties under this Agreement. Executive hereby agrees to
provide, upon request of the Company, consulting services to the
Company on the following terms and conditions:
(1) Executive will make himself available, on an
as-needed basis, to provide consulting services to
the Company for up to three (3) days per month during
the period beginning on the day after his Termination
Date and ending on the last day of the extension
period for exercising stock options as provided in
the first paragraph of Section 6(c) above, subject to
the following conditions:
(A) At least five (5) days written advance notice
to Executive is provided by the Company;
(B) There is no concurrent illness of Executive
or his spouse;
(C) There is no prior commitment of Executive
including, without limitation, vacation or
attention to personal affairs; and
(D) No travel is required of Executive in excess
of 200 miles round-trip.
Executive, in any particular instance, may waive any
or all of the conditions set forth in clauses (A),
(B), (C) or (D) above in his complete discretion.
Any such waiver shall not be a continuing waiver and
shall not release Executive of any of his rights
hereunder.
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(2) Executive agrees to provide such information,
services, advice and recollection of events as may
from time to time be reasonably requested by, or on
behalf of, the Company regarding corporate,
regulatory or business matters of which Executive may
have knowledge, information or understanding,
including testifying truthfully in any litigation or
other proceedings involving the Employer, provided
that (i) Executive first determines that his
interests are not adverse, or potentially adverse, to
those of the Company, and (ii) the Company has
indemnified Executive to his satisfaction including,
without limitation, for reasonable attorney's fees
and costs. The parties hereto agree that it is the
quality, and not the quantity, of the consulting
services to be provided by Executive that is
important to the Company.
(3) The Company will reimburse Executive for all
reasonable out-of-pocket expenses incurred by
Executive in the course of his performance of
consulting services, including, without limitation,
supplies, mileage and travel expenses. Executive
agrees not to incur any expense, obligation, or
liability on behalf of the Company without its prior
written consent.
(4) The provision of consulting services by Executive for
the Company is non-exclusive and shall not, in any
way, limit the rights of Executive to seek and
maintain other employment or to perform compensatory
services on behalf of any other person or entity.
(5) The consulting services contemplated under this
Section 6(c) shall not be considered part of
Executive's Employment Period pursuant to Section 4,
nor affect his Termination Date.
7. NOTICE OF TERMINATION. Any termination by the Company or the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means
a written notice which indicates the specific termination provision of this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
8. NO MITIGATION REQUIRED. Executive shall not be required to
mitigate the amount of any payment provided for under this Agreement by seeking
other employment or in any other manner.
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9. CHANGE IN CONTROL: REQUIREMENT OF BONUS PAYMENT IN CERTAIN
CIRCUMSTANCES.
(a) In the event that Executive is deemed to have
received an "excess parachute payment" (as such term is defined in
Section 280G(b) of the Code) which is subject to the excise taxes (the
"EXCISE TAXES") imposed by Section 4999 of the Code in respect of any
payment pursuant to this Agreement, or any other agreement, plan,
instrument or obligation, in whatever form, the Company shall make the
Bonus Payment (defined below) to Executive promptly after the date on
which Executive received or is deemed to have received any excess
parachute payment notwithstanding any contrary provision herein.
(b) The term "BONUS PAYMENT" means a cash payment in an
amount equal to the sum of (i) all Excise Taxes payable by Executive,
plus (ii) all additional Excise Taxes and federal or state income
taxes to the extent such taxes are imposed in respect of the Bonus
Payment, such that Executive shall be in the same after- tax position
and shall have received the same benefits that he would have received
if the Excise Taxes had not been imposed. For purposes of calculating
any income taxes attributable to the Bonus Payment, Executive shall be
deemed for all purposes to be paying income taxes at the highest
marginal federal income tax rate, taking into account any applicable
surtaxes and other generally applicable taxes which have the effect of
increasing the marginal federal income tax rate and, if applicable, at
the highest marginal state income tax rate, to which the Bonus Payment
and Executive are subject. An example of the calculation of the Bonus
Payment is set forth below: Assume that the Excise Tax rate is 20%,
the highest federal marginal income tax rate is 40% and Executive is
not subject to state income taxes. Further assume that Executive has
received an excess parachute payment in the amount of $200,000, on
which $40,000 in Excise Taxes are payable. The amount of the required
Bonus Payment is thus $100,000. The Bonus Payment of $100,000, less
additional Excise Taxes on the Bonus Payment of $20,000 (i.e., 20% x
$100,000) and income taxes of $40,000 (i.e., 40% x $100,000), yields
$40,000, the amount of the Excise Taxes payable in respect of the
original excess parachute payment.
(c) Executive agrees to reasonably cooperate with the
Company to minimize the amount of the excess parachute payments,
including, without limitation, assisting the Company in establishing
that some or all of the payments received by Executive that are
"contingent on a change", as described in Section 280G(b)(2)(A)(i) of
the Code, are reasonable compensation for personal services actually
rendered by Executive before the date of such change or to be rendered
by Executive on or after the date of such change. In the event that
the Company is able to establish that the amount of the excess
parachute payments is less than originally anticipated by Executive,
Executive shall refund to the Company any excess Bonus Payment to the
extent not required to pay Excise Taxes or income taxes (including
those incurred in respect of receipt of the Bonus Payment).
Notwithstanding the foregoing, Executive shall not be required to take
any action which his attorney or tax advisor advises him in writing
(i) is improper or (ii) exposes Executive to material personal
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liability. Executive may require the Company to deliver to Executive
an indemnification agreement in form and substance satisfactory to
Executive as a condition to taking any action required by this
subsection (c).
(d) The Company shall make any payment required to be
made under this Section 9 in cash and on demand. Any payment required
to be paid by the Company under this Section 9 which is not paid
within 30 days of receipt by the Company of Executive's written demand
therefor shall thereafter be deemed delinquent, and the Company shall
pay to Executive immediately upon demand interest at the highest
nonusurious rate per annum allowed by applicable law from the date
such payment becomes delinquent to the date of payment of such
delinquent sum with interest.
(e) In the event that there is any change to the Code
which results in the recodification of Section 280G or Section 4999 of
the Code, or in the event that either such section of the Code is
amended, replaced or supplemented by other provisions of the Code of
similar import ("SUCCESSOR PROVISIONS"), then this Agreement shall be
applied and enforced with respect to such new Code provisions in a
manner consistent with the intent of the parties as expressed herein,
which is to assure that Employee is in the same after-tax position and
has received the same benefits that he would have been in and received
if any taxes imposed by Section 4999 or any Successor Provisions had
not been imposed.
10. POST-TERMINATION MEDICAL COVERAGE. If the employment of
Executive is terminated for any reason except for Cause (as defined in Section
6(b)) or death, then the Company shall provide post-employment medical coverage
in accordance with the terms and conditions of this Section 10. The Company
shall continue to cover Executive and his spouse (hereinafter referred to as
"SPOUSE") and his eligible dependent children, if any, from the Termination
Date until two (2) years following the Termination Date, under the group health
care plan maintained by the Company to provide major medical insurance coverage
for employees and their dependents (such group medical plan or its successor
shall be hereinafter referred to as the "HEALTH CARE PLAN").
Executive, on behalf of himself and his Spouse and other dependents,
if any, shall be required to pay premiums for their coverage under the Health
Care Plan at the rates, if any, charged by the Company to active employees who
are senior officers of the Company at the time the premium is charged. Any
post-employment coverage under the Health Care Plan provided under this Section
10 shall run concurrently with COBRA continuation coverage under the Health
Care Plan and, therefore, Executive and the other qualifying beneficiaries
shall elect any COBRA continuation coverage offered to them under the Health
Care Plan following the Termination Date. The Company shall not be responsible
for the payment of any income or other taxes which may be imposed on Executive,
or on his Spouse or dependents, as the result of receiving coverage under the
Health Care Plan pursuant to this Section 10.
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Executive, on behalf of himself and his Spouse and dependent, hereby
agree and consent to acquire and maintain any coverage that of any them are
entitled to at any time during the two year period (as specified above in this
Section 10) under the Medicare program or any similar or succeeding plan or
program that is sponsored or maintained by the United States Government or any
agency thereof (hereinafter referred to as "MEDICARE"). The coverage described
in the immediately preceding sentence includes, without limitation, parts A and
B of Medicare and any additional or successor parts of Medicare. Executive and
his Spouse further agree and consent to pay all required premiums and other
costs for Medicare coverage from their personal funds. Medicare coverage shall
be primary payor to the coverage provided under the Health Care Plan to the
extent permitted by applicable federal law.
11. CONFLICTS OF INTEREST. In keeping with his fiduciary duties
to Company, Executive hereby agrees that he shall not become involved in a
conflict of interest, or upon discovery thereof, allow such a conflict to
continue at any time during the Employment Period. Moreover, Executive agrees
that he shall immediately disclose to the Board of Directors any facts which
might involve a conflict of interest that has not been approved by the Board of
Directors.
Executive and Company recognize and acknowledge that it is not
possible to provide an exhaustive list of actions or interests which may
constitute a "conflict of interest." Moreover, Company and Executive recognize
there are many borderline situations. In some instances, full disclosure of
facts by the Executive to the Board of Directors may be all that is necessary
to enable Company to protect its interests. In others, if no improper
motivation appears to exist and Company's interests have not demonstrably
suffered, prompt elimination of the outside interest may suffice. In other
egregious instances, it may be necessary for Company to terminate Executive's
employment for Cause pursuant to Section 6(b) hereof. The Board of Directors
reserves the right to take such action as, in its good faith judgment, will
resolve the conflict of interest.
Executive hereby agrees that any direct or indirect interest in,
connection with, or benefit from any outside activities, particularly
commercial activities, which interest might adversely affect the Company or any
of its affiliated entities, involves a possible conflict of interest.
Circumstances in which a conflict of interest on the part of Executive would or
might arise, and which should be reported immediately to the Board of
Directors, include, but are not limited to, any of the following:
(a) Ownership of more than a de minimis interest in any
lender, supplier, contractor, customer or other entity with which
Company or any of its affiliated entities does business;
(b) Misuse of information, property or facilities to
which Executive has access in a manner which is demonstrably injurious
to the interests of Company or any of its affiliated entities,
including its business, reputation or goodwill; or
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(c) Materially trading in products or services connected
with products or services designed or marketed by or for the Company
or any of its affiliated entities.
For purposes of this Agreement, "AFFILIATED ENTITY" means any entity
which owns or controls, is owned or controlled by, or is under common ownership
or control with, the Company.
12. CONFIDENTIAL INFORMATION.
(a) CONFIDENTIAL INFORMATION DEFINED. Executive hereby
acknowledges that in his senior management position, he will create,
acquire and have access to confidential information and trade secrets
pertaining to the business of Company (hereafter "Confidential
Information" as defined below). Executive hereby acknowledges that
such Confidential Information is unique and valuable to Company's
business and that Company would suffer irreparable injury if
Confidential Information was divulged to the public or to persons or
entities in competition with Company. Therefore, Executive hereby
covenants and agrees to keep in strict secrecy and confidence, both
during and after the Employment Period, any Confidential Information.
Executive specifically agrees that he will not at any time disclose to
others, use, copy or permit to be copied, except in pursuance of his
duties on behalf of Company or with the prior consent of Company,
Confidential Information relating to the Company or any of its
affiliated entities. For purposes of this Agreement, "CONFIDENTIAL
INFORMATION" shall mean and include, without limitation, information
related to the business affairs, property, methods of operation,
future plans, financial information, customer or client information,
or other data which relates to the business or operations of Company
or any of its affiliated entities, and all other information obtained
by Executive from and during the Employment Period which concerns the
affairs of Company or any of its affiliated entities and which Company
has requested be held in confidence or could reasonably be expected to
desire be held in confidence, or the disclosure of which would likely
be embarrassing, detrimental or disadvantageous to the Company or any
of its affiliated entities, or its and their directors, officers,
employees or shareholders. Confidential Information, however, shall
not include information that is at the time of receipt by Executive in
the public domain or is otherwise generally known in the industry or
subsequently enters the public domain or becomes generally known in
the industry through no fault of Executive or breach of his duty under
this Section 12.
(b) REQUIRED DISCLOSURE. In the event that Executive is
required by law which cannot be waived to disclose any Confidential
Information, Executive agrees that he will provide prompt notice of
such potential disclosure to Company so that an appropriate protective
order may be sought and/or a waiver of compliance with the provisions
of this Agreement may be granted. In the event that (i) such
protection or other remedy is not obtained or (ii) Company waives in
writing the compliance by Executive with this provision, Executive
agrees that he may furnish only that portion of the Confidential
Information which
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Executive is advised by written opinion of counsel is legally required
to be disclosed, and Executive shall exercise his best efforts to
obtain assurances that confidential treatment will be accorded such
Confidential Information.
(c) DELIVERY OF DOCUMENTS. Executive further agrees to
deliver to Company at the termination of his employment, all
correspondence, memoranda, notes, records, drawings, plans, customer
lists or other documents, and all copies thereof made, composed or
received by Executive, solely or jointly with others, and which are in
Executive's possession, custody or control at such date and which
relate in any manner to the past, present or anticipated business of
Company or any of its affiliated entities.
(d) REMEDIES. In the event of a breach or threatened
breach of any of the provisions of this Section 12, Company shall be
entitled to an injunction ordering the return of all such documents,
and any and all copies thereof, and restraining Executive from using
or disclosing, for his benefit or the benefit of others, in whole or
in part, any Confidential Information, including, but not limited to,
the Confidential Information which such documents contain, constitute
or embody. Executive further agrees that any breach or threatened
breach of any of the provisions of this Section 12 would cause
irreparable injury to Company, for which it would have no adequate
remedy at law. Nothing herein shall be construed as prohibiting
Company from pursuing any other remedies available to it for any such
breach or threatened breach, including the recovery of damages.
13. PROPERTY RIGHTS. In keeping with his fiduciary duties to
Company, Executive hereby covenants and agrees that during his Employment
Period, and for a period of one (1) year following his Termination Date,
Executive shall promptly disclose in writing to Company any and all
information, ideas, concepts, improvements, discoveries, inventions and other
intellectual properties, whether patentable or not, and whether or not reduced
to practice, which are conceived, developed, made or acquired by Executive,
either individually or jointly with others, and which relate to the business,
products or services of Company or any of its affiliated entities. In
consideration for his employment hereunder, Executive hereby specifically
sells, assigns and transfers to Company all of his worldwide right, title and
interest in and to all such information, ideas, concepts, improvements,
discoveries, inventions and other intellectual properties.
If during the Employment Period, Executive creates any original work
of authorship or other property fixed in any tangible medium of expression
which (a) is the subject matter of copyright (including computer programs) and
(b) relates to Company's present or planned business, products, or services,
whether such property is created solely by Executive or jointly with others,
such property shall be deemed a work for hire, with the copyright automatically
vesting in Company. To the extent that any such writing or other property is
determined not to be a work for hire for whatever reason, Executive hereby
consents and agrees to the unconditional waiver of "moral rights" in such
writing
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or other property, and to assign to Company all of his right, title and
interest, including copyright, in such writing or other property.
Executive hereby agrees to (a) assist Company or its nominee at all
times in the protection of any and all property subject to this Section 13, (b)
not to disclose any such property to others without the written consent of
Company or its nominee, except as required by his employment hereunder, and (c)
at the request of Company, to execute such assignments, certificates or other
interests as Company or its nominee may from time to time deem desirable to
evidence, establish, maintain, perfect, protect or enforce its rights, title or
interests in or to any such property.
14. AGREEMENT NOT TO COMPETE. Executive hereby recognizes and
acknowledges that: (a) in his executive capacity with Company he will be given
knowledge of, and access to, the Confidential Information (as described in
Section 12); (b) in the event that Executive was to enter into competition with
Company, Executive's knowledge of such Confidential Information would be of
invaluable benefit to a competitor of Company, and could cause irreparable harm
to Company's business interests; and (c) Executive's consent and agreement to
enter into the noncompetition provisions and covenants set forth herein is an
integral condition of this Agreement, without which Company would not have
agreed to provide Confidential Information to Executive nor to his
compensation, benefits, and other terms of this Agreement. Accordingly, in
consideration for his employment, compensation, benefits, access to and
entrustment of Confidential Information, and the goodwill, training and
experience provided to Executive during his Employment Period, Executive hereby
covenants, consents and agrees (regardless of whether or not there has been a
Change of Control) that during the Employment Period, and for a period of one
(1) year after his employment is terminated for any reason except termination
by the Company without Cause (as defined in Section 6(b)) or termination by
Executive for Good Reason (as defined in Section 6(b)), Executive shall not,
directly or indirectly, acting alone or in conjunction with others, for his own
account or for the account of others, including, without limitation, as an
officer, director, stockholder, owner, partner, joint venturer, employee,
promoter, consultant, agent, representative, or otherwise:
(a) Solicit, canvass, or accept any fees or business from
any customer of Company for himself or any other person or entity
engaged in a "Similar Business to Company" (as defined below);
(b) Engage or participate in any Similar Business to
Company within any states of the United States in which the Company
transacts business on Executive's termination of employment date, or
in which, as of such termination date, the Company has made any plans
or proposals to transact business within one year from such
termination date (referred to herein as the "RESTRICTED AREA");
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(c) Request or advise any service provider, supplier, or
customer to reduce or cancel any business that it may transact with
Company or any of its affiliated entities;
(d) Solicit, induce, or otherwise attempt to influence
any employee of the Company or any of its affiliated entities, to
terminate his or her relationship with the Company or any of its
affiliated entities; or
(e) Make any statement or perform any act intended to
advance an interest of an existing or prospective competitor of the
Company or any of its affiliated entities in any way that demonstrably
injures the reputation, goodwill or any other business interest of
Company or any of its affiliated entities.
For purposes of this Agreement, "SIMILAR BUSINESS TO COMPANY" means
any business or other enterprise that is competitive with the current or
planned businesses, products, services or operations of the Company or any of
its affiliated entities at the time of termination of Executive's employment
including, without limitation, municipal biosolids management. For purposes of
clarity, the non-compete and other provisions of this Section 14 shall not
apply to Executive if Executive's employment hereunder is terminated (i) by the
Company without Cause (as defined in Section 6(b)), or (ii) by the Executive
for Good Reason (as defined in Section 6(b)).
Executive hereby agrees that the limitations set forth above on his
rights to compete with Company after his termination of employment are
reasonable and necessary for the protection of Company. In this regard,
Executive specifically agrees that such limitations as to the period of time,
geographic area and types and scopes of restriction on his activities, as
specified above, are reasonable and necessary to protect the goodwill and other
business interests of Company. However, should the time period, the geographic
area or any other non-competition provision set forth herein be deemed invalid
or unenforceable in any respect, then Executive acknowledges and agrees that,
as set forth in Section 15 hereof, reformation may be made with respect to such
time period, geographic area or other non-competition provision in order to
protect Company's reasonable business interests to the maximum permissible
extent.
15. REMEDIES. In the event of any pending, threatened or actual
breach of any of the covenants or provisions of Section 11, 12, 13 or 14, it is
understood and agreed by Executive that the remedy at law for a breach of any
of the covenants or provisions of these Sections may be inadequate and,
therefore, Company shall be entitled to a restraining order or injunctive
relief from any court of competent jurisdiction, in addition to any other
remedies at law and in equity. In the event that Company seeks to obtain a
restraining order or injunctive relief, Executive hereby agrees that Company
shall not be required to post any bond in connection therewith. Should a court
of competent jurisdiction or an arbitrator (pursuant to Section 24) declare any
provision of Section 11, 12, 13 or 14 to be unenforceable due to an
unreasonable restriction of duration or geographical area, or for any other
reason, such court or arbitrator is hereby granted the consent of each of the
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Executive and Company to reform such provision and/or to grant the Company any
relief, at law or in equity, reasonably necessary to protect the reasonable
business interests of Company or any of its affiliated entities. Executive
hereby acknowledges and agrees that all of the covenants and other provisions
of Sections 11, 12, 13 and 14 are reasonable and necessary for the protection
of the Company's reasonable business interests. Executive hereby agrees that
if the Company prevails in any action, suit or proceeding with respect to any
matter arising out of or in connection with Section 11, 12, 13 or 14, Company
shall be entitled to all equitable and legal remedies, including, but not
limited to, injunctive relief and compensatory damages.
16. DEFENSE OF CLAIMS. Executive agrees that, during the
Employment Period and for a period of two (2) years after his Termination Date,
upon reasonable request from the Company, he will cooperate with the Company
and its affiliated entities in the defense of any claims or actions that may be
made by or against the Company or any of its affiliated entities that affect
his prior areas of responsibility, except if Executive's reasonable interests
are adverse to the Company (or affiliated entity) in such claim or action. To
the extent travel is required to comply with the requirements of this Section
16, the Company shall, to the extent possible, provide Executive with notice at
least 10 days prior to the date on which such travel would be required. The
Company agrees to promptly pay or reimburse Executive upon demand for all of
his reasonable travel and other direct expenses incurred, or to be reasonably
incurred, to comply with his obligations under this Section 16.
17. DETERMINATIONS BY THE BOARD OF DIRECTORS.
(a) TERMINATION OF EMPLOYMENT. Prior to a Change in
Control (as defined in Section 6(b)), any question as to whether and
when there has been a termination of Executive's employment, and the
cause of such termination, shall be determined by the Board of
Directors in its discretion.
(b) COMPENSATION. Prior to a Change in Control (as
defined in Section 6(b)), any question regarding salary, bonus and
other compensation payable to Executive pursuant to this Agreement
shall be determined by the Committee in its discretion.
18. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and
deduct from any benefits and payments made or to be made pursuant to this
Agreement (a) all federal, state, local and other taxes as may be required
pursuant to any law or governmental regulation or ruling, (b) all other normal
employee deductions made with respect to Company's employees generally, and (c)
any advances made to Executive and owed to Company.
19. NONALIENATION. The right to receive payments under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge or encumbrance by Executive, his dependents or
beneficiaries, or to any other person who is or may become entitled to receive
such payments hereunder. The right to receive payments hereunder shall not be
subject
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to or liable for the debts, contracts, liabilities, engagements or torts of any
person who is or may become entitled to receive such payments, nor may the same
be subject to attachment or seizure by any creditor of such person under any
circumstances, and any such attempted attachment or seizure shall be void and
of no force and effect.
20. INCOMPETENT OR MINOR PAYEES. Should the Board of Directors
determine that any person to whom any payment is payable under this Agreement
has been determined to be legally incompetent or is a minor, any payment due
hereunder may, notwithstanding any other provision of this Agreement to the
contrary, be made in any one or more of the following ways: (a) directly to
such minor or person; (b) to the legal guardian or other duly appointed
personal representative of the person or estate of such minor or person; or (c)
to such adult or adults as have, in the good faith knowledge of the Board of
Directors, assumed custody and support of such minor or person; and any payment
so made shall constitute full and complete discharge of any liability under
this Agreement in respect to the amount paid.
21. SEVERABILITY. It is the desire of the parties hereto that
this Agreement be enforced to the maximum extent permitted by law, and should
any provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 24), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided,
however, if such provision cannot be reformed, it shall be deemed ineffective
and deleted herefrom without affecting any other provision of this Agreement.
22. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to
Sections hereof are for the purpose of reference only and shall in no way
limit, define or otherwise affect the provisions hereof. Any and all Exhibits
referred to in this Agreement are, by such reference, incorporated herein and
made a part hereof for all purposes. The words "herein", "hereof", "hereunder"
and other compounds of the word "here" shall refer to the entire Agreement and
not to any particular provision hereof.
23. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW.
24. ARBITRATION.
(a) ARBITRABLE MATTERS. If any dispute or controversy
arises between Executive and the Company as to their respective rights
or obligations under this Agreement, then either party may submit the
dispute or controversy to arbitration under the then-current National
Employment Dispute Resolution Rules of the American Arbitration
Association (AAA) (the "Rules"); provided, however, the Company shall
retain its rights to seek a
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restraining order or injunctive relief pursuant to Section 15. Any
arbitration hereunder shall be conducted before a single arbitrator
unless the parties mutually agree to a panel of three arbitrators.
The site for any arbitration hereunder shall be in Montgomery County
or Harris County, Texas, unless otherwise mutually agreed by the
parties.
(b) SUBMISSION TO ARBITRATION. The party submitting any
matter to arbitration shall do so in accordance with the Rules.
Notice to the other party shall state the question or questions to be
submitted for decision or award by arbitration. Notwithstanding any
provision in this Section 24, Executive shall be entitled to seek
specific performance of the Executive's right to be paid during the
pendency of any dispute or controversy arising under this Agreement.
In order to prevent irreparable harm, the arbitrator may grant
temporary or permanent injunctive or other equitable relief for the
protection of property rights.
(c) ARBITRATION PROCEDURES. The arbitrator shall set the
date, time and place for each hearing, and shall give the parties
advance written notice in accordance with the Rules. Any party may be
represented by counsel or other authorized representative at any
hearing. The arbitration shall be governed by the Federal Arbitration
Act, 9 U.S.C. Sections 1 et. seq. (or its successor). The arbitrator
shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas to the claims asserted to the extent
that the arbitrator determines that federal law is not controlling.
(d) COMPLIANCE WITH AWARD.
(1) Any award of an arbitrator shall be final and
binding upon the parties to such arbitration, and each party
shall immediately make such changes in its conduct or provide
such monetary payment or other relief as such award requires.
The parties agree that the award of the arbitrator shall be
final and binding and shall be subject only to the judicial
review permitted by the Federal Arbitration Act.
(2) The parties hereto agree that the arbitration
award may be entered with any court having jurisdiction and
the award may then be enforced as between the parties, without
further evidentiary proceedings, the same as if entered by the
court at the conclusion of a judicial proceeding in which no
appeal was taken. The Company and the Executive hereby agree
that a judgment upon any award rendered by an arbitrator may
be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(e) COSTS AND EXPENSES. Each party shall pay any
monetary amount required by the arbitrator's award, and the fees,
costs and expenses for its own counsel, witnesses and exhibits, unless
otherwise determined by the arbitrator in the award. The compensation
and costs and expenses assessed by the arbitrator and AAA shall be
paid by the losing party
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unless otherwise determined by the arbitrator in the award. If court
proceedings to stay litigation or compel arbitration are necessary,
the party who unsuccessfully opposes such proceedings shall pay all
associated costs, expenses, and attorney's fees which are reasonably
incurred by the other party as determined by the arbitrator.
25. BINDING EFFECT: THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, and to
their respective heirs, executors, personal representatives, successors and
permitted assigns hereunder, but otherwise this Agreement shall not be for the
benefit of any third parties.
26. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the
entire agreement of the parties with respect to Executive's employment and the
other matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and understandings, oral or written, between the
parties hereto concerning the subject matter hereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both
parties hereto.
27. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the
intention of the parties hereto, the respective rights and obligations of said
parties, including, but not limited to, the rights and obligations set forth in
Sections 6 through 17 and 24 hereof, shall survive any termination or
expiration of this Agreement.
28. WAIVER OF BREACH. No waiver by either party hereto of a
breach of any provision of this Agreement by any other party, or of compliance
with any condition or provision of this Agreement to be performed by such other
party, will operate or be construed as a waiver of any subsequent breach by
such other party or any similar or dissimilar provision or condition at the
same or any subsequent time. The failure of either party hereto to take any
action by reason of any breach will not deprive such party of the right to take
action at any time while such breach continues.
29. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of Company and its affiliated entities, and its and
their successors, and upon any person or entity acquiring, whether by merger,
consolidation, purchase of assets or otherwise, all or substantially all of the
assets and business of Company. Any reference herein to "Company" shall mean
the Company as first written above, as well as any successor or successors
thereto.
This Agreement is personal to Executive, and Executive may not assign,
delegate or otherwise transfer all or any of his rights, duties or obligations
hereunder without the consent of the Board of Directors. Any attempt by the
Executive to assign, delegate or otherwise transfer this Agreement, any portion
hereof, or his rights, duties or obligations hereunder without the prior
written consent of the Board of Directors shall be deemed void and of no force
and effect.
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30. NOTICES. Notices provided for in this Agreement shall be in
writing and shall be deemed to have been duly received (a) when delivered in
person or sent by facsimile transmission, (b) on the first business day after
it is sent by air express overnight courier service, or (c) on the third
business day following deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed, to the
following address, as applicable:
(1) If to Company, addressed to:
Synagro Technologies, Inc.
16000 Stuebner Airline, Suite 420
Spring, Texas 77379
Attention: Secretary
(2) If to Executive, addressed to the address set forth
below his name on the execution page hereof;
or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 30.
31. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a copy hereof containing multiple
signature pages, each signed by one party hereto, but together signed by both
of the parties hereto.
32. EXECUTIVE ACKNOWLEDGMENT/NO STRICT CONSTRUCTION. The
Executive represents to Company that he is knowledgeable and sophisticated as
to business matters, including the subject matter of this Agreement, that he
has read the Agreement and that he understands its terms and conditions. The
parties hereto agree that the language used in this Agreement shall be deemed
to be the language chosen by them to express their mutual intent, and no rule
of strict construction shall be applied against either party hereto. Executive
also represents that he is free to enter into this Agreement including, without
limitation, that he is not subject to any other contract of employment or
covenant not to compete that would conflict in any way with his duties under
this Agreement. Executive acknowledges that he has had the opportunity to
consult with counsel of his choice, independent of Employer's counsel,
regarding the terms and conditions of this Agreement and has done so to the
extent that he, in his unfettered discretion, deemed to be appropriate.
33. SUPERSEDING AGREEMENT. This Employment Agreement shall
supersede any prior employment agreement entered into between the Company and
Executive.
Initials:________
20 Initials:________
<PAGE> 21
IN WITNESS WHEREOF, the Executive has hereunto set his hand, and
Company has caused these presents to be executed in its name and on its behalf,
to be effective as of the Effective Date first above written.
WITNESS: EXECUTIVE:
Signature: Signature:
----------------------- ------------------------------
Printed Name: Printed Name:
------------------- ---------------------------
Date: Date:
---------------------------- -----------------------------------
Address for Notices:
-------------------
---------------------------
---------------------------
---------------------------
ATTEST: SYNAGRO TECHNOLOGIES, INC.:
By: By:
------------------------------ -------------------------------------
Title: Its:
--------------------------- ------------------------------------
Printed Name: Printed Name:
-------------------- ---------------------------
Date: Date:
---------------------------- -----------------------------------
Initials:________
21 Initials:________
<PAGE> 1
SCHEDULE 21.1
SUBSIDIARIES OF SYNAGRO TECHNOLOGIES, INC.
The following is a list of all of the subsidiaries of the Company at
December 31, 1997. Each of the subsidiaries is wholly-owned by the Company.
Corporate Name of Subsidiary State of Incorporation
----------------------------------- ----------------------------
CDR Environmental, Inc. Texas
Composting Corporation of America Arkansas
Organi-Gro, Inc. Arkansas
Pima Gro Systems, Inc. Arizona
ST Interco, Inc. Delaware
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 20, 1998, except with respect to certain matters
discussed in Note 7 and matters discussed in Note 14 as to which the date is
April 14, 1998, included in this Form 10-K/A, into the Company's previously
filed Registration Statement File No. 333-18029 on Form S-8 and Registration
Statement File No. 333-20825 on Form S-3.
ARTHUR ANDERSEN LLP
Houston, Texas
April 28, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 28, 1996 accompanying the financial
statements included in this Form 10-K/A of Synagro Technologies, Inc. We hereby
consent to the incorporation by reference of said report in the Registration
Statements of Synagro Technologies, Inc. on Forms S-8 (File No. 333-18029) and
S-3 (File No. 333-20825).
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 28, 1998
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