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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended Commission File Number
December 31, 1999 0-5613
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REXX ENVIRONMENTAL CORPORATION
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(Exact name of registrant as specified in its charter)
New York 13-2625545
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
445 Park Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 750-7755
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.02
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes ___X___ No________
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in the
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing price on March 3, 2000, the aggregate market value of
voting stock held by nonaffiliates of the registrant (assuming that all the
stock referred to under Item 12 hereof is held by affiliates) was approximately
$17,000,000.
As of March 3, 2000, the registrant had 2,467,576 shares of $.02 par value
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
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Portions of definitive proxy statement for As referred to in
the 1999 Annual Meeting of Shareholders Part III - Items
which may be filed pursuant to Regulation 10, 11, 12 and 13.
14A under the Securities Exchange Act of
1934.
Exhibit index at pages 36 - 39
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REXX ENVIRONMENTAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1999
PART I
Item 1. Business:
General - Current
REXX Environmental Corporation's operating subsidiary, Watkins
Contracting, Inc. ("WCI"), is a leading regional provider of asbestos-abatement
services, demolition and dismantling services and other related specialty
contracting services, including lead paint abatement, to a broad range of
governmental, commercial, industrial and institutional clients located primarily
in California.
On June 15, 1999, REXX Environmental Corporation (the "Company" or
"REXX") announced that it had signed a definitive agreement to sell WCI to Greg
Watkins and Daren Barone (or their permitted assignees) for $1,300,000 in cash
and 125,000 shares of REXX Environmental Corporation common stock, as well as
certain other consideration. Subsequently, the terms were amended to provide
that Messrs. Watkins and Barone could pay the Company $171,875 in cash in lieu
of the 125,000 shares of REXX common stock, at their option at the time of
closing. The sale of WCI is subject to the approval of the Company's
shareholders. Based on preliminary estimates, if the Company's shareholders
approve the sale of WCI and it closes, on closing the Company will record a loss
on the sale of WCI of approximately $2,800,000 which represents the difference
between the net proceeds that the Company will receive and the combined value of
the investment and goodwill that is recorded on the Company's books. This
preliminary estimate is subject to further review and valuations at the time the
proposed sale closes.
On December 9, 1999, the Company announced that it had signed a
definitive agreement for a subsidiary of TWG, Inc. to merge with and into REXX,
subject to the approval of REXX's shareholders and certain other conditions,
including the closing of the sale of WCI. TWG, Inc. would become the publicly
traded parent company. In January 2000, TWG, Inc. changed its name to Newtek
Capital, Inc. ("Newtek"). If the Company's shareholders approve the transaction
and it closes, Newtek's current shareholders are expected to own 18,250,000
shares of Newtek common stock and the Company's shareholders are expected to own
1 share of Newtek for each share of the Company's common stock they currently
own, or a total of 2,467,576 shares.
Newtek is primarily engaged in the business of investing in small, high
growth businesses through the structuring, funding, and development of early
stage companies, principally focused on technology and the internet. As of
January 10, 2000, Newtek had debt, equity or hybrid investments in seven
portfolio companies.
Following the Newtek/REXX merger, the business of REXX will consist
exclusively of winding down and liquidating the remaining REXX assets. The
environmental remediation business conducted by REXX prior to the WCI sale will
no longer be owned or operated by REXX.
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Newtek does not contemplate any new business activity through REXX although such
is possible if an attractive opportunity is available.
REXX has filed a preliminary proxy statement and Newtek will file a
Registration Statement with the Securities and Exchange Commission for
shareholder approval of the WCI sale and the Newtek transaction. These documents
will include information about each of the companies, their subsidiaries, REXX's
proposed sale of WCI, and the merger of a subsidiary of Newtek with and into
REXX. As soon as practicable after Securities and Exchange Commission filings
become effective, the proxy/prospectus will be mailed to REXX's shareholders and
they will be asked to vote for the approval of both the sale of WCI and the
merger with Newtek. If REXX shareholders approve both transactions, it is
expected that the sale of WCI and the merger with Newtek will close in April or
May 2000.
The Board of Directors of REXX has approved the sale of WCI, the merger
and a recommendation that shareholders vote for the approval of both of these
transactions.
In the event that the WCI transaction is not completed, the Newtek/REXX
merger will not be consummated, unless Newtek waives the requirement that the
WCI transaction be completed, and REXX will explore all viable alternatives,
including attempting to locate another possible purchaser of some or all of WCI.
There can be no assurance that a purchaser can be located, or that a suitable
transaction can be negotiated on terms acceptable to REXX. Based upon its and
WCI's current financial resources, competitive conditions in the asbestos
abatement, demolition and remediation services industries, and REXX's experience
with WCI, REXX believes that WCI will not be capable of producing sufficient
profits to generate an acceptable rate of return on REXX's investment in WCI,
unless it obtains additional financing to expand WCI's operations. REXX believes
that it and WCI will continue to be unable to obtain appropriate institutional
financing. However, other alternatives, if they exist and can be located,
probably will involve above market rates, require personal guarantees and/or
cause substantial dilution of current shareholders' equity. There can be no
assurance that any financing will be available on terms acceptable to REXX or at
all or that personal guarantees can be obtained.
General - Historical
REXX Environmental Corporation was incorporated in New York in 1967 as
Computronic Sciences Inc. The Company changed its name in 1969 to Bio-Medical
Sciences, Inc. and, from 1969 to 1979, the Company was primarily a manufacturer
and marketer of disposable thermometers and sterilization monitors. In 1979, the
Company acquired substantially all of the assets of Oak Hill Sportswear, Inc.,
and became primarily engaged in the manufacture and marketing of women's apparel
and accessories. In 1983, the Company changed its name to Oak Hill Sportswear
Corporation. In 1984, the Company sold its disposable medical devices business.
From 1984 to 1995, the Company was engaged exclusively in the importation,
manufacture, marketing and distribution of women's apparel and accessories. As
of June 30, 1995, the Company sold its women's apparel business. Its accessories
business was phased out and its operating assets were sold during 1996 and 1997.
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On October 21, 1997, the Company completed the acquisition of 100% of
the outstanding shares of WCI, a privately-owned, San Diego-based environmental
remediation contractor. On February 18, 1998, in order to more accurately
reflect its current business operations, the Company changed its name to REXX
Environmental Corporation pursuant to an amendment to its certificate of
incorporation.
Asbestos-Abatement and Demolition Operations
WCI provides asbestos-abatement, demolition and dismantling services
and other specialty contracting services from its headquarters office located in
San Diego, California. WCI is licensed to conduct asbestos-abatement, demolition
and dismantling services in California and currently provides such services with
non-union labor. WCI also often utilizes subcontractor and temporary labor.
An asbestos-abatement or demolition program is focused on meeting the
needs of the facility owner or operator to effect the abatement or demolition
and manage properly the financial, regulatory and safety-related risks
associated with a project. WCI's abatement and demolition services require the
coordination of several processes: marketing, estimating, bidding and
contracting, project management, health and safety programs and the actual
asbestos removal or dismantling and demolition. WCI's management maintains
administrative and operational control over all phases of a project, from
estimating and bidding through project completion.
The Bidding and Contract Process
WCI obtains work and performs services under contract, often on the
basis of plans, specifications or requirements prepared by the client or the
client's agent. While some of its contracts are entered into directly with its
clients without a formal bidding process, WCI receives the majority of its
asbestos-abatement and demolition and dismantling contracts through a bidding
process. The majority of WCI's projects are contracted on a fixed-price basis,
while the remainder are contracted either on a time and materials or a
unit-price basis. Contracting opportunities are identified by management and the
local sales force and are entered into following competitive bidding or direct
negotiations with the customer or its agent. Generally, these contracts
encompass supplying project management, labor, tools, equipment and materials.
In most cases, a significant portion of the total costs incurred by WCI's
asbestos-abatement operations is attributable to labor, while a significant
portion of the total costs of its demolition and dismantling operations is
attributable to equipment costs and hauling and disposal charges. While large
abatement contracts may last more than one year, the majority of WCI's projects
are completed within two months of inception. In accordance with industry
standards, a 10% retention amount is withheld from gross billings by customers
on certain projects until the final completion of such projects.
Project Management
Each asbestos-abatement and demolition project is coordinated and
supervised by a project manager who selects the requisite equipment,
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ensures contract compliance and supervises all personnel. The project manager
reviews the progress of the project, which includes any subsequent change
orders. The day-to-day documentation of air testing, lead monitoring and final
clearance analysis is an important part of the process and is generally provided
by the client's consultants.
Health and Safety
WCI's written Safety Program, which is issued to all supervisory
personnel, contains specific outlines for all safety, health and regulatory
requirements associated with an asbestos-abatement project. During the
asbestos-abatement process, WCI engages in daily personal air monitoring, and
during the demolition and dismantling process WCI engages in daily personal air
monitoring as well as lead, heavy metal and other contaminant testing. It is
WCI's policy to comply with all regulatory and safety requirements.
The Abatement and Demolition Process
WCI's workers remove asbestos in accordance with the regulations of the
Environmental Protection Agency ("EPA"), OSHA and applicable state and local
regulations. Throughout the abatement process, air samples are taken to indicate
the level of airborne fibers both inside and outside the work area to protect
the workers and the building occupants. The environmental consultant, engineer
or industrial hygienist tests air samples from the work area both during and
upon completion of the project to monitor compliance with job specifications.
A thorough cleaning of the work area is conducted after removal, which
includes high-efficiency particulate air filter vacuuming and wet mopping of all
surfaces. All barriers erected during the asbestos-abatement project are
dismantled and disposed of in the same manner as asbestos waste. WCI
encapsulates the area from which asbestos was removed by applying a penetrating
encapsulant in an effort to seal off remaining fibers.
WCI performs commercial and governmental demolition and industrial
dismantling for public and private customers, primarily in California. All work
is done in accordance with the specifications prepared by the owner and in
accordance with all applicable OSHA, EPA, and state and federal governmental
regulations.
Commercial and governmental demolition involves demolishing high-rise
office buildings, hospitals, apartment complexes and other buildings. WCI's
workers, utilizing specialized equipment, demolish the buildings and remove the
debris off site. Materials generated from demolition activities are either
recycled or disposed of in a licensed landfill.
Markets and Customers
California is WCI's primary market for its asbestos-abatement,
demolition and dismantling and other specialty contracting services. WCI's
headquarters is located in San Diego, California.
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WCI believes that its primary clients, which include general
contractors, governmental agencies, large industrial processing and
manufacturing corporations, insurance companies, real estate development
companies and owners and tenants of large commercial and governmental
facilities, tend to emphasize quality and safety along with price considerations
in making their decision. WCI typically contracts directly with general
contractors, owners, operators or tenants of properties and works closely with
the environmental consultant of the customer in performing removal services.
WCI markets its services directly to companies that are in need of
asbestos-abatement or demolition and dismantling services, to general
contractors who oversee large renovation projects, and to asbestos-abatement
consulting firms from which WCI receives asbestos project referrals because of
its reputation and experience. During 1999 and 1998, one customer accounted for
approximately 13% of the Company's revenues for the year. No other customer
accounted for more than 10% of 1999 or 1998 revenues. During the short period
from the date of the Company's acquisition of WCI, October 21, 1997, to December
31, 1997, one customer accounted for approximately 28% of the Company's revenues
due to the completion of a large project during the period.
Seasonality
WCI's business is subject to variations in revenue and net income for
interim periods and from year to year, and increased revenue may not always
result in a corresponding increase in net income. These conditions are due to a
number of characteristics shared by WCI to varying degrees with most other
members of the industry, including the following: (1) its business is affected
by the scheduling of work at commercial properties, fiscal funding of projects
by government entities, outages at utilities and shutdowns at other industrial
facilities; (2) it sees fluctuations in percentages of labor intensive asbestos
abatement and equipment intensive demolition within its projects; (3) its
performance on a given project is often dependent on the performance of other
contractors, who are working on the same job, over which WCI has no control; and
(4) costs ultimately incurred by WCI on a job may be materially affected by such
risks as technical problems, labor shortages and disputes, time extensions,
weather, delays caused by external sources and fluctuations in the prices of
materials. Revenue and operating results may also be affected by the timing of
large contracts, especially if all or a substantial part of the performance of
such contracts occurs within one or two quarters. Accordingly, quarterly results
or other interim results should not be considered indicative of results to be
expected for any other quarter or for the full fiscal year.
Competition
The market for WCI's services is fragmented and highly competitive.
WCI's ability to compete as a provider of asbestos-abatement and demolition and
dismantling services depends upon pricing its services competitively, having the
ability to respond promptly and with adequate amounts of resources, having a
reputation for quality and safety, being able to obtain appropriate bonding and
insurance, and hiring, training and retaining qualified personnel, particularly
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in the areas of estimating and project management. While WCI is a significant
participant in the asbestos-abatement and demolition and dismantling services
market in California, it experiences competition from national, regional and
local firms, some of which have greater resources and experience.
Insurance and Bonding
WCI has established an insurance program that has been tailored to meet
the mutual risk management needs of its customers and WCI. The primary package
begins with commercial general liability, automobile liability and workers'
compensation policies. This plan is written with an A. M. Best Rated A+ XV
carrier. WCI carries an umbrella policy of $9,000,000 which, when added to the
base policy limits of $1,000,000 per occurrence ($2,000,000 aggregate), extends
coverage under general liability, automobile liability and workers' compensation
policies to $10,000,000 per occurrence ($11,000,000 aggregate) each. Effective
as of July 1, 1998, WCI's retained liability per occurrence under the general
liability policy is $0 for defense and $5,000 for indemnity, WCI's retained
liability under the automobile liability policy is $1,000 per occurrence and
liability under the workers' compensation policy is covered 100%, without
retention, up to the policy limits.
Public asbestos-abatement and demolition and dismantling projects
require that WCI post surety bonds as guarantees of performance of WCI's
contracts. The bonds are required to protect the interests of the general
public, as public funding is utilized in project financing. Additionally, surety
bonds also guarantee that WCI will pay all of its bills, including suppliers and
subcontractors who are working on projects for WCI. Similarly, many private
projects also require surety bonds to serve as protection and provide guarantees
for private owners.
WCI has existing surety relationships with ECS Underwriting, Inc.
(Reliance Insurance Companies) and AIG Environmental Services. Beginning in June
1999, certain executive officers of WCI have issued their guarantees to ECS
Underwriting and AIG Environmental Services in connection with the issuance of
surety bonds for WCI.
Employees
As of December 31, 1999, REXX (including WCI) had approximately 157
employees (including 1 leased employee), of which 5 were employed as executives,
5 provided project management, technical or engineering services, 6 were
employed in sales, clerical and data processing activities and approximately 141
were employed in other capacities, principally hourly labor. During 1999, the
number of hourly-rate employees of the Company ranged from 106 to 175. WCI
considers its relations with its employees to be satisfactory and has not
experienced any work stoppages or slowdowns.
Patents and Service Marks
The Company and WCI do not own any patents or service marks.
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Governmental Regulation
The asbestos-abatement and demolition and dismantling process is
regulated by the federal government through the EPA, OSHA and the Department of
Transportation ("DOT"). EPA regulations establish standards for the control of
asbestos fiber and airborne lead emissions into the environment during removal
and demolition projects. AHERA mandates that public schools inspect for levels
of asbestos contamination and prepare a specific management plan for appropriate
remedial action. OSHA regulations establish maximum airborne asbestos fiber,
airborne lead and heavy metal exposure levels applicable to asbestos and
demolition employees and set standards for employee protection during the
demolition, removal or encapsulation of asbestos, as well as storage,
transportation and final disposition of asbestos and demolition debris.
DOT regulations cover the management of the transportation of asbestos
and demolition debris and establish certain certification labeling and packaging
requirements. In addition, under the Comprehensive Environmental Response,
Compensation and Liability Act, also known as the Superfund Act, companies which
arrange for the transportation and disposal of asbestos waste materials may be
exposed to liability relating to the disposal of such material at sites which
are or may be designated as national priority list sites.
The states in which WCI currently operates have adopted laws and
regulations governing the conduct of asbestos-abatement contractors. Such laws
and regulations generally require the training and licensing of
asbestos-abatement contractors and their workers and notice before the
commencement of any asbestos-abatement project and specify standards of
performance for the asbestos removal process. In addition, some states authorize
municipalities to adopt more stringent standards.
WCI's management believes that governmental authorities are likely to
adopt further, similar laws and regulations and that existing laws and
regulations are going to become more restrictive. The regulations concerning
asbestos-abatement are primarily promulgated on the state and local level. In
addition, although subject to change, OSHA has adopted regulations to which
WCI's operations are subject. Many of the regulations are complex and frequently
amended and, therefore, WCI's management is unable to predict what, if any,
impact such regulations will have on its revenues, results of operations or
financial condition. As a result of the extensive regulation, WCI is, has been
and may in the future be, subject to audits and investigations by federal, state
and local governmental agencies. Although its management believes that WCI is in
substantial compliance with all regulatory requirements, because of the changing
regulatory environment and the complexity of its operations, there can be no
assurance that violations by WCI of federal, state or local laws and regulations
may not have occurred, or will not occur in the future, or that changes in such
laws and regulations would not have an adverse effect on WCI's business or
position. Failure to comply with regulations could result in the imposition of
civil and criminal penalties, any of which could have a material adverse effect
upon WCI's business.
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Licensing Requirements
States in which WCI operates require that WCI obtain asbestos licenses
to provide asbestos-abatement services and contractor licenses to provide
demolition and dismantling services. These licenses are generally subject to
annual renewal. WCI has been able to obtain the renewal of its licenses without
unusual difficulty or delay, and WCI's management believes that it is in
substantial compliance with all current state licensing requirements where WCI
intends to conduct business. In addition, certain states have adopted
regulations which require state-specific training, testing and licensing of
employees engaging in asbestos-abatement or demolition and dismantling
activities.
Backlog
The majority of WCI's asbestos-abatement and demolition and dismantling
services are contracted on a fixed-price basis, while the remainder are
contracted either on a time and materials or a unit-price basis. WCI's backlog
at December 31, 1999 was approximately $9,100,000, compared to approximately
$7,700,000 at December 31, 1998. WCI's backlog at December 31, 1999 is expected
to be substantially completed in the current calendar year; however, working
capital constraints and third party schedules could result in a portion of the
backlog work being completed in 2001.
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Item 2. Properties:
The Company's executive offices are located at 445 Park Avenue, New
York, New York 10022 in leased premises which the Company subleases from an
unaffiliated company on a month-to-month basis.
WCI's offices and warehouse are located at 5490 Complex Street, Suite
603, San Diego, California 92123, in leased premises of approximately 6,000
square feet, under a lease which expires March 31, 2000. Effective March 1,
2000, WCI is leasing approximately 11,000 square feet of office and warehouse
space and outdoor storage for large machinery, located at 5776 Ruffin Road, San
Diego, CA 92123. This property is being leased from an entity controlled by two
executive officers of WCI.
The Company owns a warehousing facility in Mississippi which is
approximately 64,000 square feet. At December 31, 1998 and 1999, the property
was carried as an asset held for sale and the Company is currently seeking to
sell the property. Since November 14, 1997, the property has been leased to an
unaffiliated company.
Item 3. Legal proceedings:
There are no material pending legal proceedings involving the Company
or WCI.
Item 4. Submission of matter to a vote of security holders:
No matter was submitted during the fourth quarter of 1999 to a vote of
the Company's shareholders.
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PART II
Item 5. Market for the registrant's common stock and related security holder
matters:
The REXX common stock has been listed on The American Stock Exchange
since May 14, 1998 and traded under the symbol "REX." Prior to May 14, 1998, the
REXX common stock was traded on The Nasdaq National Market under the symbol
"REXX" ("OHSC" prior to February 19, 1998). The table below sets forth the high
and low reported closing sale prices per share for the REXX common stock as
reported by the AMEX and Nasdaq.
Prices
High Low
1998:
1st quarter 5 5/16 3 3/4
2nd quarter 5 1/4 3 1/2
3rd quarter 3 3/4 2 1/2
4th quarter 2 13/16 1 3/4
1999:
1st quarter 2 1/2 1 3/8
2nd quarter 2 1/16 7/16
3rd quarter 1 9/16 3/4
4th quarter 4 3/16 11/16
2000:
1st quarter
(through March 3, 2000) 11 3/8 2 3/4
Based upon inquiries made by REXX in connection with its upcoming
annual meeting, REXX estimates that there are approximately 1,000 record and
beneficial holders of REXX common stock.
REXX has not paid any cash dividends and it does not expect to in the
foreseeable future.
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Item 6. Selected financial data:
For the years ended December 31,
1999 1998 1997 1996 1995
(In thousands except per share amounts)
Revenues $15,895 $13,743 $2,298 $ 75 $ 38
======= ======= ====== ====== ======
Net loss from
continuing operations ( 736) ( 496) ( 167) ( 218) ( 70)
(Loss) income from
discontinued
operations - - - ( 792) ( 4,908)
Loss on disposal of
discontinued
operations - - - ( 300) ( 1,861)
------- ------- ------ ------ ------
Net (loss) income ($ 736) ($ 496) ($ 167) ($1,310) ($6,839)
======= ======= ====== ====== ======
Per share data, basic
and diluted:
Net loss from
continuing operations ($.30) ($.20) ($.08) ($.11) ($ .03)
(Loss) income from
discontinued
operations - - - ( .38) ( 2.39)
Loss on disposal of
discontinued
operations - - - ( .15) ( .90)
---- ---- ---- ---- -----
Net (loss) income ($.30) ($.20) ($.08) ($.64) ($3.32)
==== ==== ==== ==== =====
Weighted average common
shares and equivalents
outstanding:
Basic 2,468 2,468 2,137 2,058 2,058
Diluted 2,468 2,468 2,137 2,058 2,058
Balance sheet:
Total assets $8,617 $10,422 $9,055 $6,880 $9,115
Long-term debt 606 $ 738 $ 180 $ 0 $ 0
Dividends paid per share: - - - - -
See consolidated financial statements.
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Item 7. Management's discussion and analysis of financial condition and results
of operations:
Liquidity and capital resources:
Working capital at December 31, 1999 was $415,000 as compared to $943,000
at December 31, 1998. The decrease of $528,000 was primarily due to the net loss
for the period.
Net accounts receivable were $2,629,000 at December 31, 1999 as compared to
$4,749,000 at December 31, 1998, a decrease of $2,120,000. The decrease was
principally due to increased collection efforts, lowered retention balances and
the occasional granting of discounts for early payments.
WCI executed, effective November 10, 1998, a revolving credit agreement
with Wells Fargo Bank, N.A. The credit agreement, as amended, which expires June
9, 2000, calls for interest payable at Wells Fargo's prime rate, as in effect
from time to time, plus 2% and borrowings up to 75% of eligible accounts
receivable subject to a maximum of $2,000,000 (reduced by approximately $100,000
of equipment loans made to WCI by Wells Fargo). At December 31, 1999, WCI had
$785,000 borrowed under the credit agreement, in addition to approximately
$80,000 of equipment loans made by Wells Fargo to WCI. The Company has
guaranteed WCI's borrowings under the credit agreement, which is also secured by
WCI's accounts receivable and all other assets (with the exception of vehicles
and equipment subject to purchase contract lending agreements with third party
lenders.) In addition, the credit agreement provides for certain financial
covenants based upon WCI's financial condition, including its current ratio and
tangible net worth. WCI's breach of certain financial covenants under its
secured credit agreement as of December 31, 1999 and earlier dates were waived
by Wells Fargo.
In order to meet its working capital needs at the corporate level, the
Company has negotiated a line of credit with HSBC Bank (USA) (formerly Republic
National Bank of New York), which provided, at December 31, 1999, for $250,000
in borrowings, secured by REXX's assets, and interest payable at HSBC's
reference rate plus 1%. This line of credit was evidenced by a demand grid note
in the maximum amount of $250,000, as of December 31, 1999. At December 31,
1999, the Company had $245,000 borrowed under the line of credit. Subsequent to
year end, this line of credit was increased to $450,000 and a demand grid note
in that maximum amount was executed to replace the $250,000 grid note. The
Company's borrowings under this line of credit have been guaranteed by its
Chairman of the Board, Arthur L. Asch and, subsequent to year end, also became
secured by a certificate of deposit in the amount of $200,000 deposited by Mr.
Asch with the bank. Mr. Asch is not being compensated by the Company for
providing the guarantee and additional collateral. The Company's management
believes that, if the shareholders approve the WCI sale and the sale closes,
this line of credit will be sufficient to provide the Company with the necessary
working capital to meet its needs through the completion of the WCI sale.
However, there is no assurance that (i) the line of credit will, in fact, be
sufficient to provide for the Company's corporate level working capital needs
until the completion of the WCI sale; (ii) repayment of all or a portion of the
Company's borrowings under this line of credit will not be demanded prior to
April 30, 2000; (iii) HSBC Bank will extend this line of credit beyond April 30,
2000, if requested by the Company; or (iv) Mr. Asch will continue to provide his
guarantee and collateral beyond April 30,
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2000. The discontinuance of this line of credit, by any action of HSBC Bank, as
a result of Mr. Asch's failure to continue his guarantee or collateral beyond
April 30, 2000 or otherwise, could have a material adverse effect on the
Company.
On June 15, 1999, the Company announced that it had signed a definitive
agreement to sell WCI to Greg Watkins and Daren Barone (or their permitted
assignees) for $1,300,000 in cash and 125,000 shares of REXX Environmental
Corporation common stock, as well as certain other consideration. Subsequently,
the terms were amended to provide that Messrs. Watkins and Barone could pay the
Company $171,875 in cash in lieu of the 125,000 shares of REXX common stock, at
their option at the time of closing. The sale of WCI is subject to the approval
of the Company's shareholders. Based on preliminary estimates, if the Company's
shareholders approve the sale of WCI and it closes, on closing the Company will
record a loss on the sale of WCI of approximately $2,800,000 which represents
the difference between the net proceeds that the Company will receive and the
combined value of the investment and goodwill that is recorded on the Company's
books. This preliminary estimate is subject to further review and valuations at
the time the proposed sale closes.
On December 9, 1999, the Company announced that it had signed a definitive
agreement for a subsidiary of TWG, Inc. to merge with and into REXX, subject to
the approval of REXX's shareholders and certain other conditions, including the
closing of the sale of WCI. TWG, Inc. would become the publicly traded parent
company. In January 2000, TWG, Inc. changed its name to Newtek Capital, Inc.
("Newtek"). If the Company's shareholders approve the transaction and it closes,
Newtek's current shareholders are expected to own 18,250,000 shares of Newtek
common stock and the Company's shareholders are expected to own 1 share of
Newtek for each share of the Company's common stock they currently own, or a
total of 2,467,576 shares.
Newtek is primarily engaged in the business of investing in small, high
growth businesses through the structuring, funding, and development of early
stage companies, principally focused on technology and the internet. As of
January 10, 2000, Newtek had debt, equity or hybrid investments in seven
portfolio companies.
Following the Newtek/REXX merger, the business of REXX will consist
exclusively of winding down and liquidating the remaining REXX assets. The
environmental remediation business conducted by REXX prior to the WCI sale will
no longer be owned or operated by REXX. Newtek does not contemplate any new
business activity through REXX although such is possible if an attractive
opportunity is available.
REXX has filed a preliminary proxy statement and Newtek will file a
Registration Statement with the Securities and Exchange Commission for
shareholder approval of the WCI sale and the Newtek transaction. These documents
will include information about each of the companies, their subsidiaries, REXX's
proposed sale of WCI, and the merger of a subsidiary of Newtek with and into
REXX. As soon as practicable after Securities and Exchange Commission filings
become effective, the proxy/prospectus will be mailed to REXX's shareholders and
they will be asked to vote for the approval of both the sale of WCI and the
merger with Newtek. If REXX shareholders approve both transactions, it is
expected that the sale of WCI and the merger with Newtek will close in April or
May 2000.
14 OF 40 PAGES
<PAGE>
The Board of Directors of REXX has approved the sale of WCI, the merger and
a recommendation that shareholders vote for the approval of both of these
transactions.
In the event that the WCI transaction is not completed, the Newtek/REXX
merger will not be consummated, unless Newtek waives the requirement that the
WCI transaction be completed, and REXX will explore all viable alternatives,
including attempting to locate another possible purchaser of some or all of WCI.
There can be no assurance that a purchaser can be located, or that a suitable
transaction can be negotiated on terms acceptable to REXX. Based upon its and
WCI's current financial resources, competitive conditions in the asbestos
abatement, demolition and remediation services industries, and REXX's experience
with WCI, REXX believes that WCI will not be capable of producing sufficient
profits to generate an acceptable rate of return on REXX's investment in WCI,
unless it obtains additional financing to expand WCI's operations. REXX believes
that it and WCI will continue to be unable to obtain appropriate institutional
financing. However, other alternatives, if they exist and can be located,
probably will involve above market rates, require personal guarantees and/or
cause substantial dilution of current shareholders' equity. There can be no
assurance that any financing will be available on terms acceptable to REXX or at
all or that personal guarantees can be obtained.
Item 7A. Quantitative and qualitative disclosure about market risk:
The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is interest
rates on its debt. A one percent change in interest rates on variable rate debt
would impact interest expense by $14,000, based on principal balances at
December 31, 1999.
Results of operations:
1999 Compared to 1998 -
Revenues in 1999 rose to $15,895,000 from $13,743,000, an increase of
$2,152,000. The increase was principally due to the continuing trend of larger,
demolition-based, projects becoming available for bid in the marketplace. WCI's
experience has been that projects which contain large segments of demolition
work involve higher total revenues and lower gross margins.
Gross profit in 1999 amounted to $3,021,000 as compared to $3,419,000 in
1998, a decrease of $398,000. The decrease is attributable to a decline in 1999
gross profit margins to 19% from 25% in 1998, which decline more than overcame
WCI's higher revenues in 1999. The decline in margins was primarily related to
the continuing trend of greater amounts of demolition-related projects in WCI's
mix of jobs.
General and administrative expenses fell to $3,433,000 in 1999 from
$3,859,000 in 1998, a decrease of $426,000. Decreases in expenses at the
corporate level, principally salaries, represented nearly all of the decrease.
Interest expense-net was $253,000 in 1999 compared to $126,000 in 1998, an
increase of $127,000. The increase was largely due to significantly higher
average debt outstanding for working capital needed to support higher revenues
and the purchase of equipment during 1999 as compared to 1998.
15 OF 40 PAGES
<PAGE>
Amortization of goodwill in 1999 remained constant with 1998, as the
Company is utilizing the straight line method of amortizing its goodwill.
The Company recorded a provision for income taxes of $9,000 in 1999
compared to recording a benefit from income taxes of $45,000 in 1998. The 1999
provision represents state and local franchise taxes, compared to 1998's
reversal of an accrual for income taxes payable from previous years.
1998 Compared to 1997 -
Revenues in 1998 consisted of solely WCI's contract revenues. Revenues in
1997 consisted of WCI's contract revenues (from October 21, 1997, the date of
the Company's acquisition of WCI) and consulting income. Contract revenues in
1998 were $13,743,000 compared to $2,248,000 in 1997. The increase was due to
the inclusion of a full year of WCI's contract revenues in 1998 as opposed to
only the period from October 21 through December 31 in 1997, as well as an
expansion of WCI's demolition-related revenues in 1998. Consulting income, which
arose from the Company's agreement with a purchaser of its former Sportswear
Division, was $50,000 in 1997. The consulting agreement expired on December 31,
1997 and was not renewed.
Gross profit in 1998 amounted to $3,419,000 as compared to $962,000 in
1997, an increase of $2,457,000. The increase is attributable to the inclusion
of WCI's gross profit for a full year in 1998 versus the period from October 21
through December 31 in 1997. Gross profit margin decreased to 25% in 1998 from
42% in 1997, principally due to lower margins on demolition-related projects in
1998 and the inclusion of very high margin asbestos projects in the fourth
quarter of 1997.
General administrative expenses rose to $3,859,000 in 1998 from $1,226,000
in 1997, an increase of $2,633,000. Excluding intercompany charges, $2,262,000
of the increase was incurred at WCI and $371,000 of the increase was incurred at
the corporate level, including a $170,000 increase in the amortization of
goodwill. General and administrative expenses rose principally as a result of
four factors: (1) the inclusion of WCI's general and administrative expenses for
a full year in 1998 compared to the period from October 21 to December 31, 1997;
(2) increased general and administrative expenses at WCI in connection with its
substantial revenue growth in 1998 versus 1997; (3) the growth in corporate
expenses associated with the administration of WCI for a full year, the
Company's external expansion and acquisition efforts, and the related financing
efforts; and (4) expenses which were no longer allocated to discontinued
operations.
Interest expense-net was $126,000 in 1998 compared to interest income-net
of $137,000 in 1997, a net expense increase of $263,000. The change was due to
the Company's position as a net borrower in 1998 compared to holding a net cash
balance during 1997. The borrowings in 1998 were used to finance the Company's
increase in accounts receivable, purchases of equipment and the net loss for the
year.
Amortization of goodwill rose in 1998 compared to 1997 as a result of
recording a full year of amortization in 1998 versus recognizing amortization in
1997 for the period from October 21 through December 31.
The Company recorded a benefit from income taxes in 1998 of $45,000
compared to a provision for income taxes of $48,000 in 1997. The net
16 OF 40 PAGES
<PAGE>
decrease of $93,000 was due to the Company's larger loss in 1998 versus 1997 and
the reversal of an accrual for income taxes payable from prior years.
Forward-Looking Information
From time to time, the Company or its representatives may have made or may
make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made by or with the approval of an authorized executive officer, or
in this report or other filings made by the Company with the Securities and
Exchange Commission. The words or phrases "trend," "expectation," "growing,"
"will be," "will consist," "will use," "will allow," "will require," "likely
result," "expected," "continued," "anticipated," "estimated," "projected,"
"potential," "opportunity," or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to ensure that such statements
are accompanied by meaningful cautionary statements, so as to maximize to the
fullest extent possible the protections of the safe harbor established in the
said Act. Accordingly, such statements are qualified in their entirety by
reference to and are accompanied by the following discussion of certain
important factors that could cause actual results to differ materially from such
forward-looking statements.
Investors should also be aware of factors that could have an impact on the
Company's business or financial position or performance. These include
intensified competition and its impact on revenues and profit margins, changes
in competitors business strategies, availability of qualified labor to meet the
Company's needs, ability to retain current labor, adverse changes in national
and local economic conditions, adjustments in fiscal funding levels for
government entities, timing of large contracts, increasingly stringent
requirements for compliance with government regulations, the availability of
capital under WCI's credit agreement, WCI and the Company's continued reliance
upon waivers of noncompliance from Wells Fargo, risks associated with the
proposed sale of WCI, the Company's potential inability to sell WCI due to the
non-approval of the Company's shareholders or other reasons, risks associated
with the proposed business combination with Newtek, the Company's potential
inability to complete a business combination with Newtek, risk of shareholder
dilution, and other factors detailed from time to time in the Company's
Securities and Exchange Commission filings or other readily available or
generally disseminated writings. The risks identified here are not all
inclusive. Reference is also made to other parts of this report that include
additional information concerning factors that could adversely impact the
Company's business or financial position or performance. Moreover, the Company
operates in a changing and very competitive business environment. New risks may
emerge from time to time, and it is not possible for management to predict all
risk factors, nor can it necessarily identify or assess the impact of all such
factors on the Company or the extent to which any factor or combination of
factors may cause actual results to differ materially from those contained in
any forward-looking statement. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.
17 OF 40 PAGES
<PAGE>
Item 8. Financial statements and
additional financial data
REXX ENVIRONMENTAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FILED WITH THE ANNUAL REPORT
OF THE COMPANY ON FORM 10-K
Page
Report of independent accountants 19
Consolidated balance sheets at December 31, 1999 and 1998 20
Consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997 21
Consolidated statements of stockholders' equity for the years
ended December 31, 1999, 1998 and 1997 22
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997 23-24
Notes to consolidated financial statements 25-35
18 OF 40 PAGES
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
REXX Environmental Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of REXX
Environmental Corporation and its subsidiaries at December 31, 1999 and 1998 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As more fully described in Note 14 to the consolidated financial statements,
REXX Environmental Corporation has signed definitive agreements to sell its sole
operating subsidiary and merge with another entity.
PricewaterhouseCoopers LLP
New York, New York
March 3, 2000
19 OF 40 PAGES
<PAGE>
REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 85 $ 68
Accounts receivable - net 2,629 4,749
Costs in excess of billings 831 223
Assets held for sale 780 780
Other current assets 194 164
-------- -------
Total current assets 4,519 5,984
Property and equipment, net 1,378 1,487
Goodwill, net 2,703 2,914
Other assets 17 37
-------- -------
$ 8,617 $10,422
======== =======
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 639 $ 668
Notes payable to bank 1,030 1,681
Accounts payable 1,749 1,872
Billings in excess of costs 126 409
Accrued expenses 465 311
Income taxes payable 95 100
--------- -------
Total current liabilities 4,104 5,041
--------- -----
Long-term debt, net of current portion 606 738
--------- ---
Stockholders' equity - see accompanying statement:
Preferred stock, $1.00 par value, authorized
1,000,000 shares; -0- shares issued
Common stock, $.02 par value, authorized
12,000,000 shares; 5,279,828 shares
issued 105 105
Capital in excess of par value 27,925 27,925
Accumulated deficit (7,115) (6,379)
Common stock held in treasury, at cost
(2,812,252 shares) (17,008) (17,008)
--------- -------
Total stockholders' equity 3,907 4,643
--------- -------
$ 8,617 $10,422
========= =======
See notes to consolidated financial statements.
20 OF 40 PAGES
<PAGE>
REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except
per share amounts)
Years ended December 31,
1999 1998 1997
Revenues $15,895 $13,743 $2,298
Cost of services 12,874 10,324 1,336
------- ------- -------
Gross profit 3,021 3,419 962
General and administrative
expenses 3,433 3,859 1,226
------- ------- -------
Loss from operations (412) (440) (264)
Other (income) expense:
Interest expense 253 135 37
Interest (income) 0 (9) (174)
Other expense (income) 62 (25) (8)
-------- ------- -------
Loss before provision for
taxes (727) (541) (119)
Provision for (benefit from)
taxes 9 (45) 48
-------- ------- -------
Net loss ($736) ($496) ($167)
======= ======= =======
Per share data (basic and diluted):
Net loss ($.30) ($.20) ($.08)
===== ===== =====
See notes to consolidated financial statements.
21 OF 40 PAGES
<PAGE>
REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Total
Common stock Capital in Accumu- stock-
Shares Par In excess of lated holders'
Issued Value treasury par value deficit equity
Balance, December
31, 1996 4,870 $97 ($17,008) $27,363 ($5,716) $4,736
Shares issued in
connection with
acquisition 400 8 542 550
Shares issued
upon exercise
of stock options 10 - 20 20
Net loss for
the year ended
December 31, 1997 ( 167) ( 167)
----- ---- ------- ------- ------ ------
Balance, December
31, 1997 5,280 105 ( 17,008) 27,925 ( 5,883) 5,139
Net loss for
the year ended
December 31, 1998 ( 496) ( 496)
----- ---- ------- ------ ------ ------
Balance, December
31, 1998 5,280 $105 ($17,008) $27,925 ($6,379) $4,643
Net loss for
the year ended
December 31, 1999 ( 736) ( 736)
----- ---- ------- ------ ------ ------
Balance, December
31, 1999 5,280 $105 ($17,008) $27,925 ($7,115) $3,907
===== ==== ======= ======= ====== ======
See notes to consolidated financial statements.
22 OF 40 PAGES
<PAGE>
REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
1999 1998 1997
Cash flows from operating activities:
Net loss ($736) ($ 496) ($ 167)
Adjustments to reconcile net loss
to net cash provided by (used by)
operating activities:
(Gain) loss on disposal of assets ( 5) 20 -
Depreciation and amortization 485 365 223
---- ------- ------
( 256) ( 111) 56
Changes in assets and liabilities 1,245 ( 1,898) ( 1,478)
----- ------- ------
Net cash provided by (used in)
operating activities 989 ( 2,009) ( 1,422)
----- ------- ------
Cash flows from investing activities
Acquisition of WCI - - ( 3,883)
Capital expenditures (178) ( 1,013) ( 105)
Net proceeds on disposal of
assets 18 640 648
Deposit on asset held for sale - ( 152) 143
----- ------- ------
Net cash (used in) provided by
investing activities ( 160) ( 525) ( 3,197)
----- ------- ------
Cash flows from financing activities:
Exercise of options - - 20
Net (decrease) increase in
short term borrowings ( 680) 1,334 17
Net (decrease) increase in long-term
debt ( 132) 558 ( 22)
----- ------- ------
Net cash provided by (used in)
financing activities ( 812) 1,892 15
----- ------- ------
Net increase (decrease) in cash 17 ( 642) ( 4,604)
Cash and cash equivalents
at beginning of year 68 710 5,314
----- ------- ------
Cash and cash equivalents
at beginning of year $ 85 $ 68 $ 710
===== ======= ======
See Notes to consolidated financial statements.
23 OF 40 PAGES
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Supplemental disclosures of cash flow information:
Changes in assets and liabilities:
Accounts receivable $2,120 ($2,396) ($ 609)
Costs in excess of billings ( 608) 377 ( 64)
Other current assets ( 30) ( 22) 80
Other assets 20 20 4
Billings in excess of costs ( 283) 171 23
Accounts payable and accrued expenses 31 278 ( 526)
Accrued income taxes ( 5) ( 276) ( 386)
Other liabilities - ( 50) -
------ ------ ------
$1,245 ($1,898) ($1,478)
====== ====== ======
Cash paid during the year for:
Interest $ 253 $ 147 $ 38
Income taxes (including
interest thereon) $ 22 $ 219 $ 633
Noncash investing activities:
Capital stock issued for acquisition $ - $ - $ 550
Details of acquisition:
Fair value of assets acquired $ - $ - $6,968
Liabilities assumed - - ( 2,535)
Stock issued - - ( 550)
------ ------ ------
Cash paid - - 3,883
Less cash acquired - - ( 27)
------ ------ ------
Net cash paid for acquisition $ - $ - $3,856
====== ====== ======
See notes to consolidated financial statements.
24 OF 40 PAGES
<PAGE>
REXX ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES:
A. Basis of presentation and principles of consolidation:
REXX Environmental Corporation's (the "Company") consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Watkins Contracting, Inc. ("WCI")
(since its acquisition by the Company on October 21, 1997) and Oak Hill
Sportswear Holding Corporation, which was inactive. Certain previously reported
amounts have been reclassified to conform to the 1999 presentation.
B. Cash equivalents:
Cash equivalents include all highly liquid debt instruments (primarily U.S.
Treasury obligations) purchased with original maturities of less than three
months.
C. Goodwill:
Goodwill represents the excess of the cost of the business acquired, WCI,
over the fair value of its net tangible assets. Goodwill is amortized using the
straight line method over a 15 year period. Amortization of goodwill for 1999,
1998 and 1997 was $211,000, $211,000 and $41,000, respectively.
D. Pension and profit-sharing plans:
The Company has defined contribution pension and profit-sharing plans
covering eligible employees (which permanently ceased contributions in October
1997) and WCI has a defined contribution 401K plan covering eligible employees.
Costs for these plans are funded as accrued and there are no prior service costs
with respect to these plans.
E. Net loss per share:
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("FAS 128"), Earnings per Share. FAS 128 prescribes that
companies present basic and diluted earnings per share amounts, as defined, on
the face of the statement of operations. Net loss per share is based on the
weighted average number of shares outstanding. The number of shares used in the
computations for basic and diluted net income per share for 1999, 1998 and 1997
were 2,467,576, 2,467,576, 2,136,905, respectively.
Net loss used in the computation of basic and diluted net loss per
share is not affected by the assumed issuance of stock under the Company's stock
option plan and is therefore the same for both calculations.
Options to purchase 230,000, 304,000 and 195,000 shares at prices
ranging from $2.00 to $5.00 per share were outstanding in 1999, 1998 and 1997,
respectively, but were not included in the computation of diluted net loss per
share because their inclusion would have been antidilutive.
25 OF 40 PAGES
<PAGE>
F. Method of Income Recognition:
The percentage-of-completion method of accounting for construction
contracts is used in the financial statements. Under this method, revenues and
related income are recognized as the work on the contract progresses. Generally,
such income represents the percentage of estimated total income that costs
incurred to date bear to estimated total costs. When current estimates of total
contract costs indicate a loss on a contract, provision is made in the financial
statements for the entire estimated amount of the loss. Changes in job
performance, job conditions and estimated profitability, including those arising
from contract penalty provisions, and final contract settlements may result in
revisions to cost and income and are recognized in the period in which the
revisions are determined.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
tools and repairs. Selling, general and administrative costs are charged to
expense as incurred.
Amounts earned on specific projects in excess of billings are
treated as a current asset and billings in excess of earnings are
treated as a current liability.
G. Property and Equipment:
Property and equipment is carried at cost and depreciated using the
straight line method over the estimated useful lives of the individual assets,
generally three to ten years for all assets.
H. Revenues:
Consulting fees are recognized as earned. Consulting income received from a
buyer of the Company's former Sportswear division for 1999, 1998, and 1997 was
$0, $0 and $50,000, respectively.
I. Fair value of financial instruments:
The fair value of the Company's financial instruments (cash, receivables,
payables and mortgage note) approximates the carrying value due to the
relatively short-term nature of these assets. The fair value of long-term debt
approximates its carrying value as the average interest rates approximate the
rates of the Company's variable debt at December 31, 1999.
J. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues, costs and expenses during the
reporting period. The principal estimates made with respect to these financial
statements relate to job costs and the percentage completion of each job. Actual
results could differ from those estimates.
26 OF 40 PAGES
<PAGE>
K. Impairment of Long-Lived Assets:
Management of the Company monitors the carrying value of long-lived assets
(including goodwill) for potential impairment on an on-going basis. Potential
impairment would be determined by comparing the carrying value of these assets
with their expected future net cash flows. Should the sum of the expected future
net cash flows be less than the carrying value, management would recognize an
impairment loss, measured as the amount by which the carrying value of the asset
exceeds its fair value.
NOTE 2 - ACQUISITION AND CONSOLIDATED CONDENSED PRO FORMA FINANCIAL
INFORMATION
On October 21, 1997, the Company completed the acquisition of 100% of the
outstanding shares of WCI, a privately-owned, San Diego-based environmental
remediation contractor. Founded in 1991, WCI provides asbestos abatement,
hazardous materials and soil remediation and demolition services, primarily in
California, to commercial and governmental clients. The total consideration
consisted of (a) $3,600,000 in cash, using cash on hand, (b) 400,000 shares of
restricted REXX Environmental Corporation common stock and (c) rights entitling
the former owners of WCI to sell up to 50,000 shares per quarter of the common
stock back to the Company starting in April 1999, at $5.00 per share if WCI
earns in excess of $2,700,000 pretax income during 1998, and to sell up to an
additional 50,000 shares per quarter back to the Company starting in April 2000,
at $5.00 per share if WCI earns in excess of $2,700,000 pretax income during
1999. During 1999 and 1998, WCI did not meet the earnings requirement and,
therefore, these rights expired. The acquisition was accounted for using the
purchase method of accounting. The purchase price was allocated to the assets
purchased and liabilities assumed based upon the fair values on the date of
acquisition, as follows:
Working capital $ 685,000
Property and equipment 1,204,000
Other assets 61,000
Goodwill 3,166,000
Other liabilities (683,000)
----------
Purchase price $4,433,000
==========
27 OF 40 PAGES
<PAGE>
The following condensed unaudited pro forma statements reflect the results
of operations of the Company as if the acquisition had been consummated at the
beginning of 1997. The unaudited pro forma financial information presented
herein does not necessarily reflect the results of operations and financial
position of the Company had the acquisition actually taken place on these dates.
Consolidated Condensed Pro Forma
Statements of Operations
(unaudited)
1997
----
Revenues $10,350,000
-----------
Income from operations 1,180,000
Other income 36,000
-----------
Income before income taxes 1,216,000
Income taxes 151,000
-----------
Net income $ 1,065,000
===========
Pro forma net income per share-basic $0.43
=====
NOTE 3 - ACCOUNTS RECEIVABLE:
Accounts receivable at December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Contracts in progress:
Currently receivable $1,301,000 $1,779,000
Retentions receivable 352,000 388,000
---------- ----------
1,653,000 2,167,000
Completed contracts:
Currently receivable 583,000 1,798,000
Retentions receivable 368,000 681,000
---------- ----------
951,000 2,479,000
Other accounts receivable 60,000 138,000
---------- ----------
2,664,000 4,784,000
Less allowance for
doubtful accounts (35,000) (35,000)
---------- ----------
$2,629,000 $4,749,000
During 1999 and 1998, one customer accounted for approximately 13% of the
Company's revenues.
During 1999, the Company incurred no expense for doubtful accounts.
28 OF 40 PAGES
<PAGE>
NOTE 4 - CONTRACTS IN PROGRESS:
Contracts in progress at December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Costs incurred on contracts in
progress $7,038,000 $4,174,000
Estimated earnings on contracts
in progress 798,000 743,000
---------- ----------
Total costs and estimated earnings 7,836,000 4,917,000
Less billings to date (7,131,000) (5,103,000)
---------- ----------
$ 705,000 ($ 186,000)
========== ==========
Contracts in progress are included
in the accompanying balance sheet
under the following headings
Costs and estimated earnings in
excess of billings on contracts
in progress $ 831,000 $ 223,000
Billings in excess of costs and
estimated earnings on contracts (126,000) (409,000)
---------- ----------
$ 705,000 $ 186,000
========== ==========
NOTE 5 - ASSETS HELD FOR SALE:
The Company owns a warehousing facility in Mississippi, which is
approximately 64,000 square feet. During November 1997, the Company leased the
facility to an unaffiliated company. The Company is currently seeking to sell
the facility.
NOTE 6 - PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1999 and 1998 consisted of:
1999 1998
---- ----
Machinery and equipment $1,244,000 $1,163,000
Office equipment 145,000 105,000
Furniture and fixtures 34,000 29,000
Leasehold improvements 57,000 42,000
Vehicles 355,000 338,000
---------- ----------
1,835,000 1,677,000
Less accumulated depreciation (457,000) (190,000)
---------- ----------
Net property and equipment $1,378,000 $1,487,000
========== ==========
Depreciation expense for the years ended December 31, 1999 and 1998 was
$274,000 and $184,000, respectively.
29 OF 40 PAGES
<PAGE>
NOTE 7 - NOTES PAYABLE TO BANK:
WCI executed, effective November 10, 1998, a revolving credit agreement
with Wells Fargo Bank, N.A. The credit agreement, as amended, which expires June
9, 2000, calls for interest payable at Wells Fargo's prime rate, as in effect
from time to time, plus 2% and borrowings up to 75% of eligible accounts
receivable subject to a maximum of $2,000,000 (reduced by approximately $100,000
of equipment loans made to WCI by Wells Fargo). At December 31, 1999, WCI had
$785,000 borrowed under the credit agreement, in addition to approximately
$80,000 of equipment loans made by Wells Fargo to WCI. The Company has
guaranteed WCI's borrowings under the credit agreement, which is also secured by
WCI's accounts receivable and all other assets (with the exception of vehicles
and equipment subject to purchase contract lending agreements with third party
lenders.) In addition, the credit agreement provides for certain financial
covenants based upon WCI's financial condition, including its current ratio and
tangible net worth. WCI's breach of certain financial covenants under its
secured credit agreement as of December 31, 1999 and earlier dates were waived
by Wells Fargo.
In order to meet its working capital needs at the corporate level, the
Company has negotiated a line of credit with HSBC Bank (USA) (formerly Republic
National Bank of New York), which provided, at December 31, 1999, for $250,000
in borrowings, secured by REXX's assets, and interest payable at HSBC's
reference rate plus 1%. This line of credit was evidenced by a demand grid note
in the maximum amount of $250,000, as of December 31, 1999. At December 31,
1999, the Company had $245,000 borrowed under the line of credit. Subsequent to
year end, this line of credit was increased to $450,000 and a demand grid note
in that maximum amount was executed to replace the $250,000 grid note. The
Company's borrowings under this line of credit have been guaranteed by its
Chairman of the Board, Arthur L. Asch and, subsequent to year end, also became
secured by a certificate of deposit in the amount of $200,000 deposited by Mr.
Asch with the bank. Mr. Asch is not being compensated by the Company for
providing the guarantee and additional collateral.
NOTE 8 - LONG-TERM DEBT:
The Company has an outstanding mortgage note, which is secured by land and
a building in Mississippi (and, from December 1996 to April, 1998, by a $500,000
certificate of deposit) which carries an interest rate of 1/2% above the Bank of
Mississippi's Prime Rate (9% at December 31, 1999). The principal balance of the
mortgage was $418,000 at December 31, 1999 and $469,000 at December 31, 1998.
The Company has classified this as a current liability as it is likely that part
or all of such note will be repaid in 2000.
WCI acquired vehicles and equipment under long-term purchase contracts
which were secured by the related assets. Vehicles and equipment under purchase
contracts had a net book value of $793,000 at December 31, 1999 and $1,076,000
at December 31, 1998.
30 OF 40 PAGES
<PAGE>
Long-term debt at December 31, 1999 and 1998 included:
1999 1998
---- ----
Debt on assets held for sale $ 418,000 $ 469,000
Purchase contracts (at interest
rates of 6.34% to 9.64% and with
maturities through 11/03): 827,000 937,000
---------- ----------
Total long-term debt 1,245,000 1,406,000
Less current portion of long-term
debt 639,000 668,000
---------- ----------
Long-term debt, net of current
portion $ 606,000 $ 738,000
========== ==========
Maturities on long-term debt:
2001 $231,000
2002 239,000
2003 136,000
--------
Total maturities $606,000
========
NOTE 9 - STOCK OPTIONS:
On October 11, 1994, the Board of Directors adopted a Non-Qualified Stock
Option Plan (the "Plan") covering up to 199,250 shares of the Company's Common
Stock. The Plan provides that (1) the option price per share is to be not less
than 50% of the fair market value of the stock on the date of the grant and (2)
options granted shall be for a term of not more than five years and shall become
exercisable in equal installments in each year of the term on a cumulative
basis, other than the first year, or to the extent that the Board of Directors
shall determine. No option may be granted under the Plan after October 11, 2004.
On April 22, 1996, the Board of Directors approved an amendment to the Plan,
which was approved by a majority of shareholders at the Company's Annual Meeting
held on June 26, 1996 and provides that the Plan is permitted to grant options
to outside directors and that each outside director of the Company shall receive
options to purchase 15,000 shares at the then-current market price for the
Company's stock upon joining the Board. On December 3, 1997, the Board of
Directors approved amendments to the Plan, which were also approved by a
majority of shareholders at a Special Meeting of Shareholders held on February
17, 1998. The amendments provide for (1) reserving from the Company's authorized
but unissued shares of Common Stock 250,000 shares for issuance on exercise of
options which may be granted under the Plan, (2) increasing the maximum number
of shares for which a person may receive options under the Plan from 100,000
shares to 150,000 shares and (3) adding the incentive to key employees of any
business which the Company acquires or in which it acquires an interest to
continue in its employ, by the grants of options under the Plan to such
employees, as a purpose of the Plan. At December 31, 1999, the Company reserved
439,250 shares of its Common Stock for the purposes of the Plan. At that date,
there were 230,000 options outstanding at exercise prices of $2.00-$5.00.
31 OF 40 PAGES
<PAGE>
Additional information concerning stock options under the Plan is summarized
as follows:
Number of
Weighted Number of Options
Range of Average Options Available
Number Exercise Exercise Exercisable For Future
of Shares Prices Price At Year End Grant
--------- -------- -------- ----------- ----------
Options
outstanding
at Jan. 1,
1997 184,000 $2.00-$4.25 $2.90 37,000 15,250
Granted 41,000 3.00- 4.00 3.55 - -
Exercised (10,000) 2.00 2.00 - -
Terminated (20,000) 2.00 2.00 - -
------- ----------- ----- ------ -------
Options
Outstanding
at Dec. 31,
1997 195,000 $2.00-$4.25 $3.18 82,167 -
Granted 119,000 2.00-$5.00 3.74 - -
Exercised 0 - - - -
Terminated (10,000) 3.00- 5.00 4.60 - -
------- ----------- ----- ------ -------
Options
Outstanding
at Dec. 31,
1998 304,000 $2.00-$5.00 $3.25 139,583 135,250
Granted - - - - -
Exercised - - - - -
Terminated (74,000) 4.25 4.25 - -
------- ----------- ----- ------- -------
Options
Outstanding
at Dec. 31,
1999 230,000 $2.00-$5.00 $3.06 132,250 209,250
======= =========== ===== ======= =======
As of December 31, 1999, 1998 and 1997, the weighted average remaining
contractual life of outstanding options was approximately 2.8 years, 3.0 years
and 3.8 years, respectively.
As permitted, the Company applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its stock-based compensation plan.
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair values at the grant dates for awards under the
Plan, consistent with the alternative method of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, the
Company's 1999 net loss and net loss per share would have been impacted by
$52,000 and $0.02 per share, respectively, the Company's 1998 net loss and net
loss per share would have been impacted by $47,000 and $0.02 per share,
respectively, and the Company's 1997 net loss and net loss per share would have
been impacted by $14,000 and $0.01 per share, respectively. These pro forma
amounts may not be representative of future disclosures because the estimated
fair value of stock options is amortized to expense over the vesting period, and
additional options may be granted in future years.
32 OF 40 PAGES
<PAGE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in, 1998 and 1997, respectively: expected volatility of
58.9% and 63.3%, risk free interest rate of 5.17% and 5.48%, expected option
term of 5 years for all options issued and no dividend yield or forfeiture rate
for all options granted. There were no options granted during 1999.
NOTE 10 - TAXES:
Provision for taxes consists of the following components:
1999 1998 1997
---- ---- ----
Current $9,000 ($45,000) $48,000
Deferred - - -
------ ------- -------
Total $9,000 ($45,000) $48,000
====== ======= =======
The provision for 1999 and 1997 represents state and local taxes. There is
no provision for federal income taxes as the Company had net losses in 1999,
1998 and 1997. In 1998, the Company reversed $65,000 of excess federal income
tax accruals and provided $20,000 for state and local taxes. At December 31,
1999, the Company has available for Federal income tax purposes net operating
loss carryforwards of approximately $ that begin to expire in the year 2007.
A reconciliation of the statutory income tax rate and the effective tax
rates for 1999, 1998 and 1997 follows:
1999 1998 1997
---- ---- ----
Statutory rate 34.0% 34.0% 34.0%
State and local taxes ( 0.8) ( 2.4) (26.6)
Amortization and other
non-deductible expenses (19.8) (13.8) (16.3)
Reversal of excess federal accrual - 12.0 -
Valuation allowance ( 2.6) (21.4) (31.4)
Other (12.0) - -
---- ---- ----
Effective rate ( 1.2%) 8.4% (40.3%)
===== ===== =====
The following summarizes the significant components of deferred tax
(liabilities) assets:
December 31, December 31,
1999 1998
------------ ----------
Accrued expenses $ 70,000 $ 23,000
Operating loss carryforward 3,971,000 3,997,000
Capital loss carryforward - -
---------- ----------
Gross deferred tax assets 4,041,000 4,020,000
Deferred tax asset valuation
allowance 4,041,000 4,020,000
---------- ----------
Deferred Taxes $ 0 $ 0
========== ==========
33 OF 40 PAGES
<PAGE>
NOTE 11 - PROFIT-SHARING AND PENSION PLANS:
The Company has a non-contributory profit-sharing plan which provided for
annual contributions, at the discretion of the Board of Directors, of between 2%
and 15% of the defined compensation of eligible employees until October 21,
1997, at which point all contributions permanently ceased. Profit-sharing
expense was $0 in 1999, $0 in 1998 and $3,800 in 1997.
The Company also has defined contribution (money purchase) pension plans
that cover employees who meet specified eligibility requirements. The
contributions required under the plans vary; however, the Company principally
contributed 1% of the first $20,000 and 4% above $20,000 (limited to an
additional $130,000) of the defined compensation of eligible employees until
October 21, 1997, at which point all contributions permanently ceased. Pension
expense was $0 in 1999, $0 in 1998 and $6,400 in 1997.
WCI has a 401(k) profit sharing plan ("the 401(k) Plan") in which employees
become eligible to participate in the 401(k) Plan after six months of service
and having reached the age of 21 years. Participation by the employee is at the
employee's option. WCI's match of the employee's contributions equals 25% of
each participant's salary reduction, not to exceed 6% of the participant's
compensation. WCI may also make discretionary contributions to the 401(k) Plan
for the benefit of the employees.
Employees are 100% vested in their employee contributions and begin vesting
at 20% in WCI's contributions starting with their first year of service. Their
vesting portion increases by 20% per year of service until the fifth year of
service when the employee is 100% vested in the employer contributions. Employer
contributions for 1999 were $6,000, for 1998 were $6,000 and for the 1997 period
from October 21, to December 31, 1997 were $1,000. Voluntary employee
contributions into the plan for 1999 were $23,000, for 1998 were $24,000 and for
the period from October 21, 1997 to December 31, 1997 were $6,000.
NOTE 12 - CONCENTRATION OF CREDIT RISK:
The Company's customers, contracts and projects are located primarily in
California. The Company extends credit to its customers, a large percentage of
which are general contractors. The majority of the Company's contracts are
secured or securable by construction liens.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company, largely at WCI's San Diego location, leases office space and
equipment under operating leases. Future minimum lease payments, net of sublease
income, under these leases (all of which are commitments of WCI, and which
include a 10 year lease for office space signed subsequent to year end) are as
follows:
2000 $ 340,000
2001 323,000
2002 289,000
2003 277,000
Thereafter 1,077,000
----------
Total $2,306,000
34 OF 40 PAGES
<PAGE>
The Company is involved in various legal matters in the ordinary course of
business. In the opinion of management, these matters are not anticipated to
have a material adverse effect on the results of operations, financial position
or liquidity of the Company.
See Note 2 regarding contingencies related to the acquisition of WCI.
NOTE 14 - PROPOSED SALE OF WATKINS CONTRACTING, INC. AND MERGER WITH
TWG, INC.
On June 15, 1999, the Company announced that it had signed a definitive
agreement to sell WCI to Greg Watkins and Daren Barone (or their permitted
assignees) for $1,300,000 in cash and 125,000 shares of REXX Environmental
Corporation common stock, as well as certain other consideration. Subsequently,
the terms were amended to provide that Messrs. Watkins and Barone could pay the
Company $171,875 in cash in lieu of the 125,000 shares of REXX Environmental
Corporation common stock, at their option at the time of closing. The sale of
WCI is subject to the approval of the Company's shareholders. Based on
preliminary estimates, if the Company's shareholders approve the sale of WCI and
it closes, on closing the Company will record a loss on the sale of WCI of
approximately $2,800,000 which represents the difference between the net
proceeds that the Company will receive and the combined value of the investment
and goodwill that is recorded on the Company's books. This preliminary estimate
is subject to further review and valuations at the time the proposed sale
closes.
On December 9, 1999, the Company announced that it had signed a definitive
agreement for a subsidiary of TWG, Inc. to merge with and into the Company,
subject to the approval of REXX's shareholders and certain other conditions,
including the closing of the sale of WCI. TWG, Inc. would become the publicly
traded parent company. In January 2000, TWG, Inc. changed its name to Newtek
Capital, Inc. ("Newtek"). If the Company's shareholders approve the transaction
and it closes, Newtek's current shareholders are expected to own 18,250,000
shares of Newtek common stock and the Company's shareholders are expected to own
1 share of Newtek for each share of the Company's common stock they currently
own, or a total of 2,467,576 shares.
35 OF 40 PAGES
<PAGE>
Item 9. Disagreements on accounting and financial disclosure:
None.
PART III
Item 10. Directors and executive officers of the registrant:
To be provided by an amendment to this Form 10-K filed within 120 days of
the Company's fiscal year end or incorporated by reference to information under
the caption "Principal Positions and Offices of REXX's Directors and Executive
Officers" in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within said 120 days.
Item 11. Executive compensation:
To be provided by an amendment to this Form 10-K filed within 120 days of
the Company's fiscal year end or incorporated by reference to information under
the captions "Executive Compensation", and "Directors Compensation" in the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within said 120 days.
Item 12. Security ownership of certain beneficial owners and management:
To be provided by an amendment to this Form 10-K filed within 120 days of
the Company's fiscal year end or incorporated by reference to information under
the caption "Security Ownership" in the Company's definitive proxy statement to
be filed pursuant to Regulation 14A within said 120 days.
Item 13. Certain relationships and related transactions:
To be provided by an amendment to this Form 10-K filed within 120 days of
the Company's fiscal year end or incorporated by reference to information under
the captions "Directors Compensation," "Executive Compensation" and "Certain
Relationships and Related Transactions" in the Company's definitive proxy
statement to be filed pursuant to Regulation 14A within said 120 days.
36 0F 40 PAGES
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
Filed herewith or
incorporated by
reference to:
-------------
(a) Documents filed as part of this Form 10-K:
1. Consolidated financial statements. The consolidated financial statements
filed as part of this Form 10-K are listed on the index thereto, on page
20 hereof.
2. Financial statement schedules.
-----------------------------
All schedules are omitted because they are not required, are inapplicable
or the information is otherwise shown in the financial statements or notes
thereto.
3. Exhibits filed under Item 601 of
--------------------------------
Regulation S-K. (Numbers assigned to
--------------
the following exhibits correlate to
those used in said Item.)
(3) Articles of Incorporation and By-Laws.
(a)(1) Certificate of Exhibit 3.1 to the
Incorporation, as Company's Form 10-K's
amended. for its years ended
December 31, 1980 and
December 31, 1983, and
Exhibit 6 to its Form
10-Q for its quarter
ended June 30, 1988.
(2) Amendment to Certificate Exhibit 3(a)(2) to the
of Incorporation filed Company's Form 10-K for
February 18, 1998, its year ended
effecting name change December 31, 1997.
to REXX Environmental
Corporation.
(b) By-laws, as amended. Exhibit 3(c) to the
Company's Form 10-K
for its year ended
December 31, 1986,
and Exhibit C-1 to
its proxy statement
dated May 13, 1987.
37 OF 40 PAGES
<PAGE>
Filed herewith or
incorporated by
reference to:
-------------
10. Material Contracts.
------------------
(f)(1) Non-Qualified Stock Exhibit 10 (iii) to
Option Plan. the Company's Form 10-Q
for its quarter ended
September 30, 1994.
(2) Amendment to Non-Qualified Exhibit 10(f)(2) to the
Stock Option Plan, adopted Company's Form 10-K for
February 17, 1998. its year ended December
31, 1997.
(i) Relating to the Purchase of
Watkins Contracting, Inc.:
(1) Stock Purchase Agreement, Exhibit 2.1 to the
dated October 21, 1997, Company's Form 8-K
between Oak Hill dated October 30, 1997.
Sportswear Corporation,
as Buyer, and Greg S.
Watkins and Daren J.
Barone, as Sellers,
together with a list
identifying the contents
of items in a Disclosure
Letter provided for in
said Agreement pertaining
to certain provisions
thereof.
(2) Rights Agreement, dated Exhibit 2.2 to said
October 21, 1997, between Form 8-K.
Oak Hill Sportswear
Corporation and Greg S.
Watkins.
(3) Rights Agreement, dated Exhibit 2.3 to said
October 21, 1997, between Form 8-K.
Oak Hill Sportswear
Corporation and Daren J.
Barone.
(4) Employment Agreement, dated Exhibit 2.4 to said
October 21, 1997, between Form 8-K.
Watkins Contracting, Inc.
and Greg S. Watkins.
(5) Employment Agreement, dated Exhibit 2.5 to said
October 21, 1997, between Form 8-K.
Watkins Contracting, Inc.
and Daren J. Barone.
38 OF 40 PAGES
<PAGE>
Filed herewith or
incorporated by
reference to:
-------------
(j) Relating to the Credit Agreement
between Watkins Contracting, Inc.
and Wells Fargo Bank:
(1) Credit Agreement, dated as Exhibit 10(j)(1) to
of November 10, 1998, by the Company's Form 10-K
and between Watkins for its year ended
Contracting, Inc. and Wells December 31, 1998.
Fargo Bank, N.A.
(2) Revolving line of Credit Exhibit 10(j)(2) to
Note. said Form 10-K.
(3) Continuing Guaranty of REXX Exhibit 10(j)(3) to
Environmental Corporation said Form 10-K.
granted to Wells Fargo Bank,
N.A. in connection with the
Credit Agreement.
(4) First Amendment to Credit Exhibit 10(j)(4) filed
Agreement herewith.
(5) Second Amendment to Credit Exhibit 10(j)(5) filed
Agreement herewith.
(k) Form of Indemnity Agreement Exhibit 10(k) to
dated as of January 4, 1998 the Company's Form
between the Company and each 10-K for its year
of its directors and executive ended December 31,
officers. 1998.
(l) Stock Purchase Agreement, Exhibit 10(l) filed
dated as of June 10, 1999, herewith.
between Greg S. Watkins and
Daren J. Barone, as Buyers,
and REXX Environmental
Corporation, as Sellers,
as amended.
(m) Agreement and Plan of Merger Exhibit 10(m) filed
by and between REXX herewith.
Environmental Corporation
and TWG, Inc. dated
December 9, 1999, to be
joined in by REXX
Acquisition Corp. and
Whitestone Acquisition Corp.
(n) Demand grid note issued to Exhibit 10(n) filed
HSBC Bank (USA). herewith.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
39 OF 40 PAGES
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(Registrant) REXX ENVIRONMENTAL CORPORATION
By: /s/ Arthur L. Asch
------------------
Arthur L. Asch, Chairman of the Board (Principal executive officer)
By: /s/ Michael A. Asch
-------------------
Michael A. Asch, President and Treasurer (Principal financial officer)
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Arthur L. Asch /s/ Michael A. Asch
- ----------------------------------- -------------------------------------
Arthur L. Asch, Director Michael A. Asch, Director
Date: March 24, 2000 Date: March 24, 2000
/s/ James L. Hochfelder /s/ Joseph Greenberger
- ----------------------------------- -------------------------------------
James L. Hochfelder, Director Joseph Greenberger, Director
Date: March 24, 2000 Date: March 24, 2000
/s/ Brian A. Wasserman
- -----------------------------------
Brian A. Wasserman, Director
Date: March 24, 2000
40 OF 40 PAGES
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of May 11, 1999, by and between WATKINS CONTRACTING, INC., a Nevada
corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of November 10, 1998, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1(a) is hereby amended by deleting "Exhibit A attached
hereto" as the Line of Credit Note exhibit reference, and by substituting
"Exhibit A to the First Amendment to this agreement" for said reference.
2. Section 4.3 is hereby deleted in its entirety, and the following
substituted therefor:
"(a) not later than 20 days after and as of the end of each
month, a borrowing base certificate, an aged listing of accounts
receivable with a breakdown of retention on each job, and an aging of
accounts payable with a breakout of sub-contracts payable and retention
to subcontractors and suppliers;"
3. Section 4.9 is hereby deleted in its entirety, and the following
substituted therefor:
"SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's
financial condition as follows using generally accepted accounting
principles consistently applied and used consistently with prior
practices (except to the extent modified by the definitions herein),
with compliance determined
<PAGE>
commencing with Borrower's financial statements for the period ending
April 30, 1999:
(a) Current Ratio not at any time less than 1.00 to 1.0, with
"Current Ratio" defined as total current assets divided by total
current liabilities.
(b) Tangible Net Worth not at any time less than
$1,050,000.00, with "Tangible Net Worth" defined as the aggregate of
total stockholders' equity plus subordinated debt less any intangible
assets.
(c) Total Liabilities divided by Tangible Net Worth not at any
time greater than 5.0 to 1.0 from the date of this agreement up through
May 31, 1999; and 4.0 to 1.0 at all times thereafter, with "Total
Liabilities" defined as the aggregate of current liabilities and
non-current liabilities less subordinated debt, and with "Tangible Net
Worth" as defined above.
(d) Net income after taxes not less than $1.00 on an monthly
basis beginning with the month ending March 30, 1999, determined as of
each month end."
4. Section 5.2 is hereby deleted in its entirety, and the following
substituted therefor:
"SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or
permit to exist any indebtedness or liabilities resulting from
borrowings, loans or advances, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, except (a) the
liabilities of Borrower to Bank, and (b) any other liabilities of
Borrower existing as of, and disclosed to Bank prior to, the date
hereof."
5. Section 5.5 is hereby deleted in its entirety, and the following
substituted therefor:
"SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or
advances to or investments in any person or entity or paid out any
management fees, except any of
-2-
<PAGE>
the foregoing existing as of, and disclosed to Bank prior to, the date
hereof."
6. The following is hereby added to the Credit Agreement as Section
5.7:
"SECTION 5.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any
dividend or distribution either in cash, stock or any other property on
Borrower's stock now or hereafter outstanding, nor redeem, retire,
repurchase or otherwise acquire any shares of any class of Borrower's
stock now or hereafter outstanding."
7. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
8. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK,
WATKINS CONTRACTING, INC. NATIONAL ASSOCIATION
By: /s/ Greg S. Watkins By: /s/ David Bruen
-------------------- ---------------
Greg S. Watkins David Bruen
President Vice President
-3-
<PAGE>
EXHIBIT 10.(j)5
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of November 1, 1999, by and between WATKINS CONTRACTING, INC.
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of November 10, 1998, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 4.3(a) is hereby deleted in its entirety, and the following
substituted therefor:
"(a) not later than 15 days after and as of the end of each
month, a borrowing base certificate, an aged listing of accounts
receivable with a breakdown of retention on each job, an aging of
accounts payable with a breakout of sub-contracts payable and
retention to subcontractors and suppliers, a billing project report,
a report which matches account debtor with jobs described on
accounts receivable aging report and a reconciliation of accounts,
and immediately upon each request from Bank, a list of the names and
addresses of all Borrower's account debtors;"
2. Sections 4.9 (b) and (c) are hereby deleted in their entirety, and
the following substituted therefor:
(b) Tangible Net Worth not at any time less than
$1,400,000.00, with "Tangible Net Worth" defined as the aggregate of
total stockholders' equity plus subordinated debt less any
intangible assets.
(c) Total Liabilities divided by Tangible Net Worth not at
any time greater than 3.50 to 1.0, with "Total Liabilities" defined
as the aggregate of current liabilities and non-current liabilities
less subordinated debt, and with "Tangible Net Worth" as defined
above."
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3. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
4. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK,
WATKINS CONTRACTING, INC. NATIONAL ASSOCIATION
By: /s/ Greg S. Watkins By: /s/ Alva Diaz
------------------------ ------------------
Greg S. Watkins Alva Diaz
President Vice President
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of June 10, 1999
(the "Effective Date"), by Greg S. Watkins, an individual resident in San Diego,
California ("Watkins") and Daren J. Barone ("Barone") (Barone and, collectively
with Watkins, the "Buyers"), on the one hand, and REXX Environmental
Corporation, a New York corporation (the "Seller"), on the other hand.
The Seller desires to sell, and the Buyers desire to purchase, all of
the issued and outstanding shares (the "Shares") of capital stock of Watkins
Contracting, Inc., a Nevada corporation (the "Company"), for the consideration
and on the terms set forth in this Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Definitions.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Best Efforts"-- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible taking into account economic
limitations and practical business considerations that exist as of the date such
Best Efforts are required to be used, including, without limitation, the
Company's or the Seller's financial performance and condition and any limitation
on the availability of credit imposed by the Existing Lender.
"Breach"-- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any other occurrence or circumstance that is or was inconsistent with
such representation, warranty, covenant, obligation, or other provision, and the
term "Breach" means any such inaccuracy, breach, failure, occurrence, or
circumstance.
"Business"-- the business of providing asbestos abatement, hazardous
materials or soil remediation, demolition or services related thereto, to a
variety of Persons, including private or governmental clients. Specific services
include (without limitation) removal of asbestos containing materials (ACM),
lead paint, contaminated soils and polychlorinated biphenyls (PCB). Contaminated
soils remediation is related to material excavation. (The foregoing is referred
to in this Agreement as the "Business.")
"Buyers' Disclosure Letter"-- the disclosure letter delivered by the
Buyers to the Seller concurrently with the execution and delivery of this
Agreement.
"Buyers' Release" -- as defined in Section 2.5.
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"Closing Date"-- the date and time as of which the Closing actually
takes place.
"Commission" -- the Securities and Exchange Commission.
"Consent"-- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions"-- all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by the Seller to the Buyers;
(b) the execution, delivery, and performance of the
Noncompetition Agreements, the Seller's Release, and the Buyers' Release;
(c) the performance by the Buyers and the Seller of their
respective covenants and obligations under this Agreement; and
(d) the Buyers' acquisition and ownership of the Shares and
exercise of control over the Company.
"Contract"-- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Damages"-- as defined in Section 10.2.
"Encumbrance"-- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environmental Law"-- any Legal Requirement that requires or relates
to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction, that
could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
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(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups
of them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA"-- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Exchange Act"-- the Securities Exchange Act of 1934, as amended, and
the rules and regulations issued pursuant thereto.
"Existing Lender" -- Wells Fargo Bank.
"GAAP"-- generally accepted United States accounting principles,
applied on a consistent basis.
"Governmental Authorization"-- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body"-- any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
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"Indemnified Persons"--as defined in Section 10.2.
"IRC"-- the Internal Revenue Code of 1986, as amended, or any successor
law, and regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
"IRS"-- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge"-- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is or was actually aware of such fact or
other matter ("Actual Knowledge"); or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation concerning the existence of such fact
or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director or officer of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter; provided, however, that no representation or warranty of the Seller
stated as made to as to its Knowledge will be subject to any Breach to the
extent the representation or warranty is based on a representation or warranty
of the Buyers in the Prior Acquisition Agreement (as seller thereunder) or any
written statement furnished by the Company to the Seller subsequent to October
22, 1997 and prior to or on the Closing (but excluding any written statements
constituting projections, estimates or forward looking statements) or on any
failure of an officer of the Company to furnish information in a circumstance
where the officer had a legal obligation to furnish information.
"Legal Requirement"-- any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Material Adverse Effect" -- any material adverse effect on the
business, assets, properties, operations, prospects, valuation or financial
condition of the Seller or the Company, taken as a whole, and taking into
account, with respect to the Seller and the Company, (a) losses attributable to
the Company's operations, (b) lower gross margins than anticipated by the
Company on certain of its jobs, and (c) the Company's noncompliance with certain
financial covenants of its line of credit with the Existing Lender and (d) the
limitations on the availability of credit that have been or may be required by
the Existing Lender.
"NASA Claim"-- the Company's claim for compensation from the National
Aeronautics and Space Administration with respect to work done at Edwards Air
Force Base on behalf of Innertex General Contractors.
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<PAGE>
"Noncompetition Agreement"-- as defined in Section 2.5.
"Occupational Safety and Health Law"-- any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order"-- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business"-- the ordinary course of business
consistent with the Company's past custom or practice (including with respect to
quantity and frequency).
"Organizational Documents"-- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Person"-- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Prior Acquisition Agreement" - the Stock Purchase Agreement dated as
of October 21, 1997 between the Seller (then known as Oak Hill Sportswear
Corporation), as buyer, and the Buyers as sellers, together with the Seller's
Closing Documents and the Buyers' Closing Documents and the Put Agreement
referred to therein.
"Proceeding"-- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Buyer Business" - any Related Person of a Buyer engaged in the
Business in Southern California (i.e., the area comprised of the greater Los
Angeles metropolitan area and all areas of California south thereof).
"Related Person"-- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one (1) or more members of such individual's Family;
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<PAGE>
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and
(d) any Person with respect to which such individual or one
(1) or more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause
(b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least ten percent
(10%) of the outstanding voting power of a Person or equity securities or other
equity interests representing at least ten percent (10%) of the outstanding
equity securities or equity interests in a Person.
"Representative"-- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act"-- the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Seller's Disclosure Letter"-- the disclosure letter delivered by the
Seller to the Buyers concurrently with the execution and delivery of this
Agreement.
"Seller SEC Documents"-- all reports, schedules, forms, statements and
other documents filed by the Seller with the Commission since October 22, 1997.
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"Seller's Release"-- as defined in Section 2.5.
"Stockholder Approval" -- the affirmative approval of the stockholders
of the Seller holding at least two-thirds (2/3) of the voting power of all such
stockholders and otherwise in full compliance with the requirements of
applicable law and any stock exchange regulations to which the Seller is
subject.
"Subsidiary"-- with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one (1) or more of its
Subsidiaries; when used without reference to a particular Person, "Subsidiary"
means a Subsidiary of the Company.
"Superior Proposal" - a bona fide proposal regarding an acquisition of
the Company or its assets made by a third Person that the Board of Directors of
the Seller determines in its good faith judgment to be more favorable on
financial terms to the Seller's stockholders than the Contemplated Transactions
and for which financing, to the extent required, is then committed or which, in
the good faith judgment of the Board of Directors of the Seller, is reasonably
capable of being obtained by such third Person.
"Tax"-- any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax, or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency, or other fee,
and any related charge or amount (including any fine, penalty, interest, or
addition to tax), imposed, assessed, or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency, or fee.
"Tax Return"-- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threatened"-- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing)
to the Seller.
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2. Sale and Transfer of Shares; Closing.
2.1 Shares. Subject to the terms and conditions of this Agreement, at
the Closing, the Seller will sell and transfer the Shares to the Buyers, and the
Buyers will purchase the Shares from the Seller.
2.2 Purchase Price.
(a) The purchase price (the "Purchase Price") for the Shares
will be $1,300,000 payable in cash, and delivery of 125,000 shares of Common
Stock of the Seller with an agreed upon fair market value of $1.375 per share or
the closing price of such Shares as of the day prior to the Closing, whichever
is less.
(b) The Seller shall have the option of having a third party
purchase all or any portion of 125,000 shares from the Buyers for a price of
$1.375 or more per share, and the Buyers shall deliver the net proceeds of such
sale after the payment of all applicable Taxes with respect to such sale to the
Seller at Closing. Notwithstanding the foregoing, the Buyers shall not be
required to sell any shares of the Seller's Common Stock to a third party
hereunder if such third party is not a "accredited investor" as defined in
Regulation D promulgated under the Securities Act and such sale is not otherwise
in full compliance with all applicable federal and state securities laws, as
reasonably determined by counsel for the Buyers.
2.3 Other Consideration.
(a) Concurrently with the Closing, the Buyers shall cause the
Company to pay in full the remaining balance of the inter-company loan by the
Seller to the Company in the amount of $6,001 (without any interest accrued upon
such amount).
(b) Prior to the Closing, the Buyers and the Company shall use
their Best Efforts to obtain or cause the Company to obtain and deliver to
Seller the release from and termination of all agreements, guarantees and other
instruments by the Seller to Safeco Credit Company, Inc., CAT Financial and
Reliance Insurance Companies (Reliance Surety Company, Reliance Insurance
Company, United Pacific Insurance Company and Reliance Surety Company). If the
Buyers do not obtain and deliver a release and termination of any such Persons
(a "Non-Releasing Person"), (x) on the Closing the Buyers will deliver (i) to
the Seller their agreement to guarantee, indemnify and hold the Seller harmless
with respect to any of the Seller's obligations or liabilities to such
Non-Releasing Persons in substantially the form previously delivered by Buyers
to Seller, (ii) to all such Non-Releasing Persons their guarantees in a form
reasonably acceptable to such Non-Releasing Persons, and furnish evidence to
Seller, reasonably satisfactory to it, of deliveries of such guarantees, and (y)
after the closing use their Best Efforts to obtain and deliver to Seller the
releases in a form reasonably acceptable to the Seller, from all such
Non-Releasing Persons.
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2.4 Closing. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of the Buyers' counsel at 101 West
Broadway, 17th Floor, San Diego, California at 10:00 a.m. (local time) as soon
as practicable following the receipt of (a) Stockholder Approval or (b) the
Certificate referred to in Section 7.2 hereof, or at such other time and place
as the parties may agree. The parties agree that neither the Seller, the Buyers
nor their representatives need attend the Closing in person and that the
execution and delivery of the documents to be delivered at Closing may take
place via facsimile with original signatures to follow via overnight courier.
2.5 Closing Obligations. At the Closing:
(a) The Seller will deliver to the Buyers:
(i) certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers), with signatures
guaranteed by a commercial bank or by a member firm of the New York Stock
Exchange, for transfer to the Buyers;
(ii) a release in the form of Exhibit "A" executed by
the Seller (the "Seller's Release");
(iii) a noncompetition agreement in the form of
Exhibit "B" executed by the Seller (the "Noncompetition Agreement");
(iv) indemnification agreements in favor of each of
the Buyers in a form reasonably acceptable to the Buyers executed by the Seller
(the "Buyer Indemnification Agreements"); and
(v) a certificate executed by the Seller representing
and warranting to the Buyers that each of the Seller's representations and
warranties in this Agreement was accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the Closing Date as if made on
the Closing Date (giving full effect to any supplements to the Seller's
Disclosure Letter that were delivered by the Seller to the Buyers prior to the
Closing Date in accordance with Section 5.6); and
(b) The Buyers will deliver to the Seller:
(i) the Purchase Price;
(ii) a release in the form of Exhibit "C" executed by
each of the Buyers (the "Buyers' Release");
(iii) a pay-off letter executed by the Existing
Lender confirming to Seller that all amounts due pursuant to the Company's
existing credit agreement with the Existing Lender have been paid in full; and
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(iv) a certificate executed by the Buyers to the
effect that, except as otherwise stated in such certificate, each of the Buyers'
representations and warranties in this Agreement were accurate in all respects
as of the date of this Agreement and are accurate in all respects as of the
Closing Date as if made on the Closing Date.
3. Representations and Warranties of the Seller. Except as set forth in
the Seller's Disclosure Letter delivered by the Seller to the Buyers, and which
exceptions to representations and warranties are applicable to the section of
this Agreement to which they expressly relate and no other representation and
warranty in this Agreement, the Seller represents and warrants to the Buyers as
follows:
3.1 Organization, Good Standing.
(a) The Seller is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Contracts.
(b) The Seller has delivered to the Buyers originals of the
Organizational Documents of the Company, as currently in effect.
3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms. The Noncompetition Agreement and the Seller's Release (collectively, with
this Agreement, the Seller's Disclosure Letter and all certificates of the
Seller delivered under this Agreement, the "Seller's Closing Documents")
constitute the legal, valid, and binding obligations of the Seller enforceable
against the Seller in accordance with their respective terms. The Seller has the
absolute and unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and the Seller's Closing Documents and, subject solely to
Shareholder Approval or delivery of the certificate referred to in Section 7.2,
to perform its obligations under this Agreement and the Seller's Closing
Documents.
(b) Except as set forth in Part 3.2(b) of the Seller's
Disclosure Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of the Seller, or
(B) any resolution adopted by the board of directors or the stockholders of the
Seller;
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which the Seller
may be subject or Contract to which the Seller is a party; or
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(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by the Seller.
(c) Except as set forth in Part 3.2(c) of the Seller's
Disclosure Letter, the Seller will not be required to give any notice to or
obtain any consent, from any Person in connection with its execution, delivery
or performance of this Agreement or a Seller's Closing Document or its
consummation or performance of any of the Contemplated Transactions.
3.3 Capitalization. Assuming the accuracy as of the Closing of the
Prior Acquisition Agreement of the representations in Section 3.3 of the Prior
Acquisition Agreement, (i) the authorized equity securities of the Company
consist of 2,500 shares of common stock, no par value, of which 2 shares are
issued and outstanding; (ii) the Seller is the record and beneficial owner and
holder of all the Shares, free and clear of all Encumbrances; (iii) no legend or
other reference to any purported Encumbrance appears upon any certificate
representing the Shares, and such Shares are subject to no Encumbrance other as
may be applicable to restricted securities under the Securities Act; (iv) all of
the outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable; and (v) there are no
Contracts, other than this Agreement, relating to the issuance, sale, transfer
or voting of shares of capital stock or other securities of the Company.
3.4 Seller SEC Documents. The Seller has filed all the Seller SEC
Documents required to be filed by it. As of the respective dates, the Seller SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder, and when filed contained no untrue statement of material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the Seller
makes no representation or warranty to the extent the Seller SEC Documents were
based upon representations and warranties of the Buyers in the Prior Acquisition
Agreement (as sellers thereunder) or any written statement furnished to the
Seller by the Company subsequent to October 22, 1997 and prior to the Closing.
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3.5 Taxes.
(a) Since October 22, 1997 through the Closing, the Company
has filed all Tax Returns that it was required to file. All such Tax Returns
were correct and complete in all respects. All Taxes owed by the Company
(whether or not shown on any Tax Return) with respect to the period since
October 22, 1997 through the Closing have been paid or reflected or reserved
against and shown on the face of the December 31, 1998 balance sheet of the
Company or, with respect to Tax with respect to a period after the date thereof
through the Closing, reflected or reserved against and shown on the face of the
last regularly prepared balance sheet of the Company. Except as set forth in
Part 3.5(a) of the Seller's Disclosure Letter, the Company is not currently the
beneficiary of any extension of time within which to file any Tax Return during
the period from October 22, 1997 to the date of this Agreement. No claim has
been made by any Government Body in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Encumbrances on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax during the
period from October 22, 1997 to the date of this Agreement.
(b) The Seller does not expect any authority to assess any
additional Taxes on the Company for the period for from October 22, 1997 to the
date of this Agreement. There is no dispute or claim concerning any Tax
Liability of the Company either (A) claimed or raised by any Governmental Body
in writing or (B) as to which the Seller has Knowledge based upon personal
contact with any agent or such Body.
(c) Part 3.5(c) of the Seller's Disclosure Letter lists all
federal, state, local and foreign income Tax Returns filed with respect to the
Company for all taxable periods since October 22, 1997 and indicates those Tax
Returns that currently are the subject of audit. The Seller has delivered to the
Buyers correct and complete copies of all federal, state and local income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed by the Company since October 22, 1997.
(d) Except as set forth on Part 3.5(d) of the Seller's
Disclosure Letter, during the period from October 22, 1997 through the Closing
Date, the Company has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) During the period from October 22, 1997 through the
Closing Date, the Company is not a party to any Tax allocation or sharing
agreement. The Company has no liability for the Taxes of any Person (other than
the Company) under IRC Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
3.6 Compliance With Legal Requirements; Governmental Authorizations.
(a) Except as set forth in Part 3.6(a) of the Seller's
Disclosure Letter:
(i) the Seller is in substantial compliance with each
Legal Requirement that is or was applicable to it that could adversely affect
the Contemplated Transactions or reasonably be expected to result in a Material
Adverse Effect or further materially deteriorate or exacerbate circumstances
referenced in subsections (a) through (d) of the definition of Material Adverse
Effect;
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse to time) may constitute or result in a
violation by the Seller or a failure on the part of the Seller to comply with,
any Legal Requirement that could adversely affect the Contemplated Transactions
or reasonably be expected to result in a Material Adverse Effect or further
materially deteriorate or exacerbate circumstances referenced in subsections (a)
through (d) of the definition of Material Adverse Effect;
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(iii) the Seller, has not received, at any time since
October 22, 1997, any notice or other communication (whether oral or written)
sent by any Governmental Body regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement
applicable to the Seller, or (B) any actual, alleged, possible, or potential
obligation on the part of the Seller to undertake, or to bear all or any portion
of the cost of, any remedial action of any nature; and
(iv) the Seller has not received, at any time since
October 22, 1997, any notice or other communication (whether oral or written)
sent by any Governmental Body regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or requirement of any
Governmental Authorization applicable to the Seller, or (B) any actual,
proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification by any Governmental Authorization
applicable to the Seller.
3.7 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.7(a) of the Seller's
Disclosure Letter, there is no pending Proceeding against the Seller or any
Related Person:
(i) that reasonably may result in A Material Adverse
Effect or materially further deteriorate or exacerbate circumstances referenced
in subsections (a) through (d) of the definition of Material Adverse Effect; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
(b) To the Knowledge of the Seller, (1) no such Proceeding has
been Threatened, and (2) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
The Seller has made available to the Buyers copies of all pleadings,
non-privileged correspondence, and other non-privileged documents relating to
each Proceeding listed in Part 3.7 of the Seller's Disclosure Letter and (3) the
Proceedings listed in Part 3.7 of the Seller's Disclosure Letter will not have a
Material Adverse Effect.
(c) Except as set forth in Part 3.7(c) of the Seller's
Disclosure Letter, the Seller is not subject to any Order that relates to the
business of, or any of the assets owned or used by, the Company.
3.8 Environmental and Safety Matters. Except as set forth in Part 3.8
of the Seller's Disclosure Letter:
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(a) The Seller has no Actual Knowledge of any actual or
Threatened order, notice, or other communication from (i) any Governmental Body
or private citizen acting in the public interest, or (ii) the current or prior
owner or operator of any facilities of the Company, of any actual or potential
violation or failure to comply with any Environmental Law or Occupational Health
and Safety Law.
(b) The Seller has no Actual Knowledge of, nor has the Seller
received, any citation, directive, inquiry, notice, Order, summons, warning, or
other communication that relates to any alleged, actual, or potential violation
or failure to comply with any Environmental Law or Occupational Health and
Safety Law.
3.9 Disclosure.
(a) No representation or warranty of the Seller in this
Agreement and no statement in the Seller's Disclosure Letter omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 5.6 will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances in which
they were made, not misleading.
3.10 Relationships with Related Persons. The Seller nor any Related
Person of the Seller has, or since October 22, 1997 has had, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in or pertaining to the Company's businesses. Neither the Seller nor any
Related Person of the Seller owns, or since October 22, 1997 has owned (of
record or as a beneficial owner) an equity interest or any other financial or
profit interest in, a Person that has had business dealings or a material
financial interest in any transaction with the Company other than business
dealings or transactions conducted in the Ordinary Course of Business with the
Company at substantially prevailing market prices and on substantially
prevailing market terms. Except as set forth in Part 3.10 of the Seller's
Disclosure Letter, neither the Seller nor any Related Person of the Seller is a
party to any Contract with, or has any claim or right against, the Company
(other than statutory indemnification rights as a director). For purposes of
this Section 3.10, neither Buyer shall be considered a Related Person of the
Seller.
3.11 Brokers or Finders. Neither the Seller nor any agents have
incurred any obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
4. Representations and Warranties of the Buyers. Except as set forth in
the Buyers' Disclosure Letter delivered by the Buyers to the Seller, which
exceptions to representations and warranties are applicable solely to the
section of this Agreement to which they expressly relate to and no other
representation and warranty in this Agreement, the Buyers jointly and severally
represent and warrant to the Seller as follows:
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4.1 Authority; No Conflict.
(a) This Agreement, the Buyers' Release and the Buyers'
Indemnification (collectively, with the Buyers' Disclosure Letter and all of the
certificates of the Buyers delivered pursuant to this Agreement, the "Buyers'
Closing Documents") constitute the legal, valid, and binding obligations of the
Buyers, enforceable against the Buyers in accordance with their respective
terms. The Buyers have the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and the Buyers' Release and to perform
their obligations under this Agreement and the Buyers' Closing Documents.
(b) Neither the execution and delivery of this Agreement by
the Buyers nor the consummation or performance of any of the Contemplated
Transactions by the Buyers will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to:
(i) any Legal Requirement or Order to which either
Buyer may be subject; or
(ii) any Contract to which either Buyer is a party or
by which either Buyer may be bound.
Neither Buyer is nor will be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
4.2 Investment Intent. The Buyers are acquiring the Shares for their
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act. Each Buyer is an accredited investor as
defined by Regulation D promulgated under the Securities Act. Buyers acknowledge
that the Shares are restricted securities under the Securities Act.
4.3 Certain Proceedings. There is no pending Proceeding that has been
commenced against either Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To each Buyer's Knowledge, no such Proceeding has
been Threatened.
4.4 Brokers or Finders. The Buyers have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
4.5 Status of Company. Except as expressly provided herein, Buyers are
acquiring the Shares, the Business and the Company's assets and liabilities
represented thereby "as is." Buyers acknowledge that they are the principal
executive officers of the Company and are familiar with the Business and the
operations, conditions and prospects of the Company.
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4.6 Relationships with Related Persons. Except as set forth in Section
4.6 of the Buyers' Disclosure Letter, neither of the Buyers nor any Related
Person of either Buyer has, or has since October 22, 1997 to the Closing has
had, any interest in the property (whether real, personal, or mixed or whether
tangible or intangible) used in or pertaining to the Company's businesses
neither of the Buyers nor any Related Person of either of the Buyers owns, or
since October 22, 1997 has owned (of record or as beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has had
business dealings or a material financial interest in any transaction with the
Company other than business dealings or transactions conducted in the Ordinary
Course of Business with the Company at substantially prevailing market prices or
on substantially prevailing market terms. Except as set forth in Section 4.6 of
the Buyers' Disclosure Letter, neither of the Buyers nor any Related Person of
either of the Buyers is a party to any Contract with, or has any claim or right
against, the Company.
4.7 Proceedings and Legal Compliance. Except as set forth on Part 4.7
of the Buyers' Disclosure Letter, to the Actual Knowledge of each of the Buyers:
(i) there is no Proceeding pending or threatened against the Seller; and (ii)
the Seller is in compliance with all Legal Requirements relating to the Company
and its operations.
4.8 Financial Information. The Buyers have delivered to the Seller all
written correspondence or Contracts between the Buyers and either the Existing
Lender or Scripps Bank.
4.9 Certain Claims. To either Buyer's Knowledge, no claim or threat of
a claim of the type referred to in Section 7.6 has been made.
5. Covenants of the Seller Prior to Closing Date.
5.1 Access and Investigation. Between the date of this Agreement and
the Closing Date, the Seller will, and will authorize and direct the Company and
its Representatives to, (a) afford the Buyers and their Representatives and the
Buyers' counsel and prospective lenders and their Representatives (collectively,
the "Buyers' Advisors") full and free access to the Company's personnel,
properties (including subsurface testing), contracts, books and records, and
other documents and data, (b) furnish the Buyers and the Buyers' Advisors with
copies of all such contracts, books and records, and other existing documents
and data as the Buyers may reasonably request, and (c) furnish the Buyers and
the Buyers' Advisors with such additional financial, operating, and other data
and information as the Buyers may reasonably request.
5.2 Operation of the Business of the Company. Between the date of this
Agreement and the Closing Date, the Seller will use its Best Efforts to, and
will its Best Efforts to cause the Company to:
(a) conduct its business only in the Ordinary Course of
Business; and
(b) maintain the relations and good will with suppliers,
customers, landlords, creditors, employees, agents, and others having business
relationships with the Company.
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5.3 Negative Covenants. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, the Seller
will not, and will not cause the Company to, without the prior consent of the
Buyers:
(a) take any affirmative action, or fail to use its Best
Efforts to take any reasonable action within its control that could reasonably
result in or further materially deteriorate or exacerbate circumstances
referenced in Sections (a) through (d) of the definition of Material Adverse
Effect; or
(b) pay or accrue salaries, draws, management fees or other
compensation or remuneration from the Company to Seller or any of its executive
officers or directors from March 1, 1999 through the Closing.
5.4 Required Approvals. As promptly as reasonably practicable after the
date of this Agreement, the Seller will, and will authorize and direct the
Company to, make all filings required by Legal Requirements to be made by them
in order to consummate the Contemplated Transactions. Between the date of this
Agreement and the Closing Date, the Seller will, and will authorize and direct
the Company to, cooperate with the Buyers with respect to all filings that the
Buyers elect to make or are required by Legal Requirements to make in connection
with the Contemplated Transactions. The Seller will cooperate with the Buyers
and the Company in all reasonable respects in obtaining all consents from third
parties which the Buyers deem necessary or appropriate in connection with the
Contemplated Transactions.
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5.5 Proxy Statement; Stockholder Approval.
(a) The Seller shall, as promptly as reasonably practicable
following the date of this Agreement, prepare and file with the Commission, and
will use its Best Efforts to have cleared by the Commission and thereafter shall
mail to its stockholders as promptly as reasonably practicable a proxy statement
(the "Proxy Statement") and a form of proxy in connection with, among other
things, the vote of the Company's stockholders to approve the Contemplated
Transactions. The Seller acknowledges that the preparation and filing of the
Proxy Statement shall not be delayed due to the pendency of negotiations by the
Seller of any other transaction. The Proxy Statement will contain the
affirmative recommendation of the Board of Directors of the Seller in favor of
adoption of this Agreement and the approval of the Contemplated Transactions;
provided, however, that nothing contained in this Agreement shall prohibit the
Board of Directors of the Seller from withdrawing its recommendation and
approving another transaction regarding the Company or its assets if, and only
to the extent that (a) the Board of Directors of the Seller concludes in good
faith that such other transaction would constitute a Superior Proposal, (b) the
Board of Directors of the Seller determines in good faith (after consultation
with independent legal counsel) that the failure to take such action would
result in a breach by the Board of Directors of the Seller of its fiduciary
duties to the Seller's stockholders under applicable law and (c) prior to
furnishing information to, or entering into discussions or negotiations with any
third party, the Seller provides prompt written notice to the Buyers to the
effect that it is furnishing information to, or entering into discussion or
negotiations with, such third party (which notice shall identify the nature and
material terms of the competing proposal). The Proxy Statement, and any
amendments thereof or supplements thereto, will not, at the time of the mailing
of the Proxy Statement or any amendments thereof or supplements thereto and at
the time of the Stockholders Meeting (as hereinafter defined), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Seller with respect to information
supplied in writing by the Buyers or the Company specifically for inclusion in
the Proxy Statement. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rule and regulations
promulgated thereunder.
(b) The Seller shall duly call, give notice of, convene and
hold its annual, or a special meeting of its stockholders (the "Stockholders
Meeting") and shall use its Best Efforts to obtain the requisite affirmative
approval of its stockholders at the Stockholders Meeting of the Contemplated
Transactions. Arthur Asch and Michael Asch shall be present, in person (or, if
either cannot attend because of exigent circumstances, by proxy), at the
Stockholders Meeting and shall vote or cause to be voted all shares of Common
Stock held of record or beneficially owned (with the power to vote or direct the
vote) by Arthur Asch and Michael Asch and eligible to vote as of the record date
for such meeting in favor of the proposal seeking such approval.
(c) The provisions of Sections 5.5(a) and 5.5(b) shall not
apply as of the date the Seller delivers the Certificate referred to in Section
7.2 hereof.
5.6 Notification. Between the date of this Agreement and the Closing
Date, the Seller will promptly notify the Buyers in writing if the Seller
becomes aware of any fact or condition that causes or constitutes a Breach of
any of the Seller's representations and warranties as of the date of this
Agreement, or if the Seller or the Company becomes aware of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the Seller's Disclosure Letter if
the Seller's Disclosure Letter were dated the date of the occurrence or
discovery of any such fact or condition, the Seller will promptly deliver to the
Buyers a supplement to the Seller's Disclosure Letter specifying such change.
During the same period, the Seller will promptly notify the Buyers of the
occurrence of any Breach of any covenant of the Seller in this Section 5 or of
the occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
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5.7 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, the Seller will not, and will cause the
Company and its Representatives not to, directly or indirectly solicit,
initiate, or encourage any inquiries or proposals from, discuss or negotiate
with, provide any non-public information to, or consider the merits of any
unsolicited inquiries or proposals from, any Person (other than the Buyers)
relating to any transaction involving the sale of the business or assets (other
than in the Ordinary Course of Business) of the Company, or any of the capital
stock of the Company, or any merger, consolidation, business combination, or
similar transaction involving the Company; provided, however, that the Seller
and the Company may negotiate an unsolicited proposal from a third Person
regarding the Company or its assets if the Board of Directors of the Seller has
withdrawn its recommendation in favor of the Contemplated Transactions in
compliance with Section 5.5(a) above.
5.8 Best Efforts. Between the date of this Agreement and the Closing
Date, the Seller will use its Best Efforts to cause the conditions in Sections 7
and 8 to be satisfied.
6. Covenants of the Buyers Prior to Closing Date.
6.1 Approvals. As promptly as practicable after the date of this
Agreement, the Buyers will make all filings required by Legal Requirements to be
made by them to consummate the Contemplated Transactions. Between the date of
this Agreement and the Closing Date, the Buyers will cooperate with the Seller
and the Company with respect to all filings that the Seller or the Company are
required by Legal Requirements to make in connection with the Contemplated
Transactions. Without limiting the generality of the foregoing, the Buyers will
provide the Seller whatever information and assistance in connection with the
filing of the Proxy Statement as the Seller reasonably may request. The Buyers
shall vote or cause to be voted all shares of Common Stock held of record or
beneficially owned by the Buyers and eligible to vote as of the record date for
the stockholder meeting held in connection with the Proxy Statement in favor of
the proposal seeking approval.
6.2 Notification. Between the date of this Agreement and the Closing
Date, the Buyers will promptly notify the Seller in writing if the Buyers become
aware of any fact or condition that causes or constitutes a Breach of any of the
Buyers' representations and warranties as of the date of this Agreement, or if
the Buyers become aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Buyers' Disclosure Letter if the Buyers' Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, the Buyers will promptly deliver to the Seller a supplement to the
Buyers' Disclosure Letter specifying such change. During the same period, the
Buyers will promptly notify the Seller of the occurrence of any Breach of any
covenant of the Buyers in this Section 6 or of the occurrence of any event that
may make the satisfaction of the conditions in Section 7 impossible or unlikely.
6.3 Best Efforts. Between the date of this Agreement and the Closing
Date, each of the Buyers will use his Best Efforts to cause (i) the conditions
in Sections 7 and 8 to be satisfied and (ii) the loan referred to in the
commitment letter dated March 22, 1999 of Scripps Bank (which the Buyers will
use their Best Efforts to have extended through the Closing) or a commitment
which is superior from another bank or financial institution (the "Loan") to
close. The Buyers' efforts shall include, but not be limited to, cooperating
with prospective lender(s) in conducting due diligence and appraisals and
valuations of the property owned by the Buyers.
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7. Conditions Precedent to the Buyers' Obligation to Close. The Buyers'
obligation to purchase the Shares and to take the other actions required to be
taken by the Buyers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by both of the Buyers, in whole or in part):
7.1 Accuracy of Representations. All representations and warranties of
the Seller in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Seller's Disclosure
Letter.
7.2 Stockholder Approval. The Seller shall have received Stockholder
Approval with respect to the Contemplated Transactions or, in the alternative,
shall have delivered to the Buyers a Certificate stating that Stockholder
Approval is not required to consummate the Contemplated Transaction and further
certifying that the Seller has consulted legal counsel with expertise in federal
and New York state corporate and securities laws to advise the Seller as to the
necessity of such Stockholder Approval.
7.3 Seller's Performance.
(a) All of the covenants and obligations that the Seller is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered pursuant to Section
2.4 must have been delivered.
7.4 Additional Documents. Each of the following documents must have
been delivered to the Buyers:
(a) an opinion of Joseph Greenberger, dated the Closing Date,
in a form reasonably acceptable to Buyers and their counsel, which opinion,
solely if the certificate referenced in Section 7.2 has been delivered to the
Buyers, shall not be required to opine with respect to the necessity for
Stockholder Approval of the Contemplated Transactions; and
(b) such other documents as the Buyers may reasonably request
for the purpose of (i) enabling its counsel to provide the opinion referred to
in Section 8.3(a), (ii) evidencing the accuracy of any of the Seller's
representations and warranties, (iii) evidencing the performance by the Seller
of, or the compliance by the Seller with, any covenant or obligation required to
be performed or complied with by the Seller, (iv) evidencing the satisfaction of
any condition referred to in this Section 7, or (v) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
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7.5 No Proceedings. Since the date of this Agreement, there must not
have been commenced or Threatened against either Buyer, or against any Person
affiliated with either Buyer, any Proceeding (other than a Proceeding initiated
by or on behalf of a spouse or former spouse or trust or other entity of which a
spouse or former spouse is an affiliate of either Buyer) (a) involving any
challenge to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions.
7.6 No Claim Regarding Stock Ownership or Sale Proceeds. There must not
have been made or Threatened by any Person against the Seller any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, any of the Company, or (b) is
entitled to all or any portion of the Purchase Price payable for the Shares.
7.7 No Prohibition. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause either Buyer or any Person affiliated with
either Buyer to suffer any material adverse consequence under any Legal
Requirement or Order that has been published, introduced, or otherwise formally
proposed by or before any Governmental Body after the Effective Date.
8. Conditions Precedent to the Seller's Obligation to Close. The
Seller's obligation to sell the Shares and to take the other actions required to
be taken by the Seller at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived by the Seller, in whole or in part):
8.1 Accuracy of Representations. All of the Buyers' representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Buyers' Disclosure
Letter.
8.2 The Buyers' Performance.
(a) All of the covenants and obligations that the Buyers are
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and complied
with in all material respects.
(b) The Buyers must have delivered each of the documents
required to be delivered by the Buyers pursuant to Section 2.4 and must have
paid the Purchase Price.
8.3 Additional Documents. The Buyers must have caused the following
documents to be delivered to the Seller:
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(a) an opinion of Zevnik Horton Guibord McGovern Palmer &
Fognani, L.L.P. dated the Closing Date, in a form reasonably acceptable to
Seller and its counsel;
(b) such other documents as the Seller may reasonably request
for the purpose of (i) enabling their counsel to provide the opinion referred to
in Section 7.4(a), (ii) evidencing the accuracy of any representation or
warranty of the Buyers, (iii) evidencing the performance by the Buyers of, or
the compliance by the Buyers with, any covenant or obligation required to be
performed or complied with by the Buyers, (iv) evidencing the satisfaction of
any condition referred to in this Section 8, or (v) otherwise facilitating the
consummation of any of the Contemplated Transactions.
8.4 No Proceedings. Since the date of this Agreement, there must not
have been commenced or Threatened against the Seller, or any Person affiliated
with the Seller, any Proceeding (other than a Proceeding initiated by or on
behalf of Arthur Asch or Michael Asch or a Related Person thereto) (a) involving
any challenge to, or seeking damages or other relief in connection with, any of
the Contemplated Transaction, or (b) that may have the effect of preventing,
delaying, making illegal, or other interfering with any of the Contemplated
Transactions.
8.5 No Prohibition. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause either the Seller or any Person affiliated
with the Seller to suffer any material adverse consequence under any Legal
Requirement or Order that has been published, introduced or otherwise formally
proposed by or before any Governmental Body after the Effective Date.
9. Termination.
9.1 Termination Events. This Agreement may, by notice given prior to or
at the Closing, be terminated:
(a) by either of the Buyers or the Seller if a material Breach
of any provision of this Agreement has been committed by the other party and
such Breach has not been waived;
(b) unless the Certificate referred to in Section 7.2 shall
have been given, by the Buyers if Stockholder Approval is not obtained at the
meeting referred to in Section 5.5 on or before November 30, 1999, or if Seller
ceases using its Best Effort to obtain Stockholder Approval;
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(c) (i) by the Buyers if any of the conditions in Section 7
has not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of the Buyers
to comply with their obligations under this Agreement) and the Buyers have not
waived such condition on or before the Closing Date; or (ii) by the Seller, if
any of the conditions in Section 8 has not been satisfied of the Closing Date or
if satisfaction of such a condition is or becomes impossible (other than through
the failure of the Seller to comply with its obligations under this Agreement)
and the Seller has not waived such condition on or before the Closing Date;
(d) by mutual consent of the Buyers and the Seller; or
(e) by either the Buyers or the Seller if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before November 30, 1999, or such later date as the parties may agree upon.
9.2 Effect of Termination. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 12.1 and 12.3 will survive; provided, however,
that if this Agreement is terminated by a party because of the Breach of the
Agreement by the other party or because one (1) or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
10. Indemnification; Remedies.
10.1 Survival; Right to Indemnification Not Affected by Knowledge. All
representations and warranties in this Agreement, the supplements to the
Disclosure Letters, the certificate delivered pursuant to Section 2.5(a)(v), or
in any other certificate or document delivered pursuant to this Agreement will
expire at the Closing, except for the Seller's representations and warranties in
Section 3.3 and 3.5, which will survive the Closing until the expiration of the
applicable statute of limitations. The right to indemnification, payment of
Damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any Knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance with,
any such representation or warranty. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 Indemnification and Payment of Damages by the Seller. The Seller
will indemnify and hold harmless the Buyers, the Company, and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (excluding incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
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(a) any Breach of any representation or warranty made by the
Seller in Sections 3.3 and 3.5 of this Agreement (without giving effect to any
supplement to the Seller's Disclosure Letter);
(b) any Breach by the Seller of any covenant or obligation of
the Seller in this Agreement;
(c) any and all liabilities or actions, suits, claims or
legal, administrative, arbitration, governmental or other proceedings or
investigations against either the Company or the Buyers in which the principal
event giving rise thereto is attributable to or arose out of any action or
inaction by the Seller, or any director, officer, employee, agent,
representative or subcontractor of the Seller (other than any director, officer,
employee, agent, representative or subcontractor of the Company or to the extent
arising out of an action or in action based upon written information supplied by
either Buyer and/or the Company prior to the Closing);
(d) any and all actions, suits, claims or legal,
administrative, arbitration, government or other proceedings or investigations
against the Company or the Buyers or other Damages that result from or arise out
of the Closing of the Contemplated Transactions without obtaining Stockholder
Approval;
(e) any liability for Taxes of the Company attributable to the
period from October 22, 1997 through and including the Closing Date and any
liability of the Company for Taxes of any Person other than the Company under
Treasury Regulation Section 1.5102-6 (or a similar provision of any state, local
or foreign law), as a transferee, successor, by contract or otherwise; and
(f) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with the Seller (or any Person
acting on their behalf) in connection with any of the Contemplated Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or limit any
other remedies that may be available to the Buyers or the other Indemnified
Persons.
10.3 Indemnification and Payment of Damages by the Buyers. The Buyers
will, and shall cause the Company and each Related Buyer Business to indemnify
and hold harmless the Seller, and will pay to the Seller the amount of any
Damages arising, directly or indirectly, from or in connection with:
(a) any breach by the Buyers of any covenant or obligation of
the Buyers in this Agreement;
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(b) any and all actions, suits, claims or legal,
administrative, arbitration, governmental or other proceedings or investigations
against the Seller to the extent they result from or arise out of operation of
the Business (and are not subject to indemnification by the Seller Parties
pursuant to Section 10.2 above); or
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with the Buyers (or any Person acting
on its behalf) in connection with any of the Contemplated Transactions.
The remedies provided in this Section 10.3 will not be exclusive of or
limit any other remedies that may be available to the Seller or the other
Indemnified Persons.
10.4 Limitations. If the Closing occurs, the Seller will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, other than those in Sections 3.3 and 3.5, which liability will
continue until the expiration of the applicable statutes of limitations. If the
Closing occurs, the Buyers will have no liability (for indemnification or
otherwise) with respect to any representation or warranty. No Related Buyer
Business in which the Buyers do not in the aggregate own a majority interest (a
"Minority Related Buyer Business") shall have any obligation to indemnify the
Seller for claims made on or after the third anniversary of the Closing.
10.5 Limitations on Amount -- Seller. The Seller will have no liability
(for indemnification or otherwise) with respect to the matters described in
clause (a) or clause (b) of Section 10.2 until the total of all Damages with
respect to such matters exceeds $50,000, at which time the Buyers shall be
indemnified for the full amount of such Damages. However, this Section 10.5 will
not apply to any Breach of the Seller's representations and warranties of which
the Seller had Actual Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by the Seller of
any covenant or obligation, and the Seller will be liable for all Damages with
respect to such Breaches.
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10.6 Limitations on Amount and Recourse -- Buyers. The Buyers will have
no liability (for indemnification or otherwise) with respect to the matters
described in clause (a) or (b) of Section 10.3 until the total of all Damages
with respect to such matters exceeds $50,000, at which time the Seller shall be
indemnified for the full amount of such Damages. However, this Section 10.6 will
not apply to any Breach of any of the Buyers' representations and warranties of
which either Buyer had Actual Knowledge at any time prior to the date on which
such representation and warranty is made or any intentional Breach by the Buyers
of any covenant or obligation, and the Buyers will be jointly and severally
liable for all Damages with respect to such Breaches. The Seller's recourse (for
indemnification or otherwise) with respect to the matters in Section 10.3(a) and
(b) shall be limited in any event solely to (i) the ownership interests of the
Buyers or a Buyer or the transferee referred to in Section 12.10 hereof in the
Company and Related Buyer Businesses and (ii) the assets of the Company and such
Businesses. In no event shall the Seller have recourse for indemnification
against either of the Buyers' personal assets other than as set forth in the
prior sentence. This limitation as to recourse shall not limit the amount of
Damages for which an arbitral award in favor of the Seller may be entered
pursuant to Section 12.5. However, the Seller agrees that after it has satisfied
any such arbitral award for indemnification and any judgment entered thereon by
executing against those items against which it has recourse pursuant to the
terms of this Section 10.6, the Seller will promptly take all reasonable steps
legally necessary to extinguish any remaining award or judgment.
10.7 Procedure for Indemnification -- Third Party Claims.
(a) Promptly after receipt by an indemnified party under
Section 10.2 or 10.3, of notice of the commencement of any Proceeding against
it, such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying party of
the commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
(b) If any Proceeding referred to in Section 10.7(a) is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
reasonably satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Section 10 for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on any
other claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party; and (iii) the indemnified party will have no liability with respect to
any compromise or settlement of such claims effected without its consent. If
notice is given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within ten (10) days after the indemnified
party's notice is given, give notice to the indemnified party of its election to
assume the defense of such Proceeding, the indemnifying party will be bound by
any determination made in such Proceeding or any compromise or settlement
effected by the indemnified party.
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(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
(d) Each of the Seller and the Buyers hereby consents to the
non-exclusive jurisdiction of any court in which a Proceeding is brought against
any Indemnified Person for purposes of any claim that an Indemnified Person may
have under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on each of the Seller and the
Buyers with respect to such a claim anywhere in the world.
10.8 Procedure for Indemnification -- Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
11. Post-Closing Covenants.
11.1 Transition. The Seller will not take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier or other business associate of the Company from maintaining the same
business relationships with the Buyers after the Closing as it maintained with
the Company prior to the Closing.
11.2 Insurance. The Seller and the Buyers shall cooperate with each
other in the handling of insurance claims relating to the Company that straddle
the Closing Date.
11.3 Books and Records; Information. After the Closing Date, the
Seller, on the one hand, and the Buyers, on the other hand, shall retain all
accounting, tax, payroll and similar books and records pertaining to the
Businesses for a period of at least seven (7) years after the annual period to
which they relate, and shall provide access to such books and records and
related information to the other party and its representatives, and allow them
to make copies thereof and extracts therefrom, upon their reasonable request and
at their expense. In addition, the Seller on one hand, and the Buyers, on the
other hand, shall on the request of the other party during said period provide
the other party with such information as the other party may reasonably request
in connection with any accounting, tax, Commission filing or legal requirement.
The Buyers shall use reasonable and diligent efforts to cause the Company to
provide any information necessary for the Seller to make required filings with
the Commission in a timely fashion. Such access and information shall be
provided reasonably promptly during normal business hours, and the requesting
party shall in good faith attempt to minimize any disruption to the other
party's business.
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11.4 Tax Matters.
(a) Tax Sharing Agreements. Any tax sharing agreement between
the Seller and the Company is terminated as of the date of this Agreement and
will have no further effect for any taxable year (whether the current year, a
future year, or a past year).
(b) Returns for Periods Through the Closing Date. The Seller
will include the income of the Company (including any deferred income triggered
into income by Reg. ss.1.1502-13 and Reg. ss.1.1502-14 and any excess loss
accounts taken into income under Reg. ss.1.1502-19) on the Seller's consolidated
federal income Tax Return and other Tax Returns for all periods from October 22,
1997 through the Closing Date and pay any Taxes attributable to such income. The
Company will furnish Tax information to the Seller for inclusion in the Seller's
Tax Returns for the period which includes the Closing Date in accordance with
the Company's past custom and practice. The Seller will allow the Buyers an
opportunity to review and comment upon such Tax Returns (including any amended
returns) to the extent that they relate to the Company. The Seller will take no
position on such returns that relate to the Company that would adversely affect
the Company after the Closing Date. The income of the Company will be
apportioned to the period from October 22, 1997 up to and including the Closing
Date and the period after the Closing Date by closing the books of the Company
as of the end of the Closing Date.
(c) Audits. The Seller will allow the Company and its counsel
to participate at their own expense in any audits of the Seller's Tax Returns to
the extent that such returns relate to the Company. The Seller will not settle
any such audit in a manner which would adversely affect the Company after the
Closing Date without the prior written consent of the Buyers, which consent
shall not unreasonably be withheld.
11.5 Indemnification and Insurance. The Seller agrees that all rights
to indemnification or exculpation now existing in favor of the employees,
agents, directors or officers of the Company (the "Company Indemnified Parties")
as provided in the Articles of Incorporation or Bylaws of the Seller or other
comparable governing documents (the "Governing Instruments"), or as provided in
the agreements referred to in Section 2.5(iv) (the "Indemnification Agreements")
shall continue in full force and effect for a period of not less than seven (7)
years from the Closing Date; provided, however, that, in the event any claim or
claims are asserted or made within such seven (7) year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims. Any determination required to be made
with respect to whether a Company Indemnified Party's conduct complies with the
standards set forth in the Governing Instruments or the Indemnification
Agreements shall be made by independent counsel selected by the Company
Indemnified Party reasonably satisfactory to the Seller (whose fees and expenses
shall be paid by the Seller). The Seller agrees to fully perform all obligations
to be performed by the Seller under the Governing Instruments and the
Indemnification Agreements. The Seller further agrees that, for so long as the
Seller shall maintain officers' and directors' liability insurance policies
indemnifying and holding harmless its officers, directors, employees and agents
with respect to any actions or omissions occurring prior to the Closing,
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providing insurance coverage on terms no less advantageous to the Company
Indemnified Parties than the Company's existing policy. In the event the Seller
or any of its successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger, or (ii) transfers all or substantially all of
its properties, assets or stock to any person, then and in each such case,
proper provision shall be made so that the successors and assigns of the Seller
(or their successors and assigns) shall assume the obligations set forth in this
Section 11.5.
11.6 Indemnification and Insurance. The Buyers agree to cause the
Company to provide that all rights to indemnification or exculpation now
existing in favor of the employees, agents, directors or officers of the Seller
(the "Seller Indemnified Parties") as provided in the Articles of Incorporation
or Bylaws of the Company or other comparable governing documents (the "Company
Governing Instruments"), or as provided in any agreements between a Seller
Indemnified Party and the Company (the "Company Indemnification Agreements")
shall continue in full force and effect for a period of not less than seven (7)
years from the Closing Date; provided, however, that, in the event any claim or
claims are asserted or made within such seven (7) year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims. Any determination required to be made
with respect to whether a Seller Indemnified Party's conduct complies with the
standards set forth in the Company Governing Instruments or the Company
Indemnification Agreements shall be made by independent counsel selected by the
Seller Indemnified Party reasonably satisfactory to the Company (whose fees and
expenses shall be paid by the Company). The Buyers agree to cause the Company to
fully perform all obligations to be performed by the Company under the Company
Governing Instruments and the Company Indemnification Agreements. In the event
the Company or any of its successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger, or (ii) transfers all or
substantially all of its properties, assets or stock to any person, then and in
each such case the Buyers shall cause the Company to make proper provision shall
be made so that the successors and assigns of the Company (or their successors
and assigns) shall assume the obligations set forth in this Section 11.6.
11.7 Post-Closing Operations of the Business. The Buyers will not
operate a Business in Southern California other than through the Company or a
Related Buyer Business and the Buyers will cause each Related Buyer Business to
perform all the obligations which the Buyers are required to cause the Company
to perform hereunder.
11.8 NASA Claim. The Buyers shall cause the Company to pay the Seller
fifty percent (50%) of all net recoveries to the Company as of the Closing and
thereafter with respect to the NASA Claim in a reasonably prompt fashion. This
obligation to cause payments to the Seller with respect to the NASA Claim is
expressly conditioned upon the Seller paying fifty percent (50%) of all costs
and expenses incurred by the Company by reason of its prosecuting or pursuing
the NASA Claim when due, and, if the Seller shall fail to pay any such costs or
expenses when due, shall irrevocably forfeit its right to be paid any portion of
the net recoveries with respect to the NASA Claim.
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11.9 Buyer Notification. As soon as practicable after the Closing, the
Buyers shall send notification to all vendors, customers or other third parties
to which the Company has a material relationship setting forth the fact that the
Buyers (or their permissible assignees) have acquired ownership of the Company
and that the Seller has no continuing right, title or interest in the Company or
involvement with its operations.
12. General Provisions.
12.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. Neither the Seller nor the
Buyers will cause the Company not to incur any fees or out-of-pocket expenses in
connection with this Agreement. In the event of termination of this Agreement,
the obligation of each party to pay its own expenses will be subject to any
rights of such party arising from a breach of this Agreement by another party.
In the event this Agreement is terminated by the Buyers pursuant to Section
9.1(b), the Seller shall promptly pay the Buyers all costs and expenses
(including reasonable legal fees and expenses) incurred by the Buyers in
connection with the Contemplated Transactions; including, without limitation,
all appraisal fees or other expenses incurred in connection with attempting to
obtain the Loan referred to in Section 6.3.
12.2 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as are mutually agreed upon by the
Buyers and the Seller; provided, however, that the Seller may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement with the stock exchange or quotation system
concerning its publicly traded securities (in which case the Seller will use
Best Efforts to provide the Buyers with a copy of such communication prior to
making the disclosure). Unless consented to by the Buyers in advance or required
by Legal Requirements, prior to the Closing the Seller shall, and shall cause
the Company to, keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any Person. The Seller and the Buyers will
consult with each other concerning the means by which the Company's employees,
customers, and suppliers and others having dealings with the Company will be
informed of the Contemplated Transactions, and the Buyers will have the right to
be present for any such communication.
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12.3 Confidentiality. Between the date of this Agreement and the
Closing Date, the Buyers and the Seller will maintain in confidence, and will
cause the directors, officers, employees, agents, and advisors of the Seller and
the Company to maintain in confidence any written, oral, or other information
obtained in confidence from another party in connection with this Agreement or
the Contemplated Transactions, unless (a) such information is already known to
such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
Contemplated Transactions, and fulfilling Seller's periodic reporting
obligations to the Commission or to facilitate due diligence of any potential
acquirer of Seller (but not a potential acquirer of the Company) if such
potential acquirer is aware of and legally bound by the restrictions contained
in this Section 12.3, or (c) the furnishing or use of such information is
required by legal proceedings or the threat thereof. If the Contemplated
Transactions are not consummated, each party will return or destroy as much of
such written information as the other party may reasonably request.
12.4 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
To the Seller: REXX Environmental Corporation
Attention: Arthur Asch
350 Park Avenue
New York, New York 10022
Facsimile: (212) 750-3095
with a required copy to: Joseph Greenberger, Esq.
1370 Avenue of the Americas
New York, New York, 10019-4602
Facsimile: (212) 757-4053
To the Buyers: Greg S. Watkins
Daren J. Barone
5490 Complex Street, Suite 603
San Diego, California 92123
Facsimile: (619) 279-6332
with a required copy to: Zevnik Horton Guibord McGovern
Palmer & Fognani, L.L.P.
Attention: Steven G. Rowles, Esq.
101 West Broadway, 17th Floor
San Diego, California 92101
Facsimile: (619) 515-9629
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12.5 Arbitration.
(a) Any claims by the Company or the Buyers against the
Seller, or by the Seller against the Buyers arising out of or in connection with
this Agreement or the Seller's Closing Document shall be determined by
arbitration in Chicago, Illinois by an arbitrator appointed by JAMS/Endispute,
in accordance with the applicable rules of JAMS/Endispute, and as provided in
this Section 12.5. The arbitration may be commenced by a demand for arbitration
with notice of claims pursuant to Section 12.4, with a simultaneous copy thereof
to the JAMS/Endispute office in Chicago, Illinois. Except as otherwise provided
for herein, the arbitration shall be conducted in accordance with the
JAMS/Endispute Comprehensive Rules and Procedures then in effect. There shall be
one (1) arbitrator agreed upon by the parties, or if the parties cannot agree on
the identity of the arbitrator within five (5) days of the arbitration demand,
the arbitrator shall be selected by the JAMS/Endispute Administrator. Any issue
about whether a claim is covered by this Agreement to arbitrate shall be
determined by the arbitrator.
(b) The parties may perform reasonable discovery in such scope
as determined by the arbitrator. Depositions may be taken and discovery may be
obtained in any arbitration under this Agreement in accordance with said
statute, as amended or replaced as of the arbitration. The arbitrator shall not
be bound by rules of evidence, but may consider such writings and oral
presentations as reasonable business people would use in the conduct of their
day-to-day affairs, and may require the parties to submit some or all of their
case by written or such other manner of presentation as the arbitrator may
determine to be appropriate. Pre-trial memoranda shall be exchanged no later
than five (5) days before the hearing starts. The parties intend to limit live
testimony and cross-examination to the extent necessary to ensure a fair hearing
on material issues without unnecessarily prolonging the arbitration.
(c) The arbitrator shall take such steps as he or she may
consider necessary to start the hearing within sixty (60) days of the
appointment of the arbitrator and to conclude the hearing within twenty (20)
days; and the arbitrator's written decision shall be made not later than ten
(10) days after the conclusion of the hearing. A stenographic record shall be
kept of the hearing, except that the arbitrator may employ telephonic conference
calls with the parties' attorneys to decide discovery and procedural issues, and
no stenographic record shall be required thereof. The parties have included
these time limits in order to expedite the proceeding, but they are not
jurisdictional, and the arbitrator shall for good cause (including the inability
of a party to complete its discovery despite diligent efforts in connection
therewith) allow reasonable extensions or delays, which shall not affect the
validity of the award. The arbitrator's written decision shall contain a brief
statement of the claim(s) determined and the ward made on each claim. In making
the decision and award, the arbitrator shall apply applicable Delaware law,
without giving effect to its principles of conflicts of law. Absent fraud,
collusion or willful misconduct by the arbitrator, the award shall be final, and
judgment may be confirmed and entered in any court having jurisdiction thereof.
The arbitrator may ward injunctive relief or any other substantive or procedural
direction available from a judge in an action, in law or equity. The arbitrator
shall ward the predominantly prevailing party its reasonable attorneys' fees and
disbursements and expenses (including stenographic, witnesses', experts', and
investigation fees and expenses) in connection with the arbitration. Until the
arbitrator's award of costs, the fees and disbursements of JAMS/Endispute, the
arbitrator, stenographic recording expenses and similar arbitration expenses
shall be borne and paid fifty percent (50%) by the Seller and fifty percent
(50%) by the Buyers or the Company (whichever may be a party to the
arbitration).
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(d) Notwithstanding any term in this Agreement to the
contrary, each party hereto, on or prior to the commencement of arbitration
hereunder, shall first notify the other party in writing of its or his intention
to seek arbitration and the specific bases upon which its claims are made.
Within seven (7) days thereof, the party in receipt of such notification may
request that JAMS/Endispute provide mediation services with a mediator in
accordance with its Rules and as selected by the Administrator, and on such
request the other party shall submit to such mediation, the fees and
disbursements of said mediation shall be borne fifty percent (50%) by the Seller
and fifty percent (50%) by the Company or the Buyers (whichever may be a party
to the mediation). The pendency of a request for mediation, or of a mediation,
shall not stay a demand for arbitration pursuant to Section 12.5(a), or any
arbitration procedures, hearing or determination pursuant to Section 12.5(b),
12.5(c) or 12.5(d). Nothing herein shall limit the Company or the Buyers from
seeking or obtaining injunctive relief.
(e) For purposes of Section 12.5 hereof, the term "Buyers"
includes all Related Buyer Businesses and all permitted transferees referred to
in Section 12.10 hereof. The Buyers agree to cause such Related Buyer Businesses
and permitted transferees to execute and deliver to the Seller agreements in
form and substance reasonably satisfactory to the Seller so agreeing to such
arbitration provisions.
12.6 Further Assurances. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
12.7 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one (1) party, in whole or in part, by a waiver or renunciation of the claim
or right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one (1) party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
12.8 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
-33-
<PAGE>
12.9 Disclosure Letters.
(a) The disclosures in the Disclosure Letters, and those in
any Supplement thereto, must relate only to the representations and warranties
in the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements
in the body of this Agreement and those in the Disclosure Letters (other than an
exception expressly set forth as such in the Disclosure Letters with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
12.10 Assignments, Successors, and No Third-Party Rights. No party may
assign any of its rights under this Agreement without the prior consent of the
other parties (which any party may withhold, in its sole and absolute
discretion) except that each of the Buyers may assign any of his right, title
and interest under this Agreement to any corporation or limited liability
company wholly-owned by the assigning Buyer without the need for consent by the
Seller; provided, however, that any such transferee shall assume in writing the
liabilities, obligations and duties of performance of the assigning Buyer under
this Agreement and the assigning Buyer shall remain jointly and severally liable
with such transferee with respect to the assigning Buyer's liability under this
Agreement. Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
12.11 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
12.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All references to Buyers
herein include each Buyer, and all references to Buyer herein include both
Buyers. All words used in this Agreement will be construed to be of such gender
or number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
12.13 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
12.14 Joint and Several Liability. The obligations hereunder of the
Buyers, Related Buyer Businesses and transferees referred to in Section 12.10
shall be joint and several.
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<PAGE>
12.15 Governing Law. This Agreement will be governed by the laws of the
State of Delaware without regard to conflicts of laws principles.
12.16 Counterparts; Facsimile. This Agreement may be executed in one
(1) or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one (1) and the same agreement. This Agreement may be executed by
facsimile (with originals to follow by United States mail), and such facsimile
shall be conclusive evidence of the consent and ratification of the signatories
hereto.
12.17 Minority Related Buyer Business Obligations. The obligations of
either Buyer hereunder to cause any Minority Related Buyer Business to
acknowledge, comply with or perform under the provisions of this Agreement shall
expire in their entirety on the third anniversary of the Closing.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Buyers
/s/ Greg S. Watkins
-------------------------------
Greg S. Watkins
/s/ Daren J. Barone
-------------------------------
Daren J. Barone
Seller REXX ENVIRONMENTAL CORPORATION,
a New York corporation
By: /s/ Arthur L. Asch
-----------------------------
Name: Arthur L. Asch
----------------------------
Title: Chairman of the Board
---------------------------
[Signature Page to Stock Purchase Agreement]
<PAGE>
Schedule of Omitted Exhibits
Exhibit A Seller's Release
Exhibit B Noncompetition Agreement
Exhibit C Buyers' Release
<PAGE>
REXX
ENVIRONMENTAL CORPORATION
November 29, 1999
Greg S. Watkins
Daren J. Barone
Watkins Contracting, Inc.
5490 Complex Street, Suite 603
San Diego, CA 92123
Re: Stock Purchase Agreement dated June 10, 1999
Dear Greg and Daren:
As we have discussed, it will not be practicable to file proxy materials for the
planned transactions until later in November or in December. When the Agreement
was signed in June, it was expected that the meeting date would be before
November 30. Since the shareholder meeting cannot be held by that date, all
references to November 30, 1999 in the Agreement need to be changed to a
reasonable later date. I expect it reasonable to assume that the shareholder
meeting will be held before February 29, 2000.
As we have also discussed, you have requested the right to pay REXX $171,875 on
Closing of the Agreement in lieu of 125,000 REXX shares as part of the Purchase
Price.
Accordingly, as we have discussed, please confirm that (i) all references to
November 30, 1999 in the Agreement are to be considered changed to references to
February 29, 2000, (ii) Section 2.2(a) of the Agreement is deleted in its
entirety and replaced by (a) The purchase price (the Purchase Price") for the
Shares will be (x) $1,300,000 payable in cash, and (y) delivery of 125,000
shares of Common Stock of the Seller with an agreed upon fair market value of
$1.375 per share or the closing price of such Shares as of the day prior to the
Closing, whichever is less, or $171,875 in cash, and (iii) in all other respects
the Agreement remains unchanged and unaffected by the delay in the shareholder
meeting.
Very truly yours,
/s/ Arthur L. Asch
-----------------------
Arthur L. Asch
Chairman of the Board
CONFIRMED:
/s/ Greg S. Watkins
- -----------------------
Greg S. Watkins
/s/ Daren J. Barone
- -----------------------
Daren J. Barone
350 Park Avenue o New York, New York 10022
o (212) 750-7755 o Fax: (212) 750-3095
<PAGE>
REXX
ENVIRONMENTAL CORPORATION
January 6, 2000
Greg S. Watkins
Daren J. Barone
Watkins Contracting, Inc.
5490 Complex Street, Suite 603
San Diego, CA 92123
Re: Stock Purchase Agreement dated June 10, 1999
and Letter Agreement dated November 29, 1999
Dear Greg and Daren:
As we have discussed, it will not be practicable to file proxy materials for the
planned transactions until later this month. When the Letter Agreement was
signed in November, it was expected that the meeting date would be before
February 29, 2000. Since the shareholder meeting cannot be held by that date,
all references to February 29, 2000 in the Stock Purchase Agreement as amended
by the Letter Agreement of November 29, 1999 need to be changed to a reasonable
later date. I expect it reasonable to assume that the shareholder meeting will
be held before April 30, 2000.
Accordingly, as we have discussed, please confirm that (i) all references to
November 30, 1999 and/or February 29, 2000 in the Stock Purchase Agreement and
the Letter Agreement are to be considered changed to references to April 30,
2000, and (ii) in all other respects the Stock Purchase Agreement and the Letter
Agreement remain unchanged and unaffected by the delay in the shareholder
meeting.
Very truly yours,
/s/ Arthur L. Asch
-----------------------
Arthur L. Asch
Chairman of the Board
CONFIRMED:
/s/ Greg S. Watkins
- -----------------------
Greg S. Watkins
/s/ Daren J. Barone
- -----------------------
Daren J. Barone
350 Park Avenue o New York, New York 10022
o (212) 750-7755 o Fax: (212) 750-3095
<PAGE>
AGREEMENT AND PLAN OF MERGER
by and between
REXX ENVIRONMENTAL CORPORATION
and
TWG, INC.
Dated
December 9, 1999
To be Joined in by
REXX ACQUISITION CORP.
and
WHITESTONE ACQUISITION CORP.
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into effective as of December 9, 1999, between REXX Environmental
Corporation, a New York corporation ("REXX"), and TWG, Inc., a New York
corporation ("TWGI") (REXX and TWGI are sometimes hereinafter individually
referred to as a "Party" and collectively as the "Parties").
PRELIMINARY STATEMENTS
REXX and TWGI desire to combine their respective businesses and
holdings through the merger of REXX with REXX Acquisition Corp., with REXX as
the surviving corporation. Pursuant to the Merger, each share of common stock of
REXX, par value $0.02 per share ("REXX Common Stock") outstanding at the
Effective Time (as defined in Article II) will be converted into the right to
receive one share of TWGI Common Stock, par value $0.02 per share ("TWGI Common
Stock"), as more fully provided herein. Unless otherwise defined, capitalized
terms shall have the meanings assigned in Section 1.09.
The Parties intend that the Merger constitute a tax-deferred
transaction for purposes of the Internal Revenue Code of 1986, as amended (the
"Code").
The respective Boards of Directors of REXX and TWGI have determined the
Merger, in the manner contemplated herein, to be desirable and in the best
interests of their respective companies and shareholders and, by resolutions
duly adopted, have approved and adopted this Agreement.
As soon as practicable after the execution of this Agreement, REXX
shall notice a meeting of its shareholders and in connection therewith submit to
its shareholders the Proxy Statement related to (i) the approval of the Merger
and (ii) the approval of the Watkins Sale.
Concurrent with the execution of this Agreement and as an inducement to
TWGI to enter into this Agreement, certain affiliates of REXX who are
shareholders, officers or directors are entering into Voting Agreements (as
hereinafter defined) to vote the shares of REXX Common Stock owned by such
persons to approve (i) the Merger, (ii) the Watkins Sale, and (iii) such other
actions as shall be necessary to effectuate the Merger (collectively the "Proxy
Actions").
A stock purchase agreement for the sale of REXX's wholly-owned
subsidiary, Watkins Contracting, Inc., to Daren J. Barone and Greg S. Watkins
(the "Buyers") has been executed and, subject to the approval of REXX's
shareholders, will be consummated prior to the Merger. In addition, all of the
issued and outstanding equity securities of Wilshire Holdings I, Inc. and
Wilshire Holdings II, Inc. will have been contributed to BJB Holdings Corp.,
which will subsequently merge with Whitestone Acquisition Corp., with BJB
Holdings Corp. as the surviving corporation as a wholly-owned subsidiary of
TWGI.
As of the date of this Agreement, Messrs. Barry Sloane, Brian A.
Wasserman and Jeffrey G. Rubin own in the aggregate all of the membership
interests in The Whitestone Group, LLC , 87% of the membership interests in
Wilshire Advisers, LLC and 75% of the membership interests in Wilshire Partners,
LLC. The Whitestone Group, LLC owns 65% of the membership interests in Wilshire
Investors, LLC, 100% of the membership interests in Wilshire Louisiana Advisers,
LLC and Wilshire New York Advisers II, LLC and 100% of the equity securities of
Whitestone Capital Markets, Inc. Prior to the Effective Time all membership
interests referenced above will be contributed to WI and WII, which will be
wholly-owned by Messrs. Sloane, Wasserman and Rubin who, in turn, will
contribute all of the outstanding equity securities of WI and WII to BJB
Holdings. BJB Holdings is and will remain as a wholly-owned subsidiary of TWGI.
2
<PAGE>
AGREEMENT
Now, therefore, in consideration of the premises and the mutual and
dependent promises hereinafter set forth, the Parties hereby agree as follows:
ARTICLE I
MERGER
Section 1.01 Creation of RAC. In order to effect the Merger, TWGI shall
cause RAC to be organized as a New York corporation, all of the issued and
outstanding capital stock of which shall be owned by TWGI. As soon as practical
following its organization, TWGI shall cause RAC to ratify, approve and adopt
this Agreement.
Section 1.02 The Merger. Subject to the terms and conditions of this
Agreement and in accordance with the Business Corporation Law of New York
("BCL"), at the Effective Time, RAC will be merged with and into REXX, the
separate existence of RAC will cease and REXX will continue as the Surviving
Corporation.
Section 1.03 Effect of the Merger. In addition to the effects set forth
in this Agreement, the Merger will have the effects set forth in Section 906(b)
of the BCL.
Section 1.04 Certificate of Incorporation and By-Laws; Name. At the
Effective Time, the Certificate of Incorporation and the By-Laws of REXX prior
to the Effective Time, including all amendments thereto made prior to the
Effective Time, will be the Certificate of Incorporation and the By-Laws of the
Surviving Corporation.
Section 1.05 Directors. The directors of RAC will continue as the
directors of the Surviving Corporation in accordance with the Certificate of
Incorporation of the Surviving Corporation until their successors are duly
elected or appointed and qualified or until their earlier death, resignation or
removal.
Section 1.06 Officers. The persons serving as officers of RAC prior to
the Effective Time will continue as the officers of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal.
Section 1.07 Merger Consideration: Conversion of Securities. Conversion
and Exchange of REXX Common Stock; Fractional Share Interests; REXX Stock
Options.
3
<PAGE>
(a) At the Effective Time, except as provided in Section
1.07(b) below, each share of REXX Common Stock issued and outstanding
immediately prior to the Effective Time shall thereupon and thereafter, by
virtue of the Merger becoming effective and without any action on the part of
the holder thereof or any other person, be converted into the right of the
registered holder thereof immediately prior to the Effective Time (such
registered holder being hereinafter referred to as a "Record Holder") to receive
an equal number of shares of TWGI Common Stock, and if appropriate one
additional share of TWGI Common Stock to be paid in lieu of a fractional share
pursuant to Section 1.07(g) hereof.
(b) At the Effective Time, all shares of REXX Common Stock (i)
held as treasury stock by REXX, (ii) owned beneficially by REXX or any REXX
Subsidiary other than in a fiduciary capacity or in connection with a debt
previously contracted, or (iii) owned beneficially by TWGI or any subsidiary of
TWGI other than in a fiduciary capacity or in connection with a debt previously
contracted shall be cancelled, and no cash, stock or other property shall be
delivered in exchange therefor.
(c) After the Effective Time, each Record Holder shall
surrender the certificate(s) that immediately prior to the Effective Time
evidenced and represented REXX Common Stock ("Certificate(s)") to the exchange
agent to be selected by TWGI and which shall be reasonably acceptable to REXX
(the "Exchange Agent"), and each Record Holder shall be entitled upon such
surrender to receive in exchange therefor certificate(s) representing the number
of whole shares of TWGI Common Stock to which such Record Holder is entitled as
provided herein and one (1) additional share of TWGI Common Stock in exchange
for any fraction of a share of REXX Common Stock, as provided under Section
1.07(g) hereof. Within five (5) business days after the Effective Time, the
Exchange Agent shall transmit by U.S. Mail a notice and appropriate transmittal
materials to each Record Holder whose shares of REXX Common Stock shall have
been converted into TWGI Common Stock advising such holder of the effectiveness
of the Merger and the procedure for surrendering outstanding Certificates.
Promptly after receipt of properly completed transmittal materials, together
with the Certificates that formerly evidenced and represented the Record
Holders' shares of REXX Common Stock, the Exchange Agent shall deliver the
consideration to which such Record Holders are entitled pursuant to Sections
1.07(a) and (g) hereof, and the surrendered Certificates shall forthwith be
cancelled. The Exchange Agent shall not be obligated to deliver the
consideration to which any Record Holder is entitled as a result of the Merger
until such Record Holder shall have surrendered the Certificate(s) that formerly
evidenced and represented shares of REXX Common Stock outstanding immediately
prior to the Effective Time for exchange as provided in this Section 1.07(c). In
the case of lost or stolen certificates, the Exchange Agent may require such
Record Holder to execute a bond of the kind and amount it deems necessary or
appropriate to indemnify the Exchange Agent in a manner reasonably satisfactory
to it against all such claims, expenses and liabilities as may arise out of its
payment to such registered holder in the absence of the surrender of a
certificate. After the Effective Time, each Certificate that evidenced and
represented shares of REXX Common Stock outstanding immediately prior to the
Effective Time shall be deemed for all corporate purposes to evidence and
represent only the right of the Record Holder to receive the consideration
provided in Section 1.07(a) hereof, upon compliance with the provisions of this
Section 1.07(c), and shall evidence and represent no further interest of any
kind or nature whatsoever in REXX.
4
<PAGE>
(d) Until surrendered as provided in Section 1.07(c) hereof,
each Certificate shall be deemed for all purposes to evidence ownership of the
number of shares of TWGI Common Stock into which the shares represented by such
Certificate have been converted; however, no dividend or other distribution
payable with respect to the shares of TWGI Common Stock shall be paid to a
Record Holder until such shareholder surrenders his or her Certificate(s) for
exchange as provided in Section 1.07(c), at which time, subject to Section
1.07(g) below, such shareholder shall receive all dividends and distributions,
without interest thereon, previously payable but withheld from such shareholder
pursuant to this Section 1.07(d). Certificates surrendered for exchange by any
person constituting an "affiliate" of REXX for purposes of Rule 145(c) under the
Securities Act shall contain any legends required by applicable law.
(e) As of the Effective Time, the stock transfer books of REXX
shall be closed, and no transfers of REXX Common Stock by such holder shall
thereafter be made or recognized. On the Closing Date (as hereinafter defined),
REXX shall deliver to TWGI a certified copy of its list of shareholders as of
such date.
(f) In the event that prior to the Effective Time the
outstanding shares of REXX Common Stock shall have been increased, decreased, or
changed into or exchanged for a different number or kind of shares or securities
by reorganization, recapitalization, reclassification, stock dividend, stock
split, or other like change in capitalization, then an appropriate and
proportionate adjustment shall be made in the number and kind of shares of TWGI
Common Stock to be thereafter delivered pursuant to this Agreement.
(g) Notwithstanding any other provision hereof, each holder of
REXX Common Stock who would otherwise have been entitled to receive a fraction
of a share of TWGI Common Stock (after taking into account all Certificates
delivered by such shareholder and aggregating all such fractional interests)
shall receive one (1) additional share of TWGI Common Stock. No such holder
shall be entitled to dividends, voting rights or any other shareholder right in
respect of any fractional share.
(h) The holders of the REXX Common Stock shall not have the
rights to payment for their shares, as provided by Section 623 of the BCL,
pursuant to the provisions of Section 910 of the BCL.
(i) At the Effective Time, each REXX Option whether or not
exercisable, shall be converted into and become an option with respect to TWGI
Common Stock, and TWGI shall assume each REXX Option, in accordance with the
terms of the REXX plan and stock option agreement by which it is evidenced,
except that from and after the Effective Time, (i) TWGI and a committee of its
Board of Directors shall be substituted for REXX and a committee of its Board of
Directors (including, if applicable, the entire Board of Directors of REXX)
administering the REXX stock option plan, (ii) each REXX Option assumed by TWGI
may be exercised solely for TWGI Common Stock, (iii) the number of shares of
TWGI Common Stock subject to each REXX Option shall be equal to the number of
shares of REXX Common Stock subject to such REXX Option immediately prior to the
Effective Time and (iv) the per share exercise price to purchase shares of TWGI
Common Stock shall be equal to the per share exercise price under each REXX
Option. Notwithstanding the foregoing, TWGI shall not be obligated to issue any
fraction of a share of TWGI Common Stock upon the exercise of a REXX Option
subsequent to the Effective Time. As soon as reasonably practicable after the
Effective Time, TWGI shall register on Form S-8 under the Securities Act of
1933, as amended (the "Securities Act"), shares of TWGI Common Stock which may
be acquired upon the exercise of the former REXX Option.
5
<PAGE>
(j) At the Effective Time, each share of common stock of
RAC, issued and outstanding at the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into one
outstanding share of REXX Common Stock. From and after the Effective Time, each
outstanding certificate previously representing shares of RAC Common Stock shall
be deemed for all purposes to evidence ownership of and to represent the number
of shares of REXX Common Stock into which such shares of RAC Common Stock shall
have been converted.
Section 1.08 Creation of Whitestone Acquisition Corp.. In order to
effectuate the combination of the non-REXX interests in the transactions
contemplated by this Agreement, TWGI shall cause WAC to be organized. As soon as
practical following its organization, TWGI shall cause WAC to ratify, approve
and adopt this agreement.
Section 1.09. Definitions. As used in this Agreement, the following
terms have the following meanings; those defined in the singular shall have the
same meaning when used in the plural and vice versa.
Action means any suit at law or equity, claim, proceeding or
investigation.
Affiliated Person means, with respect to a party, any shareholder,
member, director, officer, employee, manager, representative, Related Party or
entity or person controlling, controlled by or under common control with such
party.
Applicable Laws means, with respect to a party, all laws, statutes,
ordinances, orders, rules, regulations, policies, and guidelines promulgated,
and all judgments, decisions and orders entered by any federal, state, local or
foreign court or governmental authority or instrumentality which are applicable
or relate to either TWGI or REXX, respectively, or their respective businesses
or properties.
BJB Holdings means BJB Holdings Corp., a New York corporation.
Closing and Closing Date shall have the meanings assigned to such terms
by Article II.
Contracts means all enforceable contracts, agreements, leases,
arrangements and understandings, written or oral.
Effective Date and Effective Time shall have the meanings assigned to
such terms by Article II.
Material Adverse Effect means any change in REXX or TWGI, as the
context indicates, involving or affecting the general business affairs,
financial condition, management, stockholders' equity or results of operations
of such company which, individually or in combination with other changes, is
both material and adverse.
6
<PAGE>
Merger means the combination of REXX and RAC pursuant to New York law
with REXX as the Surviving Corporation.
Proxy Actions means the proposals to be voted upon by the REXX
shareholders at the next meeting of shareholders with respect to the Watkins
Sale and the Merger.
Proxy Statement means the document prepared by REXX and transmitted to
its shareholders in connection with the Watkins Sale and the Merger, as the same
shall be amended or supplemented.
RAC means REXX Acquisition Corp., a New York corporation to be at the
Effective Time wholly-owned by TWGI, created to effectuate the Merger.
RAC Common Stock means the common stock, no par value, of RAC.
Related Party means a current 5% or more shareholder, director,
officer, or any person related to such persons by blood or marriage.
REXX Options means those rights to purchase shares of REXX Common Stock
outstanding as of the Effective Time.
Surviving Corporation means REXX, the corporation resulting from the
combination of REXX and RAC pursuant to the Merger.
WA means Wilshire Advisers, LLC, a New York limited liability company.
WAC means Whitestone Acquisition Corp., a New York corporation
wholly-owned by TWGI and created to effectuate the merger with BJB Holdings and
the acquisition of BJB's subsidiaries.
Watkins means Watkins Contracting, Inc., a California corporation and
wholly-owned subsidiary of REXX.
Watkins Sale means the sale by REXX of Watkins pursuant to a stock
purchase agreement dated June 10, 1999.
W Capital means Whitestone Capital Markets, Inc., a New York
corporation.
WG means The Whitestone Group, LLC, a New York limited liability
company.
WI and WII mean, respectively, Wilshire Holdings I and Wilshire
Holdings II, both New York corporations which, at the Effective Time, will be
wholly-owned subsidiaries of BJB Holdings I.
7
<PAGE>
WIn means Wilshire Investors, LLC, a Wisconsin limited liability
company.
WLA means Wilshire Louisiana Advisers, LLC, a Louisiana limited
liability company.
WNY means Wilshire New York Advisers II, LLC, a New York limited
liability company.
WP means Wilshire Partners, LLC, a Florida limited liability company.
ARTICLE II
CONSUMMATION OF MERGER
The closing of the Merger ("Closing") will take place as soon as
practicable after the approval of the Proxy Actions by the shareholders of REXX
(the "Closing Date"), at the offices of Tashlik, Kreutzer & Goldwyn P.C., 833
Northern Boulevard, Great Neck, New York 11021, at 10:00 a.m. or at or on such
other time, date and place, or by facsimile or overnight delivery, as shall be
mutually agreed to by the Parties. At the time of the Closing, the parties will
cause the Merger to be consummated by filing a Certificate of Merger with the
Secretary of State of New York, in such form as required by and executed in
accordance with the BCL. The date and time of the filing of the Certificate of
Merger shall be the "Effective Date" or "Effective Time" as used herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF REXX
In order to induce TWGI to enter into this Agreement, REXX represents
and warrants to TWGI that the statements contained in this Article III are true,
correct and complete (except as otherwise indicated the statements contained in
this Article III do not relate to Watkins):
Section 3.01 Organization and Standing. REXX is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York with full power and authority (corporate and other) to own, lease, use
and operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. The name under which REXX was originally
incorporated was "Computronic Services, Inc." REXX is not in default in the
performance, observation or fulfillment of any provision of its Certificate of
Incorporation or its By-laws. REXX is qualified to do business in each
jurisdiction where the nature of its activities would require it to so qualify,
except where the failure to so qualify could not have a REXX Material Adverse
Effect.
Section 3.02 Corporate Power and Authority. REXX has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations under this Agreement. This Agreement and the transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action on the part of REXX and the Agreement has been duly
executed and delivered by REXX and constitutes the legal, valid and binding
obligation of REXX, enforceable against REXX in accordance with its terms, which
in some cases are subject to the approval and adoption of those transactions
contemplated by this Agreement by REXX's shareholders.
8
<PAGE>
Section 3.03 Conflicts; Consents and Approvals. Except as set forth on
Schedule 3.03, neither the execution or delivery of this Agreement by REXX nor
the consummation of the transactions contemplated by this Agreement will:
(a) violate or result in a breach of any provision of, or
constitute a default (or an event which, with the giving of notice, the passage
of time, or both, would constitute a default) under, or entitle any third party
(with the giving of notice, the passage of time or both) to terminate,
accelerate or call a default under any of the terms, conditions or provisions of
the Certificate of Incorporation or By-laws of REXX, or any note, bond,
mortgage, indenture, deed of trust, license, contract, undertaking, agreement,
lease or other instrument or obligation of REXX filed as an exhibit to the REXX
SEC Documents (as defined in Section 3.07 of this Agreement);
(b) violate any order, writ, injunction, decree, statute,
rule, or regulation applicable to REXX or its properties or assets; or
(c) require REXX to obtain any action or consent or
approval of, or review by, or registration with any third party, court or
governmental body or other agency, instrumentally or authority except for (i)
the filing of the Certificate of Merger, together with the required officers'
certificates; (ii) the filing of a Form 8-K with the Securities and Exchange
Commission ("SEC") and the American Stock Exchange within fifteen (15) days
after the Closing Date; (iii) any filings as may be required under applicable
state securities laws; and (iv) the filing of the Registration Statement (as
defined in Section 5.1(b) hereof) with the SEC in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and clearance thereof by
the SEC to approve the Proxy Actions.
Section 3.04 Legal Proceeding. There is no Action pending or, to the
knowledge of REXX, threatened against REXX which could have a REXX Material
Adverse Effect or a material adverse effect on the ability of REXX to consummate
the transactions contemplated by this Agreement.
Section 3.05 Brokerage and Finder's Fees. Neither REXX nor any of its
directors, officers or employees has incurred, or will incur, any brokerage,
finder's or similar fee in connection with the transactions contemplated by this
Agreement.
Section 3.06 Authorization and Issuance of REXX Common Stock. The
authorized capital stock of REXX consists of 12,000,000 shares of REXX Common
Stock, of which 2,467,576 shares were issued and outstanding as of September 30,
1999, excluding treasury shares, and 1,000,000 shares of preferred stock, $1.00
par value per share, of which no shares are issued or outstanding. The aggregate
number of all outstanding REXX Options, REXX Options subject to grant, warrants
and other rights to receive shares of REXX Common Stock are set forth in Exhibit
B attached hereto. In connection with the Watkins Sale, REXX will acquire
125,000 currently issued and outstanding shares of REXX Common Stock. All of the
issued and outstanding shares of the REXX Common Stock were issued in compliance
in all material respects with the registration requirements of all applicable
federal and state securities laws or pursuant to valid exemptions therefrom.
Each outstanding share of REXX Common Stock has been duly authorized and validly
issued and is fully paid and nonassessable, and no share of REXX Common Stock
has been issued in violation of preemptive or similar rights.
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Section 3.07 SEC Documents; Absence of Changes. REXX has delivered to
TWGI REXX's Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30 and September 30, 1999, its Annual Report on Forms 10-K and 10-K/A for the
fiscal year ended December 31, 1998, as amended, its Form 8-K dated June 15,
1999 and its Proxy Statement with respect to its 1998 Annual Meeting of
Shareholders (collectively, the "REXX SEC Documents"). The REXX SEC Documents
were true and complete in all material respects as at their respective dates,
and did not contain any untrue statement of a material fact nor omit to state
any material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading. Since the filing of its Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, there has not been any REXX Material
Adverse Effect not reflected in the REXX SEC Documents.
Section 3.08 Voting Agreement. All of the persons and/or entities
deemed affiliates of REXX within the meaning of Rule 145 promulgated under the
Securities Act are listed on Exhibit C hereto (the "REXX Affiliates"), and all
except Messrs. Barone and Watkins have agreed in writing to vote for approval of
the Proxy Actions, pursuant to a Voting Agreement attached hereto or Exhibit D
("Voting Agreements").
Section 3.09 Complete Disclosure. No representation or warranty by REXX
in this Agreement or in any schedule delivered by or on behalf of REXX contains,
or will contain as of the Effective Time, any untrue statement of a material
fact or omits, or will omit as of the Effective Time, a material fact necessary
to make the statements contained herein or therein not misleading.
Section 3.10 Proxy Statement/Prospectus. The written information
supplied by REXX expressly for the purpose of inclusion in the proxy
statement/prospectus to be sent to the shareholders of REXX in connection with
the meeting of REXX's shareholders (the "REXX Shareholders Meeting") shall not,
on the date the Proxy Statement is first mailed to REXX's Shareholders or at the
time of the REXX Shareholders Meeting, contain any untrue statement of a
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. If at any time between the filing of the Registration
Statement and the Effective Time any event or information should be discovered
by REXX that should be set forth in a supplement to the Proxy Statement, REXX
shall promptly inform TWGI. Notwithstanding the foregoing, REXX makes no
representation, warranty or covenant with respect to any information supplied by
TWGI that is contained in any of the foregoing documents.
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Section 3.11 Environmental Matters. REXX is operating and has at all
times operated its business in material compliance with all Environmental Laws,
and no material expenditures are or will be required in order to comply with
such Environmental Laws. Except as disclosed on Schedule 3.11 REXX has not
received any citation, inquiry or other communication, or is a party to any
Action, that relates or alleges any actual or potential violation or failure to
comply with any Environmental Laws that will result in a REXX Material Adverse
Effect. To REXX's knowledge, Watkins is in material compliance with all
Environmental Laws, and no material expenditures are or will be required in
order to comply with such Environmental Laws. Except as disclosed in Schedule
3.11, to REXX's knowledge, Watkins has not received any citation, inquiry or
other communication, or is a party to any Action, that relates or alleges any
actual or potential violation or failure to comply with any Environmental Laws
that will result in a REXX Material Adverse Effect. "Environmental Laws" means
all applicable statutes, rules, regulations, ordinances, orders, decrees,
judgments, permits, licenses, consents, approvals, authorizations, and
governmental requirements or directives or other obligations lawfully imposed by
governmental authority under federal, state or local law pertaining to the
protection of the environment, protection of public health, protection of worker
health and safety, the treatment, emission and/or discharge of gaseous,
particulate and/or effluent pollutants, and/or the handling of hazardous
materials, including without limitation, the Clean Air Act, 42 U.S.C. ss. 7401,
et seq., the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), 42 U.S.C. ss. 9601, et seq., the Federal Water Pollution
Control Act, 33 U.S.C. ss. 1321, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. ss. 690-1, et seq. ("RCRA"), and the Toxic Substances Control Act, 15
U.S.C. ss. 2601, et seq.
Section 3.12 Insurance. REXX has been and is insured with respect to
its properties and the conduct of its business in such amounts and against such
risks as are sufficient for compliance with law and as are adequate to protect
the property and business of REXX in accordance with normal industry practice.
REXX has provided TWGI a true, correct and complete list of all insurance
policies and bonds in force in which REXX is named as an insured party, or for
which it has paid any premiums (the "Policies"), and such list correctly states
the name of the insurer, the name of each insured party, the type and amount of
coverage, deductible amount, if any, the expiration date and the premium amount
of each such policy or bond. All such Policies are currently in full force and
effect and no notice of cancellation or termination has been received by REXX
with respect to any such policy. REXX will continue all of such Policies in full
force and effect through the date of the Watkins Sale as they relate to Watkins,
and as to all other policies through the Closing Date. All premiums currently
due and payable on such Policies have been paid. REXX is not a co-insurer under
any term of any insurance policy except as set forth in the Policies.
Section 3.13 Officers and Employees of REXX. Except as disclosed in
Schedule 3.13, no present or former Related Party of REXX has any financial
interest, direct or indirect, in any vendor, client or account of, or other
outside business which has transactions in excess of $10,000 in the aggregate
with, REXX.
Section 3.14 Audited and Unaudited Financial Statements. REXX has
furnished to TWGI the unaudited financial statements for the period ended
September 30, 1999 and the audited financial statements for the fiscal year
ended December 31, 1998 (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with the books and records
of REXX, have been prepared in accordance with GAAP on a consistent basis for
all periods presented, are true and correct in all material respects and fairly
present the financial condition and results of operations of REXX as of the date
stated and the results of operations of REXX for the periods then ended in
accordance with such practices.
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Section 3.15 Undisclosed Liabilities. REXX has no liability or
obligation of any nature (whether liquidated, unliquidated, accrued, absolute,
contingent or otherwise and whether due or to become due) except:
(a) those disclosed on Schedule 3.15 hereto;
(b) those set forth in the Financial Statements which have
not been paid or discharged since the date thereof;
(c) those contractual obligations arising after the date
of this Agreement under agreements or other commitments specifically identified
in Schedule 3.24; and
(d) those current liabilities (including provisions for
current and deferred income tax) incurred since September 30, 1999, in
transactions entered into in the ordinary course of business consistent with
past practices which are properly reflected on its books and which are not
inconsistent with the other representations, warranties and agreements of REXX
set forth in this Agreement.
Section 3.16 Absence of Certain Changes. Since September 30, 1999,
other than as set forth on Schedule 3.16 attached hereto, there has not been:
(a) any REXX Material Adverse Effect, or any occurrence,
circumstance, or combination thereof which reasonably could be expected to
result in any such REXX Material Adverse Effect, including, without limitation,
any Material Adverse Effect relating to a relationship with any existing
investor, borrower, or existing agent of REXX;
(b) any declaration, setting aside or payment of any
dividend or any distribution (in cash or in kind) to any shareholder of REXX, or
any direct or indirect redemption, repurchase or other acquisition by REXX of
any of REXX capital stock or any options, warrants, rights or agreements to
purchase or acquire such stock;
(c) any transaction entered into or carried out by REXX
other than in the ordinary and usual course of REXX's business consistent with
past practices;
(d) any borrowing or agreement to borrow funds by REXX,
any incurring by REXX of any other obligation or liability (contingent or
otherwise), except liabilities incurred in the usual and ordinary course of
REXX's business consistent with past practices, or any endorsement, assumption
or guarantee of payment or performance of any loan or obligation of any other
person by REXX;
(e) any material change in REXX's accounting principles or
practices or its method of application of such principles or practices;
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(f) any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be imposed on or
with respect to the property or assets of REXX;
(g) any sale, lease, transfer, abandonment, license,
assignment or other disposition of, or any agreement to sell, lease or otherwise
dispose of any of the properties, rights or assets of REXX;
(h) any loan or advance made by REXX to any person except
in the ordinary and usual course of business;
(i) any modification, waiver, change, amendment, release,
recision or termination of, or accord and satisfaction with respect to, any
term, condition or provision of any Contract, other than any satisfaction by
performance in accordance with the terms thereof in the usual and ordinary
course of business;
(j) any labor dispute or disturbance adversely affecting
the business operations or condition (financial or otherwise) of REXX,
including, with limitation, the filing of any petition or charge of unfair or
discriminatory labor practice with any governmental or regulatory authority,
efforts to effect a union representation election, actual or threatened employee
strike, work stoppage or slowdown;
(k) any material damage, destruction or property loss,
whether or not covered by insurance, affecting adversely the properties or
business of REXX; or
(l) any Contract entered into by REXX that is not able to
be terminated by REXX on 30 days or fewer advance notice without penalty or
premium or which is outside the ordinary and usual course of business.
Section 3.17 Taxes.
(a) Except as disclosed in Schedule 3.17(a), REXX has duly
paid or accrued all federal, state, local and foreign taxes, assessments, fees
and other governmental charges (hereinafter, "Taxes") when due and payable.
Except as disclosed in Schedule 3.17(a), REXX has duly filed all federal, state,
local and foreign tax returns and tax reports required to be filed by it, all
such returns and reports are true, correct and complete, none of such returns
and reports have been amended, and all Taxes arising under such returns and
reports (regardless of whether reflected thereon) have been fully paid or shall
be adequately reserved for in the Financial Statements, and shall be timely paid
when due. No claim has been made by authorities in any jurisdiction where REXX
did not file tax returns that it is or may be subject to taxation therein. All
tax payments relating to employees, including income tax withholding, FICA,
FUTA, unemployment and workers' compensation payments due and payable as of the
date hereof have been fully and timely paid or accrued.
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(b) REXX has delivered copies of all federal, state,
local, and foreign income tax returns filed with respect to REXX for taxable
periods ended on or after December 31, 1997. Except as disclosed in Schedule
3.17(b), there have been no audits conducted by taxing authorities with respect
to any tax year for which assessment is not barred by any applicable statute of
limitations. No waivers of any applicable statute of limitations for the filing
of any tax returns or payment of any taxes or assessments of any deficient or
unpaid taxes are outstanding. All deficiencies proposed as a result of any
audits have been paid or settled. There is no pending or, to the knowledge of
REXX, threatened federal, state, local or foreign tax audit or assessment of
REXX and no agreement with any federal, state, local or foreign taxing authority
that may affect the subsequent tax liabilities of REXX.
(c) All Taxes attributable to the existence or operation
of REXX shall, to the extent not already paid, be properly reflected in the
Financial Statements as at or through the Closing Date in accordance with GAAP
consistently applied.
(d) Except as disclosed in Schedule 3.17(d), REXX has not
been a member of an affiliated, consolidated, combined or unitary group for
purposes of taxes and has no liability under Treasury Regulation 1.1502-6. There
exists no tax-sharing agreement or arrangement pursuant to which REXX is
obligated to pay the tax liability of any other person or to indemnify any other
person with respect to any tax.
Section 3.18 Compliance with Law. REXX has complied and is in
compliance in all material respects with all Applicable Laws except where the
failure to so comply would not have a REXX Material Adverse Effect. Except as
disclosed in Schedule 3.18, to REXX's knowledge, Watkins has complied and is in
compliance in all material respects with the Applicable Laws which are
applicable or relate to Watkins as its business or properties except where the
failure to so comply would not have a REXX Material Adverse Effect. REXX has all
governmental, self-regulatory and other non-governmental franchises, licenses,
permits, consents, authorizations, approvals and certifications necessary or
appropriate for the operation of its business or the ownership of its properties
(collectively, "Permits"). Schedule 3.18 includes a list of all Permits held by
REXX, each of which is currently valid and in full force and effect and, except
as set forth on Schedule 3.18, will continue to be valid and in full force and
effect immediately after the Effective Time. REXX is not in violation of any of
the Permits, and there is no pending or, to the knowledge of REXX, any
threatened proceeding which could result in the revocation, cancellation or
inability of REXX to renew any Permit.
Section 3.19 Proprietary Rights. (a) Schedule 3.19 sets forth:
(i) all names, patents, inventions, trade secrets,
proprietary rights, computer software, trademarks, trade names, service marks,
logos, copyrights and franchises and all applications therefor, registrations
thereof and licenses, sublicenses or agreements in respect thereof which REXX
owns or has the right to use or to which REXX is a party and the loss of which
could have a REXX Material Adverse Effect; and
(ii) all filings, registrations or issuances of any of the
foregoing with or by any federal, state, local or foreign regulatory,
administrative or governmental office or offices (all items in (i) and (ii) of
this Section 3.19 being sometimes hereinafter referred to collectively as the
"Proprietary Rights").
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(b) Except as set forth in Schedule 3.19, REXX is the sole
and exclusive owner of all right, title and interest in and to all Proprietary
Rights free and clear of all liens, claims, charges, equities, rights of use,
encumbrances and restrictions whatsoever, and there is not pending or, to the
knowledge of REXX, threatened any investigation, proceeding, inquiry or other
review by any federal, state, local or foreign regulatory, administrative or
governmental office or offices with respect to REXX's right, title or interest
in any Proprietary Right.
(c) Except as set forth on Schedule 3.19, none of the
Proprietary Rights (i) has been hypothecated, sold, assigned or licensed by
REXX, or to the knowledge of the undersigned officer of REXX, any person; (ii)
infringe upon or violate the proprietary rights of any person; (iii) to the
knowledge of the undersigned officer of REXX, are subject to challenge, claims
of infringement, unfair competition or other claims; or (iv) to the knowledge of
REXX, are being infringed upon or violated by any person. REXX has not given any
indemnification against patent, trademark or copyright infringement as to any
equipment, materials, products, services or supplies which REXX uses, licenses
or sells; and there is not pending or, to the knowledge of REXX, threatened any
claim or litigation against REXX contesting the right of REXX to sell, engage in
or employ any such product, process, method, or operation.
Section 3.20 Restrictive Documents or Laws. Other than as set forth on
Schedule 3.20 attached hereto, REXX is not a party to or bound under any
mortgage, lien, lease, agreement, Contract, instrument, law, order, judgment,
decree or any similar restriction not of general application which adversely
affects, or reasonably could be expected to so affect (a) the business,
operations, assets, properties, rights, or condition (financial or otherwise) of
REXX; (b) the continued operation of REXX's businesses immediately after the
Closing Date on substantially the same basis as such business is currently
operated; or (c) the consummation of the transactions contemplated by this
Agreement.
Section 3.21 Bank Accounts, Depositories, Power of Attorney. Set forth
in Schedule 3.21 is a true, correct and complete list of the names and locations
of all banks or other depositories in which REXX has accounts or safe deposit
boxes, and the names of the persons authorized to draw thereon, borrow therefrom
or have access thereto. Except as set forth in Schedule 3.21, no person has a
power of attorney from REXX.
Section 3.22 Title to and Condition of Properties. Except as set forth
in Schedule 3.22, REXX has good, valid and marketable title to all of its assets
and properties of every kind, nature and description, tangible or intangible,
wherever located, which constitute all of the property (including without
limitation property and assets shown or reflected on the Financial Statements)
now used in and necessary for the conduct of its business as presently conducted
and all such properties are owned free and clear of all mortgages, pledges,
liens, security interests, encumbrances and restrictions of any nature
whatsoever. All such properties are usable for their current uses without
violating any Applicable Laws, or any applicable private restrictions. Except as
set forth in Schedule 3.22, no financing statement under the Uniform Commercial
Code or similar law naming REXX or any of its predecessors has been filed in any
jurisdiction, and REXX is not a party to or bound under any agreement or legal
obligation authorizing any party to file any such financing statement. All
tangible personal property owned, leased or used by REXX is suitable for the
purpose or purposes for which it is being used and has been maintained in all
material respects in accordance with the terms of any lease applicable thereto.
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Section 3.23 ERISA.
(a) Except as set forth in Schedule 3.23 hereof, REXX is
not a party to an "employee benefit plan", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA") which (i) is subject
to any provision of ERISA and (ii) is or was at any time maintained,
administered or contributed to by REXX and covers any employee or former
employee of REXX and under which REXX or any Affiliate has any liability. Such
plans are referred to collectively herein as the "Employee Plans." For purposes
of this section, "Affiliate" of any person or entity includes any other person
or entity which, together with such person or entity, could be treated as a
single employer under Section 414 of the Code or is an "affiliate," whether or
not incorporated, as defined in Section 407(d)(7) of ERISA, of such person or
entity.
(b) Schedule 3.23 identifies each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, severance benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation, or post-retirement
insurance, compensation or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained or contributed to, as the case may be, by REXX or any
of its Affiliates, and (iii) covers any employee or former employee of REXX or
any of its Affiliates. Such contracts, plans and arrangements as are described
above, copies or descriptions of all of which have been furnished or made
available previously to TWGI are referred to collectively herein as the "Benefit
Arrangements." Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with requirements prescribed by any and all
statutes, orders, rules and regulations that are applicable to such Benefit
Arrangement.
(c) Except as set forth in Schedule 3.23, there is no
liability in respect of post-retirement health and medical benefits for retired
employees of REXX or any of its Affiliates other than such medical benefits
which are required to be continued under applicable law, determined using
assumptions that are reasonable in the aggregate, over the fair market value of
any fund, reserve or other assets segregated for the purpose of satisfying such
liability (including for such purposes any fund established pursuant to Section
401(h) of the Code). REXX has reserved its right to amend or terminate any
Employee Plan or Benefit Arrangement providing health or medical benefits in
respect of any active employee of REXX or Affiliates under the terms of any such
plan and written descriptions thereof given to employees. With respect to any of
REXX's Employee Plans which are "group health plans" under Section 4980B of the
Code and Section 607(1) of ERISA, there has been material compliance with all
requirements imposed thereunder so that REXX and its Affiliates have no (and
will not incur any) loss, assessment, tax penalty, or other sanction with
respect to any such plan.
(d) Except as set forth in Schedule 3.23, there has been
no amendment to, written interpretation or announcement (whether or not written)
by REXX or any of its Affiliates relating to any Employee Plan or Benefit
Arrangement which would increase the expense of maintaining such Employee Plan
or Benefit Arrangement above the level of the expense incurred in respect
thereof for the year ended immediately prior to the Closing Date.
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(e) Other than as set forth in Schedule 3.23, REXX is not
a party to or subject to any employment contract or arrangement providing for
annual future compensation, or the opportunity to earn annual future
compensation (whether through fixed salary, bonus, commission, options or
otherwise) of more than $25,000 to any officer, consultant, director or
employee.
(f) The execution and consummation of the Merger does not
constitute a triggering event under any Employee Plan, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment (of severance pay or
otherwise), acceleration, increase in vesting, or increase in benefits to any
current or former participant, employee or director of REXX that has not been
specifically disclosed on Schedule 3.23 or which is not material to the
financial condition or business of REXX.
(g) Any reference to ERISA or the Code or any section
thereof shall be construed to include all amendments thereto and applicable
regulations and administrative rulings issued thereunder.
Section 3.24 Contracts. Schedule 3.24 lists all Contracts to which REXX
is a party which are material to the financial condition, operations, assets or
business of REXX or are with any Related Party or any person controlling,
controlled by or under common control with any such person, or with any
employee, agent or consultant of REXX. All of such Contracts are valid and
binding on REXX, in full force and effect, and enforceable in accordance with
their respective terms, except to the extent that the enforceability thereof may
be limited by (x) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the enforcement of
creditors' rights generally or (y) general principles of equity, whether
considered in a proceeding at law or in equity. To the knowledge of REXX, it is
not in violation of, or in default in respect of, nor has there occurred an
event or condition which, with the passage of time or giving of notice (or
both), would constitute a default under, any such Contract.
Section 3.25 Affiliated Transactions. Schedule 3.25 includes a list of
all amounts in excess of $10,000 in the aggregate payable to REXX by any
Affiliated Person of REXX (the "Related Party Receivables") and all such amounts
payable by REXX to any Affiliated Person of REXX (the "Related Party Payables")
as of the date of this Agreement, specifying the payer, payee, amount, terms of
repayment, maturity date and any contractual set off rights of the payer of each
Related Party Receivable and Related Party Payable. Except as disclosed in
Schedule 3.25 and subject to the $10,000 exclusion, no Related Party has any
financial interest, direct or indirect, in any vendor, client or account of, or
other outside business which has transactions with, REXX. REXX has no agreement
or understanding with any Related Party which would influence any such person
not to become associated with or employed by TWGI from and after the Closing or
from serving TWGI after the Closing in a capacity similar to the capacity
presently held with REXX.
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Section 3.26 No Conflict or Default. Other than as set forth in
Schedule 3.26 attached hereto, neither the execution and delivery of this
Agreement by REXX, nor compliance by REXX with the terms and provisions of this
Agreement, including without limitation the consummation of the Merger, will
violate any Applicable Laws or Permits or conflict with or result in the breach
of any term, condition or provision of the Certificate of Incorporation,
By-laws, or other organizational document of REXX, or of any material Contract,
writ, order, decree, restriction, legal obligation or instrument to which REXX
is a party or by which REXX or any of its assets or properties are or may be
bound or affected, or constitute a default (or an event which, with the giving
of notice, the passage of time, or both would constitute a default) thereunder,
or result in the creation or imposition of any lien, security interest, charge
or encumbrance, or restriction of any nature whatsoever with respect to any
properties or assets of REXX, or give to others any interest or rights,
including rights of termination, acceleration or cancellation in or with respect
to any of the properties, assets, Contracts or business of REXX, or violate any
judgment, order, injunction, decree or award of any court, arbitrator,
administrative agency or governmental or regulatory body against or binding
upon, REXX or any of its securities, properties, assets or business.
Section 3.27 Books of Account; Records. REXX's general ledgers, stock
record books, minute books and other records relating to the assets, properties,
contracts and outstanding legal obligations of REXX, as the case may be, are
complete and correct in all material respects and have been maintained in
accordance with good business practices.
Section 3.28 Subsidiaries. The only direct or indirect subsidiaries of
REXX are those named in Schedule 3.28 (individually, a "Subsidiary", and
collectively the "Subsidiaries") all of which are corporations duly organized,
validly existing and in good standing under the laws of the jurisdiction of
their incorporation, with full power and authority to carry on their respective
businesses as now conducted and to own or lease or operate their properties in
the places where their respective businesses are now conducted and such
properties are now owned, leased or operated. All of the issued and outstanding
voting securities of the Subsidiaries are owned, of record and beneficially, by
REXX, free and clear of any lien or encumbrance whatsoever, and are duly
authorized, validly issued, fully paid and non-assessable. There are no options,
convertible securities, warrants, or other rights (preemptive or otherwise) to
purchase or acquire any capital stock of any Subsidiary and no contracts to
which REXX or any of its affiliates is subject with respect to the issuance,
voting or sale of issued or unissued shares of the capital stock of any of the
Subsidiaries. Neither REXX nor any Subsidiary beneficially owns, directly or
indirectly, any equity securities, profit or loss interest, or capital interest
of any entity other than the Subsidiaries, the Joint Ventures described in
Section 3.29 below or as set forth in Schedule 3.28. Each of the Subsidiaries is
qualified to do business as a foreign corporation in each jurisdiction where the
business of or properties owned or leased by it requires such Subsidiary to be
so qualified.
Section 3.29 Joint Ventures. The only joint ventures or partnerships in
which REXX or any Subsidiary is a joint venturer or partner are those listed in
Schedule 3.29 (individually, a "Joint Venture", and collectively the "Joint
Ventures"). Each Joint Venture is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, with full power
to carry on its business and to own or lease or operate its properties in the
places where such business is now conducted and such properties are now owned,
leased or operated. REXX has made available to TWGI complete and correct copies
of all instruments governing the Joint Ventures, as in effect on the date
hereof, including all amendments thereto. Except as set forth in Schedule 3.29
hereto:
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(a) the interests in the Joint Ventures owned by REXX or
any Subsidiary are duly authorized and issued, have received all necessary
governmental approvals and are held by REXX or such Subsidiary free and clear of
any liens, claims or encumbrances whatsoever;
(b) the properties and assets of the Joint Ventures are
held by them free and clear of any liens, claims or encumbrances whatsoever,
other than liens for current taxes which are not delinquent and liens securing
debt to REXX; and
(c) any and all loans made by REXX to such Joint Ventures
are valid and enforceable in accordance with their terms, and individually or in
the aggregate do not violate any restrictions or regulations established by law.
Section 3.30 Employment Agreements; Severance. Except for the
employment agreements set forth in Schedule 3.30, REXX is not a party to any
employment or severance agreement. Neither the consummation of the Merger nor
the passage of time following the consummation of the Merger will result in any
payment becoming due from REXX or any Subsidiary to any officer or employee
thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TWGI
In order to induce REXX to enter into this Agreement, TWGI on behalf of
itself and the Affiliates, hereby represents and warrants to REXX that the
statements contained in this Article IV are true, correct, and complete (the
term "Affiliate" or "Affiliates" as used in this Article IV shall include WG,
WA, WP, WI, WII, WIn, WLA, WNY, W Capital, BJB Holdings, WAC and RAC):
Section 4.01 Organization and Standing of TWGI, BJB Holdings, WAC and
RAC. TWGI, and upon the completion of their organization and at the Effective
Time BJB Holdings, WAC and RAC will be corporations duly organized, validly
existing and in good standing under the laws of the State of New York, with full
power and authority (corporate and other) to own, lease, use and operate their
properties and to conduct their business as and where now owned, leased, used,
operated and conducted. TWGI, BJB Holdings, WAC and RAC are duly qualified to do
business and are in good standing in each jurisdiction where the nature of their
activities would require them to so qualify, except where the failure to so
qualify would not have a Material Adverse Effect on TWGI, BJB Holdings, WAC or
RAC. TWGI, BJB Holdings, WAC and RAC are not in default in the performance,
observation or fulfillment of any provision of their Certificates of
Incorporation or Bylaws.
Section 4.02 Organization and Standing of WA and WNY. WA and WNY are
limited liability companies duly organized, validly existing and in good
standing under the laws of the State of New York with full power and authority
to own, lease, use and operate their properties and to conduct their business as
and where now owned, leased, used, operated and conducted. WA and WNY are duly
qualified to do business and are in good standing in New York, are not qualified
to do business in any other jurisdiction and neither the nature of the business
or other activities conducted by them nor the properties they own, lease or
operate requires them to qualify to do business as a foreign corporation in any
other jurisdiction. WA and WNY are not in default in the performance,
observation or fulfillment of any provision of their Certificate of Organization
or Operating Agreement. WA and WNY are registered certified capital companies
under Section 11 et seq. of the New York Tax Law and are in compliance with such
law and meets all the requirements to maintain such status.
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Section 4.03 Organization and Standing of WG. WG is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of New York with full power and authority to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. WG is duly qualified to do business and is
in good standing in New York and in all other jurisdictions where being so
qualified is material to its business, and neither the nature of the business or
other activities conducted by it nor the properties it owns, leases or operates
requires it to qualify to do business as a foreign corporation in any other
jurisdiction. WG is not in default in the performance, observation or
fulfillment of any provision of its Certificate of Organization or Operating
Agreement.
Section 4.04 Organization and Standing of WP. WP is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Florida with full power and authority to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. WP is duly qualified to do business and is
in good standing in the State of Florida, is not qualified to do business in any
other jurisdiction and neither the nature of the business or other activities
conducted by it nor the properties it owns, leases or operates requires it to
qualify to do business as a foreign corporation in any other jurisdiction. WP is
not in default in the performance, observation or fulfillment of any provision
of its Certificate of Organization or Operating Agreement. WP is a registered
certified capital company under the Florida Certified Capital Company Act and is
in compliance with such Act and meets all of the requirements to maintain such
status.
Section 4.05 Organization and Standing of W Capital and WI. WI and W
Capital are each a corporation duly organized, validly existing and in good
standing under the laws of the State of New York with full power and authority
to own, lease, use and operate its properties and to conduct its business as and
where now owned, leased, used, operated and conducted. WI and W Capital are each
duly qualified to do business and is in good standing in New York, is not
qualified to do business in any other jurisdiction and neither the nature of the
business or other activities conducted by it nor the properties it owns, leases
or operates requires it to qualify to do business as a foreign corporation in
any other jurisdiction. WI and W Capital are each not in default in the
performance, observation or fulfillment of any provision of its Articles of
Incorporation or By-laws. W Capital was formed for the purpose of initiating in
the near future the broker-dealer activities proposed for TWGI, although no
regulatory filings have been made as of the date hereof.
Section 4.06 Organization and Standing of WII. WII is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York with full power and authority to own, lease, use and operate
its properties and to conduct its business as and where now owned, leased, used,
operated and conducted. WII is duly qualified to do business and is in good
standing in New York, is not qualified to do business in any other jurisdiction
and neither the nature of the business or other activities conducted by it nor
the properties it owns, leases or operates requires it to qualify to do business
as a foreign corporation in any other jurisdiction. WII is not in default in the
performance, observation or fulfillment of any provision of its Articles of
Incorporation or By-laws.
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Section 4.07 Organization and Standing of WIn. WIn is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Wisconsin with full power and authority to own, lease,
use and operate its properties and to conduct its business as and where now
owned, leased, used, operated and conducted. WIn is duly qualified to do
business and is in good standing in Wisconsin, is not qualified to do business
in any other jurisdiction and neither the nature of the business or other
activities conducted by it nor the properties it owns, leases or operates
requires it to qualify to do business as a foreign corporation in any other
jurisdiction. WIn is not in default in the performance, observation or
fulfillment of any provision of its Certificate of Organization or Operating
Agreement. WIn is a registered certified capital company under Section 76.635
Wisconsin Statues (1999) and is in compliance with such law and meets all the
requirements to maintain such status.
Section 4.08 Organization and Standing of WLA. WLA is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Louisiana with full power and authority to own, lease,
use and operate its properties and to conduct its business as and where now
owned, leased, used, operated and conducted. WLA is duly qualified to do
business and is in good standing in the State of Louisiana, is not qualified to
do business in any other jurisdiction and neither the nature of the business or
other activities conducted by it nor the properties it owns, leases or operates
requires it to qualify to do business as a foreign corporation in any other
jurisdiction. WLA is not in default in the performance, observation or
fulfillment of any provision of its Certificate of Organization or Operating
Agreement. WLA is a registered certified capital company under the Louisiana
Capital companies Tax Credit Program, La.R.S.51:1921, et seq., and is in
compliance with such law and meets all the requirements to maintain such status.
Section 4.09 Capitalization and Security Holders. The authorized
capital stock of TWGI consists of 30,000,000 shares of common stock, par value
$0.02 per share ("TWGI Common Stock") of which 18,250,000 shares are issued and
outstanding. Each share outstanding of TWGI Common Stock and each Affiliate
membership interest or equity security has been duly authorized and validly
issued and is fully paid and nonassessable, and no TWGI Common Stock has been
issued in violation of preemptive or similar rights. Except as set forth in
Schedule 4.09, there are no outstanding subscriptions, options, warrants, puts,
calls, agreements, understandings, claims, or other commitments or rights of any
type relating to the issuance, sale or transfer by TWGI or Affiliates or any of
their shareholders or members, respectively, of any securities or interests of
TWGI or Affiliates, nor are there outstanding any securities which are
convertible into or exchangeable for shares of capital stock of TWGI or for
membership interests of the Affiliates; and neither TWGI nor Affiliates have any
obligations of any kind to issue any additional securities or to pay for any
securities of TWGI or any predecessor. The issuance and sale of all securities
of TWGI and Affiliates have been in full compliance in all material respects
with the registration requirements of all applicable federal and state
securities laws or pursuant to valid exemptions therefrom.
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Section 4.10 Subsidiaries. Except as set forth in Schedule 4.10, TWGI
does not own, directly or indirectly, any equity or other ownership interest in
any limited liability company, corporation, partnership, joint venture or other
entity or enterprise. TWGI is not subject to any obligation or requirement to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any entity.
Section 4.11 Stock Ownership and Authority. At the Effective Time, all
outstanding shares of capital stock of BJB Holdings and RAC will be owned free
and clear of all liens, security interests, encumbrances, pledges, charges,
claims, voting trusts, and restrictions on transfer of any nature whatsoever
("Restrictions"), except Restrictions on transfer imposed by or pursuant to
federal or state securities laws or those set forth in Schedule 4.11. At the
Effective Time, (i) TWGI will own free of Restrictions all of the equity
securities of RAC and BJB Holdings, and (ii) BJB Holdings will own free of
Restrictions all of the equity securities of WI and WII, which corporations
will, in turn, own (a) all of the membership interests in WG, (b) 87% of the
membership interests in WA, (c) 56.88% of the membership interests in WP. In
connection with the Merger, holders of WG will own (x) all of the membership
interests in WLA, (y) 65% of the membership interests in WI and (z) all of the
capital stock of W Capital. The authorized capital stock of RAC consists of 200
shares of RAC Common Stock, which is the sole class entitled to vote. As of the
date of this Agreement, no shares of RAC Common Stock are issued and
outstanding; however, prior to the Effective Time, RAC will issue ten (10)
shares of RAC Common Stock to TWGI, which shares will constitute the sole
outstanding securities of RAC as of the Effective Time.
Section 4.12 Corporate Power and Authority. TWGI, BJB Holdings, WAC and
RAC have all requisite corporate power and authority to enter into and perform
this Agreement and to carry out their obligations under this Agreement. This
Agreement and the transactions contemplated by this Agreement have been duly and
validly authorized by all necessary corporate and shareholder action on the part
of TWGI, BJB Holdings, WAC and RAC. This Agreement has been duly executed and
delivered by, constitutes the legal, valid and binding obligation of and is
enforceable against TWGI, BJB Holdings, WAC and RAC in accordance with its
terms.
Section 4.13 Consents and Approvals. Except as set forth in Schedule
4.13 hereto, neither the execution and delivery of this Agreement by TWGI, BJB
Holdings, WAC and RAC nor the consummation of the transactions contemplated by
this Agreement requires or will require on behalf of TWGI or Affiliates any
action or consent or approval of, or review by, or registration with, any third
party, court or governmental body or other agency, instrumentality or authority.
Section 4.14 Audited and Unaudited Financial Statements. TWGI has
furnished to REXX the unaudited financial statements for the period ended
September 30, 1999 and the audited financial statements for the fiscal year
ended December 31, 1998 as specified in and attached to Schedule 4.14
(collectively, the "TWGI Financial Statements"). The TWGI Financial Statements
have been prepared in accordance with the books and records of TWGI and
Affiliates, as the case may be, have been prepared in accordance with GAAP on a
consistent basis for all periods presented, are true and correct in all material
respects and fairly present the financial condition and results of operations of
TWGI and Affiliates as of the date stated and the periods then ended in
accordance with such practices.
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Section 4.15 Undisclosed Liabilities. TWGI and Affiliates have no
liability or obligation of any nature (whether liquidated, unliquidated,
accrued, absolute, contingent or otherwise and whether due or to become due)
except:
(a) those disclosed on Schedule 4.15 hereto;
(b) those set forth in the TWGI Financial Statements which
have not been paid or discharged since the date thereof;
(c) those contractual obligations arising after the date
of this Agreement under agreements or other commitments specifically identified
in Schedule 4.25; and
(d) those current liabilities (including provisions for
current and deferred income tax) incurred since September 30, 1999, in
transactions entered into in the ordinary course of business consistent with
past practices which are properly reflected on their books and which are not
inconsistent with the other representations, warranties and agreements of TWGI
and Affiliates set forth in this Agreement.
Section 4.16 Absence of Certain Changes. Since September 30, 1999,
other than as set forth on Schedule 4.16 attached hereto, there has not been:
(a) any Material Adverse Effect upon TWGI or Affiliates or
any occurrence, circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change (a Material Adverse
Effect), including, without limitation, any Material Adverse Effect relating to
a relationship with any existing investor, borrower, or agent of TWGI or
Affiliates;
(b) any declaration, setting aside or payment of any
dividend or any distribution (in cash or in kind) to any shareholder or member
of TWGI or Affiliates, respectively, or any direct or indirect redemption,
repurchase or other acquisition by TWGI or Affiliates of any of their capital
stock or membership interests or any options, warrants, rights or agreements to
purchase or acquire such stock or interests;
(c) any transaction entered into or carried out by TWGI or
Affiliates other than in the ordinary and usual course of TWGI's or the
Affiliates' business consistent with past practices;
(d) any borrowing or agreement to borrow funds by TWGI or
Affiliates, any incurring by TWGI or Affiliates of any other obligation or
liability (contingent or otherwise), except liabilities incurred in the usual
and ordinary course of TWGI's or the Affiliates' business consistent with past
practices, or any endorsement, assumption or guarantee of payment or performance
of any loan or obligation of any other person by TWGI or Affiliates;
(e) any material change in TWGI's or Affiliates'
accounting principles or practices or its method of application of such
principles or practices;
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(f) any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be imposed on or
with respect to the property or assets of TWGI or Affiliates;
(g) any sale, lease, transfer, abandonment, license,
assignment or other disposition of, or any agreement to sell, lease or otherwise
dispose of any of the properties, rights or assets of TWGI or Affiliates;
(h) any loan or advance made by TWGI or Affiliates to any
person except in the ordinary and usual course of business;
(i) any modification, waiver, change, amendment, release,
recision or termination of, or accord and satisfaction with respect to, any
term, condition or provision of any Contract, other than any satisfaction by
performance in accordance with the terms thereof in the usual and ordinary
course of business;
(j) any labor dispute or disturbance adversely affecting
the business operations or condition (financial or otherwise) of TWGI or
Affiliates, including, with limitation, the filing of any petition or charge of
unfair or discriminatory labor practice with any governmental or regulatory
authority, efforts to effect a union representation election, actual or
threatened employee strike, work stoppage or slowdown;
(k) any material damage, destruction or property loss,
whether or not covered by insurance, affecting adversely the properties or
business of TWGI or Affiliates; or
(l) any Contract entered into by TWGI or Affiliates that
is not able to be terminated by TWGI or Affiliates on 30 days or fewer advance
notice without penalty or premium or which is outside the ordinary and usual
course of business.
Section 4.17 Taxes.
(a) TWGI and Affiliates have duly paid all Taxes due and
payable by TWGI and Affiliates. TWGI and Affiliates have duly filed all federal,
state, local and foreign tax returns and tax reports required to be filed by it,
including any extensions related thereto, all such returns and reports are true,
correct and complete, none of such returns and reports have been amended, and
all Taxes arising under such returns and reports (regardless of whether
reflected thereon) have been fully paid or shall be adequately reserved for in
the Financial Statements, and shall be timely paid when due. No claim has been
made by authorities in any jurisdiction where TWGI or Affiliates did not file
tax returns that it is or may be subject to taxation therein. All tax payments
relating to employees, including income tax withholding, FICA, FUTA,
unemployment and workers' compensation payments due and payable as of the date
hereof have been fully and timely paid.
(b) TWGI has delivered to REXX copies of all federal,
state, local, and foreign income tax returns filed with respect to TWGI and
Affiliates for taxable periods ended on or after December 31, 1998. There have
been no audits conducted by taxing authorities prior to the date of this
Agreement. No waivers of any applicable statute of limitations for the filing of
any tax returns or payment of any Taxes or assessments of any deficient or
unpaid taxes are outstanding. All deficiencies proposed as a result of any
audits have been paid or settled. There is no pending or, to the knowledge of
TWGI or Affiliates, threatened federal, state, local or foreign tax audit or
assessment of TWGI or Affiliates and no agreement with any federal, state, local
or foreign taxing authority that may affect the subsequent tax liabilities of
TWGI or Affiliates.
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(c) All Taxes attributable to the existence or operation
of TWGI and Affiliates shall, to the extent not already paid, be properly
reflected in the TWGI Financial Statements as at or through the Closing Date in
accordance with GAAP consistently applied.
(d) TWGI or Affiliates have never been a member of any
affiliated, consolidated, combined or unitary group for purposes of taxes and
TWGI has no liability under Treasury Regulation 1.1502-6. There exists no
tax-sharing agreement or arrangement pursuant to which TWGI or Affiliates is
obligated to pay the tax liability of any other person or to indemnify any other
person with respect to any tax.
Section 4.18 Compliance with Law. TWGI and Affiliates have complied and
are in compliance in all material respects with all Applicable Laws except where
the failure to so comply would not have a TWGI Material Adverse Effect. TWGI and
Affiliates have all Permits necessary or appropriate for the operation of their
businesses or the ownership of properties (collectively, the "Permits").
Schedule 4.18 includes a list of all Permits held by TWGI or Affiliates, each of
which is currently valid and in full force and effect and, except as set forth
on Schedule 4.18, will continue to be valid and in full force and effect
immediately after the Effective Time. TWGI or Affiliates is not in violation of
any of the Permits, and there is no pending or, to the knowledge of TWGI, any
threatened proceeding which could result in the revocation, cancellation or
inability of TWGI or Affiliates to renew any Permit.
Section 4.19 Proprietary Rights. Schedule 4.19 sets forth:
(a) all names, patents, inventions, trade secrets,
proprietary rights, computer software, trademarks, trade names, service marks,
logos, copyrights and franchises and all applications therefor, registrations
thereof and licenses, sublicenses or agreements in respect thereof which TWGI
and Affiliates own or have the right to use or to which TWGI or Affiliates is a
party; and
(b) all filings, registrations or issuances of any of the
foregoing with or by any federal, state, local or foreign regulatory,
administrative or governmental office or offices (all items in (a) and (b) of
this Section 4.19 being sometimes hereinafter referred to collectively as the
"Proprietary Rights").
(c) Except as set forth in Schedule 4.19, TWGI and
Affiliates are the sole and exclusive owners of all right, title and interest in
and to all Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances and restrictions whatsoever, and there is
not pending or, to the knowledge of TWGI threatened any investigation,
proceeding, inquiry or other review by any federal, state, local or foreign
regulatory, administrative or governmental office or offices with respect to
TWGI's or Affiliates' right, title or interest in any Proprietary Right.
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(d) Except as set forth on Schedule 4.19, none of the
Proprietary Rights (i) has been hypothecated, sold, assigned or licensed by TWGI
or Affiliates, or to the best knowledge of TWGI or Affiliates, any person; (ii)
to the knowledge of TWGI or Affiliates, infringe upon or violate the proprietary
rights of any person; (iii) to the knowledge of TWGI or Affiliates, are subject
to challenge, claims of infringement, unfair competition or other claims; or
(iv) to the knowledge of TWGI or Affiliates, are being infringed upon or
violated by any person. TWGI or Affiliates have not given any indemnification
against patent, trademark or copyright infringement as to any equipment,
materials, products, services or supplies which TWGI or Affiliates uses,
licenses or sells; and there is not pending or, to the best knowledge of TWGI or
Affiliates, threatened any claim or litigation against TWGI or Affiliates
contesting the right of TWGI or Affiliates to sell, engage in or employ any such
product, process, method, or operation.
Section 4.20 Restrictive Documents or Laws. Other than as set forth on
Schedule 4.20 attached hereto, TWGI or Affiliates is not a party to or bound
under any mortgage, lien, lease, agreement, Contract, instrument, law, order,
judgment, decree or any similar restriction not of general application which
adversely affects, or reasonably could be expected to so affect (a) the
business, operations, assets, properties, rights, or condition (financial or
otherwise) of TWGI or Affiliates; or (b) the consummation of the transactions
contemplated by this Agreement.
Section 4.21 Insurance. TWGI and Affiliates have been and are insured
with respect to its properties and the conduct of its business in such amounts
and against such risks as are sufficient for compliance with law and as are
adequate to protect the property and business of TWGI and Affiliates in
accordance with normal industry practice. TWGI has provided to REXX a true,
correct and complete list of all insurance policies and bonds in force in which
TWGI or Affiliates is named as an insured party, or for which they have paid any
premiums (the "Policies"), and such list correctly states the name of the
insurer, the name of each insured party, the type and amount of coverage,
deductible amount, if any, the expiration date and the premium amount of each
such policy or bond. All such Policies are currently in full force and effect
and no notice of cancellation or termination has been received by TWGI or
Affiliates with respect to any such policy. TWGI and Affiliates will continue
all of such Policies in full force and effect through the Closing Date. All
premiums currently due and payable on such Policies have been paid. TWGI or
Affiliates is not a co-insurer under any term of any insurance policy except as
set forth in the Policies.
Section 4.22 Power of Attorney. Set forth in Schedule 4.22 is a true,
correct and complete list of the names and locations of all banks or other
depositories in which TWGI and RAC have accounts or safe deposit boxes, and the
names of the persons authorized to draw thereon, borrow therefrom or have access
thereto. Except as set forth in Schedule 4.22, no person has a power of attorney
from TWGI , WAC or RAC.
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Section 4.23 Title to and Condition of Properties. Except as set forth
in Schedule 4.23, TWGI and Affiliates have good, valid and marketable title to
all of their assets and properties of every kind, nature and description,
tangible or intangible, wherever located, which constitute all of the property
(including without limitation property and assets shown or reflected on the TWGI
Financial Statements) now used in and necessary for the conduct of their
business as presently conducted and all such properties are owned free and clear
of all mortgages, pledges, liens, security interests, encumbrances and
restrictions of any nature whatsoever. All such properties are usable for their
current uses without violating any Applicable Laws, or any applicable private
restrictions. Except as set forth in Schedule 4.23, no financing statement under
the Uniform Commercial Code or similar law naming TWGI or Affiliates or any of
their predecessors has been filed in any jurisdiction, and TWGI or Affiliates is
not a party to or bound under any agreement or legal obligation authorizing any
party to file any such financing statement. All tangible personal property
owned, leased or used by TWGI or Affiliates is suitable for the purpose or
purposes for which it is being used and has been maintained in all material
respects in accordance with the terms of any lease applicable thereto.
Section 4.24 Brokerage and Finder's Fees. Neither any shareholder of
TWGI, TWGI nor any of the Affiliates, directors, officers or employees has
incurred or will incur any brokerage, finder's or similar fee in connection with
the transactions contemplated by this Agreement.
Section 4.25 Legal Proceedings. Except as described in Schedule 4.25,
(a) there are no Actions pending or, to the knowledge of TWGI, threatened
against or relating to TWGI or any of its Affiliates, officers, directors,
current or former shareholders, members or employees; and (b) to the knowledge
of TWGI, there exist no disputes, conflicts, or circumstances providing the
basis for a dispute or conflict which could result in any such Action. There are
no Actions pending or, to the knowledge of TWGI, threatened for the purpose of
enjoining or preventing this Agreement or any transaction contemplated by this
Agreement. TWGI or Affiliates are not subject to any judgment, order or decree,
or any governmental restriction, which could have a material adverse effect on
the ability of TWGI or Affiliates to acquire any property or conduct business as
presently conducted.
Section 4.26 ERISA.
(a) Except as set forth in Schedule 4.26 hereof, neither
TWGI nor the Affiliates is a party to an "employee benefit plan", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
which (i) is subject to any provision of ERISA and (ii) is or was at any time
maintained, administered or contributed to by TWGI or any Affiliate and covers
any employee or former employee of TWGI or any Affiliate and under which TWGI or
any Affiliate has any liability. Such plans are referred to collectively herein
as the "Employee Plans." For purposes of this section, "Affiliate" of any person
or entity includes any other person or entity which, together with such person
or entity, could be treated as a single employer under Section 414 of the Code
or is an "affiliate," whether or not incorporated, as defined in Section
407(d)(7) of ERISA, of such person or entity.
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(b) Schedule 4.26 identifies each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, severance benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation, or post-retirement
insurance, compensation or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained or contributed to, as the case may be, by TWGI or any
of its Affiliates, and (iii) covers any employee or former employee of TWGI or
any of its Affiliates. Such contracts, plans and arrangements as are described
above, copies or descriptions of all of which have been furnished or made
available previously to REXX are referred to collectively herein as the "Benefit
Arrangements." Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with requirements prescribed by any and all
statutes, orders, rules and regulations that are applicable to such Benefit
Arrangement.
(c) Except as set forth in Schedule 4.26, there is no
liability in respect of post-retirement health and medical benefits for retired
employees of TWGI or any of its Affiliates other than such medical benefits
which are required to be continued under applicable law, determined using
assumptions that are reasonable in the aggregate, over the fair market value of
any fund, reserve or other assets segregated for the purpose of satisfying such
liability (including for such purposes any fund established pursuant to Section
401(h) of the Code). TWGI has reserved its right to amend or terminate any
Employee Plan or Benefit Arrangement providing health or medical benefits in
respect of any active employee of TWGI or Affiliates under the terms of any such
plan and written descriptions thereof given to employees. With respect to any of
TWGI's Employee Plans which are "group health plans" under Section 4980B of the
Code and Section 607(1) of ERISA, there has been material compliance with all
requirements imposed thereunder so that TWGI and its Affiliates have no (and
will not incur any) loss, assessment, tax penalty, or other sanction with
respect to any such plan.
(d) Except as set forth in Schedule 4.26, there has been
no amendment to, written interpretation or announcement (whether or not written)
by TWGI or any of its Affiliates relating to any Employee Plan or Benefit
Arrangement which would increase the expense of maintaining such Employee Plan
or Benefit Arrangement above the level of the expense incurred in respect
thereof for the year ended immediately prior to the Closing Date.
(e) Other than as set forth in Schedule 4.26, TWGI or
Affiliates is not a party to or subject to any employment contract or
arrangement providing for annual future compensation, or the opportunity to earn
annual future compensation (whether through fixed salary, bonus, commission,
options or otherwise) of more than Twenty-Five Thousand Dollars ($25,000) to any
officer, consultant, director or employee.
(f) The execution and consummation of the Merger does not
constitute a triggering event under any Employee Plan, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment (of severance pay or
otherwise), acceleration, increase in vesting, or increase in benefits to any
current or former participant, employee or director of TWGI or Affiliates that
has not been specifically disclosed on Schedule 4.26 or which is not material to
the financial condition or business of TWGI or Affiliates.
(g) Any reference to ERISA or the Code or any section
thereof shall be construed to include all amendments thereto and applicable
regulations and administrative rulings issued thereunder.
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Section 4.27 Contracts. Schedule 4.27 lists all Contracts, to which
TWGI and Affiliates are a party which are material to the financial condition,
operations, assets or business of TWGI or Affiliates or are with any present or
former Related Parties or any person controlling, controlled by or under common
control with any such person, or with any employee, agent or consultant of TWGI
or Affiliates. All of such Contracts are valid and binding on TWGI and
Affiliates, in full force and effect, and enforceable in accordance with their
respective terms, except to the extent that the enforceability thereof may be
limited by (x) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the enforcement of
creditors' rights generally or (y) general principles of equity, whether
considered in a proceeding at law or in equity. Neither TWGI or Affiliates, is
in violation of, or in default in respect of, nor has there occurred an event or
condition which, with the passage of time or giving of notice (or both), would
constitute a default under, any such Contract.
Section 4.28 Affiliated Transactions. Schedule 4.28 includes a list of
all amounts payable to TWGI or Affiliates by any Affiliated Person of TWGI or
Affiliates (the "Related Party Receivables") and all amounts payable by TWGI or
any Affiliate to any Affiliated Person of TWGI or Affiliates (the "Related Party
Payables") as of the date of this Agreement, specifying the payer, payee,
amount, terms of repayment, maturity date and any contractual set off rights of
the payer of each Related Party Receivable and Related Party Payable. Except as
disclosed in Schedule 4.28, no Related Party has any financial interest, direct
or indirect, in any vendor, client or account of, or other outside business
which has transactions with, TWGI or Affiliates.
Section 4.29 No Conflict or Default. Other than as set forth in
Schedule 4.29, neither the execution and delivery of this Agreement by TWGI, nor
compliance by TWGI with the terms and provisions of this Agreement, including
without limitation the consummation of the Merger, will violate any Applicable
Laws or Permits or conflict with or result in the breach of any term, condition
or provision of the Certificate of Incorporation, By-laws, or other
organizational document of TWGI or Affiliates, or of any material Contract,
writ, order, decree, restriction, legal obligation or instrument to which TWGI
or Affiliates is a party or by which TWGI or Affiliates or any of their
respective assets or properties are or may be bound or affected, or constitute a
default (or an event which, with the giving of notice, the passage of time, or
both would constitute a default) thereunder, or result in the creation or
imposition of any lien, security interest, charge or encumbrance, or restriction
of any nature whatsoever with respect to any properties or assets of TWGI or
Affiliates, or give to others any interest or rights, including rights of
termination, acceleration or cancellation in or with respect to any of the
properties, assets, Contracts or business of TWGI or Affiliates, or violate any
judgment, order, injunction, decree or award of any court, arbitrator,
administrative agency or governmental or regulatory body against or binding
upon, TWGI, the Affiliates or any of their securities, properties, assets or
business.
Section 4.30 Books of Account; Records. TWGI's and Affiliates' general
ledgers, stock record books, minute books and other records relating to the
assets, properties, contracts and outstanding legal obligations of TWGI and
Affiliates, as the case may be, are complete and correct in all material
respects and have been maintained in accordance with good business practices.
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Section 4.31 Officers, Employees and Compensation. Schedule 4.31 sets
forth the names of all directors, officers and employees of TWGI and Affiliates,
the total salary, bonus, fringe benefits and perquisites each received in the
year ending December 31, 1998, and any changes to the foregoing which have
occurred subsequent to December 31, 1998. Except as disclosed in Schedule 4.31,
there are no other forms of compensation paid to any such director, officer or
employee of TWGI and Affiliates. Except as disclosed in Schedule 4.31, the
amounts accrued on the Financial Statements for vacation pay, sick pay, and all
commissions and other fees payable to agents, salesmen and representatives of
TWGI and Affiliates will be adequate to cover TWGI's liabilities for all such
items. TWGI and Affiliates have not become obligated, directly or indirectly, to
any Related Party, except for current liability for such compensation. Except as
set forth in Schedule 4.31, to the knowledge of TWGI, no Related Party has any
financial interest, direct or indirect, in any vendor, client or account of, or
other outside business which has transactions with, TWGI or Affiliates.
Section 4.32 Proxy Statement Prospectus. The written information
supplied by TWGI or Affiliates for the purpose of inclusion in the Proxy
Statement to be sent to the shareholders of REXX in connection with the REXX
Shareholders Meeting shall not, on the date the Proxy Statement is first mailed
to REXX's Shareholders or at the time of the REXX Shareholders Meeting, contain
any untrue statement of a material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. If at any time after
the Effective Time any event or information should be discovered by TWGI or
Affiliates that should be set forth in a supplement to the Proxy Statement, TWGI
or Affiliates shall promptly inform REXX. Notwithstanding the foregoing, TWGI
makes no representation, warranty or covenant with respect to any information
supplied by the REXX that is contained in any of the foregoing documents.
Section 4.33 Confidential Private Placement Memorandum. TWGI represents
and warrants that the Confidential Private Placement Memorandum of WP, dated
January 8, 1999, is true and complete and does not contain any untrue statement
of a material fact, or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
Section 4.34 Complete Disclosure. No representation or warranty by TWGI
or Affiliates in this Agreement or in any Schedule delivered by or on behalf of
TWGI or Affiliates contains, or will contain as of the Closing Date, any untrue
statement of a material fact or omits, or will omit as of the Closing Date, a
material fact necessary to make the statements contained herein or therein not
misleading.
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01 Mutual Covenants
(a) General. Each Party shall use its best efforts to take
all actions promptly and do all things necessary, proper or advisable to
consummate the Merger and the other transactions contemplated by this Agreement,
including without limitation using all commercially reasonable efforts to cause
the satisfaction of the conditions set forth in Article VI of this Agreement for
which such Party is responsible as soon as reasonably practicable and to
prepare, execute, acknowledge or verify, deliver, and file such additional
documents, and take or cause to be taken such additional actions, as any Party
may reasonably request to carry out the purposes or intent of this Agreement.
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(b) REXX Proxy Statement; Registration Statement. TWGI and
REXX shall cooperate in the timely preparation and filing of a Registration
Statement on Form S-4 (the "Registration Statement") with the SEC, and TWGI
shall use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act. The Registration Statement, at the time it
becomes effective, and at the Effective Time, shall in all material respects
conform to the requirements of the Securities Act and the general rules and
regulations of the SEC thereunder. The Registration Statement shall include the
form of Proxy Statement for the REXX Shareholders Meeting. REXX shall cause the
Proxy Statement to be mailed to its shareholders. REXX will furnish to TWGI the
information required to be included in the Registration Statement and any
amendments thereto with respect to its business and affairs before it is filed
with the SEC and again before any amendment is filed, and shall have the right
to review and comment on the form of Proxy Statement included in the
Registration Statement and any amendments thereto prior to the filing with the
SEC. TWGI shall take all actions required to qualify or obtain exemptions from
such qualification for the TWGI Common Stock to be issued in connection with the
Merger under applicable state "Blue Sky" securities laws, as appropriate. The
Proxy Statement shall relate to the approval of (i) the Merger, (ii) the Watkins
Sale, and (iii) the election of a new board of directors, subject to the closing
of the Merger. REXX will, through its Board of Directors and REXX Affiliates,
unanimously recommend to its shareholders approval of such matters. REXX shall
use all reasonable efforts to solicit from its shareholders proxies voting in
favor of such matters.
(c) Approvals and Consents. Each Party shall use its best
efforts to take promptly any additional action that may be necessary, proper or
advisable in connection with any other notices to, filings with, and
authorizations, consents and approvals of any court, administrative agency or
commission, or other governmental authority or instrumentality or any other
third party that it may be required to give, make or obtain in connection with
this Agreement and the consummation of the transactions contemplated hereby.
(d) Cooperation. On and after the Closing, each Party
hereto agrees to execute any and all further documents and writings and to
perform such other commercially reasonable actions which may be or become
necessary or appropriate to effectuate and carry out the transactions
contemplated by this Agreement.
(e) Confidential Information. TWGI and REXX each agree
that each of them shall not at any time after the date of this Agreement
directly or indirectly copy, disseminate or use, for their personal benefit or
the benefit of any third party, any Confidential Information, regardless of how
such Confidential Information may have been acquired, except for the disclosure
or use of such Confidential Information as may be upon the advice of counsel
required by law or legal process, or authorized in writing by the Party from
whom the Confidential Information was obtained. Notwithstanding anything to the
contrary contained in the preceding sentence, Confidential Information shall not
include information (i) that is or becomes generally available to the public
other than as a direct or indirect result of a disclosure by a Party to and in
contravention of this Agreement; (ii) is in a Party's possession at the time of
disclosure otherwise than as a result of such Party's or any third party's
breach of any legal obligation; (iii) becomes known to such Party through
disclosure by sources other than another Party having the legal right to
disclose such information; or (iv) is independently developed by such Party
without reference to or reliance upon the such information (as may be
demonstrated by such Party's written records). TWGI and REXX acknowledge that
all of the Confidential Information is and shall continue to be the exclusive
proprietary property of TWGI or REXX, as the case may be, whether or not
disclosed to or entrusted to the custody of each other in connection with this
transaction.
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(f) Notices of Certain Events. Each Party shall promptly
notify the other of:
(i) any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be required in
connection with the Merger;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(iii) any Action commenced or threatened against, relating to,
involving, or otherwise affecting, any Party hereto, or any of their property,
or any disputes, conflicts or circumstances providing the basis for any dispute
or conflict, which, if in existence on the date of this Agreement would have
been required to have been disclosed pursuant to this Agreement or which relate
directly or indirectly to the consummation of the Merger.
(g) Injunctive Relief. Each Party acknowledges and agrees
that remedies at law for any violation or attempted violation of any of the
obligations under this Article V would be inadequate and would cause immediate
irreparable harm to the other Parties, and agree that in the event of any such
violation or attempted violation, each be entitled to a temporary restraining
order, temporary and permanent injunctions, and other equitable relief, without
the necessity of posting any bond or proving any actual damage, in addition to
all other rights and remedies which may be available from time to time.
(h) Obligation to Update Schedules. Each Party shall
promptly disclose to the other any information contained in its representations
and warranties or Schedules which, because of an event occurring after the date
hereof, is materially incomplete or is no longer materially correct as of all
times after the date hereof until the Closing Date or any material adverse
development affecting the results of their respective operations; provided,
however, that none of such disclosures shall be deemed to modify, amend or
supplement the representations and warranties of each Party or the Schedules
attached hereto unless each Party shall have consented thereto in writing.
(i) Reasonable Access Pending Closing. Each Party will
give to the other Party, its counsel, accountants, financial advisers and
lenders, and other representatives, after reasonable notice, reasonable access,
during normal business hours, throughout the period prior to the Closing, to all
of the properties, books, contracts, commitments and records relating
exclusively to such Party's business, and each Party shall fully cooperate with
the other and its accountants in connection with the preparation of timely and
complete audited and unaudited financial statements relating to the financial
disclosure of the Merger in accordance with the rules under Regulation S-X and
Form 8-K promulgated under the Securities Exchange Act of 1934, as amended. Each
Party agrees that any information provided pursuant to this Section will not be
used for any purpose other than in connection with the transactions contemplated
by this Agreement, will not be revealed to third parties but will be kept
strictly confidential, pursuant to the provisions of Section 5.01(e), above, and
will be returned, together with all copies of such information, to the other
Party if, for any reason, the Closing does not take place.
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ARTICLE VI
CONDITIONS
Section 6.01 Mutual Conditions. The obligations of each of the Parties
to consummate the Merger and the other transactions contemplated by this
Agreement shall be subject to fulfillment of all of the following conditions:
(a) No Adverse Proceeding. No temporary restraining order,
preliminary or decree which prevents the consummation of the Merger or the other
transactions contemplated by this Agreement shall have been issued and remain in
effect, and no statute, rule or regulation shall have been enacted by any state
or federal government or governmental agency which would prevent the Merger or
the other transactions contemplated by this Agreement.
(b) Corporate Action. All corporate action necessary to
authorize the execution and delivery of this Agreement and consummation of the
Merger, including without limitation the approval of this Agreement by the
requisite vote of the shareholders of REXX, shall have been duly and validly
taken. The shareholders of TWGI, WAC and RAC shall have approved the execution
and delivery of this Agreement.
(c) Governmental Approvals. Any governmental or other
approvals or review of this Agreement or the transactions contemplated by this
Agreement required under any applicable laws, statutes, orders, rules,
regulations, or policies, or any guidelines promulgated thereunder, shall have
been received.
(d) Tax Opinion. REXX shall have received an opinion of
Messrs. Kutak Rock, in form and substance satisfactory to REXX, dated the
Effective Time, which opinion may be based on appropriate representations of
TWGI and REXX, to the effect that the Merger will be treated as a transaction
described in Section 351 of the Code and that no gain or loss is expected to be
recognized by the shareholders of REXX who exchange REXX Common Stock solely for
TWGI Common Stock pursuant to the Merger.
(e) Acquisition of REXX Stock. Within the thirty (30) days
prior to the Effective Time of the Merger, the shareholders of TWGI shall not
have sold, transferred or otherwise disposed of, or in any way reduced their
risk with respect to any shares of REXX Common Stock.
(f) Effective Registration Statement. The Registration
Statement (including any post-effective amendments thereto) shall be effective
under the Securities Act, and TWGI shall have received all state "Blue Sky"
securities permits or other authorizations, or confirmations as to the
availability of an exemption from state registration or qualification
requirements as may be necessary for consummation of the Merger, and no
proceedings shall be pending or to the knowledge of TWGI threatened by the SEC
or any state "Blue Sky" securities administration to suspend the effectiveness
of such Registration Statement or any state permit or authorization.
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Section 6.02 Conditions to Obligations of TWGI. The obligations of TWGI
to consummate the Merger and the other transactions contemplated by this
Agreement shall be subject to the fulfillment of all of the following
conditions, unless waived by TWGI in writing:
(a) Representations and Warranties. The representations
and warranties of REXX set forth in Article III of this Agreement shall be true
and correct as of the date of this Agreement and as of the Effective Time as
though made at and as of the Effective Time except where any untruth or
inaccuracy could not, either individually or in the aggregate, have a REXX
Material Adverse Effect.
(b) Performance of Agreement. REXX shall have performed
and observed in all material respects all obligations and conditions to be
performed or observed by it under this Agreement at or prior to the Effective
Time.
(c) No Action. No Action before any court or governmental
body will be pending or threatened wherein a judgment, decree or order would
prevent any of the transactions contemplated hereby or cause such transactions
to be declared unlawful or rescinded.
(d) Consummation of Watkins Sale. REXX shall have
consummated the Watkins Sale in a manner materially consistent with the
agreement between REXX and the Buyers dated June 10, 1999. In addition, REXX
shareholders holding not more than seven percent (7%) of REXX Common Stock shall
have elected dissenters' rights as may be permitted by law in connection with
the vote for the approval of the Watkins Sale.
(e) Voting Agreements. The REXX Voting Agreements shall
have signed and delivered.
(f) Officers' Certificate. REXX shall have furnished to
TWGI a certificate, dated the Effective Date, signed by the President of REXX,
to the effect that all conditions set forth in Article VI, insofar as they
relate to REXX, have been fulfilled.
(g) Opinion of Counsel. TWGI shall have received an
opinion, addressed to it and dated the Effective Date, from Tashlik, Kreutzer &
Goldwyn, P.C., counsel for REXX, to the following effect:
(i) REXX is incorporated, validly existing and in good standing under
the laws of the State of New York, and has full power and authority to carry on
its business as now conducted and to own or lease or operate its properties;
(ii) this Agreement has been duly authorized by all necessary corporate
action on the part of REXX and constitutes a valid and binding obligation of
REXX;
(iii) the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with or result in a
violation of, or constitute a default under, any provision of the Certificate of
Incorporation and Bylaws of REXX, or any judgment, order or decree applicable to
REXX; and
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(iv) no consent, approval, order or authorization of, or declaration or
filing with, any governmental authority or other person is required in
connection with the execution and delivery of this Agreement by REXX or the
consummation on the part of REXX of the transactions contemplated by this
Agreement, except for such consents, approvals, orders or authorizations as
shall have been obtained or declarations and filings as shall have been made
prior to the Effective Time.
In rendering such opinion, such counsel may rely (without independent
investigation) to the extent such counsel deems reliance necessary or
appropriate, as to matters of fact, upon representations and certificates of
public officials and of any executive officer of REXX.
(h) Listing of Shares. TWGI shall have received the
approval from either the American Stock Exchange or The NASDAQ Stock Market for
the listing of the TWGI Common Stock as the successor issue to the REXX Common
Stock or pursuant to a new listing application.
(i) Defined Contribution Plans. Before the Effective Time,
REXX and its Affiliates shall distribute all assets of each retirement plan and
associated trust maintained for the benefit of their employees. In addition,
before the Effective Time, REXX shall prepare or cause to be prepared all
required final tax returns and file all such returns required by the Code.
(j) The note held by the Bank of Mississippi in the amount
of $456,068.83, secured by REXX's property in Mantachie, Mississippi, due on
February 10, 2000, shall have been renegotiated or extended for a minimum of 12
months beyond such due date upon terms and conditions no less favorable to REXX
as previously.
Section 6.03 Conditions to Obligations of REXX. The obligations of REXX
to consummate the Merger and the other transactions contemplated by this
Agreement shall be subject to the fulfillment of all of the following
conditions, unless waived by REXX in writing:
(a) Representations and Warranties. The representations
and warranties of TWGI set forth in Article IV of this Agreement shall be true
and correct as of the date of this Agreement and as of the Effective Time as
though made at and as of the Effective Time except where any untruth or
inaccuracy could not, either individually or in the aggregate, have a Material
Adverse Effect.
(b) Performance of Agreement. TWGI shall have performed
and observed in all material respects all obligations and conditions to be
performed or observed by them under this Agreement at or prior to the Effective
Time.
(c) Financial Statements. TWGI shall have delivered to
REXX the TWGI Financial Statements.
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(d) Continuation of Business. Between the date hereof and
the Closing Date, except as otherwise provided herein, TWGI and Affiliates shall
have operated their businesses in the normal course, consistent with past
practice, and shall not have suffered any damage, destruction, loss or
occurrence, whether covered by insurance or not, which may result in a TWGI
Material Adverse Effect.
(e) Opinion of Counsel. REXX shall have received an
opinion, addressed to it and dated the Effective Date, from Kutak Rock, counsel
for TWGI, RAC, WAC, WI, WII, BJB Holdings, WA, WP, WG, W Capital, Win, WLA and
WNY to the following effect:
(i) each of TWGI, WI, WII, BJB Holdings, W Capital, WAC and RAC is
incorporated, validly existing and in good standing under the laws of the State
of New York. Each of TWGI and RAC has full power and authority to carry on its
business as now conducted and to own or lease its properties;
(ii) this Agreement has been duly authorized by all necessary corporate
action on the part of TWGI, WAC and RAC and constitutes a valid and binding
obligation of TWGI, WAC and RAC;
(iii) the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with or result in a
violation of, or constitute a default under, any provision of the Certificate of
Incorporation and Bylaws of TWGI, WAC or RAC or any judgment, order or decree
applicable to TWGI, WAC or RAC;
(iv) no consent, approval, order or authorization of, or declaration or
filing with, any governmental authority or other person is required in
connection with the execution and delivery of this Agreement by TWGI, WAC or RAC
or the consummation on the part of TWGI and RAC of the transactions contemplated
by this Agreement, except for such consents, approvals, orders or authorizations
as shall have been obtained or registrations, declarations and filings as shall
have been made prior to the Effective Time;
(v) each of WA, WP, WG, Win, WLA and WNY is a limited liability
company, validly existing and in good standing under the laws of the respective
states of its organization. Each of WA, WP, WG, WIn, WLA and WNY has full power
and authority to carry on its business as now conducted. To such counsel's
knowledge, each of WA,WP, WIn and WLA is certified as a certified capital
company pursuant to the laws of New York, Florida, Wisconsin and Louisiana,
respectively;
(vi) the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with or result in a
violation of, or constitute a default under, any provision of the Articles of
Organization and Operating Agreements of WA, WP, WG, WIn, WLA and WNY or any
judgment, order or decree applicable to them; ; and
(vii) no consent, approval, order or authorization of, or declaration
or filing with, any governmental authority or other person is required in
connection with the consummation on the part of WA, and WP, WG, WIn, WLA and WNY
of the transactions contemplated by this Agreement, except for such consents,
approvals, orders or authorizations as shall have been obtained.
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In rendering such opinion, such counsel may rely (without independent
investigation) to the extent such counsel deems reliance necessary or
appropriate, as to matters of fact, upon representations and certificates of
public officials and of the officers of TWGI, RAC, WAC, BJB,WA, WP, WG, WIn, WLA
and WNY.
(f) Employment Agreements. Barry Sloane, Brian A.
Wasserman and Jeffrey G. Rubin shall each have executed an Employment Agreement,
substantially in the form of Exhibit E attached hereto.
(g) Contribution of WI and WII to BJB Holdings. All of the
outstanding equity securities of WI and WII shall have been contributed to BJB
Holdings.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, (a) by mutual written consent of REXX and TWGI; or
(b) by either non-breaching Party if either Party shall have breached or failed
to perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement which is incapable of
being cured by either Party or is not cured within 45 days of written notice
thereof or (c) if the REXX shareholders fail to approve the Proxy Actions.
Section 7.02 Effect of Termination. In the event of termination of this
Agreement by either REXX or TWGI as provided in Section 7.01, this Agreement
shall except as provided in this Section forthwith become void and have no
effect, without any liability or obligation of the part of REXX, TWGI, WAC or
RAC; provided, however, that if this Agreement is terminated (a) due to the
failure of the REXX shareholders to approve the Proxy Actions, REXX shall
reimburse TWGI for its actual and reasonable expenses, including reasonable
attorney's fees, incurred in connection with the transactions contemplated by
this Agreement, in an amount not to exceed $85,000; or (b) by REXX due to the
failure of TWGI to obtain effectiveness from the SEC of the Registration
Statement within a commercially reasonable period (other than due to any action
or condition of REXX or any of its current or former officers, directors or
affiliates), TWGI shall reimburse REXX for its actual and reasonable expenses,
including reasonable attorney's fees, incurred in connection with the
transactions contemplated by this Agreement, in an amount not to exceed $50,000.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices. All notices and other communications under this
Agreement to any Party shall be in writing and shall be deemed given when
delivered personally to that Party, sent by facsimile transmission (with
electronic confirmation) to that Party at the facsimile number for that Party
set forth below, mailed by certified mail (postage prepaid and return receipt
requested) to that Party at the address for that Party set forth below, or
delivered by Federal Express or any similar express delivery service for
delivery to that Party at that address:
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If to REXX:
REXX Environmental Corporation
350 Park Avenue
New York, New York 10022
Phone: (212) 750-7755; Fax: (212) 750-2548
Attn: Arthur L. Asch, Chairman of the Board
Michael A. Asch, President
With a copy to:
Tashlik, Kreutzer & Goldwyn PC
833 Northern Blvd.
Great Neck, NY 11021
Phone: (516) 466-8006; Fax: (516) 829-6509
Attn: Theodore Wm. Tashlik, Esq.
Martin M. Goldwyn, Esq.
If to TWGI:
TWG, Inc.
1500 Hempstead Turnpike
East Meadow, NY 11554
Phone: (516) 390-2252; Fax: (516) 794-1185
Attn: Brian A. Wasserman
With a copy to:
Kutak Rock
1101 Connecticut Ave.
Washington, DC 20036-4374
Phone: (202) 828-2400; Fax: (202) 828-2488
Attn: Matthew G. Ash, Esq.
Edward B. Crosland, Esq.
Any Party may change its facsimile number or address for notices under this
Agreement at any time by giving the other Parties notice of such change.
Section 8.02 Non-Waiver. No failure by any Party to insist upon strict
compliance with any term or provision of this Agreement, to exercise any option,
to enforce any right, or to seek any remedy upon any default of any indemnifying
party shall affect, or constitute a waiver of, the first Party's right to insist
upon such strict compliance, exercise that option, enforce that right, or seek
that remedy with respect to that default or any prior, contemporaneous, or
subsequent default. No custom or practice of the Parties at variance with any
provisions of this Agreement shall affect or constitute a waiver of any Party's
right to demand strict compliance with all provisions of this Agreement.
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Section 8.03 Genders and Numbers. Where permitted by the context, each
pronoun used in this Agreement includes the same pronoun in other genders and
numbers, and each noun used in this Agreement includes the same noun in other
numbers.
Section 8.04 Headings. The headings of the various Articles and
Sections of this Agreement are not part of the context of this Agreement, are
merely labels to assist in locating such Articles and Sections, and shall be
ignored in construing this Agreement.
Section 8.05 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same Agreement.
Section 8.06 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior or contemporaneous discussions, negotiations,
agreements and understandings (both written and oral) among the Parties with
respect to the subject matter hereof and thereof.
Section 8.07 No Third-Party Beneficiaries. Nothing contained in this
Agreement, express or implied, is intended or shall be construed to confer upon
or give to any person, firm, corporation or legal entity, other than the
Parties, any rights, remedies or other benefits under or by reason of this
Agreement.
Section 8.08 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law. REXX and TWGI hereby irrevocably submit to
the jurisdiction and venue of any Federal or State court located in New York or
Nassau County, New York, over any dispute arising out of this Agreement and
agree that all claims in respect of such dispute or proceeding may be heard and
determined in any such court. REXX and TWGI hereby irrevocably waive, to the
fullest extent permitted by applicable law, any objection which they may have to
the venue of any such dispute brought in any such court or any defense of
inconvenient forum for the maintenance of such dispute. REXX and TWGI hereby
consent to process being served by them in any site, action or proceeding by
delivering it in the manner specified by the provisions of Section 8.01 of this
Agreement. All rights and remedies of each Party under this Agreement shall be
cumulative and in addition to all other rights and remedies which may be
available to the Party from time to time, whether under this Agreement or
otherwise.
Section 8.09 Binding Effect; Assignment. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against the
Parties and their respective heirs, personal representatives, successors and
assigns. Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be transferred or assigned by any of the Parties
without the prior written consent of the other Parties.
Section 8.10 Expenses. Subject to the following paragraph, and except
as otherwise specifically provided in this Agreement:
(a) REXX shall pay its costs and expenses associated with
the transactions contemplated by this Agreement, including without limitation
the fees and expenses of its legal counsel, accountants and financial advisors,
and costs and expenses of filing the Proxy Statement with the SEC and printing
and mailing the Proxy Statement to REXX shareholders.
39
<PAGE>
(b) TWGI shall pay its own costs and expenses associated
with this Agreement, the Merger, and the other the transactions contemplated by
this Agreement, including without limitation the fees and expenses of its legal
counsel, accountants and financial advisors, and costs and expenses of filing
the Registration Statement with the SEC.
Section 8.11 Public Announcements. Neither REXX nor TWGI shall, without
the prior written consent of REXX and TWGI, make any public announcement or
statement with respect to the transactions contemplated in the Agreement, except
as may be necessary to comply with applicable requirements of the federal or
state securities laws or any governmental order or regulation or any obligations
pursuant to any listing agreement with any national securities exchange.
Section 8.12 Severability. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by applicable law, and
the Parties shall abide by such court's determination. In the event that any
provision of this Agreement cannot be reformed, such provision shall be deemed
to be severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
Section 8.13 Modification of Structure. Notwithstanding any provision
of this Agreement to the contrary, TWGI may prior to the Effective Time modify
the structure of the transactions contemplated by this Agreement provided that
REXX agrees to such changes; REXX agrees that its approval will not be
unreasonably withheld as long as (i) the consideration to be paid to holders of
REXX Common Stock under this Agreement is not thereby reduced, (ii) such
modification will not be likely materially to delay or jeopardize receipt of
required regulatory clearances, and (iii) such modification does not change the
tax-deferred status of the transactions contemplated pursuant to the Merger.
Section 8.14 The Sloane Organization, LLC. In all cases where reference
is made in this Agreement to Mr. Barry Sloane, the parties agree that such
reference shall also include The Sloane Organization, LLC, a New York limited
liability company, of which Mr. Sloane is the sole managing member.
* * * * * * *
[signature page follows)
40
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the day and year first above written.
REXX ENVIRONMENTAL CORPORATION
By: /s/ Arthur L. Asch
---------------------------
Arthur L. Asch
Title: Chairman of the Board
TWG, INC.
By: /s/ Brian A. Wasserman
---------------------------
Brian A. Wasserman
Title: Treasurer, Chief Financial Officer
The undersigned hereby ratifies and adopts the foregoing Agreement,
effective as of the date set forth below.
REXX ACQUISITION CORP.
Date: ________________ By:__________________________________
Title:
WHITESTONE ACQUISITION CORP.
Date: ________________ By:__________________________________
Title:
41
<PAGE>
EXHIBIT 10(n)
LOGO Republic National Bank
Republic National Bank of New York
DEMAND GRID NOTE
$450,000.00 New York, New York
Date: 3-13-00
------------------
ON DEMAND, the undersigned ("Maker") promises to pay to the order of REPUBLIC
NATIONAL BANK OF NEW YORK ("Bank") at the principal office of Bank located at
452 Fifth Avenue, New York, New York, 10018 or at any of its other banking
offices in New York as Bank may designate by written notice to Maker, the
principal sum of Four Hundred and Fifty thousand DOLLARS, or so much thereof as
shall be advanced by Bank to Maker, in Bank's sole discretion, and not repaid,
together with interest on the unpaid principal amount hereof from time to time
outstanding from the date hereof until the date on which this Note is paid in
full, at the rate set forth below.
Interest on the unpaid principal of this Note will be due and payable
when demand is made for payment of the principal of this Note and (indicate
whichever is applicable):
[ ] on the last day of each month.
[ ] on the day of each .
Prior to the date that demand is made for payment of the principal
hereof, this Note shall bear interest at a rate (the "Contract Rate") equal to
(indicate whichever is applicable):
[ ] a fixed rate of % per annum.
[X] a fluctuating rate of 1.00% per annum above the Reference
Rate (ad defined below), such rate to change without notice
from time to time with each change in the Reference Rate.
After demand is made for payment of the principal of this Note, interest under
this Note shall be payable on demand and shall accrue at a fluctuating rate per
annum equal to 2% per annum above (i) if the Contract Rate is a fixed rate, the
Contract Rate, or (ii) if the Contract Rate is a fluctuating rate, the greater
from time to time of (x) the Contract Rate in effect on the date that the
principal became due and (y) the Contract Rate that would have been in effect
from time to time if the principal had not become due. Interest shall be
calculated on the basis of a 360-day year for actual days elapsed. In no event
shall the interest rate applicable at any time to this Note exceed the maximum
rate permitted by law. As used herein, "Reference Rate" means the rate
established by Bank from time to time at its principal domestic office as its
reference lending rate for domestic commercial loans. Bank may make loans to
customers above, at or below the Reference Rate.
<PAGE>
This Note evidences loans made by Bank to Maker in Bank's sole
discretion, from time to time. The unpaid principal balance of this Note at any
time shall be the total amount advanced by Bank to Maker in Bank's sole
discretion, less the total amount of principal payments made hereon by Maker.
The date and amount of each such loan and each payment on account of principal
thereof may be endorsed by Bank on the grid attached to and made a part of this
Note, and when so endorsed shall represent evidence thereof binding upon Maker
in the absence of manifest error. Any failure by Bank to so endorse shall in no
way mitigate or discharge the obligation of Maker to repay any loans actually
made. Maker may prepay this Note in whole at any time with all accrued interest
to the date of prepayment. So long as Maker is not in default under this Note,
Maker may prepay this Note in part at any time with accrued interest to the date
of prepayment on the principal amount prepaid.
Requests for loans to Maker from Bank and directions as to the
disposition of the proceeds thereof may be given orally (including by telephone)
or in writing to Bank by the officers of Maker or other persons authorized to
borrow on Maker's behalf by borrowing resolutions of Maker's Board of Directors
heretofore delivered to Bank, as such resolutions may be amended or superseded
from time to time, provided that any such amending or superseding resolutions
shall have been certified by the Secretary or an Assistant Secretary of Maker,
and a copy thereof, so certified, shall have been delivered to an officer of
Bank at its office for payment. Bank may conclusively rely on the authorities
contained in said resolutions. Any such loan so made shall be conclusively
presumed to have been made to or for the benefit of Maker and Maker shall be
liable in respect thereof when made in accordance with any such request or
direction, or when deposited to any account of Maker with Bank, even though
persons other than those authorized to borrow on behalf of Maker may have
authority to draw against such account. Bank may rely on any such request or
direction which it believes to be genuine, and Bank shall be fully protected in
so doing without any duty to make further inquiry as to such genuineness or in
otherwise acting in good faith in the premises. By making a request for a loan,
Maker shall be deemed to be representing to Bank that all of the representations
and warranties of Maker set forth in this Note are true and correct as of the
date of such request as if made on and as of such date and shall also be deemed
to be representing and warranting to Bank that on such date Maker is not in
breach of any of its covenants to Bank set forth in this Note or in any other
document or instruments of Maker to Bank and no event of default has occurred
and is continuing with respect to any Obligations (as defined below).
This Note shall be payable in lawful money of the United States of
America in immediately available funds. Except as otherwise provided herein with
respect to prepayments, all payments on this Note shall be applied to the
payment of accrued interest before being applied to the payment of principal.
Any payment which is required to be made on a day which is not a banking
business day in the City of New York shall be payable on the next succeeding
banking business day and such additional time shall be included in the
computation of interest. In the event that any other Obligations are due at any
time that Bank receives a payment from Maker on account of this Note or any such
other Obligations. Bank may apply such payment to amounts due under this Note or
any such other Obligations in such manner as Bank, in its discretion, elects,
regardless of any instructions from Maker to the contrary.
<PAGE>
Maker acknowledges that this Note is an obligation which is payable on
demand and that notwithstanding anything to the contrary in any other
instrument, agreement or other document to which Maker and/or Bank is a party,
the enumeration in any such document of specific events of default, conditions
and/or covenants relating to the loan evidenced by this Note or to any other
Obligation, shall not be construed to qualify, define or otherwise limit in
anyway Bank's right, power or ability, at any time, to make demand for payment
of the principal of and interest on this Note, and Maker agrees that the
occurrence of any event of default or breach of any condition or covenant in any
such document is not the only basis for demand to be made on this Note.
To induce Bank, it its sole discretion, to make loans to Maker: (A)
Maker (if not a natural person) represents, warrants and covenants to Bank that
(i) Maker is duly incorporated and validly existing in good standing under the
laws of the jurisdiction of its formation, with full power and authority to
make, deliver and perform this Note; (ii) the execution, delivery and
performance by Maker of this Note have been dully authorized by all necessary
corporate or other action and do not and will not violate or conflict with its
charter or by-laws or other constituent documents; (iii) this Note has been
fully executed by an authorized officer of Maker; and (B) Maker represents,
warrants and covenants to Bank that (i) the execution, delivery, and performance
by Maker of this Note does not and will not violate or conflict with any law,
rule, regulation or order binding on Maker or any agreement or instrument to
which Maker is a party or which may be binding on Maker; (ii) this Note
constitutes a legal, valid, binding and enforceable obligation of Make; (iii) no
authorization, consent, approval, license, exemption of or filing or
registration with, any court or government or governmental agency is or will be
necessary to the valid execution, delivery or performance by Maker of this Note;
(iv) the loans evidenced by this Note will be used solely for working capital
purpose; (v) there are no pending or threatened actions, suits or proceedings
against or affecting Maker by or before any court, commission, bureau or other
governmental agency or instrumentality, which, individually or in the aggregate,
if determined adversely to Maker, would have a material adverse effect on the
business, properties, operations, or condition, financial or otherwise, of
Maker; and (iv) the most recent financial statements of Maker heretofore
delivered to Bank are complete and correct and since the date thereof has not
occurred any material adverse change in the financial condition or operations of
Maker from that shown on said financial statements.
Bank shall have a continuing lien and/or right of setoff on, and is
hereby granted a security interest in, all deposits (general and special) and
credits with Bank or any Bank Affiliate of any Maker and indorser, and may apply
all or part of the same to any Obligations, at any time or times, without
notice. Bank shall have a continuing lien on, and is hereby granted a security
interest in, all property of every Maker and indorser and the proceeds thereof
held or received by or for Bank or any Bank Affiliate for any purpose, whether
or not for the express purpose of serving as collateral security for the
Obligations. As used in this Note, the term "Bank Affiliate" includes any
individual, partnership or corporation acting as nominee or agent for Bank, and
any corporation or bank which is directly or indirectly owned or controlled by,
or under common control with, Bank. Any notice of disposition of property shall
be deemed reasonable if mailed at least five days before such disposition to the
last address of Maker or indorser on Bank's records. If the Obligations
evidenced by this Note are secured by a security agreement and/or other security
documents which Maker has separately delivered to Bank (whether or not such
documents make specific reference to this Note), reference to such documents is
made for a description of the collateral provided thereby and of the rights of
Maker and Bank therein. The rights and remedies of Bank provided hereunder are
cumulative with the rights and remedies available to Bank under any other
instruments or agreements or under applicable law. As used in this Note, the
term "Obligations" means all amounts payable under this Note and any and all
other indebtedness, obligations and liabilities of Maker to Bank, and all claims
of Bank against Maker, now existing or hereafter arising, direct or indirect
(including participations or any interest of Bank in indebtedness of Maker to
others), acquired outright, conditionally, or as collateral security from
another, absolute or contingent, joint, joint or several, secured or unsecured,
matured or unmatured, monetary or non-monetary, arising out of contract or tort,
liquidated or unliquidated, arising by operation of law or otherwise, and all
extensions, renewals, refundings, replacements and modifications of any of the
foregoing.
<PAGE>
In case any principal of or interest on this Note is not paid when due,
each Maker and indorser shall be jointly and severally liable for all costs of
enforcement and collection of this Note incurred by Bank or any other holder of
this Note, including but not limited to reasonable attorneys' fees,
disbursements and court costs. In addition, in the event of a default hereunder,
Maker shall pay all reasonable attorneys' fees and disbursements incurred by
Bank in obtaining advice as to its right and remedies in connection with such
default.
Maker and each indorser hereby separately waive presentment, notice of
dishonor, protest and notice of protest, and any or all other notices or demands
(other than demand for payment) in connection with the delivery, acceptance,
performance, default, endorsement or guarantee of this Note. The liability of
any Maker or indorser hereunder shall be unconditional and shall not be in any
manner affected by and indulgence whatsoever granted or consented to by the
holder hereof, including but not limited to any extension of time, renewal,
waiver or other modification. Any failure of the holder to exercise any right
hereunder shall not be construed as a waiver of the right to exercise the same
or any other right at any time and from time to time hereafter. Bank or any
holder may accept late payments, or partial payments, even though marked
"payment in full" or containing words of similar import or other conditions,
without waving any of its rights. No amendment, modification or waiver of any
provision of this Note nor consent to any departure by Maker therefrom shall be
effective, irrespective of any course of dealing, unless the same shall be in
writing and signed by Bank, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. This
Note cannot be changed or terminated orally or by estoppel or waiver or by any
alleged oral modification regardless of any claimed partial performance
referable thereto.
Any notice from Bank to Maker or any indorser shall be deemed given
when delivered to Maker or such indorser by hand or when deposited in the United
States mail an addressed to Maker or such indorser at the last address of Maker
or such indorser appearing on Bank's records.
This Note shall be governed by and construed in accordance with the
laws of the State of New York applicable to instruments made and to be performed
wholly within that state. If any provision of this Note is held to be illegal or
unenforceable for any reason whatsoever, such illegality or unenforceability
shall not affect the validity of any other provision hereof.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION, DISPUTE, PROCEEDING,
CLAIM OR CONTROVERSY BETWEEN MAKER OR SUCH INDORSER AND BANK, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S
ELECTION, WHICH ELECTION MAY BE MADE AT ANY TIME PRIOR TO THE COMMENCEMENT OF A
JUDICIAL PROCEEDING BY BANK, OR IN THE EVENT OF A JUDICIAL PROCEEDING INSTITUTED
BY MAKER OR SUCH INDORSER AT ANY TIME PRIOR TO THE LAST DAY TO ANSWER AND/OR
RESPOND TO A SUMMONS AND/OR COMPLAINT MADE BY MAKER OR SUCH INDORSER, BE
RESOLVED BY ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF THIS PARAGRAPH AND
SHALL, AT THE ELECTION OF BANK, INCLUDE ALL DISPUTES ARISING OUT OF OR IN
CONNECTION WITH (1) THIS NOTE OR ANY RELATED AGREEMENTS OR INSTRUMENTS, (2) ALL
PAST, PRESENT AND FUTURE AGREEMENTS INVOLVING MAKER OR SUCH INDORSER AND BANK,
(3) ANY TRANSACTION RELATED TO THIS NOTE AND ALL PAST, PRESENT AND FUTURE
TRANSACTIONS INVOLVING MAKER OR SUCH INDORSER AND BANK, AND (4) ANY ASPECT OF
THE PAST, PRESENT OR FUTURE RELATIONSHIP OF MAKER OR SUCH INDORSER AND BANK.
Bank may elect to require arbitration of any Dispute with Maker or any indorser
without thereby being required to arbitrate all Disputes between Bank and Maker
or such indorser. Any such Dispute shall be resolved by binding arbitration in
accordance with Article 75 of the New York Civil Practice Law and Rules and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In
the event of any inconsistency between such Rules and these arbitration
provisions shall supersede such Rules. All statutes of limitations which would
otherwise be applicable shall apply to any arbitration proceeding under this
paragraph. In any arbitration proceeding subject to this paragraph, the
arbitration panel (the "arbitrator") is specifically empowered to decide (by
documents only, or with a hearing, at the arbitrator's sole discretion)
pre-hearing motions which are substantially similar to pre-hearing motions to
<PAGE>
dismiss and motions for summary adjudication. In any arbitration proceeding
subject to this paragraph, the arbitrator(s) shall be deemed specifically
empowered to decide (by documents only, or with a hearing, at the arbitrator(s)
sole discretion) pre-hearing motions which are substantially similar to
pre-hearing motions to dismiss and motion or summary adjudication. In any such
arbitration proceeding, the arbitrator(s) shall not have the power or authority
to award punitive damages to any party. Judgment upon the award rendered may be
entered in any court having jurisdiction. Whenever an arbitration is required,
the arbitrator(s) shall be selected in the manner provided in this paragraph. No
provision of, nor the exercise of any rights under, this paragraph, shall limit
the right of Bank (1) to foreclose against any real or personal property
collateral through judicial foreclosure, by the exercise of the power of sale
under a deed of trust, mortgage or other security agreement or instrument,
pursuant to applicable provisions of the Uniform Commercial Code, or as
otherwise herein provided or pursuant to applicable law, (2) to exercise
self-help remedies including but not limited to setoff and repossession, or (3)
to request and obtain from a court having jurisdiction before, during or after
the pendency of any arbitration, provision or ancillary remedies and relief
including but not limited to injunctive or mandatory relief or the appointment
of a receiver. The institution and maintenance of an action or judicial
proceeding for, or pursuit of, provisional or ancillary remedies or exercise of
self-help remedies shall not constitute a waiver of the right of Bank, even if
Bank is the plaintiff, to submit the Dispute to arbitration if Bank would
otherwise have such right. Whenever an arbitration is required under this
paragraph, the arbitrator(s) shall be selected in accordance with the Commercial
Arbitration Rules of the AAA, except as otherwise herein provided. A single
arbitrator shall decide any claim of $100,000 or less and he or she shall be an
attorney with at least five years' experience. Where the claim of any party
exceeds $100,000, the Dispute shall be decided by a majority of three
arbitrators, at least two of whom shall be attorneys (at least one of whom shall
have not less than five years' experience representing commercial banks). The
arbitrator(s) shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative fees, arbitrator(s) fees, and court
costs) to the prevailing party. In the event of any Dispute governed by this
paragraph, each of the parties shall, subject to the award of the arbitrator(s),
pay an equal share of the arbitrator(s) fees.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE
STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW
YORK AND ANY ARBITRATION PROCEEDING PURSUANT HERETO SHALL BE CONDUCTED IN NEW
YORK, NEW YORK. MAKER AND EACH INDORSER CONSENT TO AND SUBMIT TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER, WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
MAKER OR SUCH INDORSER AT ITS ADDRESS SET FORTH BELOW OR TO ANY OTHER ADDRESS AS
MAY APPEAR IN BANK'S RECORDS AS THE ADDRESS OF MAKER OF SUCH INDORSER.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
NOTE, BANK, MAKER AND EACH INDORSER WAIVE TRIAL BY JURY, AND MAKER AND EACH
INDORSER ALSO WAIVE (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF
ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
Bank is authorized to fill in any blank spaces and to otherwise
complete this Note and correct any patent errors herein.
REXX Environmental Corp.
--------------------------------
Name of Maker
By: /s/ Arthur Asch
---------------------------------
Signature of Authorized Signatory
Arthur Asch, CEO
---------------------------------
Print Name and Title
- ------------------------------------
Signature(s) Verified By Authorized 445 Park Avenue, NY, NY 10022
Bank Officer ----------------------------------
Address for Notices
- -----------------------------------
<PAGE>
[If Maker is not a natural person,
indicate the type of entity below]
The Maker signing above is a:
[ ] partnership organized under the
laws of ________________________________________.
[ ] limited partnership organized under the
laws of ________________________________________.
[ ] limited liability partnership organized under the
laws of ________________________________________.
[ ] corporation organized under the laws of
________________________________________________.
[ ] other (specify): _______________________________.
LOANS AND PAYMENTS OF PRINCIPAL
Amount of Unpaid
Loan Amount of Principal Principal Notation
Date No. Loan Paid Balance Made By
- ------------ -------- ---------- ---------- --------- ------------
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