<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 000-23855
U.S. PLASTIC LUMBER CORPORATION
(Name of small business issuer in its charter)
--------------------
Nevada 87-0404343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------------
2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431
(561) 394-3511
(Address and telephone number of principal executive offices and
place of business)
Check here whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the past 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 ______ No___X____
The number of shares outstanding of the registrant's common stock as of
April 30, 1998 is 16,752,340.
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U.S. PLASTIC LUMBER CORPORATION AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
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PART I. UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
EXHIBITS
</TABLE>
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FORWARD LOOKING STATEMENTS
When used in this Form 10-QSB, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"projected", "intends to" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including but not limited to economic conditions,
changes in laws or regulations, the Company's history of operating losses,
demand for products and services of the Company, newly developing
technologies, loss of permits, conflicts of interest in related party
transactions, regulatory matters, protection of technology, lack of
industry standards, raw material commodity pricing, the ability to receive
bid awards, the effects of competition and the ability of the Company to
obtain additional financing. Such factors, which are discussed in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the notes to consolidated financial statements, could
affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any opinions
or statements expressed with undue reliance on any such forward-looking
statements, which speak only as of the date made. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,096,911 $ 1,170,120
Trade receivables, net 7,343,692 6,940,288
Inventories 1,768,790 1,502,658
Prepaid expenses and other current assets 401,638 220,728
------------ ------------
Total current assets 10,611,031 9,833,794
PROPERTY AND EQUIPMENT, net 7,649,571 5,775,424
ACQUIRED INTANGIBLES, net 7,556,753 7,009,244
OTHER ASSETS 2,014,760 552,914
INVESTMENT IN JOINT VENTURE 575,915 --
------------ ------------
Total assets $ 28,408,030 $ 23,171,376
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,637,093 $ 3,788,714
Accrued expenses 1,220,937 1,737,518
Current portion of notes payable 2,484,458 2,404,607
Due to affiliates 1,006,810 1,956,810
Other liabilities 357,071 420,084
------------ ------------
Total current liabilities 9,706,369 10,307,733
NOTES PAYABLE, net of current portion 5,364,453 817,011
DEFERRED INCOME TAXES 633,656 580,433
MINORITY INTEREST 225,000 --
------------ ------------
Total liabilities 15,929,478 11,705,177
------------ ------------
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock, par
value $.001; authorized 5,000,000 shares;
issued and outstanding 219,586 and 208,930,
respectively (aggregate liquidation preference
of $4,391,720 and $4,184,140, respectively) 221 209
Common stock par value $.0001, authorized
50,000,000 shares; issued and outstanding
15,892,011 and 15,621,599 shares,
respectively 1,590 1,562
Additional paid-in capital 13,812,918 12,573,026
Accumulated deficit (1,336,177) (1,108,598)
------------ ------------
Total stockholders' equity 12,478,552 11,466,199
------------ ------------
Total liabilities and stockholders' equity $ 28,408,030 $ 23,171,376
============ ============
</TABLE>
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The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
--------------------------------
1998 1997
------------ -------------
NET REVENUES $ 7,659,261 $ 2,003,496
COST OF GOODS SOLD 6,058,821 1,564,658
------------ ------------
Gross profit 1,600,440 438,838
OPERATING EXPENSES 1,584,796 885,093
------------ ------------
Operating income (loss) 15,644 (446,255)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (145,332) (20,226)
Gain on sale of assets 105,588 10,472
------------ ------------
Total other income (expense) (39,744) (9,754)
------------ ------------
Loss before income taxes (24,100) (456,009)
PROVISION (BENEFIT) FROM INCOME TAXES (9,640) --
------------ ------------
Net loss $ (14,460) $ (456,009)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.00) $ (.04)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 15,737,443 12,500,268
============ ============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed
consolidated statements.
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U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (14,460) $ (456,009)
----------- -----------
Adjustments to reconcile net loss to net cash provided
by operating activities-
Depreciation 252,168 64,974
Amortization 103,589 46,864
Amortization of deferred financing costs 44,444 --
Gain on sale of assets 105,588 --
Expense related to non-employee equity transactions 36,225 --
Compensation expense on earnout shares 3,718 1,264
Deferred income taxes -- 18,408
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (127,825) 1,221,435
Inventories (141,377) (111,939)
Prepaid expenses and other current assets (180,910) (153,785)
Other assets -- (43,669)
Accounts payable 162,198 (854,340)
Other liabilities (65,144) (1,520)
Accrued expenses (609,069) (6,104)
----------- -----------
Total adjustments (416,395) 181,588
----------- -----------
Net cash used in operating activities (430,855) (274,421)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,775,970) (208,842)
Cash paid for acquisitions, net of cash received (515,500) (1,240,362)
Advances to Joint Venture (707,812) --
----------- -----------
Net cash used in investing activities (2,999,282) (1,449,204)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock -- 2,380,000
Proceeds from exercise of Series A warrants 172,870 --
Advances from affiliate 1,250,000 --
Repayment of amounts due to affiliate (2,400,000) --
Proceeds from notes payable 5,067,508 718,000
Repayment of notes payable (733,450) (530,815)
----------- -----------
Net cash provided by financing activities 3,356,928 2,567,185
----------- -----------
</TABLE>
(Continued)
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U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (73,209) $ 843,560
CASH AND CASH EQUIVALENTS, beginning of period 1,170,120 854,290
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,096,911 $ 1,697,850
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for-
Interest $ 98,931 $ 20,226
=========== ===========
Income taxes $ 114,226 $ --
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
See Notes 2 and 3 for information regarding common and preferred shares
issued for acquisitions and noncompete agreements.
See Note 6 for information regarding stock options issued for securing
a discretionary line of credit.
</TABLE>
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The accompanying notes are an integral part of these condensed consolidated
statements.
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U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
U.S. Plastic Lumber Corp. and its subsidiaries (the "Company") are engaged in
the manufacturing of recycled plastic lumber from post-consumer plastic waste
and the recycling of soils which have been exposed to hydrocarbons. The
Company's plastic lumber customers are located throughout the United States. The
Company's soil recycling customers are located primarily in the Northeastern
United States.
The Company's unaudited condensed consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial reporting and the regulations of the Securities
and Exchange Commission for quarterly reporting. Accordingly, they do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company, the
statements include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Operating results for the three-month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of U.S.
Plastic Lumber Corp. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
In July 1997, the Company and Interstate Industrial Corp. formed a 50/50 joint
venture to operate a dredging company. The Company accounts for its investment
on the equity method. As of March 31, 1998, the carrying value of the Company's
investment in joint venture represented its contributed capital less its share
of the net losses of the joint venture, or $575,915. The net obligation to the
Joint Venture is included in other liabilities in the accompanying December 31,
1997 consolidated balance sheet.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period.
LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the weighted-average
number of shares actually outstanding. Diluted loss per share further considers
the impact of common stock equivalents to the extent that they are dilutive. The
Company's basic and diluted loss per share are equivalent for the first quarter
of 1998 and for the first quarter of 1997.
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IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting of Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The adoption of SFAS No. 130
had no impact on the Company's disclosures. SFAS No. 131 will be adopted in
1998.
2. ACQUISITIONS
1996 ACQUISITION
Effective December 30, l996, Clean Earth, Inc., together with its subsidiaries,
(collectively, "CEI") was acquired as a wholly-owned subsidiary of U.S. Plastic
Lumber Corp. ("USPLC"), through the exchange of 77,143 shares of USPLC common
stock for each outstanding share of common stock of CEI, for a total of
5,400,000 shares (the "Merger"). For financial reporting purposes, CEI is deemed
to be the acquiring corporation and the transaction has been accounted for as a
reverse merger with the historical financial statements prior to December 30,
1996 being those of CEI. The determination of CEI as the acquirer for financial
reporting purposes was based upon the following factors: (i) former shareholders
of CEI held the right to control a majority of board seats immediately
subsequent to the acquisition, (ii) the chief executive officer and certain
directors of the merged companies were individuals who were holding such
positions at CEI, (iii) the assets and revenues of CEI substantially exceeded
those of USPLC, and (iv) although the former shareholders did not receive a
majority share of USPLC common stock after the acquisition, when taking into
account the number of preferred shares and stock options held by these
individuals, if such preferred shares were converted and stock options were
exercised, a majority ownership position would be obtained. All references in
the condensed consolidated financial statements referring to shares, share
prices, per share amounts and stock prices have been retroactively adjusted to
reflect the capital structure of USPLC. The merger agreement provides for the
issuance of an additional 2,573,686 shares of common stock to the former
shareholders of CEI upon the ultimate resolution of the contingency related to
the issuance of shares to certain USPLC stockholders as discussed in Note 4.
Upon final resolution of this contingency, the additional shares issued, if any,
will be issued at their then current fair value as an additional cost of the
acquisition and recorded as acquired intangibles.
The value of the USPLC shares issued in connection with the reverse acquisition
was $2,538,000, or $0.47 per share. The purchase price exceeded the fair value
of the net assets acquired by approximately $2,810,000. Accordingly, the excess
has been recorded as a component of acquired intangibles and is being amortized
on a straight-line basis over a period of twenty years.
1997 ACQUISITIONS
On January 27, 1997, the Company acquired Recycled Plastics Industries, Inc.
("RPI"), a recycled plastic lumber manufacturer in exchange for $1,200,000 in
cash and 1,000,000 shares of common stock. The total purchase price of
$1,675,000 exceeded the estimated fair value of the net assets of RPI by
approximately $1,410,000. The excess has been recorded as a component of
acquired intangibles and goodwill and is being amortized on a straight-line
basis over a period of twenty years.
On February 24, 1997, the Company acquired Advanced Remediation and Disposal
Technologies, Inc. ("ARDT"), an environmental consulting and remediation
company, in exchange for 300,000 shares of the Company's common stock. The
common stock was valued based on an independent appraisal at $159,000 which was
less than the estimated fair value of the net assets of ARDT by approximately
$120,000. The difference was reflected as a reduction of non-current assets. The
purchase agreement also provides for the issuance of up to an additional 150,000
shares of the Company's common stock if ARDT meets certain profitability levels
during the years ending December 31, 1997 and 1998. In 1997, 12,500 of such
shares were earned under the earnout provision and were recorded as compensation
expense at their current fair value of $28,125.
-8-
<PAGE> 10
On March 28, 1997, the Company acquired Environmental Specialty Products, Inc.
("ESP"), a sales and marketing company of recycled plastic lumber products in
exchange for $110,000 of cash and 25,150 shares of common stock. The total
purchase price of $123,581 exceeded the estimated fair value of the net assets
of ESP by approximately $29,000. The excess has been recorded as a component of
acquired intangibles and is being amortized on a straight-line basis over a
period of twenty years.
On March 31, 1997, the Company acquired Integrated Technical Services, Inc.
("ITS"), an environmental consulting and remediation company, in exchange for
$110,000 in cash and 185,000 shares of common stock. The total purchase price of
$209,900 exceeded the estimated fair value of the net assets of ITS by
approximately $390,000. The excess has been recorded as a component of acquired
intangibles and is being amortized on a straight-line basis over a period of
twenty years. The purchase agreement also provides for the issuance of up to an
additional 24,000 shares of the Company's common stock to certain former
stockholders of ITS if ITS meets certain profitability levels during the years
ending December 31, 1997 and 1998. In 1997, 16,000 of such shares were earned
under the earnout provision and were recorded as compensation expense at their
current fair value of $34,965. Additionally, the former shareholders of ITS were
awarded 47,572 shares of common stock as consideration for noncompete
agreements. The Company is amortizing the associated cost of $25,688 over the
60-month term of the related agreements.
On June 30, 1997, the Company acquired EnviroPlastics Corporation ("EPC"), a
recycler of post consumer plastic, in exchange for 280,000 shares of the
Company's common stock. The total purchase price of $630,000 exceeded the
estimated fair value of the net assets of ITS by approximately $1,272,000. The
excess has been recorded as a component of acquired intangibles and is being
amortized on a straight-line basis over a period of twenty years. The purchase
agreement also provides for the issuance of up to 90,000 stock options for
shares of the Company's common stock, at an exercise price of $5.00 per share,
if EPC meets certain profitability levels during the years ending December 31,
1997, 1998 and 1999. In 1997, 30,000 options were granted under the terms of the
earnout provision. The exercise price of the stock options exceeded the fair
value of the underlying shares, accordingly, no compensation expense was
recorded at the date of grant. Additionally, the former shareholders of EPC were
awarded 25,000 shares of common stock as consideration for noncompete
agreements. The Company is amortizing the associated cost of $55,000 over the
60-month term of the related agreements.
On November 18, 1997, the Company acquired Waste Concepts, Inc. ("WCI"), an
environmental consulting and remediation company, in exchange for $175,000 in
cash and 400,000 shares of common stock. The total purchase price of $1,075,000
exceeded the estimated fair value of the net assets of WCI by approximately
$1,355,000. The excess has been recorded as goodwill and is being amortized on a
straight-line basis over a period of twenty years. The purchase agreement also
provides for the issuance of up to an additional 25,000 shares of the Company's
common stock if WCI meets certain profitability levels during the five-year
period ending December 31, 2002. No shares were granted in 1997 under the
provisions of the earnout.
A summary of the aggregate purchase price of the 1997 acquisitions and net
assets acquired is as follows:
Aggregate purchase price $ 3,872,481
------------
Working capital (deficit) (619,316)
Long-term assets 2,813,281
Long-term debt (1,965,040)
Deferred taxes (815,885)
------------
Acquired intangibles $ 4,459,441
============
The acquisitions have been accounted for as purchases and, accordingly, the
results of operations of the acquired companies are included with those of the
Company for periods subsequent to the date of acquisition.
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1998 ACQUISITIONS
In January 1998, the Company acquired Green Horizon Environmental, Inc., ("GHE")
an environmental services company, in exchange for 50,000 shares of common
stock. The aggregate purchase price of $142,500 exceeded the estimated fair
value of the net assets of GHE by $102,000. The excess has been recorded as a
component of acquired intangibles and is being amortized on a straight-line
basis over a period of twenty years.
In February 1998, the Company acquired the majority interest of Consolidated
Technologies, Inc. ("CTI") in exchange for 36,500 shares of the Company's common
stock. CTI is an environmental recycling services company located in Norristown,
Pennsylvania. The Company had previously owned a minority interest equal to 25%
in CTI of which $500,000 of funding was paid in cash during the first quarter of
1998. The aggregate purchase price of $582,000 exceeded the estimated fair value
of the net assets of CTI by $307,000. The excess has been recorded as a
component of acquired intangibles and is being amortized on a straight-line
basis over a period of twenty years.
In March 1998, the Company acquired substantially all of the assets of
Chesapeake Recycled Lumber, Inc. ("CRL") in exchange for $100,000 in cash, a
$100,000 note payable and 97,500 shares of the Company's common stock. The
aggregate purchase price of $420,000 exceeded the estimated fair value of the
net assets of CRL by $231,000. The excess has been recorded as a component of
acquired intangibles and is being amortized on a straight-line basis over a
period of twenty years.
The unaudited pro forma combined results of operations of the Company, RPI,
ARDT, ESP, ITS, EPC, WCI, GHE, CTI and CRL for 1998 and 1997, after giving
effect to certain pro forma adjustments are as follows:
1998 1997
------------- -------------
Net sales $ 7,705,947 $ 6,564,277
=========== ===========
Loss before extraordinary items $ (51,095) $ (287,978)
=========== ===========
Basic and diluted loss per share $ (.00) $ (.02)
=========== ===========
Weighted average shares used in computation 15,817,854 13,240,488
=========== ===========
The foregoing unaudited pro forma results of operations reflect adjustments for
amortization of goodwill, depreciation on revalued property and equipment, and
to reflect income taxes at an effective statutory rate of 40%. They do not
purport to be indicative of the results of operations which actually would have
resulted had the acquisitions occurred at the beginning of the period presented,
or of future results of operations of the consolidated entities.
3. CAPITAL STOCK
SERIES A CONVERTIBLE PREFERRED STOCK
During the year ended December 31, 1996, the Company initiated an offering of up
to 250,000 shares of the Company's Series A Preferred Stock. The shares are
nonvoting and have a 10% cumulative stock dividend payable semiannually and will
be paid in Series A Preferred Stock. No cash dividends will be paid. Each share
is convertible into seven shares of the Company's common stock at the option of
the stockholder or mandatorily on the date a registration statement, which would
yield the Company $10 million in proceeds, is declared effective by the
Securities and Exchange Commission. In the event of any liquidation, after
payment of debts and other liabilities, the holders of Series A Preferred Stock
will be
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<PAGE> 12
entitled to receive, before the holder of any of the Common stock, the stated
value of $20.00 per share. The Series A Preferred Stock can be redeemed at any
time at the sole option of the Company for $25.00 per share.
STOCK WARRANTS
At March 31, 1998, the Company had outstanding 880,852 Series A and 950,000
Series B Warrants to purchase the Company common stock at $2.50 and $4.50 per
share, respectively. Such warrants are exercisable at any time prior to June 30,
1998 provided that a registration statement is in effect for the underlying
common shares. The Company undertook registration of the 950,000 Series A
warrants under the SB Provisions of the Securities Exchange Commission. The
registration was declared effective on February 13, 1998 and 69,148 Series A
warrants had been exercised through March 31, 1998.
The warrants are redeemable by the Company for $0.01 per warrant upon 30 days
notice if the closing bid price for the Company's stock equals or exceeds $4.00
and $6.00 per share for the Series A and Series B Warrants, respectively, at any
time for twenty consecutive trading days. As of May 15, 1998, the Company had
not registered the underlying common stock for the Series B Warrants.
EMPLOYEE STOCK OPTIONS
The Company has granted stock options to key employees and directors. The option
price at the date of grant is determined by the Board of Directors and is
generally tied to the market price of the Company's freely trading shares. The
term for exercising the stock options is generally ten years. Stock options
granted under the Company's stock option incentive plan vest ratably over a
period of three years. Employee stock option activity is as follows:
Weighted Number of
Average Options
Exercise Price Outstanding
---------------- -------------
Outstanding, December 31, 1997 $ 3.54 1,350,000
Granted 3.50 150,000
Exercised -- --
Canceled -- --
------- ----------
Outstanding, March 31, 1998 $ 3.53 1,500,000
======= ==========
Stock options exercisable at March 31, 1998 $ 3.46 1,142,000
======= ==========
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<PAGE> 13
NONEMPLOYEE STOCK OPTIONS
Magellan Finance Corporation ("Magellan"), a stockholder, holds an option to
purchase up to 235,789 shares of the Company's common stock at $1.77 per share.
The option expires as follows: 117,895 options on September 30, 1998; and
117,894 options on June 30, 1999. If Magellan does not exercise its option to
purchase the shares, then the Company is obligated to issue the shares to
certain USPLC stockholders, as defined, at no cost.
Weighted Number of
Average Options
Exercise Price Outstanding
-------------- -----------
Outstanding, December 31, 1997 $1.83 255,790
Granted 2.25 320,000
Exercised - -
Canceled - -
Outstanding, March 31, 1998 $2.06 575,790
======= ========
Stock options exercisable as March 31, 1998 $2.14 457,895
======= ========
STOCK RESERVATIONS
At March 31, 1998, common stock was reserved for the following:
USPLC and CEI contingently issuable shares 4,573,686
Exercise of Series A and Series B Warrants 1,830,852
Conversion of Preferred Stock 1,537,102
Nonemployee stock options 575,790
Employee stock options 1,500,000
Shares and options contingently issuable under
earnout provisions 244,500
-----------
10,261,930
===========
4 COMMITMENT AND CONTINGENCIES
EARNOUT AGREEMENT
The Company has an earnout agreement which provides for 2,000,000 shares of the
Company's common stock to be reserved for certain USPLC stockholders, as
defined, to be issued upon the Company meeting certain production or sales goals
for plastic lumber product prior to December 31, 2000. The additional shares, if
any, will be issued at their then current fair value as an additional cost of
the acquisition of Earth Care Global Holdings, Inc. by USPLC and allocated to
acquired intangibles.
LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise in the ordinary
course of its business. The Company believes that the ultimate liability, if
any, with respect to these claims and legal actions, will not have a material
effect on the financial position or results of operations of the Company.
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<PAGE> 14
At December 31, 1996, $113,415 of notes receivable are due from certain partners
of Earth Care Partners ("ECP"). ECP was a partnership controlled by an
officer/stockholder of USPLC. USPLC acquired ECP in February 1996. Shares issued
in connection with the acquisition were to be pledged as collateral and
subsequently sold when registered to repay the notes. As there were no plans to
register such shares, an allowance equal to the notes receivable was recorded.
In August l997, a former partner of ECP alleged that the Company had wrongfully
issued shares to the other partners of ECP in connection with acquisition. The
Company, through an outside counsel, reviewed the transaction and concluded that
the stock issued to certain ECP partners was not properly authorized. The
affected ECP partners have disputed this conclusion. The Company and the
affected ECP partners are in negotiations to resolve these issues. The Company
believes that the ultimate outcome will not have a material effect on the
financial position or results of operations of the Company.
5. SEGMENT REPORTING
The Company's revenues generating operations are conducted through two
divisions, comprised of the plastic lumber division and the environmental
recycling division. The recycled plastic lumber division primarily includes the
operations of USPLC, RPI, ESP, EPC and CRL. The environmental recycling division
reflects the operating activities of CEI, ARDT, ITS, WCI, CBC, GHE and CTI.
The operating results of the respective segments are set forth below (in
thousands):
For the Three Months Ended
March 31,
-----------------------------
1998 1997
------------- ------------
Revenues:
Plastic lumber division $ 2,805 $ 501
Environmental recycling division 4,854 1,502
------- --------
$ 7,659 $ 2,003
======= ========
Operating income (loss):
Plastic lumber division $ (458) $ (256)
Environmental recycling division 776 109
Corporate (302) (299)
------- --------
$ 16 $ (446)
======= ========
Depreciation and amortization:
Plastic lumber division $ 175 $ 34
Environmental recycling division 134 39
Corporate 47 39
------- --------
$ 356 $ 112
======= ========
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<PAGE> 15
Information with respect to identifiable assets and capital expenditures of the
respective segments is set forth below (in thousands):
March 31, December 31,
1998 1997
------------ --------------
Identifiable assets:
Plastic lumber division $ 17,703 $ 15,113
Environmental recycling division 10,705 8,058
Corporate -- --
--------- ---------
$ 28,408 $ 23,171
========= =========
For the three months ended
March 31,
------------------------------
1998 1997
--------- ---------
Capital expenditures:
Plastic lumber division $ 751 $ 152
Environmental recycling division 1,025 57
Corporate -- --
--------- ---------
$ 1,776 $ 209
========= =========
6. LINE OF CREDIT
In January 1998, the Company obtained a revolving discretionary line of credit
with availability of $4,000,000 bearing interest at .50% under the bank's prime
rate. Advances under the line of credit are made at the sole discretion of the
lender. In connection with obtaining the line of credit, the Company granted
320,000 nonemployee stock options, exercisable at $2.25 per share. The value of
such options under the provisions of SFAS No. 123 of approximately $400,000 is
being amortized as interest over the term of the line of credit of 18 months.
7. SUBSEQUENT EVENTS
In May 1998, the Company acquired Cycle-Masters, Inc., a manufacturer of
recycled plastic lumber, in exchange for $1,600,000 in cash, a $250,000
promissory note and 200,000 shares of the Company's common stock.
-14-
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is intended to assist in the understanding of the
Company's financial position and results of operations for each of the
three month periods ended March 31, 1998 and 1997. This discussion should
be read in conjunction with consolidated financial statements and notes
thereto of the Company which are included elsewhere herein.
BUSINESS
U.S. Plastic Lumber Corp. has two distinct business lines. One operation,
the plastic lumber division, manufactures structural and non-structural
plastic lumber and a variety of accessory products such as park and site
amenities, made from 100% recycled high density polyethylene. The Company
also manufactures structural plastic lumber under certain licensing
agreements protected by patents.
The other operation is the environmental recycling division, which
provides environmental recycling services including fixed based plants
providing thermal desorption and bioremediation, environmental
construction services, upland disposal of dredge materials, beneficial
re-use of industrial wastes, and on-site recycling services.
BUSINESS COMBINATIONS
The Company makes its decisions to acquire or invest in businesses based
on financial and strategic considerations.
ACQUISITIONS COMPLETED SUBSEQUENT TO MARCH 31, 1998
In May 1998, the Company acquired Cycle-Masters, Inc. ("CMI") which owns
and operates a plastic lumber manufacturing facility in Sweetser, Indiana.
The Company paid approximately $2.45 million in cash, notes and stock in
this transaction, which will be accounted for under the purchase method of
accounting. For additional information see the Form 8K filed by the
Company with the Securities and Exchange Commission and incorporated
herein by reference.
ACQUISITIONS COMPLETED DURING THE THREE MONTHS ENDED MARCH 31, 1998
In January 1998, the Company acquired Green Horizon Environmental, Inc.
("GHE"), and environmental services company, in exchange for 50,000 shares
of Common Stock. (see Note 2 to the Financial Statements - 1998
Acquisitions)
In February 1998, the Company acquired the majority interest of
Consolidated Technologies, Inc. ("CTI") in exchange for 36,500 shares of
the Company's Common Stock. CTI is an environmental recycling services
company located in Norristown, Pennsylvania. The Company had previously
owned a minority interest equal to 25% in CTI. (see Note 2 to the
Financial Statements - 1998 Acquisitions)
In March 1998, the Company acquired substantially all of the assets of
Chesapeake Recycled Lumber, Inc. in exchange for $100,000 in cash, a
$100,000 note payable and 97,500 shares of the Company's Common Stock.
(see Note 2 to the Financial Statements - 1998 Acquisitions)
-15-
<PAGE> 17
BUSINESS SEGMENT INFORMATION
The following table sets forth revenue with percentages of total revenue,
and sets forth costs of operations, selling, general and administrative
expenses and operating income (loss) with percentages of the applicable
segment revenue, for each of the Company's various business segments for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
--------------------------------------
1998 % 1997 %
--------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
REVENUE:
Plastic Lumber $ 2,805 36.6 $ 501 25.0
Environmental Recycling 4,854 63.4 1,502 75.0
------- ----- ------- -----
Total revenue 7,659 100.0 2,003 100.0
OPERATING EXPENSES:
Cost of Sales:
Plastic Lumber 2,428 86.6 525 104.8
Environmental Recycling 3,378 69.6 975 64.9
Depreciation
Plastic Lumber 140 5.0 22 4.4
Environmental Recycling 108 2.2 39 2.6
Corporate 4 0.1 4 0.2
ADMINISTRATIVE EXPENSES:
Selling, General and Administrative
Plastic Lumber 660 23.5 198 39.5
Environmental Recycling 566 11.7 379 25.2
Corporate 255 3.3 260 13.0
Amortization
Plastic Lumber 35 1.2 12 2.4
Environmental Recycling 26 0.5 -- 0.0
Corporate 43 0.6 35 1.8
------- ----- ------- -----
Total Operating Expenses 7,643 99.8 2,449 122.3
Total Operating Income (loss) 16 0.2 (446) (22.3)
</TABLE>
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<PAGE> 18
CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the First Quarter Ended March 31, 1998 to the First Quarter
Ended March 31, 1997
The Company recognized increases in both sales and net income for the
first quarter ended March 31, 1998 compared to the first quarter ended
March 31, 1997. Sales increased $5,656,000 or 282% in the first quarter of
1998 to $7,659,000 from $2,003,000 in the same period in 1997 primarily
due to contributions from acquired companies in both business segments
during 1997. Operating income increased by $462,000 during the first
quarter of 1998 to $16,000 from ($446,000) in the same period in 1997 due
to acquired businesses and the strength of the established environmental
recycling division. The plastic lumber division continued to internally
consolidate and eliminate duplicate operating and administrative functions
during the first quarter of 1998 and continued to invest in research and
engineering in the railroad crosstie and structural lumber business
segments.
SALES
The Company's revenue increased 282% in the first quarter of 1998 over the
same period in 1997. More than 98% of the sales growth was attributed to
acquisitions completed during the fiscal year 1997 and the first quarter
of 1998.
The plastic lumber division accounted for $2,805,000 or 36.6% of total
revenue in the first quarter of 1998 compared to $501,000 or 25.0% of
total revenue during the same period in 1997. Sales from the original
plastic lumber companies more than doubled in the first quarter of 1998
over the 1997 comparable period from $256,000 to $534,000 accounting for
12.1% of the $2,304,000 increase in plastic lumber sales. This increase
was due to the addition of experienced sales and marketing personnel who
joined the Company in late 1997. The Tennessee plant also made its first
commercial shipment of railroad ties to the Chicago Transit Authority
during the first quarter of 1998. The remaining $2,026,000 increase in
sales was primarily due to acquisitions of Environmental Specialties
Products (ESP), EnviroPlastics Corp. (EPC) and Chesapeake Plastic Lumber
(CPL) whose operations were acquired subsequent to the first quarter of
1997. Recycled Plastics Industries (RPI) contributed two months of sales
in the first quarter of 1997.
Environmental recycling division sales during the first quarter of 1998
were $4,854,000 or 63.4 % of total sales and increased $3,352,000 over the
first quarter of 1997. The base business at Clean Earth increased $351,000
or 30.6% in the first quarter of 1998 due to increased sales efforts by
newly acquired companies and a milder winter season allowing easier access
to soils requiring treatment. In addition, there was a large contract with
a utility in the Northeast U.S. to haul contaminated soil to the Clean
Earth facility that contributed to the total sales increase. The remaining
$3,001,000 increase was due
-17-
<PAGE> 19
primarily to the acquisitions of Integrated Technical Services (ITS),
Waste Concepts, Inc. (WCI) and Green Horizons Environmental, Inc. (GHE)
which the Company did not acquire until after the first quarter of 1997.
The Company has nearly completed construction of the Carteret Biocycle
Corp. (CBC) facility that is scheduled to begin treating contaminated
soils bio-organically during the second quarter of 1998. This is expected
to add additional revenue and earnings to this division in the third
quarter of 1998.
GROSS PROFIT
Consolidated gross profit increased $1,161,000 or 265% to $1,600,000
during the first quarter of 1998 compared to $439,000 in the first quarter
of 1997. Acquired businesses from both business segments contributed to
virtually all of the increase in gross profit. Business units in both
business segments continued to eliminate and consolidate duplicate
operating expenses during the first quarter of 1998 however, these units
continued to incur certain non-recurring expenses associated with the unit
combinations. The merger of the ITS and ARDT businesses in the first
quarter of 1998 as well as the integration and move of the Tennessee and
Michigan manufacturing facilities to a larger facility during the fourth
quarter of 1997 contributed to these additional operating costs.
In the plastic lumber division, acquisitions accounted for all of the
$286,000 increase in gross profit in the first quarter of 1998 compared to
the same period in 1997. The gross profits from these acquisitions
accounted for 24.6% of the total increase in gross profit. While the
manufacturing plants in Wisconsin and Maryland are generating profits, the
Company continues to invest in the Tennessee flow mold factory to improve
manufacturing efficiencies and develop railroad ties, structural lumber
and other flow molded products to increase the plant's backlog to absorb
the plant's fixed expenses. The Tennessee plant incurred gross profit of
($210,000) including start up costs from the relocation of old plants into
the present location. Plant capacity in the Wisconsin facility has tripled
since the first quarter of 1997 to meet the increased demand on the
Company's decking products.
The environmental recycling division accounted for the remaining $875,000
or 75.4% increase in gross profit in the first quarter of 1998 over the
first quarter of 1997. On December 31, 1997, the ARDT subsidiary was
merged into the ITS subsidiary to take advantage of service synergy as
well as eliminating duplicated operating expenses. The anticipated opening
of the CBC facility in May 1998 is expected to contribute supplemental
gross profit in the second quarter 1998.
GENERAL AND ADMINISTRATIVE
Consolidated general and administrative expenses increased $700,000 or
79.0% during the first quarter ended March 31, 1998 compared to the same
period in 1997.
-18-
<PAGE> 20
Acquisitions accounted for $584,000 or 83.4% of the increase with the
remaining increase due to the development of a national sales distribution
network for the plastic lumber operations. Corporate administrative
expenses remained stable having increased only $5,000 in the first quarter
1998 over the same comparable quarter in 1997 despite the addition of
several acquisitions.
In the plastic lumber division, administrative expenses increased $485,000
or 231% during the first quarter of 1998 compared to the first quarter of
1997 accounting for 69.3% of the total consolidated expense increase.
Acquisitions accounted for $167,000 or 36.1% of the increase. The company
incurred an estimated $150,000 in the first quarter of 1998 to develop a
national sales distribution network and a centralized customer service
center for the plastic lumber operations. These expenses included the Vice
President of Sales, regional sales and product line managers as well as
personnel for customer service. Increases were also noted in advertising,
trade shows, travel and commissions in an effort to increase the Company's
sales coverage by region and product. The remaining increase was due to
increases in outside services, the addition of a President for the plastic
lumber operations, and increases in travel related to integrating existing
manufacturing operations as well as those acquired. The Company also
incurred research and engineering in order to commercialize the structural
lumber and railroad ties production lines.
In the environmental recycling division, general and administrative costs
increased $211,000 or 55.7% in the first quarter ended March 31, 1998 over
the comparable period in 1997 accounting for 30.1% of the total
consolidated expense increase primarily due to acquisitions offset by cost
reductions implemented during first quarter 1998.
INTEREST EXPENSE
Interest expense increased $125,000 or 625% during the first quarter ended
March 31, 1998 over the same quarter in 1997 primarily as a result of
increased borrowings from the bank line of credit, the financing of the
Wisconsin plant machinery and debt service assumed from businesses
acquired during 1997 and 1998. In addition, the first quarter of 1998
included amortization of deferred interest costs of $46,000 related to the
$4,000,000 line of credit at PNC Bank. Total debt (including amounts owed
to affiliates) increased by $7,268,000 or 458% over the past year through
credit lines and acquired debt and has proportionately increased debt
service.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased $187,000 or 288% during the first quarter
ended March 31, 1998 compared to the same comparable quarter in 1997
reflecting the increase in property, plant and equipment from both
acquisitions and continued capital investments. Amortization expense
increased $57,000 during the first quarter of 1998 over the first
-19-
<PAGE> 21
quarter of 1997 primarily due to goodwill from acquisitions completed
during 1997 and the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
FIRST QUARTER ENDED MARCH 31, 1998
Total cash for the three month period ended March 31, 1998 decreased by
$73,000. Cash used in operating activities totaled $431,000 and consisted
primarily of payment of accrued expenses of $609,000 primarily relating to
SB 2 registration costs that was paid in the first quarter of 1998. In
addition there were increases in accounts receivable and inventory
totaling $269,000 as the Company saw increasing sales coming out of the
traditionally slower winter period and increased inventory levels building
up for anticipated stronger spring and summer seasons. These items were
offset by $546,000 in non-cash items including depreciation and
amortization of $356,000 and increases in trade accounts payable of
$162,000 due to seasonality.
Total cash used in investing activities totaled $2,999,000 and consisted
primarily of machinery and equipment purchases for additional capacity for
the Wisconsin manufacturing facility and the structural lumber and
railroad tie production lines in the Tennessee facility. The Company
continued investment in the Carteret Biocycle facility scheduled to
commence operations in the second quarter of 1998. In addition, the
Company made $708,000 in advances to the Interstate Industrial Corp. Joint
Venture.
Total cash provided by financing activities was $3,357,000. These
activities consisted of $173,000 in proceeds from the exercise of A
warrants registered during the first quarter of 1998. Proceeds from
borrowings made primarily on a $4,000,000 line of credit secured from PNC
Bank in January 1998, the existing $1,500,000 credit line from PNC Bank
and additional equipment financing secured from PNC Leasing Corp to
finance the additional plant capacity at the Wisconsin site were also
obtained. Total proceeds from borrowings totaled $5,068,000 and were
offset by repayments to affiliates (net of advances) $1,250,000 and
repayments of notes payable including some acquired debt totaling
$733,000.
In January 1998, the Company secured a line of credit from PNC Bank of
$4,000,000 at prime rate less .5% with a term due on June 30, 1999. This
line is secured by certain assets of the Company and the personal
guarantees of individual members of Stout Partnership. In addition to the
personal guarantees, the individual members of the partnership pledged
$2,000,000 in cash and securities to PNC Bank on behalf of the Company.
August C. Schultes, III, and Gary J. Ziegler, both directors of the
Company, are individual partners in Stout Partnership. Mark S. Alsentzer,
Chairman and President of the Company is also an individual partner in
Stout Partnership. As of March 31, 1998, the Company had borrowed a total
of $3,974,000 against the PNC $4,000,000 line of credit. The proceeds were
used primarily to repay amounts owed to affiliates as well as continued
investments in the Carteret Biocycle plant and general working capital.
-20-
<PAGE> 22
In March 1998, the Company secured additional financing from PNC Leasing
Corp. for six plastic extruder lines to increase plant capacity at the
Wisconsin manufacturing facility. The total amount of financing approved
was $750,000 at 8% interest with payment due in 60 equal monthly
installments. Payments will commence upon complete funding of the project
and is secured by the equipment at the Wisconsin plant. As of March 31,
1998 the Company had financed a total of $566,000 from PNC Leasing Corp.
The Company has under construction a bio-organic soil recycling facility
in Carteret, New Jersey as part of a start-up company named Carteret
Biocycle Corp. which is a wholly owned subsidiary of Clean Earth, Inc.
This facility is expected to commence operations in the second quarter of
1998 at an estimated construction cost of $2.0 million. The Company will
pursue additional financing of this facility through a conventional bank.
The Company will require additional working capital to expand and upgrade
plant equipment in its Maryland and Tennessee plastic lumber facilities.
In the event that sales of the Company's railroad tie product expands
beyond current projections, it may be necessary for the Company to seek
additional working capital to construct and purchase equipment for a plant
dedicated to railroad ties.
The Company will also require working capital for the environmental
recycling operations, especially as it relates to the dredging
opportunities being pursued by the Company.
In April 1998, the Company has retained Pennsylvania Merchant Group as its
investment banker in connection with a proposed $25 million debt
financing. If secured, the Company would use the proceeds to refinance
existing credit lines, expand existing operations, increase working
capital and finance new acquisitions.
In May 1998, the Company has authorized a Series B Preferred Stock
Offering. The Company is seeking to raise $3,150,000 by offering up to
150,000 shares of Series B Preferred Stock at a price of $21.00 per share.
The Series B Preferred Stock has a cumulative 10% stock dividend and is
convertible into seven common shares for each preferred share.
The Company continues to seek acquisition candidates that can be
vertically integrated into either the recycled plastic lumber or
environmental recycling operations. In the recycled plastic lumber
operation, targeted companies include manufacturers and distributors of
recycled plastic products as well as raw material regrind operations. In
the environmental recycling operation, targeted companies include soil
recycling companies including bio-organic methodologies and construction
companies involved in on-site clean-up and potential joint ventures with
dredging operations for remediation and disposal of contaminated soils.
The Company may require additional financing to support these
transactions.
To the extent the Company needs additional financing for the activities
and transactions set forth herein, the Company may avail itself of
additional private placements, additional
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<PAGE> 23
debt financing, the registration of the Series B warrants, and other
sources of capital which may be available, including any combination of
these.
SEASONALITY
The Company does experience a seasonal slow down during the winter months
due to the fact that its environmental operations are located in the
Northeast United States, and therefore, adverse weather can impact the
Company's performance. Additionally, the sale of plastic lumber products,
such as, but not limited to, the Company's Carefree Deck System slow
significantly in winter months.
YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous
results by or at the Year 2000 (the "Year 2000 Issue"). The Company does
not anticipate a material financial impact as a result of the Year 2000
Issue.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved as plaintiff or defendant in
various legal proceedings arising in the normal course of its business.
While the ultimate outcome of these various legal proceedings cannot be
predicted with certainty, it is the opinion of management that the
resolution of these legal actions should not have a material effect on the
Company's financial position, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of unregistered shares during the three months ended March 31,
1998 are as follows:
On or about January 2, 1998, the Company acquired Green Horizon
Environmental, Inc. (GHE), an environmental recycling services company
located in Norristown, PA. The stockholders of GHE received 50,000 shares
of common stock of the Company. These transactions were not registered
under the Securities Act of 1933 in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering made was completed without any general or
public solicitation. In each case the offering was done to a very limited
number of officers,
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<PAGE> 24
directors and shareholders of the companies being acquired. The officers,
directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment.
On or about January 8, 1998, the Company issued 2,100 shares to its Board
of Directors as compensation for the last three board meetings attended by
the non-employee directors.
On or about January 20, 1998, the Company issued 7,000 shares as
compensation to an outside non-affiliate consultant for services rendered;
and again on or about February 5, 1998, the same consultant received an
additional 7,000 shares for meeting certain performance criteria of his
contract.
On or about February 5, 1998, the Company issued 1,166 shares to certain
employees of the Company as bonus compensation for past services
performed.
On or about February 6, 1998, the Company acquired an additional twenty
five percent interest in Consolidated Technologies, Inc. (CTI), an
environmental recycling services company located in Norristown, PA. The
stockholders of this interest received 35,000 shares of common stock of
the Company. These transactions were not registered under the Act in
reliance on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. This offering made was
completed without any general or public solicitation. In each case the
offering was done to a very limited number of officers, directors and
shareholders of the companies being acquired. The officers, directors and
few shareholders had strong knowledge and experience in business matters
as well as pre-existing business relationships with the Company. The
knowledge and experience of these individuals enabled them to evaluate the
risks and merits of the investment.
On or about February 27, 1998, the Company acquired substantially all the
assets of Chesapeake Recycled Lumber, Inc. (CRL), a plastic lumber
manufacturing company located in Denton, MD. The stockholders of CRL
received cash at closing plus 97,500 shares of common stock of the
Company. These transactions were not registered under the Act in reliance
on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. This offering made was
completed without any general or public solicitation. In each case the
offering was done to a very limited number of officers, directors and
shareholders of the companies being acquired. The officers, directors and
primary shareholder had strong knowledge and experience in business
matters as well as pre-existing business relationships with the Company.
The knowledge and experience of these individuals enabled them to evaluate
the risks and merits of the investment.
On or about February 27, 1998, the Company acquired a five percent
interest in Consolidated Technologies, Inc. (CTI), an environmental
recycling services company located in Norristown, PA. The stockholder of
this interest received 1,500 shares of
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<PAGE> 25
common stock of the Company. This transaction was not registered under the
Act in reliance on the exemption from registration in Section 4(2) of the
Act, as transactions not involving any public offering. This offering made
was completed without any general or public solicitation. The offering was
done to a shareholder of the company being acquired. The shareholder had
strong knowledge and experience in business matters as well as
pre-existing business relationship with the Company. The knowledge and
experience of this individual enabled him to evaluate the risks and merits
of the investment.
On or about March 31, 1998, the Company issued 69,148 shares to Series A
Warrant holders who exercised their warrants pursuant to a Notice of
Redemption issued by the Company to the Series A Warrant holders on March
6, 1998. Subsequent to March 31, 1998 the Company issued a total of
916,477 shares to Series A Warrantholders.
Securities issued in all of the foregoing transactions were issued as
restricted securities and the certificates were stamped with restrictive
legends to prevent any resale without registration under the Act or in
compliance with an exemption.
(d) As required by Rule 463 of Regulation SB, following the effective date
of the first registration statement filed under the Securities Act by the
Issuer, the Issuer shall report the use of proceeds resulting from the
registration offering as follows:
(1) The effective date of the SB-2 Registration Statement was
February 13, 1998 at 5:00 p.m. The File No. was 333-22949.
(2) The offering was commenced immediately upon the
declaration of the effectiveness of the registration.
(3) (i) The offering has been closed as of April 6, 1998 as
all warrant holders exercised their rights to redeem the underlying common
shares or chose not to exercise by April 6, 1998 pursuant to a Notice of
Redemption letter sent to each warrant holder by the Company.
(ii) No managing underwriter was used as part of this
offering.
(iii) Common Stock was registered.
(iv) Amount registered: 950,000 shares Aggregate
Price of offering amount registered: $2,375,000
Number of Shares Sold (Warrants exercised):
916,477 Aggregate Offering Price Sold:
$2,291,192
(v) Actual expenses incurred with offering:
Accounting $140,000
Legal $ 80,000
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<PAGE> 26
Printing 1,000
Mailing 1,000
SEC/Blue Sky fees 2,000
--------
TOTAL $224,000
========
(vi) The net offering proceeds to the issuer after
deducting the total expenses described above were
approximately $2,000,000.
(vii) The funds raised by the Company from this
offering will be used for general working capital purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Securities Purchase Agreement dated January 2, 1998 with
Green Horizon Environmental, Inc.
10.2 Asset Purchase Agreement dated February 27, 1998 with
Chesapeake Recycling Inc.
10.3 Stock Purchase and Sale Agreements with Timothy Fogerty,
Al Silkroski, and Michael Roscoe dated February 1998 purchasing a majority
interest of Consolidated Technologies Inc.
10.4 Plan of Merger - Cycle-Masters, Inc. (previously filed
with Form 8-K)
10.5 1997 Non-Employee Director Stock Option Grant (filed as
part of the Company's Proxy Statement in connection with its Annual
Meeting to be held on June 3, 1998)
27.1 Financial Data Schedule for the three months ended March
31, 1998
(b) Reports on Form 8-K
Form 8-K filed on March 2, 1998 reporting a change of auditors
to Arthur Andersen LLP.
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<PAGE> 1
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as
of January, 1998 among WASTE CONCEPTS, INC., a Pennsylvania corporation (the
"Purchaser") AND GREEN HORIZONS ENVIRONMENTAL, INC. (THE "COMPANY") and THE
INDIVIDUALS LISTED ON EXHIBIT "A" attached hereto (such individuals are
sometimes referred to herein collectively as the "Shareholders" and individually
as a "Shareholder").
RECITALS
A. The Shareholders own (i) all of the issued and outstanding capital
stock of the Company.
B. The Shareholders wish to sell, and the Purchaser wishes to purchase,
one hundred percent (100%) of the issued and outstanding capital stock
of the Company upon the terms and subject to the conditions hereinafter
set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
Unless otherwise defined herein or the context otherwise requires, the
terms defined in this Article 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. Unless otherwise indicated, any reference
herein to a "Section", "Article", or "Schedule" shall mean the applicable
section, article or schedule of or to this Agreement. All accounting terms used
in this Agreement not defined in this Article 1 shall, except as otherwise
provided for herein, be construed in accordance with generally accepted
accounting principles, consistently applied.
"ACTION" shall mean any actual or threatened claim, action, suit,
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
forgoing.
"AFFILIATE" of a Person shall mean any Person that directly or
indirectly controls, is controlled by, or is under common control with the
indicated Person.
"AGREEMENT" shall mean this Securities Purchase Agreement.
1
<PAGE> 2
"BALANCE SHEET" and "BALANCE SHEET DATE" shall have the meaning
assigned to such terms in Section 4.4(a).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CLOSING" and "CLOSING DATE" shall have the respective meanings
assigned to such terms in Section 2.3.
"COMMON STOCK" shall mean the Company's authorized class of common
stock, $1.00 par value per share.
"DOL" shall mean the United States Department of Labor.
"DAMAGES" shall mean any and all losses, liabilities, obligations,
costs, expenses, damages or judgments of any kind or nature whatsoever
(including reasonable attorneys', accountants, and expert's fees, disbursements
of counsel, and other costs and expenses incurred pursuing indemnification
claims under Article 10 hereof).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA AFFILIATE" shall mean any Person which is (or at any relevant
time was) a member of a controlled group of corporations within the meaning of
Code Section 414 (b), all trades or businesses under common control within the
meaning of Code Section 414(c), and all affiliated service groups within the
meaning of Code Section 414(m), of which the Company is (or any relevant time
was) a member.
"ENVIRONMENTAL LAWS" shall mean all Legal requirements pertaining to
the protection of the environment, the treatment, emission and discharge of
gaseous, particulate and effluent pollutants and the use, handling storage,
treatment, removal transport, transloading, cleanup decontamination, discharge
and disposal of Hazardous Substances, including, without limitation, those
statutes, laws, rules and regulations set forth below in the definitions of
"Hazardous Material".
"GOVERNMENTAL ENTITY" shall mean any local, state, federal or foreign
(i) court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other taxing
authorities.
"HAZARDOUS MATERIAL" shall mean any flammable, ignitable, corrosive,
reactive, radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law currently in effect or as amended or promulgated in the future
and shall include, without limitation:
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(a) those substances included within the definitions of
"hazardous substances", "hazardous materials", "toxic substances", or "solid
waste" in the Comprehensive Environmental response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Sections 9601, ET. SEQ., the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901 ET.SEQ., and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 ET. seq., and in
the regulations promulgated pursuant thereto.
(b) those substances defined as "hazardous substances",
"hazardous materials", "toxic substances", or "solid waste" in the State of
Pennsylvania.
(c) those substances listed in the United States Department of
Transportation Table (49CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor thereto) as hazardous
substances (40CFR Part 302 and any amendments thereto).
(d) such other substances, materials and wastes that are or
become regulated under applicable local, state or federal laws or regulations,
or which are or become classified as hazardous or toxic under any Legal
Requirement; and
(e) any material, waste or substance that is, in whole or in
part, (i) petroleum, asbestos, polychorinated biphenyls, methylene chloride,
trichorothylene, 1, 2-transdichoroethylene, dioxins or dibenzofurans, (ii)
designated as an "extremely hazardous substance" pursuant to Section 302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended, or (iii)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. Sections 1251 ET. SEQ. (U.S.C. Section 1321) or listed pursuant
to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), or Section 112
or other sections of the Clean Water Act, as amended.
"IRS" shall mean the United States Internal Revenue Service.
"INDEBTEDNESS" shall mean, when used with reference to any Person,
without duplication, (i) any liability of such Person created or assumed by such
Person, or any Subsidiary thereof, (A) for borrowed money, (B) evidence by a
bond, note, debenture, or similar instrument (including a purchase money
obligation, deed of trust or mortgage) given in connection with the acquisition
of, or exchange for, any property or assets (other than inventory or similar
property acquired and consumed in the Ordinary Course), including securities and
other Indebtedness, (C) in respect of letters of credit issued for such Person's
account and "swaps" of interest and currency exchange rate (and other interest
and currency exchange rate hedging agreements) to which such Person is a party
or (D) for the payment of money as lessee under leases that should be, in
accordance with generally accepted accounting principles, recorded as capital
leases for financial reporting purposes; (ii) any liability of others described
in the preceding clause (i) guaranteed as to payment of principal and interest
by such Person or in effect guaranteed by such Person through an agreement,
contingent or otherwise, to purchase, repurchase or pay the related Indebtedness
or to acquire security therefor; (iii) all liabilities or obligations secured by
a Lien upon property owned by such Person and upon liabilities or obligations
such Person customarily pays interest
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or principal, whether or not such Person has not assumed or become liable for
the payment of such liabilities or obligations; and (iv) any amendment, renewal,
extension, revision or refunding or any such liability or obligation; PROVIDE,
HOWEVER, that Indebtedness shall not include any liability for compensation of
such Person's employees or for inventory or similar property acquired and
consumed in the Ordinary Course or for services.
"LEASED REAL PROPERTY" shall mean all real property, including
Structures, leased by the Company.
"LEGAL REQUIREMENTS" shall mean any statute, law, ordinance, rule,
regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"LIEN" shall mean all liens (including judgment and mechanics liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
business, financial condition, properties, profitability, prospects or
operations of the Company.
"NONCOMPETITION AGREEMENT(S)" shall have the meaning assigned to such
term in Section 8.1(h).
"ORDINARY COURSE" shall mean, when used with reference to the Company,
the ordinary course of the Company's business, consistent with past practices.
"OWNED REAL PROPERTY" shall mean all real property, including
Structures, owned by the Company.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PERMIT" shall have the meaning assigned to such term in Section 4.16.
"PERMITTED LIENS" shall mean (a) Liens for ad valorem real or personal
property taxes or assessments not at the time due and (b) Liens in respect of
pledges or deposits under worker's compensation laws or similar legislation,
carriers', warehousemen's, mechanic's, laborers' and materialmen's and similar
liens, if the obligations secured by such Liens are not then delinquent.
"PERSON" shall mean all natural person's, corporations, business
trusts, associations, limited liability companies, companies partnerships, joint
ventures, Governmental Entities and any other entities.
"REAL PROPERTY" shall mean the Owned Real Property and the Lease Real
Property, collectively.
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"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARE PERCENTAGE" with respect to any Shareholder shall mean the
percentage that the number of Shares held by such Shareholder represents of the
total number of Shares, as set forth on Exhibit "A".
"SHARES" shall mean the shares of Common Stock of the Company held by
the shareholders.
"STOCK" shall mean shares of common stock issued by the Purchaser to
the Shareholders as payment of the Purchase Price, as contemplated by Article 2
hereof.
" STRUCTURE" shall mean any facility, building, plant, factory, office,
warehouse structure or other improvement owned or leased by the Company.
"SUBSIDIARY" of a Person shall mean any corporation, partnership,
limited liability company, association or other business entity at least 50% of
the outstanding voting power of which is at the time owned or controlled
directly or indirectly by such Person or by one or more of such subsidiary
entity, or both.
"TAX" shall mean any Federal, state, local or foreign income, gross
receipts, license, payroll, unemployment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including, without limitation, taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated tax or other tax, assessment or charge
of any kind whatsoever, including, without limitation, any interest, fine,
penalty or addition thereto, whether disputed or not.
"TAX RETURN" shall mean any return, declaration, report, claim for
refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
2. PURCHASE AND SALE OF SECURITIES
2.1 SALE AND DELIVERY. Each Shareholder agrees to sell and deliver to
Purchaser, and Purchaser agrees to purchase and accept from each Shareholder,
free and clear of all Liens, on the terms and conditions set forth in this
Agreement, and for the purchase price described in Section 2.2 below, good and
marketable title to the number of Shares set forth opposite the name of such
Shareholder on Exhibit "A". The Shares to be sold and purchased pursuant to this
Agreement constitute one hundred percent (100%) of the outstanding capital stock
of the Company.
2.2 PURCHASE PRICE. The Purchase Price for one hundred percent
of the Shares shall be equal to:
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(i) Twenty Five Thousand shares of non-registered common stock of U.S.
Plastic Lumber Corp., a Nevada corporation ("USPL") payable at time of Closing
to each Shareholder.
(ii) Contingent consideration of $30,000, split equally between the
Shareholders, payable within 30 days from the completion of fiscal 1997 year end
financial statements, if Net Income of the Company before tax for fiscal year
1997, as defined using generally accepted accounting principles, exceeds
$130,000 prior to any payments owed by the Company to Purchaser pursuant to an
Agreement between Purchaser and the Company dated May 1, 1997.
(iii) Contingent consideration for each of the four years from the date
of Closing equal to 10% of the Net Income before taxes (exclusive of $150,000 in
cumulative salaries for the Shareholders) for each respective fiscal year,
defined using generally accepted accounting principles, payable in
non-registered common stock of USPL up to a maximum of 12,500 shares per year
with each share having a value of $5.25 per share for purposes of calculating
the number of shares to be issued. Said stock shall be transferred to the
Shareholders, if due hereunder, within 30 days from the date the Company
receives its audited financial statements from its independent auditors.
2.3 CLOSING. The purchase and sale of the Shares and the consummation
of the other transactions contemplated by this Agreement, (the "Closing") shall
occur at 10:00 AM, local time, on January 2, 1998, simultaneously at the offices
of the Purchaser, 2300 Glades Rd., Suite 440W, Boca Raton, Florida and at the
office of the general counsel for the Company, Schiffman & Ross, One Liberty
Place, 1650 Market Street, 50th Floor, Philadelphia, PA 19103-7301 or at such
other time or on such other date as shall be agreed upon among the Shareholders
and the Purchaser upon fulfillment of all conditions precedent to the Closing,
such hour and date being herein generally referred to as the "CLOSING DATE". At
the Closing:
(a) The Shareholders shall deliver or cause to be delivered to
Purchaser, against delivery by Purchaser of the Purchase Price to the
Shareholders:
(i) a certificate representing 200 Shares being sold by the
Company hereunder duly endorsed for transfer, or accompanied
by duly executed assignments separate from the certificate,
transferring to Purchaser good and marketable title to such
Shares, free and clear of all Liens;
(ii) all of the documents, certificates, and instruments
required to be delivered, or caused to be delivered, by the
Company or any Shareholder pursuant to Section 8.1 hereof; and
(iii) access to all records, documents, and files of the
Company, including, without limitation, all minute books,
stock records, stock certificate books, and internal
accounting records.
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(b) Purchaser shall deliver or cause to be delivered to the Company,
against delivery of the certificate or certificates representing the
Shares:
(i) Twenty Five Thousand shares (25,000) of non-registered
Common Stock of USPL;
(ii) all of the documents, if any, required to be delivered by
Purchaser pursuant to Section 8.2 hereof;
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE SHAREHOLDERS
Each of the Shareholders hereby severally represents and warrants to,
and covenants and agree with, Purchaser that:
3.1 OWNERSHIP OF SHARES. Such Shareholder owns of record and
beneficially the number of Shares set forth opposite the name of such
Shareholder on Exhibit "A" hereto, and has, and at all times prior to and as of
the Closing such Shareholder will have, good and marketable title to such Shares
free and clear of all Liens.
3.2 EXECUTION AND DELIVERY. All consents, approvals, authorizations and
orders necessary for the execution, delivery and performance by such Shareholder
of this Agreement (including, without limitation, the transfer and sale of the
Shares to be sold by such Shareholder to Purchaser) have been duly and lawfully
obtained, and such Shareholder has, and at the Closing will have, full right,
power, authority and capacity to execute, deliver and perform this Agreement.
This Agreement has been duly executed and delivered by such Shareholder and
constitutes a legal, valid and binding agreement of such Shareholder enforceable
against such Shareholder in accordance with its terms.
3.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any term or provision of, or
(with or without notice or passage of time, or both) constitute a default under,
any indenture, mortgage, deed of trust, trust (constructive and other), loan
agreement or other agreement or instrument to which such Shareholder is a party
or by which such Shareholder or such Shareholder's Shares are bound, or violate
any Legal Requirement applicable to or binding upon such Shareholder.
3.5 NO BROKERS. No broker, finder or similar agent has been employed by
or on behalf of such Shareholder in connection with this Agreement or the
transactions contemplated hereby, and such Shareholder has not entered into any
agreement or understanding of any kind with any person or entity for the payment
of any brokerage commission, finder's fee or any similar compensation in
connection with this Agreement or the transactions contemplated hereby.
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4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
The Shareholders hereby jointly and severally represent and warrant to,
and covenant and agree with, Purchaser that:
4.1 ORGANIZATION AND GOOD STANDING.
(a) The Company has been duly organized and is existing as a
corporation in good standing under the laws of the State of Pennsylvania with
full power and authority (corporate and other) to own and lease its properties
and to conduct its business as currently conducted. The Company has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each jurisdiction set forth on SCHEDULE 4.1(A),
such jurisdictions comprising all jurisdictions in which the Company owns or
leases any property, or conducts any business, so as to require such
qualifications.
(b) Except as set forth in SCHEDULE 4.1(B), the Company has no
Subsidiary nor owns or controls, or has any other equity investment or other
interest in, directly or indirectly, any corporation, joint venture,
partnership, association or other entity.
(c) DELIVERY OF GOOD TITLE. Upon delivery of the 200 Shares to
be sold by the Company hereunder and delivery of the Purchase Price
consideration therefor pursuant to this Agreement, Purchaser will have good and
marketable title to such Shares free and clear of all Liens.
4.2 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) conflict with or result in a breach or violation of any term or provision
of, or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any Person a basis for accelerated or increased rights
or termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument of
which the Company is a party or by which the Company is bound or affected or to
which any of the property or assets of the Company is bound or affected
including, without limitation, all arrangements in Section 4.19 hereof, (b)
result in the violation of the provisions of the Articles of Incorporation or
Bylaws of the Company or any Legal Requirement applicable to or binding upon it,
(c) result in the creation or imposition of any Lien upon any property or asset
of the Company or (d) otherwise adversely affect the contractual or other legal
rights or privileges of the Company. Schedule 4.2 sets forth a list of all
agreements requiring the consent of any party thereto to any of the transactions
contemplated hereby.
4.3 CAPITALIZATION. The authorized capital stock of the Company
consists solely of (1,000) shares of Common Stock having a par value of $1.00
per share, of which only the number of Shares listed on Exhibit "A" are, and as
of the Closing will be, issued and
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outstanding. All of the Shares have been duly authorized and validly issued and
are fully paid, nonassessable and outstanding and are held by the Shareholders
in amounts reflected in Exhibit "A" hereto. Other than as set forth on SCHEDULE
4.3, (i) there are no existing options, warrants, right, calls or commitments of
any character relating to the shares of Common Stock or any other capital stock
or securities of the Company, (ii) there are no outstanding securities or other
instruments convertible into or exchangeable for shares of Common Stock or any
other capital stock or securities of the Company and no commitments to issue
such securities or instruments and no Person has any right of first refusal,
preemptive right, subscription right or similar right with respect to any shares
of Common Stock or any other capital stock or securities of the Company. The
offer, issuance and sale of the Shares were (i) exempt from the registration and
prospectus delivery requirements of the Securities Act, (ii) registered or
qualified (or exempt from registration or qualification) under the registration
or qualification requirements of all applicable state securities laws and (iii)
accomplished in conformity with all other Legal Requirements.
4.4 FINANCIAL STATEMENTS.
(a) SCHEDULE 4.4 hereto contains true and complete copies of
(i) the unaudited balance sheet (the "BALANCE SHEET") of the Company at
September 30, 1997 (the "BALANCE SHEET DATE"), and the related unaudited
statements of income for the nine (9) months then ended, (ii) the reviewed
balance sheet of the Company at December 31, 1996 and the related reviewed
statements of income, shareholders' equity and cash flow for the fiscal year
then ended (together with the report thereon of , independent public
accountants)(the financial statements described in clause (i) and (ii) above are
collectively referred to as the "FINANCIAL STATEMENTS").
(b) The Financial Statements present fairly the financial
condition of the Company as of the dates indicated therein and the results of
operations and changes in financial position of the Company for the periods
specified therein, have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods covered
thereby and prior periods, have been derived from the accounting records of the
Company and represent only actual, bona fide transactions. The Company's
Financial Statements are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state a material
fact.
4.5 TITLE TO PROPERTY; ENCUMBRANCES.
(a) The Company has, and immediately prior to the Closing will
have, good, valid and marketable title in fee simple to all Real Property and
all personal property reflected on the Balance Sheet as owned by the Company and
all Real Property and personal property acquired by the Company since the
Balance Sheet Date, in each case free and clear of all Liens except (i) as set
forth on SCHEDULE 4.5(a), (ii) for sales and other dispositions of inventory in
the Ordinary Course since the Balance Sheet Date which, in the aggregate, have
not been materially different from prior periods, and (iii) Permitted Liens.
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(b) SCHEDULE 4.5(b). contains a true and complete list and
legal description of each parcel of Owned Real Property and a general
description of each Structure situated thereon. The Shareholders have heretofore
furnished to Purchaser true and complete copies of all deeds, other instruments
of title and policies of title insurance indicating and describing the Company's
ownership of the Owned Real Property, as well as copies of any surveys or
environmental reports relating to the real property.
(c) SCHEDULE 4.5(c). contains a list of all tangible personal
property having a cost or fair market value in excess of Five Thousand Dollars
($5,000.00) owned by the Company (other than personal property held by the
Company as lessee under a personal property lease).
(d) SCHEDULE 4.5(d) contains a list of all real property
leases, licenses and personal property leases under which the Company is the
lessee or licensee, together with (i) the location and nature of each of the
leased or licensed properties (including a legal description of all Leased Real
Property), (ii) the termination date of each such lease or license, (iii) the
name of the lessor or licensor and (iv) all rental and other payments made or
required to be made for the fiscal years ending December 31, 1996 and December
31, 1995 and interim period for 1997. All leases and licenses pursuant to which
the Company leases or licenses from others real or personal property are valid,
subsisting in full force and effect in accordance with their respective terms,
and there is not, under any real property lease, personal property lease or
license, any existing default or event of default (or event that, with notice or
passage of time, or both, would constitute a default, or would constitute a
basis of FORCE MAJEURE or other claim of excusable delay or nonperformance).
True and complete copies of all real property leases, licenses and personal
property leases listed on Schedule 4.5(d) have been delivered to Purchaser
heretofore, as well as copies of any title reports, surveys or environmental
reports or audits relating to any Leased Real Property. Except as set forth in
Schedule 4.5(d), no such lease or license will require the consent of the lessor
or licensor to or as a result of the consummation of the transactions
contemplated by this Agreement. For the purposes of this Section 4.5(d), a
"lease" shall include a sublease.
(e) All personal property owned by the Company and all
personal property held by the Company pursuant to personal property leases is in
good operating condition and repair, subject only to ordinary wear and tear, has
been operated, serviced and maintained properly within the recommendations and
requirements of the manufacturers thereof (if any) and is suitable and
appropriate for the use thereof made and proposed to be made by the Company in
its business and operations. The Real Property and personal property described
in Sections 4.5(a), 4.5(b) and 4.5(c) and the Real Property and personal
property held by the Company pursuant to the leases and licenses described in
Schedule 4.5(d) compromise all of the real property and personal property used
in the conduct of business of the Company.
(f) Except as set forth in SCHEDULE 4.5(f):
(i) The Company is not in violation of, or default under, any
Legal Requirement pertaining to any of the Real Property. No notice of
violation of any Legal Requirement,
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or of any covenant, condition, restriction or easement affecting any
Real Property or with respect to the use or occupancy thereof, has been
given by any Person;
(ii) All of the Structures (A) are in good operating condition
and repair, (B) are adequate and suitable for the purposes for which
they are currently and proposed to be used, and (C) are supplied with
utilities and other services necessary for the operation of such
Structures, and the business conducted by the Company therein,
including gas, electricity, water, telephone, sanitary sewer and storm
sewer, all of which services are maintained in accordance with all
Legal Requirements and are provided via permanent, irrevocable,
appurtenant easements in favor of the Company;
(iii) No condemnation proceeding is pending or, to the
knowledge of the Shareholders, threatened which would impair the
occupancy, use or value of any Real Property;
(iv) No Structure, nor the operations of the Company therein
or thereon, (A) is located outside of the boundary lines of the
described parcel of land on which it is located, (B) is in violation of
applicable setback requirements, zoning laws, or ordinances, (C) is
subject to "permitted non-conforming use" or "permitted non-conforming
structure" classifications or (D) encroaches on any property owned by,
or easement granted in favor of, any Person;
(v) There are no (A) leases, subleases, licenses, concessions
or other agreements, written or oral, granting to any other Person the
right to acquire, use or occupy any portion of, any Real Property, (B)
outstanding options or rights of first refusal to purchase all or any
portion of Real Property or interest therein, and (C) Persons (other
than the Company) in possession of any Real Property;
(vi) Each parcel of Owned Real Property (A) is fully and
adequately described in the legal description therefor contained in the
deed thereof, (B) abuts a paved public right-of-way, (C) does not serve
any adjoining property for any purpose inconsistent with the use of the
land, and (D) is not located within any flood plain or subject to any
similar type restriction for which any permits or licenses necessary to
the use thereof have not been obtained; and
(vii) With respect to each item of Leased Real Property, (A)
to the Shareholders' knowledge, the owner thereof has good and
marketable title thereto, free and clear of all Liens other than (I)
recorded easements, covenants and restrictions that do not impair the
current use, occupancy or value thereof and (II) the leasehold interest
of the Company, (B) there is adequate ingress and egress (and a
continuing right thereto), without the need for an easement, between
paved public rights-of-way and such Leased Real Property and (C) the
Company has not sold, transferred or subjected to a Lien such Leased
Real Property or any interest therein.
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4.6 ACCOUNTS RECEIVABLE. All accounts receivable of the Company
reflected in the Balance Sheet and all accounts receivable of the Company that
have arisen since the Balance Sheet Date (except such accounts receivable as
have been collected since such dates) are valid and enforceable claims to the
Shareholders' knowledge, and the goods and services sold and delivered that gave
rise to such accounts were sold and delivered in conformity with all applicable
express and implied warranties, purchase orders, agreements and specifications.
To the best of Shareholders' knowledge, such accounts receivable of the Company
are subject to no valid defense, offset or counterclaim and are fully
collectible, except to the extent of the allowance for doubtful accounts
reflected on the Balance Sheet. SCHEDULE 4.6 contains a true and complete aging
of the Company's accounts receivable as of the Balance Sheet Date.
4.7 INVENTORIES. Except as described in SCHEDULE 4.7, all inventories
of raw materials, work-in-process and finished good set forth or reflected in
the Balance Sheet or acquired by the Company since the balance Sheet Date,
consist of a quality and quantity usable and saleable in the Ordinary Course,
except for slow-moving, damaged or obsolete items and materials of below
standard quality, all of which have been written down to net realizable market
value or in respect of which adequate reserves have been provided, in each case
as reflected in the Balance Sheet. The value at which inventories are carried on
the Balance Sheet reflect the normal inventory valuation policy of the Company,
as applicable, in accordance with generally accepted accounting principles and
on a basis consistent with that of preceding periods, of stating inventory at
the lower of cost or market value. There is no reason to believe that the
Company will experience in the foreseeable future any difficulty in obtaining,
in the desired quantity and quality, the inventory necessary to conduct its
business in the manner proposed to be conducted, including, without limitation,
inventory which historically has been imported.
4.8 TRADEMARKS, PATENTS, ETC.
(a) SCHEDULE 4.8(a) contains a true and complete list of all
letters patent, patent applications, trade names, trademarks, service marks,
trademark and service mark registrations and applications, copyrights, copyright
registrations and applications, grants of a license or right to the Company with
respect to the foregoing, both domestic and foreign, claimed by either Company
or used or proposed to be used by the Company in the conduct of its business,
whether registered or not, (collectively herein, "REGISTERED RIGHTS").
(b) Except as described in SCHEDULE 4.8(b) OR AS OTHERWISE
LIMITED BY APPLICABLE LEGAL REQUIREMENTS, the Company owns and has the
unrestricted right to use the Registered Rights and every trade secret,
know-how, process, discovery, development, design, technique, customer and
supplier list, promotional idea, marketing and purchasing strategy, invention,
process, confidential data and or other information (collectively herein,
"PROPRIETARY INFORMATION") required for or incident of the design, development,
manufacture, operation, sale and use of all products and services sold or
rendered or proposed to be sold or rendered by the Company, free and clear of
any right, equity or claim of others. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all Proprietary
Information.
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(c) SCHEDULE 4.8(c) contains a true and complete list and
description of all licenses of or rights to Proprietary Information granted to
the Company by others or to others by the Company. Except as described in
Schedule 4.8(c), (i) the Company has not sold, transferred, assigned, licensed
or subjected to any Lien, any Registered Right or Proprietary Information or any
interest therein, and (ii) the Company is not obligated or under any liability
whatever to make any payments by way of royalties, fees or otherwise to any
owner or licensor of, or other claimant to, any Registered Right or Proprietary
Information.
(d) There is no claim or demand of any Person pertaining to,
or any Action that is pending or, to the Shareholders' knowledge, threatened,
which challenges the rights of the Company in respect of any Registered Right or
any Proprietary Information.
4.9 BANKING AND INSURANCE.
(a) SCHEDULE 4.9(a) contains a true and complete list of the
names and locations of all financial institutions at which the Company maintains
a checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the numbers or other identification of
all such accounts and arrangements and the names of all persons authorized to
draw against any funds therein.
(b) SCHEDULE 4.9(b) contains a true and complete list of all
insurance policies and bonds and self insurance arrangements currently in force
that cover or purport to cover risks or losses to or associated with the
Company's business, operations, premises, properties, assets, employees, agents
and directors and sets forth, with respect to each such policy, bond and self
insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. The insurance policies, bonds
and arrangements described on Schedule 4.9(b) (the "POLICIES") provide such
coverage against such risk of loss and in such amounts as are customary for
corporations of established reputation engaged in the same or similar business
and similarly situated. The Company has no obligation, liability or other
commitment relating to any contract of insurance containing a provision for
retrospective rating or adjustment of the Company's premium obligation. To the
Shareholders' knowledge, no facts or circumstances exist that would cause the
Company to be unable to renew its existing insurance coverage as and when the
same shall expire upon terms at least as favorable as those currently in effect,
other than possible increases in premiums that do not result from any act or
omission of the Company or any Shareholder.
4.10 INDEBTEDNESS.
(a) The Company has no liability or obligation for
Indebtedness other than as set forth on SCHEDULE 4.10(a), and true and complete
copies of all instruments and documents evidencing, creating, securing or
otherwise relating to such Indebtedness have been delivered to Purchaser
heretofore. Except as described in Schedule 4.10(a), no event has occurred and
no
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condition has become known to the Company or any Shareholder (including the
transactions contemplated hereby) that constitutes or, with notice or passage of
time, or both, would constitute a default or a basis of FORCE MAJEURE or other
claim of accelerated or increased rights, termination, excusable delay or
nonperformance by the Company or any other Person under any instrument or
document relating to or evidencing Indebtedness that would entitle any person to
require the Company to pay any portion of the principal amount of such
Indebtedness prior to the scheduled maturity thereof. Except as set forth in
Schedule 4.10(a), no instrument or document evidencing, creating, securing or
otherwise relating to Indebtedness will require the consent of any person to or
as a result of the consummation of the transactions contemplated by this
Agreement.
(b) SCHEDULE 4.10(b) contains a list and brief description of
all agreements or instruments pursuant to which any of the Company's directors,
employees or shareholders have guaranteed by Indebtedness of the Company (the
"GUARANTIES"). True and complete copies of all Guaranties have been delivered to
Purchaser.
4.11 JUDGMENTS; LITIGATION. Except as set forth on SCHEDULE 4.11:
(a) There is no (i) outstanding judgment, order, decree, award
stipulation or injunction of any Governmental Entity or arbitrator against or
affecting the Company or its properties, assets or business or (ii) Action
pending against or affecting the Company or its properties, assets or business.
(b) To the best of Shareholders' knowledge, there is no (i)
outstanding judgment, order, decree, award, stipulation, injunction of any
Governmental Entity or arbitrator against or affecting any officer, director or
employee of the Company relating to the Company or its business, (ii) Action
threatened against or affecting the Company or its properties, assets or
business, (iii) Action pending or threatened against the Company's officers,
directors or employees relating to the Company or its business or (iv) basis for
the institution of any Action against the Company or any of its officers,
directors, employees, properties or assets which, if decided adversely, would
have a Material Adverse Effect.
4.12 INCOME AND OTHER TAXES. Except as set forth on SCHEDULE 4.12:
(a) To the best of Shareholders knowledge, all Tax Returns
required to be filed through and including the date hereof in connection with
the operations of the Company are true, complete and correct in all respects and
have been properly and timely filed. The Company has not requested any extension
of time within which to file any Tax Return, which Tax Return has not since been
filed. Purchaser has heretofore been furnished by the Company with true, correct
and complete copies of each Tax Return of the Company with respect to the past
three (3) taxable years, and of all reports of, and communications from, any
Governmental Entities relating to such period. The Company has disclosed on its
Federal Income Tax Returns all positions taken therein that could give rise to a
substantial understatement of income Taxes for federal income tax purposes
within the meaning of Code Section 6662.
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(b) All Taxes required to be paid or withheld and deposited
through and including the date hereof in connection with the operations of the
Company have been duly and timely paid or deposited by the Company. The Company
has properly withheld or collected all amounts required by law for income Taxes
and employment Taxes relating to its employees, creditors, independent
contractors and other third parties, and for sales Taxes on sales, and has
properly and timely remitted such withheld or collected amounts to the
appropriate Governmental Entity. The Company has no liabilities for any Taxes
for any taxable period ending prior to or coincident with the Closing Date.
(c) To the best of Shareholders' knowledge, the Company has
made adequate provision on its book of account for all Taxes with respect to its
business, properties and operations through the Balance Sheet Date, and the
accruals for Taxes in the Balance Sheet are adequate to cover all liabilities
for Taxes of the Company for all periods ending on or before the Closing Date.
(d) The Company has never (i) had a tax deficiency proposed,
asserted or assessed against it (ii) executed any waiver of any statute of
limitations on the assessment or collection of any Taxes, or (iii) been
delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or the
subject of other Action by any Governmental Entity. The Company has not received
any notice from any Governmental Entity of any pending examination or any
proposed deficiency, addition, assessment, demand for payment or adjustment
relating to or affecting the Company or its assets or properties and no
Shareholder has reason to believe that any Governmental Entity may assess (or
threaten to assess) any Taxes for any periods ending on or prior to the Closing
Date.
(f) The Company (i) has not filed any consent or agreement
pursuant to Code Section 341(f), and no such consent or agreement will be filed
at any time on or before the Closing Date; (ii) has not made any payments, is
not obligated to make any payments and is not a party to any agreement that
under certain circumstances could obligate the Company to make any payments that
will not be deductible under Code Section 280G, (iii) is not a United States
real property holding corporation within the meaning of Code Section 897(c)(2);
(iv) is not a party to a tax allocation or sharing agreement; (v) has never been
(or does not have any liability for unpaid Taxes because it was) a member of an
affiliated group with the meaning of Code Section 1504(a); (vi) has never
applied for a tax ruling from a Governmental Entity and (vii) has never filed or
been the subject of an election under Code Section 338(g) or Code Section
338(h)(10) or caused or been the subject of a deemed election under Code Section
338(e).
4.13 QUESTIONABLE PAYMENTS. Neither the Company nor, to the
Shareholders' knowledge, any of its directors, officers, agents, employees or
other Person associated with or acting on behalf of the Company has (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (b) made any direct or
indirect unlawful payments to government officials or employees, or foreign
government
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officials or employees, from corporate funds, (c) established or maintained any
unlawful or unrecorded fund of corporate monies or other assets, (d) made any
false or fictitious entries on the books of account of the Company, (e) made or
received any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment, or (f) made any other payment, favor or gift respecting the
Company's business not fully deductible for federal income tax purposes.
4.14 EMPLOYEE BENEFIT MATTERS.
(a) SCHEDULE 4.14 contains a complete list of all Plans. For
purposes of this Section 4.14, the term "Plan" shall mean any plan maintained by
the Company which is either an "employee benefit plan" as defined in Section
3(3) of ERISA or a "fringe benefit plan" as defined in Section 6039D of the
Code. True and complete copies of each of the following documents (and any
amendments thereto), where applicable, have been delivered previously to
Purchaser: (i) the Plan documents; (ii) a written description of any Plan which
is not in writing; (iii) if the Plan is funded through a trust or any
third-party funding vehicle, the trust or other funding agreement; (iv) the
Plan's most recent financial statements; (v) the two most recent annual reports
(including all schedules and attachments thereto) required by ERISA; (vi) the
most recent actuarial report and valuation; (vii) the most recent determination
letter received from the IRS with respect to each Plan that is intended to be
qualified under Code Section 401 or to be recognized as tax-exempt under Code
Section 501(c); (viii) the most recent summary plan description and each summary
of material modifications required by ERISA; (ix) any agreement providing for
the provision of administrative or investment management services with respect
to the Plan; and (x) all documents and correspondence received from or provided
to the DOL, IRS and PBGC during the past two years.
(b) Each Plan and related trust, annuity, or other funding
agreement complies and has been maintained in compliance with all applicable
Legal Requirements. No non-exempt prohibited transaction (as defined in Code
Section 4975 and ERISA Sections 406 and 408) has occurred and no "fiduciary" (as
defined in ERISA Section 3(21)) has committed any breach of duty which could
subject the Company, any ERISA Affiliate, or any director, officer, or employee
thereof to liability under Title I of ERISA or to tax under Code Section 4975.
All material obligations required to be performed by the Company and other
Person under the terms of each Plan and applicable Legal Requirement have been
performed.
(c) All required reports and descriptions, including, without
limitation, annual reports (Form 5500), summary annual reports, and summary plan
descriptions, have been filed and distributed timely. With respect to each Plan
which is a welfare plan (as defined in ERISA Section 3(1)), the requirements of
Party 6 of Subtitle B of Title I of ERISA and of Code Sections 162(k) and 4980B
have been satisfied.
(d) All contributions, premiums, and other payments,
including, without limitation, employer contributions and employee salary
reduction contributions, have been paid when due or accrued in accordance with
the past custom and practice of Seller and any ERISA Affiliate. No Plan that is
subject to Part 3 of Subtitle B of Title I of ERISA or to Code Section
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412 has incurred any accumulated funding deficiency, whether or not waived, and
no other actual or contingent liability for any other expenses or obligations of
any Plan exists.
(e) There are no pending or, to the Shareholders' knowledge,
threatened Actions (other than routine claims for benefits) asserted or
instituted against any Plan or the assets of any Plan, or against the Company,
or any ERISA Affiliate, trustee, administrator, or fiduciary of such Plan, and
the Shareholders have no knowledge of any facts that could form the basis of any
such Action. There is no pending or, to the Shareholders' knowledge, threatened
or contemplated Action by any Governmental Entity with respect to any Plan, and
the Shareholders have no knowledge of any facts that could reasonably be
expected to cause or trigger such an Action.
(f) The Company (or, if applicable, an ERISA Affiliate,) may
terminate, suspend, or amend each Plan at any time, except to the extent
otherwise required by Code Section 4980B, without the consent of the
participants or employees covered by such Plan. Neither the Company nor any
ERISA Affiliate has announced any intention, made any amendment or binding
commitment, or given any written or oral notice providing that the Company or an
ERISA Affiliate (i) will create additional Plans covering employees of the
Company or any ERISA Affiliate, (ii) will increase benefits promised or provided
pursuant to any Plan, or (iii) will not exercise after the Closing Date any
right or power it may have to terminate, suspend, or amend any Plan.
(g) Neither the Company nor any ERISA Affiliate maintains or
has maintained any time, or contributes to or has contributed to or is or was
required to contribute to, any (i) Plan subject to Title IV or ERISA, including,
without limitation, any multi-employer plan (as defined in ERISA Section 3(37)),
within the past five years, or (ii) funded or unfunded medical, health,
accident, or life insurance plan or arrangement for current or future retirees
or terminated employees or their spouses or dependents (except to the extent
required by Code Sections 162(k) or 4980B).
(h) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will constitute a
termination of employment or other event entitling any Person to any additional
or other benefits, or that would otherwise modify benefits or the vesting of
benefits, provided under any Plan.
(i) To the best of Shareholders' knowledge, no event has
occurred which could subject the Company of any ERISA Affiliate to any material
liability (i) under any Legal Requirement relating to any Plan, or (ii)
resulting from any obligation of Seller or an ERISA Affiliate to indemnify any
Person against liability incurred with respect to or in connection with any
Plan.
(j) Each Plan which is intended to be qualified under Code
Section 401 has received, within the last five years, a favorable determination
letter from the IRS. To the best of Shareholders' knowledge, no event has
occurred and no facts or circumstances exist which may cause or result in the
loss or revocation of such determination.
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4.15 NO UNDISCLOSED LIABILITIES. Except (i) to the extent set forth or
provided for in the Balance Sheet or the notes thereto, (ii) as set forth on
SCHEDULE 4.15 or (iii) for non-material current liabilities incurred since the
Balance Sheet Date in the Ordinary Course, as of the date hereof the Company, to
the knowledge of the Shareholders or to that which the Shareholders should
reasonably be expected to have knowledge, has no liabilities, whether accrued,
absolute, contingent or otherwise, whether due or to become due and whether the
amounts thereof are readily ascertainable or not, or any unrealized or
anticipated losses from any commitments of a contractual nature, including Taxes
with respect to or based upon the transactions or events occurring at or prior
to the Closing.
4.16 PERMITS, LICENSES, ETC. The Company possesses, and is operating in
compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of Governmental Entities necessary to
(i) occupy, maintain, operate and use the Real Property as it is currently used
and proposed to be used, (ii) conduct its business as currently conducted and as
proposed to be conducted, and (iii) maintain and operate its Permits (the
"PERMITS"). SCHEDULE 4.16 contains a true and complete list of all Permits. Each
Permit has been lawfully and validly issued, and no proceeding is pending or, to
the Shareholders' knowledge, threatened looking toward the revocation,
suspension or limitation of any Permit. The consummation of the transactions
contemplated by this Agreement will not result in the revocation, suspension or
limitation of any Permit and, except as set forth in Schedule 4.16, no Permit
will require the consent of its issuing authority to or as a result of the
consummation of the transaction contemplated hereby.
4.17 REGULATORY FILINGS. Except as set forth on Schedule 4.17, the
Company has made all required registrations and filings with and submissions to
all applicable Governmental Entities relating to the operations of the Company
as currently conducted and as proposed to be conducted, including, without
limitation, all such applicable Governmental Entities having jurisdiction over
any matters pertaining to conservation or protection of the environment, and the
treatment, discharge, use, handling, storage or production, or disposal of
Hazardous Materials. All such registrations, filings and submissions were in
compliance with all Legal Requirements (including all Environmental Laws) and
other requirements when filed, no material deficiencies have been asserted by
any such applicable Governmental Entities with respect to such registrations,
filings or submissions and, to the Shareholders' knowledge, no facts or
circumstances exist which would indicate that a material deficiency may be
asserted by any such authority with respect to any such registration, filing or
submission.
4.18 CONSENTS. All consents, authorizations and approvals of any Person
to or as a result of the consummation of the transactions contemplated hereby,
that are necessary or advisable in connection with the operations and business
of the Company as currently conducted and as proposed to be conducted, or for
which the failure to obtain the same might have, individually or in the
aggregate, a Material Adverse Effect, have been lawfully and validly obtained by
the Company, except as described in Schedules 4.5(c), 4.10 and 4.16 hereto. All
consents, authorizations and approvals described in schedules 4.5(c), 4.10 and
4.16 will have been lawfully and validly obtained prior to the Closing.
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4.19 MATERIAL CONTRACTS; NO DEFAULTS.
(a) SCHEDULE 4.19(a) contains a true and complete list and
description of the outstanding sales order and sales contract backlog of the
Company having an indicated gross value in excess of Five Thousand Dollars
($5,000.00) or having a term of duration in excess of six months. All
outstanding sales orders and sales contracts of the Company have been entered
into in the Ordinary Course. Except as described in Schedule 4.19(a), the
Company has not received any advance, progress payment or deposit in respect of
any sales order or sales contract, and the Company has no sales order or sales
contract that will result, upon completion or performance thereof, in gross
margins materially lower than those normally experienced by the Company for the
services or products covered by such sales order or sales contract.
(b) SCHEDULE 4.19(b) contains a true and complete list and
description of all outstanding purchase orders and purchase commitments of the
Company having a gross indicated value in excess of Ten Thousand Dollars
($10,000.00) in the aggregate from any single supplier or other vendor. All
outstanding purchase orders and purchase commitments of the Company have been
incurred in the Ordinary Course, and no purchase order or purchase commitment of
the Company is in excess of the normal, ordinary and usual requirements of the
business of the Company or at an excessive price. The principal raw materials
used and inventory sold by the Company are available from several sources at
competitive prices and upon competitive terms and no interruption in production
or Material Adverse Effect will result from the loss of any one of such sources.
(c) SCHEDULE 4.19(c) contains a true and complete list of all
sales agency, sales representative, distributor, wholesaler, dealer and similar
contracts or agreements of the Company, and true and complete copies of the same
have been delivered to Purchaser heretofore. Except as described in Schedule
4.19(c), all of such contracts and agreements are terminable at any time by the
applicable Company without penalty (including, without limitation, any
obligation to repurchase inventories on hand) upon not more than thirty (30)
days' notice.
(d) SCHEDULE 4.19(d) contains a true and complete list and
description of all noncompetition agreements and covenants under which the
Company or any of their respective officers, directors or employees or any
Shareholder is obligated, and true and complete copies of the same have been
delivered to Purchaser heretofore. Except as described in Schedule 4.19(d), the
Company is not restricted by any agreement from carrying on its business or
engaging in any other activity anywhere in the world (including relocating,
closing, or terminating any of its operations or facilities), and no such
officer, director, key employee or Shareholder is a party to or otherwise bound
or affected by any agreement, covenant or other arrangement or understanding
that would restrict or impair his ability to perform diligently his other duties
to the Company. Schedule 4.19(d) also contains a true and complete list and
description of all noncompetition agreements or covenants in favor of the
Company, and true and complete copies of the same have been delivered to
Purchaser heretofore.
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(e) SCHEDULE 4.19(e) contains a true and complete list and
description of all contracts, agreements, understandings, arrangements and
commitments, written or oral, of the Company with any officer, director,
consultant, employee or Affiliate of the Company or with any associate,
Affiliate or employee of any Affiliate of the Company, other than those
disclosed in Schedule 4.21(a) hereto; in each case a true and complete copy of
such written contract, agreement, understanding, arrangement or commitment or a
true and complete summary of such oral contract, agreement, understanding,
arrangement or commitment has been delivered to Purchaser heretofore.
(f) SCHEDULE 4.19(f) contains a true and complete list and
description of all other material contracts, agreements, understandings,
arrangements and commitments, written or oral, of the Company by which it or its
properties, rights or assets are bound that are not otherwise disclosed in this
Agreement or the Schedule hereto. True and complete copies of such written
contracts, agreements, understandings, arrangements and commitments and true and
complete summaries of such oral contracts, agreements, understandings,
arrangements and commitments have been delivered to Purchaser heretofore. For
the purposes of this subsection (f), "material" means any contract, agreement,
understanding, arrangement or commitment that (i) involves performance by any
party more than ninety (90) days from the date hereof, (ii) involves payments or
receipts by the Company in excess of Five Thousand Dollars ($5,000.00), (iii)
involves capital expenditures in excess of Five Thousand Dollars ($5,000.00) or
(iv) otherwise materially affects the Company.
(g) Except as described in SCHEDULE 4.19(G):
(i) to the best of Shareholders' knowledge, each
agreement, contract, arrangement or commitment described above in this
Section 4.19 is, and after the Closing on identical terms will be,
legal, valid, binding, enforceable and in full force and effect;
(ii) no event or condition has occurred or become
known to the Company or any Shareholder or is alleged to have occurred
that constitutes or, with notice or the passage of time, or both, would
constitute a default or a basis of FORCE MAJEURE or other claim of
excusable delay, termination, nonperformance or accelerated or
increased rights by the Company or any other Person under any contract,
agreement, arrangement, commitment or other understanding, written or
oral, described above in this Section 4.19, or described or otherwise
disclosed pursuant to this Agreement; and
(iii) no person with whom the Company has such a
contract, agreement, arrangement, commitment or other understanding is
in default thereunder or has failed to perform fully thereunder by
reason of FORCE MAJEURE or other claim of excusable delay, termination
or nonperformance thereunder, the delay, termination or nonperformance
of which, or a default under which, has had or may have a Material
Adverse Effect.
4.20 ABSENCE OF CERTAIN CHANGES. Since September 30, 1997, except as
disclosed in
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SCHEDULE 4.20, the Company has not: (i) incurred any debts, obligations or
liabilities (absolute, accrued, contingent or otherwise), other than current
liabilities incurred in the Ordinary Course which, individually or in the
aggregate, are not material; (ii) subjected to or permitted a Lien (other than a
Permitted Lien) upon or otherwise encumbered any of its assets, tangible or
intangible; (iii) sold, transferred, licensed or leased any of its assets or
properties except in the Ordinary Course; (iv) discharged or satisfied any Lien
other than a Lien securing, or paid any obligation or liability other than,
current liabilities shown on the Balance Sheet and current liabilities incurred
since the Balance Sheet Date, in each case in the Ordinary Course; (v) canceled
or compromised any debt owed to or by or claim of or against it, or waived or
released any right of material value other than in the Ordinary Course; (vi)
suffered any physical damage, destruction or loss (whether or not covered by
insurance) causing a Material Adverse Effect; (vii) entered into any material
transaction or otherwise committed or obligated itself to any capital
expenditure other than in the Ordinary Course; (viii) made or suffered any
change in, or condition affecting, its condition (financial or otherwise),
properties, profitability, prospects or operations other than changes, events or
conditions in the Ordinary Course, none of which (individually or in the
aggregate) has had or may have a Material Adverse Effect; (ix) made any change
in the accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted; (x) other
than in the Ordinary Course, made or suffered any amendment or termination of
any material contract, agreement, lease or license to which it is a party; (xi)
paid, or made any accrual or arrangement for payment of, any severance or
termination pay to, or entered into any employment or loan or loan guarantee
agreement with, any current or former officer, director or employee or
consultant; (xii) paid, or made any accrual or arrangement for payment of, any
increase in compensation, bonuses or special compensation of any kind to any
employee other than pursuant to an agreement disclosed on Schedule 4.21(a) or
Schedule 4.21(b) or other than in the Ordinary Course, or paid, or made any
accrual or arrangement for payment of, any increase in compensation, bonuses or
special compensation of any kind to any officer or director of the Company or
any consultant to the Company; (xiii) made or agreed to make any charitable
contributions or incurred any nonbusiness expenses; (xiv) changed or suffered
change in any benefit plan or labor agreement affecting any employee of the
Company otherwise than to conform to Legal Requirements; or (xv) entered into
any agreement or otherwise obligated itself to do any of the foregoing.
4.21 EMPLOYEES AND LABOR MATTERS.
(a) SCHEDULE 4.21(a) contains a true and complete list of all
contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation, bonuses,
profit sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, use of the
Company's property and related matters of the Company with any current or former
officer, director, employee or consultant, and true and complete copies of all
such contracts, agreements, plans, arrangements and understandings have been
delivered to Purchaser heretofore. Attached to Schedule 4.21(a) is the most
current copy of the employee handbook utilized by the Company and distributed to
each of its employees.
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(b) SCHEDULE 4.21(b) contains a true and complete list of all
labor, collective bargaining, union and similar agreements under or by which the
Company is obligated, and true and complete copies of all such agreements have
been delivered to Purchaser heretofore.
(c) Except as set forth on Schedules 4.21(a) and 4.21(b) and
as set forth in the Employment Agreements of even date herewith between
Purchaser and Shareholders, neither Purchaser nor the Company will have any
responsibility for continuing any person in the employ (or retaining any person
as a consultant) of the Company from and after the Closing or have any liability
for any severance payments to or similar arrangements with any such Person who
shall cease to be an employee of the Company at or prior to the Closing.
(d) There is not occurring or, to the Shareholders' knowledge,
threatened, any strike, slow down, picket, work stoppage or other concerted
action by any union or other group of employees or other persons against either
Company or its premises or products. Except for activities by the unions that
are parties to any of the agreements listed on Schedule 4.21(b) with respect to
the existing members of such unions, to the Shareholders' knowledge, no union or
other labor organization has attempted to organize any of the employees of the
Company.
(e) The Company has complied with all Legal Requirements
relating to employment and labor, and, to the Shareholders' knowledge, no facts
or circumstances exist that could provide a reasonable basis for a claim of
wrongful termination by any current or former employee of the Company against
the Company.
4.22 AFFILIATION. Except as disclosed on SCHEDULE 4.22, none of the
Shareholders, any officer, director or key employee of the Company or any
associate or Affiliate of the Company or any of such Persons has, directly or
indirectly, (i) an interest in any Person that (A) furnishes or sells, or
proposes to furnish or sell, services or products that are furnished or sold by
the Company or (B) purchases from or sells or furnishes to, or proposes to
purchase from or sell or furnish to, the Company any goods or services or (ii) a
beneficial interest in any contract or agreement to which the Company is a party
or by which the Company or any of the assets of the Company are bound or
affected.
4.23 PRINCIPAL CUSTOMERS AND SUPPLIERS.
(a) SCHEDULE 4.23(a) contains a true and complete list of the
name and address of each customer that purchased in excess of five percent (5%)
of the Company's sales of goods or services during the twelve months ended on
the Balance Sheet Date, and since that date no such customer has terminated its
relationship with or adversely curtailed its purchases from the Company or
indicated (for any reason) its intention so to terminate its relationship or
curtail its purchases.
(b) SCHEDULE 4.23(b) contains a true and complete list of each
supplier from whom the Company purchased in excess of five percent (5%) of the
Company's purchases of goods or services during the twelve months ended on the
Balance Sheet Date, and since that date no such
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supplier has terminated its relationship with or adversely curtailed its
accommodations, sales or services to the Company or indicated (for any reason)
its intention to terminate such relationship or curtail its accommodations,
sales or services.
4.24 COMPLIANCE WITH LAW. Through and including the date hereof, the
Company (i) has not violated or conducted its business or operations in
violation of, and has not used or occupied its properties or assets in violation
of, any Legal Requirement, (ii) to the Shareholders' knowledge, has not been
alleged to be in violation of any Legal Requirement, and (iii) has not received
any notice of any alleged violation of, or any citation for noncompliance with,
any Legal Requirement.
4.25 PRODUCT RETURNS. SCHEDULE 4.25 contains a true and complete
description of the product return experience of the Company for the immediately
preceding twelve (12) months. The Company has not experienced any product
returns which have had or may have a Material Adverse Effect.
4.26 PRODUCT LIABILITY AND PRODUCT WARRANTY. SCHEDULE 4.26 hereto
contains a true and complete description of (i) all warranties granted or made
with respect to products sold, or services rendered, by the Company and (ii) the
Company's product liability and product warranty experience for the last three
years. The Company has not suffered any product liability or product warranty
claims which have had or may have a Material Adverse Effect.
4.27 CORPORATE RECORDS. The copies or originals of the Articles of
Incorporation, Bylaws, minute books and stock records of the Company previously
delivered to, or made available for inspection by, Purchaser are true, complete
and correct.
4.28 HAZARDOUS MATERIALS. Except as set forth on SCHEDULE 4.28:
(a) No Hazardous Material (i) has been released, placed,
stored, generated, used, manufactured, treated, deposited, spilled, discharged,
released or disposed or on or under any real property currently or previously
owned or leased by the Company or is presently located on or under any Real
Property (or, to the Shareholders' knowledge, any property adjoining any Real
Property), (ii) is presently maintained, used, generated, or permitted to remain
in place by the Company in violation of any Environmental Law, (iii) is required
by any Environmental Law to be eliminated, removed, treated or mitigated by the
company, given the nature of its present condition, location, nature, material
or maintenance, or (iv) is of a type, location, material, nature or condition
which requires special notification to third parties by the Company under
Environmental Law or common law.
(b) No notice, citation, summons or order has been received by
the Company or any Shareholder, no notice has been given by the Company and no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or threatened by any Governmental Entity, with respect to (i)
any alleged violation by the Company of any Environmental Law of (ii) any
alleged failure by the Company to have any environmental
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permit, certificate, license, approval, registration or authorization required
in connection with its business or properties, or (iii) any use, possession,
generation, treatment, storage, recycling, transportation, release or disposal
by or on behalf of the Company of any Hazardous Material.
(c) The Company has not received any request for information,
notice of claim, demand or notification that it is or that indicates that it may
be a "potentially responsible party" with respect to any investigation or
remediation of any threatened or actual release of any Hazardous Material.
(d) No above-ground or underground storage tanks, whether or
not in use, are or have ever been located at any property currently owned or
leased by the Company.
(e) No notice has been received by the Company with respect to
the listing or proposed listing of any property currently or previously owned,
operated or leased by the Company on the National Priorities List promulgated
pursuant to CERCLA, CERCLIS or any similar state list of sites requiring
investigation or cleanup.
(f) There have been no environmental inspections,
investigations, studies, tests, review or other analyses conducted in relation
to any Real Property.
(g) The Company has not yet released, transported, or arranged
for the transportation of any Hazardous Material from any property currently or
previously owned, operated or leased by the Company.
4.29 BROKERS' FEES. No broker, finder or similar agent has been
employed by or on behalf of the Company in connection with this Agreement or the
transactions contemplated hereby, and the Company has not entered into any
agreement or understanding of any kind with any person or entity for the payment
of any brokerage commission, finder's fee or any similar compensation in
connection with this Agreement or the transactions contemplated hereby.
4.30 DISCLOSURE.
(a) No representation or warranty of any Shareholder in this
Agreement and no information contained in any Schedule or other writing
delivered pursuant to this Agreement or at the Closing contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein not misleading.
There is no fact that the Shareholders have not disclosed to Purchaser in
writing that has had or, insofar as any Shareholder can now foresee, may have a
Material Adverse Effect on the ability of any Shareholder to perform fully this
Agreement.
(b) To the extent that any representation or warranty in this
Article 4 is qualified to the Shareholders' "knowledge," the Shareholders
represent and warrant that they have made a reasonable investigation sufficient
to express an informed view concerning the matters to which such representation
or warranty relates, including diligent inquiries of the Company's officers,
directors and employees.
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5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to, and covenants and agrees
with, each of the Shareholders that:
5.1 ORGANIZATION AND GOOD STANDING. Purchaser has been duly organized
and is existing as a corporation in good standing under the laws of the State of
Nevada with full corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby.
5.2 EXECUTION AND DELIVERY. This Agreement has been duly authorized by
all necessary corporate action on the part of Purchaser, has been duly executed
and delivered by Purchaser and constitutes the legal, valid and binding
agreement of Purchaser enforceable against Purchaser in accordance with its
terms.
5.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not conflict with or result in the violation of the
provisions of the Articles of Incorporation or Bylaws of Purchaser.
5.4 OWNERSHIP. USPL is the sole record and beneficial owner of the USPL
stock to be transferred to the Shareholders hereunder, and has full right and
title without any lien or encumbrance whatsoever to said shares, and full and
unrestricted right, power and authority to exchange, assign, transfer and
deliver such shares, free and clear of claims, charges, equities, restrictions,
pledges, liens or encumbrances of any kind.
6. CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, the Shareholders jointly and severally covenant and agree
(except as expressly contemplated by this Agreement or to the extent that
Purchaser shall otherwise expressly consent in writing) that:
6.1 QUALIFICATION. The Company shall maintain all qualifications to
transact business and remain in good standing in its jurisdiction of
incorporation and in the foreign jurisdictions set forth on Schedule 4.1(a).
6.2 ORDINARY COURSE. The Company shall conduct its business in, and
only in, the Ordinary Course and, to the extent consistent with such business,
shall preserve intact its current business organizations, keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers and others having business dealings with it to
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the end that its goodwill and going business value shall be unimpaired at the
Closing Date. The Company shall maintain its properties and assets in good
condition and repair.
6.3 CORPORATE CHANGES. The Company shall not (a) amend its Articles of
Incorporation or Bylaws (or equivalent documents), (b) acquire by merging or
consolidating with, or agreeing to merge or consolidate with, or purchase
substantially all of the stock or assets of, or otherwise acquire, any business
or any corporation, partnership, association or other business organization or
division thereof, (c) enter into any partnership or joint venture, (d) declare,
set aside, make or pay any dividend or other distribution in respect of its
capital stock or purchase or redeem, directly or indirectly, any shares of its
capital stock, (e) issue or sell any shares of its capital stock of any class or
any options, warrants, conversion or other rights to purchase any such shares or
any securities convertible into or exchangeable for such shares, or (f)
liquidate or dissolve or obligate itself to do.
6.4 INDEBTEDNESS. The Company shall not incur any Indebtedness, sell
any debt securities or lend money to or guarantee the Indebtedness of any
Person. The Company shall not restructure or refinance its existing
Indebtedness.
6.5 ACCOUNTING. The Company shall not make any change in the accounting
principles, methods, records or practices followed by it or depreciation or
amortization policies or rates heretofore adopted by it. The Company shall
maintain its books, records and accounts in accordance with generally accepted
accounting principles applied on a basis consistent with that of prior periods.
6.6 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company shall comply
promptly with all requirements that applicable law may impose upon it and its
operations and with respect to the transactions contemplated by this Agreement,
and shall cooperate promptly with, and furnish information to, Purchaser in
connection with any such requirements imposed upon Purchaser, or upon any of its
affiliates, in connection therewith or herewith.
6.7 DISPOSITION OF ASSETS. The Company shall not sell, transfer,
license, lease or otherwise dispose of, or suffer or cause the encumbrance by
any Lien upon any of its properties or assets, tangible or intangible, or any
interest therein, except for sales of inventory in the Ordinary Course.
6.8 COMPENSATION. The Company shall not (a) adopt or amend in any
material respect any collective bargaining, bonus, profit-sharing, compensation,
stock option, pension, retirement, deferred compensation, employment or other
plan, agreement, trust, fund or arrangement for the benefit of employees
(whether or not legally binding) other than to comply with any Legal Requirement
or (b) pay, or make any accrual or arrangement for payment of, any increase in
compensation, bonuses or special compensation of any kind, or any severance or
termination pay to, or enter into any employment or loan or loan guarantee
agreement with, any current or former officer, director, employee or consultant
of the Company, except for such bonuses as may be required to offset the
individual income tax liability of each Shareholder relating to the Company.
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6.9 MODIFICATION OR BREACH OF AGREEMENT; NEW AGREEMENTS. The Company
shall not terminate or modify, or commit or cause or suffer to be committed any
act that will result in breach or violation of any term of or (with or without
notice or passage of time, or both) constitute a default under or otherwise give
any person a basis for non-performance under, any indenture, mortgage, deed of
trust, loan or credit agreement, lease, license or other agreement, instrument,
arrangement or understanding, written or oral, disclosed in this Agreement or
the Schedules hereto. The Company shall refrain from becoming a party to any
contract or commitment other than in the Ordinary Course. The Company shall meet
all of its contractual obligations in accordance with their respective terms.
6.10 CAPITAL EXPENDITURES. Except for capital expenditures or
commitments necessary to maintain its properties and assets in good condition
and repair (the amount of which shall not exceed Five Thousand Dollars
($5,000.00) in the aggregate), the Company shall not purchase or enter into any
contract to purchase any capital assets.
6.11 CONSENTS. The Company shall use its best efforts to obtain any
consent, authorization or approval of, or exemption by, any Person required to
be obtained or made by any party hereto in connection with the transactions
contemplated hereby or the taking of any action in connection with the
consummation thereof.
6.12 MAINTAIN INSURANCE. The Company shall maintain its Policies in
full force and effect and shall not do, permit or willingly allow to be done any
act by which any of the Policies may be suspended, impaired or canceled.
6.13 DISCHARGE. The Company shall not cancel, compromise, release or
discharge any claim of the Company upon or against any person or waive any right
of the Company of material value, and not discharge any Lien (other than
Permitted Liens) upon any asset of the Company or compromise any debt or other
obligation of the Company to any person other than Liens, debts or obligations
with respect to current liabilities of the Company.
6.14 ACTIONS. The Company shall not institute, settle or agree to
settle any Action before any Governmental Entity.
6.15 PERMITS. The Company shall maintain in full force and effect, and
comply with, all Permits.
6.16 TAX ASSESSMENTS AND AUDITS. The Company shall furnish promptly to
Purchaser a copy of all notices of proposed assessment or similar notices or
reports that are received from any taxing authority and which relate to the
Company's operations for periods ending on or prior to the Closing Date. The
Shareholders shall cause the Company to promptly inform Purchaser, and permit
the participation in and control by Purchaser, of any investigation, audit or
other proceeding by a Governmental Entity in connection with any Taxes,
assessment, governmental
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charge or duty and shall not consent to any settlement or final determination
in any proceeding without the prior written consent of Purchaser.
7. ADDITIONAL COVENANTS
7.1 COVENANTS OF THE SHAREHOLDERS. During the period from the date
hereof through the Closing Date, each Shareholder agrees to:
(a) comply promptly with all requirements that applicable
Legal Requirements may impose upon it with respect to the transactions
contemplated by the Agreement, and shall cooperate promptly with, and furnish
information to, Purchase in connection with any requirements imposed upon
Purchaser or upon any of its affiliates in connection therewith or herewith;
(b) use its reasonable best efforts to obtain (and to
cooperate with Purchaser in obtaining) any consent, authorization or approval
of, or exemption by, any Person required to be obtained or made by such
Shareholder in connection with the transactions contemplated by this Agreement;
(c) use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 8.1 of
this Agreement;
(d) promptly advise Purchase orally and, within three (3)
business days thereafter, in writing of any change in such Company's business or
condition that has had or may have a Material Adverse Effect; and
(e) deliver to Purchaser prior to the Closing a written
statement disclosing any untrue statement in this Agreement or any Schedule
hereto (or supplement thereto) or document furnished pursuant hereto, or any
omission to state any material fact required to make the statements herein or
therein contained complete and not misleading, promptly upon the discovery of
such untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; PROVIDED, HOWEVER, that
the disclosure of such untrue statement or omission shall not prevent Purchaser
from terminating this Agreement pursuant to Section 9.1(c) hereof at any time at
or prior to the Closing in respect of any original untrue or misleading
statement.
7.2 COVENANTS OF PURCHASER. During the period from the date hereof to
the Closing Date, Purchaser shall:
(a) comply promptly with all requirements that applicable
Legal Requirements may impose upon it with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and furnish
information to, the Shareholders in connection with any such requirements
imposed upon the Shareholders or the Company or upon any of the Company's
affiliates in connection therewith or herewith;
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(b) use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by Purchaser in connection with the transactions contemplated
by this Agreement; and
(c) use its reasonable best efforts to bring about the
satisfaction of the condition precedent to Closing set forth in Section 8.2 of
this Agreement.
7.3 ACCESS AND INFORMATION
(a) During the period commencing on the date hereof and
continuing through the Closing Date, the Shareholders shall continue to cause
the Company to afford to Purchaser and to Purchaser's accountants, counsel,
investment bankers and other representatives, reasonable access to all of its
properties, books, contracts, commitments, records and personnel and, during
such period, to continue to cause the Company to furnish promptly to Purchaser
all information concerning its business, properties and personnel as Purchaser
may reasonably request.
(b) Except to the extent permitted by the provisions of
Section 7.6 hereof, Purchaser shall hold in confidence, and shall use reasonable
efforts to ensure that its employees and representatives hold in confidence, all
such information supplied t it by the Shareholders or the Company concerning the
Company and shall not disclose such information to any third party except as may
be required by any Legal Requirement and except for information that (i) is or
becomes generally available to the public other than as a result of disclosure
by Purchaser or its representatives, (ii) becomes available to Purchaser or its
representatives from a third party other than the Shareholders or the Company,
and Purchaser or its representatives have no reason to believe that such third
party is not entitled to disclose such information, (iii) is known to Purchaser
or its representatives on a non-confidential basis prior to is disclosure by any
Shareholder or the Company or (iv) is made available by any Shareholder or the
Company to any other Person on a non-restricted basis. Purchaser will not use
any information disclosed to it by the Company or by the Shareholders for any
reason or purpose other than to evaluate the transactions contemplated by this
Agreement and by the Employment Agreements between Purchaser and the
Shareholders. Purchaser's obligations under the foregoing sentence shall expire
on the Closing Date or, if the Closing does not occur, two (2) years after the
date hereof.
(c) If Closing hereunder does not occur, Purchaser: (a) will
forthwith deliver to the Company all documents or other materials furnished by
the Company or the Shareholders to the Purchaser or to its employees, agents or
representatives, together with all copies and summaries thereof in the
possession or under the control of Purchaser, and will destroy materials
generated by the Purchaser or by its employees, agents and representatives which
include or refer to any part of the information communicated to Purchaser by the
Company or the Shareholders, without retaining any copies of any such material,
and (b) shall not solicit any of the Company's customers as disclosed to
Purchaser hereunder for a period of one year from the date scheduled for
Closing, except if such customer is already a customer of Purchaser or if
customer is a bid contract relationship.
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7.4 EXPENSES. All costs and expenses (including, without limitation,
all legal fees and expenses and fees and expenses of any brokers, finders or
similar agents) incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring the same.
7.5 CERTAIN NOTIFICATIONS. At all times from the date hereof to the
Closing Date, each party shall promptly notify the others in writing of the
occurrence of any event that will or may result in the failure to satisfy any of
the conditions specified in Article 8 hereof.
7.6 PUBLICITY; EMPLOYEE COMMUNICATIONS. At all times prior to the
Closing Date, each party shall obtain the consent of all other parties hereto
prior to issuing, or permitting any of its directors, officers, employees or
agents to issue, any press release or other information to the press, employees
of the Company or any third party with respect to this Agreement or the
transactions contemplated hereby; PROVIDED, HOWEVER, that no party shall be
prohibited from supplying any information to any of its representatives, agents,
attorneys, advisors, financing sources and others to the extent necessary to
complete the transactions contemplated hereby so long as such representatives,
agents, attorneys, advisors, financing sources and others are made aware of the
terms of this Section 5.6. Nothing contained in this Agreement shall prevent any
party to this Agreement at any time from furnishing any required information to
any Governmental Entity or authority pursuant to a Legal Requirement or from
complying with its legal or contractual obligations.
7.7 FURTHER ASSURANCES.
(a) Subject to the terms and conditions of this Agreement,
each of the parties hereto agrees to use all reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Legal Requirements, to
consummate and make effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the
Shareholders and the property officers or directors of Purchaser, as the case
may be, shall take or cause to be taken all such necessary or convenient action
and execute, and deliver and file, or cause to be executed, delivered and filed,
all necessary or convenient documentation.
7.8 COMPETING OFFERS; MERGER OR LIQUIDATION. The Shareholders agree
that they will not, and will cause the Company not to, directly or indirectly,
through any officer, director, agent, or otherwise, solicit, initiate or
encourage the submissions of bids, offers or proposals by, any Person with
respect to an acquisition of the Company or its assets or capital stock or a
merger or similar transaction, and the Shareholders will not, and will not
permit the Company to, engage any broker, financial adviser or consultant with
an incentive to initiate or encourage proposals or offers from other parties.
Furthermore, the Shareholders shall not, and shall not
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permit the Company to, directly or indirectly, through any officer, director,
agent or otherwise, engage in negotiations concerning any such transaction with,
or provide information to, any Person other than Purchaser and its
representatives with a view to engaging, or preparing to engage, that Person
with respect to any matters in this Section. The Shareholders shall ensure that
the Company shall not commence any proceeding to merge, consolidate or liquidate
or dissolve or obligate itself to do so.
7.9 INCONSISTENT ACTION. The Shareholders shall not take or suffer to
be taken, and shall not permit the Company to take or cause or suffer to be
taken, any action that would cause any of the representations or warranties of
any of the Shareholders in this Agreement to be untrue, incorrect, incomplete or
misleading.
7.10 POST-TERMINATION EMPLOYMENT. Each Shareholder acknowledges and
agrees that after the Closing (a) neither Purchaser nor the Company shall be
required to employ or retain any employee of the Company or any other Person,
except for the employment agreements being executed simultaneously herewith, and
(b) Purchaser, in its sole and absolute discretion, may cause the Company to
retain all, some, or none of such employees.
8. CONDITIONS PRECEDENT TO CLOSING
8.1 CONDITIONS OF PURCHASER. Notwithstanding any other provision of
this Agreement, the obligations of Purchaser to consummate the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing Date, of the following conditions:
(a) There shall not be instituted and pending or threatened
any Action before any Governmental Entity (i) challenging the acquisition of the
Shares by Purchaser or otherwise seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or (ii) seeking to prohibit
the direct or indirect ownership or operation by Purchaser of all or a material
portion of the business or assets of the Company, or to compel Purchaser or the
Company to dispose of or hold separate all or a material portion of the business
or assets of the Company or Purchaser;
(b) The representations and warranties of each of the
Shareholders in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made on the
Closing Date and each of the Shareholders shall have complied with all covenants
and agreements and satisfied all conditions on such Shareholder' part to be
performed or satisfied on or prior to the Closing Date;
(c) Purchaser shall have received from Jeremy Ross,Esq.,
counsel for the Shareholders and the Company, a written opinion dated the
Closing date and addressed to Purchaser, in substantially the form attached as
Exhibit B hereto;
(d) Purchaser shall have received from the President of the
Company a certificate dated the Closing Date in substantially the form attached
as Exhibit C hereto;
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(e) Purchaser shall have received from each Shareholder a
certificate dated the Closing Date in substantially the form attached as Exhibit
D hereto;
(f) Purchaser shall have received a certificate of the
Secretary of the Company in substantially the form attached as Exhibit E hereto;
(g) The Board of Directors of the Company shall have executed
a Board Resolution substantially in the form of Exhibit F.
(h) Purchaser shall have concluded (through its
representatives, accountants, counsel and other experts) an investigation of the
business, condition (financial and other), properties, assets, prospects,
operations and affairs of the Company and shall be satisfied, in its sole
discretion, with the results thereof;
(i) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
satisfactory to Purchaser and its counsel;
(j) Purchaser shall have received reasonable assurances from
those employees, if any, of the Company that may be identified by Purchaser in
its discretion that they will remain in the employ of the Company for a
reasonable period of time after the consummation of the transactions
contemplated hereby.;
(k) All consents from third parties, including from any
Governmental Entity, landlord or other Person, necessary for the consummation of
the transactions contemplated hereby shall have been obtained;
(l) The Board of Directors of Purchaser shall have authorized
and approved this Agreement and the transactions contemplated hereby and the
President of the Purchaser shall provide a Certificate in the form of Exhibit H
hereto;
(m) No act, event or condition shall have occurred after the
date hereof which Purchaser determines has had or could have had a Material
Adverse Effect;
(n) Each Shareholder shall have executed an Employment
Agreement in the form of Exhibit G hereto;
8.2 CONDITIONS OF THE SHAREHOLDERS. Notwithstanding any other provision
of this Agreement, and except as set forth below, the obligations of the
Shareholders to consummate the transactions contemplated hereby shall be subject
to the satisfaction, at or prior to the Closing, of the condition set forth in
subsection (a) of Section 8.1, and the condition that the representations
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and warranties of Purchaser in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same effect as if made
on the Closing Date and Purchaser shall have complied with all covenants and
agreements and satisfied all conditions on its part to be performed or satisfied
on or prior to the Closing Date.
9. TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual consent of the Purchaser and the Shareholders;
(b) by Purchaser if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by any Shareholder
under this Agreement or (ii) any of the conditions precedent to Closing set
forth in Section 8.1 have not been met on the Closing Date, and, in each case,
Purchaser is not then in material default of its obligations hereunder; or
(c) by the Shareholders acting together if (i) there has been
a material misrepresentation, breach of warranty or breach of covenant by
Purchaser under this Agreement or (ii) any of the conditions precedent to
Closing set forth in Section 8.2 have not been met on the Closing Date, and, in
each case, no Shareholder is then in material default of his obligations
hereunder.
9.2 EFFECT OF TERMINATION.
(a) In the case of any termination of this Agreement, the
provisions of Section 7.3(b) and (c) and 7.4 shall remain in full force and
effect.
(b) Upon termination of this Agreement as provided in Section
9.1(a), except as stated in subsection (a) above, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of any
party hereto or their respective directors, officers, employees, agents or other
representatives.
(c) In the event of termination of this Agreement as provided
in Section 9.1(b), (c) or (d) hereof, such termination shall be without
prejudice to any rights that the terminating party or parties may have against
the breaching party or parties or any other person under the terms of this
Agreement or otherwise.
9.3 AMENDMENT. This Agreement may be amended at any time by a written
instrument executed by Purchaser and the Shareholders. Any amendment effected
pursuant to this Section 9.3 shall be binding upon all parties hereto.
9.4 WAIVER. Any term or provision of this Agreement may be waived in
writing at any time by the party or parties entitled to the benefits thereof.
Any waiver effected pursuant to this Section 9.4 shall be binding upon all
parties hereto. No failure to exercise and no delay in
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exercising any right, power or privilege shall operate as a waiver thereof, nor
shall any single or partial exercise of any other right, power or privilege. No
waiver of any breach of any covenant or agreement hereunder shall be deemed a
waiver of any preceding or subsequent breach of the same or any other covenant
or agreement. The rights and remedies of each party under this Agreement are in
addition to all other rights and remedies, at law or in equity, that such party
may have against the other parties.
10. INDEMNIFICATION
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the parties hereto contained in this Agreement or in any
writing delivered pursuant hereto or at the Closing shall survive the Closing
and the consummation of the transactions contemplated hereby (and any
examination or investigation by or on behalf of any party hereto) until the
fourth anniversary of the Closing Date; provided, that the representations and
warranties contained in Section 4.12 and Section 4.14 shall not terminate until
the expiration of any applicable statute of limitations; PROVIDED, FURTHER, that
representations and warranties contained in Article 3, Section 4.17, Section
4.24 and Section 4.28 shall not terminate but shall continue indefinitely.
10.2 INDEMNIFICATION.
(a) The Shareholders, jointly and severally, covenant and
agree to defend, indemnify and hold harmless Purchaser and the Company and each
Person who controls Purchaser or the Company within the meaning of the
Securities Act from and against any Damages arising out of or resulting from:
(i) any material inaccuracy in or breach of any representation or warranty made
by any Shareholder in this Agreement or in any writing delivered pursuant to
this Agreement or at the closing [unless and except that such inaccuracy or
breach is a direct result of changes made by the Purchaser in accounting methods
or estimates utilized in financial reporting of the Company]; or (ii) the
material failure of any Shareholder to perform or observe fully any covenant,
agreement or provision to be performed or observed by such Shareholder pursuant
to this Agreement.
(b) Purchaser covenants and agrees to defend, indemnify and
hold harmless the Shareholders from and against any Damages arising out of or
resulting from: (i) any inaccuracy in or breach of any representation or
warranty made by Purchaser in this Agreement or in any writing delivered
pursuant to this Agreement or at the Closing; (ii) the failure by Purchaser to
perform or observe any covenant, agreement or condition to be performed or
observed by it pursuant to this Agreement; or (iii) the Shareholders' liability
under the Guaranties.
10.3 THIRD PARTY CLAIMS.
(a) If any party entitled to be indemnified pursuant to
Section 10.2 (an "INDEMNIFIED PARTY") receives notice of the assertion by any
third party of any claim or of the commencement by any such third person of any
Action (any such claim or Action being referred to herein as an "INDEMNIFIABLE
CLAIM") with respect to which another party hereto (an
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"INDEMNIFYING PARTY") is or may be obligated to provide indemnification, the
Indemnified Party shall promptly notify the Indemnifying Party in writing (the
"CLAIM NOTICE") of the Indemnifiable Claim; PROVIDED, that the failure to
provide such notice shall not relieve or otherwise affect the obligation of the
Indemnifying Party to provide indemnification hereunder, except to the extent
that any Damages directly resulted or were caused by such failure.
(b) The Indemnifying Party shall have thirty (30) days after
receipt of the Claim Notice to undertake, conduct and control, through counsel
of its own choosing, and at its expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; PROVIDED, that (i) the Indemnifying Party shall permit the
Indemnified Party to participate in such settlement or defense through counsel
chosen by the Indemnified Party (subject to the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld), provided that the fees
and expenses of such counsel shall not be borne by the Indemnifying Party, and
(ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent,
which consent shall not be unreasonably withheld.
(c) If the Indemnifying Party does not notify the Indemnified
Party within thirty (30) days after receipt of the Claim Notice that it elects
to undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; PROVIDED, that
the Indemnified Party shall notify the Indemnifying Party of any compromise or
settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.3 to the contrary
notwithstanding, the Shareholders shall not be entitled to assume the defense
for any Indemnifiable Claim (and shall be liable for the reasonable fees and
expenses incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against Purchaser or the Company which
Purchaser determines, after conferring with its counsel, cannot be separated
from any related claim for money damages and which, if successfully, would
adversely affect the business, properties or prospects of the Company.
10.4 INDEMNIFICATION NON-EXCLUSIVE. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable or common-law remedy any party may have for breach of representation,
warranty, covenant or agreement.
10.5 SET-OFF. Notwithstanding any provision of this Agreement or of any
other agreement, instrument or undertaking, it is understood and agreed that
Purchaser shall have the right to set-off the amount of any indemnity under
Sections 10.2 or 10.3 hereof or for any breach of this Agreement, the Employment
Agreement, or any other Agreements which may be executed as part of the closing
of this transaction to the extent any of the Shareholders are liable
35
<PAGE> 36
therefor against any sums of money or any shares of the Purchaser at any time
payable or deliverable to the Shareholders, including any contingent
consideration payable to shareholders pursuant to Section 2.2 (ii) and (iii),
except that nothing herein shall be interpreted to allow a set-off to occur to
any W-2 wage compensation of Shareholders. The remedies provided in this Article
shall be cumulative, shall survive the termination of this Agreement, and shall
not preclude the assertion by any party of any other rights or the seeking of
any other remedies by it against any other party.
11. POST CLOSING COVENANTS
Notwithstanding anything to the contrary herein, the obligations of the
parties below shall survive the Closing of this transaction.
11.1 CORPORATE STATUS. The Company, currently being a Subchapter S
corporation, will file for Subchapter C status within a reasonable period of
time subsequent to the Closing.
11.2 CONTINGENT CONSIDERATION. The Purchase Price consideration payable
on a contingent basis as set forth in Section 2.2 (ii) and (iii) shall be an
obligation of the Company which survives the Closing of this transaction.
12. GENERAL PROVISIONS
12.1 NOTICES. All notices and other communications under or in
connection with this Agreement shall be in writing and shall be deemed given (a)
if delivered personally (including by overnight express or messenger), upon
delivery, (b) if delivered by registered or certified mail (return receipt
requested), upon the earlier of actual delivery or three (3) days after being
mailed, or (c) if given by telecopy, upon confirmation of transmission by
telecopy, in each case to the parties at the following addresses:
(a) If to the Purchaser, addressed to:
U. S. Plastic Lumber Corporation
2300 W. Glades Road
Suite 440W
Boca Raton, Florida 33431
Attention: Mark Alsentzer, President and CEO
Telecopy: (561)394-5335
(b) If to any Shareholder, to the address set forth
below such Shareholder's name on Exhibit "A" hereto:
With a copy to:
36
<PAGE> 37
Jeremy Ross, Esq.
One Liberty Place
1650 Market St. - 50th Floor
Philadelphia, PA 19103-7301
12.2 SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable such term or provision in any
other jurisdiction, the remaining terms and provisions of this Agreement or the
application of such terms and provisions to circumstances other than those as to
which it is held invalid or enforceable.
12.3 ENTIRE AGREEMENT. This Agreement, including the annexes and
schedules attached hereto and other documents referred to herein, contains the
entire understanding of the parties hereto in respect of its subject matter and
supersedes all prior and contemporaneous agreements and understandings, oral and
written, between the parties with respect to such subject matter.
12.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Purchaser and the Shareholders and their respective
successors, heirs and assigns; provided, however, that no Shareholder shall
directly or indirectly transfer or assign any of such Shareholder's respective
rights hereunder in whole or in part without the prior written consent of
Purchaser, and any such transfer or assignment without said consent shall be
void, AB INITIO. Subject to the immediately preceding sentence, and except as
set forth in Article 10, this Agreement is not intended to benefit, and shall
not run to the benefit of or be enforceable by, any other person or entity other
than the parties hereto and their permitted successors and assigns.
12.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
12.6 RECITALS, SCHEDULES AND ANNEXES. The recitals, schedules and
annexes to this Agreement are incorporated herein and, by this reference, made a
part hereof as if fully set forth at length herein.
12.7 CONSTRUCTION.
(a) The article, section and subsection headings used herein
are inserted for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
37
<PAGE> 38
(c) For the purposes of this Agreement, unless the context
clearly requires, "or" is not exclusive.
12.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts) of the State
of Florida.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the date first above set forth.
"PURCHASER"
Waste Concepts, Inc.,
By: /s/ Steven C. Sands
-------------------------------
Steven C. Sands, President
SHAREHOLDERS:
/s/ Al Silkroski
----------------------------------
Al Silkroski
/s/ Timothy M. Fogerty
----------------------------------
Timothy M. Fogerty
38
<PAGE> 39
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
- --------
Exhibit A List of Shareholders
Exhibit B Opinion of Counsel
Exhibit C Certificate of President of GH
Exhibit D Consent of Shareholders of GH
Exhibit E Certificate of Secretary of WCI
Exhibit F Board Resolution of GH
Exhibit G Employment Agreement
Exhibit H Certificate of President of WCI
SCHEDULES
- ---------
3.3 Consents
3.4 Conflicts
4.1(a) Foreign Corp status
4.1(b) Subsidiaries
4.2 No Conflicts
4.3 Capitalization
4.4 Financial Statements
4.5(a) Liens
4.5(b) List of Real Property
4.5(c) List of Tangible Property
4.5(d) List of Leases
4.5(f) Realty representations
4.6 List of Accounts Receivable
4.7 Inventories
4.8(a) List of Patents and Trademarks
4.8(b) Registered Rights
4.8(c) Licenses
4.9(a) List of Banks
4.9(b) Insurance Policies
4.10(a) Indebtedness
4.10(b) Guaranties
4.11 Judgments
4.12 Income Taxes
4.13 Questionable Payments
4.14 Employee Benefit Plans
4.15 Undisclosed Liabilities
4.16 Permits
4.17 Regulatory Filings
4.18 Consents
39
<PAGE> 40
4.19(a) Sales Orders
4.19(b) Purchase Orders
4.19(c) Sales Reps
4.19(d) Non-Compete Agreements
4.19(e) Contracts (inside)
4.19(f) Contracts (outside)
4.19(g) Legality
4.20 Absence of Changes
4.21(a) List of Employees
4.21(b) Labor Agreements
4.22 Affiliation
4.23(a) Customer Lists
4.23(b) Supplier Lists
4.24 Compliance with Law
4.25 Product Return
4.26 Warranties
4.28 Hazardous Materials
40
<PAGE> 41
APPROVAL OF THE NON-EMPLOYEE DIRECTOR OPTION AWARD
GENERAL
The Board of Directors of the Company approved the grant of options to
purchase 2,500 shares of Common Stock to each current non-employee director of
the Company, subject to approval by the stockholders of the Company
(individually, a "Non-Employee Director Award"). All non-employee directors of
the Company are eligible to receive options pursuant to the terms of this grant.
The purpose of each Non-Employee Director Award is to provide additional
incentive to members of the Board of Directors of the Company who are not also
employees by encouraging them to invest in the Company's Common Stock and
thereby acquire a further proprietary interest in the Company and an increased
personal interest in the Company's continued success and progress.
The Company is seeking stockholder approval of these awards to satisfy
a condition of Rule 16b-3 under the Exchange Act which provides an exemption
from the provisions of Section 16(b) of the Exchange Act regarding "short-swing"
profits if, among reasons, an award of option is ratified by the stockholders at
the next annual meeting of stockholders.
Set forth below is a summary of the provisions of each Non-Employee
Director Award. This summary is qualified in its entirety by the detailed
provisions of the text of the form of option agreement evidencing these awards
set forth as Appendix "A" to this Proxy Statement and is incorporated herein by
reference.
ELIGIBILITY
Under the Non-Employee Director Awards, only directors of the Company
who are not full-time employees of the Company or its subsidiaries were granted
options to purchase shares of Common Stock.
AWARDS UNDER THE NON-EMPLOYEE DIRECTOR AWARD
All options awarded to non-employee directors were non-qualified stock
options subject to the approval of stockholders. Each non-employee director of
the Company was granted an option to purchase 2,500 shares of the Company's
Common Stock.
EXERCISE PRICE OF OPTIONS/PAYMENT OF EXERCISE PRICE
The exercise price for options issued to non-employee directors is
$3.50 per share which price was in excess of the fair market value of the
non-registered shares of Common Stock on the date of Board approval of the
awards as established by an independent appraisal report.
<PAGE> 42
The exercise price of an option may be paid in cash, the delivery of
already owned shares of Common Stock of the Company having a fair market value
equal to the exercise price, or a combination thereof.
The Board has determined to allow the payment of the exercise price in
Common Stock of the Company to permit the "pyramiding" of shares in successive
exercises. Thus, an optionee could initially exercise an option in part,
acquiring a small number of shares of Common Stock, and immediately thereafter
effect further exercises of the option, using the Common Stock acquired upon
earlier exercises to pay for an increasingly greater number of shares received
on each successive exercise. This procedure could permit an optionee to pay the
option price by using a single share of Common Stock having an aggregate fair
market value equal to the excess of (a) the fair market value of all shares to
which the option relates over (b) the aggregate exercise price under the option.
A vote in favor of Proposal 2 is also a vote in favor of this interpretation.
EXERCISABILITY AND EXPIRATION OF OPTIONS
Options granted pursuant to each Non-Employee Director Award are
immediately exercisable following stockholder approval. Options awarded under
the Non-Employee Director Award will generally expire ten years after the date
they are awarded except as provided therein. All unexercised options terminate
three months after the optionee ceases to be a director of the Company (whether
by death, disability, resignation, removal, failure to be reelected or
otherwise, and regardless of whether the failure to continue as a director was
cause or otherwise), but not later than ten years after the date of option
award.
NONTRANSFERABILITY OF OPTIONS
No option awarded to non-employee directors is assignable or
transferable, otherwise than by will or by the laws of descent and distribution.
Except in the event of death or disability, all options awarded are exercisable
only by such optionee.
ADJUSTMENTS
Each Non-Employee Director Award provides for adjustments to the number
of shares subject to outstanding options and to the exercise price of such
outstanding options in the discretion of the Board in event of a declaration of
stock dividend, stock split, merger, consolidation, split up, combination,
recapitalization, conversion or similar circumstances.
AMENDMENTS
Except as provided in the agreements evidencing the awards, the Board of
Directors may amend or supplement the Non-Employee Director Award without the
<PAGE> 43
approval of the award recipients; provided, however, that such action shall not
affect options awarded prior to the actual date on which such action occurred.
AWARDS GRANTED TO NON-EMPLOYEE DIRECTORS
The following table sets for the information regarding the options
awarded to each non-employee director of the Company pursuant to the
Non-Employee Director Award.
NON-EMPLOYEE DIRECTOR AWARD
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($)(1) NUMBER OF UNITS
- -------------------------------- ------------------- ---------------
<S> <C> <C>
James J. Blosser, Director................ $8,125 2,500(2)
Lester E. Moody, Director................. $8,125 2,500(2)
August C. Schultes, III, Director......... $8,125 2,500(2)
Gary J. Ziegler, Director................. $8,125 2,500(2)
Roger N. Zitrin, Director................. $8,125 2,500(2)
------- ------
Non-Employee Director Group (5 persons).. $40,625 12,500
======= ======
</TABLE>
- --------------
(1) Represents the aggregate market value (market price of the Common Stock
less the exercise price) of the options awarded based upon the closing
sales price per share of $6.75 on April 22,1998.
(2) Represents a non-qualified stock option to purchase 2,500 shares of
Common Stock at an exercise price of $3.50 per share.
For additional information regarding option awards made to the
Company's directors, see "Compensation of Directors." Approval of Proposal 2
will constitute the ratification of the award of options to the directors named
in the table above.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDER VOTE "FOR" APPROVAL OF
PROPOSAL 2.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTION GRANT TO NON-EMPLOYEE DIRECTORS
THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION
OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE NON-EMPLOYEE DIRECTOR GRANTS,
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE PROVISIONS OF THE
CODE DESCRIBED IN THIS SECTION INCLUDE CURRENT TAX LAW ONLY AND DO NOT REFLECT
ANY PROPOSALS TO REVISE CURRENT TAX LAW.
<PAGE> 44
NON-QUALIFIED STOCK OPTIONS
Generally, there will be no federal income tax consequences to either
the optionee or the Company on the award of non-qualified stock options pursuant
to each Non-Employee Director Award. On the exercise of a Non-Qualified Stock
Option, the optionee (except as described below) has taxable ordinary income
equal to the excess of the fair market value of the shares acquired on the
exercise date over the option price of the shares. The Company will be entitled
to a federal income tax deduction (subject to the limitations contained in
Section 162(m)) of the Code in an amount equal to such excess, provided that the
Company complies with applicable withholding or reporting rules.
Upon the sale of stock acquired by exercise of a non-qualified stock
option, optionees will realize long-term or short-term capital gain or loss
depending upon their holding period for such stock. Under current law, net
capital gains (net long term capital gain less net short term capital loss) is
subject to a maximum rate of 28%. The reduced rate (20%) of tax on certain net
capital gains added to the Code by the Taxpayer Relief Act of 1997 requires a
holding period of more than 18 months. Capital losses are deductible only to the
extent of capital gains for the year plus $3,000 for individuals.
An optionee who surrenders shares in payment of the exercise price of a
non-qualified stock option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an Incentive Stock Option and the delivery of such shares is a disqualifying
disposition. The optionee will recognize ordinary income on the exercise of the
non-qualified stock option as described above. Of the shares received in such an
exchange, that number of shares equal to the number of shares surrendered have
the same tax basis and capital gains holding period as the shares surrendered.
The balance of shares received will have a tax basis equal to their fair market
value on the date of exercise and the capital gains holding period will begin on
the date of exercise.
<PAGE> 1
Exhibit 10.2
ASSET PURCHASE AGREEMENT
AGREEMENT dated the 27th day of February, 1998 by and between U.S. PLASTIC
LUMBER LTD., a Delaware corporation, and CHESAPEAKE PLASTIC LUMBER, INC., a
(hereinafter jointly and severally referred to as "Buyer"), with offices located
at 2300 W. Glades Rd., Suite 440W, Boca Raton, FL 33431 and CHESAPEAKE RECYCLED
LUMBER, INC., a Maryland corporation with offices located at 24562 Meetinghouse
Rd., Denton, MD 21629 (the "Seller"), and all Shareholders as listed on Exhibit
"A" ( hereinafter jointly and severally referred to as "Shareholders").
BACKGROUND
The Seller is in the business of manufacturing and selling plastic
lumber. Shareholders constitute all of the shareholders and officers of the
Seller.
Buyer desires to acquire substantially all of the assets owned by the
Seller, and to assume none of the liabilities in connection therewith, except as
set forth herein, and the Seller desires to sell such assets to Buyer, all upon
the terms and subject to the conditions set forth in this Agreement.
The Shareholders, with the exception of H. Richard Wolf, although joining in
this Agreement, do not make any representations and warranties as contained in
this Agreement unless the representation and warranty specifically makes
reference to all Shareholders. H. Richard Wolf is the majority owner of the
shares of Seller, and has conducted the operation of the Seller on a day-to-day
basis. The remaining Shareholders are passive investors in Seller.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. TERMS OF PURCHASE AND SALE OF ASSETS.
1.1. PURCHASE OF ASSETS. On the Closing Date (as hereinafter
defined), the Seller will sell, transfer, convey, assign and deliver to Buyer
and Buyer will purchase and acquire from the Seller all right, title and
interest in and to the Seller's assets, whether tangible or intangible,
including but not limited to cash, accounts receivable, equipment, furnishings,
finished goods inventory, raw material inventory, work in progress inventory,
customer lists, all contracts, as set forth on Schedule "1.1" (collectively, the
"Assets").
1.2. ASSUMPTION, PAYMENT, AND RELEASE OF LIABILITIES. On the
Closing Date, Buyer does not assume, does not purchase the Assets subject to,
and shall in no event be liable for any liabilities or obligations or
responsibilities of the Seller, all of which shall remain the
<PAGE> 2
obligations of the Seller (collectively, the "Retained Obligations"), except as
may be listed on Schedule 1.2. The Seller and the Buyer agree that Schedule 1.2
shall set forth that Buyer shall assume the balance of a $100,000 credit line
with Seller's Bank, all equipment leases with Citicorp and all of the accounts
payable, except, however, that the parties also agree that the accounts payables
shall not exceed the accounts receivables by more than $26,000, but that in the
event the accounts payables do exceed the accounts receivables by more than
$26,000, the Buyer shall receive a credit against the cash portion of the
purchase price to be paid at Closing as set forth in Section 1.3 (i) below to
the extent of any liabilities in excess of $26,000 over the accounts
receivables. The Buyer acknowledges that the principal sum due on the $100,000
credit line with the Seller's Bank is $100,000 and the Buyer agrees to assume
all obligations under that loan, including the payoff of that loan. The Buyer
shall use its best efforts to have the Seller released from any obligations of
said loan and have H. Richard Wolf released from any personal guarantees made in
conjunction therewith. In the event the efforts of the Buyer are not successful
in removing the Seller andH. Richard Wolf, from the obligations of the aforesaid
loan, Buyer will indemnify and hold harmless the Seller and H. Richard Wolf from
any liability or claims asserted against them as a result of the aforesaid
loans. The Seller shall pay and/or perform all of the Retained Obligations.
After the Closing, Buyer shall be entitled to the benefit of any insurance
policies maintained by the Seller which insure assets purchased by Buyer.
1.3. PURCHASE PRICE. In consideration of the sale, transfer,
conveyance, assignment and delivery of the Assets to Buyer and in reliance upon
the representations and warranties made herein by the Seller and Shareholders,
Buyer will, in full payment thereof, subject to the adjustments, if any, pay to
the Seller at time of Closing (collectively, the "Purchase Price") as follows:
(i) Two Hundred Thousand Dollars ($200,000) to be
paid as follows: One Hundred
Thousand Dollars ($100,000) to be paid at time of Closing by good check or wire
transfer, and One Hundred Thousand Dollars ($100,000) to be paid pursuant to a
Promissory Note, in the form attached hereto as Exhibit B, at the rate of 8%
interest due and payable in full six months from the Closing Date hereunder. The
Promissory Note shall be secured with a lien against equipment being acquired
pursuant to this Agreement and inventory to include a UCC Financing Statement
and Security Agreement to be delivered simultaneous with Closing, all in the
form attached hereto as Exhibit B-1.
(ii) Ninety Seven Thousand Five Hundred Shares of
non-registered and non-assessable Common Stock of U.S. Plastic Lumber
Corporation.
1.4. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Assets as set forth on Schedule "1.4." The Seller and Buyer
shall each file all required forms (and any amendments thereto) with the
Internal Revenue Service on a timely basis and neither the Seller nor Buyer
shall take any position on their respective tax returns that is inconsistent
with the amount of consideration which is allocated among the Assets as set
forth on Schedule "1.4".
2
<PAGE> 3
1.5. CORPORATE NAME. The Seller shall transfer its rights to
the corporate name "Chesapeake Recycled Lumber, Inc." or any derivative thereof
to Buyer as one of the Assets being transferred hereunder.
1.6 BULK SALE LAWS. Seller shall furnish to Buyer a list of
all of its existing creditors, inclusive of addresses and phone numbers, which
list shall be certified as accurate and notarized by Seller and Shareholders.
See Schedule 1.6. Seller and Buyer subject to Section 13.1 of this Agreement,
waive compliance with all Bulk Sales Laws applicable to the transaction
contemplated by this Agreement.
2. CLOSING DATE. For purposes of this Agreement, the closing
("Closing") of the transactions contemplated hereby shall take place on the
"Closing Date". The term "Closing Date" shall mean five business days from the
date in which all conditions to Closing (other than those requiring the delivery
of a certificate or other action at Closing) have been satisfied or waived, or
such other date as the parties may agree in writing. The Closing shall take
place simultaneously at the offices of Buyer and the general counsel of Seller,
at or about 10:00 a.m., on the Closing Date, or at such other time or place as
may be mutually agreed upon by the parties.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND H. RICHARD WOLF.
The Seller and H. Richard Wolf, jointly and severally, represent and warrant to
Buyer as to all sections of this Article 3 as established below. The other
Shareholders only represent and warrant to the extent a representation and
warranty set forth in this Article 3 specifically refers to all Shareholders.
3.1. POWER AND AUTHORITY. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland and is duly qualified as a foreign corporation in each jurisdiction
(such jurisdictions being listed on Schedule "3. 1 ") in which, to the best of
Seller's and H. Richard Wolf's knowledge, the Seller is required to be so
qualified, except where the failure to be so qualified, would have a material
adverse effect on the Assets. Except as stated on Schedule "3.1-2", the Seller
has the full power and authority to own, lease and operate the Assets and to
carry on its business as and where the business is now conducted subject to
approval by Lessor, and to execute, deliver and perform this Agreement and all
documents, agreements and transactions contemplated hereby. The execution,
delivery and performance and all documents, agreements and transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of the Seller and all Shareholders. Except as stated on Schedule
"3.1-2", Seller has the full power, authority, and legal capacity to execute,
deliver and perform this Agreement and all documents, agreements, and
transactions contemplated hereby. This Agreement is the valid and legally
binding obligation of the Seller and all Shareholders enforceable against the
Seller and all Shareholders, as may be applicable thereto, in accordance with
its terms, and each document and agreement contemplated by this Agreement, when
executed and delivered in accordance with its terms, will be the valid and
legally binding obligation of the Seller and all Shareholders enforceable
against the Seller and all Shareholders, as may be applicable thereto, in
accordance with their terms. Except as set forth on Schedule "3.1-3", no consent
of, or filing with, any governmental or regulatory authority (federal, state or
local) or any other person or entity is required to be obtained by the Seller
3
<PAGE> 4
and/or Shareholder in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
3.2 TAX MATTERS. Except as stated on Schedule "3.2", the Seller
has duly and timely filed all Tax Returns (as hereinafter defined) which the
Seller is required to file prior to the date hereof (including Tax Returns for
the jurisdictions set forth on Schedule "3.2 ") , and has paid all Taxes (as
hereinafter defined) , deficiencies or other assessments of Taxes owed or
claimed to be owed by the Seller which are due and payable prior to the date
hereof. There are no deficiencies or other assessments of Taxes owed or claimed
to be owed by the Seller. Shareholders, meaning all Shareholders, know of no
unassessed Tax deficiency proposed or threatened or any basis therefor which may
occur in the future. There is no dispute or claim concerning any Tax liability
of the Seller either (i) claimed or raised by any taxing authority in writing,
or (ii) as to which any or all Shareholders have knowledge based on personal
contact with any agent of such authority.
No Tax Returns are currently the subject of an audit. Except as stated on
Schedule "3.2", no extensions of time on which any Tax Return was or is to be
filed by the Seller are in force, and no waiver or agreement by the Seller is in
force for the extension of time for the assessment or payment of any Tax. No
claim has ever been made by a taxing authority in a jurisdiction where the
Seller does not file a Tax Return that it is, or may be, subject to taxation by
that jurisdiction. The Seller has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party. All Taxes
which are called for by the Tax Returns, or claimed to be owed by a taxing
authority from the Seller, and all other Taxes owed or claimed to be owed by the
Seller which are due and payable prior to the date hereof, and all Taxes upon or
required by the Seller's properties, assets, or income, have properly accrued in
accordance with generally accepted accounting principles. For purposes of this
Agreement, the term "Tax" and the term "Tax Return" shall mean:
(i) "Tax" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Internal Revenue Code of 1986, as amended (the "Code")),
customs, duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
(ii) "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
3.3. COMPLIANCE WITH LAWS. Except as stated on Schedule "3.3",
the Seller has, to the best of its knowledge, complied in all material respects
with all federal, state, county, and local laws, ordinances, rules, regulations,
and orders (collectively, "Laws") relating in any respect to its business or
operations. A list of all permits and licenses of any governmental or regulatory
body (federal, state or local) (collectively the "Permits") held by the Seller
is set forth
4
<PAGE> 5
on Schedule "3.3". Except as stated on Schedule "3.3", the Permits are in full
force and effect and the Seller has not received any notice of violation with
respect to the Permits.
3.4. NO BREACH. Except as stated on Schedule "3.4", the
execution, delivery and consummation of this Agreement and the transactions
herein contemplated (i) do not conflict with any term or provision of the
certificate of incorporation or by-laws of the Seller, (ii) do not constitute or
will not constitute a violation of or a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, or do not or will
not conflict with, any term or provision of any contract, commitment, indenture,
lease or other agreement, arrangement or understanding to which the Seller or H.
Richard Wolf is a party, (iii) do not constitute a violation of, or conflict
with, any judgment or order known toH. Richard Wolf, or, any Law, and (iv) do
not result in the creation of any lien or other encumbrance on any of the
Seller's assets or give to any person or entity any interest in the Seller.
3.5. FINANCIAL STATEMENTS. Schedule "3.5" contains the
financial statements and notes thereto of the Seller and its Affiliates as at
and for the years ended December 31, 1996, 1995, and 1994 and the most recent
interim period, being October 31, 1997 (the "Financial Statements"). Seller
shall also provide the Buyer with financial statements dated December 31, 1997.
Except for the value of inventory as set forth on interim period financial
statement, the Financial Statements are substantially true and correct, and
fairly present the financial position of the Seller as at such dates and the
results of its operations and a statement of its cash flow for the periods then
ended. Except as relates to inventory, H. Richard Wolf is not aware of any
material modification that should be made to the year-end Financial Statements
in order for them to be in conformity with generally accepted accounting
principles. Also, as to any interim statement provided herewith, it was prepared
in conformity with generally accepted accounting principles, and is based on
recorded transactions and management's best estimates and judgments, except for
the aforementioned inventory valuation. The Seller has also provided Buyer with
a separate inventory valuation which Seller has prepared in accordance with
generally accepted accounting principles and which Seller represents and
warrants is substantially true and correct.
3.6. LIABILITIES. Except as disclosed in the Financial
Statements or on any other Schedule attached hereto, the Seller has no other
liabilities.
3.7. LITIGATION AND JUDGMENTS. Except as disclosed on Schedule
"3.7", the Seller is not a party to, or threatened with, any claim, litigation,
arbitration, proceeding or governmental investigation and the Seller has not
received notice of any claim, litigation, arbitration, proceeding or
governmental investigation. Additionally, except as disclosed on Schedule "3.7",
there are no judgments, orders, writs, decrees, fines, citations, penalties,
injunctions or other legal, administrative or arbitration actions affecting the
Seller.
3.8. AGREEMENTS. Schedule "3.8" sets forth a list of all
contracts, leases, and agreements (whether written or oral) under which the
Seller is bound including, but not limited to, lease agreements (collectively,
the "Contracts"). Except as disclosed in Schedule "3.8", each of the Contracts
is in full force and effect and enforceable in accordance with its terms and no
notice of default, defense, offset, counterclaim termination or acceleration has
been given or received by the Seller with respect to any of the Contracts.
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3.9. ACCOUNTS RECEIVABLE.
(a) The accounts receivable are an asset being included in this sale
transaction. All accounts receivable of the Seller reflected in the Balance
Sheet and all accounts receivable of the Seller that have arisen since the
Balance Sheet Date (except such accounts receivable as have been collected since
such dates) are valid and enforceable claims, and the goods and services sold
and delivered that gave rise to such accounts were sold and delivered in
conformity with all applicable express and implied warranties, purchase orders,
agreements and specifications. Such accounts receivable of the Seller are
subject to no valid defense, offset or counterclaim and are fully collectible to
the best of Seller and H. Richard Wolf's knowledge, except to the extent of the
allowance for doubtful accounts reflected on the Balance Sheet, except as set
forth on Schedule 3.9 SCHEDULE 3.9 contains a true and complete aging of the
Seller accounts receivable as of the Balance Sheet Date.
3.10. TRADE NAME. To the best of the Seller's knowledge, the
Seller has the valid right to use its corporate name and the name Chesapeake
Plastic Lumber as a trade name, without any known conflict with the rights of
others. The Seller has not conducted business under any other name. The Seller
is not aware of any claim that use of its trade name infringes the rights of any
third party.
3.11. PROPERTY.
(i) TANGIBLE PROPERTY. Schedule "3.11-1" sets forth a
list of all interests owned, used by or leased by or to the Seller in machinery,
equipment, vehicles and other tangible property (collectively the "Tangible
Property"). Except as set forth in Schedule 3.11-1, all Tangible Property being
sold hereunder is structurally sound and has no material defects which are known
to Seller and are in good operating condition, repair, and are adequate for the
uses to which they are being put, ordinary wear and tear excepted.
(ii) REAL PROPERTY.
(a) The Seller owns no real property except
as set forth on Schedule "3.11-2"
(iii) SOFTWARE. Schedule "3.11-3" sets forth a list
of all software and/or software rights (including any computer programs) owned
by or licensed to the Seller (the "Software"). Software is being transferred "as
is, where is".
3.12. LIENS.
(i) Except as set forth on Schedule "3.12", the
Seller owns outright and has good and absolute legal, equitable and marketable
title to all of the Assets, free and clear of any lien, debt, pledge,
obligation, liability, charge, encumbrance, security interest, commitment or
option (any of the foregoing, an "Encumbrance") of any kind, nature or
description, and the Seller has the full power and authority to convey the
Assets to Buyer free
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and clear of any Encumbrance and, upon delivery of and payment for such Assets
as herein provided, Buyer will acquire good, valid and marketable title thereto,
free and clear of any Encumbrance.
(ii) All Shareholders own, both of record and
beneficially, all of the issued and outstanding shares of capital stock of the
Seller. There are no outstanding options, warrants or agreements under which the
Seller or any or all Shareholders would be obligated to issue or sell any stock
of the Seller. The Seller has no subsidiaries (wholly-owned or otherwise).
3.13. EMPLOYEES. Schedule "3.13" is a complete list of the
Seller 's employees, their job titles and their current wages and benefits.
Except as set forth on Schedule "3.13-1", the Seller is not and has not been a
party to any written agreement with any of its employees presently employed by
the Seller, there is no employee whose employment is not terminable at will. The
Seller has no personnel manual or handbook covering any of its employees, except
as disclosed on Schedule "3.13". The Seller has no severance pay policy and, the
Seller has never paid any severance payment to any of its employees. If Buyer
determines to offer employment to any employee of the Seller, the Seller shall
immediately provide copies of such employee's employment records. Except as set
forth on Schedule "3.13-2",: To the best of the Sellers knowledge, the Seller is
in compliance with all Laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and has not and is not
engaged in any unfair labor practice; no unfair labor practice complaint against
the Seller is pending before the National Labor Relations Board; there is no
labor strike, dispute, slowdown or stoppage actually pending or threatened
against or involving the Seller; no representation question exists respecting
the employees of the Seller; no grievance which might have an adverse effect
upon the Seller or the conduct of its business exists, no arbitration proceeding
arising out of or under any collective bargaining agreement is pending and no
claim therefor has been asserted; no collective bargaining agreement is
currently being negotiated by the Seller and the Seller has not experienced any
material labor difficulty during the last three years. Schedule "3.13-3" sets
forth a true and correct list of all loans made by the Seller to employees of
the Seller. Prior to the Closing, the Seller shall (i) make no such further
loans and (ii) continue to collect such debts in accordance with its current
policy.
3.14. EMPLOYEE BENEFIT PLANS. Schedule "3.14" is a complete list
of the Seller's "Employee Benefit Plans" which term as used herein means (i) any
employee benefit plan, as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or (ii) any other plan, trust
agreement or arrangement for any bonus, severance, hospitalization, vacation,
deferred compensation, pension or profit sharing, retirement, payroll savings,
stock option, group insurance, death benefit, fringe benefit arrangement of any
nature whatsoever, including those benefiting former employees. On or before the
Closing Date, the Seller, if applicable, shall apply to the Internal Revenue
Service for a determination letter requesting approval of the termination of its
Profit Sharing Plan (the "Plan") and shall fully vest all participants in the
Plan and arrange for payment of all amounts held in the Plan for such
participants as soon as practicable after receipt of a favorable letter from the
IRS approving of the termination. Buyer assumes no responsibility for the Plan's
termination or for the payment of any Plan participant's account balances as
described in the preceding sentence. With respect to prior plan years and the
current plan year of the Seller's Health Plan: (i) the Seller has made on
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or prior to the date hereof and will have made on or prior to the Closing Date
all payments (including, without limitation, contributions, premiums, benefit
payments, administrative costs and liabilities) required to be made by it on or
prior to the date hereof and the Closing Date, and has accrued (in accordance
with generally accepted accounting principles consistently applied) as of the
date hereof and will have accrued on or prior to the Closing Date all payments
(including, without limitation, contributions, premiums, benefit payments,
administrative costs and liabilities) due but not yet payable as of the date
hereof and the Closing Date, and (ii) the Seller has operated, currently
operates, and will continue to operate up to Closing such plans in full
compliance with the plan documents and all applicable laws.
3.15. INSURANCE. Schedule "3.15" sets forth all policies of
insurance ("Insurance Policies") held by or on behalf of the Seller specifying
the insurer, the policy number (or covering note number with respect to
binders), the risks covered, the premium, the deductibles and the amount of
coverage provided and describing any pending claim against the Insurance
Policies. A life insurance policy insuring the life of H. Richard Wolf shall be
maintained and owned by Seller, as set forth on Schedule 3.15.
Except as set forth in Schedule "3.15", the Seller has not received a notice of
cancellation, non-renewal or audit of any such Insurance Policy. The Seller
represent and warrants that all insurance policies are in place and existent as
of the Closing Date. Except as set forth in Schedule "3.15", the Shareholder has
no knowledge of any failure to pay premiums when due. Such policies are
sufficient for compliance with all requirements of law and of all agreements to
which either Seller is a party; are valid, outstanding, and enforceable
policies; provide adequate insurance coverage for the assets and operations of
Seller's business; and with respect to the periods prior to Closing will not in
any way be affected by or terminate or lapse by reason of the transactions
contemplated by this Agreement.
3.16. NO BROKER. No broker or similar intermediary has acted
for or on behalf of the Seller or Shareholder in connection with the
transactions contemplated hereby.
3.17. ENVIRONMENTAL MATTERS. Except as disclosed on Schedule
"3.17",: no hazardous wastes, hazardous substances, hazardous materials,
asbestos, infectious wastes, petroleum, petroleum products or pollutants, all as
defined by environmental laws existing as of the date of this Agreement
(collectively, "Hazardous Waste") or solid waste has been discharged, spilled,
released or disposed of by or at the direction of the Seller which would provide
a basis for liability for personal damage, property damage, environmental
cleanup or natural resources damage, except for such occasional emissions,
discharge, spills and releases occurring in and incidental to the regular
operation of the business of the Seller, e.g., oil leaks from vehicles which
would not cause any significant environmental problems ("Ordinary Emissions") ;
and no Ordinary Emission is the subject of any threatened or pending claim,
assessment, administrative proceeding or penalty. In addition, the Seller has
not spilled or discharged or caused to be spilled or discharged any Hazardous
Waste on any of the property it has leased in the past or is currently leasing
("Leased Property") , and has only used these properties as administrative,
manufacturing and office facilities in the normal course of its business. The
Buyer is aware that the leased property does contain certain hazardous waste
deposited thereon, as more specifically set forth in the lease agreement between
Seller and FIL USA, Inc., a copy of which has been
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provided to Buyer prior to Closing Date. The Seller and H. Richard Wolf, shall
have no responsibility to the Buyer as a result of any hazardous waste deposited
on the subject premises, unless Seller and H. Richard Wolf, spilled or
discharged or caused to be spilled or discharged any hazardous waste on the
subject property.
3.18. FULL DISCLOSURE. To the best of Seller's and H. Richard
Wolf's knowledge, the information furnished by or on behalf of the Seller or H.
Richard Wolf to Buyer in connection with this Agreement and the transactions
contemplated hereby does not and will not contain any untrue statement of a
material fact and does not and will not omit to state any material fact
necessary to make the statements made, in the context in which made, not false
or misleading. There is no fact known to the Seller or H. Richard Wolf which
materially and adversely affects the business, prospects or financial condition
of the Seller, which has not been set forth in this Agreement or the Schedules
or certificates and/or any other documents provided to Buyer prior to Closing
furnished in connection with the transactions contemplated by this Agreement.
3.19. NO UNDISCLOSED LIABILITIES. Except to the extent set forth
or provided for in the Schedules attached to this Agreement, the Seller has no
liabilities, whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether the amounts thereof are readily ascertainable or not,
or any unrealized or anticipated losses from any commitments of a contractual
nature, including Taxes with respect to or based upon the events or transactions
occurring at or prior to the Closing.
3.20. PROCEEDS. The proceeds to be received by the Seller in
connection with the transactions contemplated by this Agreement are sufficient
for, and will be used by, the Seller to meet all of its current financial and
administrative requirements, including without limitation, legal expenses and
any items set forth in any of the Schedules attached hereto.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Shareholders and the Seller as follows:
4.1. AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Buyer has the full corporate power and authority to
execute, deliver and perform this Agreement, the Promissory Note and the
transactions contemplated hereby. This Agreement and the Promissory Note have
been duly executed and delivered by, and are the valid and legally binding
obligation of, Buyer enforceable in accordance with its terms, and each document
contemplated by this Agreement, when executed and delivered in accordance with
the provisions hereof, shall be valid and legally binding upon Buyer in
accordance with its terms. Except as set forth on Schedule "4. 1 ", no consent
of any governmental or regulatory authority (federal, state or local) or any
other person or entity is required to be obtained by Buyer in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
4.1.1 CORPORATE GUARANTY. U.S. Plastic Lumber
Corporation, a Nevada corporation, being the parent of Buyer, does hereby
represent and warrant that it is a corporation
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duly organized, validly existing and in good standing under the laws of Nevada
and that it has received approval from its Board of Directors authorizing Buyer
to Close this transaction. Furthermore, U.S. Plastic Lumber Corporation hereby
represents and warrants that it will become a Maker of the Promissory Note to be
delivered pursuant to Section 1.3 hereof, issue all shares of non-assessable and
non-registered Common Stock as set forth in this Agreement at the time or times
required hereunder, that such shares will be validly issued upon issuance
thereof, and it agrees that this representation and warranty shall survive the
Closing of this transaction.
4.2. NO BROKER. No broker or similar intermediary has acted
for or on behalf of Buyer in connection with the transactions contemplated
hereby.
4.3. FULL DISCLOSURE. To the best of Buyer's knowledge, the
information furnished by or on behalf of Buyer to Shareholders or the Seller in
connection with this Agreement and the transactions contemplated hereby does not
and will not contain any untrue statement of a material fact and does not and
will not omit to state any material fact necessary to make the statements made,
in the context in which made, not false or misleading. The Buyer and U.S.Plastic
Lumber Corporation, to the best of their knowledge, are not aware of any event,
whether existent, threatened or contemplated, and whether involving the
government or agency thereof are not, that would have a material adverse affect
on the financial condition of the Buyer and U.S. Plastic Lumber Corporation.
4.4 Buyer shall use its best efforts to assume (i) the lease
with FIL [USA], Inc. for the premises from which the business of Seller is
conducted; (ii) the lease with Citicorp Leasing, Inc., for the equipment used in
the conduct of Seller's business; and (iii) the loan from Sterling Bank to
Seller and Buyer shall remove H. Richard Wolf as a Guarantor thereof.
5. OBLIGATIONS OF THE SELLER AND H. RICHARD WOLF, FROM THE DATE OF
THIS AGREEMENT UNTIL THE CLOSING Date. From the date hereof until the Closing
Date, the Seller will, and H. Richard Wolf will cause the Seller to, as
applicable:
5.1. Allow, during normal business hours and on reasonable
notice to, and preapproval by, H. Richard Wolf, which approval shall not be
unreasonably withheld; and provided that the Seller's business is not
unreasonably interrupted: (i) the employees, attorneys, accountants, engineers,
inspectors and any other representatives of Buyer free and full access to the
assets, the books and records of the Seller; and (ii) the employees of Buyer to
interview and meet with the employees of the Seller; such contact to be limited
to the employees listed in Schedule "5. 1" attached hereto. Seller and
Shareholder shall fully cooperate with Buyer in the Buyer's review of the
business of the Seller. Notwithstanding anything to the contrary, Buyer agrees
that any lists or documents containing the identity of customers and vendors or
from which the identity of customers or vendors can be discerned shall be
provided at Closing, except that Seller shall make any such lists or documents
available to Buyer prior to Closing with the identities of customers or vendors
stricken therefrom.
5.2. Use its reasonable efforts to: (i) preserve the Seller's
business organizations intact and to conduct its business in the Ordinary Course
and otherwise conduct its business after the signing of this Agreement in the
same manner as it conducted its business prior
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to the execution of this Agreement; (ii) to the extent requested by Buyer, keep
available the Seller's present employees; (iii) preserve the present
relationships with the Seller's customers and others having business
relationships with the Seller; and (iv) perform all obligations under contracts
and other agreements.
5.3. Use its best efforts to cause all of the conditions
precedent to Closing to be satisfied as soon as practicable after the date
hereof.
5.4. Observe all applicable Laws in the conduct of the
Seller's business, duly and timely file all reports, registrations and returns
to be filed with any governmental entity, and promptly pay all Taxes, fees and
other charges when due and keep full and accurate records of all transactions
entered into and conducted.
5.5. Promptly, by written notice, keep Buyer fully informed of
all material events and occurrences relevant to the Seller's business and
operations.
5.6. Cooperate fully with Buyer in making application for any
necessary approvals, including application for assignments of assignable
Contracts and Permits as determined and requested by Buyer; provided, however,
that until Closing, no action shall be taken which might identify to Buyer the
customers of Seller.
5.7. Hold in confidence and cause all Shareholders' and the
Seller's Representatives (as defined below) to hold in confidence all
Confidential Information (as defined below) and not disclose the same to any
third person without the prior consent of Buyer, except (i.) Pursuant to
lawfully issued subpoena, in which event Seller shall provide notice thereof to
Buyer upon receipt by Seller and (ii) all Shareholder's and the Seller's
Representatives who need such information for the purpose of evaluating the
transactions contemplated by this Agreement (such person shall be informed by
all Shareholders or the Seller of the confidential nature of the material and
shall be subject to all the terms of this Agreement; all Shareholders and the
Seller shall be responsible for any breach of such terms by any such
Representatives). If this Agreement is terminated or dissolved for any reason,
all Shareholders and the Seller will promptly return to Buyer all Confidential
Information furnished by Buyer and held by Shareholders or the Seller, including
all copies and summaries thereof and will not make use of or disclose to any
person such Confidential Information. As used herein, "Confidential Information"
means all information concerning Buyer and its business obtained by
Shareholders, the Seller, or their directors, officers, employees, attorneys,
agents or other representatives (collectively, "Representatives") from Buyer in
connection with the transactions contemplated by this Agreement except
information which (i) was available to the public prior to the time of such
disclosure, (ii) becomes available to the public through no act or omission of
the Shareholders or the Seller or their Representatives, or (iii) has been given
to the Shareholders or the Seller prior to such disclosure, or is given to the
Shareholders or the Seller thereafter, in either case by a third party not known
by the Shareholders or the Seller to be under any obligation of confidentiality
to the Buyer with respect thereto. "Confidential Information" includes this
Agreement.
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5.8. Promptly, by written notice, advise Buyer of any
information that indicates that any representation or warranty of Buyer
contained in this Agreement is not true and correct or that Buyer has breached
any of its obligations under this Agreement.
5.9. Promptly, by written notice, advise Buyer of any event,
condition or circumstance (an "Event") occurring after the date hereof through
the Closing Date which causes any of the representations and warranties of the
Seller or Shareholders not to be true and correct in all material respects as of
the date hereof or as of the date such Event occurred (as if such representation
or warranty were made on the date such Event occurred). Buyer's closing under
this Agreement after its receipt of information furnished by the Seller or
Shareholders pursuant hereto shall not operate as a waiver of any of Buyer's
rights for any misrepresentation or breach of any representation or warranty
which is disclosed by such information.
6. OBLIGATIONS OF BUYER FROM THE DATE OF THIS AGREEMENT. From the date
hereof until the Closing Date, Buyer will:
6.1. Cooperate fully with H. Richard Wolf and the Seller in
making application for any necessary approvals, if applicable,
6.2. Hold in confidence and cause its Representatives (as
defined below) to hold in confidence all Confidential information (as defined
below) and not disclose the same to any third person without the prior consent
of Shareholders, except to Buyer's Representatives who need such information for
the purpose of evaluating the transactions contemplated by this Agreement (such
person shall be informed by Buyer of the confidential nature of the material and
shall be subject to all the terms of this Agreement; Buyer shall be responsible
for any breach of such terms by any of the Buyer's Representatives). If this
Agreement is terminated or dissolved for any reason, Buyer will promptly return
to all Shareholders all Confidential Information furnished by all Shareholders
or the Seller including all copies and summaries thereof and will not make use
of or disclose to any person such Confidential Information. As used herein,
"Confidential Information" means all information concerning the Seller obtained
by Buyer or its directors, officers, employees, attorneys, agents or other
representatives (collectively, "Representatives") from Shareholders or the
Seller in connection with the transactions contemplated by this Agreement except
information which (i) was available to the public prior to the time of such
disclosure, (ii) becomes available to the public through no act or omission of
Buyer or Buyer's Representatives, or (iii) has been given to Buyer prior to such
disclosure, or is given to Buyer thereafter, in either case by a third party not
known by Buyer to be under any obligation of confidentiality to the Seller or
all Shareholders with respect thereto. "Confidential Information" includes this
Agreement.
6.3. Promptly, by written notice, advise all Shareholders and
the Seller of any information that indicates that any representation or warranty
of Shareholders or the Seller contained in this Agreement is not true and
correct or that all Shareholders, any one or more of them or the Seller has
breached any of its obligations under this Agreement together with reasonable
detail so as to apprise them of such conduct.
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6.4. Promptly, by written notice, advise all Shareholders and
the Seller of any event, condition or circumstance (an "Event") occurring after
the date hereof through the Closing Date which causes any of the representations
and warranties of Buyer not to be true and correct in all material respects as
of the date hereof or as of the date such Event occurred (as if Buyer had made
such representation or warranty on the date such Event occurred). The Seller's
and all Shareholders' closing under this Agreement after their receipt of
information furnished by Buyer pursuant hereto shall not operate as a waiver of
any of the Seller 's or Shareholders' rights for any misrepresentation or breach
of any representation or warranty which is disclosed by such information.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of
Buyer to be performed by it at the Closing are subject to the satisfaction, at
or prior to the Closing of each of the following conditions, each of which may
be waived in whole or part by Buyer:
7.1. The representations and warranties made in Sections 3.1,
3.11 and 3.12 of this Agreement shall each be true and correct in all material
respects on the Closing Date with the same force and effect as though they had
been made on the Closing Date (the truth and correctness of the remaining
representations and warranties in Section 3 of this Agreement on the Closing
Date with the same force and effect as if made on the Closing Date not being
conditions precedent to the obligations of Buyer to be performed at Closing),
and Shareholders and the Seller shall have performed in all material respects
their obligations under this Agreement which are to be performed or complied
with prior to or on the Closing Date, as the case may be in the form attached
hereto as Exhibit F.
7.2. Buyer shall have received a certificate, dated the
Closing Date, from the Seller, H. Richard Wolf and any applicable Shareholders
certifying to the fulfillment of the conditions set forth in Section 7. 1.
7.3 Buyer shall have received the opinion of counsel to the
Seller and Shareholders, dated the Closing Date and addressed to Buyer
substantially in the form of Exhibit "D" attached hereto.
7.4 At least three days prior to Closing, the Seller shall
deliver to Buyer Uniform Commercial Code certified searches and searches with
respect to the Seller for liens, encumbrances, judgments and federal tax liens
in (collectively, "Searches"), all such Searches to be dated no earlier than ten
business days prior to the Closing Date.
7.5. On the Closing Date, the Seller shall have delivered to
Buyer the following:
(i) a fully executed Non-Competition Agreement in the form
attached hereto as Exhibit C,
(ii) documents and instruments of transfer for the Assets
substantially in the forms attached as Exhibit "E" including, without
limitation, Articles of Transfer, bills of sale for tangible property, transfers
of certificates of title for all Assets where applicable, all keys for
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vehicles and the Real Property, and, to the extent assignable by the Seller,
assignments of Contracts and Permits; (ii) to the extent available, the original
invoices, if available, together with the manufacturer's or dealer's guarantees
and/or warranties covering the Assets; (iii) to the extent available, copies or
originals of all files, papers, books and records, Permits, applications,
correspondence and other documents relative to the Assets (including a full
customer list); (iv) a certificate, dated no earlier than ten business days
prior to the Closing Date, from the Maryland Secretary of State that the Seller
is in good standing which Seller and Shareholders represent does not get issued
by the State of Maryland unless there are no liens for corporate taxes of any
kind, including but not limited to payroll taxes, against the Seller; (vi) if
applicable, any termination statements terminating the liens or pay-off letters
with respect to the liens set forth on Schedule "7.5"; (vii) copies of the Board
of Directors' and Shareholders' unanimous written consents authorizing the
execution, delivery and performance of this Agreement with the Seller; and (vii)
receipts acknowledging Buyer's payment to the Seller of the Purchase Price.
Buyer shall pay any sales tax to the State of Maryland which may be due as a
result of the assets being transferred hereunder.
7.6. There shall not be any governmental suit or proceeding
pending before any court or other governmental agency in which the government
seeks to prevent the consummation of this Agreement or the transactions
contemplated hereby. There shall not be any order or judgment issued by any
court of competent jurisdiction or other governmental agency which prohibits the
consummation of this Agreement or the transactions contemplated hereby.
7.7. Shareholders and the Seller shall have executed all this
Agreement and all Agreements required to be executed by this transaction.
7.8 Buyer's review of the representations and warranties
contained herein and the Schedules which are a part of this Agreement and a
determination that the information contained in the representations and
warranties and the Schedules is substantially true and correct in all material
respects determined as of the date of this Agreement.
7.9 Fil (US), the landlord of the premises occupied by Seller,
shall agree to assign the Lease on the aforesaid premises to Buyer. Seller and
Shareholder shall utilize their best efforts to assist Buyer in the
re-negotiation of certain provisions of the Lease, including but not limited to
maintaining the existing rental of $6,000 per month through the termination of
the Lease on May 1, 2003, and such other changes as Buyer may reasonably
request. Buyer acknowledges that Seller and Shareholder shall have no obligation
pursuant to this paragraph to expend any monies, except minimal costs relative
to administrative support such as phone bills, letter writing, postage, etc.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER AND
SHAREHOLDERS TO EFFECT THE CLOSING. The obligations of the Seller and
Shareholders to be performed by them at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions, each of
which may be waived in whole or in part by the Seller and Shareholders:
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<PAGE> 15
8.1. The agreements, representations and warranties made by
Buyer and U.S. Plastic Lumber Corporation in Sections 4.1, 4.2 and 4.3 of this
Agreement shall each be true and correct in all material respects on the Closing
Date with the same force and effect as though they had been made on the Closing
Date, and Buyer shall have performed all of its obligations under this Agreement
which are to be performed or complied with by it prior to or on the Closing
Date, as the case may be. Buyer and U.S. Plastic Lumber Corporation shall also
represent and warrant as of the Closing Date that their are currently no facts
known to it which will materially affect the financial condition of either
company now or in the foreseeable future.
8.2. Shareholders and the Seller shall have received a
certificate, dated the Closing Date, from the Buyer certifying to the
fulfillment of the conditions specified in Section 8.1 and Certificates of Good
standing issued within five days of Closing on behalf of Buyer and U. S. Plastic
Lumber Corporation.
8.3. Shareholders and the Seller shall have received a
certificate, dated the Closing Date, from the Secretary of Buyer certifying to
the minutes of the meetings of the Board of Directors of Buyer authorizing the
execution, delivery and performance of this Agreement by Buyer and the
transactions contemplated hereby.
8.4. Buyer shall have executed this Agreement and all Related
Agreements, including the Promissory Note UCC Financing Statement, and Security
Agreement attached hereto and incorporated by reference herein as Exhibit B,
contemplated by this transaction.
8.5. There shall not be in effect any order issued by a court
of competent jurisdiction which restricts the payment of the Purchase Price to
the Seller or the distribution of the Purchase Price by the Seller.
8.6. The Closings under the Related Agreements shall have
occurred simultaneously with the Closing under this Agreement.
9. TERMINATION AND EFFECT OF TERMINATION.
9.1. Termination. This Agreement may be terminated:
(i) at any time on or prior to the Closing Date, by
the mutual consent in writing of the parties hereto;
(ii) at any time on or prior to the Closing Date, by
either Buyer, or Shareholders and the Seller, as the case may be, if the other
party has breached, in any material respect, any representation or warranty
contained in Sections 3.1, 3.11 or 3.12 (as to the Seller and the Shareholders
which have agreed to be bound by such representations and warranties), or any
representation or warranty in Section 4.1, 4.2 and 4.3 (as to Buyer), or any
covenant or undertaking contained herein, and any such breach has not been cured
by the close of business on the 10th day after the date on which notice of such
breach is given to the party committing such breach, unless the party in breach
has notified the other party, in writing, that the breach cannot be cured within
the ten day period and the party in breach is diligently and in good faith
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<PAGE> 16
working to cure the breach, in which case the cure period may be extended by the
breaching party as necessary to cure the breach;
(iii) by Buyer at any time after the date on which
the Seller shall no longer be in operation as an on-going business or if the due
diligence of Buyer, in the sole discretion of Buyer, manifests the transaction
is not feasible or suitable to Buyer's business.
9.2. EFFECT OF TERMINATION.
(i) Upon termination of this Agreement as provided in
Section 9. 1 (i), this Agreement shall forthwith become void and there shall be
no liability or obligation on the part of any party hereto or their respective
directors, officers, employees, agents or other representatives.
(ii) In the event of termination of this Agreement as
provided in Section 9.1 (ii) or (iii) hereof, such termination shall be without
prejudice to any rights that the terminating party or parties may have against
the breaching party or parties or any other person under the terms of this
Agreement or otherwise.
10. DAMAGE TO TANGIBLE PROPERTY. If, between the date of this Agreement
and the Closing Date, any of the Seller 's assets are damaged, the transactions
contemplated by this Agreement shall proceed, provided that, at Buyer's option
either (A) the amount of Cash being issued hereunder shall be decreased by the
fair market value of the affected Property (herein, the "Affected Property") or
(B) the proceeds from the Insurance Policies (together with a reimbursement to
Buyer of the amount of any deductible thereon), shall be assigned and/or paid to
Buyer. Buyer shall have the right to participate in the negotiation and
settlement of any insurance claim or condemnation award, as the case may be. If
the parties are unable in good faith to agree upon the fair market value of the
Affected Property, the Closing Date shall be extended to the fifth business day
after the date the appraisal procedure set forth in this Section 10 shall be
completed. Within 10 days after such damage or condemnation, the parties shall
attempt to agree upon the selection of a disinterested independent qualified
appraiser to determine the fair market value of the Affected Property. If the
parties are able to agree upon an appraiser, such appraiser shall be instructed
to furnish a written appraisal within 30 days of its or his selection. If the
parties are unable to agree upon the selection of an appraiser within such
10-day period, the Seller and Buyer shall, within five days thereafter, each
select an appraiser to determine the fair market value of the Affected Property.
Each appraiser so selected shall furnish the parties with a written appraisal
within 30 days of its or his selection. If the two appraisals are within 10% of
each other, the fair market value of the Affected Property shall be the average
of the two appraisals. If the two appraisals are not within 10% of each other,
the appraisers shall, within 10 days after the issuance of their respective
reports, select a third appraiser to determine the fair market value of the
Affected Property. The third appraiser shall issue a written appraisal within 30
days of its or his selection. The third appraisal shall be averaged with the
other two and the appraisal furthest from the average of all three appraisals
shall be disregarded. The average of the remaining two appraisals shall be the
fair market value of the Affected Property. The Seller and Buyer shall each pay
50% of the total cost of the appraisal(s). The determination of the fair market
value of the Affected Property pursuant to the
16
<PAGE> 17
appraisal procedure set forth in this Section 10 shall be final, conclusive and
binding upon the parties, absent a showing of fraud. If, subsequent to the
Closing Date, all or a portion of the Affected Property that is the subject of a
pending condemnation procedure is not ultimately taken, the fair market value of
such Property shall promptly upon settlement or final resolution of such
proceeding, be paid to the Seller.
11. LITIGATION COSTS. In any action, proceeding or arbitration between
the parties arising out of or relating to this Agreement, all litigation costs
and reasonable attorney's fees should be borne by the non-prevailing party,
regardless of whether it's litigation or arbitration.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants and agreements shall survive the execution and delivery
hereof and the Closing Date for a period of two years from date of Closing;
provided, however, that any claim for breach of the warranty as it relates to
the condition of the equipment shall be made within twelve months from the date
of Closing.
13. INDEMNIFICATION.
13.1. INDEMNIFICATION.
(i) The Seller, Shareholder, H. Richard Wolf, and the
other Shareholders (only to the extent any other such Shareholder has agreed to
be bound by a particular representation and warranty that the Buyer claims has
been breached), jointly and severally, covenant and agree to defend, indemnify
and hold harmless Buyer and each Person who controls Buyer within the meaning of
the Securities Act from and against any Damages arising out of or resulting
from: (i) any material inaccuracy in or material breach of any representation or
warranty made by the Seller or any Shareholder in this Agreement or in any
writing delivered pursuant to this Agreement or at the closing [unless and
except that such inaccuracy or breach is a direct result of changes made by the
Buyer in accounting methods or estimates utilized in financial reporting of the
Seller]; (ii) the failure of the Seller or any Shareholder to perform or observe
fully any covenant (including post closing covenants), agreement or provision to
be performed or observed by the Seller or such Shareholder pursuant to this
Agreement or any of the Related Agreements; or (iii) the failure of Seller to
comply with any bulk sales laws applicable to the transactions contemplated by
this Agreement.
(ii) Buyer covenants and agrees to defend, indemnify
and hold harmless the Seller and Shareholders from and against any Damages
arising out of or resulting from: (i) any inaccuracy in or breach of any
representation or warranty made by Buyer in this Agreement or in any writing
delivered pursuant to this Agreement or at the Closing; (ii) the failure by
Buyer to perform or observe any covenant, agreement or condition to be performed
or observed by it pursuant to this Agreement; (iii) the failure of Buyer to
remove Seller or H. Richard Wolf as an obligor or guarantor of any debt assumed
by, or as assigned to Buyer hereunder or (iv) the failure of Buyer to remove
Seller or H. Richard Wolf from any obligations it or he may have under any lease
with Citicorp Leasing, Inc., or FIL[USA], Inc.
13.2. THIRD PARTY CLAIMS.
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<PAGE> 18
(i) If any party entitled to be indemnified pursuant
to Section 13.1 (an "INDEMNIFIED PARTY") receives notice of the assertion by any
third party of any claim or of the commencement by any such third person of any
Action (any such claim or Action being referred to herein as an " INDEMNIFABLE
Claim") with respect to which another party hereto (an "INDEMNIFYING PARTY") is
or may be obligated to provide indemnification, the Indemnified Party shall
promptly notify the Indemnifying Party in writing (the "CLAIM NOTICE") of the
Indemnifiable Claim; PROVIDED, that the failure to provide such notice shall not
relieve or otherwise affect the obligation of the Indemnifying Party to provide
indemnification hereunder, except to the extent that any Damages directly
resulted or were caused by such failure.
(ii) The Indemnifying Party shall have thirty (30)
days after receipt of the Claim Notice to undertake, conduct and control,
through counsel of its own choosing, and at its expense, the settlement or
defense thereof, and the Indemnified Party shall cooperate with the Indemnifying
Party in connection therewith, PROVIDED, that (i) the Indemnifying Party shall
permit the Indemnified Party to participate in such settlement or defense
through counsel chosen by the Indemnified Party (subject to the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld), provided
that the fees and expenses of such counsel shall not be borne by the
Indemnifying Party, and (ii) the Indemnifying Party shall not settle any
Indemnifiable Claim without the Indemnified Party Shareholder consent. So long
as the Indemnifying Party is contesting any such Indemnifiable Claim in good
faith, the Indemnified Party shall not pay or settle such claim without the
Indemnifying Party's consent, which consent shall not be unreasonably withheld.
(iii) If the Indemnifying Party does not notify the
Indemnified Party within thirty (30) days after receipt of the Claim Notice that
it elects to undertake the defense of the Indemnifiable Claim described therein,
the Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; PROVIDED, that
the Indemnified Party shall notify the Indemnifying Party of any compromise or
settlement of any such Indemnifiable Claim.
(iv) Anything contained in this Section 13.2 to the
contrary notwithstanding, the Seller and any applicable Shareholders shall not
be entitled to assume the defense for any Indemnifiable Claim (and shall be
liable for the reasonable fees and expenses incurred by the Indemnified Party in
defending such claim) If the Indemnifiable Claim seeks an order, injunction or
other equitable relief or relief for other than money damages against Buyer or
the Seller which Buyer determines, after conferring with its counsel, cannot be
separated from any related claim for money damages and which, if successful,
would adversely affect the business, properties or prospects of the Seller,
Seller and applicable shareholders shall be entitled to assume the defense of
such Indemnifiable Claims; provided, however, that the Counsel chosen by Seller
and applicable shareholders shall be reasonably acceptable to Buyer.
13.3. INDEMNIFICATION NON-EXCLUSIVE. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable or common-law remedy any party may have for breach of representation,
warranty, covenant or agreement.
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<PAGE> 19
13.4. SET-OFF. Notwithstanding any provision of this Agreement or of
any other agreement, instrument or undertaking, it is understood and agreed that
Buyer shall have the right to set-off the amount of any indemnity under Sections
13.1 or 13.2 hereof to the extent the Seller or any of the Shareholders shall be
liable therefor against any sums of money or any shares of the Buyer at any time
payable or deliverable to the Shareholders. The remedies provided in this
Article shall be cumulative and shall not preclude the assertion by any party of
any other rights or the seeking of any other remedies by it against any other
party.
14. EXPENSES. Except as otherwise provided in this Agreement, whether
or not the transactions contemplated by this Agreement shall be consummated,
each party shall pay its or their own expenses incident to preparing for,
entering into and carrying into effect this Agreement and the transactions
contemplated hereby.
15. POST CLOSING COVENANTS. (i) H.Richard Wolf, a Shareholder, shall
remain a full time employee and Helen Wolf a part time employee for a period of
six months subsequent to the Closing Date, subject only to the death or
incapacity of either. Helen Wolf's employment shall not exceed 10 hours per week
during the six month time frame. The total compensation to be paid by Buyer for
the employment of Richard Wolf and Helen Wolf for the six month period shall be
$40,000. Their employment duties shall consist of performing general operations
and administration functions to assure a smooth transition in plant management
and administration. Richard Wolf shall also assist in the installation of any
additional equipment lines, if necessary. (ii) At any time and from time to time
after the Closing Date, at Buyer's request and without further consideration,
Shareholders and the Seller will promptly execute and deliver all such further
documents or perform such acts as Buyer may reasonably request in order to more
fully consummate the transactions contemplated herein. (iii) After the Closing
Date, Shareholders and the Seller shall promptly deliver to Buyer all notices,
correspondence and other items relating to the Assets which are from time to
time received by it or are in its possession. Buyer shall retain any documents
and records delivered to it by Shareholders or the Seller for all periods
required by any Laws.
16. DILUTION PROTECTION. The Common Stock provided as part of the
purchase price consideration as set forth in Section 1.3 (ii) herein, shall be
protected against dilution from any stock splits or stock dividends until such
time as U.S. Plastic Lumber Corporation becomes a full public reporting company
under the regulations of the Securities and Exchange Commission ("SEC") which
shall mean the date upon which the SEC grants a registration statement filed by
U.S. Plastic Lumber Corporation to be effective or the date which U.S. Plastic
Lumber Corporation files a 10K report to the SEC, whichever event happens
earlier. Notwithstanding anything to the contrary, Shareholders understand that
stock will be issued by U.S. Plastic Lumber Corp. for purposes of acquisitions,
financings, and other such transactions related to its growth and stability, and
stock dividends relative to a previous Series A Preferred Stock offering
completed by U.S. Plastic Lumber Corp. and that such transactions shall not be
subject to any dilution protection whatsoever.
17. MISCELLANEOUS.
17.1. Notices. Any notice or other communication required or
which
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<PAGE> 20
may be given hereunder shall be in writing and either delivered personally or
mailed, certified, registered or express mail, or courier service, postage
prepaid, and shall be deemed given when so delivered personally or if by
certified or registered mail, four days after the date of mailing or if express
mailed or sent by courier service, two days after the date of mailing or sending
subject to an obligation imposed upon the person sending the notice to obtain a
receipt, as follows:
(i) If to Shareholder and/or the Seller, to:
with a required copy to:
Astrachan Gunst Goldman & Thomas, P.C.
Attn: James B. Astrachan
20 South Bharles Street, Sixth Floor
Baltimore, MD 21201
(ii) If to Buyer, to:
U.S. Plastic Lumber Corp.
2300 W. Glades Rd. Suite 440W
Boca Raton, FL 33431
Attn: Bruce C. Rosetto, Vice President
and General Counsel
or to such other address as any party may designate to the others by
notice as set forth above.
17.2. ENTIRE AGREEMENT. This Agreement (including the menu of
Exhibits and Schedules hereto) contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto.
17.3. WAIVERS AND AMENDMENTS. This Agreement may be amended or
modified only by a written instrument signed by all the parties. No delay on the
part of any party in exercising any right hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right hereunder,
or any single or partial exercise of any right hereunder, preclude any other or
further exercise thereof or the exercise of any other right hereunder.
17.4. BINDING AGREEMENT. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by each of the parties hereto and
their respective legal representatives, successors and assigns.
17.5. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Maryland applicable to
agreements made, delivered and to be performed entirely therein.
17.6. ASSIGNMENT. This Agreement may not be assigned by any
party, except with the written consent of the other party hereto provided that,
at Closing, Buyer may, without the consent of Shareholders or the Seller, assign
some or all its rights to a subsidiary or subsidiaries or an affiliate or
affiliates. Any such assignment shall not relieve Buyer or U.S.
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<PAGE> 21
Plastic Lumber Corporation of any obligations under this Agreement. Nothing in
this Agreement is intended to confer upon any person or entity, other than the
parties hereto and their legal representatives, successors and permitted
assigns, any rights under this Agreement.
17.7. VARIATIONS IN PRONOUNS. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
17.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Except
for the binding arbitration process described below, any action arising out of
this Agreement or the transactions contemplated hereby may be instituted in any
state or federal court located in the State of Maryland and each party waives
any objection which such party may have to the laying of the venue of any such
action, and irrevocably submits to the jurisdiction of any such court in any
such action. Any controversy between the parties arising out of or relating to
this Agreement or the transactions contemplated hereby where the amount in
controversy is less than $75,000.00 shall be settled by binding arbitration
within the State of Maryland in accordance with the Commercial Arbitration Rules
of the American Arbitration Association before one arbitrator, and judgment upon
the award rendered by the arbitrator(s) shall be entered in any court having
jurisdiction thereof; provided, however, that if any party shall seek equitable
relief or enforcement of the Security Agreement, the Courts of Maryland shall be
availed of for that purpose, after which the parties shall again be compelled to
arbitrate any issue required to be arbitrate hereunder.
17.9. INTERPRETATION. Notwithstanding any right of Buyer to
investigate fully the affairs of Shareholders and the Seller (and vice versa)
and notwithstanding any knowledge of facts determined or determinable by Buyer
pursuant to such investigation or right of investigation (and vice versa) ,
Buyer and Shareholders and the Seller have the right to rely fully upon the
representations, warranties, covenants and agreements contained in this
Agreement.
17.10. SEVERABILITY . If any provision of this Agreement is
construed to be invalid or unenforceable, such determination shall not affect
the remaining provisions of this Agreement, all of which shall remain in full
force and effect, unless the absence of the invalid, illegal or unenforceable
provision or provisions materially reduces the value to be given or received by
any party at the Closing or materially alters the obligations and liabilities of
any party after the Closing. To the extent permitted by law, each party waives
any provision of law which renders any provision of this Agreement invalid,
illegal or unenforceable.
17.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
17.12. EXHIBITS AND SCHEDULES. The Exhibits and Schedules to
this Agreement are part of this Agreement as if set forth in full herein, and
any information disclosed on any Schedule shall be deemed to have been disclosed
on all applicable Schedules,
17.13. HEADINGS. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST/WITNESS: BUYER:
U.S. Plastic Lumber Ltd.
/s/ Bruce C. Rosetto /s/ Michael A. Lupo
- ---------------------------------- --------------------------------
Bruce C. Rosetto, Secretary Michael A. Lupo, President
Chesapeake Plastic Lumber Inc.
/s/ Bruce C. Rosetto /s/ Michael A. Lupo
- ---------------------------------- --------------------------------
Bruce C. Rosetto, Secretary Michael A. Lupo, Chairman
SELLER:
Chesapeake Recycled Lumber, Inc.
/s/ H. Richard Wolf
- ---------------------------------- --------------------------------
H. Richard Wolf, President
SHAREHOLDERS:
/s/ H. Richard Wolf
- ---------------------------------- --------------------------------
H. Richard Wolf
/s/ Joel B. Chazen
- ---------------------------------- --------------------------------
Joel B. Chazen
/s/ Larry M. Epstein
- ---------------------------------- --------------------------------
Larry M. Epstein
/s/ Myron S. Asher
- ---------------------------------- --------------------------------
Myron S. Asher
/s/ Jeffrey M. Kleeman
- ---------------------------------- --------------------------------
Jeffrey M. Kleeman
/s/ Donald N. Hoffman
- ---------------------------------- --------------------------------
Donald N. Hoffman
/s/ Stephen W. Oliver
- ---------------------------------- --------------------------------
Stephen W. Oliver
22
<PAGE> 23
/s/ Mark R. Toploski
- ---------------------------------- --------------------------------
Mark R. Toploski
U.S. Plastic Lumber Corporation enters into this Agreement for the sole purpose
of binding itself to Sections 4.1.1 and 4.1.3 hereof.
ATTEST: U.S. Plastic Lumber Corporation
/s/ Bruce C. Rosetto /s/ Mark S. Alsentzer
- ---------------------------------- --------------------------------
Bruce C. Rosetto, Secretary Mark S. Alsentzer, President
23
<PAGE> 24
LIST OF EXHIBITS
- ----------------
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
A List of Shareholders
B Promissory Note
B-1 UCC Financing Statement and Security Agreement
C Non-Compete Agreements
D Opinion of Counsel of Seller/Shareholder
E Articles of Transfer/Bill of Sale
F Certificate of President of Chesapeake Recycled Lumber, Inc.
G Consent of Shareholders of Chesapeake Recycled Lumber, Inc.
H Consent of Directors of Chesapeake Recycled Lumber, Inc.
I Assumption of FIL (US), Inc. Building Lease
EXHIBIT DESCRIPTION
- ------- -----------
1.1 List of Assets
1.2 List of Assumption of Liabilities and Debts
1.4 Allocation of Purchase Price
1.6 Deferred Payment Customer List
1.7 Bulk Sale - List of Creditors
3.1 Organization and Good Standing
3.1-2 Limits on Authority
3.1-3 Consents of Shareholder/Seller
3.2 Tax Matters
3.3 Compliance; Permits
3.4 No Breach
3.5 Financial Statements
3.7 Litigation and Judgments
3.8 Contracts
3.9 Accounts Receivable
3.11 Tangible Property
3.11-2 Real Property
3.11-3 Software
3.12 Liens
3.13 List of Employees
3.13-1 Employment Agreements
3.13-2 Employment Compliance Matters
3.13-3 Loans made to Company Employees
3.14 Employee Benefit Plans
3.15 Insurance Policies
3.17 Environmental Matters
</TABLE>
24
<PAGE> 25
4.1 Consents of Buyer
5.1 Certain Employees
7.5 Liens to be Terminated
25
<PAGE> 1
Exhibit 10.3
STOCK PURCHASE AND SALE AGREEMENT
STOCK PURCHASE AND SALE AGREEMENT ("Agreement") dated February
25, 1998, among Michael S. Roscoe ("Seller"), and Clean Earth, Inc., a Delaware
corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the owner of 50 shares of the common stock,
par value $1.00 per share (the "Shares"), of Consolidated Technologies, Inc., a
Pennsylvania corporation (the "Company"); and
WHEREAS, Seller wishes to sell, and Purchaser wishes to
purchase all of the Shares for the purchase price and upon the terms and subject
to the conditions described below;
NOW, THEREFORE, in reliance on the representations, warranties
and agreements and subject to the terms and conditions hereinafter set forth,
the parties hereby agree as follows:
1. Sale and Purchase of Shares. Upon the execution of this
Agreement, Seller shall sell, assign, and transfer to Purchaser, and Purchaser
shall purchase from Seller, the Shares free and clear of all liens, encumbrances
or claims of any kind.
2. Purchase Price. In full consideration for the Shares,
Purchaser shall pay to Seller, a purchase price equal to the sums set forth in
paragraphs (a) and (b) below as follows:
(a) Three Year Royalty - Purchaser shall provide an annual
payment to Seller based upon Net Sales for each year, as defined below, of
Consolidated Technologies, Inc. ("CTI") for fiscal years 1998, 1999, and 2000 as
follows:
AMOUNT OF ROYALTY CTI NET SALES LEVEL
.15% Up to $15M
.20% more than $15M but equal to or less than $30M
.3% more than $30M
For purposes of this Agreement, Net Sales for each year shall
be defined as Gross Sales of CTI less ordinary deductions such as but not
limited to invoice credits, rebates, allowances for bad debt, sales tax, freight
charges, and other such deductions. The royalty payments are not cumulative from
year to year, but incremental based upon actual Net Sales for each fiscal year.
<PAGE> 2
Notwithstanding anything to the contrary herein, the three
year royalty payment shall begin on the first day in which CTI creates its first
invoice for dredge services and end three years hence.
By way of example, if in fiscal year 1998, CTI generates Net
Sales equal to $28,500,000, Seller will receive a cash payment from Purchaser
equal to $49,500 calculated as follows:
$22,500 being .15% of $15M
$27,000 being .20% of $13.5M
------- ------
Total $49,500 $28.5M
(b) Lump Sum Payment - Upon the completion of fiscal year
ending December 31, 2000, Purchaser shall make a lump sum cash payment to Seller
equal to three times net income after taxes for the year. Said payment shall be
made by Purchaser to Seller within 30 days from the date Purchaser completes it
financial audit from an independent accounting firm for fiscal year ending
December 31, 2000.
(c) Additional Consideration - As additional consideration to
Seller to execute this Agreement, Purchaser shall provide 1,000 shares of
non-registered and non-assessable shares of U.S. Plastic Lumber Corporation at
the time of the execution of this Agreement.
3. Deliveries of Seller. Upon execution of this Agreement,
Seller shall: (i) deliver, or shall cause to be delivered to Purchase,
certificates representing the Shares, accompanied by stock powers duly endorsed
in blank (collectively, the "Certificates"), and (ii) execute and deliver such
other documents as Purchaser may reasonable request. The Shares represented by
the Certificates shall be delivered to Purchaser free and clear of all Claims
(as hereinafter defined).
4. Representations and Warranties of Seller. The Seller
represents, warrants and agrees that:
(a) OWNERSHIP OF THE SHARES, ABSENCE OF CLAIMS. The Seller is
the record and beneficial owner of the Shares, and the Shares are free and clear
of any and all liens, pledges, security interests, options, encumbrances,
charges, agreements or claims of any kind whatsoever (collectively, the
"Claims").
(b) AUTHORITY, EXECUTION AND DELIVERY OF THE SHARES. The
Seller has the full right, power and authority to enter into and to perform this
Agreement and all other agreements, certificates and documents executed or
delivered, or to be executed or delivered, by such Seller in connection
herewith. The Seller has the full right, power and authority to sell, assign,
transfer and deliver the Shares as provided in this Agreement, and such delivery
will convey to Purchase lawful, valid and marketable title to the Shares, free
and clear of any and all Claims. This Agreement has been duly authorized,
executed and delivered by the Seller, and is a legal, valid and binding
obligation of the Seller, enforceable in accordance with its terms.
-2-
<PAGE> 3
5. Representations and Warranties of Purchaser. Purchaser
represents, warrants and agrees that:
(a) EXECUTION AND EFFECT OF AGREEMENT. Purchaser has the full
right, power and authority to enter into and perform this Agreement. This
Agreement has been duly executed and delivered by Purchaser and is a legal,
valid and binding obligation of Purchaser enforceable in accordance with its
terms.
(b) ACCESS TO COMPANY BY PURCHASERS. Purchaser and his
representatives and advisers have had free and full access during normal
business hours to the Company's assets, premises, books and records, key
employees and accountants, and have had the opportunity to ask questions and
receive answers about the past performance and current and future prospects of
the Company's business and assets.
(c) PURCHASE FOR INVESTMENT. The Purchaser understands and
represents that: (i) the Purchaser must bear the economic risk of an investment
in the Shares for an indefinite period of time because the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), or
under any state securities laws and, therefore, cannot be resold unless they are
subsequently registered under the 1933 Act and the pertinent state securities
laws or unless an exemption from such registration is available; (ii) the
Purchaser is purchasing the Shares for investment for the account of the
Purchaser, not for the account of any other person, and not with any present
view toward resale or other "distribution" thereof within the meaning of the
1933 Act; and (iii) the Purchaser agrees not to resell or otherwise dispose of
all or any part of the Shares, except as permitted by law, including, without
limitation, any and all applicable provisions of this Agreement and any
regulations under the 1933 Act.
(d) RISKS OF INVESTMENT. The Purchaser is aware that an
investment in the Shares is highly speculative and subject to substantial risks.
The Purchaser is capable of bearing the high degree of economic risk and burdens
of this investment, including the possibility of a complete loss of his
investment and the lack of a public market and limited transferability of the
Shares, which may make the liquidation of this investment impossible for an
indefinite period of time. The financial condition of the Purchaser is such that
he is under no present or contemplated future need to dispose of any of the
Shares to satisfy any existing or contemplated undertaking, need or
indebtedness.
(e) RESIDENCY. The Purchaser is a duly organized corporation
of the State of Delaware.
6. Restricted Stock and Legend.
The Purchaser acknowledges that the Shares purchased pursuant
to this Agreement are deemed "restricted securities" as defined in the 1933 Act.
Until the Shares become registered with the Securities and Exchange Commission,
each certificate representing a share of Common Stock shall bear a legend in
substantially the following form:
-3-
<PAGE> 4
THE SHARE(S) REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES LAWS, AND THE COMPANY HAS RELIED UPON AN EXEMPTION TO THE
REGISTRATION REQUIREMENT UNDER THE ACT FOR THE SALE OF THE SHARES(S) REPRESENTED
BY THIS CERTIFICATE TO ITS HOLDER. THEREFORE, THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE RESTRICTED STOCK AND MAY NOT BE SOLD OR TRANSFERRED TO ANY THIRD
PARTY WITHOUT EITHER BEING REGISTERED UNDER THE ACT OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
7. Indemnity. Purchaser agrees to indemnify and hold harmless
Seller from any and all financial and legal claims, restrictions, or liabilities
resulting from Seller's status as a Shareholder or Secretary of CTI. Purchaser
will utilize its reasonable efforts to have Seller removed from any personal
guaranties Seller may have entered into on behalf of CTI.
8. Brokers. Each party represents to the other that it has had
no dealings with any broker or finder in connection with the transactions
contemplated by this Agreement. Should any claim be made for a broker's,
finder's or similar fee, on account of any actions or dealings by a party or its
agents, such party shall indemnify and hold the other party harmless from and
against any and all liability and expenses, including reasonable attorneys' fees
incurred by reason of any claim made by such broker.
9. Further Assurances. The parties shall cooperate and take
such actions, and execute such other documents, as either may reasonably request
in order to carry out the provisions or purpose of this Agreement, including
without limitation the execution and delivery by Sellers of additional stock
powers duly executed in blank with respect to the Shares.
10. Notices. All notices or other communications in connection
with this Agreement shall be in writing and shall be considered given when
personally delivered or when mailed by registered or certified mail, postage
prepaid, return receipt requested, as follows:
If to Sellers:
Michael S. Roscoe
2230 DeKalb Street
Norristown, PA 19401
If to Purchasers:
U.S. Plastic Lumber Corporation
2300 Glades Road, Suite 440W
Boca Raton, FL 33431
Attn: Bruce C. Rosetto, Vice President and General Counsel
-4-
<PAGE> 5
11. Entire Agreement. This Agreement sets forth the parties'
final and entire agreement with respect to its subject matter and supersedes any
and all prior understandings and agreements. This Agreement may be amended,
supplemented or changed, and any provision hereof may be waived, only by a
written instrument making specific reference to this Agreement signed by the
party against whom enforcement of any such amendment, supplement, change or
waiver is ought.
12. Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the internal laws of the State of
Florida (without reference to its rules as to conflicts of law).
13. Jurisdiction and Venue. The parties acknowledge that a
substantial portion of negotiations, anticipated performance and execution of
this Agreement occurred or shall occur in Palm Beach County, Florida, and that,
therefore, without limiting the jurisdiction or venue of any other federal or
state courts, each of the parties irrevocably and unconditionally (a) agrees
that any suit, action or legal proceeding arising out of or relating to this
Agreement may be brought in the courts of record of the State of Florida in Palm
Beach County or the District Court of the United States, Southern District of
Florida; (b) consents to the jurisdiction of each such court in any suit, action
or proceeding; (c) waives any objection which it may have to the laying of venue
of any such suit, action or proceeding in any of such courts; and (d) agrees
that service of any court paper may be effected on such party by mail, as
provided in this Agreement, or in such other manner as may be provided under
applicable laws or court rules in said state.
14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the date first above written.
SELLERS:
/s/ Michael S. Roscoe
--------------------------------
Michael S. Roscoe
PURCHASER:
/s/ Bruce C. Rosetto
--------------------------------
Bruce C. Rosetto, Vice President
and General Counsel
-5-
<PAGE> 6
STOCK TRANSFER AND ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns,
transfers, conveys and delivers to U.S. Plastic Lumber Corporation Fifty shares
(50) shares of the Common Stock par value $1.00 of Consolidated Technologies,
Inc., a Pennsylvania corporation (the "Corporation"), represented by certificate
number _____, and irrevocably constitute and appoint Steven C. Sands as my
attorney to transfer these shares on the books and records of the Corporation,
with full power of substitution.
Dated:
/s/ Michael S. Roscoe
------------------------------
Michael S. Roscoe
-6-
<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of May 12, 1998, by and among
U.S. Plastic Lumber Ltd., a Delaware corporation ("Parent"), CMI ACQUISITION
CORPORATION, an Indiana corporation and wholly-owned subsidiary of Parent
("Acquiror"), U.S. Plastic Lumber Corporation, a Nevada corporation
("Guarantor") and Cycle Masters, Inc., an Indiana corporation (the "Target")
(Acquiror and Target being hereinafter collectively referred to as the
"Constituent Corporations") and James Cole and Scott House (jointly and
severally "Shareholders").
RECITALS
A. The Boards of Directors of U.S. Plastic Lumber, Ltd. and Cycle
Masters, Inc., have approved the acquisition of Cycle Masters,
Inc., by U.S. Plastic
Lumber , Ltd.
B. The Boards of Directors of U.S. Plastic Lumber, Ltd. have
approved the merger of Cycle Masters, Inc., pursuant to the
Articles of Merger set forth in Exhibit Q hereto and the
transactions contemplated hereby ("Merger Agreement"), in
accordance with the applicable provisions of the statutes of
the State of Indiana.
C. For federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization with the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
D. Each of the parties to this Agreement desires to make certain
representations, warranties and agreements in connection with
the Merger and also to prescribe various conditions.
AGREEMENT
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. THE MERGER
1.1 The Merger. At the Effective Time (as defined in SECTION 1.2) and
subject to the terms and conditions of this Agreement and the Merger
<PAGE> 8
Agreement, Cycle Masters, Inc. shall be merged into CMI ACQUISITION CORPORATION,
and the separate existence of Cycle Masters, Inc. shall thereupon cease, in
accordance with the applicable provisions of the Business Corporation Law of the
State of Indiana (the "IBCL") .
(b) CMI ACQUISITION CORPORATION will be the surviving corporation in
the Merger (sometimes referred to herein as the "Surviving Corporation") and
will continue to be governed by the laws of the State of Indiana, and the
separate corporate existence of and all of its rights, privileges, immunities
and franchises, public or private, and all its duties and liabilities as a
corporation organized under the IBCL, will continue unaffected by the Merger.
(c) The Merger will have the effects specified by the IBCL.
1.2 Effective Time. As soon as practicable following fulfillment or
waiver of the conditions specified in this Agreement and provided that this
Agreement has not been terminated or abandoned pursuant to SECTION 12 hereof,
the Constituent Corporations will cause a Articles of Merger (the "Articles of
Merger") to be filed with the office of the Secretary of State of the State of
Indiana as provided in Section 23-1-40-1 ET. SEQ., of the IBCL, and will cause
the Merger Agreement together with a duly executed Articles of Approval of
Merger, certificates of the officers of Parent and the Constituent Corporations
and tax clearance, certificates to be filed with the office of the Secretary of
State of the State of Indiana, as required by the IBCL. Subject to and in
accordance with the laws of the States of Indiana, the Merger will become
effective at the date and time theArticles of Merger is filed with the office of
the Secretary of State of the State of Indiana or such later time or date as may
be specified in the Articles of Merger (the "Effective Time"). Each of the
parties will use its best efforts to cause the Merger to be consummated as soon
as practicable following the fulfillment or waiver of the conditions specified
herein.
2. THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Acquiror as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation after the Effective
Time.
2.2 By-Laws. The By-Laws of Acquiror as in effect immediately prior to
the Effective Time shall be the By-Laws of the Surviving Corporation after the
Effective Time.
2.3 Board of Directors. From and after the Effective Time, the Board of
Directors of CMI ACQUISITION CORORATION shall be the Board of Directors of the
Surviving Corporation.
3. CONVERSION OF SHARES
3.1 Conversion of Target Shares in the Merger. Pursuant to the Merger
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any capital stock of Cycle Masters, Inc.:
<PAGE> 9
(a) all shares of Common Stock, no par value, of Target., ("Target,
Common Stock") shall be cancelled and shall cease to exist from and after the
Effective Time; and,
(b) each remaining issued and outstanding shares of Target Common
Stock, shall be converted into, and become exchangeable for 200,000 shares of
validly issued, fully paid and nonassessable, non-registered common stock,
$.0001 par value, of U.S. Plastic Lumber Corporation plus other good and
valuable consideration as set forth in SECTION 5 which sets forth all
consideration being paid hereunder. The consideration referred to in this
SECTION 3.1, together with all consideration set forth in SECTION 5, is
hereinafter referred to as the "Merger Consideration."
3.2 Status of Acquiror's Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder of any capital stock
of Acquiror. The Common Stock of Acquiror shall continue unchanged and remain
outstanding as a share of common stock of the Surviving Corporation.
3.3 Exchange of Company Capital Stock Certificates. (a) On or prior to
the Closing Date, Parent shall make available to the Target the certificates
representing shares of U. S. Plastic Lumber Corporation the Common Stock
required to effect the exchange referred to in Section 3.3(b). Parent shall also
make available to the Target the cash required to make the cash payments set
forth in SECTION 5 herein. Shares of U.S. Plastic Lumber Corporation Common
Stock, into which shares of Target Common Stock shall be converted in the
Merger, shall be deemed to have been issued at the Effective Time.
(b) From and after the Effective Time, each holder of a certificate,
which immediately prior to the Effective Time represented outstanding shares of
Target Common Stock are granted by reason of the Merger under the IBCL, shall be
entitled to receive in exchange therefor, upon surrender thereof to the
Acquiror, a certificate or certificates representing the number of whole shares
of U. S. Plastic Lumber Corporation Common Stock into which such holder's shares
of Target Common Stock were converted pursuant to SECTION 3.1.
3.4 Closing of Transfer Books. From and after the Effective Time, the
stock transfer books of Target shall be closed, and no transfer of shares of
Target Common Stock shall thereafter be made. If, after the Effective Time,
Target Certificates are presented to Parent, they shall be cancelled and
exchanged for the Merger Consideration in accordance with the procedures set
forth in this SECTION 3.
<PAGE> 10
4. DEFINITIONS
Unless otherwise defined herein or the context otherwise requires, the terms
defined in this SECTION 4 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. Unless otherwise indicated, any reference
herein to a "Section", "Article", or "Schedule" shall mean the applicable
section, article or schedule of or to this Agreement. All accounting terms used
in this Agreement not defined in this SECTION 4 shall, except as otherwise
provided for herein, be construed in accordance with generally accepted
accounting principles, consistently applied.
"ACTION" shall mean any actual or threatened claim, action, suit, arbitration,
hearing, inquiry, proceeding, complaint, charge or investigation by or before
any Governmental Entity or arbitrator and any appeal from any of the forgoing.
"AFFILIATE" of a Person shall mean any Person that directly or indirectly
controls, is controlled by, or is under common control with the indicated
Person.
"AGREEMENT" shall mean this Securities Purchase Agreement.
"BALANCE SHEET" and "BALANCE SHEET DATE" shall have the meaning assigned to such
terms in SECTION 7.4(A).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CLOSING" and "CLOSING DATE" shall have the respective meanings assigned to such
terms in Section 5.3.
"COMMON STOCK" shall mean the Company=s authorized class of common stock, $0.01
par value per share.
"DOL" shall mean the United States Department of Labor.
"DAMAGES" shall mean any and all losses, liabilities, obligations, costs,
expenses, damages or judgments of any kind or nature whatsoever (including
reasonable attorneys', accountants, and expert=s fees, disbursements of counsel,
and other costs and expenses incurred pursuing indemnification claims under
SECTION 13 hereof).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
<PAGE> 11
"ERISA AFFILIATE" shall mean any Person which is (or at any relevant time was) a
member of a controlled group of corporations within the meaning of Code Section
414 (b), all trades or businesses under common control within the meaning of
Code Section 414(c), and all affiliated service groups within the meaning of
Code Section 414(m), of which the Company is (or any relevant time was) a
member.
"ENVIRONMENTAL LAWS" shall mean all Legal requirements pertaining to the
protection of the environment, the treatment, emission and discharge of gaseous,
particulate and effluent pollutants and the use, handling storage, treatment,
removal transport, transloading, cleanup decontamination, discharge and disposal
of Hazardous Substances, including, without limitation, those statutes, laws,
rules and regulations set forth below in the definitions of "Hazardous
Material".
"GOVERNMENTAL ENTITY" shall mean any local, state, federal or foreign (i) court,
(ii) government or (iii) governmental department, commission, instrumentality,
board, agency or authority, including the IRS and other taxing authorities.
"HAZARDOUS MATERIAL" shall mean any flammable, ignitable, corrosive, reactive,
radioactive or explosive substance or material, hazardous waste, toxic substance
or related material and any other substance or material defined or designated as
a hazardous or toxic substance, material or waste by any Environmental Law
currently in effect or as amended or promulgated in the future and shall
include, without limitation:
(a) those substances included within the definitions of "hazardous substances",
"hazardous materials", "toxic substances", or "solid waste" in the Comprehensive
Environmental response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Sections 9601, ET. SEQ., the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 ET.SEQ., and the Hazardous Materials Transportation Act, 49
U.S.C. Sections 1801 ET. SEQ., and in the regulations promulgated pursuant
thereto.
(b) those substances defined as "hazardous substances", "hazardous materials",
"toxic substances", or "solid waste" in the State of Indiana.
(c) those substances listed in the United States Department of Transportation
Table (49CFR 172.101 and amendments thereto) or by the Environmental Protection
Agency (or any successor thereto) as hazardous substances (40CFR Part 302 and
any amendments thereto).
(d) such other substances, materials and wastes that are or become regulated
under applicable local, state or federal laws or regulations, or which are or
become classified as hazardous or toxic under any Legal Requirement; and
<PAGE> 12
(e) any material, waste or substance that is, in whole or in part, (i)
petroleum, asbestos, polychorinated biphenyls, methylene chloride,
trichorothylene, 1, 2- transdichoroethylene, dioxins or dibenzofurans, (ii)
designated as an "extremely hazardous substance" pursuant to Section 302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended, or (iii)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. Sections 1251 ET. SEQ. (U.S.C. Section 1321) or listed pursuant
to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), or Section 112
or other sections of the Clean Water Act, as amended.
"IRS" shall mean the United States Internal Revenue Service.
"INDEBTEDNESS" shall mean, when used with reference to any Person, without
duplication, (i) any liability of such Person created or assumed by such Person,
or any Subsidiary thereof, (A) for borrowed money, (B) evidence by a bond, note,
debenture, or similar instrument (including a purchase money obligation, deed of
trust or mortgage) given in connection with the acquisition of, or exchange for,
any property or assets (other than inventory or similar property acquired and
consumed in the Ordinary Course), including securities and other Indebtedness,
(C) in respect of letters of credit issued for such Person's account and "swaps"
of interest and currency exchange rate (and other interest and currency exchange
rate hedging agreements) to which such Person is a party or (D) for the payment
of money as lessee under leases that should be, in accordance with generally
accepted accounting principles, recorded as capital leases for financial
reporting purposes; (ii) any liability of others described in the preceding
clause (i) guaranteed as to payment of principal and interest by such Person or
in effect guaranteed by such Person through an agreement, contingent or
otherwise, to purchase, repurchase or pay the related Indebtedness or to acquire
security therefor; (iii) all liabilities or obligations secured by a Lien upon
property owned by such Person and upon liabilities or obligations such Person
customarily pays interest or principal, whether or not such Person has not
assumed or become liable for the payment of such liabilities or obligations; and
(iv) any amendment, renewal, extension, revision or refunding or any such
liability or obligation; PROVIDE, HOWEVER, that Indebtedness shall not include
any liability for compensation of such Person=s employees or for inventory or
similar property acquired and consumed in the Ordinary Course or for services.
"LEASED REAL PROPERTY" shall mean all real property, including Structures,
leased by the Company.
<PAGE> 13
"LEGAL REQUIREMENTS" shall mean any statute, law, ordinance, rule, regulation,
permit, order, writ, judgment, injunction, decree or award issued, enacted or
promulgated by any Governmental Entity or any arbitrator.
"LIEN" shall mean all liens (including judgment and mechanics liens, regardless
of whether liquidated), mortgages, assessments, security interests, easements,
claims, pledges, trusts (constructive or other), deeds of trust, options or
other charges, encumbrances or restrictions.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the business,
financial condition, properties, profitability, prospects or operations of the
Company.
"NON-COMPETITION AGREEMENT(S)" shall have the meaning assigned to such term in
Section 11.1(g).
"ORDINARY COURSE" shall mean, when used with reference to the Company, the
ordinary course of the Company's business, consistent with past practices.
"OWNED REAL PROPERTY" shall mean all real property, including Structures, owned
by the Company.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PERMIT" shall have the meaning assigned to such term in SECTION 7.16.
"PERMITTED LIENS" shall mean (a) Liens for ad valorem real or personal property
taxes or assessments not at the time due and (b) Liens in respect of pledges or
deposits under worker=s compensation laws or similar legislation, carriers',
warehousemen's, mechanic's, laborers' and materialmen's and similar liens, if
the obligations secured by such Liens are not then delinquent.
"PERSON" shall mean all natural person's, corporations, business trusts,
associations, limited liability companies, companies partnerships, joint
ventures, Governmental Entities and any other entities.
"REAL PROPERTY" shall mean the Owned Real Property and the Lease Real Property,
collectively.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARE PERCENTAGE" with respect to any Shareholder shall mean the percentage
that the number of Shares held by such Shareholder represents of the total
number of Shares, as set forth on Exhibit "A".
<PAGE> 14
"SHARES" shall mean the shares of Common Stock of the Company held by the
shareholders.
"STOCK" shall mean shares of common stock issued by the Acquiror to the
Shareholders as payment of the Purchase Price, as contemplated by Section 5
hereof.
"STRUCTURE" shall mean any facility, building, plant, factory, office,
warehouse structure or other improvement owned or leased by the Company.
"SUBSIDIARY" of a Person shall mean any corporation, partnership, limited
liability company, association or other business entity at least 50% of the
outstanding voting power of which is at the time owned or controlled directly or
indirectly by such Person or by one or more of such subsidiary entity, or both.
"TAX" shall mean any Federal, state, local or foreign income, gross receipts,
license, payroll, unemployment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including, without limitation, taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), employment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-
on minimum, estimated tax or other tax, assessment or charge of any kind
whatsoever, including, without limitation, any interest, fine, penalty or
addition thereto, whether disputed or not.
"TAX RETURN" shall mean any return, declaration, report, claim for refund or
information, or statement relating to Taxes, and any exhibit, schedule,
attachment or amendment thereto.
5. PURCHASE AND EXCHANGE OF SECURITIES
5.1 EXCHANGE AND DELIVERY. Each Shareholder agrees to deliver to Acquiror, and
Acquiror agrees to exchange and accept from each Shareholder, free and clear of
all Liens, on the terms and conditions set forth in this Agreement, and for the
exchange price described in SECTION 5.2 below, good and marketable title to the
number of Shares set forth opposite the name of such Shareholder on Exhibit "A".
The Shares to be exchanged pursuant to this Agreement constitute all of the
outstanding capital stock of the Company.
<PAGE> 15
5.2 CONSIDERATION. The Consideration for all of the Shares shall be as
follows:
(a) Fifty Thousand dollars as a deposit, receipt being acknowledged.
(b) One Million Five Hundred and Fifty Thousand dollars to be paid at
time of Closing by good check or wire transfer.
(c) Six Hundred and Fifty Thousand dollars in the form of a Promissory
Note as set forth in Exhibit "M" attached hereto and secured by 125,000 shares
of U.S. Plastic Lumber Corporation stock pursuant to a Security Agreement
attached hereto as Exhibit "O" plus a Corporate Guaranty as set forth in Exhibit
"N" attached hereto and made a part hereof. In the event U. S. Plastic Lumber
Corporation and the Acquiror default on the Promissory Note and the Shareholder
receives Title to the 125,000 shares held as collateral hereunder, the
obligations of U.S. Plastic Lumber Corporation set forth in SECTION 5.2(d) shall
also be applicable to the same extent for these 125,000 shares.
(d) 200,000 shares of non-registered Common Stock of U. S. Plastic
Lumber Corporation to be eligible to be publicly traded, subject to Rule 144
provisions of the Securities Act of 1933 ("Rule 144"). In the event these shares
are not tradable on a public exchange, subject to Rule 144, one year and ten
days from the date of issuance of the shares, Buyer shall redeem the shares at a
price equal to $5.00 per share. In the event the holding periods of Rule 144 are
changed by the Securities and Exchange Commission from the current regulations
during this one year and ten day period, Buyer shall not redeem the shares.
(e) The Shareholder, James Cole, will be granted an option to buy
20,000 shares of non-registered common stock of U.S. Plastic Lumber Corporation
at an exercise price of $5.00 per share which must be exercised within two (2)
years from the date hereof; provided only in the event that the net tangible
book value of Target increased by a maximum of $123,000.00 on the 3/31/98
Balance Sheet as compared to the 9/20/97 Balance Sheet.
The Consideration shall be allocated among the Shareholders as set forth
opposite their respective names on Exhibit "A". The Stock shall not have been
registered pursuant to the Securities Act, and shall be subject to the
requirements of Rule 144 of the Securities Act.
5.3 CLOSING. The exchange of the Shares and the consummation of the other
transactions contemplated by this Agreement, (the "Closing") shall occur at
10:00 AM, local time, on or about May 4, 1998,
<PAGE> 16
simultaneously at the offices of the Acquiror at 2300 Glades Road, Suite 440W,
Boca Raton, Florida,and at the office of the general counsel for the Company, F.
Pen Cosby, Esq., or at such other time or on such other date as shall be agreed
upon among the Shareholders and the Acquiror upon fulfillment of all conditions
precedent to the Closing, such hour and date being herein generally referred to
as the "CLOSING DATE". At the Closing:
(a) Each Shareholder shall deliver or cause to be delivered to
Acquiror, against the delivery by the Acquiror of the Stock, in payment
by Acquiror of the Consideration to such Shareholder:
(i) a certificate or certificates representing the Shares
being exchanged by such Shareholder hereunder duly endorsed
for transfer, or accompanied by duly executed assignments
separate from the certificate, transferring to Acquiror good
and marketable title to such Shares, free and clear of all
Liens;
(ii) all of the documents, certificates, and instruments
required to be delivered, or caused to be delivered, by such
Shareholder pursuant to SECTION 11.1 hereof; and
(iii) all records, documents, and files of the Company,
including, without limitation, all minute books, stock
records, stock certificate books, and internal accounting
records.
(b) Acquiror shall deliver or cause to be delivered to each
Shareholder, against delivery of the certificate or certificates
representing the Shares:
(i) certificate(s) of Stock of the Acquiror representing the
number of shares allocated to the respective Shareholder as
set forth on Exhibit "A";
(ii) all of the documents, if any, required to be delivered by
Acquiror pursuant to SECTION 11.2 hereof.
<PAGE> 17
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE SHAREHOLDERS
Each of the Shareholders hereby jointly and severally represents and warrants
to, and covenants and agree with, Acquiror that:
6.1 OWNERSHIP OF SHARES. Such Shareholder owns of record and beneficially the
number of Shares set forth opposite the name of such Shareholder on Exhibit "A"
hereto, and has, and at all times prior to and as of the Closing such
Shareholder will have, good and marketable title to such Shares free and clear
of all Liens.
6.2 DELIVERY OF GOOD TITLE. Upon delivery of the Shares to be sold by such
Shareholder hereunder and delivery of the Stock therefor pursuant to this
Agreement, Acquiror will have good and marketable title to such Shares free and
clear of all Liens.
6.3 EXECUTION AND DELIVERY. All consents, approvals, authorizations and order
necessary for the execution, delivery and performance by such Shareholder of
this Agreement (including, without limitation, the transfer and sale of the
Shares to be sold by such Shareholder to Acquiror) have been duly and lawfully
obtained, and such Shareholder has, and at the Closing will have, full right,
power, authority and capacity to execute, deliver and perform this Agreement.
This Agreement has been duly executed and delivered by such Shareholder and
constitutes a legal, valid and binding agreement of such Shareholder enforceable
against such Shareholder in accordance with its terms.
6.4 NO CONFLICTS. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not conflict with
or result in a breach or violation of any term or provision of, or (with or
without notice or passage of time, or both) constitute a default under, any
indenture, mortgage, deed of trust, trust (constructive and other), loan
agreement or other agreement or instrument to which such Shareholder is a party
or by which such Shareholder or such Shareholder's Shares are bound, or violate
any Legal Requirement applicable to or binding upon such Shareholder.
6.5 NO BROKERS. No broker, finder or similar agent has been employed by or on
behalf of such Shareholder in connection with this Agreement or the transactions
contemplated hereby, and such Shareholder has not entered into any agreement or
understanding of any kind with any person or entity for the payment of any
brokerage commission, finder=s fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
<PAGE> 18
7. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
The Shareholders hereby jointly and severally represent and warrant to, and
covenant and agree with, Acquiror that:
7.1 ORGANIZATION AND GOOD STANDING.
(a) The Company has been duly organized and is existing as a corporation in good
standing under the laws of the State of Indiana with full power and authority
(corporate and other) to own and lease its properties and to conduct its
business as currently conducted. The Company has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each jurisdiction set forth on SCHEDULE 7.1(a), such
jurisdictions comprising all jurisdictions in which the Company owns or leases
any property, or conducts any business, so as to require such qualifications.
(b) Except as set forth in SCHEDULE 7.1(b), the Company has no Subsidiary nor
owns or controls, or has any other equity investment or other interest in,
directly or indirectly, any corporation, joint venture, partnership, association
or other entity.
7.2 NO CONFLICTS. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not (a) conflict
with or result in a breach or violation of any term or provision of, or
constitute a default under (with or without notice or passage of time, or both),
or otherwise give any Person a basis for accelerated or increased rights or
termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument of
which the Company is a party or by which the Company is bound or affected or to
which any of the property or assets of the Company is bound or affected
including, without limitation, all arrangements in SCHEDULE 7.19 hereof, (b)
result in the violation of the provisions of the Articles of Incorporation or
Bylaws of the Company or any Legal Requirement applicable to or binding upon it,
(c) result in the creation or imposition of any Lien upon any property or asset
of the Company or (d) otherwise adversely affect the contractual or other legal
rights or privileges of the Company. SCHEDULE 7.2 sets forth a list of all
agreements requiring the consent of any party thereto to any of the transactions
contemplated hereby.
7.3 CAPITALIZATION. The authorized capital stock of the Company consists solely
of One Thousand (1,000) shares of Common Stock having no par value, of which
only the number of Shares listed on Exhibit "A" are, and as of the Closing will
be, issued and outstanding. All of the
<PAGE> 19
Shares have been duly authorized and validly issued and are fully paid,
nonassessable and outstanding and are held by the Shareholders in amounts
reflected in Exhibit "A" hereto. Other than as set forth on SCHEDULE 7.3, (i)
there are no existing options, warrants, right, calls or commitments of any
character relating to the shares of Common Stock or any other capital stock or
securities of the Company, (ii) there are no outstanding securities or other
instruments convertible into or exchangeable for shares of Common Stock or any
other capital stock or securities of the Company and no commitments to issue
such securities or instruments and no Person has any right of first refusal,
preemptive right, subscription right or similar right with respect to any shares
of Common Stock or any other capital stock or securities of the Company. The
offer, issuance and sale of the Shares were (i) exempt from the registration and
prospectus delivery requirements of the Securities Act, (ii) registered or
qualified (or exempt from registration or qualification) under the registration
or qualification requirements of all applicable state securities laws and (iii)
accomplished in conformity with all other Legal Requirements.
7.4 FINANCIAL STATEMENTS.
(a) SCHEDULE 7.4 hereto contains true and complete copies of (i) the unaudited
balance sheet (the "BALANCE SHEET") of the Company at March 31, 1998 (the
"BALANCE SHEET DATE"), and the related unaudited statements of income for the
six (6 ) months then ended, (ii) the reviewed balance sheet of the Company at
September 30, 1997 and the related reviewed statements of income, shareholders=
equity and cash flow for the fiscal year then ended (together with the report
thereon of Paul Fouts , independent public accountants)(the financial statements
described in clause (i) and (ii) above are collectively referred to as the
"Financial Statements").
(b) The Financial Statements present fairly the financial condition of the
Company as of the dates indicated therein and the results of operations and
changes in financial position of the Company for the periods specified therein,
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis during the periods covered thereby and prior
periods, have been derived from the accounting records of the Company and
represent only actual, bona fide transactions. The Company=s Financial
Statements are true and correct in all material respects and do not contain any
untrue statement of a material fact or omit to state a material fact.
<PAGE> 20
7.5 TITLE TO PROPERTY; ENCUMBRANCES.
(a) The Company has, and immediately prior to the Closing will have, good, valid
and marketable title in fee simple to all Real Property and all personal
property reflected on the Balance Sheet as owned by the Company and all Real
Property and personal property acquired by the Company since the Balance Sheet
Date, in each case free and clear of all Liens except (i) as set forth on
SCHEDULE 7.5(a), (ii) for sales and other dispositions of inventory in the
Ordinary Course since the Balance Sheet Date which, in the aggregate, have not
been materially different from prior periods, and (iii) Permitted Liens.
(b) SCHEDULE 7.5(b). contains a true and complete list and legal description of
each parcel of Owned Real Property and a general description of each Structure
situated thereon. The Shareholders have heretofore furnished to Acquiror true
and complete copies of all deeds, other instruments of title and policies of
title insurance indicating and describing the Company=s ownership of the Owned
Real Property, as well as copies of any surveys or environmental reports
relating to the real property.
(c) SCHEDULE 7.5(c). contains a list of all tangible personal property having a
cost or fair market value in excess of Five Thousand Dollars ($5,000.00) owned
by the Company (other than personal property held by the Company as lessee under
a personal property lease).
(d) SCHEDULE 7.5(d) contains a list of all real property leases, licenses and
personal property leases under which the Company is the lessee or licensee,
together with (i) the location and nature of each of the leased or licensed
properties (including a legal description of all Leased Real Property), (ii) the
termination date of each such lease or license, (iii) the name of the lessor or
licensor and (iv) all rental and other payments made or required to be made for
the fiscal years ending September 30, 1997 and September 30, 1996. All leases
and licenses pursuant to which the Company leases or licenses from others real
or personal property are valid, subsisting in full force and effect in
accordance with their respective terms, and there is not, under any real
property lease, personal property lease or license, any existing default or
event of default (or event that, with notice or passage of time, or both, would
constitute a default, or would constitute a basis of FORCE MAJEURE or other
claim of excusable delay or nonperformance). True and complete copies of all
real property leases, licenses and personal property leases listed on SCHEDULE
7.5(d) have been delivered to Acquiror heretofore, as well as copies of any
title reports, surveys or environmental reports or audits relating to any Leased
Real Property. Except as set forth in SCHEDULE 7.5(d), no such lease or license
will require the consent of the lessor or licensor to or as a result of the
consummation of the transactions contemplated by this Agreement. For the
purposes of this SECTION 7.5(d), a "lease" shall include a sublease.
<PAGE> 21
(e) All personal property owned by the Company and all personal property held by
the Company pursuant to personal property leases is in good operating condition
and repair, subject only to ordinary wear and tear, has been operated, serviced
and maintained properly within the recommendations and requirements of the
manufacturers thereof (if any) and is suitable and appropriate for the use
thereof made and proposed to be made by the Company in its business and
operations. The Real Property and personal property described in SECTIONS
7.5(a), 7.5(b) AND 7.5(c) and the Real Property and personal property held by
the Company pursuant to the leases and licenses described in SCHEDULE 7.5(d)
compromise all of the real property and personal property used in the conduct of
business of the Company.
(f) Except as set forth in SCHEDULE 7.5(f):
(i) The Company is not in violation of, or default under, any Legal Requirement
pertaining to any of the Real Property. No notice of violation of any Legal
Requirement, or of any covenant, condition, restriction or easement affecting
any Real Property or with respect to the use or occupancy thereof, has been
given by any Person;
(ii) All of the Structures (A) are in good operating condition and repair, (B)
are adequate and suitable for the purposes for which they are currently and
proposed to be used, and (C) are supplied with utilities and other services
necessary for the operation of such Structures, and the business conducted by
the Company therein, including gas, electricity, water, telephone, sanitary
sewer and storm sewer, all of which services are maintained in accordance with
all Legal Requirements and are provided via permanent, irrevocable, appurtenant
easements in favor of the Company;
(iii) No condemnation proceeding is pending or, to the knowledge of the
Shareholders, threatened which would impair the occupancy, use or value of any
Real Property;
(iv) No Structure, nor the operations of the Company therein or thereon, (A) is
located outside of the boundary lines of the described parcel of land on which
it is located, (B) is in violation of applicable setback requirements, zoning
laws, or ordinances, (C) is subject to "permitted non-conforming use" or
"permitted non-conforming structure" classifications or (D) encroaches on any
property owned by, or easement granted in favor of, any Person;
(v) There are no (A) leases, subleases, licenses, concessions or other
agreements, written or oral, granting to any other Person the right to acquire,
use or occupy any portion of, any Real Property, (B) outstanding options or
rights of first refusal to purchase all or any portion of Real Property or
interest therein, and (C) Persons (other than the Company) in possession of any
Real Property;
<PAGE> 22
(vi) Each parcel of Owned Real Property (A) is fully and adequately described in
the legal description therefor contained in the deed thereof, (B) abuts a paved
public right-of-way, (C) does not serve any adjoining property for any purpose
inconsistent with the use of the land, and (D) is not located within any flood
plain or subject to any similar type restriction for which any permits or
licenses necessary to the use thereof have not been obtained; and
(vii) With respect to each item of Leased Real Property, (A) to the
Shareholders= knowledge, the owner thereof has good and marketable title
thereto, free and clear of all Liens other than (I) recorded easements,
covenants and restrictions that do not impair the current use, occupancy or
value thereof and (II) the leasehold interest of the Company, (B) there is
adequate ingress and egress (and a continuing right thereto), without the need
for an easement, between paved public rights-of-way and such Leased Real
Property and (C) the Company has not sold, transferred or subjected to a Lien
such Leased Real Property or any interest therein.
7.6 ACCOUNTS RECEIVABLE All accounts receivable of the Company reflected in
the Balance Sheet and all accounts receivable of the Company that have arisen
since the Balance Sheet Date (except such accounts receivable as have been
collected since such dates) are valid and enforceable claims, and the goods and
services sold and delivered that gave rise to such accounts were sold and
delivered in conformity with all applicable express and implied warranties,
purchase orders, agreements and specifications. Such accounts receivable of the
Company are subject to no valid defense, offset or counterclaim and are fully
collectible, except to the extent of the allowance for doubtful accounts
reflected on the Balance Sheet. SCHEDULE 7.6 contains a true and complete aging
of the Company's accounts receivable as of the Balance Sheet Date.
7.7 INVENTORIES. Except as described in SCHEDULE 7.7, all inventories of
raw materials, work-in-process and finished good set forth or reflected in the
Balance Sheet or acquired by the Company since the Balance Sheet Date, consist
of a quality and quantity usable and saleable in the Ordinary Course, except for
slow-moving, damaged or obsolete items and materials of below standard quality,
all of which have been written down to net realizable market value or in respect
of which adequate reserves have been provided, in each case as reflected in the
Balance Sheet. The value at which inventories are carried on the Balance Sheet
reflect the normal inventory valuation policy of the Company, as applicable, in
accordance with generally accepted accounting principles and on a basis
consistent with that of preceding periods, of stating inventory at the lower of
cost or market value. There is no reason to believe that the Company will
experience in the foreseeable future any difficulty in obtaining, in the desired
quantity and quality, the inventory necessary to conduct its business in the
manner proposed to be conducted, including, without limitation, inventory which
historically has been imported.
<PAGE> 23
7.8 TRADEMARKS, PATENTS, ETC.
(a) SCHEDULE 7.8(a) contains a true and complete list of all letters patent,
patent applications, trade names, trademarks, service marks, trademark and
service mark registrations and applications, copyrights, copyright registrations
and applications, grants of a license or right to the Company with respect to
the foregoing, both domestic and foreign, claimed by either Company or used or
proposed to be used by the Company in the conduct of its business, whether
registered or not, (collectively herein, "REGISTERED RIGHTS"). The trade name
"Cyclewood" is being conveyed as part of this transaction.
(b) Except as described in SCHEDULE 7.8(b), the Company owns and has the
unrestricted right to use the Registered Rights and every trade secret,
know-how, process, discovery, development, design, technique, customer and
supplier list, promotional idea, marketing and purchasing strategy, invention,
process, confidential data and or other information (collectively herein,
"PROPRIETARY INFORMATION") required for or incident of the design, development,
manufacture, operation, sale and use of all products and services sold or
rendered or proposed to be sold or rendered by the Company, free and clear of
any right, equity or claim of others. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all Proprietary
Information.
(c) SCHEDULE 7.8(c) contains a true and complete list and description of all
licenses of or rights to Proprietary Information granted to the Company by
others or to others by the Company. Except as described in SCHEDULE 7.8(c), (i)
the Company has not sold, transferred, assigned, licensed or subjected to any
Lien, any Registered Right or Proprietary Information or any interest therein,
and (ii) the Company is not obligated or under any liability whatever to make
any payments by way of royalties, fees or otherwise to any owner or licensor of,
or other claimant to, any Registered Right or Proprietary Information.
(d) There is no claim or demand of any Person pertaining to, or any Action that
is pending or, to the Shareholders= knowledge, threatened, which challenges the
rights of the Company in respect of any Registered Right or any Proprietary
Information.
<PAGE> 24
7.9 BANKING AND INSURANCE.
(a) SCHEDULE 7.9(a) contains a true and complete list of the names and locations
of all financial institutions at which the Company maintains a checking account,
deposit account, securities account, safety deposit box or other deposit or
safekeeping arrangement, the numbers or other identification of all such
accounts and arrangements and the names of all persons authorized to draw
against any funds therein.
(b) SCHEDULE 7.9(b) contains a true and complete list of all insurance policies
and bonds and self insurance arrangements currently in force that cover or
purport to cover risks or losses to or associated with the Company's business,
operations, premises, properties, assets, employees, agents and directors and
sets forth, with respect to each such policy, bond and self insurance
arrangement, a description of the insured loss coverage, the expiration date and
time of coverage, the dollar limitations of coverage, a general description of
each deductible feature and principal exclusion and the premiums paid and to be
paid prior to expiration. The insurance policies, bonds and arrangements
described on SCHEDULE 7.9(b) (the "POLICIES") provide such coverage against such
risk of loss and in such amounts as are customary for corporations of
established reputation engaged in the same or similar business and similarly
situated. The Company has no obligation, liability or other commitment relating
to any contract of insurance containing a provision for retrospective rating or
adjustment of the Company's premium obligation. To the Shareholders' knowledge,
no facts or circumstances exist that would cause the Company to be unable to
renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable as those currently in effect, other than possible
increases in premiums that do not result from any act or omission of the Company
or any Shareholder.
7.10 INDEBTEDNESS.
(a) The Company has no liability or obligation for Indebtedness other than as
set forth on SCHEDULE 7.10(a), and true and complete copies of all instruments
and documents evidencing, creating, securing or otherwise relating to such
Indebtedness have been delivered to Acquiror heretofore. Except as described in
SCHEDULE 7.10(a), no event has occurred and no condition has become known to the
Company or any Shareholder (including the transactions contemplated hereby) that
constitutes or, with notice or passage of time, or both, would constitute a
default or a basis of FORCE MAJEURE or other claim of accelerated or increased
rights, termination, excusable delay or nonperformance by the Company or any
other Person under any instrument or document relating to or evidencing
Indebtedness that would entitle any person to require the Company to pay any
portion of the principal amount of such Indebtedness prior to the scheduled
maturity thereof. Except as set forth in SCHEDULE 7.10(a), no instrument or
document evidencing, creating, securing or otherwise relating to Indebtedness
will require the consent of any person to or as a result of the consummation of
the transactions contemplated by this Agreement.
<PAGE> 25
(b) SCHEDULE 7.10(b) contains a list and brief description of all agreements or
instruments pursuant to which any of the Company's directors, employees or
shareholders have guaranteed by Indebtedness of the Company (the "GUARANTIES").
True and complete copies of all Guaranties have been delivered to Acquiror.
7.11 JUDGMENTS; LITIGATION. Except as set forth on SCHEDULE 7.11:
(a) There is no (i) outstanding judgment, order, decree, award stipulation or
injunction of any Governmental Entity or arbitrator against or affecting the
Company or its properties, assets or business or (ii) Action pending against or
affecting the Company or its properties, assets or business.
(b) There is no (i) outstanding judgment, order, decree, award, stipulation,
injunction of any Governmental Entity or arbitrator against or affecting any
officer, director or employee of the Company relating to the Company or its
business, (ii) Action threatened against or affecting the Company or its
properties, assets or business, (iii) Action pending or threatened against the
Company=s officers, directors or employees relating to the Company or its
business or (iv) basis for the institution of any Action against the Company or
any of its officers, directors, employees, properties or assets which, if
decided adversely, would have a Material Adverse Effect.
7.12 INCOME AND OTHER TAXES. Except as set forth on SCHEDULE 7.12:
(a) All Tax Returns required to be filed through and including the date hereof
in connection with the operations of the Company are true, complete and correct
in all respects and have been properly and timely filed. The Company has not
requested any extension of time within which to file any Tax Return, which Tax
Return has not since been filed. Acquiror has heretofore been furnished by the
Company with true, correct and complete copies of each Tax Return of the Company
with respect to the past three (3) taxable years, and of all reports of, and
communications from, any Governmental Entities relating to such period. The
Company has disclosed on its Federal Income Tax Returns all positions taken
therein that could give rise to a substantial understatement of income Taxes for
federal income tax purposes within the meaning of Code Section 6662.
(b) All Taxes required to be paid or withheld and deposited through and
including the date hereof in connection with the operations of the Company have
been duly and timely paid or deposited by the Company. The Company has properly
withheld or collected all amounts required by law for income Taxes and
employment Taxes relating to its employees, creditors, independent contractors
and other third parties, and for sales Taxes on sales, and has properly and
timely remitted such withheld or collected amounts to the appropriate
Governmental Entity. The Company has no liabilities for any Taxes for any
taxable period ending prior to or coincident with the Closing Date.
<PAGE> 26
(c) The Company has made adequate provision on its book of account for all Taxes
with respect to its business, properties and operations through the Balance
Sheet Date, and the accruals for Taxes in the Balance Sheet are adequate to
cover all liabilities for Taxes of the Company for all periods ending on or
before the Closing Date.
(d) The Company has never (i) had a tax deficiency proposed, asserted or
assessed against it (ii) executed any waiver of any statute of limitations on
the assessment or collection of any Taxes, or (iii) been delinquent in the
payment of any Taxes.
(e) No Tax Return of the Company has been audited or the subject of other Action
by any Governmental Entity. The Company has not received any notice from any
Governmental Entity of any pending examination or any proposed deficiency,
addition, assessment, demand for payment or adjustment relating to or affecting
the Company or its assets or properties and no Shareholder has reason to believe
that any Governmental Entity may assess (or threaten to assess) any Taxes for
any periods ending on or prior to the Closing Date.
(f) The Company (i) has not filed any consent or agreement pursuant to Code
Section 341(f), and no such consent or agreement will be filed at any time on or
before the Closing Date; (ii) has not made any payments, is not obligated to
make any payments and is not a party to any agreement that under certain
circumstances could obligate the Company to make any payments that will not be
deductible under Code Section 280G, (iii) is not a United States real property
holding corporation within the meaning of Code Section 897(c)(2); (iv) is not a
party to a tax allocation or sharing agreement; (v) has never been (or does not
have any liability for unpaid Taxes because it was) a member of an affiliated
group with the meaning of Code Section 1504(a); (vi) has never applied for a tax
ruling from a Governmental Entity and (vii) has never filed or been the subject
of an election under Code Section 338(g) or Code Section 338(h)(10) or caused or
been the subject of a deemed election under Code Section 338(e).
<PAGE> 27
7.13 QUESTIONABLE PAYMENTS. Neither the Company nor, to the Shareholders'
knowledge, any of its directors, officers, agents, employees or other Person
associated with or acting on behalf of the Company has (a) used any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (b) made any direct or indirect
unlawful payments to government officials or employees, or foreign government
officials or employees, from corporate funds, (c) established or maintained any
unlawful or unrecorded fund of corporate monies or other assets, (d) made any
false or fictitious entries on the books of account of the Company, (e) made or
received any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment, or (f) made any other payment, favor or gift not fully
deductible for federal income tax purposes.
7.14 EMPLOYEE BENEFIT MATTERS.
(a) SCHEDULE 7.14 contains a complete list of all Plans. For purposes of this
Section 7.14, the term APlan@ shall mean any plan maintained by the Company
which is either an Aemployee benefit plan@ as defined in Section 3(3) of ERISA
or a Afringe benefit plan@ as defined in Section 6039D of the Code. True and
complete copies of each of the following documents (and any amendments thereto),
where applicable, have been delivered previously to Acquiror: (i) the Plan
documents; (ii) a written description of any Plan which is not in writing; (iii)
if the Plan is funded through a trust or any third-party funding vehicle, the
trust or other funding agreement; (iv) the Plan=s most recent financial
statements; (v) the two most recent annual reports (including all schedules and
attachments thereto) required by ERISA; (vi) the most recent actuarial report
and valuation; (vii) the most recent determination letter received from the IRS
with respect to each Plan that is intended to be qualified under Code Section
401 or to be recognized as tax-exempt under Code Section 501(c); (viii) the most
recent summary plan description and each summary of material modifications
required by ERISA; (ix) any agreement providing for the provision of
administrative or investment management services with respect to the Plan; and
(x) all documents and correspondence received from or provided to the DOL, IRS
and PBGC during the past two years.
(b) Each Plan and related trust, annuity, or other funding agreement complies
and has been maintained in compliance with all applicable Legal Requirements. No
non-exempt prohibited transaction (as defined in Code Section 4975 and ERISA
Sections 406 and 408) has occurred and no "fiduciary" (as defined in ERISA
Section 3(21)) has committed any breach of duty which could subject the Company,
any ERISA Affiliate, or any director, officer, or employee thereof to liability
under Title I of ERISA or to tax under Code Section 4975. All material
obligations required to be performed by the Company and other Person under the
terms of each Plan and applicable Legal Requirement have been performed.
<PAGE> 28
(c) All required reports and descriptions, including, without limitation, annual
reports (Form 5500), summary annual reports, and summary plan descriptions, have
been filed and distributed timely. With respect to each Plan which is a welfare
plan (as defined in ERISA Section 3(1)), the requirements of Party 6 of Subtitle
B of Title I of ERISA and of Code Sections 162(k) and 4980B have been satisfied.
(d) All contributions, premiums, and other payments, including, without
limitation, employer contributions and employee salary reduction contributions,
have been paid when due or accrued in accordance with the past custom and
practice of Target and any ERISA Affiliate. No Plan that is subject to Part 3 of
Subtitle B of Title I of ERISA or to Code Section 412 has incurred any
accumulated funding deficiency, whether or not waived, and no other actual or
contingent liability for any other expenses or obligations of any Plan exists.
(e) There are no pending or, to the Shareholders= knowledge, threatened Actions
(other than routine claims for benefits) asserted or instituted against any Plan
or the assets of any Plan, or against the Company, or any ERISA Affiliate,
trustee, administrator, or fiduciary of such Plan, and the Shareholders have no
knowledge of any facts that could form the basis of any such Action. There is no
pending or, to the Shareholders= knowledge, threatened or contemplated Action by
any Governmental Entity with respect to any Plan, and the Shareholders have no
knowledge of any facts that could reasonably be expected to cause or trigger
such an Action.
(f) The Company (or, if applicable, an ERISA Affiliate,) may terminate, suspend,
or amend each Plan at any time, except to the extent otherwise required by Code
Section 4980B, without the consent of the participants or employees covered by
such Plan. Neither the Company nor any ERISA Affiliate has announced any
intention, made any amendment or binding commitment, or given any written or
oral notice providing that the Company or an ERISA Affiliate (i) will create
additional Plans covering employees of the Company or any ERISA Affiliate, (ii)
will increase benefits promised or provided pursuant to any Plan, or (iii) will
not exercise after the Closing Date any right or power it may have to terminate,
suspend, or amend any Plan.
(g) Neither the Company nor any ERISA Affiliate maintains or has maintained any
time, or contributes to or has contributed to or is or was required to
contribute to, any (i) Plan subject to Title IV or ERISA, including, without
limitation, any multi-employer plan (as defined in ERISA Section 3(37)), within
the past five years, or (ii) funded or unfunded medical, health, accident, or
life insurance plan or arrangement for current or future retirees or terminated
employees or their spouses or dependents (except to the extent required by Code
Sections 162(k) or 4980B).
<PAGE> 29
(h) Neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will constitute a termination of employment
or other event entitling any Person to any additional or other benefits, or that
would otherwise modify benefits or the vesting of benefits, provided under any
Plan.
(i) No event has occurred which could subject the Company of any ERISA Affiliate
to any material liability (i) under any Legal Requirement relating to any Plan,
or (ii) resulting from any obligation of Target or an ERISA Affiliate to
indemnify any Person against liability incurred with respect to or in connection
with any Plan.
(j) Each Plan which is intended to be qualified under Code Section 401 has
received, within the last five years, a favorable determination letter from the
IRS. No event has occurred and no facts or circumstances exist which may cause
or result in the loss or revocation of such determination.
7.15 NO UNDISCLOSED LIABILITIES. Except (i) to the extent set forth or provided
for in the Balance Sheet or the notes thereto, (ii) as set forth on SCHEDULE
7.15 or (iii) for non-material current liabilities incurred since the Balance
Sheet Date in the Ordinary Course, as of the date hereof the Company has no
liabilities, whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether the amounts thereof are readily ascertainable or not,
or any unrealized or anticipated losses from any commitments of a contractual
nature, including Taxes with respect to or based upon the transactions or events
occurring at or prior to the Closing.
7.16 PERMITS, LICENSES, ETC. The Company possesses, and is operating in
compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of Governmental Entities necessary to
(i) occupy, maintain, operate and use the Real Property as it is currently used
and proposed to be used, (ii) conduct its business as currently conducted and as
proposed to be conducted, and (iii) maintain and operate its Permits (the
"PERMITS"). SCHEDULE 7.16 contains a true and complete list of all Permits. Each
Permit has been lawfully and validly issued, and no proceeding is pending or, to
the Shareholders= knowledge, threatened looking toward the revocation,
suspension or limitation of any Permit. The consummation of the transactions
contemplated by this Agreement will not result in the revocation, suspension or
limitation of any Permit and, except as set forth in SCHEDULE 7.16, no Permit
will require the consent of its issuing authority to or as a result of the
consummation of the transaction contemplated hereby.
<PAGE> 30
7.17 REGULATORY FILINGS. The Company has made all required registrations and
filings with and submissions to all applicable Governmental Entities relating to
the operations of the Company as currently conducted and as proposed to be
conducted, including, without limitation, all such applicable Governmental
Entities having jurisdiction over any matters pertaining to conservation or
protection of the environment, and the treatment, discharge, use, handling,
storage or production, or disposal of Hazardous Materials. All such
registrations, filings and submissions were in compliance with all Legal
Requirements (including all Environmental Laws) and other requirements when
filed, no material deficiencies have been asserted by any such applicable
Governmental Entities with respect to such registrations, filings or submissions
and, to the Shareholders' knowledge, no facts or circumstances exist which would
indicate that a material deficiency may be asserted by any such authority with
respect to any such registration, filing or submission.
7.18 CONSENTS. All consents, authorizations and approvals of any Person to or as
a result of the consummation of the transactions contemplated hereby, that are
necessary or advisable in connection with the operations and business of the
Company as currently conducted and as proposed to be conducted, or for which the
failure to obtain the same might have, individually or in the aggregate, a
Material Adverse Effect, have been lawfully and validly obtained by the Company,
except as described in SCHEDULES 7.5(c), 7.10 AND 7.16 hereto. All consents,
authorizations and approvals described in SCHEDULES 7.5(c), 7.10 AND 7.16 will
have been lawfully and validly obtained prior to the Closing.
7.19 MATERIAL CONTRACTS; NO DEFAULTS.
(a) SCHEDULE 7.19(a) contains a true and complete list and description of the
outstanding sales order and sales contract backlog of the Company having an
indicated gross value in excess of Five Thousand Dollars ($5,000.00) or having a
term of duration in excess of six months. All outstanding sales orders and sales
contracts of the Company have been entered into in the Ordinary Course. Except
as described in SCHEDULE 7.19(a), the Company has not received any advance,
progress payment or deposit in respect of any sales order or sales contract, and
the Company has no sales order or sales contract that will result, upon
completion or performance thereof, in gross margins materially lower than those
normally experienced by the Company for the services or products covered by such
sales order or sales contract.
(b) SCHEDULE 7.19(b) contains a true and complete list and description of all
outstanding purchase orders and purchase commitments of the Company having a
gross indicated value in excess of Ten Thousand Dollars ($10,000.00) in the
aggregate from any single supplier or other vendor. All outstanding purchase
orders and purchase commitments of the Company have been incurred in the
Ordinary Course, and no purchase order or purchase commitment of the Company is
in excess of the normal, ordinary and usual requirements of the business of the
Company or at an excessive price. The principal raw materials used and inventory
sold by the Company are available from several sources at competitive prices and
upon competitive terms and no interruption in production or Material Adverse
Effect will result from the loss of any one of such sources.
<PAGE> 31
(c) SCHEDULE 7.19(c) contains a true and complete list of all sales agency,
sales representative, distributor, wholesaler, dealer and similar contracts or
agreements of the Company, and true and complete copies of the same have been
delivered to Acquiror heretofore. Except as described in SCHEDULE 7.19(c), all
of such contracts and agreements are terminable at any time by the applicable
Company without penalty (including, without limitation, any obligation to
repurchase inventories on hand) upon not more than thirty (30) days= notice.
(d) SCHEDULE 7.19(d) contains a true and complete list and description of all
noncompetition agreements and covenants under which the Company or any of their
respective officers, directors or employees or any Shareholder is obligated, and
true and complete copies of the same have been delivered to Acquiror heretofore.
Except as described in SCHEDULE 7.19(d), the Company is not restricted by any
agreement from carrying on its business or engaging in any other activity
anywhere in the world (including relocating, closing, or terminating any of its
operations or facilities), and no such officer, director, key employee or
Shareholder is a party to or otherwise bound or affected by any agreement,
covenant or other arrangement or understanding that would restrict or impair his
ability to perform diligently his other duties to the Company. SCHEDULE 7.19(d)
also contains a true and complete list and description of all noncompetition
agreements or covenants in favor of the Company, and true and complete copies of
the same have been delivered to Acquiror heretofore.
(e) SCHEDULE 7.19(e) contains a true and complete list and description of all
contracts, agreements, understandings, arrangements and commitments, written or
oral, of the Company with any officer, director, consultant, employee or
Affiliate of the Company or with any associate, Affiliate or employee of any
Affiliate of the Company, other than those disclosed in SCHEDULE 7.21(a) hereto;
in each case a true and complete copy of such written contract, agreement,
understanding, arrangement or commitment or a true and complete summary of such
oral contract, agreement, understanding, arrangement or commitment has been
delivered to Acquiror heretofore.
<PAGE> 32
(f) SCHEDULE 7.19(f) contains a true and complete list and description of all
other material contracts, agreements, understandings, arrangements and
commitments, written or oral, of the Company by which it or its properties,
rights or assets are bound that are not otherwise disclosed in this Agreement or
the Schedule hereto. True and complete copies of such written contracts,
agreements, understandings, arrangements and commitments and true and complete
summaries of such oral contracts, agreements, understandings, arrangements and
commitments have been delivered to Acquiror heretofore. For the purposes of this
subsection (f), "material" means any contract, agreement, understanding,
arrangement or commitment that (i) involves performance by any party more than
ninety (90) days from the date hereof, (ii) involves payments or receipts by the
Company in excess of Five Thousand Dollars ($5,000.00), (iii) involves capital
expenditures in excess of Five Thousand Dollars ($5,000.00) or (iv) otherwise
materially affects the Company.
(g) Except as described in SCHEDULE 7.19(g):
(i) each agreement, contract, arrangement or commitment described above
in this SECTION 7.19 is, and after the Closing on identical terms will
be, legal, valid, binding, enforceable and in full force and effect;
(ii) no event or condition has occurred or become known to the Company
or any Shareholder or is alleged to have occurred that constitutes or,
with notice or the passage of time, or both, would constitute a default
or a basis of FORCE MAJEURE or other claim of excusable delay,
termination, nonperformance or accelerated or increased rights by the
Company or any other Person under any contract, agreement, arrangement,
commitment or other understanding, written or oral, described above in
this SECTION 7.19, or described or otherwise disclosed pursuant to this
Agreement; and
(iii) no person with whom the Company has such a contract, agreement,
arrangement, commitment or other understanding is in default thereunder
or has failed to perform fully thereunder by reason of FORCE MAJEURE or
other claim of excusable delay, termination or nonperformance
thereunder, the delay, termination or nonperformance of which, or a
default under which, has had or may have a Material Adverse Effect.
7.20 ABSENCE OF CERTAIN CHANGES. Since March 31, 1998, except as disclosed in
SCHEDULE 7.20, the Company has not: (i) incurred any debts, obligations or
liabilities (absolute, accrued, contingent or otherwise), other than current
liabilities incurred in the Ordinary Course which, individually or in the
aggregate, are not material; (ii) subjected to or permitted a Lien (other than a
Permitted Lien) upon or otherwise encumbered any of its assets, tangible or
intangible; (iii) sold, transferred, licensed or leased any of its assets or
properties except in the Ordinary Course; (iv) discharged or satisfied any Lien
other than a Lien securing, or paid any obligation or liability other than,
current liabilities shown on the Balance Sheet and current liabilities incurred
since the Balance Sheet Date, in each case in the Ordinary Course; (v) canceled
or compromised any debt owed to or by or claim of or against it, or waived or
released any right of material value other than in the Ordinary Course; (vi)
suffered any physical damage, destruction or loss (whether or not covered by
insurance) causing a Material Adverse Effect; (vii) entered into any material
transaction or otherwise committed or obligated itself to any capital
expenditure other than in the Ordinary Course; (viii) made or suffered any
change in, or condition affecting, its condition (financial or otherwise),
properties, profitability, prospects or operations other than changes, events or
conditions in the Ordinary Course, none of which (individually or in the
aggregate) has had or may have a Material Adverse Effect; (ix) made any change
in the accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted; (x) other
than in the Ordinary Course, made or suffered any amendment or termination of
any material contract, agreement, lease or license to which it is a party; (xi)
paid, or made any accrual or arrangement for payment of, any severance or
termination pay to, or entered into any employment or loan or loan guarantee
agreement with, any current or former officer, director or employee or
consultant; (xii) paid, or made any accrual or arrangement for payment of, any
increase in compensation, bonuses or special compensation of any kind to any
employee other than pursuant to an agreement disclosed on SCHEDULE 7.21(a) or
SCHEDULE 7.21(B) or other than in the Ordinary Course, or paid, or made any
accrual or arrangement for payment of, any increase in compensation, bonuses or
special compensation of any kind to any officer or director of the Company or
any consultant to the Company; (xiii) made or agreed to make any charitable
contributions or incurred any nonbusiness expenses; (xiv) changed or suffered
change in any benefit plan or labor agreement affecting any employee of the
Company otherwise than to conform to Legal Requirements; or (xv) entered into
any agreement or otherwise obligated itself to do any of the foregoing.
7.21 EMPLOYEES AND LABOR MATTERS.
(a) SCHEDULE 7.21(a) contains a true and complete list of all contracts,
agreements, plans, arrangements, commitments and understandings (formal and
informal) pertaining to terms of employment, compensation, bonuses, profit
sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, use of the
Company=s property and related matters of the Company with any current or former
officer, director, employee or consultant, and true and complete copies of all
such contracts, agreements, plans, arrangements and understandings have been
delivered to Acquiror heretofore. Attached to SCHEDULE 7.21(a) is the most
current copy of the employee handbook utilized by the Company and distributed to
each of its employees.
<PAGE> 33
(b) SCHEDULE 7.21(b) contains a true and complete list of all labor, collective
bargaining, union and similar agreements under or by which the Company is
obligated, and true and complete copies of all such agreements have been
delivered to Acquiror heretofore.
(c) Except as set forth on SCHEDULES 7.21(a) and 7.21(b), neither Acquiror nor
the Company will have any responsibility for continuing any person in the employ
(or retaining any person as a consultant) of the Company from and after the
Closing or have any liability for any severance payments to or similar
arrangements with any such Person who shall cease to be an employee of the
Company at or prior to the Closing.
(d) There is not occurring or, to the Shareholders= knowledge, threatened, any
strike, slow down, picket, work stoppage or other concerted action by any union
or other group of employees or other persons against either Company or its
premises or products. Except for activities by the unions that are parties to
any of the agreements listed on SCHEDULE 7.21(b) with respect to the existing
members of such unions, to the Shareholders' knowledge, no union or other labor
organization has attempted to organize any of the employees of the Company.
(e) The Company has complied with all Legal Requirements relating to employment
and labor, and, to the Shareholders' knowledge, no facts or circumstances exist
that could provide a reasonable basis for a claim of wrongful termination by any
current or former employee of the Company against the Company.
7.22 AFFILIATION. Except as disclosed on SCHEDULE 7.22, none of the
Shareholders, any officer, director or key employee of the Company or any
associate or Affiliate of the Company or any of such Persons has, directly or
indirectly, (i) an interest in any Person that (A) furnishes or sells, or
proposes to furnish or sell, services or products that are furnished or sold by
the Company or (B) purchases from or sells or furnishes to, or proposes to
purchase from or sell or furnish to, the Company any goods or services or (ii) a
beneficial interest in any contract or agreement to which the Company is a party
or by which the Company or any of the assets of the Company are bound or
affected.
<PAGE> 34
7.23 PRINCIPAL CUSTOMERS AND SUPPLIERS.
(a) SCHEDULE 7.23(a) contains a true and complete list of the name and address
of each customer that purchased in excess of five percent (5%) of the Company's
sales of goods or services during the twelve months ended on the Balance Sheet
Date, and since that date no such customer has terminated its relationship with
or adversely curtailed its purchases from the Company or indicated (for any
reason) its intention so to terminate its relationship or curtail its purchases.
(b) SCHEDULE 7.23(b) contains a true and complete list of each supplier from
whom the Company purchased in excess of five percent (5%) of the Company's
purchases of goods or services during the twelve months ended on the balance
Sheet Date, and since that date no such supplier has terminated its relationship
with or adversely curtailed its accommodations, sales or services to the Company
or indicated (for any reason) its intention to terminate such relationship or
curtail its accommodations, sales or services.
7.24 COMPLIANCE WITH LAW. Through and including the date hereof, the Company (i)
has not violated or conducted its business or operations in violation of, and
has not used or occupied its properties or assets in violation of, any Legal
Requirement, (ii) to the Shareholders' knowledge, has not been alleged to be in
violation of any Legal Requirement, and (iii) has not received any notice of any
alleged violation of, or any citation for noncompliance with, any Legal
Requirement.
7.25 PRODUCT RETURNS. SCHEDULE 7.25 contains a true and complete description of
the product return experience of the Company for the immediately preceding
twelve (12) months. The Company has not experienced any product returns which
have had or may have a Material Adverse Effect.
7.26 PRODUCT LIABILITY AND PRODUCT WARRANTY. SCHEDULE 7.26 hereto contains a
true and complete description of (i) all warranties granted or made with respect
to products sold, or services rendered, by the Company and (ii) the Company's
product liability and product warranty experience for the last three years. The
Company has not suffered any product liability or product warranty claims which
have had or may have a Material Adverse Effect.
7.27 CORPORATE RECORDS. The copies or originals of the Articles of
Incorporation, Bylaws, minute books and stock records of the Company previously
delivered to, or made available for inspection by, Acquiror are true, complete
and correct.
<PAGE> 35
7.28 HAZARDOUS MATERIALS. Except as set forth on SCHEDULE 7.28:
(a) No Hazardous Material (i) has been released, placed, stored, generated,
used, manufactured, treated, deposited, spilled, discharged, released or
disposed or on or under any real property currently or previously owned or
leased by the Company or is presently located on or under any Real Property (or,
to the Shareholders= knowledge, any property adjoining any Real Property), (ii)
is presently maintained, used, generated, or permitted to remain in place by the
Company in violation of any Environmental Law, (iii) is required by any
Environmental Law to be eliminated, removed, treated or mitigated by the
company, given the nature of its present condition, location, nature, material
or maintenance, or (iv) is of a type, location, material, nature or condition
which requires special notification to third parties by the Company under
Environmental Law or common law.
(b) No notice, citation, summons or order has been received by the Company or
any Shareholder, no notice has been given by the Company and no complaint has
been filed, no penalty has been assessed and no investigation or review is
pending or threatened by any Governmental Entity, with respect to (i) any
alleged violation by the Company of any Environmental Law of (ii) any alleged
failure by the Company to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with its business
or properties, or (iii) any use, possession, generation, treatment, storage,
recycling, transportation, release or disposal by or on behalf of the Company of
any Hazardous Material.
(c) The Company has not received any request for information, notice of claim,
demand or notification that it is or that indicates that it may be a
"potentially responsible party" with respect to any investigation or remediation
of any threatened or actual release of any Hazardous Material.
(d) No above-ground or underground storage tanks, whether or not in use, are or
have ever been located at any property currently owned or leased by the Company.
(e) No notice has been received by the Company with respect to the listing or
proposed listing of any property currently or previously owned, operated or
leased by the Company on the National Priorities List promulgated pursuant to
CERCLA, CERCLIS or any similar state list of sites requiring investigation or
cleanup.
(f) There have been no environmental inspections, investigations, studies,
tests, review or other analyses conducted in relation to any Real Property.
<PAGE> 36
(g) The Company has not yet released, transported, or arranged for the
transportation of any Hazardous Material from any property currently or
previously owned, operated or leased by the Company.
7.29 BROKERS' FEES. No broker, finder or similar agent has been employed by or
on behalf of the Company in connection with this Agreement or the transactions
contemplated hereby, and the Company has not entered into any agreement or
understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
7.30 DISCLOSURE.
(a) No representation or warranty of any Shareholder in this Agreement and no
information contained in any Schedule or other writing delivered pursuant to
this Agreement or at the Closing contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to
make the statements herein or therein not misleading. There is no fact that the
Shareholders have not disclosed to Acquiror in writing that has had or, insofar
as any Shareholder can now foresee, may have a Material Adverse Effect on the
ability of any Shareholder to perform fully this Agreement.
(b) To the extent that any representation or warranty in this Article 4 is
qualified to the Shareholders' "knowledge," the Shareholders represent and
warrant that they have made a reasonable investigation sufficient to express an
informed view concerning the matters to which such representation or warranty
relates, including diligent inquiries of the Company's officers, directors and
employees.
8. REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to, and covenants and agrees with, each
of the Shareholders that:
8.1 ORGANIZATION AND GOOD STANDING. Acquiror has been duly organized and is
existing as a corporation in good standing under the laws of the State of
Indiana with full corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby.
8.2 EXECUTION AND DELIVERY. This Agreement has been duly authorized by all
necessary corporate action on the part of Acquiror, has been duly executed and
delivered by Acquiror and constitutes the legal, valid and binding agreement of
Acquiror enforceable against Acquiror in accordance with its terms.
<PAGE> 37
8.3 NO CONFLICTS. The execution, delivery and performance of this Agreement by
Acquiror and the consummation by Acquiror of the transactions contemplated
hereby will not conflict with or result in the violation of the provisions of
the Articles of Incorporation or Bylaws of Acquiror.
9. CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through the
Closing Date, the Shareholders jointly and severally covenant and agree (except
as expressly contemplated by this Agreement or to the extent that Acquiror shall
otherwise expressly consent in writing) that:
9.1 QUALIFICATION. The Company shall maintain all qualifications to transact
business and remain in good standing in its jurisdiction of incorporation and in
the foreign jurisdictions set forth on SCHEDULE 7.1(a).
9.2 ORDINARY COURSE. The Company shall conduct its business in, and only in, the
Ordinary Course and, to the extent consistent with such business, shall preserve
intact its current business organizations, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end that its
goodwill and going business value shall be unimpaired at the Closing Date. The
Company shall maintain its properties and assets in good condition and repair.
9.3 CORPORATE CHANGES. The Company shall not (a) amend its Articles of
Incorporation or Bylaws (or equivalent documents), (b) acquire by merging or
consolidating with, or agreeing to merge or consolidate with, or purchase
substantially all of the stock or assets of, or otherwise acquire, any business
or any corporation, partnership, association or other business organization or
division thereof, (c) enter into any partnership or joint venture, (d) declare,
set aside, make or pay any dividend or other distribution in respect of its
capital stock or purchase or redeem, directly or indirectly, any shares of its
capital stock, (e) issue or sell any shares of its capital stock of any class or
any options, warrants, conversion or other rights to purchase any such shares or
any securities convertible into or exchangeable for such shares, or (f)
liquidate or dissolve or obligate itself to do.
9.4 INDEBTEDNESS. The Company shall not incur any Indebtedness, sell any debt
securities or lend money to or guarantee the Indebtedness of any Person. The
Company shall not restructure or refinance its existing Indebtedness.
<PAGE> 38
9.5 ACCOUNTING. The Company shall not make any change in the accounting
principles, methods, records or practices followed by it or depreciation or
amortization policies or rates heretofore adopted by it. The Company shall
maintain its books, records and accounts in accordance with generally accepted
accounting principles applied on a basis consistent with that of prior periods.
9.6 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company shall comply promptly with
all requirements that applicable law may impose upon it and its operations and
with respect to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, Acquiror in connection with
any such requirements imposed upon Acquiror, or upon any of its affiliates, in
connection therewith or herewith.
9.7 DISPOSITION OF ASSETS. The Company shall not sell, transfer, license, lease
or otherwise dispose of, or suffer or cause the encumbrance by any Lien upon any
of its properties or assets, tangible or intangible, or any interest therein,
except for sales of inventory in the Ordinary Course.
9.8 COMPENSATION. The Company shall not (a) adopt or amend in any material
respect any collective bargaining, bonus, profit-sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other plan,
agreement, trust, fund or arrangement for the benefit of employees (whether or
not legally binding) other than to comply with any Legal Requirement or (b) pay,
or make any accrual or arrangement for payment of, any increase in compensation,
bonuses or special compensation of any kind, or any severance or termination pay
to, or enter into any employment or loan or loan guarantee agreement with, any
current or former officer, director, employee or consultant of the Company,
except for such bonuses as may be required to offset the individual income tax
liability of each Shareholder relating to the Company.
9.9 MODIFICATION OR BREACH OF AGREEMENT; NEW AGREEMENTS. The Company shall not
terminate or modify, or commit or cause or suffer to be committed any act that
will result in breach or violation of any term of or (with or without notice or
passage of time, or both) constitute a default under or otherwise give any
person a basis for non-performance under, any indenture, mortgage, deed of
trust, loan or credit agreement, lease, license or other agreement, instrument,
arrangement or understanding, written or oral, disclosed in this Agreement or
the Schedules hereto. The Company shall refrain from becoming a party to any
contract or commitment other than in the Ordinary Course. The Company shall meet
all of its contractual obligations in accordance with their respective terms.
<PAGE> 39
9.10 CAPITAL EXPENDITURES. Except for capital expenditures or commitments
necessary to maintain its properties and assets in good condition and repair
(the amount of which shall not exceed Five Thousand Dollars ($5,000.00) in the
aggregate), the Company shall not purchase or enter into any contract to
purchase any capital assets.
9.11 CONSENTS. The Company shall use its best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by any party hereto in connection with the transactions
contemplated hereby or the taking of any action in connection with the
consummation thereof.
9.12 MAINTAIN INSURANCE. The Company shall maintain its Policies in full force
and effect and shall not do, permit or willingly allow to be done any act by
which any of the Policies may be suspended, impaired or canceled.
9.13 DISCHARGE. The Company shall not cancel, compromise, release or discharge
any claim of the Company upon or against any person or waive any right of the
Company of material value, and not discharge any Lien (other than Permitted
Liens) upon any asset of the Company or compromise any debt or other obligation
of the Company to any person other than Liens, debts or obligations with respect
to current liabilities of the Company.
9.14 ACTIONS. The Company shall not institute, settle or agree to settle any
Action before any Governmental Entity.
9.15 PERMITS. The Company shall maintain in full force and effect, and comply
with, all Permits.
9.16 TAX ASSESSMENTS AND AUDITS. The Company shall furnish promptly to Acquiror
a copy of all notices of proposed assessment or similar notices or reports that
are received from any taxing authority and which relate to the Company's
operations for periods ending on or prior to the Closing Date. The Shareholders
shall cause the Company to promptly inform Acquiror, and permit the
participation in and control by Acquiror, of any investigation, audit or other
proceeding by a Governmental Entity in connection with any Taxes, assessment,
governmental charge or duty and shall not consent to any settlement or final
determination in any proceeding without the prior written consent of Acquiror.
10. ADDITIONAL COVENANTS
10.1 COVENANTS OF THE SHAREHOLDERS. During the period from the date hereof
through the Closing Date, each Shareholder agrees to:
<PAGE> 40
(a) comply promptly with all requirements that applicable Legal Requirements may
impose upon it with respect to the transactions contemplated by the Agreement,
and shall cooperate promptly with, and furnish information to, Purchase in
connection with any requirements imposed upon Acquiror or upon any of its
affiliates in connection therewith or herewith;
(b) use its reasonable best efforts to obtain (and to cooperate with Acquiror in
obtaining) any consent, authorization or approval of, or exemption by, any
Person required to be obtained or made by such Shareholder in connection with
the transactions contemplated by this Agreement;
(c) use its reasonable best efforts to bring about the satisfaction of the
conditions precedent to Closing set forth in SECTION 11.1 of this Agreement;
(d) promptly advise Purchase orally and, within three (3) business days
thereafter, in writing of any change in such Company's business or condition
that has had or may have a Material Adverse Effect; and
(e) deliver to Acquiror prior to the Closing a written statement disclosing any
untrue statement in this Agreement or any Schedule hereto (or supplement
thereto) or document furnished pursuant hereto, or any omission to state any
material fact required to make the statements herein or therein contained
complete and not misleading, promptly upon the discovery of such untrue
statement or omission, accompanied by a written supplement to any Schedule to
this Agreement that may be affected thereby; PROVIDED, HOWEVER, that the
disclosure of such untrue statement or omission shall not prevent Acquiror from
terminating this Agreement pursuant to SECTION 12.1(c) hereof at any time at or
prior to the Closing in respect of any original untrue or misleading statement.
10.2 COVENANTS OF ACQUIROR. During the period from the date hereof to the
Closing Date, Acquiror shall:
(a) comply promptly with all requirements that applicable Legal Requirements may
impose upon it with respect to the transactions contemplated by this Agreement,
and shall cooperate promptly with, and furnish information to, the Shareholders
in connection with any such requirements imposed upon the Shareholders or the
Company or upon any of the Company's affiliates in connection therewith or
herewith;
(b) use its reasonable best efforts to obtain any consent, authorization or
approval of, or exemption by, any Person required to be obtained or made by
Acquiror in connection with the transactions contemplated by this Agreement; and
<PAGE> 41
(c) use its reasonable best efforts to bring about the satisfaction of the
condition precedent to Closing set forth in Section 11.2 of this Agreement.
10.3 ACCESS AND INFORMATION
(a) During the period commencing on the date hereof and continuing through the
Closing Date, the Shareholders shall continue to cause the Company to afford to
Acquiror and to Acquiror's accountants, counsel, investment bankers and other
representatives, reasonable access to all of its properties, books, contracts,
commitments, records and personnel and, during such period, to continue to cause
the Company to furnish promptly to Acquiror all information concerning its
business, properties and personnel as Acquiror may reasonably request.
(b) Except to the extent permitted by the provisions of Section 10.6 hereof,
Acquiror shall hold in confidence, and shall use reasonable efforts to ensure
that its employees and representatives hold in confidence, all such information
supplied to it by the Shareholders or the Company concerning the Company and
shall not disclose such information to any third party except as may be required
by any Legal Requirement and except for information that (i) is or becomes
generally available to the public other than as a result of disclosure by
Acquiror or its representatives, (ii) becomes available to Acquiror or its
representatives from a third party other than the Shareholders or the Company,
and Acquiror or its representatives have no reason to believe that such third
party is not entitled to disclose such information, (iii) is known to Acquiror
or its representatives on a non-confidential basis prior to is disclosure by any
Shareholder or the Company or (iv) is made available by any Shareholder or the
Company to any other Person on a non-restricted basis. Acquiror=s obligations
under the foregoing sentence shall expire on the Closing Date or, if the Closing
does not occur, two (2) years after the date hereof.
10.4 EXPENSES. All costs and expenses (including, without limitation, all legal
fees and expenses and fees and expenses of any brokers, finders or similar
agents) incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring the same.
10.5 CERTAIN NOTIFICATIONS. At all times from the date hereof to the Closing
Date, each party shall promptly notify the others in writing of the occurrence
of any event that will or may result in the failure to satisfy any of the
conditions specified in Article 8 hereof.
<PAGE> 42
10.6 PUBLICITY; EMPLOYEE COMMUNICATIONS. At all times prior to the Closing Date,
each party shall obtain the consent of all other parties hereto prior to
issuing, or permitting any of its directors, officers, employees or agents to
issue, any press release or other information to the press, employees of the
Company or any third party with respect to this Agreement or the transactions
contemplated hereby; PROVIDED, HOWEVER, that no party shall be prohibited from
supplying any information to any of its representatives, agents, attorneys,
advisors, financing sources and others to the extent necessary to complete the
transactions contemplated hereby so long as such representatives, agents,
attorneys, advisors, financing sources and others are made aware of the terms of
this SECTION 10.6. Nothing contained in this Agreement shall prevent any party
to this Agreement at any time from furnishing any required information to any
Governmental Entity or authority pursuant to a Legal Requirement or from
complying with its legal or contractual obligations.
10.7 FURTHER ASSURANCES.
(a) Subject to the terms and conditions of this Agreement, each of the parties
hereto agrees to use all reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable Legal Requirements, to consummate and make effective
the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, the Shareholders and the
property officers or directors of Acquiror, as the case may be, shall take or
cause to be taken all such necessary or convenient action and execute, and
deliver and file, or cause to be executed, delivered and filed, all necessary or
convenient documentation.
(c) Subsequent to Closing and during the term of any Indemnification, Acquiror
agrees to maintain insurance, including a particular products liability
insurance, in commercially reasonable amounts as long as such is commercially
available at reasonable rates.
10.8 COMPETING OFFERS; MERGER OR LIQUIDATION. The Shareholders agree that they
will not, and will cause the Company not to, directly or indirectly, through any
officer, director, agent, or otherwise, solicit, initiate or encourage the
submissions of bids, offers or proposals by, any Person with respect to an
acquisition of the Company or its assets or capital stock or a merger or similar
transaction, and the Shareholders will not, and will not permit the Company to,
engage any broker, financial adviser or consultant with an incentive to initiate
or encourage proposals or offers from other parties. Furthermore, the
Shareholders shall not, and
<PAGE> 43
shall not permit the Company to, directly or indirectly, through any officer,
director, agent or otherwise, engage in negotiations concerning any such
transaction with, or provide information to, any Person other than Acquiror and
its representatives with a view to engaging, or preparing to engage, that Person
with respect to any matters in this Section. The Shareholders shall ensure that
the Company shall not commence any proceeding to merge, consolidate or liquidate
or dissolve or obligate itself to do so. In the event Shareholders breach this
provision, they agree that Acquiror, among other remedies which may be available
to it, shall be entitled to an injunctive relief.
10.9 INCONSISTENT ACTION. The Shareholders shall not take or suffer to be taken,
and shall not permit the Company to take or cause or suffer to be taken, any
action that would cause any of the representations or warranties of any of the
Shareholders in this Agreement to be untrue, incorrect, incomplete or
misleading.
10.10 POST-TERMINATION EMPLOYMENT. Except for the employment agreement to be
executed by Scott House, each Shareholder acknowledges and agrees that after the
Closing (a) neither Acquiror nor the Company shall be required to employ or
retain any employee of the Company or any other Person, and (b) Acquiror, in its
sole and absolute discretion, may cause the Company to retain all, some, or none
of such employees.
11. CONDITIONS PRECEDENT TO CLOSING
11.1 CONDITIONS OF ACQUIROR. Notwithstanding any other provision of this
Agreement, the obligations of Acquiror to consummate the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
Closing Date, of the following conditions:
(a) There shall not be instituted and pending or threatened any Action before
any Governmental Entity (i) challenging the acquisition of the Shares by
Acquiror or otherwise seeking to restrain or prohibit the consummation of the
transactions contemplated hereby or (ii) seeking to prohibit the direct or
indirect ownership or operation by Acquiror of all or a material portion of the
business or assets of the Company, or to compel Acquiror or the Company to
dispose of or hold separate all or a material portion of the business or assets
of the Company or Acquiror;
(b) The representations and warranties of each of the Shareholders in this
Agreement shall be true and correct in all respects on and as of the Closing
Date with the same effect as if made on the Closing Date and each of the
Shareholders shall have complied with all covenants and agreements and satisfied
all conditions on such Shareholder= part to be performed or satisfied on or
prior to the Closing Date;
<PAGE> 44
(c) Acquiror shall have received from F. Pen Cosby, Esq., counsel for the
Shareholders and the Company, a written opinion dated the Closing date and
addressed to Acquiror, in substantially the form attached as Exhibit B hereto;
(d) Acquiror shall have received from the President of the Company a certificate
dated the Closing Date in substantially the form attached as Exhibit C hereto;
(e) Acquiror shall have received from each Shareholder a certificate dated the
Closing Date in substantially the form attached as Exhibit D hereto;
(f) Acquiror shall have received a copy of the Resolution of the Board of
Directors of the Company approving this transaction, said Resolution being
substantially in the form attached as Exhibit E hereto;
(g) Each Shareholder shall have entered into a Noncompetition Agreement with
Acquiror and the Company in substantially the form attached as Exhibit F hereto,
(collectively, the "NONCOMPETITION AGREEMENTS");
(h) The shareholders shall cause the Employment Agreement with Scott House to be
executed substantially in the form attached hereto as Exhibit G;
(i) Acquiror shall have concluded (through its representatives, accountants,
counsel and other experts) an investigation of the business, condition
(financial and other), properties, assets, prospects, operations and affairs of
the Company and shall be satisfied, in its sole discretion, with the results
thereof;
(j) All corporate and other proceedings and actions taken in connection with the
transactions contemplated hereby and all certificates, opinions, agreements,
instruments, releases and documents referenced herein or incident to the
transactions contemplated hereby shall be in form and substance satisfactory to
Acquiror and its counsel;
(k) Acquiror shall have received UCC searches, tax searches, and judgement
searches which are satisfactory to it, in its sole discretion, the results of
which will be attached hereto as Exhibit H;
(l) Acquiror shall have received reasonable assurances from those employees, if
any, of the Company that may be identified by Acquiror in its discretion that
they will remain in the employ of the Company for a reasonable period of time
after the consummation of the transactions contemplated hereby;
<PAGE> 45
(m) All consents from third parties, including from any Governmental Entity,
landlord or other Person, necessary for the consummation of the transactions
contemplated hereby shall have been obtained;
(n) All officers and directors of the Company shall have resigned as such,
effective of the Closing and such resignations shall be attached hereto as
Exhibit I;
(o) No act, event or condition shall have occurred after the date hereof which
Acquiror determines has had or could have had a Material Adverse Effect;
(p) All agreements and documents necessary to convey absolute fee simple title
to all Real Property conveyed hereunder free and clear of all liens, claims,
encumbrances, rights and interests of third parties of any kind or nature
whatsoever, which shall be attached hereto as Exhibit J; and
(q) Each Shareholder shall execute and deliver an agreement that specifically
provides that the Shareholders shall not, in the aggregate, transfer, sell or
otherwise dispose of more than One Hundred Thousand (100,000) shares of the
Stock in any month substantially in the form of Agreement attached hereto as
Exhibit K.
11.2 CONDITIONS OF THE SHAREHOLDERS. Notwithstanding any other provision of this
Agreement, and except as set forth below, the obligations of the Shareholders to
consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing, of:
(a) the condition set forth in subsection (a) of SECTION 11.1, and the
condition that the representations and warranties of Acquiror in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as if made on the Closing Date and Acquiror shall have
complied with all covenants and agreements and satisfied all conditions on its
part to be performed or satisfied on or prior to the Closing Date substantially
in the form of Exhibit L attached hereto.
(b) the execution of a Promissory Note substantially in the form of Exhibit
M attached hereto;
(c) the execution of a corporate guaranty of U.S. Plastic Lumber
Corporation, a Nevada corporation, substantially in the form of Exhibit N
attached hereto;
<PAGE> 46
(d) the execution of a Security Agreement substantially in the form of
Exhibit O;
(e) the execution of an Employment Agreement with Scott House attached as
Exhibit G.
(f) a Certificate of the Secretary of the Acquiror in the form of Exhibit P
attesting to Board approval.
12. TERMINATION, AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual consent of the Acquiror and the Shareholders;
(b) by Acquiror if (i) there has been a material misrepresentation, breach of
warranty or breach of covenant by any Shareholder under this Agreement or (ii)
any of the conditions precedent to Closing set forth in SECTION 11.1 have not
been met on the Closing Date, and, in each case, Acquiror is not then in
material default of its obligations hereunder; or
(c) by the Shareholders acting together if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Acquiror under
this Agreement or (ii) any of the conditions precedent to Closing set forth in
SECTION 11.2 have not been met on the Closing Date, and, in each case, no
Shareholder is then in material default of his obligations hereunder.
(d) by Acquiror, in its sole discretion, if it determines during its due
diligence that the transaction is not acceptable to Acquiror;
(e) by Acquiror at any time after the date on which the Target shall no longer
be in operation as an on-going business or if Target files a petition in
bankruptcy, rather voluntary or involuntary.
12.2 EFFECT OF TERMINATION.
(a) In the case of any termination of this Agreement, the provisions of SECTION
10.3 AND 10.4 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section 12.1 (a), (b), (d)
or (e), the Acquiror shall receive the return of its $50,000 deposit. Upon
termination as provided in SECTION 12.1 (c), OR (d), the $50,000 deposit shall
be released to Target.
<PAGE> 47
(c) Upon termination of this Agreement as provided in Section 12.1(a), except as
stated in subsection (a) above, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of any party hereto or
their respective directors, officers, employees, agents or other
representatives.
(d) In the event of termination of this Agreement as provided in Section
12.1(b), (c), (d) or (e) hereof, such termination shall be without prejudice to
any rights that the terminating party or parties may have against the breaching
party or parties or any other person under the terms of this Agreement or
otherwise.
12.3 AMENDMENT. This Agreement may be amended at any time by a written
instrument executed by Acquiror and the Shareholders. Any amendment effected
pursuant to this Section 12.3 shall be binding upon all parties hereto.
12.4 WAIVER. Any term or provision of this Agreement may be waived in writing at
any time by the party or parties entitled to the benefits thereof. Any waiver
effected pursuant to this SECTION 12.4 shall be binding upon all parties hereto.
No failure to exercise and no delay in exercising any right, power or privilege
shall operate as a waiver thereof, nor shall any single or partial exercise of
any other right, power or privilege. No waiver of any breach of any covenant or
agreement hereunder shall be deemed a waiver of any preceding or subsequent
breach of the same or any other covenant or agreement. The rights and remedies
of each party under this Agreement are in addition to all other rights and
remedies, at law or in equity, that such party may have against the other
parties.
13. INDEMNFICATION
13.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the parties hereto contained in this Agreement or in any writing
delivered pursuant hereto or at the Closing shall survive the Closing and the
consummation of the transactions contemplated hereby (and any examination or
investigation by or on behalf of any party hereto) until the fourth anniversary
of the Closing Date; provided, that the representations and warranties contained
in SECTION 7.12 AND SECTION 7.14 shall not terminate until the expiration of any
applicable statute of limitations; PROVIDED, FURTHER, that representations and
warranties contained in Article 6, SECTION 7.17, SECTION 7.24 AND SECTION 7.28
shall not terminate but shall continue indefinitely, subject to Acquiror
reviewing a Phase II Environmental Study Report to be supplied by Target. If the
Phase II Environmental Study Report, in the sole discretion of Acquiror, is
satisfactory, the representation and warranties shall terminate ten (10) years
from the date of this Agreement.
<PAGE> 48
13.2 INDEMNIFICATION.
(a) The Shareholders, jointly and severally, covenant and agree to defend,
indemnify and hold harmless Acquiror and the Company and each Person who
controls Acquiror or the Company within the meaning of the Securities Act from
and against any Damages arising out of or resulting from: (i) any inaccuracy in
or breach of any representation or warranty made by any Shareholder in this
Agreement or in any writing delivered pursuant to this Agreement or at the
closing [unless and except that such inaccuracy or breach is a direct result of
changes made by the Acquiror in accounting methods or estimates utilized in
financial reporting of the Company]; or (ii) the failure of any Shareholder to
perform or observe fully any covenant, agreement or provision to be performed or
observed by such Shareholder pursuant to this Agreement or the Non-competition
Agreements.
(b) Acquiror covenants and agrees to defend, indemnify and hold harmless the
Shareholders from and against any Damages arising out of or resulting from: (i)
any inaccuracy in or breach of any representation or warranty made by Acquiror
in this Agreement or in any writing delivered pursuant to this Agreement or at
the Closing; (ii) the failure by Acquiror to perform or observe any covenant,
agreement or condition to be performed or observed by it pursuant to this
Agreement; or (iii) the Shareholders= liability under the Guaranties.
13.3 THIRD PARTY CLAIMS.
(a) If any party entitled to be indemnified pursuant to Section 13.2 (an
"INDEMNIFIED PARTY") receives notice of the assertion by any third party of any
claim or of the commencement by any such third person of any Action (any such
claim or Action being referred to herein as an "INDEMNIFIABLE CLAIM") with
respect to which another party hereto (an "INDEMNIFYING PARTY") is or may be
obligated to provide indemnification, the Indemnified Party shall promptly
notify the Indemnifying Party in writing (the "CLAIM NOTICE") of the
Indemnifiable Claim; PROVIDED, that the failure to provide such notice shall not
relieve or otherwise affect the obligation of the Indemnifying Party to provide
indemnification hereunder, except to the extent that any Damages directly
resulted or were caused by such failure.
<PAGE> 49
(b) The Indemnifying Party shall have thirty (30) days after receipt of the
Claim Notice to undertake, conduct and control, through counsel of its own
choosing, and at its expense, the settlement or defense thereof, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; PROVIDED, that (i) the Indemnifying Party shall permit the
Indemnified Party to participate in such settlement or defense through counsel
chosen by the Indemnified Party (subject to the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld), provided that the fees
and expenses of such counsel shall not be borne by the Indemnifying Party, and
(ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party=s consent. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent,
which consent shall not be unreasonably withheld.
(c) If the Indemnifying Party does not notify the Indemnified Party within
thirty (30) days after receipt of the Claim Notice that it elects to undertake
the defense of the Indemnifiable Claim described therein, the Indemnified Party
shall have the right to contest, settle or compromise the Indemnifiable Claim in
the exercise of its reasonable discretion; PROVIDED, that the Indemnified Party
shall notify the Indemnifying Party of any compromise or settlement of any such
Indemnifiable Claim.
(d) Anything contained in this Section 13.3 to the contrary notwithstanding, the
Shareholders shall not be entitled to assume the defense for any Indemnifiable
Claim (and shall be liable for the reasonable fees and expenses incurred by the
Indemnified Party in defending such claim) if the Indemnifiable Claim seeks an
order, injunction or other equitable relief or relief for other than money
damages against Acquiror or the Company which Acquiror determines, after
conferring with its counsel, cannot be separated from any related claim for
money damages and which, if successfully, would adversely affect the business,
properties or prospects of the Company.
13.4 INDEMNIFICATION NON-EXCLUSIVE. The foregoing indemnification provisions are
in addition to, and not in derogation of, any statutory, equitable or common-law
remedy any party may have for breach of representation, warranty, covenant or
agreement.
13.5 SET-OFF. Notwithstanding any provision of this Agreement or of any other
agreement, instrument or undertaking, it is understood and agreed that Acquiror
shall have the right to set-off the amount of any indemnity under Sections 13.2
or 13.3 hereof to the extent any of the Shareholder shall be liable therefor
against any sums of money or any shares of the Acquiror at any time payable or
deliverable to the Shareholders, and including but not limited to the Promissory
Note. The remedies provided in this Article shall be cumulative and shall not
preclude the assertion by any party of any other rights or the seeking of any
other remedies by it against any other party.
<PAGE> 50
Acquiror agrees that prior to exercising its right of set-off hereunder,
Acquiror shall provide written Notice to Shareholders of its intent to exercise
its rights of set-off, setting forth the amount to be set-off and the reasons
therefore. Shareholders shall have fifteeen (15) days from the date of the
written Notice to cure the events which caused the Acquiror to provide Notice of
its right to set- off. If, at the expiration of the fiftteen (15) day period,
Shareholders have failed to cure said event, Acquiror shall have the absolute
right to exercise its right to set-off with no further defense being available
to Shareholders.
14. GENERAL PROVISIONS
14.1 NOTICES. All notices and other communications under or in connection with
this Agreement shall be in writing and shall be deemed given (a) if delivered
personally (including by overnight express or messenger), upon delivery, (b) if
delivered by registered or certified mail (return receipt requested), upon the
earlier of actual delivery or three (3) days after being mailed, or (c) if given
by telecopy, upon confirmation of transmission by telecopy, in each case to the
parties at the following addresses:
(a) If to the Acquiror, addressed to:
U. S. Plastic Lumber Corporation
2300 W. Glades Road
Suite 440W
Boca Raton, Florida 33431
Attention: Bruce C. Rosetto, Vice President and General Counsel
Telecopy: (561)394-5335
(b) If to any Shareholder:
James Cole
P.O. Box 246
Hillside, CO 81232
Telefax: 719-783-9522
With a copy to:
F. Pen Cosby, Esq.
Bowman, Cosby & Bowman
11 South Meridian St. Suite 525
Indianapolis, IN 46204
Telefax: 317-632-4619
<PAGE> 51
14.2 SEVERABILITY. If any term or provision of this Agreement or the application
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable such term or provision in any other
jurisdiction, the remaining terms and provisions of this Agreement or the
application of such terms and provisions to circumstances other than those as to
which it is held invalid or enforceable.
14.3 ENTIRE AGREEMENT. This Agreement, including the annexes and schedules
attached hereto and other documents referred to herein, contains the entire
understanding of the parties hereto in respect of its subject matter and
supersedes all prior and contemporaneous agreements and understandings, oral and
written, between the parties with respect to such subject matter.
14.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of Acquiror and the Shareholders and their respective successors,
heirs and assigns; provided, however, that no Shareholder shall directly or
indirectly transfer or assign any of such Shareholder's respective rights
hereunder in whole or in part without the prior written consent of Acquiror, and
any such transfer or assignment without said consent shall be void, AB INITIO.
Subject to the immediately preceding sentence, and except as set forth in
ARTICLE 13, this Agreement is not intended to benefit, and shall not run to the
benefit of or be enforceable by, any other person or entity other than the
parties hereto and their permitted successors and assigns.
14.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same Agreement.
14.6 RECITALS, SCHEDULES AND ANNEXES. The recitals, schedules and annexes to
this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
14.7 CONSTRUCTION.
(a) The article, section and subsection headings used herein are inserted for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or neuter gender, and the
singular or plural, shall be deemed to include the others whenever and wherever
the context so requires.
(c) For the purposes of this Agreement, unless the context clearly requires,
"or" is not exclusive.
14.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Florida.
<PAGE> 52
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or
has caused this Agreement to be executed on its behalf by a representative duly
authorized, all as of the date first above set forth.
"ACQUIROR"
United States Plastic Lumber, Ltd.
By: /s/ Bruce C. Rosetto
------------------------------------
Bruce C. Rosetto, Secretary
"GUARANTOR"
United States Plastic Lumber Corporation
By: /s/ Bruce C. Rosetto
------------------------------------
Bruce C. Rosetto, Secretary
SHAREHOLDERS:
/s/ James Cole
-------------------------------------
James Cole
/s/ Scott House
-------------------------------------
Scott House
<PAGE> 53
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
- --------
Exhibit A List of Shareholders
Exhibit B Opinion of Counsel
Exhibit C Certificate of President of Target
Exhibit D Certificate of Shareholders of Target
Exhibit E Board of Directors Resolution of Target approving transaction
Exhibit F Non-Competition Agreements
Exhibit G Employment Agreement of Scott House
Exhibit H UCC Searches
Exhibit I Resignation of Officers of Target
Exhibit J Real Property Conveyance documents
Exhibit K Stock Restriction Agreement
Exhibit L Certificate of Acquiror
Exhibit M Promissory Note
Exhibit N Corporate Guaranty
Exhibit O Security Agreement
Exhibit P Certificate of Secretary of Acquiror
Exhibit Q Articles of Merger
Exhibit R Escrow
SCHEDULES
- ---------
6.3 Consents
6.4 Conflicts
7.1(a) Foreign Corp status
7.1(b) Subsidiaries
7.2 No Conflicts
7.3 Capitalization
7.4 Financial Statements
7.5(a) Liens
7.5(b) List of Real Property
7.5(c) List of Tangible Property
7.5(d) List of Leases
7.5(f) Realty representations
7.6 List of Accounts Receivable
7.7 Inventories
7.8(a) List of Patents and Trademarks
7.8(b) Registered Rights
7.8(c) Licenses
7.9(a) List of Banks
7.9(b) Insurance Policies
7.10(a) Indebtedness
<PAGE> 54
7.10(b) Guaranties
7.11 Judgments
7.12 Income Taxes
7.13 Questionable Payments
7.14 Employee Benefit Plans
7.15 Undisclosed Liabilities
7.16 Permits
7.17 Regulatory Filings
7.18 Consents
7.19(a) Sales Orders
7.19(b) Purchase Orders
7.19(c) Sales Reps
7.19(d) Non-Compete Agreements
7.19(e) Contracts (inside)
7.19(f) Contracts (outside)
7.19(g) Legality
7.20 Absence of Changes
7.21(a) List of Employees
7.21(b) Labor Agreements
7.22 Affiliation
7.23(a) Customer Lists
7.23(b) Supplier Lists
7.24 Compliance with Law
7.25 Product Return
7.26 Warranties
7.28 Hazardous Materials
<PAGE> 55
STOCK PURCHASE AND SALE AGREEMENT
STOCK PURCHASE AND SALE AGREEMENT ("Agreement") dated February
3rd, 1998, among Timothy Fogerty and Al Silkroski ("Seller"), and U.S. Plastic
Lumber Corporation, a Nevada corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Sellers are the owner of 250 shares of the common
stock, par value $1.00 per share (the "Shares"), of Consolidated Technologies,
Inc., a Pennsylvania corporation (the "Company"), each Seller owning 125 shares;
and
WHEREAS, Sellers wish to sell, and Purchaser wishes to
purchase all of the Shares for the purchase price and upon the terms and subject
to the conditions described below;
NOW, THEREFORE, in reliance on the representations, warranties
and agreements and subject to the terms and conditions hereinafter set forth,
the parties hereby agree as follows:
1. Sale and Purchase of Shares. Upon the execution of this
Agreement, Sellers shall sell, assign, and transfer to Purchaser, and Purchaser
shall purchase from Sellers, the Shares free and clear of all liens,
encumbrances or claims of any kind.
2. Purchase Price. In full consideration for the Shares,
Purchaser shall pay to Sellers, a purchase price as follows:
(a) Upon execution of this Agreement and delivery of Seller's
shares, Purchaser shall provide 35,000 shares of non-registered common stock of
Purchaser.
(b) Upon completion of the Perth Amboy project consisting of
approximately 45,000 cubic yards of material and set to begin on or about
February 15, 1998, the Purchaser shall provide 10,000 shares of non-registered
common stock of Purchaser to Sellers. In the event this project does not begin
during the calendar year 1998, Sellers shall forfeit their right to receive the
shares set forth in this subparagraph 2(b).
(c) Upon completion of the New York project, known as the
Hallen Hook project, consisting of approximately 100,000 cubic yards and set to
begin on or about April 1, 1998, Purchaser shall provide 20,000 shares of
non-registered common stock of Purchaser to Sellers. In the event this project
does not begin during the calendar year 1998, Sellers shall forfeit their right
to receive the shares set forth in this subparagraph 2(c).
(d) In the event, Sellers shall cause to be executed one or
more agreements which provide Consolidated Technologies, Inc. with disposal
sites in eastern Pennsylvania for use with dredge and ash material containing a
cumulative capacity in excess of 15,000,000 cubic yards
<PAGE> 56
and a contractual relationship acceptable to Purchaser, than in such event
Purchaser shall provide to Sellers 32,500 shares of non-registered common stock
of Purchaser. For purposes of this agreement tipping fee will be defined as the
fee paid by Consolidated Technologies, Inc. to any entity or entities for the
right to use the disposal site, including but not limited to any gate charges,
royalties, tip fees, and other such charges. In the event there are no executed
agreements relative to the subject matter of this subparagraph (d) by June 1,
1999, Sellers shall forfeit their right to receive the shares set forth in this
subparagraph 2(d).
(e) Upon the completion of the Bark Camp demonstration project
with the Pennsylvania Department of Environmental Protection, approximating
550,000 cubic yards, Purchaser shall provide to Sellers 32,500 shares of
non-registered common stock of Purchaser. In the event that Consolidated
Technologies, Inc. does not have under contract by June 1, 1999 and has not
completed the delivery and processing of at least 275,000 of these cubic yards
by June 1, 1999, then Sellers shall forfeit their right to receive the shares
set forth in this subparagraph 2(e).
(f) Notwithstanding anything to the contrary in subparagraphs
(a)-(e) above, the parties agree that in the event the approximated number of
cubic yards ("targeted cubic yards") set forth as a requirement in each of the
respective subparagraphs is within 15% of the targeted cubic yards, Sellers
shall be entitled to receive the full consideration set forth in the respective
subparagraph. In the event targeted cubic yards are greater than 15% less than
the targeted cubic yards in the respective subparagraph, Sellers shall only
receive a pro rata portion of the stated consideration. By way of example, in
the event the Hallen Hook project set forth in subparagraph (b) actually ends up
consisting of 50,000 cubic yards, Sellers shall only be entitled to receive
10,000 shares of non-registered common stock of Purchaser since 50,000 cubic
yards is 50% of the 100,000 cubic yards set forth in subparagraph (b).
(g) In the event Consolidated Technologies, Inc. would become
a very profitable venture over the next three years as defined within the sole
discretion of Purchaser, the Purchaser will consider additional compensation for
the Sellers depending on the performance of Consolidated Technologies, Inc. and
the assistance from the Sellers.
3. Deliveries of Sellers. Upon execution of this Agreement,
Sellers shall: (i) deliver, or shall cause to be delivered to Purchase,
certificates representing the Shares, accompanied by stock powers duly endorsed
in blank (collectively, the "Certificates"), and (ii) execute and deliver such
other documents as Purchaser may reasonable request. The Shares represented by
the Certificates shall be delivered to Purchaser free and clear of all Claims
(as hereinafter defined).
4. Representations and Warranties of Sellers. The Sellers
jointly and severally represent, warrant and agree that.
(a) OWNERSHIP OF THE SHARES, ABSENCE OF CLAIMS. The Sellers
are the record and beneficial owners of the Shares, and the Shares are free and
clear of any and all liens, pledges, security interests, options, encumbrances,
charges, agreements or claims of any kind whatsoever (collectively, the
"Claims").
-2-
<PAGE> 57
(b) AUTHORITY, EXECUTION AND DELIVERY OF THE SHARES. Each
Seller has the full right, power and authority to enter into and to perform this
Agreement and all other agreements, certificates and documents executed or
delivered, or to be executed or delivered, by such Seller in connection
herewith. Each Seller has the full right, power and authority to sell, assign,
transfer and deliver the Shares as provided in this Agreement, and such delivery
will convey to Purchase lawful, valid and marketable title to the Shares, free
and clear of any and all Claims. This Agreement has been duly authorized,
executed and delivered by each Seller, and is a legal, valid and binding
obligation of each Seller, enforceable in accordance with its terms.
5. Representations and Warranties of Purchaser. Purchaser
represents, warrants and agrees that:
(a) EXECUTION AND EFFECT OF AGREEMENT. Purchaser has the full
right, power and authority to enter into and perform this Agreement. This
Agreement has been duly executed and delivered by Purchaser and is a legal,
valid and binding obligation of Purchaser enforceable in accordance with its
terms.
(b) ACCESS TO COMPANY BY PURCHASERS. Purchaser and his
representatives and advisers have had free and full access during normal
business hours to the Company's assets, premises, books and records, key
employees and accountants, and have had the opportunity to ask questions and
receive answers about the past performance and current and future prospects of
the Company's business and assets.
(c) PURCHASE FOR INVESTMENT. The Purchaser understands and
represents that: (i) the Purchaser must bear the economic risk of an investment
in the Shares for an indefinite period of time because the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), or
under any state securities laws and, therefore, cannot be resold unless they are
subsequently registered under the 1933 Act and the pertinent state securities
laws or unless an exemption from such registration is available; (ii) the
Purchaser is purchasing the Shares for investment for the account of the
Purchaser, not for the accountant of any other person, and not with any present
view toward resale or other "distribution" thereof within the meaning of the
1933 Act; and (iii) the Purchaser agrees not to resell or otherwise dispose of
all or any part of the Shares, except as permitted by law, including, without
limitation, any and all applicable provisions of this Agreement and any
regulations under the 1933 Act.
(d) RISKS OF INVESTMENT. The Purchaser is aware that an
investment in the Shares is highly speculative and subject to substantial risks.
The Purchaser is capable of bearing the high degree of economic risk and burdens
of this investment, including the possibility of a complete loss of his
investment and the lack of a public market and limited transferability of the
Shares, which may make the liquidation of this investment impossible for an
indefinite period of time. The financial condition of the Purchaser is such that
he is under no present or contemplated future need to dispose of any of the
Shares to satisfy any existing or contemplated undertaking, need or
indebtedness.
(e) RESIDENCY. The Purchaser is a duly organized corporation
of the State of Nevada.
-3-
<PAGE> 58
6. Restricted Stock and Legend.
The Purchaser acknowledges that the Shares purchased pursuant
to this Agreement are deemed "restricted securities" as defined in the 1933 Act.
Until the Shares become registered with the Securities and Exchange Commission,
each certificate representing a share of Common Stock shall bear a legend in
substantially the following form:
THE SHARE(S) REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES LAWS, AND THE COMPANY HAS RELIED UPON AN EXEMPTION TO THE
REGISTRATION REQUIREMENT UNDER THE ACT FOR THE SALE OF THE SHARES(S) REPRESENTED
BY THIS CERTIFICATE TO ITS HOLDER. THEREFORE, THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE RESTRICTED STOCK AND MAY NOT BE SOLD OR TRANSFERRED TO ANY THIRD
PARTY WITHOUT EITHER BEING REGISTERED UNDER THE ACT OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
7. Brokers. Each party represents to the other that it has had
no dealings with any broker or finder in connection with the transactions
contemplated by this Agreement. Should any claim be made for a broker's,
finder's or similar fee, on account of any actions or dealings by a party or its
agents, such party shall indemnify and hold the other party harmless from and
against any and all liability and expenses, including reasonable attorneys' fees
incurred by reason of any claim made by such broker.
8. Further Assurances. The parties shall cooperate and take
such actions, and execute such other documents, as either may reasonably request
in order to carry out the provisions or purpose of this Agreement, including
without limitation the execution and delivery by Sellers of additional stock
powers duly executed in blank with respect to the Shares.
9. Notices. All notices or other communications in connection
with this Agreement shall be in writing and shall be considered given when
personally delivered or when mailed by registered or certified mail, postage
prepaid, return receipt requested, as follows:
If to Sellers:
Timothy Fogerty and Al Silkroski
2230 DeKalb Street
Norristown, PA 19401
If to Purchasers:
U.S. Plastic Lumber Corporation
2300 Glades Road, Suite 440W
Boca Raton, FL 33431
Attn: Bruce C. Rosetto, Vice President and General Counsel
-4-
<PAGE> 59
11. Entire Agreement. This Agreement sets forth the parties'
final and entire agreement with respect to its subject matter and supersedes any
and all prior understandings and agreements. This Agreement may be amended,
supplemented or changed, and any provision hereof may be waived, only by a
written instrument making specific reference to this Agreement signed by the
party against whom enforcement of any such amendment, supplement, change or
waiver is ought.
12. Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the internal laws of the State of
Florida (without reference to its rules as to conflicts of law).
13. Jurisdiction and Venue. The parties acknowledge that a
substantial portion of negotiations, anticipated performance and execution of
this Agreement occurred or shall occur in Palm Beach County, Florida, and that,
therefore, without limiting the jurisdiction or venue of any other federal or
state courts, each of the parties irrevocably and unconditionally (a) agrees
that any suit, action or legal proceeding arising out of or relating to this
Agreement may be brought in the courts of record of the State of Florida in Palm
Beach County or the District Court of the United States, Southern District of
Florida; (b) consents to the jurisdiction of each such court in any suit, action
or proceeding; (c) waives any objection which it may have to the laying of venue
of any such suit, action or proceeding in any of such courts; and (d) agrees
that service of any court paper may be effected on such party by mail, as
provided in this Agreement, or in such other manner as may be provided under
applicable laws or court rules in said state.
14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the date first above written.
SELLERS:
/s/ Timothy Fogerty
--------------------------------
Timothy Fogerty
/s/ Al Silkroski
--------------------------------
Al Silkroski
PURCHASER:
/s/ Mark S. Alsentzer
--------------------------------
Mark S. Alsentzer, President
-5-
<PAGE> 60
STOCK TRANSFER AND ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns,
transfers, conveys and delivers to U.S. Plastic Lumber Corporation Two Hundred
and Fifty shares (250) shares of the Common Stock par value $1.00 of
Consolidated Technologies, Inc., a Pennsylvania corporation (the "Corporation"),
represented by certificate number _____, and irrevocably constitute and appoint
Steven C. Sands as my attorney to transfer these shares on the books and records
of the Corporation, with full power of substitution.
Dated:
/s/ Timothy Fogerty
------------------------------
Timothy Fogerty
/s/ Al Silkroski
---------------------------
Al Silkroski
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF U.S. PLASTIC LUMBER, CORP. FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND THREE MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 1,096,911 1,170,120
<SECURITIES> 0 0
<RECEIVABLES> 7,343,692 6,940,288
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,611,031 9,833,794
<PP&E> 7,649,571 5,775,424
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 28,408,030 23,171,376
<CURRENT-LIABILITIES> 9,706,369 10,307,733
<BONDS> 0 0
0 0
221 209
<COMMON> 1,590 1,562
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 28,408,030 23,171,376
<SALES> 0 0
<TOTAL-REVENUES> 7,659,261 2,003,496
<CGS> 6,058,821 1,564,658
<TOTAL-COSTS> 6,058,821 1,564,658
<OTHER-EXPENSES> 1,584,796 885,093
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 145,332 20,226
<INCOME-PRETAX> (24,100) (456,009)
<INCOME-TAX> (9,640) 0
<INCOME-CONTINUING> (14,460) (456,009)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (14,460) (456,009)
<EPS-PRIMARY> (.00) (.04)
<EPS-DILUTED> (.00) (.04)
</TABLE>
