SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 12, 1998
PALEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-22237 76-0520673
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1360 Post Oak Boulevard, Suite 800
Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 350-6030
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 12, 1998, PalEx, Inc. (the "Company") acquired substantially
all of the assets of Consolidated Drum Reconditioning Co., Inc. ("Consolidated")
and its affiliates, CDRCo HC, LLC and CDRCo NW, LLC, and certain assets of
Consolidated's affiliate, CDRCo SW, LLC (Consolidated and its affiliates being
collectively referred to as "CSC"). CSC provides steel drum reconditioning and
management services to agricultural and industrial customers. The Company
intends to continue these operations. CSC operates two reconditioning
facilities: one in Los Angeles, California and one in Seattle, Washington.
On February 23, 1998, the Company acquired (i) Acme Barrel Company, Inc.
("Acme") through the merger of a subsidiary of the Company with and into Acme,
(ii) ESP Realty Corp., Inc. ("ESP") through the merger of ESP with and into
Acme, (iii) Environmental Recyclers of Colorado Inc. ("ERI") through the merger
of a subsidiary of the Company with and into ERI, and (iv) 33% of the membership
interests of Western Container Limited Liability Company ("Western") through a
subsidiary of the Company, with the remaining ownership interests of Western
being owned by Acme and ERI (Acme, ESP, ERI and Western being collectively
referred to as the "Acme Entities"). The Acme Entities provide steel drum
reconditioning and management services primarily to industrial customers and
have operations in Illinois, Colorado and Utah. The Company intends to continue
such operations.
The terms of the acquisitions of CSC and the Acme Entities were the result
of arms'-length negotiations. The aggregate consideration for CSC and the Acme
Entities consisted of the assumption of certain liabilities, 3,182,098 shares of
the Company's Common Stock and $24.6 million in cash, which was funded under the
Company's syndicated credit facility, the agent of which is Bank One, Texas, NA.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of businesses acquired.
The financial statements required by this item will be filed by amendment
not later than April 28, 1998.
(b) Pro forma financial information.
The pro forma financial information required by this item will be filed by
amendment not later than April 28, 1998.
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(c) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
2.1 Asset Purchase Agreement, dated as of February 12, 1998, by and
among PalEx, Inc., Container Services Company NW Acquisition,
Inc., Container Services Company SW Acquisition, Inc.,
Consolidated Drum Reconditioning Co., Inc., CDRCo HC, LLC, CDRCo
NW, LLC, CDRCo SW, LLC, Joseph Cruz and Philip Freeman.*
2.2 Acquisition Agreement and Plan of Reorganization, dated as of
February 23, 1998, by and among PalEx, Inc., Acme Acquisition,
Inc., Acme Barrel Company, Inc. and the stockholders named
therein.*
2.3 Acquisition Agreement and Plan of Reorganization, dated as of
February 23, 1998, by and among PalEx, Inc., Acme Barrel Company,
Inc., ESP Realty Corp., Inc. and the Elliot Pearlman Living Trust
u/t/a dated July 2, 1996.*
2.4 Acquisition Agreement and Plan of Reorganization, dated as of
February 23, 1998, by and among PalEx, Inc., Western Container
Acquisition, Inc., Environmental Recyclers of Colorado Inc. and
the individual optionees named therein.*
2.5 Acquisition Agreement, dated as of February 23, 1998, by and among
PalEx, Inc., Western Container Acquisition, Inc. and Barton A.
Kaminsky.*
____________
*Copies of omitted schedules and exhibits shall be furnished
supplementally to the Commission upon request.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PALEX, INC.
Date: February 27, 1998 By: /S/ EDWARD RHYNE
Edward Rhyne
Vice President and General Counsel
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
PALEX, INC.,
CONTAINER SERVICES COMPANY SW ACQUISITION, INC.,
CONTAINER SERVICES COMPANY NW ACQUISITION, INC.,
CONSOLIDATED DRUM RECONDITIONING CO., INC.,
CDRCO HC, LLC,
CDRCO SW, LLC,
CDRCO NW, LLC,
JOSEPH CRUZ,
AND
PHILIP FREEMAN
DATED AS OF FEBRUARY 12, 1998
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions......................................................1
1.2. Interpretation...................................................8
ARTICLE II
THE PLAN OF ACQUISITION
2.1. The Acquisition of Assets........................................8
2.2. Purchase Price; Southgate Purchase Price.........................9
2.3. Assumed Liabilities; Southgate Assumed Liabilities...............9
2.4. Covenants Pending Southgate Closing; Conditions to Southgate
Closing.........................................................10
2.5. Conveyance Documents............................................10
2.6. Allocation of Purchase Price and Southgate Purchase Price.......11
2.7. Closing.........................................................11
2.8. Southgate Moving Expenses and Shutdown Holdback.................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS
3.1. Due Organization and Qualification..............................12
3.2. Authorization; Non-Contravention; Approvals.....................13
3.3. Ownership of the Company........................................14
3.4. Financial Statements............................................14
3.5. Liabilities and Obligations.....................................15
3.6. Accounts and Notes Receivable...................................15
3.7. Assets..........................................................15
3.8. Material Customers, Contracts...................................16
3.9. Permits.........................................................17
3.10. Environmental Matters..........................................17
3.11. Labor and Employee Relations...................................18
3.12. Insurance......................................................18
3.13. Compensation; Employment Agreements............................18
3.14. Employee Benefit Plans.........................................18
3.15. Litigation and Compliance with Law.............................20
3.16. Taxes..........................................................21
3.17. Absence of Changes.............................................21
3.18. Accounts with Banks and Brokerages; Powers of Attorney.........22
3.19. Absence of Certain Business Practices..........................22
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3.20. Competing Lines of Business; Related-Party Transactions........22
3.21. Intangible Property............................................22
3.22. Noncompetition, Confidentiality and Nonsolicitation Agreements.23
3.23. Disclosure.....................................................23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PALEX
4.1. Organization....................................................23
4.2. Authorization; Non-Contravention; Approvals.....................23
4.3. PalEx Common Stock..............................................24
4.4. Litigation......................................................24
4.6. Absence of Undisclosed Liabilities..............................25
4.7. Conduct in the Ordinary Course of Business......................25
4.8. Disclosure......................................................25
ARTICLE V
CERTAIN COVENANTS
5.1. Release From Guarantees.........................................25
5.2. Future Cooperation; Tax Matters.................................26
5.3. Expenses........................................................26
5.4. Employment Agreement............................................26
5.5. Stock Options...................................................26
5.6. Legal Opinion...................................................27
5.7. Registration Rights.............................................27
5.8. Sales Taxes.....................................................30
5.9. Employees.......................................................30
ARTICLE VI
INDEMNIFICATION
6.1. General Indemnification by the Company and the Stockholders.....31
6.2. Indemnification by PalEx........................................31
6.3. Third Person Claims.............................................32
6.4. Indemnification Deductible......................................32
6.5. Limitation Upon Indemnity.......................................33
6.6. Exclusive Remedy................................................33
ARTICLE VII
NONCOMPETITION COVENANTS
7.1. Prohibited Activities...........................................33
7.2. Equitable Relief................................................34
7.3. Reasonable Restraint............................................34
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7.4. Severability; Reformation.......................................34
7.5. Material and Independent Covenant...............................34
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. General.........................................................35
8.2. Equitable Relief................................................35
ARTICLE IX
FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS
ON PALEX COMMON STOCK
9.1. Compliance with Law.............................................35
9.2. Economic Risk; Sophistication...................................36
9.3. Rule 144 Reporting..............................................36
ARTICLE X
MISCELLANEOUS
10.1. Successors and Assigns.........................................37
10.2. Entire Agreement...............................................37
10.3. Counterparts...................................................37
10.4. Brokers and Agents.............................................37
10.5. Notices........................................................38
10.6. Survival of Representations and Warranties.....................38
10.7. Exercise of Rights and Remedies................................39
10.8. Reformation and Severability...................................39
10.9. Several Liability of Stockholders Under Certain Circumstances..39
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made as of the 12th
day of February, 1998, by and among PalEx, Inc., a Delaware corporation
("PALEX"), Container Services Company SW Acquisition, Inc., a Delaware
corporation that is a subsidiary of PalEx ("NEWCO SW"), Container Services
Company NW Acquisition, Inc., a Delaware corporation that is a subsidiary of
PalEx ("NEWCO NW"), Consolidated Drum Reconditioning Co., Inc., a California
corporation ("CDR"), CDRCo HC, LLC, a California limited liability company, 99%
of the ownership interests of which is owned by CDR ("CDRHC"), CDRCo SW, LLC, a
California limited liability company, 99% of the ownership interests of which is
owned by CDRHC ("CDRSW"), CDRCo NW, LLC, a California limited liability company,
99% of the ownership interests of which is owned by CDRHC ("CDRNW" and, together
with CDR, CDRHC, CDRSW and CDRNW, the "COMPANY"), and Joseph Cruz and Philip
Freeman (collectively, the "STOCKHOLDERS"), who are CDR's only stockholders and
who directly hold a 1% aggregate ownership interest in each of CDRSW, CDRNW and
CDRHC.
WHEREAS, the Company is in the business of reconditioning, manufacturing,
distributing, brokering, managing and/or transporting steel drums and providing
other logistics services with respect thereto;
WHEREAS, the Company desires to sell to Newco the businesses of the
Company as a going concern and in connection therewith substantially all of the
assets of the Company, and Newco desires to purchase such business and assets
and assume certain liabilities of the Company relating thereto, upon the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AFFILIATE LOANS" means loans made by either Stockholder or his Affiliates
to the Company, as more particularly described in SCHEDULE 3.5.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
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"ASSETS" means all of the Company's assets, properties, businesses,
franchises, goodwill and rights of every kind and character, tangible or
intangible, real or personal, whether owned or leased, other than the Excluded
Assets. Without limiting the generality of the foregoing, the Assets shall
include all assets of the Company as of the Closing, including, without
limitation, the following:
(a) cash and cash equivalents of the Company;
(b) all accounts and notes receivable of the Company, other than the
Stockholder Notes;
(c) all inventory (including, without limitation, spare parts
inventory) and work-in-progress of the Company;
(d) all customer lists, sales records, credit data and other
information relating to customers of the Company;
(e) all right, title and interest of the Company in, to and under
all existing contracts and agreements, written and verbal to which the
Company is a party, including, without limitation, those contracts and
agreements identified in SCHEDULE 3.8;
(f) the vehicles and other transportation equipment of the Company,
including, without limitation, the vehicles and other transportation
equipment of the Company set forth in SCHEDULE 3.7;
(g) all of the furniture, fixtures, equipment, machinery, tools,
appliances, telephone systems, copy machines, fax machines, implements,
spare parts, supplies and all other tangible personal property of every
kind and description owned by the Company or the Company's leasehold
interests therein (the "EQUIPMENT"), including, without limitation, the
Equipment of the Company set forth in SCHEDULE 3.7;
(h) all right, title and interest of the Company in, to and under
all Permits owned or possessed by the Company and relating to the business
or the Company or all or any of the Assets, including, without limitation,
the Permits set forth in SCHEDULE 3.9;
(i) all right, title and interest of the Company in, to and under
all Intangible Property of the Company, the goodwill associated therewith
and the rights and privileges used in the conduct of the businesses of the
Company and the right to recover for infringement thereon, including,
without limitation, the Intangible Property set forth on SCHEDULE 3.21;
(j) the names "Container Services Company," "Consolidated Drum
Reconditioning Co., Inc.," "Consolidated Drum," "Waymire Drum," "PCD
Containers," "Rose Cooperage Company," "Northwest Cooperage Company" and
all derivations thereof and any trade names or other assumed names under
which the Company operates;
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(k) copies of the Company's books, records, papers and instruments
of whatever nature and wherever located that relate to the business of the
Company or the Assets or which are required or necessary in order for
Newco to conduct the business of the Company from and after the Closing in
the manner in which such business was being conducted before the Closing,
other than books and records relating to the administration and ownership
of the Company; PROVIDED, HOWEVER, that copies of such books and records
shall be included in the Assets;
(l) all insurance proceeds and insurance claims of the Company
relating to its business or all or any part of the Assets, other than with
respect to the Excluded Liabilities, and to the extent transferable, the
benefit of and the right to enforce the covenants and warranties, if any,
that the Company is entitled to enforce with respect to the Assets against
its predecessors in title to the Assets, if any;
(m) all right, title and interest of the Company in computer
equipment and hardware, including, without limitation, all central
processing units, terminals, disk drives, tape drives, electronic memory
units, printers, keyboards, screens, peripherals (and other input/output
devices), modems and other communication controllers, networking
equipment, and any and all parts and appurtenances thereto, together with
all software and intellectual property used by the Company with such
computer equipment and hardware;
(n) all right, title and interest of the Company in, to and under
all rights, privileges, claims, causes of action, and options relating to
or pertaining to their respective businesses or the foregoing Assets; and
(o) all other or additional privileges, rights, interest, properties
and assets of the Company of every kind and description and wherever
located that are used or intended for use in connection with, or that are
necessary to the continued conduct of, their respective businesses as
presently being conducted.
"ASSUMED LIABILITIES" means the liabilities and obligations of the Company
to be assumed by Newco NW or Newco SW, as the case may be, at the Closing in
accordance with SECTION 2.3.
"AUDITED FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.4.
"CDR" has the meaning set forth in the first paragraph of this Agreement.
"CDRHC" has the meaning set forth in the first paragraph of this
Agreement.
"CDRNW" has the meaning set forth in the first paragraph of this
Agreement.
"CDRSW" has the meaning set forth in the first paragraph of this
Agreement.
"CLOSING" has the meaning set forth in SECTION 2.7(A).
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"CLOSING DATE" has the meaning set forth in SECTION 2.7(A).
"CODE" has the meaning set forth in SECTION 3.14(A).
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPETITIVE BUSINESS" means any business that competes with the Company,
including, without limitation, any business that (a) reconditions, recycles,
repairs, manufactures, markets, distributes, brokers, manages or transports
steel drums and other logistics services with respect thereto; or (b) competes
with the Company for raw materials (E.G., open top and closed top drums);
PROVIDED, HOWEVER, that such term shall not include the operations of the
Southgate Facility pending the Southgate Closing as such operations were
conducted immediately prior to the Closing and to the extent the output of the
Southgate Facility is sold to Newco or an Affiliate of Newco.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 3.14.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 3.14.
"EMPLOYMENT AGREEMENT" has the meaning set forth in SECTION 5.4.
"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, rights of first
refusal, reservations, restrictions or other encumbrances or defects in title.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any Hazardous Substances, in each case as amended and as in effect on the
Closing Date. The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the
Federal Comprehensive Environmental Response Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste
Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of
1970, each as amended and as in effect on the Closing Date, and (ii) any common
law or equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability) that
may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of, effects of or exposure to any
Hazardous Substances.
"ERISA" has the meaning set forth in SECTION 3.14.
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"ERISA AFFILIATE" has the meaning set forth in SECTION 3.14.
"EXCLUDED ASSETS" means the (a) limited liability company ownership
interests of CDR in CDRHC and of CDRHC in CDRNW and CDRSW and (b) the
Stockholder Notes.
"EXCLUDED LIABILITIES" has the meaning set forth in SECTION 2.3.
"EXPIRATION DATE" has the meaning set forth in SECTION 10.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"HAZARDOUS SUBSTANCES" means any substance listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law. The term "HAZARDOUS SUBSTANCES"
includes, without limitation, any substance to which exposure is regulated by
any Governmental Authority or any Environmental Law including, without
limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste, industrial substance or petroleum or
any derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 6.3.
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.4.
"KNOWLEDGE OF THE COMPANY" or "TO THE COMPANY'S KNOWLEDGE" means the
actual knowledge, after due inquiry, of Darryl Bartolotti, Geno Bartolotti, Doug
Burton, Joseph Cruz, Philip Freeman, Calvin Lee, Laura Reynolds, Tony Serge,
Kellie Simpson, Colleen Hardee and Rick Cabuco.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOCKUP PERIOD" has the meaning set forth in SECTION 9.4.
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"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including SPECIFICALLY, but without limitation, reasonable attorneys'
fees and expenses of investigation), net of income Tax effects with respect
thereto (including, without limitation, income Tax benefits recognized in
connection therewith and income Taxes upon any indemnification recovery thereof)
and net of any insurance proceeds, and any indemnity, contribution or similar
payment, collected by Newco or any Affiliate of Newco from any third party with
respect thereto.
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 3.8.
"MOVING EXPENSES" has the meaning set forth in SECTION 2.8.
"MOVING EXPENSE FUND" has the meaning set forth in SECTION 2.8.
"NEWCO" means Newco NW and Newco SW, collectively.
"NEWCO NW" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO SW" has the meaning set forth in the first paragraph of this
Agreement.
"1997 FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.4.
"1934 ACT"means the Securities Exchange Act of 1934, as amended.
"1933 ACT" means the Securities Act of 1933, as amended.
"OPTION PLAN" has the meaning set forth in SECTION 5.5.
"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX COMMON STOCK" has the meaning set forth in SECTION 2.2.
"PALEX MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION 4.6.
"PALEX SEC FILINGS" has the meaning set forth in SECTION 4.5.
"PERMITS" has the meaning set forth in SECTION 3.9.
"PERMITTED ENCUMBRANCES" means (a) any Encumbrances reserved against in
the Financial Statements as of December 31, 1997, (b) Encumbrances for property
or ad valorem Taxes not yet due and payable or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the Company's books in accordance with GAAP, and (c)
obligations under operating and capital leases described on SCHEDULE 3.8.
"PLAN" has the meaning set forth in SECTION 3.14.
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"PURCHASE PRICE" has the meaning set forth in SECTION 2.2(A).
"QUALIFIED PLANS" has the meaning set forth in SECTION 3.14.
"REGISTRABLE SECURITIES" has the meaning set forth in SECTION 5.7(B).
"RESTRICTED SHARES" has the meaning set forth in SECTION 9.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"SOUTHGATE ASSETS" means the Assets comprised of equipment, machinery,
tools, spare parts, supplies, inventory (including, without limitation, spare
parts inventory) and work-in-progress, all right, title and interest of the
Company in, to and under all Permits, in each case to the extent such Assets,
and any other Assets, are located and used in the operation of the business of
the Company at the Southgate Facility.
"SOUTHGATE ASSUMED LIABILITIES" means all (i) liabilities, obligations or
contingencies of the Company, to the extent the same encumber the Southgate
Assets as of the Closing, or arising in the ordinary course of the operations of
the Southgate Facility between the Closing and the Southgate Closing, (ii)
accounts payable and other current liabilities (as determined in accordance with
GAAP) arising in the ordinary course of business at the Southgate Facility,
(iii) liabilities for compensation or benefits for the Southgate Employees, to
the extent such compensation or benefits are substantially the same as those
provided to such employees as of the Closing, (iv) contractual obligations under
collective bargaining agreements, to the extent such agreements cover the
Southgate Employees, and (v) obligations to customers of the Company or third
parties, to the extent such obligations relate to the operations, products or
services provided at the Southgate Facility; PROVIDED, HOWEVER, that
notwithstanding anything to the contrary contained herein, neither PalEx nor
Newco shall assume or be liable for Excluded Liabilities.
"SOUTHGATE CLOSING" has the meaning set forth in SECTION 2.7(B).
"SOUTHGATE CLOSING DATE" means the earlier of the third business day after
the earlier of the date on which (a) the Company delivers the Southgate Assets
to a new facility leased or purchased by Newco under commercially reasonable
terms negotiated in good faith by the Stockholders and approved by Newco, in its
good faith discretion, (b) Newco or an Affiliate acquires a business in the same
market area as the Southgate Facility operates, which business is able to absorb
the closed top drum reconditioning business conducted by the Company at the
Southgate Facility on a competitive and commercially comparable basis, and (c)
the Company delivers the Southgate Assets to an address in the Los Angeles,
California, metropolitan area specified by Newco in a written notice delivered
to the Company and the Stockholders, which delivery the Company and the
Stockholders shall cause to occur within two weeks of the date of such notice
from Newco.
"SOUTHGATE EMPLOYEES" has the meaning set forth in SECTION 5.9.
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"SOUTHGATE FACILITY" means the Company's facility at 9316 Atlantic Avenue,
Southgate, California, and the real property on which such facility is located
and the Company's leasehold interest therein.
"SOUTHGATE PURCHASE PRICE" has the meaning set forth in SECTION 2.2(B).
"STOCKHOLDER NOTES" has the meaning set forth in SECTION 3.6.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"TAXES" has the meaning set forth in SECTION 3.16.
"TERRITORY" has the meaning set forth in SECTION 7.1.
"THIRD PERSON" has the meaning set forth in SECTION 6.3.
"YEAR-END FINANCIAL STATEMENTS has the meaning set forth in SECTION 3.4.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE PLAN OF ACQUISITION
2.1. THE ACQUISITION OF ASSETS.
(a) Upon the terms and subject to the conditions of this Agreement,
at the Closing, the Company agrees to sell, convey, transfer, assign and
deliver to (i) Newco NW, and Newco NW agrees to purchase from the Company,
the Assets of CDRNW (other than Southgate Assets), and (ii) Newco SW, and
Newco SW agrees to purchase from the Company, all the other Assets other
than the Southgate Assets, in each case, free and clear of all
Encumbrances other than Permitted Encumbrances and any Encumbrances
created by Newco or PalEx, as the case may be.
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(b) Upon the terms and subject to the conditions of this Agreement,
at the Southgate Closing, the Company agrees to sell, convey, transfer,
assign and deliver to Newco SW, and Newco SW agrees to purchase from the
Company, all the Southgate Assets, free and clear of all Encumbrances
other than Permitted Encumbrances and any Encumbrances created by Newco or
PalEx, as the case may be.
2.2. PURCHASE PRICE; SOUTHGATE PURCHASE PRICE.
(a) At the Closing, Newco shall pay the Company a purchase price for
the Assets other than the Southgate Assets (the "PURCHASE PRICE") totaling
$25,598,590 in cash and 530,766 shares of PalEx's Common Stock, $.01 par
value per share ("PALEX COMMON STOCK").
(b) At the Southgate Closing, Newco shall pay the Company a purchase
price for the Southgate Assets (the "SOUTHGATE PURCHASE PRICE") equal to
$1,000,000 in cash.
2.3. ASSUMED LIABILITIES; SOUTHGATE ASSUMED LIABILITIES.
(a) As further consideration for the purchase of the Assets other
than the Southgate Assets, at the Closing, Newco NW and Newco SW shall
assume and discharge all (i) liabilities, obligations or contingencies of
CDRNW and the Company (excluding CDRNW and the Southgate Assumed
Liabilities), respectively, (A) that are accrued or reserved against in
the Financial Statements as of December 31, 1997 or reflected in the notes
thereto or (B) that were incurred after the December 31, 1997 and were
incurred in the ordinary course of the business of the Company, consistent
with past practices, and (ii) liabilities and obligations (excluding the
Southgate Assumed Liabilities) that are of a nature not required to be
reflected in the Financial Statements, provided the Financial Statements
are prepared in accordance with GAAP, and that were incurred in the normal
course of business and are described on SCHEDULE 3.5; PROVIDED, HOWEVER,
that notwithstanding anything to the contrary contained herein, neither
PalEx nor Newco shall assume or be liable for: (u) the Southgate Facility
or any lease agreement relating thereto; (v) any noncompliance with
Environmental Laws at the Southgate Facility or in connection with any
activities (whether or not by the Company) at the Southgate Facility and
any generation, use, storage, handling, transportation, treatment or
disposal of Hazardous Substances at or from the Southgate Facility or in
connection with any activities at the Southgate Facility; (w) the
Affiliate Loans; (x) any fees, expenses, finder's fees, brokerage
commissions or advisory fees, expenses or commissions arising in
connection with the consummation of the transactions contemplated by this
Agreement, including, without limitation, any fees or commissions payable
to Bank America Robertson Stephens; (y) income Taxes payable by the
Company for the periods prior to and including the Closing Date; or (z)
sales or use Taxes or other similar Taxes or charges, as well as any
interest or penalties thereon, upon or with respect to the sale or
transfer of the Assets by the Company to Newco pursuant to the terms of
this Agreement, but only to the extent of sales and use Taxes based upon
the book value of such Assets attributed thereto by the Company in the
1997 Financial Statements
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(collectively, the "EXCLUDED LIABILITIES"). The Company's outstanding
liabilities, obligations and contingencies as of the Closing Date
(excluding the Southgate Assumed Liabilities), other than normal payables
and accruals incurred in the ordinary course of business and reflected in
the Financial Statements in accordance with GAAP, are as set forth on
SCHEDULE 2.3.
(b) As further consideration for the purchase of the Southgate
Assets, at the Southgate Closing, Newco NW and Newco SW shall assume and
discharge all Southgate Assumed Liabilities.
(c) Neither PalEx nor Newco assumes or agrees to pay, perform or
discharge, or shall be responsible for, Excluded Liabilities, whether
accrued, absolute, contingent or otherwise. The Stockholders and the
Company agree that the Company shall remain solely responsible for, and
the Stockholders and the Company hereby agree to indemnify and to hold
PalEx and Newco harmless from, any and all Loss, liability or obligation,
whether accrued, absolute, contingent or otherwise, arising from or in
respect of the Excluded Liabilities.
2.4. COVENANTS PENDING SOUTHGATE CLOSING; CONDITIONS TO SOUTHGATE CLOSING.
(a) From the Closing Date until the Southgate Closing, the Company
and the Stockholders (i) shall use their commercially reasonable efforts
to maintain the Southgate Assets in their condition as of the Closing,
(ii) shall endeavor in good faith to maintain the business and customer
relationships relating to the operations of the Southgate Assets, (iii)
shall not, without the prior written consent of PalEx, incur any
indebtedness for borrowed money that would be a Southgate Assumed
Liability or enter into any contract or commitment that can not be
terminated on not more than 30 days' notice, and (iv) shall not take or
fail to take any action necessary to cause the representations and
warranties set forth in ARTICLE III to be true and correct as of the
Southgate Closing.
(b) Newco's obligation to purchase the Southgate Assets pursuant to
the terms of this Agreement at the Southgate Closing is conditioned upon
(i) there having been no material loss or destruction of the Southgate
Assets between the Closing Date and the Southgate Closing Date, (ii) there
being no material increase in the Southgate Assumed Liabilities between
the Closing Date and the Southgate Closing Date other than increases in
the ordinary course of business consistent with past practices, and (iii)
the Company conveying good and marketable title to the Southgate Assets to
Newco, free and clear of all Encumbrances other than Permitted
Encumbrances and Encumbrances created by PalEx or Newco, as the case may
be.
2.5. CONVEYANCE DOCUMENTS.
(a) At the Closing, the Company shall execute and deliver to Newco
NW or Newco SW, as appropriate, (i) a completed Bill of Sale and
Assignment and Assumption Agreement, in a mutually acceptable form,
covering all of the Assets other than the
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Southgate Assets and the Assumed Liabilities and (ii) a certificate of
title to any Asset other than the Southgate Assets covered by a
certificate of title. At all times hereafter as may be necessary, the
Company shall execute and deliver to Newco NW or Newco SW, as appropriate,
such other instruments of transfer as shall be reasonably necessary or
appropriate to vest in Newco NW or Newco SW good and indefeasible title to
the Assets other than the Southgate Assets, free and clear of all
Encumbrances other than Permitted Encumbrances and to comply with the
purposes and intent of this Agreement.
(b) At the Southgate Closing, the Company shall execute and deliver
to Newco SW, (i) a completed Bill of Sale and Assignment and Assumption
Agreement, in a mutually acceptable form, covering all of the Southgate
Assets and the Southgate Assumed Liabilities and (ii) a certificate of
title to any Southgate Asset covered by a certificate of title. At all
times hereafter as may be necessary, the Company shall execute and deliver
to Newco SW such other instruments of transfer as shall be reasonably
necessary or appropriate to vest in Newco SW good and indefeasible title
to the Southgate Assets, free and clear of all Encumbrances other than
Permitted Encumbrances and to comply with the purposes and intent of this
Agreement.
2.6. ALLOCATION OF PURCHASE PRICE AND SOUTHGATE PURCHASE PRICE. SCHEDULE
2.6 sets forth the allocation of the Purchase Price among the Assets, and at the
Southgate Closing Newco and the Company shall endeavor in good faith to agree
upon a mutually acceptable allocation of the Southgate Purchase Price. PalEx,
Newco, the Company and the Stockholders agree that they shall file IRS Forms
8594 consistent with such allocation and shall not take any position or action
inconsistent with such allocation in the filing of any federal income tax
returns.
2.7. CLOSING; SOUTHGATE CLOSING.
(a) The consummation of the purchase of the Assets and the other
transactions contemplated by this Agreement, other than the purchase of
the Southgate Assets (the "CLOSING"), shall take place at the offices of
PalEx, 1360 Post Oak Blvd., Suite 800, Houston, Texas, concurrently with
the execution of this Agreement or at such other time and date as PalEx,
the Company and the Stockholders may mutually agree, which date shall be
referred to as the "CLOSING DATE."
(b) The consummation of the purchase of the Southgate Assets (the
"SOUTHGATE CLOSING"), shall take place at the offices of PalEx, 1360 Post
Oak Blvd., Suite 800, Houston, Texas, on the Southgate Closing Date.
2.8. SOUTHGATE MOVING EXPENSES AND SHUTDOWN HOLDBACK.
(a) The Company and the Stockholders shall bear up to $1,000,000 of
the expenses of moving and shutting down the Southgate Facility. As
security for such obligation of the Company and the Stockholders, at the
Closing, Newco shall withhold $1,000,000 of the cash portion of the
Purchase Price as a moving expense fund (the "MOVING EXPENSE FUND").
Interest shall accrue on the Moving Expense Fund at the same rate as
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PalEx pays on revolving credit loans under its bank credit facility, which
interest shall be included in the Moving Expense Fund. The Moving Expense
Fund shall be applied for Moving Expenses, and, on presentation to Newco
of receipts or other reasonable verification of Moving Expenses incurred
by the Company and the Stockholders, Newco shall reimburse the Company and
the Stockholders from the Moving Expense Fund for such Moving Expenses.
(b) If the aggregate Moving Expenses paid or incurred by the Company
and the Stockholders exceed $1,000,000, any additional Moving Expenses
above such $1,000,000 figure incurred by the Company and the Stockholders
shall be reimbursed to the Company and the Stockholders by Newco;
PROVIDED, HOWEVER, that Newco shall have the right to approve in advance
all Moving Expenses in excess of $1,000,000.
(c) If the Moving Expenses do not exceed the Moving Expense Fund,
then Newco shall promptly pay the Company and the Stockholders the balance
of the Moving Expense Fund in cash.
(d) For purposes of this Agreement, the term "MOVING EXPENSES" means
all costs and expenses that are reasonable in nature and amount that are
paid or incurred by Newco or PalEx, included in Southgate Assumed
Liabilities or reimbursed to the Company and the Stockholders, to (i)
shutdown the Southgate Facility and move the Southgate Assets to a new
leased facility and install the Southgate Assets at such new facility such
that they are in working order and operational, (ii) shutdown the
Southgate Facility and increase the capacity at a business acquired by
Newco or an Affiliate of Newco in the same market area as the Southgate
Facility operates, which business is able to absorb the closed top drum
reconditioning business conducted by the Company at the Southgate Facility
on a competitive and commercially comparable basis, or (iii) shutdown the
Southgate Facility and move the Southgate Assets to an address in the Los
Angeles, California, metropolitan area specified by Newco in a written
notice delivered to the Company and the Stockholders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS
Each Stockholder and the Company jointly and severally represents and
warrants to PalEx and Newco as follows:
3.1. DUE ORGANIZATION AND QUALIFICATION.
(a) CDR is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. CDR is duly
authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
businesses in the places and in the manner now conducted. CDR has the
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requisite corporate power and authority to own, lease and operate its
assets and properties and to carry on its business as it is currently
being conducted. SCHEDULE 3.1 contains a list of all jurisdictions in
which CDR is authorized or qualified to do business. In addition, SCHEDULE
3.1 sets forth a true, complete and correct list of all counties in
California in which CDR conducts any business. True, complete and correct
copies of the Articles of Incorpora tion and By-laws, each as amended, of
CDR have been provided to PalEx. All the stock records and minute books of
CDR have been made available to PalEx and are correct and complete in all
material respects.
(b) Each of CDRHC, CDRNW and CDRSW is a limited liability company
duly organized, validly existing and in good standing under the laws of
the state of its formation. Each of CDRHC, CDRNW and CDRSW is duly
authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
businesses in the places and in the manner now conducted. Each of CDRHC,
CDRNW and CDRSW has the requisite limited liability company power and
authority to own, lease and operate its assets and properties and to carry
on its business as it is currently being conducted. SCHEDULE 3.1 contains
a list of all jurisdictions in which each of CDRHC, CDRNW and CDRSW is
authorized or qualified to do business. In addition, SCHEDULE 3.1 sets
forth a true, complete and correct list of all counties in California in
which CDRHC, CDRNW or CDRSW conducts any business. True, complete and
correct copies of the operating agreement and any other charter documents,
each as amended, of each of CDRHC, CDRNW and CDRSW have been provided to
PalEx. All the stock records and minute books of the Company have been
made available to PalEx and are correct and complete in all material
respects.
3.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of CDR, CDRHC, CDRNW and CDRSW has the requisite power and
authority to enter into this Agreement and to effect the transactions
contemplated hereby. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. The execution, delivery and
performance of this Agreement have been approved by all requisite action
by each of CDR, CDRHC, CDRNW and CDRSW and by the Stockholders. No
additional proceedings on the part of any of CDR, CDRHC, CDRNW and CDRSW
are necessary to authorize the execution and delivery of this Agreement
and the consummation by each of CDR, CDRHC, CDRNW and CDRSW of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of CDR, CDRHC, CDRNW and CDRSW and each
Stockholder, and, assuming the due authorization, execution and delivery
hereof by PalEx and Newco, constitutes a valid and binding agreement of
each of CDR, CDRHC, CDRNW and CDRSW and each Stockholder, enforceable
against each such party in accordance with its terms.
(b) Except as set forth on SCHEDULE 3.2, the execution and delivery
of this Agreement by the Company and the Stockholders do not, and the
consummation by the Company and the Stockholders of the transactions
contemplated by this Agreement will not, violate or result in a breach of
any provision of, or constitute a default (or an event which,
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with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result
in the creation of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Company under any of the terms,
conditions or provisions of, (i) the organizational or charter documents
of the Company, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court
or governmental authority applicable to the Company or any of its
properties or assets or either Stockholder, or (iii) any material
agreement or any note, bond, mortgage, indenture, deed of trust, Permit,
material lease or other material instrument, obligation or agreement of
any kind to which the Company or either Stockholder is now a party or by
which the Company or any of its properties or assets may be bound or
affected.
(c) Except as set forth on SCHEDULE 3.2, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by the Company or either
Stockholder or the consummation by the Company or either Stockholder of
the transactions contemplated hereby. Except as set forth on SCHEDULE 3.2,
none of the customer contracts providing for purchases individually in
excess of $50,000, or in the aggregate in excess of $100,000, or other
material agreements to which the Company is a party requires notice to, or
the consent or approval of, any third party for the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated by this Agreement.
3.3. OWNERSHIP OF THE COMPANY. The Stockholders are the sole shareholders
of CDR; CDRHC is owned 99% by CDR and 0.5% by each Stockholder; and CDRNW and
CDRSW are each owned 99% by CDRHC and 0.5% each by each Stockholder.
3.4. FINANCIAL STATEMENTS.
(a) Attached hereto as SCHEDULE 3.4(C) are complete and correct
copies of (i) the audited balance sheets of the Company as of December 31,
1995 and 1996 and the related audited income statements, statements of
cash flows and statements of changes in shareholders' equity of the
Company for the three-year period ended December 31, 1997 (such balance
sheets, income statements, statements of cash flows and statements of
changes in shareholders' equity are collectively referred to herein as the
"AUDITED FINANCIAL STATEMENTS"), and (ii) the unaudited balance sheets of
the Company as of December 31, 1997, and the related unaudited income
statement, statement of cash flow and statement of changes in
shareholders' equity (collectively, the "1997 FINANCIAL STATEMENTS").
(b) The Audited Financial Statements and the 1997 Financial
Statements have been prepared from the books and records of the Company in
accordance with GAAP. The books of account of each Company have been kept
accurately in all material respects in the ordinary course of business and
the transactions entered therein represent bona fide transactions.
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(c) SCHEDULE 3.4(C) sets forth the increase (or decrease) in net
property, plant and equipment of the Company as of the Closing Date from
the net property plant and equipment reflected in the 1997 Financial
Statements and the amount of any such increases that were included for
1998 in the financial projections previously provided by the Company to
PalEx.
(d) SCHEDULE 3.4(D) sets forth the increase (or decrease) in working
capital of the Company (excluding cash and indebtedness) as of the Closing
Date from the working capital (excluding cash and indebtedness) reflected
in the 1997 Financial Statements.
3.5. LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 3.5 and
SCHEDULE 3.15, the Company did not have at December 31, 1997, nor has it
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except (a) liabilities,
obligations or contingencies (i) that are reflected in the 1997 Financial
Statements or (ii) that were incurred after December 31, 1997 and were incurred
in the ordinary course of business, consistent with past practices, (b)
liabilities and obligations that (i) are of a nature not required to be
reflected in the 1997 Financial Statements prepared in accordance with GAAP,
(ii) were incurred in the normal course of business, and (iii) are described on
SCHEDULE 3.5, and (c) liabilities and obligations that are expressly and
specifically disclosed on the schedules to this Agreement. SCHEDULE 3.5 contains
a reasonable estimate by the Company, given the facts and circumstances
currently known by the Company, of the maximum amount that may be payable with
respect to liabilities which are contingent.
3.6. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 3.6 sets forth an accurate
list of the accounts and notes receivable of the Company as of December 31, 1997
and as of the close of business on January 21, 1998, including any such amounts
that are not reflected in the 1997 Financial Statements. Receivables from and
advances to the Stockholders and any entities or persons related to or
Affiliated with the Stockholders (collectively, the "STOCKHOLDER NOTES") and to
employees of the Company are separately identified on SCHEDULE 3.6. SCHEDULE 3.6
also sets forth an accurate aging of all accounts and notes receivable of the
Company as of December 31, 1997, showing amounts due in 30-day aging categories.
The trade and other accounts receivable of the Company, including without
limitation those classified as current assets in the 1997 Financial Statements
and those set forth on SCHEDULE 3.6 as of the close of business on January 21,
1998, were acquired in the ordinary course of business, are stated in accordance
with GAAP and, subject to the reserve for doubtful accounts reflected in the
1997 Financial Statements as of December 31, 1997, need not be written-off as
uncollectible. Such accounts and notes, other than the Stockholder Notes, are
collectible in the amount shown in the 1997 Financial Statements, net of
reserves for doubtful accounts reflected in the 1997 Financial Statements.
3.7. ASSETS.
(a) SCHEDULE 3.7 sets forth an accurate list of all real and
personal property included in "property and equipment" in the 1997
Financial Statements and all other tangible (E.G., physical) assets of the
Company with a book value in excess of $10,000 owned by the Company and
included in the Assets (i) as of December 31, 1997. Except as set forth on
SCHEDULE 3.7, the Company does not lease any material equipment. Attached
hereto as
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SCHEDULE 3.7 is a complete list of leases for all real property leased by
the Company and descriptions of all real property on which buildings,
warehouses, workshops, garages and other structures used by the Company in
the operation of the business of the Company are situated, complete copies
of which leases have been previously provided to PalEx. SCHEDULE 3.7
indicates which of the property, equipment and tangible assets used by the
Company in the operation of its business are currently owned by either
Stockholder or Affiliates of the Company. Except as specifically
identified on SCHEDULE 3.7, all of the tangible assets, vehicles and other
significant machinery and equipment of the Company listed on SCHEDULE 3.7
are in good working order and condition, ordinary wear and tear excepted,
and have been maintained in accordance with standard industry practices.
All fixed assets used by the Company that are material to the operation of
the Company's business are included in the Assets and are either owned by
the Company or leased under an agreement identified on SCHEDULE 3.7. All
leases set forth on SCHEDULE 3.7 are in full force and effect and
constitute valid and binding agreements of the Company, and to the
Company's knowledge, of the third parties thereto, in accordance with
their respective terms. SCHEDULE 3.7 includes complete and correct copies
of any title reports and title insurance policies in possession of the
Company with respect to all real property owned or leased by the Company.
(b) The Company has good and marketable title to the material
tangible and intangible personal property and the real property owned by
the Company and valid leasehold interests in the real and personal
property leased by the Company, including the properties identified on
SCHEDULE 3.7, free and clear of all Encumbrances, other than Permitted
Encumbrances, including without limitation the Encumbrances set forth on
SCHEDULE 3.7.
(c) The Assets constitute all the assets reasonably necessary for
operation of the business of the Company as conducted at December 31,
1997.
3.8. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
(a) SCHEDULE 3.8 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's revenues for the year ended
period ended December 31, 1997 (the "MATERIAL CUSTOMERS"), and (ii) all
material executory contracts, commitments and similar agreements to which
the Company is currently a party or by which it or any of its properties
is bound, including, but not limited to, (A) all customer contracts in
excess of $10,000, individually, or $25,000 in the aggregate with respect
to any single customer or Affiliate of such customer, including, without
limitation, consignment contracts, (B) contracts with any labor
organizations, (C) leases providing for annual rental payments in excess
of $5,000, individually, or $10,000 in the aggregate with respect to
leases with a single party or Affiliate of such party, (D) loan
agreements, (E) pledge and security agreements, (F) indemnity or guaranty
agreements, (G) bonds, (H) notes, (I) mortgages, (J) joint venture or
partnership agreements, (K) options to purchase real or personal property,
and (L) agreements relating to the purchase or sale by the Company of
assets (other than oral agreements relating to sales of inventory or
services in the ordinary course of business, consistent with past
practices) or securities for more than $5,000, individually, or $10,000
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in the aggregate. Prior to the date hereof, the Company has made available
to PalEx complete and correct copies of all such agreements.
(b) Except to the extent set forth on SCHEDULE 3.8, (i) no Material
Customer has canceled or substantially reduced or notified the Company or
the Stockholders that it intends to cancel or substantially reduce, or to
the knowledge of the Company, is threatening to cancel or substantially
reduce, its purchases of the Company's products or services, (ii) to the
knowledge of the Company, it is in compliance with all material
commitments and obligations pertaining to it under the agreements
described in SUBSECTION (A), and (iii) the Company is not in default under
any such agreements, no notice of default has been received by the
Company, and to the knowledge of the Company, there is no basis therefor.
(c) The Company is not a party to any governmental contracts subject
to price redetermination or renegotiation. The Company is not required to
provide any bonding or other financial security arrangements in any
material amount in connection with any transactions with any of its
customers or suppliers.
(d) The Company has a sufficient supply of uncommitted inventory to
fulfill its bartering obligations with third parties.
3.9. PERMITS. SCHEDULE 3.9 contains an accurate list of all licenses,
franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company that are material to
the conduct of its business including, without limitation, permits, licenses and
operating authorizations, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights that are material to the conduct of
the Company's business and are owned or held by the Company (collectively, the
"PERMITS"). The Permits are, to the knowledge of the Company, valid, and the
Company has not received any notice that any governmental authority intends to
cancel, terminate or not renew any such Permit. Except as specifically provided
in SCHEDULE 3.9, the Permits are assignable to Newco at the Closing without the
prior consent of the grantor of such Permits and the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded by, such Permits.
3.10. ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 3.10: (a) the
Company has, for the applicable statute of limitations period, complied with and
is in material compliance with all Environmental Laws, including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Substances; (b) the Company has obtained and complied with all necessary permits
and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Substances and has reported, to the extent required
by all Environmental Laws, all past and present sites owned or operated by the
Company where Hazardous Substances have been treated, stored, disposed of or
otherwise handled; (c) there have been no "releases" or threats of "releases"
(as defined in any Environmental Laws) at, from, in or on any property owned or
operated by the Company; (d) there is no on-site or off-site location to which
the Company has transported or disposed of Hazardous Substances or arranged for
the transportation or disposal Hazardous Substances which is the subject
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of any federal, state, local or foreign enforcement action or any other
investigation that could reasonably be expected to lead to any claim against the
Company, PalEx or Newco for any clean-up cost, remedial work, damage to natural
resources or personal injury, including, but not limited to, any claim under (i)
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (ii) the Resource Conservation and Recovery Act, (iii) the
Hazardous Materials Transportation Act, or (iv) comparable state and local
statutes and regulations; and (e) the Company has no contingent liability in
connection with any release or disposal of any Hazardous Substance into the
environment.
3.11. LABOR AND EMPLOYEE RELATIONS. Except as set forth on SCHEDULE 3.11,
the Company is not bound by or subject to any arrangement with any labor union,
and no employees of the Company are represented by any labor union or covered by
any collective bargaining agreement nor, to the Company's knowledge, is any
campaign to establish such representation in progress. There is no pending, or
to the Company's knowledge, threatened, labor dispute, grievances or claims, or
work interruptions, involving the Company or any group of its employees nor,
except as set forth on SCHEDULE 3.11, has the Company experienced any labor
interruptions over the past five years.
3.12. INSURANCE. The Company has provided PalEx true and complete copies
of all insurance policies carried by the Company during the last three years and
all insurance loss runs and workmen's compensation claims received for the past
five policy years. None of such policies is a "claims made" policy.
3.13. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 3.13 sets forth an
accurate schedule of all officers, directors and employees of the Company
earning aggregate annual compensation in excess of $70,000, listing the rate of
compensation (and the portions thereof attributable to salary, bonus, benefits
and other compensation, respectively) of each of such persons as of (a) December
31, 1997 and (b) the date hereof. The Company is not a party with any officer,
director, stockholder, member or employee to any employment agreement or similar
arrangement containing "golden parachute"or other similar provisions.
3.14. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.14 sets forth an accurate schedule of each "EMPLOYEE
BENEFIT PLAN," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all nonqualified
deferred compensation arrangements, whether formal or informal and whether
legally binding or not, under which the Company or an ERISA Affiliate has
any current or future obligation or liability or under which any present
or former employee of the Company or an ERISA Affiliate, or such present
or former employee's dependents or beneficiaries, has any current or
future right to benefits (each such plan and arrangement referred to
hereinafter as a "PLAN"), true and complete copies of which Plans,
arrangements and any trusts related thereto, and information regarding
classifications of employees covered thereby as of December 31, 1997 have
been provided to PalEx and/or Newco. Except as set forth on SCHEDULE 3.14,
neither the Company nor any ERISA Affiliate sponsors, maintains or
contributes currently, or at any time during the preceding five years, to
any plan, program, fund or arrangement that constitutes an employee
pension benefit plan.
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Each Plan may be terminated by the Company, or if applicable, by an ERISA
Affiliate at any time without any liability, cost or expense (other than
for benefits accrued under such Plan as of the date of termination). For
purposes of this Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall
have the meaning given that term in Section 3(2) of ERISA, and the term
"ERISA AFFILIATE" means any corporation or trade or business under common
control with the Company as determined under Section 414(b), (c), (m) or
(o) of the Internal Revenue Code of 1986, as amended (the "CODE").
(b) Each Plan listed on SCHEDULE 3.14 is in compliance in all
material respects with the applicable provisions of ERISA, the Code, and
any other applicable Law. With respect to each Plan of the Company and
each ERISA Affiliate (other than a "MULTIEMPLOYER PLAN," as defined in
Section 4001(a)(3) of ERISA), all reports and other documents required
under ERISA or other applicable Law to be filed with any Governmental
Authority, the failure of which to file could reasonably be expected to
result in a material liability to the Company or any ERISA Affiliate, or
required to be distributed to participants or beneficiaries, have been
duly filed or distributed. True and complete copies of all such reports
and other documents with respect to the past five years for each Plan have
been provided to PalEx. No "ACCUMULATED FUNDING DEFICIENCY" (as defined in
Section 412(a) of the Code) with respect to any Plan has been incurred
(without regard to any waiver granted under Section 412 of the Code), nor
has any funding waiver from the Internal Revenue Service been received or
requested. Each Plan that is intended to be "QUALIFIED" within the meaning
of Section 401(a) of the Code (a "QUALIFIED PLAN") is, and has been during
the period from its adoption to the date hereof, so qualified, both as to
form and operation and all necessary approvals of Governmental
Authorities, including a favorable determination as to the qualification
under the Code of each of such Qualified Plans and each amendment thereto,
have been timely obtained. Except for the obligations accrued in the
ordinary course of business after December 31, 1977, which obligations are
described on SCHEDULE 3.14, all accrued contribution obligations of the
Company with respect to any Plan have either been fulfilled in their
entirety or are fully reflected in the Audited Financial Statements and
the 1997 Financial Statements.
(c) No Plan has incurred, and neither the Company nor any ERISA
Affiliate has incurred, any liability for excise tax or penalty due to the
Internal Revenue Service. There have been no terminations, partial
terminations or discontinuances of contributions to any Qualified Plan
during the preceding five years without notice to and approval by the
Internal Revenue Service and payment of all obligations and liabilities
attributable to such Qualified Plan.
(d) Neither the Company nor any ERISA Affiliate has made any
promises of retirement or other benefits to employees, except as set forth
in the Plans, and neither the Company nor any ERISA Affiliate maintains or
has established any Plan that is a "WELFARE BENEFIT PLAN" within the
meaning of Section 3(1) of ERISA that provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after
such participant's termination of employment, except as may be required by
Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code,
and at the expense of the participant or
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the beneficiary of the participant, or retiree medical liabilities.
Neither the Company nor any ERISA Affiliate maintains, has established or
has ever participated in a multiple employer welfare benefit arrangement
as described in Section 3(40)(A) of ERISA. Neither the Company nor any
ERISA Affiliate has any current or future obligation or liability with
respect to a Plan pursuant to the provisions of a collective bargaining
agreement.
(e) Neither the Company nor any ERISA Affiliate has incurred any
material liability to the Pension Benefit Guaranty Corporation in
connection with any Plan. The assets of each Plan that is subject to Title
IV of ERISA are sufficient to provide the benefits under such Plan, the
payment of which the Pension Benefit Guaranty Corporation would guarantee
if such Plan were terminated, and such assets are also sufficient to
provide all other "BENEFITS LIABILITIES" (as defined in ERISA Section
4001(a)(16)) due under such Plan upon termination.
(f) No "REPORTABLE EVENT" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any Plan. There are no pending,
or to the Company's knowledge, threatened claims, lawsuits or actions
(other than routine claims for benefits in the ordinary course) asserted
or instituted against, and neither the Company nor any ERISA Affiliate has
knowledge of any threatened litigation or claims against, the assets of
any Plan or its related trust or against any fiduciary of a Plan with
respect to the operation of such Plan. There are no investigations or
audits of any Plan by any Governmental Authority currently pending and
there have been no such investigations or audits that have been concluded
that resulted in any liability to the Company or any ERISA Affiliate that
has not been fully discharged. Neither the Company nor any ERISA Affiliate
has participated in any voluntary compliance or closing agreement programs
established with respect to the form or operation of a Plan.
(g) Neither the Company nor any ERISA Affiliate has engaged in any
prohibited transaction, within the meaning of Section 406 of ERISA or
Section 4975 of the Code, in connection with any Plan. Except as set forth
on SCHEDULE 3.14, neither the Company nor any ERISA Affiliate is, or ever
has been, a participant in or is obligated to make any payment to a
multiemployer plan. No person or entity that was engaged by the Company or
an ERISA Affiliate as an independent contractor can or will be
characterized or deemed to be an employee of the Company or an ERISA
Affiliate under applicable Laws for any purpose whatsoever, including,
without limitation, for purposes of federal, state and local income
taxation, workers' compensation and unemployment insurance and Plan
eligibility.
3.15. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
3.15, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company, threatened against or affecting the Company, at law or
in equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the Company. No notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by the Company and,
to the knowledge of the Company, there is no basis therefor. Except to the
extent set forth on SCHEDULE 3.15, the Company has for the
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applicable statute of limitations period complied, and is in compliance, with
all Laws applicable to, and Permits and other governmental authorizations of,
the Company, or its assets or operations.
3.16. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. Except as set forth on SCHEDULE
3.16, the Company has timely filed all requisite federal, state, local and other
tax returns for all fiscal periods ended on or before the Closing Date that were
required to be filed before the Closing Date, and has duly paid in full or made
adequate provision in the 1997 Financial Statements for the payment of all Taxes
for all periods ending at or prior to the Closing Date. There are no
examinations in progress or claims against the Company relating to Taxes and no
written notice of any claim for Taxes, whether pend ing or threatened, has been
received by the Company or either Stockholder.
3.17. ABSENCE OF CHANGES. Since December 31, 1997, except as set forth in
SCHEDULE 3.17, the Company has conducted its operations in the ordinary course
and there has not been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise) or results of operations of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties or businesses
of the Company;
(c) any change in the ownership of the Company or any change in the
Stockholders' ownership interests of CDR or any grant of any options,
warrants, calls, conversion rights or commitments or the declaration or
payment of any dividend or other distribution;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(e) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, either Stockholder or his Affiliates;
(f) any cancellation, or agreement to cancel, any material
indebtedness or other obligation owing to the Company other than with
respect to the Stockholder Notes and settlement of accounts receivable of
the Company in the ordinary course of business, consistent with past
practices;
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(g) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business, consistent with past
practices;
(h) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(i) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of business of the Company;
(j) any waiver of any material rights or claims of the Company;
(k) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company
is a party or any of its property is subject; or
(l) any material transaction by the Company outside the ordinary
course of business.
3.18. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. The Company
has provided PalEx (a) the name of each financial institution or brokerage firm
in which the Company has accounts or safe deposit boxes; (b) the names in which
the accounts or boxes are held; (c) the type of account and the cash, cash
equivalents and securities held in such account as of the date of this
Agreement; and (d) the name of each person authorized to draw thereon or have
access thereto. No person, corporation, firm or other entity holds a general or
special power of attorney from the Company, including without limitation for
purposes of filing any Tax returns.
3.19. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
of its Affiliates has given or offered to give anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any similar law.
3.20. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 3.20, neither Stockholder nor any other Affiliate of the
Company owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of or otherwise receives remuneration from, any
business (excluding for this purpose the Company) which is a competitor, lessor,
lessee, customer or supplier of the Company.
3.21. INTANGIBLE PROPERTY. SCHEDULE 3.21 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, trade names and
copyrights owned or used by the Company. To the Company's knowledge, it owns or
possesses sufficient legal rights to use all of such items without conflict with
or infringement of the rights of others.
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3.22. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 3.22 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company is bound or under which the Company has any rights or obligations.
3.23. DISCLOSURE. The Stockholders and the Company have fully provided
PalEx or its representatives with all the information that PalEx has requested
in analyzing whether to consummate the transactions contemplated by this
Agreement. No representation or warranty of the Company or the Stockholders
contained in this Agreement contains any untrue statement of a material fact.
Except with respect to the representations and warranties contained in this
Agreement, including the Schedules hereto, and in the documents delivered by the
Company or the Stockholders at the Closing in connection with the consummation
of the transactions contemplated hereby, the Company and the Stockholders make
no warranty, express or implied, whether of merchantability, suitability or
fitness for a particular purpose, or quality as to any Asset, or as to the
condition or workmanship thereof, or the absence of any defects therein, whether
latent or patent, it being understood that, except as otherwise represented and
warranted herein, the Assets are being conveyed "AS IS" on the Closing Date or
the Southgate Closing Date, as the case may be.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
PalEx and Newco represent and warrant to the Company as follows:
4.1. ORGANIZATION. Each of PalEx, Newco NW and Newco SW is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is duly authorized and qualified under all applicable
laws, regulations, and ordinances of public authorities to carry on its business
in the places and in the manner now conducted.
4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of PalEx, Newco NW and Newco SW has the full legal right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
of this Agreement have been approved by the boards of directors of PalEx,
Newco NW and Newco SW and by PalEx, as the sole stockholder of Newco NW
and Newco SW. No additional corporate proceedings on the part of PalEx,
Newco NW or Newco Sw are necessary to authorize the execution and delivery
of this Agreement and the consummation by PalEx, Newco NW and Newco SW of
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by PalEx, Newco NW and Newco SW, and,
assuming the due authorization, execution and delivery by the Company and
the Stockholders, constitutes a valid and binding agreement of PalEx,
Newco NW and Newco SW, enforceable against PalEx, Newco NW and Newco SW in
accordance with its terms.
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(b) The execution and delivery of this Agreement by PalEx, Newco NW
and Newco SW do not, and the consummation by PalEx, Newco NW and Newco SW
of the transactions contemplated hereby will not, violate or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result
in the creation of any lien, security interest, charge or encumbrance upon
any of the properties or assets of PalEx, Newco NW or Newco SW or any of
its subsidiaries under any of the terms, conditions or provisions of (i)
the Certificate of Incorporation or By-Laws of PalEx, Newco NW or Newco
SW, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to PalEx, Newco NW or Newco SW or any of its
properties or assets or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which PalEx, Newco NW
or Newco SW is now a party or by which PalEx, Newco NW or Newco SW or any
of its properties or assets may be bound or affected.
(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by PalEx, Newco NW or Newco SW or the consummation by PalEx, Newco NW and
Newco SW of the transactions contemplated by this Agreement.
4.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued at
the Closing, when issued in accordance with the terms of this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable. The issuance of
PalEx Common Stock in accordance with the terms of this Agreement will transfer
to the Company valid title to such shares of PalEx Common Stock, free and clear
of all Encumbrances except for any Encumbrances created by the Company.
4.4. LITIGATION. There are no suits, actions, or legal, administrative,
arbitration or other proceedings or, to PalEx's knowledge, governmental
investigations against PalEx pending or, to PalEx's knowledge, threatened, which
(a) if determined adversely to PalEx, could reasonably be expected to result in
any material adverse change in the business, operations, properties, condition
(financial or other), assets, liabilities (contingent or otherwise), results of
operations or prospects of PalEx and its subsidiaries, taken as a whole, or (b)
seek to prevent the consummation of the transactions contemplated hereby.
4.5. SEC FILINGS; DISCLOSURE. PalEx has filed with the SEC all material
forms, statements, reports and documents required to be filed by it under each
of the 1933 Act, the 1934 Act, and the respective rules and regulations
thereunder (collectively, "PALEX SEC FILINGS"), (a) all of which, as amended, if
applicable, complied when filed in all material respects with all applicable
requirements of the appropriate Act and the rules and regulations thereunder,
and (b) none of which, as amended, if applicable, contains any untrue statement
of material fact or omits to state a material fact required
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to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as reflected in the PalEx
SEC Filings and except for the $125 million credit facility of PalEx entered
into in January 1998, PalEx has no liabilities except liabilities (a) to the
extent covered by insurance, indemnification, contribution or comparable
arrangements, with respect to which liabilities, payments related thereto have
actually been recovered or are reasonably expected to be recovered under such
arrangements, (b) that would not reasonably be expected to have, individually or
in the aggregate, a material adverse effect on the business, operations,
properties, condition (financial or other), assets, liabilities (contingent or
otherwise) or results of operations of PalEx and its subsidiaries, taken as a
whole (a "PALEX MATERIAL ADVERSE EFFECT").
4.7. CONDUCT IN THE ORDINARY COURSE OF BUSINESS. Except (a) as reflected
in the PalEx SEC Filings, (b) for the $125 million credit facility of PalEx
entered into in January 1998, and (c) PalEx's activities in connection with
proposed acquisitions of various drum reconditioning businesses, since the date
of PalEx's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
1997, the business of PalEx has been conducted in the ordinary course and
consistent with past practice, and PalEx has not suffered a PalEx Material
Adverse Effect.
4.8. DISCLOSURE. PalEx has fully provided the Company and its
representatives with all the information that they have requested in analyzing
whether to consummate the transactions contemplated hereby, including, without
limitation, its Prospectus dated September 8, 1997 and its Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1997. None of the information
so provided nor any representation or warranty of PalEx, Newco NW or Newco SW
contained in this Agreement contains any untrue statement of a material fact. No
warranty or representation shall be deemed to have been made by PalEx except for
the warranties and representations expressly set forth in this Agreement,
including the Schedules hereto, and in the documents delivered by PalEx at the
Closing in connection with the consummation of the transactions contemplated
hereby.
ARTICLE V
CERTAIN COVENANTS
5.1. RELEASE FROM GUARANTEES.
(a) After the Closing, each of PalEx and Newco shall use its
commercially reasonable efforts, which shall, if necessary, include
offering replacement guarantees of Newco or PalEx, to have the
Stockholders released from the personal guarantees of Assumed Liabilities,
each of which guarantees is identified in SCHEDULE 5.1. PalEx and Newco
hereby agree to indemnify, defend and protect each Stockholder and hold
him harmless for any Losses incurred by such Stockholder arising from such
personal guarantees after the Closing.
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(b) After the Southgate Closing, each of PalEx and Newco shall use
its commercially reasonable efforts, which shall, if necessary, include
offering replacement guarantees of Newco or PalEx, to have the
Stockholders released from the personal guarantees of Southgate Assumed
Liabilities, each of which guarantees is identified in SCHEDULE 5.1. PalEx
and Newco hereby agree to indemnify, defend and protect each Stockholder
and hold him harmless for any Losses incurred by such Stockholder arising
from such personal guarantees after the Southgate Closing.
5.2. FUTURE COOPERATION; TAX MATTERS. The Stockholders, the Company, Newco
and PalEx shall each deliver or cause to be delivered to the other following the
Closing such additional instruments as the other may reasonably request for the
purpose of fully carrying out this Agreement. The Company and the Stockholders
will cooperate and use its or his commercially reasonable efforts to have the
present officers, directors and employees of the Company cooperate with PalEx
and/or Newco at and after the Closing in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing. Each of PalEx and Newco will cooperate with the
Company and the Stockholders in the preparation of all tax returns covering the
period from the beginning of the Company's current tax year through the Closing.
In addition, Newco will provide the Company and the Stockholders with access to
such of its books and records as may be reasonably requested by the Company and
the Stockholders in connection with Tax matters relating to the Company and
periods ending on or prior to the Closing Date.
5.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto and the consummation of the transactions contemplated
hereby. Newco will pay the fees and expenses of Arthur Andersen LLP incurred in
connection with the audit of the 1997 Financial Statements and the consummation
of the transactions contemplated by this Agreement. The Stockholders and the
Company will pay their respective fees, expenses and disbursements and those of
their respective agents, representatives, financial advisors, accountants and
counsel incurred in connection with the execution, delivery and performance of
this Agreement and any amendments hereto and the consummation of the
transactions contemplated hereby.
5.4. EMPLOYMENT AGREEMENT. At the Closing, Newco and each Stockholder
shall enter into a mutually acceptable Employment and Non-Competition Agreement
(the "EMPLOYMENT AGREEMENT") to be effective as of the Closing Date.
5.5. STOCK OPTIONS. PalEx shall recommend to the Compensation Committee of
its Board of Directors that nonqualified options to purchase an aggregate of
150,000 shares of PalEx Common Stock be granted as soon as practicable after the
Closing under PalEx's 1996 Stock Option Plan, as amended ("OPTION PLAN") to
individuals who are employees of the Company as of the date of this Agreement
(other than the Stockholders), as mutually agreed upon by the Stockholders and
PalEx.
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5.6. LEGAL OPINION. At the Closing, the Company and the Stockholders shall
cause their legal counsel, Wilson Hart, Esq., to deliver to PalEx a legal
opinion in form and substance acceptable to PalEx.
5.7. REGISTRATION RIGHTS.
(a) If at any time or times after the first anniversary of the
Closing Date, but prior to the third anniversary of the Closing Date,
PalEx shall determine to register any PalEx Common Stock (for itself or
for any holder of securities of PalEx) under the 1933 Act or any successor
legislation (other than a registration relating to stock option plans,
employee benefit plans or a transaction pursuant to Rule 145 under the
1933 Act), and in connection therewith PalEx may lawfully register the
Restricted Shares held by the Company, PalEx will promptly give written
notice thereof to the Company and will include in such registration and
effect the registration under the 1933 Act of all Registrable Securities
(as hereinafter defined) that the Company may request in writing by notice
delivered to PalEx within 20 days after receipt by the Company of the
notice given by PalEx; PROVIDED, HOWEVER, that in connection with any such
offering by PalEx of any of its securities, no such registration of
Registrable Securities shall be required if the managing underwriter, if
any, for PalEx advises it in writing that including all or part of the
Registrable Shares in such offering will materially adversely affect the
proposed offering and jeopardize PalEx's ability to sell its own
securities in such offering. If such managing underwriter advises PalEx
that, in its opinion, part of the Registrable Securities may be included
in such offering without materially adversely affecting the proposed
offering, then PalEx shall be obligated to include such lesser number of
Registrable Securities in such offering, which shares shall be taken from
those owned and held by a group consisting of the Company and the other
holders of PalEx Common Stock having registration rights that are PARI
PASSU with those of the Company, and such limitation shall be imposed upon
the Company and such other holders pro rata on the basis of the total
number of shares of Restricted Shares held by the Company and the shares
of PalEx Common Stock held by such other holders or obtainable by them
upon the exercise of rights with respect to other securities owned by
them. All expenses of such registration and offering shall be borne by
PalEx, except that the Company shall bear underwriting commissions and
discounts attributable to its Registrable Securities being registered and
the fees and expenses of separate counsel, if any, for the Company. The
Company shall be entitled to an unlimited number of registrations under
this SECTION 5.7 during the term set forth in the first sentence of this
SECTION 5.7(A).
(b) For the purposes of this SECTION 5.7, the term "REGISTRABLE
SECURITIES" shall mean (i) the Restricted Shares, and (ii) any PalEx
Common Stock issued or issuable with respect to the Restricted Shares by
way of a stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other
reorganization.
(c) Whenever, under the preceding paragraphs of this SECTION 5.7,
PalEx is required to hereunder to register Registrable Securities, PalEx
shall as expeditiously as possible:
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(i) prepare and file with the SEC a registration statement
with respect to the Registrable Securities that complies
with all requirements of the 1933 Act;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectuses used in connection therewith as may be
necessary to keep such registration statement effective
and to comply with the provisions of the 1933 Act with
respect to the sale of securities covered by such
registration statement for the period necessary to
complete the proposed public offering (but in no event
for a period in excess of 90 days);
(iii) furnish to the Company such copies of each preliminary
and final prospectus and such other documents as the
Company may reasonably request to facilitate the
disposition of the Company's Registrable Securities;
(iv) enter into an underwriting agreement with customary
terms and provisions as reasonably agreed by PalEx and
the proposed underwriter, if any, of the offering;
(v) use its commercially reasonable best efforts to register
and qualify the Registrable Securities covered by such
registration statement under applicable state securities
or "blue-sky" laws, PROVIDED that PalEx shall not be
required in connection therewith or as a condition
thereto to qualify to do business as a foreign
corporation in any such jurisdiction wherein it is not
so qualified;
(vi) furnish to the Company, if it is a selling stockholder,
a signed counterpart, addressed to the Company, of
(A) an opinion of counsel to PalEx, and
(B) comfort letter(s) signed by the independent public
accountants who have certified PalEx's financial
statements included in the registration statement,
in each case, covering substantially the same
matters with respect to the registration statement
(and the prospectus included therein) and (in the
case of the accountant's letter) with respect to
events subsequent to the date of the financial
statements, as are customarily covered in opinions
of issuer's counsel and in accountant's letters
delivered to the underwriters in underwritten
public offerings of securities.
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(d) PalEx shall have the right to select the managing underwriter or
underwriters for any underwritten offering made pursuant to a registration
under this SECTION 5.7.
(e) In connection with any underwritten offering by PalEx in which
the Company participates, the Company shall, if requested by the managing
underwriter or underwriters thereof, agree not to sell any of its
Registrable Securities or any other securities of PalEx owned by the
Company in any transaction other than pursuant to such underwritten
offering for a period beginning 60 days prior to the date PalEx and the
underwriter reasonably expect the registration statement to become
effective, and for such period after the effective date of the
registration statement as is agreed upon by the underwriters and PalEx
(not to exceed 180 days), PROVIDED that the PalEx officers and directors
and each holder of 5% or more of PalEx's issued and outstanding PalEx
Common Stock also agree to such limitations.
(f) PalEx may delay any underwritten offering pursuant to this
SECTION 5.7 when a condition or pending transaction exists the disclosure
of which would reasonably be expected to have a material adverse effect on
the proposed offering.
(g) PalEx will indemnify the Company, the Stockholders, each of the
Company's officers, directors and partners, and each other person, if any,
who controls the Company within the meaning of the Section 15 of the 1933
Act against any losses, claims, damages, expenses, or liabilities to which
such persons may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or action in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration
statement or any preliminary prospectus or final prospectus or amendment
or supplement thereto on the effective date thereof, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse such persons for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that PalEx will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, or any
preliminary prospectus or final prospectus or amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished to PalEx through an instrument duly executed by such person
specifically for use in the preparation thereof.
It shall be a condition precedent to the obligation of PalEx to
include in any registration statement any Registrable Securities then held
by the Company that PalEx shall have received an undertaking, satisfactory
to it and the managing underwriter or underwriters, from the Company to
indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph) PalEx, each director of PalEx, each
officer of PalEx who shall sign such registration statement and the
managing underwriter or underwriters and any person who controls such
underwriters or PalEx within the meaning of the 1933 Act, with respect to
any statement or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or
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any amendment or supplement thereto, if such statement or omission was
made in reliance upon and in conformity with written information furnished
to PalEx through an instrument duly executed by the Company specifically
for use in the preparation of such registration statement, preliminary
prospectus or final prospectus or such amendment or supplement thereto.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs in this SECTION 5.7, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action. In any case such
action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assumed the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
incurred by the latter in connection with the defense thereof.
5.8. SALES TAXES. The Company and the Stockholders shall bear and pay all
sales or use Taxes or other similar Taxes or charges, as well as any interest or
penalties thereof, upon or with respect to the sale or transfer of the Assets by
the Company to Newco pursuant to this Agreement, but only to the extent of any
sales, use or similar Taxes based upon the book value of such Assets attributed
thereto by the Company in the 1997 Financial Statements.
5.9. EMPLOYEES.
(a) Newco agrees to offer employment to the employees of the Company
on terms and with benefits that are no less favorable, when considered in
the aggregate, than those currently provided to employees of PalEx's
subsidiaries with similar levels of responsibility and experience;
PROVIDED, HOWEVER, that Newco shall not extend offers of employment to the
employees identified on SCHEDULE 5.9 until the Southgate Closing (the
"SOUTHGATE EMPLOYEES").
(b) To the extent time of service is relevant for purposes of
eligibility or vesting under any employee benefit plan, program or
arrangement established or maintained by PalEx for the benefit of
Employees of the Company who accept employment with Newco following the
Closing, such plan, program or arrangement shall credit such employees for
service on or prior to the Closing Date with the Company; PROVIDED,
HOWEVER, that such credit shall not apply with respect to the Option Plan
or as to employees covered by similar benefits under any collective
bargaining agreement. SCHEDULE 5.9 identifies each employee of the Company
who is not covered by similar benefits under any collective bargaining
agreement and the years of service credited by the Company to each such
employee.
(c) Notwithstanding anything to the contrary contained in this
Agreement, no provision of this Agreement shall be deemed or construed to
(i) affect (A) the status of the employees of the Company who are hired by
Newco as "employees at will" of Newco or (B)
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any right Newco or PalEx may have, after the Closing, to terminate or
modify the terms of the employment of any employee of the Company who is
hired by Newco, or (ii) make any employee of the Company a third party
beneficiary of this Agreement.
ARTICLE VI
INDEMNIFICATION
The Company, the Stockholders, PalEx and Newco each make the following
covenants:
6.1. GENERAL INDEMNIFICATION BY THE COMPANY AND THE STOCKHOLDERS. Subject
to SECTION 6.4, the Company and each Stockholder covenants and agrees that it or
he will, jointly and severally, indemnify, defend, protect and hold harmless
PalEx and Newco, and their respective officers, directors, employees,
stockholders, agents, representatives and Affiliates from and against all Losses
incurred by any of such indemnified persons as a result of or arising from (a)
any breach of the representations and warranties of the Company and the
Stockholders set forth herein or in the Schedules or certificates delivered in
connection herewith, (b) Excluded Liabilities, (c) any breach or nonfulfillment
of any covenant or agreement on the part of either Stockholder or the Company
under this Agreement, (d) the Company's failure to obtain consents to the
assignments of the agreements listed on SCHEDULE 3.7 under the heading "Landlord
Consents" (other than the lease for the Southgate Facility), (e) any claim made
by any employee of the Company for any severance or termination benefits to
which such employee, as the case may be, is entitled under the Company's
employment policies with respect to any termination occurring prior to the
Closing or the Southgate Closing, as the case may be, (f) any claim of
employment discrimination by the Company including, but not limited to,
discrimination in the Company's hiring or termination of any employees and
sexual harassment, and (g) any claim of wrongful discharge of any employee of
the Company prior to the Closing (including constructive discharge), in the case
of CLAUSES (A) and (C) through (G) provided that notice of such claim is given
in accordance with SECTION 10.5 hereof on or before the Expiration Date.
6.2. INDEMNIFICATION BY PALEX. Subject to SECTION 6.4, PalEx covenants and
agrees that it will indemnify, defend, protect and hold harmless the Company at
all times from and after the date of this Agreement from and against all Losses
incurred by the Company as a result of or arising from (a) any breach of the
representations and warranties set forth herein or in the Schedules or
certificates attached hereto, (b) any breach or nonfulfillment of any covenant
or agreement on the part of PalEx under this Agreement, (c) any claim made by
any employee of the Company who accepts employment with Newco or any of its
Affiliates for any severance or termination benefits to which employees of Newco
or its Affiliate, as the case may be, are entitled under its employment
policies, (d) any suit or claim of violation against the Company under the
Workers Adjustment and Retraining Notification Act for any actions taken by
Newco after the Closing or the Southgate Closing, as appropriate, with respect
to any facility, site of employment or operating unit of Newco, provided such
terminations are approved by officers of Newco who are not, immediately prior to
the Closing, Affiliates of the Company, (e) any claim of employment
discrimination by Newco including, but not limited to, discrimination in Newco's
hiring or termination of any employees and sexual harassment,
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(f) any claim of wrongful discharge of any employee of the Company who is hired
by Newco (including constructive discharge), (g) the Assumed Liabilities after
the Closing Date and the Southgate Assumed Liabilities after the Southgate
Closing Date, in each case provided that notice of such claim is given in
accordance with SECTION 10.5 hereof on or before the Expiration Date.
6.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), or the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
SECTION 6.1 or 6.2 hereof (hereinafter the "INDEMNIFYING PARTY") written notice
of such claim or the commencement of such action or proceeding. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in all commercially
reasonable respects in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; PROVIDED, HOWEVER, that the Indemnified Party shall
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof, and the Indemnifying
Party shall not settle any such Third Person claim without the consent of the
Indemnified Party, unless the settlement thereof imposes no liability or
obligation on, and includes a complete release from liability of, the
Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement if such settlement imposes any liability or obligation on the
Indemnified Party or does not provide for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter in its discretion, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other reasonable liabilities or expenses incurred by the Indemnified Party in
connection therewith.
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6.4. INDEMNIFICATION DEDUCTIBLE. Neither the Stockholders and the Company,
on the one hand, nor PalEx and Newco, on the other hand, be shall be entitled to
indemnification from the other under the provisions of SECTION 6.1(A) or SECTION
6.2(A), as the case may be, until such time as, and only to the extent that, the
claims subject to indemnification by such other party exceed, in the aggregate,
$500,000; PROVIDED, HOWEVER, that this SECTION 6.4 shall not apply to breaches
of the representations set forth in the last sentence of SECTION 2.3(A) or in
SECTION 3.4(C) or (D) or SECTION 10.4.
6.5. LIMITATION UPON INDEMNITY. Notwithstanding anything to the contrary
contained herein, the aggregate indemnification obligation of the Company and
the Stockholders under SECTION 6.1(A) shall be limited to $20,000,000.
Notwithstanding anything to the contrary contained herein, this SECTION 6.5
shall not apply to (a) breaches of the representations set forth in the last
sentence of SECTION 2.3(A) or in SECTION 3.4(C) or (D) or SECTION 10.4, or (b)
fraudulent misrepresentations.
6.6. EXCLUSIVE REMEDY. Except for claims based on fraud, each party hereto
acknowledges and agrees that, from and after the Closing, its or his sole and
exclusive remedy with respect to any and all claims relating to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this ARTICLE VI.
ARTICLE VII
NONCOMPETITION COVENANTS
7.1. PROHIBITED ACTIVITIES.
(a) Neither Stockholder will, for the longer of (y) five years
following the Closing Date and (z) one year following such Stockholder's
voluntary termination of his employment with Newco or its Affiliates or
the termination of such individual's employment with Newco "with cause,"
as determined in accordance with such individual's Employment Agreement,
directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation or business of
whatever nature:
(i) engage, as an officer, director, employee, shareholder,
owner, partner, joint venturer, or in a managerial or
advisory capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales
representative, in any Competitive Business (A) in the
counties in California in which the Company or any
subsidiary conducts business, all of which counties are
set forth on SCHEDULE 3.1, or (B) within 250 miles of
where the Company or any of its subsidiaries conducts
business outside of California, including any state or
territory outside of California that is serviced by the
Company or any of such subsidiaries (the counties and
other areas included within clause (A) and (B) being
herein referred to as the "TERRITORY");
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(ii) call upon any person who is an employee or consultant of
PalEx, Newco or any of their respective subsidiaries for
the purpose or with the intent of enticing such employee
or consultant away from or out of the employ or contract
with PalEx, Newco or any of their respective
subsidiaries; or
(iii) call upon any person or entity which is, at that time,
or which has been, within one year prior to that time, a
customer of the Company, PalEx or Newco or any of the
subsidiaries of such parties within the Territory for
the purpose of soliciting or selling services or
products in a Competitive Business within the Territory.
(b) Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit either Stockholder from acquiring, as a passive
investor with no involvement in the operations of the business, not more
than one percent of the capital stock of a Competitive Business whose
stock is publicly traded on a national securities exchange or the Nasdaq
National Market or over-the-counter.
7.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to PalEx and Newco as a result of a breach of the foregoing covenant,
because a breach of such covenant would diminish the value of the Assets and
business of the Company being sold pursuant to this Agreement, and because of
the immediate and irreparable damage that could be caused to PalEx and Newco for
which it would have no other adequate remedy, each Stockholder agrees that the
foregoing covenant may be enforced against him by injunctions, restraining
orders and other equitable actions.
7.3. REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this ARTICLE VII is necessary in terms of time, activity
and territory to protect PalEx's and Newco's interest in the Assets and business
being acquired pursuant to the terms of this Agreement and impose a reasonable
restraint on each Stockholder in light of the activities and businesses of the
Company on the date of the execution of this Agreement and the current plans of
the Company.
7.4. SEVERABILITY; REFORMATION. The covenants in this ARTICLE VII are
severable and separate, and the unenforceability of any specific covenant shall
not affect the continuing validity and enforceability of any other covenant. In
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth in this ARTICLE VII are unreasonable
and therefore unenforceable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable
and this Agreement shall thereby be reformed.
7.5. MATERIAL AND INDEPENDENT COVENANT. Each Stockholder acknowledges his
agreements and the covenants set forth in this ARTICLE VII are material
conditions to PalEx's and Newco's agreements to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and that PalEx
and Newco would not have entered into this Agreement without
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such covenants. All of the covenants in this ARTICLE VII shall be construed as
an agreement independent of any other provision in this Agreement.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. GENERAL. Each Stockholder recognizes and acknowledges that he had in
the past, currently has, and in the future will have, access to certain
confidential information relating to the business of the Company being conveyed
to Newco pursuant to this Agreement and/or PalEx, such as lists of customers,
operational policies, and pricing and cost policies that are, and following the
Closing will be, valuable, special and unique assets of Newco and/or PalEx. Each
Stockholder agrees that he will not use or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose whatsoever, except as is required in the course of performing his
duties to Newco and/or PalEx, unless (a) such information becomes known to the
public generally through no fault of such Stockholder, or (b) disclosure is
required by law or the order of any Governmental Authority, PROVIDED, that prior
to disclosing any information pursuant to this clause (b) such Stockholder
shall, if possible, give prior written notice thereof to Newco and PalEx and
provide Newco and PalEx with the opportunity to contest such disclosure. In the
event of a breach or threatened breach by a Stockholder of the provisions of
this Section, PalEx and Newco shall be entitled to an injunction restraining
such Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting PalEx or Newco
from pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the Assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
irreparable damage that would be caused for which Newco and/or PalEx would have
no other adequate remedy, each Stockholder agrees that the foregoing covenants
may be enforced against him by injunctions, restraining orders and other
equitable actions.
ARTICLE IX
FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS
ON PALEX COMMON STOCK
9.1. COMPLIANCE WITH LAW. The Company and the Stockholders acknowledge the
shares of PalEx Common Stock issued at the Closing in accordance with the terms
of this Agreement (the "RESTRICTED SHARES") will not be registered under the
1933 Act and therefore may not be resold without compliance with the 1933 Act.
The Restricted Shares are being or will be acquired by the Company solely for
its own account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of them in connection with a
distribution. The Company
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and the Stockholders covenant, warrant and represent that none of the Restricted
Shares will be, directly or indirectly, offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all of the applicable provisions of the Act and the rules and regulations
of the SEC. Certificates representing the Restricted Shares shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
9.2. ECONOMIC RISK; SOPHISTICATION. The Company and each Stockholder are
able to bear the economic risk of an investment in the Restricted Shares and can
afford to sustain a total loss of such investment. The Company and each
Stockholder have such knowledge and experience in financial and business matters
that it or he is capable of evaluating the merits and risks of the proposed
investment and therefore has the capacity to protect its or his own interests in
connection with the Company's acquisition of the Restricted Shares. The Company
and each Stockholder represent to PalEx and Newco that it and he are "accredited
investors," as that term is defined in Regulation D under the 1933 Act. The
Company and each Stockholder or its or his representatives have had an adequate
opportunity to ask questions and receive answers from the officers of PalEx and
Newco concerning, among other matters, PalEx, its management, its plans for the
operation of its business and potential additional acquisitions.
9.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as the
Company holds any Restricted Shares, to use its commercially reasonable efforts
to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to such Company upon written request a written statement
by PalEx as to its compliance with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, a copy of the most recent annual or
quarterly report of PalEx, and such other reports and documents so filed
as such Company may reasonably request in availing itself of any rule or
regulation of the SEC allowing such Company to sell any such shares
without registration.
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9.4. RESTRICTION ON SALE OR OTHER TRANSFER OF RESTRICTED SHARES. The
Company and each Stockholder covenants, warrants and represents that none of the
Restricted Shares will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of, directly or indirectly, including without
limitation through the transfer of equity interests in the Company, during the
one-year period commencing on the Closing Date (the "LOCKUP PERIOD") and,
thereafter, only after full compliance with all of the applicable provisions of
the 1933 Act and the rules and regulations of the SEC; and, during the Lockup
Period, neither the Company nor the Stockholders shall engage in put, call,
short-sale, straddle or similar transactions intended to reduce the Company's
risk of owning the Restricted Shares; PROVIDED, HOWEVER, that the Company may
distribute Restricted Shares to the Stockholders, each of whom hereby agrees to
be bound by the transfer restrictions set forth in this SECTION 9.4.
Certificates representing the Restricted Shares shall bear the following legend
in addition to the legend under SECTION 9.1:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
CONTRACTUAL RESTRICTION ON TRANSFER THAT EXPIRES ON FEBRUARY 12,
1999 AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED,
TRANSFERRED OR OTHERWISE DISPOSED OF DURING THE PERIOD OF SUCH
CONTRACTUAL RESTRICTION WITHOUT THE PRIOR WRITTEN CONSENT OF PALEX,
INC.
ARTICLE X
MISCELLANEOUS
10.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, Newco and the Company, and the heirs and legal representatives of the
Stockholders.
10.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and PalEx and supersede any prior agreement and understanding
relating to the subject matter of this Agreement, including, without limitation,
that certain letter of intent dated December 29, 1997, by and among PalEx, the
Company and the Stockholders, as amended or supplemented. This Agreement may be
modified or amended only by a written instrument duly executed by the
Stockholders and the Company, Newco and PalEx.
10.3. COUNTERPARTS. This Agreement may be executed simultaneously 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.
10.4. BROKERS AND AGENTS. Except for the Stockholders' engagement of Bank
America Robertson Stephens as their investment banker in connection with the
transactions contemplated by this Agreement, each party represents and warrants
that it employed no broker or agent in connection
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with the transactions contemplated by this Agreement. The Stockholders jointly
and severally agree to indemnify Newco and PalEx against all Losses arising out
of claims for fees or commissions of Bank America Robertson Stephens or its
agents or representatives in connection with or arising out of the transactions
contemplated by this Agreement. Each party agrees to indemnify each other party
against all loss, cost, damages or expense arising out of claims for fees or
commissions of brokers employed or alleged to have been employed by such
indemnifying party.
10.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx or Newco, addressed to them at:
PalEx, Inc.
1360 Post Oak Blvd.
Suite 800
Houston, Texas 77056
Attn: Edward Rhyne
(b) If to either Stockholder, addressed to such individual at the
following address:
c/o Container Services Company
P.O. Box 2067
Montebello, California 90640
With a copy (which shall not constitute notice) to:
Wilson Hart, Esq.
3 Imperial Promenade
Suite 400
Santa Ana, California 92707
or such other address as any party hereto shall specify pursuant to this SECTION
10.5 from time to time.
10.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE III and ARTICLE IV shall survive the Closing for
a period of one year from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 3.10 hereof shall
survive for a period of three years from the Closing Date, which shall be deemed
to be the Expiration Date for claims based on a breach of SECTION 3.10. The
respective parties shall remain liable after the Expiration Date for breaches of
the representations and warranties set forth in ARTICLE III and ARTICLE IV,
provided such breaches are asserted in good faith by notice in writing to the
alleged breaching party prior to the Expiration Date. Notwithstanding
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anything to the contrary contained in this Agreement, any party to this
Agreement may assert claims based on fraud during the applicable statutory
limitations period.
10.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
10.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
10.9. SEVERAL LIABILITY OF STOCKHOLDERS UNDER CERTAIN CIRCUMSTANCES.
Notwithstanding anything to the contrary contained in this Agreement, upon the
death or legal incapacity of either Stockholder, the liabilities and obligations
of the Stockholders under ARTICLE III and ARTICLE VI shall be several and not
joint and several.
[THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:_______________________
Name: Edward Rhyne
Title:Vice President
CONTAINER SERVICES COMPANY SW ACQUISITION, INC.
By:_______________________
Name: Edward Rhyne
Title:President
CONTAINER SERVICES COMPANY NW ACQUISITION, INC.
By:_______________________
Name: Edward Rhyne
Title:President
CONSOLIDATED DRUM RECONDITIONING CO., INC.
By:_______________________
Name: Joseph Cruz
Title:Chief Executive Officer
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CDRCO HC, LLC
By:_______________________
Name:
Title:
CDRCO SW, LLC
By:_______________________
Name:
Title:
CDRCO NW, LLC
By:_______________________
Name:
Title:
__________________________
Joseph Cruz, Individually
__________________________
Philip Freeman, Individually
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EXHIBIT 2.2
ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PALEX, INC.,
ACME ACQUISITION, INC.,
ACME BARREL COMPANY, INC.,
THE ACME BARREL COMPANY EMPLOYEE STOCK
OWNERSHIP PLAN,
THE ELLIOT PEARLMAN LIVING TRUST U/T/A DATED AUGUST 7, 1992,
ELLIOT PEARLMAN,
THE PHILIP A. PEARLMAN LIVING TRUST U/T/A DATED MARCH 16, 1989
AND
PHILIP A. PEARLMAN
DATED AS OF FEBRUARY 23, 1998
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions........................................................1
1.2. Interpretation.....................................................5
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. The Merger.........................................................6
2.2. Effective Time of the Merger.......................................6
2.3. Articles of Incorporation, By-laws and Board of Directors of
Surviving Corporation..............................................6
ARTICLE III
CONVERSION OF SHARES
3.1. Conversion of Company Shares.......................................6
3.2. Conversion of Newco Shares.........................................7
3.3. Exchange of Certificates...........................................7
3.4. Closing............................................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INDEMNIFYING STOCKHOLDERS
4.1. Due Organization and Qualification.................................7
4.2. Authorization; Non-Contravention; Approvals........................8
4.3. Capitalization.....................................................8
4.4. Pooling-of-Interests Accounting....................................9
4.5. Subsidiaries.......................................................9
4.6. Financial Statements...............................................9
4.7. Liabilities and Obligations.......................................10
4.8. Accounts and Notes Receivable.....................................10
4.9. Assets............................................................11
4.10. Material Customers, Contracts and Bartering Commitments..........11
4.11. Permits..........................................................12
4.12. Environmental Matters............................................13
4.13. Labor and Employee Relations.....................................13
4.14. Insurance........................................................13
4.15. Compensation; Employment Agreements..............................13
4.16. Noncompetition, Confidentiality and Nonsolicitation Agreements...14
4.17. Employee Benefit Plans...........................................14
4.18. Litigation and Compliance with Law...............................16
4.19. Taxes............................................................16
4.20. Absence of Changes...............................................16
4.21. Accounts with Banks and Brokerages; Powers of Attorney...........18
4.22. Absence of Certain Business Practices............................18
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4.23. Competing Lines of Business; Related-Party Transactions..........18
4.24. Intangible Property..............................................18
4.25. Disclosure.......................................................18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
5.1. Organization......................................................18
5.2. Authorization; Non-Contravention; Approvals.......................19
5.3. PalEx Common Stock................................................19
5.4. Tax Reorganization Representations................................20
5.6. Legal Compliance..................................................21
5.7. Litigation and Compliance with Law................................21
5.8. Disclosure........................................................21
ARTICLE VI
CERTAIN COVENANTS
6.1. Release From Guarantees...........................................21
6.2. Future Cooperation; Tax Matters...................................21
6.3. Expenses..........................................................22
6.4. Employment Agreement..............................................22
6.5. Registration Rights Agreement.....................................22
6.6. Repayment of Related Party Indebtedness...........................22
6.7. Stock Options.....................................................22
6.8. Termination of ESOP...............................................23
ARTICLE VII
INDEMNIFICATION
7.1. General Indemnification by the Indemnifying Stockholders..........23
7.2. Indemnification by PalEx..........................................23
7.3. Third Person Claims...............................................23
7.4. Indemnification Deductible........................................24
7.5. Indemnification Limitation........................................24
7.6. Indemnification for Negligence of Indemnified Party...............25
ARTICLE VIII
NONCOMPETITION COVENANTS
8.1. Prohibited Activities.............................................26
8.2. Equitable Relief..................................................26
8.3. Reasonable Restraint..............................................27
8.4. Severability; Reformation.........................................27
8.5. Material and Independent Covenant.................................27
ARTICLE IX
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
9.1. General...........................................................27
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9.2. Equitable Relief..................................................27
ARTICLE X
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
10.1. Execution of Documents Necessary for Pooling Treatment...........28
10.2. Restrictions on Resale...........................................28
10.3. Tax-Free Reorganization..........................................28
ARTICLE XI
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
11.1. Compliance with Law..............................................28
11.2. Economic Risk; Sophistication....................................29
11.3. Rule 144 Reporting...............................................29
ARTICLE XII
MISCELLANEOUS
12.1. Successors and Assigns...........................................30
12.2. Entire Agreement.................................................30
12.3. Counterparts.....................................................30
12.4. Brokers and Agents...............................................30
12.5. Notices..........................................................30
12.6. Survival of Representations and Warranties.......................31
12.7. Exercise of Rights and Remedies..................................31
12.8. Reformation and Severability.....................................32
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ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT")
is made as of the 23rd day of February, 1998, by and among PalEx, Inc., a
Delaware corporation ("PALEX"), Acme Acquisition, Inc., a Delaware corporation
that is a subsidiary of PalEx ("NEWCO"), Acme Barrel Company, Inc., an Illinois
corporation (the "COMPANY"), The Acme Barrel Company Employee Stock Ownership
Plan (the "ESOP"), Elliot Pearlman, The Elliot Pearlman Living Trust u/t/a dated
August 7, 1992 (together with Elliot Pearlman, "E. PEARLMAN") and Philip A.
Pearlman, and The Philip A. Pearlman Living Trust u/t/a dated March 16, 1989
(together with Phillip S. Pearlman, "P. PEARLMAN") (the ESOP, E. Pearlman and P.
Pearlman are herein collectively referred to as the "STOCKHOLDERS"), with the
Stockholders being the Company's only stockholders.
WHEREAS, the respective Boards of Directors of Newco and the Company
(collectively referred to as "CONSTITUENT CORPORATIONS") deem it advisable and
in the best interests of the Constituent Corporations and their respective
stockholders that Newco merge with and into the Company (the "MERGER"); and
WHEREAS, the Boards of Directors of the Constituent Corporations have
approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"CODE"); and
WHEREAS, the stockholders of the Constituent Corporations have approved
the Merger in accordance with the GCL and the Illinois Act; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"BALANCE SHEET DATE" has the meaning set forth in SECTION 4.6.
"CLOSING" has the meaning set forth in SECTION 3.4.
"CLOSING DATE" has the meaning set forth in SECTION 3.4.
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"CODE" has the meaning set forth in the third paragraph of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY COMMON STOCK" has the meaning set forth in SECTION 3.1.
"COMPANY PREFERRED STOCK" has the meaning set forth in SECTION 3.1.
"COMPANY STOCK" has the meaning set forth in SECTION 3.1.
"COMPETITIVE BUSINESS" means any business that competes with the Company,
including, without limitation, any business that (a) reconditions, recycles,
repairs, markets, distributes, brokers, manages or transports drums or barrels
and other logistics services with respect thereto; or (b) competes with the
Company for raw materials (E.G., open top and closed top drums); PROVIDED,
HOWEVER, that such term shall not include the businesses of manufacturing,
reconditioning, recycling and repairing, and marketing, distributing, brokering,
leasing, managing and transporting, plastic drums, plastic barrels, plastic
pails and plastic intermediate bulk containers.
"CONSTITUENT CORPORATIONS" has the meaning set forth in the second
paragraph of this Agreement.
"CSC" means, collectively, Consolidated Drum Reconditioning Co., Inc. and
its Affiliates, certain assets of which were acquired by a subsidiary of PalEx
on February 12, 1998.
"E. PEARLMAN" has the meaning set forth in the first paragraph of this
Agreement.
"EFFECTIVE TIME" has the meaning set forth in SECTION 2.2.
"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, preemptive rights,
rights of first refusal, reservations, restrictions or other encumbrances or
defects in title.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"EMPLOYMENT AGREEMENT" has the meaning set forth in SECTION 6.4.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any substance, in each case as amended and as in effect on the Closing Date.
The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal
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Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal
Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide Fungicide and Rodenticide Act, the Federal Occupational Safety and
Health Act of 1970, each as amended and as in effect on the Closing Date, and
(ii) any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass and
strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of, effects of or
exposure to any substance.
"ERI" means Environmental Recyclers of Colorado Inc., a Colorado
corporation.
"ERI ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated as of the date hereof, by and among PalEx, Western
Container Acquisition, Inc., ERI and the stockholders of ERI.
"ERISA" has the meaning set forth in SECTION 4.17.
"ERISA AFFILIATE" has the meaning set forth in SECTION 4.17.
"ESOP" has the meaning set forth in the first paragraph of this Agreement.
"ESP" means ESP Realty Corp., Inc., an Illinois corporation.
"ESP ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated as of the date hereof, by and among PalEx, the Surviving
Corporation, ESP and the stockholder of ESP.
"EXPIRATION DATE" has the meaning set forth in SECTION 12.6.
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"GCL" means General Corporation Law of the State of Delaware, as amended.
"HAZARDOUS SUBSTANCES" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law. The term "HAZARDOUS
SUBSTANCES" includes, without limitation, any substance to which exposure is
regulated by any Governmental Authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material,
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asbestos or asbestos containing material, urea formaldehyde foam insulation,
lead or polychlorinated biphenyls.
"ILLINOIS ACT" means the Illinois Business Corporation Act of 1983, as
amended.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 7.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 7.3.
"INDEMNIFYING STOCKHOLDERS" means E. Pearlman and P. Pearlman.
"INTERIM BALANCE SHEET" has the meaning set forth in SECTION 4.6.
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4.6.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and costs and expenses of investigation).
"MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION 5.6.
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 4.10.
"MERGER" has the meaning set forth in the second paragraph of this
Agreement.
"MERGER FILINGS" has the meaning set forth in SECTION 2.2.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OPINION NO. 16" has the meaning set forth in SECTION 4.4.
"P. PEARLMAN" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
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"PALEX COMMON STOCK" means PalEx's Common Stock, par value $.01 per share.
"PERMITS" has the meaning set forth in SECTION 4.11.
"PERMITTED ENCUMBRANCES" means (a) any Encumbrances reserved against in
the Interim Balance Sheet, (b) Encumbrances for property or ad valorem Taxes not
yet due and payable or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the Company's books in accordance with GAAP, and (c) obligations under
operating and capital leases described in SCHEDULE 4.10.
"PLAN" has the meaning set forth in SECTION 4.17.
"PURCHASE PRICE SHARES" has the meaning set forth in SECTION 7.5.
"QUALIFIED PLANS" has the meaning set forth in SECTION 4.17.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in SECTION 6.5.
"RESTRICTED SHARES" has the meaning set forth in SECTION 11.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"SURVIVING CORPORATION" has the meaning set forth in SECTION 2.1.
"TAXES" has the meaning set forth in SECTION 4.19.
"TERRITORY" has the meaning set forth in SECTION 8.1.
"THIRD PERSON" has the meaning set forth in SECTION 7.3.
"YEAR-END FINANCIAL STATEMENTS has the meaning set forth in SECTION 4.6.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
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(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time in accordance with the Illinois Act and the
GCL, Newco shall be merged with and into the Company (the "MERGER") and the
separate existence of Newco shall thereupon cease. The Company shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as the
"SURVIVING CORPORATION").
2.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective at
such time (the "EFFECTIVE TIME") as (a) holders of a majority of the Company
Common Stock approve the Merger, (b) holders of a majority of the Company
Preferred Stock approve the Merger, and (c) a certificate of merger and articles
of merger, in forms mutually acceptable to PalEx and the Company, are filed with
the Secretaries of State of the States of Delaware and Illinois, respectively
(the "MERGER FILINGS"). The Merger Filings shall be made simultaneously with or
as soon as practicable after the execution of this Agreement and the Closing.
2.3. ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. As a result of the Merger and at the Effective Time:
(a) the Articles of Incorporation of the Company in effect
immediately prior to the Effective Time shall become the Articles of
Incorporation of the Surviving Corporation, and thereafter may be amended
in accordance with their terms and as provided in the Illinois Act;
(b) the By-laws of the Company in effect immediately prior to the
Effective Time shall become the By-laws of the Surviving Corporation, and
thereafter may be amended in accordance with their terms and as provided
by the Articles of Incorporation of the Surviving Corporation and the
Illinois Act; and
(c) the Board of Directors of Newco as constituted immediately prior
to the Effective Time shall be the Board of Directors of the Surviving
Corporation.
ARTICLE III
CONVERSION OF SHARES
3.1. CONVERSION OF COMPANY SHARES.
(a) At the Effective Time, by virtue of the Merger, and without any
action on the part of any holder of any capital stock of the Company, the
issued and outstanding shares of common stock, $10.00 par value per share,
of the Company as of the Effective Time (the "COMPANY COMMON STOCK") shall
be converted into the right to receive, and become exchangeable for, an
aggregate of 2,248,218 shares of PalEx Common Stock, which shares of PalEx
Common Stock shall be
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exchangeable for all the Company Common Stock at the Effective Time and
issued to the Stockholders as set forth on SCHEDULE 3.1.
(b) At the Effective Time, by virtue of the Merger, and without any
action on the part of any holder of any capital stock of the Company, the
issued and outstanding shares of preferred stock, $.20 par value per
share, of the Company as of the Effective Time (the "COMPANY PREFERRED
STOCK" and, together with the Company Common Stock, the "COMPANY STOCK")
shall be converted into the right to receive, and become exchangeable for,
an aggregate of _____ shares of PalEx Common Stock, which shares of PalEx
Common Stock shall be exchangeable for all the Company Preferred Stock at
the Effective Time and be issued to the Stockholders as set forth on
SCHEDULE 3.1.
3.2. CONVERSION OF NEWCO SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of PalEx Container Systems, Inc., a
Delaware corporation and wholly-owned subsidiary of PalEx, as the sole holder of
capital stock of Newco, each issued and outstanding share of common stock, par
value $.01 per share, of Newco shall be converted into one share of common
stock, $10.00 par value per share, of the Surviving Corporation.
3.3. EXCHANGE OF CERTIFICATES. At the Closing, (a) each Stockholder shall
furnish to PalEx the certificates representing its Company Stock, duly endorsed
in blank by such Stockholder or accompanied by duly executed blank stock powers,
and (b) PalEx shall deliver to each Stockholder certificates representing the
shares of PalEx Common Stock to be delivered to such Stockholder pursuant to
SECTION 3.1 and in accordance with SECTION 10.2. Each Stockholder agrees
promptly to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to the Company Stock
or with respect to the stock powers accompanying the Company Stock.
3.4. CLOSING. The consummation of the Merger and exchange of shares
described in SECTION 3.3 hereof and the other transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of PalEx, 1360 Post
Oak Blvd., Suite 800, Houston, Texas, concurrently with the execution of this
Agreement or at such other time and date as PalEx, the Company and the
Stockholders may mutually agree, which date is herein referred to as the
"CLOSING DATE."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INDEMNIFYING STOCKHOLDERS
The Indemnifying Stockholders jointly and severally represent and warrant
to PalEx as follows:
4.1. DUE ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Illinois and is duly authorized and qualified to do business under all
applicable Laws and to carry on its business in the places and in the manner as
now conducted. The Company has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its business as
such business is currently being conducted. SCHEDULE 4.1 contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
True, complete and correct copies of the Articles of Incorporation and By-laws,
each as amended, of the Company are attached hereto as SCHEDULE 4.1. Correct and
complete copies of all stock records and minute books of
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the Company for the past five years have been provided to PalEx, and correct and
complete copies of all other stock records and minute books of the Company have
been made available to PalEx.
4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to effect the Merger. Each Stockholder has
the full legal right, power and authority to enter into this Agreement.
The execution, delivery and performance of this Agreement have been
approved by the board of directors of the Company and by the Stockholders.
No additional corporate proceedings on the part of the Company is
necessary to authorize the execution and delivery of this Agreement and
the consummation by the Company of the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by the
Company and the Stockholders, and, assuming the due authorization,
execution and delivery hereof by PalEx and Newco, constitutes a valid and
binding agreement of the Company and each Stockholder, enforceable against
the each of them in accordance with its terms.
(b) The execution and delivery of this Agreement by the Company and
the Stockholders do not, and the consummation by the Company and the
Stockholders of the transactions contemplated hereby will not, violate or
result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any
of the properties or assets of the Company under any of the terms,
conditions or provisions of, (i) the Articles of Incorporation or By-laws
of the Company, (ii) any Laws applicable to the Stockholders or the
Company or any of its properties or assets, or (iii) except as set forth
in SCHEDULE 4.2, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, lease or other instrument,
obligation or agreement of any kind to which any Stockholder or the
Company is now a party or by which the Company or any of its properties or
assets may be bound or affected.
(c) Except for the Merger Filings and as set forth in SCHEDULE 4.2,
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority or third
party is necessary for the execution and delivery of this Agreement by the
Company and the Stockholders or the consummation by the Company and the
Stockholders of the transactions contemplated hereby. Except as set forth
in SCHEDULE 4.2, none of the customer contracts providing for purchases
individually in excess of $50,000, or in the aggregate in excess of
$100,000, or other material agreements, licenses or permits to which the
Company is a party requires notice to, or the consent or approval of, any
third party for the execution and delivery of this Agreement by the
Company and the Stockholders and the consummation of the transactions
contemplated hereby.
4.3. CAPITALIZATION. The authorized capital stock of the Company consists
solely of 3,500,000 shares of Company Preferred Stock, all of which are issued
and outstanding, and 10,000 shares of Company Common Stock, all of which are
issued and outstanding. All of the issued and outstanding shares of Company
Stock are owned beneficially and of record by the Stockholders as set forth in
SCHEDULE 4.3. All of the issued and outstanding shares of the Company Stock have
been duly authorized and validly issued,
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are fully paid and nonassessable, and were offered, issued, sold and delivered
by the Company in compliance with all applicable Laws, including, without
limitation, those Laws concerning the issuance of securities. None of such
shares were issued in violation of the preemptive rights of any past or present
stockholder. At the Effective Time, by virtue of the Merger, assuming Newco is a
wholly-owned subsidiary of PalEx, PalEx will acquire good and marketable title
in all the outstanding capital stock of the Surviving Corporation, free and
clear of all Encumbrances except for those created by PalEx and those set forth
in SCHEDULE 4.3. Except as set forth in SCHEDULE 4.3, no subscription, option,
warrant, call, convertible or exchangeable security, other conversion right or
commitment of any kind exists which obligates the Company to issue any of its
capital stock or the Stockholders to transfer any of the Company Stock.
4.4. POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded and, within the past two years, there has not been any sale
or spin-off of a significant amount of assets of the Company or any affiliate of
the Company other than in the ordinary course of business. The Company owns no
capital stock of PalEx. The Company has not acquired any of its capital stock
during the past two years. Except as set forth in SCHEDULE 4.4, the Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its capital stock or any interest therein or to pay any dividend or make
any distribution in respect thereof. Neither the voting stock structure of the
Company nor the relative ownership of shares among any of the Company's
stockholders has been altered or changed within the last two years in
contemplation of the Merger. None of the shares of Company Stock was issued
pursuant to awards, grants or bonuses, and there has been no transaction or
action taken with respect to the equity ownership of the Company in
contemplation of the Merger that would prevent PalEx from accounting for the
Merger under the pooling-of-interests method of accounting in accordance with
Opinion No. 16 of the Accounting Principles Board ("OPINION NO. 16").
4.5. SUBSIDIARIES. Except as set forth in SCHEDULE 4.5, the Company does
not own, of record or beneficially, or control, directly or indirectly, any
capital stock, securities convertible into or exchangeable for capital stock or
any other equity interest in any corporation, association or other business
entity. Except as set forth in SCHEDULE 4.5, the Company is not, directly or
indirectly, a participant in any joint venture, limited liability company,
partnership or other noncorporate entity.
4.6. FINANCIAL STATEMENTS.
(a) The Company has delivered to PalEx complete and correct copies
of the following financial statements:
(i) the audited balance sheets of the Company as of April
30, 1995, 1996 and 1997 and the related audited
statements of operations, stockholders' equity and cash
flows for the three-year period ended April 30, 1997,
together with the related notes, schedules and report of
auditors (such balance sheets, the related statements of
operations, stockholders' equity and cash flows and the
related notes and schedules are referred to herein as
the "YEAR-END FINANCIAL STATEMENTS"); and
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(ii) the unaudited balance sheet (the "INTERIM BALANCE
SHEET") of the Company as of December 31, 1997(the
"BALANCE SHEET DATE") and the related unaudited
statements of operations, stockholders' equity and cash
flows for the eight- month period ended December 31,
1997, together with the related notes and schedules
(such balance sheets, the related statements of
operations, stockholders' equity and cash flows and the
related notes and schedules are referred to herein as
the "INTERIM FINANCIAL STATEMENTS"). The Year-End
Financial Statements and the Interim Financial
Statements (collectively, the "FINANCIAL STATEMENTS")
are attached as SCHEDULE 4.6 to this Agreement.
(b) Except as set forth in SCHEDULE 4.6, the Financial Statements
have been prepared from the books and records of the Company in conformity
with GAAP (except for the absence of notes in the Interim Financial
Statements) and present fairly the financial position and results of
operations of the Company as of the dates of such statements and for the
periods covered thereby. The books of account of the Company have been
kept accurately in all material respects in the ordinary course of
business, the transactions entered therein represent bona fide
transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein in all material respects.
4.7. LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 4.7, as
of the Balance Sheet Date the Company did not have, nor has it incurred since
that date, any liabilities or obligations (whether absolute, accrued, contingent
or otherwise) of any nature, except (a) liabilities, obligations or
contingencies (i) that are accrued or reserved against in the Financial
Statements or reflected in the notes thereto or (ii) that were incurred after
the Balance Sheet Date and were incurred in the ordinary course of business and
consistent with past practices, and (b) liabilities and obligations that are of
a nature not required to be reflected in the Financial Statements prepared in
accordance with GAAP and that were incurred in the normal course of business and
are described in SCHEDULE 4.7. SCHEDULE 4.7 contains a reasonable estimate by
the Indemnifying Stockholders of the maximum amount which may be payable with
respect to liabilities which are not fixed. For each such liability for which
the amount is not fixed or is contested, the Company has provided a summary
description of the liability together with copies of all relevant documentation
relating thereto. SCHEDULE 4.7 sets forth the Company's outstanding principal
amount of indebtedness for borrowed money (including overdrafts) as of the date
hereof.
4.8. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 4.8 sets forth an accurate
list of the accounts and notes receivable of the Company as of the Balance Sheet
Date and of those generated between the Balance Sheet Date and the second
business day preceding the Closing Date, including any such amounts which are
not reflected in the Interim Balance Sheet. Receivables from and advances to
employees, the Stockholders and any entities or persons related to or Affiliates
of the Stockholders are separately identified in SCHEDULE 4.8. SCHEDULE 4.8 also
sets forth an accurate aging of all accounts and notes receivable as of the
Balance Sheet Date, showing amounts due in 30-day aging categories. The trade
and other accounts receivable of the Company, including without limitation those
classified as current assets on the Interim Balance Sheet, are bona fide
receivables, were acquired in the ordinary course of business, and are stated in
accordance with GAAP.
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4.9. ASSETS.
(a) SCHEDULE 4.9 sets forth an accurate list of all real and
personal property included in "property and equipment" on the Interim
Balance Sheet and all other tangible assets of the Company with a book
value in excess of $10,000 (i) owned by the Company as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date, including in
each case true, complete and correct copies of leases for significant
equipment and for all real property leased by the Company and descriptions
of all real property on which buildings, warehouses, workshops, garages
and other structures used in the operation of the business of the Company
are situated. SCHEDULE 4.9 indicates which assets used in the operation of
the business of the Company are currently owned by the Stockholders or
Affiliates of the Company or the Stockholders. Except as specifically
identified in SCHEDULE 4.9, to the knowledge of the Company after due
inquiry, all of the tangible assets, vehicles and other significant
machinery and equipment of the Company listed in SCHEDULE 4.9 are in good
working order and condition, ordinary wear and tear excepted, and have
been maintained in accordance with standard industry practices. Except for
the real property owned by ESP Realty Corp., Inc., all fixed assets used
by the Company in its business are either owned by the Company or leased
under agreements identified in SCHEDULE 4.9. All leases set forth in
SCHEDULE 4.9 are in full force and effect and constitute valid and binding
agreements of the Company, and to the knowledge of the Company, the other
parties thereto in accordance with their respective terms. SCHEDULE 4.9
contains true, complete and correct copies of all title reports and title
insurance policies received or owned by the Company. SCHEDULE 4.9 also
includes a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations or the
acquisition of any real property or existing business, to which management
of the Company has devoted any significant effort or expenditure in the
two-year period prior to the date of the Agreement, which if pursued by
the Company would require additional expenditures of capital.
(b) The Company has good and indefeasible title to the tangible and
intangible personal property and the real property owned and used in its
business, including the properties identified in SCHEDULE 4.9, free and
clear of all Encumbrances other than Permitted Encumbrances and those set
forth in SCHEDULE 4.9.
(c) The tangible and intangible assets of the Company include all
the assets used in the operation of the business of the Company as
conducted at April 30, 1997, except for dispositions of such assets since
such date in the ordinary course of business, consistent with past
practices.
(d) Except as set forth in this SECTION 4.9 and in the other
representations and warranties in this Agreement, the Company and the
Indemnifying Stockholders are making no representations or warranties as
to the condition of the assets of the Company, including, without
limitation, any implied warranties or any representation or warranty as to
merchantability or fitness for any particular purpose and, subject to the
representations set forth in this Agreement, such assets are being
purchased "as is," "where is" and with all faults.
4.10. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
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(a) SCHEDULE 4.10 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's revenues for the fiscal year
ended April 30, 1997 or the eight-month period ended on the Balance Sheet
Date (the "MATERIAL CUSTOMERS"), and (ii) all material executory
contracts, commitments and similar agreements to which the Company is
currently a party or by which it or any of its properties is bound,
including, but not limited to, (A) all customer contracts in excess of
$10,000, individually, or $25,000 in the aggregate, including, without
limitation, consignment contracts, (B) contracts with any labor
organizations, (C) leases providing for annual rental payments in excess
of $5,000, individually, or $10,000 in the aggregate, (D) loan agreements,
(E) pledge and security agreements, (F) indemnity or guaranty agreements
or obligations , (G) bonds, (H) notes, (I) mortgages, (J) joint venture or
partnership agreements, (K) options to purchase real or personal property,
and (L) agreements relating to the purchase or sale by the Company of
assets (other than oral agreements relating to sales of inventory or
services in the ordinary course of business, consistent with past
practices) or securities for more than $5,000, individually, or $10,000 in
the aggregate. Prior to the date hereof, the Company has made available to
PalEx complete and correct copies of all such agreements.
(b) Except to the extent set forth in SCHEDULE 4.10, (i) no Material
Customer has canceled or substantially reduced or, to the knowledge of the
Company, threatened to cancel or substantially reduce its purchases of the
Company's products or services, and (ii) the Company is in compliance with
all material commitments and obligations pertaining to it under such
agreements and is not in default under any the agreements described in
SUBSECTION (A), no notice of default has been received by the Company, and
the Indemnifying Stockholders and the Company are aware of no basis
therefor.
(c) The Company is not a party to any governmental contracts subject
to price redetermination or renegotiation. The Company is not required to
provide any bonding or other financial security arrangements in any
material amount in connection with any transactions with any of its
customers or suppliers.
(d) SCHEDULE 4.10 sets forth a summary of the material terms of all
oral and written bartering arrangements to which the Company is a party.
The Company has a sufficient supply of uncommitted inventory to fulfill
its bartering obligations with third parties.
4.11. PERMITS. SCHEDULE 4.11 contains an accurate list of all material
licenses, franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company, including, without
limitation, permits, licenses and operating authorizations, titles (including
motor vehicle titles and current registrations), fuel permits, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company (the "PERMITS"). The Permits are valid,
and the Company has not received any written notice that any Governmental
Authority intends to cancel, terminate or not renew any such license, operating
authorization, franchise, permit or other governmental authorization. The
Permits are all the permits that are required by Law for the operation of the
business of the Company as conducted at the Balance Sheet Date and the ownership
of the assets of the Company. The Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in the Permits, as well as the applicable orders,
approvals and variances related thereto, and is not in violation of any of the
foregoing. Except as specifically provided in
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SCHEDULE 4.11, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company by, any Permits.
4.12. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 4.12, (a) the
Company has complied with and is in compliance with all Environmental Laws,
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Substances; (b) the Company has obtained and complied with
all necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Substances and has reported, to the
extent required by all Environmental Laws, all past and present sites owned or
operated by the Company where Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (c) there have been no "releases" or threats
of "releases" (as defined in any Environmental Laws) at, from, in or on any
property owned or operated by the Company; (d) there is no on-site or off-site
location to which the Company has transported or disposed of Hazardous
Substances or arranged for the transportation or disposal Hazardous Substances
which is the subject of any federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Surviving
Corporation, PalEx or Newco for any clean-up cost, remedial work, damage to
natural resources or personal injury, including, but not limited to, any claim
under (i) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) the Resource Conservation and Recovery Act, (iii)
the Hazardous Materials Transportation Act, or (iv) comparable state and local
statutes and regulations; and (e) the Company has no contingent liability in
connection with any release or disposal of any Hazardous Substance into the
environment.
4.13. LABOR AND EMPLOYEE RELATIONS. Except as set forth in SCHEDULE 4.13,
the Company is not bound by or subject to any arrangement with any labor union.
Except as set forth in SCHEDULE 4.13, no employees of the Company are
represented by any labor union or covered by any collective bargaining agreement
nor, to the Company's or the Indemnifying Stockholders' knowledge, is any
campaign to establish such representation in progress. There is no pending or,
to the Company's or the Indemnifying Stockholders' knowledge, threatened labor
dispute involving the Company and any group of its employees nor has the Company
experienced any significant labor interruptions over the past five years.
Neither the Company nor any Indemnifying Stockholder has any knowledge of any
significant issues or problems in connection with the relationship of the
Company with its employees.
4.14. INSURANCE. SCHEDULE 4.14 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company and of all
insurance loss runs or workmen's compensation claims received for the past five
policy years. Except as set forth in SCHEDULE 4.14, none of such policies is a
"claims made" policy. To the Company's knowledge, after due inquiry, the
insurance policies set forth in SCHEDULE 4.14 provide adequate coverage against
the risks involved in the Company's business. Such policies are currently in
full force and effect.
4.15. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 4.15 sets forth an
accurate schedule of all officers, directors and employees of the Company with
annual salaries of $70,000 or more, listing the rate of compensation (and the
portions thereof attributable to salary, bonus, benefits and other compensation,
respectively) of each of such persons as of (a) the Balance Sheet Date and (b)
the date hereof. Attached to SCHEDULE 4.15 are true, complete and correct copies
of each employment or consulting agreement with any employee of the Company or
any Stockholder.
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4.16. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 4.16 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company is bound or under which the Company has any rights or obligations.
4.17. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.17 sets forth an accurate schedule of each "EMPLOYEE
BENEFIT PLAN," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all nonqualified
deferred compensation arrangements, whether formal or informal and whether
legally binding or not, under which the Company or an ERISA Affiliate has
any current or future obligation or liability or under which any present
or former employee of the Company or an ERISA Affiliate, or such present
or former employee's dependents or beneficiaries, has any current or
future right to benefits (each such plan and arrangement referred to
hereinafter as a "PLAN"), together with true and complete copies of such
Plans, arrangements and any trusts related thereto, and classifications of
employees covered thereby as of December 31, 1997. Except as set forth on
SCHEDULE 4.17, neither the Company nor any ERISA Affiliate sponsors,
maintains or contributes currently, or at any time during the preceding
five years, to any plan, program, fund or arrangement that constitutes an
employee pension benefit plan. Each Plan may be terminated by the Company,
or if applicable, by an ERISA Affiliate at any time without any liability,
cost or expense, other than costs and expenses that are reasonable and
customary in connection with the termination of a Plan. For purposes of
this Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall have the
meaning given that term in Section 3(2) of ERISA, and the term "ERISA
AFFILIATE" means any corporation or trade or business under common control
with the Company as determined under Section 414(b), (c), (m) or (o) of
the Code.
(b) Each Plan listed on SCHEDULE 4.17 is in compliance in all
material respects with the applicable provisions of ERISA, the Code, and
any other applicable Law. With respect to each Plan of the Company and
each ERISA Affiliate (other than a "MULTIEMPLOYER PLAN," as defined in
Section 4001(a)(3) of ERISA), all reports and other documents required
under ERISA or other applicable Law to be filed with any Governmental
Authority, the failure of which to file could reasonably be expected to
result in a material liability to the Company or any ERISA Affiliate, or
required to be distributed to participants or beneficiaries, have been
duly filed or distributed. True and complete copies of all such reports
and other documents with respect to the past five years for each Plan have
been provided to PalEx. No "ACCUMULATED FUNDING DEFICIENCY" (as defined in
Section 412(a) of the Code) with respect to any Plan has been incurred
(without regard to any waiver granted under Section 412 of the Code), nor
has any funding waiver from the Internal Revenue Service been received or
requested. Each Plan that is intended to be "QUALIFIED" within the meaning
of Section 401(a) of the Code (a "QUALIFIED PLAN") is, and has been during
the period from its adoption to the date hereof, so qualified, both as to
form and operation and all necessary approvals of Governmental
Authorities, including a favorable determination as to the qualification
under the Code of each of such Qualified Plans and each amendment thereto,
have been timely obtained. Except as set forth in SCHEDULE 4.17, all
accrued contribution obligations of the Company with respect to any Plan
have either been fulfilled in their entirety or are fully reflected in the
Financial Statements.
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(c) No Plan has incurred, and neither the Company nor any ERISA
Affiliate has incurred, any liability for excise tax or penalty due to the
Internal Revenue Service. There have been no terminations, partial
terminations or discontinuances of contributions to any Qualified Plan
during the preceding five years without notice to and approval by the
Internal Revenue Service and payment of all obligations and liabilities
attributable to such Qualified Plan.
(d) Neither the Company nor any ERISA Affiliate has made any
promises of retirement or other benefits to employees, except as set forth
in the Plans, and neither the Company nor any ERISA Affiliate maintains or
has established any Plan that is a "WELFARE BENEFIT PLAN" within the
meaning of Section 3(1) of ERISA that provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after
such participant's termination of employment, except as may be required by
Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code,
and at the expense of the participant or the beneficiary of the
participant, or retiree medical liabilities. Neither the Company nor any
ERISA Affiliate maintains, has established or has ever participated in a
multiple employer welfare benefit arrangement as described in Section
3(40)(A) of ERISA. Except as set forth in SCHEDULE 4.17, neither the
Company nor any ERISA Affiliate has any current or future obligation or
liability with respect to a Plan pursuant to the provisions of a
collective bargaining agreement.
(e) Neither the Company nor any ERISA Affiliate has incurred any
material liability to the Pension Benefit Guaranty Corporation in
connection with any Plan. The assets of each Plan that is subject to Title
IV of ERISA are sufficient to provide the benefits under such Plan, the
payment of which the Pension Benefit Guaranty Corporation would guarantee
if such Plan were terminated, and such assets are also sufficient to
provide all other "BENEFITS LIABILITIES" (as defined in ERISA Section
4001(a)(16)) due under such Plan upon termination.
(f) No "REPORTABLE EVENT" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any Plan. There are no pending,
or to the Company's knowledge, threatened claims, lawsuits or actions
(other than routine claims for benefits in the ordinary course) asserted
or instituted against, and neither the Company nor any ERISA Affiliate has
knowledge of any threatened litigation or claims against, the assets of
any Plan or its related trust or against any fiduciary of a Plan with
respect to the operation of such Plan. To the Company's knowledge, there
are no investigations or audits of any Plan by any Governmental Authority
currently pending and there have been no such investigations or audits
that have been concluded that resulted in any liability to the Company or
any ERISA Affiliate that has not been fully discharged. Neither the
Company nor any ERISA Affiliate has participated in any voluntary
compliance or closing agreement programs established with respect to the
form or operation of a Plan.
(g) Neither the Company nor any ERISA Affiliate has engaged in any
prohibited transaction, within the meaning of Section 406 of ERISA or
Section 4975 of the Code, in connection with any Plan. Except as set forth
in SCHEDULE 4.17, neither the Company nor any ERISA Affiliate is, or ever
has been, a participant in or is obligated to make any payment to a
multiemployer plan. Other than Jordan Pearlman, in the last two years, no
person or entity that was engaged by the Company or an ERISA Affiliate as
an independent contractor can or will be characterized or deemed to be an
employee of the Company or an ERISA Affiliate under applicable Laws for
any purpose
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whatsoever, including, without limitation, for purposes of federal, state
and local income taxation, workers' compensation and unemployment
insurance and Plan eligibility.
4.18. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
4.18, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company and the Indemnifying Stockholders, threatened against
or affecting the Company, at law or in equity, or before or by any Governmental
Authority having jurisdiction over the Company. No written notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
the Company and, to the Indemnifying Stockholders' and the Company's knowledge,
there is no basis therefor. Except to the extent set forth in SCHEDULE 4.18, the
Company has conducted and is conducting its business in compliance with all Laws
applicable to the Company, its assets or the operation of its business.
4.19. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. The Company has timely filed all
requisite federal, state, local and other tax returns for all fiscal periods
ended on or before the Closing, and has duly paid in full or made adequate
provision in the Financial Statements for the payment of all Taxes for all
periods ending at or prior to the Closing Date. The Company has duly withheld
and paid or remitted all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other person or entity that required withholding under
any applicable Law, including, without limitation, any amounts required to be
withheld or collected with respect to social security, unemployment
compensation, sales or use taxes or workers' compensation. Except as set forth
in SCHEDULE 4.19, there are no examinations in progress or claims against the
Company relating to Taxes for any period or periods prior to and including the
Balance Sheet Date and no written notice of any claim for Taxes, whether pending
or threatened, has been received. The Company has not granted or been requested
to grant any extension of the limitation period applicable to any claim for
Taxes or assessments with respect to Taxes. The Company is not a party to any
Tax allocation or sharing agreement and is not otherwise liable or obligated to
indemnify any person or entity with respect to any Taxes. The amounts shown as
accruals for Taxes on the Interim Financial Statements as of the Balance Sheet
Date are sufficient for the payment of all Taxes for all fiscal periods ended on
or before that date. True and complete copies of (a) any tax examinations, (b)
extensions of statutory limitations and (c) the federal, state and local Tax
returns of the Company for the last three fiscal years have been previously
provided to PalEx. There are no requests for ruling in respect of any Tax
pending between the Company and any Taxing authority. The Company currently
utilizes the accrual method of accounting for income tax purposes. Such method
of accounting has not changed in the past five years.
4.20. ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth in SCHEDULE 4.20, the Company has conducted its operations in the ordinary
course and there has not been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results or prospects of the Company;
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(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company, individually or in the aggregate;
(c) any change in the authorized capital stock of the Company or in
its outstanding securities or any change in the Stockholders' ownership
interests in the Company or any grant of any options, warrants, calls,
conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation payable or to become payable by
the Company to the Stockholders or any of its officers, directors,
employees, consultants or agents, except for ordinary and customary
bonuses and salary increases for employees in accordance with past
practice, which bonuses and salary increases are set forth in SCHEDULE
4.20;
(f) any significant work interruptions, labor grievances or claims
filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, the Stockholders and their Affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company;
(i) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business, consistent with past
practices or incurred in connection with the transactions contemplated by
this Agreement;
(j) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(l) any waiver of any material rights or claims of the Company;
(m) any material breach, amendment or termination of any material
contract, agreement, Permit or other right to which the Company is a party
or any of its property is subject; or
(n) any other material transaction by the Company outside the
ordinary course of business.
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4.21. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. SCHEDULE
4.21 sets forth an accurate schedule, as of the date of this Agreement, of (a)
the name of each financial institution or brokerage firm in which the Company
has accounts or safe deposit boxes; (b) the names in which the accounts or boxes
are held; (c) the type of account and the cash, cash equivalents and securities
held in such account as of the second business day prior to the Closing, none of
which assets have been withdrawn from such accounts since such date except for
bona fide business purposes in the ordinary course of the business of the
Company; and (d) the name of each person authorized to draw thereon or have
access thereto. SCHEDULE 4.21 also sets forth the name of each person,
corporation, firm or other entity holding a general or special power of attorney
from the Company and a description of the terms thereof.
4.22. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
of its affiliates has given or offered to give anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any similar Law.
4.23. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 4.23, neither the Stockholders nor any other Affiliate of
the Company owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of or otherwise receives remuneration from, any
business which is in a Competitive Business or is a competitor, lessor, lessee,
customer or supplier of the Company. Except as set forth in SCHEDULE 4.23, no
officer or director of the Company nor any Stockholder has nor, during the
period beginning January 1, 1996 through the date hereof, had any interest in
any property, real or personal, tangible or intangible, used in or pertaining to
the business of the Company.
4.24. INTANGIBLE PROPERTY. SCHEDULE 4.24 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, technology,
licenses, trade names, copyrights and other intellectual property or proprietary
property rights owned or used by the Company. The Company owns or possesses, and
the assets of the Company include, sufficient legal rights to use all of such
items without conflict with or infringement of the rights of others.
4.25. DISCLOSURE. The Stockholders and the Company have provided PalEx or
its representatives all the information that PalEx has requested in analyzing
whether to consummate the Merger and the other transactions contemplated by this
Agreement. None of the information so provided nor any representation or
warranty of the Company or the Stockholders to PalEx or Newco in this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
PalEx and Newco jointly and severally represent and warrant to the
Stockholders as follows:
5.1. ORGANIZATION. Each of PalEx and Newco is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, and is duly authorized and qualified under all applicable Laws to
carry on its business in the places and in the manner now conducted. Each of
PalEx and
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Newco has the requisite power and authority to own, lease and operate its assets
and properties and to carry on its business as such business is currently being
conducted. Correct and complete copies of PalEx's minute books have been made
available to the Company.
5.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of PalEx and Newco has the full legal right, power and
authority to enter into this Agreement and the Registration Rights
Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement have been approved by the boards of
directors of PalEx and Newco and PalEx, as the sole stockholder of Newco.
No additional corporate proceedings on the part of PalEx or Newco are
necessary to authorize the execution and delivery of this Agreement or the
Registration Rights Agreement and the consummation by PalEx and Newco of
the transactions contemplated hereby. This Agreement and the Registration
Rights Agreement have been duly and validly executed and delivered by
PalEx and Newco, and, assuming the due authorization, execution and
delivery by the Company and the Stockholders, constitutes valid and
binding agreements of PalEx and Newco, enforceable against PalEx and Newco
in accordance with its terms.
(b) The execution and delivery of this Agreement by PalEx and Newco,
and the Registration Rights Agreement by PalEx, do not, and the
consummation by PalEx and Newco of the transactions contemplated hereby
will not, violate or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under any of the terms, conditions or
provisions of (i) the Certificate of Incorporation or By-Laws of PalEx or
Newco, (ii) any Law applicable to either PalEx or Newco or any of its
properties or assets or (iii) any material note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind
to which PalEx or Newco is now a party or by which either PalEx or Newco
or any of its properties or assets may be bound or affected.
(c) Except for the Merger Filings and such filings as may be
required under federal or state securities Laws, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement or the Registration Rights Agreement by PalEx and Newco or
the consummation by PalEx and Newco of the transactions contemplated
hereby or thereby.
5.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued to
the Stockholders pursuant to the Merger are duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable. The issuance of PalEx Common Stock pursuant to the Merger
will transfer to the Stockholders valid title to such shares of PalEx Common
Stock, free and clear of all Encumbrances, except for any Encumbrances created
by the Stockholders.
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5.4. TAX REORGANIZATION REPRESENTATIONS.
(a) Prior to the Merger, PalEx will be in control of Newco within
the meaning of Section 368(c) of the Code.
(b) PalEx has no plan or intention to cause the Surviving
Corporation to issue additional shares of its stock that would result in
PalEx losing control of the Surviving Corporation within the meaning of
Section 368(c) of the Code.
(c) PalEx has no plan or intention to reacquire any of its stock
issued in the Merger.
(d) PalEx has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation except for transfers of stock to another corporation
controlled by PalEx; or to cause the Surviving Corporation to sell or
otherwise dispose of any of its assets, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by PalEx.
(e) Following the Closing, PalEx's intention is that the Surviving
Corporation will continue the historic business of the Company or use a
significant portion of the historic business assets of the Company in a
business, all as required to satisfy the "continuity of business
enterprise" requirement under Section 368 of the Code.
(f) PalEx does not own, nor has it owned during the past five years,
any shares of the stock of the Company.
(g) Each of PalEx and Newco is undertaking the Merger for a bona
fide business purpose and not merely for the avoidance of federal income
tax.
(h) Neither PalEx nor Newco is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(i) As of the Closing Date, the fair market value of the assets of
Newco will exceed the sum of Newco's liabilities plus the amount of other
liabilities, if any, to which Newco's assets are subject.
5.5. SEC FILINGS; DISCLOSURE. PalEx has filed with the Securities and
Exchange Commission ("SEC") all material forms, statements, reports and
documents required to be filed by it prior to the date hereof under each of the
Securities Act of 1933, as amended (the "1933 ACT"), the Securities Exchange Act
of 1934, as amended (the "1934 ACT"), and the respective rules and regulations
thereunder, (a) all of which, as amended, if applicable, complied when filed in
all material respects with all applicable requirements of the appropriate Act
and the rules and regulations thereunder, and (b) none of which, as amended, if
applicable, contains any untrue statement of material fact or, except for
disclosure of the acquisition of the assets, and assumption of the liabilities,
of CSC and its Affiliates, omits to state a material fact required to
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be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.
5.6. LEGAL COMPLIANCE. Neither PalEx nor Newco is (a) in violation of its
charter or by-laws, (b) in default in any material respect, and no event has
occurred that, with notice or lapse of time or both, would constitute a material
default under any in material agreement to which PalEx or Newco is party or by
which its assets are subject, or (c) in, or, as to CSC, to the actual knowledge
of PalEx in, violation, in any material respect, of any material Law to which
either PalEx or Newco or their properties or assets may be subject, in each
case, except to the extent that such violation or default would not reasonably
be expected have a material adverse effect on the business, operations,
properties, condition (financial or otherwise), assets, liabilities (contingent
or otherwise), or results of operations of PalEx and its subsidiaries, taken as
a whole (a "MATERIAL ADVERSE EFFECT").
5.7. LITIGATION AND COMPLIANCE WITH LAW. There are no claims, actions,
suits or proceedings, pending or, to the knowledge of PalEx, threatened against
PalEx or Newco, at law or in equity, before or by any Governmental Authority
having jurisdiction over PalEx or Newco that, if adversely determined against
PalEx or Newco, as the case may be, would reasonably be expected to have a
Material Adverse Effect. PalEx and Newco have conducted and are conducting their
respective businesses, and to the actual knowledge of PalEx, CSC is conducting
its business, in compliance with all applicable Laws, except to the extent
noncompliance with such Laws would not reasonably be expected to have a Material
Adverse Effect.
5.8. DISCLOSURE. PalEx has fully provided the Stockholders or their
representatives with all the information that the Stockholders have requested in
analyzing whether to consummate the Merger. None of the information so provided
nor any representation or warranty of PalEx contained in this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE VI
CERTAIN COVENANTS
6.1. RELEASE FROM GUARANTEES. PalEx shall use its commercially reasonable
best efforts to have the Stockholders released from the personal guarantees of
the Company indebtedness identified in SCHEDULE 6.1. PalEx hereby agrees to
indemnify each Stockholder and hold such Stockholder harmless for any amounts
that such Stockholder is required to pay in connection with the enforcement of
any obligations under such personal guarantees after the Closing, including
without limitation any reasonable attorneys' fees and expenses incurred in
connection therewith.
6.2. FUTURE COOPERATION; TAX MATTERS. The Stockholders and PalEx shall
each deliver or cause to be delivered to the other following the Closing such
additional instruments as the other may reasonably request for the purpose of
fully carrying out this Agreement. The Stockholders will cooperate and use their
commercially reasonable best efforts to have the present officers, directors and
employees of the Company cooperate with PalEx, Newco and the Surviving
Corporation at and after the Closing in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing.
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The Stockholders will cooperate with the Surviving Corporation in the
preparation of all tax returns covering the period from the beginning of the
Company's current tax year through the Closing. In addition, PalEx will provide
the Stockholders with access to such of its books and records as may be
reasonably requested by the Stockholders in connection with federal, state and
local tax matters relating to periods prior to the Closing. The party requesting
cooperation, information or actions under this SECTION 6.2 shall reimburse the
other party for all reasonable out-of-pocket costs and expenses paid or incurred
in connection therewith, which costs and expenses shall not, HOWEVER, include
per diem charges for employees or allocations of overhead charges.
6.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto. The Surviving Corporation following the Closing will pay
Arthur Andersen LLP's expenses of its audit of the Year-End Financial
Statements. The Stockholders will pay their fees, expenses and disbursements and
those of their and the Company's agents, representatives, financial advisors,
accountants and counsel incurred in connection with the execution, delivery and
performance of this Agreement and any amendments hereto and the consummation of
the transactions contemplated hereby; PROVIDED, HOWEVER, that Newco will pay
such fees, expenses and disbursements up to, but not in excess of, an amount
equal to (a) $1,000,000 less (b) any fees, expenses and disbursements of Western
Container Limited Liability Company, a Wyoming limited liability company, ESP
Realty Corp., Inc. or Environmental Recyclers of Colorado, Inc., a Colorado
corporation paid by PalEx, Newco or any Affiliate of PalEx or Newco, or for
which any such party is liable.
6.4. EMPLOYMENT AGREEMENT. Concurrently with the execution of this
Agreement, the Surviving Corporation shall enter into a mutually acceptable
Employment Agreement with Elliot Pearlman (the "EMPLOYMENT AGREEMENT").
6.5. REGISTRATION RIGHTS AGREEMENT. Concurrently with the execution of
this Agreement, PalEx and the Stockholders shall enter into a mutually
acceptable Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT".
6.6. REPAYMENT OF RELATED PARTY INDEBTEDNESS. Concurrently with the
execution of this Agreement, (a) the Stockholders shall repay to the Company all
amounts outstanding as advances to or receivables from the Stockholders, each of
which advances or receivables is specifically reflected in SCHEDULE 4.8, and (b)
the Company shall repay all amounts outstanding under loans to the Company from
the Stockholders, each of which loans to the Company is specifically reflected
in SCHEDULE 4.7.
6.7. STOCK OPTIONS. PalEx shall recommend to the Compensation Committee of
its Board of Directors that nonqualified options to purchase an aggregate of
100,000 shares of PalEx Common Stock be granted as of the Closing Date or as
soon as practicable thereafter under PalEx's 1996 Stock Option Plan, as amended,
to individuals who are employees of the Company and Western as of the date of
this Agreement (other than the Stockholders), as mutually agreed upon by Elliot
Pearlman and PalEx. Until such options are granted, PalEx shall cause at least
100,000 options to be available for grant under the 1996 Stock Option Plan, as
amended, as contemplated herein.
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6.8. TERMINATION OF ESOP. PalEx shall cause the ESOP to be terminated as
soon as practicable after May 15, 1998 and shall request a determination from
the Internal Revenue Service that the termination does not adversely affect the
tax qualified status of the ESOP. PalEx shall cause the ESOP to distribute all
assets that it holds as soon as administratively feasible following the receipt
of a favorable determination letter from the Internal Revenue Service. In
addition, PalEx shall use its commercially reasonable efforts to (a) file a
Registration Statement on Form S-8 with respect to the shares of PalEx Common
Stock held by the ESOP and (b) cause such Registration Statement to be declared
effective by the SEC on or before the publication and dissemination by PalEx of
consolidated financial results that include results of the combined operations
of the Company and PalEx for at least 30 days on a consolidated basis following
the Closing. After such Registration Statement becomes effective, each
participant in the ESOP shall have the authority, subject to the terms of the
ESOP and applicable Law, to direct the trustee of the ESOP to sell up to 25% of
the shares of PalEx Common Stock allocated to such participant's account and
reinvest the proceeds therefrom in such money market funds as may be selected by
the Trustee of the ESOP.
ARTICLE VII
INDEMNIFICATION
The Indemnifying Stockholders, PalEx and Newco each make the following
covenants:
7.1. GENERAL INDEMNIFICATION BY THE INDEMNIFYING STOCKHOLDERS. Subject to
SECTIONS 7.4 and 7.5, the Indemnifying Stockholders covenant and agree that they
will jointly and severally indemnify, defend, protect and hold harmless PalEx,
Newco and the Surviving Corporation, and their respective officers, directors,
employees, stockholders, agents, representatives and Affiliates, at all times
from and after the date of this Agreement until the Expiration Date from and
against all Losses incurred by any of such indemnified persons as a result of or
arising from (a) any breach of the representations and warranties of the
Indemnifying Stockholders set forth herein or in the Schedules or certificates
delivered in connection herewith, (b) any breach or nonfulfillment of any
covenant or agreement on the part of the Stockholders or the Company under this
Agreement, (c) all income Taxes payable by the Company for all periods prior to
and including the Closing Date, and (d) the Company's, the ESOP's and the
Indemnifying Stockholders' engagement of Consulting Fiduciaries, Inc. as an
independent fiduciary for the ESOP or the acts or omissions of Consulting
Fiduciaries, Inc.
7.2. INDEMNIFICATION BY PALEX. PalEx covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and their
respective agents, representatives, Affiliates , beneficiaries and heirs and
employees at all times from and after the date of this Agreement until the
Expiration Date from and against all Losses incurred by any of such indemnified
persons as a result of or arising from (a) any breach of the representations and
warranties of PalEx or Newco set forth herein or in the Schedules or
certificates attached hereto, and (b) any breach or nonfulfillment of any
covenant or agreement on the part of PalEx or Newco under this Agreement.
7.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), of the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to
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the party obligated to provide indemnification pursuant to SECTION 7.1, or 7.2
hereof (hereinafter the "INDEMNIFYING PARTY") written notice of such claim or
the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same diligently and in good faith. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in all commercially
reasonable respects in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; PROVIDED, HOWEVER, that the Indemnified Party shall
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof. The Indemnifying Party
shall not settle any such Third Person claim without the consent of the
Indemnified Party, unless the settlement thereof imposes no liability or
obligation on, and includes a complete release from liability of, the
Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement if such settlement does not provide for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, in its discretion, and the Indemnifying Party
shall reimburse the Indemnified Party for the amount paid in such settlement and
any other liabilities or expenses incurred by the Indemnified Party in
connection therewith.
7.4. INDEMNIFICATION DEDUCTIBLE. Neither the Indemnifying Stockholders, on
the one hand, nor PalEx, Newco and the Surviving Corporation, on the other hand,
shall be entitled to indemnification from the other under the provisions of
SECTION 7.1(A) or SECTION 7.2(A), as the case may be, until such time as, and
only to the extent that, the claims subject to indemnification by such other
party exceed, in the aggregate, $400,000. Notwithstanding the foregoing, the
limitations set forth in this SECTION 7.4 shall not apply to fraudulent
misrepresentations.
7.5. INDEMNIFICATION LIMITATION.
(a) Subject to SECTIONS 7.4 and 7.5(B), with respect to any Losses
for which the Indemnifying Stockholders are obligated or liable under this
ARTICLE VII, the Indemnifying Stockholders shall be jointly and severally
liable only to the extent of 42% of such Losses; PROVIDED,
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HOWEVER, that notwithstanding anything to the contrary contained herein,
the foregoing limitation shall not apply to the Indemnifying Stockholders'
obligations and liability under SECTION 7.1(D).
(b) Subject to SECTIONS 7.4 and 7.5(A), the aggregate
indemnification obligation of the Indemnifying Stockholders under SECTION
7.1(A) shall be limited to (a) the value of any shares of PalEx Common
Stock that (i) were received by the Indemnifying Stockholders, or either
of them, in (A) the Merger and/or (B) the merger of ESP Realty Corp.,
Inc., an Illinois corporation, into a subsidiary of PalEx on the date
hereof, and/or (C) the merger of ERI into a subsidiary of PalEx on the
date hereof (subject, in each case, to appropriate adjustments in the
event of any stock dividend on, or split-up or other recapitalization of,
the PalEx Common Stock) and (ii) have not been sold by an Indemnifying
Stockholder in a bona fide arms'-length transaction to a third party that
is not an Affiliate of either Indemnifying Stockholder (collectively, the
"PURCHASE PRICE SHARES"), plus (b) the gross proceeds from the sale of
Purchase Price Shares in bona fide arms'-length transactions to a third
party that is not an Affiliate of either Indemnifying Stockholder, less
(c) the amount of any Losses (as such term is defined in the ERI
Acquisition Agreement and the ESP Acquisition Agreement, respectively)
paid by the Indemnifying Stockholders, or either of them, as an
indemnifying party under the ERI Acquisition Agreement or the ESP
Acquisition Agreement. Indemnification claims under this ARTICLE VII shall
be settled first from the sale or recovery of Purchase Price Shares, to
the extent thereof, and thereafter, from the gross proceeds from prior
bona fide arms'-length sales of Purchase Price Shares to third parties
that are not Affiliates of either Indemnifying Stockholder.
(c) For purposes of this SECTION 7.5, the value of Purchase Price
Shares shall be the average closing price per share of PalEx Common Stock
for the 10 trading days ending on the second trading day before the date a
Loss becomes payable by the Indemnifying Stockholders (either by agreement
or pursuant to a judgment or binding determination by an arbitrator) in
accordance with this ARTICLE VII, as reported on The Nasdaq Stock Market
or such other national securities exchange on which the PalEx Common Stock
is principally traded. Notwithstanding the foregoing, the limitations set
forth in this SECTION 7.5 shall not apply to fraudulent
misrepresentations.
7.6. INDEMNIFICATION FOR NEGLIGENCE OF INDEMNIFIED PARTY. THE RIGHTS TO
INDEMNIFICATION UNDER THIS ARTICLE VII INCLUDE RIGHTS TO INDEMNIFICATION
FOR THE RESULTS OF AN INDEMNIFIED PARTY'S ACTUAL OR ALLEGED NEGLIGENCE,
IF SUCH INDEMNIFIED PARTY WOULD OTHERWISE BE ENTITLED TO
INDEMNIFICATION HEREUNDER.
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ARTICLE VIII
NONCOMPETITION COVENANTS
8.1. PROHIBITED ACTIVITIES.
(a) For no additional consideration, Elliot Pearlman will not, for
the longer of (y) five years following the Closing Date and (z) one year
following such Stockholder's voluntary termination of his employment with
the Surviving Corporation or its Affiliates or the termination of such
individual's employment with the Surviving Corporation "for cause," in
each case as determined in accordance with the Employment Agreement,
directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation or business of
whatever nature:
(i) engage, as an officer, director, employee, shareholder,
owner, partner, joint venturer, or in a managerial or
advisory capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales
representative, in any Competitive Business within 250
miles of where the Company or any of its subsidiaries
conducts business (the "TERRITORY");
(ii) call upon any person who is an employee or consultant of
PalEx or the Surviving Corporation or any of their
respective subsidiaries for the purpose or with the
intent of enticing such employee or consultant away from
or out of the employ or contract with PalEx or the
Surviving Corporation or any of their respective
subsidiaries; or
(iii) call upon any person or entity which is, at that time,
or which has been, within one year prior to that time, a
customer of the Company, PalEx or the Surviving
Corporation or any of the subsidiaries of such parties
within the Territory for the purpose of soliciting or
selling services or products in a Competitive Business
within the Territory.
(b) Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit any Stockholder from acquiring, as a passive investor
with no involvement in the operations of the business, not more than one
percent of the capital stock of a Competitive Business whose stock is
publicly traded on a national securities exchange, the Nasdaq National
Market or over-the-counter.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to PalEx and the Surviving Corporation as a result of a breach of the
foregoing covenant, because a breach of such covenant would diminish the value
of the assets and business of the Company being sold pursuant to this Agreement,
and because of the immediate and irreparable damage that could be caused to
PalEx and the Surviving Corporation for which it would have no other adequate
remedy, Elliot Pearlman agrees that the foregoing covenant may be enforced
against such individual by injunctions, restraining orders and other equitable
actions.
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8.3. REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this ARTICLE VIII are necessary in terms of time,
activity and territory to protect PalEx's and the Surviving Corporation's
interest in the assets and business being acquired pursuant to the terms of this
Agreement and impose a reasonable restraint on each Stockholder in light of the
activities and business of the Company on the date of the execution of this
Agreement and the current plans of the Company.
8.4. SEVERABILITY; REFORMATION. The covenants in this ARTICLE VIII are
severable and separate, and the unenforceability of any specific covenant shall
not affect the continuing validity and enforceability of any other covenant. In
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth in this ARTICLE VIII are unreasonable
and therefore unenforceable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable
and this Agreement shall thereby be reformed.
8.5. MATERIAL AND INDEPENDENT COVENANT. Elliot Pearlman acknowledges that
his agreements and the covenants set forth in this ARTICLE VIII are material
conditions to PalEx's and Newco's agreements to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and that PalEx
and Newco would not have entered into this Agreement without such covenants. All
of the covenants in this ARTICLE VIII shall be construed as an agreement
independent of any other provision in this Agreement.
ARTICLE IX
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
9.1. GENERAL. Each Stockholder recognizes and acknowledges that he had in
the past, currently has, and in the future will have, access to certain
confidential information relating to the business of the Company, such as lists
of customers, operational policies, and pricing and cost policies that are, and
following the Closing will be, valuable, special and unique assets of the
Surviving Corporation. Each Stockholder agrees that he will not use or disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose whatsoever, except as is required in the course of
performing his duties to the Surviving Corporation and/or PalEx, unless (a) such
information becomes known to the public generally through no fault of such
Stockholder, or (b) disclosure is required by Law, PROVIDED that prior to
disclosing any information pursuant to this clause (b) such Stockholder shall,
if possible, give prior written notice thereof to PalEx and the Surviving
Corporation and provide PalEx with the opportunity to contest such disclosure.
In the event of a breach or threatened breach by any Stockholder of the
provisions of this Section, PalEx shall be entitled to an injunction restraining
such Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting PalEx from
pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
9.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
irreparable damage that would be caused for which the Surviving Corporation
and/or PalEx would have no
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other adequate remedy, each Stockholder agrees that the foregoing covenants may
be enforced against him by injunctions, restraining orders and other equitable
actions.
ARTICLE X
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
10.1. EXECUTION OF DOCUMENTS NECESSARY FOR POOLING TREATMENT. If required,
each Stockholder and the President and Chief Financial Officer of the Company
will execute any documentation reasonably required by PalEx's independent public
accountants to enable PalEx to account for the Merger as a pooling-of-interests.
10.2. RESTRICTIONS ON RESALE. PalEx has informed each Stockholder that
PalEx intends to account for the Merger as a pooling-of-interests under Opinion
No. 16. PalEx has also informed each Stockholder that its ability to account for
the Merger as a pooling-of-interests was a material factor considered by PalEx
in its decision to enter into this Agreement. Therefore, pursuant to Opinion No.
16, prior to the publication and dissemination by PalEx of consolidated
financial results which include results of the combined operations of the
Company and PalEx for at least 30 days on a consolidated basis following the
Closing, the Stockholders shall not sell, offer to sell, or otherwise transfer
or dispose of, any shares of the PalEx Common Stock received by the
Stockholders, engage in put, call, short-sale, straddle or similar transactions,
or in any other way reduce the Stockholders' risks of owning shares of PalEx.
The certificates evidencing the PalEx Common Stock to be received by the
Stockholders will bear a legend substantially in the form set forth below:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE
RESULTS OF AT LEAST 30 DAYS OF COMBINED OPERATIONS OF THE ISSUER AND THE
COMPANY ACQUIRED BY THE ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER WILL REMOVE
THIS RESTRICTIVE LEGEND WHEN THIS REQUIREMENT HAS BEEN MET.
10.3. TAX-FREE REORGANIZATION. PalEx and the Stockholders are entering
into this Agreement with the intention that the Merger qualify as a tax-free
reorganization for federal income tax purposes, except to the extent of any
"boot" received, and neither PalEx nor the Stockholders will not take any
actions that disqualify the Merger for such treatment.
ARTICLE XI
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
11.1. COMPLIANCE WITH LAW. The Stockholders acknowledge the shares of
PalEx Common Stock issued at the Closing in accordance with the terms of this
Agreement (the "RESTRICTED SHARES") will not be
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registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The Restricted Shares are being or will be acquired by
Stockholders solely for their own accounts, for investment purposes only, and
with no present intention of distributing, selling or otherwise disposing of
them in connection with a distribution. The Stockholders covenant, warrant and
represent that none of the Restricted Shares will be, directly or indirectly,
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. Certificates
representing the Restricted Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
11.2. ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the
economic risk of an investment in the Restricted Shares and can afford to
sustain a total loss of such investment. Each Stockholder has such knowledge and
experience in financial and business matters that it or he is capable of
evaluating the merits and risks of the proposed investment and therefore has the
capacity to protect its or his own interests in connection with the acquisition
of the Restricted Shares pursuant hereto. Each Stockholder represents to PalEx
that it or he is an "accredited investor," as that term is defined in Regulation
D under the 1933 Act. Each Stockholder or its or his representatives have had an
adequate opportunity to ask questions and receive answers from the officers of
PalEx concerning, among other matters, PalEx, its management, its plans for the
operation of its business and potential additional acquisitions.
11.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as any
Stockholder holds any Restricted Shares, to use its reasonable best efforts to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to each Stockholder upon written request a written
statement by PalEx as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, a copy of the most recent annual
or quarterly report of PalEx, and such other reports and documents so
filed as such Stockholder may reasonably request in availing itself of any
rule or regulation of the SEC allowing such Stockholder to sell any such
shares without registration
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ARTICLE XII
MISCELLANEOUS
12.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, Newco, the Surviving Corporation and the Company, and the heirs and legal
representatives of the Stockholders.
12.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and PalEx and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be modified
or amended only by a written instrument executed by the Stockholders, the
Company, Newco and PalEx, acting through their respective officers, duly
authorized by their respective Boards of Directors.
12.3. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
12.4. BROKERS AND AGENTS. Except for the Stockholders' engagement of DN
Partners LLC, each party hereto represents and warrants that it employed no
broker or agent in connection with the transactions contemplated by this
Agreement. Subject to SECTION 6.3, each party agrees to indemnify each other
party against all loss, cost, damages or expense arising out of claims for fees
or commissions of brokers employed or alleged to have been employed by such
indemnifying party.
12.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx, Newco or the Surviving Corporation, addressed to
them at:
PalEx, Inc.
1360 Post Oak Blvd.
Suite 800
Houston, Texas 77056
Attn: Edward E. Rhyne
(b) If to E. Pearlman, addressed as follows:
c/o Acme Barrel Company, Inc.
2300 W. 13th Street
Chicago, Illinois 60608
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With a copy (which shall not constitute notice) to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attention: Charles H. Perlman, Esq.
(c) If to the ESOP, addressed as follows:
c/o Acme Barrel Company, Inc.
2300 W. 13th Street
Chicago, Illinois 60608
Attention: Trustee of the Acme Barrel Company
Employee Stock Ownership Plan
With a copy (which shall not constitute notice) to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attention: Charles H. Perlman, Esq.
(d) If to P. Pearlman, addressed as follows:
c/o Barack Ferrazzano Kirschbaum Perlman &
Nagelberg
333 W. Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attention: Charles H. Perlman, Esq.
or such other address as any party hereto shall specify pursuant to this SECTION
12.5 from time to time.
12.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE IV and ARTICLE V shall survive the Closing for a
period of 12 months from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 4.19 hereof shall
survive until such time as the limitations period has run for all tax periods
ended prior to the Closing Date, which shall be deemed to be the Expiration Date
for SECTION 4.19.
12.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
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12.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:______________________________
Edward E. Rhyne
Vice President and General Counsel
ACME ACQUISITION, INC.
By:__________________________________
Edward Rhyne
President
ACME BARREL COMPANY, INC.
By:__________________________________
Elliot Pearlman
President
THE ACME BARREL COMPANY EMPLOYEE
STOCK OWNERSHIP PLAN
By:__________________________________
__________________________________
Trustee
<PAGE>
THE ELLIOT PEARLMAN LIVING TRUST U/T/A DATED
AUGUST 7, 1992
By:__________________________________
__________________________________
Trustee
_____________________________________
Elliot Pearlman, Individually
THE PHILIP A. PEARLMAN LIVING TRUST U/T/A
DATED MARCH 16, 1989
By:__________________________________
__________________________________
Trustee
_____________________________________
Philip A. Pearlman, Individually
EXHIBIT 2.3
ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PALEX, INC.,
ACME BARREL COMPANY, INC.,
ESP REALTY CORP., INC.,
THE ELLIOT PEARLMAN LIVING TRUST U/T/A DATED JULY 2, 1996
AND
ELLIOT PEARLMAN
DATED AS OF FEBRUARY 23, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions........................................................1
1.2. Interpretation.....................................................4
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. The Merger.........................................................5
2.2. Effective Time of the Merger.......................................5
2.3. Articles of Incorporation, By-laws and Board of Directors of
Surviving Corporation..............................................5
ARTICLE III
CONVERSION OF SHARES
3.1. Conversion of Company Shares.......................................5
3.2. Conversion of New Acme Shares......................................6
3.3. Exchange of Certificates...........................................6
3.4. Closing............................................................6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
4.1. Due Organization and Qualification.................................6
4.2. Authorization; Non-Contravention; Approvals........................6
4.3. Capitalization.....................................................7
4.4. Pooling-of-Interests Accounting....................................7
4.5. Subsidiaries.......................................................8
4.6. [Intentionally omitted]............................................8
4.7. Liabilities and Obligations........................................8
4.8. Accounts and Notes Receivable......................................8
4.9. Assets.............................................................8
4.10. Material Customers, Contracts and Bartering Commitments...........9
4.11. Permits..........................................................10
4.12. Environmental Matters............................................10
4.13. Labor and Employee Relations.....................................10
4.14. Insurance........................................................11
4.15. Compensation; Employment Agreements..............................11
4.16. Noncompetition, Confidentiality and Nonsolicitation Agreements...11
4.17. Employee Benefit Plans...........................................11
4.18. Litigation and Compliance with Law...............................11
4.19. Taxes............................................................12
4.20. Absence of Changes...............................................12
4.21. Accounts with Banks and Brokerages; Powers of Attorney...........13
4.22. Absence of Certain Business Practices............................14
4.23. Competing Lines of Business; Related-Party Transactions..........14
4.24. Intangible Property..............................................14
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4.25. Disclosure.......................................................14
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX
5.1. Organization......................................................14
5.2. Authorization; Non-Contravention; Approvals.......................15
5.3. PalEx Common Stock................................................15
5.4. Tax Reorganization Representations................................15
5.6. Legal Compliance..................................................16
5.7. Litigation and Compliance with Law................................17
5.8. Disclosure........................................................17
ARTICLE VI
CERTAIN COVENANTS
6.1. Release From Guarantees...........................................17
6.2. Future Cooperation; Tax Matters...................................17
6.3. Expenses..........................................................17
6.4. Registration Rights Agreement.....................................18
ARTICLE VII
INDEMNIFICATION
7.1. General Indemnification by the Stockholder........................18
7.2. Indemnification by PalEx..........................................18
7.3. Third Person Claims...............................................18
7.4. Indemnification Deductible........................................19
7.5. Indemnification Limitation........................................19
7.6. Indemnification for Negligence of Indemnified Party...............20
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. General...........................................................20
8.2. Equitable Relief..................................................20
ARTICLE IX
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
9.1. Execution of Documents Necessary for Pooling Treatment............21
9.2. Restrictions on Resale............................................21
9.3. Tax-Free Reorganization...........................................21
ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. Compliance with Law..............................................22
10.2. Economic Risk; Sophistication....................................22
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10.3. Rule 144 Reporting................................................22
ARTICLE XI
MISCELLANEOUS
11.1. Successors and Assigns...........................................23
11.2. Entire Agreement.................................................23
11.3. Counterparts.....................................................23
11.4. Brokers and Agents...............................................23
11.5. Notices..........................................................23
11.6. Survival of Representations and Warranties.......................24
11.7. Exercise of Rights and Remedies..................................24
11.8. Reformation and Severability.....................................24
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ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT")
is made as of the 23rd day of February, 1998, by and among PalEx, Inc., a
Delaware corporation ("PALEX"), Acme Barrel Company, Inc., an Illinois
corporation and subsidiary of PalEx ("NEW ACME"), ESP Realty Corp., Inc., an
Illinois corporation (the "COMPANY"), Elliot Pearlman and The Elliot Pearlman
Living Trust u/t/a dated July 2, 1996 (together with Elliot Pearlman, the
"STOCKHOLDER"), with the Stockholder being the Company's sole stockholder.
WHEREAS, the respective Boards of Directors of New Acme and the Company
(collectively referred to as "CONSTITUENT CORPORATIONS") deem it advisable and
in the best interests of the Constituent Corporations and their respective
stockholders that the Company with and into New Acme (the "MERGER"); and
WHEREAS, the Boards of Directors of the Constituent Corporations have
approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"CODE"); and
WHEREAS, the stockholders of the Constituent Corporations have approved
the Merger in accordance with the Illinois Act; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"ACME ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated as of the date hereof, by and among PalEx, Acme
Acquisition, Inc., Acme Barrel Company, Inc. (immediately prior to becoming a
subsidiary of PalEx and New Acme), the former stockholders of Acme Barrel
Company, Inc., Elliot Pearlman and Philip A. Pearlman.
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"CLOSING" has the meaning set forth in SECTION 3.4.
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"CLOSING DATE" has the meaning set forth in SECTION 3.4.
"CODE" has the meaning set forth in the third paragraph of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY COMMON STOCK" has the meaning set forth in SECTION 3.1.
"CONSTITUENT CORPORATIONS" has the meaning set forth in the second
paragraph of this Agreement.
"CSC" means, collectively, Consolidated Drum Reconditioning Co., Inc. and
its Affiliates, certain assets of which were acquired by a subsidiary of PalEx
on February 12, 1998.
"EFFECTIVE TIME" has the meaning set forth in SECTION 2.2.
"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, preemptive rights,
rights of first refusal, reservations, restrictions or other encumbrances or
defects in title.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any substance, in each case as amended and as in effect on the Closing Date.
The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any substance.
"ERI" means Environmental Recyclers of Colorado Inc., a Colorado
corporation.
"ERI ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated as of the date hereof, by and among PalEx, Western
Container Acquisition, Inc., ERI and the stockholders of ERI.
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"ERISA" has the meaning set forth in SECTION 4.17.
"EXPIRATION DATE" has the meaning set forth in SECTION 11.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"HAZARDOUS SUBSTANCES" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law. The term "HAZARDOUS
SUBSTANCES" includes, without limitation, any substance to which exposure is
regulated by any Governmental Authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
"ILLINOIS ACT" means the Illinois Business Corporation Act of 1983, as
amended.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 7.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 7.3.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and costs and expenses of investigation).
"MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION 5.6.
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 4.10.
"MERGER" has the meaning set forth in the second paragraph of this
Agreement.
"MERGER FILING" has the meaning set forth in SECTION 2.2.
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"NEW ACME" has the meaning set forth in the first paragraph of this
Agreement.
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OPINION NO. 16" has the meaning set forth in SECTION 4.4.
"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX COMMON STOCK" means PalEx's Common Stock, par value $.01 per share.
"PERMITS" has the meaning set forth in SECTION 4.11.
"PERMITTED ENCUMBRANCES" means (a) Encumbrances for property or ad valorem
Taxes not yet due and payable or which are being contested in good faith and by
appropriate proceedings, and (b) obligations under operating and capital leases
described in SCHEDULE 4.10.
"PURCHASE PRICE SHARES" has the meaning set forth in SECTION 7.5.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in SECTION 6.4.
"RESTRICTED SHARES" has the meaning set forth in SECTION 10.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"SURVIVING CORPORATION" has the meaning set forth in SECTION 2.1.
"TAXES" has the meaning set forth in SECTION 4.19.
"THIRD PERSON" has the meaning set forth in SECTION 7.3.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
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(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time in accordance with the Illinois Act, the
Company shall be merged with and into New Acme (the "MERGER") and the separate
existence of the Company shall thereupon cease. New Acme shall be the surviving
corporation in the Merger (hereinafter sometimes referred to as the "SURVIVING
CORPORATION").
2.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective at
such time (the "EFFECTIVE TIME") as (a) holders of a majority of the Company
Common Stock approve the Merger, and (b) articles of merger, in form mutually
acceptable to PalEx and the Company, are filed with the Secretary of State of
the State Illinois (the "MERGER FILING"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the execution of this
Agreement and the Closing.
2.3. ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. As a result of the Merger and at the Effective Time:
(a) the Articles of Incorporation of New Acme in effect immediately
prior to the Effective Time shall become the Articles of Incorporation of
the Surviving Corporation, and thereafter may be amended in accordance
with their terms and as provided in the Illinois Act;
(b) the By-laws of New Acme in effect immediately prior to the
Effective Time shall become the By-laws of the Surviving Corporation, and
thereafter may be amended in accordance with their terms and as provided
by the Articles of Incorporation of the Surviving Corporation and the
Illinois Act; and
(c) the Board of Directors of New Acme as constituted immediately
prior to the Effective Time shall be the Board of Directors of the
Surviving Corporation.
ARTICLE III
CONVERSION OF SHARES
3.1. CONVERSION OF COMPANY 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
the Company, the issued and outstanding shares of common stock, no par value, of
the Company as of the Effective Time (the "COMPANY COMMON STOCK") shall be
converted into the right to receive, and become exchangeable for, an aggregate
of 157,869 shares of PalEx Common Stock, which shares of PalEx Common Stock
shall be exchangeable for all the Company Common Stock at the Effective Time and
issued to the Stockholder.
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3.2. CONVERSION OF NEW ACME SHARES. At the Effective Time, by virtue of
the Merger and without any action on the part of PalEx Container Systems, Inc.,
a Delaware corporation and wholly-owned subsidiary of PalEx, as the sole holder
of capital stock of New Acme, each issued and outstanding share of common stock,
par value $10.00 per share, of New Acme shall remain issued and outstanding as
one share of common stock, $10.00 par value per share, of the Surviving
Corporation.
3.3. EXCHANGE OF CERTIFICATES. At the Closing, (a) the Stockholder shall
furnish to PalEx the certificates representing its Company Common Stock, duly
endorsed in blank by the Stockholder or accompanied by duly executed blank stock
powers, and (b) PalEx shall deliver to the Stockholder certificates representing
the shares of PalEx Common Stock to be delivered to the Stockholder pursuant to
SECTION 3.1 and in accordance with SECTION 9.2. The Stockholder agrees promptly
to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to the Company Common Stock or with
respect to the stock powers accompanying the Company Common Stock.
3.4. CLOSING. The consummation of the Merger and exchange of shares
described in SECTION 3.3 hereof and the other transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of PalEx, 1360 Post
Oak Blvd., Suite 800, Houston, Texas, concurrently with the execution of this
Agreement or at such other time and date as PalEx, the Company and the
Stockholder may mutually agree, which date is herein referred to as the "CLOSING
DATE."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder represents and warrants to PalEx and New Acme as follows:
4.1. DUE ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Illinois and is duly authorized and qualified to do business under all
applicable Laws and to carry on its business in the places and in the manner as
now conducted. The Company has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its business as
such business is currently being conducted. SCHEDULE 4.1 contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
True, complete and correct copies of the Articles of Incorporation and By-laws,
each as amended, of the Company are attached hereto as SCHEDULE 4.1. Correct and
complete copies of all stock records and minute books of the Company for the
past five years have been provided to PalEx, and correct and complete copies of
all other stock records and minute books of the Company have been made available
to PalEx.
4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to effect the Merger. The Stockholder has
the full legal right, power and authority to enter into this Agreement.
The execution, delivery and performance of this Agreement have been
approved by the board of directors of the Company and by the Stockholder.
No additional corporate proceedings on the part of the Company is
necessary to authorize the execution and delivery of this Agreement and
the consummation by the Company of the transactions contemplated hereby.
This
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Agreement has been duly and validly executed and delivered by the Company
and the Stockholder, and, assuming the due authorization, execution and
delivery hereof by PalEx and New Acme, constitutes a valid and binding
agreement of the Company and the Stockholder, enforceable against the
Stockholder in accordance with its terms.
(b) The execution and delivery of this Agreement by the Company and
the Stockholder do not, and the consummation by the Company and the
Stockholder of the transactions contemplated hereby will not, violate or
result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any
of the properties or assets of the Company under any of the terms,
conditions or provisions of, (i) the Articles of Incorporation or By-laws
of the Company, (ii) any Laws applicable to the Stockholder or the Company
or any of its properties or assets, or (iii) except as set forth in
SCHEDULE 4.2, any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, lease or other instrument, obligation or
agreement of any kind to which the Stockholder or the Company is now a
party or by which the Company or any of its properties or assets may be
bound or affected.
(c) Except for the Merger Filing and as set forth in SCHEDULE 4.2,
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority or third
party is necessary for the execution and delivery of this Agreement by the
Company and the Stockholder or the consummation by the Company and the
Stockholder of the transactions contemplated hereby. Except as set forth
in SCHEDULE 4.2, none of the customer contracts providing for purchases
individually in excess of $50,000, or in the aggregate in excess of
$100,000, or other material agreements, licenses or permits to which the
Company is a party requires notice to, or the consent or approval of, any
third party for the execution and delivery of this Agreement by the
Company and the Stockholder and the consummation of the transactions
contemplated hereby.
4.3. CAPITALIZATION. The authorized capital stock of the Company consists
solely of 1,000 shares of Company Common Stock, all of which are issued and
outstanding. All of the issued and outstanding shares of Company Common Stock
are owned beneficially and of record by the Stockholder. All of the issued and
outstanding shares of the Company Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, and were offered, issued, sold
and delivered by the Company in compliance with all applicable Laws, including,
without limitation, those Laws concerning the issuance of securities. None of
such shares were issued in violation of the preemptive rights of any past or
present stockholder. At the Effective Time, by virtue of the Merger, assuming
New Acme is a wholly-owned subsidiary of PalEx, PalEx will acquire good and
marketable title in all the outstanding capital stock of the Surviving
Corporation, free and clear of all Encumbrances except for those created by
PalEx and those set forth in SCHEDULE 4.3. Except as set forth in SCHEDULE 4.3,
no subscription, option, warrant, call, convertible or exchangeable security,
other conversion right or commitment of any kind exists which obligates the
Company to issue any of its capital stock or the Stockholder to transfer any of
the Company Common Stock.
4.4. POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded and, within the past two years, there
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has not been any sale or spin-off of a significant amount of assets of the
Company or any affiliate of the Company other than in the ordinary course of
business. The Company owns no capital stock of PalEx. The Company has not
acquired any of its capital stock during the past two years. Except as set forth
in SCHEDULE 4.4, the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its capital stock or any interest
therein or to pay any dividend or make any distribution in respect thereof.
Neither the voting stock structure of the Company nor the relative ownership of
shares among any of the Company's stockholders has been altered or changed
within the last two years in contemplation of the Merger. None of the shares of
Company Common Stock was issued pursuant to awards, grants or bonuses, and there
has been no transaction or action taken with respect to the equity ownership of
the Company in contemplation of the Merger that would prevent PalEx from
accounting for the Merger under the pooling-of-interests method of accounting in
accordance with Opinion No. 16 of the Accounting Principles Board ("OPINION NO.
16").
4.5. SUBSIDIARIES. Except as set forth in SCHEDULE 4.5, the Company does
not own, of record or beneficially, or control, directly or indirectly, any
capital stock, securities convertible into or exchangeable for capital stock or
any other equity interest in any corporation, association or other business
entity. Except as set forth in SCHEDULE 4.5, the Company is not, directly or
indirectly, a participant in any joint venture, limited liability company,
partnership or other noncorporate entity.
4.6. [INTENTIONALLY OMITTED].
4.7. LIABILITIES AND OBLIGATIONS. Except (a) as set forth in SCHEDULE 4.7,
(b) obligations as a landlord under its leases with New Acme, and (c) Permitted
Encumbrances , the Company does not have any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature.
4.8. ACCOUNTS AND NOTES RECEIVABLE. The Company has no accounts or notes
receivable other than rent receivables with respect to rental payments owed by
New Acme.
4.9. ASSETS.
(a) SCHEDULE 4.9 sets forth an accurate list of all real and
personal property owned or leased by the Company, including in each case
true, complete and correct copies of leases for significant equipment and
for all real property leased by the Company and descriptions of all real
property on which buildings, warehouses, workshops, garages and other
structures used in the operation of the business of the Company are
situated. SCHEDULE 4.9 indicates which assets used in the operation of the
business of the Company are currently owned by the Stockholder or
Affiliates of the Company or the Stockholder. Except as specifically
identified in SCHEDULE 4.9, to the knowledge of the Company after due
inquiry, all of the tangible assets, vehicles and other significant
machinery and equipment of the Company listed in SCHEDULE 4.9 are in good
working order and condition, ordinary wear and tear excepted, and have
been maintained in accordance with standard industry practices. All fixed
assets used by the Company in its business are either owned by the Company
or leased under agreements identified in SCHEDULE 4.9. All leases set
forth in SCHEDULE 4.9 are in full force and effect and constitute valid
and binding agreements of the Company, and to the knowledge of the
Company, the other parties thereto in accordance with their respective
terms. SCHEDULE 4.9 contains true, complete and correct copies of all
title reports and title insurance policies
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received or owned by the Company. SCHEDULE 4.9 also includes a summary
description of all plans or projects involving the opening of new
operations, expansion of existing operations or the acquisition of any
real property or existing business, to which management of the Company has
devoted any significant effort or expenditure in the two-year period prior
to the date of the Agreement, which if pursued by the Company would
require additional expenditures of capital.
(b) The Company has good and indefeasible title to the tangible and
intangible personal property and the real property owned and used in its
business, including the properties identified in SCHEDULE 4.9, free and
clear of all Encumbrances other than Permitted Encumbrances and those set
forth in SCHEDULE 4.9.
(c) The tangible and intangible assets of the Company include all
the assets used in the operation of the business of the Company as
conducted at April 30, 1997.
(d) Except as set forth in this SECTION 4.9 and in the other
representations and warranties in this Agreement, the Company and the
Stockholder are making no representations or warranties as to the
condition of the assets of the Company, including, without limitation, any
implied warranties or any representation or warranty as to merchantability
or fitness for any particular purpose and, subject to the representations
set forth in this Agreement, such assets are being purchased "as is,"
"where is" and with all faults.
4.10. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
(a) SCHEDULE 4.10 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's revenues (the "MATERIAL
CUSTOMERS"), and (ii) all material executory contracts, commitments and
similar agreements to which the Company is currently a party or by which
it or any of its properties is bound, including, but not limited to, (A)
all customer contracts in excess of $10,000, individually, or $25,000 in
the aggregate, including, without limitation, consignment contracts, (B)
contracts with any labor organizations, (C) leases providing for annual
rental payments in excess of $5,000, individually, or $10,000 in the
aggregate, (D) loan agreements, (E) pledge and security agreements, (F)
indemnity or guaranty agreements or obligations , (G) bonds, (H) notes,
(I) mortgages, (J) joint venture or partnership agreements, (K) options to
purchase real or personal property, and (L) agreements relating to the
purchase or sale by the Company of assets (other than oral agreements
relating to sales of inventory or services in the ordinary course of
business, consistent with past practices) or securities for more than
$5,000, individually, or $10,000 in the aggregate. Prior to the date
hereof, the Company has made available to PalEx complete and correct
copies of all such agreements.
(b) Except to the extent set forth in SCHEDULE 4.10, (i) no Material
Customer has canceled or substantially reduced or, to the knowledge of the
Company, threatened to cancel or substantially reduce its purchases of the
Company's products or services, and (ii) the Company is in compliance with
all material commitments and obligations pertaining to it under such
agreements and is not in default under any the agreements described in
SUBSECTION (A), no notice of default has been received by the Company, and
the Stockholder and the Company are aware of no basis therefor.
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(c) The Company is not a party to any governmental contracts subject
to price redetermination or renegotiation. The Company is not required to
provide any bonding or other financial security arrangements in any
material amount in connection with any transactions with any of its
customers or suppliers.
(d) SCHEDULE 4.10 sets forth a summary of the material terms of all
oral and written bartering arrangements to which the Company is a party.
The Company has a sufficient supply of uncommitted inventory to fulfill
its bartering obligations with third parties.
4.11. PERMITS. SCHEDULE 4.11 contains an accurate list of all material
licenses, franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company, including, without
limitation, permits, licenses and operating authorizations, titles (including
motor vehicle titles and current registrations), fuel permits, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company (the "PERMITS"). The Permits are valid,
and the Company has not received any written notice that any Governmental
Authority intends to cancel, terminate or not renew any such license, operating
authorization, franchise, permit or other governmental authorization. The
Permits are all the permits that are required by Law for the operation of the
business of the Company and the ownership of the assets of the Company. The
Company has conducted and is conduct ing its business in substantial compliance
with the requirements, standards, criteria and conditions set forth in the
Permits, as well as the applicable orders, approvals and variances related
thereto, and is not in violation of any of the foregoing. Except as specifically
provided in SCHEDULE 4.11, the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any Permits.
4.12. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 4.12, (a) the
Company has complied with and is in compliance with all Environmental Laws,
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Substances; (b) the Company has obtained and complied with
all necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Substances and has reported, to the
extent required by all Environmental Laws, all past and present sites owned or
operated by the Company where Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (c) there have been no "releases" or threats
of "releases" (as defined in any Environmental Laws) at, from, in or on any
property owned or operated by the Company; (d) there is no on-site or off-site
location to which the Company has transported or disposed of Hazardous
Substances or arranged for the transportation or disposal Hazardous Substances
which is the subject of any federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Surviving
Corporation or PalEx for any clean-up cost, remedial work, damage to natural
resources or personal injury, including, but not limited to, any claim under (i)
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (ii) the Resource Conservation and Recovery Act, (iii) the
Hazardous Materials Transportation Act, or (iv) comparable state and local
statutes and regulations; and (e) the Company has no contingent liability in
connection with any release or disposal of any Hazardous Substance into the
environment.
4.13. LABOR AND EMPLOYEE RELATIONS. Except as set forth in SCHEDULE 4.13,
the Company is not bound by or subject to any arrangement with any labor union.
Except as set forth in SCHEDULE 4.13, no employees of the Company are
represented by any labor union or covered by any collective bargaining
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agreement nor, to the Company's or the Stockholder's knowledge, is any campaign
to establish such representation in progress. There is no pending or, to the
Company's or the Stockholder's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any
significant labor interruptions over the past five years. Neither the Company
nor any Stockholder has any knowledge of any significant issues or problems in
connection with the relationship of the Company with its employees.
4.14. INSURANCE. SCHEDULE 4.14 sets forth an accurate list as of the date
hereof of all insurance policies carried by the Company and of all insurance
loss runs or workmen's compensation claims received for the past five policy
years. Except as set forth in SCHEDULE 4.14, none of such policies is a "claims
made" policy. To the Company's knowledge, after due inquiry, the insurance
policies set forth in SCHEDULE 4.14 provide adequate coverage against the risks
involved in the Company's business. Such policies are currently in full force
and effect.
4.15. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 4.15 sets forth an
accurate schedule of all officers, directors and employees of the Company,
listing the rate of compensation (and the portions thereof attributable to
salary, bonus, benefits and other compensation, respectively) of each such
person as of the date hereof. Attached to SCHEDULE 4.15 are true, complete and
correct copies of each employment or consulting agreement with any employee of
the Company or the Stockholder.
4.16. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 4.16 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company is bound or under which the Company has any rights or obligations.
4.17. EMPLOYEE BENEFIT PLANS.
(a) The Company has no current or future obligation or liability to
any present or former employee of the Company, or to such present or
former employee's dependents or beneficiaries, nor any current or future
right to benefits under "EMPLOYEE BENEFIT PLAN," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Company does not sponsor, maintain or contribute currently,
and has not sponsored, maintained or contributed at any time during the
preceding five years, to any plan, program, fund or arrangement that
constitutes an employee pension benefit plan. For purposes of this
Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall have the meaning
given that term in Section 3(2) of ERISA.
(b) The Company has not incurred any liability for excise tax or
penalty due to the Internal Revenue Service.
(c) The Company has not made any promises of retirement or other
benefits to employees. The Company does not maintain nor has it
established or ever participated in a multiple employer welfare benefit
arrangement as described in Section 3(40)(A) of ERISA.
4.18. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
4.18, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company and Stockholder, threatened against or affecting the
Company, at law or in equity, or before or by any Governmental
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Authority having jurisdiction over the Company. No written notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
the Company and, to the Stockholder's and the Company's knowledge, there is no
basis therefor. Except to the extent set forth in SCHEDULE 4.18, the Company has
conducted and is conducting its business in compliance with all Laws applicable
to the Company, its assets or the operation of its business.
4.19. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. The Company has timely filed all
requisite federal, state, local and other tax returns for all fiscal periods
ended on or before the Closing, and has duly paid in full all Taxes for all
periods ending at or prior to the Closing Date. The Company has duly withheld
and paid or remitted all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other person or entity that required withholding under
any applicable Law, including, without limitation, any amounts required to be
withheld or collected with respect to social security, unemployment
compensation, sales or use taxes or workers' compensation. Except as set forth
in SCHEDULE 4.19, there are no examinations in progress or claims against the
Company relating to Taxes for any period or periods prior to and including the
date hereof and no written notice of any claim for Taxes, whether pending or
threatened, has been received. The Company has not granted or been requested to
grant any extension of the limitation period applicable to any claim for Taxes
or assessments with respect to Taxes. The Company is not a party to any Tax
allocation or sharing agreement and is not otherwise liable or obligated to
indemnify any person or entity with respect to any Taxes. True and complete
copies of (a) any tax examinations, (b) extensions of statutory limitations and
(c) the federal, state and local Tax returns of the Company for the last three
fiscal years have been previously provided to PalEx. There are no requests for
ruling in respect of any Tax pending between the Company and any Taxing
authority. The Company currently utilizes the accrual method of accounting for
income tax purposes. Such method of accounting has not changed in the past five
years.
4.20. ABSENCE OF CHANGES. Except as set forth in SCHEDULE 4.20, the
Company has conducted its operations in the ordinary course and there has not
been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results or prospects of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company, individually or in the aggregate;
(c) any change in the authorized capital stock of the Company or in
its outstanding securities or any change in the Stockholder's ownership
interest in the Company or any grant of any options, warrants, calls,
conversion rights or commitments;
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(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation payable or to become payable by
the Company to the Stockholder or any of its officers, directors,
employees, consultants or agents, except for ordinary and customary
bonuses and salary increases for employees in accordance with past
practice, which bonuses and salary increases are set forth in SCHEDULE
4.20;
(f) any significant work interruptions, labor grievances or claims
filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, the Stockholder and its Affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company;
(i) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business, consistent with past
practices or incurred in connection with the transactions contemplated by
this Agreement;
(j) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(l) any waiver of any material rights or claims of the Company;
(m) any material breach, amendment or termination of any material
contract, agreement, Permit or other right to which the Company is a party
or any of its property is subject; or
(n) any other material transaction by the Company outside the
ordinary course of business.
4.21. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. SCHEDULE
4.21 sets forth an accurate schedule, as of the date of this Agreement, of (a)
the name of each financial institution or brokerage firm in which the Company
has accounts or safe deposit boxes; (b) the names in which the accounts or boxes
are held; (c) the type of account and the cash, cash equivalents and securities
held in such account as of the second business day prior to the Closing, none of
which assets have been withdrawn from such accounts since such date except for
bona fide business purposes in the ordinary course of the business of the
Company; and (d) the name of each person authorized to draw thereon or have
access thereto. SCHEDULE 4.21
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also sets forth the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms thereof.
4.22. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
of its Affiliates has given or offered to give anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any similar Law.
4.23. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 4.23, neither the Stockholder nor any other Affiliate of
the Company owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of or otherwise receives remuneration from, any
business which is a competitor, lessor, lessee, customer or supplier of the
Company. Except as set forth in SCHEDULE 4.23, no officer or director of the
Company nor the Stockholder has nor, during the period beginning January 1, 1996
through the date hereof, had any interest in any property, real or personal,
tangible or intangible, used in or pertaining to the business of the Company.
4.24. INTANGIBLE PROPERTY. SCHEDULE 4.24 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, technology,
licenses, trade names, copyrights and other intellectual property or proprietary
property rights owned or used by the Company. The Company owns or possesses, and
the assets of the Company include, sufficient legal rights to use all of such
items without conflict with or infringement of the rights of others.
4.25. DISCLOSURE. The Stockholder and the Company have provided PalEx or
its representatives all the information that PalEx has requested in analyzing
whether to consummate the Merger and the other transactions contemplated by this
Agreement. None of the information so provided nor any representation or
warranty of the Company or the Stockholder to PalEx or New Acme in this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX
PalEx represents and warrants to the Stockholder as follows:
5.1. ORGANIZATION. PalEx is a corporation duly organized, validly existing
and in good standing under the Laws of the State of Delaware, and is duly
authorized and qualified under all applicable Laws to carry on its business in
the places and in the manner now conducted. PalEx has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as such business is currently being conducted. Correct and complete
copies of PalEx's minute books have been made available to the Company.
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5.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) PalEx has the full legal right, power and authority to enter
into this Agreement and the Registration Rights Agreement and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement have been approved by the board of directors of PalEx. No
additional corporate proceedings on the part of PalEx are necessary to
authorize the execution and delivery of this Agreement or the Registration
Rights Agreement and the consummation by PalEx of the transactions
contemplated hereby. This Agreement and the Registration Rights Agreement
have been duly and validly executed and delivered by PalEx, and, assuming
the due authorization, execution and delivery by the Company and the
Stockholder, constitutes valid and binding agreements of PalEx,
enforceable against PalEx in accordance with its terms.
(b) The execution and delivery of this Agreement and the
Registration Rights Agreement by PalEx do not, and the consummation by
PalEx of the transactions contemplated hereby will not, violate or result
in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under any
of the terms, conditions or provisions of (i) the Certificate of
Incorporation or By-Laws of PalEx, (ii) any Law applicable to either PalEx
or any of its properties or assets or (iii) any material note, bond,
mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement
of any kind to which PalEx is now a party or by which PalEx or any of its
properties or assets may be bound or affected.
(c) Except for the Merger Filing and such filings as may be required
under federal or state securities Laws, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement or the Registration Rights Agreement by PalEx or the
consummation by PalEx of the transactions contemplated hereby or thereby.
5.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued to
the Stockholder pursuant to the Merger are duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable. The issuance of PalEx Common Stock pursuant to the Merger
will transfer to the Stockholder valid title to such shares of PalEx Common
Stock, free and clear of all Encumbrances, except for any Encumbrances created
by the Stockholder.
5.4. TAX REORGANIZATION REPRESENTATIONS.
(a) Prior to the Merger, PalEx will be in control of New Acme within
the meaning of Section 368(c) of the Code.
(b) PalEx has no plan or intention to cause the Surviving
Corporation to issue additional shares of its stock that would result in
PalEx losing control of the Surviving Corporation within the meaning of
Section 368(c) of the Code.
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(c) PalEx has no plan or intention to reacquire any of its stock
issued in the Merger.
(d) PalEx has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation except for transfers of stock to another corporation
controlled by PalEx; or to cause the Surviving Corporation to sell or
otherwise dispose of any of its assets, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by PalEx.
(e) Following the Closing, PalEx's intention is that the Surviving
Corporation will continue the historic business of the Company or use a
significant portion of the historic business assets of the Company in a
business, all as required to satisfy the "continuity of business
enterprise" requirement under Section 368 of the Code.
(f) PalEx does not own, nor has it owned during the past five years,
any shares of the stock of the Company.
(g) Each of PalEx and the Surviving Corporation is undertaking the
Merger for a bona fide business purpose and not merely for the avoidance
of federal income tax.
(h) PalEx is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
5.5. SEC FILINGS; DISCLOSURE. PalEx has filed with the Securities and
Exchange Commission ("SEC") all material forms, statements, reports and
documents required to be filed by it prior to the date hereof under each of the
Securities Act of 1933, as amended (the "1933 ACT"), the Securities Exchange Act
of 1934, as amended (the "1934 ACT"), and the respective rules and regulations
thereunder, (a) all of which, as amended, if applicable, complied when filed in
all material respects with all applicable requirements of the appropriate Act
and the rules and regulations thereunder, and (b) none of which, as amended, if
applicable, contains any untrue statement of material fact or, except for
disclosure of the acquisition of the assets, and assumption of the liabilities,
of CSC and its Affiliates, omits to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
5.6. LEGAL COMPLIANCE. PalEx is not (a) in violation of its charter or
by-laws, (b) in default in any material respect, and no event has occurred that,
with notice or lapse of time or both, would constitute a material default under
any in material agreement to which PalEx is party or by which its assets are
subject, or (c) in, or, as to CSC, to the actual knowledge of PalEx in,
violation, in any material respect, of any material Law to which either PalEx or
their properties or assets may be subject, in each case, except to the extent
that such violation or default would not reasonably be expected have a material
adverse effect on the business, operations, properties, condition (financial or
otherwise), assets, liabilities (contingent or otherwise), or results of
operations of PalEx and its subsidiaries, taken as a whole (a "MATERIAL ADVERSE
EFFECT").
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5.7. LITIGATION AND COMPLIANCE WITH LAW. There are no claims, actions,
suits or proceedings, pending or, to the knowledge of PalEx, threatened against
PalEx, at law or in equity, before or by any Governmental Authority having
jurisdiction over PalEx that, if adversely determined against PalEx would
reasonably be expected to have a Material Adverse Effect. PalEx has conducted
and is conducting its business, and to the actual knowledge of PalEx, CSC is
conducting its business, in compliance with all applicable Laws, except to the
extent noncompliance with such Laws would not reasonably be expected to have a
Material Adverse Effect.
5.8. DISCLOSURE. PalEx has fully provided the Stockholder or its
representatives with all the information that the Stockholder has requested in
analyzing whether to consummate the Merger. None of the information so provided
nor any representation or warranty of PalEx contained in this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE VI
CERTAIN COVENANTS
6.1. RELEASE FROM GUARANTEES. PalEx shall use its commercially reasonable
best efforts to have the Stockholder released from the personal guarantees of
the Company indebtedness identified in SCHEDULE 6.1. PalEx hereby agrees to
indemnify the Stockholder and hold the Stockholder harmless for any amounts that
the Stockholder is required to pay in connection with the enforcement of any
obligations under such personal guarantees after the Closing, including without
limitation any reasonable attorneys' fees and expenses incurred in connection
therewith.
6.2. FUTURE COOPERATION; TAX MATTERS. The Stockholder and PalEx shall each
deliver or cause to be delivered to the other following the Closing such
additional instruments as the other may reasonably request for the purpose of
fully carrying out this Agreement. The Stockholder will cooperate and use its
commercially reasonable best efforts to have the present officers, directors and
employees of the Company cooperate with PalEx, New Acme and the Surviving
Corporation at and after the Closing in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing. The Stockholder will cooperate with the Surviving
Corporation in the preparation of all tax returns covering the period from the
beginning of the Company's current tax year through the Closing. In addition,
PalEx will provide the Stockholder with access to such of its books and records
as may be reasonably requested by the Stockholder in connection with federal,
state and local tax matters relating to periods prior to the Closing. The party
requesting cooperation, information or actions under this SECTION 6.2 shall
reimburse the other party for all reasonable out-of-pocket costs and expenses
paid or incurred in connection therewith, which costs and expenses shall not,
HOWEVER, include per diem charges for employees or allocations of overhead
charges.
6.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto. The Stockholder will pay its fees, expenses and
disbursements and those of its and the Company's agents, representatives,
financial advisors,
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accountants and counsel incurred in connection with the execution, delivery and
performance of this Agreement and any amendments hereto and the consummation of
the transactions contemplated hereby; PROVIDED, HOWEVER, that the Surviving
Corporation will pay such fees, expenses and disbursements up to, but not in
excess of, an amount equal to (a) $1,000,000 less (b) any fees, expenses and
disbursements of Western Container Limited Liability Company, a Wyoming limited
liability company, Acme Barrel Company, Inc. (prior to becoming a subsidiary of
PalEx) or ERI paid by PalEx, the Surviving Corporation or any Affiliate of PalEx
or the Surviving Corporation, or for which any such party is liable.
6.4. REGISTRATION RIGHTS AGREEMENT. Concurrently with the execution of
this Agreement, PalEx and the Stockholder shall enter into a mutually acceptable
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT".
ARTICLE VII
INDEMNIFICATION
The Stockholder, PalEx and New Acme each make the following covenants:
7.1. GENERAL INDEMNIFICATION BY THE STOCKHOLDER. Subject to SECTIONS 7.4
and 7.5, the Stockholder covenants and agrees that it will indemnify, defend,
protect and hold harmless PalEx, New Acme and the Surviving Corporation, and
their respective officers, directors, employees, stockholders, agents,
representatives and Affiliates, at all times from and after the date of this
Agreement until the Expiration Date from and against all Losses incurred by any
of such indemnified persons as a result of or arising from (a) any breach of the
representations and warranties of the Stockholder set forth herein or in the
Schedules or certificates delivered in connection herewith, (b) any breach or
nonfulfillment of any covenant or agreement on the part of the Stockholder or
the Company under this Agreement, and (c) all income Taxes payable by the
Company for all periods prior to and including the Closing Date.
7.2. INDEMNIFICATION BY PALEX. PalEx covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholder and its agents,
representatives, Affiliates , beneficiaries and heirs and employees at all times
from and after the date of this Agreement until the Expiration Date from and
against all Losses incurred by any of such indemnified persons as a result of or
arising from (a) any breach of the representations and warranties of PalEx set
forth herein or in the Schedules or certificates attached hereto, and (b) any
breach or nonfulfillment of any covenant or agreement on the part of PalEx under
this Agreement.
7.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), of the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
SECTION 7.1, or 7.2 hereof (hereinafter the "INDEMNIFYING PARTY") written notice
of such claim or the commencement of such action or proceeding. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith.
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If the Indemnifying Party undertakes to defend or settle, it shall promptly
notify the Indemnified Party of its intention to do so, and the Indemnified
Party shall cooperate with the Indemnifying Party and its counsel in all
commercially reasonable respects in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; PROVIDED, HOWEVER, that the Indemnified Party shall
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof. The Indemnifying Party
shall not settle any such Third Person claim without the consent of the
Indemnified Party, unless the settlement thereof imposes no liability or
obligation on, and includes a complete release from liability of, the
Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement if such settlement does not provide for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, in its discretion, and the Indemnifying Party
shall reimburse the Indemnified Party for the amount paid in such settlement and
any other liabilities or expenses incurred by the Indemnified Party in
connection therewith.
7.4. INDEMNIFICATION DEDUCTIBLE. Neither the Stockholder, on the one hand,
nor PalEx, New Acme and the Surviving Corporation, on the other hand, shall be
entitled to indemnification from the other under the provisions of SECTION
7.1(A) or SECTION 7.2(A), as the case may be, until such time as, and only to
the extent that, the claims subject to indemnification by such other party
exceed, in the aggregate, $20,000. Notwithstanding the foregoing, the
limitations set forth in this SECTION 7.4 shall not apply to fraudulent
misrepresentations.
7.5. INDEMNIFICATION LIMITATION.
(a) Subject to SECTIONS 7.4, the aggregate indemnification
obligation of the Stockholder under SECTION 7.1(A) shall be limited to 50%
of (a) the value of any shares of PalEx Common Stock that (i) were
received by the Stockholder in (A) the Merger and/or (B) the merger of
Acme Barrel Company, Inc. into a subsidiary of PalEx on the date hereof,
and/or (C) the merger of ERI into a subsidiary of PalEx on the date hereof
(subject, in each case, to appropriate adjustments in the event of any
stock dividend on, or split-up or other recapitalization of, the PalEx
Common Stock) and (ii) have not been sold by the Stockholder in a bona
fide arms'-length transaction to a third party that is not an Affiliate of
the Stockholder (collectively, the "PURCHASE PRICE SHARES"), plus (b) the
gross proceeds from the sale of Purchase Price Shares in bona fide
arms'-length transactions to a third
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party that is not an Affiliate of the Stockholder, less (c) the amount of
any Losses (as such term is defined in the Acme Acquisition Agreement and
the ERI Acquisition Agreement, respectively) paid by the Stockholder as an
indemnifying party under the ERI Acquisition Agreement or the Acme
Acquisition Agreement. Indemnification claims under this ARTICLE VII shall
be settled first from the sale or recovery of Purchase Price Shares, to
the extent thereof, and thereafter, from the gross proceeds from prior
bona fide arms'-length sales of Purchase Price Shares to third parties
that are not Affiliates of the Stockholder.
(b) For purposes of this SECTION 7.5, the value of Purchase Price
Shares shall be the average closing price per share of PalEx Common Stock
for the 10 trading days ending on the second trading day before the date a
Loss becomes payable by the Stockholder (either by agreement or pursuant
to a judgment or binding determination by an arbitrator) in accordance
with this ARTICLE VII, as reported on The Nasdaq Stock Market or such
other national securities exchange on which the PalEx Common Stock is
principally traded. Notwithstanding the foregoing, the limitations set
forth in this SECTION 7.5 shall not apply to fraudulent
misrepresentations.
7.6. INDEMNIFICATION FOR NEGLIGENCE OF INDEMNIFIED PARTY. THE RIGHTS TO
INDEMNIFICATION UNDER THIS ARTICLE VII INCLUDE RIGHTS TO INDEMNIFICATION
FOR THE RESULTS OF AN INDEMNIFIED PARTY'S ACTUAL OR ALLEGED NEGLIGENCE,
IF SUCH INDEMNIFIED PARTY WOULD OTHERWISE BE ENTITLED TO
INDEMNIFICATION HEREUNDER.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. GENERAL. The Stockholder recognizes and acknowledges that it had in
the past, currently has, and in the future will have, access to certain
confidential information relating to the business of the Company, such as lists
of customers, operational policies, and pricing and cost policies that are, and
following the Closing will be, valuable, special and unique assets of the
Surviving Corporation. The Stockholder agrees that it will not use or disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose whatsoever, except as is required in the course of
performing his duties to the Surviving Corporation and/or PalEx, unless (a) such
information becomes known to the public generally through no fault of the
Stockholder, or (b) disclosure is required by Law, PROVIDED that prior to
disclosing any information pursuant to this clause (b) the Stockholder shall, if
possible, give prior written notice thereof to PalEx and the Surviving
Corporation and provide PalEx with the opportunity to contest such disclosure.
In the event of a breach or threatened breach by the Stockholder of the
provisions of this Section, PalEx shall be entitled to an injunction restraining
such the Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting PalEx from
pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
20
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irreparable damage that would be caused for which the Surviving Corporation
and/or PalEx would have no other adequate remedy, the Stockholder agrees that
the foregoing covenants may be enforced against him by injunctions, restraining
orders and other equitable actions.
ARTICLE IX
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
9.1. EXECUTION OF DOCUMENTS NECESSARY FOR POOLING TREATMENT. If required,
the Stockholder and the President and Chief Financial Officer of the Company
will execute any documentation reasonably required by PalEx's independent public
accountants to enable PalEx to account for the Merger as a pooling-of-interests.
9.2. RESTRICTIONS ON RESALE. PalEx has informed the Stockholder that PalEx
intends to account for the Merger as a pooling-of-interests under Opinion No.
16. PalEx has also informed the Stockholder that its ability to account for the
Merger as a pooling-of-interests was a material factor considered by PalEx in
its decision to enter into this Agreement. Therefore, pursuant to Opinion No.
16, prior to the publication and dissemination by PalEx of consolidated
financial results which include results of the combined operations of the
Company and PalEx for at least 30 days on a consolidated basis following the
Closing, the Stockholder shall not sell, offer to sell, or otherwise transfer or
dispose of, any shares of the PalEx Common Stock received by the Stockholder,
engage in put, call, short-sale, straddle or similar transactions, or in any
other way reduce the Stockholder's risks of owning shares of PalEx. The
certificates evidencing the PalEx Common Stock to be received by the Stockholder
will bear a legend substantially in the form set forth below:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE
RESULTS OF AT LEAST 30 DAYS OF COMBINED OPERATIONS OF THE ISSUER AND THE
COMPANY ACQUIRED BY THE ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER WILL REMOVE
THIS RESTRICTIVE LEGEND WHEN THIS REQUIREMENT HAS BEEN MET.
9.3. TAX-FREE REORGANIZATION. PalEx and the Stockholder are entering into
this Agreement with the intention that the Merger qualify as a tax-free
reorganization for federal income tax purposes, except to the extent of any
"boot" received, and neither PalEx nor the Stockholder will not take any actions
that disqualify the Merger for such treatment.
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ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. COMPLIANCE WITH LAW. The Stockholder acknowledges the shares of
PalEx Common Stock issued at the Closing in accordance with the terms of this
Agreement (the "RESTRICTED SHARES") will not be registered under the 1933 Act
and therefore may not be resold without compliance with the 1933 Act. The
Restricted Shares are being or will be acquired by Stockholder solely for its
own accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of them in connection with a
distribution. The Stockholder covenants, warrants and represents that none of
the Restricted Shares will be, directly or indirectly, offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC. Certificates representing the Restricted Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
10.2. ECONOMIC RISK; SOPHISTICATION. The Stockholder is able to bear the
economic risk of an investment in the Restricted Shares and can afford to
sustain a total loss of such investment. The Stockholder has such knowledge and
experience in financial and business matters that it or he is capable of
evaluating the merits and risks of the proposed investment and therefore has the
capacity to protect its or his own interests in connection with the acquisition
of the Restricted Shares pursuant hereto. The Stockholder represents to PalEx
that it or he is an "accredited investor," as that term is defined in Regulation
D under the 1933 Act. The Stockholder or its or his representatives have had an
adequate opportunity to ask questions and receive answers from the officers of
PalEx concerning, among other matters, PalEx, its management, its plans for the
operation of its business and potential additional acquisitions.
10.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as the
Stockholder holds any Restricted Shares, to use its reasonable best efforts to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to the Stockholder upon written request a written
statement by PalEx as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, a copy of
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the most recent annual or quarterly report of PalEx, and such other
reports and documents so filed as the Stockholder may reasonably request
in availing itself of any rule or regulation of the SEC allowing the
Stockholder to sell any such shares without registration
ARTICLE XI
MISCELLANEOUS
11.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, the Surviving Corporation and the Company, and the heirs and legal
representatives of the Stockholder.
11.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholder, the
Company, New Acme and PalEx and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be modified
or amended only by a written instrument executed by the Stockholder, the
Surviving Corporation and PalEx, acting through their respective officers, duly
authorized by their respective Boards of Directors.
11.3. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11.4. BROKERS AND AGENTS. Except for the Stockholder's engagement of DN
Partners LLC in connection with the Acme Acquisition Agreement, each party
hereto represents and warrants that it employed no broker or agent in connection
with the transactions contemplated by this Agreement. Subject to SECTION 6.3,
each party agrees to indemnify each other party against all loss, cost, damages
or expense arising out of claims for fees or commissions of brokers employed or
alleged to have been employed by such indemnifying party.
11.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx, New Acme or the Surviving Corporation, addressed to
them at:
PalEx, Inc.
1360 Post Oak Blvd.
Suite 800
Houston, Texas 77056
Attn: Edward E. Rhyne
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(b) If to the Stockholder, addressed as follows:
c/o Acme Barrel Company, Inc.
2300 W. 13th Street
Chicago, Illinois 60608
With a copy (which shall not constitute notice) to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attention: Charles H. Perlman, Esq.
or such other address as any party hereto shall specify pursuant to this SECTION
11.5 from time to time.
11.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE IV and ARTICLE V shall survive the Closing for a
period of 12 months from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 4.19 hereof shall
survive until such time as the limitations period has run for all tax periods
ended prior to the Closing Date, which shall be deemed to be the Expiration Date
for SECTION 4.19.
11.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
11.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:_____________________________________
Edward E. Rhyne
Vice President and General Counsel
ACME BARREL COMPANY, INC.
By:_____________________________________
Edward Rhyne
Vice President
ESP REALTY CORP., INC.
By:_____________________________________
Elliot Pearlman
President
THE ELLIOT PEARLMAN LIVING TRUST U/T/A DATED
JULY 2, 1996
By:_____________________________________
_____________________________________
Trustee
________________________________________
Elliot Pearlman, Individually
25
EXHIBIT 2.4
ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PALEX, INC.,
WESTERN CONTAINER ACQUISITION, INC.,
ENVIRONMENTAL RECYCLERS OF COLORADO, INC.,
MICHAEL BANK,
LARRY BURNS,
FRANK EBERTSCH,
HAROLD E. FRONK,
RICHARD HANSEN,
MARK HANSEN,
ELLIOT PEARLMAN,
JORDAN PEARLMAN,
CHARLES H. PERLMAN,
KURT RICHARDSON,
AND
MARK B. SPITZ
DATED AS OF FEBRUARY 23, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions........................................................2
1.2. Interpretation.....................................................5
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. The Merger.........................................................6
2.2. Effective Time of the Merger.......................................6
2.3. Articles of Incorporation, By-laws and Board of Directors
of Surviving Corporation...........................................6
ARTICLE III
CONVERSION OF SHARES
3.1. Conversion of Company Shares.......................................7
3.2. Conversion of Newco Shares.........................................7
3.3. Exchange of Certificates...........................................7
3.4. Closing............................................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
4.1. Due Organization and Qualification.................................8
4.2. Authorization; Non-Contravention; Approvals........................8
4.3. Capitalization.....................................................9
4.4. Pooling-of-Interests Accounting....................................9
4.5. Subsidiaries......................................................10
4.6. Financial Statements..............................................10
4.7. Liabilities and Obligations.......................................10
4.8. Accounts and Notes Receivable.....................................10
4.9. Assets............................................................11
4.10. Material Customers, Contracts and Bartering Commitments..........12
4.11. Permits..........................................................12
4.12. Environmental Matters............................................13
4.13. Labor and Employee Relations.....................................13
4.14. Insurance........................................................14
4.15. Compensation; Employment Agreements..............................14
4.16. Noncompetition, Confidentiality and Nonsolicitation Agreements...14
4.17. Employee Benefit Plans...........................................14
4.18. Litigation and Compliance with Law...............................16
4.19. Taxes............................................................16
4.20. Absence of Changes...............................................17
4.21. Accounts with Banks and Brokerages; Powers of Attorney...........18
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4.22. Absence of Certain Business Practices............................18
4.23. Competing Lines of Business; Related-Party Transactions..........18
4.24. Intangible Property..............................................19
4.25. Disclosure.......................................................19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
5.1. Organization......................................................19
5.2. Authorization; Non-Contravention; Approvals.......................19
5.3. PalEx Common Stock................................................20
5.4. Tax Reorganization Representations................................20
5.6. Legal Compliance..................................................21
5.7. Litigation and Compliance with Law................................21
5.8. Disclosure........................................................21
ARTICLE VI
CERTAIN COVENANTS
6.1. Release From Guarantees...........................................22
6.2. Future Cooperation; Tax Matters...................................22
6.3. Expenses..........................................................22
6.4. Registration Rights Agreement.....................................23
6.5. Repayment of Related Party Indebtedness...........................23
ARTICLE VII
INDEMNIFICATION
7.1. General Indemnification by the Stockholders.......................23
7.2. Indemnification by PalEx..........................................23
7.3. Third Person Claims...............................................23
7.4. Indemnification Deductible........................................24
7.5. Indemnification Limitation........................................24
7.6. Indemnification for Negligence of Indemnified Party...............25
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. General...........................................................25
8.2. Equitable Relief..................................................25
ARTICLE IX
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
9.1. Execution of Documents Necessary for Pooling Treatment............26
9.2. Restrictions on Resale............................................26
9.3. Tax-Free Reorganization...........................................26
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ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. Compliance with Law..............................................26
10.2. Economic Risk; Sophistication....................................27
10.3. Rule 144 Reporting...............................................27
ARTICLE XI
MISCELLANEOUS
11.1. Successors and Assigns...........................................28
11.2. Entire Agreement.................................................28
11.3. Counterparts.....................................................28
11.4. Brokers and Agents...............................................28
11.5. Notices..........................................................28
11.6. Survival of Representations and Warranties.......................29
11.7. Exercise of Rights and Remedies..................................29
11.8. Reformation and Severability.....................................29
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ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT")
is made as of the 23rd day of February, 1998, by and among PalEx, Inc., a
Delaware corporation ("PALEX"), Western Container Acquisition, Inc., a Delaware
corporation that is a subsidiary of PalEx ("NEWCO"), Environmental Recyclers of
Colorado Inc., a Colorado corporation (the "COMPANY"), and Michael Bank, Larry
Burns, Frank Ebertsch, Harold E. Fronk, Richard Hansen, Mark Hansen, Elliot
Pearlman, Jordan Pearlman, Charles H. Perlman, Kurt Richardson, and Mark B.
Spitz (such individuals being herein collectively referred to as the
"STOCKHOLDERS"), with the Stockholders being the Company's only stockholders.
WHEREAS, the respective Boards of Directors of Newco and the Company
(collectively referred to as "CONSTITUENT CORPORATIONS") deem it advisable and
in the best interests of the Constituent Corporations and their respective
stockholders that Newco merge with and into the Company (the "MERGER"); and
WHEREAS, contemporaneous with the consummation of the Merger, PalEx
subsidiaries have acquired all the outstanding capital stock of Acme, which owns
a 17% ownership interest in Western, and ESP; and
WHEREAS, immediately prior to the Closing, Newco acquired Bart Kaminsky's
33% ownership interest in Western pursuant to the terms of the Western
Acquisition Agreement; and
WHEREAS, the Company owns a 50% ownership interest in Western; and
WHEREAS, the Boards of Directors of the Constituent Corporations have
approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"CODE"); and
WHEREAS, the stockholders of the Constituent Corporations have approved
the Merger in accordance with the GCL and the Colorado Act; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
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ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"ACME" means Acme Barrel Company, Inc., an Illinois corporation.
"ACME ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated the date hereof, among PalEx, Acme Acquisition, Inc., Acme
(immediately prior to becoming a subsidiary of PalEx), the stockholders of Acme,
Elliot Pearlman and Philip A. Pearlman.
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"BALANCE SHEET DATE" means December 31, 1997.
"CLOSING" has the meaning set forth in SECTION 3.4.
"CLOSING DATE" has the meaning set forth in SECTION 3.4.
"CODE" has the meaning set forth in the third paragraph of this Agreement.
"COLORADO ACT" means the Colorado Business Corporation Act.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY COMMON STOCK" has the meaning set forth in SECTION 3.1.
"COMPETITIVE BUSINESS" means any business that competes with the Company,
including, without limitation, any business that (a) reconditions, recycles,
repairs, markets, distributes, brokers, manages or transports drums or barrels
and other logistics services with respect thereto; or (b) competes with the
Company for raw materials (E.G., open top and closed top drums); PROVIDED,
HOWEVER, that such term shall not include the businesses of manufacturing,
reconditioning, recycling and repairing, and marketing, distributing, brokering,
leasing, managing and transporting, plastic drums, plastic barrels, plastic
pails and plastic intermediate bulk containers.
"CONSTITUENT CORPORATIONS" has the meaning set forth in the second
paragraph of this Agreement.
"CSC" means, collectively, Consolidated Drum Reconditioning Co., Inc. and
its Affiliates, certain assets of which were acquired by a subsidiary of PalEx
on February 12, 1998.
"EFFECTIVE TIME" has the meaning set forth in SECTION 2.2.
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"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, preemptive rights,
rights of first refusal, reservations, restrictions or other encumbrances or
defects in title.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any substance, in each case as amended and as in effect on the Closing Date.
The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any substance.
"ERISA" has the meaning set forth in SECTION 4.17.
"ERISA AFFILIATE" has the meaning set forth in SECTION 4.17.
"ESP" means ESP Realty Corp., Inc., an Illinois corporation that is an
Affiliate of Elliot Pearlman and owns real property used in the business of
Acme.
"ESP ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated as of the date hereof, by and among PalEx, Acme
(immediately after the transactions contemplated by the Acme Acquisition
Agreement), ESP and the stockholder of ESP.
"EXPIRATION DATE" has the meaning set forth in SECTION 11.6.
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
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"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"GCL" means General Corporation Law of the State of Delaware, as amended.
"HAZARDOUS SUBSTANCES" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law. The term "HAZARDOUS
SUBSTANCES" includes, without limitation, any substance to which exposure is
regulated by any Governmental Authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 7.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 7.3.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and costs and expenses of investigation).
"MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION 5.6.
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 4.10.
"MERGER" has the meaning set forth in the second paragraph of this
Agreement.
"MERGER FILINGS" has the meaning set forth in SECTION 2.2.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OPINION NO. 16" has the meaning set forth in SECTION 4.4.
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"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX COMMON STOCK" means PalEx's Common Stock, par value $.01 per share.
"PERMITS" has the meaning set forth in SECTION 4.11.
"PERMITTED ENCUMBRANCES" means (a) any Encumbrances reserved against in
the Financial Statements as of December 31, 1997, (b) Encumbrances for property
or ad valorem Taxes not yet due and payable or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the Company's books in accordance with GAAP, and (c)
obligations under operating and capital leases described in SCHEDULE 4.10.
"PLAN" has the meaning set forth in SECTION 4.17.
"PURCHASE PRICE SHARES" has the meaning set forth in SECTION 7.5.
"QUALIFIED PLANS" has the meaning set forth in SECTION 4.17.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in SECTION 6.4.
"RESTRICTED SHARES" has the meaning set forth in SECTION 10.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"SURVIVING CORPORATION" has the meaning set forth in SECTION 2.1.
"TAXES" has the meaning set forth in SECTION 4.19.
"THIRD PERSON" has the meaning set forth in SECTION 7.3.
"WESTERN" means Western Container Limited Liability Company, a Wyoming
limited liability company.
"WESTERN ACQUISITION AGREEMENT" means the Acquisition Agreement dated as
of the date hereof, among PalEx, Newco and Bart Kaminsky.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
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(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time in accordance with the Colorado Act and the
GCL, Newco shall be merged with and into the Company (the "MERGER") and the
separate existence of Newco shall thereupon cease. The Company shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as the
"SURVIVING CORPORATION").
2.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective at
such time (the "EFFECTIVE TIME") as (a) holders of a majority of the Company
Common Stock approve the Merger, and (b) a certificate of merger and articles of
merger, in forms mutually acceptable to PalEx and the Company, are filed with
the Secretaries of State of the States of Delaware and Colorado, respectively
(the "MERGER FILINGS"). The Merger Filings shall be made simultaneously with or
as soon as practicable after the execution of this Agreement and the Closing.
2.3. ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. As a result of the Merger and at the Effective Time:
(a) the Articles of Incorporation of the Company in effect
immediately prior to the Effective Time shall become the Articles of
Incorporation of the Surviving Corporation, and thereafter may be amended
in accordance with their terms and as provided in the Colorado Act;
(b) the By-laws of the Company in effect immediately prior to the
Effective Time shall become the By-laws of the Surviving Corporation, and
thereafter may be amended in accordance with their terms and as provided
by the Articles of Incorporation of the Surviving Corporation and the
Colorado Act; and
(c) the Board of Directors of Newco as constituted immediately prior
to the Effective Time shall be the Board of Directors of the Surviving
Corporation.
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ARTICLE III
CONVERSION OF SHARES
3.1. CONVERSION OF COMPANY SHARES; CASH PAYMENT TO DISSENTER.
(a) At the Effective Time, by virtue of the Merger, and without any
action on the part of any holder of any capital stock of the Company, the
issued and outstanding shares of common stock, no par value, of the
Company as of the Effective Time (the "COMPANY COMMON STOCK"), other than
the 400 shares of Company Common Stock held by Harold E. Fronk, shall be
converted into the right to receive, and become exchangeable for, an
aggregate of 139,225 shares of PalEx Common Stock, which shares of PalEx
Common Stock shall be exchangeable for all the Company Common Stock at the
Effective Time and issued to the Stockholders as set forth on SCHEDULE
3.1.
(b) The parties hereto acknowledge that Harold E. Fronk is
dissenting from the Merger in accordance with the Colorado Act, and at the
Effective Time his shares of Company Common Stock shall be converted into
the right to receive, and become exchangeable for, $271,276 in cash, which
amount shall be paid to Harold E. Fronk at the Closing by check or wire
transfer upon receipt of his certificate representing Company Common
Stock, duly endorsed in blank by such Stockholder or accompanied by duly
executed blank stock powers.
3.2. CONVERSION OF NEWCO SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of PalEx Container Systems, Inc., a
Delaware corporation and wholly-owned subsidiary of PalEx, as the sole holder of
capital stock of Newco, each issued and outstanding share of common stock, par
value $.01 per share, of Newco shall be converted into one share of common
stock, no par value per share, of the Surviving Corporation.
3.3. EXCHANGE OF CERTIFICATES. At the Closing, (a) each Stockholder shall
furnish to PalEx the certificates representing its Company Common Stock, duly
endorsed in blank by such Stockholder or accompanied by duly executed blank
stock powers, and (b) PalEx shall deliver to each Stockholder certificates
representing the shares of PalEx Common Stock to be delivered to such
Stockholder pursuant to SECTION 3.1 and in accordance with SECTION 9.2. Each
Stockholder agrees promptly to cure any deficiencies with respect to the
endorsement of the certificates or other documents of conveyance with respect to
the Company Common Stock or with respect to the stock powers accompanying the
Company Common Stock.
3.4. CLOSING. The consummation of the Merger and exchange of shares
described in SECTION 3.3 hereof and the other transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of PalEx, 1360 Post
Oak Blvd., Suite 800, Houston, Texas, concurrently with the execution of this
Agreement or at such other time and date as PalEx, the Company and the
Stockholders may mutually agree, which date is herein referred to as the
"CLOSING DATE."
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders jointly and severally represent and warrant to PalEx as
follows:
4.1. DUE ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Colorado, and Western is a limited liability company duly organized, validly
existing and in good standing under the Laws of the State of Wyoming. Each of
the Company and Western is duly authorized and qualified to do business under
all applicable Laws and to carry on its business in the places and in the manner
as now conducted. Each of the Company and Western has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as such business is currently being conducted. SCHEDULE 4.1
contains a list of all jurisdictions in which each of the Company and Western is
authorized or qualified to do business. True, complete and correct copies of the
Articles of Incorporation and By-laws, each as amended, of the Company and the
organizational and charter documents of Western are attached hereto as SCHEDULE
4.1. Correct and complete copies of all stock records and minute books of the
Company and the limited liability records of Western for the past five years
have been provided to PalEx, and correct and complete copies of all other stock
records and minute books of the Company and member books and records of Western
have been made available to PalEx.
4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to effect the Merger. Each Stockholder has
the full legal right, power and authority to enter into this Agreement.
The execution, delivery and performance of this Agreement have been
approved by the board of directors of the Company and by the Stockholders
as required by the Colorado Act. No additional corporate proceedings on
the part of the Company is necessary to authorize the execution and
delivery of this Agreement and the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and the Stockholders, and, assuming
the due authorization, execution and delivery hereof by PalEx and Newco,
constitutes a valid and binding agreement of the Company and each
Stockholder, enforceable against the each of them in accordance with its
terms.
(b) The execution and delivery of this Agreement by the Company and
the Stockholders do not, and the consummation by the Company and the
Stockholders of the transactions contemplated hereby will not, violate or
result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any
of the properties or assets of the Company under any of the terms,
conditions or provisions of, (i) the Articles of Incorporation or By-laws
of the Company or the organizational and charter documents of Western,
(ii) any Laws applicable to the Stockholders, the Company or Western or
any of its properties or assets, or (iii) except as set forth in SCHEDULE
4.2, any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, lease or other instrument, obligation or
agreement of any kind
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to which any Stockholder, the Company or Western is now a party or by
which the Company or Western or any of their respective properties or
assets may be bound or affected.
(c) Except for the Merger Filings and as set forth in SCHEDULE 4.2,
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority or third
party is necessary for the execution and delivery of this Agreement by the
Company and the Stockholders or the consummation by the Company and the
Stockholders of the transactions contemplated hereby. Except as set forth
in SCHEDULE 4.2, none of the customer contracts providing for purchases
individually in excess of $50,000, or in the aggregate in excess of
$100,000, or other material agreements, licenses or permits to which the
Company or Western is a party requires notice to, or the consent or
approval of, any third party for the execution and delivery of this
Agreement by the Company and the Stockholders and the consummation of the
transactions contemplated hereby.
4.3. CAPITALIZATION. The authorized capital stock of the Company consists
solely of 9,000 shares of Company Common Stock, 3,000 of which are issued and
outstanding. The Company owns, of record and beneficially, a 50% equity interest
in Western, free and clear of all Encumbrances except for those created by PalEx
and those set forth in SCHEDULE 4.3. All of the issued and outstanding shares of
Company Common Stock are owned beneficially and of record by the Stockholders as
set forth in SCHEDULE 4.3. All of the issued and outstanding shares of the
Company Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, and were offered, issued, sold and delivered by the
Company in compliance with all applicable Laws, including, without limitation,
those Laws concerning the issuance of securities. None of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
At the Effective Time, by virtue of the Merger, assuming Newco is a wholly-owned
subsidiary of PalEx, PalEx will acquire good and marketable title in all the
outstanding capital stock of the Surviving Corporation, free and clear of all
Encumbrances except for those created by PalEx and those set forth in SCHEDULE
4.3. Except as set forth in SCHEDULE 4.3, no subscription, option, warrant,
call, convertible or exchangeable security, other conversion right or commitment
of any kind exists which obligates the Company to issue any of its capital
stock, the Stockholders to transfer any of the Company Common Stock, or the
Company to transfer any of it ownership interest in Western.
4.4. POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded and, within the past two years, there has not been any sale
or spin-off of a significant amount of assets of the Company or any Affiliate of
the Company other than in the ordinary course of business. The Company owns no
capital stock of PalEx. The Company has not acquired any of its capital stock
during the past two years. Except as set forth in SCHEDULE 4.4, the Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its capital stock or any interest therein or to pay any dividend or make
any distribution in respect thereof. Neither the voting stock structure of the
Company nor the relative ownership of shares among any of the Company's
stockholders has been altered or changed within the last two years in
contemplation of the Merger. None of the shares of Company Common Stock was
issued pursuant to awards, grants or bonuses, and there has been no transaction
or action taken with respect to the equity ownership of the Company in
contemplation of the Merger that would prevent PalEx from accounting for the
Merger under the pooling-of-interests method of accounting in accordance with
Opinion No. 16 of the Accounting Principles Board ("OPINION NO. 16").
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4.5. SUBSIDIARIES. Except as set forth in SCHEDULE 4.5, neither the
Company nor Western owns, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into or exchangeable for
capital stock or any other equity interest in any corporation, association or
other business entity. Except as set forth in SCHEDULE 4.5, neither the Company
nor Western is, directly or indirectly, a participant in any joint venture,
limited liability company, partnership or other noncorporate entity.
4.6. FINANCIAL STATEMENTS.
(a) The Company has delivered to PalEx complete and correct copies
of the following financial statements the unaudited balance sheets of
Western as of December 31, 1995, 1996 and 1997 and the related audited
statements of operations, stockholders' equity and cash flows for the
three-year period ended December 31, 1997, together with the related notes
and schedules (such balance sheets, the related statements of operations,
stockholders' equity and cash flows and the related notes and schedules
are referred to herein as the "FINANCIAL STATEMENTS"). The Financial
Statements are attached as SCHEDULE 4.6 to this Agreement.
(b) Except as set forth in SCHEDULE 4.6, the Financial Statements
have been prepared from the books and records of Western in conformity
with GAAP and present fairly the financial position and results of
operations of Western as of the dates of such statements and for the
periods covered thereby. The books of account of Western have been kept
accurately in all material respects in the ordinary course of business,
the transactions entered therein represent bona fide transactions, and the
revenues, expenses, assets and liabilities of Western have been properly
recorded therein in all material respects.
4.7. LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 4.7, as
of the Balance Sheet Date, neither the Company nor Western has, nor has it
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except (a) liabilities,
obligations or contingencies (i) that are accrued or reserved against in the
Financial Statements or reflected in the notes thereto or (ii) that were
incurred after the Balance Sheet Date and were incurred in the ordinary course
of business and consistent with past practices, and (b) liabilities and
obligations that are of a nature not required to be reflected in the Financial
Statements prepared in accordance with GAAP and that were incurred in the normal
course of business and are described in SCHEDULE 4.7. SCHEDULE 4.7 contains a
reasonable estimate by the Stockholders of the maximum amount which may be
payable with respect to liabilities of the Company and Western that are not
fixed. For each such liability for which the amount is not fixed or is
contested, the Company and Western has provided a summary description of the
liability together with copies of all relevant documentation relating thereto.
SCHEDULE 4.7 sets forth the Company's and Western's outstanding principal amount
of indebtedness for borrowed money (including overdrafts) as of the date hereof.
4.8. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 4.8 sets forth an accurate
list of the accounts and notes receivable of the Company and Western as of the
Balance Sheet Date and of those generated between the Balance Sheet Date and the
second business day preceding the Closing Date, including any such amounts which
are not reflected in the Financial Statements as of the Balance Sheet Date.
Receivables from and advances to employees of the Company and Western, the
Stockholders and any entities or persons related
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to or Affiliates of the Stockholders are separately identified in SCHEDULE 4.8.
SCHEDULE 4.8 also sets forth an accurate aging of all accounts and notes
receivable of the Company and Western as of the Balance Sheet Date, showing
amounts due in 30-day aging categories. The trade and other accounts receivable
of the Company and Western, including without limitation those classified as
current assets on the Financial Statements as of the Balance Sheet Date, are
bona fide receivables, were acquired in the ordinary course of business, and are
stated in accordance with GAAP.
4.9. ASSETS.
(a) SCHEDULE 4.9 sets forth an accurate list of all real and
personal property included in "property and equipment" on the Financial
Statements as of the Balance Sheet Date and all other tangible assets of
the Company and Western with a book value in excess of $10,000 (i) owned
by the Company or Western as of the Balance Sheet Date or (ii) acquired
since the Balance Sheet Date, including in each case true, complete and
correct copies of leases for significant equipment and for all real
property leased by the Company or Western and descriptions of all real
property on which buildings, warehouses, workshops, garages and other
structures used in the operation of the business of the Company or Western
are situated. SCHEDULE 4.9 indicates which assets used in the operation of
the business of the Company or Western are currently owned by the
Stockholders or Affiliates of the Company or the Stockholders. Except as
specifically identified in SCHEDULE 4.9, to the knowledge of the Company
and Western after due inquiry, all of the tangible assets, vehicles and
other significant machinery and equipment of the Company and Western
listed in SCHEDULE 4.9 are in good working order and condition, ordinary
wear and tear excepted, and have been maintained in accordance with
standard industry practices. All fixed assets used by the Company or
Western in its business are either owned by the Company or Western, as the
case may be, or leased under agreements identified in SCHEDULE 4.9. All
leases set forth in SCHEDULE 4.9 are in full force and effect and
constitute valid and binding agreements of the Company or Western, as the
case may be, and to the knowledge of the Company and Western, the other
parties thereto in accordance with their respective terms. SCHEDULE 4.9
contains true, complete and correct copies of all title reports and title
insurance policies received or owned by the Company or Western. SCHEDULE
4.9 also includes a summary description of all plans or projects involving
the opening of new operations, expansion of existing operations or the
acquisition of any real property or existing business, to which management
of the Company or Western has devoted any significant effort or
expenditure in the two-year period prior to the date of the Agreement,
which if pursued by the Company or Western would require additional
expenditures of capital.
(b) Each of the Company and Western has good and indefeasible title
to the tangible and intangible personal property and the real property
owned and used in its business, including the properties identified in
SCHEDULE 4.9, free and clear of all Encumbrances other than Permitted
Encumbrances and those set forth in SCHEDULE 4.9.
(c) The tangible and intangible assets of each of the Company and
Western include all the assets used in the operation of the business of
the Company and Western, respectively, as conducted at the Balance Sheet
Date, except for dispositions of such assets since such date in the
ordinary course of business, consistent with past practices.
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(d) Except as set forth in this SECTION 4.9 and in the other
representations and warranties in this Agreement, the Stockholders are
making no representations or warranties as to the condition of the assets
of the Company or Western, including, without limitation, any implied
warranties or any representation or warranty as to merchantability or
fitness for any particular purpose and, subject to the representations set
forth in this Agreement, such assets are being purchased "as is," "where
is" and with all faults.
4.10. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
(a) SCHEDULE 4.10 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's or Western's revenues for the
fiscal year ended on the Balance Sheet Date (the "MATERIAL CUSTOMERS"),
and (ii) all material executory contracts, commitments and similar
agreements to which the Company or Western is currently a party or by
which it or any of its properties is bound, including, but not limited to,
(A) all customer contracts in excess of $10,000, individually, or $25,000
in the aggregate, including, without limitation, consignment contracts,
(B) contracts with any labor organizations, (C) leases providing for
annual rental payments in excess of $5,000, individually, or $10,000 in
the aggregate, (D) loan agreements, (E) pledge and security agreements,
(F) indemnity or guaranty agreements or obligations , (G) bonds, (H)
notes, (I) mortgages, (J) joint venture or partnership agreements, (K)
options to purchase real or personal property, and (L) agreements relating
to the purchase or sale by the Company or Western of assets (other than
oral agreements relating to sales of inventory or services in the ordinary
course of business, consistent with past practices) or securities for more
than $5,000, individually, or $10,000 in the aggregate. Prior to the date
hereof, the Company and Western have made available to PalEx complete and
correct copies of all such agreements.
(b) Except to the extent set forth in SCHEDULE 4.10, (i) no Material
Customer has canceled or substantially reduced or, to the knowledge of the
Company or Western, threatened to cancel or substantially reduce its
purchases of the Company's or Western's products or services, and (ii)
each of the Company and Western is in compliance with all material
commitments and obligations pertaining to it under such agreements and is
not in default under any the agreements described in SUBSECTION (A), no
notice of default has been received by either the Company or Western, and
the Stockholders, the Company and Western are aware of no basis therefor.
(c) Neither the Company nor Western is a party to any governmental
contracts subject to price redetermination or renegotiation. Neither the
Company nor Western is required to provide any bonding or other financial
security arrangements in any material amount in connection with any
transactions with any of its customers or suppliers.
(d) SCHEDULE 4.10 sets forth a summary of the material terms of all
oral and written bartering arrangements to which the Company or Western is
a party. Each of the Company and Western has a sufficient supply of
uncommitted inventory to fulfill its bartering obligations with third
parties.
4.11. PERMITS. SCHEDULE 4.11 contains an accurate list of all material
licenses, franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company
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or Western, including, without limitation, permits, licenses and operating
authorizations, titles (including motor vehicle titles and current
registrations), fuel permits, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the Company or
Western (the "PERMITS"). The Permits are valid, and neither the Company nor
Western has received any written notice that any Governmental Authority intends
to cancel, terminate or not renew any such license, operating authorization,
franchise, permit or other governmental authorization. The Permits are all the
permits that are required by Law for the operation of the business of the
Company and Western as conducted at the Balance Sheet Date and the ownership of
the assets of the Company and Western. The Company and Western have conducted
and are conducting their respective businesses in substantial compliance with
the requirements, standards, criteria and conditions set forth in the Permits,
as well as the applicable orders, approvals and variances related thereto, and
is not in violation of any of the foregoing. Except as specifically provided in
SCHEDULE 4.11, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company or Western by, any Permits.
4.12. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 4.12, (a)
each of the Company and Western has complied with and is in compliance with all
Environmental Laws, including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Substances; (b) each of the Company and
Western has obtained and complied with all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Hazardous
Substances and has reported, to the extent required by all Environmental Laws,
all past and present sites owned or operated by the Company or Western where
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (c) there have been no "releases" or threats of "releases" (as defined
in any Environmental Laws) at, from, in or on any property owned or operated by
the Company or Western; (d) there is no on-site or off-site location to which
the Company or Western has transported or disposed of Hazardous Substances or
arranged for the transportation or disposal Hazardous Substances which is the
subject of any federal, state, local or foreign enforcement action or any other
investigation which could lead to any claim against the Surviving Corporation,
PalEx or Newco for any clean-up cost, remedial work, damage to natural resources
or personal injury, including, but not limited to, any claim under (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (ii) the Resource Conservation and Recovery Act, (iii) the Hazardous
Materials Transportation Act, or (iv) comparable state and local statutes and
regulations; and (e) neither the Company nor Western has any contingent
liability in connection with any release or disposal of any Hazardous Substance
into the environment.
4.13. LABOR AND EMPLOYEE RELATIONS. Except as set forth in SCHEDULE 4.13,
neither the Company nor Western is bound by or subject to any arrangement with
any labor union. Except as set forth in SCHEDULE 4.13, no employees of the
Company or Western are represented by any labor union or covered by any
collective bargaining agreement nor, to the Company's, Western's or the
Stockholders' knowledge, is any campaign to establish such representation in
progress. There is no pending or, to the Company's, Western's or the
Stockholders' knowledge, threatened labor dispute involving the Company, Western
or any group of its employees, nor has the Company or Western experienced any
significant labor interruptions over the past five years. Neither the Company,
Western nor any Stockholder has any knowledge of any significant issues or
problems in connection with the relationship of the Company or Western with its
employees.
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4.14. INSURANCE. SCHEDULE 4.14 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company and Western
and of all insurance loss runs or workmen's compensation claims received for the
past five policy years. Except as set forth in SCHEDULE 4.14, none of such
policies is a "claims made" policy. To the Company's and Western's knowledge,
after due inquiry, the insurance policies set forth in SCHEDULE 4.14 provide
adequate coverage against the risks involved in the Company's and Western's
businesses. Such policies are currently in full force and effect.
4.15. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 4.15 sets forth an
accurate schedule of all officers, directors and employees of the Company and
Western with annual salaries of $70,000 or more, listing the rate of
compensation (and the portions thereof attributable to salary, bonus, benefits
and other compensation, respectively) of each of such persons as of (a) the
Balance Sheet Date and (b) the date hereof. Attached to SCHEDULE 4.15 are true,
complete and correct copies of each employment or consulting agreement with any
employee of the Company, Western or any Stockholder.
4.16. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 4.16 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company or Western is bound or under which the Company or Western has any rights
or obligations.
4.17. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.17 sets forth an accurate schedule of each "EMPLOYEE
BENEFIT PLAN," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all nonqualified
deferred compensation arrangements, whether formal or informal and whether
legally binding or not, under which the Company, Western or an ERISA
Affiliate has any current or future obligation or liability or under which
any present or former employee of the Company, Western or an ERISA
Affiliate, or such present or former employee's dependents or
beneficiaries, has any current or future right to benefits (each such plan
and arrangement referred to hereinafter as a "PLAN"), together with true
and complete copies of such Plans, arrangements and any trusts related
thereto, and classifications of employees covered thereby as of December
31, 1997. Except as set forth on SCHEDULE 4.17, neither the Company,
Western nor any ERISA Affiliate sponsors, maintains or contributes
currently, or at any time during the preceding five years, to any plan,
program, fund or arrangement that constitutes an employee pension benefit
plan. Each Plan may be terminated by the Company, Western, or if
applicable, by an ERISA Affiliate at any time without any liability, cost
or expense, other than costs and expenses that are reasonable and
customary in connection with the termination of a Plan. For purposes of
this Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall have the
meaning given that term in Section 3(2) of ERISA, and the term "ERISA
AFFILIATE" means any corporation or trade or business under common control
with the Company or Western as determined under Section 414(b), (c), (m)
or (o) of the Code.
(b) Each Plan listed on SCHEDULE 4.17 is in compliance in all
material respects with the applicable provisions of ERISA, the Code, and
any other applicable Law. With respect to each Plan of the Company,
Western and each ERISA Affiliate (other than a "MULTIEMPLOYER PLAN," as
defined in Section 4001(a)(3) of ERISA), all reports and other documents
required under ERISA or other applicable Law to be filed with any
Governmental Authority, the failure of which to file could
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reasonably be expected to result in a material liability to the Company,
Western or any ERISA Affiliate, or required to be distributed to
participants or beneficiaries, have been duly filed or distributed. True
and complete copies of all such reports and other documents with respect
to the past five years for each Plan have been provided to PalEx. No
"ACCUMULATED FUNDING DEFICIENCY" (as defined in Section 412(a) of the
Code) with respect to any Plan has been incurred (without regard to any
waiver granted under Section 412 of the Code), nor has any funding waiver
from the Internal Revenue Service been received or requested. Each Plan
that is intended to be "QUALIFIED" within the meaning of Section 401(a) of
the Code (a "QUALIFIED PLAN") is, and has been during the period from its
adoption to the date hereof, so qualified, both as to form and operation
and all necessary approvals of Governmental Authorities, including a
favorable determination as to the qualification under the Code of each of
such Qualified Plans and each amendment thereto, have been timely
obtained. Except as set forth in SCHEDULE 4.17, all accrued contribution
obligations of the Company and Western with respect to any Plan have
either been fulfilled in their entirety or are fully reflected in the
Financial Statements.
(c) No Plan has incurred, and neither the Company, Western nor any
ERISA Affiliate has incurred, any liability for excise tax or penalty due
to the Internal Revenue Service. There have been no terminations, partial
terminations or discontinuances of contributions to any Qualified Plan
during the preceding five years without notice to and approval by the
Internal Revenue Service and payment of all obligations and liabilities
attributable to such Qualified Plan.
(d) Neither the Company, Western nor any ERISA Affiliate has made
any promises of retirement or other benefits to employees, except as set
forth in the Plans, and neither the Company, Western nor any ERISA
Affiliate maintains or has established any Plan that is a "WELFARE BENEFIT
PLAN" within the meaning of Section 3(1) of ERISA that provides for
continuing benefits or coverage for any participant or any beneficiary of
a participant after such participant's termination of employment, except
as may be required by Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code, and at the expense of the participant or the
beneficiary of the participant, or retiree medical liabilities. Neither
the Company, Western nor any ERISA Affiliate maintains, has established or
has ever participated in a multiple employer welfare benefit arrangement
as described in Section 3(40)(A) of ERISA. Except as set forth in SCHEDULE
4.17, neither the Company, Western, nor any ERISA Affiliate has any
current or future obligation or liability with respect to a Plan pursuant
to the provisions of a collective bargaining agreement.
(e) Neither the Company, Western nor any ERISA Affiliate has
incurred any material liability to the Pension Benefit Guaranty
Corporation in connection with any Plan. The assets of each Plan that is
subject to Title IV of ERISA are sufficient to provide the benefits under
such Plan, the payment of which the Pension Benefit Guaranty Corporation
would guarantee if such Plan were terminated, and such assets are also
sufficient to provide all other "BENEFITS LIABILITIES" (as defined in
ERISA Section 4001(a)(16)) due under such Plan upon termination.
(f) No "REPORTABLE EVENT" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any Plan. There are no pending,
or to the Company's or Western's knowledge, threatened claims, lawsuits or
actions (other than routine claims for benefits in the ordinary course)
asserted or instituted against, and neither the Company, Western nor any
ERISA
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Affiliate has knowledge of any threatened litigation or claims against,
the assets of any Plan or its related trust or against any fiduciary of a
Plan with respect to the operation of such Plan. To the Company's and
Western's knowledge, there are no investigations or audits of any Plan by
any Governmental Authority currently pending and there have been no such
investigations or audits that have been concluded that resulted in any
liability to the Company, Western or any ERISA Affiliate that has not been
fully discharged. Neither the Company, Western nor any ERISA Affiliate has
participated in any voluntary compliance or closing agreement programs
established with respect to the form or operation of a Plan.
(g) Neither the Company, Western nor any ERISA Affiliate has engaged
in any prohibited transaction, within the meaning of Section 406 of ERISA
or Section 4975 of the Code, in connection with any Plan. Except as set
forth in SCHEDULE 4.17, neither the Company, Western nor any ERISA
Affiliate is, or ever has been, a participant in or is obligated to make
any payment to a multiemployer plan. In the last two years, no person or
entity that was engaged by the Company, Western or an ERISA Affiliate as
an independent contractor can or will be characterized or deemed to be an
employee of the Company, Western or an ERISA Affiliate under applicable
Laws for any purpose whatsoever, including, without limitation, for
purposes of federal, state and local income taxation, workers'
compensation and unemployment insurance and Plan eligibility.
4.18. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
4.18, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company, Western and the Stockholders, threatened against or
affecting the Company or Western, at law or in equity, or before or by any
Governmental Authority having jurisdiction over the Company or Western. No
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company or Western and, to the
Stockholders', the Company's and Western's knowledge, there is no basis
therefor. Except to the extent set forth in SCHEDULE 4.18, each of the Company
and Western has conducted and is conducting its business in compliance with all
Laws applicable to the Company and Western, and its respective assets or the
operation of its business.
4.19. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. Each of the Company and Western has
timely filed all requisite federal, state, local and other tax returns for all
fiscal periods ended on or before the Closing, and has duly paid in full or made
adequate provision in the Financial Statements for the payment of all Taxes for
all periods ending at or prior to the Closing Date. Each of the Company and
Western has duly withheld and paid or remitted all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other person or entity that
required withholding under any applicable Law, including, without limitation,
any amounts required to be withheld or collected with respect to social
security, unemployment compensation, sales or use taxes or workers'
compensation. Except as set forth in SCHEDULE 4.19, there are no examinations in
progress or claims against the Company or Western relating to
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Taxes for any period or periods prior to and including the Balance Sheet Date
and no written notice of any claim for Taxes, whether pending or threatened, has
been received. Neither the Company nor Western has granted or been requested to
grant any extension of the limitation period applicable to any claim for Taxes
or assessments with respect to Taxes. Neither the Company nor Western is a party
to any Tax allocation or sharing agreement and is not otherwise liable or
obligated to indemnify any person or entity with respect to any Taxes. The
amounts shown as accruals for Taxes on the Financial Statements as of the
Balance Sheet Date are sufficient for the payment of all Taxes for all fiscal
periods ended on or before that date. True and complete copies of (a) any tax
examinations, (b) extensions of statutory limitations and (c) the federal, state
and local Tax returns of the Company and Western for the last three fiscal years
have been previously provided to PalEx. There are no requests for ruling in
respect of any Tax pending between either the Company or Western and any Taxing
authority. Each of the Company and Western currently utilizes the accrual method
of accounting for income tax purposes. Such method of accounting has not changed
in the past five years.
4.20. ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth in SCHEDULE 4.20, each the Company and Western has conducted its
operations in the ordinary course and there has not been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results or prospects of the Company or Western;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company or Western, individually or in the aggregate;
(c) any change in the authorized capital stock of the Company or
ownership interests of Western or in its outstanding securities or any
change in the Stockholders' ownership interests in the Company or Western
or any grant of any options, warrants, calls, conversion rights or
commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or ownership interests or any direct or
indirect redemption, purchase or other acquisition of any of the capital
stock of the Company or ownership interest in Western;
(e) any increase in the compensation payable or to become payable by
the Company or Western to the Stockholders or any of its officers,
directors, employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in accordance with
past practice, which bonuses and salary increases are set forth in
SCHEDULE 4.20;
(f) any significant work interruptions, labor grievances or claims
filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company or Western to any
person, including, without limitation, the Stockholders and their
Affiliates;
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(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company or Western;
(i) any increase in the Company's or Western's indebtedness, other
than accounts payable incurred in the ordinary course of business,
consistent with past practices or incurred in connection with the
transactions contemplated by this Agreement;
(j) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or Western or requiring consent of any party to
the transfer and assignment of any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's or Western's business;
(l) any waiver of any material rights or claims of the Company or
Western;
(m) any material breach, amendment or termination of any material
contract, agreement, Permit or other right to which the Company or Western
is a party or any of its property is subject; or
(n) any other material transaction by the Company or Western outside
the ordinary course of business.
4.21. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. SCHEDULE
4.21 sets forth an accurate schedule, as of the date of this Agreement, of (a)
the name of each financial institution or brokerage firm in which the Company or
Western has accounts or safe deposit boxes; (b) the names in which the accounts
or boxes are held; (c) the type of account and the cash, cash equivalents and
securities held in such account as of the second business day prior to the
Closing, none of which assets have been withdrawn from such accounts since such
date except for bona fide business purposes in the ordinary course of the
business of the Company and Western; and (d) the name of each person authorized
to draw thereon or have access thereto. SCHEDULE 4.21 also sets forth the name
of each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or Western and a description of the terms
thereof.
4.22. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company, Western
nor any of its Affiliates has given or offered to give anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any similar Law.
4.23. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 4.23, neither the Stockholders nor any other Affiliate of
the Company or Western owns, directly or indirectly, any interest in, or is an
officer, director, employee or consultant of or otherwise receives remuneration
from, any business which is in a Competitive Business or is a competitor,
lessor, lessee, customer or supplier of the Company or Western. Except as set
forth in SCHEDULE 4.23, no officer or director of the Company, Western nor any
Stockholder has nor, during the period beginning January 1, 1996 through
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the date hereof, had any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of the Company or Western.
4.24. INTANGIBLE PROPERTY. SCHEDULE 4.24 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, technology,
licenses, trade names, copyrights and other intellectual property or proprietary
property rights owned or used by the Company or Western. Each of the Company and
Western owns or possesses, and the assets of the Company and Western include,
sufficient legal rights to use all of such items without conflict with or
infringement of the rights of others.
4.25. DISCLOSURE. The Stockholders, the Company and Western have provided
PalEx or its representatives all the information that PalEx has requested in
analyzing whether to consummate the Merger and the other transactions
contemplated by this Agreement. None of the information so provided nor any
representation or warranty of the Company, Western or the Stockholders to PalEx
or Newco in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements herein,
in light of the circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
PalEx and Newco jointly and severally represent and warrant to the
Stockholders as follows:
5.1. ORGANIZATION. Each of PalEx and Newco is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. PalEx is duly authorized and qualified under all applicable Laws to
carry on its business in the places and in the manner now conducted. Each of
PalEx and Newco has the requisite power and authority to own, lease and operate
its assets and properties and to carry on its business as such business is
currently being conducted. Correct and complete copies of PalEx's minute books
have been made available to the Company.
5.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of PalEx and Newco has the full legal right, power and
authority to enter into this Agreement and the Registration Rights
Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement have been approved by the boards of
directors of PalEx and Newco and PalEx, as the sole stockholder of Newco.
No additional corporate proceedings on the part of PalEx or Newco are
necessary to authorize the execution and delivery of this Agreement or the
Registration Rights Agreement and the consummation by PalEx and Newco of
the transactions contemplated hereby. This Agreement and the Registration
Rights Agreement have been duly and validly executed and delivered by
PalEx and Newco, and, assuming the due authorization, execution and
delivery by the Company and the Stockholders, constitutes valid and
binding agreements of PalEx and Newco, enforceable against PalEx and Newco
in accordance with its terms.
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(b) The execution and delivery of this Agreement by PalEx and Newco,
and the Registration Rights Agreement by PalEx, do not, and the
consummation by PalEx and Newco of the transactions contemplated hereby
will not, violate or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under any of the terms, conditions or
provisions of (i) the Certificate of Incorporation or By-Laws of PalEx or
Newco, (ii) any Law applicable to either PalEx or Newco or any of its
properties or assets or (iii) any material note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind
to which PalEx or Newco is now a party or by which either PalEx or Newco
or any of its properties or assets may be bound or affected.
(c) Except for the Merger Filings and such filings as may be
required under federal or state securities Laws, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement or the Registration Rights Agreement by PalEx or the
consummation by PalEx or Newco of the transactions contemplated hereby or
thereby.
5.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued to
the Stockholders pursuant to the Merger are duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable. The issuance of PalEx Common Stock pursuant to the Merger
will transfer to the Stockholders valid title to such shares of PalEx Common
Stock, free and clear of all Encumbrances, except for any Encumbrances created
by the Stockholders.
5.4. TAX REORGANIZATION REPRESENTATIONS.
(a) Prior to the Merger, PalEx will be in control of Newco within
the meaning of Section 368(c) of the Code.
(b) PalEx has no plan or intention to cause the Surviving
Corporation to issue additional shares of its stock that would result in
PalEx losing control of the Surviving Corporation within the meaning of
Section 368(c) of the Code.
(c) PalEx has no plan or intention to reacquire any of its stock
issued in the Merger.
(d) PalEx has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation except for transfers of stock to another corporation
controlled by PalEx; or to cause the Surviving Corporation to sell or
otherwise dispose of any of its assets, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by PalEx.
(e) Following the Closing, PalEx's intention is that the Surviving
Corporation will continue the historic business
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of the Company or use a significant portion of the historic business
assets of the Company in a business, all as required to satisfy the
"continuity of business enterprise" requirement under Section 368 of the
Code.
(f) PalEx does not own, nor has it owned during the past five years,
any shares of the stock of the Company.
(g) Each of PalEx and Newco is undertaking the Merger for a bona
fide business purpose and not merely for the avoidance of federal income
tax.
(h) Neither PalEx nor Newco is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
5.5. SEC FILINGS; DISCLOSURE. PalEx has filed with the Securities and
Exchange Commission ("SEC") all material forms, statements, reports and
documents required to be filed by it prior to the date hereof under each of the
Securities Act of 1933, as amended (the "1933 ACT"), the Securities Exchange Act
of 1934, as amended (the "1934 ACT"), and the respective rules and regulations
thereunder, (a) all of which, as amended, if applicable, complied when filed in
all material respects with all applicable requirements of the appropriate Act
and the rules and regulations thereunder, and (b) none of which, as amended, if
applicable, contains any untrue statement of material fact or, except for
disclosure of the acquisition of the assets, and assumption of the liabilities,
of CSC and its Affiliates, omits to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
5.6. LEGAL COMPLIANCE. Neither PalEx nor Newco is (a) in violation of its
charter or by-laws, (b) in default in any material respect, and no event has
occurred that, with notice or lapse of time or both, would constitute a material
default under any in material agreement to which PalEx or Newco is party or by
which its assets are subject, or (c) in, or, as to CSC, to the actual knowledge
of PalEx in, violation, in any material respect, of any material Law to which
either PalEx or Newco or its properties or assets may be subject, in each case,
except to the extent that such violation or default would not reasonably be
expected have a material adverse effect on the business, operations, properties,
condition (financial or otherwise), assets, liabilities (contingent or
otherwise), or results of operations of PalEx and its subsidiaries, taken as a
whole (a "MATERIAL ADVERSE EFFECT").
5.7. LITIGATION AND COMPLIANCE WITH LAW. There are no claims, actions,
suits or proceedings, pending or, to the knowledge of PalEx, threatened against
PalEx or Newco, at law or in equity, before or by any Governmental Authority
having jurisdiction over PalEx or Newco that, if adversely determined against
PalEx or Newco would reasonably be expected to have a Material Adverse Effect.
Each of PalEx and Newco has conducted and is conducting its business, and to the
actual knowledge of PalEx, CSC is conducting its business, in compliance with
all applicable Laws, except to the extent noncompliance with such Laws would not
reasonably be expected to have a Material Adverse Effect.
5.8. DISCLOSURE. PalEx has fully provided the Stockholders or their
representatives with all the information that the Stockholders have requested in
analyzing whether to consummate the Merger. None of the information so provided
nor any representation or warranty of PalEx contained in this Agreement
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contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE VI
CERTAIN COVENANTS
6.1. RELEASE FROM GUARANTEES. PalEx shall use its commercially reasonable
best efforts to have the Stockholders released from the personal guarantees of
the Company and Western indebtedness identified in SCHEDULE 6.1. PalEx hereby
agrees to indemnify each Stockholder and hold such Stockholder harmless for any
amounts that such Stockholder is required to pay in connection with the
enforcement of any obligations under such personal guarantees after the Closing,
including without limitation any reasonable attorneys' fees and expenses
incurred in connection therewith.
6.2. FUTURE COOPERATION; TAX MATTERS. The Stockholders and PalEx shall
each deliver or cause to be delivered to the other following the Closing such
additional instruments as the other may reasonably request for the purpose of
fully carrying out this Agreement. The Stockholders will cooperate and use their
commercially reasonable best efforts to have the present officers, directors and
employees of the Company and Western cooperate with PalEx, Newco and the
Surviving Corporation at and after the Closing in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing. The Stockholders will cooperate
with the Surviving Corporation in the preparation of all tax returns covering
the period from the beginning of the Company's and Western's current tax year
through the Closing. In addition, PalEx will provide the Stockholders with
access to such of its books and records as may be reasonably requested by the
Stockholders in connection with federal, state and local tax matters relating to
periods prior to the Closing. The party requesting cooperation, information or
actions under this SECTION 6.2 shall reimburse the other party for all
reasonable out-of-pocket costs and expenses paid or incurred in connection
therewith, which costs and expenses shall not, HOWEVER, include per diem charges
for employees or allocations of overhead charges.
6.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto. The Surviving Corporation following the Closing will pay
Arthur Andersen LLP's expenses in connection with its review of the Financial
Statements. The Stockholders will pay their fees, expenses and disbursements and
those of their and the Company's and Western's agents, representatives,
financial advisors, accountants and counsel incurred in connection with the
execution, delivery and performance of this Agreement and any amendments hereto
and the consummation of the transactions contemplated hereby; PROVIDED, HOWEVER,
that Newco will pay such fees, expenses and disbursements up to, but not in
excess of, an amount equal to (a) $1,000,000 less (b) any fees, expenses and
disbursements of Acme, the indemnifying stockholders under the Acme Acquisition
Agreement, ESP Realty Corp., Inc. or Environmental Recyclers of Colorado, Inc.
paid by PalEx, Newco or any Affiliate of PalEx, or for which any such party is
liable.
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6.4. REGISTRATION RIGHTS AGREEMENT. Concurrently with the execution of
this Agreement, PalEx and the Stockholders shall enter into a mutually
acceptable Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT".
6.5. REPAYMENT OF RELATED PARTY INDEBTEDNESS. Concurrently with the
execution of this Agreement, (a) the Stockholders shall repay to the Company or
Western, as the case may be, all amounts outstanding as advances to or
receivables from the Stockholders, each of which advances or receivables is
specifically reflected in SCHEDULE 4.8, and (b) the Company shall repay, or
cause Western to repay, as appropriate, all amounts outstanding under loans to
the Company or Western from the Stockholders, each of which loans to the Company
or Western is specifically reflected in SCHEDULE 4.7.
ARTICLE VII
INDEMNIFICATION
The Stockholders, PalEx and Newco each make the following covenants:
7.1. GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to SECTIONS 7.4
and 7.5, the Stockholders covenant and agree that they will jointly and
severally indemnify, defend, protect and hold harmless PalEx, Newco and the
Surviving Corporation, and their respective officers, directors, employees,
stockholders, agents, representatives and Affiliates, at all times from and
after the date of this Agreement until the Expiration Date from and against all
Losses incurred by any of such indemnified persons as a result of or arising
from (a) any breach of the representations and warranties of the Stockholders
set forth herein or in the Schedules or certificates delivered in connection
herewith, (b) any breach or nonfulfillment of any covenant or agreement on the
part of the Stockholders or the Company under this Agreement, and (c) all income
Taxes payable by the Company for all periods prior to and including the Closing
Date.
7.2. INDEMNIFICATION BY PALEX. PalEx covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and their
respective agents, representatives, Affiliates , beneficiaries and heirs and
employees at all times from and after the date of this Agreement until the
Expiration Date from and against all Losses incurred by any of such indemnified
persons as a result of or arising from (a) any breach of the representations and
warranties of PalEx or Newco set forth herein or in the Schedules or
certificates attached hereto, and (b) any breach or nonfulfillment of any
covenant or agreement on the part of PalEx or Newco under this Agreement.
7.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), of the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
SECTION 7.1, or 7.2 hereof (hereinafter the "INDEMNIFYING PARTY") written notice
of such claim or the commencement of such action or proceeding. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel
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in all commercially reasonable respects in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records and other information
reasonably requested by the Indemnifying Party and in the Indemnified Party's
possession or control. After the Indemnifying Party has notified the Indemnified
Party of its intention to undertake to defend or settle any such asserted
liability, and for so long as the Indemnifying Party diligently pursues such
defense, the Indemnifying Party shall not be liable for any additional legal
expenses incurred by the Indemnified Party in connection with any defense or
settlement of such asserted liability; PROVIDED, HOWEVER, that the Indemnified
Party shall be entitled, at its expense, to participate in the defense of such
asserted liability and the negotiations of the settlement thereof. The
Indemnifying Party shall not settle any such Third Person claim without the
consent of the Indemnified Party, unless the settlement thereof imposes no
liability or obligation on, and includes a complete release from liability of,
the Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement if such settlement does not provide for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, in its discretion, and the Indemnifying Party
shall reimburse the Indemnified Party for the amount paid in such settlement and
any other liabilities or expenses incurred by the Indemnified Party in
connection therewith.
7.4. INDEMNIFICATION DEDUCTIBLE. Neither the Stockholders, on the one
hand, nor PalEx, Newco and the Surviving Corporation, on the other hand, shall
be entitled to indemnification from the other under the provisions of SECTION
7.1(A) or SECTION 7.2(A), as the case may be, until such time as, and only to
the extent that, the claims subject to indemnification by such other party
exceed, in the aggregate, $40,000 Notwithstanding the foregoing, the limitations
set forth in this SECTION 7.4 shall not apply to fraudulent misrepresentations.
7.5. INDEMNIFICATION LIMITATION.
(a) Subject to SECTIONS 7.4, the aggregate indemnification
obligation of the Stockholders under SECTION 7.1(A) shall be limited to
50% of (a) the value of any shares of PalEx Common Stock that (i) were
received by the Stockholders in (A) the Merger and/or (B) the merger of
ESP Realty Corp., Inc. into a subsidiary of PalEx under the ESP
Acquisition Agreement and/or (c) the merger of Acme with a subsidiary of
PalEx under the Acme Acquisition Agreement (subject, in each case, to
appropriate adjustments in the event of any stock dividend on, or split-up
or other recapitalization of, the PalEx Common Stock) and (ii) have not
been sold by any Stockholder in a bona fide arms'-length transaction to a
third party that is not an Affiliate of any Stockholder (collectively, the
"PURCHASE PRICE SHARES"), plus (b) the gross proceeds from the sale of
Purchase Price Shares in bona fide arms'-length transactions to a third
party that is not an Affiliate of any Stockholder, less (c) the amount of
any Losses (as such term is defined in the Acme Acquisition Agreement or
the ESP Acquisition Agreement, respectively) paid by the Stockholders as
an indemnifying party under the Acme Acquisition Agreement or the ESP
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Acquisition Agreement. Indemnification claims under this ARTICLE VII shall
be settled first from the sale or recovery of Purchase Price Shares, to
the extent thereof, and thereafter, from the gross proceeds from prior
bona fide arms'-length sales of Purchase Price Shares to third parties
that are not Affiliates of any Stockholder.
(b) For purposes of this SECTION 7.5, the value of Purchase Price
Shares shall be the average closing price per share of PalEx Common Stock
for the 10 trading days ending on the second trading day before the date a
Loss becomes payable by the Stockholders (either by agreement or pursuant
to a judgment or binding determination by an arbitrator) in accordance
with this ARTICLE VII, as reported on The Nasdaq Stock Market or such
other national securities exchange on which the PalEx Common Stock is
principally traded. Notwithstanding the foregoing, the limitations set
forth in this SECTION 7.5 shall not apply to fraudulent
misrepresentations.
7.6. INDEMNIFICATION FOR NEGLIGENCE OF INDEMNIFIED PARTY. THE RIGHTS TO
INDEMNIFICATION UNDER THIS ARTICLE VII INCLUDE RIGHTS TO INDEMNIFICATION
FOR THE RESULTS OF AN INDEMNIFIED PARTY'S ACTUAL OR ALLEGED NEGLIGENCE,
IF SUCH INDEMNIFIED PARTY WOULD OTHERWISE BE ENTITLED TO
INDEMNIFICATION HEREUNDER.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. GENERAL. Each Stockholder recognizes and acknowledges that he had in
the past, currently has, and in the future will have, access to certain
confidential information relating to the business of the Company, such as lists
of customers, operational policies, and pricing and cost policies that are, and
following the Closing will be, valuable, special and unique assets of the
Surviving Corporation. Each Stockholder agrees that he will not use or disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose whatsoever, except as is required in the course of
performing his duties to the Surviving Corporation, Western and/or PalEx, unless
(a) such information becomes known to the public generally through no fault of
such Stockholder, or (b) disclosure is required by Law, PROVIDED that prior to
disclosing any information pursuant to this clause (b) such Stockholder shall,
if possible, give prior written notice thereof to PalEx and the Surviving
Corporation and provide PalEx with the opportunity to contest such disclosure.
In the event of a breach or threatened breach by any Stockholder of the
provisions of this Section, PalEx shall be entitled to an injunction restraining
such Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting PalEx from
pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
irreparable damage that would be caused for which the Surviving Corporation
and/or PalEx would have no
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other adequate remedy, each Stockholder agrees that the foregoing covenants may
be enforced against him by injunctions, restraining orders and other equitable
actions.
ARTICLE IX
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
9.1. EXECUTION OF DOCUMENTS NECESSARY FOR POOLING TREATMENT. If required,
each Stockholder and the President and Chief Financial Officer of the Company
will execute any documentation reasonably required by PalEx's independent public
accountants to enable PalEx to account for the Merger as a pooling-of-interests.
9.2. RESTRICTIONS ON RESALE. PalEx has informed each Stockholder that
PalEx intends to account for the Merger as a pooling-of-interests under Opinion
No. 16. PalEx has also informed each Stockholder that its ability to account for
the Merger as a pooling-of-interests was a material factor considered by PalEx
in its decision to enter into this Agreement. Therefore, pursuant to Opinion No.
16, prior to the publication and dissemination by PalEx of consolidated
financial results which include results of the combined operations of the
Company and PalEx for at least 30 days on a consolidated basis following the
Closing, the Stockholders shall not sell, offer to sell, or otherwise transfer
or dispose of, any shares of the PalEx Common Stock received by the
Stockholders, engage in put, call, short-sale, straddle or similar transactions,
or in any other way reduce the Stockholders' risks of owning shares of PalEx.
The certificates evidencing the PalEx Common Stock to be received by the
Stockholders will bear a legend substantially in the form set forth below:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE
RESULTS OF AT LEAST 30 DAYS OF COMBINED OPERATIONS OF THE ISSUER AND THE
COMPANY ACQUIRED BY THE ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER WILL REMOVE
THIS RESTRICTIVE LEGEND WHEN THIS REQUIREMENT HAS BEEN MET.
9.3. TAX-FREE REORGANIZATION. PalEx and the Stockholders are entering into
this Agreement with the intention that the Merger qualify as a tax-free
reorganization for federal income tax purposes, except to the extent of any
"boot" received, and neither PalEx nor the Stockholders will not take any
actions that disqualify the Merger for such treatment.
ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. COMPLIANCE WITH LAW. The Stockholders acknowledge the shares of
PalEx Common Stock issued at the Closing in accordance with the terms of this
Agreement (the "RESTRICTED SHARES") will not be
26
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registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The Restricted Shares are being or will be acquired by
Stockholders solely for their own accounts, for investment purposes only, and
with no present intention of distributing, selling or otherwise disposing of
them in connection with a distribution. The Stockholders covenant, warrant and
represent that none of the Restricted Shares will be, directly or indirectly,
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. Certificates
representing the Restricted Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
10.2. ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the
economic risk of an investment in the Restricted Shares and can afford to
sustain a total loss of such investment. Each Stockholder has such knowledge and
experience in financial and business matters that it or he is capable of
evaluating the merits and risks of the proposed investment and therefore has the
capacity to protect its or his own interests in connection with the acquisition
of the Restricted Shares pursuant hereto. Each Stockholder represents to PalEx
that it or he is acquiring shares of PalEx Common Stock pursuant to this
Agreement for investment purposes and not with a view to distribution of such
shares of PalEx Common Stock within the meaning of the 1933 Act. Each
Stockholder or its or his representatives have had an adequate opportunity to
ask questions and receive answers from the officers of PalEx concerning, among
other matters, PalEx, its management, its plans for the operation of its
business and potential additional acquisitions.
10.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as any
Stockholder holds any Restricted Shares, to use its reasonable best efforts to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to each Stockholder upon written request a written
statement by PalEx as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, a copy of the most recent annual
or quarterly report of PalEx, and such other reports and documents so
filed as such Stockholder may reasonably request in availing itself of any
rule or regulation of the SEC allowing such Stockholder to sell any such
shares without registration
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ARTICLE XI
MISCELLANEOUS
11.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, Newco, the Surviving Corporation and the Company, and the heirs and legal
representatives of the Stockholders.
11.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and PalEx and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be modified
or amended only by a written instrument executed by the Stockholders, the
Company, Newco and PalEx, acting through their respective officers, duly
authorized by their respective Boards of Directors.
11.3. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11.4. BROKERS AND AGENTS. Except for the engagement of DN Partners LLC by
Acme, each party hereto represents and warrants that it employed no broker or
agent in connection with the transactions contemplated by this Agreement.
Subject to SECTION 6.3, each party agrees to indemnify each other party against
all loss, cost, damages or expense arising out of claims for fees or commissions
of brokers employed or alleged to have been employed by such indemnifying party.
11.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx, Newco or the Surviving Corporation, addressed to
them at:
PalEx, Inc.
1360 Post Oak Blvd.
Suite 800
Houston, Texas 77056
Attn: Edward E. Rhyne
(b) If to any Stockholder, addressed to such Stockholder as follows:
c/o Acme Barrel Company, Inc.
2300 W. 13th Street
Chicago, Illinois 60608
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With a copy (which shall not constitute notice) to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attention: Charles H. Perlman, Esq.
or such other address as any party hereto shall specify pursuant to this SECTION
11.5 from time to time.
11.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE IV and ARTICLE V shall survive the Closing for a
period of 12 months from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 4.19 hereof shall
survive until such time as the limitations period has run for all tax periods
ended prior to the Closing Date, which shall be deemed to be the Expiration Date
for SECTION 4.19.
11.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
11.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:_______________________________
Edward E. Rhyne
Vice President and General Counsel
WESTERN CONTAINER ACQUISITION, INC.
By:_______________________________
Edward Rhyne
President
ENVIRONMENTAL RECYCLERS OF COLORADO INC.
By:_______________________________
Elliot Pearlman
President
________________________________________
Michael Bank, Individually
________________________________________
Larry Burns, Individually
________________________________________
Frank Ebertsch, Individually
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[DISSENTING]
Harold E. Fronk, Individually
________________________________________
Mark Hansen, Individually
________________________________________
Richard Hansen, Individually
________________________________________
Elliot Pearlman, Individually
________________________________________
Jordan Pearlman, Individually
________________________________________
Charles H. Perlman, Individually
________________________________________
Kurt Richardson, Individually
________________________________________
Mark B. Spitz, Individually
EXHIBIT 2.5
ACQUISITION AGREEMENT
BY AND AMONG
PALEX, INC.,
WESTERN CONTAINER ACQUISITION, INC.
AND
BART KAMINSKY
DATED AS OF FEBRUARY 23, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions........................................................1
1.2. Interpretation.....................................................4
ARTICLE II
THE ACQUISITION
2.1. The Acquisition....................................................5
2.2. Purchase Price.....................................................5
2.3. Closing............................................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1. Due Organization and Qualification.................................5
3.2. Authorization; Non-Contravention; Approvals........................5
3.3. Capitalization.....................................................6
3.4. Pooling-of-Interests Accounting....................................6
3.5. Subsidiaries.......................................................6
3.6. Financial Statements...............................................7
3.7. Liabilities and Obligations........................................7
3.8. Accounts and Notes Receivable......................................7
3.9. Assets.............................................................8
3.10. Material Customers, Contracts and Bartering Commitments...........8
3.11. Permits...........................................................9
3.12. Environmental Matters............................................10
3.13. Labor and Employee Relations.....................................10
3.14. Insurance........................................................10
3.15. Compensation; Employment Agreements..............................10
3.16. Noncompetition, Confidentiality and Nonsolicitation Agreements...10
3.17. Employee Benefit Plans...........................................11
3.18. Litigation and Compliance with Law...............................12
3.19. Taxes............................................................13
3.20. Absence of Changes...............................................13
3.21. Accounts with Banks and Brokerages; Powers of Attorney...........14
3.22. Absence of Certain Business Practices............................15
3.23. Competing Lines of Business; Related-Party Transactions..........15
3.24. Intangible Property..............................................15
3.25. Disclosure.......................................................15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
4.1. Organization......................................................15
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4.2. Authorization; Non-Contravention; Approvals.......................16
4.3. PalEx Common Stock................................................16
4.5. Disclosure........................................................17
ARTICLE V
CERTAIN COVENANTS
5.1. Release From Guarantees...........................................17
5.2. Future Cooperation; Tax Matters...................................17
5.3. Expenses..........................................................17
5.4. Registration Rights Agreement.....................................18
5.5. Repayment of Related Party Indebtedness...........................18
ARTICLE VI
INDEMNIFICATION
6.1. General Indemnification by Seller.................................18
6.2. Indemnification by PalEx..........................................18
6.3. Third Person Claims...............................................18
6.4. Indemnification Deductible........................................19
6.5. Indemnification Limitation........................................19
6.6. Indemnification for Negligence of Indemnified Party...............20
ARTICLE VII
NONCOMPETITION COVENANTS
7.1. Prohibited Activities.............................................20
7.2. Equitable Relief..................................................21
7.3. Reasonable Restraint..............................................21
7.4. Severability; Reformation.........................................21
7.5. Material and Independent Covenant.................................21
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. General...........................................................21
8.2. Equitable Relief..................................................22
ARTICLE IX
POOLING-OF-INTERESTS ACCOUNTING
9.1. Execution of Documents Necessary for Pooling Treatment............22
9.2. Restrictions on Resale............................................22
ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. Compliance with Law..............................................23
10.2. Economic Risk; Sophistication....................................23
10.3. Rule 144 Reporting...............................................23
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ARTICLE XI
MISCELLANEOUS
11.1. Successors and Assigns...........................................24
11.2. Entire Agreement.................................................24
11.3. Counterparts.....................................................24
11.4. Brokers and Agents...............................................24
11.5. Notices..........................................................24
11.6. Survival of Representations and Warranties.......................26
11.7. Exercise of Rights and Remedies..................................26
11.8. Reformation and Severability.....................................26
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "AGREEMENT") is made as of the 23rd day
of February, 1998, by and among PalEx, Inc., a Delaware corporation ("PALEX"),
Western Container Acquisition, Inc., a Delaware corporation that is a subsidiary
of PalEx ("NEWCO"), and Bart Kaminsky ("SELLER").
WHEREAS, Seller holds a 33% ownership interest in Western Container
Limited Liability Company, a Wyoming limited liability company (the "COMPANY");
and
WHEREAS, contemporaneous with the Closing, a subsidiary of PalEx is
acquiring the remaining ownership interests in the Company from Acme and ERI;
and
WHEREAS, Seller desires to sell to Newco, and Newco desires to purchase
from Seller, Seller's 33% ownership interest in the Company (the "OWNERSHIP
INTEREST"), in accordance with the terms of this Agreement (the "ACQUISITION");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"ACME" means Acme Barrel Company, Inc., an Illinois corporation.
"ACQUISITION" has the meaning set forth in the fourth paragraph of this
Agreement.
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"BALANCE SHEET DATE" means December 31, 1997.
"CLOSING" has the meaning set forth in SECTION 2.3.
"CLOSING DATE" has the meaning set forth in SECTION 2.3.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"COMPANY" has the meaning set forth in the second paragraph of this
Agreement.
"COMPETITIVE BUSINESS" means any business that competes with the Company
as of the date of this Agreement, or, if applicable, as of the date of the
termination of Seller's employment by the Company, including, without
limitation, any business that (a) reconditions, recycles, repairs, markets,
distributes, brokers, manages or transports drums or barrels and other logistics
services with respect thereto; or (b) competes with the Company for raw
materials (E.G., open top and closed top drums).
"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, rights of first
refusal, reservations, restrictions or other encumbrances or defects in title.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 3.17.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 3.17.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any substance, in each case as amended and as in effect on the Closing Date.
The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any substance.
"ERI" means Environmental Recyclers of Colorado Inc., a Colorado
corporation.
"ERISA" has the meaning set forth in SECTION 3.17.
"ERISA AFFILIATE" has the meaning set forth in SECTION 3.17.
"EXPIRATION DATE" has the meaning set forth in SECTION 11.6.
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
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"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"HAZARDOUS SUBSTANCES" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law. The term "HAZARDOUS
SUBSTANCES" includes, without limitation, any substance to which exposure is
regulated by any Governmental Authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 6.3.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and costs and expenses of investigation).
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 3.10.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OPINION NO. 16" has the meaning set forth in SECTION 3.4.
OWNERSHIP INTEREST has the meaning set forth in the fourth paragraph of
this Agreement.
"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX COMMON STOCK" means PalEx's Common Stock, par value $.01 per share.
"PERMITS" has the meaning set forth in SECTION 3.11.
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"PERMITTED ENCUMBRANCES" means (a) any Encumbrances reserved against in
the Financial Statements as of the Balance Sheet Date, (b) Encumbrances for
property or ad valorem Taxes not yet due and payable or which are being
contested in good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the Company's books in accordance with GAAP,
and (c) obligations under operating and capital leases described in SCHEDULE
3.10.
"PLAN" has the meaning set forth in SECTION 3.17.
"PURCHASE PRICE SHARES" has the meaning set forth in SECTION 6.5.
"QUALIFIED PLANS" has the meaning set forth in SECTION 3.17.
"RESTRICTED SHARES" has the meaning set forth in SECTION 10.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"TAXES" has the meaning set forth in SECTION 3.19.
"TERRITORY" has the meaning set forth in SECTION 7.1.
"THIRD PERSON" has the meaning set forth in SECTION 6.3.
"WYOMING ACT" means the Wyoming Limited Liability Company Act, as amended.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
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ARTICLE II
THE ACQUISITION
2.1. THE ACQUISITION. Upon the terms and subject to the conditions of this
Agreement, at the Closing, Newco shall purchase, and Seller shall sell and
assign to Newco, the Ownership Interest, free and clear of all liens, pledges,
claims and encumbrances.
2.2. PURCHASE PRICE. At the Closing, Newco shall cause PalEx to issue
106,021 shares of PalEx Common Stock to Seller in exchange for the Ownership
Interest.
2.3. CLOSING. The consummation of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of PalEx, 1360 Post
Oak Blvd., Suite 800, Houston, Texas, concurrently with the execution of this
Agreement or at such other time and date as PalEx, the Company and the Seller
may mutually agree, which date is herein referred to as the "CLOSING DATE."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Newco and PalEx as follows:
3.1. DUE ORGANIZATION AND QUALIFICATION. The Company is a limited
liability company duly organized, validly existing and in good standing under
the Laws of the State of Wyoming and is duly authorized and qualified to do
business under all applicable Laws and to carry on its business in the places
and in the manner as now conducted. The Company has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as such business is currently being conducted. SCHEDULE 3.1
contains a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of the
organizational documents of the Company, each as amended, of the Company are
attached hereto as SCHEDULE 3.1. Correct and complete copies of all records and
minute books of the Company for the past five years have been made provided to
PalEx, and correct and complete copies of all other ownership records and minute
books of the Company have been made available to PalEx.
3.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Seller has the full legal right, power and authority to enter
into this Agreement. This Agreement has been duly and validly executed and
delivered by Seller and, assuming the due authorization, execution and
delivery hereof by PalEx and Newco, constitutes a valid and binding
agreement of Seller, enforceable against him in accordance with its terms.
(b) The execution and delivery of this Agreement by Seller do not,
and the consummation by Seller of the transactions contemplated hereby
will not, violate or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any
Encumbrance
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upon any of the properties or assets of the Company under any of the
terms, conditions or provisions of, (i) the organizational documents of
the Company, (ii) any Laws applicable to Seller or the Company or any of
his or its properties or assets, or (iii) except as set forth in SCHEDULE
3.2, any agreement, note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, lease or other instrument,
obligation or agreement of any kind to which Seller or the Company is now
a party or by which the Company or any of its properties or assets may be
bound or affected.
(c) Except as set forth in SCHEDULE 3.2, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority or third party is necessary for the execution
and delivery of this Agreement by Seller or the consummation by Seller of
the transactions contemplated hereby. Except as set forth in SCHEDULE 3.2,
none of the Company's customer contracts providing for purchases
individually in excess of $50,000, or in the aggregate in excess of
$100,000, or other material agreements, licenses or permits to which the
Company is a party requires notice to, or the consent or approval of, any
third party for the execution and delivery of this Agreement by Seller and
the consummation of the transactions contemplated hereby.
3.3. CAPITALIZATION. The Ownership Interest represents a 33% equity
interest in the Company and is owned beneficially and of record by Seller, free
and clear of all Encumbrances. The Ownership Interest was not issued in
violation of the preemptive rights of any past or present member of the Company.
in SCHEDULE 3.3, no subscription, option, warrant, call, convertible or
exchangeable security, other conversion right or commitment of any kind exists
which obligates Seller to transfer any portion of the Ownership Interest.
3.4. POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation other than Acme and ERI or a part
of an acquisition which was later rescinded and, within the past two years,
there has not been any sale or spin-off of a significant amount of assets of the
Company or, to Seller's knowledge, any Affiliate of the Company other than in
the ordinary course of business. The Company owns no capital stock of PalEx. The
Company has not acquired any of its ownership interests during the past two
years. Except as set forth in SCHEDULE 3.4, the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
ownership interests or any interest therein or to pay any dividend or make any
distribution in respect thereof. Neither the voting structure of the Company nor
the relative ownership of shares among any of the Company's owners has been
altered or changed within the last two years in contemplation of the
Acquisition. No ownership interest in the Company was issued pursuant to awards,
grants or bonuses, and there has been no transaction or action taken with
respect to the equity ownership of the Company in contemplation of the
Acquisition that would prevent PalEx from accounting for the Acquisition under
the pooling-of-interests method of accounting in accordance with Opinion No. 16
of the Accounting Principles Board ("OPINION NO. 16").
3.5. SUBSIDIARIES. Except as set forth in SCHEDULE 3.5, the Company does
not own, of record or beneficially, or control, directly or indirectly, any
capital stock, securities convertible into or exchangeable for capital stock or
any other equity interest in any corporation, association or other business
entity. Except as set forth in SCHEDULE 3.5, the Company is not, directly or
indirectly, a participant in any joint venture, limited liability company,
partnership or other noncorporate entity.
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3.6. FINANCIAL STATEMENTS.
(a) The Company has delivered to PalEx complete and correct copies
of the following financial statements the unaudited balance sheets of the
Company as of December 31, 1995, 1996 and 1997 and the related unaudited
statements of operations, owners' equity and cash flows for the three-year
period ended December 31, 1997, together with the related notes and
schedules (such balance sheets, the related statements of operations,
owners' equity and cash flows and the related notes and schedules are
referred to herein as the "FINANCIAL STATEMENTS"). The Financial
Statements are attached as SCHEDULE 3.6 to this Agreement.
(b) Except as set forth in SCHEDULE 3.6, the Financial Statements
have been prepared from the books and records of the Company in conformity
with GAAP and present fairly the financial position and results of
operations of the Company as of the dates of such statements and for the
periods covered thereby. The books of account of the Company have been
kept accurately in all material respects in the ordinary course of
business, the transactions entered therein represent bona fide
transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein in all material respects.
3.7. LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 3.7, as
of the Balance Sheet Date the Company did not have, nor has it incurred since
that date, any liabilities or obligations (whether absolute, accrued, contingent
or otherwise) of any nature, except (a) liabilities, obligations or
contingencies (i) that are accrued or reserved against in the Financial
Statements or reflected in the notes thereto or (ii) that were incurred after
the Balance Sheet Date and were incurred in the ordinary course of business and
consistent with past practices, and (b) liabilities and obligations that are of
a nature not required to be reflected in the Financial Statements prepared in
accordance with GAAP and that were incurred in the normal course of business and
are described in SCHEDULE 3.7. SCHEDULE 3.7 contains a reasonable estimate by
Seller of the maximum amount which may be payable with respect to liabilities
which are not fixed. For each such liability for which the amount is not fixed
or is contested, the Company has provided a summary description of the liability
together with copies of all relevant documentation relating thereto. SCHEDULE
3.7 sets forth the Company's outstanding principal amount of indebtedness for
borrowed money (including overdrafts) as of the date hereof.
3.8. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 3.8 sets forth an accurate
list of the accounts and notes receivable of the Company as of the Balance Sheet
Date and of those generated between the Balance Sheet Date and the second
business day preceding the Closing Date, including any such amounts which are
not reflected in the Financial Statements as of the Balance Sheet Date.
Receivables from and advances to employees, the owners of the Company and any
entities or persons related to or Affiliates of such owners are separately
identified in SCHEDULE 3.8. SCHEDULE 3.8 also sets forth an accurate aging of
all accounts and notes receivable as of the Balance Sheet Date, showing amounts
due in 30-day aging categories. The trade and other accounts receivable of the
Company, including without limitation those classified as current assets in the
Financial Statements as of the Balance Sheet Date, are bona fide receivables,
were acquired in the ordinary course of business, and are stated in accordance
with GAAP.
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3.9. ASSETS.
(a) SCHEDULE 3.9 sets forth an accurate list of all real and
personal property included in "property and equipment" in the Financial
Statements as of the Balance Sheet Date and all other tangible assets of
the Company with a book value in excess of $10,000 (i) owned by the
Company as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of
leases for significant equipment and for all real property leased by the
Company and descriptions of all real property on which buildings,
warehouses, workshops, garages and other structures used in the operation
of the business of the Company are situated. SCHEDULE 3.9 indicates which
assets used in the operation of the business of the Company are currently
owned by owners of the Company or, to Seller's knowledge, Affiliates of
the Company or such owners. Except as specifically identified in SCHEDULE
3.9, to the knowledge of the Company and Seller, all of the tangible
assets, vehicles and other significant machinery and equipment of the
Company listed in SCHEDULE 3.9 are in good working order and condition,
ordinary wear and tear excepted, and have been maintained in accordance
with standard industry practices. All fixed assets used by the Company in
its business are either owned by the Company or leased under agreements
identified in SCHEDULE 3.9. All leases set forth in SCHEDULE 3.9 are in
full force and effect and constitute valid and binding agreements of the
Company, and to the knowledge of the Company, the other parties thereto in
accordance with their respective terms. SCHEDULE 3.9 contains true,
complete and correct copies of all title reports and title insurance
policies received or owned by the Company. SCHEDULE 3.9 also includes a
summary description of all plans or projects involving the opening of new
operations, expansion of existing operations or the acquisition of any
real property or existing business, to which management of the Company has
devoted any significant effort or expenditure in the two-year period prior
to the date of the Agreement, which if pursued by the Company would
require additional expenditures of capital.
(b) The Company has good and indefeasible title to the tangible and
intangible personal property and the real property owned and used in its
business, including the properties identified in SCHEDULE 3.9, free and
clear of all Encumbrances other than Permitted Encumbrances and those set
forth in SCHEDULE 3.9.
(c) The tangible and intangible assets of the Company include all
the assets used in the operation of the business of the Company as
conducted at April 30, 1997.
(d) Except as set forth in this SECTION 3.9 and in the other
representations and warranties in this Agreement, Seller is making no
representations or warranties as to the condition of the assets of the
Company, including, without limitation, any implied warranties or any
representation or warranty as to merchantability or fitness for any
particular purpose and, subject to the representations set forth in this
Agreement, such assets are being purchased "as is," "where is" and with
all faults.
3.10. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
(a) SCHEDULE 3.10 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's revenues for the fiscal year
ended April 30, 1997 or the eight-month period ended on the Balance Sheet
Date (the "MATERIAL CUSTOMERS"), and (ii) all material executory
contracts,
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commitments and similar agreements to which the Company is currently a
party or by which it or any of its properties is bound, including, but not
limited to, (A) all customer contracts in excess of $10,000, individually,
or $25,000 in the aggregate, including, without limitation, consignment
contracts, (B) contracts with any labor organizations, (C) leases
providing for annual rental payments in excess of $5,000, individually, or
$10,000 in the aggregate, (D) loan agreements, (E) pledge and security
agreements, (F) indemnity or guaranty agreements or obligations , (G)
bonds, (H) notes, (I) mortgages, (J) joint venture or partnership
agreements, (K) options to purchase real or personal property, and (L)
agreements relating to the purchase or sale by the Company of assets
(other than oral agreements relating to sales of inventory or services in
the ordinary course of business, consistent with past practices) or
securities for more than $5,000, individually, or $10,000 in the
aggregate. Prior to the date hereof, the Company has made available to
PalEx complete and correct copies of all such agreements.
(b) Except to the extent set forth in SCHEDULE 3.10, (i) no Material
Customer has canceled or substantially reduced or, to the knowledge of the
Company, threatening to cancel or substantially reduce its purchases of
the Company's products or services, and (ii) the Company is in compliance
with all material commitments and obligations pertaining to it under such
agreements and is not in default under any the agreements described in
SUBSECTION (A), no notice of default has been received by the Company, and
Seller and the Company are aware of no basis therefor.
(c) The Company is not a party to any governmental contracts subject
to price redetermination or renegotiation. The Company is not required to
provide any bonding or other financial security arrangements in any
material amount in connection with any transactions with any of its
customers or suppliers.
(d) SCHEDULE 3.10 sets forth a summary of the material terms of all
oral and written bartering arrangements to which the Company is a party.
The Company has a sufficient supply of uncommitted inventory to fulfill
its bartering obligations with third parties.
3.11. PERMITS. SCHEDULE 3.11 contains an accurate list of all material
licenses, franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company, including, without
limitation, permits, licenses and operating authorizations, titles (including
motor vehicle titles and current registrations), fuel permits, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company (the "PERMITS"). The Permits are valid,
and the Company has not received any written notice that any Governmental
Authority intends to cancel, terminate or not renew any such license, operating
authorization, franchise, permit or other governmental authorization. The
Permits are all the permits that are required by Law for the operation of the
business of the Company as conducted at the Balance Sheet Date and the ownership
of the assets of the Company. The Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in the Permits, as well as the applicable orders,
approvals and variances related thereto, and is not in violation of any of the
foregoing. Except as specifically provided in SCHEDULE 3.11, the transactions
contemplated by this Agreement will not result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
Company by, any Permits.
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3.12. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.12, (a) the
Company has complied with and is in compliance with all Environmental Laws,
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Substances; (b) the Company has obtained and complied with
all necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Substances and has reported, to the
extent required by all Environmental Laws, all past and present sites owned or
operated by the Company where Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (c) there have been no "releases" or threats
of "releases" (as defined in any Environmental Laws) at, from, in or on any
property owned or operated by the Company; (d) there is no on-site or off-site
location to which the Company has transported or disposed of Hazardous
Substances or arranged for the transportation or disposal Hazardous Substances
which is the subject of any federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Company,
PalEx or Newco for any clean-up cost, remedial work, damage to natural resources
or personal injury, including, but not limited to, any claim under (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (ii) the Resource Conservation and Recovery Act, (iii) the Hazardous
Materials Transportation Act, or (iv) comparable state and local statutes and
regulations; and (e) the Company has no contingent liability in connection with
any release or disposal of any Hazardous Substance into the environment.
3.13. LABOR AND EMPLOYEE RELATIONS. Except as set forth in SCHEDULE 3.13,
the Company is not bound by or subject to any arrangement with any labor union.
Except as set forth in SCHEDULE 3.13, no employees of the Company are
represented by any labor union or covered by any collective bargaining agreement
nor, to the Company's or Seller's knowledge, is any campaign to establish such
representation in progress. There is no pending or, to the Company's or Seller's
knowledge, threatened labor dispute involving the Company and any group of its
employees nor has the Company experienced any significant labor interruptions
over the past five years. Neither the Company nor Seller has any knowledge of
any significant issues or problems in connection with the relationship of the
Company with its employees.
3.14. INSURANCE. SCHEDULE 3.14 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company and of all
insurance loss runs or workmen's compensation claims received for the past five
policy years. Except as set forth in SCHEDULE 3.14, none of such policies is a
"claims made" policy. To the Company's and Seller's knowledge, the insurance
policies set forth in SCHEDULE 3.14 provide adequate coverage against the risks
involved in the Company's business. Such policies are currently in full force
and effect.
3.15. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 3.15 sets forth an
accurate schedule of all officers, directors and employees of the Company with
annual salaries of $70,000 or more, listing the rate of compensation (and the
portions thereof attributable to salary, bonus, benefits and other compensation,
respectively) of each of such persons as of (a) the Balance Sheet Date and (b)
the date hereof. Attached to SCHEDULE 3.15 are true, complete and correct copies
of each employment or consulting agreement any employee of the Company or
Seller.
3.16. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 3.16 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company is bound or under which the Company has any rights or obligations.
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3.17. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.17 sets forth an accurate schedule of each "EMPLOYEE
BENEFIT PLAN," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all nonqualified
deferred compensation arrangements, whether formal or informal and whether
legally binding or not, under which the Company or an ERISA Affiliate has
any current or future obligation or liability or under which any present
or former employee of the Company or an ERISA Affiliate, or such present
or former employee's dependents or beneficiaries, has any current or
future right to benefits (each such plan and arrangement referred to
hereinafter as a "PLAN"), together with true and complete copies of such
Plans, arrangements and any trusts related thereto, and classifications of
employees covered thereby as of December 31, 1997. Except as set forth on
SCHEDULE 3.17, neither the Company nor any ERISA Affiliate sponsors,
maintains or contributes currently, or at any time during the preceding
five years, to any plan, program, fund or arrangement that constitutes an
employee pension benefit plan. Each Plan may be terminated by the Company,
or if applicable, by an ERISA Affiliate at any time without any liability,
cost or expense, other than costs and expenses that are customary and
reasonable in connection with the termination of a Plan. For purposes of
this Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall have the
meaning given that term in Section 3(2) of ERISA, and the term "ERISA
AFFILIATE" means any corporation or trade or business under common control
with the Company as determined under Section 414(b), (c), (m) or (o) of
the Code, but such term shall not include Acme or ERI.
(b) Each Plan listed on SCHEDULE 3.17 is in compliance in all
material respects with the applicable provisions of ERISA, the Code, and
any other applicable Law. With respect to each Plan of the Company and
each ERISA Affiliate (other than a "MULTIEMPLOYER PLAN," as defined in
Section 4001(a)(3) of ERISA), all reports and other documents required
under ERISA or other applicable Law to be filed with any Governmental
Authority, the failure of which to file could reasonably be expected to
result in a material liability to the Company or any ERISA Affiliate, or
required to be distributed to participants or beneficiaries, have been
duly filed or distributed. True and complete copies of all such reports
and other documents with respect to the past five years for each Plan have
been provided to PalEx. No "ACCUMULATED FUNDING DEFICIENCY" (as defined in
Section 412(a) of the Code) with respect to any Plan has been incurred
(without regard to any waiver granted under Section 412 of the Code), nor
has any funding waiver from the Internal Revenue Service been received or
requested. Each Plan that is intended to be "QUALIFIED" within the meaning
of Section 401(a) of the Code (a "QUALIFIED PLAN") is, and has been during
the period from its adoption to the date hereof, so qualified, both as to
form and operation and all necessary approvals of Governmental
Authorities, including a favorable determination as to the qualification
under the Code of each of such Qualified Plans and each amendment thereto,
have been timely obtained. Except as set forth in SCHEDULE 3.17, all
accrued contribution obligations of the Company with respect to any Plan
have either been fulfilled in their entirety or are fully reflected in the
Financial Statements.
(c) No Plan has incurred, and neither the Company nor any ERISA
Affiliate has incurred, any liability for excise tax or penalty due to the
Internal Revenue Service. There have been no terminations, partial
terminations or discontinuances of contributions to any Qualified Plan
during the preceding five years without notice to and approval by the
Internal Revenue Service and payment of all obligations and liabilities
attributable to such Qualified Plan.
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(d) Neither the Company nor any ERISA Affiliate has made any
promises of retirement or other benefits to employees, except as set forth
in the Plans, and neither the Company nor any ERISA Affiliate maintains or
has established any Plan that is a "WELFARE BENEFIT PLAN" within the
meaning of Section 3(1) of ERISA that provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after
such participant's termination of employment, except as may be required by
Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code,
and at the expense of the participant or the beneficiary of the
participant, or retiree medical liabilities. Neither the Company nor any
ERISA Affiliate maintains, has established or has ever participated in a
multiple employer welfare benefit arrangement as described in Section
3(40)(A) of ERISA. Except as set forth in SCHEDULE 3.17, neither the
Company nor any ERISA Affiliate has any current or future obligation or
liability with respect to a Plan pursuant to the provisions of a
collective bargaining agreement.
(e) Neither the Company nor any ERISA Affiliate has incurred any
material liability to the Pension Benefit Guaranty Corporation in
connection with any Plan. The assets of each Plan that is subject to Title
IV of ERISA are sufficient to provide the benefits under such Plan, the
payment of which the Pension Benefit Guaranty Corporation would guarantee
if such Plan were terminated, and such assets are also sufficient to
provide all other "BENEFITS LIABILITIES" (as defined in ERISA Section
4001(a)(16)) due under such Plan upon termination.
(f) No "REPORTABLE EVENT" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any Plan. There are no pending,
or to the Company's knowledge, threatened claims, lawsuits or actions
(other than routine claims for benefits in the ordinary course) asserted
or instituted against, and neither the Company nor any ERISA Affiliate has
knowledge of any threatened litigation or claims against, the assets of
any Plan or its related trust or against any fiduciary of a Plan with
respect to the operation of such Plan. To the Company's knowledge, there
are no investigations or audits of any Plan by any Governmental Authority
currently pending and there have been no such investigations or audits
that have been concluded that resulted in any liability to the Company or
any ERISA Affiliate that has not been fully discharged. Neither the
Company nor any ERISA Affiliate has participated in any voluntary
compliance or closing agreement programs established with respect to the
form or operation of a Plan.
(g) Neither the Company nor any ERISA Affiliate has engaged in any
prohibited transaction, within the meaning of Section 406 of ERISA or
Section 4975 of the Code, in connection with any Plan. Except as set forth
in SCHEDULE 3.17, neither the Company nor any ERISA Affiliate is, or ever
has been, a participant in or is obligated to make any payment to a
multiemployer plan. No person or entity that was engaged by the Company or
an ERISA Affiliate as an independent contractor can or will be
characterized or deemed to be an employee of the Company or an ERISA
Affiliate under applicable Laws for any purpose whatsoever, including,
without limitation, for purposes of federal, state and local income
taxation, workers' compensation and unemployment insurance and Plan
eligibility.
3.18. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
3.18, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company and Seller, threatened
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against or affecting the Company, at law or in equity, or before or by any
Governmental Authority having jurisdiction over the Company. No written notice
of any claim, action, suit or proceeding, whether pending or threatened, has
been received by the Company and, to Seller's and the Company's knowledge, there
is no basis therefor. Except to the extent set forth in SCHEDULE 3.18, the
Company has conducted and is conducting its business in compliance with all Laws
applicable to the Company, its assets or the operation of its business.
3.19. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. The Company has timely filed all
requisite federal, state, local and other tax returns for all fiscal periods
ended on or before the Closing, and has duly paid in full or made adequate
provision in the Financial Statements for the payment of all Taxes for all
periods ending at or prior to the Closing Date. The Company has duly withheld
and paid or remitted all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other person or entity that required withholding under
any applicable Law, including, without limitation, any amounts required to be
withheld or collected with respect to social security, unemployment
compensation, sales or use taxes or workers' compensation. Except as set forth
in SCHEDULE 3.19, there are no examinations in progress or claims against the
Company relating to Taxes for any period or periods prior to and including the
Balance Sheet Date and no written notice of any claim for Taxes, whether pending
or threatened, has been received. The Company has not granted or been requested
to grant any extension of the limitation period applicable to any claim for
Taxes or assessments with respect to Taxes. The Company is not a party to any
Tax allocation or sharing agreement and is not otherwise liable or obligated to
indemnify any person or entity with respect to any Taxes. The amounts shown as
accruals for Taxes in the Financial Statements as of the Balance Sheet Date are
sufficient for the payment of all Taxes for all fiscal periods ended on or
before that date. True and complete copies of (a) any tax examinations, (b)
extensions of statutory limitations and (c) the federal, state and local Tax
returns of the Company for the last three fiscal years have been previously
provided to PalEx. There are no requests for ruling in respect of any Tax
pending between the Company and any Taxing authority. The Company currently
utilizes the accrual method of accounting for income tax purposes. Such method
of accounting has not changed in the past five years.
3.20. ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth in SCHEDULE 3.20, the Company has conducted its operations in the ordinary
course and there has not been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results or prospects of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company, individually or in the aggregate;
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(c) any change in the authorized capital stock of the Company or in
its outstanding securities or any change in Seller's ownership interest in
the Company or any grant of any options, warrants, calls, conversion
rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation payable or to become payable by
the Company to Seller or any of its officers, directors, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice, which
bonuses and salary increases are set forth in SCHEDULE 3.20;
(f) any work interruptions, labor grievances or claims filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, Seller and his Affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company;
(i) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business, consistent with past
practices or incurred in connection with the transactions contemplated by
this Agreement;
(j) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(l) any waiver of any material rights or claims of the Company;
(m) any material breach, amendment or termination of any material
contract, agreement, Permit or other right to which the Company is a party
or any of its property is subject; or
(n) any other material transaction by the Company outside the
ordinary course of business.
3.21. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. SCHEDULE
3.21 sets forth an accurate schedule, as of the date of this Agreement, of (a)
the name of each financial institution or brokerage firm in which the Company
has accounts or safe deposit boxes; (b) the names in which the accounts or boxes
are held; (c) the type of account and the cash, cash equivalents and securities
held in such account as of the
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second business day prior to the Closing, none of which assets have been
withdrawn from such accounts since such date except for bona fide business
purposes in the ordinary course of the business of the Company; and (d) the name
of each person authorized to draw thereon or have access thereto. SCHEDULE 3.21
also sets forth the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms thereof.
3.22. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company, Seller,
any Affiliate of Seller nor, to Seller's knowledge, any Affiliate of the Company
has given or offered to give anything of value to any governmental official,
political party or candidate for government office nor has it otherwise taken
any action which would constitute a violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any similar Law.
3.23. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 3.23, neither Seller, any Affiliate of Seller nor, to
Seller's knowledge, any Affiliate of the Company owns, directly or indirectly,
any interest in, or is an officer, director, employee or consultant of or
otherwise receives remuneration from, any business which is in a Competitive
Business or is a competitor, lessor, lessee, customer or supplier of the
Company. Except as set forth in SCHEDULE 3.23, no officer or director of the
Company nor Seller has nor, during the period beginning January 1, 1996 through
the date hereof, had any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of the Company.
3.24. INTANGIBLE PROPERTY. SCHEDULE 3.24 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, technology,
licenses, trade names, copyrights and other intellectual property or proprietary
property rights owned or used by the Company. The Company owns or possesses, and
the assets of the Company include, sufficient legal rights to use all of such
items without conflict with or infringement of the rights of others.
3.25. DISCLOSURE. Seller and the Company have provided PalEx or its
representatives all the information that PalEx has requested in analyzing
whether to consummate the Acquisition and the other transactions contemplated by
this Agreement. None of the information so provided nor any representation or
warranty of the Company or Seller to PalEx or Newco in this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein, in light of the circumstances
under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
PalEx and Newco jointly and severally represent and warrant to Seller as
follows:
4.1. ORGANIZATION. Each of PalEx and Newco is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, and is duly authorized and qualified under all applicable Laws to
carry on its business in the places and in the manner now conducted. Each of
PalEx and Newco has the requisite power and authority to own, lease and operate
its assets and properties and to carry on its business as such business is
currently being conducted.
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4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of PalEx and Newco has the full legal right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement have been approved by the boards of directors of PalEx and Newco
and PalEx, as the sole stockholder of Newco. No additional corporate
proceedings on the part of PalEx or Newco are necessary to authorize the
execution and delivery of this Agreement and the consummation by PalEx and
Newco of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by PalEx and Newco, and, assuming
the due authorization, execution and delivery by the Company and Seller,
constitutes a valid and binding agreement of PalEx and Newco, enforceable
against PalEx and Newco in accordance with its terms.
(b) The execution and delivery of this Agreement by PalEx and Newco
do not, and the consummation by PalEx and Newco of the transactions
contemplated hereby will not, violate or result in a breach of any
provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under any of the terms, conditions or
provisions of (i) the Certificate of Incorporation or By-Laws of PalEx or
Newco, (ii) any Law applicable to either PalEx or Newco or any of its
properties or assets or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which PalEx or Newco is
now a party or by which either PalEx or Newco or any of its properties or
assets may be bound or affected.
(c) Except for such filings as may be required under federal or
state securities Laws, no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement by
PalEx and Newco or the consummation by PalEx and Newco of the transactions
contemplated hereby.
4.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued to
Seller pursuant to the Acquisition, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. The issuance of PalEx Common Stock pursuant to the Acquisition
will transfer to Seller valid title to such shares of PalEx Common Stock, free
and clear of all Encumbrances, except for any Encumbrances created by Seller.
4.4. SEC FILINGS; DISCLOSURE. PalEx has filed with the Securities and
Exchange Commission ("SEC") all material forms, statements, reports and
documents required to be filed by it under each of the Securities Act of 1933,
as amended (the "1933 ACT"), the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), and the respective rules and regulations thereunder, (a) all
of which, as amended, if applicable, complied when filed in all material
respects with all applicable requirements of the appropriate Act and the rules
and regulations thereunder, and (b) none of which, as amended, if applicable,
contains any untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Seller acknowledges that PalEx has informed him of its new $125
million credit facility, which it closed on January 29, 1998.
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4.5. DISCLOSURE. PalEx has fully provided Seller or his representatives
with all the information that Seller has requested in analyzing whether to
consummate the Acquisition. None of the information so provided nor any
representation or warranty of PalEx contained in this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE V
CERTAIN COVENANTS
5.1. RELEASE FROM GUARANTEES. PalEx shall use its commercially reasonable
best efforts to have Seller released from the personal guarantees of the Company
indebtedness identified in SCHEDULE 5.1. PalEx hereby agrees to indemnify Seller
and hold Seller harmless for any amounts that Seller is required to pay in
connection with the enforcement of any obligations under such personal
guarantees after the Closing, including without limitation any reasonable
attorneys' fees and expenses incurred in connection therewith.
5.2. FUTURE COOPERATION; TAX MATTERS. Seller and PalEx shall each deliver
or cause to be delivered to the other following the Closing such additional
instruments as the other may reasonably request for the purpose of fully
carrying out this Agreement. Seller will cooperate and use his commercially
reasonable best efforts to have the present officers, directors and employees of
the Company cooperate with PalEx, Newco at and after the Closing in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing. Seller will cooperate
with the Company in the preparation of all tax returns covering the period from
the beginning of the Company's current tax year through the Closing. In
addition, PalEx will provide Seller with access to such of the Company's books
and records as may be reasonably requested by Seller in connection with federal,
state and local tax matters relating to periods prior to the Closing. The party
requesting cooperation, information or actions under this SECTION 5.2 shall
reimburse the other party for all reasonable out-of-pocket costs and expenses
paid or incurred in connection therewith, which costs and expenses shall not,
HOWEVER, include per diem charges for employees or allocations of overhead
charges.
5.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto. The Company will pay Arthur Andersen LLP's expenses of
its audit of the Financial Statements. Seller will pay the fees and expenses
incurred in connection with the execution, delivery and performance of this
Agreement and any amendments hereto and the consummation of the transactions
contemplated hereby as follows: (a) all of such fees and expenses incurred by
Seller shall be paid by Seller, (b) all of such fees and expenses of Seller's
agents, representatives, financial advisors, accountants and counsel shall be
paid by Seller, and (c) 33% of such fees and expenses of the Company shall be
paid by Seller if such fees and expenses exceed $72,460; PROVIDED, HOWEVER, that
Newco will pay such fees, expenses and disbursements of the Company up to, but
not in excess of, an amount equal to (i) $1,000,000 less (ii) any fees, expenses
and disbursements of Acme, ESP Realty Corp., Inc. or ERI paid by PalEx, Newco or
any Affiliate of PalEx or Newco, or for which any such party is liable.
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5.4. REGISTRATION RIGHTS AGREEMENT. Concurrently with the execution of
this Agreement, PalEx and Seller shall enter into a mutually acceptable
Registration Rights Agreement.
5.5. REPAYMENT OF RELATED PARTY INDEBTEDNESS. Concurrently with the
execution of this Agreement, (a) Seller shall repay to the Company all amounts
outstanding as advances to or receivables from Seller, each of which advances or
receivables is specifically reflected in SCHEDULE 3.8, and (b) the Company shall
repay all amounts outstanding under loans to the Company from Seller, each of
which loans to the Company is specifically reflected in SCHEDULE 3.7.
ARTICLE VI
INDEMNIFICATION
Seller, PalEx and Newco each make the following covenants:
6.1. GENERAL INDEMNIFICATION BY SELLER. Seller covenants and agrees that
he will indemnify, defend, protect and hold harmless PalEx, Newco and the
Company, and their respective officers, directors, employees, stockholders,
agents, representatives and Affiliates, at all times from and after the date of
this Agreement until the Expiration Date from and against all Losses incurred by
any of such indemnified persons as a result of or arising from (a) any breach of
the representations and warranties of Seller set forth herein or in the
Schedules or certificates delivered in connection herewith, (b) any breach or
nonfulfillment of any covenant or agreement on the part of Seller under this
Agreement, and (c) all income Taxes payable by the Company for all periods prior
to and including the Closing Date.
6.2. INDEMNIFICATION BY PALEX. PalEx covenants and agrees that it will
indemnify, defend, protect and hold harmless Seller and his agents,
representatives, Affiliates , beneficiaries and heirs and employees at all times
from and after the date of this Agreement until the Expiration Date from and
against all Losses incurred by any of such indemnified persons as a result of or
arising from (a) any breach of the representations and warranties of PalEx or
Newco set forth herein or in the Schedules or certificates attached hereto, and
(b) any breach or nonfulfillment of any covenant or agreement on the part of
PalEx or Newco under this Agreement.
6.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), of the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
SECTION 6.1, or 6.2 hereof (hereinafter the "INDEMNIFYING PARTY") written notice
of such claim or the commencement of such action or proceeding. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in all commercially
reasonable respects in the defense thereof and in any settlement thereof. Such
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cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; PROVIDED, HOWEVER, that the Indemnified Party shall
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof, and the Indemnifying
Party shall not settle any such Third Person claim without the consent of the
Indemnified Party, unless the settlement thereof imposes no liability or
obligation on, and includes a complete release from liability of, the
Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement unless such settlement provides for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, in its discretion, and the Indemnifying Party
shall reimburse the Indemnified Party for the amount paid in such settlement and
any other liabilities or expenses incurred by the Indemnified Party in
connection therewith.
6.4. INDEMNIFICATION DEDUCTIBLE. Neither Seller, on the one hand, nor
PalEx, Newco and the Company, on the other hand, shall be entitled to
indemnification from the other under the provisions of SECTION 6.1(A) or SECTION
6.2(A), as the case may be, until such time as, and only to the extent that, the
claims subject to indemnification by such other party exceed, in the aggregate,
$20,000. Notwithstanding the foregoing, the limitations set forth in this
SECTION 6.4 shall not apply to fraudulent misrepresentations.
6.5. INDEMNIFICATION LIMITATION.
(a) The aggregate indemnification obligation of Seller under SECTION
6.1(A) shall be limited to 50% of the sum of (a) the value of any shares
of PalEx Common Stock that (i) were received by Seller in the Acquisition
and (ii) have not been sold by Seller in a bona fide arms'-length
transaction to a third party that is not an Affiliate of Seller
(collectively, the "PURCHASE PRICE SHARES"), plus (b) the gross proceeds
from the sale of Purchase Price Shares in a bona fide arms'-length
transaction to a third party that is not an Affiliate of Seller.
Indemnification claims under this ARTICLE VI shall be settled first from
the sale or recovery of Purchase Price Shares, to the extent thereof, and
thereafter, from the gross proceeds from prior bona fide arms'-length
sales of Purchase Price Shares to third parties that are not Affiliates of
Seller.
(b) For purposes of this SECTION 6.5, the value of Purchase Price
Shares shall be the average closing price per share of PalEx Common Stock
for the 10 trading days ending on the second trading day before the date a
Loss becomes payable by Seller (either by agreement or
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pursuant to a judgment or binding determination by an arbitrator) in
accordance with this ARTICLE VI, as reported on The Nasdaq Stock Market or
such other national securities exchange on which the PalEx Common Stock is
principally traded. Notwithstanding the foregoing, the limitations set
forth in this SECTION 6.5 shall not apply to fraudulent
misrepresentations.
6.6. INDEMNIFICATION FOR NEGLIGENCE OF INDEMNIFIED PARTY. THE RIGHTS TO
INDEMNIFICATION UNDER THIS ARTICLE VI INCLUDE RIGHTS TO INDEMNIFICATION
FOR THE RESULTS OF AN INDEMNIFIED PARTY'S ACTUAL OR ALLEGED NEGLIGENCE,
IF SUCH INDEMNIFIED PARTY WOULD OTHERWISE BE ENTITLED TO
INDEMNIFICATION HEREUNDER.
ARTICLE VII
NONCOMPETITION COVENANTS
7.1. PROHIBITED ACTIVITIES.
(a) For no additional consideration, Seller will not, for the longer
of (y) five years following the Closing Date and (z) one year following
Seller's voluntary termination of his employment with the Company or its
Affiliates or the termination of such individual's employment with the
Company "for cause" (as defined below), directly or indirectly, for
himself or on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, employee, shareholder,
owner, partner, joint venturer, or in a managerial or
advisory capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales
representative, in any Competitive Business within 250
miles of where the Company or any of its subsidiaries
conducts business (the "TERRITORY");
(ii) call upon any person who is an employee or consultant of
PalEx or the Company or any of their respective
subsidiaries for the purpose or with the intent of
enticing such employee or consultant away from or out of
the employ or contract with PalEx or the Company or any
of their respective subsidiaries; or
(iii) call upon any person or entity which is, at that time,
or which has been, within one year prior to that time, a
customer of the Company or PalEx or any of the
subsidiaries of such parties within the Territory for
the purpose of soliciting or selling services or
products in a Competitive Business within the Territory.
(b) For purposes of this Agreement, a termination of employment "for
cause" means: (i) Seller's gross negligence in the performance or
intentional nonperformance (continuing for 10 days after receipt of
written notice of need to cure) of any of Seller's duties and
responsibilities for
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the Company or reasonable instructions of the Board of Directors of the
Company within the scope of his employment by the Company; (ii) Seller's
dishonesty, fraud or misconduct with respect to the business or affairs of
the Company; (iii) Seller's conviction of a felony crime; or (iv) chronic
alcohol abuse or drug abuse by Seller.
(c) Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Seller from acquiring, as a passive investor with no
involvement in the operations of the business, not more than one percent
of the capital stock of a Competitive Business whose stock is publicly
traded on a national securities exchange, the Nasdaq National Market or
over-the-counter.
7.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to PalEx and the Company as a result of a breach of the foregoing
covenant, because a breach of such covenant would diminish the value of the
assets and business of the Company being sold pursuant to this Agreement, and
because of the immediate and irreparable damage that could be caused to PalEx
and the Company for which it would have no other adequate remedy, Seller agrees
that the foregoing covenant may be enforced against such individual by
injunctions, restraining orders and other equitable actions.
7.3. REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this ARTICLE VII is necessary in terms of time, activity
and territory to protect PalEx's and the Company's interest in the assets and
business being acquired pursuant to the terms of this Agreement and impose a
reasonable restraint on Seller in light of the activities and business of the
Company on the date of the execution of this Agreement and the current plans of
the Company.
7.4. SEVERABILITY; REFORMATION. The covenants in this ARTICLE VII are
severable and separate, and the unenforceability of any specific covenant shall
not affect the continuing validity and enforceability of any other covenant. In
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth in this ARTICLE VII are unreasonable
and therefore unenforceable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable
and this Agreement shall thereby be reformed.
7.5. MATERIAL AND INDEPENDENT COVENANT. Seller acknowledges that his
agreements and the covenants set forth in this ARTICLE VII are material
conditions to PalEx's and Newco's agreements to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and that PalEx
and Newco would not have entered into this Agreement without such covenants. All
of the covenants in this ARTICLE VII shall be construed as an agreement
independent of any other provision in this Agreement.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. GENERAL. Seller recognizes and acknowledges that he had in the past,
currently has, and in the future will have, access to certain confidential
information relating to the business of the Company, such as lists of customers,
operational policies, and pricing and cost policies that are, and following the
Closing will be, valuable, special and unique assets of the Company. Seller
agrees that he will not use or disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose
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whatsoever, except as is required in the course of performing his duties to the
Company and/or PalEx, unless (a) such information becomes known to the public
generally through no fault of Seller, or (b) disclosure is required by Law,
PROVIDED that prior to disclosing any information pursuant to this clause (b)
Seller shall, if possible, give prior written notice thereof to PalEx and the
Company and provide PalEx with the opportunity to contest such disclosure. In
the event of a breach or threatened breach by Seller of the provisions of this
Section, PalEx shall be entitled to an injunction restraining Seller from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting PalEx from pursuing any other available remedy
for such breach or threatened breach, including, without limitation, the
recovery of damages.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
irreparable damage that would be caused for which the Company and/or PalEx would
have no other adequate remedy, Seller agrees that the foregoing covenants may be
enforced against him by injunctions, restraining orders and other equitable
actions.
ARTICLE IX
POOLING-OF-INTERESTS ACCOUNTING
9.1. EXECUTION OF DOCUMENTS NECESSARY FOR POOLING TREATMENT. If required,
Seller will execute any documentation reasonably required by PalEx's independent
public accountants to enable PalEx to account for the Acquisition as a
pooling-of-interests.
9.2. RESTRICTIONS ON RESALE. PalEx has informed Seller that PalEx intends
to account for the Acquisition as a pooling-of-interests under Opinion No. 16.
PalEx has also informed Seller that its ability to account for the Acquisition
as a pooling-of-interests was a material factor considered by PalEx in its
decision to enter into this Agreement. Therefore, pursuant to Opinion No. 16,
prior to the publication and dissemination by PalEx of consolidated financial
results which include results of the combined operations of the Company and
PalEx for at least 30 days on a consolidated basis following the Closing, Seller
shall not sell, offer to sell, or otherwise transfer or dispose of, any shares
of the PalEx Common Stock received by Seller, engage in put, call, short-sale,
straddle or similar transactions, or in any other way reduce the Seller's risks
of owning shares of PalEx. The certificates evidencing the PalEx Common Stock to
be received by Seller will bear a legend substantially in the form set forth
below:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE
RESULTS OF AT LEAST 30 DAYS OF COMBINED OPERATIONS OF THE ISSUER AND THE
COMPANY ACQUIRED BY THE ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER WILL REMOVE
THIS RESTRICTIVE LEGEND WHEN THIS REQUIREMENT HAS BEEN MET.
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ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. COMPLIANCE WITH LAW. Seller acknowledges the shares of PalEx Common
Stock issued at the Closing in accordance with the terms of this Agreement (the
"RESTRICTED SHARES") will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The Restricted Shares are
being or will be acquired by Seller solely for its own account, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of them in connection with a distribution. Seller covenants,
warrants and represents that none of the Restricted Shares will be, directly or
indirectly, offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC.
Certificates representing the Restricted Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
10.2. ECONOMIC RISK; SOPHISTICATION. Seller is able to bear the economic
risk of an investment in the Restricted Shares and can afford to sustain a total
loss of such investment. Seller has such knowledge and experience in financial
and business matters that it or he is capable of evaluating the merits and risks
of the proposed investment and therefore has the capacity to protect its or his
own interests in connection with the acquisition of the Restricted Shares
pursuant hereto. Seller represents to PalEx that he is an "accredited investor,"
as that term is defined in Regulation D under the 1933 Act. Seller or his
representatives have had an adequate opportunity to ask questions and receive
answers from the officers of PalEx concerning, among other matters, PalEx, its
management, its plans for the operation of its business and potential additional
acquisitions.
10.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as Seller
holds any Restricted Shares, to use its reasonable best efforts to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to Seller upon written request a written statement by
PalEx as to its compliance with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, a copy of the most recent annual or
quarterly report of PalEx, and such other reports and documents so filed
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as Seller may reasonably request in availing itself of any rule or
regulation of the SEC allowing Seller to sell any such shares without
registration
ARTICLE XI
MISCELLANEOUS
11.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, Newco and the Company, and the heirs and legal representatives of Seller.
11.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among Seller, the Company,
Newco and PalEx and supersede any prior agreement and understanding relating to
the subject matter of this Agreement. This Agreement may be modified or amended
only by a written instrument executed by Seller, the Company, Newco and PalEx,
acting through their respective officers, duly authorized by their respective
Boards of Directors.
11.3. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11.4. BROKERS AND AGENTS. Each party hereto represents and warrants that
it employed no broker or agent in connection with the transactions contemplated
by this Agreement. Subject to SECTION 5.3, each party agrees to indemnify each
other party against all loss, cost, damages or expense arising out of claims for
fees or commissions of brokers employed or alleged to have been employed by such
indemnifying party.
11.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx, Newco or the Company (after the Closing), addressed
to it at:
PalEx, Inc.
1360 Post Oak Blvd.
Suite 800
Houston, Texas 77056
Attn: Edward E. Rhyne
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(b) If to Seller, addressed as follows:
Bart Kaminsky
19697 East Geddes Place
Aurora, Colorado 80016
or such other address as any party hereto shall specify pursuant to this SECTION
11.5 from time to time.
11.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE III and ARTICLE IV shall survive the Closing for
a period of 12 months from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 3.19 hereof shall
survive until such time as the limitations period has run for all tax periods
ended prior to the Closing Date, which shall be deemed to be the Expiration Date
for SECTION 3.19.
11.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
11.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:_________________________________
Edward E. Rhyne
Vice President and General Counsel
WESTERN CONTAINER ACQUISITION, INC.
By:_________________________________
Edward Rhyne
President
_____________________________________
Bart Kaminsky, Individually
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