1
EXHIBIT 2.6
EARNOUT AGREEMENT
THIS EARNOUT AGREEMENT (this "Agreement"), is made and entered into
this 27th day of March, 2000 by and among SYNAGRO TECHNOLOGIES, INC., a Delaware
corporation ("Purchaser"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(collectively, the "Shareholders"). Purchaser and the Shareholders are each
referred to as a "Party" and, collectively, they are sometimes referred to as
the "Parties."
WITNESSETH:
WHEREAS, the Parties hereto have entered into that certain Stock
Purchase Agreement dated as of October 26, 1999, as amended by that certain
Letter Agreement dated December 23, 1999 and by Amendment No. 2 to the Stock
Purchase Agreement dated as of the date hereof (as amended, the "Purchase
Agreement"), whereby the Shareholders agreed to sell and transfer to Purchaser,
and Purchaser agreed to purchase, all the outstanding stock of ▇▇▇▇▇▇▇, Inc., a
Minnesota corporation (the "Company");
WHEREAS, it is a condition to the Parties' obligations to close the
transactions contemplated in the Purchase Agreement that the Parties execute and
deliver this Agreement;
WHEREAS, this Agreement sets forth the terms and conditions upon which
Purchaser will, under certain circumstances, pay to the Shareholders the earnout
consideration referenced in Section 3.2(a) of the Purchase Agreement as part of
the Purchase Price to be paid to the Shareholders for the stock of the Company;
and
WHEREAS, capitalized terms not defined herein shall have the meanings
given to them in the Purchase Agreement.
NOW, THEREFORE, for and in consideration of the transactions
contemplated in the Purchase Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Purchaser and the Shareholders agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the respective meanings indicated:
(a) "Affiliates" shall have the meaning given such term in
Exhibit A to the Purchase Agreement.
(b) "Closing Date" shall have the meaning given such term in
Section 2.1 of the Purchase Agreement.
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(c) "Disputed Amount" means the portion of the Earn Out
Amount, if any, which is in dispute as of May 15, 2003, pursuant to
Section 5 hereof.
(d) "Earn Out Advance" means, during the first two Earn Out
Years, an amount equal to $32,000 per quarter, and, in the third Earn
Out Year, an amount computed as provided in Section 4 of this
Agreement.
(e) "Earn Out Amount" means the amount, if any, owed by
Purchaser to the Shareholders on the Earn Out Payment Date, computed as
provided in Section 5 of this Agreement. The Earn Out Amount and the
Earn Out Advances shall be payable to the Shareholders in accordance
with the allocations listed on Schedule 3.2 of the Purchase Agreement.
(f) "Earn Out Payment Date" means, with respect to any
Undisputed Amount, May 15, 2003, and with respect to any Disputed
Amount, the date ten (10) business days following agreement on or
delivery of the final, binding and conclusive calculation by the
Neutral Auditor of the Three Year EBITDA.
(g) "Earn Out Representative" means ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, or, if
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ dies, resigns or for any reason refuses or is unable to
act, a substitute specified in a written notice of substitution
delivered to Purchaser and signed by the Shareholders.
(h) "Earn Out Year" means a period of twelve (12) consecutive
calendar months, the first Earn Out Year beginning on April 1, 2000 and
ending on March 31, 2001, and each succeeding Earn Out Year beginning
on each April 1 thereafter and ending on March 31 thereafter.
(i) "EBITDA" means the net income of the Company before
interest, federal, state and local income taxes, depreciation and
amortization, determined in accordance with GAAP, applied consistent
with past practices of the Company, provided, however, that there shall
be no deduction from earnings in such calculation for (i) any expenses
incurred in connection with the acquisition of the Company by the
Purchaser; or (ii) corporate overhead in excess of the lesser of (A)
the sum of the actual corporate overhead of the Company plus the actual
corporate overhead allocated to the Company by the Purchaser, or (B)
the sum of $360,018 plus any amount paid to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ under the
Consulting Agreement, dated of even date herewith, by and between the
Purchaser and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
(j) "Indemnified Amounts" has the meaning given such term in
Section 10.1 of the Purchase Agreement.
(k) "Neutral Auditor" means an independent accounting firm of
national reputation mutually acceptable to Purchaser and the
Shareholders or selected by the American Arbitration Association.
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(l) "Past Due Rate" means a rate per annum equal to ten
percent (10%).
(m) "Purchase Price" shall have the meaning given such term in
Section 3.2(a) of the Purchase Agreement.
(n) "Three Year Average EBITDA" means the EBITDA of the
Company for the thirty-six (36) month period beginning on April 1, 2000
(the "Three Year Period") divided by three (3); provided, however, that
notwithstanding any other provision set forth in this Agreement, in no
event shall the Three Year Average EBITDA exceed $1,700,000.
(o) "Two Year Average EBITDA" means EBITDA of the Company for
the twenty-four (24) month period beginning on April 1, 2000 (the "Two
Year Period") divided by two (2).
(p) "Undisputed Amount" means the portion of the Earn Out
Amount, if any, which is not in dispute as of May 15, 2003, pursuant to
Section 5 hereof.
2. Payment of Earn Out Amount. Purchaser shall pay the Earn Out
Amount to the Shareholders on the Earn Out Payment Date. The Earn Out Amount
shall be as computed as provided in Section 5 below. If any portion of the Earn
Out Amount is not paid to the Shareholders on May 15, 2003 because such portion
is a Disputed Amount, then such portion of the Disputed Amount, if any, that is
later determined to be due and payable shall bear interest from May 15, 2003
until paid at the rate of eight percent (8%) per annum.
3. Payment of Earn Out Advances. Purchaser shall pay an Earn Out
Advance to the Shareholders (i) on June 30, 2000 and (ii) on each September 30,
December 31, March 31 and June 30 thereafter until March 31, 2003. During the
first two Earn Out Years, the Earn Out Advance shall be $32,000 per quarter. In
the third Earn Out Year, the Earn Out Advances, if any, shall be as computed as
provided in Section 4 below.
4. Calculation of Earn Out Advances in the Third Earn Out Year.
Purchaser shall determine the Two Year Average EBITDA within thirty (30) days
after the expiration of the Two Year Period. Purchaser's methodology for
determination of the Two Year Average EBITDA and the results thereof shall be
forwarded to Earn Out Representative. Purchaser shall provide Earn Out
Representative with access upon request to the data it used to determine the Two
Year Average EBITDA. The Earn Out Representative shall review the calculation of
the Two Year Average EBITDA within fifteen (15) business days after delivery
thereof and notify Purchaser in writing of any disagreement with such
calculation. If within such fifteen (15) business days following delivery Earn
Out Representative does not object in writing thereto, then Purchaser's
determination of the Two Year Average EBITDA shall be conclusive for the purpose
of computing the amount of Earn Out Advances to be paid in the third Earn Out
Year, but for no other purpose. If Earn Out Representative objects in writing to
Purchaser's computation, then Purchaser and Earn Out Representative shall
negotiate in good faith and attempt to resolve their disagreement. Should such
negotiation not result in an agreement within twenty (20) business
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days of receipt by Purchaser of Earn Out Representative's objection, then the
matter shall be reserved to be submitted to arbitration by a Neutral Auditor at
the end of the third Earn Out Year, concurrently with any dispute that may exist
as to the calculation of the Earn Out Amount. Such arbitration shall be governed
by the rules provided in Sections 7(a) through 7(e) of this Agreement. All fees
and expenses relating to appointment of a Neutral Auditor and the work, if any,
to be performed by such Neutral Auditor will be borne equally by Purchaser and
the Shareholders. If Purchaser and the Shareholders are unable to agree on the
Neutral Auditor, then either or both of them shall request the American
Arbitration Association to appoint the Neutral Auditor. Purchaser and the
Shareholders agree to execute a reasonable engagement letter if requested to do
so by the Neutral Auditor. The Neutral Auditor shall deliver to Purchaser, the
Shareholders and the Earn Out Representative a written determination (such
determination to include a worksheet setting forth all material calculations
used in arriving at such determination and to be based solely on information
provided to Neutral Auditor by Purchaser, the Shareholders and the Earn Out
Representative, or their respective Affiliates) of the disputed items within
thirty (30) days of receipt of the disputed items, which determination shall be
final, binding and conclusive on the Parties.
Promptly following the Purchaser's calculation of the Two Year Average
EBITDA, the Earn Out Advances for the third Earn Out Year shall be determined as
follows:
(a) Two Year Average EBITDA is Equal to or Greater Than Threshold.
If the Two Year Average EBITDA is equal to or greater than $1,700,000 (the
"Threshold"), the Earn Out Advance for each quarter in the third Earn Out Year
shall be $32,000.
(b) Two Year Average EBITDA is Between the Threshold and the
EBITDA Floor. If the Two Year Average EBITDA is less than the Threshold, but
greater than $1,428,000.22 (the "EBITDA Floor"), the Earn Out Advance for each
quarter in the third Earn Out Year shall be equal to the product of (i) (1) the
difference between the Two Year Average EBITDA and the EBITDA Floor divided by
(2) $271,999.80 multiplied by (ii) $32,000.
(c) Two Year Average EBITDA Equal to or Less Than EBITDA Floor. If
the Two Year Average EBITDA is equal to or less than the EBITDA Floor, there
shall be no Earn Out Advances payable by Purchaser in the third Earn Out Year.
5. Calculation of Earn Out Amount. Purchaser shall determine the
Three Year Average EBITDA within thirty (30) days after the expiration of the
Three Year Period. Purchaser's methodology for determination of the Three Year
Average EBITDA and the results thereof shall be forwarded to Earn Out
Representative. Purchaser shall provide Earn Out Representative with access to
the data it used to determine the Three Year Average EBITDA upon request. Earn
Out Representative shall review the calculation of the Three Year Average EBITDA
within thirty (30) days after delivery thereof and notify Purchaser in writing
of any disagreement with such calculation. If within such thirty (30) days
following delivery Earn Out Representative does not object in writing thereto,
then Purchaser's determination of the Three Year Average EBITDA shall be
conclusive. If Earn Out Representative objects in writing to
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Purchaser's computation, then the discrepancy shall be resolved by Arbitration
as provided in Section 4 above.
Promptly following agreement on or determination of the final, binding
and conclusive calculation of the Three Year Average EBITDA, the Earn Out Amount
shall be determined as follows:
(a) Three Year Average EBITDA Equal to or Greater Than the
Threshold. If the Three Year Average EBITDA is equal to or greater than the
Threshold, then the Earn Out Amount shall be equal to $1,600,000, plus the
amount, if any, that the total Earn Out Advances paid by Purchaser in the third
Earn Out Year were less than $128,000; provided, however, that in no event shall
the sum of the Earn Out Amount and all Earn Out Advances exceed $1,984,000.
(b) Three Year Average EBITDA Greater than the EBITDA Floor but
less than the Threshold. If the Three Year Average EBITDA is greater than the
EBITDA Floor but less than the Threshold, then the Earn Out Amount shall be
equal to the sum of (i) 5.8823521 times the amount by which the Three Year
Average EBITDA exceeds $1,428,000.20, plus (ii) $128,000 times a fraction, the
numerator of which shall be the amount determined in (i) above, and the
denominator of which is $1,600,000, minus (iii) the total Earn Out Advances paid
by the Purchaser in the third Earn Out Year; provided, however, that (x) in no
event shall the sum of the Earn Out Amount and all Earn Out Advances exceed
$1,984,000, and (y) if the Earn Out Amount is negative, the Shareholders shall
refund an amount equal to such negative Earn Out Amount (i.e., the amount of the
excess Earn Out Advances) to Purchaser within ten (10) business days following
the Earn Out Payment Date.
(c) Three Year Average EBITDA Equal to or Less than the EBITDA
Floor. If the Three Year Average EBITDA is equal to or less than the EBITDA
Floor, then on the Earn Out Payment Date there shall be no Earn Out Amount
payable by Purchaser to the Shareholders. In addition, the Shareholders shall
refund to Purchaser an amount equal to the total Earn Out Advances paid by
Purchaser in the third Earn Out Year within ten (10) business days following the
Earn Out Payment Date.
6. Interest. To the extent that Purchaser does not make a payment
of any portion of the Earn Out Advances or Earn Out Amount (except as provided
otherwise with respect to any Disputed Amount in Section 2) on the required
payment date, such unpaid amount shall bear interest at the Past Due Rate from
and after the required payment date to the date on which such unpaid amount (or
a portion thereof) is paid.
7. Binding Arbitration.
(a) General. Notwithstanding any provision of this Agreement
to the contrary, upon the request of any Party any dispute, controversy or claim
arising out of, relating to, or in connection with, this Agreement or any
agreement executed in connection herewith or contemplated hereby (excepting
matters decided by the Neutral Auditor), or the breach,
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termination, interpretation, or validity hereof or thereof (hereinafter referred
to as a "Dispute"), shall be finally resolved by mandatory and binding
arbitration in accordance with the terms hereof. Any Party may bring an action
in court to compel arbitration of any Dispute. Any Party who fails or refuses to
submit any Dispute to binding arbitration following a lawful demand by the
opposing Party shall bear all costs and expenses incurred by the opposing Party
in compelling arbitration of such Dispute.
(b) Governing Rules. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association in effect at the time of the arbitration, except as they may be
modified herein or by mutual agreement of the Parties. The arbitration and this
clause shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1 et
seq. (the "Federal Arbitration Act"). The arbitrator shall award all reasonable
and necessary costs (including the reasonable fees and expenses of counsel)
incurred in conducting the arbitration to the prevailing Party in any such
Dispute. The Parties expressly waive all rights whatsoever to file an appeal
against or otherwise to challenge any award by the arbitrators hereunder;
provided, that the foregoing shall not limit the rights of any Party to bring a
proceeding in any applicable jurisdiction to confirm, enforce or enter judgment
upon such award (and the rights of the other Party, if such proceeding is
brought, to contest such confirmation, enforcement or entry of judgment, but
only to the extent permitted by the Federal Arbitration Act).
(c) No Waiver; Preservation of Remedies. No provision of, nor
the exercise of any rights under this Agreement shall limit the right of any
Party to apply for injunctive relief or similar equitable relief with respect to
the enforcement of this Agreement or any agreement executed in connection
herewith or contemplated hereby, and any such action shall not be deemed an
election of remedies. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The Parties agree that irreparable damage would occur if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
Parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof. The
institution and maintenance of an action for injunctive relief or similar
equitable relief shall not constitute a waiver of the right of any Party,
including without limitation the plaintiff, to submit any Dispute to arbitration
nor render inapplicable the compulsory arbitration provisions of this Agreement.
(d) Arbitration Proceeding. In addition to the authority
conferred on the arbitration tribunal by the rules specified above, the
arbitration tribunal shall have the authority to order reasonable discovery,
including the depositions of party witnesses and production of documents. The
arbitral award shall be in writing, state the reasons for the award, and be
final and binding on the Parties with no right of appeal. All statutes of
limitations that would otherwise be applicable shall apply to any arbitration
proceeding. Any attorney-client privilege and other protection against
disclosure of confidential information, including without limitation any
protection afforded the work-product of any attorney, that could otherwise be
claimed by any Party shall be available to and may be claimed by any such Party
in any arbitration proceeding. No Party waives any attorney-client privilege or
any other protection against disclosure of
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confidential information by reason of anything contained in or done pursuant to
or in connection with this Agreement. Each Party agrees to keep all Disputes and
arbitration proceedings strictly confidential, except for disclosures of
information to the Parties' legal counsel or auditors or those required by
applicable law. The arbitrators shall determine the matters in dispute in
accordance with the substantive law of Texas, without regard to conflict of law
rules. The obligation to arbitrate any dispute shall be binding upon the
successors and assigns of each of the Parties.
(e) Appointment of Arbitrators. The arbitration shall be
conducted by three (3) arbitrators. The Party initiating arbitration (the
"Claimant") shall appoint its arbitrator in its request for arbitration (the
"Request"). The other Party (the "Respondent") shall appoint its arbitrator
within thirty (30) days after receipt of the Request and shall notify the
Claimant of such appointment in writing. If the Respondent fails to appoint an
arbitrator within such thirty (30) day period, the arbitrator named in the
Request shall decide the controversy or claim as sole arbitrator. Otherwise, the
two (2) arbitrators appointed by the Parties shall appoint a third (3rd)
arbitrator within thirty (30) days after the Respondent has notified Claimant of
the appointment of the Respondent's arbitrator. When the third (3rd) arbitrator
has accepted the appointment, the two (2) Party-appointed arbitrators shall
promptly notify the Parties of the appointment. If the two (2) arbitrators
appointed by the Parties fail to appoint a third (3rd) arbitrator and so to
notify the Parties within the time period prescribed above, then the appointment
of the third (3rd) arbitrator shall be made by the American Arbitration
Association, which shall promptly notify the Parties of the appointment. The
third (3rd) arbitrator shall act as Chair of the panel.
8. No Waiver by the Shareholders. No delay or omission of the
Shareholders to exercise any power, right or remedy accruing to the Shareholders
hereof shall impair any such power, right or remedy or shall be construed to be
a waiver of the right to exercise any such power, right or remedy.
9. Paragraph Headings. Paragraph headings appearing in this
Agreement are for convenient reference only and shall not be used to interpret
or limit the meaning of any provision of this Agreement.
10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE.
11. Successors and Assigns. This Agreement and all the agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and assigns of Purchaser and
the Shareholders; provided, that the Shareholders shall not assign or otherwise
transfer to any other Person or entity any interest in this Agreement unless the
Shareholders obtain Purchaser's prior written consent.
12. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the
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remaining provisions of this Agreement shall not be affected thereby, and this
Agreement shall be liberally construed so as to carry out the intent of the
parties to it. Each waiver in this Agreement is subject to the overriding and
controlling rule that it shall be effective only if and to the extent that (a)
it is not prohibited by applicable law and (b) applicable law neither provides
for nor allows any material sanctions to be imposed against The Shareholders for
having bargained for and obtained it.
13. Notices. Any notice, request or other communication required
or permitted to be given hereunder shall be given in writing by delivering it
against receipt for it, by depositing it with an overnight delivery service or
by depositing it in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties as follows (and if so given, shall be deemed
given when mailed), or by facsimile:
If to Purchaser:
Synagro Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. Rome
(▇▇▇) ▇▇▇-▇▇▇▇ (fax)
If to Earnout Representative:
▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (fax)
If to the Shareholders:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (fax)
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (fax)
Any Party may change its address for notice at any time and from time
to time, but only after ten (10) days' advance written notice to the other
Parties. A Party's address for notice shall
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be the most recent such address furnished in writing by such Party to the other
Parties. Actual notice, however and from whomever given or received, shall
always be effective when received.
14. Offset Rights. Purchaser shall have the right to offset
amounts owed to Purchaser under the Purchase Agreement, including, without
limitation, any and all Indemnified Amounts determined by litigation,
arbitration or settlement under Section 10.3 of the Purchase Agreement to be
owed to Purchaser, against any amounts due under this Agreement. Reference is
hereby made to the escrow provisions in Section 10.8 of the Purchase Agreement,
the terms and conditions of which are incorporated herein by this reference.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first set forth above.
PURCHASER:
SYNAGRO TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇ ▇. Rome
------------------------------------
▇▇▇▇ ▇. Rome
Executive Vice President
SHAREHOLDERS:
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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