Practical Guidance for Due Diligence Environmental Auditing

John M. DeMeester

Editor's Summary: Environmental auditing has become one of the most widely used techniques for detecting and preventing environmental problems before they get out of hand. Increasingly, corporations with sophisticated environmental staffs are using the technique to evaluate not only the corporation's own pollution concerns but also those of corporations that are possible partners in a merger or acquisition. Environmental auditing is thus becoming part of the "due diligence" practiced in evaluating major business transactions. In this Article, the author describes the needs for environmental due diligence auditing and the contractual issues underlying it. He explains how corporations should plan and carry out environmental due diligence auditing, and then analyzes typical problems that arise and evaluates responses to them.

Mr. DeMeester is a Staff Counsel in the Legal Department of The Dow Chemical Company, Midland, Michigan. The views expressed in this Article are those of the author and do not necessarily represent the views of The Dow Chemical Company. The author wishes to acknowledge and thank his colleagues Graham Taylor and Pedro Freyre for their valuable contributions and editing assistance in preparing this Article.

[18 ELR 10210]

Environmental due diligence audits ought to be part of the standard procedures for sale or purchase of all industrial property. Though conventional due diligence reviews have long been used in commercial real estate transactions, use of environmental due diligence auditing is growing exponentially. It is a key tool as industries learn how better to manage environmental risk under statutes such as the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)¹ and the Resource Conservation and Recovery Act (RCRA),² as well as burgeoning toxic tort liability and general product liability. Without an environmental due diligence audit, the buyer of industrial property could be purchasing a chance at bankruptcy, acquiring not only the land he wanted but also a crushing environmental liability he did not even know existed.

Sellers also need to be informed about potential environmental liability as a result of past operations. Retained liability, if any, can be reasonably calculated and funded. Alternatively, the potential liability can be accounted for as a set-off to the acquisition price. A lessee, while often not exposed to liability for remediation costs, is exposed to potential business disruption from the failure to obtain appropriate permits or from remediation activities. Exposure to harmful quantities of pollutants could even make lessees stop operating and leave the premises.

Risks that need to be considered by all parties to a transaction include

1. personal injury or exposure claims of employees, invitees, and the public;

2. private property damage;

3. public natural resource loss or damage;

4. noncompliance with laws and regulations;

5. permits and certifications (or the lack of them);

6. remediation costs;

7. existing, pending, or threatened enforcement;

8. exposure of management to liability; and

9. potential for catastrophic incidents or releases.

In particular cases, other factors must frequently also be evaluated. Ultimately, all of these factors bear on the value of the asset being transferred, i.e., the purchase price. Moreover, if the purchase agreement contains representations, warranties, or conditions precedent, and the audit has revealed misrepresentations or breaches of such warranties and conditions, the purchaser may have to decide whether to complete the transaction at all.

Large potential liability and disruption have their geneses for the most part in groundwater and drinking water contamination incident to waste disposal. This is obviously so because (1) treatment of an aquifer or a contamination plume are orders of magnitude more difficult, vast, and hence expensive, compared to controlling an air emission or conventional plant effluent discharge and (2) more often than not the subject of groundwater cleanup under CERCLA and RCRA is in the parts per billion or low parts per million range where the cost-benefit ratio is frighteningly [18 ELR 10211] small. Other factors also contribute to high costs, including bureaucratic inefficiency in the regulatory programs, the seeming unwillingness or inability of regulators and legislators to wrestle with and make tough public policy and political choices, and a "deep pockets" attitude on the part of regulators, legislators, and juries.

It is companies themselves that for the most part must face this reality as one of their own making through past indiscriminate waste disposal practices. Among themselves they must now allocate environmental liability and its associated costs in order to make an ongoing commercial society possible. Environmental due diligence audits provide the intelligence needed for an informed allocation.

The federal government itself — from its operation of military installations, nuclear facilities, and other operations — is also a major contributor to contamination incidents. State and local landfills are also significant contributing sources of contamination. However, government entities are only now just beginning to be brought to account. Private actions against a governmental entity for personal injury and environmental damage are of course exceedingly difficult to bring. Accordingly, it is the real or alleged environmental indiscretions of industry that remain the focal points of environmental regulatory programs and toxic tort and product liability litigation.

While it is the assessment of exposure to liability that drives environmental due diligence audits, there are other environmental and operational benefits too:

— it helps establish credibility with the regulatory agencies with which the buyer as a new owner must deal;

— it instills confidence in the new employees and their unions, as well as in the public;

— if citizen suits nonetheless occur, good faith efforts of this type can bolster the corporation's credibility; and

— it might mitigate the risks associated with non- or misdisclosure under proliferating regulatory disclosure requirements.³

What Is an Environmental Due Diligence Audit?

The concept of "due diligence" is certainly not new. Black's Law Dictionary defines it as "Such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case."

The environmental due diligence audit can be defined as a process of data collection and site visits conducted pursuant to a contractual relationship that enables a buyer to assess the environmental condition of the land, physical assets, and operations being purchased, so that the buyer can manage or avoid the risks of environmental liability presented by the acquisition.

Contractual Underpinnings of the Audit

In a typical sale of industrial property, the principals will have negotiated a preliminary agreement or letter of intent. Their respective legal counsel will then begin working towards completing a final agreement, which may or may not be complete as of the audit.

The most pertinent part of such an agreement for the environmental due diligence audit are the warranties and representations made by each party to the other. Those of the seller normally warrant, represent, or disclose

1. compliance status for all relevant or specified laws and regulations;

2. the existence of all necessary permits, registrations, approvals, or certifications;

3. the status of all current and pending or threatened regulatory, administrative, or judicial action and claims;

4. the existence and integrity of environmentally related assets as meeting a specified or industry standard;

5. the existence, location, and disposition of wastes, emissions, and discharges, both past and present; and

6. environmental air and water quality or condition including hydrology flow and groundwater.

Because of the expansive nature of these warranties and representations, they often incorporate by reference a number of so-called "schedules" in which all manner of things are to be disclosed and about which the warranties are made. The essence of the due diligence audit is to verify the accuracy and completeness of the representations, disclosures, and schedules.

Frequently, the agreement will provide that the seller retain liability for virtually all the environmental consequences of its and all previous ownership to the extent that a loss or claim occurs, or is threatened, to the buyer after the sale. Conversely, the buyer agrees to assume liability resulting from operations commencing after closing. A typical agreement includes lengthy, carefully drafted Assumed and Retained Liability Provisions as the means to enable implementation of this allocation of liability.⁴ These [18 ELR 10212] provisions can become extremely complicated and nearly impossible to craft when the buyer intends to continue the same business as the seller. Unless the parties can somehow "fingerprint" each other's contribution to an environmental problem, the difficult question arises if a claim or loss arises later as to who contributed how much to an injury or environmental damage.

Conducting the Environmental Due Diligence Audit

Selecting the Audit Team Members

Skilled, highly trained people are the key to accomplishing a meaningful audit in the allowed time, which is usually very short. The audit team must quickly overcome significant hurdles. They will be overwhelmed with pertinent and nonpertinent facts during an audit. They must prioritize and weigh those facts, know what to pursue and how long to pursue a line of inquiry, assemble the facts, and draw conclusions all in an incredibly short time. They will usually have only one opportunity to visit the site and gather facts first-hand.

Composition of the team must be tailored to the facilities to be audited, but typically includes (a) technical personnel to understand operations; identify products, by-products, contaminants, and wastes; to evaluate hydrology, geology, and human exposure; and to consider general matters such as plant discipline; (b) regulatory compliance staff to understand existing and past compliance and disposition of wastes; (c) lawyers to define what the legal requirements are and to interpret and apply the terms of the purchase agreement; and (d) a team leader to plan and coordinate the team effort and to establish a single voice for communication with the seller and its representative.

At about the same time the audit team is being assembled, an audit agenda must be developed. The objectives of an environmental audit will be a function of the purchase agreement, and are generally to

(a) verify the accuracy of the seller's representations and warranties in the purchase agreement and in any selling memorandum;

(b) confirm that all relevant conditions precedent have been satisfied;

(d) check the general environmental and housekeeping situation on the site;

(e) define the federal laws that must be considered in identifying what subjects to audit, and verify compliance status;

(f) identify applicable state and local environmental laws and requirements that need to be considered, and verify compliance status; and

(g) if environmental liability is uncovered, prepare proposed solutions for the purchaser and its representatives to consider.

A meeting of the team prior to the site visit is essential. The meeting should

(a) introduce the team members and disciplines they represent;

(b) identify the objectives of the audit;

(d) assign a team leader and, if needed, sub-team leaders for each discipline represented;

(e) review existing data on the site and operations to be audited;

(f) if more than one site is to be audited, plan the sequence of such audits and develop separate audit agendas;

(g) discuss any limitations on the use of cameras;

(h) assign responsibility for preparing the final report;

(i) set appropriate time limits;

(j) discuss the treatment of confidential information; and

(k) sign confidentiality agreements, if necessary.

Prior to the actual site audit, the audit team should gather as much information about the site and operation to be audited as possible. This can be done by using existing data that the purchaser has received from the seller or has developed internally in preparation for the acquisition, or by using a site "questionnaire" to be mailed to the seller and completed prior to the on-site audit. The questionnaire should consist of a comprehensive set of questions touching on all subjects to be audited, and promote an efficient interviewing format and process at the time of the site audit. It saves introduction time at the site and conditions site personnel as to what to expect.

For a complex facility the questionnaire will likely be very comprehensive and thus quite possibly overwhelm the resources of the recipient. It is helpful to mail it early, provide telephone numbers for informal questions, follow up on its progress, and digest it before the site visit.

The On-Site Visit

The site audit is where the auditors will verify preliminary data and complete the data-gathering process. If possible, the audit should follow the format of the questionnaire previously completed by site personnel.

A typical agenda for the site audit will include

1. An introduction to the site and its operations, including a discussion of its neighbors, by site personnel;

2. Interviews of site counterpart personnel. This is done by breaking up into disciplines, e.g., occupational safety and health team member to occupational safety and health site personnel;

3. On-site examinations of relevant documents. If the purchase agreement permits, request copies to be taken away for further review and to assist in preparation of the final report;

4. Site "walk-around" while continuing interviews. Take relevant photographs, if allowed;

5. Tours of adjacent operations, surrounding locale, and terrain features; and

[18 ELR 10213]

6. Near the end of each day, the audit team and site counterparts should meet to review the day's activities as a group.

At the very end of each day, the audit team should then meet privately to identify what matters must be pursued in more detail the following day, compare the various interviews for common data and inconsistencies, identify photographs taken or other data gathered, and ensure that the audit is proceeding toward preparing a coherent final report.

As the audit team prepares to leave the site, it may choose to report to the site personnel on its observations. Although some auditors may wish to defer to the final audit report, site personnel generally appreciate such a report. Moreover, it builds a relationship of trust that will ease the inevitable requests later for more information.

As the audit team leaves, it should be sure it has collected all available requested documents and classified them for ready retrieval. Invariably, certain requested documents and information cannot be found or must be assembled. These requests need to be documented and followed until received. The team should be sure it has the correct names, job titles, and telephone numbers of site counterparts.

The Audit Report

There is often a rush to prepare the audit report, because the buyer and seller usually negotiate acquisition agreements that will close as soon as financing, audits, and all regulatory approvals have been obtained. The final audit report must be a working document, not a tome. Dealing with only the essentials, it often serves as a ready desk reference to the purchaser's negotiators. It may even be prepared in a form so that it could be given to the other party, often including photographs to visually record deficiencies found during the audit.

Typical Problems in Due Diligence Environmental Audits

Even under well-thought-out environmental due diligence audits, problems arise: surprises occur, facts previously though correct are proven not to be, people forget, and you realize your own limitations. Each acquisition (or divestiture) usually presents a new business situation, unfamiliar technology and practices, different state laws and regulatory practices, and varying levels of sophistication in the other party. Some frequently encountered problems, and possible responses to them, follow.

The Parties Discover Parcels That the Buyer May Not Want to Take Title to, or the Seller Divest

It is disruptive to discover that the assets being audited include some that you may not want to take title to (or to divest), either because you as buyer want certain things taken care of before taking title or because the unwanted asset is part of an ongoing action that would be better served by not changing the players in midstream. For example, a buyer may not wish to take title to a badly contaminated parcel of real estate until the remediation and permitting are in place. A seller may not want to pass title because it believes it could better control the site to minimize occupational and environmental exposure and contain the contamination.

This is particularly disruptive because until discovered, the whole acquisition, including the audit, has usually proceeded on the understanding that all of the seller's assets will be transferred. When this proves not to be the case, surveys have to be made, title documents have to be changed, the buy-sell agreement has to be changed, and the parcel has to be isolated somehow. The question also arises whether title to the parcel will ever pass and under what conditions, including when and how review of the situation will be triggered.

When the environmental audit team discovers assets like this, its best response, at least for the buyer, is to delete these assets from the transaction. Upon correction of the defects, the contract can provide for transfer of the assets at whatever value they represent to the transaction at the time. An alternative for the seller is to convince the buyer to take title to all assets and to pay the buyer all costs associated with correction, including a premium if necessary. The seller usually wants to exit the business altogether. Accordingly, it is a real burden to retain title to the questionable properties and correct the problems, to say nothing of the permitting problems that would be encountered.

What Is the Disposition of Work in Process or Inventory That Later is Determined to Be Hazardous Waste?

The buyer, unless it is in the exact business using essentially duplicate technology as the seller, is not in a good position to know at the time of the audit whether the seller's classification of material as "in inventory" or as "usable work in process" is correct.⁵ The seller may not even offer to classify its material in this way, or there may be a lot more of it than originally thought by either party, or it may not be thought of as being hazardous. As a consequence, it might not even have been noted in the audit.

The shock comes when, after the transaction closes, such material is either clearly or allegedly unusable, and thus becomes a hazardous waste under RCRA. The cost of disposal can run into the hundreds of thousands of dollars even if you are dealing with modest quantities. Who pays, particularly if there is a dispute after the fact as to what is usable and what is not? The last thing the parties want to do is litigate the question.

This is an example of an issue that should be anticipated by standard language in the buy-sell agreement. Environmental auditors need to be alert for it, and advise their negotiating teams that the agreement should both allocate the cost of disposal between the parties and provide a dispute resolution procedure if the party that must pay for disposal (frequently the seller) disagrees with the determination by the buyer that the material is hazardous waste. Alternatively, the buyer could assume the cost of disposal, but discount the purchase price accordingly.

Who Has to Demonstrate, and to What Level of Satisfaction, That a Contentious Situation Is or Is Not, Now or in the Past, in Compliance With a Regulatory Requirement?

A most vexing problem! For example, you as buyer may [18 ELR 10214] allege that some situation discovered in the audit is a violation of an environmental regulation. The seller disputes this. The regulation is not crystal clear. Both state and federal regulatory agencies may be involved, and neither may have addressed this particular set of facts. However, you, the buyer, feel confident. You press your point, and your lawyers opine that you are right. The seller questions this. Time is marching on and the regulatory agencies, if they are willing to rule at all, will take several months to do so. Meanwhile, a very large amount of money is involved for someone's account.

It is reasonable in these cases to place the burden on the buyer to establish the point. The problem is how far the buyer must go. Is an agency opinion (regional or headquarters) sufficient, or must the buyer pursue an appeal? Must it get a declaratory judgment? What happens to the transaction in the meantime?

This situation can best be handled up front in the agreement if you are aware that these types of problems are likely to come up. This situation need not hold up closing since it can be handled as a condition subsequent or a transitional item and the cost adjusted later on.

One can spend hundreds of thousands of dollars sorting out these problems. Someone in the end has to pay to the extent the point is confirmed by the buyer. The seller should equitably pay at least a portion, if not all, of the legal, analytical, sampling, and other out-of-pocket costs.

The "Schedules" Supplied by One Party to the Other Number in the Hundreds or Thousands of Pages, Are Not in Any Convenient Order, Are Not Indexed, Are Partially or Wholly in a Foreign Language, and Not Sorted Completely by Facility, and Are Frequently Barely Legible

In this situation time and uncertainty can be the enemies for both sides. As problems go this is a manageable one, but given the hypertensive nature of acquisitions and due diligence audits and the drive to "close" within what usually is an unrealistically short target date, the capacity for stress in these situations is great indeed. These documents are usually collected in a panic, often from a number of locations with little time to check for accuracy or completion. Unhappily, due diligence means paper audits as well as site visits.

The seller has made warranties and representations about the assets and about the completeness of the "schedules" verifying them. The buyer must go through these documents such as they are. He can reject the schedules but has to have some basis for it. It is not generally wise to reject them merely because they are haphazard or difficult to work with.

The problem can be minimized by agreeing in the preliminary contract that documents will be organized in a particular way. The buyer can ask that all documents in especially relevant categories, such as permits, be separately identified, and that foreign language documents include an English translation.

Another approach is to sit down with the documents to screen out the critical ones for review, and simply take a risk as to the great bulk of what is left. If you discover critical omissions, you know the schedules are unacceptable and you can reject them. This puts the validity of the warranties in question and gives some breathing time to sort out these and other problems.

Confidentiality

Due diligence audits generally reveal sensitive environmental data, such as the absence of permits, permit noncompliance, operating permit variances, the nature and degree of contamination and exposure, realistic assessments of equipment condition including some in hazardous and lethal service, and the like. Most of this data is available to others under certain conditions and in the appropriate form, and much of it must be reported as a matter of law. The concern in connection with a due diligence audit is that the audit report will collect all of this data in one place, making it a discovery bonanza — a worrisome thing for a lawyer trying to protect the data.

Almost all buy-sell and many other commercial agreements contain mutual confidentiality provisions. This alone will go a long way to contain unauthorized dissemination of the data collected in a due diligence audit. As to instances of permit noncompliance revealed by the audit, since the buyer is not yet the owner or operator of the facility, it is under no obligation (yet, at least) to report its discoveries to any agency.

Much of the data would not be protected under the attorney work-product rule since it is only a collection of facts or evidence. Under the privilege rule it might be protected if the audit effort were structured properly,⁶ but this is usually not the case: in the rush to close, a due diligence audit often resembles controlled panic.

Business reasons, of course, drive acquisitions and divestitures. Due diligence audits are only a part of the entire collection of concerns that the buyer has in putting a transaction together. Often the sheer speed by which acquisitions come together and close makes it extremely difficult to elevate confidentiality to the proper level of concern. Great secrecy is observed in the early stages of management evaluation, but after the impending deal is announced, secrecy of sensitive data is of much less concern in the overall scheme of things. It is as a practical matter of limited concern beyond assuring security of the final audit report and limiting its access to the audit team members.

Vague Foreign Law and Regulation or Lack Thereof

Many acquisitions involve sites in developing countries where there is no definitive guidance in the law as to what circumstances constitute violations. This is particularly so with respect to environmental and worker safety laws. Typically the laws are drafted with deliberately broad scope and capture every conceivable act, so that regulators can later pick and choose what to prosecute.

In such cases the buyer is in a dilemma. It may be able to show literal breach of warranty but little likelihood of a resulting claim or regulatory order. Uncertainty increases if there is an emerging environmental awareness in the host country. The buyer, of course, wants what it sees as a defect or violation to be cured now at the expense of the seller, for it believes that years hence it could as a new owner be facing claims, losses, and disruptions with decreasing ability to show a nexus to the seller.

[18 ELR 10215]

Often no specific agreement on this problem is reached by closing, because of the uncertainty in predicting future law and regulatory action. The best approach is often simply to rely on the general Assumed and Retained Liability Provisions.

Mitigation May Be Performed by the Buyer as New Owner, and This Lessens the Seller's Potential Exposure Under Retained Liability

Many times the audit will reveal contamination that will continue after closing that was not illegal at the time of closing, but that could later result in a loss by or claim against the new owner. The new owner on his own initiative may feel compelled to correct the situation. These buyer responses at least partially accrue to the benefit of the seller in reducing its exposure under the retained liability and indemnity provisions.

Should the seller have to contribute? This is a question that often arises but is difficult to deal with in the agreement due to the uncertainty of whether such situations will materialize and what the attendant circumstances will be. While there may be no good answer to this problem, the agreement should at least provide a framework for discussing and resolving such matters should such incidents occur and perhaps provide some criteria to assist in determining the parties' relative contributions to cost.

Conclusion

It is inconceivable that any sophisticated company would acquire property or a business without conducting an environmental audit first, even for seemingly bare, undeveloped land. The risks of not doing so are too great. One groundwater remediation order under the cleanup standards of RCRA and CERCLA could many times exceed in cost the value of the property or business, and cost unquantifiable stress and business disruption. Of a buyer's duediligence concerns, clearly environmental concerns rank among those at the top of the list.

It is amazing what a group of trained individuals can accomplish given even a short time in which to do an on-site and document audit. In a matter of two to three days a rather comprehensive and accurate assessment of environmental liability for a medium-sized manufacturing facility can be done.

Confidentiality of sensitive data is always a concern, but given even a modest level of security a buyer and seller can be fairly successful in avoiding problems above and beyond the loss of confidentiality that already results as a matter of law through mandatory disclosure of all manner of business confidential information.

As if business needed any motivation beyond existing law, the developing law itself may ultimately force these sorts of audits. The New Jersey Environmental Cleanup Responsibility Act (ECRA)⁷ is one example. The Environmental Protection Agency encourages businesses to do self-audits.⁸

The day will likely come when the environmental due diligence audit will be an on-the-shelf item, maintained by law — perhaps not in the detailed scope necessary for an acquisition, but close to it.

1. 42 U.S.C. §§ 9601-9675, ELR STAT. 44001-44081.

2. 42 U.S.C. §§ 6901-6991i, ELR STAT. RCRA 001-046. While RCRA generally applies to waste disposal at existing sites, it also can trigger corrective action requirements substantially identical to CERCLA. See generally C. HARRIS, W. WANT, & M. WARD, HAZARDOUS WASTE: CONFRONTING THE CHALLENGE (1987) (analyzing in detail the 1984 Amendments to RCRA).

3. On environmental auditing generally, see Environmental Protection Agency, Environmental Auditing Policy Statement, ELR ADMIN. MAT. 35001.

While the focus of this Article is environmental due diligence, it is only one of the disciplines that make up a typical audit team. It is in the interest of all parties to attempt to conduct a single, comprehensive, on-site audit. Accordingly, many disciplines will be represented on the team. The disadvantage, of course, is the resultant size of the audit team, the near total disruption of several key people on site who must be counterparts to the visiting audit team members, and the frequent unavailability of many necessary people on both sides in attempting to form the team.

A sample make-up of disciplines of a typical comprehensive audit team is as follows:

— environmental, safety, health, and medical;

— employee relations, pensions, and benefits;

— financial and marketing structure, operations, and management;

— accounting, leasing, credit, and property valuations;

— legal, patents, trademarks, and research;

— plant discipline and standards; and

— technology assessment.

4. The following is a sample set of Assumed and Retained Liability Provisions:

Assumed Liabilities.

(a) On the terms and subject to the conditions set forth in this Agreement and in further consideration of the transfer of the Acquired Assets as contemplated hereby, at the Closing, Purchaser agrees to pay, perform, or discharge (or cause to be paid, performed, or discharged) in due course only those Liabilities exclusively pertaining to the business and operations of the Division that are specifically set forth below (the "Assumed Liabilities"):

— (then follows a specific listing of assumed liabilities).

(b) Except as specifically set forth in (a) above and notwithstanding that any Liabilities, which are not assumed by Purchaser pursuant to (a) above, are set forth in the Schedules hereto, Purchaser, will not assume, pay, perform, or discharge (or cause to be paid, performed, or discharged) any Liabilities, whether fixed, unliquidated, absolute, contingent, or otherwise, including, without limitations, (i) any environmental claims or liabilities or any remedial expenses to effect compliance with then-applicable law and regulation to the extent attributable to the ownership or operation of the Acquired Assets or the business of the Division prior to six months after the Closing Date, and (ii) any claims or liabilities relating to (A) events or occurrences prior to the Closing Date, (B) income tax, (C) workers' compensation (if the date of the accident or occurrence that is the subject of such claim is prior to the Closing Date), or (D) products manufactured or sold or services rendered by the Division (1) prior to three months after the Closing Date, and (2) prior to the time required to expend inventories of products manufactured by Seller (but in no event more than six months after the Closing Date) for claims relating to failure of the products sold to meet specifications for such products as of the Closing, all of which shall be retained by Seller and which Seller hereby agrees to retain and pay, perform, or discharge in a businesslike manner (the "Retained Liabilities").

Seller and Purchaser shall consult in good faith to determine the method least costly to Seller to discharge any environmental claims, liabilities, or remedial expenses retained by Seller hereunder that will not result in a material interference with Purchaser's operation of the Businesses, the cost of which method shall be the limit of Seller's liability under this Agreement for such claims, liabilities, or expenses.

Indemnification by Seller. Seller hereby agrees to indemnify and hold Purchaser, any designated affiliate of the Purchaser that purchases any of the Acquired Assets, and the Consolidated Subsidiaries harmless at all times from and after the date of this Agreement, against and in respect of all matters in connection with the following:

— (then follows a specific listing of retained liabilities).

5. On when material is classified as a waste, see Garelick, EPA's Definition of Solid Waste: Making Distinctions Between Shades of Gray, 17 ELR 10349 (Sept. 1987).

6. On the availability of evidentiary privileges for keeping audit results confidential, see Comment, Environmental Audits and Confidentiality: Can What You Know Hurt You As Much As What You Don't Know?, 13 ELR 10303 (Oct. 1983), and Levin, An EPA Response on Confidentiality in Environmental Auditing, 13 ELR 10346 (Nov. 1983).

7. N.J.S.A. §§ 13:1K-6 et seq. For analysis of ECRA, see Olson, ECRA: New Jersey's Cleanup Statute, 17 ELR 10395 (Oct. 1987), and Miller, New Jersey's Improved ECRA Implementation: The State Answers Its Critics, 18 ELR 10084 (Mar. 1988).

8. Environmental Auditing Policy Statement, ELR ADMIN. MAT. 35001.